UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 0-28148
THE VINCAM GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2452823
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 Douglas Road Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
(305) 460-2350
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
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 ____
As of August 7, 1998, The Vincam Group, Inc. had 15,678,557 shares of
common stock, $.001 par value, outstanding.
1
<PAGE>
THE VINCAM GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
Part I Financial Information
Item 1. Financial Statements..................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 14
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 6. Exhibits and Reports on Form 8-K......................... 24
Signatures......................................................... 25
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
The Vincam Group, Inc.
Unaudited Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997.............................. 4
Unaudited Consolidated Statements of Operations for
the Three and the Six Months Ended June 30, 1998
and 1997................................................ 5
Unaudited Consolidated Statement of Changes in
Stockholders' Equity for the Six Months Ended
June 30, 1998........................................... 6
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997......... 7
Notes to Consolidated Financial Statements (Unaudited).... 8
3
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THE VINCAM GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ 10,822,631 $ 4,934,755
Investments ........................................... -- 1,766,737
Accounts receivable, net .............................. 58,155,815 48,924,247
Due from affiliates ................................... 317,959 561,673
Income tax receivable ................................. 451,894 1,536,371
Deferred taxes ........................................ 735,488 735,488
Reinsurance recoverable ............................... 585,387 1,692,513
Prepaid workers' compensation insurance premium ....... 9,969,270 14,467,403
Prepaid expenses and other current assets ............. 4,992,649 3,020,745
------------ ------------
Total current assets ........................... 86,031,093 77,639,932
Property and equipment, net ........................... 8,225,510 7,852,498
Deferred taxes ........................................ 640,735 640,735
Goodwill and client contracts, net .................... 7,144,113 7,384,323
Other assets .......................................... 1,578,238 1,498,438
------------ ------------
$103,619,689 $ 95,015,926
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ................. $ 5,249,129 $ 4,712,931
Accrued salaries, wages and payroll taxes ............. 50,787,484 39,887,369
Reserve for claims .................................... 3,822,833 4,106,734
Income tax payable .................................... 1,461,006 --
Current portion of borrowings ......................... 4,257,546 11,061,009
Deferred gain ......................................... 167,786 460,294
------------ ------------
Total current liabilities ...................... 65,745,784 60,228,337
Long term borrowings, less current portion ................ -- 36,818
Reserve for claims ........................................ 215,000 402,000
Other liabilities ......................................... 871,026 1,038,037
------------ ------------
Total liabilities .............................. 66,831,810 61,705,192
------------ ------------
Commitments and contingencies (Note 6) .................... -- --
------------ ------------
Stockholders' equity:
Common stock, $.001 par value, 60,000,000 shares
authorized, 15,666,930 shares issued and outstanding 15,666 15,391
Additional paid in capital ............................ 35,461,945 35,142,798
Retained earnings (accumulated deficit) ............... 1,310,268 (1,847,455)
------------ ------------
Total stockholders' equity ..................... 36,787,879 33,310,734
------------ ------------
$103,619,689 $ 95,015,926
============ ============
</TABLE>
4
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THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues..................................... $ 311,568,684 $ 235,787,653 $ 595,791,454 $ 455,103,968
--------------- --------------- --------------- ---------------
Direct costs:
Salaries, wages and employment
taxes of worksite employees............ 279,346,701 210,330,426 533,944,220 404,830,778
Health care and workers' compensation.... 12,335,816 8,685,799 22,768,274 17,635,549
State unemployment taxes and other....... 3,435,129 2,382,276 7,055,065 5,068,781
--------------- --------------- --------------- ---------------
Total direct costs................. 295,117,646 221,398,501 563,767,559 427,535,108
--------------- --------------- --------------- ---------------
Gross profit................................. 16,451,038 14,389,152 32,023,895 27,568,860
--------------- --------------- --------------- --------------
Operating expenses:
Administrative personnel................. 6,524,229 6,299,782 12,950,609 12,017,388
Other general and administrative......... 3,332,961 5,144,960 6,957,307 8,443,829
Sales and marketing...................... 2,147,173 1,894,531 3,862,536 3,444,270
Depreciation and amortization............ 731,866 986,844 1,456,204 1,752,950
--------------- --------------- --------------- ---------------
Total operating expenses........... 12,736,229 14,326,117 25,226,656 25,658,437
--------------- --------------- --------------- ---------------
Operating income............................. 3,714,809 63,035 6,797,239 1,910,423
Interest (expense) income, net............... (33,694) 83,614 (73,784) 259,391
--------------- --------------- --------------- ---------------
Income before taxes.......................... 3,681,115 146,649 6,723,455 2,169,814
Provision for income taxes................... (1,325,000) (249,091) (2,564,000) (1,053,498)
--------------- --------------- --------------- ---------------
Net income (loss)............................ $ 2,356,115 $ (102,442) $ 4,159,455 $ 1,116,316
=============== =============== =============== ===============
Basic net income (loss) per common share..... $ 0.15 $ (0.01) $ 0.27 $ 0.07
=============== =============== =============== ===============
Weighted average number of shares
outstanding used in basic earnings
per share calculation.................... 15,629,071 15,464,234 15,596,231 15,433,347
=============== =============== =============== ===============
Diluted net income (loss) per common share... $ 0.15 $ (0.01) $ 0.26 $ 0.07
=============== =============== =============== ===============
Weighted average number of shares
outstanding used in diluted earnings
per share calculation.................... 16,138,551 15,942,335 16,171,641 15,936,422
=============== =============== =============== ===============
</TABLE>
5
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THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
--------------------------- Paid in (Accumulated
Shares Par Value Capital Deficit) Total
------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.................. 15,390,880 $ 15,391 $ 35,142,798 $ (1,847,455) $ 33,310,734
Issuance of common stock under
acquisition agreements....................... 150,000 150 (1,001,732) (1,001,582)
Issuance of common stock to
employees under stock option plans........... 126,050 125 319,147 -- 319,272
Net income.................................... -- -- -- 4,159,455 4,159,455
------------- ----------- ------------- ------------- -------------
Balance at June 30, 1998...................... 15,666,930 $ 15,666 $ 35,461,945 $ 1,310,268 $ 36,787,879
============= =========== ============= ============= =============
</TABLE>
6
<PAGE>
THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June30,
1998 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 4,159,455 $ 1,116,316
