<PAGE> 1
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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 SEPTEMBER 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 OCTOBER 31, 1996, THE COMPANY HAD
OUTSTANDING 31,191,487 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, AND
707,232 SHARES OF CLASS B (NON-VOTING) COMMON STOCK, PAR VALUE $0.01 PER SHARE.
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CORESTAFF, INC. AND SUBSIDIARIES
INDEX
Page
----
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 6. Exhibits and Reports on Form 8-K 20
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,926 $ 4,091
Accounts receivable, net of allowance of $1,463 and $891 107,886 54,453
Prepaid expenses and other 5,236 2,583
Deferred income taxes 2,630 1,740
-------- --------
Total current assets 124,678 62,867
Fixed Assets, net 13,649 6,005
Intangible Assets, net of accumulated amortization of $6,647 and $2,906 167,426 81,277
Other Assets 2,745 2,221
-------- --------
Total Assets $308,498 $152,370
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 458 $ 2,063
Accounts payable 15,090 8,682
Payroll and related taxes 20,033 9,955
Self-insurance reserve 1,763 2,026
Amounts due sellers of acquired companies 304 5,972
Other current liabilities 220 504
-------- --------
Total current liabilities 37,868 29,202
Non-current Self-insurance Reserve 3,211 3,461
Long-term Debt, net of current maturities 39,144 43,315
Deferred Income Taxes and Other 2,869 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;
31,875,487 and 26,243,166 shares issued 319 175
Class B (non-voting) - 3,000,000 shares authorized;
707,232 and 1,679,584 shares issued 7 11
Additional paid-in capital 208,406 70,637
Retained earnings 17,689 5,420
-------- --------
226,421 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 225,406 75,165
-------- --------
Total Liabilities and Stockholders' Equity $308,498 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from Services $ 163,284 $ 97,644 $ 400,829 $ 243,890
Cost of Services 123,599 73,470 302,824 186,964
--------- --------- --------- ---------
Gross Profit 39,685 24,174 98,005 56,926
Operating Costs and Expenses:
Selling, general and administrative 27,504 17,821 68,499 42,787
Depreciation and amortization 1,949 1,138 5,088 2,937
--------- --------- --------- ---------
29,453 18,959 73,587 45,724
--------- --------- --------- ---------
Operating Income 10,232 5,215 24,418 11,202
Other Income (Expense):
Interest expense (492) (2,303) (3,319) (5,104)
Other, net 55 35 258 38
--------- --------- --------- ---------
(437) (2,268) (3,061) (5,066)
--------- --------- --------- ---------
Income before Income Taxes 9,795 2,947 21,357 6,136
Provision for Income Taxes 4,126 1,242 8,981 2,556
--------- --------- --------- ---------
Net Income $ 5,669 $ 1,705 $ 12,376 $ 3,580
========= ========= ========= =========
Earnings per Common Share $ 0.18 $ 0.08 $ 0.42 $ 0.16
========= ========= ========= =========
Number of Shares Used to Compute
Earnings per Common Share 32,340 18,412 29,643 18,412
========= ========= ========= =========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 12,376 $ 3,580
Adjustments to reconcile net income to net cash
provided (used in) by operating activities:
Depreciation and amortization 5,088 2,937
Amortization of deferred loan costs 177 257
Provision for doubtful accounts 694 35
Deferred income taxes (benefit) 682 (290)
Self-insurance reserve (513) 1,035
Gain on sale of assets (27) -
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (28,779) (5,487)
Prepaid expenses and other (1,064) (1,725)
Accounts payable 2,316 (24)
Accrued liabilities 1,761 1,656
--------- --------
Net cash provided by (used in) operating activities (7,289) 1,974
--------- --------
Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired (111,572) (38,050)
Capital expenditures (7,513) (1,906)
Payments received on stockholders' notes 63 -
Proceeds from sale of assets 116 113
Other (40) (110)
--------- --------
Net cash used in investing activities (118,946) (39,953)
--------- --------
Cash Flows from Financing Activities:
Principal payments on long-term debt (113,642) (5,684)
Net proceeds from issuance of long-term debt 106,910 30,593
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 137,802 -
Repurchase of common stock - (331)
--------- --------
Net cash provided by financing activities 131,070 36,350
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 4,835 (1,629)
Cash and Cash Equivalents at Beginning of Period 4,091 4,637
--------- --------
Cash and Cash Equivalents at End of Period $ 8,926 $ 3,008
========= ========
Cash paid during the period for:
Interest, net of amounts capitalized $ 3,119 $ 5,320
Income taxes $ 7,695 $ 3,818
</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. 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 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 "IPO"). 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 IPO for the periods prior to
issuance was determined in the same manner except that the IPO price of $7.55
per share, which has been adjusted for two three-for-two stock splits (see Note
6), 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 $0.13 for the three and
nine months ended September 30, 1995, respectively. Net income applicable to
common stock was $1.7 million and $3.6 million for the three and nine months
ended September 30, 1995, respectively.
