FORM 10-Q/A
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 March 31, 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, Florida
32202
(Address of principal executive offices) (Zip code)
(904) 360-2000
(Registrant's telephone
number including area code)
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 ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. May 13, 1998
Common Stock, $0.01 par value Outstanding: 110,410,976 (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....................... 3
Consolidated Statements of Income for the Three Months ended March 31, 1998 and 1997......... 4
Consolidated Statements of Cash Flows for the Three Months ended March 31, 1998 and 1997..... 5
Notes to Consolidated Financial Statements................................................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 7
Part II Other Information
Item 2 Changes in Securities and Use of Proceeds.................................................... 11
Item 6 Signatures................................................................................... 12
Exhibits
2
Part I. Financial Information
Item 1. Financial Statements
AccuStaff Incorporated and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands except per share amounts)
March 31, 1998 December 31, 1997
------------------- -------------------
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 47,444 $ 23,938
Accounts receivable, net 276,956 230,934
Prepaid expenses 18,529 9,352
Deferred income taxes 4,895 731
Net assets of discontinued operations 371,360 366,045
------------------- -------------------
Total current assets 719,184 631,000
Furniture, equipment and leasehold improvements, net 32,809 27,367
Goodwill, net 877,609 693,327
Other assets 16,681 17,328
------------------- -------------------
Total assets $ 1,646,283 $ 1,369,022
=================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 24,209 $ 16,366
Accounts payable and accrued expenses 88,511 62,021
Accrued payroll and related taxes 48,378 37,647
------------------- -------------------
Total current liabilities 161,098 116,034
Convertible debt 86,250 86,250
Notes payable, long-term portion 386,745 347,785
Other 9,766 6,111
------------------- -------------------
Total liabilities 643,859 556,180
------------------- -------------------
Commitments and contingencies
Shareholders' 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
109,914,472 and 103,692,098 shares issued and outstanding on
March 31, 1998 and December 31, 1997, respectively 1,099 1,037
Additional contributed capital 790,866 634,194
Retained earnings 213,644 181,068
------------------- -------------------
1,005,609 816,299
Less: deferred stock compensation (3,185) (3,457)
------------------- -------------------
Total Shareholders' equity 1,002,424 812,842
------------------- -------------------
Total liabilities and Shareholders' equity $ 1,646,283 $ 1,369,022
=================== ===================
See accompanying notes to consolidated financial statements.
3
AccuStaff Incorporated and Subsidiaries
Consolidated Statements of Income
(unaudited)
(dollar amounts in thousands except per share amounts)
Three Months Ended
--------------------------------------
March 31, March 31,
1998 1997
(unaudited) (unaudited)
----------------- ----------------
Revenue $ 374,492 $ 242,234
Cost of revenue 270,049 176,820
----------------- ----------------
Gross profit 104,443 65,414
----------------- ----------------
Operating expenses:
General and administrative 55,591 36,000
Depreciation and amortization 7,563 3,766
----------------- ----------------
Total operating expenses 63,154 39,766
----------------- ----------------
Income from operations 41,289 25,648
----------------- ----------------
Interest expense, net (5,934) (1,565)
----------------- ----------------
Income from continuing operations before
provision for income taxes 35,355 24,083
Provision for income taxes 13,258 9,332
----------------- ----------------
Income from continuing operations $ 22,097 $ 14,751
================= ================
Income from discontinued operations, net of income
taxes of $6,288 and $4,111, respectively $ 10,479 $ 6,711
================= ================
Net income $ 32,576 $ 21,462
================= ================
Basic income per common share:
from continuing operations $ 0.21 $ 0.15
================= ================
from discontinued operations $ 0.10 $ 0.07
================= ================
Basic net income per common share $ 0.31 $ 0.22
================= ================
Diluted income per common share:
from continuing operations $ 0.20 $ 0.14
================= ================
from discontinued operations $ 0.09 $ 0.06
================= ================
Diluted net income per common share $ 0.29 $ 0.20
================= ================
Average common shares outstanding, basic 105,268 100,550
================= ================
Average common shares outstanding, diluted 117,003 111,477
================= ================
See accompanying notes to consolidated financial statements.
