<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 JUNE 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: 15,516,792 shares on August 10,
2000.
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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. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 9
PART II OTHER INFORMATION AND SIGNATURE 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AHL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,463 $ 9,527
Accounts receivable, less allowance for doubtful accounts
of $4,971 and $4,040 in 2000 and 1999, respectively 147,642 149,816
Reimbursable customer expenses 8,303 13,280
Work-in-process 8,046 11,109
Uniforms in service, net 2,555 2,760
Prepaid expenses and other 13,120 8,464
Income taxes receivable -- 886
---------- ----------
Total current assets 189,129 195,842
Property and equipment, net 37,371 35,775
Intangibles, net 299,216 305,791
Other assets 1,732 1,137
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$ 527,448 $ 538,545
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,311 $ 10,265
Accrued payroll and other current liabilities 72,899 78,867
Current portion of self-insurance reserves 1,390 1,300
Deferred income taxes 1,425 488
Current portion of long-term debt 165 216
Income taxes payable 219 --
---------- ----------
Total current liabilities 87,409 91,136
---------- ----------
Long-term debt, less current portion 215,860 216,148
---------- ----------
Self-insurance reserves, less current portion 5,560 5,200
---------- ----------
Deferred income taxes 4,049 4,933
---------- ----------
Other non-current liabilities 654 772
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized, 16,474,292 and 17,409,892 shares issued and
outstanding, respectively 175 175
Preferred stock, no par value; 5,000,000 shares
authorized, no shares outstanding -- --
Shares held in treasury (935,600 shares at June 30, 2000) (10,094) --
Paid-in capital 176,836 176,836
Retained earnings 48,992 44,287
Foreign currency translation adjustment (1,993) (942)
---------- ----------
Total shareholders' equity 213,916 220,356
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$ 527,448 $ 538,545
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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<S> <C> <C>
Revenues $ 222,917 $ 189,559
Cost of services 155,429 131,835
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Gross margin 67,488 57,724
Operating expenses:
Field operating 45,283 38,379
Corporate, general and administrative 4,706 4,563
Depreciation and amortization 5,609 4,298
---------- ----------
Operating income 11,890 10,484
Interest expense 4,279 2,239
Other income, net -- (335)
---------- ----------
Income before income taxes 7,611 8,580
Income tax provision 3,195 3,248
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Net income $ 4,416 $ 5,332
========== ==========
Earnings per share:
Net income per common and common equivalent share:
Basic $ 0.27 $ 0.31
========== ==========
Diluted $ 0.27 $ 0.30
========== ==========
Weighted average common and common equivalent shares:
Basic 16,474 17,388
========== ==========
Diluted 16,503 17,937
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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<S> <C> <C>
Revenues $ 442,955 $ 360,197
Cost of services 307,121 251,563
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Gross margin 135,834 108,634
Operating expenses:
Field operating 95,796 72,130
Corporate, general and administrative 9,587 9,702
Special charge-Philadelphia settlement 2,668 --
Depreciation and amortization 10,949 8,301
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Operating income 16,834 18,501
Interest expense 8,723 4,365
Other income, net -- (365)
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Income before income taxes 8,111 14,501
Income tax provision 3,406 5,438
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Net income $ 4,705 $ 9,063
========== ==========
Earnings per share:
Net income per common and common equivalent share:
Basic $ 0.28 $ 0.54
========== ==========
Diluted $ 0.28 $ 0.52
========== ==========
Weighted average common and common equivalent shares:
Basic 16,721 16,934
========== ==========
Diluted 16,805 17,522
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,705 $ 9,063
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Depreciation and amortization 10,949 8,301
Changes in current assets and liabilities, net of assets of acquired
businesses 2,808 (46,888)
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Net cash provided by (used in) operating activities 18,462 (29,524)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition consideration (3,235) (85,637)
Purchases of property and equipment (7,420) (4,717)
Other activities, net -- 546
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Net cash used in investing activities (10,655) (89,808)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit facility 2,698 36,777
Treasury stock purchases (10,094) --
Proceeds from equity offering, net -- 96,171
Repayment of other debt -- (14,006)
