<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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-22195
AHL SERVICES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2277249
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3353 Peachtree Road, NE, Atlanta, GA 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 267-2222
----------------
Not Applicable
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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: 15,489,292 shares on November
8, 2000.
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AHL SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2000 and December 31, 1999............................ 2
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 2000 and 1999...................... 3
Condensed Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 2000 and 1999....................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and 1999....................... 5
Notes to Condensed Consolidated Financial Statements................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 8
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk................................................... 13
PART II OTHER INFORMATION AND SIGNATURE
ITEM 6. Exhibits and Reports on Form 8-K.................................... 13
SIGNATURE.................................................................... 14
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AHL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,724 $ 9,527
Accounts receivable, less allowance for doubtful accounts
of $5,527 and $4,040 in 2000 and 1999, respectively 155,415 149,816
Reimbursable customer expenses 14,226 13,280
Work-in-process 7,445 11,109
Uniforms in service, net 2,710 2,760
Prepaid expenses and other 13,183 8,464
Income taxes receivable -- 886
---------- ----------
Total current assets 202,703 195,842
Property and equipment, net 40,344 35,775
Intangibles, net 304,391 305,791
Other assets 1,679 1,137
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$ 549,117 $ 538,545
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,452 $ 10,265
Accrued payroll and other current liabilities 66,888 78,867
Current portion of self-insurance reserves 1,390 1,300
Deferred income taxes 1,882 488
Current portion of long-term debt 165 216
Income taxes payable 2,838 --
---------- ----------
Total current liabilities 83,615 91,136
---------- ----------
Long-term debt, less current portion 244,641 216,148
---------- ----------
Self-insurance reserves, less current portion 5,560 5,200
---------- ----------
Deferred income taxes 4,049 4,933
---------- ----------
Other non-current liabilities 661 772
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized, 15,511,792 and 17,409,892 shares issued and
outstanding, respectively 175 175
Preferred stock, no par value; 5,000,000 shares
authorized, no shares outstanding -- --
Shares held in treasury (1,898,100 shares at September
30, 2000) (17,496) --
Paid-in capital 176,836 176,836
Retained earnings 55,601 44,287
Foreign currency translation adjustment (4,525) (942)
---------- ----------
Total shareholders' equity 210,591 220,356
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$ 549,117 $ 538,545
========== ==========
</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
SEPTEMBER 30,
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2000 1999
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<S> <C> <C>
Revenues $ 240,393 $ 217,357
Cost of services 167,234 150,369
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Gross margin 73,159 66,988
Operating expenses:
Field operating 46,393 40,300
Corporate, general and administrative 4,774 5,650
Depreciation and amortization 5,713 4,994
---------- ----------
Operating income 16,279 16,044
Interest expense 4,902 3,425
Other income, net (8) (62)
---------- ----------
Income before income taxes 11,385 12,681
Income tax provision 4,776 4,992
---------- ----------
Net income $ 6,609 $ 7,689
========== ==========
Earnings per share:
Net income per common and common equivalent share:
Basic $ 0.42 $ 0.44
========== ==========
Diluted $ 0.42 $ 0.43
========== ==========
Weighted average common and common equivalent shares:
Basic 15,800 17,406
========== ==========
Diluted 15,861 18,040
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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2000 1999
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<S> <C> <C>
Revenues $ 683,348 $ 577,554
Cost of services 474,355 401,932
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Gross margin 208,993 175,622
Operating expenses:
Field operating 142,189 112,431
Corporate, general and administrative 14,361 15,352
Special charge-Philadelphia settlement 2,668 --
Depreciation and amortization 16,662 13,295
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Operating income 33,113 34,544
Interest expense 13,625 7,790
Other income, net (8) (427)
---------- ----------
Income before income taxes 19,496 27,181
Income tax provision 8,182 10,430
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Net income $ 11,314 $ 16,751
========== ==========
Earnings per share:
Net income per common and common equivalent share:
Basic $ 0.69 $ 0.98
========== ==========
Diluted $ 0.69 $ 0.95
========== ==========
Weighted average common and common equivalent shares:
Basic 16,412 17,093
========== ==========
Diluted 16,488 17,697
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,314 $ 16,751
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 16,662 13,295
Gain on sales of property and equipment -- (418)
Changes in current assets and liabilities, net of assets of acquired
businesses (14,893) (66,163)
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Net cash provided by (used in) operating activities 13,083 (36,535)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition consideration (15,622) (96,580)
Purchases of property and equipment (15,016) (9,486)
Other activities, net -- 1,226
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Net cash used in investing activities (30,638) (104,840)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit facility 36,532 61,221
Treasury stock purchases (17,496) --
Proceeds from equity offering, net -- 96,171
Repayment of other debt -- (14,006)
Other activities, net -- (245)
---------- ----------
Net cash provided by financing activities 19,036 143,141
---------- ----------
Effect of exchange rates on cash and cash equivalents (1,284) (1,252)
---------- ----------
Net change in cash and cash equivalents 197 514
Cash and cash equivalents at beginning of period 9,527 18,239
---------- ----------
Cash and cash equivalents at end of period $ 9,724 $ 18,753
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 13,450 $ 7,748
========== ==========
Income taxes $ 4,458 $ 7,266
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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AHL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. SUMMARY OF PRESENTATION - The condensed consolidated financial
statements included herein have been prepared by AHL Services, Inc.
