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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
/X/ Annual Report pursuant to Section 13 or 15 of the Securities
Exchange Act of 1934 (no fee required)
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
/ / Transition report pursuant to Section 13 or 15 of the Securities
Exchange Act of 1934 (no fee required)
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ProBusiness Services, Inc.
(Exact name of Registrant as specified in its charter)
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DELAWARE 94-2976066
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4125 HOPYARD ROAD
PLEASANTON, CA 94588
(Address of principal executive offices)
(925) 737-3500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $385,464,000 as of June 30, 2000 based on the
closing price of the Common Stock as reported on The Nasdaq Stock Market for
that date.
As of September 12, 2000, there were 23,609,904 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 2000 are incorporated by reference into Part II. Portions of the Proxy
Statement for Registrant's 2000 Annual Meeting of Stockholders to be held
November 16, 2000 are incorporated by reference into Part III.
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PROBUSINESS SERVICES, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<S> <C> <C>
PART I
Item 1. Business......................................................................... 3
Item 2. Properties....................................................................... 7
Item 3. Legal Proceedings................................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.............................. 7
PART II
Item 5. Market for Registrant's Equity and Related Stockholder Matters................... 8
Item 6. Selected Financial Data.......................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................... 9
Item 8. Financial Statements and Supplementary Data...................................... 9
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................... 9
PART III
Item 10. Directors and Executive Officers of the Company.................................. 10
Item 11. Executive Compensation........................................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 11
Item 13. Certain Relationships and Related Matters........................................ 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K.................. 12
Signatures....................................................................... 13
</TABLE>
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PROBUSINESS SERVICES, INC.
PART I.
This Annual Report on Form 10-K and the documents incorporated
herein by reference contain forward looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These foward-looking statements are based on current expectations,
estimates and projections about our industry, management's beliefs, and
certain assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks" and "estimates" and
similar expressions are intended to identify forward-looking statements.
These statements are not guarantees of future performance and actual actions
or results may differ materially. These statements are subject to certain
risks, uncertainties and assumptions that are difficult to predict, including
those noted in the documents incorporated herein by reference. ProBusiness
undertakes no obligation to update publicly any forward-looking statements as
a result of new information, future events or otherwise, unless required by
law. Readers should, however, carefully review the risk factors included in
other reports or documents filed by us from time to time with the Securities
and Exchange Commission.
ITEM 1. BUSINESS
OVERVIEW
ProBusiness is a leading provider of comprehensive outsourced
administrative services for large employers nationwide. The Company's primary
service offerings are payroll processing, payroll tax filing, benefits
administration services human resources software, Shared Services and
Web-based self-service. The Company's proprietary PC-based payroll system
offers the cost-effective benefits of outsourcing and high levels of client
service, while providing the flexibility, control, customization and
integration of an in-house system. As of June 30, 2000, the Company provided
services to approximately 2,000 clients. As of June 30, 2000, the Company
provided payroll processing services to approximately 600 clients with an
aggregate of approximately 1,180,000 active employees and an average of
approximately 1,965 employees. For the quarter ended June 30, 2000, the
Company processed 8.2 million checks for the Company's payroll clients. In
addition to providing tax filing services for its payroll clients, as of June
30, 2000 the Company provided national tax filing services to 148 clients
with an aggregate of approximately 2.4 million employees and an average of
more than 16,350 employees.
The Company differentiates itself from its competitors through its
proprietary PC-based technology, high quality, responsive and professional
client service and focus on the needs of large employers. The Company
combines its PC-based technology and personalized client service to provide a
broad range of service offerings, including payroll processing, payroll tax
filing, benefits administration services, human resources software, Shared
Services and Web-based self-service. In addition, the Company provides large
employers with the cost-effective benefits of outsourcing and high levels of
client service, while providing the flexibility, system control,
customization and integration of an in-house system.
ProBusiness develops a business partnership with each client by
assessing each client's payroll processing needs, reengineering and designing
the client's payroll systems and processes and implementing a cost-effective
solution. The Company maintains an ongoing relationship with each client
using a strategic team of specialists led by a personal account manager who
proactively manages each client's account and marshals the resources of the
team to meet the client's specific needs. ProBusiness maintains a low
client-to-account manager ratio to offer clients accessible and responsive
account management. The Company believes that its low client-to-account
manager ratio and its focus on client service are key factors in enabling the
Company to achieve a high payroll client retention rate, which was
approximately 90% for fiscal 2000.
