<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-22195
AHL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-2277249
- ---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3353 Peachtree Road, NE, Atlanta, GA 30326
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 267-2222
-------------
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,610,500 shares on May 5,
1998.
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AHL SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II - OTHER INFORMATION AND SIGNATURE
ITEM 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 9
</TABLE>
1
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AHL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,036 $ 15,456
Accounts receivable, net 55,666 51,247
Uniforms in service, net 1,879 2,087
Prepaid expenses and other 3,053 2,761
----------- ---------
Total current assets 70,634 71,551
Property and equipment, net 10,930 10,885
Intangibles, net 38,629 25,665
Other assets 715 713
Deferred taxes 980 980
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$ 121,888 $ 109,794
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,656 $ 3,298
Accrued payroll and other liabilities 24,507 22,561
Current portion of self-insurance reserves 820 760
Income taxes payable 1,993 1,281
Deferred income taxes 469 332
Current portion of long-term debt 501 496
----------- ---------
Total current liabilities 31,946 28,728
----------- ---------
Long-term debt, less current portion 10,131 3,495
----------- ---------
Self-insurance reserves, less current portion 3,280 3,040
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SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000 shares authorized; no shares
outstanding - -
Common stock, $.01 par value; 50,000,000 shares authorized,
13,605,000 shares issued and outstanding 136 136
Paid in capital 62,908 62,908
Cumulative translation adjustment 93 (83)
Retained earnings 13,394 11,570
----------- ---------
Total shareholders' equity 76,531 74,531
----------- ---------
$ 121,888 $ 109,794
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 84,500 $ 60,424
----------- ---------
Operating expenses:
Cost of services 62,842 45,428
Field operating 14,420 9,923
Corporate general and administrative 4,449 3,435
----------- ---------
Total operating expenses 81,711 58,786
----------- ---------
Operating income 2,789 1,638
Interest expense, net 37 648
Other (income), net (282) (88)
----------- ---------
Income before income taxes 3,034 1,078
Income tax provision 1,210 427
----------- ---------
Net income $ 1,824 $ 651
=========== =========
Net income per common and common equivalent shares
Basic $ 0.13 $ 0.08
=========== =========
Diluted $ 0.13 $ 0.08
=========== =========
Weighted average common and common equivalent shares
Basic 13,605 8,492
=========== =========
Diluted 14,107 8,673
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 5
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,824 $ 651
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,656 1,263
Loss (gain) on sales of property and equipment (225) 2
Changes in working capital, net (1,224) (806)
----------- ---------
Net cash provided by operating activities 2,031 1,110
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition (13,311) -
Purchases of property and equipment (2,134) (325)
Sales of property and equipment 1,579 -
Other activities, net (257) (33)
----------- ---------
Net cash used in investing activities (14,123) (358)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit (10,790) (48,995)
Borrowings under line of credit 17,387 49,118
Expenses of IPO - (555)
Other - (97)
----------- ---------
Net cash provided by (used in) financing activities 6,597 (529)
----------- ---------
Effect of exchange rates on cash 75 (48)
----------- ---------
Net change in cash (5,420) 175
Cash at beginning of period 15,456 1,842
----------- ---------
Cash at end of period $ 10,036 $ 2,017
=========== =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 17 $ 556
=========== =========
Income taxes $ 623 $ 123
=========== =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases under capital lease obligations $ - $ 472
=========== =========
Contribution of real estate $ - $ 1,637
=========== =========
Forgiveness of note payable to shareholder $ - $ 528
=========== =========
Assumption of real estate debt $ - $ (2,532)
=========== =========
Accrual of IPO expenses $ - $ 625
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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AHL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. SUMMARY OF PRESENTATION - The condensed consolidated financial
statements included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information not
misleading. In the opinion of management, the condensed consolidated
financial statements contain all adjustments necessary to present
fairly the financial position of the Company as of March 31, 1998, the
results of its operations and of its cash flows for the three months
ended March 31, 1998 and 1997. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the results to be
expected for the year ended December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto
for the fiscal year ended December 31, 1997 included in the Company's
10-K.
