1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
APRIL 30, 1996.
[ ] 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 0-23144
PERSONNEL MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1671569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1499 Windhorst Way, Suite 100
Greenwood, Indiana 46143
(Address of principal executive offices) (Zip Code)
(317) 888-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1994 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 issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at May 28, 1996
Common Stock, without par value 2,020,156 shares.
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PERSONNEL MANAGEMENT, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
(Unaudited)
Condensed Consolidated Balance Sheets
at April 30, 1996 and October 31, 1995 3
Condensed Consolidated Statements of
Income for the three months ended
April 30, 1996 and 1995 4
Condensed Consolidated Statements of
Income for the six months ended
April 30, 1996 and 1995 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
April 30, 1996 and 1995 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURE 14
EXHIBIT INDEX 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
April 30, October 31,
1996 1995
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 291,334 $ 171,848
Accounts receivable, net 6,230,735 6,175,233
Current portion of notes
receivable, other 150,016 144,978
Income taxes receivable 11,579 42,622
Prepaid expenses 244,712 286,607
Other current assets 31,213 25,737
Deferred tax asset 241,500 241,500
Total Current Assets 7,201,089 7,088,525
Property and equipment, net 1,294,743 1,265,484
Notes receivable, shareholder 487,538 468,664
Notes receivable, other 5,387 76,571
Goodwill, net 6,433,084 5,519,592
Other 165,609 166,885
Total Assets $15,587,450 $14,585,721
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 341,040 $ 121,031
Bank credit facility 3,492,000 -
Accounts payable 553,553 229,923
Accrued compensation and benefits 1,489,011 1,480,418
Accrued workers' compensation claims 557,218 508,422
Income taxes payable 46,028 60,828
Other current liabilities 99,680 32,254
Current portion of notes payable 149,616 116,436
Total Current Liabilities 6,728,146 2,549,312
Note payable and bank credit
facility 96,456 3,737,933
Deferred tax liability 76,200 76,200
SHAREHOLDERS' EQUITY
Common stock 7,784,429 7,683,156
Retained earnings 902,219 539,120
Total Shareholders' Equity 8,686,648 8,222,276
Total Liabilities and Shareholders'
Equity $15,587,450 $14,585,721
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED APRIL 30,
1996 1995
Revenues $16,388,262 $15,380,148
Expenses
Cost of services 12,981,063 12,352,243
General and administrative 2,625,215 2,368,170
Selling 128,427 99,612
Amortization of goodwill 85,242 68,927
15,819,947 14,888,952
Income from operations 568,315 491,196
Interest expense, net (65,621) (72,375)
Net income before income taxes 502,694 418,821
Income taxes 221,194 201,182
Net income $ 281,500 $ 217,639
Net income per share $ 0.14 $ 0.11
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
SIX MONTHS ENDED APRIL 30,
1996 1995
Revenues $30,418,378 $30,677,355
Expenses
Cost of services 24,209,657 24,769,190
General and administrative 5,031,169 4,864,535
Selling 226,112 204,891
Amortization of goodwill 167,198 137,855
29,634,136 29,976,471
Income from operations 784,242 700,884
Interest expense, net (135,842) (157,941)
Income before income taxes 648,400 542,943
Income taxes 285,300 260,805
Net income $ 363,100 $ 282,138
Net income per share $ 0.18 $ 0.14
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
SIX MONTHS ENDED APRIL 30,
1996 1995
OPERATING ACTIVITIES
Net income $ 363,100 $ 282,138
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 339,873 275,047
Deferred income taxes - (112,000)
Interest earned on shareholder loan (18,874) (13,518)
Changes in operating assets and
liabilities:
Accounts and notes receivable (55,502) 482,572
Prepaid expenses and other assets 134,883 (193,483)
Accounts payable 323,630 (448,999)
Accrued liabilities and other payables 110,015 69,984
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,197,125 341,741
INVESTING ACTIVITIES
Purchases of businesses and additions to
goodwill (1,168,972) (375,626)
Purchases of property and equipment (113,652) (324,661)
NET CASH USED BY INVESTING ACTIVITIES (1,282,624) (700,287)
FINANCING ACTIVITIES
Proceeds from exercise of common stock
options 224,625 -
Loan to officer (123,352) -
Cash dividends - (71)
Tax benefit resulting from exercise of
stock options - 152,500
Payments on notes payable (28,297) (372,420)
Net borrowings (payments) on line of
credit (88,000) 270,000
NET CASH PROVIDED (USED)BY FINANCING
ACTIVITIES (15,024) 50,009
Decrease in cash (100,523) (308,537)
Cash at beginning of year 50,817 133,019
CASH AT END OF PERIOD $ (49,706) $ (175,518)
See accompanying notes.
