1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21533
TEAM AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-1209872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST WILSON BRIDGE ROAD 43085
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (614) 848-3995
(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
--------- ---------
THE NUMBER OF SHARES OF REGISTRANT'S ONLY CLASS OF COMMON STOCK OUTSTANDING ON
APRIL 30, 1997 WAS 3,375,703
PAGE 1 OF PAGES
EXHIBIT INDEX AT PAGE
2
TEAM AMERICA CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
----
Item 1. Financial Statements:
Consolidated Statements of Income -- Three-month periods
ended March 31, 1997 and 1996 (unaudited) -3-
Consolidated Balance Sheets -- March 31, 1997 and 1996
(unaudited) and December 31, 1996 -4-
Consolidated Statements of Cash Flows -- Three-month periods
ended March 31, 1997 and 1996 (unaudited) -6-
Consolidated Statement of Changes in Shareholders' Equity-
Three-month period ended March 31, 1997 (unaudited) -7-
Notes to Consolidated Financial Statements -8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -9-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K -12-
- --------------
Note: Items 1 through 5 of Part II are omitted because they are not applicable.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
(unaudited)
REVENUES $25,542,368 $21,461,404
DIRECT COSTS:
Salaries and wages 21,597,700 18,028,199
Payroll taxes, workers' compensation premiums,
employee benefits and other 2,545,479 2,362,875
----------- -----------
Total direct costs 24,143,179 20,391,074
----------- -----------
Gross profit 1,399,189 1,070,330
EXPENSES:
Administrative salaries, wages and employment taxes 723,320 627,066
Other general and administrative expenses 353,432 224,010
Advertising 51,752 36,284
Depreciation and amortization 35,678 14,850
----------- -----------
Total operating expenses 1,164,182 902,210
----------- -----------
Income from operations 235,007 168,120
OTHER INCOME 151,061 --
----------- -----------
Income before income taxes 386,068 168,120
INCOME TAX EXPENSE 154,550 77,335
----------- -----------
Net income $ 231,518 $ 90,785
=========== ===========
Earnings per share $ 0.07 $ 0.04
=========== ===========
Weighted average shares outstanding 3,335,088 2,093,368
=========== ===========
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996 1996
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Cash $ 2,270,675 $1,678,251 $ 1,383,023
Temporary cash investments 5,779,751 -- 6,717,497
----------- ---------- -----------
Total cash and cash equivalents 8,050,426 1,678,251 8,100,520
Short-term investments 7,056,173 -- 7,499,375
Receivables:
Trade, net of allowance for doubtful accounts 458,689 490,966 263,351
of $0, $3,266 and $0
Employee advances 81,275 55,453 48,487
Unbilled revenues 2,721,666 1,879,620 2,550,854
----------- ---------- -----------
Total receivables 3,261,630 2,426,039 2,862,692
Prepaid expenses 277,353 122,017 267,784
Deferred income tax asset 120,000 -- 120,000
----------- ---------- -----------
Total current assets 18,765,582 4,226,307 18,850,371
PROPERTY AND EQUIPMENT, NET: 560,074 325,944 492,335
OTHER ASSETS:
Cash surrender value of life insurance policies 282,686 218,568 259,895
Mandated benefit/security deposits 119,499 83,439 129,500
Deferred income tax asset 102,000 72,000 102,000
Other assets 327,530 68,870 65,155
----------- ---------- -----------
Total other assets 831,715 442,877 556,550
----------- ---------- -----------
Total assets $20,157,371 $4,995,128 $19,899,256
=========== ========== ===========
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996 1996
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 38,166 $ 19,055 $ 254,181
Related parties -- -- 24,768
----------- ---------- -----------
Total accounts payable 38,166 19,055 278,949
Accrued compensation 2,602,206 1,832,215 2,440,708
Accrued payroll taxes 1,344,069 1,354,165 670,952
Accrued workers' compensation premiums 554,096 587,921 839,117
Federal and state income taxes payable 135,741 58,407 389,275
Other accrued expenses 261,579 25,388 265,433
Client deposits 454,434 436,098 470,135
Note payable -- 11,000 --
Capital lease obligation, current portion 8,969 11,461 11,461
----------- ---------- -----------
Total current liabilities 5,399,260 4,335,710 5,366,030
CAPITAL LEASE OBLIGATION, net of current portion -- 3,563 --
DEFERRED RENT 119,302 137,073 126,125
DEFERRED COMPENSATION LIABILITY 280,665 218,568 259,895
----------- ---------- -----------
Total liabilities 5,799,227 4,694,914 5,752,050
