SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11876
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Uniforce Services, Inc.
(formerly known as Uniforce Temporary Personnel, Inc.)
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-1996648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1335 Jericho Turnpike, New Hyde Park, NY 11040
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 437-3300
--------------
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 .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date. 4,157,713 (as of November 1, 1995)
UNIFORCE SERVICES, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
Consolidated condensed statements of earnings -
three months and nine months ended
September 30, 1995 and 1994 (unaudited) 1
Consolidated condensed balance sheets -
September 30, 1995 (unaudited) and December
31, 1994 2
Consolidated condensed statements of cash flows -
nine months ended September 30, 1995 and 1994
(unaudited) 3
Notes to consolidated condensed financial
statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II OTHER INFORMATION:
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
ITEM 6. Exhibits and Reports:
(a) Exhibits
10(a) Agreement dated November 3, 1995 among
Uniforce Staffing Services, Inc.
("USSI") the Registrant, the
subsidiaries of the Registrant, Natwest
Bank N.A. ("Natwest") and Chemical Bank
("Chemical").
10(b) Promissory Note in the maximum principal
amount of $7,000,000 made by USSI to
Chemical.
10(c) Promissory Note in the maximum principal
amount of $5,000,000 made by USSI to
Natwest.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed
during the quarter ended September 30, 1995.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
Sales of supplemental
staffing services $33,609,759 $29,525,629 $93,248,631 $79,482,745
Service revenues and fees 2,336,979 1,943,205 5,530,092 5,094,896
----------- ----------- ----------- -----------
Total revenues 35,946,738 31,468,834 98,778,723 84,577,641
----------- ----------- ---------- -----------
Costs and expenses:
Cost of supplemental
staffing services 26,260,124 23,028,161 72,663,664 62,076,558
Licensees' share of gross
margin 2,597,035 2,567,202 7,166,125 7,309,871
General and administrative 5,005,916 4,228,463 13,878,639 11,078,070
Depreciation & amortization 227,008 246,179 693,343 674,917
----------- ----------- ----------- -----------
Total costs and expenses 34,090,083 30,070,005 94,401,771 81,139,416
------------ ----------- ----------- -----------
Earnings from operations 1,856,655 1,398,829 4,376,952 3,438,225
Other income (expense):
Interest - net (278,498) (26,216) (527,793) (6,077)
Other - net (5,696) 29,937 28,737 83,888
----------- ----------- ----------- ----------
Earnings before provision for
income taxes 1,572,461 1,402,550 3,877,896 3,516,036
Provision for income taxes 599,000 533,000 1,473,000 1,336,000
----------- ----------- ----------- -----------
NET EARNINGS $ 973,461 $ 869,550 $ 2,404,896 $ 2,180,036
=========== =========== =========== ===========
Weighted average number
of shares outstanding 4,260,056 4,667,266 4,330,296 4,536,748
Earnings per share $ .23 $ .19 $ .56 $ .48
=========== =========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
1
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 6,771,569 $ 7,298,823
Accounts receivable - net 16,165,968 11,818,740
Funding and service fees
receivable - net 19,686,643 14,466,995
Current maturities of notes
receivable from licensees - net 237,952 399,714
Prepaid expenses and other
current assets 722,976 501,088
Deferred income taxes 379,771 379,771
----------- ------------
Total current assets 43,964,879 34,865,131
----------- ------------
Notes receivable from licensees - net 165,357 277,767
Fixed assets - net 2,257,591 1,294,550
Deferred costs and other assets - net 888,488 1,336,284
Cost in excess of fair value of net
assets acquired 3,576,324 3,722,576
----------- ------------
$50,852,639 $ 41,496,308
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable $10,500,000 $ 3,500,000
Payroll and related taxes payable 8,508,901 7,007,921
Payable to licensees and clients 2,304,045 1,910,111
Income taxes payable 381,024 ---
Accrued expenses and
other liabilities 3,484,060 3,165,869
----------- ------------
Total current liabilities 25,178,030 15,583,901
----------- ------------
Loan payable - non-current 2,200,000 2,800,000
Capital lease obligation - non-current 438,599 ---
Stockholders' equity:
Common stock $.01 par value 49,872 49,468
Additional paid-in capital 7,660,918 7,411,572
Retained earnings 22,958,437 20,952,594
----------- ------------
30,669,227 28,413,634
Treasury stock, at cost, 829,500
shares in 1995 and 578,750
shares in 1994 (7,633,217) (5,301,227)
----------- ------------
Total stockholders' equity 23,036,010 23,112,407
----------- ------------
$50,852,639 $ 41,496,308
=========== ============
See accompanying notes to consolidated condensed financial statements.
