SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended November 2, 1996

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER
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WESTERN STAFF SERVICES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 94-1266151
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
(Address of principal executive offices) (Zip Code)

(510) 930-5300
Registrant's telephone number, including area code

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value per share

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 by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $27,838,809 as of December 28, 1996, based
upon the closing price of the Registrant's Common Stock on the Nasdaq
National Market reported for December 27, 1996, the immediately preceding
trading day. Shares of Common Stock held by each executive officer and
Director and by each person who beneficially owns more than 5% of the
outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.

10,338,116 shares of the Registrant's $0.01 par value Common Stock were
outstanding as of December 28, 1996.

DOCUMENTS INCORPORATED BY REFERENCE.

The following documents (or portions thereof) are incorporated by reference
into the Parts of the Form 10-K.

Definitive Proxy Statement related to the Company's 1997 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).

PART I

ITEM 1. BUSINESS.

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REGARDING
EVENTS AND FINANCIAL TRENDS WHICH MAY AFFECT THE COMPANY'S FUTURE OPERATING
RESULTS AND FINANCIAL POSITION. SUCH STATEMENTS ARE SUBJECT TO 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. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, DEMAND FOR THE
COMPANY'S SERVICES, THE COMPETITION WITHIN ITS MARKETS, THE LOSS OF A PRINCIPAL
CUSTOMER, THE COMPANY'S ABILITY TO INCREASE THE PRODUCTIVITY OF ITS EXISTING
OFFICES, TO CONTROL COSTS AND TO EXPAND OPERATIONS, THE AVAILABILITY OF
SUFFICIENT PERSONNEL, AND OTHER FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE
HEREIN AND IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION.

OVERVIEW

The Company provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and local markets
in the United States and selected international markets. 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. The Company has nearly 49 years of experience in the staffing
industry and operates 370 offices in 44 states and five foreign countries. At
November 2, 1996, the end of the Company's fiscal year, approximately 64% of
these offices were owned by the Company, 32% were operated by franchise agents
and 4% were operated by licensees.

The Company was founded in 1948 and incorporated in California in 1954. In
October 1995, the Company reincorporated in Delaware. The Company's executive
offices are located at 301 Lennon Lane, Walnut Creek, California 94598-2453, and
its telephone number is (510) 930-5300. The Company transacts business through
its subsidiaries, the largest of which is Western Staff Services (USA), Inc., a
California corporation.

References in this Prospectus to (i) the "Company" or "Western" refer to
Western Staff Services, Inc., its predecessor and their respective subsidiaries,
unless the context otherwise requires, and (ii) "franchise agents" refer to the
Company's franchisees in their role as limited agents of the Company in
recruiting job applicants, soliciting job orders, filling those orders and
handling collection matters upon request, but otherwise refer to the Company's
franchisees in their roles as independent contractors of the Company.

BUSINESS SERVICES

SERVICES. The Company provides business services personnel to serve light
industrial, clerical and light technical staffing needs of customers through a
network of offices. At November 2, 1996, the Company's business services
comprised 327 offices and represented approximately 91.7% of the Company's
fiscal 1996 sales, excluding license fees. In the light industrial segment, the
Company's temporary personnel perform light-duty, labor intensive tasks, such as
unskilled and semi-skilled assembly, packaging and warehousing, and mail-house
support. The Company's temporary clerical personnel typically perform tasks
such as telemarketing, customer service, word processing, copying, data entry
and reception. The Company's temporary personnel in the light technical segment
provide services such as help desk support, laboratory testing and support and
quality control.

RECRUITING OF EMPLOYEES. The Company's branch offices interview and test
prospective employees using automated testing programs developed by outside
vendors that are widely recognized as leading tools to evaluate the skills of
job applicants. These programs can be customized to meet the particular desires
and needs of each of the Company's customers. In addition, branch office
managers are afforded flexibility in the recruiting process, so that

the pool of available temporary employees in each office may be tailored to meet
the specific needs of customers in local markets.

As is common in the temporary staffing industry, the Company's engagements
to provide services to its customers are generally non-exclusive, of a
short-term nature and subject to termination by the customer with little or no
notice. During fiscal 1996 and fiscal 1995, no single customer of the Company
accounted for more than 1.5% and 1.9%, respectively, of the Company's sales,
excluding license fees. Nonetheless, the loss of any of the Company's
significant customers would have an adverse effect on the Company's business,
results of operations, cash flows and financial condition. The Company is also
subject to credit risk associated with its trade receivables. Should any of the
Company's principal customers default on a large receivable, the Company's
business, results of operations, cash flows and financial condition could be
adversely affected.

The Company is in the business of employing people and placing them in the
workplace of other businesses. Attendant risks include claims against the
Company by regular staff or temporary employees, or by third persons, for
physical or emotional injury, harassment, discrimination and other claims.
Additional risks include, but are not limited to, fraudulent payroll practices
by regular staff or temporary employees of the Company, by franchise agents and
licensees and their employees and the unlawful employment by the Company of
undocumented workers. Although the Company has policies and guidelines in place
to reduce its exposure to these risks and carries insurance, a failure to follow
these policies and guidelines may result in negative publicity or the payment by
the Company of monetary damages or fines.

The Company competes for customers and qualified temporary personnel with
other full service providers, as well as specialized temporary services firms
and home care providers. Many of these competitors have greater marketing and
financial and other resources than the Company. In addition, a substantial
number of the Company's temporary employees during any given year will terminate
their employment with the Company to accept permanent employment with customers
of the Company. The Company may, in the future, encounter difficulty in
recruiting sufficient temporary employees of the caliber the Company is
committed to providing to its customers. In addition, during periods of
decreased unemployment, the Company may incur increased expenses associated with
recruiting qualified temporary employees. The Company's inability to attract
and retain a sufficient number of additional qualified temporary employees to
support the Company's projected growth or the loss of a significant number of
qualified temporary employees could have a material adverse effect on the
Company's business, results of operations, cash flows and financial condition.

SALES AND MARKETING. The Company markets its temporary personnel services
to local and regional customers through its network of Company-owned, franchise
agent and licensed offices, as well as through its on-site service locations.
The Company coordinates its sales and marketing efforts through its corporate
headquarters in cooperation with branch and regional offices. The Company
targets small to mid-size companies in regional and local markets. The Company
seeks to obtain new customers by focusing on opportunities in regional and local
markets through personal sales presentations, telemarketing, direct mail
solicitation, referrals from other customers and advertising in a variety of
regional and local media, including the Yellow Pages, newspapers, magazines and
trade publications. In addition, the Company selectively utilizes local radio
advertising in certain markets to enhance its name recognition.

INTERNATIONAL OPERATIONS. The Company's international operations consist
of 47 offices, 19 in the United Kingdom, 15 in Australia, 3 in New Zealand, 4 in
Denmark and 6 in Norway. All of these offices are presently Company-owned.
Through these offices, the Company offers temporary personnel in the light
industrial and clerical support areas. In addition, the international offices
supply permanent employment placements. The Company employs a managing director
for each country who oversees all of the Company's operations in that country.
For fiscal 1996, 12.3% of the Company's sales, excluding license fees, were
derived from the Company's international operations, and sales for the
international operations increased 21.3% as compared to fiscal 1995.
International operations are subject to inherent risks, including unexpected
changes in regulatory requirements, tariffs and other

barriers, fluctuating exchange rates, difficulties in staffing and managing
foreign operations, greater working capital requirements and political and
economic instability. A portion of the Company's sales outside of North America
are denominated in local currencies, and accordingly, the Company is subject to
the risks associated with fluctuations in currency rates. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
business, operating results, cash flows and financial condition.

SPECIAL PROGRAMS. The Company also conducts its own special programs,
including the Santa Program and the Photo Program. The Santa Program provides
fully costumed and trained Santas and Santa helper personnel to retail stores
and small shopping centers. The Company's Photo Program sells photos and
related items on a retail basis at major shopping centers and malls across the
country utilizing the Company's personnel and digital and instant photography
and video equipment for major seasonal events such as Christmas and Easter. In
total, these programs accounted for less than 1% of the Company's sales,
excluding license fees, during fiscal 1996. However, the Company believes that
these programs provide valuable public relations opportunities and have enhanced
the Company's name recognition.

MEDICAL SERVICES

The Company provides temporary personnel to serve an array of home care and
health care institutions' needs, including registered nurses, licensed
practical/vocational nurses, physical, occupational and speech therapists,
medical social workers, certified home health and personal care aides, home care
companions, and allied health personnel such as pharmacists, medical technicians
and phlebotomists. Approximately half of the medical services division's
personnel are licensed personnel. During fiscal 1996, approximately 68.5% of
the medical services division's health care sales were derived from home care
services and 31.5% were derived from institutional staffing. During fiscal
1996, the medical services division comprised 43 offices and contributed
approximately 8.3% of the Company's sales, excluding license fees.

In home care, a registered nurse or appropriate person initially assesses
the home care case, then devises a plan of treatment for doctor approval,
provides the necessary treatment, examines and records the patient's progress,
and makes periodic reports to the physician or case manager. Physical,
occupational and speech therapists as well as medical social workers provide
specialized treatment as needed to ensure maximum patient recovery. Certified
home health aides are trained to assist the ill, elderly or disabled in their
normal daily functions. Home care companions provide companionship and attend
to other social and personal needs in the patient's home but do not provide
hands-on care. The medical services division provides health care personnel for
institutional staffing in hospitals, nursing homes, clinics, other health care
facilities, and prisons. Institutional staffing consists mainly of RNs,
LPNs/LVNs, certified nurse aides and allied health personnel such as
pharmacists, phlebotomists and x-ray and lab technicians.

The Company's medical services division places temporary personnel in
private homes with limited on-site supervision, thereby subjecting the Company
to the risks of malpractice and other types of claims. Although the Company has
policies and guidelines in place to reduce its exposure to these risks and
carries insurance, a failure to follow these policies and guidelines may result
in negative publicity and the payment by the Company of monetary damages or
fines.

The Company's marketing efforts for health care services are based on a
team approach, with its national medical contracts department working with the
local market operators to identify national, regional and large local sales
opportunities. The Company's national medical contracts department's marketing
efforts principally involve direct sales presentations to large organizations,
including managed health care programs. The branch office's marketing program
consists largely of direct sales presentations to case managers, physicians,
discharge planners, insurance companies, social service agencies and facility
administrators. Sales representatives are employed in most of the branch
offices. The Company advertises in the Yellow Pages, newspapers, magazines and
trade publications,

and through exhibits at various health care conferences. The Company also has
existing relationships with state and local governmental referral services with
which the medical services division conducts business under non-exclusive
contracts.

In order to maintain quality control, the medical services division sets
policy and procedures for Company-owned, franchise agent and licensed offices
through its Governing Body, an internal oversight authority. These procedures
include guidelines for compliance with local, state and federal regulations,
improving quality of service, hiring criteria, training programs and
professional guidance.

Legislative changes affecting the health care industry have been proposed
from time to time in Congress and various states. Changes in the
government's support of health care services, the methods by which those
services are delivered and the prices therefor may all have a material
adverse effect on the Company's business, results of operations and financial
condition. It is uncertain what the ultimate impact of such changes on
revenue could be. Even if it were to be positive, no assurance can be given
that the costs of adapting to such changes would not have a significant
negative impact on future earnings of the Company.

A number of states have adopted laws regulating companies that provide
health care services. In many of the states, the Company need only be licensed.
The laws of some of these states have the effect of limiting or prohibiting the
Company's ability to provide certain services and to establish or expand its
medical operations. In addition, Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") accreditation has become important in
providing home health care services. As of December 28, 1996, 12 of the
Company-owned offices and 3 franchise agent offices were accredited by JCAHO.
Applications for JCAHO accreditation were pending for one Company-owned
office, one franchise agent office and one licensed office. Failure to obtain
such accreditation or delays in the accreditation process could adversely affect
the ability of the Company to compete in the home health care services area.

The Company began to serve Medicare patients in fiscal 1992. 18.4% of the
Company's medical services sales in fiscal 1996 were attributable to Medicare
services (1.5% of the Company's total sales of services and license fees).
Nearly half the Company-owned offices in the medical services division were
certified to provide home health care services to Medicare patients as of
December 28, 1996.

OPERATIONS

The Company operates through a network of 370 offices in 44 states and five
foreign countries. In addition, the Company establishes from time to time
recruiting offices both for recruiting potential temporary employees and for
testing demand for its services in new market areas. The Company's operations
are decentralized, with branch, area, regional and zone managers and franchise
agents and licensees enjoying considerable autonomy in hiring, business mix and
advertising. The Company seeks highly talented managers and entrepreneurs who
are capable of operating independently and who will succeed within the Company's
decentralized branch office structure. The Company provides its decentralized
branch offices with support from its corporate headquarters in such areas as
billing, payroll, credit granting, receivables aging analysis, collections, risk
management programs, workers' compensation and state unemployment insurance,
marketing support, quality standards, guidance in hiring and training of
temporary personnel, operating procedures, customer services, training materials
and advice on legal and regulatory matters.

and may have a material adverse effect on the Company's business, results of
operations and financial condition. As economic activity has increased,
temporary employees often have been added to the work force before permanent
employees have been hired. During these periods of increased economic activity
and generally higher levels of employment, the competition among temporary
services firms for qualified temporary personnel is intense. Further, the
Company may face increased competitive pricing pressures during such periods.
There can be no assurance that during these periods the Company will be able to
recruit the temporary personnel necessary to fill its customers' job orders or
that such pricing pressures will not adversely affect the Company's business,
results of operations, cash flows and financial condition.

The Company has experienced significant fluctuations in its operating
results and anticipates that these fluctuations may continue. Operating
results may fluctuate due to a number of factors, including the demand for
the Company's services, the competition within its markets, the loss of a
principal customer and the Company's ability to increase the productivity of
its existing offices, to control costs and to expand operations. In
addition, the Company's results of operations could be adversely affected by
severe weather conditions in regions where it operates its business. While
the Company has recorded operating income in each of the past four fiscal
years, there can be no assurance that it will be able to sustain
profitability or that conditions will not have a material adverse effect on
its business, results of operations and financial condition. Due to all of
the foregoing factors, the Company has experienced in the past, and may
possibly experience in the future, results of operations below the
expectations of public market analysts and investors. The occurrence of such
an event has had, and would likely have, a material adverse effect on the
price of the Company's Common Stock.

