SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1996
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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.
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(Exact name of registrant as specified in its charter)
New York 13-1996648
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
415 Crossways Park Drive, Woodbury, NY 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 437-3300
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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 .
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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. 3,023,543 (as of November 6, 1996).
UNIFORCE SERVICES, INC.
INDEX
Part I Financial Information: Page No.
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Item 1. Consolidated Condensed Financial Statements
Consolidated condensed statements of earnings -
three months and nine months ended
September 30, 1996 and 1995 (unaudited) 1
Consolidated condensed balance sheets -
September 30, 1996 (unaudited) and December
31, 1995 2
Consolidated condensed statements of cash flows -
nine months ended September 30, 1996 and 1995
(unaudited) 3
Notes to consolidated condensed financial
statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II Other Information:
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Item 6. Exhibits and Reports on Form 8-K 10
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,
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1996 1995 1996 1995
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Sales of supplemental
staffing services $ 34,927,359 $ 33,609,759 $ 97,804,122 $ 93,248,631
Service revenues and fees 1,940,215 2,336,979 5,589,180 5,530,092
------------- ------------- ------------- -------------
Total revenues 36,867,574 35,946,738 103,393,302 98,778,723
------------- ------------- ------------- -------------
Costs and expenses:
Cost of supplemental
staffing services 27,178,454 26,260,124 76,214,231 72,663,664
Licensees' share of
gross margin 2,121,426 2,597,035 5,832,735 7,166,125
General and administrative 4,866,535 5,005,916 14,556,306 13,878,639
Depreciation & amortization 310,438 227,008 783,419 693,343
------------- ------------- ------------- -------------
Total costs and expenses 34,476,853 34,090,083 97,386,691 94,401,771
------------- ------------- ------------- -------------
Earnings from operations 2,390,721 1,856,655 6,006,611 4,376,952
Other income (expense):
Interest - net (591,512) (278,498) (1,563,728) (527,793)
Other - net 1,258 (5,696) 18,954 28,737
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Earnings before provision
for income taxes 1,800,467 1,572,461 4,461,837 3,877,896
Provision for income taxes 684,000 599,000 1,695,000 1,473,000
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NET EARNINGS $ 1,116,467 $ 973,461 $ 2,766,837 $ 2,404,896
============= ============= ============= =============
Weighted average number
of shares outstanding 3,223,909 4,260,056 3,273,265 4,330,296
NET EARNINGS PER SHARE $ .35 $ .23 $ .85 $ .56
============= ============= ============= =============
See accompanying notes to consolidated condensed financial statements.
1
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,359,834 $ 6,444,859
Accounts receivable - net 17,857,241 14,827,862
Funding and service fees
receivable - net 22,727,217 20,918,753
Current maturities of notes
receivable from licensees - net 113,575 132,258
Prepaid expenses and other
current assets 1,761,387 1,270,268
Deferred income taxes 347,149 347,149
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Total current assets 46,166,403 43,941,149
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Notes receivable from licensees - net 156,841 182,642
Fixed assets - net 3,539,058 2,125,413
Deferred costs and other assets - net 1,590,192 821,244
Cost in excess of fair value of net
assets acquired 6,476,923 3,525,741
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$ 57,929,417 $ 50,596,189
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable $ 937,497 $ 750,000
Payroll and related taxes payable 8,174,227 7,540,947
Payable to licensees and clients 1,829,909 2,025,563
Income taxes payable 259,604 351,690
Accrued expenses and
other liabilities 4,012,082 4,092,058
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Total current liabilities 15,213,319 14,760,258
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Loan payable - non-current 28,513,112 11,250,000
Capital lease obligation - non-current 781,579 426,109
Stockholders' equity:
Common stock $.01 par value 51,078 49,912
Additional paid-in capital 8,836,648 7,789,598
Retained earnings 26,484,275 23,990,043
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35,372,001 31,829,553
Treasury stock, at cost, 2,084,245
shares in 1996 and 829,500
shares in 1995 (21,950,594) (7,669,731)
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Total stockholders' equity 13,421,407 24,159,822
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$ 57,929,417 $ 50,596,189
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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,
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1996 1995
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Cash flows from operating activities:
Net earnings $ 2,766,837 $ 2,404,896
Adjustments to reconcile net
earnings to net cash (used)
by operating activities:
Depreciation and amortization 783,419 693,343
(Increase) in receivables
and prepaid expenses (4,480,953) (9,788,764)
Stock option compensation expense 13,500 13,500
(Decrease) increase in liabilities (89,907) 2,508,305
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Net cash (used) by operating activities (1,007,104) (4,168,720)
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Cash flows from investing activities:
Purchases of fixed assets (774,916) (709,995)
(Increase) decrease in deferred costs
and other assets (455,270) 172,082
Net assets acquired from Montare (4,628,142) --
Decrease in notes receivable
from licensees 44,484 274,172
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Net cash (used) by investing activities (5,813,844) (263,741)
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Cash flows from financing activities:
Principal payments on capital lease
obligations (195,934) --
Increase in loan payable 17,450,609 6,400,000
Cash dividends paid (272,605) (399,053)
Purchase of treasury stock (14,280,863) (2,331,990)
Proceeds from issuance of
common stock 1,034,716 236,250
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Net cash provided by financing
activities 3,735,923 3,905,207
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Net (decrease) in cash and cash
equivalents (3,085,025) (527,254)
Cash and cash equivalents at
beginning of period 6,444,859 7,298,823
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Cash and cash equivalents at
end of period $ 3,359,834 $ 6,771,569
============ ============
Supplemental disclosures:
Cash paid for:
Interest $ 1,310,366 $ 422,730
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Income taxes $ 1,601,379 $ 1,084,548
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Non-cash financing activities:
The Company entered into capital leases in the amount of $551,405 and $524,423
for the nine months ended September 30, 1996 and 1995, respectively.
