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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
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Commission file number 0-25890
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CENTURY BUSINESS SERVICES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-2769024
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
6480 Rockside Woods Boulevard South, Suite 330, Cleveland, Ohio 44131
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(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-447-9000
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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 proceeding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class of Common Stock April 30, 2001
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Par value $.01 per share 95,479,629
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 5
Notes to the Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
Item 3. Quantitative and Qualitative Information about Market Risk 13
PART II. OTHER INFORMATION :
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
March 31, DECEMBER 31,
2001 2000
-------------------- ---------------------
ASSETS
Cash and cash equivalents $ 7,998 $ 15,970
Restricted cash and funds held for clients 74,516 80,590
Accounts receivable, less allowance for doubtful
accounts of $20,159 and $22,156 172,231 142,682
Notes receivable - current 653 667
Income taxes recoverable - 22,519
Deferred income taxes 6,062 9,895
Other current assets 13,657 13,864
-------------------- ---------------------
Total current assets 275,117 286,187
Goodwill, net of accumulated amortization of
$52,806 and $47,261 273,808 281,268
Property and equipment, net of accumulated
depreciation of $33,074 and $29,813 59,043 59,349
Notes receivable - non-current 3,461 3,564
Deferred income taxes - non-current 1,612 2,028
Other assets 15,421 17,098
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TOTAL ASSETS $ 628,462 $ 649,494
==================== =====================
LIABILITIES
Accounts payable $ 34,587 $ 35,220
Income taxes payable 1,612 -
Notes payable and capitalized leases - current 3,875 4,382
Client fund obligations 32,592 39,719
Accrued expenses 38,705 45,455
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Total current liabilities 111,371 124,776
Bank debt 100,000 117,500
Notes payable and capitalized leases - non-current 1,277 1,432
Accrued expenses 19,231 18,848
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TOTAL LIABILITIES 231,879 262,556
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STOCKHOLDERS' EQUITY
Capital stock 948 947
Additional paid-in capital 438,939 438,681
Accumulated deficit (42,559) (51,906)
Treasury stock (754) (754)
Other accumulated comprehensive income (loss) 9 (30)
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TOTAL STOCKHOLDERS' EQUITY 396,583 386,938
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 628,462 $ 649,494
==================== =====================
See the accompanying notes to the condensed consolidated financial statements.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED,
MARCH 31,
2001 2000
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Revenue $ 162,375 170,468
Operating expenses 122,258 127,362
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Gross margin 40,117 43,106
Corporate general and administrative 5,150 8,519
Depreciation and amortization 9,772 10,764
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Operating income 25,195 23,823
Other income (expense):
Interest expense (2,549) (2,695)
Loss on sale of operations, net (2,345) (1,015)
Other income, net 1,148 902
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Total other expense (3,746) (2,808)
Income from continuing operations before
income tax expense 21,449 21,015
Income tax expense 12,102 11,002
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Income from continuing operations 9,347 10,013
Income from operations of discontinued business,
net of tax - 5
Loss on disposal of discontinued business, net of tax - (1,088)
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Income before cumulative effect of change in accounting
Principle 9,347 8,930
Cumulative effect of a change in accounting principle,
net of tax - (11,905)
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Net income (loss) $ 9,347 (2,975)
=============== =================
Earnings (loss) per share:
Basic:
Continuing operations $ 0.10 0.11
Discontinued operations - (0.01)
Cumulative effect of change in accounting principle - (0.13)
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Net income (loss) $ 0.10 (0.03)
=============== =================
Diluted:
Continuing operations $ 0.10 0.11
Discontinued operations - (0.01)
Cumulative effect of change in accounting principle - (0.13)
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Net income (loss) $ 0.10 (0.03)
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Weighted-average common shares outstanding:
Basic 94,825 93,218
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Diluted 95,301 94,516
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See the accompanying notes to the condensed consolidated financial statements.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------------