The Company's objective is to be the premier provider of employee
administrative services for large employers. The Company's strategy is to
continue providing clients with high levels of personal service and
developing a comprehensive and fully integrated suite of employee
administrative services. The Company also intends to expand its client base
and provide additional services to its existing clients.
The Company was incorporated in California in October 1984 and
reincorporated in Delaware in September 1997. The Company's executive offices
are located at 4125 Hopyard Road, Pleasanton, California 94588, and its
telephone number is (925) 737-3500.
SERVICE OFFERINGS
The Company provides a broad range of employee administrative
services, including payroll processing, payroll tax filing, benefits
administration services, human resources software, Shared Services and
Web-based self-service. The Company intends to expand its service offerings
through future acquisitions, alliances and investments and intends to develop
enhancements to its existing services internally.
PAYROLL PROCESSING
The Company processes time and attendance data to calculate and
produce employee paychecks, direct deposits and reports for its clients.
Clients receive paychecks and reports within 24 to 48 hours of the Company's
receipt of the data electronically submitted from the client. The Company's
system is highly configurable to meet the specialized and, often times,
complex needs of larger employers, yet maintains the ability to provide high
volume processing. The system integrates easily with the client's general
ledger, human resources and time and attendance systems. In addition, the
Company offers many sophisticated features, including the automatic
enrollment and tracking of paid time off, proration of compensation for new
hires and integrated garnishment processing.
3
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PAYROLL TAX FILING
The Company collects contributed employer and employee payroll tax
funds from clients, deposits such funds with tax authorities when due, files
all payroll tax returns and reconciles the client's account. The Company will
also represent the client before tax authorities in disputes or inquiries.
Substantially all existing payroll clients utilize the Company's payroll tax
service.
BENEFITS ADMINISTRATION SERVICES
The Company's benefits administration services include flexible
benefits enrollment and processing, COBRA administration and consolidated
billing and eligibility tracking. These services include data management,
reconciliation, transaction processing, employee inquiry management and
client service.
HUMAN RESOURCES SOFTWARE
The Company's human resources software tracks and reports general
employee information, including compensation, benefits, skills, performance,
training, job titles and medical history. For clients that also use the
Company's payroll service, the human resources data can be transferred to the
payroll services system, thus eliminating the need for duplicate data entry.
SHARED SERVICES
The Company's Shared Service center serves as an extension of our
client's business. The Company manages employee inquiries and front-office
services for payroll, HR and benefits, as well as our traditional back-office
processing services. Front office administration is a service offering
whereby ProBusiness assumes the management of a client's transactional
administration, including recording and verifying time, issuing manual
checks, enrolling employees in flexible spending benefit programs and
auditing and balancing payroll.
WEB-BASED SELF-SERVICE APPLICATIONS
The Company's self-service applications provide employers with a
complete range of employee relationship management applications. Employers
have a Web-based tool to facilitate human resource and payroll processes and
to empower employees with self-directed administration services. ProBusiness
leads the industry with Web-based self-service, including its Employees
Service Portal and Client Services Portal.
POTENTIAL FUTURE OFFERINGS
The Company continually evaluates the addition of add-on service
offerings to expand the breadth of its solution through alliances,
acquisitions or internal development. Such additional services include time
and attendance, travel and entertainment, unemployment insurance and 401(k)
plans.
CLIENT SERVICE
The Company believes that its focus and dedication to providing high
levels of client service is a competitive advantage in the large employer
market. ProBusiness develops a business partnership with each client by
assessing each client's payroll processing needs, reengineering and designing
the client's payroll system and process and implementing a value-added
solution. The Company maintains an ongoing relationship with each client
using a strategic team that includes a sales representative, a sales analyst,
a senior project manager, an account manager and numerous functional,
regulatory and technical support specialists. The Company intends to continue
providing its clients with a high level of service by hiring professionals
who are experienced in their fields. Most service personnel have experience
in payroll, accounting, human resources or financial services industries, and
many hold Certified Public Accountant or Certified Payroll Professional
accreditation.
The Company continually monitors the quality of its service through
client feedback mechanisms. The Company obtains valuable insights into the
needs of its clients through its partnership with each client and from client
responses to surveys, which are conducted semi-annually. The Company uses
this information to help develop, identify and optimize new service offerings
and improve the level of service provided to clients. The Company also uses
client feedback as a basis for incentive compensation and recognition of
achievements.
SALES
The Company believes that client service begins with the sales
process. A sales representative and a sales analyst work together to assess a
potential client's payroll processing needs. Based on this assessment, the
sales team then identifies opportunities to reengineer the prospective
client's payroll processes and to design a payroll solution that integrates
effectively with its other systems. The payroll sales cycle typically ranges
from three to twelve months or longer.
