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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26970
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Metamor Worldwide, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 76-0407849
(State of Incorporation) (I.R.S. Employer Identification Number)
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
(Address of Principal Executive Offices)
(Zip Code)
(713) 548-3400
(Registrant's telephone number, including area code)
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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 April 8, 1998, the Company had 32,066,622 shares of Common Stock, par
value $0.01 per share, and 440,749 shares of Class B (non-voting) Common Stock,
par value $0.01 per share, outstanding.
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METAMOR WORLDWIDE, 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 6. Exhibits and Reports on Form 8-K 14
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,868 $ 6,905
Accounts receivable, net of allowance of $1,658 and $1,274 161,800 129,360
Prepaid expenses and other 6,242 9,102
Deferred income taxes and other 453 620
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Total current assets 178,363 145,987
Net Assets Held for Sale 161,196 161,007
Fixed Assets, net 25,326 19,120
Intangible Assets, net of accumulated amortization of $10,364 and $8,421 323,165 243,792
Investments and Other 7,802 7,351
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Total Assets $ 695,852 $ 577,257
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 253 $ 259
Accounts payable 26,786 19,920
Payroll and related taxes 7,958 12,423
Amounts due sellers of acquired businesses 245 25,128
Other 6,494 5,898
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Total current liabilities 41,736 63,628
Long-term Debt, net of current maturities 375,432 246,883
Deferred Income Taxes and Other 2,947 4,149
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized;
none issued
Common stock, par value $.01 --
Common Stock - 100,000,000 shares authorized;
32,746,821 and 32,531,625 shares issued 327 325
Class B (non-voting) - 3,000,000 shares authorized; 440,749 shares issued 4 4
Additional paid-in capital 219,135 215,334
Retained earnings 57,377 48,570
Cumulative translation adjustment (532) (550)
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276,311 263,683
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Less - 684,000 shares of common stock in treasury, at cost (188) (188)
Less - notes receivable from stockholders (297) (787)
Less - deferred compensation (89) (111)
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Total stockholders' equity 275,737 262,597
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Total Liabilities and Stockholders' Equity $ 695,852 $ 577,257
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</TABLE>
See notes to unaudited consolidated financial statements.
3
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Revenues from Services $ 182,825 $ 102,882
Cost of Services 124,278 75,658
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Gross Profit 58,547 27,224
Operating Costs and Expenses:
Selling, general and administrative 39,220 19,661
Depreciation and amortization 3,384 1,416
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42,604 21,077
----------------- ----------------
Operating Income 15,943 6,147
Other Income (Expense):
Interest expense (3,946) (1,212)
Other, net (21) (131)
----------------- ----------------
(3,967) (1,343)
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Income from Continuing Operations before Income Taxes 11,976 4,804
Provision for Income Taxes 5,031 2,018
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Income from Continuing Operations 6,945 2,786
Income from Discontinued Operations, less applicable income
taxes of $1,348 and $2,150, respectively 1,862 2,969
----------------- ----------------
Net Income $ 8,807 $ 5,755
================= ================
Earnings per Common Share:
Basic --
Income from Continuing Operations $ 0.21 $ 0.09
Income from Discontinued Operations 0.06 0.09
----------------- ----------------
Net Income $ 0.27 $ 0.18
================= ================
Diluted --
Income from Continuing Operations $ 0.21 $ 0.09
Income from Discontinued Operations 0.06 0.09
----------------- ----------------
Net Income $ 0.27 $ 0.18
================= ================
</TABLE>
See notes to unaudited consolidated financial statement.
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 8,807 $ 5,755
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 4,625 2,548
Amortization of debt costs and discount on convertible notes 1,306 26
Amortization of deferred compensation 22 58
Deferred income tax provision 562 484
Self-insurance reserve (1,075) (192)
Provision for doubtful accounts 355 635
Other 146 -
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (25,393) (17,434)
Prepaid expenses and other 1,484 (732)
Accounts payable 8,808 2,115
Accrued liabilities (3,039) 272
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Net cash used in operating activities (3,392) (6,465)
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Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired (116,503) (25,030)
Capital expenditures (7,827) (8,510)
Proceeds from sale of physical therapy staffing business - 2,500
Payments received on stockholders' notes 490 -
Other (1,295) (2,276)
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Net cash used in investing activities (125,135) (33,316)
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Cash Flows from Financing Activities:
Net proceeds from issuance of long-term debt 127,013 44,544
Payments on long-term debt (68) (212)
Net proceeds from sale of common stock 3,803 607
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Net cash provided by financing activities 130,748 44,939
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Net increase in cash and cash equivalents 2,221 5,158
Cash and cash equivalents at beginning of period 13,374 6,521
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Cash and cash equivalents at end of period $ 15,595 $ 11,679
============= =============
Cash paid during the periods for:
Interest, net of amounts capitalized $ 2,202 $ 1,775
Income taxes $ 1,597 $ 2,879
</TABLE>
See notes to unaudited consolidated financial statements.
