U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Issuer's telephone number: (317) 888-4400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act 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 by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
2
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 405, 17 CFR 230.405.): $14,089,728 (approx.) valued at the
average of the last sale price of $12.00 per share on January 23, 1998 (assuming
solely for this purpose that all executive officers, directors, and persons
believed to beneficially own 10 percent or more of the Registrant's common stock
were affiliates and that all other shareholders were non-affiliates).
Indicate the number of shares outstanding of each of the registrants classes of
common stock, as of the latest practicable date: 2,032,918 Common Shares as of
January 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Shareholders are
incorporated by reference into Part II of this Report, and portions of the
Registrant's Proxy Statement, to be filed pursuant to Regulation 14A within 120
days of the close of the Registrant's fiscal year, are incorporated by reference
into Part III of this Report.
3
PART I
ITEM 1. BUSINESS.
Overview
Personnel Management, Inc., an Indiana corporation, provides temporary and
long-term staffing services to businesses located throughout most of Indiana,
portions of northern Kentucky, Atlanta, Georgia, and Jacksonville and Tampa,
Florida. The Company's staffing business primarily involves providing temporary
employees to industrial clients, although it also provides clerical, technical
and professional temporary staffing and long-term placement services.
The Company has grown rapidly through the opening of new branch offices and
by acquisitions of other staffing businesses since it commenced operations as a
provider of staffing services in central Indiana in 1986. The Company purchased
staffing businesses operating in southwestern Florida and in northern and
southern Indiana during its fiscal year ended October 31, 1994. During its
fiscal year ended October 31, 1996, the Company acquired a staffing business in
Atlanta, Georgia, and a staffing business in Jacksonville, Florida. The business
operations in Atlanta provide mostly clerical staffing services, while the
business in Jacksonville provides clerical and warehousing staffing services to
its customers.
The Company acquired on March 17, 1997, the assets of Garner-Scott
Enterprise, Inc., a staffing business based in Madison, Indiana and Carrollton,
Kentucky. The acquired business operations provide predominately light
industrial staffing services. On March 24, 1997, the Company acquired the assets
of First In Temporaries, Inc.'s Louisville, Kentucky staffing operations. The
acquired business operations provide clerical and light industrial staffing
services. The Company acquired on April 25, 1997 a minority equity investment in
Adminiserve, Inc., a professional employer organization based in Greenwood,
Indiana. Management intends to pursue a strategy of acquiring other staffing
companies, opening new staffing offices and expanding its services to client
companies.
In June 1994, the Company transferred its existing operations, which were
then principally located in central and southeastern Indiana, to a wholly-owned
subsidiary entity, and the businesses acquired in subsequent acquisition
transactions have similarly been placed in wholly-owned subsidiary entities. The
Company (through an administration subsidiary) provides centralized general
administration and support functions for the operating entities.
4
The Company's revenues and quarterly results have typically been seasonal
because of the Company's concentration towards staffing the personnel needs of
industrial clients. Industrial production tends to be seasonal due to the
customary reduction in production during the year-end holidays (Thanksgiving
through New Year's Day) and to year-end inventory reduction goals of most
manufacturers. This seasonal downtime in industrial operations reduces the needs
of the Company's industrial clients for temporary personnel during winter
months. As a result, the Company has historically experienced its highest
revenues of each fiscal year during its fourth quarter which ends October 31,
and has experienced its weakest revenues in the first quarter which ends January
31.
The staffing industry has grown rapidly as a result of cyclical economic
trends as well as changing attitudes and approaches to staffing. Demand for
temporary employees has historically been driven by a need to temporarily
replace full-time workers due to illness, vacation or abrupt termination. More
recently, temporary staffing has been widely accepted as a valuable tool for
managing personnel costs as an increasing number of businesses staff their
organizations with a core level of full-time personnel and utilize temporary
workers to accommodate fluctuating staffing requirements. Organizations have
also begun using temporary staffing to reduce administrative overhead by
outsourcing operations that are not part of their core business functions.
Demand for the Company's temporary employment services may be significantly
affected by the general level of economic activity in the territories served by
the Company. Traditionally, when economic activity increases, temporary
employees are often added before full-time employees are hired. However, as
economic activity slows, many companies historically reduce their utilization of
temporary employees prior to undertaking layoffs of their full-time employees.
Due to the growth in the staffing industry and changing patterns of employment,
temporary employees are increasingly becoming a permanent part of the employment
force of many companies.
The Company's Services
All temporary employees are placed on the Company's payroll and the Company
therefore assumes responsibility for all employee-related expenses, including
workers' compensation, payroll taxes, unemployment compensation insurance, and
general payroll expenses. The Company bills its clients for the hourly wages
paid to the temporary employee placed with the client, plus a negotiated markup.
Because the Company pays it temporary employees only for the hours actually
worked, these wages are a variable cost that increases or decreases in
proportion to revenues. The Company also generates fee income from the placement
of staff in long-term positions with clients.
In addition to the cost of services (which, as indicated above, consists
primarily of payroll and related expenses), the Company's operating expenses are
classified as general and administrative (which are those costs associated with
the Company's administrative and branch offices, including management, account
representative and support staff compensation, rent, office expenses, applicant
recruiting expenses, and legal, accounting and other professional expenses) and
selling expenses (which consist primarily of compensation of the Company's sales
staff, advertising expenses, promotion expenses, and sales-related travel
expenses).
5
The Company utilizes a decentralized branch office management strategy.
Each of the Company's branch offices operates as an independent, entrepreneurial
unit. This management approach allows the account representative to manage all
aspects of the temporary staff recruiting and assignment process, with the
objective of promoting quality service and continued client satisfaction and
goodwill. Sales representatives are assigned to one or more branch offices to
promote the Company's services and obtain new clients. The branch manager is
responsible for all aspects of the sales and service functions to clients.