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 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, 1996, 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 be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 1995
financial statements. The results of operations for the period ended September
30, 1996 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. ACQUISITION
On May 17, 1996, the Company acquired certain assets of
Montare International, Inc. ("Montare"), a provider of IT (Information
Technology) contract professionals. The purchase price was $3,600,000, in cash.
In addition, the Company acquired certain accounts receivable for $845,486. The
purchase price and accounts receivable acquired were financed through borrowings
available under the Company's credit facility.
This acquisition has been accounted for as a purchase and
accordingly, the purchase price has been allocated to identifiable assets based
on their estimated fair values as of the date of acquisition; $625,633 was
allocated to such assets. The excess of the consideration paid, including the
direct costs of the acquisition, over the estimated fair value of net assets
acquired amounted to $3,158,022 and has been recorded as goodwill and will be
amortized over 20 years on the straight-line basis. The operating results of
Montare have been included with those of the Company from the date of
acquisition.
4
4. CONTINGENCIES
In April 1994, various insurance carriers and their
not-for-profit trade association filed an action against the Company, certain
officers and various other parties; in May 1996, the plaintiffs filed their
Third Amended Complaint. The plaintiffs allege causes of action for breach of
contracts of insurance, negligence, fraud, conspiracy to defraud and fraudulent
inducement. The Company has filed answers, affirmative defenses and
counterclaims directed to the Third Amended Complaint. The Company and its
subsidiaries have filed an action in New York against the various prior workers'
compensation carriers alleging claims mismanagement. The action is in the
discovery stage. Management believes that the ultimate outcome of these matters
will not have a material adverse effect upon the financial position of the
Company.
In January 1996, various vendors of training films filed an
action against the Company, alleging that the Company improperly used and/or
copied plaintiffs' tapes. Motions have been filed to have the plaintiffs' claims
dismissed and/or severed. Management is engaged in settlement discussions. If
the case is not settled, management intends to vigorously defend the claims and
believes that the claims, even if resolved in plaintiffs' favor, will not have a
material adverse effect upon the financial position of the Company.
5. TENDER OFFER
On December 11, 1995, the Company made an offer to purchase
for cash up to 1,250,000 shares of its Common Stock at $11.25 net per share (the
"Offer"). The 1,250,000 shares that the Company offered to purchase represented
approximately 30% of the Shares outstanding as of December 11, 1995. In January
1996, the Offer was successfully completed.
The total amount required to purchase the 1,250,000 shares was
$14,062,500, exclusive of related fees and other expenses. The purchase price
and related expenses were funded with available borrowings under the Company's
credit facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total revenues increased by $920,836, or 2.6%, from
$35,946,738 in the third quarter of 1995 to $36,867,574 in the third quarter of
1996. For the first nine months, total revenues increased by $4,614,579 or 4.7%
from $98,778,723 in 1995 to $103,393,302 in 1996.