2
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
Cash flows from operating activities:
Net earnings $2,404,896 $2,180,036
Adjustments to reconcile net
earnings to net cash (used)
by operating activities:
Depreciation and amortization 693,343 674,917
(Increase) in receivables
and prepaid expenses (9,788,764) (8,144,504)
Stock option compensation expense 13,500 13,500
Increase in liabilities 2,508,305 3,411,980
---------- ----------
Net cash (used) by operating
activities (4,168,720) (1,864,071)
---------- ----------
Cash flows from investing activities:
Purchases of fixed assets (709,995) (401,382)
(Increase) decrease in deferred
costs and other investments 172,082 (4,620,452)
Decrease in notes receivable
from licensees 274,172 120,855
---------- ----------
Net cash (used) by investing
activities (263,741) (4,900,979)
---------- ----------
Cash flows from financing activities:
Increase in loan payable 6,400,000 6,600,000
Cash dividends paid (399,053) (397,240)
Purchase of treasury stock (2,331,990) (293,753)
Proceeds from issuance of
common stock 236,250 734,405
---------- ----------
Net cash provided by financing
activities 3,905,207 6,643,412
---------- ----------
Net (decrease) in cash
and cash equivalents (527,254) (121,638)
Cash and cash equivalents at
beginning of period 7,298,823 7,155,081
---------- ----------
Cash and cash equivalents at
end of period $6,771,569 $7,033,443
========== ==========
Supplemental disclosures:
Cash paid for:
Interest $ 422,730 $ 110,601
---------- ----------
Income taxes $1,084,548 $1,428,289
---------- ----------
Non-cash investing and financing activity:
In April 1994, the Company issued 127,720 shares of common stock in
connection with the acquisition of certain assets of Brannon & Tully.
During 1995, the Company entered into a capital lease agreement for
$524,423 of computer software.
See accompanying notes to consolidated condensed financial statements.
3
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of
Uniforce Services, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements as shown in the
accompanying index have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1995, and for all periods presented
have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed, reclassified or omitted. It is suggested that
these consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's December 31, 1994 financial statements. The results of operations for
the period ended September 30, 1995 are not necessarily indicative of the
operating results which may be achieved for the full year.
Tax accruals have been made based on estimated effective annual tax
rates for the periods presented.
3. CONTINGENCIES
In April 1994, various prior insurance carriers and their
not-for-profit trade association filed an action against the Company, its
officers, a director and various unrelated parties. The carriers amended the
complaint in October 1995. The action alleges breach of contracts of insurance,
negligence, fraud, conspiracy to defraud and fraudulent inducement resulting in
underpayment of premiums. The time for the Company to respond to the complaint
has not yet expired and the Company continues to deny the validity of the claims
of the Plaintiffs. Further, it intends to assert substantial claims in
opposition to the claims of the Plaintiffs. Additionally, the Company and its
subsidiaries have filed suit against various prior worker compensation carriers
alleging claims mismanagement.
Management believes that the ultimate outcome of these matters will not
have a material adverse affect upon the financial position of the Company.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total revenues increased by $4,477,904, or 14.2% from $31,468,834 in
the third quarter of 1994 to $35,946,738 in the third quarter of 1995. For the
first nine months, total revenues increased by $14,201,082 or 16.8% from
$84,577,641 in 1994 to $98,778,723 in 1995.
Sales of supplemental staffing services increased by $4,084,130 and
$13,765,886, respectively, for the third quarter and the first nine months of
1995 as compared to 1994. These increases resulted principally from the
Company's acquisition in April 1994 of certain assets of Brannon & Tully, Inc.,
a provider of information services ("IS") contract professionals. This company
now operates under the tradename of Brannon & Tully/Uniforce Information
Services. This acquisition contributed $6,713,154 and $18,499,048, respectively,
for the third quarter and the first nine months of 1995 and $4,396,829 for the
third quarter of 1994 and $7,374,599 for the period from April 18, 1994 to
September 30, 1994. This acquisition has had a favorable impact on the Company's
results of operations and its ability to develop higher margin professional
services. Sales by the Company's subsidiaries, PrO Unlimited, and to a lesser
degree LabForce, continued to increase as the Company emphasized the marketing
of these services.
The Company's strategy is to expand through the development of higher
margin professional services such as IS, technical, automated office and other
professional support services as well as through its PrO Unlimited and LabForce
subsidiaries, while continuing to reduce the percentage of its sales derived
from light industrial assignments. In addition, the Company intends to continue
to pursue acquisitions of established independent supplemental staffing service
companies that offer specialty services.
Service revenues and fees increased by 20.3% from $1,943,205 in the
third quarter of 1994 to $2,336,979 in the third quarter of 1995 and increased
by 8.5% from $5,094,896 for the first nine months of 1994 to $5,530,092 for the
first nine months of 1995. Service revenues and fees generated by Temporary Help
Industry Servicing Company, Inc. (THISCO) and Brentwood Service Group, Inc.
