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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 1998
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)
CALIFORNIA 95-3931443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
92660
4400 MACARTHUR BOULEVARD, SUITE 600 (Zip Code)
NEWPORT BEACH, CA
(Address of principal executive
offices)
Registrant's telephone number, including area code: (949) 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 April 30, 1998 is
11,367,666.
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DATA PROCESSING RESOURCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION
AND SIGNATURE
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
PART I. FINANCIAL INFORMATION..........................................
Item 1. Consolidated Financial Statements............................
Consolidated Balance Sheets as of April 30, 1998 and July 31,
1997......................................................... 3
Consolidated Statements of Income for the Three and Nine
Months Ended April 30, 1998 and 1997......................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended April 30, 1998 and 1997................................ 5
Notes to Consolidated Financial Statements................... 6-9
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations.................................... 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk... N/A
PART II. OTHER INFORMATION............................................. 15
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities and Use of Proceeds.................... 15
Item 3. Defaults Upon Senior Securities.............................. 15
Item 4. Submission of Matters to Vote of Security Holders............ 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15-16
SIGNATURE.............................................................. 17
</TABLE>
2
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DATA PROCESSING RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................ $105,357 $ 17,812
Accounts Receivable (net of allowance for doubtful
accounts of $819 and $262 as of April 30, 1998 and July
31, 1997, respectively)................................. 31,067 21,839
Prepaid Expenses and Other Current Assets................ 2,885 1,076
-------- --------
Total Current Assets.................................... 139,309 40,727
Property, net............................................. 2,930 1,429
Other Assets.............................................. 335 158
Intangible Assets, net.................................... 101,630 67,973
-------- --------
$244,204 $110,287
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities................. $ 18,930 $ 9,003
Income Taxes Payable..................................... 61 1,489
Deferred Income Taxes.................................... 55 55
-------- --------
Total Current Liabilities............................... 19,046 10,547
Long-Term Deferred Income Taxes........................... 81 81
Long-Term Debt............................................ 111,109 --
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock; 2,000,000 shares authorized; no shares
issued and outstanding................................. -- --
Common Stock; 20,000,000 shares authorized; 11,367,666
and 11,013,686 shares issued and outstanding as of
April 30, 1998 and July 31, 1997, respectively......... 95,869 90,472
Additional Paid-in Capital.............................. 3,231 2,196
Retained Earnings....................................... 14,868 6,991
-------- --------
Total Shareholders' Equity............................. 113,968 99,659
-------- --------
$244,204 $110,287
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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DATA PROCESSING RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
---------------- -----------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues.................................... $56,135 $31,355 $146,012 $75,266
Cost of Professional Services............... 39,872 23,435 105,172 57,041
------- ------- -------- -------
Gross Margin............................... 16,263 7,920 40,840 18,225
Selling, General and Administrative
Expenses................................... 10,714 5,191 26,661 11,709
------- ------- -------- -------
Operating Income............................ 5,549 2,729 14,179 6,516
Interest (Expense) Income, net.............. (302) 347 (113) 673
------- ------- -------- -------
Income Before Provision for Income Taxes.... 5,247 3,076 14,066 7,189
Provision for Income Taxes.................. 2,309 1,221 6,189 2,825
------- ------- -------- -------
Net Income.................................. $ 2,938 $ 1,855 $ 7,877 $ 4,364
======= ======= ======== =======
Net Income per Share--Basic................. $ 0.26 $ 0.18 $ 0.71 $ 0.52
======= ======= ======== =======
Net Income per Share--Diluted............... $ 0.25 $ 0.18 $ 0.68 $ 0.50
======= ======= ======== =======
Weighted Average Common Shares Outstanding--
Basic...................................... 11,344 10,222 11,160 8,453
======= ======= ======== =======
Weighted Average Common Shares Outstanding--
Diluted.................................... 11,842 10,530 11,600 8,816
======= ======= ======== =======
Supplemental Operating Data:
Earnings before Interest, Taxes and
Amortization............................... $ 6,630 $ 3,060 $ 16,679 $ 7,146
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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DATA PROCESSING RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 7,877 $ 4,364
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 473 250
Amortization............................................ 2,500 630
Amortization of debt discount and issue costs........... 59 --
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Accounts receivable.................................... (6,668) (4,212)
Prepaid expenses and other assets...................... (2,083) (1,226)
Accounts payable and accrued liabilities............... 4,418 1,730
Income taxes payable................................... (424) 697
-------- --------
Net cash provided by operating activities............. 6,152 2,233
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired.......... (28,067) (38,684)
Cash paid for contingent acquisition obligations, net..... (1,384) --
Purchase of property...................................... (1,435) (513)
-------- --------
Net cash used in investing activities................. (30,886) (39,197)
Cash flows from financing activities:
Proceeds from issuance of notes payable from private debt
offering, net............................................ 111,050 --
Proceeds of line of credit................................ 25,500 --
Repayment of line of credit............................... (25,500) --
Proceeds from public offerings of common stock, net....... -- 38,719
Proceeds from employee stock purchase plan................ 667 --
Proceeds from the exercise of stock options............... 562 25
-------- --------
Net cash provided by financing activities............. 112,279 38,744
-------- --------
Net increase in cash and cash equivalents.................. 87,545 1,780
Cash and cash equivalents, beginning of period............. 17,812 21,855
-------- --------
Cash and cash equivalents, end of period................... $105,357 $ 23,635
======== ========
Supplemental information--Cash paid for:
Interest.................................................. $ 321 $ 53
======== ========
Income taxes.............................................. $ 6,818 $ 2,129
======== ========
Supplemental schedule of noncash investing and financing
activities:
Tax benefit of stock options exercised.................... $ 973 --
Detail of businesses acquired in purchase transactions:
Fair value of assets acquired............................ $ 33,823 $ 60,002
Common stock issued in acquisitions...................... (3,989) (12,044)
Cash paid for acquisitions............................... (28,250) (42,593)
-------- --------
Liabilities assumed...................................... $ 1,584 $ 5,365
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1998 AND 1997
1. GENERAL
Business
Data Processing Resources Corporation (the Company) is a leading multi-
regional specialty staffing company providing information technology services
to a diverse group of corporate clients.
Interim Financial Data
The interim financial data as of April 30, 1998 and for the three and nine
months ended April 30, 1998 and 1997 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,
1997, Form 10-Q for the quarters ended October 31, 1997 and January 31, 1998,
the Company's registration statement on Form S-1 (Registration No. 333-18719)
originally filed with the Securities and Exchange Commission on December 24,
1996, as amended by Amendment No. 1 to such registration statement filed with
the Securities and Exchange Commission on January 7, 1997 and the Company's
Registration Statement on Form S-3 (No. 333-53371) as filed with the
Securities and Exchange Commission on May 22, 1998. Certain reclassifications
have been made in the consolidated financial statements to conform amounts
previously reported for fiscal 1997 to the fiscal 1998 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property--The cost of furniture, fixtures and equipment is depreciated using
straight-line and accelerated methods based on the estimated useful lives of
the related assets, generally five to seven years. Leasehold improvements are
amortized over the lesser of five years or the life of the lease.