Sales of supplemental staffing services increased by
$1,317,600 and $4,555,491, respectively, for the third quarter and first nine
months of 1996 as compared to 1995. PrO Unlimited sales increased by $3,067,632
or 46.0% and $9,828,760 or 55.4%, respectively, for the third quarter and first
nine months of 1996 as compared to 1995. Brannon & Tully/Uniforce Information
Services sales increased by $442,168 or 6.6% and $3,409,543 or 18.5%,
respectively, for the third quarter and first nine months of 1996 as compared to
1995. Further contributing to the increase in sales was the Company's
acquisition in May 1996 of certain assets of Montare, a provider of information
technology ("IT") contract professionals. This acquisition contributed
$2,534,663 of sales since May 17, 1996 and $1,651,480 of sales for the third
quarter of 1996 and has had a favorable impact on the Company's results of
operations. These increases were offset by lower sales for licensed offices,
which were principally due to a reduction in the number of licensed offices as a
result of contract buyouts by two operators.
The Company's strategy is to expand through the development of
higher margin professional services such as IT, technical, automated office and
other professional support services as well as its PrO Unlimited subsidiary,
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 decreased by 17.0% from $2,336,979
in the third quarter of 1995 to $1,940,215 in the third quarter of 1996, and
increased by 1.1% from $5,530,092 for the first nine months of 1995 to
$5,589,180 for the first nine months of 1996. Despite increased service revenues
and fees generated by THISCO(R), one of the Company's subsidiaries, a decline in
service revenues and fees was experienced in the third quarter of 1996 as
compared to 1995. This decline resulted from certain licensee service revenues
and fees which were reported in the third quarter of 1995 and for which there
were none in the third quarter of 1996. The Company intends to continue to
expand this portion of its business through Temporary Help Industry Servicing
Company, Inc. ("THISCO(R)") and through its subsidiary Brentwood Service Group
("BSG").
System-wide sales, which includes sales of associated offices
serviced by two of the Company's subsidiaries, THISCO(R) and BSG increased
$8,240,017 or 10.1% from $81,218,021 in the third quarter of 1995 to $89,458,038
in the third quarter of 1996. In the first nine months, system-wide sales
increased by $29,133,203 or 13.0% from $223,506,005 in 1995 to $252,639,208 in
1996.
6
Cost of supplemental staffing services was 77.8% of sales of
supplemental staffing services in the third quarter of 1996 compared to 78.1% in
the third quarter of 1995. Cost of supplemental staffing services was 77.9% of
sales of supplemental staffing services in both the first nine months of 1996
and 1995.
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 $7,748,905
and $7,349,635 for the third quarter of 1996 and 1995, respectively. For the
first nine months, gross margin from such sales amounted to $21,589,891 in 1996
and $20,584,967 in 1995. Licensees' share of gross margin was 27.4% in the third
quarter of 1996 as compared to 35.3% for the third quarter 1995. For the first
nine months, licensees' share of gross margin was 27.0% in 1996 and 34.8% in
1995. The lower share as a percentage of total gross margin in 1996 is due to
lower licensee sales, increased sales of Brannon & Tully/Uniforce Information
Services and Montare for which there are no related licensee distributions and
to the increased sales of PrO Unlimited for which there are limited
distributions.
General and administrative expenses decreased by $139,381 or
2.8% during the third quarter of 1996 as compared to the third quarter of 1995.
For the first nine months of 1996, general and administrative expenses increased
by $677,667 or 4.9% in 1996 compared to 1995. As a percentage of revenues,
general and administrative expenses were 13.2% and 13.9% for the third quarter
of 1996 compared to 1995, respectively, and 14.1% for the first nine months in
both 1996 and 1995. During 1996, the Company experienced increases in general
and administrative expenses resulting principally from higher facility costs,
payroll and recruiting costs with respect to permanent staff and costs relating
to the implementation of a new payroll and billing system. These increases were
more than offset during the third quarter by a reduction in the Company's
provision for bad debts and, after giving consideration to certain insurance
coverages, a reduction of professional costs associated with the Company's
litigation described in Note 4 of the consolidated condensed financial
statements.
Net interest expense increased by $313,014 during the third
quarter of 1996 as compared to the third quarter of 1995 and increased by
$1,035,935 for the first nine months of 1996 compared to the first nine months
of 1995. The increase in interest expense for the 1996 periods compared to 1995
is a direct result of increased borrowings used for the repurchase of 1,250,000
shares of the Company's common stock described in Note 5 to the consolidated
condensed financial statements and the acquisition of Montare described in Note
3 to the consolidated condensed financial statements.
As a result of the factors discussed above, net earnings
increased by 14.7% from $973,461 ($.23 per share) in the third quarter of 1995
to $1,116,467 ($.35 per share) in the third quarter of 1996. For the first nine
months, net earnings increased by 15.1% from $2,404,896 ($.56 per share) in 1995
to $2,766,837 ($.85 per share) in 1996.