("AHL" or 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 September 30, 2000 and the results of its operations for
the three and nine months ended September 30, 2000 and 1999 and its
cash flows for the nine months ended September 30, 2000 and 1999. All
such adjustments are of a normal recurring nature. The results of
operations for the three and nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the year
ended December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto for the year
ended December 31, 1999 included in the Company's annual report on Form
10-K for such period.
2. ACQUISITIONS - On July 5, 2000, AHL acquired two additional outsourced
staffing companies in Germany for $14.4 million in cash, building the
Company's position as one of Germany's leading staffing companies.
Gesellschaft Fuer Zeitarbeit mbH - Heilbron and Gesellschaft Fuer
Zeitarbeit mbH - Eisenach ("GFZ"), headquartered in Southern Germany,
provides skilled and semi-skilled workers to auto parts manufacturers.
Its 1999 revenues were approximately $11 million. HPD Harzer
Personaldienst GmbH and APS Personalservice GmbH ("HPD") is
headquartered in Wernigerode, Eastern Germany, and had 1999 revenues of
approximately $10 million.
The results of operations of these acquisitions have been included in
the attached condensed consolidated financial statements included
herein since the applicable date of acquisition. These acquisitions
were accounted for using the purchase method of accounting. As a
result, the purchase prices have been allocated to the assets acquired,
including intangibles, based on their respective fair values. The
purchase price allocations are preliminary and subject to adjustment.
3. EVENTS SUBSEQUENT TO QUARTER END
Divestiture of U.S. Industrial Staffing Businesses
On October 13, 2000, the Company sold its U.S. Industrial Staffing
businesses to an investor group led by the President of AHL's Baltimore
staffing operation. This business, which had revenues for the 12 months
ending September 30, 2000 of approximately $53.5 million, was sold for
$22.5 million which includes notes receivable from the purchaser of
$9.5 million. In addition, the Company retained the accounts receivable
of the business which totaled approximately $7.4 million at September
30, 2000. Cash proceeds will be used to retire debt. The Company will
record a non-operating loss on this sale of approximately $2.9 million,
which primarily relates to transition concessions granted to the
purchaser upon closing.
PIMMS Arbitration Award
In April 1999, AHL acquired PIMMS, an outsourced merchandising company.
The Company filed an arbitration claim under the terms of the Purchase
Agreement in August 1999 based on breach of
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representations and warranties. Upon completion of the arbitration
proceeding on October 2, 2000, the Company was awarded $5.2 million
plus attorneys' fees, consultant fees, arbitration fees and other
costs. The Company will record this award, net of escrow adjustments,
in the fourth quarter of 2000 as a reduction of the goodwill originally
recorded with the PIMMS acquisition.
