1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 1996
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Commission File No. 1-14018
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NORRELL CORPORATION
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(Exact name of registrant as specified in its charter)
GEORGIA 58-0953709
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3535 Piedmont Road, NE, Atlanta, GA 30305
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 240-3000
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Not Applicable
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 22,432,246 shares on May 26,
1996.
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Norrell Corporation and Subsidiaries
FORM 10-Q
INDEX
Page No.
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PART I FINANCIAL INFORMATION
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ITEM 1. Financial Statements
Consolidated Balance Sheets -
April 28, 1996 (Unaudited) and October 29, 1995 2
Consolidated Statements of Income
(Unaudited) - Three Months and Six Months Ended April 28, 1996
and April 30, 1995 3
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended April 28, 1996 and April 30, 1995 4
Notes to Consolidated Financial Statements
(Unaudited) 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
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ITEM 6. Exhibits 8
(a) Exhibits:
11 Statement regarding computation of per share earnings
27 Financial Data Schedule (for SEC use only)
SIGNATURE 11
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Part I
Item 1
NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
April 28, 1996 October 29, 1995
-------------- ----------------
ASSETS
CURRENT ASSETS
Cash $ 6,551 $ 5,103
Accounts receivable, less allowances of $6,770 and $4,797 123,985 115,929
Deferred income taxes 6,410 6,160
Prepaid and refundable income taxes 117 2,558
Other current assets 2,664 3,149
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Total current assets 139,727 132,899
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PROPERTY AND EQUIPMENT, less
accumulated depreciation 10,436 9,273
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NONCURRENT DEFERRED INCOME TAXES 10,668 6,059
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OTHER ASSETS
Intangibles, net of amortization 19,616 13,617
Investments and other assets 22,679 14,269
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Total other assets 42,295 27,886
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TOTAL ASSETS $203,126 $176,117
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 377 $ 377
Accounts payable and accrued expenses 68,722 69,236
Deferred revenue 8,235 10,179
Accrued income taxes 378 -
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Total current liabilities 77,712 79,792
LONG-TERM DEBT, less current maturities 6,089 2,057
LONG-TERM ACCRUED EXPENSES 37,793 24,030
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Total liabilities 121,594 105,879
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SHAREHOLDERS' EQUITY
Common stock, stated value $.01 per share,
50,000,000 shares authorized, with shares
issued of 22,384,282 in 1996 and 22,213,808
in 1995 224 222
Treasury stock, at cost, 32,776 shares
in 1996 and 41,290 in 1995 (407) (476)
Additional paid-in-capital 42,853 41,388
Notes receivable from officers and employees (192) (398)
Retained earnings 39,054 29,502
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Total shareholders' equity 81,532 70,238
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $203,126 $176,117
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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4
NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
------------------------------------ -------------------------------------
April 28, 1996 April 30, 1995 April 28, 1996 April 30, 1995
-------------- -------------- ---------------- ----------------
REVENUES $240,690 $196,730 $461,898 $382,842
COST OF SERVICES 189,712 154,287 363,394 299,206
-------- -------- -------- --------
Gross profit 50,978 42,443 98,504 83,636
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 40,794 35,309 79,925 69,585
-------- -------- -------- --------
Income from operations 10,184 7,134 18,579 14,051
OTHER EXPENSE
Interest 165 28 272 57
Other 209 242 414 580
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 9,810 6,864 17,893 13,414
INCOME TAXES 3,777 2,883 6,889 5,634
-------- -------- -------- --------
NET INCOME $ 6,033 $ 3,981 $ 11,004 $ 7,780
======== ======== ======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.25 $ 0.17 $ 0.46 $ 0.33
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 23,928 23,236 23,852 23,322
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
-----------------------------------
April 28, 1996 April 30, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $11,004 $ 7,780
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,729 1,998
Gain on retirement of common stock (1,235) (1,800)
Provision for doubtful accounts 1,115 1,359
Deferred income taxes (4,859) (1,166)
Long-term accrued expenses 1,549 1,982
Deferred gain on sale of building 13,711 -
Other 92 62
Change in current assets and current liabilities
Accounts and notes receivable (9,003) (8,096)
Prepaid expenses 317 331
Accounts payable and accrued expenses (1,965) 219
Accrued and refundable income taxes 2,819 601
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Net cash provided by operating activities 16,274 3,270
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CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in other long-term assets, net (12,049) 526
Additions to property and equipment, net (3,098) (2,191)
Other (3,273) (439)
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Net cash (used by) investing activities (18,420) (2,104)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt - (34)
Proceeds from issuance of long-term debt 4,032 -
Proceeds from the issuance of common stock 892 1,261
Acquisition of treasury stock (85) (200)
Dividends paid on common stock (1,452) (1,313)
Reduction in receivables from officers and employees 207 120
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Net cash provided by (used) financing activities 3,594 (166)
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NET INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 1,448 1,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 5,103 7,410
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CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 6,551 $ 8,410
======= =======
SUPPLEMENTARY CASH FLOW DISCLOSURE
Cash payments during the period for:
Interest $ 269 $ 53
Income taxes, net of refunds 8,992 6,141
Non-cash investing and financing activity
Issuance of options to benefit plan 726 434
The accompanying notes are an integral part of these consolidated financial
statements.