IMPLEMENTATION
4
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Upon engagement by a client, the Company assigns a team of technical
support specialists, headed by a senior project manager who leads the
transition from the client's former payroll system to the Company's system.
The senior project manager works with the client, the sales analyst and
technical support specialists to integrate the Company's payroll system with
the client's other systems and to customize the system to improve the
client's payroll processes. The Company uses its systems integration
expertise to facilitate the integration of its payroll processing system with
the client's existing hardware and software. The implementation process
generally takes three to nine months or longer, depending on the complexity
of the client's payroll processes and systems and the size of the client.
ACCOUNT MANAGEMENT
An account manager is assigned to each client during the
implementation process and serves as the client's day-to-day contact at the
Company. The account manager coordinates the efforts of the Company's
functional, regulatory and technical support specialists as necessary. The
account manager visits each client regularly and establishes an annual
business plan with the client that details scheduled payroll events such as
open enrollment periods for employee benefits plans or software system
changes. This annual business plan allows the Company to provide clients with
uninterrupted payroll services during these periods. Account managers use a
comprehensive client relationship management system to record and track all
client calls, record client feedback and help ensure that the client's needs
are addressed promptly and thoroughly. The Company maintains a low
client-to-account manager ratio to offer clients accessible and responsive
account management.
SUPPORT SPECIALIST
The Company supports each client with functional and regulatory
specialists in payroll, payroll tax and employee benefits, as well as pay
data interfaces, general ledger interfaces, paid-time-off, report writing and
system integration. Each of these specialists is available to speak directly
with clients as needed, meet with clients onsite or support clients
indirectly through the account manager.
TECHNOLOGY
The Company's proprietary PC-based technology for its payroll
services provides a platform for delivering high levels of service together
with the flexibility and control of an in-house system. The Company creates a
mirrored version of each client's system, which allows the Company's account
managers to access client information using the same data, programs and
screens as the client uses on its PC network. This enables the Company to
quickly and easily identify client problems or modify application programs in
response to client requests. The client maintains control by having direct
access to all calculation programs and all historical and transactional data,
which also provides the client with flexibility to respond quickly to
employee and third-party inquiries, to fully analyze payroll data and to
generate management reports. The Company's intuitive Windows-based interface
makes navigation simple and allows new users to be trained quickly. The
Company has developed a suite of online self-service administrative services
applications accessible through the Internet that enable our clients'
employees to view paychecks and other compensation and benefits data.
The Company's system architecture is designed to distribute payroll
processing tasks to multiple low cost, high performance PCs, which enables
the Company to scale its system continually to handle increasing transaction
volumes. The Company's PC-based application software supports the development
of customized solutions for each client that can be easily upgraded and
integrated with a client's other systems. In addition, multiple networked PCs
facilitate exception processing and rapid response that large employers
require.
CLIENTS
The Company targets large companies with complex and changing
business needs in diverse industries. As of June 30, 2000, the Company
provided services to approximately 2,000 clients. Of these clients,
approximately 600 were payroll processing clients, with an aggregate of
approximately 1,180,000 active employees and an average of approximately
1,965 employees. For the quarter ended June 30, 2000, the Company processed
8.2 million payroll checks for the Company's payroll clients. The Company
began providing national tax filing services to clients in 1996 and, as of
June 30, 2000, provided these services to 148 clients with an aggregate of
more than 2.4 million employees and an average of more than 16,350 employees.
For fiscal 2000, no client accounted for more than 3% of the Company's
revenue.
The Company believes that its low client-to-account manager ratio
and its focus on client service are key factors in enabling the Company to
achieve a high payroll client retention rate, which was approximately 90% for
fiscal 2000. Historically, the Company's client retention rates have been
negatively impacted primarily due to clients ceasing to use the Company's
services following a merger or sale of the client. The Company generally
executes multi-year contracts that contain penalties for early termination.
SALES AND MARKETING
The Company employs a direct sales force to gain new clients and
increase the number of services provided to existing clients. The Company
currently targets large employers through direct marketing, trade shows and
active participation in local chapters
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of the American Payroll Association. The Company uses a team selling
approach, whereby sales analysts and sales representatives collaborate to
assess a potential client's needs and develop a cost-effective solution. The
payroll and payroll tax sales cycle typically ranges from three to twelve
months or longer. The Company utilizes a combination of direct sales and
insurance brokers to attract new benefits administration clients.
