FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24484
AccuStaff Incorporated
(Exact name of Registrant as specified in its charter)
Florida 59-3116655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Independent Drive, Jacksonville, FL 32202 (Address of principal executive
offices) (Zip code)
(904) 360-2000
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, 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 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 REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. August 13, 1998.
Title Outstanding
Common Stock, Par Value $0.01 Per Share 110,619,762 (No. of shares)
AccuStaff Incorporated and Subsidiaries
Index
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance sheets as of March 31, 1998 and December 31, 1997..........................
Consolidated Statements of Income for the Three Months ended March 31, 1998 and 1997............
Consolidated Statements of Cash Flows for the Three Months ended March 31, 1998 and 1997........
Notes to Consolidated Financial Statements......................................................
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...........
Part II Other Information
Item 2 Changes in Securities and Use of Proceeds.......................................................
Item 6 Exhibits........................................................................................
Signatures......................................................................................
Part I. Financial Information
Item 1. Financial Statements
AccuStaff Incorporated and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands except per share amounts)
June 30, 1998 December 31, 1997
------------------- -------------------
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 29,247 $ 23,938
Accounts receivable, net 481,102 438,955
Due from associated offices 43,557 41,749
Prepaid expenses 28,474 19,635
Deferred income taxes 12,924 10,149
Other 17,216 -
------------------- -------------------
Total current assets 612,520 534,426
Furniture, equipment and leasehold improvements, net 58,164 50,665
Goodwill, net 987,326 882,986
Other assets 33,495 26,934
------------------- -------------------
Total assets $ 1,691,505 $ 1,495,011
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 34,017 $ 18,024
Accounts payable and accrued expenses 121,863 97,997
Accrued payroll and related taxes 94,523 82,676
------------------- -------------------
Total current liabilities 250,403 198,697
Convertible debt 86,250 86,250
Notes payable, long-term portion 419,911 372,620
Other 13,590 12,157
------------------- -------------------
Total liabilities 770,154 669,724
------------------- -------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value; 150,000,000 shares authorized
110,890,123 and 108,290,786 shares issued and outstanding on
June 30, 1998 and December 31, 1997, respectively 1,109 1,082
Additional contributed capital 679,371 637,178
Retained earnings 243,806 190,483
------------------- -------------------
924,286 828,743
Less: deferred stock compensation (2,935) (3,456)
------------------- -------------------
Total stockholders' equity 921,351 825,287
------------------- -------------------
Total liabilities and stockholders' equity $ 1,691,505 $ 1,495,011
=================== ===================
See accompanying notes to consolidated financial statements.
AccuStaff Incorporated and Subsidiaries
Consolidated Statements of Income
(dollar amounts in thousands except per share amounts)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
June 30, June 30, June 30, 1998 June 30,
1998 1997 1997
------------- ------------- -------------- -------------
Revenue $ 737,861 $ 605,650 $ 1,447,929 $ 1,138,681
------------- ------------- -------------- -------------
Gross Profit 188,506 152,455 371,917 282,479
Operating expenses:
General and administrative 108,568 93,060 213,145 171,994
Depreciation and amortization 12,029 8,633 23,488 15,709
Remittance to franchisees 1,887 5,915 8,334 11,331
Merger related - - 9,800 -
------------- ------------- -------------- -------------
Total operating expenses 122,484 107,608 254,767 199,034
------------- ------------- -------------- -------------
Income from operations 66,022 44,847 117,150 83,445
------------- ------------- -------------- -------------
Other income (expense)
Interest expense (8,647) (4,498) (16,712) (6,995)
Interest income and other 2,746 347 3,509 806
------------- ------------- -------------- -------------
Total other expense, net (5,901) (4,151) (13,203) (6,189)
------------- ------------- -------------- -------------
Income before provision for income taxes 60,121 40,696 103,947 77,256
Provision for income taxes 22,545 15,007 44,817 28,480
------------- ------------- -------------- -------------
Net income $ 37,576 $ 25,689 $ 59,130 $ 48,776
============= ============= ============== =============
Basic net income per common share $ 0.34 $ 0.24 $ 0.54 $ 0.46
============= ============= ============== =============
Average common shares outstanding, basic 110,301 106,118 109,701 105,634
============= ============= ============== =============
Diluted net income per common share $ 0.32 $ 0.23 $ 0.50 $ 0.43
============= ============= ============== =============
Average common shares outstanding, diluted 121,884 117,099 121,115 116,691
============= ============= ============== =============
Pro forma data:
Net income before provision for pro forma income
taxes $ 37,576 $ 25,689 $ 59,130 $ 48,776
Provision for pro forma income taxes - 691 (3,587) 1,302
------------- ------------- -------------- -------------
Pro forma net income $ 37,576 $ 24,998 $ 62,717 $ 47,474
============= ============= ============== =============
Pro forma basic net income per common share $ 0.34 $ 0.24 $ 0.57 $ 0.45
============= ============= ============== =============
Pro forma diluted net income per common share $ 0.32 $ 0.22 $ 0.60 $ 0.42
============= ============= ============== =============
See accompanying notes to consolidated financial statements.