6
<PAGE> 7
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. ACQUISITIONS
On January 9, 1995, the Company acquired Regency Staffing, Inc., a
Florida-based support services company. The purchase price totaled $5.0
million, consisting of cash of $4.7 million paid to the sellers at closing,
$0.1 million paid in October 1996, and direct acquisition costs of $0.2
million.
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 cash of $27.6 million paid to the sellers
and direct acquisition costs of $0.7 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. The purchase price totaled $3.5 million, consisting of $3.4
million paid to the sellers and direct acquisition costs of $0.1 million. The
seller is also entitled to contingent consideration of up to $0.6 million based
on the increase in earnings before interest and taxes ("EBIT"), as defined.
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. The purchase price totaled $18.2
million, consisting of $17.5 million paid to the sellers and direct acquisition
costs of $0.7 million.
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.
On April 2, 1996, the Company acquired Regal Data Systems, Inc., a New
Jersey-based information technology services company. The purchase price
totaled $22.0 million, consisting of $21.8 million paid to the sellers and
direct acquisition costs of $0.2 million. The sellers are also entitled to
contingent consideration of up to $1.0 million based on the increase in EBIT,
as defined.
On April 23, 1996, the Company acquired Leafstone, Inc., a New
York-based support services company. The purchase price totaled $11.9 million,
consisting of $11.8 million paid to the sellers and direct acquisition costs of
$0.1 million. The sellers are also entitled to contingent consideration of up
to $4.0 million based on the increase in EBIT, as defined.
On June 12, 1996, the Company acquired Data Aid, Inc., an
Alabama-based information technology services company. The purchase price
totaled $19.0 million, consisting of $18.9 million paid to the sellers and
direct acquisition costs of $0.1 million. The sellers are also entitled to
contingent consideration of up to $7.3 million based on the increase in EBIT,
as defined.
7
<PAGE> 8
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On July 23, 1996, the Company acquired K.C. Consulting Inc., a
California-based information technology services company, and its affiliate
Knauer Associates Systems Engineering, Inc., for $6.2 million in cash. The
sellers are also entitled to contingent consideration of up to $2.0 million
based on the increase in EBIT, as defined.
On August 31, 1996, the Company acquired Pacific Data Group, Inc., an
Oregon-based information technology services company, for $7.0 million in cash.
The sellers are also entitled to contingent consideration of up to $1.5 million
based on the increase in EBIT, as defined.
On September 10, 1996, the Company acquired On-Line Resources, Inc., a
Florida-based information technology services company. The purchase price
totaled $17.9 million consisting of $17.8 million paid to the sellers and
direct acquisition costs of $0.1 million.
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 payment of any
contingent consideration will increase the amount of goodwill related to the
acquisitions.
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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
--------- ---------
(in thousands, except
per share amounts)
<S> <C> <C>
Revenues $ 466,422 $ 393,539
Net income $ 13,577 $ 4,391
Earnings per common share $ 0.46 $ 0.21
</TABLE>
5. LONG-TERM DEBT
At September 30, 1996, the Company had outstanding borrowings of $38.7
million 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.
The weighted average interest rate at September 30, 1996 was 8.4%. 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.
