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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27612
DATA PROCESSING RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-3931443
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 553-1102
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding as of October 31, 1996 is
7,492,321.
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DATA PROCESSING RESOURCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of October 31, 1996 and July 31, 1996................ 3
Condensed Statements of Income for the Three Months Ended October 31, 1996 and
1995............................................................................ 4
Condensed Statements of Cash Flows for the Three Months Ended October 31, 1996
and 1995........................................................................ 5
Notes to Condensed Financial Statements.......................................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 8-9
PART II. OTHER INFORMATION............................................................ 10
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE............................................................................. 11
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DATA PROCESSING RESOURCES CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1996 1996
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ASSETS
Current Assets:
Cash and Cash Equivalents......................................... $22,945,000 $21,855,000
Accounts Receivable (net of allowance for doubtful accounts of
$168,000 and $129,000 as of October 31, 1996 and July 31, 1996,
respectively).................................................. 9,232,000 8,436,000
Receivables from Affiliates....................................... 113,000 128,000
Prepaid Expenses and Other Current Assets......................... 339,000 259,000
Deferred Tax Asset................................................ 216,000 216,000
----------- -----------
Total Current Assets...................................... 32,845,000 30,894,000
Property, net....................................................... 765,000 739,000
Other Assets........................................................ 196,000 69,000
Intangible Assets................................................... 11,089,000 12,327,000
----------- -----------
$44,895,000 $44,029,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities.......................... $ 3,861,000 $ 3,690,000
Income Taxes Payable.............................................. 879,000 303,000
----------- -----------
Total Current Liabilities................................. 4,740,000 3,993,000
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock; 2,000,000 shares authorized; no shares issued and
outstanding.................................................... -- --
Common Stock; 20,000,000 shares authorized; 7,492,321 shares
issued and outstanding as of October 31, 1996 and July 31,
1996........................................................... 36,996,000 38,125,000
Additional Paid-in Capital........................................ 1,636,000 1,636,000
Retained Earnings................................................. 1,523,000 275,000
----------- -----------
Total Shareholders' Equity................................ 40,155,000 40,036,000
----------- -----------
$44,895,000 $44,029,000
=========== ===========
</TABLE>
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DATA PROCESSING RESOURCES CORPORATION
CONDENSED STATEMENTS OF INCOME
<TABLE>
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THREE MONTHS ENDED
OCTOBER 31,
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1996 1995
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Revenues.......................................................... $20,134,000 $13,954,000
Cost of Professional Services..................................... 15,434,000 11,035,000
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Gross Margin...................................................... 4,700,000 2,919,000
Selling, General and Administrative Expenses...................... 2,853,000 1,491,000
----------- -----------
Operating Income.................................................. 1,847,000 1,428,000
Interest Income (Expense), net.................................... 202,000 (159,000)
----------- -----------
Income Before Provision For Income Taxes.......................... 2,049,000 1,269,000
Provision For Income Taxes........................................ 801,000 516,000
----------- -----------
Net Income........................................................ $ 1,248,000 $ 753,000
=========== ===========
Net Income Per Share.............................................. $ 0.16 $ 0.15
=========== ===========
Weighted Average Shares Outstanding............................... 7,864,000 4,926,000
=========== ===========
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DATA PROCESSING RESOURCES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
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THREE MONTHS ENDED
OCTOBER 31,
--------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................................... $ 1,248,000 $ 753,000
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization.................................... 170,000 23,000
Deferred Income Taxes............................................ -- 20,000
Changes in Operating Assets and Liabilities:
Accounts Receivable.............................................. (796,000) (50,000)
Receivables from Affiliates...................................... 15,000 157,000
Prepaid Expenses and Other Assets................................ (207,000) 15,000
Accounts Payable and Accrued Liabilities......................... 171,000 856,000
Income Taxes Payable............................................. 576,000 (779,000)
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Net Cash Provided by Operating Activities................ 1,177,000 995,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property............................................... (87,000) (91,000)
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Net Cash (Used in) Investing Activities.................. (87,000) (91,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Line of Credit........................................ -- (837,000)
Repayment of Notes Payable -- Other................................ -- (66,000)
----------- ----------
Net Cash (Used in) Financing Activities.................. -- (903,000)
----------- ----------
NET INCREASE IN CASH............................................... 1,090,000 1,000
Cash and Cash Equivalents, Beginning of Period..................... 21,855,000 247,000
----------- ----------
Cash and Cash Equivalents, End of Period........................... $22,945,000 $ 248,000
=========== ==========
SUPPLEMENTAL INFORMATION -- CASH PAID FOR:
Interest........................................................... $ 4,000 $ 140,000
=========== ==========
Income Taxes....................................................... $ 225,000 $1,275,000
=========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Adjustment to the value of Common Stock Issued in Acquisition.... $ 1,129,000
</TABLE>
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
1. GENERAL
Business
Data Processing Resources Corporation (the Company) is a leading regional
specialty staffing company providing information technology services to a
diverse group of corporate clients.