AccuStaff Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(dollar amounts in thousands except for per share amounts)
Six months ended
-------------------------------
(unaudited) (unaudited)
June 30, June 30,
1998 1997
--------------- ---------------
Cash flows from operating activities:
Net income $ 59,130 $ 48,776
Adjustments to net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 23,488 15,709
Deferred income taxes 2,270 (651)
Changes in certain assets and liabilities
Accounts receivable (44,870) (52,096)
Due from associated offices (1,808) (2,993)
Prepaid expenses and other assets (15,860) (1,145)
Accounts payable and accrued expenses 22,790 (11,556)
Accrued payroll and related taxes 9,468 9,915
Other, net (2,556) 2,550
--------------- ---------------
Net cash provided by operating activities 52,052 8,509
--------------- ---------------
Cash flows from investing activities:
Advances associated with sale of assets, net of repayments (10,216) -
Purchase of furniture, equipment and leasehold
improvements, net of disposals (14,724) (7,899)
Purchase of businesses, including additional earn-outs on
acquisitions, net of cash acquired (117,641) (302,516)
--------------- ---------------
Net cash used in investing activities (142,581) (310,415)
--------------- ---------------
Cash flows from financing activities:
Proceeds from stock options exercised 42,219 12,012
Borrowings on indebtedness 180,000 277,792
Repayments on indebtedness (120,574) (56,434)
Distributions to former shareholders of acquired
S-Corporations (5,807) (1,133)
--------------- ---------------
Net cash provided by financing activities 95,838 232,237
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 5,309 (69,669)
Cash and cash equivalents, beginning of period 23,938 109,599
--------------- ---------------
Cash and cash equivalents, end of period $ 29,247 $ 39,930
=============== ===============
See accompanying notes to consolidated financial statements.
AccuStaff Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(dollar amounts in thousands except for per share amounts)
1. Basis of Presentation:
The accompanying consolidated financial statements are unaudited and have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures usually found in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The financial statements should be read in conjunction with the
consolidated financial and related notes included in the Company's Form 10-K, as
filed with the Securities and Exchange Commission on March 31, 1998.
The accompanying consolidated financial statements reflect all adjustments
(including normal recurring adjustments) which, in the opinion of management,
are necessary to present fairly the financial position and results of operations
for the interim periods presented. The results of operations for an interim
period are not necessarily indicative of the results of operations for a full
fiscal year.
The Company completed the acquisitions of Office Specialists, Inc. (`OSI") on
December 1, 1997 and the acquisition of Actium, Inc. ("Actium") on March 30,
1998 both of which were accounted for as a pooling of interests and accordingly
all periods presented have been restated as if the acquisitions had taken place
at the beginning of such periods. Additionally, Actium was treated as an
S-corporation for federal income tax purposes prior to its acquisition and
accordingly was not subject to income tax at the corporate level. Therefore, all
prior period financial statements presented have been restated as if the
acquisition had taken place at the beginning of such periods and was treated as
a C-corporation for federal income tax purposes.