The Company operates each branch office as a profit center. Branch office
staff share in monthly bonuses directly based on their office's monthly
financial results. In addition, most Company staff share in a semi-annual bonus
pool that is a function of total Company performance. Management believes these
bonus programs develop and maintain a team spirit concept and create substantial
performance incentives at the branch level and on a Company-wide basis.
The Company provides its clients with many human resource services on an
as-needed basis. These services include wage rate information, employee
regulation advice (such as information on the Americans with Disabilities Act),
workplace safety advice and occasional seminars on various employee and
employment topics.
The Company believes that the high quality of its services has been a
significant factor in its ability to attract, satisfy and retain clients. The
Company offers clients the benefits of its "temp-to-perm" program. This program
allows a client to use a temporary employee for a specified period at regular
billing rates and then to hire the temporary employee, if so desired, with no
extra charges. Thus, the client has the opportunity to monitor and evaluate the
temporary employee's performance with no hiring obligation. On request, the
Company also provides placement services for clerical and professional positions
on a fee basis.
The Company's "Vendor on Premise" program includes twelve major clients, or
approximately 25% of total Company revenues, as of the end of fiscal 1997. Under
this program, the Company assumes the administrative responsibilities for
coordinating all temporary staffing services at a client's locations. This
enables the Company's personnel to work on-site as a partner with its clients
and it also allows the Company to establish long-term client relationships,
which result in a more stable source of revenue.
The Company's in-house training department conducts extensive programs for
its internal management and its sales and support staff that provides for
uniform and consistent employee conduct in most aspects of branch office
operations. These training programs include such topics as computer system
utilization, applicant interviewing procedures, screening procedures, testing
procedures, difficult situation workshops, workers' compensation claim
processing, manager training, sales training, and client service workshops.
The Company's administrative subsidiary provides many centralized functions
that allow the decentralized branch offices to operate more efficiently. These
functions include recruiting internal staff, workers' compensation and other
insurance services, training, payroll, billing, accounts payable, purchasing,
credit and collections, accounting, management information systems and other
administrative support.
At the end of fiscal 1997, the Company commenced the ISO 9002 certification
process which will provide assurance to our clients that quality management
procedures are in place. The Company expects to certify its administrative
subsidiary and four to six branch offices by late fiscal 1998.
The Company's computer system was installed in 1993 and allows employees in
branch offices and the administrative and corporate office to maintain and have
access to important Company-wide information on clients, applicants, temporary
staff on assignment and other related information. Most importantly, the system
automates most branch office operations, thus minimizing manual record keeping
and allowing any Company employee at any Company location to retrieve
information on any of the Company's thousands of applicants on file. This allows
the account representatives to scan, sort and analyze applicants for the
possibility of filling a job order through the numerous characteristics by which
each applicant could be identified.
6
Clients, Marketing and Sales
The sales staff utilizes various sales techniques such as personal sales
calls, TV, radio, print and billboard advertising, printed materials for
mailing, promotional video tapes, and personal appearances and support at
business and civic functions. To evaluate a new sales prospect, the sales staff
performs investigatory procedures, including a review of the prospect's credit
history information, workers' compensation experience, and safety programs. In
addition, the sales staff completes an internally developed bill rate sheet that
provides the sales staff and branch office management a summary of the projected
profitability to the Company of the prospective business.
Through these analyses and reviews, the sales staff attempts to ascertain
significant risks and the probable profitability of each new account. This
approach permits the Company to identify, attract and retain the most profitable
accounts, rather than obtaining sales merely to capture more market share.
Temporary Employees and Recruiting
As of October 31, 1997, the Company had approximately 5,400 temporary
employees on assignment with clients. During the year ended December 31, 1997,
the Company employed approximately 34,400 temporary employees. This figure is
estimated based on the number of wage statements on Form W-2 sent to employees
for calendar 1997. The number of employees on assignment at any given time can
vary significantly depending on special project needs, seasonality and other
factors.
The Company's temporary employees are not represented by a labor
organization. The Company believes that its relations with temporary employees
are good.
The Company generally has found it easier to recruit and retain highly
qualified personnel during periods of higher unemployment and expects that it
will have to devote increasing resources to locating new highly qualified
employees if the recent lower rates of unemployment continue. Additional
resources devoted to recruiting and retention of temporary personnel during
fiscal 1997 include a comprehensive benefit program consisting of health, life
insurance, vacation and holiday benefits, and the hiring of a national
recruiting director to conduct andz assist branch personnel in their recruiting
efforts. Although the Company's competitors, as well as its clients, similarly
experience increased recruiting and hiring expenses in periods of low
unemployment, the Company may be unable to pass on the full amount of such
increased costs in the form of higher prices for its staffing services. Such
inability would result in lower net income.
The Company believes that the high quality of its temporary personnel has
been a significant factor in its previous success and will continue to
contribute to its success. The Company believes that this high quality results,
in part, from its stringent screening, reference checking and testing
procedures. In addition to stringent screening, reference checking and testing
procedures, the opportunity of obtaining full time work through the Company's
"temp-to-perm" program has greatly assisted the Company in attracting higher
quality applicants. As described above, this concept allows a client to use the
Company's temporary staff for a negotiated minimum period of time at regular
temporary staff billing rates, and then hire the temporary staff, if so desired,
at no additional charge. Similarly, the temporary has the opportunity to begin
an assignment as a temporary and to eventually achieve a full-time long-term job
with a client.