The Company seeks to attract and retain experienced industry sales
representatives. The Company believes that its long-term competitiveness
depends on increasing further its national presence. The Company believes
that continuing to add direct sales representatives in major metropolitan
areas throughout the United States is the most effective means of increasing
its national client base. Over the past few years, the Company has added
sales and implementation representatives covering major metropolitan areas,
including Atlanta, Chicago, Dallas, New York, Philadelphia and Seattle. The
Company continues to expand operations in its Atlanta facility by adding
implementation, account management and development resources.
The Company's marketing department provides product definition,
target market strategies, competitive intelligence, support materials and
marketing communications to sales representatives, promotes public relations,
conducts direct marketing campaigns, manages trade show participation and
develops and manages its corporate Web site.
As part of its strategy to provide a comprehensive suite of employee
administrative services, the Company has entered into strategic alliances
with industry leaders, including Oracle Corporation and SAP AG. These
alliances enable the Company to provide full connectivity between the
Company's payroll and payroll tax solution and its strategic partner's human
resources application programs. The Company has also formed an alliance to
provide services to clients jointly with Sheakly UniService, a leading
provider of unemployment cost control and employment verification services.
RESEARCH AND DEVELOPMENT
The Company intends to continue investing substantial resources to
further develop a comprehensive and fully integrated suite of employee
administrative services and extend the functionality of its proprietary
processing systems. In addition, the Company has invested substantial
resources and will continue to invest substantial resources in developing
Golden Gate, an integrated payroll and human resources system utilizing
advanced n-tier technology that will initially run on Windows 95, Windows 98
and Windows NT. If these service offerings or Golden Gate are not
successfully developed or, if developed, do not achieve market acceptance,
the Company's results of operations and reputation will be harmed.
COMPETITION
The market for the Company's services is intensely competitive,
subject to rapid change and significantly affected by new service
introductions and other market activities of industry participants. The
Company primarily competes with several public and private payroll service
providers such as Automatic Data Processing, Inc. and Ceridian Corporation,
as well as other regional competitors. Many of these companies have longer
operating histories, greater financial, technical, marketing and other
resources, greater name recognition and a larger number of clients than the
Company. In addition, certain of these companies offer more services or
features than the Company and have processing facilities located throughout
the United States. The Company also competes with in-house employee services
departments and, to a lesser extent, banks and local payroll companies. With
respect to benefits administration services, the Company competes with
insurance companies, benefits consultants and other local benefits
outsourcing companies. The Company may also compete with marketers of related
products and services that may offer payroll or administrative services in
the future. The Company has experienced, and expects to continue to
experience, competition from new entrants into its markets. Increased
competition could result in pricing pressures, loss of market share and loss
of clients, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company believes that the principal competitive factors
affecting its market include client service, system functionality and
performance, system scalability, reputation, system cost and geographic
location. The failure of the Company to compete successfully would have a
material adverse effect on the Company's business, financial condition and
results of operations.
PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary
software technology. The Company relies on a combination of contract,
copyright and trade secret laws to establish and protect its proprietary
technology. The Company has no patents, patent applications or registered
copyrights. The Company distributes its services under software license
agreements that grant clients licenses to use the Company's services and
contain various provisions protecting the Company's ownership and the
confidentiality of the underlying technology. The Company generally enters
into confidentiality and/or license agreements with its employees and
existing and potential clients, and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be adequate
to deter misappropriation or independent third-party development of the
Company's technology.
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There can be no assurance that the Company's services and technology
do not infringe any existing patents, copyrights or other proprietary rights
or that third parties will not assert infringement claims in the future. If
any such claims are asserted and upheld, the costs of defense could be
substantial and any resulting liability to the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of June 30, 2000, the Company had approximately 1,050 full-time
employees. The Company believes that its relations with its employees are
good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Pleasanton, California and
consist of approximately 205,000 square feet of office space leased through
April 2015. The Company also maintains five satellite offices, located as
follows: Irvine, California, a 14,000 square foot implementation and back-up
payroll facility, leased through May 2002; Bothell, Washington, a 45,000
square foot operations center housing the Company's Shared Services and
benefits administration center; Norcross, Georgia, a 15,000 square foot
sales, implementation and operations center, leased through June 2001;
Bridgewater, New Jersey, an 8,000 square foot sales and implementation
center, leased through April 2001; and Dayton, Ohio, a 1,000 square foot
field sales office, leased through September 2000.