4
AccuStaff Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(dollar amounts in thousands except for per share amounts)
Three Months Ended
-------------------------------
March 31, March 31,
1998 1997
(unaudited) (unaudited)
--------------- ---------------
Cash flows from operating activities:
Income from continuing operations $ 22,097 $ 14,751
Adjustments to net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 7,563 3,766
Deferred income taxes 1,028 (1,685)
Changes in certain assets and liabilities
Accounts receivable (43,349) (20,743)
Due from associated offices (377) (137)
Prepaid expenses and other assets (10,294) (4,847)
Accounts payable and accrued expenses 10,028 6,334
Accrued payroll and related taxes 8,931 (1,330)
Other, net 4,310 4,664
--------------- ---------------
Net cash provided by(used in) operating
activities (63) 773
--------------- ---------------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements, net of disposals (4,497) (2,419)
Purchase of businesses, including additional earn-outs on
acquisitions, net of cash acquired (45,655) (97,626)
--------------- ---------------
Net cash used in investing activities (50,152) (100,045)
--------------- ---------------
Cash flows from financing activities:
Proceeds from stock options exercised 26,734 4,313
Borrowings on indebtedness 71,509 67,555
Repayments on indebtedness (30,063) (21,313)
Other - (21)
--------------- ---------------
Net cash provided by financing activities 68,180 50,534
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 17,965 (48,738)
Cash (used in) provided by discontinued operations 5,541 (34,204)
Cash and cash equivalents, beginning of period 23,938 96,416
--------------- ---------------
Cash and cash equivalents, end of period 47,444 13,474
=============== ===============
Supplemental noncash investing information:
During the first quarter of 1998, the Company issued 4,598,698 shares of its common stock, valued at
$130,000 in exchange for all the outstanding common stock of Actium, Incorporated.
See accompanying notes to consolidated financial statements.
5
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 statements and related notes included in the Company's
Form 8-K, as filed with the Securities and Exchange Commission on November 12,
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.
All amounts have been adjusted to reflect the Company's acquisition of Office
Specialists, Inc. ("OSI")on December 1, 1997 which was accounted for as a
pooling of interests. Therefore, all prior period financial statements presented
have been restated as if the acquisition had taken place at the beginning of
each such period. For the current restated presentation, the results of
operations of OSI are included in 'Income from discontinued operations' and its
net assets in 'Net assets of discontinued operations'.
On October 31, 1998, the Company's Board of Directors authorized the repurchase
of up to $200 million of the Company's common stock. The Company first
considered the repurchase on August 31, 1998, shortly after announcing the sale
of its commercial business Strategix Solutions, Inc. ('Strategix') to Randstad
U.S., L.P. ('Randstad'), for $850.0 million as a result of an unsolicited offer.
Prior to the Randstad offer, the Company had announced plans to sell 20% of
Strategix in an intitial public offering with a subsequent spin-off of the
Company's interest to its shareholders, subject to certain market conditions.
As a result of the above described events, the Company believes it is now
appropriate to change the accounting treatment for its acquistion of Actium,
Inc. on March 27, 1998 from pooling of interests to purchase. As a result, the
company has recorded goodwill in an amount of approximately $130.0 million. This
amount represents the agreed-upon purchase price with the Actium shareholders,
plus acquisition related costs, net of the fair value of assets received.
