<PAGE> 1
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-26970
-------------------
COREStaff, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 76-0407849
(State of Incorporation) (I.R.S. Employer Identification Number)
Five Post Oak Park
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
(Address of Principal Executive Offices)
(Zip Code)
(713) 961-3633
(Registrant's telephone number, including area code)
-------------------
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 and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
---- ----
As of the close of business on August 11, 1996, the Company had
outstanding 20,367,333 shares of Common Stock, par value $0.01 per share, and
878,833 shares of Class B (non-voting) Common Stock, par value $0.01 per share.
================================================================================
<PAGE> 2
CORESTAFF, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
PART I
Item 1. Financial Statements
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,743 $ 4,091
Accounts receivable, net of allowance of $1,273 and $891 83,545 54,453
Prepaid expenses and other 4,008 2,583
Deferred income taxes 2,156 1,740
------------- -------------
Total current assets 99,452 62,867
Fixed Assets, net 11,411 6,005
Intangible Assets, net of accumulated amortization of $5,471 and $2,906 143,037 81,277
Other Assets 2,323 2,221
------------- -------------
Total Assets $ 256,223 $ 152,370
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 438 $ 2,063
Accounts payable 12,799 8,682
Payroll and related taxes 15,658 9,955
Self-insurance reserve 1,636 2,026
Amounts due sellers of acquired companies 375 5,972
Other current liabilities 581 504
------------- -------------
Total current liabilities 31,487 29,202
Non-current Self-insurance Reserve 2,961 3,461
Long-term Debt, net of current maturities 445 43,315
Deferred Income Taxes and Other 1,757 1,227
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares
authorized; none issued - -
Common stock, par value $.01
Common Stock - 40,000,000 shares authorized;
21,051,333 and 17,495,444 shares issued 210 175
Class B (non-voting) - 3,000,000 shares authorized;
878,833 and 1,119,723 shares issued 9 11
Additional paid-in capital 208,244 70,637
Retained earnings 12,125 5,420
------------- -------------
220,588 76,243
------------- -------------
Less - 684,000 shares of common stock in treasury, at cost (188) (188)
Less - notes receivable from stockholders (827) (890)
------------- -------------
Total stockholders' equity 219,573 75,165
------------- -------------
Total Liabilities and Stockholders' Equity $ 256,223 $ 152,370
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues from Services $ 134,159 $ 76,775 $ 237,545 $ 146,246
Cost of Services 101,541 59,335 179,225 113,494
------------- ------------ ----------- ------------
Gross Profit 32,618 17,440 58,320 32,752
Operating Costs and Expenses:
Selling, general and administrative 22,501 12,928 40,995 24,966
Depreciation and amortization 1,757 922 3,139 1,799
------------- ------------ ----------- ------------
24,258 13,850 44,134 26,765
------------- ------------ ----------- ------------
Operating Income 8,360 3,590 14,186 5,987
Other Income (Expense):
Interest expense (1,542) (1,557) (2,827) (2,801)
Other, net 142 (9) 203 3
------------- ------------ ----------- ------------
(1,400) (1,566) (2,624) (2,798)
------------- ------------ ----------- ------------
Income before Income Taxes 6,960 2,024 11,562 3,189
Provision for Income Taxes 2,922 834 4,855 1,314
------------- ------------ ----------- ------------
Net income $ 4,038 $ 1,190 $ 6,707 $ 1,875
============= ============ =========== ============
Earnings per Common Share $ 0.21 $ 0.08 $ 0.36 $ 0.12
============= ============ =========== ============
Number of Shares Used to Compute
Earnings per Common Share 19,451 12,275 18,808 12,275
============= ============ =========== ============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 6,707 $ 1,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,139 1,799
Amortization of deferred loan costs 177 104
Provision for doubtful accounts 477 38
Deferred income taxes (benefit) 44 (439)
Self-insurance reserve (890) 593
Loss on disposal of assets (29) -
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (11,071) 85
Prepaid expenses and other 24 1,243
Accounts payable 631 (1,124)
Accrued liabilities 995 1,323
----------- ------------
Net cash provided by operating activities 204 5,497
----------- ------------
Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired (81,272) (36,898)
Capital expenditures (4,810) (1,170)
Payments received on shareholder notes 63 -
Proceeds from sale of assets 71 -
Other 6 (97)
----------- ------------
Net cash used in investing activities (85,942) (38,165)
----------- ------------
Cash Flows from Financing Activities:
Principal payments on long-term debt (114,454) (2,912)
Net proceeds from issuance of long-term debt 68,204 26,105
Net proceeds from issuance of senior subordinated debt - 9,725
Net proceeds from sale of preferred stock - 2,047
Net proceeds from sale of common stock 137,640 -
Repurchase of common stock - (331)
----------- ------------
Net cash provided by financing activities 91,390 34,634
----------- ------------
Net Increase in Cash and Cash Equivalents 5,652 1,966
Cash and Cash Equivalents at Beginning of Period 4,091 4,637
----------- ------------
Cash and Cash Equivalents at End of Period $ 9,743 $ 6,603
=========== ============
Cash paid during the period for:
Interest $ 2,890 $ 3,228
Income taxes $ 5,039 $ 2,127
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated financial statements of COREStaff, Inc. and its
wholly-owned subsidiaries (the "Company") included herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The consolidated financial statements reflect all
elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
These consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 1995.
2. INCOME TAXES
The Company follows the liability method of accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The Company's interim
provisions for income taxes were computed using its estimated effective tax
rate for the year.
3. EARNINGS PER COMMON SHARE
Earnings per common share were computed by dividing net income
applicable to common stock (net income less preferred stock dividends in
arrears applicable to the period) by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period and the
dilutive effect of common stock issued within one year prior to the Company's
initial public offering in November 1995 (the "Initial Public Offering").
Common stock equivalents consisted of the number of shares issuable on
exercise of the outstanding stock options less the number of shares that could
have been purchased with the proceeds from the exercise of the options based on
the average price of the common stock during the period. The dilutive effect
of common stock issued within one year prior to the Initial Public Offering for
the periods prior to issuance was determined in the same manner except that the
Initial Public Offering price of $11.33 per share, which has been adjusted for
the three-for-two stock split, was used for the repurchase price.