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 1,456,204 1,752,950
Provision for doubtful accounts.......................... 418,628 557,256
Deferred gain............................................ (292,508) 208,174
Deferred income tax expense.............................. -- 123,455
Changes in assets and liabilities:
Increase in accounts receivable........................ (9,650,196) (7,158,736)
Decrease in due from affiliates........................ 243,714 17,708
Decrease in income tax receivable...................... 1,084,477 --
Decrease (increase) in reinsurance recoverable......... 1,107,126 (827,369)
Decrease in prepaid workers' compensation
insurance premium.................................... 4,498,133 2,213,029
Increase in prepaid expenses and other current assets.. (1,971,904) (972,158)
(Increase) decrease in other assets.................... (123,780) 177,560
Increase in accounts payable and accrued expenses...... 536,198 565,301
Increase in accrued salaries, wages and payroll taxes.. 10,223,530 5,452,925
Decrease in reserve for claims......................... (795,901) (1,963,057)
Increase (decrease) in income taxes payable............ 1,461,006 (331,406)
Decrease in other liabilities.......................... (167,011) (233,180)
-------------- -------------
Net cash provided by operating activities..................... 12,187,171 698,768
-------------- -------------
Cash flows from investing activities:
Purchases of property and equipment........................ (1,545,026) (2,671,144)
Redemption (purchases) of short term investments........... 1,766,737 (581,592)
-------------- -------------
Net cash provided by (used in) investing activities........... 221,711 (3,252,736)
-------------- -------------
Cash flows from financing activities:
Principal payments on borrowings........................... (6,840,278) (141,062)
Notes payable to affiliate................................. -- (28,593)
Payment of amounts due under acquisition agreements........ -- (1,171,520)
Initial public offering costs charged to paid in capital... -- (135,773)
Issuance of common stock to employees under stock plans.... 319,272 173,331
-------------- -------------
Net cash used in financing activities......................... (6,521,006) (1,303,617)
-------------- -------------
Net increase (decrease) in cash and cash equivalents.......... 5,887,876 (3,857,585)
Cash and cash equivalents, beginning of period................ 4,934,755 18,884,531
-------------- -------------
Cash and cash equivalents, end of period...................... $ 10,822,631 $ 15,026,946
============== =============
</TABLE>
Supplemental disclosure of non-cash financing activities:
On January 7, 1997, the Company acquired the 49% minority interest in Staff
Administrators of Western Colorado, Inc., a subsidiary of Staff Administrators,
Inc. ("SAI"), in a transaction accounted for as a purchase. The fair value of
the net assets acquired amounted to $293,359. The excess of $566,641 of the
purchase price over the net assets acquired was allocated to goodwill.
7
<PAGE>
THE VINCAM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and December 31, 1997
(Unaudited)
Note 1 - Basis for Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of The Vincam
Group, Inc. and its subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They do not include
all information and notes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1997 included in The Vincam Group, Inc.'s Annual Report on Form
10-K, as amended by Form 10-K/A No.1. The financial information furnished
reflects all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and of cash flows for the interim
periods presented. The results of operations for the periods presented are not
necessarily indicative of the results for the entire year.
The accompanying unaudited financial statements include the accounts of The
Vincam Group, Inc. and its subsidiaries ("Vincam" or the "Company"). All
material intercompany balances and transactions have been eliminated.
Certain reclassifications have been made to the consolidated financial
statements of prior periods presented to conform to the current period
presentation. In the Company's Report on Form 10-Q for the quarterly period
ended March 31, 1998 (the "March 1998 10-Q"), the Company reduced its paid in
capital by $1,001,732 as reported on the Consolidated Balance Sheet at March 31,
1998, and in the Consolidated Statement of Changes in Stockholders Equity under
the heading "Issuance of common stock under acquisition agreements." Such amount
should instead have increased Accumulated Deficit at March 31, 1998 and has been
classified appropriately as a reduction to Retained Earnings on the Consolidated
Balance Sheet and in the Consolidated Statement of Changes in Stockholders
Equity contained herein. Such reclassification is not material inasmuch as it
has no effect on total stockholders' equity at March 31, 1998 or June 30, 1998.
Note 2 - Acquisitions
On January 30, 1998, the Company acquired Corporate Staff Services, Inc.
("CSS"), a privately held PEO headquartered in Orange County, Connecticut (the
"CSS Acquisition"). The Company issued 150,000 shares of its common stock in
exchange for all of the outstanding shares of common stock of CSS. The
acquisition has been accounted for as a pooling of interests. Since the CSS
Acquisition was not significant to the Company's financial condition and results
of operations, the current financial information presented herein includes the
assets and liabilities and results of operations of CSS since the date of its
acquisition by the Company.
Note 3 - Accounts Receivable
At June 30, 1998 and December 31, 1997, accounts receivable consisted of
the following:
1998 1997
------------- -------------
Billed to clients...................... $ 14,532,148 $ 16,149,364
Unbilled revenues...................... 46,126,780 34,801,470
------------- --------------
60,658,926 50,950,834
Less: allowance for doubtful accounts.. (2,503,113) (2,026,587)
------------- --------------
$ 58,155,815 $ 48,924,247
============= ==============
8
<PAGE>
Note 4 - Reserve for Claims
In December 1996, the Company entered into an arrangement with a national
insurance company to provide workers' compensation insurance coverage at a cost
which is equal to a fixed percentage of the average standard premium for 1997
through 1999, subject to a deductible of only $2,000 per medical claim. The
workers' compensation arrangement, originally covering the years 1997 through
1999, now includes coverage through the year 2000 under certain revised terms
and conditions. The arrangement remains a guaranteed cost program. Accordingly,
effective January 1, 1997, the Company recorded workers' compensation costs
based primarily on the fixed percentage of the average standard premium under
such policy, rather than through the previous practice of applying actuarial
estimates to claims.
In addition, in December 1996, March 1997, September 1997 and December
1997, the Company entered into agreements to reinsure substantially all of the
remaining claims under the Company's large deductible workers' compensation
insurance policies for the years 1994, 1995 and 1996 (including those of
acquired companies), for an aggregate premium of $6,010,000. Since reserves for
claims for these years have been previously provided, the Company has recorded
the premium as a reinsurance receivable and a deferred gain which will be
recognized to income in future periods based on the proportion of cumulative
claims paid to the total estimated liability for claims.
As a consequence of the reinsurance agreement described above, at June 30,
1998 and December 31, 1997, the Company has classified as current the estimated
amounts of reserves established for claims and reinsurance recoverable expected
to be paid and to be collected, respectively, within one year, as well as the
related deferred gain expected to be recognized within one year.