Intangible Assets--Intangible assets include goodwill which represents the
excess of cost over fair value of net assets acquired, and is amortized using
the straight-line method over 25 years. Long-lived assets and certain
identifiable intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment is determined when the carrying amount of such
asset exceeds the associated undiscounted cash flows.
Revenue Recognition--The Company recognizes revenues as services are
performed.
Income Taxes--The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. SFAS No. 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
consolidated 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.
Recent Accounting Pronouncements--In the second quarter of fiscal 1998, the
Company adopted SFAS No. 128, Earnings per Share. Net income per share for
fiscal 1997 and interim periods have been restated. The statement establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement simplifies the standards for
6
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
About Capital Structure. The statement establishes standards for disclosing
information about an entity's capital structure. The disclosure requirements
of SFAS No. 129 are effective for periods ending after December 15, 1997.
Management does not believe that the adoption of SFAS No. 129 will have a
significant impact on its consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly-held business enterprises and disclosure of information about
operating segments in annual financial statements and, to a lesser extent, in
interim financial reports issued to shareholders. SFAS Nos. 130 and 131 are
effective for the Company beginning in fiscal 1999. As both SFAS Nos. 130 and
131 deal with financial disclosure, the Company does not anticipate the
adoption of these new standards will have a material impact on its financial
position or results of operations.
3. ACQUISITIONS
On January 27, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of S3G, Inc., a Texas Corporation ("S3G").
Under the terms of the asset purchase agreement, the purchase price was $32.2
million, consisting of $28.2 million in cash and 204,552 shares of restricted
DPRC common stock, valued at approximately $4.0 million. The definitive
agreement also calls for an earnout contingent upon S3G's earnings before
interest and taxes through December 31, 1998, with scheduled payments in
September 1998 and March 1999.
The Company previously completed the acquisition by merger of Computec
International Strategic Resources, Inc. ("Computec") on April 30, 1997. Under
the terms of the agreement, an earnout payment of approximately $5.0 million,
which is expected to be paid in June 1998, was recorded in intangible assets
and accounts payable and accrued liabilities as of April 30, 1998. The
definitive agreement also obligates the Company to make earnout payments
contingent upon Computec's earnings before interest and taxes through December
31, 1998.
In addition, the Company had completed four other acquisitions prior to July
31, 1997 including: the Applications Design and Development division ("AD&D")
of ADD Consulting, Inc., Professional Software Consultants, Inc. ("PSC"),
LEARDATA Info-Services, Inc. ("Leardata") and SelecTech, Inc. ("SelecTech"),
collectively, the "Acquisitions". The Acquisitions were accounted for as
purchases. The excess of purchase price over fair value of net assets acquired
was allocated to goodwill, which is amortized using the straight-line method
over 25 years. An adjustment to the value of common stock issued in
transactions was recorded to reflect the impact of restrictions on disposal of
the stock. The consolidated financial statements of the Company include the
results of operations for each acquired business from the acquisition date.
7
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1998 AND 1997
3. ACQUISITIONS (CONTINUED)
Unaudited pro forma consolidated results of operations for the nine months
ended April 30, 1998 and 1997 would have been as follows had the acquisition
occurred as of the beginning of the period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED APRIL 30,
----------------
1998 1997
-------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Pro forma revenues......................................... $153,355 $80,852
Pro forma net income....................................... $ 8,303 $ 4,101
Pro forma net income per share--basic...................... $ .73 $ .47
Pro forma net income per share--diluted.................... $ .70 $ .45
Pro forma weighted average common shares outstanding--
basic..................................................... 11,365 8,658
Pro forma weighted average common shares outstanding--
diluted................................................... 11,805 9,021
</TABLE>
Pro forma adjustments have been applied to reflect the purchase of S3G
including the addition of amortization related to the intangible assets
acquired and reduction in interest income and additional interest expense.
The above pro forma financial data is based on management's preliminary
assumptions regarding purchase accounting adjustments for the S3G acquisition
based on currently available information. The final allocation of the purchase
price for the S3G acquisition will be adjusted to the extent that actual
amounts differ from management's estimates (see Note 6 for additional
acquisition).
4. DEBT
On March 24, 1998, the Company completed the sale of $115 million of its 5
1/4% convertible subordinated notes due 2005 (the "Notes") in a private
offering under Rule 144A to qualified institutional buyers. The Notes are
convertible at any time at the option of the holders into shares of common
stock of DPRC at a conversion price of $35.50 per share of common stock of the
Company. The Notes mature on April 1, 2005 and are non-callable for the first
three years. The Company used a portion of the net proceeds of the offering
for repayment of $19.5 million of debt outstanding under its credit facility.
Interest is payable on April 1 and October 1 of each year, commencing on
October 1, 1998. The Notes were recorded net of a discount and issue costs of
$3,950,000, which will be amortized over seven years based on the effective
interest method. As of April 30, 1998, the Company had no borrowings
outstanding under the credit facility and was in compliance with or received
waivers on bank covenants (see Note 6).
5. RELATED PARTY TRANSACTIONS
Information Technology Resources, Inc. ("ITR") was formed by the founder of
the Company and certain other persons, including certain former employees of
ITR's 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.
Effective August 1, 1997 the management service agreement with ITR was
renegotiated to reflect a reduction in the management fee. Management fees
earned by the Company were $388,000 and $810,000 for the nine months ended
April 30, 1998 and 1997, respectively. ITR also contracts
8
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DATA PROCESSING RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1998 AND 1997
5. RELATED PARTY TRANSACTIONS (CONTINUED)
with the Company for technical consultants to meet its staffing needs. For the
nine months ended April 30, 1998 and 1997, the Company recorded revenues of
$2,295,000 and $2,725,000 from billing of ITR technical consultants,
respectively.
6. SUBSEQUENT EVENTS
On May 21, 1998, the Company acquired by merger EXi Corp., a Minnesota
Corporation ("EXi"). The merger of EXi was accounted for as a purchase. The
excess of purchase price over fair value of net assets acquired was allocated
to goodwill, which is amortized using the straight-line method over 25 years.
As of June 10, 1998, the Company amended its five-year, $60.0 million
Revolving/Term Loan Agreement (the "Amended Credit Facility") with a bank
syndicate. The Amended Credit Facility consists of a revolving line of credit
of $60.0 million principal amount, and bears interest at the prime rate to
prime rate plus .5% or LIBOR plus 0.50% to 1.75% depending on defined
financial conditions. At the end of three years, the outstanding principal
balance on the facility converts to a two-year fully amortized term loan. The
Amended Credit Facility is guaranteed by the Company's subsidiaries and
secured by substantially all of the assets of the Company and its
subsidiaries, including accounts receivable and equipment. The Amended Credit
Facility contains various covenants, including the maintenance of defined
financial ratios such as net worth.