The effect of this restatement on the previously issued interim financial
statements is as follows:
March 31, 1998 December 31, 1997
-------------------------- -----------------------
Total Assets,as previously reported $ 1,629,985 $ 1,495,011
Total Assets, as restated 1,646,283 1,369,022
Shareholders' equity, as previously
reported 871,132 825,287
Shareholders' equity, as restated 1,002,424 812,842
March 31, 1998 March 31, 1997
-------------------------- -----------------------
Net income, as previously reported $ 21,554 $ 23,086
Net income, as restated $ 32,576 $ 21,462
Basic net income per common share,
as previously reported $ 0.20 $ 0.22
Basic net income per common share,
as restated $ 0.31 $ 0.22
Diluted net income per common share,
as previously reported $ 0.19 $ 0.21
Diluted net income per common share,
as restated $ 0.29 $ 0.20
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 months ended.
March 31, 1998 December 31, 1997
-------------------------- -----------------------
Current assets $ 185,135 $ 186,674
Non-current assets 286,158 251,261
Current liabilities 75,056 67,459
Non-current liabilities 113,140 114,520
March 31, 1998 March 31, 1997
-------------------------- -----------------------
Revenue $ 225,134 $ 201,995
Gross profit 57,834 50,304
Income from operations 17,627 12,685
3. 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. The
Company has determined that comprehensive income, as defined, is not materially
different than net income as already presented and as a result has not amended
its reporting format.
6
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 fiscal
years beginning after December 15, 1997, with interim application not required
in the initial year of adoption.
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
On June 8, 1998, Modis Professional Services ("Modis"), formerly known as
AccuStaff Incorporated, filed an initial public offering for the Company's
subsidiary Strategix Solutions, Inc. ('Strategix') for the sale and subsequent
spin off of the Company's Commercial, Teleservices, and Health Care divisions.
On August 27, 1998, before the initial public offering was consummated, the
Company announced its intention to sell Strategix to Randstad Holding nv for
$850 million in cash. The effective date of the sale was September 27, 1998. As
a result of this transaction, the Company's Consolidated Financial Statements
and Management's Discussion and Analysis have been reclassified to report
Strategix as discontinued operations for all periods presented.
The following detailed analysis of operations should be read in conjunction with
the 1997 Financial Statements included in the Company's Form 8-K filed on
November 12, 1998.
Three Months ended March 31, 1998 Compared to Three Months ended March 31, 1997.
From continuing operations
Revenue. Revenue increased $132.3 million, or 54.6%, to $374.5 million in the
three months ended March 31, 1998 from $242.2 million in the year earlier
period. The increase was attributable by division to: Information Technology,
$84.3 million or an increase of 49.9%; and Professional Services, $48.0 million,
or an increase of 65.3%. The increases in each of the Information Technology and
Professional Services divisions were due to both internal growth and, more
significantly, the revenue contribution of acquired companies.
Gross Profit. Gross profit increased $39.0 million or 59.6% to $104.4 million in
the three months ended March 31, 1998 from $65.4 million in the year earlier
period. The increase was attributable by division to: Information Technology,
$21.6 million or an increase of 48.5%; and Professional Services, $17.4 million,
or an increase of 83.4%. Overall gross margin increased to 27.9% in the three
months ended March 31, 1998 from 27.0% in the year earlier period. The
Information Technology division experienced an overall decrease in gross margin
to 26.1% in the three months ended March 31, 1998 from 26.4% in the year earlier
period. The decrease was attributable to the lower gross margins of the
division's international operations, the majority of which were acquired in
November of 1997 and are therefore not included in the March 31, 1997 results.
Excluding the results of the international operations, which produced a gross
margin of 18.1%, the overall gross margin in the Information Technology division
increased to 28.0% for the three months ended March 31, 1998 from 26.4% in the
year earlier period. The gross margin in the Professional Services division
increased to 31.5% in the three months ended March 31, 1998 from 28.4% in the
year earlier period.
Operating Expenses. Operating expenses increased $23.4 million, or 58.8%, to
$63.2 million in the three months ended March 31, 1998 from $39.8 million in the
year earlier period. Operating expenses as a percentage of revenue increased to
16.9% in the three months ended March 31, 1998 from 16.4% in the year earlier
period due to the increase in amortization expense related to the acquisition of
businesses. Operating expenses before depreciation and amortization expense as a
percent of revenue remained relatively constant at 14.8% for the three months
ended March 31, 1998 and 1997, respectively. Included in operating expenses 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 expenses. The
Company expects to substantially complete the Year 2000 conversion projects by
the end of 1998. 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.