At June 30, 1998 and December 31, 1997, the Company's reserves for claims
costs are as follows:
1998 1997
------------ ------------
Reserve for workers' compensation claims........ $ 1,493,294 $ 2,035,477
Reserve for behavioral and health care claims... 2,544,539 2,473,257
------------ ------------
4,037,833 4,508,734
Less: workers' compensation claims expected
to be settled in more than one year............. (215,000) (402,000)
------------ ------------
Reserve for claims--current $ 3,822,833 $ 4,106,734
============ ============
9
<PAGE>
Note 5 - Borrowings
Borrowings at June 30, 1998 and December 31, 1997 are as follows:
1998 1997
------------ ------------
Note payable for workers' compensation premiums,
maturing in 1998, with monthly payments of
principal and interest of $1,144,534, at a
rate of 6.30%........................................ $ 3,315,520 $10,035,123
Notes payable for general liability insurance
premiums, maturing in 1998, with monthly payments
of principal and interest ranging from $16,333 to
$19,280, at rates ranging from 6.50% to 6.70%........ 140,620 173,526
Note payable to bank, original amount of
$1 million, repayable in monthly instalments
of $4,167, plus interest at 8.50% per annum,
through 1998 when a balloon payment of $750,000 is
due, secured by land and building.................... 770,722 791,557
Note payable for state unemployment taxes,
maturing in 1998 with monthly payments of $3,264..... -- 16,326
Capital lease obligations for computer hardware
and software, payable in monthly instalments of
principal and interest ranging from $3,214 to
$7,479 through 2000, with interest rates ranging
from 9.80% to 12.30% per annum, collateralized by
computer hardware and software....................... -- 46,276
Other notes payable, bearing interest at rates
ranging from 7.50% to 10.75%, repayable in various
monthly instalments.................................. 30,684 35,019
------------ ------------
4,257,546 11,097,827
Less: current portion................................ (4,257,546) (11,061,009)
------------ ------------
$ -- $ 36,818
============ ============
In April 1997, the Company entered into a revolving line of credit
agreement for an aggregate amount of $50,000,000 with a group of banks (the
"Credit Agreement"). The Credit Agreement provides for a revolving credit
facility with a sublimit of $15,000,000 to fund working capital advances and
standby letters of credit. The Credit Agreement also provides for advances to
finance acquisitions. Amounts outstanding under the revolving credit facility
mature on April 24, 2000. If, on April 24, 2000, certain conditions are
satisfied, any amounts outstanding under the revolving line of credit may be
converted into a term loan payable in eight quarterly instalments commencing on
August 1, 2000. The Company is required to pay an unused facility fee ranging
from .20% to .35% per annum on the facility, depending upon certain financial
covenants.
10
<PAGE>
The Credit Agreement is secured by a pledge of shares of all of the
Company's subsidiaries. The Credit Agreement contains customary events of
default and covenants which prohibit, among other things, incurring additional
indebtedness in excess of a specified amount, paying dividends, creating liens
and engaging in certain mergers or combinations without the prior written
consent of the lenders. The Credit Agreement also contains certain financial
covenants relating to current ratio, debt to capital ratio, debt and fixed
charges coverage and minimum tangible net worth, as defined in the Credit
Agreement.
Interest under the Credit Agreement accrues at rates based, at the
Company's option, on the agent bank's Prime Rate plus a margin of as much as
.25%, or its Eurodollar Rate (as defined in the Credit Agreement) plus a margin
of 1.00% to 1.75%, depending on certain financial covenants.
Under the Company's revolving credit facility, the Company had outstanding
$5,494,700 in standby letters of credit at June 30, 1998, which guarantee the
payment of claims to the Company's former workers' compensation insurance
carrier. As of that date there were no amounts outstanding for working capital
or advances to finance acquisitions under the revolving credit facility.
Note 6 - Commitments and Contingencies
On December 9, 1997, the Company entered into a leasing arrangement with
respect to a new headquarters facility in Miami-Dade County that the Company
expects will be completed in the fall of 1998. The leasing arrangement has an
initial expiration date of four years after completion of the facility and
allows the Company to extend the term of the lease for up to three more years
subject to compliance with the terms and conditions of the credit agreement and
related documents. The lessor of the facility has financed 97% of the costs of
acquiring the land and constructing the facility. The financing agreement
relating to the facility (the "Facility Financing Agreement") contains certain
covenants, including financial covenants, of the Company and events of default
with respect thereto, which covenants are the same in all material respects as
those contained in the Company's Credit Agreement. Under the leasing
arrangement, the Company's commitment in future years will be based on (i)
interest at a competitive rate on all outstanding loan amounts with respect to
the facility plus (ii) the yield, at a competitive rate, in respect of the
lessor's 3% equity investment. Default under the Company's covenants contained
in the Facility Financing Agreement constitutes default under the Company's
lease of the headquarters facility. In the event of such default, the Company is
obligated to either purchase the facility for the Purchase Price (defined below)
or pay a termination fee in an amount approximately equal to the Purchase Price.
The maximum amount on which the lease payments will be based is limited to $12
million. As of June 30, 1998, an aggregate of $5.8 million in loans were
outstanding to the lessor.
The Company has an option to purchase the headquarters facility at any time
for an amount equal to the total of (i) the amount of loans outstanding with
respect to the property, (ii) the lessor's investment in the facility, (iii) any
accrued and unpaid interest on such outstanding loans, and (iv) all accrued and
unpaid yield on the lessor's equity investment (the "Purchase Price"). If the
Company determines not to purchase the facility, it will be required to make a
termination payment at the end of the lease term equal to approximately 85% of
the Purchase Price. The Company's lease payment obligations are secured by a
pledge of the stock of all of its subsidiaries.
11
<PAGE>
In October 1996, the Company received a notice of assessment in the
discounted amount of approximately $53,500 from The Treasurer of the State of
Florida Department of Insurance as Receiver of United States Employer Consumer
Self Insurance Fund of Florida, a workers' compensation insurance fund which was
declared insolvent (the "Fund"). The Company paid the discounted assessment in
January 1997. The Company had certain worksite employees covered by the Fund
during the fiscal years ended December 31, 1992, 1993 and 1994. The court order
authorizing the assessment provides that the Company, by paying the discounted
assessment, is deemed to have paid its assessment in full and is not subject to
any further assessment for policyholder loss claims. The Company may be subject
to additional liability for the assessments of other Fund members. The Company
believes that there are approximately 700 members of the Fund which have been
assessed $37,000,000 in the aggregate. Although the amount of the potential
exposure, if any, for such additional liability is not yet determinable,
management believes that the Company would have meritorious defenses to such
additional liability and that its ultimate liability in this matter will not
have a material adverse effect on the Company's financial condition or results
of operations. There cannot, however, be any assurance that any such liability
will not have such a material adverse effect.
The Company is a defendant in a lawsuit pending in the 11th Judicial
Circuit in Miami-Dade County, Florida related to a wrongful death and premises
liability claim involving a worksite employee. The plaintiff's complaint, which
was sustained by the court, alleges premises liability and negligence against
both the Company and its client as a result of a worksite accident on the
client's premises and seeks damages in excess of $15,000. The Company is
asserting that its liability under this claim, if any, should be limited to
$100,000 due to the immunity provisions of the Florida workers' compensation
statute involving worksite accidents. The Company's motions for summary judgment
on that basis were denied, and discovery in the proceeding continues. Based on
consultations with the Company's counsel, management of the Company believes
that it has meritorious defenses. The case is set for trial in October 1998. The
Company believes that if the lawsuit is adversely determined, the Company may be
entitled to indemnification from its client and/or the Company's liability
insurance carrier. Although management believes, based on consultations with the
Company's counsel, that the Company's ultimate liability in this matter should
not be material, there can be no assurance that the Company will prevail in the
litigation, or in a related claim for indemnification, or that the liability of
the Company, if any, would not have a material adverse effect on the Company's
financial condition and results of operations.