Year 2000 Compliance
The Year 2000 issue arises with computer software that has been designed
without considering the impact of the upcoming change in the century and,
therefore, cannot distinguish between years such as 1900 and 2000. The vendor of
the software used by the Company and its subsidiaries to manage staffing
functions has informed the Company that it is evaluating the software to
determine what modifications will be needed to address Year 2000 issues. The
vendor has assured the Company that such evaluation and any modifications will
be completed by early 1999. The Company does not anticipate that the cost of
correcting any Year 2000 issues will be material to its financial condition or
results of operations; if, however, Year 2000 issues are not resolved in a
timely manner or require substantial expenditures, the Company's business,
financial condition and/or results of operations could be adversely affected.
The preceding sentence is a forward-looking statement; a variety of factors
could cause the financial impact of resolving Year 2000 issues to differ
materially from the immaterial impact that is presently expected.
7
Regulation
Each of the Company's branch offices may be subject to licensure as an
employment agency under the laws of the various states in which such offices may
from time to time be located. Compliance with such licensure laws has not had a
material adverse effect upon the Company.
Workers' Compensation and Other Employee Costs
The Company is required to pay unemployment insurance premiums and workers'
compensation for its temporary employees. Unemployment insurance premiums are
subject to increase or decrease as a result of, among other things, changes in
levels of unemployment or periods for which unemployment benefits may be
available under applicable laws and the Company's unemployment experience.
Workers' compensation costs are subject to increase or decrease as a result of
changes in the Company's loss experience rating and applicable state workers'
compensation laws.
The Company's workers' compensation insurance is subject to a $250,000
deductible per occurrence, and an unlimited aggregate annual deductible. There
is no guarantee that the Company will be able to obtain renewal coverage in
amounts and types desired at reasonable premium rates or that premiums for
existing insurance will not be adjusted by the insurance carriers based on
future claims experience.
The Company's workers' compensation insurance carriers have required the
Company to cause its bank lender to issue irrevocable letters of credit to
assure the Company's ability to pay injured workers in accordance with state
workers' compensation regulations. At October 31, 1997, these letters of credit
aggregated $900,000 and they reduce the amount available to the Company from its
bank lender under its credit facility.
The Company employs a workers' compensation staff to control and monitor
the Company's workers' compensation claims and expenses. The workers'
compensation staff attempts to contain workers' compensation expenses by
establishing controls and procedures to review client work site risks, develop
improved safety training programs, review workers' compensation employee injury
reports for propriety, review medical provider charges for reasonableness and
monitor the injured employee's medical recovery for timely return to work.
The Company has reserved $1,024,000 as of October 31, 1997 for pending
claims. Although there can be no assurance that the Company's actual future
workers' compensation obligations for claims pending as of October 31, 1997,
will not exceed the amount of its workers' compensation reserves, management
believes the recorded reserve is adequate.
Employment Laws
Providers of temporary staffing services employ and place people
generally in the workplace of other businesses. An attendant risk of such
activity includes possible claims of discrimination and harassment, employment
of illegal aliens and other similar claims. Management has adopted and
implemented policies and guidelines to reduce its exposure to these risks.
However, a failure of any Company employee to follow these policies and
guidelines may result in negative publicity, injunctive relief and the payment
by the Company of money damages or fines. Moreover, in certain circumstances,
the Company may be held responsible for the actions at a workplace of persons
not under the direct control of the Company.
Management, Sales and Support Personnel
The Company employed approximately 216 regular full-time (internal staff)
employees as of October 31, 1997. The Company's regular employees are not
represented by a labor organization and the Company believes that its employee
relations are good.
Competition
The staffing industry is highly competitive and has low entry barriers for
companies wishing to enter the business. The Company faces intense competition
from large national, international, regional and local companies and newly
established companies. The Company's competitors include companies such as
Manpower, Inc., Kelly Services, Inc., The Olsten Corporation and AccuStaff
Incorporated, which are national in scope and have substantially greater
financial and marketing resources than the Company.
8
The Company competes both for qualified temporary personnel and for clients
seeking to employ temporary personnel. The principal competitive factors in
attracting qualified temporary personnel are salaries and benefits, quality of
assignments and responsiveness to the needs of the employees. The Company
believes that many persons who seek temporary employment through the Company are
also seeking long-term employment. Therefore, the availability of appropriate
assignments is an important factor in the Company's ability to attract qualified
temporary personnel.
The principal competitive factors in obtaining and retaining clients are
having sufficient qualified temporary personnel to assign in a timely manner,
having an understanding of the specific job requirements of each client to help
assure an appropriate placement, pricing services competitively and monitoring
job performance. The Company believes that it has been able to compete
successfully in the temporary personnel services industry because of the
combination of its human resource expertise, its strategy of using qualified
temporary personnel, and its ability to identify and satisfy the temporary
staffing needs of clients.
ITEM 2. PROPERTIES.
The Company provides temporary staffing services through 41 branch offices
in Indiana, Florida, Kentucky and Georgia as of October 31, 1997. All of these
offices are leased by the Company under short-term leases typically on three- to
five-year original terms. The Company's Columbus, Rushville, Franklin, and
Shelbyville, Indiana offices are leased from JBD Real Estate, Inc. (a
corporation that is owned by Don R. Taylor, the Chief Executive Officer of the
Company, a Director, and a significant shareholder of the Company). The Company
does not expect that maintaining or finding suitable office space at reasonable
rates in the above market locations or in areas where the Company anticipates
expanding will be difficult.
The Company's executive and administrative office is presently located in
approximately 9,000 square feet of leased space in Greenwood, Indiana (a south
suburb of Indianapolis) under a lease expiring in 1999.
ITEM 3. LEGAL PROCEEDINGS.