2. Summary Data of Subsidiary:
The following table details the summarized financial information (in thousands)
of the Company's wholly owned subsidiary, Career Horizons, Inc. and Career
Horizons' subsidiaries as of and for the three and six months ended.
June 30, 1998 December 31, 1997
-------------------- -------------------------
Current assets $ 150,689 $ 186,674
Non-current assets 276,942 251,261
Current liabilities 68,545 67,459
Non-current liabilities 89,051 114,520
Three Months Ended Six Months Ended
---------------------------------------------- -------------------------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------------- ------------------------- ------------------------ ------------------------
Revenue $ 206,726 $ 230,357 $ 431,860 $ 432,352
Gross profit 53,845 58,559 111,679 109,909
Income from operations 17,329 13,990 34,956 26,259
3. Contingencies:
The Company is from time to time subject to routine lawsuits and claims
incidental to the business. The Company believes that, based on the advice of
in-house and external legal counsel, the results of any lawsuits, claims and
other proceedings will not have a materially adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
4. Newly Issued Accounting Standards:
During 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
which requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for the Company's 1998 fiscal year.
Management does not believe that the Company has material other comprehensive
income which would require separate disclosure.
Additionally, during 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131 requires, among
other things, that certain general and financial information be disclosed for
reportable operating segments of a company. SFAS No. 131 is effective for the
Company's 1998 fiscal year. The Company is currently evaluating the effects of
SFAS No. 131 on its disclosure format.
During 1998, the American Institute of Certified Public Accountants' Executive
Committee issued Statement of Position Number 98-1 (SOP 98-1), Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998. Management
believes that the Company is substantially in compliance with this pronouncement
and that the implementation of this pronouncement will not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months ended June 30, 1998 Compared to Three Months ended June 30, 1997.
Revenue. Revenue increased $132.2 million, or 21.8%, to $737.9 million in the
three months ended June 30, 1998 from $605.7 million in the year earlier period.
The increase in revenue was limited by the sale of the assets of the company's
health care operations. Exclusive of the health care operations, the Company's
revenue increased $164.9 million, or 28.8% to $737.9 million in the three months
ended June 30, 1998 from $573.0 million in the year earlier period. The increase
was attributable by division to: Information Technology, $88.0 million or an
increase of 43.0%; and Professional Services, $46.5 million, or an increase of
54.5%; these increases were offset by a decline in Commercial division revenues
of $2.3 million, or 0.7%. The increases in the Information Technology and
Professional Services divisions were due to both internal growth and the revenue
contribution of acquired companies. The decline in the Commercial division was
due to the sale of the divisions health care operations and the initial effect
of the termination of the services contract with the divisions sole teleservices
customer. The termination of this contract will result in the continued
diminishment of teleservices revenues until the contract is fully terminated.
Absent the contribution from these two lines of business, the revenue of the
Commercial division increased $33.3 million, or 13.4% to $281.9 million in the
three months ended June 30, 1998 from $248.6 million in the year earlier period,
this increase was due primarily to internal growth, with a minimal contribution
due to acquired companies.
Gross Profit. Gross profit increased $36.0 million or 23.6% to $188.5 million in
the three months ended June 30, 1998 from $152.5 million in the year earlier
period. Gross margin increased to 25.5% in the three months ended June 30, 1998
from 25.2% in the year earlier period. The increase in gross profit was
attributable by division to: Information Technology $21.3 million, or 37.9%;
Professional Services $14.4 million, or 57.6%; and Commercial $0.3 million, or
less than 1%. The minimal growth in the Commercial division's gross profit is
due to the sale of the divisions health care operations and the initial effect
of the termination of the services contract with the division's sole
teleservices customer. Absent the contribution from these two lines of business,
the Commercial division's gross profit increased $10.1 million, or 17.4%. The
Information Technology division realized an overall decrease in gross margin to
26.4% in the three months ended June 30, 1998 from 27.4% in the year earlier
period. The decrease was primarily attributable to the higher volume of
contribution to gross profit from the division's international operations, which
produces lower gross margins than the division's domestic operations, the
majority of which were acquired in November 1997 and are therefore not included
in the June 30, 1997 results. The remainder of the division's decrease is
attributable to the Company's continuing effort to recruit and retain
intellectual capital which requires, in some instances, higher pay rates for
consultants which cannot necessarily be passed though to the customers.