In June 1995, the National Labor Relations Board ("Board") filed a
complaint charging Amstaff, Inc., with refusal to bargain with respect to a
collective bargaining agreement, under which a now former client's employees
were employed, in violation of the National Labor Relations Act. Vincam acquired
Amstaff, Inc. in June 1997. The charge was initially dismissed by a Detroit
office of the Board, but has since been reinstated following a union appeal to
the general counsel for the Board. If the Board rules against the Company, the
Company could be held liable for lost wages and benefits of such employees for a
period of almost four years. Any award would be reduced by any earnings of such
employees which are received or reasonably could have been received from other
employment during the relevant time period. The Company cannot currently
estimate its potential liability if the Board were to rule against it. The
Company is vigorously defending this case, but there can be no assurance that
the Company will prevail in the proceedings or that the liability of the
Company, if any, would not have a material adverse effect on the Company's
financial condition and results of operations.
12
<PAGE>
The Company is also involved in other legal and administrative proceedings
arising in the ordinary course of business. The outcomes of these actions are
not expected to have a material effect on the Company's financial position or
results of operations on an individual basis, although adverse outcomes in a
significant number of such ordinary course legal proceedings could, in the
aggregate, have a material adverse effect on the Company's financial condition
and results of operations.
* * * * * * * * * *
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
(i) the Consolidated Financial Statements and Notes thereto contained herein,
(ii) the Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing in the 1997 Annual Report on Form 10-K, as amended by Form
10-K/A No.1, filed by The Vincam Group, Inc. ("Vincam" or the "Company") with
the Securities and Exchange Commission.
The following discussion contains forward-looking statements. The Company's
actual results could differ materially from those discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Form 10-Q. In
connection with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"), the Company is hereby providing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result," "are expected to," "will continue," "is
anticipated," "estimated," "believes," "projection" and "outlook") are not
historical facts and may be forward-looking and, accordingly, such statements
involve estimates, assumptions and uncertainties which could cause actual
results to differ materially from those expressed in the forward-looking
statements. Such uncertainties include, among others, the following: (i)
potential for unfavorable interpretation of government regulations relating to
labor, taxes, insurance, employment matters and the provision of managed care
services; (ii) the Company's ability to obtain or maintain all required licenses
or certifications required to maintain or to further expand the range of
services offered by the Company; (iii) potential increases in the Company's
costs, such as health care costs, that the Company may not be able to reflect
immediately in its service fees; (iv) the Company's ability to offer its
services to prospective clients in additional states where it has less or no
market penetration; (v) the level of acquisition opportunities available to the
Company and the Company's ability to efficiently price and negotiate such
acquisitions on a favorable basis; (vi) the financial condition of the Company's
clients; (vii) additional regulatory requirements affecting the Company; (viii)
the impact of competition from existing and new professional employer
organizations; (ix) the failure to properly manage growth and successfully
integrate acquired companies and operations, and to achieve synergies and other
cost savings in the operation of acquired companies; (x) the potential
disruption of the Company's operations due to failures or errors in the
operations of the Company's computer systems resulting from to the year 2000
issue; and (xi) other factors which are described in further detail in the
Company's filings with the Securities and Exchange Commission including this
Form 10-Q.
The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
14
<PAGE>
Overview
Vincam, one of the ten largest professional employer organization ("PEOs")
in the industry based on 1996 revenues (according to Staffing Industry Analysts,
Inc.), provides small and medium-sized businesses with an outsourcing solution
to the complexities and costs related to employment and human resources. The
Company's continuum of integrated employment-related services consists of human
resource administration, employment regulatory compliance management, workers'
compensation coverage, health care and other employee benefits. The Company
establishes a co-employer relationship with its clients and contractually
assumes substantial employer responsibilities with respect to worksite
employees. In addition, the Company offers certain specialty managed care
services on a stand-alone basis to health and workers' compensation insurance
companies, HMOs and large employers.
The Company's revenues include all amounts billed to clients for gross
salaries and wages, related employment taxes, and health care and workers'
compensation coverage of worksite employees. The Company is obligated to pay the
gross salaries and wages, related employment taxes and health care and workers'
compensation costs of its worksite employees whether or not the Company's
clients pay the Company on a timely basis or at all. The Company believes that
including such amounts as revenues appropriately reflects the responsibility
which the Company bears for such amounts and is consistent with industry
practice. In addition, the Company's revenues are subject to fluctuations as the
result of (i) changes in the volume of worksite employees serviced by the
Company; (ii) changes in the wage base and employment tax rates of worksite
employees; and (iii) changes in the mark-up charged by the Company for its
services.
The Company's primary direct costs are (i) salaries, wages, the employer's
portion of social security, Medicare premiums, federal unemployment taxes, and
other state payroll-based and sales taxes, (ii) health care and workers'
compensation costs, and (iii) state unemployment taxes and other direct costs.
The Company can significantly impact its gross profit margin by actively
managing the direct costs described in clauses (ii) and (iii).
The Company's health care costs consist of medical insurance premiums,
payments of and reserves for claims subject to deductibles and the costs of
dental care, vision care, disability, employee assistance and other similar
benefit plans. The Company's health care benefit plans consist of a mixture of
fully insured, minimum premium arrangements, partially self-insured plans and
guaranteed cost programs, with third party insurers providing insurance with
respect to minimum premium and partially self-insured plans to the extent claims
exceed certain levels ("stop loss coverage"). Under minimum premium arrangements
and partially self-insured plans, liabilities for health care claims are
recorded based on the Company's health care loss history. The Company maintains
reserves for medical and behavioral health claims, which reserves are estimates
based on periodic reviews of open claims, past claims experience and other
factors deemed relevant by management. While the Company believes that such
reserves are adequate, the Company cannot predict with certainty the ultimate
liability associated with open claims and past claims experience may not be
indicative of future results. Accordingly, if estimated reserve amounts prove to
be less than the ultimate liability with respect to such claims, the Company's
financial condition, results of operations and liquidity could be materially
adversely affected. In addition, to the extent an insurer delays or denies the
payment of a claim for stop loss coverage, the Company's financial condition,
results of operations and liquidity could be materially adversely affected.