9
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DATA PROCESSING RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-
looking statements involve a number of risks and uncertainties, including,
without limitation, the Company's ability to recruit and retain qualified
technical consultants; manage growth; identify, acquire and integrate suitable
acquisition candidates; obtain sufficient working capital to support such
growth; compete successfully with existing and future competitors; and other
factors described throughout this Form 10-Q, in the Company's Form 10-K for
the year ended July 31, 1997, Form 10-Q for the quarters ended October 31,
1997 and January 31, 1998. The actual results that the Company achieves may
differ materially from any forward-looking statements due to such risks and
uncertainties. Words such as "believes", "anticipates", "expects", "intends",
and similar expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Company's other reports filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may affect the Company's business,
including the risk factors set forth in the Company's prospectus dated January
21, 1997 and Registration Statement on Form S-3 (No. 333-53371) dated May 22,
1998.
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30,
1997
Revenues. Revenues increased $24.8 million, or 79.0%, to $56.1 million for
the three months ended April 30, 1998 as compared to $31.4 million for the
three months ended April 30, 1997. This increase resulted primarily from the
contribution of revenues from the acquisitions of PSC (acquired in November
1996), Leardata (acquired in January 1997), Computec (acquired in April 1997),
SelecTech (acquired in July 1997), and S3G (acquired in January 1998) (the
"Acquisitions"). In addition, recently opened offices such as Seattle (opened
in June 1996), Des Moines (opened in September 1996), St. Louis (opened in May
1997), San Diego (opened in January 1998) and the Company's existing locations
in California have also contributed to the increase in revenues. The internal
growth rate, excluding the effect of acquisitions completed after January 31,
1997, for the three months ended April 30, 1998 was approximately 33% as
compared to approximately 23% in the third quarter of 1997. The increases were
also due to: (i) new information technology projects; (ii) increased demand in
the networking and communications market; (iii) a broadening of the types of
services being provided, such as packaged software implementations, network
management and desktop services, Tandem and Year 2000 conversions; and (iv)
increased billing rates resulting from an increase in consultant wages.
Gross Margin. Gross margin increased $8.3 million, or 105.3%, to $16.3
million, for the three months ended April 30, 1998 as compared to $7.9 million
for the three months ended April 30, 1997. As a percentage of revenues, gross
margin increased for the three months ended April 30, 1998 to 29.0% as
compared to 25.3% for the same period in 1997. This gross margin percentage
improvement reflects higher gross margins from: (i) the Acquisitions due to
their higher mix of salaried consultants; (ii) the opening of the offices in
higher margin geographic areas, such as Seattle, Des Moines, Portland and San
Diego; and (iii) a gross margin improvement program in existing markets and a
change in the mix of service offerings, with an increased component of higher
margin services, such as packaged software implementations, network management
and desktop services, Tandem and Year 2000 conversions for the three months
ended April 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $5.5 million, or 106.4%, to
$10.7 million for the three months ended April 30, 1998, as compared to $5.2
million for the three months ended April 30, 1997. Selling, general and
administrative expenses also increased as a percentage of revenues to 19.1%
for the three months ended April 30, 1998, as compared to 16.6% for the same
period in 1997. This increase primarily resulted from: (i) amortization of
intangible assets related to the Acquisitions; (ii) investment in additional
management personnel and corporate infrastructure required to
10
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support planned Company growth, particularly sales and recruiting personnel;
(iii) opening of the national recruiting office; (iv) costs related to new
office openings; (v) bad debt expense; and (vi) an increase in management
information systems expenses required to support planned Company growth.
Operating Income. Operating income increased $2.8 million, or 103.3%, to
$5.6 million for the three months ended April 30, 1998 from $2.7 million for
the same period in 1997. As a percentage of revenues, operating income
increased to 9.9% for the three months ended April 31, 1998 as compared to
8.7% for the three months ended April 30, 1997 reflecting the gross margin
improvement offset, in part, by an increase in selling, general and
administrative expenses as a percentage of revenues.
Interest (Expense) Income, net. The Company had net interest expense of
$302,000 for the three months ended April 30, 1998 as compared to net interest
income of $347,000 for the three months ended April 30, 1997 primarily as a
result of interest on borrowing related to the acquisition of S3G and interest
expense on the Notes issued in March 1998, which was offset by interest income
from the investment of proceeds of the Notes.
Provision for Income Taxes. The Company's effective income tax rate
increased to 44.0% for the three months ended April 30, 1998 from 39.7% for
the three months ended April 30, 1997. The increase in the effective income
tax rate is primarily due to the effect of a full quarter of nondeductible
amortization of goodwill on certain acquisitions offset by the tax benefit
associated with investment in short-term tax exempt cash equivalents.
NINE MONTHS ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997
Revenues. Revenues increased $70.7 million, or 94.0%, to $146.0 million for
the nine months ended April 30, 1998 as compared to $75.3 million for the nine
months ended April 30, 1997. This increase resulted primarily from the
contribution of revenues from the Acquisitions. In addition, recently opened
offices in Seattle, Des Moines, Portland, St. Louis, San Diego and the
Company's existing locations in California have also contributed to the
increase in revenues. The revenue increases were also due to: (i) new
information technology projects; (ii) increased demand in the networking and
communications market; (iii) a broadening of the types of services being
provided, such as packaged software implementations, network management and
desktop services, Tandem and Year 2000 conversions; and (iv) increased billing
rates resulting from an increase in consultant wages.
Gross Margin. Gross margin increased $22.6 million, or 124.1%, to $40.8
million, for the nine months ended April 30, 1998 as compared to $18.2 million
for the nine months ended April 30, 1997. As a percentage of revenues, gross
margin increased for the nine months ended April 30, 1998 to 28.0% as compared
to 24.2% for the prior period. This gross margin percentage improvement
reflects higher gross margins from: (i) the Acquisitions due to their higher
mix of salaried consultants; (ii) the opening of the office locations in
higher margin geographic areas, such as Seattle, Des Moines, Portland, and San
Diego; and (iii) the gross margin improvement program in existing markets and
a change in the mix of service offerings, with an increased component of
higher margin services such as packaged software implementations, network
management and desktop services, Tandem and Year 2000 conversions for the nine
months ended April 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $15.0 million, or 127.7%, to
$26.7 million for the nine months ended April 30, 1998, as compared to $11.7
million for the nine months ended April 30, 1997. Selling, general and
administrative expenses also increased as a percentage of revenues to 18.3%
for the nine months ended April 30, 1998, as compared to 15.6% for the prior
period. This increase primarily resulted from: (i) amortization of intangible
assets related to the Acquisitions; (ii) investment in additional management
personnel and corporate infrastructure required to support planned Company
growth, particularly sales and recruiting personnel; (iii) opening of the
national recruiting office; (iv) costs related to new office openings; (v)
bad-debt expense; and (vi) an increase in management information systems
expenses to support planned Company growth.
