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 March 31, 1997
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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. 3,033,543 (as of May 2, 1997).
UNIFORCE SERVICES, INC.
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INDEX
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Page No.
Part I Financial Information: -------
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Item 1. Consolidated Condensed Financial Statements
Consolidated condensed statements of -
earnings three months ended March 31, 1997
and 1996 (unaudited) 1
Consolidated condensed balance sheets -
March 31, 1997 (unaudited) and December
31, 1996 2
Consolidated condensed statements of
cash flows - three months
ended March 31, 1997 and 1996
(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
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31,
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1997 1996
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Sales of supplemental staffing
services $39,590,105 $30,763,328
Service revenues and fees 1,614,915 1,716,005
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Total revenues 41,205,020 32,479,333
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Costs and expenses:
Cost of supplemental staffing
services 31,552,078 24,113,367
Licensees' share of gross
margin 2,105,407 1,810,375
General and administrative 5,389,920 4,851,348
Depreciation and amortization 294,554 211,784
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Total costs and expenses 39,341,959 30,986,874
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Earnings from operations 1,863,061 1,492,459
Other income (expense):
Interest - net (533,091) (435,587)
Other income 4,993 1,956
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Earnings before provision for
income taxes 1,334,963 1,058,828
Provision for income taxes 507,000 402,000
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NET EARNINGS $ 827,963 $ 656,828
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Weighted average number
of shares outstanding 3,200,657 3,353,338
NET EARNINGS PER SHARE $ .26 $ .20
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See accompanying notes to consolidated condensed financial statements.
1
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 4,900,059 $ 5,283,422
Accounts receivable - net 18,644,994 17,224,885
Funding and service fees
receivable - net 18,671,753 18,759,814
Prepaid expenses and other
current assets 967,057 1,798,020
Deferred income taxes 201,149 201,149
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Total current assets 43,385,012 43,267,290
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Fixed assets - net 4,170,028 3,775,661
Deferred costs and other assets - net 1,383,710 1,538,189
Cost in excess of fair value of net
assets acquired 6,299,556 6,388,240
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$ 55,238,306 $ 54,969,380
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Loan payable $ 1,062,500 $ 1,000,000
Payroll and related taxes payable 8,930,123 6,372,319
Payable to licensees and clients 1,565,998 1,484,238
Income taxes payable 212,437 --
Accrued expenses and
other liabilities 3,524,694 5,408,070
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Total current liabilities 15,295,752 14,264,627
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Loan payable - non-current 24,187,500 25,750,000
Capital lease obligation - non-current 681,970 732,658
STOCKHOLDERS' EQUITY:
Common stock $.01 par value 51,178 51,098
Additional paid-in capital 8,939,080 8,825,128
Retained earnings 28,033,420 27,296,463
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37,023,678 36,172,689
Treasury stock, at cost, 2,084,245
shares in 1997 and 1996 (21,950,594) (21,950,594)
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Total stockholders' equity 15,073,084 14,222,095
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$ 55,238,306 $ 54,969,380
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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)
Three Months Ended March 31,
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1997 1996
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Cash flows from operating activities:
Net earnings $ 827,963 $ 656,828
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 294,554 211,784
(Increase) decrease in receivables
and prepaid expenses (501,085) 686,716
Stock option compensation expense 4,500 4,500
Increase in liabilities 1,019,311 846,332
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Net cash provided by operating
activities 1,645,243 2,406,160
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Cash flows from investing activities:
Purchases of fixed assets (556,220) (264,024)
(Increase) decrease in deferred costs
and other assets 59,775 (52,003)
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Net cash (used) by investing activities (496,445) (316,027)
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Cash flows from financing activities:
Principal payments on capital lease
obligations (50,687) --
Increase (decrease) in loan payable (1,500,000) 12,812,500
Cash dividends paid (91,006) (91,613)
Purchase of treasury stock -- (14,146,818)
Proceeds from issuance of
common stock 109,532 601,816
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Net cash (used) by financing
activities (1,532,161) (824,115)
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Net increase (decrease) in cash and cash
equivalents (383,363) 1,266,018
Cash and cash equivalents at
beginning of period 5,283,422 6,444,859
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Cash and cash equivalents at
end of period $ 4,900,059 $ 7,710,877
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Supplemental disclosures:
Cash paid for:
Interest $ 622,383 $ 256,142
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Income taxes $ 108,235 $ 304,834
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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 March 31, 1997, 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, 1996 financial statements.
The results of operations for the period ended March 31, 1997 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 a civil action against the Company, its officers and
various other parties. The Plaintiffs allege breach of contract and tort causes
of action for underpayment of premiums. The Company denies the validity of the
Plaintiffs' claims. The Company has asserted substantial claims in opposition to
the Plaintiffs' claims. Additionally, the Company and its subsidiaries have
filed suit against various prior worker compensation carriers alleging claims
mismanagement. Management regards as unlikely that the outcome of those actions
will have a material adverse effect on 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 $8,725,687, or 26.9%, from $32,479,333 in the
first quarter of 1996 to $41,205,020 in the first quarter of 1997. Sales of
supplemental staffing services increased by $8,826,777 for the first quarter of
1997 as compared to 1996. PrO Unlimited(R) sales increased by $2,771,183 or
32.5% for the first quarter of 1997 as compared to 1996. Uniforce Information
Services/Brannon & Tully(R) sales increased by $2,367,841 or 30.9% for the first
quarter of 1997 as compared to 1996. Further contributing to the increase in
sales was the Company's acquisition in May 1996 of certain assets of Montare
International, a provider of information technology ("IT") contract
professionals. This acquisition contributed $1,825,419 of sales for the first
quarter of 1997.