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PERSONNEL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(unaudited)
1. Basis of Presentation
The accompanying financial statements have been
prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange
Commission (SEC). This Report on Form 10-Q should
be read in conjunction with the Company's financial
statements and notes thereto for the year ended
October 31, 1995, included in the Company's 1995
Annual Report to Shareholders. Certain information
and footnote disclosures that are normally included
in financial statements prepared in accordance with
generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and
regulations. The information reflects all normal
and recurring adjustments that, in the opinion of
management, are necessary for a fair presentation
of the financial position of the Company and its
results of operations for the interim periods set
forth herein. The results for the three months and
six months ended April 30, 1996, are not
necessarily indicative of the results to be
expected for the full year. The financial
statements include the consolidated financial
position, operations and cash flows for Personnel
Management, Inc. and its wholly-owned subsidiaries,
hereafter referred as "the Company". The Company
intends to file concurrently with this report an
amendment to its Quarterly Report on Form 10-QSB/A
for the purpose of amending and restating its
financial statements for the three and six month
periods ended April 30, 1995. The Company has
previously reported in its 1995 Annual Report to
Shareholders restated results of operations for
each of its 1995 quarterly periods. The results
for the three and six month periods ended April 30,
1995 in this report are restated on the basis of
the results that will be included in the amendment
on Form 10-QSB/A.
2. Per Share Disclosures
Per share amounts are based on the weighted average
number of common shares outstanding during the
respective periods (retroactively adjusted to give
effect to subsequent stock dividends). Stock
options and warrants are considered common stock
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equivalents and are included in the computation of
the number of outstanding shares using the treasury
stock method, unless anti-dilutive.
3. Shareholders' Equity
On November 1, 1995, options to purchase 29,069
shares with an exercise price of $7.73 per share
were exercised. Proceeds of $224,625 were received
by the Company.
On April 15, 1996, the Company extended a loan to
an officer of the Company in the amount of $123,352
for the purpose of paying income taxes in
connection with the officer's December 29, 1994
exercise of non-qualified stock options to purchase
49,486 shares of common stock of the Company. The
loan bears interest at the prime rate which was
8.5% as of the date of the loan, and is secured by
24,670 shares of common stock of the Company. The
loan is reflected as a deduction from common stock
and interest is credited to income as it accrues.
4. Acquisitions
The Company acquired the assets of a temporary
services firm in Atlanta, Georgia, with one office
and annual revenues of approximately $2,000,000 on
November 13, 1995. The business was acquired for
approximately $600,000, plus 42% of future income
before taxes and other adjustments derived from the
areas served by the business through October 2000.
The business operations acquired in Georgia provide
mostly temporary clerical services.
On February 5, 1996, the Company acquired the
assets of a temporary services firm in northeastern
Florida with annual revenues of approximately
$4,700,000. The business was acquired for
approximately $250,000, plus 71% of future income
before taxes and other adjustments derived from one
significant customer served by the business through
January 2001. The business in northeastern Florida
provides temporary clerical and warehousing
services to its customers.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following should be read in conjunction with
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the
Company's 1995 Annual Report to Shareholders and the
comparable discussion and analysis included in the
Company's quarterly report on Form 10-Q for the first
quarter of the 1996 fiscal year.
SELECTED INCOME STATEMENT COMPARISONS
REVENUES. For the three months ended April 30, 1996,
revenues increased by $1,008,114 or 6.6% compared to the
1995 period, to $16,388,262. The increase was a result
of same office sales growth in the Tampa, Florida area,
and the acquisition of temporary services companies in
Atlanta, Georgia during November 1995, and Jacksonville,
Florida during February 1996. Revenues from the
Company's Indiana customer base for the second quarter,
which accounted for approximately 69% of consolidated
revenues, decreased 13.7% compared to the previous year
period. This decrease was due primarily to reduced
demand and competitive pressures. Revenues remained
constant for the Company's Indiana customer base between
the first and second quarters of 1996.
For the six months ended April 30, 1996, revenues
decreased $258,977 or 0.8% compared to the 1995 period,
to $30,418,378. This decrease was due to a 14.7%
decrease in revenues from the Company's Indiana customer
base compared to the prior year period. Revenues from
the Company's southeastern U.S. operations, which
accounted for approximately 26% of consolidated revenues
for the six month period, almost entirely offset the
decrease in the Indiana revenues.