The Company's results of operations have historically been subject to
seasonal fluctuations. Demand for temporary staffing historically has been
greatest during the Company's fourth fiscal quarter due largely to the planning
cycles of many of its customers. Sales for the first fiscal quarter are
typically lower due to national holidays as well as plant shutdowns during and
after the holiday season. These shutdowns and post holiday season declines
significantly affect job orders received by the Company, particularly in the
light industrial sector.

The Company's performance depends in part upon its ability to identify,
develop and retain qualified employees, particularly branch office, area and
regional managers. The Company recruits such personnel from a limited pool of
available applicants. In addition, given the relatively decentralized nature of
the Company's business, the Company is heavily dependent on the performance and
productivity of its branch office managers. The Company establishes performance
standards for branch office managers, and, to the extent these standards are not
met, its business, results of operations and financial condition could be
adversely affected. From time to time, the Company has terminated branch office
managers who have failed to meet its performance standards. There can be no
assurance that the Company will be able to continue to identify, develop and
retain qualified managers or that existing or new branch office managers will be
able to meet performance standards set by the Company. In addition, in fiscal
1996, the Company introduced new, incentive-based plans for the compensation of
office, area and regional managers. There can be no assurance that the
implementation of these compensation plans will assist the Company in hiring,
developing or retaining qualified managers. Moreover, there can be no assurance
that such compensation plans will not lead to the loss of certain managers by
the Company. The loss of some of its key managers could have a material adverse
effect on the Company's business, results of operations and financial condition,
particularly its ability to establish and maintain customer relationships.

In addition, the Company is highly dependent on its senior executives,
including W. Robert Stover, its Chairman and Chief Executive Officer, Michael K.
Phippen, its President and Chief Operating Officer, Harvey L. Maslin, its Vice
Chairman and Chief Administrative Officer, and Paul A. Norberg, its Executive
Vice President and Chief Financial Officer, and on the other members of its
executive management team. The Company has entered into an employment agreement
with its Chief Executive Officer for continuing employment until he chooses to
retire or until his death. The Company does not have employment agreements with
its other senior executives, but the Company has entered into employment
agreements with certain other members of its executive management team. The
loss of the services of any of these key personnel or the inability to attract,
retain and motivate sufficient

numbers of qualified key employees could have a material adverse effect on the
Company's business, results of operations and financial condition.

The Company plans to pursue acquisitions of independent temporary services
firms. The Company may also consider further acquisitions of franchise agents
and licensees. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired businesses into its operations or expand into new markets.
The Company is unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that a material acquisition
will be completed should any negotiations commence. If the Company proceeds
with a relatively large acquisition, and the consideration is in the form of
cash, a substantial portion of the Company's cash and surplus borrowing capacity
could be used to consummate such an acquisition. There can be no assurance that
the Company will be able to integrate any such acquisitions in a timely manner
without substantial costs or delays or other problems. Once integrated, the
acquired entities may not achieve levels of sales, profitability or productivity
comparable to the Company's existing offices or perform as otherwise
anticipated. In addition, acquisitions involve a number of special risks, such
as diversion of management's attention, difficulties in the integration of
acquired operations and retention of key personnel, unanticipated problems or
legal liabilities, the integration of management information systems, and the
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. To date, the acquisitions consummated by the Company have
not been material. If the Company were to proceed with a substantial
acquisition relative to its operations, the risks of integration would be
increased.

The following table sets forth information as to the number of offices in
operation as of the dates indicated.

NOV. 2, OCT. 28, OCT. 29, OCT. 30, OCT. 31,
1996 1995 1994 1993 1992
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Number of Offices: (1)
Company-owned. . . . . . . 237 214 187 179 178
Franchise agent. . . . . . 119 106 99 97 99
Licensed . . . . . . . . . 14 21 16 5 -
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Total. . . . . . . . . 370 341 302 281 277
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Business Services:
Domestic . . . . . . . . . 280 263 232 213 210
International. . . . . . . 47 44 41 38 36
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Sub-total. . . . . . . 327 307 273 251 246
Medical Services . . . . . . 43 34 29 30 31
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Total. . . . . . . . . 370 341 302 281 277
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(1) Excludes Company-owned recruiting offices.

COMPANY-OWNED OFFICES

Employees of each Company-owned office report to a manager who is
responsible for day-to-day operations and the profitability of that office.
Office managers generally report to area and/or regional managers. As of
December 28, 1996, there were 2 zone managers and 12 regional managers within
the Company's management structure headquartered in their respective geographic
areas as well as two district managers of the Medical Services Division. In
addition to salary, in the Company's business services branch offices,
commissions may be earned by all employees. These commissions are based on the
gross profit dollars per full-time equivalent employee to motivate employees to
maximize the growth and profitability of their offices. In addition, office,
area and regional managers are eligible to participate in a return on sales
incentive plan that compensates them on a formula based on the net income
achieved in their office, area or region.

FRANCHISE AGENT OFFICES

The Company's franchise agents have the exclusive right by contract to sell
certain of the Company's services and to use the Company's service marks,
business names and systems in a specified territory. The Company's franchise
agent agreements generally allow franchise agents to open multiple offices
within their exclusive territories. As of November 2, 1996, the Company's 69
franchise agents operated 119 franchise agent offices.

Franchise agent and licensed operations comprise a significant portion of
the Company's sales of services and license fees. For fiscal year 1996 and
fiscal year 1995, 31.3% and 41.2% respectively, of the Company's sales of
services and license fees were derived from such operations. The Company's ten
largest franchise agents for fiscal 1996 (based on sales volume) accounted for
12.2% of total Company sales, excluding license fees. The loss of one or more
of the Company's franchise agents or licensees and the associated loss of
customers and sales could have a material adverse effect on the Company's
business, results of operations, cash flows and financial condition.

Since November 1992, 38 new franchise agents and 3 licensees have joined
the Company's network, and 30 franchise agents and one licensee had ceased
their affiliation with, or been purchased by, the Company before the
expiration of their franchise agent or license agreements. The Company's
franchise agent and license agreements contain two-year non-competition
covenants which the Company vigorously seeks to enforce. Efforts to enforce
the non-competition covenants have resulted in litigation brought by the
Company following termination of certain franchise agent agreements. In the
past five fiscal years, the Company has commenced a total of three actions to
enforce the non-competition covenants. All of such actions were resolved in
the Company's favor.

Under the Company's franchise agent program the franchise agent, as an
independent contractor, is responsible for establishing and maintaining an
office and paying related administrative and operating expenses, such as rent,
utilities and salaries of their branch office staff. Each franchise agent
functions as a limited agent of the Company in recruiting job applicants,
soliciting job orders, filling those orders and handling collection matters upon
request, but otherwise functions as an independent contractor. As franchisor,
the Company is the employer of the temporary employees and the owner of the
customer accounts receivable. The Company is responsible for providing start-up
materials and supplies, training the franchise agent and occasionally assisting
on-site, aiding in bids for national accounts and paying the wages of the
temporary employees and all related payroll taxes and insurance. As a result,
the Company provides a substantial portion of the working capital needed for the
franchise agent operations. The Company also provides the use of the Company's
payroll and information services to manage information regarding temporary
employees and customers. In addition, the franchise agent agreements relating
to the medical services division contain a separate agreement that covers home
health agency business, including the sharing of Medicare reimbursement.
Franchise agent agreements have an initial term of five years and are renewable
for multiple five-year terms.

Sales generated by franchise agent operations and related costs are
included in the Company's consolidated sales of services and cost of
services, respectively. Franchise agents receive a commission from the
Company based on the total hours billed for the services of temporary
employees, which generally ranges from 48.0% to 68.0% of the gross profit
from the franchise agent operation (including a partial reimbursement for
advertising costs). In the medical services division, a new program was
implemented in fiscal 1995, which provides that the Company will receive 8.0%
of gross sales regardless of hours billed (except for Medicare services,
which are cost reimbursed). This sales program also has been implemented for
the light industrial and clerical franchise agent offices. Current franchise
agents have been given the option to change to this program. This program is
being offered as the standard program for new franchise agents, other than
those converting from an independent staffing operation to a franchise. As
of November 2, 1996, nine new clerical and light industrial franchise agents
were participating in this program, one existing clerical and light
industrial franchise agent had elected to convert, and there were nine
medical franchise agents as well as two medical licensees also participating.

The Company has established a corporate training program designed to
provide franchise agents with training in systems and procedures and hands-on
experience in a field operating office, and to allow interaction with Company
management. Franchise agents are trained in established sales techniques and
recruiting methods, operational procedures, and the wide variety of tools
available to build sales volume and a pool of qualified applicants.

Franchise agents are required to follow the Company's operating procedures
and standards in recruiting, screening, classifying and retaining temporary
personnel. Under the Western name, the franchise agent solicits orders for
temporary employees from customers and assigns the Company's temporary employees
to customers in response to such orders. In an effort to control liability
associated with workers' compensation claims, the Company's risk management and
insurance departments work closely with franchise agent offices in evaluating
job assignments and seeking to promote sales while effectively managing risks.
The Company handles all government withholding, quarterly reports and W-2s, and
maintains comprehensive insurance coverage for all temporary employees sent on
assignment by franchise agent offices. In addition, through on-site safety and
quality assurance inspections, franchise agent offices evaluate risks and check
compliance with state and federal safety regulations. In some cases, the
Company may, in conjunction with the Company's insurance carrier, employ the
services of a professional loss control engineer.

LICENSED OFFICES

The Company introduced its licensing program for business services in
fiscal 1993 as an alternative to its franchise agent program. In addition, in
December 1995, the Company began offering the license program through its
medical services division to independent owners who wished to affiliate with the
Company. Under the Company's license program the licensee is the employer of
the temporary employees and the owner of the customer accounts receivable. In
addition, the medical licensee retains the home health agency license and
Medicare certification, if any, in its name. The Company retains 8.0% of the
non-Medicare gross sales as a service fee and charges a management fee per visit
for Medicare services.

The Company grants licensees the exclusive right to establish an office to
market and provide light industrial and clerical temporary personnel, light
technical temporary personnel or medical services temporary personnel within a
designated geographic area. Licensees receive the same basic training from the
Company as franchise agents and attend seminars, participate in marketing
programs and utilize the Company's sales literature. The Company also assists
its licensees in obtaining business from its national accounts and provides them
with national, regional and cooperative local advertising.

Licensees operate within the framework of the Company's policies and
standards. They recruit and employ temporary employees according to Company
guidelines, and pay them using the Company's payroll procedures. However,
licensees must obtain their own workers' compensation, liability, fidelity
bonding and state unemployment coverage, which determine their payroll costs.
The Company bills all licensees' customers and collects their

remittances. The Company charges a fee to each licensee based on the total
hours worked by their temporary employees, generally ranging from 32.0% to 52.0%
of the gross profit from the licensed operation. This fee is in return for the
exclusive license rights and other services, including billing and payroll
processing services and financing of the receivables. This fee is included in
the Company's Consolidated Financial Statements as license fees. License
agreements are for a term of five years and are renewable for multiple five-year
terms.

As a service to its licensees, the Company finances the licensees'
temporary employee payroll, payroll taxes and insurance. This indebtedness is
secured by a pledge of the licensees' accounts receivable, tangible and
intangible assets, and the license agreements. Borrowings under the lines of
credit bear interest at a rate equal to the reference rate of the Bank of
America NT & SA plus two percentage points. Interest is only charged on the
borrowings if the outstanding balance exceeds certain specified limits.

MANAGEMENT INFORMATION SYSTEMS

BUSINESS SERVICES

The Company believes that its management information systems are critical
to the performance of its operations. The Company's management information
systems include a billing and payroll application which is designed to provide
timely and accurate payment for temporary employees and billings to Company's
customers. The Company provides the ability to print checks at many remote
offices the morning after receipt of the time card. The Company's management
information systems also provide for tax reporting in all states in which
offices are located, including processing all types of gross pay calculations
and deductions. Most of the employees of the domestic Company-owned, franchise
agent and licensed offices are served by the Company's system of remote site
personal computers. All offices that currently are not linked by personal
computer to the system submit billing and payroll information by facsimile or
overnight delivery services to the Company's headquarters for processing. The
remote site system is supported by the Company's in-house technical support
department, which is responsible for computer installations, training and
technical support.

In fiscal 1994 the Company began implementing new management information
systems to enhance billing, payroll and management reporting using Peoplesoft
Payroll and Oracle Financials within an Oracle database. Under this system,
centralized computer server systems, interfaced with Pentium-Registered
Trademark--based computers in branch offices, support branch office operations
with daily, weekly, monthly and quarterly reports that provide information
ranging from customer activity to office profitability. In addition, the system
provides a comprehensive contract administration module to help produce a
standardized graphics presentation package. Office automation will provide the
branch offices with direct access to data for a variety of purposes, such as
mailings, ad hoc customer queries and accounts receivable monitoring. Certain
of the Company's offices serve as processing sites to support the Company's
domestic business services offices. One processing site may support more than
one office.

The Company has completed the conversion of the majority of its domestic
business services processing sites to the payroll and billing portion of the new
system. The original targeted completion date for transitioning to the new
system was early in calendar year 1995. Due to unanticipated software
architecture problems and the turnover of key staff, this schedule was not met.
There are two remaining groups of domestic business services offices with custom
front-end search and retrieval systems that have yet to be converted. Their
conversion has been postponed pending completion of an integrated search and
retrieval module within the existing payroll and billing system. The Company
has purchased a custom search and retrieval program and is currently in the
process of integrating the program into the existing payroll and billing system.
The Company is working to streamline the processing functions of the payroll and
billing system and to develop new modules to enhance the capabilities of the
system. The Company plans to upgrade to a newer version of its payroll software
during fiscal 1997 and also plans to expand its hardware capabilities. Further,
the Company is in the process of reviewing its remaining financial accounting
and reporting systems and intends to spend additional funds in fiscal 1997 and
beyond to upgrade these systems. The Company has incurred and will continue to
incur substantial labor and other costs to operate both the old and new

10.

systems during the conversion period. The Company believes that the planned
system enhancements will support anticipated revenue growth and will allow
for operating efficiencies in future years; however, there can be no
assurance that these planned enhancements will be successfully implemented.
The Company has in the past discovered software defects when new software
programs or new versions of software programs were installed and as a result
may in the future experience delays or increased costs to correct such
defects. The failure to implement these enhancements or the existence of
software defects or significant delays in the implementation of these
enhancements could have a material adverse effect on the Company's business,
results of operations, cash flows and financial condition.