4. BUSINESS SEGMENT INFORMATION - The following table presents information
regarding the Company's operating segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
Operating Operating
Revenues Income Revenues Income
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
2000
Aviation services $ 63,154 $ 5,063 $ 182,982 $ 11,974
Facility services 50,526 2,925 151,053 8,918
Operational support services 77,251 8,009 199,150 16,097
Marketing support services 49,462 5,056 150,163 13,153
Special charge - Philadelphia settlement -- -- -- (2,668)
Corporate and other -- (4,774) -- (14,361)
---------- ---------- ---------- ----------
$ 240,393 $ 16,279 $ 683,348 $ 33,113
========== ========== ========== ==========
1999
Aviation services $ 54,678 $ 4,854 $ 151,889 $ 11,706
Facility services 56,362 4,687 171,021 12,417
Operational support services 64,163 7,546 146,127 14,468
Marketing support services 42,154 4,607 108,517 11,305
Corporate and other -- (5,650) -- (15,352)
---------- ---------- ---------- ----------
$ 217,357 $ 16,044 $ 577,554 $ 34,544
========== ========== ========== ==========
</TABLE>
5. COMPREHENSIVE INCOME - Other comprehensive income includes only foreign
currency translation adjustments. The calculation of other
comprehensive income is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income $ 6,609 $ 7,689 $ 11,314 $ 16,751
Other comprehensive income (loss) (2,532) 816 (3,583) (1,612)
-------- -------- -------- --------
Comprehensive income $ 4,077 $ 8,505 $ 7,731 $ 15,139
======== ======== ======== ========
</TABLE>
6. CONTINGENCIES - The Company recognizes revenue for Aviation Services,
Facility Services, and Operational Support Services as services are
performed. The Company recognizes revenue for Marketing Support
Services as projects are completed, services are rendered and/or as
products are shipped. In the ordinary course of business, Marketing
Support Services projects generate various routine disputes and claims
between the Company and its customers. At September 30, 2000, such
claims and disputes represented less than 6% of the Company's accounts
receivable balance. The Company has entered into non-binding
arbitration with a customer involving disputed amounts due the Company
for services performed under a contract. Additionally, the Company has
had continued discussions regarding disputed accounts receivable with
another customer for services performed under another contract. The
gross amount of receivables due from these two customers approximates
$10 million. Management is of the opinion that these claims and
disputes will be resolved within the existing reserves established for
uncollectable receivables.
7
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
OPERATING RESULTS - THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 - Revenues
increased $23.0 million, or 11%, to $240.4 million for the third quarter of 2000
from $217.4 million for the third quarter of 1999. Third quarter 2000 revenues
were positively impacted by the effect of acquisitions and internal growth.
Third quarter of 1999 revenues would have been approximately $17.5 million
higher with the impact of acquisitions subsequent to July 1, 1999 treated as
though they were acquired on July 1, 1999. Third quarter of 2000 revenues were
negatively impacted as compared to the third quarter of 1999 by the decline in
foreign currencies versus the U.S. dollar, primarily the British pound and the
German deutsche mark. Third quarter of 2000 revenues were negatively impacted by
approximately $11.2 million due to the effect of foreign currency exchange
rates. The remaining increase, after the impact of acquisitions and foreign
currency exchange rates, was a result of providing additional services to
existing clients, entering into contracts to provide services to new clients,
and rate increases on existing contracts.
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 $16.8 million, or 11%, to $167.2 million for the
third quarter of 2000 from $150.4 million for the third quarter of 1999. As a
percentage of revenues, cost of services increased to 69.6% for the third
quarter of 2000 from 69.2% for the third quarter of 1999. This slight increase
was primarily due to the effect of the growth of the Company's Operational
Support Services business in 2000.
Gross margin increased $6.2 million, or 9%, to $73.2 million for the third
quarter of 2000 from $67.0 million for the third quarter of 1999. As a
percentage of revenues, gross margin declined slightly to 30.4% for the third
quarter of 2000 from 30.8% for the third quarter of 1999.
Field operating expenses represent expenses which directly support field
operations, such as each district's management, facility expenses (such as rent,
communication costs and taxes), employee uniforms, equipment leasing,
maintenance and local sales and marketing activities. These expenses increased
$6.1 million, or 15%, to $46.4 million for the third quarter of 2000 from $40.3
million for the third quarter of 1999. As a percentage of revenues, field
operating expenses increased to 19.3% for the third quarter of 2000 as compared
to 18.5% for the third quarter of 1999, due to the growth of the Company's
Marketing Services businesses which have higher field operating costs, the
investment by the Company in a consolidated back office operation in Munich,
Germany for the Company's German Operational Support Services business in 2000
and the placement of certain management and back office employees of the U.K.
operations in field operating costs in 2000 versus at corporate in 1999.