7
FINANCIAL CONDITION
As of September 30, 1996, the Company's working capital
increased to $30,953,084 as compared to $29,180,891 at December 31, 1995. This
increase was due primarily to the continuing profitable operations of the
Company. In addition, cash was reduced by acquisitions of fixed assets, the
payment of cash dividends, the acquisition of Montare and the purchase of
treasury stock which was largely financed through the credit facility.
During the first nine months of 1996, the Company paid cash
dividends on shares of its common stock at the quarterly rate of $.03 per share
($272,605).
On December 8, 1995, the Company entered in an agreement with
a financial institution creating a three-year $35,000,000 credit facility (the
"Credit Facility"). The Credit Facility comprises a term loan in the amount of
$3,000,000 (the "Term Loan") to be paid in monthly installments of $62,500 in
1996, $83,333 in 1997 and $104,167 in 1998, with the balance outstanding due on
December 1, 1998, and a $32,000,000 revolving credit facility (the "Revolving
Facility"), which expires on December 1, 1998. The Company may borrow against
the Revolving Facility up to 85% of eligible accounts receivable and eligible
service and funding fees receivable. The Term Loan bears interest at the
Company's election at either the lender's floating base rate plus .25%, or LIBOR
(London Interbank Offered Rate) plus 2.25%. Borrowings under the Revolving
Facility bear interest at the Company's election at either the lender's floating
base rate, or LIBOR plus 2.125%. Borrowings under the Credit Facility are
secured by a first priority security interest in all owned and after-acquired
real and personal property of the Company.
At September 30, 1996, the Company had outstanding borrowings
of $2,437,500 under the Term Loan bearing interest at an average rate of 7.87%
and $27,013,109 of borrowings under the Revolving Facility bearing interest at
an average rate of 7.72%.
The Credit Facility contains a variety of affirmative and
negative covenants of types customary in an asset-based lending facility,
including those relating to reporting requirements, maintenance of records,
properties and corporate existence, compliance with laws, incurrence of other
indebtedness and liens, restrictions on certain payments and transactions and
extraordinary corporate events. The Credit Facility also contains financial
covenants relating to maintenance of levels of minimum tangible net worth,
EBITDA (earnings before interest, taxes, depreciation and amortization), net
income and fixed charge coverage and restricting the amount of capital
expenditures. In addition, the Credit Facility contains certain events of
default of types customary in an asset-based lending facility. Generally, if the
Credit Facility is terminated (i) during the first nine months of its term, a
fee of 1% of the amount thereof is payable, or (ii) during the succeeding nine
months of its term, a fee of .5% of the amount thereof is payable. The Company
was in compliance with all covenants at September 30, 1996.
8
Prior to December 8, 1995, the Company had maintained with two
banks a working capital credit facility and a revolving credit and term loan
facility. Amounts outstanding under these facilities were repaid with borrowings
available under the Credit Facility.
In January 1996, the Company successfully completed its offer
to purchase 1,250,000 shares of its common stock at $11.25 net per share. The
total amount required to purchase such shares was $14,062,500, exclusive of
related fees and other expenses. The purchase price and related expenses were
funded with borrowings available under the Credit Facility.
As described elsewhere herein, on May 17, 1996, the Company
acquired certain assets of Montare, a provider of IT contract professionals. The
purchase price was $3,600,000, in cash. The Company also acquired from Montare
certain accounts receivable for $845,486. The purchase price and accounts
receivable were financed through borrowings available under the Credit Facility.
The Company moved its corporate headquarters in April 1996.
The cost of the move, including purchases of fixed assets, was approximately
$750,000 and was financed from cash flow from operations and financing from the
Credit Facility. The Company believes that internally generated cash flow and
funding from the Credit Facility will be adequate to meet its current operating
requirements for at least the next twelve months. The Company intends to expand
its business through the further development of higher margin professional
services as well as through PrO Unlimited, Montare 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 internal expansion
will also be financed from its cash flow and available borrowings under the
Credit Facility. The magnitude of future acquisitions will determine whether
they can be financed in the same manner or whether additional external sources
of financing will be required. While the Company believes that such sources
would be available on terms satisfactory to it, there can be no assurance in
this regard.
In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation,"
which must be adopted by the Company in 1996. The Company has elected not to
implement the fair value based accounting method for employee stock options, but
has elected to disclose, commencing in its 1996 Form 10-K, the pro-forma net
income and earnings per share as if such method had been used to account for
stock-based compensation cost as described in Statement No. 123.
9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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, 1996.
10
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 12, 1996 UNIFORCE SERVICES, INC.
By: /s/ John Fanning
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John Fanning, Chairman of the Board
and President
By: /s/ Harry Maccarrone
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Harry Maccarrone, V.P. of Finance,
Principal Financial and Accounting
Officer
11