2001 2000
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NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES $ 12,313 (14,294)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (additions to) notes receivable 117 (925)
Business acquisitions, net of cash acquired and contingent
Consideration (1,246) (3,163)
Additions to property and equipment, net (3,366) (8,927)
Proceeds from dispositions of businesses 2,350 698
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Net cash used in investing activities (2,145) (12,317)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank debt 9,500 35,200
Proceeds from notes payable and capitalized leases 55 3,359
Payment of bank debt (27,000) (20,700)
Payment of notes payable and capitalized leases (712) (2,360)
Proceeds from stock issuances, net 17 17
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Net cash provided by (used in) financing activities (18,140) 15,516
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Net decrease in cash and cash equivalents (7,972) (11,095)
Cash and cash equivalents at beginning of period 15,970 24,740
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Cash and cash equivalents at end of period $ 7,998 13,645
============ ============
See the accompanying notes to the condensed consolidated financial statements.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statements reflect all adjustments
(consisting of only normal and recurring adjustments) necessary to present
fairly the financial position of Century Business Services, Inc. and
Subsidiaries (CBIZ) as of March 31, 2001 and December 31, 2000, and the
results of their operations and cash flows for the three-month periods
ended March 31, 2001 and 2000. The results of operations for such interim
periods are not necessarily indicative of the results for the full year.
The accompanying unaudited condensed consolidated interim financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with instructions
to Form 10-Q, and accordingly do not include all disclosures required by
generally accepted accounting principles. The December 31, 2000 condensed
consolidated balance sheet was derived from CBIZ's audited consolidated
balance sheet. For further information, refer to the consolidated financial
statements and footnotes thereto included in CBIZ's annual report on Form
10-K for the year ended December 31, 2000.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Certain reclassifications have been made to the 2000 financial statements
to conform to the 2001 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term highly liquid
investments with a maturity of three months or less at the date of
purchase. The carrying amount approximates fair value because of the short
maturity of those instruments.
RESTRICTED CASH AND FUNDS HELD FOR CLIENTS
Restricted cash represents funds on deposit from clients related to its
payroll and payroll tax filing services, and insurance related services. In
addition, a portion of restricted cash pertains to fees earned by CBIZ in
relation to its capital and investment advisory services, those funds are
restricted in accordance with applicable NASD regulations.
As part of its payroll and payroll tax filing services, CBIZ is engaged in
the preparation of payroll checks, federal, state, and local payroll tax
returns, and the collection and remittance of payroll obligations. In
relation to its payroll services, CBIZ collects payroll funds from its
client's account in advance of paying the client's employees. Likewise, for
its payroll tax filing services, CBIZ collects payroll taxes from its
clients in advance of paying the various taxing authorities. Those funds
that are collected before they are due are invested in short-term
investment grade instruments. The funds held for clients and the related
client fund obligations are included in the condensed consolidated balance
sheets as current assets and current liabilities, respectively. The amount
of collected but not yet remitted funds for CBIZ's payroll and tax filing
services varies significantly during the year.
For its insurance business, funds on deposit from clients pertains to the
administering and settling of claims, and the pass through of insurance
premiums to the carrier. A related liability for these funds is recorded in
accrued expenses and other liabilities in the condensed consolidated
balance sheets.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
2. ACQUISITIONS / DIVESTITURES
During the first quarter of 2001, CBIZ completed the sale of three non-core
business operations for an aggregate price of $2.4 million, which resulted
in a pretax loss of $0.1 million. In addition, CBIZ completed the sale of
The Continuous Learning Group and Envision Development Group (collectively,
CLG) on April 1, 2001, which resulted in an additional pretax charge of
$2.2 million in the first quarter of 2001. Additional information regarding
the divestiture of CLG is included in note 9 to the condensed consolidated
financial statements. The aforementioned losses have been included in loss
on sale of operations in the accompanying condensed consolidated statements
of operations.