15
<PAGE>
Workers' compensation costs include medical costs and indemnity payments
for lost wages, administrative costs and insurance premiums related to the
Company's workers' compensation coverage. Prior to 1997, the Company was insured
under a large deductible insurance plan. Under this plan the Company was
obligated to reimburse its insurance carrier for a portion of the insurance risk
related to workers' compensation claims up to a predetermined deductible per
occurrence ranging from $150,000 to $1,000,000. In December 1996, the Company
entered into an arrangement with an insurance company under which the percentage
of the average standard premium to be paid by the Company for workers'
compensation coverage for the years 1997 to 1999 was fixed. The arrangement,
originally covering the years 1997 through 1999, now includes coverage through
the year 2000 under certain revised terms and conditions. The arrangement
remains a guaranteed cost program. Additionally, the Company entered into
agreements as of December 1996 whereby the Company reinsured substantially all
of the remaining claims under the Company's large deductible workers'
compensation insurance policies for the years 1994 through 1996, and in 1997
entered into similar agreements to reinsure the remaining claims under the prior
large deductible workers' compensation insurance policies of Staff
Administrators, Inc. ("SAI"), Amstaff, Inc. ("AMI") and Staffing Network, Inc.
("SNI"), companies acquired by Vincam.
The Company's primary operating expenses are administrative personnel
expenses, other general and administrative expenses, and sales and marketing
expenses. Administrative personnel expenses include compensation, fringe
benefits and other personnel expenses related to internal administrative
employees. Other general and administrative expenses include rent, office
supplies and expenses, legal and accounting fees, insurance and other operating
expenses. Sales and marketing expenses include compensation of sales
representatives and the marketing staff, as well as marketing and advertising
expenses.
The Company's financial condition and results of operations are subject to
several contingencies. For more information regarding such contingencies, see
Note 6 of Notes to Consolidated Financial Statements contained in Part 1, Item I
Financial Statements of this Form 10-Q.
In addition, the year 2000 issue may materially affect the Company's
services or competitive conditions. This issue affects computer systems that
have time-sensitive programs (such as the Company's payroll processing programs)
that may not properly recognize the year 2000. This could result in major
systems failures or miscalculations. The Company has begun the process of
identifying, evaluating, and implementing changes to computer programs necessary
to address the year 2000 issue in order to provide uninterrupted normal
operations of critical business systems before, during and after the year 2000.
If necessary modifications and conversions are not completed in a timely manner,
the year 2000 issue may have a material adverse effect on the results of
operations and financial condition of the Company. The total cost associated
with the required modifications and conversions is not known at this time,
however, it is not expected to be material to the Company's financial position
and is being expensed as incurred.
16
<PAGE>
Results of Operations
The following table sets forth, for June 30, 1998 and 1997, certain
selected income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
-------- -------- --------- ---------
Revenues............................................. 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- ---------
Direct costs:
Salaries, wages and employment taxes
of worksite employees........................... 89.6% 89.2% 89.6% 89.0%
Health care and workers' compensation............. 4.0% 3.7% 3.8% 3.9%
State unemployment taxes and other................ 1.1% 1.0% 1.2% 1.1%
-------- -------- --------- ---------
Total direct costs.............................. 94.7% 93.9% 94.6% 93.9%
-------- -------- --------- ---------
Gross profit......................................... 5.3% 6.1% 5.4% 6.1%
-------- -------- --------- ---------
Operating expenses:
Administrative personnel.......................... 2.1% 2.7% 2.2% 2.6%
Other general and administrative.................. 1.1% 2.2% 1.2% 1.8%
Sales and marketing............................... 0.7% 0.8% 0.7% 0.8%
Depreciation and amortization..................... 0.2% 0.4% 0.2% 0.4%
-------- -------- --------- ---------
Total operating expenses........................ 4.1% 6.1% 4.3% 5.6%
-------- -------- --------- ---------
Operating income..................................... 1.2% 0.0% 1.1% 0.4%
Interest income (expense), net....................... 0.0% 0.1% 0.0% 0.0%
-------- -------- --------- ---------
Income before taxes.................................. 1.2% 0.1% 1.1% 0.4%
Provision for income taxes........................... 0.4% 0.1% 0.4% 0.2%
-------- -------- --------- ---------
Net income........................................... 0.8% (0.1%) 0.7% 0.2%
======== ======== ========= =========
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company's revenues for the six months ended June 30, 1998 were $595.8
million compared to $455.1 million for the six months ended June 30, 1997,
representing an increase of $140.7 million, or 30.9%. This increase was due
primarily to internal growth in the number of PEO worksite employees and to the
increase in average revenue per worksite employee. The number of worksite
employees increased 19.4%, from 37,387 worksite employees at June 30, 1997 to
44,633 at June 30, 1998.
Salaries, wages and employment taxes of worksite employees were $533.9
million for the six months ended June 30, 1998, compared to $404.9 million for
the same period in 1997, representing an increase of $129.1 million, or 32.0%.
Salaries, wages and employment taxes of worksite employees were 89.6% of
revenues for the six months ended June 30, 1998, compared to 89.0% for the same
period in 1997. The increase of salaries, wages and employment taxes of worksite
employees as a percentage of revenues resulted from a change in the Company's
worksite employee mix towards worksite employees having a lower workers'
compensation classification and lower workers' compensation rates in several
states where the Company operates, which resulted in lower markups being charged
by the Company. In addition the fact that the Company's revenue increase was
entirely in PEO operations, which have a lower margin than the Company's managed
care business, contributed to such percentage increase.
17
<PAGE>
Health care and workers' compensation costs were $22.8 million for the six
months ended June 30, 1998, compared to $17.7 million for the same period in
1997, representing an increase of $5.1 million, or 29.1%. This increase was due
mainly to the higher volume PEO worksite employees. Health care and workers'
compensation costs were 3.8% of revenues for the six months ended June 30, 1998,
compared to 3.9% for the same period in 1997. The decrease of health care and
workers' compensation costs as a percentage of revenues was due mainly to the
change in the Company's worksite employee mix towards worksite employees having
a lower workers' compensation classification and lower workers' compensation
rates in several states where the Company operates, which resulted in lower
markups being charged by the Company.
State unemployment taxes and other direct costs were $7.1 million for the
six months ended June 30, 1998, compared to $5.1 million for the same period in
1997, representing an increase of $2.0 million or 39.2%. This increase was due
mainly to the higher volume of salaries and wages paid during the six months
ended June 30, 1998, which was a direct function of the increase in the number
of PEO worksite employees, an increased number of client companies using other
services and products and an increase in other direct costs related to the
Company's services. State unemployment taxes and other direct costs were 1.2% of
revenues for the six months ended June 30, 1998 and 1997.
Gross profit was $32.0 million for the six months ended June 30, 1998,
compared to $27.6 million for the same period in 1997, representing an increase
of $4.4 million, or 16.2%, due mainly to the increase in revenues during the six
months ended June 30, 1998, which was a direct function of the increase of PEO
worksite employees. Gross margin was 5.4% for the six months ended June 30,
1998, compared to 6.0% for the same period in 1997. The decrease in gross margin
was due mainly to the shift in the Company's employee mix, which resulted in
lower markups being charged by the Company and to the fact that the Company's
revenue increase was entirely in PEO operations, which have a lower margin than
the Company's managed care business.