Additionally, the Company is employing more salaried consultants, who receive
increased benefits which in certain instances may not be passed through to the
customer. The gross margin in the Professional Services division increased to
30.1% in the three months ended June 30, 1998 from 29.5% in the year earlier
period.
Operating Expenses. Operating expenses increased $14.9 million, or 13.8%, to
$122.5 million in the three months ended June 30, 1998 from $107.6 million in
the year earlier period. Operating expenses as a percentage of revenue decreased
to 16.6% in the three months ended June 30, 1998 from 17.8% in the year earlier
period due to the Company's ability to spread its expenses over a larger revenue
base. Included in operating expenses during the three months ended June 30, 1998
and 1997 are the costs associated with projects underway to ensure accurate date
recognition and data processing with respect to the Year 2000 as it relates to
the Company's business, operations, customers and vendors. The related costs,
which are expensed as incurred, are included in general and administrative
expense. The Company expects to substantially complete the Year 2000 conversion
projects by the end of 1999. These costs have been immaterial to date and are
not expected to have a material impact on the Company's results of operations,
financial condition or liquidity in the future.
Income from Operations. As a result of the foregoing, income from operations
increased $21.2 million, or 47.3% to $66.0 million in the three months ended
June 30, 1998 from $44.8 million in the year earlier period. Income from
operations as a percentage of revenue increased to 8.9% in the three months
ended June 30, 1998 from 7.4% in the year earlier period.
Interest Expense. Interest expense increased $4.2 million, or 93.3%, to $8.7
million in the three months ended June 30, 1998 from $4.5 million in the year
earlier period. The increase in interest expense resulted from a combination of
the utilization of the Company's credit facility, and the amount of cash on hand
at December 31, 1996.
Income Taxes. The Company's effective tax rate, including the effect of the pro
forma tax provision was 37.5% in the three months ended June 30, 1998 compared
to 38.6% in the year earlier period. The decrease in the effective tax rate was
due to tax savings realized from corporate restructurings.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $12.6 million, or 50.4%, to $37.6 million in the three months ended
June 30, 1998 from $25.0 million in the year earlier period. Pro forma net
income as a percentage of revenue increased to 5.1% in the three months ended
June 30, 1998 from 4.1% in the year earlier period.
Six Months ended June 30, 1998 Compared to Six Months ended June 30, 1997.
Revenue. Revenue increased $309.2 million, or 27.2%, to $1,447.9 million in the
six months ended June 30, 1998 from $1,138.7 million in the year earlier period.
The increase in revenue was limited by the sale of the assets of the company's
health care operations. Exclusive of the health care operations, the Company's
revenue increased $343.1 million, or 31.9% to $1,417.8 million in the six months
ended June 30, 1998 from $1,074.7 million in the year earlier period. The
increase was attributable by division to: Commercial, $39.4 million, or an
increase of 6.7%; Information Technology, $175.3 million or an increase of
45.3%; and Professional Services, $94.5 million, or an increase of 59.5%; The
increase in the Commercial division was restrained due to both the sale of the
Company's health care operations and the initial effect of the termination of
the services contract with the division's sole teleservices customer. Absent the
contribution from these two lines of business, the revenue of the Commercial
division increased $72.1 million, or 15.6% to $535.2 million in the six months
ended June 30, 1998 from $463.1 million in the year earlier period. The increase
was due primarily to internal growth, with a minimal contribution due to
acquired companies. The increase in the Information Technology division was due
to growth through acquisition, and more significantly, internal growth. The
growth in the Professional Services division was due to both internal growth and
the revenue contribution of acquired companies.