Earnings per common share for the 1995 periods as shown in the
accompanying statements of income were determined in the same manner as
described above, except that the conversion of one-half of the preferred stock
into common stock in November 1995 was assumed to have occurred as of the
beginning of the periods. Net income applicable to common stock was increased
by the dividends in arrears applicable to the preferred stock converted.
Historical earnings per common share were $0.07 and $0.09 for the three and six
months ended June 30, 1995, respectively. Net income applicable to
6
<PAGE> 7
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
common stock was $0.8 million and $1.1 million for the three and six months
ended June 30, 1995, respectively.
4. ACQUISITIONS
On January 9, 1995, the Company acquired Regency Staffing, Inc., a
Florida-based support services company. The purchase price totaled $4.9
million, consisting of cash of $4.7 million paid to the sellers and direct
acquisition costs of $0.2 million. The sellers may also receive contingent
payments of up to $1.8 million based on the increase in earnings before
interest and taxes ("EBIT"), as defined. Payment of contingent consideration
will increase the amount of goodwill related to the acquisition.
On April 9, 1995, the Company acquired Tri-Starr Services, Inc. and an
affiliate, both of which are Texas-based support services companies. The
purchase price totaled $12.0 million, consisting of cash of $6.0 million paid
to the sellers at closing and the remainder paid in February 1996.
On June 30, 1995, the Company acquired Cutler-Williams Incorporated, a
Texas-based information technology services company. The purchase price
totaled $28.3 million, consisting of (i) cash of $25.6 million paid to the
sellers, (ii) interest-bearing notes of $2.0 million, which were paid in June
1996, and (iii) direct acquisition costs of $0.7 million.
During 1995, the Company also acquired substantially all of the assets
of two small support services companies (Friends & Company of Phoenix and CTS
Personnel Services, Inc.) and one small physical therapy company (Occupational
Therapy Contract Services, Inc.). The purchase price for these companies
totaled $0.6 million.
On January 4, 1996, the Company acquired substantially all of the
assets of Taylor Temporary Services, Inc., a North Carolina-based support
services company, for $3.5 million in cash. The seller is also entitled to
contingent consideration of up to $0.6 million based on the increase in EBIT,
as defined. Payment of contingent consideration will increase the amount of
goodwill related to the acquisition.
On January 31, 1996, the Company acquired Datronics Management, Inc.,
a New York-based information technology services company, and its United
Kingdom affiliate, Datronics U.K. Limited, for $17.5 million in cash.
On February 12, 1996, the Company acquired substantially all of the
assets of Richard Keith Enterprises, Inc. and Provincial Staffing Services,
Inc., Colorado-based support services companies, for $5.9 million in cash. The
sellers are also entitled to contingent consideration of up to $3.2 million
based on the increase in EBIT, as defined. Payment of contingent consideration
will increase the amount of goodwill related to the acquisition.
On April 2, 1996, the Company acquired Regal Data Systems, Inc., a New
Jersey-based information technology services company, for $21.8 million in
cash. The sellers are also entitled to contingent consideration of up to $1.0
million based on the increase in EBIT, as defined. Payment of contingent
consideration will increase the amount of goodwill related to the acquisition.
7
<PAGE> 8
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On April 23, 1996, the Company acquired Leafstone, Inc., a New
York-based support services company, for $11.8 million in cash. The sellers
are also entitled to contingent consideration of up to $4.0 million based on
the increase in EBIT, as defined. Payment of contingent consideration will
increase the amount of goodwill related to the acquisition.
On June 12, 1996, the Company acquired Data Aid, Inc., an
Alabama-based information technology services company, for $18.9 million in
cash. The sellers are also entitled to contingent consideration of up to $7.3
million based on the increase in EBIT, as defined. Payment of contingent
consideration will increase the amount of goodwill related to the acquisition.
All of the acquisitions made by the Company have been accounted for
using the purchase method of accounting. Accordingly, the results of
operations of the acquired companies are included in the Company's consolidated
results of operations from the date of acquisition.
The following unaudited pro forma results of operations have been
prepared assuming the acquisitions described above and the conversion of
one-half of the preferred stock into common stock in November 1995 had
occurred as of the beginning of the periods presented. The unaudited pro forma
operating results are not necessarily indicative of future operating results
nor of operating results that would have occurred had these acquisitions been
consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------- -------------
(in thousands, except
per share amounts)
<S> <C> <C>
Revenues $ 272,503 $ 237,303
Net income $ 6,753 $ 2,246
Earnings per common share $ 0.36 $ 0.15
</TABLE>
5. LONG-TERM DEBT
At June 30, 1996, the Company had no outstanding borrowings under its
$130 million senior revolving credit agreement (the "Credit Agreement").
Borrowings under the Credit Agreement bear interest, at the Company's option,
at LIBOR or the bank's base rate, plus the applicable margin. A commitment fee
of 0.25% (0.375% if the leverage ratio, as defined, is greater than 2 to 1) is
payable on the unused portion of the commitment.
6. STOCKHOLDERS' EQUITY
On March 4, 1996, the Board of Directors authorized a three-for-two
stock split, effected in the form of a stock dividend, payable to stockholders
of record on March 14, 1996. All references in the financial statements to
number of shares outstanding and related prices and per share amounts have been
8
<PAGE> 9
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
restated to reflect the split. The stock split resulted in the issuance of
approximately 6.0 million new shares of common stock and a reclassification of
$0.1 million from retained earnings to common stock representing the par value
of the shares issued.
In May 1996, the Company completed a public offering of 5.6 million
shares of its common stock (3.3 million shares sold by the Company and the
remainder by certain selling stockholders) at $43.75 per share. Net proceeds
to the Company were approximately $137.5 million, of which $111.5 million was
used to repay borrowings under the Credit Agreement.
7. SUBSEQUENT EVENTS
During the period from July 1, 1996 through August 11, 1996, the
Company acquired two businesses. The aggregate purchase price totaled $7.0
million, consisting of cash of $6.8 million paid to the sellers and an
interest-bearing note of $0.2 million. The sellers are also entitled to
contingent consideration of up to $1.6 million based on the increase in EBIT,
as defined. Payments of contingent consideration will increase the amount of
goodwill related to the acquisitions.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements.