Corporate, general and administrative expenses, which includes the cost of
services the Company provides to support and manage its field activities,
decreased $876,000, or 15%, to $4.8 million for the third quarter of 2000 from
$5.7 million in the third quarter of 1999. As a percentage of revenues, these
expenses decreased to 2.0% for the third quarter of 2000 from 2.6% for the third
quarter of 1999, due to better leveraging of corporate personnel and accounting
for certain management and back office employees of the U.K. operations in field
operating expenses in 2000 rather than in corporate, general and administrative
expenses as in previous years.
Depreciation and amortization increased $719,000, or 14%, to $5.7 million for
the third quarter of 2000 from $5.0 million for the third quarter of 1999. As a
percentage of revenues, these expenses increased to 2.4% for the third quarter
of 2000 from 2.3% for the third quarter of 1999. The increase was primarily due
to the depreciation and amortization expense of acquisition related fixed and
intangible assets.
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Operating income increased $235,000, or 2%, to $16.3 million for the third
quarter of 2000 from $16.0 million for the third quarter of 1999. As a
percentage of revenues, operating income was 6.8% for the third quarter of 2000
as compared to 7.4% for the third quarter of 1999.
Interest expense increased $1.5 million, or 43%, to $4.9 million for the third
quarter of 2000 from $3.4 for the third quarter of 1999. This increase was due
to the increase in the outstanding debt balance in 2000 as compared to 1999 due
to the use of the Company's credit facility to fund acquisitions, the repurchase
of shares of AHL's common stock in 2000, and the significant rise in interest
rates in 2000 compared to 1999.
Income tax provision decreased $216,000, or 4%, to $4.8 million for the third
quarter of 2000 from $5.0 million in the third quarter of 1999. The Company
provided income taxes at a rate of 42.0% for the third quarter of 2000 and 39.4%
for the third quarter of 1999. The increase in the effective tax rate in 2000 as
compared to 1999 is due to the change in business mix by country as a result of
acquisitions.
Net income decreased $1.1 million, or 14%, to $6.6 million, or 2.7% of revenues,
for the third quarter of 2000 from net income of $7.7 million, or 3.5% of
revenues, for the third quarter of 1999.
OPERATING RESULTS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 - Revenues
increased $105.8 million, or 18%, to $683.4 million for the nine months ended
September 30, 2000 from $577.6 million for the nine months ended September 30,
1999. Revenues for the nine months ended September 30, 2000 were positively
impacted by the effect of acquisitions and internal growth. Revenues for the
nine months ended September 30, 1999 would have been approximately $40.4 million
greater with the impact of acquisitions subsequent to January 1, 1999 treated as
though they were acquired on January 1, 1999. Revenues for the nine months ended
September 30, 1999 included approximately $5.0 million attributable to the U.K.
transportation business sold on June 30, 1999. Revenues for the nine months
ended September 30, 2000 were negatively impacted as compared to the revenues
for the nine months ended September 30, 1999 by the decline in foreign
currencies versus the U.S. dollar, primarily the British pound and the German
deutsche mark. Revenues for the nine months ended September 30, 2000 were
negatively impacted by approximately $22.1 million due to the effect of foreign
currency exchange rates. The remaining increase, after the impact of
acquisitions and foreign currency rates, was a result of providing additional
services to existing clients, entering into contracts to provide services to new
clients, and rate increases on existing contracts.
Cost of services increased $72.5 million, or 18%, to $474.4 million for the nine
months ended September 30, 2000 from $401.9 million for the nine months ended
September 30, 1999. As a percentage of revenues, cost of services decreased
slightly to 69.4% for the nine months ended September 30, 2000 from 69.6% for
the nine months ended September 30, 1999 due to a changing mix of revenues by
operating segments as a result of acquisitions.
Gross margin increased $33.4 million, or 19%, to $209.0 million for the nine
months ended September 30, 2000 from $175.6 million for the nine months ended
September 30, 1999. As a percentage of revenues, gross margin improved to 30.6%
for the nine months ended September 30, 2000 from 30.4% for the nine months
ended September 30, 1999.
