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Westaff Reports Fourth Quarter Profits and Fiscal 2002 Results

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WALNUT CREEK, CA, Thursday, December 19, 2002
Westaff, Inc. (NASDAQ: WSTF), a leading provider of temporary administrative, light industrial and call center staff, today reported financial results for the fourth quarter and fiscal year, which ended November 2, 2002.

Fiscal 2002 Fourth Quarter Results

Average weekly sales of services and license fees increased 3.7% during the fiscal 2002 fourth quarter - the first such quarterly year over year sales increase since the second quarter of fiscal 2000. Also, primarily as a result of Westaff's improving sales and cost reduction programs, the Company reported pre-tax income of $0.9 million during the fourth quarter.

"I am very pleased with the continued progress we are making with respect to sales growth, profitability growth and cost reductions," said Westaff President and Chief Executive Officer Dwight S. Pedersen. "I am optimistic about the prospects for fiscal 2003."

Sales of services and license fees were $179.5 million in the fourth quarter of fiscal 2002, a decrease of 2.4% as compared to $183.9 million in the fourth quarter of fiscal 2001. However, the fourth quarter of fiscal 2001 included 17 weeks as compared to 16 weeks for the fiscal 2002 reporting period. After eliminating the effect of the extra week in fiscal 2001, comparative sales increased 3.7%. This continues the gradually improving sales trends that began during the second quarter of fiscal 2002.

The first quarter of fiscal 2003 shows a continuation of these trends. The first 4-week accounting period of fiscal 2003 reported sales of $43 million, an increase of more than 10% as compared to the same period last year. "These improvements in sales reflect the effects of focused sales training and development initiatives and new service offerings we recently introduced and they are currently offsetting the downward pressure on margins that we are experiencing," commented Pedersen.

Westaff also reported net income from continuing operations of $2.4 million, or $0.15 per share, for the fourth quarter of fiscal 2002. This compares with a net loss of $33.4 million, or $2.10 per share for the fourth quarter of fiscal 2001.

The fiscal 2002 fourth quarter included an income tax benefit of $1.4 million which is primarily attributable to income tax refunds that the Company expects to realize as a result of changes to the net operating loss carryback rules enacted during 2002. The Company currently expects to receive a domestic federal income tax refund in fiscal 2003 of approximately $4.5 million relating to tax net operating losses incurred in fiscal 2002.

The fourth quarter of fiscal 2001 included a number of unusual items, including: a $19.1 million non-cash charge relating to impairment of goodwill and other intangible assets; a pre-tax charge of $3.6 million relating to an unfavorable arbitration ruling; and a $19.2 million tax charge relating to deferred tax valuation allowances.

After eliminating the effect of the $3.6 million arbitration ruling charge in fiscal 2001 noted above, selling and administrative expenses declined $4.4 million for the fourth quarter of fiscal 2002 as compared to the fourth quarter of fiscal 2001. This is primarily the result of a number of cost reduction programs implemented throughout fiscal 2002.

Fiscal 2002 Results

Sales of services and license fees for fiscal 2002 were $515.3 million, a decrease of $57.3 million or 10.0% as compared to fiscal 2001. The Company reported a net loss of $1.4 million or $0.09 per share for fiscal 2002 compared to a net loss of $33.9 million or $2.14 per share for fiscal 2001.

Westaff completed a sale and leaseback of its primary corporate headquarters buildings on December 12, 2002. The sale leaseback generated nearly $7 million in cash and was used to repay the Company's $4.5 million term note, a $1 million related party note and further pay down its revolving credit line. The Company expects to record a pre-tax gain for book purposes of approximately $5 million during the first quarter of fiscal 2003 as a result of this transaction. The Company owns one additional building at its corporate headquarters and intends to sell or sublease this space during fiscal 2003.

The Company also announced that it expects to complete a capital lease transaction for approximately $1.6 million, in late December 2002. This transaction will include approximately $1 million of new information technology equipment to improve the Company's processing infrastructure plus approximately $600,000 related to a sale and leaseback of hardware and software previously purchased by the Company.

Dirk Sodestrom, Westaff's Senior Vice President and Chief Financial Officer commented, "These transactions will further strengthen the Company's financial position and provide Westaff with some additional flexibility to finance new growth and performance initiatives in fiscal 2003."

Westaff will discuss these results in a conference call at 8:00 a.m. (Pacific) on Friday, December 20, 2002. The call will be Webcast live at www.vcall.com and will be available after the call on our Web site at www.westaff.com. The call will also be recorded so you may listen at your convenience. The recording will be available through December 24, 2002 by dialing 800-428-6051 and entering I.D. code 271453.

Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs approximately 175,000 people and services more than 20,000 clients from more than 300 offices located throughout the U.S., the United Kingdom, Australia, New Zealand, Norway and Denmark. For more information, please visit our Web site at www.westaff.com.

This press release contains forward-looking statements as defined in the Securities Exchange Act of 1934, and is subject to the safe harbors created by law. Forward-looking statements contained herein include, but are not limited to, the statements of Mr. Pedersen regarding first quarter sales and margins and the prospects for fiscal 2003 and the statements of Mr. Sodestrom regarding financing new growth and performance initiatives. The forward-looking statements contained herein involve a number of assumptions, risks and uncertainties. Actual results of future events could differ materially from estimates. Among the factors affecting future operating results are: compliance with debt covenants, liquidity, possible adverse effects of fluctuations in the general economy, reliance on executive management, uncertain ability to continue and manage growth, control by a significant shareholder, reliance on management information systems, risks related to international operations, variability of employee-related costs including workers' compensation liabilities, risks related to customers, variability of operating results and the seasonality of the business cycle, ability to attract and retain the services of qualified temporary personnel, a highly competitive market, reliance on field management, employer liability risks and risks related to franchise agent and licensed operations.

Forward-looking statements are based on the beliefs and assumptions of the Company's management and on currently available information. The Company undertakes no responsibility to publicly update or revise any forward-looking statement. Additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider, is contained in the Company's filings with the Securities and Exchange Commission, including the Company's most recent Form 10-K, Form 10-Q, Form 8-K and other filings.