7
Income from Operations. As a result of the foregoing, income from operations
increased $15.6 million or 61.0% to $41.3 million in the three months ended
March 31, 1998 from $25.6 million in the year earlier period. Income from
operations as a percentage of revenue increased to 11.0% in the three months
ended March 31, 1998 from 10.6% in the year earlier period.
Interest Expense. Interest expense increased $4.4 million, or 279.2%, to $5.9
million in the three months ended March 31, 1998 from $1.6 million in the year
earlier period. The increase in interest expense resulted from a combination of
the utilization of the Company's credit facility used to fund acquisitions, and
the amount of cash on hand as of December 31, 1996.
Income Taxes. The Company's effective tax rate was 37.5% in the three months
ended March 31, 1998 compared to 38.7% in the year earlier period. The decrease
in the effective tax rate is due to tax savings realized from corporate
restructurings.
Income from continuing operations. As a result of the foregoing, income from
continuing operations increased $7.3 million or 49.8% to $22.1 million in the
three months ended March 31, 1998 from $14.8 million in the year earlier period.
Net income as a percentage of revenue decreased to 5.9% in the three months
ended March 31, 1998 from 6.1% in the year earlier period.
From discontinued operations
Income from Discontinued Operations. Income from the discontinued commercial
operations, after tax, increased $3.8 million, or 56.1% to $10.5 million for the
three months ended March 31, 1998 versus $6.7 million for the year earler
period. Reported revenues from discontinued operations were $319.0 million for
the three months ended March 31, 1998 versus $277.2 million for the year earlier
period. Operating income for the discontinued operations were $ 18.1 million for
the three months ended March 31, 1998 versus $11.3 million during the year
earler period. Results of discontinued operations include allocations of
consolidated interest expense totaling $1.4 million and $0.5 million for the
three months ended March 31, 1998 and 1997, respectively. The allocations were
based on the historic funding needs of the discontinued opertaions, including:
the purchases of property, plant and equipment, acquisitions, current income tax
liabilities and fluctuatung working capital needs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been principally related to the
acquisition of businesses, working capital needs and capital expenditures. These
requirements have been met through a combination of bank debt, issuances of
securities and internally generated funds.
Exclusive of the net assets of discontinued operations, the Company had working
capital of $186.7 million and $148.9 million as of March 31, 1998 and December
31, 1997, respectively. The Company had cash and cash equivalents of $47.4
million and $23.9 million as of March 31, 1998 and December 31, 1997,
respectively. The Company's operating cash flows and working capital
requirements are significantly affected by the timing of payroll and the receipt
of payment from the customer. Generally, the Company pays its Information
Technology and Professional Services consultants semi-monthly, and receives
payments from customers within 30 to 80 days from the date of invoice. As a
result of the foregoing, for the three months ended March 31, 1998 and 1997, the
Company used $0.06 million and was provided $0.8 million of cash flow from
operations, respectively.
The Company used $50.2 million and $100.0 million for investing activities in
the three months ended March 31, 1998 and 1997, respectively. Of which $45.7
million and $97.6 million, respectively, was used for acquisitions and $4.5
million and $2.4 million, respectively, was used for capital expenditures.
For the three months ended March 31, 1998 and 1997, the Company was provided
$68.2 million and $50.5 million of cash flows by financing activities,
respectively. For both the three months ended March 31, 1998 and 1997, these
amounts primarily represent net borrowings from the Company's credit facility,
which were used primarily to fund acquisitions.
Indebtedness of the Company
Prior to the sale of Strategix, the Company had a $500 million line of credit
which was syndicated to a group of 20 banks, with NationsBank, N.A. as principal
agent. Subsequent to the sale of Strategix, the existing facility was paid-off,
and terminated. As of October 25, 1998, the Company's indebtedness consisted
solely of the acquisition notes and convertible senior debentures noted below.