8
<PAGE> 9
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. STOCKHOLDERS' EQUITY
During 1996, the Board of Directors authorized two three-for-two stock
splits, effected in the form of stock dividends, payable to stockholders of
record on March 14, 1996 and September 20, 1996. All references in the
financial statements to number of shares outstanding and related prices and per
share amounts have been restated to reflect the two stock splits. The stock
splits resulted in the issuance of approximately 16.3 million new shares of
common stock and a reclassification of $0.2 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 8.3 million
shares of its common stock (4.9 million shares sold by the Company and the
remainder by certain selling stockholders) at $29.17 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
Subsequent to September 30, 1996, the Company acquired three businesses
(two information technology services businesses and one support services
business) for $25.8 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. 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 ("IT") Group. Through September 30, 1996, the
Company had completed 22 acquisitions consisting of ten support services
businesses, eight IT businesses, and four niche businesses.
The Support Services Group, currently the Company's largest operating
group, accounted for 51.6% and 45.0% of the Company's pro forma consolidated
revenues and gross profit, respectively, for the nine months ended September
30, 1996. The IT Group accounted for 46.3% and 52.7% of the Company's pro
forma consolidated revenues and gross profit, respectively, for the nine months
ended September 30, 1996. Management believes that the IT 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 IT 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 all acquisitions consummated through September 30, 1996 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; (xii) Data Aid, Inc.
("Data Aid") acquired in June 1996; (xiii) K.C. Consulting Inc. and Knauer
Associates Systems Engineering, Inc. (together, "Knauer") acquired in July
1996; (xiv) Pacific Data Group, Inc. ("Pacific") acquired in August 1996; (xv)
Amundson & Associates, Inc. ("Amundson") acquired in August 1996; and (xvi)
On-Line Resources, Inc. ("On-Line") acquired in September 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
10
<PAGE> 11
Acquisitions been consummated as of the beginning of the periods presented or
that might be attained in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------- --------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- --------------------------------------------
1996 1995 1996 1995
------------------ ------------------ --------------------- -------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services:
Support services $ 88,976 54.5% $60,960 62.4% $ 88,976 52.0% $ 75,426 54.3%
IT 71,325 43.7 33,703 34.5 79,120 46.2 60,069 43.2
Other 2,983 1.8 2,981 3.1 3,167 1.8 3,477 2.5
-------- ----- ------- ----- -------- ----- -------- -----
Total $163,284 100.0% $97,644 100.0% $171,263 100.0% $138,972 100.0%
Gross profit:
Support services $18,350 46.2% $13,562 56.1% $ 18,350 44.0% $ 16,279 47.4%
IT 20,527 51.7 9,837 40.7 22,477 53.9 17,196 50.0
Other 808 2.1 775 3.2 852 2.1 894 2.6
-------- ----- ------- ----- -------- ----- -------- -----
Total $ 39,685 100.0% $24,174 100.0% $ 41,679 100.0% $ 34,369 100.0%
Gross margin:
Support services 20.6% 22.2% 20.6% 21.6%
IT 28.8 29.2 28.4 28.6
Other 27.1 26.0 26.9 25.7
Consolidated 24.3 24.8 24.3 24.7
Operating income $ 10,232 $ 5,215 $ 11,211 $ 9,297
Net income $ 5,669 $ 1,705 $ 5,989 $ 2,593
Earnings per common share $ 0.18 $ 0.08 $ 0.19 $ 0.13
Number of shares used to
compute earnings per
common share 32,340 18,412 32,340 18,412
</TABLE>
COMPARISON OF HISTORICAL OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1995
SUMMARY. Net income for the current quarter increased 232.5% to $5.7
million compared with net income of $1.7 million in the third quarter of 1995.
Earnings per share increased 125.0% to $0.18 per share from $0.08 per share.
The average number of shares outstanding during the current quarter was 75.6%
higher than a year ago, as a result of the Company's initial and follow-on
public offerings. The average number of shares for all periods has been
retroactively adjusted to give effect to the two three-for-two stock splits in
1996.
Revenues in the current quarter increased 67.2% to $163.3 million from
$97.6 million in the third quarter of 1995. Operating income rose 96.2% to
$10.2 million from $5.2 million in the same period a year ago. Operating
margins were up 100 basis points to 6.3% due to improved operating leverage.