During the first quarter of 2000, Century purchased one business solutions
company, which was accounted for under the purchase method of accounting.
Accordingly, the operating results of the acquired company have been
included in the accompanying consolidated financial statements since the
date of acquisition. The aggregate purchase price of this acquisition was
approximately $0.9 million, which included a "holdback payment" of $0.1
million in cash based upon the receipt of 50% of the aggregate value of the
accounts receivable purchased. The excess of the purchase price over fair
value of the net assets acquired (goodwill) was approximately $0.6 million,
and is being amortized over a 15-year period. As a result of the nature of
the assets and liabilities of the business acquired, there were no material
identifiable intangible assets or liabilities. Future contingent
consideration is recorded as additional purchase price when performance
goals have been met.
3. CONTINGENCIES
CBIZ is from time to time subject to claims and suits arising in the
ordinary course of business. CBIZ is involved in certain legal proceedings
as described in Part I, "Item 3 - Legal Proceedings" in our Annual Report
on Form 10-K for the year ended December 31, 2000. There have been no
significant developments in such claims or suits during the first quarter
of 2001. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that the ultimate
resolution of these matters will have a material adverse effect on the
financial condition, results of operations or cash flows of CBIZ.
4. EARNINGS PER SHARE
For the periods presented, CBIZ presents both basic and diluted earnings
per share. The following data shows the amounts used in computing earnings
per share and the effect on the weighted average number of dilutive
potential common shares (in thousands, except per share data). Included in
potential dilutive common shares are contingent shares, which represent
shares issued and placed in escrow that will not be released until certain
performance goals have been met.
THREE MONTHS ENDED
MARCH 31,
2001 2000
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Numerator:
Net income (loss) $ 9,347 $(2,975)
Denominator:
Basic:
Weighted average common
Shares 94,825 93,218
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Diluted:
Warrants - 916
Options 402 113
Contingent shares 74 269
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Total 95,301 94,516
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
5. CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 2000, CBIZ adopted Securities and Exchange
Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognized
in Financial Statements." SAB 101 summarizes certain of the Commission's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. In light of the guidance given by SAB
101 and the SEC's "Frequently Asked Questions and Answers" bulletin
released on October 12, 2000, CBIZ changed certain revenue recognition
policies effective January 1, 2000.
Due to this change, CBIZ recorded a cumulative adjustment in the first
quarter 2000 of $11.9 million (net of tax benefit of $7.9 million). The
impact of adopting SAB 101 in the first quarter of 2000 resulted in a
reduction in revenue of approximately $1.7 million, a reduction in
operating expense of approximately $1.0 million, and a reduction in income
from continuing operations (before cumulative effect of accounting change)
of approximately $0.6 million (pretax).
6. CONSOLIDATION AND INTEGRATION CHARGES
Consolidation and integration reserve balances as of December 31, 2000,
activity during the three-month period ended March 31, 2001, and the
remaining reserve balances as of March 31, 2001, were as follows (in
thousands):
Lease Severance &
Consolidation Benefits
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Reserve balance at December 31, 2000 $ 2,843 $ 449
Amounts adjusted to income (487) (52)
Payments (134) (65)
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Reserve balance at March 31, 2001 $ 2,222 $ 332
============= ===============
During the fourth quarter of fiscal 1999, CBIZ's Board of Directors
approved a plan to consolidate several operations in multi-office markets
and integrate certain back-office functions into a shared-services center.
The plan included the consolidation of at least 60 office locations, the
elimination of more than 200 positions (including Corporate), and the
divestiture of four small, non-core businesses. Pursuant to the plan,
Century recorded a consolidation and integration pre-tax charge of $27.4
million, which included $4.8 million for severance and $9.4 million for
obligations under various noncancellable leases that were committed to
prior to plan approval, for which no economic benefit to CBIZ would be
subsequently realized.