The Company believes that its existing facilities are adequate for its
current needs and that additional facilities can be leased to meet future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business. In the opinion of management, no such current or pending lawsuits,
either individually or in the aggregate, are likely to have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended June 30, 2000.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol "PRBZ." The following table sets forth, for the
fiscal periods indicated, the high and low sales prices of the Common Stock
as reported by the Nasdaq National Market since the Company's initial public
offering of Common Stock at $7.33 per share on September 19, 1997 (after
giving effect to the stock split effected on August 7, 1998). Prior to
September 19, 1997, there was no public trading market for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
FISCAL 1999:
First Quarter........................................................................ $43.13 $22.38
Second Quarter....................................................................... $47.50 $27.25
Third Quarter........................................................................ $44.75 $29.75
Fourth Quarter....................................................................... $42.00 $24.50
FISCAL 2000:
First Quarter........................................................................ $37.00 $26.25
Second Quarter....................................................................... $36.00 $18.38
Third Quarter........................................................................ $32.63 $23.13
Fourth Quarter....................................................................... $28.31 $21.56
</TABLE>
On September 12, 2000, there were 5,339 beneficial holders of record of
the Company's Common Stock. The last reported sale price per share of the Common
Stock on September 14, 2000 on the Nasdaq National Market was $26.25.
On August 1, 2000, the Company authorized, issued and sold 1,132,075
shares of 6.9% Senior Convertible Preferred Stock to three venture capital
investors affiliated with General Atlantic Partners, LLC at $26.50 per share
for an aggregate purchase price of $30 million.
(b) The Company raised net proceeds of $80.7 million in a secondary
public equity offering in September 1998. As of June 30, 2000, $27.6
million of these net proceeds remain. During fiscal 2000, the Company used
$6.5 million to fund operations, $40.9 million to fund investing activities
and $5.4 million to fund financing activities.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
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1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue.......................................... $ 14,098 $ 27,675 $ 46,534 $ 70,145 $ 104,072
Loss from operations................................... $ (2,820) $ (7,495) $ (9,984) $(18,393)** $ (16,832)
Net loss............................................... $ (3,238) $ (8,643) $ (9,840) $(16,109) $ (13,917)
Gross margin........................................... $ 7,509 $ 13,763 $ 22,484 $ 35,636 $ 54,694
Net loss per share*.................................... $ (0.78) $ (0.60) $ (0.77) $ (0.60)
Shares used in computing basic and diluted net loss
per share*.......................................... 11,079 16,535 21,033 23,229
Total assets........................................... $118,036 $201,499 $377,475 $710,424 $1,182,221
Payroll tax funds...................................... $106,339 $177,626 $332,667 $580,452 $1,054,903
Operating profit before client acquisition and merger
costs.............................................. $ 3,453 $ 4,757 $ 8,836 $ 14,969 $ 26,930
</TABLE>
* Amounts are pro forma for 1997 and 1998.
** Loss includes a $3.5 million charge for merger related costs.
(See Note 11 of Notes to Consolidated Financial Statements.)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required is set forth in the Company's Annual Report
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In fiscal 2000, the Company held certain derivative based products
to mitigate interest rate fluctuation risk. In relation to these products, a
$4.6 million pledge, reported as restricted cash, was deposited with a
secured party. These funds represent the collateral required under the
corresponding swap agreement. The collateral exposure associated with the
various interest rate swap agreements are limited by interest rate caps held
by the Company. As of June 30, 2000, the Company held two interest rate cap
agreements with expiration dates of December 2000 and April 2002 and cap
rates of 7.75% and 8.0%, respectively. The aggregate fair values of these cap
agreements were a positive $219,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required are identified in Item 14(a), and
are set forth in the Company's Annual Report and incorporated herein by
reference. Supplementary data required is set forth in the Company's Annual
Report under "Quarterly Financial Data (Unaudited)" and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants or reported disagreements on
accounting principles or practices or financial statement disclosures.
9
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
the executive officers and directors of the Company as of September 28, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Thomas H. Sinton........................ 52 Chairman of the Board, President, Chief Executive Officer, Director
Jeffrey M. Bizzack...................... 40 Executive Vice President, Sales and Services
Jerry W. Blalock........................ 51 Executive Vice President and Group General Manager
Steven E. Klei.......................... 40 Executive Vice President, Finance, Chief Financial Officer and Secretary
Glenda M. Citragno...................... 35 Vice President, Finance and Chief Accounting Officer
William T. Clifford..................... 54 Director
David C. Hodgson(1)(2).................. 43 Director
Ronald W. Readmond(1)(2)................ 57 Director
Thomas P. Roddy(1)...................... 65 Director
</TABLE>
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
MR. SINTON, founder of the Company, has served as a Director of the
Company since the Company's incorporation in October 1984. Since March 1993
Mr. Sinton has served as the President and Chief Executive Officer of the
Company. Since December 1996, and for a period between September 1989 and
February 1993, Mr. Sinton served as Chairman of the Board. Mr. Sinton holds a
B.A. degree in English Literature, Magna Cum Laude, from Harvard University,
an M.S. degree in Food Science from the University of California at Davis and
an M.B.A. degree from Stanford University. Mr. Sinton received a Fulbright
Fellowship to study at the University of Vienna in Vienna, Austria.