Operating margins are benefiting from the increasing percentage of revenues
coming from the higher margin IT group. Higher revenue volume is also being
generated from large Vender-in-Partnership (VIP) programs in the support
services group. While gross margins from the VIP programs are generally lower
than gross margins in the Company's other support services business, operating
margins are comparable because of higher operating leverage.
11
<PAGE> 12
During the current quarter, the Company acquired three IT businesses
and a small technical communications business. These businesses were acquired
in all cash transactions totaling $32.1 million, including direct acquisition
costs. The IT businesses acquired during the third quarter had combined
revenues of approximately $43.0 million for the twelve-month period preceding
their acquisition. Since September 30, 1996, the Company has completed three
additional acquisitions: two IT businesses and one support services business in
all cash transactions totaling $25.8 million, including direct acquisition
costs. Combined revenues of these recently acquired companies for the
twelve-months preceding their acquisition were approximately $48.0 million.
IT GROUP. For the current quarter, the IT group accounted for 43.7%
and 51.7% of the Company's consolidated revenues and gross profit,
respectively, up from 34.5% and 40.7%, respectively, in the third quarter of
1995. These increases reflect the higher internal growth rate of this group
compared with support services and the Company's focus on acquisitions of IT
businesses. Revenues and gross profit for the current quarter were up 111.6%
and 108.7%, respectively, over the third quarter of 1995. Gross margin was
slightly lower during the current quarter primarily due to lower gross margins
in certain of the recently acquired businesses.
SUPPORT SERVICES GROUP. For the current quarter, the support services
group accounted for 54.5% and 46.2% of the Company's consolidated revenues and
gross profit, respectively, down from 62.4% and 56.1%, respectively, in the
third quarter of 1995. Revenues and gross profit for the current quarter were
up 46.0% and 35.3%, respectively, over the third quarter of 1995. Gross margin
for the current quarter was 20.6%, or 160 basis points lower than the third
quarter of 1995, primarily due to the higher proportion of revenues being
generated from VIP programs. As noted above, these programs have lower gross
margins, but comparable operating margins relative to the Company's other
support services business.
OPERATING COSTS AND EXPENSES. Selling, general and administrative
("SG&A") expenses for 1996 totaled $27.5 million (16.8% of revenues), compared
with $17.8 million (18.3% 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 $1.6 million for the current quarter
($1.1 million for the third 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 $1.9 million and $1.1 million
for 1996 and 1995, respectively. Depreciation totaled $0.7 million and $0.4
million for the third quarter of 1996 and 1995, respectively, and related to
depreciation of the fixed assets of the acquired companies and, to a lesser
extent, capital expenditures made subsequent to acquisition of the businesses.
Amortization of $1.2 million and $0.7 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 $0.5 million compared with $2.3 million for 1995. The $1.8
million decrease was primarily due to the
12
<PAGE> 13
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 $4.1
million (an effective tax rate of 42.1%), as compared with $1.2 million (an
effective tax rate of 42.1%) for 1995.
NET INCOME. Due to the factors described above, net income for 1996
was $5.7 million compared with $1.7 million for 1995. Net income as a
percentage of revenues increased to 3.5% for the 1996 period, from 1.7% for
1995.
COMPARISON OF PRO FORMA OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1995
SUMMARY. Pro forma operating results, which assume all acquisitions
were made as of the beginning of the periods presented, reflect the high
internal growth rate of the Company's IT and support services groups during the
current quarter. Pro forma revenues for the current quarter were $171.3
million, up 23.2% from $139.0 million in the third quarter of 1995. Pro forma
net income rose 131.0% to $6.0 million, or $0.19 per share, compared with pro
forma net income of $2.6 million, or $0.13 per share, in 1995.
IT GROUP. Pro forma revenues and gross profit for the current
quarter, which can be used as a measure of internal growth, increased 31.7% and
30.7%, respectively, from the third quarter of 1995. These improvements
reflect the continued strong demand for the group's services. Pro forma gross
margin was slightly lower in the current quarter due to the lower internal
growth rate of certain high gross margin businesses that were acquired in early
1996.