Other -- (162)
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Net cash (used in) provided by financing activities (7,396) 118,780
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Effect of exchange rates on cash and cash equivalents (475) (1,637)
---------- ----------
Net change in cash and cash equivalents (64) (2,189)
Cash and cash equivalents at beginning of period 9,527 18,239
---------- ----------
Cash and cash equivalents at end of period $ 9,463 $ 16,050
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,525 $ 4,591
========== ==========
Income taxes $ 2,301 $ 8,366
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
AHL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 2000 and the results of its operations for the
three and six months ended June 30, 2000 and 1999 and its cash flows
for the six months ended June 30, 2000 and 1999. All such adjustments
are of a normal recurring nature. The results of operations for the
three and six months ended June 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. BUSINESS SEGMENT INFORMATION - The following table presents information
regarding the Company's operating segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
------------------------ ------------------------
Operating Operating
Revenues Income Revenues Income
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
2000
Aviation services $ 61,381 $ 3,980 $ 119,828 $ 6,912
Facility services 48,581 3,369 100,528 5,993
Operational support services 62,703 3,782 121,898 8,088
Marketing support services 50,252 5,465 100,701 8,096
Special charge - Philadelphia settlement -- -- -- (2,668)
Corporate and other -- (4,706) -- (9,587)
---------- ---------- ---------- ----------
$ 222,917 $ 11,890 $ 442,955 $ 16,834
========== ========== ========== ==========
1999
Aviation services $ 50,221 $ 3,805 $ 97,211 $ 6,853
Facility services 58,277 3,982 114,659 7,730
Operational support services 43,168 3,512 81,964 6,922
Marketing support services 37,893 3,748 66,363 6,698
Corporate and other -- (4,563) -- (9,702)
---------- ---------- ---------- ----------
$ 189,559 $ 10,484 $ 360,197 $ 18,501
========== ========== ========== ==========
</TABLE>
3. 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 SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
-------------------- --------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Income $ 4,416 $ 5,332 $ 4,705 $ 9,063
Other comprehensive income (loss) (1,655) (1,149) (1,051) (2,428)
-------- -------- -------- --------
Comprehensive income $ 2,761 $ 4,183 $ 3,654 $ 6,635
======== ======== ======== ========
</TABLE>
<PAGE> 8
4. 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 June 30, 2000, such claims
and disputes represented less than 9% of the Company's accounts
receivable balance. Management is of the opinion that these claims and
disputes will be resolved within the existing reserves established for
uncollectable receivables.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
OPERATING RESULTS - THREE MONTHS ENDED JUNE 30, 2000 AND 1999 - Revenues
increased $33.3 million, or 18%, to $222.9 million for the second quarter of
2000 from $189.6 million for the second quarter of 1999. Second quarter 2000
revenues were positively impacted by the effect of acquisitions and internal
growth. Second quarter of 1999 revenues would have been approximately $23.7
million higher with the impact of acquisitions subsequent to April 1, 1999
treated as though they were acquired on April 1, 1999. In addition, second
quarter of 1999 revenues included approximately $2.6 million attributable to the
U.K. transportation business sold on June 30, 1999. Second quarter of 2000
revenues were negatively impacted as compared to the second quarter of 1999 by
the decline in foreign currencies versus the U.S. dollar, primarily the British
pound and the German deutsche mark. Second quarter of 2000 revenues were
negatively impacted by approximately $6.3 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 $23.6 million, or 18%, to $155.4 million for the
second quarter of 2000 from $131.8 million for the second quarter of 1999. As a
percentage of revenues, cost of services increased to 69.7% for the second
quarter of 2000 from 69.5% for the second quarter of 1999. This slight increase
was primarily due to the seasonality effect of the Company's Operational Support
Services customers.
Gross margin increased $9.8 million, or 17%, to $67.5 million for the second
quarter of 2000 from $57.7 million for the second quarter of 1999. As a
percentage of revenues, gross margin declined slightly to 30.3% for the second
quarter of 2000 from 30.5% for the second 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, local sales and marketing activities. These expenses increased $6.9
million, or 18%, to $45.3 million for the second quarter of 2000 from $38.4
million for the second quarter of 1999. As a percentage of revenues, field
operating expenses remained relatively constant at 20.3% for the second quarter
of 2000 as compared to 20.2% for the second quarter of 1999.
