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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 4, 1994 Commission file number 0-13195
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ADIA SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2933186
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
100 Redwood Shore, Redwood City, CA 94065
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 610-1000
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64 Willow Place, Menlo Park, CA 94025
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(Former address, if changed since last report)
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 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
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Common Stock, $.25 par value 7,019,023
Class B Common Stock 5,600,000
ADIA SERVICES, INC. AND SUBSIDIARIES
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INDEX
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Page No.
Part I. Financial Information
Item 1: Financial Information (unaudited)
Condensed Consolidated Statements of Income-
Three months ended March 31, 1994 and 1993 1
Condensed Consolidated Statements of Financial
Position-March 31, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows-
Three months ended March 31, 1994 and 1993 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K 6
Signatures 7
ADIA SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
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1994 1993
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Net service revenues and other income $269,763 $208,737
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Direct costs of services, consisting of direct
labor, payroll taxes, insurance and benefits
for temporary employees 196,462 149,273
Selling, general and administrative expenses 62,681 52,322
Amortization of intangibles 1,215 1,325
Interest expense (income), net (463) (727)
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259,895 202,193
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Income before income taxes 9,868 6,544
Provision for income taxes 4,440 2,945
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Net income $ 5,428 $ 3,599
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Weighted average shares outstanding 12,581 12,554
Net income per share $ .43 $ .29
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Cash dividends per share
Common stock $ .04 $ .04
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Class B common stock $ .035 $ .035
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
ADIA SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(In thousands of dollars)
March 31, 1994 December 31, 1993
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ASSETS
Current assets
Cash and short-term investments $ 80,292 $ 67,828
Trade accounts receivable, net 128,064 119,210
Notes and other receivables 3,539 4,108
Deferred income taxes 17,043 15,478
Other current assets 4,961 5,034
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Total current assets 233,899 211,658
Property, equipment and
leasehold improvements $42,967 $38,338
Less, accumulated depreciation
and amortization 27,066 15,901 24,454 13,884
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Cost in excess of net assets
of acquired companies 72,952 70,240
Other intangible assets 3,415 3,929
Other assets 3,264 2,937
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$329,431 $302,648
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LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 92,803 $ 76,978
Income taxes payable 9,331 4,907
Current portion of long-term debt 1,326 239
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Total current liabilities 103,460 82,124
Long-term debt 758 859
STOCKHOLDERS' EQUITY
Preferred stock
none, issued or outstanding
Common stock $ 3,157 $ 3,149
Additional paid-in capital 102,207 101,621
Retained earnings 120,156 115,202
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225,520 219,972
Less: Treasury stock (307) 225,213 (307) 219,665
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$329,431 $302,648
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
ADIA SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands of dollars)
Three months ended
March 31,
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1994 1993
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Operations
Net income $ 5,428 $ 3,599
Charges and credits to income not affecting cash
Depreciation 1,495 1,279
Amortization 1,169 1,382
Deferred income taxes (1,200) (569)
Accounts receivable (5,993) (8,718)
Accounts payable and accrued expenses 10,705 7,384
Other working capital 4,824 3,457
Other operating flows (278) 123
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16,150 7,937
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Investing
Acquisitions (1,000) (13)
Additions to property, equipment
and leasehold improvements (3,272) (1,717)
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(4,272) (1,730)
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Financing
Issuance of common stock 594 62
Dividends paid (475) (475)
Increase in long-term debt 499 23
Repayments of debt (32) (31)
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586 (421)
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Net increase in cash
and short-term investments 12,464 5,786
Cash and short term investments
Beginning of period 67,828 21,021
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End of period $80,292 $26,807
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
ADIA SERVICES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1: Basis of Presentation
The accompanying condensed consolidated financial statements of Adia Services,
Inc. and subsidiaries for the three month periods ended March 31, 1994 and 1993
are unaudited. However, in the opinion of the Company, all adjustments necessary
for a fair presentation have been reflected therein.
Certain financial information which is normally included in financial statements
prepared in accordance with generally accepted accounting principles, but which
is not required for interim reporting purposes, has been condensed or omitted.
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report.
The results of operations for the three month period ended March 31, 1994 are
not necessarily indicative of the results to be expected for the full year.
NOTE 2: Majority Stockholder
On March 22, 1994, the Registrant received a merger proposal from Adia S.A.