SUPPORT SERVICES GROUP. Pro forma revenues and gross profit for the
current quarter increased 18.0% and 12.7%, respectively, from the third quarter
of 1995. These improvements primarily reflect the increase in revenues from
the VIP programs, including new programs that were added after the third
quarter of 1995. Pro forma gross margin for the current quarter was 20.6%, or
100 basis points lower than the third quarter of 1995, reflecting the change in
mix related to higher revenues from the VIP programs.
OPERATING COSTS AND EXPENSES. Pro forma SG&A expenses for the current
quarter of 1996 totaled $28.4 million (16.6% of revenues) compared with $23.2
million (16.7% of revenues) for the third 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 $1.6 million (compared with $1.1
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 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.
13
<PAGE> 14
Depreciation and amortization totaled $2.1 million and $1.9 million
for 1996 and 1995, respectively. Depreciation of $0.8 million and $0.6 million
for 1996 and 1995, respectively, related primarily to the fixed assets of the
acquired companies. Amortization of $1.3 million for both 1996 and 1995,
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 $1.0 million compared with $4.8 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 $4.3 million (an
effective tax rate of 42.0%), compared with $1.9 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 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 $6.0 million compared with $2.6 million for 1995. Pro forma net
income as a percentage of pro forma revenues was 3.5% for 1996 compared with
1.9% for 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------- --------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- --------------------------------------------
1996 1995 1996 1995
------------------ ------------------ --------------------- -------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services:
Support services $ 225,593 56.3% $ 170,173 69.8% $ 240,718 51.6% $ 217,237 55.2%
IT 166,692 41.6 65,437 26.8 215,796 46.3 166,507 42.3
Other 8,544 2.1 8,280 3.4 9,908 2.1 9,795 2.5
---------- ----- --------- ------ --------- ----- --------- -----
Total $ 400,829 100.0% $ 243,890 100.0% $ 466,422 100.0% $ 393,539 100.0%
Gross profit:
Support services $ 47,919 48.9% $ 36,958 64.9% $ 50,673 45.0% $ 45,825 48.1%
IT 47,815 48.8 17,910 31.5 59,443 52.7 47,101 49.4
Other 2,271 2.3 2,058 3.6 2,609 2.3 2,421 2.5
---------- ----- --------- ------ --------- ----- --------- -----
Total $ 98,005 100.0% $ 56,926 100.0% $ 112,725 100.0% $ 95,347 100.0%
Gross margin:
Support services 21.2% 21.7% 21.1% 21.1%
IT 28.7 27.4 27.5 28.3
Other 26.6 24.9 26.3 24.7
Consolidated 24.5 23.3 24.2 24.2
Operating income $ 24,418 $ 11,202 $ 29,431 $ 22,118
Net income $ 12,376 $ 3,580 $ 13,577 $ 4,391
Earnings per common share $ 0.42 $ 0.16 $ 0.46 $ 0.21
Number of shares used to
compute earnings per
common share 29,643 18,412 29,643 18,412
</TABLE>
COMPARISON OF HISTORICAL OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1995
SUMMARY. For the nine months ended September 30, 1996, net income was
$12.4 million, up 245.7% from net income of $3.6 million in the same period a
year ago. Earnings per share increased 162.5% to $0.42 per share from $0.16
per share. Revenues for the first nine months of 1996 were $400.8
14
<PAGE> 15
million, up 64.3% from $243.9 million a year ago. Operating income rose 118.0%
to $24.4 million from $11.2 million in 1995.
IT GROUP. For the nine months ended September 30, 1996, the IT group
accounted for 41.6% and 48.8% of the Company's consolidated revenues and gross
profit, respectively, up from 26.8% and 31.5%, respectively, in 1995. These
increases reflect the higher internal growth rate of this group compared with
support services and the Company's focus on acquisitions of IT businesses.
Revenues and gross profit for 1996 were up 154.7% and 167.0%, respectively,
over 1995.