Administrative personnel expenses were $12.9 million for the six months
ended June 30, 1998, compared to $12.0 million for the same period in 1997,
representing an increase of $0.9 million, or 7.8%. This increase was primarily
attributable to increased staffing to support the Company's growth, including
management and senior executive personnel. Administrative personnel expenses
were 2.2% of revenues for the six months ended June 30, 1998, compared to 2.6%
for the same period in 1997. This decrease in administrative personnel expenses
as a percentage of revenue resulted from the payment of executive salaries of
AMI and SNI during 1997, which were reduced after their respective acquisitions
by the Company.
Other general and administrative expenses were $6.6 million for the six
months ended June 30, 1998, compared to $8.4 million for the same period in
1997, representing a decrease of $1.9 million, or 22.2%. This decrease in other
general and administrative expenses was primarily attributable to transaction
expenses of approximately $1.1 million incurred in 1997 in connection with the
AMI Acquisition and a $1.0 million charge related to the termination in 1997 of
a managed care provider network under which the Company previously operated its
workers' compensation managed care business. Other general and administrative
expenses, including the provision for doubtful accounts, were 1.1% of revenues
for the six months ended June 30, 1998, compared to 1.9% for the same period in
1997. The decrease in other general and administrative expenses, including the
provision for doubtful accounts, as a percentage of revenues was due mainly to
$2.1 million of non-recurring charges incurred in 1997.
18
<PAGE>
Sales and marketing costs were $3.9 million for the six months ended June
30, 1998, compared to $3.4 million for the same period in 1997, representing an
increase of $0.5 million, or 12.1%. The increase reflects the addition of sales
representatives and marketing personnel, consistent with the Company's strategy
to increase its client base in its existing markets and acquired markets. Sales
and marketing costs were 0.7% of revenues for the six months ended June 30, 1998
and 1997.
Operating income was $7.2 million for the six months ended June 30, 1998,
compared to $1.9 million for the same period in 1997, representing an increase
of $5.3 million, or 278.9%. The increase in operating income was due mainly to
increase in revenues resulting from an increase in worksite employees during the
first six months of 1998, and to non-recurring charges of $2.1 million incurred
in the same period in 1997. Excluding the non-recurring charges of $2.1 million
during 1997, operating income increased by $3.1 million or 74.5%.
Net income was $4.2 million for the six months ended June 30, 1998,
compared $1.1 million for the same period in 1997, representing an increase of
$3.1 million. Diluted earnings per share were $0.26 for the six months ended
June 30, 1998, compared to $0.07 for the same period in 1997, representing an
increase of $0.19 or 271.4%.
The Company anticipates that administrative personnel expenses, other
general and administrative expenses, sales and marketing expenses and interest
expense will continue to increase in future periods to the extent that the
Company continues to experience growth and to expand its service offerings.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
The Company's revenues for the three months ended June 30, 1998 were $311.6
million compared to $235.8 million for the three months ended June 30, 1997,
representing an increase of $75.8 million, or 32.1%. This increase was due
primarily to internal growth in the number of PEO worksite employees and to the
increase in average revenue per worksite employee. The number of worksite
employees increased 19.4%, from 37,387 worksite employees at June 30, 1997 to
44,633 at June 30, 1998.
Salaries, wages and employment taxes of worksite employees were $279.3
million for the three months ended June 30, 1998, compared to $210.3 million for
the same period in 1997, representing an increase of $69.0 million, or 32.8%.
The increase in salaries, wages and employment taxes of worksite employees was
due primarily to an increased number of PEO worksite employees. Salaries, wages
and employment taxes of worksite employees were 89.7% of revenues for the three
months ended June 30, 1998, compared to 89.2% for the same period in 1997. The
increase of salaries, wages and employment taxes of worksite employees as a
percentage of revenues resulted from a change in the Company's worksite employee
mix towards worksite employees having a lower workers' compensation
classification and lower workers' compensation rates in several states where the
Company operates, which resulted in lower markups being charged by the Company.
In addition the fact that the Company's revenue increase was entirely in PEO
operations, which have a lower margin than the Company's managed care business,
contributed to such percentage increase.
19
<PAGE>
Health care and workers' compensation costs were $12.3 million for the
three months ended June 30, 1998, compared to $8.7 million for the same period
in 1997, representing an increase of $3.6 million, or 42.0%. This increase was
due mainly to the higher volume of PEO worksite employees. Health care and
workers' compensation costs were 4.0% of revenues for the three months ended
June 30, 1998, compared to 3.9% for the same period in 1997.
State unemployment taxes and other direct costs were $3.4 million for the
three months ended June 30, 1998, compared to $2.4 million for the same period
in 1997, representing an increase of $1.0 million or 44.2%. This increase was
due mainly to the higher volume of salaries and wages paid during the three
months ended June 30, 1998, which was a direct function of the increase in the
number of PEO worksite employees, an increased number of client companies using
other services and products and an increase in other direct costs related to the
Company's services. State unemployment taxes and other direct costs were 1.1% of
revenues for the three months ended June 30, 1998, compared to 1.0% for the same
period in 1997.
Gross profit was $16.5 million for the three months ended June 30, 1998,
compared to $14.4 million for the same period in 1997, representing an increase
of $2.1 million, or 14.3%. Gross margin was 5.3% for the three months ended June
30, 1998, compared to 6.1% for the same period in 1997. The decrease in gross
margin was due mainly to the shift in the Company's employee mix, which resulted
in lower markups being charged by the Company and to the fact that the Company's
revenue increase was entirely in PEO operations, which have a lower margin than
the Company's managed care business.
Administrative personnel expenses were $6.5 million for the three months
ended June 30, 1998, compared to $6.3 million for the same period in 1997,
representing an increase of $0.2 million, or 3.6%. This increase was primarily
attributable to increased staffing to support the Company's growth, including
management and senior executive personnel. Administrative personnel expenses
were 2.1% of revenues for the three months ended June 30, 1998, compared to 2.7%
for the same period in 1997. This decrease in administrative personnel expenses
as a percentage of revenues resulted from the payment of executive salaries at
AMI and SNI during 1997, which were reduced after their respective acquisitions
by the Company.
Other general and administrative expenses for the three months ended June
30, 1998, were $3.3 million for the three months ended June 30, 1998, compared
to $5.1 million for the same period in 1997, representing an decrease of $1.8
million, or 35.1%. This decrease in other general and administrative expenses
was primarily attributable to transaction expenses of approximately $1.1 million
incurred in 1997 in connection with the AMI Acquisition and a $1.0 million
charge related to the termination in 1997 of a strategic alliance of a managed
care provider network under which the Company previously operated its workers'
compensation managed care business. Other general and administrative expenses,
including the provision for doubtful accounts, were 1.4% of revenues for the
three months ended June 30, 1998, compared to 2.2% for the same period in 1997.