2. ACQUISITION ACTIVITY - On February 6, 1998, AHL completed the
acquisition of SES Staffing Solutions, Inc. ("SES"), a light industrial
staffing company located in Maryland. SES's 1997 revenues were
approximately $16 million. The results of operations of SES have been
included in the attached condensed consolidated financial statements
included herein since the date of acquisition. On April 1, 1998, AHL
completed the acquisition of Tuja Zeitarbeits GmbH ("TUJA"), a light
industrial staffing company in Germany. TUJA's 1997 revenues were
approximately $16 million. The TUJA acquisition occurred subsequent to
March 31, 1998 and has therefore been properly excluded from the
attached condensed consolidated financial statements.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results - Three Months Ended March 31, 1998 and 1997
Revenues increased $24.1 million, or 40%, to $84.5 million in the first quarter
of 1998 from $60.4 million in the first quarter of 1997. Of this increase,
approximately $13 million was attributable to the acquisitions made in 1997,
which all occurred after the first quarter, and the 1998 SES acquisition. The
remaining increase was a result of entering into contracts to provide services
to new clients and a result of providing additional services to existing
clients.
Cost of services represents the direct costs attributable to a specific
contract, predominantly wages and related benefits, as well as certain related
expenses such as workers' compensation and other direct labor related expenses.
Cost of services increased $17.4 million, or 38%, to $62.8 million in the first
quarter of 1998 from $45.4 million in the first quarter of 1997. As a percentage
of revenues, cost of services decreased to 74.4% in the first quarter of 1998
from 75.2% in the first quarter of 1997.
Field operating expenses represent expenses which directly support field
operations, such as each district's management, facilities expenses (such as
rent, communication costs and taxes), employee uniforms, equipment leasing,
depreciation and maintenance, local sales and marketing activities and
acquisition related goodwill. These expenses increased $4.5 million, or 45%, to
$14.4 million in the first quarter of 1998 from $9.9 million in the first
quarter of 1997. As a percentage of revenues, field operating expenses increased
to 17.1% in the first quarter of 1998 from 16.4% in the first quarter of 1997.
This percentage increase was primarily attributable to the increase in
acquisition related goodwill in 1998.
Corporate general and administrative expenses, which includes the cost of
services the Company provides to support and manage its field activities,
increased $1.0 million, or 30%, to $4.4 million in the first quarter of 1998
from $3.4 million in the first quarter of 1997. As a percentage of revenues,
these expenses decreased to 5.3% in the first quarter of 1998 from 5.7% in the
first quarter of 1997. This percentage decrease was primarily due to better
leveraging of corporate management personnel.
Operating income increased $1.2 million, or 70%, to $2.8 million in the first
quarter of 1998 from $1.6 million in the first quarter of 1997. As a percentage
of revenues, operating income improved to 3.3% in the first quarter of 1998 from
2.7% in the first quarter of 1997.
Interest expense, decreased $611,000, or 94%, to $37,000 in the first quarter of
1998 from $648,000 in the first quarter of 1997 due to the repayment of the
Company's outstanding working capital debt with the proceeds from the Company's
IPO on March 27, 1997.
Other income, net, increased $194,000 to $282,000 in the first quarter of 1998
from $88,000 in the first quarter of 1997 due to the gain on the sale of one of
the Company's real estate holdings in January 1998.
Income tax provision increased $783,000 or 183%, to $1.2 million in the first
quarter of 1998 from $427,000 in the first quarter of 1997. The Company provided
income taxes at an estimated rate of 40% in 1998 and 1997.
Net income increased $1.2 million, or 180%, to $1.8 million, or 2.2% of
revenues, in the first quarter of 1998 from net income of $651,000, or 1.1% of
revenues, in the first quarter of 1997.