Gross Profit. Gross profit increased $89.4 million or 31.6% to $371.9 million in
the six months ended June 30, 1998 from $282.5 million in the year earlier
period. Gross margin increased to 25.7% in the six months ended June 30, 1998
from 24.8% in the year earlier period. The increase was attributable by division
to: Information Technology $43.8 million, or 41.7%; Professional $31.9 million,
or 69.3%; and Commercial $13.7 million, or 10.5%. The growth in the Commercial
divisions' gross profit was restrained due to the sale of the divisions health
care operations and the initial effect of the termination of the services
contract with the division's sole teleservices customer. Absent the contribution
from these two lines of business, the Commercial divisions' gross profit
increased $22.7 million, or 21.5%. The Information Technology division realized
an overall decrease in gross margin to 26.5% in the six months ended June 30,
1998 from 27.2% in the year earlier period. The decrease was partially
attributable to the higher volume of contribution to gross profit from the
division's international operations, which produces lower gross margins than the
divisio's domestic operations, the majority of which were acquired in November
of 1997 and are therefore not included in the June 30, 1997 results. The
remainder of the divisions decrease is attributable to the Company's continuing
effort to recruit and retain intellectual capital which requires, in some
instances, higher pay rates for consultants which cannot necessarily be passed
through to the customer. Additionally, the Company is employing more salaried
consultants, which receive increased benefits which in certain instances may not
be passed through to the customer. The gross margin in the Professional division
increased to 30.8% in the three months ended June 30, 1998 from 29.0% in the
year earlier period.
Operating Expenses. Operating expenses increased $55.8 million, or 28.0%, to
$254.8 million in the six months ended June 30, 1998 from $199.0 million in the
year earlier period. Operating expenses before one-time merger related costs as
a percentage of revenue decreased to 16.9% in the six months ended June 30, 1998
from 17.4% in the year earlier period due to the Company's ability to spread its
expenses over a larger revenue base. Included in Operating expenses during the
six months ended June 30, 1998 and 1997 are the costs associated with projects
underway to ensure accurate date recognition and data processing with respect to
the Year 2000 as it relates to the Company's business, operations, customers and
vendors. The related costs, which are expensed as incurred, are included in
general and administrative expense. The Company expects to substantially
complete the Year 2000 conversion projects by the end of 1999. These costs have
been immaterial to date and are not expected to have a material impact on the
Company's results of operations, financial condition or liquidity in the future.
Income from Operations. As a result of the foregoing, income from operations
before merger related costs increased $43.6 million, or 52.3% to $127.0 million
in the six months ended June 30, 1998 from $83.4 million in the year earlier
period. Income from operations before merger related costs as a percentage of
revenue increased to 8.8% in the six months ended June 30, 1998 from 7.3% in the
year earlier period.
Interest Expense. Interest expense increased $9.7 million, or 138.6%, to $16.7
million in the six months ended June 30, 1998 from $7.0 million in the year
earlier period. The increase in interest expense resulted from a combination of
the utilization of the Company's credit facility, and the amount of cash on hand
at December 31, 1996.
Income Taxes. The Company's effective tax rate, including the effect of the pro
forma tax provision was 43.1% in the six months ended June 30, 1998 compared to
38.5% in the year earlier period. The increase in the effective tax rate was due
to the acquisition of Actium, Inc., formerly a cash basis S-Corporation for
federal income tax purposes, which was accounted for as a pooling of interests.