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 services provided by 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 5.9% from $1,716,005 in the first
quarter of 1996 to $1,614,915 in the first quarter of 1997. Increased service
revenues and fees generated by Temporary Help Industry Servicing Company, Inc.
("THISCO(R)") and its subsidiaries were more than offset by the loss of service
revenues due to the contract termination of one major client and the Company's
elimination of certain high risk business relating to Brentwood Service Group(R)
("Brentwood").
System-wide sales, which includes sales of associated offices serviced by
THISCO and Brentwood, increased $8,031,344 or 10.3% from $78,316,429 in the
first quarter of 1996 to $86,347,773 in the first quarter of 1997.
Cost of supplemental staffing services was 79.7% of sales of supplemental
staffing services in the first quarter of 1997 compared to 78.4% in the first
quarter of 1996. The higher percentage in the first quarter of 1997 was a result
of increased sales of PrO Unlimited, which have a high percentage payroll
expense in relation to sales.
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 $8,038,027 and $6,649,961
for the first quarter of 1997 and 1996, respectively. Licensees' share of gross
margin was 26.2% in the first quarter of 1997 as compared to 27.2% for the first
quarter of 1996. The lower share as a percentage of total gross margin in 1997
is due to increased sales of Uniforce Information Services/Brannon & Tully and
Uniforce Information Services/Montare International for which there are no
related licensee distributions and to the increased sales of PrO Unlimited for
which there are limited distributions.
5
General and administrative expenses increased by $538,572 or 11.1% during
the first quarter of 1997 as compared to the first quarter of 1996. This
increase resulted principally from higher payroll and recruiting costs with
respect to permanent staff, expenses relating to Uniforce Information
Services/Montare International operations (acquired in May 1996) and higher
facility costs. These increases were partially offset during the first quarter
by a reduction of professional costs associated with the Company's litigation
described in Note 3 of the consolidated condensed financial statements, after
giving consideration to certain insurance coverages.
Net interest expense increased by $97,504 during the first quarter of 1997
as compared to the first quarter of 1996. The increase in interest expense for
the 1997 period compared to 1996 is a result of increased borrowings for the
acquisition of Montare International and increased working capital requirements
due to the continued growth in the Company's business.
As a result of the factors discussed above, net earnings increased by 26.1%
from $656,828 ($.20 per share) in the first quarter of 1996 to $827,963 ($.26
per share) in the first quarter of 1997.
FINANCIAL CONDITION
As of March 31, 1997, the Company's working capital decreased to
$28,089,260, as compared to $29,002,663 at December 31, 1996. This decrease was
due primarily to cash flow from the continuing profitable operations of the
Company being used to repay a portion of the loan payable, by the acquisition of
fixed assets and the payment of the cash dividends.
During the first three months of 1997, the Company paid a quarterly cash
dividends on shares of its Common Stock at $.03 per share ($91,006).
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.
6
At March 31, 1997, the Company had outstanding borrowings of $2,000,000
under the Term Loan bearing interest at an average rate of 7.76% and $23,250,000
of borrowings under the Revolving Facility bearing interest at an average rate
of 7.86%.
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 minimal 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. If the Credit Facility is terminated prior to June
8, 1997, a fee of .5% of the amount thereof is payable. The Company was in
compliance with all covenants at March 31, 1997.
In January 1996, the Company successfully completed its offer to purchase
1,250,000 shares of its Common Stock at $11.25 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.
The Company believes that internally generated cash flow and funding from
the Credit Facility will be adequate to meet 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, Uniforce Information Services/Brannon & Tully,
Uniforce Information Services/Montare International, THISCO and Brentwood.
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.
7
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information that is
based on management's beliefs and assumptions, as well as information currently
available to management. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
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PART II - OTHER INFORMATION
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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, 1996, 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, Liberty Mutual
Insurance Company and The Aetna Casualty and Surety Company.
On March 3, 1997, the plaintiffs filed a motion for partial summary
judgment based upon the theory that the Company and its subsidiary Uniforce
Staffing Services, Inc. were the alter egos of the companies that leased
employees to the subsidiary during the period 1988 through 1993. The matter was
heard by the court at its case management conference on May 2, 1997 and is under
advisement.
Reference is made to ITEM 3. LEGAL PROCEEDINGS of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and to the description
therein of a civil action commenced in the New York Supreme Court Nassau County
by various subsidiaries of the company against Insurance Company of North
America, The Travelers Insurance Company and Liberty Mutual Insurance Company.
In March 1997, the defendants filed a motion for summary judgment based
upon the theory that there we no claims that were mishandled and there are no
provable damages. The motion is currently under advisement.
Management continues to believe that it has meritorious defenses to all
claims asserted against the Company and intends to prosecute vigorously those
defenses, as well as the counterclaims asserted by the Company. Management
further regards as unlikely that the outcome of these actions will have a
material adverse effect on the financial position of the Company.
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 March 31,
1997.
9
SIGNATURES
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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: May 13, 1997 UNIFORCE SERVICES, INC.
By: /s/ John Fanning
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John Fanning, Chairman of the Board
and President
By: /s/ Harry V. Maccarrone
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Harry V. Maccarrone, V.P. of Finance,
Principal Financial and Accounting
Officer
10