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A, $0,$100 and $0 par value respectively 500,000, 1,380,000 -- 21,300 --
and 500,000 shares authorized, respectively, 0,39,192 and 0
issued respectively, 0, 36,432 and 0 outstanding, respectively
(aggregate liquidation preference $0, $21,300 and $0
respectively)
Class B, $0, $100 and $0 par value, respectively; 500,000, 0 and
500,000 shares authorized, respectively; none outstanding -- -- --
Common Stock, no par value:
Common Stock, 10,000,000, 0 and 10,000,000 shares authorized
respectively; 3,478,976, 0 and 3,478,976 issued,
respectively 3,335,088, 0 and 3,335,088 outstanding,
respectively
Class A, 0, 1,380,000 and 0 shares authorized, 13,608,425 -- 13,629,005
respectively; 0, 1,008,320 and 0 issued, respectively;
0, 875,472 and 0 outstanding respectively -- 234,194 --
Class B, 0, 1,380,000 and 0 shares authorized, respectively;
0, 1,181,464 and 0 issued and outstanding, respectively -- 59,757 --
Excess purchase price (83,935) (83,935) (83,935)
Retained earnings 860,769 96,013 629,251
----------- ---------- -----------
14,385,259 327,329 14,174,321
Less - Treasury stock, Common Class A shares of 0,
132,848, and 0 respectively, at cost -- (25,940) --
Less - Treasury stock, Preferred Class A shares of 0,
2,760, and 0 respectively, at cost -- (1,175) --
Less - Treasury stock, Common Stock shares of
143,888,0 and 143,888 respectively at cost (27,115) -- (27,115)
----------- ---------- -----------
Total shareholders' equity 14,358,144 300,214 14,147,206
----------- ---------- -----------
Total liabilities and shareholders' equity $20,157,371 $4,995,128 $19,899,256
=========== ========== ===========
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 231,518 $ 90,785
Depreciation and amortization 35,678 14,850
(Increase) decrease in operating assets:
Receivables (398,938) (125,998)
Prepaid expenses (9,569) (26,105)
Mandated benefit/security deposits 10,001 (10)
Other
Increase (decrease) in operating liabilities: -- (22,085)
Accounts payable and accrued expenses (240,783) (27,026)
Accrued expenses and other payable 292,206 (76,053)
Client deposits (15,701) 8,946
Deferred liabilities 13,947 23,999
---------- ----------
Net cash used in operating activities (81,641) (138,697)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (103,417) (79,769)
Increases in cash surrender value of life insurance policies (22,791) (30,344)
Decrease in short-term investments 443,202 --
AEM Escrow (262,375) --
---------- ----------
Net cash provided by (used in) investing activities 54,619 (110,113)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable -- (3,000)
Payments on capital lease obligation (2,492) (5,592)
Purchase of treasury stock -- (2,600)
Offering costs incurred (20,580) --
---------- ----------
Net cash used in financing activities (23,072) (11,192)
---------- ----------
Net decrease in cash and cash equivalents (50,094) (260,002)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,100,520 1,938,253
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $8,050,426 $1,678,251
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest $ 368 $ 784
========== ==========
Income Taxes $ 408,000 $ 195,000
========== ==========
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
Treasury Excess
Common Stock Stock Purchase Retained
Number Value Comm Price Earnings TOTAL
--------- ----------- -------- -------- -------- -----------
Balance December 31, 1996 3,478,976 $13,629,005 $(27,115) $(83,935) $629,251 $14,147,206
Offering Costs -- (20,580) -- -- -- (20,580)
Net Income -- -- -- -- 231,518 231,518
--------- ----------- -------- -------- -------- -----------
Balance March 31, 1997 3,478,976 $13,608,425 $(27,115) $(83,935) $860,769 $14,358,144
--------- ----------- -------- -------- -------- -----------
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Unaudited Interim Consolidated Financial Statements
The accompanying interim consolidated financial statements as of March
31, 1997 and for the three-month period then ended are unaudited. However, in
the opinion of management these interim statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows of
TEAM America Corporation. The financial statements should be read in
conjunction with the audited financial statements contained in TEAM America
Corporation's Form 10-K Annual Report for the year ended December 31, 1996.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth results of operations for the three
month periods ended March 31, 1997 and 1996 expressed as a percentage of
revenues:
Three Months Ended
March 31,
1997 1996
---- ----
Revenues 100.00% 100.00%