Operating Income. Operating income increased $7.7 million, or 117.6%, to
$14.2 million for the nine months ended April 30, 1998 from $6.5 million for
the same period in 1997. As a percentage of revenues,
11
<PAGE>
operating income increased to 9.7% for the nine months ended April 30, 1998 as
compared to 8.7% for the nine months ended April 30, 1997 reflecting the gross
margin improvement offset, in part, by an increase in selling, general and
administrative expenses as a percentage of revenues.
Interest (Expense) Income, net. The Company had net interest expense of
$113,000 for the nine months ended April 30, 1998 as compared to net interest
income of $673,000 for the nine months ended April 30, 1997 primarily as a
result of interest on borrowing related to the acquisition of S3G and interest
expense on the Notes issued in March 1998, which was offset by interest income
from the investment of proceeds of the Notes.
Provision for Income Taxes. The Company's effective income tax rate
increased to 44.0% for the nine months ended April 30, 1998 from 39.3% for the
nine months ended April 30, 1997. The increase in the effective income tax
rate is primarily due to the effect of a full nine months of nondeductible
amortization of goodwill on certain acquisitions offset by the tax benefit
associated with investment in short-term tax exempt cash equivalents.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and working capital totaled $105.4 million and
$120.3 million, respectively, as of April 30, 1998. The Company generated $6.2
million in cash flow from operations for the nine months ended April 30, 1998,
which included a use of cash of $6.7 million to fund increases in accounts
receivable. The Company used $29.5 million in cash in connection with its
ongoing acquisition program. The Company generated $111.1 million in cash from
the issuance of Notes in a private offering.
Accounts receivable balances have decreased on a days sales outstanding
basis to 49 days as of April 30, 1998 from 51 days as of July 31, 1997
partially due to the expansion of personnel in credit and collections.
On March 24, 1998, the Company completed the sale of $115 million of its 5
1/4% convertible subordinated Notes due 2005 in a private offering under Rule
144A to qualified institutional buyers. The Notes are convertible at any time
at the option of the holders into shares of common stock of DPRC at a
conversion price of $35.50 per share of common stock of the Company. The Notes
mature on April 1, 2005 and are non-callable for the first three years. The
Company used a portion of the net proceeds of the offering for repayment of
$19.5 million of debt outstanding under its credit facility and expects to use
remaining net proceeds of the offering for working capital and other general
corporate purposes, including acquisitions. Interest is payable on April 1 and
October 1 of each year, commencing on October 1, 1998. The Notes were recorded
net of a discount and issue costs of $3,950,000, which will be amortized over
seven years based on the effective interest method.
As of June 10, 1998, the Company amended its five-year, $60.0 million
Revolving/Term Loan Agreement (the "Amended Credit Facility") with a bank
syndicate. The Amended Credit Facility consists of a revolving line of credit
of $60.0 million principal amount, and bears interest at the prime rate to
prime rate plus .5% or LIBOR plus 0.50% to 1.75% depending on defined
financial conditions. At the end of three years, the outstanding principal
balance on the facility converts to a two-year fully amortized term loan. The
Amended Credit Facility is guaranteed by the Company's subsidiaries and
secured by substantially all of the assets of the Company and its
subsidiaries, including accounts receivable and equipment. The Amended Credit
Facility contains various covenants, including the maintenance of defined
financial ratios such as net worth. As of April 30, 1998, the Company had no
borrowings outstanding under the credit facility and was in compliance with or
received waivers on bank covenants.
The Company previously completed the acquisition by merger of Computec on
April 30, 1997. Under the terms of the agreement, an earnout payment of
approximately $5.0 million, which is expected to be paid in June 1998, was
recorded in intangible assets and accounts payable and accrued liabilities as
of April 30, 1998. The definitive agreement also obligates the Company to make
earnout payments contingent upon Computec's earnings before interest and taxes
through December 31, 1998. Specifically, the earnout is conditioned upon
Computec's obtaining a higher earnings before interest and taxes in calendar
years 1997 and 1998 as compared to calendar years 1996 and 1997, respectively,
and if achieved, will be calculated based upon a multiple of the calendar
year's earnings before interest and taxes that is in excess of the prior
year's earnings before interest and
12
<PAGE>
taxes. The earnout is payable 60% in cash and 40% in shares of common stock.
The aggregate amount of the initial consideration and the earnout may not
exceed $70.0 million. Should Computec achieve its contingent earnout
thresholds, the obligation under this arrangement could be material to the
consolidated financial statements. The Company expects to pay any such earnout
payment from existing cash and cash equivalents, cash flow from operations and
available borrowings under the Amended Credit Facility.
On January 27, 1998, the Company completed the acquisition of substantially
all the assets of S3G for approximately $28.2 million in cash and 204,552
shares of restricted DPRC common stock, valued at approximately $4.0 million.
The Company borrowed $25.5 million under the credit facility to finance a
portion of the cash purchase price of such acquisition. The definitive
agreement also obligates the Company to make additional earnout payments semi-
annually contingent upon earnings before interest and taxes of the S3G
business through December 31, 1998. The earnout is conditioned upon the S3G
business first obtaining a 30% growth rate in calendar year 1998 as compared
to calendar year 1997 and, if achieved, will be calculated based upon a
multiple of the amount of the calendar year 1998 earnings before interest and
taxes that is in excess of such threshold. The earnout is payable semi-
annually, 85% in cash and 15% in shares of Common Stock. Should the S3G
business achieve its earnout thresholds, the obligation under this arrangement
could be material to the consolidated financial statements. The Company
expects to pay any such earnout payment from existing cash and cash
equivalents, cash flow from operations and available borrowings under the
Amended Credit Facility.
The Company has made a commitment to install and implement a new financial
accounting system ("New Financial System") at a cost of up to $5.0 million.
The New Financial System is expected to take 18-24 months to install and
implement.
The Company anticipates that its primary uses of working capital in future
periods will be for acquisitions, the internal development of new offices,
investments in its management information systems, earnouts 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 acquisitions was paid in cash. The Company continually
reviews and evaluates acquisition candidates to complement and expand its
business, and is at various stages of evaluation and discussion with a number
of such candidates. Such 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 offices will be
added through acquisitions as compared to internal development.