5
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated financial statements of Metamor Worldwide, 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 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, 1997.
2. Discontinued Operations
In March 1998, the Company's management and board of directors approved a
plan to sell its Staffing Services Group. Accordingly, net assets and operating
results of the group (including prior periods) are reflected in the accompanying
consolidated financial statements as discontinued operations.
Income from discontinued operations includes an allocation of interest
expense. Interest expense of $1.7 million and $1.0 million for 1998 and 1997,
respectively, was allocated based on the ratio of the net assets of the
discontinued operations in relation to the total net assets of the Company. Net
assets of the discontinued operations consist primarily of accounts receivable,
certain intangibles, fixed assets and liabilities to be assumed.
3. 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.
4. Acquisitions
Summary information on the businesses acquired by the Company during the
three months ended March 31, 1998, including a brief description of the material
acquisitions, follows. All acquisitions made by the Company have been accounted
for using the purchase method of accounting. Accordingly, the results of
operations of the acquired businesses are included in the Company's consolidated
results of operations from the date of acquisition.
Purchase consideration (in thousands):
Cash paid $ 118,737
Liabilities assumed 2,709
----------
Fair value of assets acquired (including intangibles) $ 121,446
==========
In January 1998, the Company acquired four IT services businesses in all
cash transactions. The acquired businesses were: Workgroup Productivity
Corporation, an Illinois-based IT solutions business, for $5.8 million; Deltam
Systems, Inc., a California-based IT project support business, for $11.0
million; Sage I.T. Partners, Inc., a California-based IT solutions business, for
$11.0 million; and Dynamic Data Solutions, Inc., a Minnesota-based IT solutions
business, for $30.4 million.
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In March 1998, the Company acquired LCT, Inc., a Virginia-based IT
solutions business, for $11.5 million and Applied Integration Services, Inc., an
Ohio-based IT solutions business, for $21.0 million.
In certain transactions, the sellers of the acquired businesses are also
entitled to contingent consideration ("Earnouts") based on the post-acquisition
increase in earnings before interest and taxes ("EBIT"), as defined. During the
three months ended March 31, 1998, Earnouts of $25.1 million were paid to
sellers. At March 31, 1998, the maximum contractual amount of Earnouts based on
future increases in EBIT totaled $161.0 million. The payment of any Earnouts
will increase goodwill.
The following results of operations have been prepared assuming the
acquisitions made through March 31, 1998, occurred as of the beginning of the
periods presented. The pro forma operating results are not necessarily
indicative of future operating results nor of results that would have occurred
had the acquisitions been consummated as of the beginning of the periods
presented.
Three Month Ended
March 31,
------------------------------------
1998 1997
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(in thousands, except
per share amounts)
Revenues $ 189,437 $ 140,158
Net income $ 8,972 $ 7,184
Earnings per common share:
Basic $ 0.27 $ 0.22
========== ==========
Diluted $ 0.27 $ 0.22
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5. Long-term Debt
Under its Senior Credit Agreement (the "Senior Credit Agreement"), the
Company may borrow the lesser of $350 million or 3.5 times Pro Forma Adjusted
EBITDA (earnings before interest, income taxes, depreciation and amortization of
all acquired businesses for the preceding twelve-month period). The Company may
request that the commitment be raised to $400 million. The agreement contains
certain covenants which, among other things, limit total debt to 5.25 times Pro
Forma Adjusted EBITDA, limit the payment of dividends and require the
maintenance of certain financial ratios. The agreement is secured by a pledge of
the stock of the Company's material subsidiaries.
As of March 31, 1998, the Company had outstanding borrowings under the
Senior Credit Agreement of $184.5 million and remaining availability (after
deducting outstanding letters of credit of $10.8 million) of $154.7 million.