MEDICAL SERVICES

The medical services division is currently dependent upon the Company's
general information system for a number of its services, including providing
payroll services for its temporary employees and customized billing services
for its customers. The medical services division has begun the migration
from the Company's general information system to a comprehensive, industry
specific clinical and financial accounting and reporting system. The system
was acquired from a nationally known medical information system company. The
medical system is designed to organize and present information in a manner
that facilitates the ability of the Company to obtain appropriate and timely
reimbursement under Medicare and other programs through electronic billing,
while integrating the financial and clinical information which is vital to
future managed care controls. The Company anticipates completion of the
conversion by early calendar year 1998. There can be no assurance that the
system conversion timetable will be met or that the cost of the system
conversion will not exceed current estimates. Any such delay or cost increase
could have a material adverse effect on the Company's business, results of
operations, cash flows and financial condition.

RISK MANAGEMENT PROGRAMS

The Company is responsible for all employee-related expenses for the
Company's temporary staff employees of its Company-owned and franchise agent
offices including workers' compensation, unemployment insurance, social security
taxes, state and local taxes, and other general payroll expenses. In calendar
year 1993, the Company revised its procedures to better correlate accruals with
the actual job-related risks and more accurately assign costs to each office
based on its loss history. In addition, the Company began to emphasize claims
management and return-to-work programs to minimize claim expenses.

The Company self-insures the deductible amount related to workers'
compensation claims under its paid loss retrospective program. The deductible
amount was $350,000 per claim for policy years 1996, 1995 and 1994. The
Company accrues for workers' compensation costs based upon payroll dollars
paid to temporary employees. The accrual rates vary based upon the specific
risks associated with the work performed by the temporary employee. At the
beginning of each policy year, the Company reviews the overall accrual rates
with its outside actuary and makes changes to the rates as necessary based
primarily upon historical loss trends. Each year, the Company adjusts its
historical accruals to the actuarially developed estimate of the ultimate
cost for each open policy year. The overall accounting principles and
procedures applied by the Company and the overall assumptions and methodology
used by the Company's outside actuary to estimate the ultimate costs to be
incurred under the workers' compensation program have been consistent for all
periods presented.

As a result of improvements in loss trends during fiscal 1994 and fiscal
1995, the accrual adjustments resulted in decreased workers' compensation
costs in fiscal 1994 and fiscal 1995. Management adjusted the basic accrual
rates downward for fiscal 1996 as a result of those trends. A preliminary
analysis of the actual fiscal 1996 claim activity indicates that claim counts
have increased at a level that is generally consistent with overall increases
in business activity; however, the average severity of fiscal 1996 claims has
increased compared to previous years resulting in overall higher costs for
fiscal 1996. As a result of these preliminary trends, the Company reached an
agreement in January 1997 with its insurance carrier to settle all fiscal
1996 claims and transfer the risk of possible adverse development to the
insurance carrier. The Company was able to settle the fiscal 1996 claims at a
cost which is equal to the fiscal 1996 accruals resulting in no additional
charges for policy year 1996. However, as a cautionary measure, the Company
plans to increase its basic accrual rates in fiscal 1997 by about 10% (to an
estimated 3.6% of direct labor). The Company is carefully reviewing the 1996
claim trends to determine the specific causes for the increased severity of
the claims. By shifting the fiscal 1996 workers' compensation claim
responsibility to the insurance carrier, the Company plans to re-direct its
risk management resources towards more aggressive loss control programs as
well as intensified claim investigation techniques and settlement tactics for
the remaining open policy years (1992 through 1995) and for the current
policy year (1997). However, there can be no assurance that the Company's
programs to control worker's compensation expenses will be effective or that
loss development trends will not require a charge to costs of services in
future periods to increase worker's compensation accruals.

COMPETITION

The temporary staffing industry is highly competitive and fragmented and
characterized by limited barriers to entry. The Company believes that the
majority of commercial and health care temporary staffing companies are local,
full service or specialized operations with less than five offices. Within
local markets, these companies actively compete with Western for business, and
in most of these markets no single company has a dominant share of the market.
The Company also competes with larger full service and specialized competitors
in national, regional and local markets. The principal national competitors are
Adecco SA, Interim Services, Inc., Kelly Services, Inc., Manpower Inc., Norrell
Corporation, Remedy Temp. Inc., Robert Half International, Inc. and The Olsten
Corporation. Many of the Company's principal competitors have greater
financial, marketing and other resources than the Company. In addition, there
are a number of medium-sized firms which compete with the Company in certain

11.

markets where they may have a stronger presence, such as regional or specialized
markets. There can be no assurance that the Company will not encounter
increased competition in the future, which could limit the Company's ability to
maintain or increase its market share or maintain gross margins, and which could
have a material adverse effect on the Company's business, results of operations
and financial condition.

The Company believes that the competitive factors in obtaining and
retaining customers include an understanding of customers' specific job
requirements, the ability to provide temporary personnel in a timely manner, the
monitoring of quality of job performance and the price of services. The Company
has experienced pricing pressure in all areas of its business and expects these
pressures to continue. The Company believes that primary competitive factors in
obtaining qualified candidates for temporary employment assignments are wages,
benefits and flexibility of work schedules. There can be no assurance that the
Company will be able to compete successfully with the companies mentioned above
or with new market entrants.

GOVERNMENTAL REGULATION

The Company's sales of franchises and licenses is regulated by the Federal
Trade Commission and by state business opportunity and franchise laws. The
Company has either registered, or been exempted from registration, in 14 of the
15 states which require registration in order to offer franchises or licenses.
In one of the 15 states, the Company has not yet sought registration and is
therefore not currently authorized to offer franchise or license arrangements.

Legislative changes affecting the health care industry have been proposed
from time to time in Congress and various states. Changes in the government's
support of health care services, the methods by which such services are
delivered and the prices for such services could each have a material adverse
effect on the Company's business, results of operations and financial condition.
Of the Company's medical services division sales in fiscal 1996, 18.4% were
attributable to Medicare services (1.5% of the Company's total sales of
services and license fees). Even if the ultimate impact on revenues of such
changes were to be positive, there can be no assurance that the costs of
adapting to such changes would not have a significant negative impact on future
earnings of the Company.

A number of states have adopted laws regulating companies that provide
health care services. In many of the states, the Company need only be
licensed. In 21 states, a certificate of need ("CON") from the state must be
obtained to be a Medicare provider. CON laws restrict the types of care that
may be provided and can limit or prohibit the Company's ability to provide
certain services and to establish or expand its medical operations. CON
requirements and restrictions vary substantially from state to state.

Joint Commission on Accreditation of Healthcare Organizations ("JCAHO")
accreditation has become an important criterion in providing home health care
services. As of December 28, 1996, twelve of the Company-owned offices and
three franchise agent offices were accredited by JCAHO. Applications for
JCAHO accreditation are pending for one Company-owned office, one franchise
agent office and one licensed office. Failure to obtain such accreditation
or delays in the accreditation process could adversely affect the ability of
the Company to compete in the home health care services area.

EMPLOYEES

The Company estimates that at November 2, 1996 it had approximately 33,000
temporary employees on assignment and employed approximately 1,050 regular
staff. The Company believes that its relationships with its employees are good.

The Company, as the employer, is responsible for and pays the regular and
temporary payrolls, Social Security taxes (FICA), federal and state unemployment
taxes, workers' compensation insurance and other direct labor costs relating to
its temporary employees (including temporary employees assigned by franchise
agents). The Company offers various insurance programs and other benefits for
its temporary employees which are made available

12.

at the option of the branch office managers or franchise agents and licensees.
In addition, temporary employees performing health care services are covered by
professional liability insurance. As part of health care reform, federal and
certain state legislative proposals have included from time to time provisions
which would extend health insurance benefits to temporary employees who are not
currently provided with such benefits. Due to the uncertainty associated with
the ultimate enactment of any such health care reform initiatives and the form
and content of any such initiatives once enacted, the Company is unable to
estimate the impact any extension of health insurance benefits would have on its
business, results of operations and financial condition.

SERVICE MARKS

The Company has various service marks registered with the United States
Patent and Trademark Office, with the State of California and in various
foreign countries. Federal and state service mark registrations may be
renewed indefinitely as long as the underlying mark remains in use. The
Company's service marks include Western Staff Services-Registered
Service Mark-, Western Temporary Services-Registered Service Mark-, Western
Medical Services-Registered Service Mark-, Western Technical
Services-Registered Service Mark-, Westaff-Registered Service Mark-,
Westemp-Registered Service Mark-, Western Accounting Services-Registered
Service Mark-, Western Legal Services-Registered Service Mark- and University of
Santa Claus-Registered Service Mark-. The Company has filed applications to
federally register the service marks Western Independent Living-SM-,
Accountants USA-SM- and Western Medical Services Home Health Agency-SM-. In
addition, applications to federally register the service marks WesCare
Integrated Health Solution-SM- and WesCare-SM- have been filed by Western and
Omnicare, Inc., a provider of infusion and home medical equipment, with which
Western formed a limited liability company in furtherance of a joint venture
to provide home health care and infusion services in the State of Ohio.

ITEM 2. PROPERTIES.

The executive offices of the Company are located at 301 Lennon Lane, Walnut
Creek, California. The Company owns five buildings, consisting of approximately
72,000 square feet, which house its corporate headquarters.

In addition, as of December 28, 1996, the Company leased space for 247
Company-owned offices in the United States and abroad. The leases generally are
for terms of one to five years, and expire at various dates from time to time.
The Company believes that its executive office facilities are adequate for its
needs and does not anticipate any difficulty replacing such facilities or
locating additional facilities, as needed.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not currently a party to any litigation that could have a
material adverse effect on the Company's business, results of operations or
financial condition. 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.

The Company maintains insurance in such amounts and with such coverages,
deductibles and policy limits as management believes are reasonable and prudent.
The principal risks that the Company insures against are workers' compensation,
comprehensive general liability, automobile liability, professional malpractice
liability, fidelity losses and excess third party liability. The Company
believes that such insurance coverages are adequate for the purposes of its
business.

13.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock commenced trading on the Nasdaq National Market
on April 30, 1996 under the symbol WSTF. The following table indicates the
range of the high and low prices as reported by Nasdaq.

HIGH LOW
---- ---
FISCAL 1996
Third Quarter ended July 6, 1996(1) . . . . $ 18 1/8 $ 13
Fourth Quarter ended November 2, 1996(1) . . $ 15 3/4 $ 11
FISCAL 1997
First Quarter (through January 30, 1997) . . $ 15 1/4 $ 6 3/4

On December 27, 1996, the closing price of the Common Stock on the Nasdaq
National Market was $9.375 per share. As of December 27, 1996, there were 41
holders of record of Common Stock of the Company.

The Company has paid no cash dividends on its Common Stock since the
Offering. The payment of cash dividends depends on the Company's earnings,
financial condition and capital needs and on other factors deemed pertinent by
the Board of Directors. The Board of Directors intends to retain earnings to
finance the operations and expansion of the Company's business. In addition,
the Company's credit agreement contains covenants that prohibit the payment of
dividends under certain circumstances. Accordingly, the Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.

(1) Since the Company's quarters and fiscal year end fall on Saturday,
all high and low prices as reported by Nasdaq are given
for the preceding Friday.

14.

ITEM 6. SELECTED FINANCIAL DATA.

FISCAL YEAR
---------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT NUMBER OF OFFICES AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:

Sales of services and license fees. . . . . . . . . $ 482,073 $ 399,663 $ 337,201 $ 280,512 $ 246,496
Operating income (loss) . . . . . . . . . . . . . . 15,296 12,233 9,556 2,665 (44)

PRO FORMA DATA:

Net income (loss). . . . . . . . . . . . . . . . . . $ 8,771 $ 7,462 $ 5,604 $ 1,327 $ (446)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Net income (loss) per common share . . . . . . . . . $ 0.92 $ 0.84 $ 0.63 $ 0.15 $ (0.05)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------

BALANCE SHEET DATA (AT END OF PERIOD):
Working capital. . . . . . . . . . . . . . . . . . . $ 31,982 $ 17,349 $ 24,293 $ 18,720 $ 15,899
Total assets . . . . . . . . . . . . . . . . . . . . 120,780 96,169 76,367 59,621 55,961
Short-term debt. . . . . . . . . . . . . . . . . . . 11,193 16,838 3,895 4,354 5,640
Long-term debt (excluding current portion) . . . . . 3,603 5,623 4,776 5,093 7,509
Stockholders' equity . . . . . . . . . . . . . . . . 49,252 31,792 29,911 22,308 20,040

OTHER OPERATING DATA:
Number of Offices (at end of period):
Company-owned . . . . . . . . . . . . . . . . . . 237 214 187 179 178
Franchise agent. . . . . . . . . . . . . . . . . . 119 106 99 97 99
Licensed . . . . . . . . . . . . . . . . . . . . . 14 21 16 5
--------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 370 341 302 281 277
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------

SYSTEM REVENUE DATA (EXCLUDING LICENSE FEES):
Business Services
Domestic . . . . . . . . . . . . . . . . . . . . . $ 418,546 $ 384,202 $ 327,193 $ 234,251 $ 187,548
International. . . . . . . . . . . . . . . . . . . 58,872 48,528 35,641 26,279 25,541
--------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 477,418 432,730 362,834 260,530 213,089
Medical Services . . . . . . . . . . . . . . . . . 43,907 38,491 36,791 31,501 33,407
--------- ---------- ---------- ---------- ----------
Total system revenue. . . . . . . . . . . . . $ 521,325 $ 471,221 $ 399,625 $ 292,031 $ 246,496
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------

15.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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. Such statements are subject to 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
factors include, but are not limited to: demand for the Company's services,
the competition within its markets, the loss of a principal customer and the
Company's ability to increase the productivity of its existing offices, to
control costs and to expand operations. Due to the foregoing factors, it is
possible that in some future period the Company's results of operations may
be below the expectations of public market analysts and investors. In
addition, the Company's results of operations have historically been subject
to quarterly and seasonal fluctuations, with demand for temporary staffing
historically highest in the fourth fiscal quarter, due largely to the
planning cycles of many of the Company's customers, and typically lower in
the first fiscal quarter, due, in part, to national holidays as well as to
plant shutdowns during and after the holiday season. These and other risks
and uncertainties related to the Company's business are described in detail
in "Business." 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.