("ASA"), whereby ASA would acquire all the outstanding common shares of the
Company which it does not currently own. ASA owns, through its wholly-owned
subsidiary, Adia Holdings Incorporated ("AHI"), 4,632,348 shares of the
Registrant's common stock and 5,600,000 shares (100%) of the Registrant's Class
B common stock, which together represent 81.4% of the Registrant's outstanding
shares. Based upon the higher voting power of the Class B common stock, ASA
controls 96.3% of the votes.
In the proposed merger, eight shares of common stock of the Registrant would be
exchanged for one share of ASA stock and $112.00 in cash. The Registrant's
special committee of outside Directors is presently reviewing the merger
proposal.
The Company acquired Adia Canada, Ltd., a wholly-owned subsidiary of ASA for
$1 million as of the beginning of 1994. This transaction was accounted for as a
purchase based upon a purchase price determined by independent appraisal.
Recording this transaction as a deemed distribution to ASA would not have
produced a materially different result.
Under the existing tax sharing agreement between the Company and AHI, the
Company shares in any Federal tax savings realized as a result of its
consolidation for tax purposes with other AHI companies. Because of the expected
1994 operating results of the other AHI companies included in the tax
consolidation, the Company does not presently anticipate any tax savings for
1994 and, accordingly, did not record any such tax benefit in the first quarter
of 1994.
4
ADIA SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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During the first quarter of 1994, net income increased to $5.4 million ($.43 per
share) as compared to $3.6 million ($.29 per share) for the first quarter of
1993.
The Company's operating results for the first quarter of 1994 were positively
affected by the growth in the general economy. Additionally, the trend on the
part of business to incorporate temporary help into their manpower planning
continues to favorably impact Adia's business as well as the industry as a
whole. During the quarter, Adia's number of hours sold increased 28% and the
Company once again achieved record revenues. Revenues for the first quarter of
1994 increased 29.2% to $269.8 million as compared to $208.7 million in 1993.
Gross margin dollars during this same period increased 23.3% although gross
margin as a percentage of revenues fell from 28.5% to 27.2%. The increase in
revenues reflects the increase in the total number of hours sold and slight
increases in overall average bill rates, permanent placement and outplacement
revenues. The higher overall gross margin dollars also results from the increase
in volume while the decrease in the gross margin percentage stems from a
combination of higher pay rates required to attract and retain highly qualified
temporaries and higher employer related costs for workers' compensation and
unemployment taxes. Because of continued competitive pricing pressures, the full
amount of these benefit costs could not be passed along in the form of higher
bill rates. The Company continues to maintain overall gross margin levels higher
than average for the temporary employment industry resulting from its mix of
specialty operations as well as its strategy of providing highly skilled general
temporary help.
Selling, general and administrative expenses increased 20% as compared to the
same period a year ago. As a percentage of revenues, these expenses decreased to
23% from 25%. The overall increase is due principally to increased incentive
compensation directly related to improved branch profitability. The Company
continues to pursue cost efficiency measures to continue decreasing these costs
as a percentage of revenues.
Net interest income decreased during the first quarter of 1994 as compared to
the first quarter of 1993. In the prior year, the Company was able to offset the
general decline in market interest rates through its loan with Adia Holdings
Incorporated ("AHI"), the Company's majority stockholder, which provided for a
yield on all funds loaned to AHI higher than the yield on current short-term
investments. This loan was repaid in full during December 1993.
Liquidity and Capital Resources
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The Company continues to internally generate sufficient cash to support its
ongoing operations.
The Company continues to have a credit agreement with Adia Holdings Incorporated
(its majority stockholder-"AHI"), whereby AHI may borrow up to $50 million from
the Company. As of March 31, 1994, there are no outstanding borrowings under
this line.
The Company has paid uninterrupted quarterly dividends on its Common Stock since
its initial public offering in October 1984. Quarterly cash dividends are
currently $.04 per share for Common Stock and $.035 per share for Class B common
stock.
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ADIA SERVICES, INC. AND SUBSIDIARIES
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
None
(b) Reports on Form 8-K
A Form 8-K was filed as of March 22, 1994 to report under
Item 5 the merger proposal received by the Registrant from
its majority stockholder, Adia S.A.
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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.
ADIA SERVICES, INC.
Date: May 5, 1994 By: /s/ JOHN P. BOWMER
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John P. Bowmer
Chief Executive Officer and Director
Date: May 5, 1994 By: /s/ JON H. ROWBERRY
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Jon H. Rowberry
Senior Vice President,
Chief Financial Officer and Director
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