The decrease in other general and administrative expenses, including the
provision for doubtful accounts as a percentage of revenues was due mainly to
the non-recurring charges of $2.1 million described above.
Sales and marketing costs were $2.1 million for the three months ended June
30, 1998, compared to $1.9 million for the same period in 1997, representing an
increase of $0.2 million, or 13.3%. The increase reflects the addition of sales
representatives and marketing personnel, consistent with the Company's strategy
to increase its client base in its existing and acquired markets. Sales and
marketing costs were 0.7% of revenues for the three months ended June 30, 1998,
compared to 0.7% for the same period in 1997.
20
<PAGE>
Operating income was $3.5 million for the three months ended June 30, 1998,
compared to $0.1 million for the same period in 1997, representing an increase
of $3.4 million. The increase in operating income was due mainly to the increase
in revenues resulting from an increase in worksite employees, and to the
non-recurring charges of $2.1 million incurred in the same period in 1997.
Excluding the non-recurring charges of $2.1 million during 1997, operating
income increased by $1.6 million or 74.5%.
Net income was $2.4 million for the three months ended June 30, 1998,
compared to a net loss of $0.1 million for the same period in 1997, representing
an increase of $2.5 million. Diluted earnings per share were $0.15 for the three
months ended June 30, 1998, compared to $(0.01) for the same period in 1997,
representing an increase of $0.16.
The Company anticipates that administrative personnel expenses, other
general and administrative expenses, sales and marketing expenses and interest
expense will continue to increase in future periods to the extent that the
Company continues to experience growth and to expand its service offerings.
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $20.3 million,
compared to $17.4 million at December 31, 1997. The Company had $10.9 million in
cash at June 30, 1998.
The Company's Credit Agreement with a group of banks for which Fleet
National Bank ("Fleet Bank") acted as agent provides for a $50.0 million
revolving line of credit with a sublimit of $15.0 million for standby letters of
credit and revolving credit loans for working capital purposes. The Credit
Agreement also provides for advances to finance acquisitions. The Company uses
letters of credit primarily to secure its obligations to reimburse its former
workers' compensation insurance carrier for workers' compensation payments
subject to the policy deductible. Borrowings bear interest at rates based, at
the Company's option, on Fleet Bank's Prime Rate plus a margin of as much as
0.25% or its Eurodollar Rate (as defined in the Credit Agreement) plus a margin
of 1.00% to 1.75%, depending on certain financial covenants. The facility is
secured by a pledge of the shares of all of the Company's subsidiaries. The
revolving line of credit matures on April 24, 2000. If, on April 24, 2000,
certain conditions are satisfied, any amounts outstanding under the revolving
line of credit may be converted into a term loan payable in eight quarterly
instalments commencing on August 1, 2000. The Credit Agreement contains
customary events of default and covenants which prohibit, among other things,
incurring additional indebtedness in excess of a specified amount, paying
dividends, creating liens and engaging in certain mergers or combinations
without the prior written consent of the lenders. The Credit Agreement also
contains certain financial covenants relating to current ratio, debt to capital
ratio, debt and fixed charges coverage and minimum tangible net worth, as
defined in the Credit Agreement. The Company is required to pay an unused
facility fee ranging from .20% to .35% per annum on the facilities, depending
upon certain financial covenants. Under the revolving credit facility, the
Company had outstanding approximately $5.5 million in standby letters of credit
at June 30, 1998 which guarantee the payment of claims to the Company's former
workers' compensation insurance carrier. As of that date, there were no other
amounts outstanding under the revolving line of credit.
21
<PAGE>
On December 9, 1997, the Company entered into a leasing arrangement with
respect to a new headquarters facility in Miami-Dade County that the Company
expects will be completed in the fall of 1998. The leasing arrangement has an
initial expiration date of four years after completion of the facility and
allows the Company to extend the term of the lease for up to three more years
subject to compliance with the terms and conditions of the credit agreement and
related documents. The lessor of the facility has financed 97% of the costs of
acquiring the land and constructing the facility. The financing agreement
relating to the facility (the "Facility Financing Agreement") contains certain
covenants, including financial covenants, of the Company and events of default
with respect thereto, which covenants are the same in all material respects as
those contained in the Company's Credit Agreement. Under the leasing
arrangement, the Company's commitment in future years will be based on (i)
interest at a competitive rate on all outstanding loan amounts with respect to
the facility plus (ii) the yield, at a competitive rate, in respect of the
lessor's 3% equity investment. Default under the Company's covenants contained
in the Facility Financing Agreement constitutes default under the Company's
lease of the headquarters facility. In the event of such default, the Company is
obligated to either purchase the facility for the Purchase Price (defined below)
or pay a termination fee in an amount approximately equal to the Purchase Price.
The maximum amount on which the lease payments will be based is limited to $12
million. As of June 30, 1998, an aggregate of $5.8 million in loans were
outstanding to the lessor.
The Company has an option to purchase the headquarters facility at any time
for an amount equal to the total of (i) the amount of loans outstanding with
respect to the property, (ii) the lessor's investment in the facility, (iii) any
accrued and unpaid interest on such outstanding loans, and (iv) all accrued and
unpaid yield on the lessor's equity investment (the "Purchase Price"). If the
Company determines not to purchase the facility, it will be required to make a
termination payment at the end of the lease term equal to approximately 85% of
the Purchase Price. The Company's lease payment obligations are secured by a
pledge of the stock of all of its subsidiaries.
The Company anticipates that available cash, cash flows from operations and
borrowing availability under the Credit Agreement will be sufficient to satisfy
the Company's liquidity and working capital requirements for the foreseeable
future; however, to the extent that the Company should desire to increase its
financial flexibility and capital resources or require or choose to fund future
capital commitments from sources other than operating cash or from borrowings
under its revolving line of credit or its acquisition loan facility, the Company
may consider raising capital through the offering of equity and/or debt
securities in the public or private markets, as well as from banks.
The Company's primary short-term liquidity requirements in 1998 include the
repayment of $3.3 million borrowed by the Company to finance the prepayment of a
portion of the Company's workers' compensation and general liability insurance
premiums for 1998, payment of $750,000 due on the mortgage of the Company's
current headquarters facility, investment in software development, expenditures
for office and computer equipment to support the Company's growth, and the
payment of other expenses related to the Company's growth. The Company
anticipates capital expenditures for 1998 of approximately $5.0 million,
primarily for software development, including the evaluation and implementation
of changes to computer programs to address the year 2000 issue.