As previously reported, the Company and certain of its subsidiaries have
been named Defendants in a lawsuit pending in the Hillsborough County Circuit
Court (13th Judicial Circuit,f Florida) under the caption Liberty Mutual
Insurance Co. vs. Allen Staffing Inc., et al. (Case No. 97C452). This action was
filed January 22, 1997 against certain Florida temporary staffing companies (the
"Porter Temporary Companies"); R. Gale Porter and other entities and individuals
associated with the Porter Temporary Companies; and the Company and certain of
its subsidiaries. The Company acquired substantially all the operating assets of
certain of the Porter Temporary Companies effective July 4, 1994.
Plaintiff Liberty Mutual alleges in its Amended Complaint that premiums for
workers' compensation insurance charged to the Porter Temporary Companies for
certain policy periods ended prior to July 4, 1994 were undercharged on the
basis of fraudulent misrepresentations or omissions by the Porter Temporary
Companies in their applications for workers' compensation insurance. Liberty
Mutual seeks damages from the Company and its subsidiaries for alleged breach of
contract, alleged fraud in the inducement, and alleged violations of Florida
statutes, by the Porter Temporary Companies in the amount of the alleged earned
but unpaid premium of approximately $1,402,000 plus unspecified additional
damages, or, in the alternative, ten times the amount of the premium underpaid
pursuant to Florida statutory provisions, plus punitive damages, attorney's
fees, costs and interest. Liberty Mutual claims that the Company should be held
liable for these alleged pre-acquisition obligations of the Porter Temporary
Companies on the alternative theories that (a) the continued operation by the
Company of the businesses of the Porter Temporary Companies at the same location
and under the same management personnel constitutes a mere continuation of the
business, and/or (b) the sale of the assets to the Company was a fraudulent
effort to avoid debts and liability incurred by the Porter Temporary Companies.
In the agreement by which it acquired the assets of the Porter Temporary
Companies, the Company expressly disclaimed that it was assuming any obligation
whatsoever with regard to the Porter Temporary Companies' undisclosed
liabilities. The Company intends to vigorously defend the lawsuit and has filed
a motion to dismiss the amended claims made against it and its subsidiaries, and
a motion to strike Liberty Mutual's attorney's fees, punitive damages, and "ten
fold" penalty demands. Although due to the early stage of this lawsuit, the
Company has not undertaken any comprehensive evaluation of Liberty Mutual's
claims, and although there can be no such assurance, the Company does not expect
that resolution of this lawsuit will have a material adverse impact upon the
Company's consolidated financial condition or results of operations. The
preceding sentence is a forward-looking statement; as with any litigation, a
variety of factors could cause the financial impact of the resolution of this
lawsuit to differ materially from the immaterial impact that is presently
expected, including the possibility that relevant facts or law may exist that
are presently unknown to Company management.
9
The Company, its Chief Executive Officer and the Company's former chief
financial officer have been named defendants in a complaint filed under the
caption James H. Wright and V. Gene Wright v. Personnel Management, Inc., James
E. Burnette, and Don R. Taylor, on December 12, 1997, in Marion County Circuit
Court, Indianapolis, Indiana (Cause No. 49CO19712 CP2844). The complaint was
filed by two investors who are seeking damages for trading losses they claim
they incurred in 1995 as a consequence of alleged misstatements. The plaintiffs
seek damages of approximately $600,000 plus interest, attorney's fees, punitive
damages, and treble damages. The Company intends to vigorously defend the
lawsuit. Although, due to the early stage of this lawsuit, the Company has not
undertaken any comprehensive evaluation of the claims, and although there can be
no such assurance, the Company does not expect that resolution of this lawsuit
will have a material adverse impact upon the Company's consolidated financial
condition or results of operations. Management believes that any potential loss
resulting from this lawsuit would be substantially covered by insurance. The
preceding sentences are forward-looking statement; as with any litigation, a
variety of factors could cause the financial impact of the resolution of this
lawsuit to differ materially from the immaterial impact that is presently
expected, including the possibility that relevant facts or law may exist that
are presently unknown to Company management.
As discussed under Item 1, "Business--Employment Laws," above, an attendant
risk of employing and placing people in the workplace of other businesses is the
possibility of claims of discrimination and harassment, employment of illegal
aliens, and similar claims arising under federal, state and local laws and
ordinances. The Company is a defendant or respondent in a number of proceedings
involving claims of these types, but such proceedings are considered routine
proceedings that are incidental to its business. Although the Company has no
reason to believe that it will experience any material loss as the result of
these proceedings, this is a forward-looking statement. There can be no
assurance that material losses will not result from one or more of such
proceedings due to the risks that are inherent in litigation, including the
possibility that relevant facts indicating liability could possibly exist with
respect to one or more of the pending proceedings that are not presently known
to Company management and its counsel. There are no other pending material legal
proceedings to which the Company is a party (or to which its property is
subject) and the Company is not aware that any governmental authority is
contemplating the bringing of any such legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended October 31, 1997.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information relating to the
executive officers of the Company as of January 1, 1998.
Name Age Offices Held
Don R. Taylor 50 Chief Executive Officer
Gary F. Hentschel 39 President and Chief Operating Officer
Robert R. Millard 40 Vice President of Finance and
Administration, Chief Financial
and Accounting Officer, Treasurer
and Secretary
Officers are elected annually by the Board of Directors and serve for a
one-year period or until their successors are elected. There are no family
relationships between or among the persons named.
Except as indicated below, each of the officers has held the same or
similar position with the Company for the past five years.
Mr. Taylor had served as both President and Chief Executive Officer of the
Company since its founding in 1986. Effective July 1, 1997, Mr. Taylor resigned
as President and Mr. Hentschel was appointed to that office.
Mr. Hentschel has served as Chief Operating Officer since July 1996, and
effective July 1, 1997, he was also named President. From 1994 to July 1996, Mr.