INTRODUCTION
The Company's growth since its inception in July 1993 has been primarily
through the acquisition of businesses in the staffing services industry and
subsequent internal growth. The Company provides its services through two
primary operating groups: the Support Services Group and the Information
Technology Services Group. The Company also provides specialized services such
as physical therapy and technical communications outsourcing through its Niche
Development Services Group. Through June 30, 1996, the Company had completed
18 acquisitions consisting of ten support services businesses, five information
technology businesses, and three physical therapy businesses. These
acquisitions were primarily of businesses having long-standing operating
histories and well-established infrastructures.
The Support Services Group, currently the Company's largest operating
group, accounted for 55.7% and 48.9% of the Company's pro forma consolidated
revenues and gross profit, respectively, for the six months ended June 30,
1996. The Information Technology Services Group accounted for 42.3% and 48.9%
of the Company's pro forma consolidated revenues and gross profit,
respectively, for the first half of 1996. Management believes that the
Information Technology Services sector generally offers greater growth
opportunities and higher bill rates and gross margins compared with traditional
support services. The Company believes that the revenues and gross profit
contributed by its Information Technology Services Group will continue to
increase as a percent of total revenues due to the more rapid growth of this
sector and the Company's focus on acquiring businesses in this sector.
All acquisitions of the Company have been accounted for using the purchase
method of accounting and, accordingly, the historical Consolidated Financial
Statements of the Company include the operating results of the acquired
businesses from the date of acquisition. The Company's historical consolidated
operating results have been significantly affected by the number, timing, and
size of the acquisitions. Accordingly, pro forma financial data are provided
herein for a more meaningful period-to-period comparison of the Company's
operating results.
The pro forma financial data have been prepared and included herein to give
effect to the following acquisitions as if they occurred at the beginning of
the periods presented: (i) Friends & Company of Phoenix ("Friends & Company")
acquired in January 1995; (ii) Regency Staffing, Inc. ("Regency") acquired in
January 1995; (iii) CTS Personnel Services ("CTS") acquired in March 1995; (iv)
Tri-Starr Services, Inc. and Tri-Starr Personnel, Inc. (together, "Tri-Starr")
acquired in April 1995; (v) Cutler-Williams Incorporated ("Cutler-Williams")
acquired in June 1995; (vi) Occupational Therapy Contract Services, Inc.
("OTCS") acquired in August 1995; (vii) Taylor Temporary Services, Inc.
("Taylor") acquired in January 1996; (viii) Datronics Management, Inc. and
Datronics U.K. Limited (together, "Datronics") acquired in January 1996; (ix)
Richard Keith Enterprises and Provincial Staffing Services, Inc. (together,
"Richard Keith") acquired in February 1996; (x) Regal Data Systems, Inc.
("Regal") acquired in April 1996; (xi) Leafstone, Inc. ("Leafstone") acquired
in April 1996; and (xii) Data Aid, Inc. ("Data Aid") acquired in June 1996 (all
such acquisitions are collectively referred to as the "Acquisitions"). The pro
forma financial data are not necessarily indicative of results of operations
that would have occurred had the Acquisitions been consummated as of the
beginning of the periods presented or that might be attained in the future.
10
<PAGE> 11
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------- -----------------------------------------
THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------------------- -----------------------------------------
1996 1995 1996 1995
------------------ ------------------ -------------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services:
Support services $ 75,831 56.5% $57,591 75.0% $ 78,793 55.6% $ 70,234 58.3%
Information technology services 55,549 41.4 16,278 21.2 60,046 42.4 47,438 39.3
Niche development services 2,779 2.1 2,906 3.8 2,779 2.0 2,906 2.4
-------- ----- ------- ----- -------- ----- -------- -----
Total $134,159 100.0% $76,775 100.0% $141,618 100.0% $120,578 100.0%
Gross profit:
Support services $ 16,245 49.8% $12,517 71.8% $ 16,858 48.5% $ 14,960 50.2%
Information technology services 15,632 47.9 4,192 24.0 17,158 49.4 14,089 47.3
Niche development services 741 2.3 731 4.2 741 2.1 731 2.5
-------- ----- ------- ----- -------- ----- -------- -----
Total $ 32,618 100.0% $17,440 100.0% $ 34,757 100.0% $ 29,780 100.0%
Gross margin:
Support services 21.4% 21.7% 21.4% 21.3%
Information technology services 28.1 25.8 28.6 29.7
Niche development services 26.7 25.2 26.7 25.2
Consolidated 24.3 22.7 24.5 24.7
Operating income $ 8,360 $ 3,590 $ 8,792 $ 7,644
Net income $ 4,038 $ 1,190 $ 4,178 $ 2,221
</TABLE>
COMPARISON OF HISTORICAL OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1996 WITH THE THREE MONTHS ENDED JUNE 30, 1995
SUMMARY. Revenues, gross profit and net income of the Company for the
current quarter increased $57.4 million (74.7%), $15.2 million (87.0%) and $2.8
million (239.3%), respectively, compared with the second quarter of 1995.
These improvements were due to the effects of the Acquisitions discussed above
and the internal growth of the Company.
SUPPORT SERVICES GROUP. Revenues and gross profit for the current quarter
increased by $18.2 million (31.7%) and $3.7 million (29.8%), respectively,
compared with the second quarter of 1995. These improvements were primarily
due to the inclusion of the operating results of the businesses acquired in
1996. Revenues and gross profit attributable to these acquisitions of $16.1
million and $3.0 million, respectively, were included in the Company's
consolidated results of operations for the current quarter. Revenues from
businesses acquired prior to 1996 increased $2.1 million, or 3.7%, over the
second quarter of 1995. This improvement was achieved despite lower sales to
certain large manufacturing customers. Revenues from these customers were
adversely affected by higher inventory levels caused by sluggish sales in the
fourth quarter of 1995. Sales to these customers showed improvement during the
last half of the current quarter as their excess inventory levels were reduced.
Management expects sales to these companies to continue to increase over the
remainder of 1996.
Gross profit for the group was 21.4% for the current quarter compared
with 21.7% for the second quarter of 1995. The decline in gross margin related
to the companies acquired in 1996, which had a lower combined gross margin than
that of the group in 1995.