SUPPORT SERVICES GROUP. For the nine months ended September 30, 1996,
the support services group accounted for 56.3% and 48.9% of the Company's
consolidated revenues and gross profit, respectively, down from 69.8% and
64.9%, respectively, in 1995. Revenues and gross profit for 1996 were up 32.6%
and 29.7%, respectively, over 1995. Gross margin for 1996 was 21.2%, or 50
basis points lower than 1995, primarily due to the higher proportion of
revenues being generated from VIP programs. As noted above, these programs
have lower gross margins, but comparable operating margins relative to the
Company's other support services business.
OPERATING COSTS AND EXPENSES. SG&A expenses for 1996 totaled $68.5
million (17.1% of revenues), compared with $42.8 million (17.5% 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 $4.3 million for
1996 ($2.6 million for the first nine months 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 $5.1 million and $2.9 million
for 1996 and 1995, respectively. Depreciation of $2.0 million and $1.2 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 $3.1 million and $1.7 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
$3.3 million compared with $5.1 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.
The provision for income taxes for 1996 was $9.0 million (an effective
tax rate of 42.1%), as compared with $2.6 million (an effective tax rate of
41.7%) for 1995. The higher effective rate for 1996 reflects the amortization
of goodwill related to the acquisition of Cutler-Williams and Leafstone, which
are not deductible for federal income tax purposes, and a higher corporate
federal income tax rate.
15
<PAGE> 16
NET INCOME. Due to the factors described above, net income for 1996
was $12.4 million compared with $3.6 million for 1995. Net income as a
percentage of revenues increased to 3.1% for the 1996 period, from 1.5% for
1995.
COMPARISON OF PRO FORMA OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1995
SUMMARY. Pro forma operating results, which assume all acquisitions
were made as of the beginning of the periods presented, reflect the high
internal growth rate of the Company's IT and support services groups during the
first nine months of 1996. Pro forma revenues for the nine months ended
September 30, 1996 were $466.4 million, up 18.5% from $393.5 million in 1995.
Pro forma net income rose 209.2% to $13.6 million, or $0.46 per share, compared
with pro forma net income of $4.4 million, or $0.21 per share, in 1995.
IT GROUP. Pro forma revenues and gross profit for the nine months
ended September 30, 1996, which can be used as a measure of internal growth,
increased 29.6% and 26.2%, respectively, from 1995. These improvements reflect
the continued strong demand for the Company's information technology services.
Pro forma gross margin was slightly lower in 1996 due to the lower internal
growth rate of certain high gross-margin businesses that were acquired in early
1996.
SUPPORT SERVICES GROUP. Pro forma revenues and gross profit for the
nine months ended September 30, 1996, increased 10.8% and 10.6%, respectively,
from 1995. These improvements primarily reflect the increase in revenues from
the VIP programs, including new programs that were added after the third
quarter of 1995.
OPERATING COSTS AND EXPENSES. Pro forma SG&A expenses for 1996
totaled $77.2 million (16.5% of revenues) compared with $67.7 million (17.2% 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 $4.3
million ($2.6 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 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 $6.1 million and $5.5 million
for 1996 and 1995, respectively. Depreciation of $2.1 million and $1.7 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 $4.0 million and $3.8 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 $6.5 million compared with $14.5 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
16
<PAGE> 17
Company's second public offering in May 1996.
The pro forma provision for income taxes for 1996 was $9.8 million (an
effective tax rate of 42.0%), compared with $3.3 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 $13.6 million compared with $4.4 million for 1995. Pro forma net
income as a percentage of pro forma revenues was 2.9% for 1996 compared with
1.1% 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 terms of its Credit Agreement, the Company may borrow under a
revolving credit facility up to the lesser of $130 million or 3.5 times Pro
Forma Adjusted EBITDA (earnings before interest, income taxes, depreciation and
amortization of all acquired companies for the preceding twelve-month period).
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 November 12,
1996, the Company had outstanding borrowings of $68.7 million under the Credit
Agreement.
The Company and its lenders, led by First Union National Bank of North
Carolina, have agreed to terms for a new credit facility, which is expected to
be in place by the end of November. The new facility provides for borrowings
of up to the lesser of $200 million or 3.5 times Pro Forma Adjusted EBITDA.