Hentschel had served as Executive Vice President for KeyBank, and prior to 1994,
he had served as Senior Vice President of KeyBank.
Mr. Millard was appointed Chief Financial Officer and Vice President of
Finance and Administration in February 1996. From July 1991 to February 1996,
Mr. Millard had served as Corporate Controller for Lacy Diversified Industries,
Ltd. Mr. Millard also serves as Secretary and Treasurer of the Company.
10
PART II
The information for Items 5 through 8 of this Report appears in the
1997 Annual Report to Shareholders (on the pages and under the captions
indicated) and is incorporated herein by reference from the Annual Report to
Shareholders (page numbers refer to the pages as numbered in Exhibit 13 attached
to this Report):
ITEM 5. MARKET FOR THE CORPORATION'S COMMON SHARES AND RELATED SECURITY HOLDER
MATTERS
Annual Report to Shareholders Page
Common Stock 24
ITEM 6. SELECTED FINANCIAL DATA
Annual Report to Shareholders Page
Selected Financial and 1
Operating Data
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Annual Report to Shareholders Page
Management's Discussion and 2 through 6
Analysis of Financial Condition
Results of Operations
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Annual Report to Shareholders Page
Report of Independent Auditors 7
Consolidated Balance Sheets 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Consolidated Statements of Shareholders' 11
Equity
Notes to Consolidated Financial 12 through 22
Statements
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The information required in response to this Item 9 was previously reported
on a Form 8-K dated October 24, 1997, and filed on October 28, 1997, as amended
by an amended Form 8-K dated November 3, 1997, and filed on November 7, 1997,
and a Form 8-K dated November 20, 1997, and filed on November 24, 1997.
PART III
Except as set forth below in "Directors and Executive Officers of the
Corporation," the information for Items 10 through 13 of this Report is
incorporated herein by reference from the Company's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held March 5, 1998, which will be
filed with the Commission pursuant to Regulation 14A on or about February 16,
1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The information required by this item relating to Executive Officers is
found under the heading "Special Item. Executive Officers of the Registrant" in
Part I of this Report. The information required by this item relating to
Directors will be included under the caption "Election of Directors" in the
Company's definitive Proxy Statement for its Annual Meeting of Shareholders to
be held March 5, 1998, which will be filed with the Commission within 120 days
of the end of the Registrant's fiscal year and is incorporated by reference in
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the captions
"Executive Compensation," "Report of the Compensation Committee of the Board of
Directors on Executive Compensation," "Compensation Committee Interlocks and
Insider Participation," "Performance Graph," and "Certain Transactions," in the
Company's definitive Proxy Statement for its Annual Meeting of Shareholders to
be held March 5, 1998, which will be filed with the Commission within 120 days
of the end of the Registrant's fiscal year and is incorporated by reference in
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included under the captions
"Election of Directors" and "Principal Owners of Common Shares" in the Company's
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
March 5, 1998, which will be filed with the Commission within 120 days of the
end of the Registrant's fiscal year and is incorporated by reference in this
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included under the caption
"Certain Transactions" in the Company's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held March 5, 1998, which will be filed
with the Commission within 120 days of the end of the Registrant's fiscal year
and is incorporated by reference in this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The financial statements and documents listed below are filed as part of
this Report.
(a)1. Financial Statements
The following financial statements are incorporated by reference from
the 1997 Annual Report to Shareholders as indicated (page numbers refer to the
pages as numbered in Exhibit 13 attached to this Report).
Annual Report to Shareholders Page
Report of Independent Auditors 7
Consolidated Balance Sheets as of 8
October 31, 1997 and 1996
Consolidated Statements of Income for 9
the years ended October 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows 10
for the years ended October 31,
1997, 1996 and 1995
Consolidated Statements of 11
Shareholders' Equity for the
years ended October 31, 1997,
1996 and 1995
Notes to Consolidated Financial
Statements 12 through 22
(a)2. Schedules
All schedules have been omitted because the required information is either
inapplicable or has been included in the Company's consolidated financial
statements or notes thereto.
(a)3. Exhibits
The exhibits filed as part of this report on Form 10-K are identified in
the Exhibit Index, which Exhibit Index includes a column specifically
identifying those exhibits that describe or evidence all management contracts
and compensatory plans or arrangements required to be filed as exhibits to this
report. Such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
During the quarter ended October 31, 1997, the following reports on Form
8-K were filed:
Date Filed Item Number Description
10/28/97 4 Reported on dismissal of Price
Waterhouse LLP as independent
accountants
11/7/97 4 Amended previous report to attach
letter from Price Waterhouse LLP
dated November 3, 1997, as an
exhibit
11/24/97 4 Reported engagement of Ernst &
Young LLP on November 20, 1997
13
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf, by the undersigned,
thereunto duly authorized.
PERSONNEL MANAGEMENT, INC.
By /s/ Don R. Taylor
-------------------------
Don R. Taylor,
Chief Executive Officer
Date: January 29, 1998
In accordance with the Exchange Act, this report was signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Don R. Taylor Chief Executive Officer January 29, 1998
Don R. Taylor (Principal Executive Officer);
Director
/s/ Robert R. Millard Vice-President -- January 29, 1998
Robert R. Millard Finance & Administration
(Principal Accounting Officer and
Principal Financial Officer)
- ------------------------ Director January 29, 1998
Joseph C. Cook
- ------------------------ Director January 29, 1998
Max K. DeJonge
/s/ David L. Swider Director January 28, 1998
David L. Swider
/s/Richard L. VonDerHaar Director January 29, 1998
Richard L. VonDerHaar
14
EXHIBIT INDEX
(IDENTIFYING EXECUTIVE COMPENSATION PLANS
AND ARRANGEMENTS)
Executive Incorporated Compensation
Exhibit Description of SB-2 Exhibit Plans and
Number Exhibit Number* Arrangements**
3.1 Restated Articles of 3.1
the Company*
3.2 Restated Bylaws of the 3.2
Company*
4.1 Third Amended and Restated N/A
Credit Facility and
Security Agreement, dated
January 21, 1997, by and
among the Registrant, PMI
Administration, Inc.,
PMI LP I, PMI LP II and
KeyBank National
Association. The copy of
this document filed as
Exhibit 4.2 to the
Company's Form 10-K for
the fiscal year ended
October 31, 1996, is
incorporated by reference.