MR. BIZZACK has served as Executive Vice President, Sales and
Services since February 2000. From July 1993 to February 2000, Mr. Bizzack
served as Senior Vice President, Sales of the Company. From October 1992 to
July 1993, Mr. Bizzack served as Vice President, Sales of the Company. From
October 1988 to October 1992, Mr. Bizzack served as a District Sales Manager
of the Company. Mr. Bizzack attended Saint Mary's College.
MR. BLALOCK has served as Executive Vice President and General
Manager since February 2000. From August 1999 to February 2000, Mr. Blalock
served as Senior Vice President, Operations and General Group Manager of the
Company and as Senior Vice President and General Manager, Payroll and Tax
from August 1998 to August 1999. From October 1996 to August 1998, Mr.
Blalock served as Vice President and Regional General Manager for Anacomp
Corporation, a provider of document imaging services. From January 1995 to
October 1996 Mr. Blalock served as president and founder of the Axion Group,
a provider of resume scanning services. From March 1992 to December 1994 Mr.
Blalock served as Divisional President of Delphi Information Systems, a
provider of automation systems to property and casualty insurers. Mr. Blalock
attended the University of La Verne.
MR. KLEI has served as Executive Vice President, Finance of the
Company since February 2000. Mr. Klei served as Senior Vice President,
Finance of the Company since August 1997, as Chief Financial Officer of the
Company since July 1995 and as Secretary of the Company since August 1996.
Mr. Klei served as Vice President, Finance from July 1995 to August 1997.
From April 1993 to July 1995, Mr. Klei was Corporate Controller for Esprit de
Corp, an apparel company. Mr. Klei holds a B.S. degree in Accounting from
Central Michigan University and is a Certified Public Accountant.
MS. CITRAGNO has served as Vice President, Finance and Chief
Accounting Officer of the Company since July 2000, as Senior Director and
Corporate Controller, Finance from June 1999 to July 2000 and as Director and
Corporate Controller from January 1997 to June 1999. Ms. Citragno served as
Corporate Controller, Finance and Administration for Verifone, Inc. from June
1994 to January 1997. Ms. Citragno holds a B.A. degree in Economics from the
University of California, Santa Barbara and is a Certified Public Accountant.
MR. CLIFFORD has served as a Director of the Company since August
1997. Mr. Clifford has served as Chairman of Warrantycheck.com since November
1999. Mr. Clifford served as the Chief Executive Officer of Gartner Group,
Inc. from January 1999 to October 1999 and as the President of Gartner Group,
Inc. since October 1997. From April 1995 to January 1999, he was the Chief
Operating Officer of Gartner Group, Inc., and from October 1993 to September
1997, he was Executive Vice President, Operations of Gartner Group, Inc. From
December 1988 to October 1993, Mr. Clifford held various positions at
Automatic Data Processing, Inc., including President of National Accounts and
Corporate Vice President, Information Services. Mr. Clifford holds a B.A.
degree in Economics from the University of Connecticut.
MR. HODGSON has served as a Director of the Company since March
1997. Mr. Hodgson is a Managing Member of General Atlantic Partners LLC ("GAP
LLC") and has been with GAP LLC since 1982. Mr. Hodgson is also a director of
Baan Company, N.V., a publicly-traded software company, Atlantic Data
Services, Inc., a publicly-traded information technology consulting company,
and several other privately-held software companies, in which GAP LLC or one
of its affiliates is an investor. Mr. Hodgson holds an A.B. degree in
Mathematics from Dartmouth College and a M.B.A. degree from Stanford
University.