INFORMATION TECHNOLOGY SERVICES GROUP. Revenues and gross profit for 1996
increased by $39.3 million (241.3%) and $11.4 million (272.9%), respectively,
compared with 1995. These
11
<PAGE> 12
improvements were primarily due to the inclusion of the operating results for
the current quarter of Cutler-Williams, Datronics, Regal and Data Aid, whose
operating results were not included in the Company's results for the second
quarter of 1995. Revenues and gross profit attributable to these companies of
$31.1 million and $9.1 million, respectively, were included in the Company's
consolidated results of operations for 1996. The remaining increase in
revenues and gross profit was attributable to COMSYS, which accounted for all
of this group's operating results for the second quarter of 1995. The gross
margin of this group increased to 28.1% for 1996 compared with 25.8% for 1995
primarily due to the higher combined gross margin of the Cutler-Williams and
the businesses acquired in 1996 as compared with COMSYS.
OPERATING COSTS AND EXPENSES. Selling, general and administrative ("SG&A")
expenses for 1996 totaled $22.5 million (16.8% of revenues), compared with
$12.9 million (16.8% of revenues) for 1995. The increase in SG&A expenses
primarily related to (i) the Acquisitions, (ii) internal growth of the
operating companies and (iii) higher expenses at the corporate level.
Virtually all of the Company's SG&A expenses were incurred by its operating
subsidiaries, which reflects the decentralized nature of its operations. The
Company's front-office activities (e.g. recruiting, marketing, account
management, placement) and most of the accounting and administrative activities
of the operating companies are performed at the subsidiary level. SG&A
expenses at the corporate level totaled $1.3 million for the current quarter
($0.8 million for the second quarter of 1995). Corporate SG&A expenses
primarily related to salaries and benefits of personnel responsible for
corporate activities, including its acquisition program and certain marketing,
administrative and reporting responsibilities. The increase in corporate SG&A
expenses reflect personnel additions necessary to accommodate the growth of the
Company.
Depreciation and amortization totaled $1.8 million and $0.9 million for
1996 and 1995, respectively. Depreciation totaled $0.7 million and $0.4
million for the second quarter of 1996 and 1995, respectively, and related to
depreciation of the fixed assets of the acquired companies and, to a lesser
extent, of capital expenditures made subsequent to acquisition of the
businesses. Amortization of $1.1 million and $0.5 million for 1996 and 1995,
respectively, related to amortization of goodwill and non-compete agreements of
the acquired companies. The increase in both categories is primarily a result
of the Acquisitions.
NON-OPERATING COSTS AND EXPENSES. Interest expense for the current quarter
totaled $1.5 million compared with $1.6 million for 1995. The $0.1 million
decrease was primarily due to the repayment of indebtedness with proceeds from
the Company's second public offering, which closed in May 1996.
The provision for income taxes for the current quarter was $2.9 million (an
effective tax rate of 42.0%), as compared with $0.8 million (an effective tax
rate of 41.2%) for 1995. The higher effective rate reflects the amortization
of goodwill related to the acquisitions of Cutler-Williams and Leafstone, which
are not deductible for federal income tax purposes, and a higher corporate
federal income tax rate.
NET INCOME. Due to the factors described above, net income for 1996 was
$4.0 million compared with $1.2 million for 1995. Net income as a percentage
of revenues increased to 3.0% for the 1996 period, from 1.5% for 1995.
COMPARISON OF PRO FORMA OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1996 WITH THE THREE MONTHS ENDED JUNE 30, 1995
Pro forma financial data are provided herein for a more meaningful
basis of comparison of operating results between periods due to the
significance of the acquisitions to the Company's financial
12
<PAGE> 13
results. The pro forma financial data give effect to the Acquisitions as if
they were completed as of the beginning of the periods presented. This
financial data should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere herein.
SUMMARY. Pro forma revenues, gross profit and net income of the
Company for the current quarter increased $21.0 million (17.4%), $5.0 million
(16.7%) and $2.0 million (88.1%), respectively, compared with the second
quarter of 1995. The increase in profitability primarily related to the $1.9
million and $3.1 million increases in the gross profit of the Support Services
Group and the Information Technology Services Group, respectively.
SUPPORT SERVICES GROUP. Pro forma revenues for the current quarter
increased $8.6 million, or 12.2%, from $70.2 million for the second quarter of
1995. Approximately $6.5 million of the increase related to the businesses
acquired in 1996. The remainder of the increase related to businesses owned by
the Company during 1995 whose revenues increased $2.1 million, or 3.7%, over
1995. The lower growth rate of these businesses, compared with those recently
acquired, was due to lower sales from certain large manufacturing customers, as
described above.
Pro forma gross profit for the current quarter increased $1.9 million,
or 12.7%, from the second quarter of 1995. The improvement related to the
increase in revenues described above and the modest increase in gross margin
from 21.3% to 21.4%.
INFORMATION TECHNOLOGY SERVICES GROUP. Pro forma revenues for the
current quarter were $60.0 million, or 26.6%, higher than pro forma revenues
for the second quarter of 1995. This increase reflected the strong demand for
technical services as customers continued to depend heavily on technology to
improve productivity and support growth. Revenues for COMSYS and
Cutler-Williams, which comprised the Company's Information Technology Services
Group at December 31, 1995, increased 34.5% for the current quarter over the
second quarter of 1995. Revenues from the businesses acquired in 1996
increased 11.0% over the same periods.
Pro forma gross profit for the current quarter increased $3.1 million,
or 21.8%, over the second quarter of 1995. This improvement was due to the
increase in revenues described above, partially offset by the lower gross
margin. Gross margin for the current quarter was 28.6% compared with 29.7%
for the second quarter of 1995. The decrease in gross margin related to a
change in mix caused by the businesses acquired in 1996. These businesses had
a higher combined gross margin than Cutler-Williams and COMSYS, but lower
revenue growth.