10.1 Employment Agreement 10.1 X
between the Company and
Don R. Taylor, dated
January 1, 1994*
10.2 Employment Agreement 10.2 X
between the Company and
Elizabeth McFarland,
dated January 1, 1994*
10.3 Asset Purchase Agreement N/A
dated January 24, 1996, by
and among PMI LP II, Progressive
Personnel II, Inc., Dan K. Wilson,
and David K. Wilson. The copy
of the exhibit filed as Exhibit 2.1
to the Registrant's Current Report
on Form 8-K dated February 5, 1996,
is incorporated herein by reference.
10.4 First Amendment to N/A X
Employment Agreement between
the Company and Don R. Taylor,
dated September 12, 1995.
The copy of this exhibit filed
as Exhibit 10.4 to the Company's
Form 10-KSB for the fiscal year
ended October 31, 1995,
is incorporated by reference.
10.5 Second Amended and N/A
Restated Credit Facility
and Security Agreement
dated November 29,
1995, by and between the
Registrant, PMI
Administration, Inc.,
PMI LP I, PMI LP II, and
Society National Bank,
Indiana. The copy of this
exhibit filed as Exhibit 4
to Registrant's Current
Report on Form 8-K dated
February 5, 1996 is
incorporated herein by reference.
10.60 Third Amended and Restated N/A
Credit Facility and Security
Agreement, dated January 21, 1997,
by and among the Registrant, PMI
Administration, Inc., PMI LP I, PMI
LP II and KeyBank National Association.
The copy of this exhibit filed as
Exhibit 4 to the Company's Annual
Report on Form 10-K for the fiscal
year ended October 31, 1996, is
incorporated herein by reference.
10.7 Amended and Restated 10.4 X
1993 Stock Option Plan*
10.8 1994 Stock Option Plan* 10.5 X
10.9 1994 Director Stock N/A X
Option Plan. The copy
of this exhibit filed
as Exhibit 10.1 to the
Company's Form 10-QSB for
the quarter ended April
30, 1995, is incorporated
by reference.
10.10 Incentive Stock Option 10.6 X
Agreement between the
Company and Elizabeth
McFarland, dated
February 28, 1993*
10.11 Stock Option Agreement 10.8 X
between the Company and
Elizabeth McFarland,
dated December 3, 1993*
10.12 Stock Option Agreement N/A X
between the Company and
Elizabeth McFarland,
dated December 29, 1994.
The copy of this exhibit
filed as Exhibit 10.9 to the
Company's Annual Report on
Form 10-KSB for the fiscal year
ended October 31, 1995, is
incorporated by reference.
10.13 Incentive Stock Option N/A X
Agreement between the
Company and Elizabeth
McFarland, dated December
29, 1994. The copy of
this exhibit filed as
Exhibit 10.10 to the
Company's Annual Report
on Form 10-KSB for its
fiscal year ended October
31, 1994, is incorporated
by reference.
10.14 Stock Option Agreement N/A X
between the Company and
James E. Burnette, dated
July 1, 1995. The copy
of this exhibit filed
as Exhibit 10.1 to the
Company's Form 10-QSB
for the quarter ended
July 31, 1995, is
incorporated by reference.
10.15 Amended Schedule of N/A X
Options Granted under
1994 Director Stock
Option Plan.
10.16 Underwriting Agreement N/A
among the Company,
Carolyn S. Taylor,
David A. Noyes & Company,
and Howe Barnes Investments,
Inc., dated January 26, 1994.
The copy of this exhibit
filed as Exhibit 10.9 to
Company's Form 10-QSB for the
quarter ending January 31, 1994,
is incorporated by reference.
10.17 Schedule of Terms of N/A
Warrant granted by
Carolyn S. Taylor (and
also executed by the
Company) to David A.
Noyes & Company (and
its assigns) on February
22, 1994. The copy of
this exhibit filed as
Exhibit 10.11 to the
Company's Form 10-QSB
for the quarter ended
January 31, 1994, is
incorporated by reference.
10.18 Schedule of Terms of N/A
Warrants granted by
the Company to David A.
Noyes & Company (and its
assigns) on February
22, 1994. The copy of this
exhibit filed as Exhibit
10.10 to the Company's Form
10-QSB for the quarter ended
January 31, 1994, is
incorporated by reference.
10.19 Tax Indemnification N/A
Agreement dated January
31, 1994. The copy of this exhibit
filed as Exhibit 10.12 to the
Company's Form 10-QSB for the
quarter ended January 31, 1994,
is incorporated by reference.