(BSG), two of the Company's subsidiaries, increased by $318,614 and
$763,475,respectively, for the third quarter and the first nine months of 1995
as compared to 1994. The Company intends to continue to expand this portion of
its business through THISCO and BSG. The nine month increase was offset by
certain licensee service revenues and fees which were reported in 1994 and for
which there were lower amounts in 1995. For the third quarter, licensee service
revenues and fees were higher in 1995 as compared to 1994. In addition,
system-wide sales, which include sales of Associated Offices serviced by THISCO
and BSG, increased $13,430,382 or 19.8% from $67,787,639 in the third quarter of
1994 to $81,218,021 in the third quarter of 1995. In the first nine months,
system-wide sales increased by $41,447,494 or 22.8% from $182,058,511 in 1994 to
$223,506,005 in 1995.
5
Cost of supplemental staffing services was 78.1% of sales of
supplemental staffing services in the third quarter of 1995, compared to 78.0%
in the third quarter of 1994. For the first nine months, cost of supplemental
staffing services was 77.9% of sales of supplemental staffing services in 1995
and 78.1% in 1994.
Licensees' share of gross margin is principally based upon a percentage
of the gross margin generated from sales by licensed offices. The gross margin
from sales of supplemental staffing services amounted to $7,349,635 and
$6,497,468 for the third quarter of 1995 and 1994, respectively. For the first
nine months, gross margin from such sales amounted to $20,584,967 in 1995 and
$17,406,187 in 1994. Licensees' share of gross margin was 35.3% for the third
quarter of 1995 as compared to 39.5% for the third quarter of 1994. For the
first nine months, licensees' share of gross margin was 34.8% in 1995 and 42.0%
in 1994. The lower share as a percentage of total gross margin in 1995 is due,
in part, to the sales of Brannon & Tully/Uniforce Information Services for which
there are no related licensee distributions, and to the sales of PrO Unlimited
for which there are limited distributions.
General and administrative expenses increased by $777,453 or 18.4%
during the third quarter of 1995 as compared to the third quarter of 1994. For
the first nine months, general and administrative expenses increased by
$2,800,569 or 25.3% in 1995 compared to 1994. As a percentage of revenues,
general and administrative expenses were 13.9% and 13.4% for the third quarter
of 1995 and 1994, respectively and 14.1% in 1995 and 13.1% in 1994 for the first
nine month periods. These increases resulted principally from expenses relating
to the Brannon & Tully/Uniforce Information Services operations. Further
contributing to the increase were higher expenses relating to payroll costs with
respect to permanent staff offset by savings in staff recruiting costs and
increased professional fees relating to the litigation described in Note 3 of
the notes to the consolidated condensed financial statements.
The increase in net interest expense in the 1995 periods as compared to
1994 is a direct result of increased borrowings used for the acquisition of
Brannon & Tully, Inc. and to meet working capital requirements due to the
increased system-wide sales.
As a result of the factors discussed above, net earnings increased by
12.0% from $869,550 ($.19 per share) in the third quarter of 1994 to $973,461
($.23 per share) in the third quarter of 1995. For the first nine months, net
earnings increased by 10.3% from $2,180,036 ($.48 per share) in 1994 to
$2,404,896 ($.56 per share) in 1995.
6
FINANCIAL CONDITION
As of September 30, 1995, the Company's working capital decreased to
$18,786,849, as compared to $19,281,230 at December 31, 1994. This decrease was
due primarily to the continuing profitable operations of the Company being more
than offset by the repurchase of its common stock, the acquisition of fixed
assets and the payment of the cash dividend detailed below. Funding and service
fees receivables increased by $5,219,648 to $19,686,643 during the first nine
months of 1995. This increase is due principally to the increased service
revenues and fees generated by THISCO and BSG.
During 1995, the Company has paid quarterly cash dividends on shares of
common stock of Uniforce at the quarterly rate of $.03 per share. Subsequent to
September 30, 1995, the Board of Directors declared a quarterly cash dividend of
$.03 per share, which was paid on October 27, 1995 to holders of record on
October 13, 1995.
On April 18, 1994, the Company acquired certain assets of Brannon &
Tully, Inc., a provider of IS contract professionals. The purchase price
consisted of $3,150,000 in cash and the issuance of 127,720 shares of common
stock of the Company. The Company also acquired from Brannon & Tully, Inc.
certain accounts receivable, with recourse, for $1,301,595. The cash portion of
the purchase price and the accounts receivable acquired were initially financed
through a $4,500,000 borrowing under the Company's working capital credit
facility noted below.