OPERATING COSTS AND EXPENSES. Pro forma SG&A expenses for the current
quarter of 1996 totaled $24.1 million (17.0% of revenues) compared with $20.6
million (17.1% of revenues) for the second quarter of 1995. The increase in
pro forma SG&A expenses primarily related to internal growth of the operating
companies and increased expenses at the corporate level. Virtually all of the
Company's SG&A expenses were incurred by its operating subsidiaries, which
reflects the decentralized nature of the Company's operations. The Company's
front-office activities (e.g. recruiting, marketing, account management,
placement, etc.) and most of the accounting and administrative activities of
the operating companies are performed at the subsidiary level. SG&A expenses
at the corporate level for 1996 totaled $1.3 million (compared with $0.8
million for 1995). Corporate SG&A expenses related primarily to salaries and
benefits of personnel responsible for corporate activities, including its
acquisition program, and certain marketing, and administrative and reporting
responsibilities. The pro forma results for 1996 and 1995 reflect historical
SG&A expenses at the corporate level and therefore do not include the pro forma
effects of personnel additions made subsequent to the beginning of each period
to accommodate
13
<PAGE> 14
the growth of the Company.
Depreciation and amortization totaled $1.9 million and $1.5 million
for 1996 and 1995, respectively. Depreciation of $0.7 million and $0.5 million
for 1996 and 1995, respectively, related primarily to the fixed assets of the
acquired companies. Amortization of $1.2 million and $1.0 million for 1996 and
1995, respectively, related to amortization of goodwill and non-compete
agreements of the acquired companies.
NON-OPERATING COSTS AND EXPENSES. Pro forma interest expense for 1996
totaled $1.8 million compared with $3.8 million for 1995. The decrease
primarily related to the repayments of indebtedness with proceeds from the
Company's initial public offering in November 1995 and from the Company's
second public offering in May 1996.
The pro forma provision for income taxes for 1996 was $3.0 million (an
effective tax rate of 42.0%), compared with $1.7 million (an effective tax rate
of 42.9%) for 1995. The lower effective rate was due to an increase in income
before income taxes that substantially exceeded the increase in permanent
nondeductible expenses. The Company's effective tax rate includes the effects
of state income taxes and the portion of goodwill amortization not deductible
for federal income tax purposes.
NET INCOME. Due to the factors described above, pro forma net income
for 1996 was $4.2 million compared with $2.2 million for 1995. Pro forma net
income as a percentage of pro forma revenues was 3.0% for 1996 compared with
1.8% for 1995.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------- ------------------------------------------
SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ------------------------------------------
1996 1995 1996 1995
------------------ ------------------ ------------------- -------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services
Support services $136,617 57.5% $109,213 74.7% $151,742 55.7% $141,811 59.8%
Information technology services 95,367 40.2 31,734 21.7 115,200 42.3 90,193 38.0
Niche development services 5,561 2.3 5,299 3.6 5,561 2.0 5,299 2.2
-------- ----- -------- ----- -------- ----- -------- -----
Total $237,545 100.0% $146,246 100.0% $272,503 100.0% $237,303 100.0%
Gross profit
Support services $ 29,569 50.7% $ 23,396 71.4% $ 32,323 48.9% $ 29,546 51.9%
Information technology services 27,288 46.8 8,073 24.7 32,288 48.9 26,141 45.9
Niche development services 1,463 2.5 1,283 3.9 1,463 2.2 1,283 2.2
-------- ----- -------- ----- -------- ----- -------- -----
Total $ 58,320 100.0% $ 32,752 100.0% $ 66,074 100.0% $ 56,970 100.0%
Gross margin
Support services 21.6% 21.4% 21.3% 20.8%
Information technology services 28.6 25.4 28.0 29.0
Niche development services 26.3 24.2 26.3 24.2
Consolidated 24.6 22.4 24.2 24.0
Operating income $ 14,186 $ 5,987 $ 15,740 $ 11,295
Net income $ 6,707 $ 1,875 $ 6,753 $ 2,246
</TABLE>
COMPARISON OF HISTORICAL OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 WITH THE SIX MONTHS ENDED JUNE 30, 1995
SUMMARY. Revenues, gross profit and net income of the Company for the
first half of 1996 increased $91.3 million (62.4%), $25.6 million (78.1%) and
$4.8 million (257.7%), respectively, compared with the first half of 1995.
This improvement was primarily due to the effects of the Acquisitions discussed
above and the internal growth of the Company.
14
<PAGE> 15
SUPPORT SERVICES GROUP. Revenues and gross profit for the first half of
1996 increased $27.4 million (25.1%) and $6.2 million (26.4%), respectively,
compared with 1995. These improvements were primarily due to the inclusion of
the operating results of (i) Tri-Starr for a full six-month period (Tri-Starr
was acquired in April 1995), and (ii) the businesses acquired in 1996 from
their respective acquisition dates. Revenues and gross profit for Tri-Starr
were approximately $5.9 million and $1.3 million, respectively, from the date
of acquisition to June 30, 1995, compared with $10.8 million and $2.2 million,
respectively, for the six months ended June 30, 1996. Revenues and gross
profit attributable to the businesses acquired in 1996 of $20.2 million and
$3.8 million, respectively, were included in the Company's consolidated results
of operations for the first half of 1996. Revenues and gross profit for the
Company's other businesses grew at a lower rate primarily due to lower sales to
certain manufacturing customers, as described above.
INFORMATION TECHNOLOGY SERVICES GROUP. Revenues and gross profit for 1996
increased by $63.6 million (200.5%) and $19.2 million (238.0%), respectively,
compared with 1995. These improvements were due to (i) the internal growth of
COMSYS, which accounted for all the operating results of the group in the first
half of 1995 and $12.9 million and $3.8 million of the increase in 1996
revenues and gross profit, respectively, and (ii) the inclusion of the
operating results for 1996 from Cutler-Williams, Datronics, Regal and Data Aid,
which were not included in the Company's results of operations for 1995, and
collectively accounted for $50.7 million and $15.4 million of the increase in
revenues and gross profit in 1996, respectively. The gross margin of this
group increased to 28.6% for 1996 compared with 25.4% for 1995 primarily due to
the higher combined gross margin of the acquired companies compared with
COMSYS.
OPERATING COSTS AND EXPENSES. Selling, general and administrative ("SG&A")
expenses for the first half of 1996 totaled $41.0 million (17.3% of revenues),
compared with $25.0 million (17.1% of revenues) for 1995. The increase in SG&A
expenses primarily related to (i) the Acquisitions, (ii) internal growth of the
operating companies and (iii) higher expenses at the corporate level.
Virtually all of the Company's SG&A expenses were incurred by its operating
subsidiaries, which reflects the current decentralized nature of the Company's
operations. The Company's front-office activities (e.g. recruiting, marketing,
account management, placement) and most of the accounting and administrative
activities of the operating companies are performed at the subsidiary level.