10.20 Stock Purchase Agreement 10.12
between the Company and
Elizabeth McFarland,
dated December 3, 1993*
10.21 Wage Continuation Plan in 10.14 X
the Event of Disability,
dated December 6, 1991*
10.22 Lease between PMI Real 10.15
Estate, Inc. and the
Company, dated February
1, 1993 (Rushville,
Indiana office)*
10.23 Lease between PMI Real 10.16
Estate, Inc. and the
Company, dated February
25, 1993 (Columbus,
Indiana office)*
10.24 Lease between PMI Real 10.17
Estate, Inc. and the
Company, dated February
25, 1993 (Franklin,
Indiana office)*
10.25 Inducement Agreement 10.26
among the Company, Carolyn
Taylor, David A. Noyes &
Company and Don R. Taylor
dated November 19, 1993*
10.26 Stockholders Agreement 10.27
among the Company, Don
R. Taylor, Elizabeth
McFarland, James Burnette,
Carolyn Taylor, Carol
Browning, Wendy Rusk,
John Dearth, Rhonda
Schwegman, Joanna Smith,
Marsha Strain and Alise
Wilson, dated November
19, 1993*
10.27 Form of letter dated N/A
June 28, 1995, from the Company,
Don R. Taylor, Elizabeth McFarland
and James E. Burnette to the
"Other Investors" described by
Stockholders Agreement dated
November 19, 1993. The copy of
this exhibit filed as Exhibit
10.30 to the Company's Annual
Report on Form 10-KSB for the
fiscal year ended October 31, 1995,
is incorporated by reference.
10.28 Promissory Note from Don 10.28
Taylor to the Company,
dated December 11, 1992*
10.29 Promissory Note from Don 10.29
Taylor to the Company,
dated December 7, 1993*
10.30 Second Amended and N/A X
Restated Loan Plan for
Key Employees. The copy of
this exhibit filed as
Exhibit 10.33 to the
Company's Annual Report
on Form 10-KSB for the
fiscal year ended
October 31, 1995, is
incorporated herein by
reference.
10.31 Promissory Note from N/A
Elizabeth McFarland
to the Company, dated
December 29, 1994.
The copy of this exhibit
filed as Exhibit 10.27
to the Company's Annual
Report on Form 10-KSB
for its fiscal year ended
October 31, 1994, is
incorporated by reference.
10.32 Description of Certain N/A X
Compensatory Plans,
Contracts or Arrangements
(all such plans, contracts
or arrangements are filed
as exhibits to this Form 10-K).
10.33 Asset Purchase Agreement N/A
dated June 30, 1994 by
and among PMI LP II,
Personnel Management,
Inc., Porter Management
Group, Inc., Office Staff,
Inc., Team Temps, Inc.,
Law Connection, Inc. and
R. Gale Porter. The copy
of this exhibit filed as
Exhibit 2.1 to the Company's
Current Report on Form 8-K
dated June 30, 1994, is
incorporated by reference.
10.34 Asset Purchase Agreement N/A
dated September 1, 1994
by and among PMI LP I,
Human Resource Services,
Inc., Phillip E. Cole
and Robert Shuherk. The
copy of this exhibit
filed as Exhibit 2.1
to the Company's Current
Report on Form 8-K dated
September 1, 1994, is
incorporated by reference.
10.35 Asset Purchase Agreement N/A
dated September 1, 1994
by and among PMI LP I,
Human Resources, Inc.
and Phillip E. Cole.
The copy of this exhibit
filed as Exhibit 2.2 to
the Company's Current
Report on Form 8-K dated
September 1, 1994, is
incorporated by reference.
10.36 Stock Purchase Agreement N/A
dated October 18, 1994
by and among the Company,
Quest Personnel Search,
Inc., Southern Indiana
Temporaries, Inc., Richard
H. McGinnis, Mary Anne
McGinnis, Keith Legg, Nancy
S. Legg, William M. Dixon,
Pamela Dixon, and Richard
W. McGinnis, Sr. The copy
of this exhibit filed as
Exhibit 2.1 to the Company's
Current Report on Form 8-K
dated October 18, 1994,
is incorporated by reference.
10.37 Lease between JBD Real N/A
Estate, Inc. and PMI LP I,
dated September 1, 1994 (Columbus,
Indiana office). The copy of this
exhibit filed as Exhibit 10.36
to the Company's Annual Report on
Form 10-KSB for its fiscal year
ended October 31, 1995, is incorporated
by reference.
10.38 Lease between JBD Real N/A
Estate, Inc. and PMI LP
I, dated September 1, 1994
(Franklin, Indiana office).
The copy of this exhibit filed
as Exhibit 10.37 to the Company's
Annual Report on Form 10-KSB for its
fiscal year ended October 31, 1995, is
incorporated by reference.
10.39 Lease between JBD Real N/A
Estate, Inc. and PMI LP
I, dated September 1, 1994
(Rushville, Indiana office).
The copy of this exhibit filed
as Exhibit 10.38 to the Company's
Annual Report on Form 10-KSB for
its fiscal year ended October 31,
1995, is incorporated by reference.
10.40 Lease between JBD Real N/A
Estate, Inc. and PMI LP I,
dated September 26, 1995
(Shelbyville, Indiana office)
The copy of this exhibit filed
as Exhibit 10.46 to the Company's
Annual Report on Form 10-KSB
for its fiscal year ended October
31, 1995, is incorporated by reference.
10.41 Note Modification N/A
Agreement between the
Company, PMI Administration,
Inc., PMI LP I, PMI LP II and
Society National Bank, Indiana,
dated February 28, 1995. The
copy of this exhibit filed as
Exhibit 10.3 to the Company's
Form 10-QSB for the quarter ended
April 30, 1995, is incorporated by
reference.
10.42 Second Amended and N/A
Restated Master
Promissory Note, made
by the Company to
Society National Bank,
Indiana, dated June 9,
1995. The copy of this
exhibit filed as Exhibit
10.3 to the Company's
Form 10-QSB for the
quarter ended July 31,
1995, is incorporated
by reference.
10.43 Commitment letter for N/A
$700,000 overline credit
facility from Society National
Bank, Indiana, to the Company
dated September 1, 1995. The
copy of this exhibit filed
as Exhibit 10.4 to the Company's
Form 10-QSB for the quarter ended July
31, 1995, is incorporated incorporated
by reference.