As a result of executive management changes (including CBIZ's President and
Chief Operating Officer) and certain strategic changes in the first quarter
of fiscal 2000, CBIZ revisited the extent of its planned integration and
consolidation initiatives and extended the timing of certain office
consolidations beyond one year. CBIZ's Board of Directors approved the
revision to the plan on March 31, 2000. Accordingly, CBIZ reduced
approximately $4.4 million of accruals originally provided for in the plan
related to the aforementioned noncancellable lease obligations, and reduced
approximately $1.3 million of accruals related to the elimination of
certain positions.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
6. CONSOLIDATION AND INTEGRATION CHARGES (con't)
In the first quarter of 2001, CBIZ reduced approximately $0.5 million of
accruals related to noncancellable lease obligations, due to the fact that
the consolidations in the San Jose and St. Louis markets will not be
completed within the original timeframe. CBIZ also reduced approximately
$0.1 million of accruals related to severance due to the accrual being
higher than actual severance expense for those consolidations that have
been completed.
In addition to the consolidation activity described above that relates to
the original accrual, CBIZ has incurred expenses related to noncancellable
lease obligations related to consolidations in other markets, abandonment
of leases, and severance obligations related to these consolidations, as
well as expense-reduction initiatives. In the first quarter of 2001,
expenses were incurred related to certain consolidation charges that are
required to be expensed as incurred, and severance. In the first quarter of
2000, CBIZ recorded charges of $2.8 million for severance related to
corporate employees, $1.3 million for shared-service and consolidation
charges, and an additional write-down of $1.0 million relating to the
divestiture of the four non-core businesses previously announced.
Consolidation and integration charges incurred for the three-months ended
March 31, 2001 and 2000, were as follows (in thousands):
2001 2000
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Operating Corporate G&A Operating Corporate G&A Loss on
expense expense expense expense sale
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Consolidation and
integration charges not
in original plan:
Severance expense $ - $ 93 $ - $ 2,829 $ -
Lease consolidation and
Abandonment 88 - 262 - -
Shared service and
consolidation - - - 1,012 -
Write-down of non-core
businesses - - - 1,015
-------------- ------------- ------------------ --------------------- --------------
Subtotal 88 93 262 3,841 1,015
Consolidation and
integration charges in
original plan:
Adjustment to lease accrual (487) - (4,379) - -
Adjustment to severance
accrual (52) 57 (64) (1,318) -
-------------- ------------- ------------------ --------------------- --------------
Total consolidation and
integration charges $ (451) $ 150 $ (4,181) $ 2,523 $ 1,015
============== ============= ================== ===================== ==============
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
7. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," established standards
for reporting selected information about operating segments, products and
services, geographic areas and major customers.
CBIZ's business units were previously aggregated into four reportable
segments: business solutions; benefits and insurance; performance
consulting and technology solutions services. In November 2000, CBIZ
changed its structure from four divisions to three divisions: Business
Solutions, Benefits and Insurance, and National Practices. The performance
consulting and technology solutions divisions were merged into the National
Practices, and certain business units that formerly reported under Business
Solutions and Benefits and Insurance have been moved to the National
Practices division, as these units have a national platform to provide
services to customers. Segment information for the three-month period ended
March 31, 2000 has been restated in accordance with the new segments.