OVERVIEW
The Company provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and local markets
in the United States and selected international markets. The Company was
founded in 1948 with an office in San Francisco, gradually expanding to 370
offices in the United States, the United Kingdom, Australia, New Zealand,
Denmark and Norway. Beginning in the late 1950s, the Company began its
franchise agent program and in fiscal 1993 introduced its licensing program.

The general level of economic activity significantly affects the demand for
temporary personnel. As economic activity has slowed, the use of temporary
employees often has been curtailed before permanent employees have been laid
off. In addition, an economic downturn may adversely affect the demand for
temporary personnel and may have a material adverse effect on the Company's
business, results of operations and financial condition. As economic
activity has increased, temporary employees often have been added to the work
force before permanent employees have been hired. During these periods of
increased economic activity and generally higher levels of employment, the
competition among temporary staffing firms for qualified temporary personnel
is intense. Further, the Company may face increased competitive pricing
pressures during such periods. There can be no assurance that during these
periods the Company will be able to recruit the temporary personnel necessary
to fill its customers' job orders or that such pricing pressures will not
adversely affect the Company's business, results of operations, cash flows
and financial condition.

INITIAL PUBLIC OFFERING OF COMMON STOCK
On May 3, 1996 the Company completed an initial public offering (the Offering)
of 2.3 million shares of common stock at $14.00 per share, of which 1.5 million
shares were sold by the Company and 800,000 shares were sold by certain of the
Company's stockholders. Prior to the Offering, there was no public market for
the Company's common stock.

The net proceeds to the Company from the sale of the 1.5 million shares of
common stock, after deduction of associated expenses, were $19.0 million. A
portion of the net proceeds was used to repay $13.8 million outstanding under
the Company's revolving credit facility. Approximately $4.1 million has been
used for acquisitions with the remaining balance reserved for further
acquisitions, further debt reduction or for working capital and other general
corporate purposes. The Company did not receive any of the proceeds from the
sale of the shares of common stock offered by the stockholders.

Concurrent with the Offering, the Company effected a 1,542.01 for 1 stock split,
established a par value of $0.01 per share of common stock and increased the
authorized shares of common stock to 25.0 million. In addition, the Company
established a class of preferred stock, $0.01 par value per share, and
authorized 1.0 million shares. No shares of the preferred stock are
outstanding.

On April 30, 1996, and in conjunction with the Offering, the Company elected to
terminate its S corporation status. In connection with the termination, the
Company was required by the Internal Revenue Service Code to change its method
of accounting for income tax reporting purposes from the cash to the accrual
basis. The termination resulted in a non-recurring net charge to earnings of
$7.5 million in the third quarter of fiscal 1996. This charge was due primarily
to temporary differences resulting from the Company's historical use of the cash
method of accounting for income tax purposes. The income tax charge relating to
the change from the cash to accrual method was $12.6 million and is payable in
quarterly installments due over four years, with the initial installment paid on
August 15, 1996. This charge was partially offset by an increase of $5.1
million in the Company's deferred tax assets.

RESULTS OF OPERATIONS
The following table sets forth, for the three most recent fiscal years, certain
statement of operations data as a percentage of sales of services and license
fees. Pro forma net income represents income before income taxes after a pro
forma provision for federal and state income taxes as if the Company had been
subject to federal and state income taxation as a C corporation during each of
the periods presented. Historical net income is not presented in view of prior
period S corporation status.

FISCAL YEAR
-------------------------------
1996 1995 1994
---- ---- ----
Sales of services 99.4% 99.1% 99.1%
License fees 0.6% 0.9% 0.9%
--------------------------------
Sales of services and license fees 100.0% 100.0% 100.0%
Costs of services 78.2% 77.5% 78.1%
--------------------------------
Gross margin 21.8% 22.5% 21.9%

Franchise agents' share of gross profit 4.0% 5.2% 5.4%
Selling and administrative expenses 14.6% 14.3% 13.7%
--------------------------------
Operating income 3.2% 3.0% 2.8%

Interest expense 0.2% 0.3% 0.2%
Interest income 0.0% (0.1%) (0.1%)
--------------------------------

Income before income taxes 3.0% 2.8% 2.7%

Pro forma provision for income taxes 1.2% 1.0% 1.0%
--------------------------------

Pro forma net income 1.8% 1.8% 1.7%
--------------------------------
--------------------------------

FISCAL 1996 COMPARED TO FISCAL 1995
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $83.3 million
or 21.0% in fiscal 1996 as compared to fiscal 1995. The increase resulted from
a 19.7% increase in billed hours and a 1.0% increase in average billing rates
per hour. Billed hours increased primarily due to increased demand in the
Company's existing offices and the addition of new offices as well as the
acquisition of one of the Company's licensees during the third quarter of fiscal
1996 and the conversion of the licensee's offices to Company-owned.
Approximately $16.7 million of the sales increase in fiscal 1996 is the result
of this acquisition. Furthermore, fiscal 1996 included fifty-three weeks while
fiscal 1995 included fifty-two weeks. Sales of services for fiscal 1996
increased 23.2%, 21.3% and 3.7%, respectively, for the Company's domestic
business services, international business services and medical services, as
compared to fiscal 1995. The increase in average billing rates reflects
inflationary factors as well as changes in the Company's overall business mix.

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
decreased $884,000 or 23.6% for fiscal 1996 as compared to fiscal 1995.
Approximately $1.9 million of the license fees for the fiscal year ended October
28, 1995 was associated with a major customer of one of the Company's licensees.
The contract with this licensee's customer was completed on December 31, 1995.
License fees also decreased due to the acquisition of one of the Company's
licensees as noted above. The Company added three new licensees and converted
one franchise agent to the license program during fiscal 1996.

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 $67.5
million or 21.8% in fiscal 1996 as compared to fiscal 1995. Gross margin
decreased from 22.5% in fiscal 1995 to 21.8% in fiscal 1996 due to downward
competitive pressures on margins, particularly within the light industrial and
clerical segments in which the Company operates, and to the decrease in license
fees noted above. As a result of increased competition within the temporary
staffing industry, the Company anticipates that there will be continued downward
pressure on margins throughout fiscal 1997. In response to these pressures,
during the first quarter of fiscal 1997 the Company implemented a nationwide
program directed toward maximizing gross margins. However, there can be no
assurance that this program will be successful in either increasing gross
margins or eliminating any further decreases in gross margins.

A key component of the Company's costs of services is workers' compensation
costs. Workers' compensation costs were 3.3% of payroll in fiscal 1996 as
compared to 3.2% during fiscal 1995. The fiscal 1995 period included a reduction
in workers' compensation costs of $980,000 due to the settlement of all workers'
compensation claims associated with policy years 1986 through 1991. The
$980,000 reflects the difference between the final settlement payment to the
insurance carrier and the remaining workers' compensation accruals for those
policy years.

temporary employees. The accrual rates vary based upon the specific risks
associated with the work performed by the temporary employee. At the beginning
of each policy year, the Company reviews the overall accrual rates with its
outside actuary and makes changes to the rates as necessary based primarily upon
historical loss trends. Each year, the Company adjusts it historical accruals
to the actuarially developed estimate of the ultimate cost for each open policy
year. The overall accounting principles and procedures applied by the Company
and the overall assumptions and methodology used by the Company's outside
actuary to estimate the ultimate costs to be incurred under the workers'
compensation program have been consistent for all periods presented.

As a result of improvements in loss trends during fiscal 1994 and fiscal
1995, the accrual adjustments resulted in decreased workers' compensation
costs in fiscal 1994 and fiscal 1995. Management adjusted the basic accrual
rates downward for fiscal 1996 as a result of those trends. A preliminary
analysis of the actual fiscal 1996 claim activity indicates that claim counts
have increased at a level that is generally consistent with overall increases
in business activity; however, the average severity of fiscal 1996 claims
has increased compared to previous years resulting in overall higher costs
for fiscal 1996. As a result of these preliminary trends, the Company reached
an agreement in January 1997 with its insurance carrier to settle all fiscal
1996 claims and transfer the risk of possible adverse development to the
insurance carrier. The Company was able to settle the fiscal 1996 claims at
a cost which is equal to the fiscal 1996 accruals resulting in no additional
charges for policy year 1996. However, as a cautionary measure, the Company
plans to increase its basic accrual rates in fiscal 1997 by about 10% (to an
estimated 3.6% of direct labor). The Company is carefully reviewing the 1996
claim trends to determine the specific causes for the increased severity of
the claims. By shifting the fiscal 1996 workers' compensation claim
responsibility to the insurance carrier, the Company plans to re-direct its
risk management resources towards more aggressive loss control programs as
well as intensified claim investigation techniques and settlement tactics for
the remaining open policy years (1992 through 1995) and for the current
policy year (1997). However, there can be no assurance that the Company's
programs to control worker's compensation expenses will be effective or that
loss development trends will not require a charge to costs of services in
future periods to increase worker's compensation accruals.

FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit represents the net distribution paid to franchise agents based either
on a percentage of sales or of the gross profit generated by the franchise
agents' operation. Franchise agents' share of gross profit decreased $1.5
million or 7.1% for fiscal 1996 as compared to fiscal 1995. As a percentage
of sales of services and license fees, franchise agents' share of gross
profit declined from 5.2% during fiscal 1995 to 4.0% for fiscal 1996. This
decrease is primarily the result of the acquisition by the Company of the
operations of two of its largest franchise agents and the conversion of these
offices to Company-owned offices during the fourth quarter of fiscal 1995.
The operations of one additional franchise agent were acquired during the
fourth quarter of fiscal 1996.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $13.3 million or 23.4% for fiscal 1996 as compared to fiscal 1995.
As a percentage of sales of services and license fees, selling and
administrative expenses increased from 14.3% in fiscal 1995 to 14.6% in
fiscal 1996. The increase in selling and administrative expenses have been
largely due to the acquisitions of franchise agents and conversion of the
franchise agent offices to Company-owned offices, write-off of costs in
fiscal 1995 and costs associated with new management information systems
implemented by the Company.

During the fourth quarter of fiscal 1995, the Company acquired the operations of
two of its largest franchise agents and converted these offices to Company-owned
offices. The Company acquired the

operations of one additional franchise agent during the fourth quarter of fiscal
1996. When offices are converted from franchise agent offices to Company-owned
offices, the Company becomes responsible for the operating expenses of the new
Company-owned offices, resulting in an increase in the overall selling and
administrative costs and a decrease in the franchise agent's share of gross
profit. The fiscal 1996 increase in selling and administrative costs resulting
from these conversions was approximately $4.3 million or 0.9% of sales.
Excluding these costs, fiscal 1996 selling and administrative expenses as a
percentage of sales of services and license fees would have been approximately
13.7%.

Selling and administrative expenses included a $940,000 charge during the third
quarter of fiscal 1995 to write-off deferred costs related to the Company's
planned 1994 initial public offering (IPO) that was subsequently postponed.
Excluding the charge for the IPO costs, selling and administrative expenses as a
percentage of sales of services and license fees would have been 14.0% for the
fiscal year ended October 28, 1995.

During the first quarter of fiscal 1995, the Company began to implement the
payroll and billing portion of the Company's new management information
system. Due to the comprehensive scope of the new system, which affects all
major processing functions within the Company, and the need to operate both
the old and new systems during the conversion period, the Company incurred
increased expenses to administer and implement the new system. This resulted
in higher relative selling and administrative expenses in both fiscal 1995
and fiscal 1996. The Company has completed the conversion of the majority of
its domestic business services processing sites to the payroll and billing
portion of the new system. There are two remaining groups of domestic
business services offices with custom front-end search and retrieval systems
that have yet to be converted. Their conversion has been postponed pending
completion of an integrated search and retrieval module within the existing
payroll and billing system. The Company is currently in the process of
integrating a search and retrieval function within the payroll and billing
system, streamlining the processing functions of the payroll and billing
system and developing new modules to enhance the capabilities of the system.
The Company also plans to upgrade to newer versions of its payroll software
during fiscal 1997 and intends to expand its hardware capabilities. Further,
the Company is in the process of reviewing its remaining financial accounting
and reporting systems and plans to spend additional funds in fiscal 1997 and
beyond to upgrade these systems. In addition to the changes in the business
services information systems, the Company is in the process of converting its
medical services offices to a comprehensive clinical and financial accounting
and reporting package. As a result of the ongoing system enhancements being
implemented by the Company and the planned changes to the Company's financial
accounting and reporting systems, management anticipates continued higher
selling and administrative expenses during fiscal 1997. However, the
Company believes that the planned system enhancements will support
anticipated revenue growth and will allow for operating efficiencies in
future years.

At the end of fiscal 1996, in an effort to reduce overhead costs, the Company
extended a number of offers to various corporate staff under a Voluntary
Severance Program. As a result of acceptances of these offers during fiscal
1997, the Company will incur costs of approximately $300,000 during the first
quarter of fiscal 1997 for severance packages. There are no additional
severance offers outstanding.

INTEREST EXPENSE. Interest expense decreased $36,000 or 3.0% for fiscal 1996 as
compared to fiscal 1995, reflecting lower average borrowings outstanding during
the fiscal 1996 period. As a result of increased borrowings required to support
the Company's growth and working capital needs, the Company anticipates higher
interest expense in fiscal 1997.

PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased from $3.8 million for fiscal 1995 to $5.6 million for fiscal 1996, due
primarily to the increase in income before income taxes of $3.1 million. The
pro forma effective income tax rate increased from 34.0% for fiscal 1995 to
39.0% for fiscal 1996. The fiscal 1995 rate was lower due to income tax credits
and the recognition of the benefit of foreign net operating loss carryforwards.
The Company currently estimates that the effective tax rate for fiscal 1997 will
be approximately 40.0%.