Interim Financial Data
The interim financial data as of October 31, 1996 and for the three months
ended October 31, 1996 and 1995 is unaudited. The information reflects all
adjustments, consisting only of normal recurring entries, that, in the opinion
of management, are necessary to present fairly the financial position and
results of operations of the Company for the periods indicated. Results of
operations for the interim periods are not necessarily indicative of the results
of operations for the full fiscal year. For further information refer to the
Company's annual report on Form 10-K for the fiscal year ended July 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property
The cost of furniture, fixtures and equipment is depreciated using
accelerated methods based on the estimated useful lives of the related assets,
generally five to seven years.
Revenue Recognition
The Company recognizes professional and contract services revenues as
services are performed.
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109). SFAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than the enactment of changes in the tax law or rates.
3. ACQUISITIONS
In July 1996, the Company acquired the information technology staffing
business, including two branch facilities and substantially all of the related
assets, of the Applications Design and Development division ("AD&D") of ADD
Consulting, Inc. The aggregate purchase price of the acquisition was
$12,850,000, consisting of $9,085,000 in cash, 152,121 shares of restricted
Company common stock valued at $3,765,000, subsequently adjusted to $2,636,000
to reflect its current fair value.
Unaudited pro forma combined results of operations for the three months
ended October 31, 1996 and 1995 would have been as follows had the acquisition
occurred as of the beginning of the respective periods:
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OCTOBER 31,
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1996 1995
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Revenues.................................................. $20,134,000 $17,179,000
Pro Forma Net Income...................................... $ 1,248,000 $ 837,000
Pro Forma Net Income Per Share............................ $ 0.16 $ 0.16
Weighted Average Shares Outstanding....................... 7,864,000 5,078,000
</TABLE>
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 -- (CONTINUED)
4. LONG-TERM DEBT
On October 25, 1996, the Company obtained a two-year, $20.0 million credit
facility (the "Credit Agreement") with Wells Fargo Bank. The Credit Agreement
provides a revolving line of credit in the principal amount of $10.0 million,
which bears interest, at the Company's option, at either LIBOR plus 1.0% or
prime, a facility in the principal amount of $10.0 million for acquisitions,
which bears interest, at the Company's option, at either LIBOR plus 1.25% or
prime. Both facilities are secured by accounts receivable and equipment.
Additional pricing options and alternatives are available to the Company
depending on certain financial conditions. The Credit Agreement contains various
covenants, including the maintenance of defined financial ratios such as
liquidity and tangible net worth. The Company was in compliance with such
covenants as of October 31, 1996. As of October 31, 1996 the Company had no
outstanding borrowings under the Credit Agreement.
5. RELATED PARTY TRANSACTIONS
In fiscal 1994, one of the Company's larger clients desired to outsource
its entire information systems department through an employee leasing
arrangement. Because the Company does not provide such employee leasing services
and was unable to provide a comparable employment benefit package to consultants
working for this company, a separate company, Information Technology Resources,
Inc. ("ITR"), was formed by the founder of the Company and certain other
persons, including certain former employees of the client, with the founder
owning approximately 75.6% of the outstanding capital stock. As a result of this
arrangement, the Company provides certain management services to ITR to support
its operations, for which the Company receives a management fee pursuant to a
management services agreement. Management fees earned by the Company were
$300,000 and $263,000 the three months ended October 31, 1996 and 1995,
respectively. ITR also contracts with the Company for technical consultants to
meet its staffing needs. For the three months ended October 31, 1996 and 1995,
the Company recorded revenues of $1,023,000 and $1,393,000 from billing of ITR
technical consultants.