Direct Costs:
Salaries and wages 84.60 84.00
Payroll taxes, workers' 10.00 11.00
compensation premiums,
employee benefits and other
costs
Gross Profit 5.40 5.00
Operating Expenses:
Administrative salaries, 2.80 2.90
wages and employment
taxes
Other general and
administrative 1.40 1.00
Advertising 0.20 0.20
Depreciation and
amortization 0.10 0.10
Total Operating Expenses 4.50 4.20
Other income (expense), net 0.60 --
Income before taxes 1.50 0.80
Provision for income taxes 0.60 0.40
Net income 0.90 0.40
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES
Revenues increased $4,081,000 or 19% in the three months ended
March 31, 1997 compared to the three months ended March 31, 1996. Worksite
employees, excluding certain seasonal employees, increased 5.7% from 3,073 at
March 31, 1996 to 3,249 at March 31, 1997. Average annualized payroll per
worksite employee increased 13.3% to $26,590 in the first quarter of 1997 from
$23,467 in the first quarter of
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1996. The increase in revenues per employee was the result of continued
emphasis on attracting clients in higher paying industries and full time
positions. The average annualized payroll per employee was $27,168 in the
fourth quarter of 1996.
DIRECT COSTS
Salaries and wages rose 19.8% to $21,597,700 in the three months ended
March 31, 1997 from $18,028,200 in the three months ended March 31, 1996.
Payroll taxes, etc., rose only 7.7% to $2,545,000 in the first quarter of 1997
from $2,363,000 in the first quarter of 1996. The increase in salaries and
wages in 1997's first quarter was in line with the increased headcount and the
higher wage client base. Payroll taxes and benefits rose only 7.7% as a result
of the Company's risk management efforts and a 20% premium credit dividend from
the State of Ohio worker's compensation fund.
EXPENSES
Administrative salaries expense rose 15.3% to $723,000 for the three
months ended March 31, 1997 from $627,000 for the three months ended March 31,
1996 as the Company continued to add headcount to support the growth of the
Company. Other general and administrative expenses rose 57.8% from the first
quarter of 1996 to the first quarter of 1997 as the result of higher legal and
external accounting expenses related to being a public company and higher
facilities costs.
INCOME FROM OPERATIONS
As a result of the 19% increase in revenues and only a 7.7% increase in
direct costs, income from operations increased 39.8% to $235,000 in the three
months ended March 31, 1997 from $168,000 in the three months ended March 31,
1996.
OTHER INCOME
Other income of $151,000 consists principally of interest income and
earnings on short-term investments and temporary cash investments. The
investments represent the cash proceeds from the initial public offering of TEAM
America stock in December, 1996. There were no excess cash investments in the
corresponding first quarter of 1996.
INCOME TAX EXPENSE
Income tax expense rose 99.8% from the first quarter of 1996 to the
first quarter of 1997. The effective tax rate was 40% for the three months
ended March 31, 1997 compared to 46% for the three months ended March 31, 1996.
The effective tax rate for all of calendar 1996 was 42.3%. The lower tax rate
in 1997 reflects the tax-exempt investment income in 1997 and the lessened
impact of non-deductible life insurance premiums due to increased pre-tax
income.
NET INCOME AND EARNINGS PER SHARE
Net income increased $141,000 or 155% from the three months ended March
31, 1996 to the three months ended March 31, 1997 due to the higher revenues
and investment income. Earnings per share in the first quarter of 1997
increased only 75% over the first quarter of 1996 because average shares
outstanding increased from 2,093,000 in 1996's first quarter to 3,335,000
11
in 1997's first quarter, or 59.5%, following the initial public offering of
1,250,000 shares of TEAM America stock in December, 1996. Basic earnings per
share as calculated in accordance with FASB Statement No. 128, is the same as
earnings per share presented in the accompanying financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 and 1996, the Company had a working capital surplus
(deficit) in the amounts of $13,366,000 and ($109,000), respectively.
The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations. In addition, in
December 1996 net cash of $13,314,000 was provided from an initial public
offering of Company stock. Net cash used in operating activities was $81,000
and $139,000 for the three month periods ended March 31, 1997 and 1996,
respectively.