SG&A expenses at the corporate level totaled $2.7 million for 1996 ($1.5
million for the first half of 1995). Corporate SG&A expenses primarily related
to salaries and benefits of personnel responsible for corporate activities,
including its acquisition program and certain marketing, administrative and
reporting responsibilities. The increase in corporate SG&A expenses reflect
personnel additions necessary to accommodate the growth of the Company.
Depreciation and amortization totaled $3.1 million and $1.8 million for
1996 and 1995, respectively. Depreciation of $1.2 million and $0.8 million for
1996 and 1995, respectively, related primarily to depreciation of the fixed
assets of the acquired companies and, to a lesser extent, capital expenditures
subsequent to the acquisitions. Amortization of $1.9 million and $1.0 million
for 1996 and 1995, respectively, related to amortization of goodwill and
non-compete agreements of the acquired companies. The increase in both
categories is a result of the Acquisitions.
NON-OPERATING COSTS AND EXPENSES. Interest expense for 1996 totaled $2.8
million compared with $2.8 million for 1995. Interest expense for 1996
reflected the repayment of borrowings with proceeds from the Company's initial
public offering in November 1995 and its second public offering in May 1996.
15
<PAGE> 16
The provision for income taxes for 1996 was $4.9 million (an effective tax
rate of 42.0%), as compared with $1.3 million (an effective tax rate of 41.2%)
for 1995. The higher effective rate for 1996 reflects the amortization of
goodwill related to the acquisitions of Cutler-Williams and Leafstone, which
are not deductible for federal income tax purposes, and a higher corporate
federal income tax rate.
NET INCOME. Due to the factors described above, net income for 1996 was
$6.7 million compared with $1.9 million for 1995. Net income as a percentage
of revenues increased to 2.8% for the 1996 period, from 1.3% for 1995.
COMPARISON OF PRO FORMA OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 WITH THE SIX MONTHS ENDED JUNE 30, 1995
Pro forma financial data are provided herein for a more meaningful
basis of comparison of operating results between periods due to the
significance of the acquisitions to the Company's financial results. The pro
forma financial data give effect to the Acquisitions as if they were completed
as of the beginning of the periods presented. This financial data should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere herein.
SUMMARY. Pro forma revenues, gross profit and net income of the
Company for the first half of 1996 increased $35.2 million (14.8%), $9.1
million (16.0%) and $4.5 million (200.6%), respectively, compared with the
first half of 1995. The increase in profitability primarily related to the
$2.8 million and $6.1 million increases in the gross profit of the Support
Services Group and the Information Technology Services Group, respectively.
SUPPORT SERVICES GROUP. Pro forma revenues for 1996 increased $9.9
million, or 7.0%, from $141.8 million for 1995. Approximately $9.6 million of
the increase related to the businesses acquired in 1996. The remaining
increase related to businesses owned by the Company during 1995. The lower
growth rate of these businesses compared with the recently acquired companies
was due to the lower sales from certain large manufacturing customers, as
described above.
The increase in gross margin for the group from 20.8% to 21.3% was
primarily attributable to United and TSTP, which were acquired by the Company
in 1994. These businesses benefited from a change in customer mix toward
higher margin services (e.g. technical and clerical) and improvements in
overall cost performance due to the implementation of additional risk
management initiatives and the termination of certain unprofitable accounts.
INFORMATION TECHNOLOGY SERVICES GROUP. Pro forma revenues for the
first half of 1996 were $115.2 million, which were 27.7% higher than pro forma
revenues for 1995. This increase reflected the strong demand for technical
services as customers continued to depend heavily on technology to improve
productivity and support growth. Revenues for COMSYS and Cutler-Williams,
which comprised the Company's Information Technology Services Group at December
31, 1995, increased 30.1% from 1995 to 1996. Revenues for the businesses
acquired in 1996 increased 22.9% for the first half of 1996 compared with the
first half of 1995.
Pro forma gross profit for the first half of 1996 increased $6.1
million, or 23.5%, over the first half of 1995. This increase related to the
increase in revenues described above, partially offset by the lower gross
margin. Gross margin for 1996 was 28.0% compared with 29.0% for 1995. The
decrease in gross margin related to a change in mix attributable to the
businesses acquired in 1996. These businesses
16
<PAGE> 17
had a higher combined gross margin than Cutler-Williams and COMSYS, but lower
revenue growth.
OPERATING COSTS AND EXPENSES. Pro forma SG&A expenses for the first
half of 1996 totaled $46.7 million (17.1% of revenues) compared with $42.6
million (17.9% of revenues) for 1995. The increase in pro forma SG&A expenses
primarily related to internal growth of the operating companies and increased
expenses at the corporate level. Virtually all of the Company's SG&A expenses
were incurred by its operating subsidiaries, which reflects the decentralized
nature of the Company's operations. The Company's front-office activities
(e.g. recruiting, marketing, account management, placement, etc.) and most of
the accounting and administrative activities of the operating companies are
performed at the subsidiary level. SG&A expenses at the corporate level for
1996 totaled $2.7 million ($1.5 million for 1995). Corporate SG&A expenses
related primarily to salaries and benefits of personnel responsible for
corporate activities, including its acquisition program, and certain marketing,
and administrative and reporting responsibilities. The pro forma results for
1996 and 1995 reflect historical SG&A expenses at the corporate level and
therefore do not include the pro forma effects of personnel additions made
subsequent to the beginning of each period to accommodate the growth of the
Company.
Depreciation and amortization totaled $3.7 million and $3.1 million
for 1996 and 1995, respectively. Depreciation of $1.4 million and $1.1 million
for 1996 and 1995, respectively, related primarily to depreciation of the fixed
assets of the acquired companies and, to a lesser extent, capital expenditures
made subsequent to acquisition. Amortization of $2.3 million and $2.0 million
for 1996 and 1995, respectively, related to amortization of goodwill and
non-compete agreements of the acquired companies.
NON-OPERATING COSTS AND EXPENSES. Pro forma interest expense for 1996
totaled $4.4 million compared with $7.4 million for 1995. The decrease
primarily related to the repayments of indebtedness with proceeds from the
Company's initial public offering in November 1995 and proceeds from the
Company's second public offering in May 1996.