Borrowings under the Senior 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 March 31, 1998 was 7.10%.
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---------- ------------
<S> <C> <C>
Numerator:
Net income $ 8,807 $ 5,755
========== ===========
Numerator for basic and diluted earnings per share -
income available to common stockholders $ 8,807 $ 5,755
========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 32,371 31,978
Effect of dilutive securities:
Stock options 593 451
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Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 32,964 32,429
========= ==========
Basic earnings per share $ 0.27 $ 0.18
========= ==========
Diluted earnings per share $ 0.27 $ 0.18
========= ===========
</TABLE>
Options to purchase 133,277 and 759,125 shares of common stock were
outstanding for the three months ended March 31, 1998 and 1997, respectively,
but were not included in the computation of diluted earnings per share because
the exercise prices of these options were greater than the average market price
of the common shares and, therefore, the effect would be antidilutive. The
effects of the conversion of the 2.94% convertible subordinated notes were also
antidilutive.
7. Comprehensive Income
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income" ("FAS 130"). FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of FAS 130 had no impact on the Company's net income or stockholders'
equity. FAS 130 requires unrealized gains or losses on the Company's foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders'equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of FAS 130.
The components of comprehensive income, net of related tax, are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net income $ 8,807 $ 5,755
Foreign currency translation adjustments (18) -
-------- ---------
Comprehensive income $ 8,789 $ 5,755
======== =========
</TABLE>
The components of accumulated other comprehensive income, net of
related tax, are as follows (in thousands):
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METAMOR WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
March 31, December 31,
1998 1997
---------------- ----------------
Foreign currency translation adjustments $ 532 $ 550
8. Subsequent Events
In April 1998, the Company acquired NDC Group, Inc., a Virginia-based IT
solutions business, for $6.6 million and MicroCrafts, Inc., a Washington-based
IT solutions business, for $5.2 million. The sellers are also entitled to
Earnouts of up to $47.8 million based on the post-acquisition increase in EBIT,
as defined. Payment of Earnouts will increase the amount of goodwill related to
the acquisition.
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
Through March 31, 1998, the Company had completed 41 acquisitions,
including 26 information technology ("IT") services and 12 staffing services
businesses. All acquisitions completed by the Company have been accounted for
under 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. In March 1998, the
Company's management and board of directors approved a plan to sell its Staffing
Services Group. Accordingly, the financial results of that group have been
presented as discontinued operations.
Results of Operations
Three Months Ended March 31, 1998
Compared with the Three Months Ended March 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Revenues $ 182,825 $ 102,882
Gross profit $ 58,547 $ 27,224
Operating income $ 15,943 $ 6,147
Income from continuing operations $ 6,945 $ 2,786
Income from discontinued operations 1,862 2,969
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Net income $ 8,807 $ 5,755
============ ============
Earnings per common share:
Basic - -
Income from continuing operations $ 0.21 $ 0.09
Income from discontinued operations 0.06 0.09
------------ ------------
Net income $ 0.27 $ 0.18
============ ============
Diluted - -
Income from continuing operations $ 0.21 $ 0.09
Income from discontinued operations 0.06 0.09
------------ ------------
Net income $ 0.27 $ 0.18
============ ============
</TABLE>
Summary. Net income was $8.8 million, or $0.27 per share, compared with
$5.8 million, or $0.18 per share, for the first quarter of 1997. Revenues from
continuing operations for the quarter increased 77.7% to $182.8 million, up from
$102.9 million in the first quarter of 1997. The improvement reflected an
internal growth rate of 35.2%, as well as the effects of acquisitions made after
the first quarter of 1997. During the twelve months ended March 31, 1998, the
Company acquired 13 IT services businesses.
Gross margin for the quarter was 32.0% compared with 26.5% for 1997. The
expansion in gross margin reflected the shift in mix toward higher-margin IT
services, as well as margin improvement on project support services. The IT
solutions unit accounted for 20.9% of the Company's revenues, up from 0.2% in
the first quarter of 1997.
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Operating income from continuing operations increased 159.4% to $15.9
million, up from $6.1 million in the first quarter of 1997. The operating margin
for the current quarter was 8.7% compared with 6.0% for the first quarter of
1997. The higher operating margin reflected the favorable business mix shift,
partially offset by personnel additions and investments in infrastructure to
support the growth of the Company.