The Company anticipates that the opening of new offices will require an
investment of approximately $150,000 to $200,000 per office to acquire
equipment and supplies and to fund operating losses for the initial nine- to
12-month period of operations which management believes will generally be
required for a new office to achieve profitability. The Company expenses the
costs of opening a new office as incurred, except for the cost of equipment
and other capital assets, which are capitalized. Generally, expenditures for
such capital assets for a new office will be less than $60,000. There can be
no assurance that future offices will achieve profitability within a nine- to
12-month period after opening. The Company anticipates making additional
capital expenditures in connection with the development of new offices 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 Amended Credit Facility
will be sufficient to meet the Company's presently anticipated working capital
needs for at least the next 12 months, although the Company is evaluating
various potential acquisitions which could require a substantial portion of
the existing cash and cash equivalents and availability under the Amended
Credit Facility and could be completed within the next 12 months. To the
extent the Company uses all of its cash resources and existing credit for
acquisitions, the Company may be required to obtain additional funds, if
available, through additional borrowings or equity financings. There can be no
assurance that such capital will be available on acceptable terms. If the
Company is unable to obtain sufficient financing, it may be unable to fully
implement its growth strategy.
13
<PAGE>
YEAR 2000
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the use of computer programs which have been written using two digits, rather
than four, to define the applicable year of business transactions. The
Company's principal staffing and financial systems are licensed from and
maintained by third party software development companies, which the Company
believes are Year 2000 compliant. In addition, the Company is currently in the
process of selecting a New Financial System, which management believes is and
the software vendor has represented as being Year 2000 compliant. Management
does not anticipate significant unplanned costs or problems with the new
systems for Year 2000 compliance. Suppliers, customers and creditors of the
Company face Year 2000 issues. Should these entities be unable to successfully
address their Year 2000 issues, it may have an adverse effect on the Company.
14
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 24, 1998, the Company sold $115,000,000 aggregate principal amount
of its 5 1/4% convertible subordinated notes due 2005. The notes are
convertible, at the option of the holder, into shares of common stock of the
Company at any time prior to maturity, unless previously redeemed or
repurchased, at a conversion price of $35.50 per share, subject to adjustment
in certain events. The notes were sold by the Company to NationsBanc
Montgomery Securities LLC, Donaldson, Lufkin & Jenrette Securities
Corporation, Robert W. Baird & Co., Incorporated and Lehman Brothers
(collectively, the "Initial Purchasers") pursuant to a purchase agreement
dated March 18, 1998. The price to investors for the notes sold in the
offering was 100% of the principal amount thereof for an aggregate offering
price of $115,000,000. The Company received approximately $111,000,000 in net
proceeds from the sale of the notes after the Initial Purchasers' discount of
3% of the aggregate principal amount of the notes for an aggregate discount of
$3,450,000 and after other issue costs. The issuance of the notes, including
the common stock issuable upon conversion of the notes, was exempt from the
registration requirements of the Securities Act of 1933, as amended, since the
securities were sold in reliance upon Rule 144A under the Securities Act of
1933, as amended.
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 10 Amendments No. 1 and No. 2 to Revolving/Term Loan Agreement
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 third quarter of fiscal
1998:
Current Report on Form 8-K dated January 27, 1998 and filed on February
11, 1998, filing under Item 2 statement regarding the acquisition by the
Company of substantially all the assets of S3G, Inc. ("S3G").
The financial statements of S3G were filed in Current Report on Form 8-
K/A dated January 27, 1998 and filed on March 5, 1998, filing under Item
7 statement regarding the acquisition by the Company of substantially all
the assets of S3G. Current Report of Form 8-K/A dated January 27, 1998
and filed on March 20, 1998, filing under Item 7 financial statement
regarding the acquisition by the Company of S3G.
15
<PAGE>
Current Report on Form 8-K dated March 5, 1998 and filed on March 5,
1998, filing under Item 5 statement regarding issuance of press release
announcing the Company's intent to raise $85 million through a private
placement under Rule 144A of convertible subordinated notes.
Current Report on Form 8-K dated March 24, 1998 and filed on March 24,
1998, filing under Item 5 statement regarding completion of the sale of
$115 million of its 5 1/4% convertible subordinated notes.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to the report on Form 10-Q to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Newport Beach, State of California, on the 28th day of September, 1998.
DATA PROCESSING RESOURCES CORPORATION
By: /s/ JAMES A. ADAMS
-----------------------
James A. Adams
Chief Financial Officer and
Chief Accounting Officer
17
<PAGE>
AMENDMENT NO. 1 TO REVOLVING/TERM LOAN AGREEMENT
This Amendment No. 1 to Revolving/Term Loan Agreement (this "Amendment") is
entered into with reference to the Revolving/Term Loan Agreement dated as of
September 25, 1997 (the "Loan Agreement") among Data Processing Resources
Corporation ("Borrower"), the Lenders party thereto, and Wells Fargo Bank,
National Association, as Administrative Agent. Capitalized terms used but not
defined herein are used with the meanings set forth for those terms in the Loan
Agreement.
Borrower and the Administrative Agent, acting with the consent of the
Requisite Lenders pursuant to Section 11.2 of the Loan Agreement, agree as
follows:
1. Amendment to Section 1.1 Section 1.1 of the Loan Agreement is amended by
adding the following definition at the appropriate alphabetical place:
"Convertible Subordinated Notes" means Borrower's Convertible
Subordinated Notes due 2005 issued pursuant to Rule 144A of the
Securities and Exchange Commission on or about March 25, 1998.
2. Amendment to Section 1.1. Section 1.1 of the Loan Agreement is further
amended by adding the following proviso at the end of the definition of
"Applicable Pricing Level":
; and provided further that, notwithstanding anything to the contrary
heretofore set forth in this definition, the Applicable Pricing Level
for the period commencing on the issuance of the Convertible
Subordinated Notes and ending on the effective date of Amendment No. 2
to this Agreement shall be Pricing Level V.
3. Amendment to Section 2.1(a). Section 2.1(a) of the Loan Agreement is
amended by adding the following proviso at the end of the first sentence
thereof:
; provided that during the period commencing on the issuance of the
Convertible Subordinated Notes and ending on the effective date of
Amendment No. 2 to this Agreement, the obligations of the Lenders to
make an Advance under this Section 2.1(a) shall be
<PAGE>
subject to the further condition precedent that all of the Lenders
shall have expressly consented to such Advance.
4. Approval of Convertible Subordinated Notes. The Requisite Lenders hereby
approve (a) pursuant to the definition of "Subordinated Obligations", the form
of the subordination provisions, covenants, events of default and other
provisions of the Convertible Subordinated Notes; provided that the same do not
differ in any significant respect from those set forth in the draft thereof
dated March 5, 1998 (8:00 a.m.) furnished to the Lenders and (b) pursuant to
Section 6.10(f), issuance of the Convertible Subordinated Notes in a principal
amount not in excess of $115,000,000; provided that the net cash proceeds of
such issuance are applied, within one (1) Banking Day of receipt thereof by
Borrower, to the extent necessary to reduce the outstanding Indebtedness
evidenced by the Notes to zero.