The pro forma provision for income taxes for 1996 was $4.9 million (an
effective tax rate of 42.0%), compared with $1.7 million (an effective tax rate
of 42.8%) for 1995. The lower effective rate was due to an increase in income
before income taxes that substantially exceeded the increase in permanent
nondeductible expenses. The Company's effective tax rate includes the effects
of state income taxes and the portion of goodwill amortization not deductible
for federal income tax purposes.
NET INCOME. Due to the factors described above, pro forma net income
for 1996 was $6.8 million compared with $2.2 million for 1995. Pro forma net
income as a percentage of pro forma revenues was 2.5% for 1996 compared with
0.9% for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital requirements with
borrowings from banks, issuances of securities and internally generated funds.
In November 1995, the Company completed its initial public offering and
received net proceeds of $58.9 million. Such net proceeds were used to repay
debt and redeem preferred stock. In May 1996, the Company completed its second
public offering and received net proceeds of approximately $137.5 million, of
which $111.5 million was used to repay debt.
Under the terms of the Credit Agreement which was amended April 2, 1996,
the Company may borrow, under a revolving credit facility, up to the lesser of
$130 million or 3.5 times Pro Forma
17
<PAGE> 18
Adjusted EBITDA (earnings before interest, income taxes, depreciation and
amortization of all acquired companies for the preceding twelve months).
Borrowings under the Credit Agreement bear interest, at the Company's option,
at LIBOR or the bank's base rate, plus the applicable margin. A commitment fee
of 0.25% (0.375% if the leverage ratio, as defined, is greater than 2 to 1) is
payable on the unused portion of the commitment. The Credit Agreement contains
certain covenants which, among other things, restrict the payment of dividends
and require the maintenance of certain financial ratios. As of June 30, 1996,
the Company had no outstanding borrowings under the Credit Agreement.
The Company is currently in the process of amending its Credit Agreement to
increase the commitment from $130 million to $150 million and to obtain more
favorable credit terms. The Agent bank is currently preparing the
documentation to syndicate the facility and expects to have the new facility in
place during the Company's third quarter.
The Company's primary capital requirements relate to the acquisition of
staffing businesses. During the first six months of 1996, the Company made
cash payments for acquisitions of $81.3 million. The Company's acquisition
program will require significant additional capital. The Company intends to
seek additional capital as necessary to fund such acquisitions through one or
more funding sources that may include borrowings under the Credit Agreement or
offerings of debt and/or equity securities of the Company. Cash flow from
operations, to the extent available, may also be used to fund a portion of
these expenditures. Although management believes that the Company will be able
to obtain sufficient capital to fund acquisitions, there can be no assurance
that such capital will be available to the Company at the time it is required
or on terms acceptable to the Company.
The Company currently expects capital expenditures for 1996 to be
approximately $10.0 million, of which $4.8 million was incurred during the six
months ended June 30, 1996. The majority of these expenditures relate to the
installation of an integrated front- and back-office information system, which
is expected to be operational in late 1997 or early 1998.
The Company had working capital of $68.0 million and $33.7 million at June
30, 1996 and December 31, 1995, respectively. The Company had cash and cash
equivalents of $9.7 million and $ 4.1 million at June 30, 1996 and December 31,
1995, respectively. The Company's operating cash flows and working capital
requirements are significantly affected by the timing of payment of payroll and
the receipt of payment from the customer. Generally, the Company pays the
temporary employees of its Support Services Group weekly and the employees of
its Information Technology Services Group and Niche Development Services Group
every two weeks. Payments from customers are received on average 30 to 65 days
from the date of invoice. Cash flows provided by operating activities were
$0.2 million and $5.5 million for the six months ended June 30, 1996 and 1995,
respectively. The decrease in operating cash flows for 1996 reflected an
increase in net accounts receivable between the periods. Cash flows used in
investing activities were $85.9 million and $38.2 million for the six months
ended June 30, 1996 and 1995, respectively. Cash used in investing activities
consisted primarily of payments for acquisitions. Proceeds from the issuance
of long-term debt and from the sale of common stock were used to fund the
Company's investing activities.
On January 26, 1995, the Company purchased for $0.3 million a three-year
interest rate cap to reduce a portion of its interest rate exposure on
borrowings under the Credit Agreement. The agreement initially covers $30.0
million of notional principal with quarterly notional principal reductions.
Under the interest rate cap, the Company will receive an amount equal to the
excess of LIBOR (reset quarterly in arrears) over 8.75%, times the notional
principal. The cost of this cap is being amortized evenly over its three-year
term with the amortization included in interest expense. Any amounts received
under the
18
<PAGE> 19
agreement will reduce interest expense.
SEASONALITY
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services in the Support Services Group has historically
been lower during the year-end holidays through February of the following year,
showing gradual improvement over the remainder of the year. Although less
pronounced than in the Support Services Group, the demand for services of the
Information Technology Services Group is typically lower during the first
quarter until customers' operating budgets are finalized. The Company believes
that the effects of seasonality will be less severe in the future as revenues
contributed by the Information Technology Services Group continue to increase
as a percentage of the Company's consolidated revenues.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"believe," "anticipate," "estimate," "project," "expect," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's operating results are fluctuations in the economy, the degree and
nature of competition, demand for the Company's services, and the Company's
ability to acquire businesses that are accretive to the Company's earnings, to
integrate the operations of acquired businesses, to recruit and place temporary
professionals, to expand into new markets, and to maintain profit margins in
the face of pricing pressures. In addition, important factors which could
cause results to differ materially are set forth under the caption "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the "Meeting") on
May 15, 1996 in Houston, Texas. Proxies were solicited from holders of record
of the Company's Common Stock at the close of business on April 15, 1996.
There were 16,826,444 shares outstanding on April 15, 1996 and approximately
95% of such shares voted in favor of each of the following matters at the
Meeting:
1. The election of two Class I directors, Michael T. Willis and
Bruce V. Rauner, to terms of office expiring at the 1999
Annual Meeting of Stockholders.
<TABLE>
<S> <C>
Michael T. Willis: 15,988,188 FOR
21,176 AGAINST
Bruce V. Rauner: 15,988,188 FOR
21, 176 AGAINST
</TABLE>
Ms. Beck and Messrs. Cotros, Edwards, Schneider and Turner are
directors of the Company whose terms of office continued after
the Meeting.