Receivables from affiliates includes a receivable from ITR related to these
management services and amounted to $89,000 and $104,000 as of October 31, 1996
and July 31, 1996, respectively. The Company has trade accounts receivable for
technical consultants due from ITR of $458,000 and $133,000 as of October 31,
1996 and July 31, 1995, respectively, which are included in accounts receivable
in the accompanying balance sheets.
7
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DATA PROCESSING RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to the historical information contained herein, the following
discussion in this Form 10-Q includes forward-looking statements which involve
risk and uncertainties, including but not limited to risks inherent in the
Company's growth strategy, acquisition risks, dependence on certain clients,
dependence on availability of qualified technical consultants and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
Revenues. Revenues increased $6.2 million, or 44.3%, to $20.1 million for
the three months ended October 31, 1996 as compared to $14.0 million for the
three months ended October 31, 1995. This increase resulted primarily from the
contribution of revenues from the Company's three newest branches (Denver --
opened in December 1995, Seattle -- opened June 1996 and Des Moines -- opened
September 1996) and from the acquisition of Applications Design and Development
division ("AD&D") of ADD Consulting, Inc. (acquired in July 1996). In addition,
the increases were also due to: (i) the Company's existing clients' new
information technology projects; (ii) increased demand in the networking and
communications market; and (iii) a broadening of the types of services being
provided. These increases were partially offset by the performance of the San
Francisco branch which contributed $518,000 to revenues for the three months
ended October 31, 1996, down from $697,000 in the comparable period in the prior
year.
Gross Margin. Gross margin increased $1.8 million, to $4.7 million for the
three months ended October 31, 1996, as compared to $2.9 million for the three
months ended October 31, 1995. As a percentage of revenues, gross margin
increased to 23.3%, as compared to 20.9% for the same period in the prior year.
This gross margin percentage improvement reflects higher gross margins from: (i)
AD&D due to their higher mix of salaried consultants; (ii) the opening of the
branch offices in Denver, Seattle and Des Moines which are generating higher
gross margins than those in the core market; and (iii) the gross margin
improvement program in existing markets and a change in service mix, with an
increased component of higher gross margin client/server and networking and
communications services in the three months ended October 31, 1996 than in the
prior year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $1.4 million, to $2.9 million
for the three months ended October 31, 1996, as compared to $1.5 million for the
three months ended October 31, 1995. Selling, general and administrative
expenses also increased as a percentage of revenues to 14.2% for the three
months ended October 31, 1996, as compared to 10.7% for the prior year period.
This increase primarily resulted from: (i) amortization of intangible assets
related to the acquisition of AD&D, (ii) higher occupancy costs and higher sales
and recruiting personnel expenses related to three branch openings; and (iii)
investment in additional management personnel and corporate infrastructure
required to support planned Company growth.
Operating Income. Operating income increased $419,000, or 29.3% to $1.8
million for the three months ended October 31, 1996 from $1.4 million for the
same period in fiscal 1996. As a percentage of revenues, however, operating
income decreased to 9.2% for the three months ended October 31, 1996 as compared
to 10.2% for the three months ended October 31, 1995 reflecting the increase in
selling, general and administrative expenses as a percentage of revenues,
offset, in part, by the gross margin improvement.
Interest Income (Expense), net. The Company had interest income of
$202,000 for the three months ended October 31, 1996 as compared to interest
expense of $159,000 for the three months ended October 31, 1995 as a result of
the repayment of the Company's interest bearing debt in March 1996 with a
portion of the proceeds of the initial public offering (the "Offering") and the
investment of the remaining proceeds in interest bearing securities.
8
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and net working capital totaled $22.9 million and
$28.1 million, respectively, as of October 31, 1996. The primary sources of cash
generated from operations in the three months ended October 31, 1996 were net
income and an increase in income taxes payable, offset by an increase in
accounts receivable, prepaid expenses and other assets.