The Company may request the commitment be increased to $250 million. The terms
of the new facility, including interest rates, facility fees and financial
covenants, are more favorable to the Company than the Credit Agreement.
Deferred costs of $1.4 million related to the Credit Agreement will be
written-off in the fourth quarter of 1996.
The Company's primary capital requirements relate to the acquisition
of staffing businesses. During the first nine months of 1996, the Company made
cash payments for acquisitions of $111.6 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.
17
<PAGE> 18
The Company currently expects capital expenditures for 1996 to be
approximately $11.0 million, of which $7.5 million was incurred during the nine
months ended September 30, 1996. The majority of these expenditures related to
costs incurred in connection with the installation and development of an
integrated front- and back-office information system, which is expected to be
operational in late 1997 or early 1998. Most of the cost of this integrated
information system will be incurred in 1997.
The Company had working capital of $86.8 million and $33.7 million at
September 30, 1996 and December 31, 1995, respectively. The Company had cash
and cash equivalents of $8.9 million and $ 4.1 million at September 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 IT
Group every two weeks. Payments from customers are received on average 30 to
65 days from the date of invoice. Cash flows provided by (used in) operating
activities were $(7.3) million and $2.0 million for the nine months ended
September 30, 1996 and 1995, respectively. The decrease in operating cash
flows for 1996 reflected an increase in net accounts receivable between the
periods. The increase in accounts receivable reflected the significant
internal revenue growth of the Company during the current quarter, particularly
with large customers (e.g. VIP programs) who typically are granted longer
payment terms.
Cash flows used in investing activities were $118.9 million and $40.0
million for the nine months ended September 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 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
IT 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 IT 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.
18
<PAGE> 19
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
A Form 8-K/A Current Report ("Form 8-K/A") was filed with
the Commission on August 26, 1996. The Form 8-K/A
reported the acquisition of Data Aid, Inc. ("Data Aid") on
June 12, 1996 and included the following financial
statements and pro forma financial information required by
Item 7. "Financial Statements and Exhibits:"
Financial Statements of Data Aid
Report of Independent Auditors
Balance Sheets as of February 29, 1996 and
May 31, 1996 (Unaudited)
Statements of Income and Retained Earnings for the
Year Ended February 29, 1996 and the three months
ended May 31, 1996 and 1995 (Unaudited)
Statements of Cash Flows for the Year Ended February
29, 1996 and the three months ended May 31, 1996
and 1995 (Unaudited)
Notes to Financial Statements (including notes to
unaudited interim periods)
Unaudited Pro Forma Financial Information of
COREStaff, Inc.
Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1995
Pro Forma Condensed Consolidated Statement of
Operations for the Six Months Ended June 30, 1996
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
A Form 8-K Current Report was filed with the Commission on
September 25, 1996 reporting the acquisition of On-Line
Resources, Inc. on September 18, 1996. Pursuant to an
amendment to Rule 3-05 of Regulation S-X, no financial
statements or pro forma financial information are required
by Item 7. "Financial Statements and Exhibits."
20
<PAGE> 21
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: November 13, 1996 By: /s/ Edward L. Pierce
--------------------------------
Edward L. Pierce
Senior Vice President, Chief
Financial Officer, and
Assistant Secretary
(Duly Authorized Officer and
Principal Financial Officer)
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
27 Financial Data Schedule
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 8,926
<SECURITIES> 0
<RECEIVABLES> 109,349
<ALLOWANCES> 1,463
<INVENTORY> 0
<CURRENT-ASSETS> 124,678
<PP&E> 13,649
<DEPRECIATION> 0
<TOTAL-ASSETS> 308,498
<CURRENT-LIABILITIES> 37,868
<BONDS> 39,144
0
0
<COMMON> 326
<OTHER-SE> 225,080
<TOTAL-LIABILITY-AND-EQUITY> 308,498
<SALES> 0
<TOTAL-REVENUES> 400,829
<CGS> 0
<TOTAL-COSTS> 302,824
<OTHER-EXPENSES> 73,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,319
<INCOME-PRETAX> 21,357
<INCOME-TAX> 8,981
<INCOME-CONTINUING> 12,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,376
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