FISCAL 1995 COMPARED TO FISCAL 1994
SALES OF SERVICES AND LICENSE FEES. Sales of services and license fees
increased $62.5 million or 18.5% for fiscal 1995 as compared to fiscal 1994.
The increase resulted from a 13.8% increase in billed hours and a 3.8% increase
in average billing rates per hour. The increase in billed hours was due
primarily to increased demand for temporary staffing, increased productivity of
the Company's existing offices and the addition of new offices. The increase in
average billing rates per hour reflected inflationary factors as well as the
relatively higher growth rates in the technical areas and the international
offices which tend to carry higher average billing rates per hour than the
domestic light industrial and clerical offices. The Company had a net increase
of 39 Company-owned and franchise agent and licensed offices at October 28, 1995
as compared to October 29, 1994. The Company's foreign sales increased $12.9
million or 36.2% for fiscal 1995 as compared to fiscal 1994, driven primarily by
increased productivity within existing offices.

License fees increased $623,000 or 19.9% in fiscal 1995 as compared to fiscal
1994 reflecting a 14.9% increase in sales generated by the licensed offices
combined with an increase in licensee gross margin. Approximately $1.9 million
and $1.7 million of the license fees and gross profit for fiscal 1995 and fiscal
1994, respectively, were associated with a major customer of one of the
Company's licensees. This contract was completed on December 31, 1995.

COSTS OF SERVICES. Costs of services for fiscal 1995 increased $46.4 million or
17.6% compared to fiscal 1994. Workers' compensation expense in fiscal 1995 was
approximately $8.5 million or 3.2% of related payroll as compared to
approximately $10.1 million or 5.1% of related payroll in fiscal 1994.
Primarily as a result of the lower workers' compensation costs, gross margin
increased from 21.9% for fiscal 1994 to 22.5% in fiscal 1995. During the second
quarter of fiscal 1995, the Company settled all claims associated with policy
years 1986 through 1991. As a result of this settlement, the Company reduced
its overall workers' compensation accruals in the second quarter resulting in a
gain of $980,000. This gain reflected the difference between the final
settlement payment and the remaining accruals for policy years 1986 through
1991. Furthermore, due to improvements in the overall historical loss
development trends for the Company and decreases in the relative frequency and
average severity of claims during the fourth quarter of fiscal 1995, the
Company reduced its workers' compensation accruals for policy years 1992 through
1994 to reflect the actuarially estimated ultimate costs associated with those
policy years, resulting in a gain of $1.2 million.

FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit increased $2.7 million or 14.7% for fiscal 1995 as compared to fiscal
1994. Franchise agents' share of gross profit decreased as a percentage of
sales of services and license fees from 5.4% in fiscal 1994 to 5.2% in fiscal
1995. This decrease was due to higher growth rates for Company-owned offices
during fiscal 1995 as compared to franchise agent offices. Furthermore, during
October 1995, the Company bought the operations of two of its franchise agents
and converted these offices to Company-owned offices as noted above.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $10.7 million or 23.1% for fiscal 1995 as compared to fiscal 1994.
Included in these costs for fiscal 1995 was a $940,000

non-recurring charge during the third quarter to write off deferred costs
related to the Company's planned IPO that was subsequently postponed. As a
percentage of sales of services and license fees, selling and administrative
expenses increased from 13.7% for fiscal 1994 to 14.3% for fiscal 1995.
Excluding the charge for the IPO costs, fiscal 1995 selling and administrative
expenses as a percentage of sales of services and license fees would have been
14.0%. This overall increase in selling and administrative expenses as a
percentage of sales of services and license fees was primarily due to the
initial implementation of the Company's new payroll and billing system beginning
in the first quarter of fiscal 1995. Due to the comprehensive scope of the new
system, which affects all major processing functions within the Company, and the
need to operate both the old and new systems during the conversion period, the
Company incurred increased administrative expenses in fiscal 1995 to administer
and implement the system.

INTEREST EXPENSE. Interest expense increased $583,000 or 94.0% for fiscal 1995
as compared to fiscal 1994 reflecting higher average borrowings outstanding
during fiscal 1995.

PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased $300,000 for fiscal 1995 as compared to fiscal 1994. The Company's
effective income tax rate decreased to 34.0% for fiscal 1995 from 38.7% for
fiscal 1994. This decrease was primarily due to income tax credits and the
recognition of the benefit of foreign net operating loss carryovers.

LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash generated by
operating activities and through various forms of external financing, including
term loans, mortgage financing and bank lines of credit. The principal use of
cash is for financing of accounts receivable, particularly during periods of
growth. Temporary personnel are generally paid on a weekly basis while payments
from customers are generally received 30 to 60 days after billing. As a result
of seasonal fluctuations, accounts receivable balances are historically higher
in the fourth fiscal quarter and are generally at their lowest during the first
fiscal quarter. Short-term borrowings used to finance accounts receivable
follow a similar seasonal pattern.

Net cash flows from operating activities were $2.2 million, $7.4 million and
$7.6 million in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. Cash
flows from operating activities for fiscal 1996 include a decrease of $7.5
million in net income due to the income tax adjustments noted above. However,
this decrease in cash flows was partially offset by increases in income taxes
payable and deferred income taxes. Accounts receivable balances increased $21.0
million in fiscal 1996 as compared to an increase of $8.1 million in fiscal 1995
and an increase of $9.6 million in fiscal 1994. The fiscal 1995 and fiscal 1994
increases were largely due to sales growth. The increase in fiscal 1996 is due
to the continued growth of the Company's sales along with the acquisition of one
of the Company's licensees during the third quarter of fiscal 1996. This
acquisition resulted in a decrease in due from licensees as collection of the
licensee receivables was used to pay down the due from licensee. However, this
decrease in due from licensees was offset by increases in trade receivables of
approximately $5.0 million as sales and receivables for the acquired operation
increased. Trade receivables at November 2, 1996 were also affected by delays
in payments from the Medicare program. Due to some system changes implemented
by the Company's fiscal intermediary, payments of approximately $3.6 million
were delayed as of the end of fiscal 1996. Due from licensees also decreased
for fiscal 1996 as a result of the completion of the contract for a major
customer of one of the licensees on December 31, 1995 and the collection of the
outstanding receivables from this customer.

In connection with the settlement of the workers' compensation program for
policy year 1996, the Company will be required to make a payment of $1.6 million
to its insurance carrier in January 1997.

Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $6.4 million, $4.9
million and $6.0 million for fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The capital expenditures during each of these fiscal years
include expenditures for the implementation of the Company's new management
information systems which totaled approximately $9.8 million through the end of
fiscal 1996. These expenditures include costs for both the payroll and billing
portion of the system as well as costs for system enhancements and for new
modules under development. While the payroll and billing portion of the new
system is in place, the Company expects to make further enhancements to the
system to provide additional search and retrieval capabilities, to implement
additional modules to streamline the processing functions, to upgrade to a newer
version of its payroll software and to expand its hardware capabilities.
Further, the Company is in the process of reviewing its remaining financial
accounting and reporting systems and will likely spend additional funds in
fiscal 1997 and beyond to upgrade these systems. The Company has no other
significant commitments for capital purchases.

During fiscal 1996 and fiscal 1995, cash outflows for new acquisitions and for
contingent payments under existing acquisitions totaled $4.8 million and $2.9
million, respectively. The fiscal 1996 payments include $2.8 million for the
acquisition of the operations of one of the Company's licensees and one of the
Company's franchise agents. Payments due for fiscal 1997, fiscal 1998 and
fiscal 1999 related to acquisitions are $1.3 million, $1.0 million and $1.0
million, respectively, with additional consideration contingent on either sales
or gross profits of the acquired businesses in future periods.

As noted above, net proceeds to the Company from its Offering were approximately
$19.0 million. Net cash used for debt reduction totaled $7.7 million in fiscal
1996 including payments of $1.5 million for the fiscal 1995 acquisition of one
of the Company's franchise agents. During fiscal 1995, the Company increased
borrowings by a net $8.7 million in order to provide working capital to support
the Company's growth, to fund acquisitions and to pay dividends to the Company's
then current stockholders.

Distributions to stockholders totaled $2.5 million in fiscal 1996
representing a portion of the undistributed S corporation earnings of the
Company. The final distribution of S corporation earnings of $2.5 million
will be made in fiscal 1997. Distributions to stockholders in fiscal 1995
totaled $8.7 million, of which $4.8 million was used to fund income tax
obligations. Distributions to stockholders in fiscal 1994 totaled $4.1
million, of which $3.0 million was used by the Company's principal
stockholder to purchase the common stock and certain intercompany receivables
of Western Video Images. Subsequent to the final $2.5 million payment in
fiscal 1997 for the outstanding stockholder distributions, the Company does
not anticipate declaring or paying any dividends on its common stock in the
foreseeable future.

In order to make shares available for the Company's Employee Stock Purchase and
Stock Option Plans, the Company may repurchase up to 100,000 shares of
common stock in the open market at prevailing prices, not to exceed $14 per
share, over the next twelve months.

During the second quarter of fiscal 1996, the Company executed a new term loan
and revolving credit agreement. The credit facility provides for a secured
revolving line of credit in the amount of $40.0 million, with the maximum amount
of direct advances limited to $20.0 million and the maximum amount of
irrevocable standby letters of credit limited to $20.0 million. The facility
also provides for a non-revolving line of credit, to be used for acquisitions,
converting on September 30, 1997 to a six-year

fully amortized term loan in an amount up to $21.8 million. As of November 2,
1996, the Company had $38.0 million available under its term loan and revolving
credit facility, consisting of $11.2 million available for direct advances, $5.0
million for irrevocable standby letters of credit and $21.8 million under the
non-revolving line of credit to be used for acquisitions.

The Company believes that cash provided from operations and available borrowings
under the credit facility will be sufficient to meet anticipated needs for
working capital and capital expenditures at least through the next twelve
months.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements and Supplementary Data of the Company required by
this item are set forth at the pages indicated at Item 14(a).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

The information required by this item is included under the caption
"Management" in the Company's Proxy Statement for the Company's 1997 Annual
Meeting and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following documents are filed as a part of this Report:

1. Financial Statements.

Report of Independent Accountants.................................. F-1

Consolidated Balance Sheets -- As of the Fiscal Year Ended
November 2, 1996 and the Fiscal Year Ended
October 28, 1995....................................................F-2

Consolidated Statements of Operations -- For the Three Year
Period Ended November 2, 1996.......................................F-3

Consolidated Statements of Stockholders' Equity -- For
the Three Year Period Ended November 2, 1996........................F-4

Consolidated Statements of Cash Flows - For the Three
Year Period Ended November 2, 1996..................................F-5

Notes to Consolidated Financial Statements..........................F-7

2. Financial Statement Schedule. The following Financial Statement
Schedule of the Registrant is filed as part of this report:

Schedule II - Valuation and Qualifying Accounts..................... 29

All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements
or notes thereto.

3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:

2.1 Agreement for Purchase and Sale of Stock of Western Video
Images, Inc. and Purchase and Sale of Promissory Notes dated
as of October 27, 1994 by and between Western Staff Services
(USA), Inc. and W. Robert Stover (1)

3.1 The Company's Third Amended and Restated Certificate of
Incorporation.(1)

3.2 The Company's Restated Bylaws.(1)

4.1 Form of Specimen Certificate for the Company's Common
Stock.(1)

10.1 Form of Indemnification Agreement between the Company and
the Officers and Key Employees of the Company.(1)

10.2 Form of Indemnification Agreement between the Company and
the Directors of the Company.(1)

10.3 Employment Agreement between the Company and W. Robert
Stover.(1)

10.3.1 Amendment to the Employment Agreement between the Company
and W. Robert Stover.

10.5 Nonstatutory Stock Option Agreement for fiscal 1989.(1)

10.6 Nonstatutory Stock Option Agreement for fiscal 1990.(1)

10.7 Western Staff Services, Inc. 1996 Stock Option/Stock
Issuance Plan.

10.7.1 Form of Notice of Grant of Stock Option.

10.7.2 Form of Stock Option Agreement.

10.7.3 Form of Addendum to Stock Option Agreement (Involuntary
Termination Following a Corporate Transaction).

10.7.4 Form of Notice of Grant of Automatic Stock Option.

10.7.5 Form of Automatic Stock Option Agreement.

10.7.6 Form of Stock Issuance Agreement.

10.8 Credit Agreement dated as of February 21, 1996 among Western
Staff Services, Inc., Bank of America National Trust and
Savings Association, Sanwa Bank California and certain other
financial institutions.(1)

10.8.1 Waiver and First Amendment to Credit Agreement dated as of
June 9, 1996 (2)

10.8.2 Waiver and Second Amendment to Credit Agreement dated as of
September 30, 1996.

10.9 Deed of Trust & Assignment of Rents dated June 21, 1994 by
and between Western Staff Services, Inc., First Bancorp and
Sanwa Bank California.(1)

10.9.1 Tax Indemnification Agreement by and among the Company and
the current stockholders of the Company.(1)

10.9.2 Amendment of Commercial Credit Agreement and Modification of
Deed of Trust as of June 6, 1996.(2)

10.10 Form of Tax Indemnification Agreement by and among the
Company and certain stockholders of the Company.(1)

10.11 Western Staff Services, Inc. 1996 Employee Stock Purchase
Plan.

10.11.1 Stock Purchase Agreement for 1996 Employee Stock Purchase
Plan.

10.11.2 Form of Enrollment/Change Form for 1996 Employee Stock
Purchase Plan.

10.11.3 International Employee Stock Purchase Plan.

10.11.4 Stock Purchase Agreement for International Employee Stock
Purchase Plan.

10.11.5 Form of Enrollment/Change Form for International Employee
Stock Purchase Plan.

10.12 Exchange Agreement between the Company and W. Robert
Stover.(1)

10.13 Form of Employment Contract with certain Named Executive
Officers.(1)

21.1 Subsidiaries of the Company.(1)

23.1 Consent of Price Waterhouse LLP, independent accountants.

24.1 Power of Attorney (see Page 31)

27.1 Financial Data Schedule.

- -------------------------------------------------

(1) Incorporated herein by reference to the exhibit with the same number filed
with Company's Registration Statement on Form S-1 (File No. 33-85536)
declared effective by the Securities and Exchange Commission on April 30,
1996.

(2) Incorporated herein by reference to the exhibit with the same numbers filed
with the Company's Quarterly Report on Form 10-Q dated July 6, 1996.

(b) Reports on Form 8-K.

There were no Reports on Form 8-K filed by the Company during fiscal
year ended November 2, 1996.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Western Staff Services, Inc.