Segment information for the three-month periods ended March 31, 2001 and
2000 is as follows (in thousands):
For the Three Months Ended March 31, 2001
Business Benefits & National Corporate Total
Solutions Insurance Practices and Other
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Revenue $ 81,310 $ 39,581 41,484 $ - $ 162,375
Operating expenses 53,096 30,286 37,190 1,686 122,258
Corporate gen. and admin. - - - 5,150 5,150
Depreciation and amortization 1,090 955 837 6,890 9,772
Interest expense 22 60 19 2,448 2,549
Loss on sale of operations - - - 2,345 2,345
Other (income) expense, net (237) (685) (593) 367 (1,148)
Pre-tax income (loss) $ 27,339 $ 8,965 4,031 $ (18,886) $ 21,449
For the Three Months Ended March 31, 2000
Business Benefits & National Corporate Total
Solutions Insurance Practices and Other
---------- ------------- -------------- ----------- -------------
Revenue $ 86,453 $ 41,729 42,286 $ - $ 170,468
Operating expenses 55,556 32,039 38,445 1,322 127,362
Corporate gen. and admin. - - - 8,519 8,519
Depreciation and amortization 1,121 348 857 8,438 10,764
Interest expense 23 47 70 2,555 2,695
Loss on sale of operations - - - 1,015 1,015
Other (income) expense, net (305) 62 (291) (368) (902)
Pre-tax income (loss) $ 30,058 $ 9,233 3,205 $ (21,481) $ 21,015
8. DISCONTINUED OPERATIONS
In April 1999, CBIZ adopted a formal plan to divest its risk-bearing
specialty insurance segment, which was no longer part of CBIZ's strategic
long-term growth objectives. The risk-bearing specialty insurance segment,
which included Century Surety Company, Evergreen National Indemnity, and
Continental Heritage Insurance Company, was reported as a discontinued
operation and its net assets and results of operations were reported
separately in the unaudited condensed consolidated financial statements.
Revenues from the discontinued operations for the three-month period ended
March 31, 2000 were $11.3 million. The Company completed the sale of the
risk-bearing insurance segment in October of 2000 to Pro Finance Holding
Corporation.
9. SUBSEQUENT EVENTS
On April 1, 2001, CBIZ completed the sale of CLG for $8.0 million in cash
and an additional $6.0 million of proceeds, payment of which is contingent
upon the divested entity's future operations. Accordingly, the $6.0
million will be recorded as other income when received. The net proceeds
from the sale were used for debt reduction.
On April 1, 2001, CBIZ completed the sale of CBIZ Benefits & Insurance of
Ohio, Inc, for $0.4 million in cash and an additional $0.8 million of
proceeds, payment of which is contingent upon the divested entity's future
operations. Accordingly, the $0.8 million will be recorded as other income
when received. The transaction is expected to result in a gain and net
proceeds from the sale were used for debt reduction.
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CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - (continued)
9. SUBSEQUENT EVENTS (con't)
On May 1, 2001 CBIZ completed the sale of Cornerstone Broker Insurance and
Southern Ohio Benefits Agency for $1.0 million. The transaction is expected
to result in a gain and the net proceeds from the sale were used for debt
reduction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Century Business Services, Inc. ("CBIZ") is a diversified services company,
which acting through its subsidiaires provides professional outsourced business
services to small and medium-sized companies, as well as individuals, government
entities, and not-for-profit enterprises predominantly throughout the United
States and in Toronto, Canada. CBIZ provides integrated services in the
following areas: accounting and tax; employee benefits; wealth management;
property and casualty insurance; payroll; information systems consulting;
government relations; commercial real estate; wholesale insurance; healthcare
consulting; medical practice management; worksite marketing; and capital
advisory services.
RESULTS OF OPERATIONS
Revenues
Total revenue decreased to $162.4 million for the three-month period ended
March 31, 2001, from $170.5 million for the comparable period in 2000, a
decrease of $8.1 million, or 4.7%. The decrease was primarily attributable to
(i) divestitures completed during and subsequent to the first quarter of 2000,
which accounted for approximately $5.0 million of such decrease, and (ii) lower
revenues at certain business units. For business units with a full period of
operations for the three-month periods ended March 31, 2001 and 2000, revenues
decreased $3.1 million, or 1.9%. The decrease was due to several under
performing units, and was not concentrated in any specific segment of the
business.