22
<PAGE>
Net cash provided by operating activities was $12.2 million for the six
months ended June 30, 1998, compared to approximately $0.7 million for the same
period in 1997. The difference between the Company's net income of $4.2 million
for the six months ended June 30, 1998, and its operating cash flow was due
primarily to a $10.2 million increase in accrued salaries, wages, and payroll
taxes, an increase of $1.5 million in income tax payable, a decrease in
reinsurance recoverable of $1.1 million, a decrease in prepaid workers'
compensation insurance premium of $4.5 million, a decrease in income tax
receivable of $1.1 million, an increase in accounts payable and accrued expenses
of $0.5 million, and increases in noncash items such as depreciation and
amortization of $1.5 million, provision for doubtful accounts of $0.4 million,
partially reduced by an increase of $9.7 million in accounts receivable, an
increase of $2.0 million in prepaid expenses and other current assets, and a
decrease in reserves for claims of $0.8 million. The increase in accounts
receivable and accrued salaries, wages and payroll taxes resulted from both a
higher number of PEO worksite employees served during the six months ended June
30, 1998 and the timing of the payroll cycle. The Company's accounts receivable
and accrued salaries, wages, and payroll taxes are subject to fluctuations
depending on the proximity of the closing date of the reporting period to that
of the payroll cycle.
Net cash provided by investing activities was $0.2 million for the six
months ended June 30, 1998, compared to $3.3 million used in investing
activities in the same period in 1997. This reflects the purchase of $1.5
million in property and equipment to support the Company's growth and the
redemption of short term investments of $1.8 million.
Net cash used in financing activities was $6.5 million for the six months
ended June 30, 1998, compared to $1.3 million used in financing activities in
the same period in 1997. During 1998, the Company made principal payments on
borrowings of $6.8 million.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 21,
1998 (the "Annual Meeting"). The holders of the Company's Common Stock, $.001
par value, were entitled to elect a board of five directors to serve until the
next Annual Meeting and until their successors are elected and qualified.
Proxies for 11,202,372 shares of the 15,583,632 shares of common stock entitled
to vote were received in connection with the Annual Meeting.
The following table sets forth the names of the five persons elected at the
Annual Meeting to serve as Directors until the next annual meeting of
shareholders of the Company and the number of votes cast for or against respect
to each person.
Directors For Against
Carlos A. Saladrigas 11,191,327 11,045
Jose M. Sanchez 11,191,327 11,045
Howard E. Cox, Jr. 11,191,327 11,045
Charles M. Hazard, Jr. 11,191,327 11,045
John H. McArthur, Ph.D. 11,191,327 11,045
Shareholders of the Company also voted on a proposal to amend the Company's
1996 Long Term Incentive Plan to increase the plan limits on maximum yearly
awards contained therein (the "Amendment"), and on a proposal to approve the
adoption of the Company's 1998 Long Term Incentive Plan (the "1998 Plan"). The
results of the voting were as follows:
Broker
Proposal For Against Abstained Non-Votes
Approval of Amendment 8,970,076 2,439,134 3,165 6,097
Approval of the 1998 Plan 8,089,806 2,472,109 3,165 853,392
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
11 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule as of and for the six months period ended
June 30, 1998
27.2 Restated Financial Data Schedule as of and for the six months
period ended June 30, 1997
(b) Reports on Form 8-K
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE VINCAM GROUP, INC.
August 12, 1998 By: /S/ CARLOS A. RODRIGUEZ
- ---------------------------- -----------------------
Date Carlos A. Rodriguez, Chief Financial
Officer, Senior Vice President Finance
and Administration
(Principal Financial Officer)
August 12, 1998 By: /S/ MARTINIANO J. PEREZ
- ---------------------------- -----------------------
Date Martiniano J. Perez, Vice President
and Controller
(Principal Accounting Officer)
25
<PAGE>
THE VINCAM GROUP, INC.
EXHIBITS INDEX
Exhibit
No. Description
- ------- -----------
11 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule as of and for the six months period ended
June 30, 1998
27.2 Restated Financial Data Schedule as of and for the six months
period ended June 30, 1997
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
THE VINCAM GROUP, INC.
CALCULATION OF BASIC AND DILUTED NET INCOME
PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,356,115 $ (102,442) $ 4,159,455 $ 1,116,316
============ ============ ============ ============
Weighted average number of common shares
outstanding used in basic net income per
share calculation 15,629,071 15,464,234 15,596,231 15,43,347
============ ============ ============ ============
Basic net income (loss) per common share $ 0.15 $ (0.01) $ 0.27 $ 0.07
============ ============ ============ ============
Weighted average number of common shares
outstanding used in basic net income per
share calculation 15,629,071 15,464,234 15,596,231 15,433,347
Assumed exercise of stock options, net of
treasury shares acquired 509,480 478,101 575,410 503,075
------------ ------------ ------------ ------------
Weighted average number of shares used in
earnings per share calculation 16,138,551 15,942,335 16,171,641 15,936,422
============ ============ ============ ============
Net income per common and common
equivalent share $ 0.15 $ (0.01) $ 0.26 $ 0.07
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE VINCAM GROUP, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1998 INCLUDED IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,822,631
<SECURITIES> 0
<RECEIVABLES> 60,658,926
<ALLOWANCES> 2,503,113
<INVENTORY> 0
<CURRENT-ASSETS> 86,031,093
<PP&E> 8,225,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,619,689
<CURRENT-LIABILITIES> 65,745,784
<BONDS> 0
0
0
<COMMON> 15,666
<OTHER-SE> 36,772,213
<TOTAL-LIABILITY-AND-EQUITY> 103,619,689
<SALES> 595,791,454
<TOTAL-REVENUES> 595,791,454
<CGS> 0
<TOTAL-COSTS> 563,767,559
<OTHER-EXPENSES> 25,226,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,784
<INCOME-PRETAX> 6,723,455
<INCOME-TAX> 2,564,000
<INCOME-CONTINUING> 4,159,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,159,455
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE VINCAM GROUP, INC. FOR THE SIX
MONTHS ENDED JUNE 30, 1997 INCLUDED IN THIS FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,026,946
<SECURITIES> 731,218
<RECEIVABLES> 35,599,102
<ALLOWANCES> 995,734
<INVENTORY> 0
<CURRENT-ASSETS> 62,000,456
<PP&E> 6,717,319
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,892,534
<CURRENT-LIABILITIES> 44,455,676
<BONDS> 0
0
0
<COMMON> 15,684
<OTHER-SE> 30,906,214
<TOTAL-LIABILITY-AND-EQUITY> 79,892,534
<SALES> 455,103,968
<TOTAL-REVENUES> 455,103,968
<CGS> 0
<TOTAL-COSTS> 427,535,108
<OTHER-EXPENSES> 27,568,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,169,814
<INCOME-TAX> 1,053,498
<INCOME-CONTINUING> 1,116,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,116,316
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