In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) and (2) on page 26 present
fairly, in all material respects, the financial position of Western Staff
Services, Inc. and its subsidiaries at November 2, 1996 and October 28,
1995, and the results of their operations and their cash flows for each
of the three years in the period ended November 2, 1996, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP

/s/ Price Waterhouse LLP

San Francisco, California
December 31, 1996

F-1

WESTERN STAFF SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------

NOVEMBER 2, OCTOBER 28,
1996 1995
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents $ 2,849 $ 3,014
Trade accounts receivable, less allowance for doubtful
accounts of $769 and $823 74,721 53,937
Due from licensees 3,565 7,143
Deferred income taxes 1,918 1,015
Other current assets 4,075 3,143
------------- -------------
Total current assets 87,128 68,252

Property, plant and equipment, net 18,854 16,438
Deferred income taxes 694
Intangible assets, net of accumulated amortization of $5,537 and $4,709 13,437 9,476
Other assets 1,361 1,309
------------- -------------
$ 120,780 $ 96,169
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,800 $ 12,600
Current portion of loans payable 1,420 1,770
Current portion of note payable to related party 973 2,468
Accounts payable and accrued expenses 38,434 33,135
Income taxes payable 3,019 930
Distributions payable to stockholders 2,500
------------- -------------
Total current liabilities 55,146 50,903

Loans payable 1,658 3,678
Note payable to related party 1,945 1,945
Deferred income taxes 3,847 299
Other long-term liabilities 8,932 7,552
------------- -------------
Total liabilities 71,528 64,377
------------- -------------

Commitments and contingencies (Notes 2, 10 and 12)
Stockholders' equity:
Preferred stock, $.01 par value;
Authorized and unissued: 1,000 shares at November 2, 1996
Common stock:
Par value: $.01 at November 2, 1996; no par value at October 28, 1995
Authorized: 25,000 at November 2, 1996; 15,420 at October 28, 1995
Issued and outstanding: 10,338 at November 2, 1996; 8,838 at October 28, 1995 103 50
Additional paid-in-capital 29,068 3,999
Retained earnings 19,527 27,386
Cumulative currency translation 554 357
------------- -------------
Total stockholders' equity 49,252 31,792
------------- -------------
$ 120,780 $ 96,169
------------- -------------
------------- -------------

See accompanying notes to consolidated financial statements.

F-2

WESTERN STAFF SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
-----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ------------- ------------

Sales of services $ 479,205 $ 395,911 $ 334,072
License fees 2,868 3,752 3,129
----------- ------------- ------------

Total sales of services and license fees 482,073 399,663 337,201
----------- ------------- ------------

Costs of services 377,136 309,626 263,190
Franchise agents' share of gross profit 19,341 20,822 18,153
Selling and administrative expenses 70,300 56,982 46,302
----------- ------------- ------------

Total costs and expenses 466,777 387,430 327,645
----------- ------------- ------------

Operating income 15,296 12,233 9,556
Interest expense 1,167 1,203 620
Interest income (251) (274) (210)
----------- ------------- ------------

Income before income taxes 14,380 11,304 9,146
Provision for income taxes 11,097 563 172
----------- ------------- ------------

Net income $ 3,283 $ 10,741 $ 8,974
----------- ------------- ------------
----------- ------------- ------------

Unaudited pro forma data (Notes 2 and 13)

Income before income taxes $ 14,380 $ 11,304 $ 9,146
Provision for income taxes 5,609 3,842 3,542
----------- ------------- ------------

Net income $ 8,771 $ 7,462 $ 5,604
----------- ------------- ------------
----------- ------------- ------------

Net income per common share $ 0.92 $ 0.84 $ 0.63
----------- ------------- ------------
----------- ------------- ------------

Weighted average common shares outstanding 9,582 8,838 8,838
----------- ------------- ------------
----------- ------------- ------------

See accompanying notes to consolidated financial statements.

F-3

WESTERN STAFF SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------

COMMON STOCK ADDITIONAL CUMULATIVE
------------------------- PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION TOTAL
----------- ----------- ------------- ------------ ------------- ----------

Balance at October 30, 1993 8,838 $ 50 $ 1,800 $ 20,491 $ (33) $ 22,308
Net income 8,974 8,974
Distributions to stockholders (4,112) (4,112)
Currency translation
adjustments 501 501
Stockholder contribution 73 73
Stockholder contribution
related to purchase of WVI 2,167 2,167
----------- ----------- ------------- ------------ ------------- ----------

Balance at October 29, 1994 8,838 50 4,040 25,353 468 29,911
Net income 10,741 10,741
Distributions to stockholders (8,708) (8,708)
Currency translation
adjustments (111) (111)
Other (41) (41)
----------- ----------- ------------- ------------ ------------- ----------

Balance at October 28, 1995 8,838 50 3,999 27,386 357 31,792
Net income 3,283 3,283
Distributions to stockholders (5,000) (5,000)
Transfer of undistributed
S corporation earnings 6,142 (6,142)
Currency translation
adjustments 197 197
Common stock offering 1,500 53 18,927 18,980
----------- ----------- ------------- ------------ ------------- ----------

Balance at November 2, 1996 10,338 $ 103 $ 29,068 $ 19,527 $ 554 $ 49,252
----------- ----------- ------------- ------------ ------------- ----------
----------- ----------- ------------- ------------ ------------- ----------

See accompanying notes to consolidated financial statements.

F-4

WESTERN STAFF SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
-----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,283 $ 10,741 $ 8,974
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 3,855 2,890 2,402
Amortization of intangible assets 825 254 395
Provision for losses on doubtful accounts 466 767 693
Deferred income taxes 3,339 359 (716)
Changes in assets and liabilities:
Trade accounts receivable (21,031) (8,134) (9,620)
Due from licensees 3,578 (3,092) (2,345)
Other assets (838) (21) (2,011)
Accounts payable and accrued expenses 5,267 2,904 9,800
Income taxes payable 2,118 541 (923)
Other long-term liabilities 1,374 142 932
----------- ----------- -----------
Net cash from operating activities 2,236 7,351 7,581
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets and investments 188 120 20
Expenditures for purchases of fixed assets (6,437) (4,913) (5,960)
Payments received on notes receivable 307 787 629
Increase in notes receivable (455) (396) (172)
Net payments from related parties 1,153
Payments for intangibles and other investments (4,825) (2,872) (180)
----------- ----------- -----------
Net cash from investing activities (11,222) (7,274) (4,510)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit
agreements (3,800) 10,100 (500)
Repayments of notes to related parties (1,495) (24)
Proceeds from issuance of loans payable 1,907 2,062
Principal payments on loans payable (2,371) (3,302) (2,355)
Proceeds from issuance of common stock 18,980
Distributions to stockholders (2,500) (8,675) (4,112)
Stockholder contribution 2,240
----------- ----------- -----------
Net cash from financing activities 8,814 6 (2,665)
----------- ----------- -----------
Effect of exchange rate on cash 7 65 351
----------- ----------- -----------
Net change in cash and cash equivalents (165) 148 757
Cash and cash equivalents at beginning of year 3,014 2,866 2,109
----------- ----------- -----------

Cash and cash equivalents at end of year $ 2,849 $ 3,014 $ 2,866
----------- ----------- -----------
----------- ----------- -----------

See accompanying notes to consolidated financial statements.

F-5

WESTERN STAFF SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
-------------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
------------- ------------- -------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,235 $ 1,140 $ 620
Income taxes (net of refunds) 5,096 170 2,979

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Increase in loans payable, accrued liabilities and
intangible assets from acquisitions $ 5,487
Increase in distributions payable to stockholders $ 2,500

F-6

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND INITIAL PUBLIC OFFERING OF COMMON STOCK

BASIS OF PRESENTATION
Western Staff Services, Inc. (the Parent) and its domestic and foreign
subsidiaries (together, the Company), provide temporary help and staffing
personnel services in the United States, the United Kingdom, Denmark,
Australia, New Zealand and Norway. The consolidated financial statements
include the accounts of Western Staff Services, Inc. and its domestic and
foreign subsidiaries. Prior to the Company's initial public offering
completed May 3, 1996 (the Offering), the principal stockholder of the
Parent owned minority interests in each of the Parent's foreign and
domestic subsidiaries and also owned Kontorservice, Inc. (Norwegian
Branch), a temporary personnel services company doing business in Norway.
Concurrent with the Offering, the Company issued 202,857 shares valued at
$2,840 to the Company's principal stockholder in exchange for the
contribution of each of his minority interests and the capital stock of the
Norwegian Branch. Based on common control and management, these minority
interests and the Norwegian Branch have been combined with the Company's
financial statements for all prior periods presented in a manner similar to
a pooling of interests. Material intercompany accounts and transactions
have been eliminated.

INITIAL PUBLIC OFFERING OF COMMON STOCK
On May 3, 1996, the Company completed an initial public offering of
2,300,000 shares of common stock at $14 per share, of which 1,500,000
shares were sold by the Company and 800,000 shares were sold by certain of
the Company's stockholders. The net proceeds to the Company from the sales
of the 1,500,000 shares of common stock, after deduction of associated
expenses, were $18,980. Prior to the Offering, there was no public market
for the Company's common stock. The common stock is traded on the Nasdaq
National Market under the symbol "WSTF".

Concurrent with the Offering, the Company effected a 1,542.01 for 1 stock
split, established a par value of $0.01 per share of common stock and
increased the authorized shares of common stock to 25,000,000. In
addition, the Company established a class of preferred stock, $0.01 par
value per share, and authorized 1,000,000 shares. No shares of the
preferred stock are outstanding.

Prior to the consummation of the Offering, the Company declared a dividend
payable to its then current stockholders consisting of the lesser of the
remaining undistributed earnings of the Company accumulated from November
1, 1987 to April 30, 1996 (the effective date of the Company's S
corporation termination - Note 2) which were subject to taxation at the
stockholder level, or $5,000. The final undistributed earnings of the
Company from November 1, 1987 to April 30, 1996 totaled $11,142. The
difference between the actual distribution of $5,000 and the undistributed
earnings of $11,142 has been reclassified for financial reporting purposes
from retained earnings to additional paid-in-capital.

F-7

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

FISCAL YEAR
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Saturday nearest the end of October. Fiscal year 1996 included
fifty-three weeks while fiscal years 1995 and 1994 each included fifty-two
weeks. For interim reporting purposes, the first three fiscal quarters
comprise twelve weeks each while the fourth fiscal quarter consists of
sixteen or seventeen weeks.

CASH AND CASH EQUIVALENTS
The Company considers all investments in time deposits with initial
maturities of three months or less to be cash equivalents.

CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
However, concentrations of credit risk are limited due to the large number
of customers comprising the Company's customer base and their dispersion
across different business and geographic areas. Furthermore, the Company
routinely assesses the financial strength of its customers.

REVENUE RECOGNITION
Revenue from the sale of services is recognized at the time the service is
performed. A portion of the Company's sales of services and license fees
is derived from affiliate operations which consist of franchise agent and
license operations.

F-8

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

Revenues generated by franchise agents and related costs of services are
included as part of the Company's consolidated sales of services and costs
of services, respectively, since the Company has the direct contractual
relationships with the customers, holds title to the related customer
receivables and is the legal employer of the temporary employees.
"Franchise agent" refers to the Company's franchisees in their role as
limited agents of the Company in recruiting job applicants, soliciting job
orders, filling those orders and handling collection matters upon request,
but otherwise refers to the Company's franchisees in their role as
independent contractors of the Company. The franchise agent acts as a
limited agent for the Company to market the Company's services within the
franchise agent's territory. The net distribution paid to the franchise
agent for services rendered is based either on a percentage of sales or of
the gross profit generated by the franchise agent's operation and is
reflected as franchise agents' share of gross profit.

During fiscal 1993, the Company implemented a second form of affiliate
program, the licensing program. Under this program, the licensee has the
direct contractual relationships with the customers, holds title to the
related customer receivables and is the legal employer of the temporary
employees. Accordingly, sales and costs of services generated by the
license operation are not included in the Company's consolidated financial
statements. The Company advances funds to the licensee for payroll,
payroll taxes, insurance and other related items. Fees are paid to the
Company based either on a percentage of sales or of gross profit generated
by the licensee and such license fees are recorded by the Company as
license fees. Due from licensees represents advances made under these
financing agreements. These advances are secured by a pledge of the
licensee's trade receivables, tangible and intangible assets and the
license agreement. Advances due from licensees bear interest at prime plus
two percent but only to the extent the aggregate advances exceed the amount
of qualified trade receivables securing the outstanding advances. Under
the terms of a lockbox arrangement between the Company and the licensee,
the advances are reduced as remittances are received related to the
licensee trade accounts receivable. Licensees have pledged trade
receivables of $4,073 and $9,255 at November 2, 1996 and October 28, 1995,
respectively, as collateral for such advances. Sales generated by license
offices were $42,120, $75,310 and $65,553 for fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. For purposes of the
Company's new payroll and billing system, capitalized costs include
purchased hardware and software, externally-developed software costs and
internally-developed software costs that are both direct and incremental.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are twenty-five to thirty-one
years for buildings and three to ten years for furniture and equipment.
Major improvements to leased office space are capitalized and amortized
over the shorter of their useful lives or the terms of the leases.

F-9

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

During fiscal 1994, the Company reduced the estimated useful lives of its
computers and computer-related equipment from seven to four years due to
changes in the hardware and software platforms used by the Company in
anticipation of the implementation of the new payroll and billing system in
fiscal 1995. The Company determined that the estimated useful lives of its
computers and computer-related equipment should be four years based upon
the Company's historical retention of such equipment adjusted for
consideration of technological changes that may occur. The effect of this
change was to increase depreciation expense for fiscal 1994 by $642 and to
decrease unaudited pro forma net income and unaudited pro forma net income
per common share by $392 and $0.04, respectively.

ACQUISITION AND AMORTIZATION
Business acquisitions have been accounted for under the purchase method of
accounting. The Company considers acquisitions under its "acquisition and
franchise back" program to be business combinations within the meaning of
Accounting Principles Board Opinion No. 16. Under the terms of these
arrangements, the Company acquires an existing temporary staffing service
business and the acquired business becomes a franchise agent upon
acquisition.