The Company incurred a $3.6 million increase in the tax provision for the six
months ended June 30, 1998 as a result of the conversion of Actium from the cash
to accrual basis for federal income tax purposes. In addition, the Company
incurred $6.0 million of non-deductible merger related costs which resulted in
an increase in taxable income. Exclusive of these merger related tax expenses,
the Company's effective tax rate would have decreased to 37.5% for the six
months ended June 30, 1998 versus a pro forma effective tax rate of 38.5% in the
year earlier period due to tax savings realized from corporate restructurings.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $15.2 million, or 32.0%, to $62.7 million in the six months ended June
30, 1998 from $47.5 million in the year earlier period. Pro forma net income as
a percentage of revenue increased slightly to 4.3% in the six months ended June
30, 1998 from 4.2% in the year earlier period. Exclusive of the non-recurring
merger expenses, pro forma net income would have increased $ 23.6 million to
$71.1 million, resulting in an increase to pro forma net income as a percentage
of revenue to 4.9%.
Liquidity and Capital Resources
The Company's primary sources of funds are from operations, proceeds of Common
Stock offerings and borrowings under its revolving credit facility. The
Company's principal uses of cash are to fund acquisitions, working capital and
capital expenditures. The Company generally pays its temporary employees weekly
for their services while receiving payments from customers 35 to 60 days from
the date of invoice. As new offices are established or acquired, or as existing
offices expand, there will be increasing requirements for cash resources to fund
current operations.
The Company is obligated under various acquisition agreements to make earn-out
payments to former stockholders of acquired companies. The Company anticipates
the maximum amount of these payments will total approximately $20.0 million
during the remainder of 1998. The Company anticipates that the cash generated by
the operations of the acquired companies will provide a substantial part of the
capital required to fund the earn-out payments.
The Company anticipates that capital expenditures for improvements to its
management information and operating systems will require capital expenditures
during the next twelve months of approximately $15 million. The Company
anticipates recurring expenditures in future years to be approximately $10
million per year.
The Company believes that funds provided by operations, available borrowings
under its credit facility and current amounts of cash will be sufficient to meet
its presently anticipated needs for working capital, capital expenditures and
acquisitions for at least the next 12 months.
On June 8, 1998, the Company announced that it intended to contribute its
Commercial division to a newly formed subsidiary, Strategix Solutions, Inc.
("Strategix"). On June 8, 1998, Strategix filed a registration statement with
the Securities and Exchange Commission ("SEC") for a proposed initial public
offering of up to 20% of its common stock. The Company has further announced
that it will receive the net proceeds from such offering plus an anticipated
$150 million for Strategix through borrowings by Strategix under a proposed
credit facility. After consummation of such offering, the Company intends to
distribute to the Company's shareholders in 1999, subject to certain conditions,
all of the Company's shares of Strategix in a tax-free transaction. The Company
plans to apply the funds it receives for the Strategix offering and the
Strategix borrowings to reduce the Company's indebtedness. There can be no
assurances that the Strategix offering or the Strategix borrowings will be
consummated.
The Company believes that if its Commercial Division were contributed to
Strategix and the Company's interest in Strategix was sold or distributed to the
Company's shareholders as described above, the Company would experience an
increase in liquidity.
The Strategix offering is subject to SEC review and certain other state and
local regulatory approvals and to the agreement of the several underwriters to
accept the securities. A registration statement relating to these securities has
been filed with the SEC but has not yet become effective. The Strategix
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This form 10-Q shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Indebtedness of the Company
The Company entered into an agreement on May 23, 1997 expanding its credit
facility to $500 million. The facility is unsecured but is guaranteed by each of
the Company's subsidiaries. The facility was syndicated to a group of 20 banks,
with NationsBank (South) N.A. as agent.
Outstanding amounts under the credit facility bear interest at certain floating
rates as specified by the credit facility. The credit facility contains certain
affirmative and negative covenants relating to the Company's operations,
including a prohibition on making any business acquisitions which would result
in pro forma noncompliance with the related covenants if the acquired company
would meet or exceed 10% of total assets or income on a consolidated basis. In
addition, approval is required by the majority lenders at such time that the
cash consideration of an individual acquisition exceeds 10% of consolidated
shareholder's equity.
As of August 13, 1998, the Company has a balance of $417.0 million outstanding
under the credit facility. The Company also has outstanding letters of credit in
the amount of $16.6 million, which reduce the amount of funds available under
the facility. Therefore, the remaining balance of funds available to the Company
under the credit facility as of August 13, 1998 is $66.4 million.