The Company maintains, with two banks, a working capital credit
facility and a revolving credit and term loan facility. The working capital
credit facility represents an open line of credit of up to $12,000,000
(increased from $10,000,000, effective in November 1995), borrowings under which
are payable on demand or December 31, 1995. Outstanding borrowings bear
interest, at the Company's option, at the banks' prime rate or at a rate 120
basis points above the banks' LIBOR Rate (a rate based upon the London Interbank
Offered Rate). At September 30, 1995, the Company had outstanding borrowings of
$9,700,000 with interest being charged as follows: 7.075% (120 basis points
above the LIBOR) on $7,200,000 and 8.75% (Prime Rate) on $2,500,000.
On August 31, 1994, the Company entered into a new revolving credit and
term loan agreement establishing a two-year $6,000,000 facility, outstanding
borrowings under which, at the Company's option, could be converted at the
maturity of the revolving credit facility into a five-year term loan. Effective
November 1995, in connection with the increase in the Company's working capital
facility described above, the revolving credit and term loan agreement (under
which there were no outstanding borowings) was terminated. The terminated
facility had replaced a prior revolving credit facility that matured in June
1994. Borrowings under the prior facility, which aggregated $4,000,000 at
maturity, were converted into a five-year term loan. At September 30, 1995,
$3,000,000 was outstanding with interest being charged at 7.325% (145 basis
points above the 90-day LIBOR). The terms of the
7
prior facility contain restrictive covenants relating to, among other things,
minimum net worth and profitability, with which the Company is in compliance.
The Company is in active negotiations with regard to replacement
financing arrangements, which it currently anticipates will be completed within
the next 30 days.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next 12 months. The Company believes that internally generated cash flow and
existing borrowing facilities will be adequate to meet operating requirements
through December 31, 1995. It further believes that the replacement financing
arrangement currently being negotiated will be adequate to meet its operating
requirements subsequent to such date. The Company intends to expand its business
through the development of higher margin professional services as well as
through PrO Unlimited, LabForce and Brannon & Tully/Uniforce Information
Services. Additionally, the Company continues to pursue expansion by acquisition
of established independent supplemental staffing service companies that offer
specialty services. The Company anticipates that this expansion will be financed
from internally generated cash flow and borrowing facilities.
8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3. Legal Proceedings of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, to Item 1. Legal
Proceedings of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and to the description therein of a civil action commenced in
the Circuit Court, for the Fifteenth Judicial Circuit, Palm Beach County,
Florida by National Council on Compensation Insurance, Inc., National Workers
Compensation Reinsurance Pool, Insurance Company of North America, The Travelers
Insurance Company and Liberty Mutual Insurance Company, Case No. CL-94-03275AD.
In October 1995 the Plaintiffs filed a Second Amended Complaint. In the Second
Amended Complaint the Plaintiffs added several defendants unrelated to the
registrant and additionally, three licensees of Uniforce, Gordon Robinett, a
director of Uniforce and the registrant's former Vice-President of Finance, and
the registrant's independent public auditors. The Plaintiffs allege causes of
action for breach of contracts of insurance, negligence, fraud, conspiracy to
defraud, and fraudulent inducement. The Plaintiffs allege that by virtue of the
manner in which the Company conducted its business, the Company secured workers'
compensation coverage for its temporary employees at premiums below those that
should have been paid. The Plaintiffs seek an audit, accounting, and damages in
an unspecified amount not less than $11,500,000. The time for the Company to
respond to the Complaint has not expired. The Company denies the claims and
intends to assert substantial counter-claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10(a) Agreement dated November 3, 1995 among
Uniforce Staffing Services, Inc. ("USSI")
the Registrant, the subsidiaries of the
Registrant, Natwest Bank N.A. ("Natwest")
and Chemical Bank ("Chemical").
10(b) Promissory Note in the maximum principal
amount of $7,000,000 made by USSI to
Chemical.
10(c) Promissory Note in the maximum principal
amount of $5,000,000 made by USSI to
Natwest.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
September 30, 1995.
9
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.
Dated: November 13, 1995 UNIFORCE SERVICES, INC.
By:/s/ John Fanning
-----------------------------------
John Fanning, Chairman of the Board
and President
By:/s/ Harry Maccarrone
-----------------------------------
Harry Maccarrone, V.P. of Finance,
Principal Financial and Accounting
Officer
10
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
10(a) Agreement dated November 3, 1995 among
Uniforce Staffing Services, Inc. ("USSI")
the Registrant, the subsidiaries of the
Registrant, Natwest Bank N.A. ("Natwest")
and Chemical Bank ("Chemical").
10(b) Promissory Note in the maximum principal
amount of $7,000,000 made by USSI to
Chemical.
10(c) Promissory Note in the maximum principal
amount of $5,000,000 made by USSI to
Natwest.
27 Financial Data Schedule.