COST OF SERVICES. Cost of services for the three months
ended April 30, 1996 increased $628,820 or 5.1% compared
to the 1995 period, to $12,981,063. This increase was a
result of increased volume of services to clients. Cost
of services as a percentage of revenues for the quarter
was 79.2% compared to 80.3% in the prior year period.
This improvement was a result of favorable pricing of
temporary help services and lower workers' compensation
costs.
Cost of services for the six months ended April 30, 1996
decreased $559,533 or 2.3% compared to the 1995 period,
to $24,209,657. As a percentage of revenues, cost of
services improved from 80.7% in 1995 to 79.6% in 1996.
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SELLING EXPENSES. Selling expenses for the three and six
months ended April 30, 1996 increased 28.9% and 10.4%,
respectively, compared to the 1995 periods as a result of
the Company's Atlanta, Georgia and Jacksonville, Florida
operations. These operations were acquired by the
Company in the current fiscal year. Selling expenses as
a percentage of revenues increased slightly from 0.7% in
the prior year quarter to 0.8%
in the current year quarter.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for the three months ended April
30, 1996 increased $257,044 or 10.9% compared to the 1995
period, to $2,625,215. This increase was due entirely to
the G&A expenses associated with the businesses purchased
by the Company in the current fiscal year. G&A expenses
related to the Indiana and Tampa operations decreased
$8,500. The results of the Company's ongoing expense
reduction program is reflected in the decreased G&A
expenses for the Indiana and Tampa operations but is
partially offset by higher professional fees and bad debt
expense. Expenses related to the expense reduction
program decreased approximately $225,000 for the quarter
compared to the prior year period. Professional fees and
bad debt expenses were higher compared to the prior year
quarter by approximately $25,000 and $100,000,
respectively. Additional professional fees were incurred
for nonrecurring services related to the year-end
financial disclosures. Credit policies and procedures
have been strengthened to address the credit problems
experienced by the Company in the current fiscal year.
As a percentage of revenues, G&A expenses for the quarter
increased from 15.5% in the 1995 fiscal year to 16.1% in
the current fiscal year.
G&A expenses for the six months ended April 30, 1996
increased $166,633 or 3.4% compared to the prior year
period due entirely to the expenses associated with the
new businesses acquired by the Company in the current
fiscal year. G&A expenses for the Indiana and Tampa
operations decreased approximately $153,000 primarily as
a result of the ongoing expense reduction program.
Partially offsetting this decrease in G&A expenses for
the Indiana and Tampa operations were higher professional
fees and bad debt expense of approximately $114,000 and
$157,000, respectively, compared to the prior year
period. As a percentage of revenues, G&A expenses for
the six months increased from 15.9% in the 1995 fiscal
year to 16.6% in the current fiscal year.
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AMORTIZATION OF GOODWILL. Goodwill represents the
unamortized cost in excess of fair value of net assets
acquired and is being amortized on a straight-line basis
over 20 years. Goodwill amortization for the three and
six month periods ended April 30, 1996 increased 23.7%
and 21.3%, respectively, compared to the 1995 periods.
These increases were a result of the amortization of
goodwill related to the two businesses acquired in the
current fiscal year and the amortization of payments of
additional purchase price to the prior owners of acquired
businesses under the earnout provisions of the
acquisition agreements.
INTEREST EXPENSE, NET. The decrease in interest expense,
net for the three and six months ended April 30, 1996
compared to the prior year periods is due to lower
interest rates on borrowings.
INCOME TAXES. Income tax expense for the three and six
months ended April 30, 1996 increased 9.9% and 9.4%,
respectively, compared to the prior year period as a
result of the increases in net income before income
taxes. The effective income tax rate was 44% in the
current fiscal year compared to 48% in the prior fiscal
year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the six
months ended April 30, 1996 was $1,197,125 which resulted
primarily from net income before depreciation and
amortization, and an increase in accounts payable
outstanding.
Net cash used by investing activities during the six
months ended April 30, 1996 was $1,282,624 due to the
acquisitions of Temporaries of Atlanta, Inc. in November
1995 and Progressive Personnel II, Inc. in February 1996,
and payments of additional purchase price to owners of
previously acquired businesses under the earnout
provisions of the acquisition agreements.