During fiscal years 1996, 1995 and 1994 the Company consummated
acquisitions with total purchase prices of $3,802, $8,239 and $64,
respectively. Tangible assets and specifically identifiable intangible
assets associated with these acquisitions amounted to $2,300 for fiscal
1996 and $271 for fiscal 1995. The remaining purchase prices for these
acquisitions were allocated to goodwill. Specifically identifiable
intangible assets consist primarily of covenants not to compete and are
amortized on a straight-line basis over the stated term of the agreement.
Goodwill ($11,360 and $9,335 at November 2, 1996 and October 28, 1995,
respectively) is amortized over twenty years. Certain of these
acquisitions included additional consideration contingent on either sales
or gross profits of the acquired businesses in future periods. When such
contingencies are earned, the additional cost is added to the affected
intangible assets and amortized over the remaining life of the asset.
Contingencies earned during fiscal 1996 on acquisitions consummated during
fiscal 1995 totaled $531. Unaudited pro forma information regarding
revenues and net income has not been provided since the effect of these
acquisitions was not material.

IMPAIRMENT OF LONG-LIVED ASSETS
Management of the Company assesses the recoverability of its long-lived
assets by determining whether the amortization of the asset's balance over
its remaining life can be recovered through projected undiscounted future
cash flows from operations. Management of the Company continually
evaluates the existence of potential impairment by analyzing operating
results, trends and prospects of its acquired operating offices.
Management also takes into consideration any other events or circumstances
that might indicate potential impairment. Based upon these evaluations,
the Company has determined that no impairment of recorded intangible and
other long-lived assets has occurred.

F-10

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

The Company is required to adopt the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for Long-Lived Assets and
for Long-Lived Assets to be Disposed of" in the first quarter of fiscal
1997. The effect of adopting SFAS No. 121 is not expected to be material.

WORKERS' COMPENSATION
The Company self-insures the deductible amount related to workers'
compensation claims under its paid loss retrospective program. The
deductible amount was $350 per claim for policy years 1996, 1995 and 1994.
The Company accrues the estimated costs of workers' compensation claims
based upon the expected loss rates incurred within the various temporary
employment categories provided by the Company. Annually, the Company
obtains an independent actuarially determined calculation of the estimated
costs of claims incurred and reported and claims incurred but not reported,
based on the Company's historical loss development trends. The amounts
calculated may be subsequently revised by the actuary based on developments
relating to such claims. Improvements in loss development trends for
fiscal years 1992 through 1994 resulted in a reduction of the Company's
accrued liability at October 28, 1995 and October 29, 1994 of approximately
$1,200 and $500, respectively. These adjustments were recorded in cost of
services in the Statement of Operations. In order to give recognition to
obligations associated with the Company's workers' compensation program
which are not expected to be paid in the following fiscal year, the Company
has included $8,500 and $7,100 in other long-term liabilities at November
2, 1996 and October 28, 1995, respectively.

INCOME TAXES
The Company records income taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than enactments of changes in the tax law or rates.

Beginning with fiscal 1988, the Parent elected to be taxed as an
S corporation for federal and state income tax purposes. Pursuant to this
election, earnings or losses up to the date of the Offering were subject to
tax at the stockholder level rather than the corporate level. Therefore no
provision was made for federal income tax on earnings or losses of the
Parent prior to the Offering. Tax laws relative to S corporations vary by
state. In California, the principal state of operation for the Company,
earnings of S corporations are taxed at 1.5% and prior to the Offering the
Company provided state taxes accordingly. On April 30, 1996 and in
conjunction with the Offering, the Company elected to terminate its S
corporation status. In connection with the termination, the Company was
required by the Internal Revenue Service Code to change its method of
accounting for income tax reporting purposes from the cash basis to the
accrual basis. The termination resulted in a non-recurring net charge to
earnings of $7,460 in the third quarter of fiscal 1996. This charge was
due primarily to temporary differences resulting from the Company's
historical use of the cash

F-11

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

method of accounting for income tax purposes. The income tax charge
relating to the change from the cash to accrual method was $12,574 and will
be payable in quarterly installments due over four years, with the initial
installment paid on August 15, 1996. This charge was partially offset by
an increase in the Company's deferred tax assets in the amount of $5,114.

Prior to April 30, 1996, certain subsidiaries of the Parent had not elected
S corporation status and were subject to federal and state income taxes at
the Company level.

TRANSLATION OF FOREIGN CURRENCIES
All assets and liabilities that are denominated in foreign currencies are
translated into U.S. dollars at year-end exchange rates and all revenue and
expense accounts are translated using weighted average exchange rates.
Translation adjustments and gains or losses on intercompany foreign
currency transactions that are of a long-term investment nature are
included as a separate component of stockholders' equity.

ACCOUNTING FOR STOCK-BASED EMPLOYEE BENEFIT PLANS
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued which establishes accounting and reporting standards for stock-based
compensation plans. The Company is required to adopt this standard in the
first quarter of fiscal 1997. This standard encourages all entities to
adopt the fair value based method of accounting for employee stock option
or similar equity instruments but continues to allow an enterprise to
measure compensation cost for those equity instruments using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees". Under the fair
value based method, compensation cost is measured at the grant date based
on the value of the award. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount the
employee must pay to acquire the stock. The Company intends to continue
the use of the intrinsic value based method. As a result, adoption of this
standard will not have any effect on the Company's consolidated financial
statements other than to require disclosure of the pro forma effect on net
income of using the fair value based method of accounting.

UNAUDITED PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share represents income before income taxes
after a pro forma provision for federal and state income taxes as if the
Company had been subject to federal and state income taxation as a C
corporation during each of the periods presented (Note 13) divided by the
pro forma weighted average of shares of common stock outstanding during the
period. No effect has been given to options outstanding under the
Company's Stock Option Plan as no material dilutive effect would result
from exercise of these options. The pro forma weighted average shares
outstanding gives effect to the common stock split and the additional
shares issued to the principal stockholder (Note 1). Historical net income
per share has not been presented in view of the prior period S corporation
status.

F-12

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

Supplemental earnings per share data has not been included since the
dilutive effect is immaterial.

3. TRANSACTIONS WITH RELATED PARTIES

During the fourth quarter of fiscal 1994, the Parent sold the common stock
of, and certain intercompany receivables due from, Western Video Images,
Inc. (WVI), a majority-owned subsidiary of the Company, to the Chairman of
the Board, Chief Executive Officer and principal stockholder of the Parent
for an aggregate purchase price of $3,000. WVI provides complete video
post-production services including digital effects and graphic production
operations and is in an industry unrelated to the Company's principal
business. Furthermore, WVI has historically operated independent of the
Parent and there are no significant shared costs. Therefore, the sale of
this subsidiary has been accounted for as a change in reporting entity and,
accordingly, the historical financial statements of the Company have been
restated for all prior periods as though the Parent never had an investment
in WVI. Of the $3,000 purchase price for WVI, $833 was allocated to reduce
advances to related parties, and the remaining $2,167 was treated as
additional paid-in-capital, essentially representing a contribution by the
principal stockholder back to the Company since the financial statements of
the Company have been restated to eliminate the accounts of WVI.

The Company has a management agreement with WVI whereby the Company
provides certain accounting, tax, legal, administrative and management
services to WVI and charges a fee based upon the gross sales of WVI.
Management fees charged to WVI were $197, $226 and $211, respectively, for
fiscal 1996, fiscal 1995 and fiscal 1994.

As of November 2, 1996, the Company had guaranteed WVI's debt totaling
$1,854. The guarantee was removed in December 1996.

The Parent is also the lessee for one of the facilities in which WVI
operates; however, WVI is charged for all costs of the lease. Future
minimum lease payments under this obligation are as follows: fiscal 1997 -
$427; 1998 - $401; 1999 - $365; 2000 - $304.

During October 1995, the Company bought the operations of one of its
franchise agents for a total purchase price of $5,913. Of this purchase
price, $5,793 was allocated to goodwill, $25 was allocated to covenants not
to compete and $95 was allocated to property, plant and equipment. This
franchise agent became an employee of the Company as a result of this
transaction. The Company paid $1,500 in cash on the closing date and paid
an additional $1,500 during fiscal 1996. The remaining amount is payable
over three years as follows: fiscal 1997 - $973; fiscal 1998 - $973; and
fiscal 1999 - $973. The note payable bears interest at 6.5%. The fair
value of this note approximates the carrying value as of November 2, 1996
based on the current rates available to the Company for debt with similar
terms.

F-13

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------

Land $ 1,366 $ 1,366
Buildings 7,377 7,200
Equipment, furniture and fixtures 25,570 21,246
------- -------
34,313 29,812

Less accumulated depreciation and amortization (15,459) (13,374)
------- -------
$18,854 $16,438
------- -------
------- -------

5. SHORT-TERM BORROWINGS AND LOANS PAYABLE

Short-term borrowings and loans payable consist of borrowings under lines
of credit and term obligations with banks, respectively, which are
collateralized by deeds of trust on real property and substantially all of
the Company's personal property, as well as unsecured financing agreements.
The Company's credit agreement provides for a secured revolving line of
credit in the amount of $40,000, with the maximum amount of direct advances
limited to $20,000 and the maximum amount of irrevocable standby letters of
credit limited to $20,000. The facility also provides for a non-revolving
line of credit, to be used for acquisitions, converting on September 30,
1997 to a six-year fully amortized term loan in an amount up to $21,800.
The credit facility contains covenants which, among other things, require
the Company to maintain certain financial ratios and generally restrict,
limit or prohibit the Company with respect to capital expenditures,
disposition of assets, incurrence of debt, mergers, loans to affiliates and
purchases of investments. The facility also prohibits cash dividend
payments on its capital stock. At November 2, 1996, the Company was either
in compliance with these covenants or had obtained the necessary waivers.
The revolving line of credit will mature on March 31, 1998 and any
borrowings under the non-revolving line of credit will mature no later than
September 30, 2003. As of November 2, 1996, there were no borrowings
outstanding under the Company's non-revolving line of credit.

At November 2, 1996, short-term borrowings and loans payable carried
interest at rates ranging from a minimum of 6.5% to a maximum of 8.75%. The
weighted average interest

F-14

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

rate on short-term borrowings was 7.74%, 7.88% and 6.77%, respectively, for
fiscal 1996, fiscal 1995 and fiscal 1994.

SHORT-TERM BORROWINGS
Short-term borrowings outstanding at November 2, 1996 and October 28, 1995
amounted to $8,800 and $12,600, respectively. As of November 2, 1996, the
Company had $11,200 available for direct advances under its revolving line
of credit.

At November 2, 1996, the Company had irrevocable standby letters of credit
totaling $15,000 outstanding as collateral to support the workers'
compensation program. These letters of credit expire on December 31, 1996,
but are automatically renewed for one additional year unless thirty days
prior written notice is given to the holder. As of November 2, 1996, the
Company had $5,000 available for irrevocable standby letters of credit.

LOANS PAYABLE
Loans payable consist of the following:

NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------

Variable and fixed rate notes payable, collateralized
by deeds of trust, bearing interest from 6.7% to 6.8%,
due monthly from 1994 to 2001 $ 2,781 $ 2,931
Variable rate collateralized note payable to bank, bearing
interest at 7.63% (October 28, 1995) 1,845
Other 297 672
------- -------
3,078 5,448
Less current portion (1,420) (1,770)
------- -------
$ 1,658 $ 3,678
------- -------
------- -------

Maturities of loans payable for each of the next five fiscal years are as
follows: 1997 - $1,420; 1998 - $100; 1999 - $100; 2000 - $100; and 2001 -
$1,358.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

F-15

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

NOVEMBER 2, OCTOBER 28,
1996 1995
---------- ----------

Accounts payable $ 2,819 $ 2,039
Checks outstanding in excess of bank balances 6,751 8,017
Accrued payroll and payroll taxes 13,094 10,756
Accrued insurance/workers' compensation 9,060 7,585
Other 6,710 4,738
---------- ----------

$ 38,434 $ 33,135
---------- ----------
---------- ----------

7. INCOME TAXES

The domestic and foreign components of income before income taxes are as
follows:

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------

Domestic $ 12,662 $ 9,857 $ 8,330
Foreign 1,718 1,447 816
---------- ---------- ----------

Income before income taxes $ 14,380 $ 11,304 $ 9,146
---------- ---------- ----------
---------- ---------- ----------

The provision for income taxes consists of the following:

F-16

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
CURRENT:
State and local $ 1,482 $ 256 $ 307
Federal 5,834 (378) 374
Foreign 442 326 207
---------- ---------- ----------

7,758 204 888
---------- ---------- ----------

DEFERRED:
State and local 116 157 (141)
Federal 3,111 277 (575)
Foreign 112 (75)
---------- ---------- ----------

3,339 359 (716)
---------- ---------- ----------

$ 11,097 $ 563 $ 172
---------- ---------- ----------
---------- ---------- ----------

The difference between income taxes at the statutory federal income tax
rate and income taxes reported in the Consolidated Statements of Operations
are as follows:

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------

Federal statutory income tax rate 35% 34% 34%
Tax on income of foreign subsidiaries (2) (1)
State taxes, net of federal income tax benefit 4 3 1
S corporation income not subject to federal
income taxes (11) (28) (33)
Effect of termination of S corporation election 52
Effect of IRS examination (2) (3)
Other (1) 1 1
---------- ---------- ----------
Effective income tax rate 77% 5% 2%
---------- ---------- ----------
---------- ---------- ----------

F-17

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

The approximate tax effect of temporary differences and carryforwards that give
rise to deferred tax balances are as follows:

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------

Workers' compensation $ 8,008 $ 1,506 $ 1,560
Other liabilities and accruals 1,156 333 196
Foreign net operating loss carryforwards 73 123 496
Alternative minimum tax credit carryforwards 59 42 152
---------- ---------- ----------

Gross deferred tax assets 9,296 2,004 2,404
Valuation allowance (73) (123) (253)
---------- ---------- ----------

9,223 1,881 2,151
---------- ---------- ----------

Depreciation 1,721 207 194
S corporation cash basis accounting adjustment 9,430 264 187
Other 1 1
---------- ---------- ----------

Gross deferred tax liabilities 11,152 471 382
---------- ---------- ----------

Net deferred tax asset (liability) $ (1,929) $ 1,410 $ 1,769
---------- ---------- ----------
---------- ---------- ----------

No valuation allowance has been established for temporary differences other
than foreign net operating loss carryforwards. Based on historical income,
internal forecasts and industry trends, management believes that it is more
likely than not that the Company will generate future pretax income in
sufficient amounts to realize the full benefit of these temporary
differences.