In October 1996, the Company obtained a two-year, $20.0 million credit
facility (the "Credit Agreement") with Wells Fargo Bank. The Credit Agreement
provides a revolving line of credit in the principal amount of $10.0 million,
which bears interest, at the Company's option, at either LIBOR plus 1.0% or
prime, a facility in the principal amount of $10.0 million for acquisitions,
which bears interest, at the Company's option, at either LIBOR plus 1.25% or
prime. Both facilities are secured by accounts receivable and equipment.
Additional pricing options and alternatives are available to the Company
depending on certain financial conditions. The Credit Agreement contains various
covenants, including the maintenance of defined financial ratios such as
liquidity and tangible net worth. The Company was in compliance with such
covenants as of October 31, 1996. As of October 31, 1996 the Company had no
outstanding borrowings under the Credit Agreement.
In November 1996, the Company acquired all of the outstanding common stock
of Phoenix -- based Professional Software Consultants, Inc. (PSCI). Under the
terms of the agreement, the purchase price was approximately $4.9 million in an
all cash transaction plus an earn-out based on PSCI's performance for the two
months ending December 31, 1996.
The Company anticipates that its primary uses of working capital in future
periods will be for acquisitions, the internal development of new branches and
the funding of increases in accounts receivable. Although the Company seeks to
use its common stock to make acquisitions, to the extent possible, a substantial
portion of the purchase price for AD&D and all of the purchase price for PSCI
was paid in cash. Future acquisition candidates may also require that all or a
significant portion of the purchase price be paid in cash. The Company's ability
to grow through acquisitions is dependent on the availability of suitable
acquisition candidates and the terms on which such candidates may be acquired,
which may be adversely affected by competition for such acquisitions. The
Company cannot predict to what extent new branches will be added through
acquisitions as compared to internal development.
The Company anticipates that the opening of new branches will require an
investment of approximately $150,000 to $200,000 per branch to acquire equipment
and supplies and to fund operating losses for the initial nine- to twelve-month
period of operations which management believes will generally be required for a
new branch to achieve profitability. The Company expenses the costs of opening a
new branch as incurred, except for the cost of equipment and other capital
assets, which are capitalized. Generally, expenditures for such capital assets
for a new branch will be less than $50,000. There can be no assurance that
future branches will achieve profitability within a nine- to twelve-month period
after opening. The Company anticipates making additional capital expenditures in
connection with the development of new branch facilities in future periods and
the improvement of its network and operating system infrastructure and
management reporting system.
The Company believes that the existing cash and cash equivalents, cash flow
from operations and available borrowings under the Credit Agreement, will be
sufficient to meet the Company's presently anticipated working capital needs for
at least the next 12 months, although the Company could be required to seek
additional debt or equity funding, if it uses its existing cash reserves in
connection with further acquisitions.
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DATA PROCESSING RESOURCES CORPORATION
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed the following reports on Form 8-K with the
Securities and Exchange Commission during the fourth quarter of 1996:
Current Report on Form 8-K/A dated July 1, 1996 and filed on August 27,
1996, filing under Item 7 financial statements of ADD Consulting, Inc.
and AD&D Acquisition, Inc., pursuant to a definitive Agreement of
Purchase and Sale of Assets dated July 1, 1996, by and among Data
Processing Resources Corporation, ADD Consulting, Inc. and Gerald R.
Ladd.
10
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SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newport Beach, State of California, on
the 13TH DAY OF DECEMBER, 1996.
DATA PROCESSING RESOURCES CORPORATION
By: /s/ MICHAEL A. PIRAINO
--------------------------------------
Michael A. Piraino, Senior Vice
President and Chief Financial Officer
11
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FINANCIAL STATEMENTS FOR THE 3 MONTHS ENDED OCTPBER 31,1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR PERIOD ENDED
OCTOBER 31, 1996
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 22945
<SECURITIES> 0
<RECEIVABLES> 9232
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32845
<PP&E> 1218
<DEPRECIATION> 453
<TOTAL-ASSETS> 44895
<CURRENT-LIABILITIES> 4740
<BONDS> 0
0
0
<COMMON> 36996
<OTHER-SE> 1636
<TOTAL-LIABILITY-AND-EQUITY> 44895
<SALES> 0
<TOTAL-REVENUES> 20134
<CGS> 0
<TOTAL-COSTS> 15434
<OTHER-EXPENSES> 2853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-TAX> 801
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<NET-INCOME> 1248
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