Operating Costs and Expenses. Selling, general and administrative ("SG&A")
expenses from continuing operations for the first quarter of 1998 totaled $39.2
million, compared with $19.7 million for the first quarter of 1997. The increase
in SG&A expenses primarily related to (i) the effects of the acquisitions, (ii)
internal growth of the operating companies post-acquisition, (iii) investments
made to improve infrastructure and to develop technical practices and (iv)
higher expenses at the corporate level to support the growth of the Company.
Depreciation from continuing operations totaled $1.4 million and $0.4
million for the first quarter of 1998 and 1997, respectively. The increase
primarily related to the fixed assets of the businesses acquired and, to a
lesser extent, capital expenditures. Amortization from continuing operations of
$1.9 million and $1.0 million for the first quarter of 1998 and 1997,
respectively, related to amortization of intangible assets (goodwill and
non-compete agreements) of the acquired businesses.
Non-Operating Costs and Expenses. Interest expense totaled $5.6 million and
$2.2 million for the first quarter of 1998 and 1997, respectively. The increase
primarily related to borrowings for acquisitions. Interest was allocated
between continuing operations and discontinued operations based on net assets of
the business units. Interest expense from continuing operations for the current
quarter totaled $3.9 million compared with $1.2 million for 1997.
Provision for Income Taxes. The provision for income taxes from continuing
operations for the current quarter was $5.0 million, compared with $2.0
million for 1997. The Company's effective tax rate of 42.0% includes the effects
of state income taxes and the portion of goodwill amortization not deductible
for federal income tax purposes.
Income from Continuing Operations. Due to the factors described above,
income from continuing operations for 1998 was $6.9 million (3.8% of revenues)
compared with $2.8 million (2.7% of revenues) for 1997.
Income from Discontinued Operations. Income from discontinued operations,
net of applicable income taxes, for the first quarter of 1998 was $1.9 million,
or $1.1 million below 1997. The reduction in income related to higher SG&A
expenses and interest, partially offset by an increase in gross profit.
Liquidity and Capital Resources
The Company's capital requirements have principally related to the
acquisition of businesses and capital expenditures. These requirements have been
met through a combination of bank debt, issuances of securities and internally
generated funds.
In March 1998, management and the board of directors approved a plan to
sell the Company's Staffing Services Group. This group accounted for
approximately 47% of the Company's 1997 revenues and 34% of its operating
income. The financial results of the group (including those prior periods) have
been presented as discontinued operations. The Company has retained Goldman,
Sachs & Co. as its advisor to assist with the transaction. The Company expects
to complete the sale prior to the end of the year and plans to use the proceeds
from the sale to repay borrowings under its Senior Credit Agreement.
During the first three months of 1998 and 1997, the Company made cash
payments for acquisitions of $116.5 million and $25.0 million, respectively.
Approximately $25.1 million of the amount for the current quarter was paid to
sellers of businesses acquired prior to 1998. The post-closing purchase
consideration ("Earnouts") related to the post-acquisition increase in earnings
before interest and taxes ("EBIT"), as defined. Remaining Earnouts on
businesses acquired to date are capped at $208.8 million. Based on current
growth rates and operating trends, the Company projects that actual Earnout
payments would range between $100 million and $125 million. These Earnouts,
which are based on the increase in EBIT in 1998 and 1999 over EBIT of the
preceding year, generally will be paid in the quarter following the measurement
period. No material Earnouts remain to be paid during 1998.
Capital expenditures totaled $7.8 million and $8.5 million for the three
months ended March 31, 1998 and 1997, respectively. The majority of these
expenditures relate to (i) the development of an integrated front and back
office information system, which is expected to be operational in 1999, (ii) the
roll-out of proprietary software to the staffing services branches, (iii) the
upgrade of computer hardware to
11
<PAGE> 12
facilitate the new integrated information system and new software tools and
(iv) furniture, fixtures and equipment for new offices. The Company expects to
fund the expenditures primarily with borrowings under its Senior Credit
Agreement and cash flows from operations. The majority of the Company's planned
capital expenditures for 1998 relate to the implementation of the integrated
front and back office information system. The level of capital expenditures
related to the information system will depend upon the timing of the sale of the
Staffing Services Group.