Management believes that cash provided by operations,
augmented by borrowings for working capital purposes
under the bank credit facility, will be adequate to
satisfy the Company's operating cash requirements during
fiscal 1996. Due to the relatively short maturity of the
Company's bank credit facility in February 1997, the
Company may consider seeking new debt or equity financing
12
during fiscal 1996 or prior to the maturity of the credit
facility in February 1997. Since the bank credit
facility will mature within a twelve month period, the
amount outstanding as of April 30, 1996 has been
reclassified on the balance sheet from a noncurrent to a
current liability. Depending on market conditions, the
performance of the Company and other factors, this new
financing may be public or private. This information
concerning the possibility that the Company may seek
additional financing is a forward-looking statement, and
the Company has not engaged in any discussions with
investors, banks, or financial intermediaries looking
toward such a financing transaction. Furthermore, there
is no assurance that such financing would be available to
the Company if sought, or that such financing, even if
available, would carry terms that shareholders of the
Company would find attractive.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
The Company held its 1996 Annual Meeting of Shareholders
on March 28, 1996. At the Annual Meeting the
Shareholders elected as Directors the two nominees
proposed by the Board of Directors and approved the 1994
Director Stock Option Plan. Joseph C. Cook and Max K.
DeJonge were both elected for a three year term to the
Board of Directors. In addition to these two
individuals, Directors whose term of office continued
after the Annual Meeting consisted of Richard VonDerHaar,
David L. Swider, Don R. Taylor and Elizabeth McFarland.
The results of the proxy solicitation were as follows:
Votes Votes Votes
Cast For Withheld Abstained Non-Votes
Nominee:
Joseph C. Cook 1,877,505 1,100
Max K. DeJonge 1,877,505 1,100
1994 Director Stock
Option Plan 1,846,359 9,060 4,479 18,707
Item 5. Other Information
On June 20, 1996, the Registrant announced the
appointment of Gary Hentschel as its Chief Operating
Officer, effective July 15, 1996. Mr. Hentschel held the
position as Executive Vice President and Corporate
Banking Manager of the Central Indiana Region with
KeyBank, N.A. KeyBank is a $65 billion financial
services organization headquartered in Cleveland, Ohio.
Prior to joining the KeyBank organization in 1986, Mr.
Hentschel held a number of commercial banking positions
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with NBD, Indiana. His educational background includes
an MBA degree in finance from Butler University in
Indianapolis and a bachelors degree in marketing and
economics from Miami University in Oxford, Ohio.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the Exhibit Index on page 15
(which Exhibit Index is incorporated herein by reference)
are filed as part of this report.
(b) Reports on Form 8-K
A current report on Form 8-K dated February 5, 1996 was
filed on February 19, 1996 to report under Item 2 the
Company's acquisition of Progressive Personnel II, Inc.,
and under Item 5 the appointment of Robert R. Millard as
the Company's new Chief Financial Officer and Vice
President of Finance and Administration.
A current report on Form 8-K/A dated February 5, 1996 was
filed on April 19, 1996 to report under Item 7 the
financial statements and pro forma financial information
for the Progressive Personnel II, Inc. acquisition.
SIGNATURE
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.
PERSONNEL MANAGEMENT, INC.
Dated: June 21, 1996 By: /s/ Robert R. Millard
Robert R. Millard, Vice
President of Finance and
Administration (Principal
Financial Officer and
Authorized Signatory)
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.1 Amended Schedule of Options
Granted Under 1994 Director
Stock Option Plan
10.2 Employment Agreement between
the Company and Don R. Taylor,
dated November 8, 1995
10.3 Employment Agreement between
the Company and Elizabeth McFarland,
dated November 8, 1995
10.4 Employment Agreement between
the Company and Robert R. Millard,
dated February 5, 1996
10.5 Change of Control Severance
Benefits Agreement between the
Company and Don R. Taylor,
dated November 8, 1995
10.6 Change of Control Severance
Benefits Agreement between the
Company and Elizabeth McFarland,
dated November 8, 1995
10.7 Change of Control Severance
Benefits Agreement between the
Company and Robert R. Millard,
dated February 5, 1996
10.8 Incentive Stock Option Agreement
between the Company and Robert R.
Millard, dated February 5, 1996
10.9 Promissory Note between the
Company and Elizabeth McFarland,
dated April 15, 1996
10.10 Pledge Agreement between the
Company and Elizabeth McFarland,
dated April 15, 1996
11.1 Statement Re: Computation of
Earnings Per Share for the Three
Months Ended April 30, 1996
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11.2 Statement Re: Computation of
Earnings Per Share for the Six
Months Ended April 30, 1996
27.1 Financial Data Schedule