5. Temporary Waiver of Section 6.13. The Requisite Lenders hereby waive
compliance by Borrower with Section 6.13 for the period commencing on the
issuance of the Convertible Subordinated Notes and ending on April 30, 1998;
provided that (a) not later than March 6, 1998, Borrower provides the
Administrative Agent with updated projected financial statements (giving effect
to the issuance of the Convertible Subordinated Notes) covering the period
through July 31, 2002 and (b) promptly following delivery of such projected
financial statements, Borrower enters into good faith negotiations with the
Administrative Agent for the amendment of Section 6.13 such that that covenant
will continue to provide a meaningful and appropriate criterion for measuring
the financial condition of Borrower.
6. Conditions Precedent. The effectiveness of this Amendment shall be
conditioned upon the receipt by the Administrative Agent of all of the
following, each properly executed by a Responsible Official of each party
thereto and dated as of the date hereof:
a. Counterparts of this Amendment executed by all parties hereto;
b. Written consent of the Requisite Lenders as required under
Section 11.2 of the Loan Agreement in the form of Exhibit A to
this Amendment; and
c. Consummation of the issuance of the Convertible Subordinated
Notes.
-2-
<PAGE>
7. Representation and Warranty. Borrower represents and warrants that no
Default or Event of Default has occurred and remains continuing.
8. Confirmation. In all other respects, the terms of the Loan Agreement and
the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have executed
this Amendment as of March 10, 1998 by their duly authorized representatives.
DATA PROCESSING RESOURCES
CORPORATION
By: /s/ Michael A. Piraino
---------------------------------------
Michael A. Piraino
Chief Financial Officer
WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Administrative Agent
By: /s/ Elliot Ichnose
---------------------------------------
Elliot Ichnose
Vice President
-3-
<PAGE>
Exhibit A to Amendment
CONSENT OF LENDER
-----------------
Reference is hereby made to that certain Revolving/Term Loan Agreement
dated as of September 25, 1997 (the "Loan Agreement") among Data Processing
Resources Corporation ("Borrower"), the Lenders party thereto and Wells Fargo
Bank, National Association, as Administrative Agent. Capitalized terms used but
not defined herein are used with the meanings set forth for those terms in the
Loan Agreement.
The undersigned Lender hereby consents to the execution and delivery of
Amendment No. 1 to Revolving/Term Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of a draft dated on or about March 6, 1998
presented to the undersigned Lender.
Date: March ______, 1998
---------------------------------------
[Name of Institution]
By:
-----------------------------------
---------------------------------------
[Printed Name and Title]
-4-
<PAGE>
AMENDMENT NO. 2 TO REVOLVING/TERM LOAN AGREEMENT
This Amendment No. 2 to Revolving/Term Loan Agreement (this "Amendment") is
entered into with reference to the Revolving/Term Loan Agreement dated as of
September 25, 1997 (as heretofore amended, the "Loan Agreement") among Data
Processing Resources Corporation ("Borrower"), the Lenders party thereto, and
Wells Fargo Bank, National Association, as Administrative Agent. Capitalized
terms used but not defined herein are used with the meanings set forth for those
terms in the Loan Agreement.
Borrower and the Administrative Agent, acting with the consent of all of
the Lenders pursuant to Section 11.2 of the Loan Agreement, agree as follows:
1. Section 1.1. Section 1.1 of the Loan Agreement is amended by
striking the table set forth in the definition of "Applicable Alternate Base
Rate Margin" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Margin
------------- ------
<S> <C>
I 0
II 0
III 0
IV 0
V 50
</TABLE>
2. Section 1.1. Section 1.1 of the Loan Agreement is further amended by
striking the table set forth in the definition of "Applicable Commitment Fee
Rate" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Commitment Fee
------------- --------------
<S> <C>
I 20
II 20
III 25
IV 30
V 35
</TABLE>
<PAGE>
3. Section 1.1. Section 1.1 of the Loan Agreement is further amended by
striking the table set forth in the definition of "Applicable Eurodollar Rate
Margin" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Commitment Fee
------------- --------------
<S> <C>
I 50
II 75
III 100
IV 125
V 175
</TABLE>
4. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by striking the definition of "EBITDA" and substituting in its place the
following:
"EBITDA" means, with respect to any fiscal period, the sum of (a)
Adjusted Net Income for that period, plus (b) any non-operating non-
recurring loss reflected in such Adjusted Net Income, minus (c) any
non-operating non-recurring gain reflected in such Adjusted Net
Income, plus (d) Interest Expense of each of (i) Borrower and its
Subsidiaries and (ii) the Person that is the subject of a Permitted or
Approved Acquisition for that period, plus (e) the aggregate amount
of federal and state taxes on or measured by income of each of (i)
Borrower and its Subsidiaries and (ii) the Person that is the subject
of a Permitted or Approved Acquisition for that period (whether or not
payable during that period), plus (f) depreciation, amortization and
all other non-cash expenses of each of (i) Borrower and its
Subsidiaries and (ii) the Person that is the subject of a Permitted or
Approved Acquisition for that period, in each case as determined in
accordance with GAAP, consistently applied.
5. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by striking the definition of "Funded Debt Ratio" and substituting in its place
the following:
"Funded Debt Ratio" means, as of the last day of each Fiscal Quarter,
the ratio of (a)(i) all Indebtedness of Borrower and its Subsidiaries
on that date minus (ii) the amount, if any, by which the aggregate
Cash and Cash Equivalents of Borrower and its Subsidiaries on that
date exceeds $15,000,000 to (b) EBITDA for the fiscal period
consisting of the four (4) Fiscal Quarters ended on that date.
2
<PAGE>
6. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by striking the definition of "Maturity Date" and substituting in its place the
following:
"Maturity Date" means June 30, 2003.
7. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by striking the definition of "Permitted Acquisition" and substituting in its
place the following:
"Permitted Acquisition" means an Acquisition by Borrower or one of
its Subsidiaries (a) of a Person engaged in the same or a closely-
related line of business as Borrower, (b) that, taken together with
all transactions related thereto, does not involve either (i) Cash
payments by Borrower or any of its Subsidiaries (other than for
customary transactional expenses), when added to the aggregate of all
Cash payments by Borrower and its Subsidiaries for all Acquisitions
subsequent to April 1, 1998, in excess of $100,000,000 or (ii) the
funding of any portion of such Cash payments by a Loan and (c) that,
taken together with all transactions related thereto, does not
involve either (i) Cash payments by Borrower or any of its
Subsidiaries (other than for customary transaction expenses) in
excess of $25,000,000 or (ii) total payments (including Cash, Seller
Subordinated Notes, capital stock and other Property) by Borrower or
any of its Subsidiaries (other than for customary transactional
expenses), when added to the aggregate of all total payments by
Borrower and its Subsidiaries for all Acquisitions made during the
then preceding one (1) year period, in excess of $50,000,000;
provided that (A) the amount of payments described in clauses (c)(i)
and (c)(ii) above shall include Borrower's best estimate at the time
of the Permitted Acquisition of future potential or contingent
payments, which estimate shall remain applicable notwithstanding
actual payments in excess of such best estimate and (B) all Cash
payments or prepayments payable under any Seller Subordinated Note
during the eighteen (18) months immediately following the Permitted
Acquisition shall be treated as Cash for purposes of clauses (c)(i).
8. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by striking the definition of "Revolver Termination Date" therein set forth and
substituting in its place the following:
"Revolver Termination Date" means June 30, 2001.
9. Section 1.1. Section 1.1 of the Loan Agreement is further amended
by adding the following new definitions at the appropriate alphabetical places:
3
<PAGE>
"Adjustment Amount" means, with respect to a Permitted or Approved
Acquisition, the aggregate non-recurring charges or adjustments
related to that Permitted or Approved Acquisition, or to Acquisitions
previously made by that Person, reflected in Net Income or reflected
in the net income of the Person that is the subject of the Permitted
or Approved Acquisition (including pooling-of-interest expenses,
goodwill charges, adjustments for owners' compensation or fringe
benefits that will be revised in connection with the Acquisition);
provided that Borrower furnishes to the Administrative Agent
reasonably satisfactory documentation in support of such non-recurring
charges.
"Adjusted Net Income" means, with respect to any fiscal period, (a)
Net Income for that fiscal period plus (b) the net income (determined
in accordance with GAAP) of a Person that is the subject of a
Permitted or Approved Acquisition for that fiscal period plus (c) any
applicable Adjustment Amount.
"Capital Expenditure" means any expenditure by Borrower or any of its
Subsidiaries for or related to fixed assets or purchased intangibles
that is treated as a capital expenditure under GAAP, including any
amount which is required to be treated as an asset subject to a
Capital Lease Obligation. The amount of Capital Expenditures in
respect of fixed assets purchased or constructed by Borrower or any of
its Subsidiaries in any fiscal period shall be net of (a) any net
sales proceeds received during such fiscal period by Borrower or such
Subsidiary for fixed assets sold by Borrower or such Subsidiary and
(b) any casualty insurance proceeds received during such fiscal period
by Borrower or such Subsidiary for casualties to fixed assets and
applied to the repair or replacement thereof. The amount expended for
a Permitted or Approved Acquisition shall not be deemed a Capital
Expenditure.
"Fixed Charge Coverage Ratio" means, as of the last day of any Fiscal
Quarter, the ratio of (a) EBITDA for the fiscal period consisting of
the four (4) Fiscal Quarters ended on that date minus Capital
Expenditures made by each of (i) Borrower and its Subsidiaries and
(ii) the Person that is the subject of a Permitted or Approved
Acquisition during such fiscal period to (b) the sum of (i) Interest
Expense of each of (i) Borrower and its Subsidiaries and (ii) the
Person that is the subject of a Permitted or Approved Acquisition for
such fiscal period plus (ii) the current portion of long-term debt of
Borrower and its Subsidiaries on such date plus (iii) the current
portion of long-term lease obligations of Borrower and its
Subsidiaries on such date.
4
<PAGE>
"Permitted or Approved Acquisition" means an Acquisition that is
either (a) a Permitted Acquisition or (b) approved by the Requisite
Lenders pursuant to a waiver of Section 6.5 in accordance with Section
11.2.
10. Section 4.20. The Loan Agreement is amended by adding a new Section
4.20 to read as follows:
4.20 Year 2000 Issues. To the best of Borrower's knowledge after
reasonable diligence, all computer software programs and related
systems and hardware reasonably necessary for Borrower's businesses as
currently operated are Y2K Compliant and that, notwithstanding the
foregoing, to the extent that any of such programs and related systems
and hardware are not Y2K Compliant, Borrower, in the exercise of its
reasonable judgment, does not anticipate that such noncompliance will
give rise to a Material Adverse Effect. As used herein, "Y2K
Compliant" means, with respect to computer software programs and
related systems and hardware, that such programs, systems and hardware
are written and set up, as the case may be, in a manner that permits
them to operate properly, without programming modifications, using
date data fields for dates on and after January 1, 2000 as well as
dates on and after January 1, 1900 through December 31, 1999.
11. Section 5.15. The Loan Agreement is amended by adding a new Section
5.15 to read as follows:
5.15 Year 2000 Issues. Continue to make such inquiries and perform
such other acts as may be reasonably necessary to reasonably ensure
that Borrower and any business in which Borrower owns a substantial
interest are Y2K Compliant (as defined in Section 4.20) or will become
Y2K Compliant within a reasonable time. Borrower shall, within 60 days
of request by the Administrative Agent, provide to the Administrative
Agent a written report summarizing in reasonable detail Borrower's
actions to comply with this Section 5.15 and the results of such
actions; provided, however, that Borrower shall not be obligated to
respond to more than one such request per calendar quarter.
12. Section 6.1. Section 6.1 of the Loan Agreement is amended by
striking "Senior Subordinated Notes" in the penultimate line thereof and
replacing it with "Seller Subordinated Notes".
5
<PAGE>
13. Section 6.6. Section 6.6 of the Loan Agreement is amended by striking
clause (d) thereof and substituting in its place the following:
(d) repurchases or redemptions of Common Stock, provided that (i) no
Default or Event of Default then exists or would result therefrom and
(ii) the aggregate repurchase/redemption price does not exceed an
amount equal to the sum of (A) $8,000,000 plus (B) $1,000,000 as of
July 1, 1999 plus (C) $1,000,000 as of each subsequent July 1 for all
such repurchases/redemptions during the term of this Agreement.
14. Section 6.13. Section 6.13 of the Loan Agreement is amended, effective
as of April 30, 1998, by striking the table set forth therein and substituting
therefor the following:
<TABLE>
<CAPTION>
Fiscal Quarter
or Period Ratio
-------------- -----
<S> <C>
July 31, 1997 through 3.00 to 1.00
July 31, 1999
August 1, 1999 through 2.50 to 1.00
July 31, 2000
August 1, 2000 through 2.00 to 1.00
July 31, 2001
August 1, 2001 1.75 to 1.00
and thereafter
15. Section 6.14. Section 6.14 of the Loan Agreement is amended by
striking the table set forth therein and substituting therefor the following:
Fiscal Quarter
Ending Amount
------- ------
July 31, 1997 $10,000,000
October 31, 1997 12,000,000
January 31, 1998 15,000,000
April 30, 1998 18,000,000
July 31, 1998 22,800,000
October 31, 1998 25,000,000
January 31, 1999 26,400,000
April 30, 1999 28,000,000
July 31, 1999 29,600,000
October 31, 1999 and 30,000,000
thereafter
</TABLE>
6
<PAGE>
16. Section 6.14A. The Loan Agreement is amended by adding a new Section
6.14A to read as follows:
6.14A. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio, as of the last day of any Fiscal Quarter, to be less than 2.00
to 1.00.