The Company had working capital of $136.6 million and $82.4 million at
March 31, 1998 and December 31, 1997, respectively. The Company had cash and
cash equivalents of $9.9 million and $6.9 million at March 31, 1998 and December
31, 1997, respectively. The Company's operating cash flows and working capital
requirements are significantly affected by the timing of payroll and the receipt
of payment from the customer. Generally, the Company pays the temporary
employees of its Staffing Services Group weekly and the employees of its IT
Services Group semi-monthly. Payments from customers are generally received
within 30 to 75 days from the date of invoice. Cash flows used in operating
activities were $(3.4) million and $(6.5) million for the three months ended
March 31, 1998 and 1997, respectively. The cash flows used in operating
activities reflect increases in accounts receivable primarily related to the
growth of the Company and the timing of payments from large customers.
Under terms of the Company's Senior Credit Agreement, the Company may
borrow under its revolving credit facility the lesser of $350 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 facility bear interest, at the
Company's option, at LIBOR or the bank's base rate, plus the applicable margin.
The Senior Credit Agreement contains certain covenants which, among other
things, limit total debt to 5.25 times Pro Forma Adjusted EBITDA, limit the
payment of dividends and require the maintenance of certain financial ratios.
As of March 31, 1998, the Company had outstanding borrowings under the
Senior Credit Agreement of $184.5 million and remaining availability (after
deducting outstanding letters of credit of $10.8 million) of $154.7 million. The
weighted average interest rate of the Company's outstanding borrowings under the
Senior Credit Agreement was 7.10% at March 31, 1998.
On August 15, 1997, the Company sold $230 million of 2.94% convertible
subordinated notes due 2004. The notes were issued at an original price of
83.991% of the principal amount at maturity. The notes are convertible into
common stock of the Company at a conversion rate of 23.7397 shares per $1,000
note. The notes are redeemable by the Company, in whole or in part, after August
18, 2000, at a redemption price equal to the original price of the note plus
accrued original issue discount. At March 31, 1998, the carrying value of the
notes was $190.9 million.
On June 24, 1997, the Company entered into a three-year interest rate swap
agreement to reduce a portion of its interest rate exposure on borrowings under
the Senior Credit Agreement. Under terms of this agreement, the Company will pay
the counterparty 6.05% on notional principal of $25.0 million and the
counterparty will pay the Company interest at a variable rate based on LIBOR.
The Company's acquisition program, including associated Earnouts, will
require significant additional capital resources. 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 Senior Credit Agreement or
the issuance of equity securities. Cash flows from operations, to the extent
available, may also be used to fund acquisitions. 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.
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<PAGE> 13
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 Staffing 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 Staffing Services Group, the demand for services in the
IT Services Group is typically lower during the first quarter until customers'
operating budgets are finalized.
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 earnings, to integrate the
operations of acquired businesses, to recruit and place temporary professionals,
to expand into new markets, to complete fixed price agreements in accordance
with their terms and to maintain profit margins in the face of pricing
pressures. In addition, important factors that 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, 1997.
13
<PAGE> 14
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 Current Report ("Form 8-K") was filed with the
Commission on January 20, 1998 reporting the acquisitions of
Dynamic Data Solutions, Inc. and DDS Europe Limited on
January 5, 1998 and Sage I.T. Partners, Inc. on January 7, 1998.
14
<PAGE> 15
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.
METAMOR WORLDWIDE, INC.
(Registrant)
Date: May 11, 1998 By: /s/ EDWARD L. PIERCE
--------------------
Edward L. Pierce
Senior Vice President, Chief Financial
Officer and Assistant Secretary
(Duly Authorized Officer and Principal
Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -------------------
27 Financial Data Schedule
16
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,868
<SECURITIES> 0
<RECEIVABLES> 163,458
<ALLOWANCES> 1,658
<INVENTORY> 0
<CURRENT-ASSETS> 178,363
<PP&E> 25,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 695,852
<CURRENT-LIABILITIES> 41,736
<BONDS> 375,432
0
0
<COMMON> 331
<OTHER-SE> 275,406
<TOTAL-LIABILITY-AND-EQUITY> 695,852
<SALES> 0
<TOTAL-REVENUES> 182,825
<CGS> 0
<TOTAL-COSTS> 124,278
<OTHER-EXPENSES> 42,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,946
<INCOME-PRETAX> 11,976
<INCOME-TAX> 5,031
<INCOME-CONTINUING> 6,945
<DISCONTINUED> 1,862
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,807
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