Field operating expenses increased $29.8 million, or 27%, to $142.2 million for
the nine months ended September 30, 2000 from $112.4 million for the nine months
ended September 30, 1999. As a percentage of revenues, field operating expenses
increased to 20.8% for the nine months ended September 30, 2000 as
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compared to 19.5% for the nine months ended September 30, 1999, due to a growth
of the Company's Marketing Services businesses which have higher field operating
expenses, the investment by the Company in a consolidated back office operation
in Munich, Germany for the Company's German Operational Support Services
business in 2000 and the placement of certain management and back office
employees of the U.K. operations in field operating costs in 2000 versus at
corporate in 1999.
Corporate, general and administrative expenses decreased $1.0 million, or 6%, to
$14.4 million for the nine months ended September 30, 2000 from $15.4 million in
the nine months ended September 30, 1999. As a percentage of revenues, these
expenses decreased to 2.1% for the nine months ended September 30, 2000 as
compared to 2.7% for the nine months ended September 30, 1999, due to better
leveraging of corporate personnel and the placement of certain management and
back office employees of the U.K. operations in field operating costs in 2000
versus corporate in 1999.
Special charge - Philadelphia settlement of $2.7 million in the first quarter
of 2000 represents legal fees, fines and other costs for the settlement of the
Philadelphia legal matter discussed in Note 4 to the Condensed Consolidated
Financial Statements contained in the Company's report on Form 10-Q for the
quarter ended March 31, 2000.
Depreciation and amortization increased $3.4 million, or 25%, to $16.7 million
for the nine months ended September 30, 2000 from $13.3 million for the nine
months ended September 30, 1999. As a percentage of revenues, these expenses
increased to 2.4% for the nine months ended September 30, 2000 from 2.3% for the
nine months ended September 30, 1999. The increase was primarily due to the
depreciation and amortization expense of acquisition related fixed and
intangible assets.
Operating income decreased $1.4 million, or 4%, to $33.1 million for the nine
months ended September 30, 2000 from $34.5 million for the nine months ended
September 30, 1999. As a percentage of revenues, operating income was 4.8% for
the nine months ended September 30, 2000 as compared to 6.0% for the nine months
ended September 30, 1999.
Interest expense increased $5.8 million, or 75%, to $13.6 million for the nine
months ended September 30, 2000 from $7.8 for the nine months ended September
30, 1999. This increase was due to the increase in the outstanding debt balance
for the nine months ended September 30, 2000 versus the nine months ended
September 30, 1999 due to the use of the Company's credit facility to fund
acquisitions, the repurchase of shares of AHL's common stock in 2000, and the
significant rise in interest rates in 2000 compared to 1999.
Other income, net, decreased $419,000 to $8,000 for the nine months ended
September 30, 2000 from $427,000 for the nine months ended September 30, 1999 as
a result of the gain on the Company's sales of its U.K. bus transportation
business which occurred on June 30, 1999.
Income tax provision decreased $2.2 million, or 22%, to $8.2 million for the
nine months ended September 30, 2000 from $10.4 million in the nine months ended
September 30, 1999. The Company provided income taxes at a rate of 42.0% for the
nine months ended September 30, 2000 and 38.4% for the nine months ended
September 30, 1999. The increase in the effective tax rate in 2000 as compared
to 1999 is due to the change in business mix by country as a result of
acquisitions.
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Net income decreased $5.5 million, or 33%, to $11.3 million, or 1.7% of
revenues, for the nine months ended September 30, 2000 from net income of $16.8
million, or 2.9% of revenues, for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $13.1 million for the nine months
ended September 30, 2000 compared to cash used in operating activities of $36.5
million for the nine months ended September 30, 1999. This increase in cash
provided by operating activities was primarily the result of a change of $51.3
million in working capital due to decreases in days outstanding for accounts
receivable and the timing of payments of accounts payable and accrued expenses,
offset by a $2.1 million decrease in net income before depreciation and
amortization. Cash used in investing activities for the nine months ended
September 30, 2000 was $30.6 million compared to $104.8 million for the nine
months ended September 30, 1999. The use of cash for investing activities was
principally a result of acquisition consideration paid and additions to
property and equipment made during those periods. Cash provided by financing
activities for the nine months ended September 30, 2000 was $19.0 million
compared to $143.1 million for the nine months ended September 30, 1999. The
Company repurchased 1,898,100 shares of its common stock in the nine months
ended September 30, 2000 for $17.5 million. During the first quarter of 1999,
the Company completed a follow-on public offering of its common stock. The
Company issued 3,255,570 shares at an offering price of $31 per share. The total
proceeds, net of underwriting discounts and offering expenses, were
approximately $96.1 million, of which the Company used a portion to repay a $10
million subordinated convertible debenture. The remaining $86.1 million was used
to reduce the outstanding balance under the credit facility.