Liquidity and Capital Resources
Cash provided by operating activities was $2.0 million for the three months
ended March 31, 1998 compared to $1.1 million for the three months ended March
31, 1997. This increase was primarily the result of an increase of $1.6 million
in net income before depreciation and amortization offset by $418,000 of changes
in working capital due to increases in accounts receivable as a result of the
increase in revenues from internal growth, acquisitions and the timing of
payments of accounts payable and accrued expenses. Cash used in investing
activities for the three months ended March 31, 1998 was $14.1 million compared
to $358,000 for the three
6
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months ended March 31, 1997, principally as a result of the acquisition of SES
in 1998 and additional purchases of transportation and computer equipment. Cash
provided by financing activities for the three months ended March 31, 1998 was
$6.6 million compared to a use of cash of $529,000 for the three months ended
March 31, 1997. The increase in cash provided by financing activities for the
three months ended March 31, 1998, was principally the result of borrowings
under the Company's credit facility in 1998 to fund a portion of the SES
acquisition.
Capital expenditures were approximately $2.1 million for the three months ended
March 31, 1998 compared to $325,000 for the three months ended March 31, 1997.
Historically, capital expenditures have been, and future expenditures are
anticipated to be, primarily to support expansion of the Company's operations
and management information systems.
Effective February 10, 1998, AHL entered into an agreement with a syndicate of
national banking organizations led by First Union National Bank to expand its
credit facility to $100 million. The Company plans to utilize the facility to
grow the light industrial and fulfillment segments of its business through
strategic acquisitions. At March 31, 1998, after providing funding for the TUJA
acquisition, there was approximately $91.5 million of availability remaining
under the facility.
The Company believes that funds generated from operations, together with
existing cash and borrowings under the credit facility, will be sufficient to
finance its current operations, planned capital expenditures and internal growth
for at least the next several years.
7
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AHL SERVICES, INC.
PART II - OTHER INFORMATION AND SIGNATURE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- ------------
<S> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedule (For SEC Filing Purposes Only)
</TABLE>
(b) Reports on Form 8-K.
A current report on Form 8-K was filed on February 19, 1998 in
connection with the SES acquisition.
8
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SIGNATURE
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.
AHL SERVICES, INC.
(REGISTRANT)
<TABLE>
<S> <C>
Date: May 15, 1998 By: /s/ David L. Gamsey
---------------------------- -------------------------
David L. Gamsey
Vice President and Chief Financial Officer
(On behalf of the Registrant and as Chief
Accounting Officer)
</TABLE>
9
<PAGE> 1
EXHIBIT 11
AHL SERVICES, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- ----------
<S> <C> <C>
Income Applicable to Common Stock
Net income $ 1,824 $ 651
=========== =========
Weighted Average Shares
Common shares 13,605 8,492
Common share equivalents applicable to
stock options and warrants outstanding 502 181
----------- ---------
Weighted average common and common
equivalent shares outstanding during
the period 14,107 8,673
=========== =========
Per Share Amount
Basic $ 0.13 $ 0.08
=========== =========
Diluted $ 0.13 $ 0.08
=========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AHL
SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,036
<SECURITIES> 0
<RECEIVABLES> 56,228
<ALLOWANCES> 562
<INVENTORY> 1,879
<CURRENT-ASSETS> 70,634
<PP&E> 21,946
<DEPRECIATION> 11,016
<TOTAL-ASSETS> 121,888
<CURRENT-LIABILITIES> 31,946
<BONDS> 0
0
0
<COMMON> 136
<OTHER-SE> 76,395
<TOTAL-LIABILITY-AND-EQUITY> 121,888
<SALES> 84,500
<TOTAL-REVENUES> 84,500
<CGS> 62,842
<TOTAL-COSTS> 62,842
<OTHER-EXPENSES> 18,869
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 3,034
<INCOME-TAX> 1,210
<INCOME-CONTINUING> 1,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,824
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