2. The approval of an amendment to the Company's Employee Stock
Purchase Plan:
<TABLE>
<S> <C> <C>
For Against Abstained
--- ------- ---------
15,848,522 10,097 26,260
</TABLE>
3. The ratification of the Board of Directors' appointment of
Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending December 31, 1996:
<TABLE>
<S> <C> <C>
For Against Abstained
--- ------- ---------
15,986,536 2,528 20,300
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
10.1 Stock Purchase Agreement dated April 2, 1996 among the Company and Regal Data Systems,
Inc. (incorporated by reference from exhibit number 10.1 to the Company's Current
Report on Form 8-K dated April 2, 1996, file number 0-26970)
10.2 Stock Purchase Agreement dated April 24, 1996 among the Company, Leafstone, Inc.,
Stephen F. Vesce and Stephen F. Vesce Irrevocable
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
Trust F/B/O Children (incorporated by reference from exhibit number 10.32 to the
Company's Amendment No. 1 to Registration Statement on Form S-1, file number
333-03238)
10.3 Third Joinder Agreement and First Amendment to Second Amended and Restated Credit
Agreement dated April 2, 1996 by and among Regal, the Company, United, PHP, CTOC,
Superior, TSTP, COMSYS, Regency, TUV, MPQ, Tri-Starr, COREStaff Communications,
Cutler-Williams, Datronics, COREStaff Acquisition Sub #4, COREStaff Acquisition Sub
#5, and First Union Bank, as Agent (incorporated by reference from exhibit number 10.3
to the Company's Amendment No. 1 to Registration Statement on Form S-1, file number
333-03238)
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
A Form 8-K/A Current Report ("Form 8-K/A") was filed with
the Securities and Exchange Commission (the "Commission")
on April 15, 1996. The Form 8-K/A reported the
acquisition of Datronics Management, Inc. ("Datronics")
and Datronics U.K. Limited on January 31, 1996 and
included the following financial statements and pro forma
financial information:
Financial Statements of Datronics:
Report of Independent Auditors
Balance Sheets as of December 31, 1994 and 1995
Statements of Income and Retained Earnings for the
Years Ended December 31, 1994 and 1995
Statements of Cash Flows for the Years Ended December
31, 1994 and 1995
Notes to Financial Statements
Unaudited Pro Forma Financial Information of
COREStaff, Inc.:
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1995
Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1995
Notes to Pro Forma Condensed Consolidated Financial
Statements
A Form 8-K Current Report (the "Regal Form 8-K") was filed
with the Commission on April 17, 1996 reporting the
acquisition of Regal Data Systems, Inc. ("Regal") on April
2, 1996. The following financial statements and pro forma
financial information were not available at the time the
Regal Form 8-K was filed with the Commission but were
included in the Company's Amendment No. 1 to Form S-1
Registration Statement, file number 333-03238, filed with
the Commission on May 1, 1996:
21
<PAGE> 22
Financial Statements of Regal:
Report of Independent Auditors
Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 (Unaudited)
Statements of Operations for the Years Ended December
31, 1994 and 1995 and for the Three Months Ended
March 31, 1995 and 1996 (Unaudited)
Statements of Stockholders' Equity for the Years
Ended December 31, 1994 and 1995
Statements of Cash Flows for the Years Ended December
31, 1994 and 1995 and for the Three Months Ended
March 31, 1995 and 1996 (Unaudited)
Notes to Financial Statements
Unaudited Pro Forma Financial Information of
COREStaff, Inc.:
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1996
Pro Forma Condensed Consolidated Statements of
Operations: Year Ended December 31, 1995
Three Months Ended March 31, 1995 and 1996
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
A Form 8-K Current Report was filed with the Commission on
June 26, 1996 reporting the acquisition of Data Aid, Inc.
on June 12, 1996. The financial statements and pro forma
financial information required by Item 7. "Financial
Statements and Exhibits" will be filed with the Commission
no later than August 26, 1996.
22
<PAGE> 23
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.
CORESTAFF, INC.
(REGISTRANT)
Date: August 13, 1996 By: /s/ Edward L. Pierce
--------------------
Edward L. Pierce
Vice President, Chief Financial Officer,
and Assistant Secretary
(Duly Authorized Officer and Principal
Financial Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------ ------------------- ------
<S> <C> <C>
10.1 Stock Purchase Agreement dated April 2, 1996 among the Company and Regal Data Systems,
Inc. (incorporated by reference from exhibit number 10.1 to the Company's Current
Report on Form 8-K dated April 2, 1996, file number 0-26970)
10.2 Stock Purchase Agreement dated April 24, 1996 among the Company, Leafstone, Inc., Stephen F.
Vesce and Stephen F. Vesce Irrevocable Trust F/B/O Children (incorporated by reference from
exhibit number 10.32 to the Company's Amendment No. 1 to Registration Statement on Form S-1,
file number 333-03238)
10.3 Third Joinder Agreement and First Amendment to Second Amended and Restated Credit
Agreement dated April 2, 1996 by and among Regal, the Company, United, PHP, CTOC,
Superior, TSTP, COMSYS, Regency, TUV, MPQ, Tri-Starr, COREStaff Communications,
Cutler-Williams, Datronics, COREStaff Acquisition Sub #4, COREStaff Acquisition Sub
#5, and First Union Bank, as Agent (incorporated by reference from exhibit number 10.3
to the Company's Amendment No. 1 to Registration Statement on Form S-1, file number
333-03238)
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,743
<SECURITIES> 0
<RECEIVABLES> 84,818
<ALLOWANCES> 1,273
<INVENTORY> 0
<CURRENT-ASSETS> 99,452
<PP&E> 11,411
<DEPRECIATION> 0
<TOTAL-ASSETS> 256,223
<CURRENT-LIABILITIES> 31,487
<BONDS> 445
<COMMON> 219
0
0
<OTHER-SE> 219,354
<TOTAL-LIABILITY-AND-EQUITY> 256,223
<SALES> 0
<TOTAL-REVENUES> 237,748
<CGS> 0
<TOTAL-COSTS> 179,225
<OTHER-EXPENSES> 44,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,827
<INCOME-PRETAX> 11,562
<INCOME-TAX> 4,855
<INCOME-CONTINUING> 6,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,707
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