Corporate, general and administrative expenses, which includes the cost of
services the Company provides to support and manage its field activities,
increased $143,000, or 3%, to $4.7 million for the second quarter of 2000 from
$4.6 million in the second quarter of 1999. As a percentage of revenues, these
expenses decreased to
<PAGE> 9
2.1% for the second quarter of 2000 from 2.4% for the second quarter of 1999.
This percentage decrease was primarily due to better leveraging of corporate
personnel.
Depreciation and amortization increased $1.3 million, or 31%, to $5.6 million
for the second quarter of 2000 from $4.3 million for the second quarter of 1999.
As a percentage of revenues, these expenses increased to 2.5% for the second
quarter of 2000 from 2.3% for the second quarter of 1999. The increase was
primarily due to the depreciation and amortization expense of acquisition
related fixed and intangible assets.
Operating income increased $1.4 million, or 13%, to $11.9 million for the second
quarter of 2000 from $10.5 million for the second quarter of 1999. As a
percentage of revenues, operating income was 5.3% for the second quarter of 2000
as compared to 5.5% for the second quarter of 1999.
Interest expense increased $2.1 million, or 91%, to $4.3 million for the second
quarter of 2000 from $2.2 for the second quarter of 1999. This increase was due
to the increase in the outstanding debt balance in second quarter 2000 versus
1999 due to the use of the Company's credit facility to fund acquisitions and
the significant rise in interest rates in 2000 compared to 1999.
Income tax provision decreased $53,000, or 2%, to $3.2 million for the second
quarter of 2000 from $3.3 million in the second quarter of 1999. The Company
provided income taxes at a rate of 42.0% for the second quarter of 2000 and
37.9% for the second 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 $916,000, or 17%, to $4.4 million, or 2.0% of revenues, for
the second quarter of 2000 from net income of $5.3 million, or 2.8% of revenues,
for the second quarter of 1999.
OPERATING RESULTS - SIX MONTHS ENDED JUNE 30, 2000 AND 1999 - Revenues increased
$82.8 million, or 23%, to $443.0 million for the six months ended June 30, 2000
from $360.2 million for the six months ended June 30, 1999. Revenues for the six
months ended June 30, 2000 were positively impacted by the effect of
acquisitions and internal growth. Revenues for the six months ended June 30,
1999 would have been approximately $51.5 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 six months ended June 30, 1999 included
approximately $5.0 million attributable to the U.K. transportation business sold
on June 30, 1999. Revenues for the six months ended June 30, 2000 were
negatively impacted as compared to the revenues for the six months ended June
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 six months
ended June 30, 2000 were negatively impacted by approximately $10.9 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 $55.5 million, or 22%, to $307.1 million for the six
months ended June 30, 2000 from $251.6 million for the six months ended June 30,
1999. As a percentage of revenues, cost of services decreased to 69.3% for the
six months ended June 30, 2000 from 69.8% for the six months ended June 30, 1999
due to a changing mix of revenues by operating segments as a result of
acquisitions.
<PAGE> 10
Gross margin increased $27.2 million, or 25%, to $135.8 million for the six
months ended June 30, 2000 from $108.6 million for the six months ended June 30,
1999. As a percentage of revenues, gross margin improved to 30.7% for the six
months ended June 30, 2000 from 30.2% for the six months ended June 30, 1999.
Field operating expenses increased $23.7 million, or 33%, to $95.8 million for
the six months ended June 30, 2000 from $72.1 million for the six months ended
June 30, 1999. As a percentage of revenues, field operating expenses increased
to 21.6% for the six months ended June 30, 2000 as compared to 20.0% for the six
months ended June 30, 1999 due to a changing mix of revenues by operating
segments as a result of acquisitions.
Corporate, general and administrative expenses decreased $115,000, or 1%, to
$9.6 million for the six months ended June 30, 2000 from $9.7 million in the six
months ended June 30, 1999. As a percentage of revenues, these expenses
decreased to 2.2% for the six months ended June 30, 2000 from 2.7% for the six
months ended June 30, 1999. This percentage decrease was primarily due to better
leveraging of corporate personnel.