10
<PAGE>
MR. READMOND has served as a Director of the Company since February
1997. Mr. Readmond has served as Vice Chairman of Wit Capital Group Incorporated
since June 2000. Mr. Readmond served as President and Chief Operating Officer of
Wit Capital Group Incorporated June 1998 to June 2000 and has been an advisor of
Barbour Griffith & Rogers, a lobbying firm, and Chairman of International Equity
Partners, L.P., a private equity and project development company since January,
1997. From August 1989 to December 1996, Mr. Readmond held various positions at
Charles Schwab & Co. Inc., most recently serving as Vice Chairman. Mr. Readmond
holds a B.A. degree in Economics from Western Maryland College.
MR. RODDY has served as a Director of the Company since 1992. Since
1988, Mr. Roddy has served as President and Chief Executive Officer of
Lafayette Investments Inc., an investment banking and investment advisory
company. Mr. Roddy holds a B.S. degree in Biochemistry from Villanova
University.
Mr. Hodgson was nominated and elected as a Director of
the Company pursuant to an agreement entered into between the Company, GAP
LLC and Thomas H. Sinton and his affiliates, in connection with the sale of
Preferred Stock by the Company to GAP LLC. Under such agreement, GAP LLC and
Mr. Sinton and his affiliates agreed to vote their shares to elect one
director to the Board of Directors designated by GAP LLC until the 2000
annual meeting of the Company's shareholders. Mr. Hodgson's current term as a
Class II director expires at the Company's 2002 annual meeting.
Under the terms of the August 2000 investment by affiliates of GAP
LLC in the Company's 6.9% Senior Convertible Preferred Stock, as long as GAP
LLC or its affiliates own a majority of this Convertible Preferred Stock, the
holders of the Convertible Preferred Stock are entitled to elect one director
to the Company's Board of Directors.
The Board of Directors consists of five members divided into three
classes. One class of directors is elected annually and its members hold
office for a three-year term or until their successors are duly elected and
qualified, or until their earlier removal or resignation. The number of
directors may be changed by a resolution of the Board of Directors. Executive
officers are appointed by the Board of Directors. There are no family
relationships among any of the directors and executive officers of the
Company.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee recommends the engagement of
auditors and reviews the results and scope of the audit and other services
provided by the Company's independent auditors, reviews and evaluates the
Company's control functions and reviews the Company's investment policy. The
Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for employees and consultants
of the Company. The Compensation Committee also administers the Company's
1996 Stock Option Plan and 1997 Employee Stock Purchase Plan.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Executive officers, directors and greater than
10% stockholders are required by SEC rules to furnish the Company with copies
of all forms they file. Based solely on its review of the copies of such
forms received by the Company and written representations from certain
reporting persons, the Company believes that, during fiscal 2000, all Section
16(a) filing requirements applicable to its executive officers, directors and
10% stockholders were satisfied, except that a Form 3 was filed late for
Jerry W. Blalock, Executive Vice President and Group General Manager, in
September 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required is set forth in the Company's definitive
Proxy Statement in the sections entitled "Executive Officer Compensation" and
"Election of Class III Directors" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP
The information required is set forth in the Company's definitive
Proxy Statement in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is set forth in the Company's definitive Proxy
Statement in the section entitled "Certain Transactions" and is incorporated
herein by reference.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS: The following Consolidated Financial
Statements of ProBusiness, Services, Inc. and Report of
Ernst & Young LLP, Independent Auditors, are incorporated by
reference from the 2000 Annual Report to Stockholders:
Consolidated Balance Sheets as of June 30, 1999
and 2000
Consolidated Statements of Operations for the
years ended June 30, 1998, 1999 and 2000
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1999 and 2000
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. FINANCIAL STATEMENT SCHEDULE: The following financial
statement schedule of ProBusiness Services, Inc. for the
fiscal years ended June 30, 1998, 1999 and 2000 is filed as
part of this Report and should be read in conjunction with
the consolidated Financial Statements of ProBusiness
Services, Inc.:
Schedule II Valuation Allowance
Schedules not listed above have been omitted because they
are not applicable or are not required or the information
required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
3. EXHIBITS: The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement
schedule are filed as part of, or incorporated by reference
into, this Report.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
(c) EXHIBITS: See Item (a) above.
(d) FINANCIAL STATEMENT SCHEDULES: See Item (a) above.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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, in the city of
Pleasanton, state of California, on this 28th day of September, 2000.
PROBUSINESS SERVICES, INC.