Expenses
Operating expenses decreased to $122.3 million for the three-month period
ended March 31, 2001, from $127.4 million for the comparable period in 2000, a
decrease of $5.1 million, or 4.0%. As a percentage of revenue, operating
expenses for the three-month period ended March 31, 2001 were 75.3%, compared to
74.7% for the comparable period. Excluding consolidation and integration credits
of $3.2 million for the three-month period ended March 31, 2000, operating
expenses decreased as a percentage of revenue to 75.3% in the first quarter of
2001 from 76.6% of revenue in the comparable quarter of 2000. The primary
components of operating expenses are personnel costs and occupancy expense, both
of which have remained flat compared to the prior year. Other operating costs
such as direct costs have decreased due to decreased sales.
Corporate general and administrative expenses decreased to $5.2 million for
the three-month period ended March 31, 2001, from $8.5 million for the
comparable period in 2000. Excluding consolidation and integration expenses,
which consist primarily of costs related to severance payments and the new
shared services center, corporate general and administrative expenses decreased
$0.8 million for the three-month period ended March 31, 2001, from $6.0 million
for the comparable period in 2000. Such decrease was attributable to the lower
facilities costs, lower technology expenditures, and efficiencies gained through
the implementation of LINCS and the build out of the shared services center.
Excluding consolidation and integration expenses, corporate general and
administrative expenses represented 3.2% of total revenues for the three-month
period ended March 31, 2001, down from 3.5% for the comparable period in 2000,
respectively.
Depreciation and amortization expense decreased to $9.8 million for the
three-month period ended March 31, 2001, from $10.8 million for the comparable
period in 2000, a decrease of $1.0 million, or 9.2%. The decrease is primarily
attributable to lower goodwill amortization of $1.4 million as a result of
goodwill impairment recorded in the fourth quarter of 2000 and a reduction in
goodwill related to the divestiture of several entities in the last twelve
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months. The decrease is primarily offset by an increase in depreciation expense
of $0.4 million related to capital expenditures. As a percentage of total
revenues, depreciation and amortization expense was 6.0% for the three-month
period ended March 31, 2001, compared to 6.3% for the comparable period in 2000.
Interest expense decreased to $2.5 million for the three-month period ended
March 31, 2001, from $2.7 million for the comparable period in 2000, a decrease
of $0.2 million, or 5.4%. The decrease is the result of a lower average
outstanding debt during the first quarter of 2001 as compared to the comparable
prior period, offset by a higher average interest rate.
Loss on sale of operations, net was $2.3 million for the three-month period
ended March 31, 2001, and was related to the sale of three non-core operations
and the sale of an additional operation that closed in April 2001. Loss on sale
of operations, net of $1.0 million for the three-month period ended March 31,
2000, was related to the sale of three smaller non-core businesses that were
announced in the fourth quarter of 1999, and the loss on a fourth business that
was written down to net realizable value based on estimated sales proceeds.
Other income, net increased to $1.1 million for the three-month period
ended March 31, 2001, from $0.9 million for the comparable period in 2000, an
increase of $0.2 million, or 27.3%. Other income, net is comprised primarily of
interest and miscellaneous income. The increase is primarily related to an
increase in interest income of $0.2 million, to $1.0 million for the three-month
period ended March 31, 2001. Interest income is primarily derived from earnings
related to CBIZ's payroll business.
CBIZ recorded income taxes from continuing operations of $12.1 million for
the three-month period ended March 31, 2001 compared to $11.0 million for the
comparable period in 2000. The effective tax rate increased to 56.4% for the
three-month period ended March 31, 2001, from 52.4% for the comparable period in
2000. Income taxes are provided based on CBIZ's anticipated annual effective
rate. The effective tax rate is higher than the statutory federal and state tax
rates of approximately 40%, primarily due to the significant amount of goodwill
amortization expense, the majority of which is not deductible for tax purposes.