17. Section 6.15. Section 6.15 of the Loan Agreement is amended by (a)
striking the figures "$90,000,000" in clause (a) thereof and substituting in
their place the figures $100,000,000" and (b) striking clause (b) thereof and
substituting in its place the following:
(b) 100% of Adjusted Net Income in the Fiscal Quarter ending July 31,
1998 and each Fiscal Quarter thereafter (with no deduction for a net
loss in any such Fiscal Quarter.
18. Section 6.19. The Loan Agreement is amended by adding a new Section
6.19 to read as follows:
6.19 Capital Expenditures. Make any Capital Expenditure if to do so
would result in the aggregate of all Capital Expenditures made in that
Fiscal Year to exceed $3,000,000.
19. Compliance Certificate. The Compliance Certificate is amended to read
as set forth in Exhibit C to this Amendment.
20. Replacement of Lenders. As of the effective date of this Amendment,
(a) National City Bank shall cease to be a Lender and shall have no further
rights and be subject to no further obligations under the Loan Agreement;
provided that on such date Borrower pays to National City Bank all accrued and
unpaid commitment fees to which it is entitled under Section 3.3 of the Loan
Agreement, (b) NationsBank of Texas, N.A. shall cease to be a Lender and shall
have no further rights and be subject to no further obligations under the Loan
Agreement; provided that on such date Borrower pays to NationsBank of Texas,
N.A. all accrued and unpaid commitment fees to which it is entitled under
Section 3.3 of the Loan Agreement, and (c) Fleet National Bank shall (i) become
a Lender and shall thereafter have the rights and be subject to the obligations
of a Lender under the Loan Agreement and (ii) become Co-Agent under the Loan
Agreement provided that in their capacity as Co-Agent Fleet National Bank shall
have no rights nor obligations under the Loan Agreement.
21. Schedule 1.1. Schedule 1.1 is amended to read as set forth in Schedule
1.1 to this Amendment.
22. Conditions Precedent. The effectiveness of this Amendment shall be
conditioned upon:
7
<PAGE>
(a) the receipt by the Administrative Agent of all of the following,
each properly executed by an authorized officer of each party
thereto and dated as of the date hereof:
(i) Counterparts of this Amendment executed by all parties
hereto;
(ii) Written consent of all of the Lenders as required under
Section 11.2 of the Loan Agreement in the form of Exhibit
A to this Amendment; and
(iii) Written consents of the Subsidiary Guarantors in the form
of Exhibit B to this Amendment.
(b) payment to the Administrative Agent, for the account of the
Lenders according to their Pro Rata Share of the Commitment, an
amendment fee of $45,000.
23. Representation and Warranty. Borrower represents and warrants that no
Default or Event of Default has occurred and remains continuing.
24. Confirmation. In all other respects, the terms of the Loan Agreement
and the other Loan Documents are hereby confirmed.
8
<PAGE>
IN WITNESS WHEREOF, Borrower and the Administrative Agent have executed
this Amendment as of June 10, 1998 by their duly authorized representatives.
DATA PROCESSING RESOURCES
CORPORATION
By: /s/ Michael A. Piraino
--------------------------------
Michael A. Piraino
Executive Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent
By: /s/ Elliott E. Ichinose
--------------------------------
Elliott E. Ichinose
Vice President
9
<PAGE>
Exhibit A to Amendment
CONSENT OF LENDER
-----------------
Reference is hereby made to that certain Revolving Term Agreement dated as
of September 25, 1997 (as heretofore amended, the "Loan Agreement") among Data
Processing Resources Corporation ("Borrower"), the Lenders party thereto and
Wells Fargo Bank, National Association, as Administrative Agent. Capitalized
terms used but not defined herein are used with the meanings set forth for those
terms in the Loan Agreement.
The undersigned Lender hereby consents to the execution and delivery of
Amendment No. 2 to Revolving/Term Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft presented to the
undersigned Lender.
Date: June __, 1998
[Name of Institution]
By
-----------------------------
--------------------------------
[Printed Name and Title]
10
<PAGE>
Exhibit B to Amendment
CONSENT OF SUBSIDIARY GUARANTORS
--------------------------------
Reference is hereby made to that certain Revolving Term Loan Agreement
dated as of September 27, 1997 among Data Processing Resources Corporation
("Borrower"), the Lenders party thereto, and Wells Fargo Bank, National
Association, as Administrative Agent (as heretofore amended, the "Loan
Agreement").
Each of the undersigned Subsidiary Guarantors hereby consents to Amendment
No. 2 to the Loan Agreement in the form executed by Borrower and confirms that
the Subsidiary Guaranty and all Collateral Documents to which it is a party
remain in full force and effect.
Dated: June __, 1998
"Guarantors"
LEARDATA INFO-SERVICES, INC. PROFESSIONAL SOFTWARE
CONSULTANTS, INC.
By: By:
------------------------------ -------------------------------
Michael A. Piraino Michael A. Piraino
Secretary and Treasurer Chief Financial Officer,
Treasurer and Secretary
SELECTECH, INC. COMPUTEC INTERNATIONAL
STRATEGIC RESOURCES, INC.
By: By:
------------------------------ -------------------------------
Michael A. Piraino Michael A. Piraino
Chief Financial Officer, Chief Financial Officer
Treasurer and Secretary and Secretary
EXI CORP.
By:
------------------------------
- ----------------------------------
[Printed name and title]
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from internally
prepared consolidated financial statements for the 9 months ended April 30, 1998
and is qualified in its entirety by reference to such form 10-Q for period ended
April 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 105,357
<SECURITIES> 0
<RECEIVABLES> 31,067
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 139,309
<PP&E> 2,930
<DEPRECIATION> 0
<TOTAL-ASSETS> 244,204
<CURRENT-LIABILITIES> 19,046
<BONDS> 0
0
0
<COMMON> 95,869
<OTHER-SE> 3,231
<TOTAL-LIABILITY-AND-EQUITY> 244,204
<SALES> 0
<TOTAL-REVENUES> 146,012
<CGS> 0
<TOTAL-COSTS> 105,172
<OTHER-EXPENSES> 26,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 14,066
<INCOME-TAX> 6,189
<INCOME-CONTINUING> 7,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,877
<EPS-PRIMARY> .71<F1>
<EPS-DILUTED> .68<F2>
<FN>
<F1>EPS is reported as "Basic EPS," as prescribed by SFAS No. 128
<F2>EPS is reported as "Diluted EPS," as prescribed by SFAS No. 128
<FN>
</TABLE>