Special charge - Philadelphia settlement of $2.7 million for 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 $2.6 million, or 32%, to $10.9 million
for the six months ended June 30, 2000 from $8.3 million for the six months
ended June 30, 1999. As a percentage of revenues, these expenses increased to
2.5% for the six months ended June 30, 2000 from 2.3% for the six months ended
June 30, 1999. The increase was primarily due to the depreciation and
amortization expense of acquisition related fixed and intangible assets.
Operating income decreased $1.7 million, or 9%, to $16.8 million for the six
months ended June 30, 2000 from $18.5 million for the six months ended June 30,
1999. As a percentage of revenues, operating income was 3.8% for the six months
ended June 30, 2000 as compared to 5.1% for the six months ended June 30, 1999.
Interest expense increased $4.3 million, or 100%, to $8.7 million for the six
months ended June 30, 2000 from $4.4 for the six months ended June 30, 1999.
This increase was due to the increase in the outstanding debt balance for the
six months ended June 30, 2000 versus the six months ended June 30, 1999 due to
the use of the Company's credit facility to fund acquisitions and the
significant rise in interest rates in 2000 compared to 1999.
Income tax provision decreased $2.0 million, or 37%, to $3.4 million for the six
months ended June 30, 2000 from $5.4 million in the six months ended June 30,
1999. The Company provided income taxes at a rate of 42.0% for the six months
ended June 30, 2000 and 37.5% for the six months ended June 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.
Net income decreased $4.4 million, or 48%, to $4.7 million, or 1.1% of revenues,
for the six months ended June 30, 2000 from net income of $9.1 million, or 2.5%
of revenues, for the six months ended June 30, 1999.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $18.5 million for the six months ended
June 30, 2000 compared to cash used in operating activities of $29.5 million for
the six months ended June 30, 1999. This increase in cash provided by operating
activities was primarily the result of a change of $49.7 million in working
capital due to decreases in days outstanding in accounts receivable and the
timing of payments of accounts payable and accrued expenses offset by a $1.7
million decrease in net income before depreciation and amortization. Cash used
in investing activities for the six months ended June 30, 2000 was $10.7 million
compared to $89.8 million for the six months ended June 30, 1999. The use of
cash for investing activities was principally a result of the acquisition
consideration paid and additions to property and equipment made during those
periods. Cash used for financing activities for the six months ended June 30,
2000 was $7.4 million compared to cash provided by financing activities of
$118.8 million for the six months ended June 30, 1999. The Company repurchased
935,600 shares of its common stock in the first quarter of 2000 for $10.1
million. No shares were repurchased in the second quarter of 2000. 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 $7.4 million for the six months ended
June 30, 2000 compared to $4.7 million for the six months ended June 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 had repurchased 935,600 shares at an average price of
$10.79 per share through June 30, 2000. For the period July 1, 2000 through
August 10, 2000, the Company repurchased an additional 957,500 shares at an
average price of $7.69 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 at least 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
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
<PAGE> 12
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.
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 June 30, 2000 of $211.8
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 swap agreements at June 30, 2000 approximates $60.0
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 5 - Other Information
On July 27, 2000, the board of directors increased the size of its members to
seven pursuant to the authority granted to the board of directors by AHL's
articles of incorporation and bylaws. The board of directors then elected three
new members. The new members are John W. Ward, founding partner of Transition
International (term expiring 2001); Thomas J. Marano, President and Chief
Operating Officer, U.S. operations of AHL Services, Inc. (term expiring 2003);
and Ronald J. Domanico, Executive Vice President and Chief Financial Officer of
AHL Services, Inc. (term expiring 2002). The newly-elected members of the board
of directors will be submitted to AHL's shareholders for approval at the next
annual meeting of shareholders. The other members of AHL's board
<PAGE> 13
of directors are Edwin R. Mellett (term expiring 2001), Edwin C. "Skip" Gage
(term expiring 2002), Robert F. McCullough (term expiring 2002), and Frank A.
Argenbright, Jr. (term expiring 2003).
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 June 30,
2000.
<PAGE> 14
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: August 14, 2000 By: /s/ Ronald J. Domanico
--------------------------------
Ronald J. Domanico
Executive Vice President and
Chief Financial Officer