OTHER
Total assets decreased to $628.5 million at March 31, 2001, from $649.5
million at December 31, 2000, primarily attributable to the decrease in income
taxes recoverable of $22.5 million due to tax refunds received in the first
quarter of 2001. Accounts receivable, net, increased by $29.5 million, which is
consistent with the seasonality of the accounting and tax business. Total
liabilities decreased approximately $30.7 million, primarily due to the decrease
in bank debt of $17.5 million. Total stockholders' equity increased $9.6 million
primarily due to net income for the first three months of 2001 of $9.3 million.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended March 31, 2001, cash and cash
equivalents decreased $8.0 million to $8.0 million, from $16.0 million at
December 31, 2000, as cash provided by continuing operating activities of $12.3
million exceeded cash used by investing activities of $2.1 million and cash used
in financing activities of $18.2 million.
Cash used in investing activities of $2.1 million consisted primarily of
proceeds from the disposition of three businesses of $2.4 million, offset by
cash used for contingent consideration of businesses acquired ("earn outs") and
capital expenditures. Significant purchases of property and equipment in the
first three months of 2001 are primarily attributable to the leasehold
improvements and equipment in connection with the consolidation of offices. The
proceeds from the divested businesses were primarily used to pay down debt.
During the three months ended March 31, 2001, cash used in financing
activities consisted primarily of proceeds of $9.5 million from the revolving
credit facility and the repayment of bank debt of $27.0 million. Proceeds from
divested businesses, as well as excess cash provided by continuing operations
were used to pay down debt, which is in line with CBIZ's goals of debt
reduction.
Excluding the non-cash charge for loss on sale of operations and cumulative
effect of a change in accounting principle, earnings before interest, taxes,
depreciation and amortization (EBITDA) increased to $36.1 million for the
three-month period ended March 31, 2001, from $35.5 million for the comparable
period in 2000, an increase of $0.6 million, or 1.7%.
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FORWARD-LOOKING STATEMENTS
Statements included in the Form 10-Q, which are not historical in nature,
are forward-looking statements made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
commonly identified by the use of such terms and phrases as "intends,"
"believes," "estimates," "expects," "projects," "anticipates," "foreseeable
future," "seeks," and words or phases of similar import. Such statements are
subject to certain risks, uncertainties or assumptions. Should one or more of
these risks or assumptions materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Such risks and uncertainties include, but are not limited to,
CBIZ's ability to adequately manage its growth; CBIZ's dependence on the
services of its CEO and other key employees; competitive pricing pressures;
general business and economic conditions; and changes in governmental regulation
and tax laws affecting its insurance business or its business services
operations. A more detailed description of risks and uncertainties may be found
in CBIZ's Annual Report on Form 10-K. All forward-looking statements in this
Form 10-Q are expressly qualified by the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
CBIZ's exposure to market risk, including interest rate risk, is not
significant. If market interest rates were to increase or decrease immediately
and uniformly by 100 basis points from the levels at March 31, 2001, in each
case the impact on CBIZ's financial condition and results of operations would
not be significant. CBIZ does not engage in trading market risk sensitive
instruments. CBIZ does not purchase instruments, hedges, or "other than trading"
instruments that are likely to expose CBIZ to market risk, whether interest
rate, foreign currency exchange, commodity price or equity price risk. CBIZ has
not issued debt instruments, entered into forward or futures contracts,
purchased options or entered into swaps. CBIZ's primary market risk exposure is
that of interest rate risk. A change in the Federal Funds Rate, or the Reference
Rate set by the Bank of America (San Francisco), would affect the rate at which
CBIZ could borrow funds under its Credit Facility.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The following Current Report on Form 8-K was filed during the
three months ended March 31, 2001:
(i) On February 14, 2001, CBIZ issued a press release to report
that its four-quarter 2000 results, before fourth-quarter
charges and the adoption of SAB 101 adjustments, would be
lower than analysts' earnings-per-share estimates of one to
two cents, primarily because of lower-than-projected revenue
in the quarter.
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.
CENTURY BUSINESS SERVICES, INC.
-------------------------------
(Registrant)
Date: MAY 15, 2001 By: \S\ WARE H. GROVE
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Ware H. Grove
Chief Financial Officer
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