Capital expenditures were approximately $15.0 million for the nine months ended
September 30, 2000 compared to $9.5 million for the nine months ended September
30, 1999. Historically, capital expenditures have been, and future expenditures
are anticipated to be, primarily to support expansion of the Company's
operations, including equipment and management information systems.
The credit facility allows the Company to repurchase up to $20.0 million of its
common stock. The Company, during 2000, repurchased 1,898,100 shares at an
average price of $9.22 per share through September 30, 2000. For the period
October 1, 2000 through November 8, 2000, the Company repurchased an additional
22,500 shares at an average price of $7.50 per share.
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 the next twelve months. If the Company were to make a significant
acquisition or series of acquisitions for cash, it may be necessary for the
Company to obtain additional debt or equity financing.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral statements
made by or on behalf of the Company, may constitute "forward-looking statements"
within the meaning of the federal securities laws. When used in this report, the
words "believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Statements regarding future events and
developments and the Company's future performance, as well as our expectations,
beliefs, plans, estimates or projections relating to the future, are
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forward-looking statements within the meaning of these laws. All forward-looking
statements are subject to certain risks and uncertainties that could cause
actual events to differ materially from those projected. Such risks and
uncertainties include, among others: conditions affecting our reliance on major
clients; our ability to manage a growing business; the availability of labor;
conditions affecting our international operations; the impact of competition;
contract disputes; general economic conditions; and changes in foreign currency
and interest rates. Management believes that these forward-looking statements
are reasonable; however, you should not place undue reliance on such statements.
These statements are based on current expectations and speak only as of the date
of such statements. The Company undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of future events, new
information or otherwise. Additional information concerning the risks and
uncertainties listed above, and other factors that you may wish to consider, is
contained in the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K. Copies of these filings are
available from the Company free of charge.
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
FOREIGN CURRENCY RISK - A substantial amount of the Company's revenues are
received, and operating costs are incurred in foreign currencies (primarily the
British pound and the German deutsche mark, which is tied to the Euro), with a
significant amount of operating income being derived from operations in the
United Kingdom and Germany. The denomination of foreign subsidiaries' account
balances in their local currency exposes the Company to certain foreign exchange
rate risks. The Company addresses the exposure by financing most working capital
needs in the applicable foreign currencies. The Company has not engaged in
hedging transactions to reduce exposure to fluctuations in foreign currency
exchange rates.
INTEREST RATE RISK - The Company maintains a credit facility, two interest rate
swap agreements and other long-term debt which subjects the Company to the risk
of loss associated with movements in market interest rates. The Company's
five-year credit facility had a balance outstanding at September 30, 2000 of
$244.1 million, which was at a variable rate of interest. In order to hedge
against increasing interest rates, effective October 6, 1998, the Company
entered into a four-year interest rate swap agreement in the notional amount of
approximately $30.0 million to offset a portion of the floating interest rate
risk. On May 14, 1999, this swap agreement was replaced with a three-year
interest rate swap agreement with a notional amount of approximately $45.0
million. On January 31, 2000, the Company entered into an additional interest
rate swap agreement in the notional amount of approximately $15.0 million which
terminates on May 1, 2003. The fair value of the $60.0 million in swap
agreements at September 30, 2000 approximates $60.3 million. A change in the
prevailing interest rates of 10% would result in a change in the total fair
value of long-term debt of approximately $5.0 million. Fair values were
determined from discounted cash flows.
PART II - OTHER INFORMATION AND SIGNATURE
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
Number
------
<S> <C>
11 Computation of Earnings Per
Share
27 Financial Data Schedule (For SEC
Filing Purposes Only)
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
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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)
Date: November 14, 2000 By: /s/ Ronald J. Domanico
-------------------------------
Ronald J. Domanico
Executive Vice President and
Chief Financial Officer
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