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NORRELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Nevertheless, management believes that the disclosures herein are
adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report
Form 10-K. The information furnished herein reflects all adjustments
which, in the opinion of management, are necessary for a fair statement
of the results of operations for the periods presented. Such adjustments
are of a normal recurring nature.
2. Subsequent Event
On June 4, 1996, the board of directors authorized a two-for-one split of
common stock for shareholders of record on June 24, 1996. Par value will
remain as $.01 per share. All references in the accompanying financial
statements to the number of common shares, except shares authorized, and
to per-share amounts have been restated to reflect the stock split. The
par value of the additional shares of common stock issued in connection
with the stock split has been credited to common stock with the like
amount charged to retained earnings.
On June 4, 1994, the board of directors declared a $0.07 per share cash
dividend to shareholders of record on June 17, 1996. The dividend will
be paid on pre-split shares.
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Part 1
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Operating Results Second Quarter Ended April 28, 1996 Compared to Second Quarter
Ended April 30, 1995
Revenues increased 22.3%, or $44.0 million, to $240.7 million. Staffing
Services revenues grew 22.3% to $189.7 million and accounted for 78.8% of total
1996 and 1995 period revenues. Staffing Services volume, as measured by hours
that staffing employees worked, increased 17.2% and prices rose 4.4%. Office
openings, net of closings, for the 1996 period totaled 8 company-owned offices
and 2 franchise offices. In addition, 3 Outsourcing Services sites were opened
to serve Outsourcing customers. On January 31, 1996, Norrell acquired the
Valley Temporary Services, Inc., a Phoenix, Arizona staffing company. Revenues
for the 1996 period of $3.2 million were included in Staffing Services
revenues. Outsourcing Services revenue grew 22.3% to $51.0 million.
Outsourcing Services revenues from IBM amounted to $38.2 million, up from $30.5
million in the 1995 period. Revenues from customers other than IBM increased
$1.6 million from the 1995 period to $12.8 million. Included in Outsourcing
Services revenues was the recognition of $471,000 and $1.4 million in 1996 and
1995, respectively, of the deferred gain from return in January 1995 of shares
of Company stock held by IBM.
Gross profit increased 20.1%, or $8.5 million, to $51.0 million. Gross margin
(gross profit as a percentage of revenues) declined from 21.6% in the 1995
period to 21.2% in the 1996 period. Staffing Services gross margin decreased
from 22.3% in the 1995 period to 21.7% in the 1996 period primarily as a result
of the higher proportion of large accounts which typically have lower gross
margins. Outsourcing Services gross margin increased slightly from 19.0% in
the 1995 period to 19.1% in the 1996 period.
Selling, general and administrative expenses increased 15.5%, or $5.5 million.
However, selling, general and administrative expenses as a percentage of
revenues declined from 17.9% in the 1995 period to 16.9% in the 1996 period as
the Company continues to experience favorable operating leverage. Of the $5.5
million increase, 88.1% related to Staffing Services. Of the additional
Staffing Services expense, $3.8 million of the increase was in personnel and
personnel related costs. Personnel costs increased primarily as a result of
the continuing emphasis on improved service delivery, hiring of additional
onsite managers for new Managed Staffing and Managed Vendor Program clients and
the opening of new offices. Commissions paid to franchisees increased
$359,000.
The Company's income tax rate declined from 42.0% in the 1995 period to 38.5%
in the 1996 period primarily as a result of reduced state income taxes. The tax
rate change added $.014 to 1996 period earnings per share.
During the 1996 period, the Company established a joint venture to expand its
call center outsourcing business. The Texas-based venture, CallTask, Inc., is
owned 51% by Norrell and 49% by Harvard Teleservicing, LLC. In March, 1996,
CallTask entered into its first contract to provide reservation services over a
five-year period to a 230-unit hotel chain. CallTask commenced operations on
May 16, 1996.