At November 2, 1996, the Parent had cumulative undistributed earnings from
foreign subsidiaries of approximately $2,575. Income taxes have not been
provided on the undistributed earnings because they have been permanently
reinvested in the foreign subsidiary. These earnings could become subject
to additional tax if they were remitted as dividends, or if foreign
earnings were lent to the Company. However, such income taxes would not be
material to the Company's financial position or results of operations.
Income taxes have not been provided on foreign currency translation
adjustments since such taxes would be immaterial.

F-18

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

8. RETIREMENT PLANS

The Company has a qualified profit-sharing retirement plan in which
full-time domestic employees are eligible to participate beginning on the
first day of the fiscal year following their hire date. The Company
amended the plan effective October 29, 1989 so that employees whose
compensation and conditions of employment deem them to be highly
compensated in accordance with Section 414(q) of the Internal Revenue Code
(IRC) were no longer eligible to participate in the plan. As of the same
date, the Company adopted a nonqualified profit-sharing retirement plan for
those employees deemed to be highly compensated. The contribution to both
plans is at the discretion of the Board of Directors; however, the
contribution to the qualified plan cannot exceed the maximum allowable by
the IRC. Contributions of $325, $325 and $250 were declared for fiscal
1996, 1995 and 1994, respectively, which were allocated to both plans. At
November 2, 1996, both plans were fully funded.

9. STOCKHOLDERS' EQUITY

REINCORPORATION IN DELAWARE
In October 1995, the Parent changed from a California corporation to a
Delaware corporation. In connection with the reincorporation, the total
shares authorized was changed to 10,000 and the outstanding common shares
were reduced to 5,600 based on a conversion ratio of .0004 Delaware common
share to 1 California common share.

STOCK OPTION PLANS
The Company has two stock option plans.

The 1989/1990 Stock Option Plan provides for the granting of non-qualified
options to executives and key employees to purchase the Company's common
stock. The options vested during fiscal 1994 and fiscal 1995 and are
exercisable at $9.60 per share for options granted in fiscal 1989 and
$10.51 per share for options granted in fiscal 1990. The plan has
authorized 310,000 shares of common stock for issuance. Options to purchase
15,111 shares are outstanding at November 2, 1996. No further grants may
be made under the 1989/1990 plan.

The 1996 Stock Option/Stock Issuance Plan provides for the granting of
incentive and non-qualified stock options and stock appreciation rights.
The plan has authorized 1,033,812 shares of common stock for issuance.
Options to purchase 418,000 shares are outstanding at November 2, 1996 with
exercise prices ranging from $14.00 to $14.25 per share. Incentive stock
options may be granted at a price not less than 100% of the fair market
value of the Company's common stock at the date of grant. Non-qualified
options may be granted at a price not less than 85% of the fair market
value of the Company's common stock at the date

F-19

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

of grant. Stock appreciation rights allow the holder to exercise the right
instead of the underlying option. When the right is exercised, the
underlying option is canceled with respect to that number of shares. On
exercising a right, the holder receives an amount in cash, or cash and
common stock, equal to the difference between the market value of the
shares at the time of exercise and the exercise price of the underlying
options. No stock appreciation rights have been granted under the plan.
The options' vesting schedules vary subject to the participant's period of
future service or to the Company's or the option holder's attainment of
designated performance goals, or otherwise at the discretion of the Board
of Directors.

The following summarizes the transactions under the two plans for the
fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996.
Balances and transactions have been retroactively restated for the October
1995 .0004 for 1 stock split (see Reincorporation in Delaware above), and
for the May 1995 1,542.01 for 1 stock split (see Note 1 - Basis of
Presentation and Initial Public Offering of Common Stock).

Option Price
Shares Per Share
---------- ----------------

Options outstanding - October 30, 1993 17,579 $ 9.60 to 10.51
Cancelled (1,234) 10.51
--------------------------------------------------------------------------
Options outstanding - October 29, 1994 16,345 9.60 to 10.51
Cancelled (1,234) 10.51
--------------------------------------------------------------------------
Options outstanding - October 28, 1995 15,111 9.60 to 10.51
Granted 429,000 14.00 to 14.25
Cancelled (11,000) 14.00
--------------------------------------------------------------------------
Options outstanding - November 2, 1996 433,111 $ 9.60 to 14.25
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Exercisable - November 2, 1996 15,111
----------
----------
Available for grant - November 2, 1996 619,193
----------
----------

EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1996 Employee Stock Purchase Plan, eligible employees
may authorize payroll deductions of up to 10% of eligible compensation for
the purchase of stock during each semi-annual purchase period. The
purchase price will equal the lower of 85% of the fair market value at the
beginning of the purchase period or on the last day of the purchase period.
The plan provides for the issuance of up to 500,000 shares of the Company's
common stock. There have been no shares issued under the plan as of
November 2, 1996.

F-20

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

10. LEASES

The Company leases real and personal property under operating leases which
expire on various dates through 2001. Some of these leases have renewal
options for periods ranging from one to five years and contain provisions
for escalation based on increases in certain costs incurred by the landlord
and on Consumer Price Index adjustments. U.S. rental expense amounted to
$3,102 in fiscal 1996, $2,535 in fiscal 1995 and $2,385 in fiscal 1994.
Rental expense for foreign subsidiaries was $937 in fiscal 1996, $770 in
fiscal 1995 and $550 in fiscal 1994. The Company also receives rental
income from owned property and subleases which expire on various dates.
Sublease income was not material to the Company's results of operations for
any periods presented.

Future minimum lease payments for all leases at November 2, 1996 are as
follows:

FISCAL YEAR

1997 $ 3,518
1998 2,419
1999 1,324
2000 673
2001 421
Thereafter 136
--------

Total minimum lease payments $ 8,491
--------
--------

11. GEOGRAPHIC INFORMATION

The following is a summary of sales of services and license fees, operating
income and identifiable assets by geographic region. There are no
intercompany sales of services and license fees between the domestic and
foreign operations. Operating income excludes income taxes, interest income
and interest expense. The foreign operations generally operate as
autonomous units and there are no general corporate costs other than
interest income and expense. Royalties are charged by the domestic company
to the foreign entities and are included in the operating expenses of the
foreign entities and the operating income of the domestic company.
Royalties charged are shown below for each period.

F-21

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------

SALES OF SERVICES AND LICENSE FEES
Domestic $ 423,201 $ 351,135 $ 301,560
Foreign 58,872 48,528 35,641
---------- ---------- ----------

Total sales of services and license fees $ 482,073 $ 399,663 $ 337,201
---------- ---------- ----------
---------- ---------- ----------

OPERATING INCOME
Domestic $ 13,449 $ 10,689 $ 8,649
Foreign 1,847 1,544 907
---------- ---------- ----------

Total operating income $ 15,296 $ 12,233 $ 9,556
---------- ---------- ----------
---------- ---------- ----------

IDENTIFIABLE ASSETS
Domestic $ 107,200 $ 85,295 $ 66,916
Foreign 13,580 10,874 9,451
---------- ---------- ----------

Total identifiable assets $ 120,780 $ 96,169 $ 76,367
---------- ---------- ----------
---------- ---------- ----------

FOREIGN ROYALTIES $ 206 $ 171 $ 132
---------- ---------- ----------
---------- ---------- ----------

12. 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 where the Company is a defendant. Management believes that the
ultimate obligations, if any, which may result from unfavorable outcomes of
such lawsuits will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company and that such
obligations, if any, would be adequately covered by insurance.

At the end of the fourth quarter of fiscal 1996, the Company implemented a
Voluntary Severance Program in an effort to reduce overhead costs. As a
result of acceptances of the voluntary severance offers, the Company will
make payments amounting to approximately $300 during the first quarter of
fiscal 1997. As these offers were not accepted until fiscal 1997, no
accrual has been made for the voluntary termination agreements.

F-22

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

13. UNAUDITED PRO FORMA INFORMATION

On April 30, 1996 and in conjunction with the Offering, the Company elected
to terminate its S corporation status. The pro forma provision for income
taxes reflects provisions for state and federal income taxes as if the
Company had been subject to federal and state income taxation as a C
corporation during each of the periods presented.

The pro forma income tax provision consists of the following:

FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------

CURRENT:
State and local $ 1,161 $ 909 $ 1,347
Federal 5,109 2,916 4,346
Foreign 442 326 207
---------- ---------- ----------
6,712 4,151 5,900
---------- ---------- ----------

DEFERRED:
State and local (195) 8 (351)
Federal (1,020) (242) (2,007)
Foreign 112 (75)
---------- ---------- ----------

(1,103) (309) (2,358)
---------- ---------- ----------

$ 5,609 $ 3,842 $ 3,542
---------- ---------- ----------
---------- ---------- ----------

The reconciliations of pro forma income taxes computed at the federal
statutory income tax rate to the pro forma income taxes as reported in the
Consolidated Statements of Operations are as follows:

F-23

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

FISCAL YEAR ENDED
----------------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------

Federal statutory income tax rate 35% 34% 34%
Tax on income of foreign subsidiaries (2) (1)
State taxes, net of federal income tax benefit 5 5 6
Nondeductible items including goodwill 1
Income tax credits (2) (2)
Other (1) (1) 1
----------- ----------- -----------

Effective income tax rate 39% 34% 39%
----------- ----------- -----------

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly financial information for
the fiscal years ended November 2, 1996 and October 28, 1995. The fourth
quarter of fiscal years 1996 and 1995 consist of 17 and 16 weeks, respectively.
All other quarters consist of 12 weeks.

First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -------------

FISCAL YEAR ENDED NOVEMBER 2, 1996
Sales of services and license fees $ 98,025 $ 96,940 $ 104,981 $ 182,127
Gross profit 21,346 21,306 22,741 39,544
Net income (loss) (1) 2,379 2,006 (5,231) 4,129

Pro forma net income 1,587 1,282 1,773 4,129
Pro forma net income per common share 0.18 0.15 0.18 0.40

FISCAL YEAR ENDED OCTOBER 28, 1995
Sales of services and license fees $ 84,029 $ 89,034 $ 91,291 $ 135,309
Gross profit (2) 18,319 20,712 20,065 30,941
Net income (2) 2,000 2,753 1,306 4,682

Pro forma net income 1,389 1,913 907 3,253
Pro forma net income per common share 0.16 0.21 0.10 0.37

(1) During the third quarter of fiscal 1996, the Company recorded a net
income tax charge of $7,460 as a result of the Company's termination
of its S corporation status.

F-24

WESTERN STAFF SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------

(2) During the second quarter of fiscal 1995, the Company recorded a
decrease of $980 to costs of services due to the Company's settlement
of all workers' compensation claims associated with policy years 1986
through 1991. During the third quarter of fiscal 1995, the Company
recorded a $940 charge to selling and administrative expenses relating
to the Company's postponed initial public offering. During the fourth
quarter of fiscal 1995, the Company reduced costs of services by
$1,200 by reducing its workers' compensation accruals for policy years
1992 through 1994 due to improvements in the overall historical loss
development trends and decreases in the relative frequency and average
severity of claims.

F-25

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

SCHEDULE II
(AMOUNTS IN THOUSANDS)

ADDITIONS
--------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
----------- ------------- ------------ ------------ ------------ ----------

Fiscal Year Ended October 29, 1994
Allowance for doubtful accounts $ 545 $ 693 $ 0 $ 415 $ 823
Reserve on notes receivable 654 28 0 64 618
Valuation allowance on deferred tax asset 363 0 0 110 253
Fiscal Year Ended October 28, 1995
Allowance for doubtful accounts $ 823 $ 767 $ 0 $ 767 $ 823
Reserve on notes receivable 618 30 0 28 620
Valuation allowance on deferred tax asset 253 0 0 130 123
Fiscal Year Ended November 2, 1996
Allowance for doubtful accounts $ 823 $ 466 $ 0 $ 520 $ 769
Reserve on notes receivable 620 0 0 570 50
Valuation allowance on deferred tax asset 123 0 0 50 73

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.

By: /s/ W. Robert Stover
----------------------------------------
W. Robert Stover
Chairman of the Board of Directors and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned officers and directors of Western Staff Services,
Inc., a Delaware corporation, do hereby constitute and appoint Harvey L. Maslin
and Paul A. Norberg, and each of them, the lawful attorneys-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any amendments to this report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ W. Robert Stover
- -------------------- Chairman of the Board of Directors January 31, 1997
W. Robert Stover and Chief Executive Officer
(Principal Executive Officer)

/s/ Michael K. Phippen
- -------------------- President, Chief Operating January 31, 1997
Michael K. Phippen Officer and Director

/s/ Harvey L. Maslin
- -------------------- Vice Chairman of the Board January 31, 1997
Harvey L. Maslin of Directors, Chief Administrative
Officer and Director

/s/ Paul A. Norberg
- -------------------- Executive Vice President, January 31, 1997
Paul A. Norberg Chief Financial Officer and
Director
(Principal Financial Officer)

/s/ Dirk A. Sodestrom
- -------------------- Vice President and Controller January 31, 1997
Dirk A. Sodestrom (Principal Accounting Officer)

/s/ Gilbert L. Sheffield
- -------------------- Director January 31, 1997
Gilbert L. Sheffield

- -------------------- Director January , 1997
Jack D. Samuelson ---

INDEX TO EXHIBITS

EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ----

10.3.1 Amendment to the Employment Agreement between the Company
and W. Robert Stover.

10.7 Western Staff Services, Inc. 1996 Stock Option/Stock Issuance
Plan.

10.7.1 Form of Notice of Grant of Stock Option.

10.7.2 Form of Stock Option Agreement.

10.7.3 Form of Addendum to Stock Option Agreement (Involuntary
Termination Following a Corporate Transaction).

10.7.4 Form of Notice of Grant of Automatic Stock Option.

10.7.5 Form of Automatic Stock Option Agreement.

10.7.6 Form of Stock Issuance Agreement.

10.8.2 Waiver and Second Amendment to Credit Agreement
dated as of September 30, 1996.

10.11 Western Staff Services, Inc. 1996 Employee Stock
Purchase Plan.

10.11.1 Stock Purchase Agreement.

10.11.2 Form of Enrollment/Change Form.

10.11.3 International Employee Stock Purchase Plan.

10.11.4 Stock Purchase Agreement.

10.11.5 Form of Enrollment/Change Form.

23.1 Consent of Price Waterhouse LLP, independent
accountants.

27.1 Financial Data Schedule