10.44 Employment Agreement N/A X
between the Company and
Don R. Taylor, dated
November 8, 1995. The
copy of this exhibit filed
as Exhibit 10.2 to the
Company's Form 10-Q for the
quarter ended April 30,
1996 is incorporated by
reference.
10.45 Employment Agreement N/A X
between the Company and
Elizabeth McFarland, dated
November 8, 1995. The copy of
this exhibit filed as Exhibit
10.3 to the Company's Form
10-Q for the quarter ended
April 30, 1996 is incorporated
by reference.
10.46 Employment Agreement between N/A X
the Company and Robert R.
Millard, dated February 5,
1996. The copy of this exhibit
filed as Exhibit 10.4 to the
Company's Form 10-Q for the
quarter ended quarter
ended April 30, 1996 is
incorporated by reference.
10.47 Change of Control N/A X
Severance Benefits Agreement
between the Company and Don R.
Taylor, dated November 8, 1995.
The copy of this exhibit filed
as Exhibit 10.5 to the
Company's Form 10-Q for the
quarter ended April 30, 1996 is
incorporated by reference.
10.48 Change of Control N/A X
Severance Benefits
Agreement between
the Company and Elizabeth
McFarland, dated November
8, 1995. The copy of
this exhibit filed as
Exhibit 10.6 to the
Company's Form 10-Q
for the quarter ended
April 30, 1996 is
incorporated by reference.
10.49 Change of Control N/A X
Severance Benefits
Agreement between the
Company and Robert R. Millard,
dated February 5, 1996. The copy
of this exhibit filed as
Exhibit 10.7 to the Company's
Form 10-Q for the quarter ended
April 30, 1996, is incorporated
by reference.
10.50 Incentive Stock Option N/A X
Agreement between the Company
and Robert R. Millard, dated
February 5, 1996. The copy
of this exhibit filed as
Exhibit 10.8 to the Company's
Form 10-Q for the quarter
ended April 30, 1996, is
incorporated by reference.
10.51 Promissory Note between N/A
the Company and Elizabeth
McFarland, dated April 15, 1996.
The copy of this exhibit filed as
Exhibit 10.9 to the Company's
Form 10-Q for the quarter ended April 30,
1996, is incorporated by reference.
10.52 Pledge Agreement between N/A
the Company and Elizabeth
McFarland, dated April 15, 1996.
The copy of this exhibit filed as
Exhibit 10.10 to the Company's
Form 10-Q for the quarter ended April
30, 1996, is incorporated by reference.
10.53 Employment Agreement N/A X
between the Company and
Gary F. Hentschel, dated
July 15, 1996. The copy
of this exhibit filed as
Exhibit 10.2 to the
Company's Form 10-Q
for the quarter ended July
31, 1996, is incorporated
by reference.
10.54 Change of Control N/A X
Severance Benefits Agreement
between the Company and Gary F.
Hentschel, dated July 15, 1996.
The copy of this exhibit filed as
Exhibit 10.3 to the Company's
Form 10-Q for the quarter
ended July 31, 1996, is
incorporated by reference.
10.55 Incentive Stock Option N/A X
Agreement between the
Company and Gary F. Hentschel,
dated July 15, 1996. The copy of
this exhibit filed as
Exhibit 10.4 to the Company's
Form 10-Q for the quarter ended
July 31, 1996, is incorporated by
reference.
10.56 Incentive Stock Option N/A X
Agreement between the
Company and Elizabeth
McFarland, dated June 10,
1996. The copy of this exhibit
filed as Exhibit 10.5 to the
Company's Form 10-Q for the
quarter ended July 31,
1996, is incorporated by reference.
10.57 Asset Purchase Agreement N/A
dated November 13, 1995,
by and among PMI LP II,
Temporaries of Atlanta,
Inc., James A. Selton,
Howard J. Kaston, and
International Temporaries,
Inc. The copy of this
exhibit filed as Exhibit
10.1 to the Registrant's
Current Report on Form 8-K
dated November 13, 1995,
is incorporated herein by
reference.
10.58 Asset Purchase Agreement, N/A
dated March 17, 1997, by and
among PMI LP I, Garner Scott
Enterprise, Inc., Donald W.
Garner and Shirley A. Garner
(schedules and exhibits omitted).
10.59 Asset Purchase Agreement, dated N/A
March 24, 1997, by and among PMI LP
I, First in Temporaries, Inc.,
and Frank L. Hartman (schedules and
exhibits omitted)
10.60 Waiver, dated February 17, 1997, N/A
of certain provisions in Change
Control Severance Benefits Agreement,
dated November 8, 1995, between the
Company and Don R. Taylor
10.61 Waiver, dated February 17, 1997, N/A
of certain provisions in Change
Control Severance Benefits Agreement,
dated July 15,1996, between
the Company and Gary F. Hentschel
10.62 Waiver, dated February 17, 1997,
of certain provisions in Change
Control Severance Benefits Agreement,
dated February 5, 1996,
between the Company and Bob Millard N/A
11 Statement Re: Computation N/A
of Per Share Earnings
13 Registrant's 1997 Annual Report to N/A
Shareholders (portions incorporated
by reference).
21 List of Subsidiaries N/A
23 Consent of Ernst & N/A
Young LLP to
incorporation by
reference of audit
report into Form S-8
Registration Statement.
27 Financial Data Schedule N/A
*Indicates exhibits incorporated by reference from the Company's Registration
Statement on Form SB-2 (No. 33-72872C) originally filed December 13, 1993, as
amended.
** Indicates exhibits that describe or evidence all management contracts or
compensatory plans or arrangements required to be filed as exhibits to this
report.