The Company recognizes as revenue and as unbilled receivables, on an
accrual basis, any such amounts which relate to services performed by worksite
employees as of the end of each accounting period which have not yet been
billed to the client because of timing differences between the day the
Company's accounting period ends and its billing dates. The amount of unbilled
receivables, as well as accrued liabilities and client deposits, have increased
with the general growth of the Company. For work performed prior to the
termination of a client agreement, the Company may be obligated, as an
employer, to pay the gross salaries and wages of the client's worksite
employees and the related employment taxes and workers' compensation costs,
whether or not the Company's client pays the Company on a timely basis or at
all. The Company, however, historically has not incurred significant bad debt
expenses because the Company generally collects from its clients all revenues
with respect to each payroll period in advance of the Company's payment of the
direct costs associated therewith. The Company attempts to minimize its credit
risk by investigating and monitoring the credit history and financial strength
of its clients and by generally requiring payments to be made by wire transfer,
immediately available funds or ACH transfer. With respect to ACH transfers, the
Company is obligated to pay the client's worksite employees if there are
insufficient funds in the client's bank account on the payroll date. The
Company's policy, however, is only to permit clients with a proven credit
history with the Company to pay by ACH transfer. In addition, in the rare
event of nonpayment by a client, the Company has the ability to terminate
immediately its contract with the client. The Company also protects itself by
obtaining unconditional personal guaranties from the owners of a client and/or
a cash security deposit, bank letter of credit or pledge of certificates of
deposit. As of March 31, 1997 and 1996, the Company held cash security deposits
in the amounts of $454,000 and $436,000 respectively. Additional sources of
funds to the Company are advance payments of employment taxes and insurance
premiums which the Company holds until they are due and payable to the
respective taxing authorities and insurance providers.
Net cash provided by (used in) investing activities was $55,000 and
$(110,000) for the three-month periods ended March 31, 1997 and 1996
respectively. The principal use of cash from investing activities was the
purchase of additional computer equipment and software to support the growth of
the business. Also in March, 1997 $262,375 was paid in advance of the April 1,
1997 effective date of the acquisition of a PEO located in Dover, Ohio.
Financing activities are not material as the Company has no debt or
significant capital leases.
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Presently, the Company has no material commitments for capital
expenditures. Primary new uses of cash may include acquisitions, the size and
timing of which cannot be predicted.
The Company has executed a $500,000 promissory note to a bank which, at
the bank's sole discretion, would allow the Company to obtain loans up to such
amount without negotiating or executing any further agreements. Borrowings
under this credit facility are payable upon demand and bear interest at the
bank's prime rate (8.5%) at March 31, 1997. As of March 31, 1997 and 1996, no
borrowings were outstanding under this credit facility.
The Company believes that the net proceeds from the sale of the common
shares in December 1996 which were invested in marketable securities and
certificates of deposit, together with existing cash, cash equivalents and
internally generated funds will be sufficient to meet the Company's presently
anticipated working capital and capital expenditure requirements both for the
next twelve months and for the foreseeable future thereafter. To the extent
that the Company needs additional capital resources, the Company believes that
it will have access to both bank financing and capital leasing for additional
facilities and equipment; however, there can be no assurance that additional
financing will be available on terms favorable to the Company or at all.
Effective April 1, 1997 the Company acquired a PEO in Dover, Ohio in a
purchase transaction. The total consideration paid was $262,375 in cash in
March, 1997 and the issuance of 40,615 shares of Company stock. Fifty percent
of the shares of Company stock has been deposited in an escrow account at a
bank. The shares will be released from escrow in 1998, 1999 and 2000 subject
to the satisfaction of covenants pertaining to retention of worksite employees
and fees.
The Company did not pay dividends in 1996, or thus far in 1997, and
does not expect to pay a dividend in the foreseeable future.
The Company believes the effects of inflation have not had a
significant impact on its results of operations or financial condition.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None
(b) Exhibits
11 Computation of Earnings per Common and common Equivalent Share
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA CORPORATION
/s/ MICHAEL R. GOODRICH
--------------------------------------
Chief Financial Officer and Authorized
Signing Officer
May 8, 1997
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EXHIBIT INDEX
Exhibit Number Description Page #
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11 Computation of Earnings per Common and
Common Equivalent Share -14-
27 Financial Data Schedule -15-