The Company's wholly owned subsidiary, Career Horizons, Inc. has outstanding
$86.25 million of 7% Convertible Senior Notes Due 2002. Interest on the notes is
paid semiannually on May 1 and November 1 of each year. The notes are
convertible at the option of the holder thereof, at any time after 90 days
following the date of original issuance thereof and prior to maturity, unless
previously redeemed, into shares of common stock of the Company at a conversion
price of $11.35 per share, subject to adjustment in certain events. The notes
are redeemable, in whole or in part, at the option of the Company, at any time
on or after November 1, 1998, at stated redemption prices, together with accrued
interest. The notes do not provide for any sinking fund. Upon a Designated Event
(as defined and including a change of control) holders of the notes will have
the right, subject to certain restrictions and conditions, to require the
Company to purchase all or any part of the Notes at a purchase price equal to
101% of the principal amount thereof together with accrued and unpaid interest
to the date of purchase. The notes are unconditionally guaranteed by the Company
and are jointly and severally guaranteed by each of Career's present and any
future subsidiaries. The guarantee of the Company and each subsidiary of Career
is an unsecured general obligation of the Company and such subsidiary, ranking
equally with other unsecured obligations of the Company and such subsidiary. The
obligation of the Company and each of Career's present and any future
subsidiaries under its guarantee is full and unconditional.
The Company has certain notes payable to shareholders of acquired companies. The
notes payable bear interest at rates ranging from 4.99% to 6.10% and have
repayment terms through June 2000. As of August 13, 1998, the Company owed
approximately $35.4 million in such acquisition indebtedness.
Inflation
The effects of inflation on the Company's operations were not significant during
the periods presented in the financial statements.
Recent Accounting Pronouncements
During 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
which requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for the Company's 1998 fiscal year.
Management does not believe that the Company has material other comprehensive
income which would require separate disclosure.
Additionally, during 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131 requires, among
other things, that certain general and financial information be disclosed for
reportable operating segments of a company. SFAS No. 131 is effective for the
Company's 1998 fiscal year. The Company will make the disclosures required under
this standard.
During 1998, the American Institute of Certified Public Accountants' Executive
Committee issued Statement of Position Number 98-1 (SOP 98-1), Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998. Management
believes that the Company is substantially in compliance with this pronouncement
and that the implementation of this pronouncement will not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
Other matters
Foreign Acquisitions. During 1997, the Company, through a series of
acquisitions, expanded its operations into Canada and Europe (primarily the
United Kingdom). The results of operations of these acquired companies are
included with those of the Company from the date of acquisition and are
immaterial to the Company's results of operation for the three months ended June
30, 1998, and financial position as of June 30, 1998.
Year 2000 Compliance
During 1997, the Company began projects to address potential problems within the
Company's operations which could result from the century change in the Year
2000. In 1998, the Company created a Year 2000 Program Office to oversee year
2000 projects and to address potential problems within the Company's operations
which could result from the century change in the year 2000. The Project Office
reports to the Company's Board of Directors and is staffed primarily with
representatives of the Company's Corporate Information Systems Department, and
has access to key associates in all areas of the Company's operations. The
Project Office also uses outside consultants on an as-needed basis.
A four-phase approach has been utilized to address the Year 2000 issues: an
inventory phase to identify all computer-based systems and applications
(including embedded systems) which might not be Year 2000 compliant; an
assessment phase to determine what revisions or replacements would be necessary
to achieve compliance and what priorities would best serve the Company; a
conversion phase to implement the actions necessary to achieve compliance and to
conduct the tests necessary to verify that the systems are operational; and an
implementation phase to transition the compliant systems into the everyday
operations of the Company. Management believes that the four phases are
approximately 95%, 85%, 60% and 50% complete, respectively and estimates that
all critical systems will be compliant with the century change by March 1999.