On October 22, 1998, the Company closed on its new $500 million revolving credit
facility with NationsBank, N.A. as principal agent. The facility expires on
October 21, 2003. Outstanding amounts under the credit facility will 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 20% of consolidated shareholder's equity.
On October 16, 1995, the Company's subsidiary, Career Horizons, Inc., issued
$86.25 million of 7% Convertible Senior Notes Due 2002 which were assumed by the
Company pursuant to a merger. 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. On October 1, the
Company called the notes to be converted as of November 1, 1998. As of November
1, 1998, the notes were either purchased by the company or converted into shares
of the Companies common stock and are no longer outstanding.
The Company has certain notes payable to shareholders of acquired companies. The
notes payable bear interest at rates ranging from 5.0% to 8.0% and have
repayment terms from January 1998 to June 2000. As of November 1, 1998 the
Company owed approximately $15.1 million in such acquisition indebtedness.
The Company is also obligated under various acquisition agreements to make
earn-out payments to former stockholders of acquired companies over the next
five years. The Company estimates the amount of these payments will total $5.6
million for the remainder of 1998, and $38.9 million, $26.2 million, $10.1
million and $3.0 million annually for the next four years. 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 these payments.
The Company anticipates that capital expenditures for furniture and equipment,
including improvements to its management information and operating systems
during the next twelve months will be 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 the 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.
SEASONALITY
The company's quarterly operating results are affected primarily by the number
of billing days in the quarter and the seasonality of its customers' businesses.
Demand for services in the information technology and professional services
businesses is typically lower during the first quarter until customers'
operating budgets are finalized and the profitability of the Company's
consultants is lower in the fourth quarter due to fewer billing days because of
the higher number of holidays and vacation days.
INFLATION
The effects of inflation on the Company's operations were not significant during
the periods presented in the financial statements. Generally, throughout the
periods discussed above, the increases in revenue have resulted primarily from
higher volumes, rather than price increases.
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. The
Company is in the process of determining its preferred disclosure format.
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 fiscal
years beginning after December 15, 1997, with interim application not required
in the initial year of adoption.
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. The Company plans to adopt SOP 98-1 during fiscal 1999.
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 date of acquisition and are immaterial
to the Company's results of operations for fiscal 1997, and financial position
as of December 31, 1997.
On October 31, 1998, the Company's Board of Directors authorized the repurchase
of up to $200.0 million of the Company's common stock.
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 100%, 95%, 70% and 55% complete, respectively and estimates that
all critical systems will be compliant with the century change by March 1999.
The Company has budgeted approximately $2.0 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
$1.1 million of this amount has been expended through November 1, 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 expectation 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 prospectus dated January 15, 1997, and as discussed
in the Company's reports on Forms 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.
10
Part II. Other Information
Item 1. Legal Proceedings
No disclosure required.
Item 2. Changes in Securities
On March 26, 1998, the Company issued 4,598,698 shares of its common stock
pursuant to a merger transaction in which the Company's subsidiary, modis, inc.,
acquired all of the outstanding shares of Actium corporation, Actium
Technologies, Inc. and Actium Tools, Inc. The Company's 4,598,698 shares were
issued in reliance upon an exemption from registration under the Securities Act
of 1933, as amended (the "Act"), provided by Section 4(2) of the Act.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
No disclosure required.
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AccuStaff Incorporated
May 15, 1998
Date By:/s/ Derek E. Dewan
--------------------------------------------
Derek E. Dewan, Chairman, President and
Chief Executive Officer
May 15, 1998 By:/s/ Michael D. Abney
Date --------------------------------------------
Michael D. Abney, Senior Vice President and
Chief Financial Officer
May 15, 1998 By:/s/ Robert P. Crouch
Date --------------------------------------------
Robert P. Crouch, Vice President and Controller
12