Operating Results Six Months Ended April 28, 1996 Compared to Six Months Ended
April 30, 1995
Revenues increased 20.7%, or $79.1 million, to $461.9 million. Staffing
Services revenues grew 21.0% to $363.5 million and accounted for 78.7% of total
1996 period revenues versus 78.5% of total 1995 period revenues. Staffing
Services volume increased 15.3% and prices rose 5.3%. In the 1996 period the
Company opened 12 company-owned offices, 5 franchised offices and 1 Financial
Staffing office. In addition, 8 Outsourcing Services sites were opened to
serve Outsourcing customers. Outsourcing Services revenue grew 19.3% to $98.4
million. Outsourcing Services revenues from IBM amounted to $73.4 million, up
from $61.5 million in the 1995 period. Revenues from customers other than IBM
increased $4.0 million from the 1995 period to $25.0 million. Included in
Outsourcing Services revenues was the recognition of $1.2 million and $1.8
million in 1996 and 1995, respectively, of the deferred gain from return in
January 1995 of shares of Company stock held by IBM.
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Gross profit increased 17.8%, or $14.9 million, to $98.5 million. Gross margin
declined from 21.8% in the 1995 period to 21.3% in the 1996 period. Staffing
Services gross margin remained 22.1% for the 1996 and 1995 periods. During the
first quarter of the 1996 period, workers' compensation liability for the
franchise division of Norrell Services was adjusted to give effect to much
better than expected loss experience. The adjustment resulted in a reduction
of $800,000 in cost of sales which added 0.2% to the Staffing Services gross
margin. Without this adjustment year-to-year gross margin declined slightly to
21.9% in the 1996 period. Outsourcing Services gross margin was 18.5% in the
1996 period compared to 20.8% in the 1995 period. The 2.3 point decline was
due solely to the impact of the Management Service Agreement ("MSA").
Effective January 1, 1995, the Master Task Agreement ("MTA") with IBM was
terminated and replaced with the MSA. The Company's stock was returned as
partial consideration for entering the MSA which generates a lower gross margin
than the contract it replaced. The Company deferred the gain on the returned
stock and is recognizing it over the term of the contract. The 1995 period
included two months at the old, higher contract rate and four months at the
new, lower MSA rate. In January 1996, renegotiation of the MSA extended the
term of the agreement and the recognition period of the gain through December
1998, two years longer than the previous agreement, which further reduced the
1996 period gross margin.
Selling, general and administrative expenses increased 14.9%, or $10.3 million.
However, selling, general and administrative expenses as a percentage of
revenues declined from 18.2% in the 1995 period to 17.3% in the 1996 period due
to continued favorable operating leverage. Of the $10.3 million increase,
90.1% related to Staffing Services. Of the additional Staffing Services
expense, $6.8 million of the increase was in personnel and personnel related
costs. Personnel costs increased primarily as a result of the continuing
emphasis on improved service delivery, hiring of additional onsite managers for
new Managed Staffing and Managed Vendor Program clients and the opening of new
offices. Commissions paid to franchisees increased $1.1 million.
The Company's income tax rate declined from 42.0% in the 1995 period to 38.5%
in the 1996 period primarily as a result of reduced state income taxes. The tax
rate change added $.026 to 1996 period earnings per share.
Liquidity and Capital Resources
Net cash provided by operating activities was $16.3 million in the 1996 period
compared to $3.3 million in the 1995 period. Included in the 1996 period was
$13.7 million provided by the gain from the December, 1995 sale of the
Company's interest in its Atlanta headquarters building. Concurrent with the
sale, the Company extended its lease for office space in the building for an
additional five years to now expire in 2005. The gain is being deferred and
amortized on a straight-line basis over the new lease term as a reduction in
rent expense. However, the cash from the sale was received December 11, 1995.
Cash flows used in investing activities in the 1996 period included an
investment of $5.7 million for management information systems and an increase
in goodwill of $6.2 million as a result of purchasing Valley Staffing Services,
Inc..
At April 28, 1996, the Company had $6.5 million of total debt outstanding.
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PART II
ITEM 6
(a) The following Exhibits are filed with this Report:
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule (for SEC use only)
* The Exhibits are numbered in accordance with Item 601 of Regulation S-K.
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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.
NORRELL CORPORATION
(REGISTRANT)
Date: June 7, 1996 By: /s/ C. Kent Garner
---------------------------------------
C. Kent Garner
Vice President and Chief Financial Officer
(On behalf of the Registrant and as Chief
Accounting Officer)
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