The Company has budgeted approximately $3.7 million to address the Year 2000
issue, which includes the estimated cost of all modifications and the salaries
of associates and the fees of consultants addressing the issues. Approximately
$1.6 million of this amount has been expended through July 31, 1998.
As a part of the Year 2000 review, the Company is examining its relationships
with certain key outside vendors and others with whom it has significant
business relationships to determine to the extent practical the degree of such
parties' Year 2000 compliance and to develop strategies for working with them
through the century change. Other than its banking relationships, which include
only large, federally insured institutions, the Company does not have a
relationship with any third-party vendor which is material to the operations of
the Company and, therefore, believes that the failure of any such party to be
Year 2000 compliant would not have a material adverse effect on the Company.
Should the Company or a third party with whom the Company deals have a systems
failure due to the century change, the Company does not expect any such effect
to be material and it is developing contingency plans for alternative methods of
transaction processing and estimates that such plans will be finalized by March
of 1999.
Forward Looking Statements
Statements made in this Report regarding the Company's expectations or beliefs
concerning future events, including capital spending, expected results and the
Company's liquidity situation during 1998, should be considered forward-looking
and subject to various risks and uncertainties. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under Risk Factors and
elsewhere in the Company's Joint Proxy Statement/Prospectus dated October 8,
1996, the Company's prospectus dated January 15, 1997, and as discussed in the
Company's reports on Forms 10-K, 10-Q and 8-K made under the Securities Exchange
Act of 1934. For instance, the Company's results of operations may differ
materially from those anticipated in the forward-looking statements due to,
among other things: the Company's ability to successfully identify suitable
acquisition candidates, complete acquisitions or integrate the acquired business
into its operations; the general level of economic activity in the Company's
markets; increased price competition; changes in government regulations or
interpretations thereof; and the continued availability of qualified temporary
personnel-particularly in the information technology and other professional
segments of the Company's businesses. In addition, the market price of the
Company's stock may, from time to time, be significantly volatile as a result
of, among other things: the Company's operating results; the operating results
of other temporary staffing companies; and changes in the performance of the
stock market in general.
Item 3. Changes in Information About Market Risk
None
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's shareholders was held on May 18, 1998.
Proxies were solicited from shareholders of record on the close of business on
March 24, 1998. On March 24, 1998, there were 109,568,272 shares outstanding and
entitled to vote at the Annual Meeting. The shareholder vote on the issues
presented at the Annual Meeting was as follows:
Election of Directors
All of the following persons nominated were elected to serve as directors
and received the number of votes set opposite their names:
Name For Withhold Authority
- -------------------------------------- --------------------- ------------------------------------------
Derek E. Dewan 92,651,759 390,410
Daniel M. Doyle 92,659,632 382,537
Peter J. Tanous 92,482,692 559,477
T. Wayne Davis 92,653,153 389,016
John K. Anderson, Jr. 92,654,087 388,082
Michael D. Abney 92,658,666 383,503
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
3 Amended and Restated Bylaws
11 Calculation of Per Share Earnings
27 Financial Data Schedule
(B) Reports on Form 8-K
The Company filed the following report on form 8-K during the second quarter of
1998:
Form 8-K dated June 8, 1998, reporting the Company's intention to separate into
two publicly-held companies by contributing its commercial division to a
newly-formed subsidiary, Strategix Solutions, Inc. ("Strategix"). The Company
also reported that Strategix had filed a registration statement for an initial
public offering of up to 20% of its outstanding common stock. The Company
further reported that the Company intends to distribute to the Company's
shareholders, subject to certain conditions, all of the Company's shares of
Strategix in a tax-free spin-off transaction.
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.
AccuStaff Incorporated
August 14, 1998 By:___________________________________________
Derek E. Dewan, President, Chairman of the
Board and Chief Executive Officer
August 14, 1998 By:___________________________________________
Michael D. Abney, Senior Vice President, Chief
Financial Officer,Treasurer, Secretary and Director
August 14, 1998 By:___________________________________________
Robert P. Crouch, Vice President and Controller