By: /s/ THOMAS H. SINTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS H. SINTON President, Chief Executive Officer and Director September 28, 2000
------------------------------------------ (Principal Executive Officer)
Thomas H. Sinton
/s/ STEVEN E. KLEI Executive Vice President, Finance, Chief Financial Officer September 28, 2000
------------------------------------------ and Secretary (Principal Financial Officer)
Steven E. Klei
/s/ GLENDA M. CITRAGNO Vice President, Finance and Chief Accounting Officer September 28, 2000
------------------------------------------ (Principal Accounting Officer)
Glenda M. Citragno
/s/ WILLIAM T. CLIFFORD Director September 28, 2000
------------------------------------------
William T. Clifford
/s/ DAVID C. HODGSON Director September 28, 2000
------------------------------------------
David C. Hodgson(2)
/s/ RONALD W. READMOND Director September 28, 2000
------------------------------------------
Ronald W. Readmond
/s/ THOMAS P. RODDY Director September 28, 2000
------------------------------------------
Thomas P. Roddy
</TABLE>
13
<PAGE>
SCHEDULE II
PROBUSINESS SERVICES, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
VALUATION ALLOWANCE
YEAR ENDED JUNE 30,
-------------------
DEFERRED TAX ASSETS: 1998 1999 2000
-------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $6,560 $10,864 $17,829
Additions 4,304 6,965 5,647
Reductions - - -
Balance at end of year $10,864 $17,829 $23,476
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1998 1999 2000
-------------------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $386 $443 $816
Additions 127 397 990
Reductions 70 24 121
Balance at end of year $443 $816 $1,685
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
FOOTNOTE NUMBER EXHIBIT DESCRIPTION
-------- ------ -------------------
<S> <C> <C>
(1) 2.1 Agreement and Plan of Reorganization, dated May 23, 1996, between Registrant and Dimension
Solutions.
(1) 2.2 Stock Acquisition Agreement, dated January 1, 1997, between Registrant and BeneSphere
Administrators, Inc.
(4) 2.3 Agreement and Plan of Reorganization, dated as of April 27, 1999, among ProBusiness Services, Inc.,
Runway Acquisition Corp., Clemco, Inc. and certain other parties.
(2) 3.1 Amended and Restated Certificate of Incorporation.
(1) 3.2 Bylaws of Registrant.
(1) 4.1 Specimen Common Stock Certificate of Registrant.
(1) 4.2 Amended and Restated Registration Rights Agreement, dated March 12, 1997, between
Registrant, General Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P. and certain
stockholders of Registrant.
4.2(a) Amendment to Amended and Restated Registration Rights Agreement, dated August 1, 2000, between Registrant,
General Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P., General Atlantic Partners 70, L.P.,
GAP Coinvestment Partners II, L.P. and GapStar, LLC.
(1) 4.6(a) Warrant Purchase Agreement, dated November 14, 1996, between Registrant and certain
purchasers.
(1) 4.6(b) Warrant to Purchase Series E Preferred Stock, dated July 31, 1996, between Registrant and
T.J. Bristow and Elizabeth S. Bristow.
(1) 4.6(c) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between Registrant
and SDK Incorporated.
(1) 4.6(d) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between Registrant
and Laurence Shushan and Magdalena Shushan.
(4) 4.9 Waiver and Amendment dated as of April 27, 1999, among ProBusiness Services, Inc., General
Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P. and certain stockholders.
(4) 4.10 Registration Rights Agreement dated as of April 27, 1999, between ProBusiness Services, Inc.
and certain stockholders.
(5) 4.11 Certificate of Designation of 6.9% Senior Convertible Preferred Stock dated August 1, 2000.
(5) 10.1 6.9% Senior Convertible Preferred Stock Purchase Agreement dated as of August 1, 2000 between
ProBusiness Services, Inc. and General Atlantic Partners 70, L.P., GAP Coinvestment
Partners II, L.P. and GapStar, LLC.
(3) 10.28 Sublease agreement, dated December 9, 1998, between Registrant and Maritz, Inc.
13.1 Certain sections of Annual Report to Stockholder for the fiscal year ended June 30, 2000,
expressly incorporated herein by reference.
23.1 Consent and Report of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
(4) 99.1 Press Release of ProBusiness Services, Inc. dated April 27, 1999.
</TABLE>
-----------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, as amended (File No. 333-23189), declared effective on
September 18, 1997.
(2) Incorporated by reference from the Registrant's Registration
Statement on Form S-8 (File No. 333-37129) filed with the Securities
and Exchange Commission on October 3, 1997.
(3) Incorporated by reference from the Registrant's report on Form
10-Q for the period ended December 31, 1998.
(4) Incorporated by reference from the Registrant's report on Form 8-K
filed with the Securities and Exchange Commission on May 12, 1999.
(5) Incorporated by reference from the Registrant's report on Form 8-K
filed with the Securities and Exchange Commission on August 16, 2000.
