<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2000
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. 000-23711
-----------------------------
ACSYS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2299173
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
75 FOURTEENTH STREET, SUITE 2200, ATLANTA, GA 30309
(Address of principal executive offices)
404-817-9440
------------
(Registrant's telephone number, including area code)
Indicate by check [X] whether the registrant: (1) has filed all
reports 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 [ ]
The number of outstanding shares of the registrant's Common Stock on April 24,
2000 was 14,499,400.
================================================================================
<PAGE> 2
ACSYS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
PART I - FINANCIAL INFORMATION
<S> <C> <C>
1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999........................................... 3
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2000 and March 31, 1999................... 4
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and March 31, 1999................... 5
Notes to Condensed Consolidated Financial Statements............................ 6
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 10
3. Quantitative and Qualitative Disclosures About Market Risk............................ 15
PART II - OTHER INFORMATION
2. Changes in Securities and Use of Proceeds............................................. 16
6. Exhibits and Reports on Form 8-K...................................................... 16
</TABLE>
-2-
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS-EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, (net of allowances of $1,558 and $1,953 at
March 31, 2000 and December 31, 1999, respectively) $23,072 $23,525
Prepaid expenses and other 1,809 1,508
Deferred income taxes 1,234 1,234
------- -------
Total current assets 26,115 26,267
PROPERTY AND EQUIPMENT, net 8,028 7,597
GOODWILL AND OTHER INTANGIBLE ASSETS, net 53,120 53,383
OTHER ASSETS 308 277
------- -------
Total assets $87,571 $87,524
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 46 $ 45
Accounts payable 4,354 4,751
Accrued and other current liabilities 7,798 9,168
------- -------
Total current liabilities 12,198 13,964
------- -------
LONG-TERM DEBT 40,372 38,672
------- -------
DEFERRED INCOME TAXES 1,993 1,993
------- -------
OTHER LONG-TERM LIABILITIES 62 42
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, no par value, 45,000,000 shares authorized
14,499,400 issued and outstanding at
March 31, 2000 and December 31, 1999 30,548 30,548
Retained earnings 2,398 2,305
------- -------
Total shareholders' equity 32,946 32,853
------- -------
Total liabilities and shareholders' equity $87,571 $87,524
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
-3-
<PAGE> 4
ACSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS-EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing $ 32,249 $ 33,514
Permanent placement 7,610 8,552
-------- --------
Total service revenues 39,859 42,066
-------- --------
DIRECT COST OF SERVICES, consisting of
payroll, payroll taxes and benefit costs for
temporary employees 21,897 23,123
-------- --------
Gross profit 17,962 18,943
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 15,683 15,758
AMORTIZATION AND DEPRECIATION 1,019 701
SEVERANCE AND OFFICE CLOSING COSTS -- 2,829
-------- --------
Operating income (loss) 1,260 (345)
OTHER EXPENSE:
Interest expense, net (1,088) (742)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 172 (1,087)
Income tax provision (benefit) 79 (496)
-------- --------
NET INCOME (LOSS) $93 $ (591)
======== ========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income (loss) per share $ 0.01 $ (0.04)
======== ========
Shares used in computing basic net income (loss) per share 14,499 14,457
======== ========
Shares used in computing diluted net income (loss) per share 14,524 14,457
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE> 5
ACSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 93 $ (591)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Amortization and depreciation 1,051 701
Imputed interest 14 17
Changes in operating assets and liabilities:
Accounts receivable, net 453 (2,632)
Prepaid expenses and other (301) (2,002)
Other assets (31) 10
Accounts payable (397) (1,742)
Accrued liabilities and other (1,370) 3,083
Other long-term liabilities 20 (69)
------- -------
Net cash used in operating activities (468) (3,225)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,082) (830)
------- -------
Net cash used in investing activities (1,082) (830)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of long-term debt 1,687 2,229
Proceeds from exercise of employee stock options -- 49
Deferred financing costs (137) --
------- -------
Net cash provided by financing activities 1,550 2,278
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- (1,777)
CASH AND CASH EQUIVALENTS, beginning of period -- 1,777
------- -------
CASH AND CASH EQUIVALENTS, end of period $ -- $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
-5-
<PAGE> 6
ACSYS, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
Acsys, Inc. ("the Company") is a specialty professional staffing firm that
operates approximately 40 offices serving 20 major metropolitan markets across
the United States with a more significant presence in the Eastern and Midwestern
United States.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Although the December 31, 1999
balance sheet was derived from audited financial statements, 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 SEC rules and regulations. The Company believes that the
financial statements include all adjustments of a normal and recurring nature
necessary to present fairly the results of operations, financial position and
cash flows for the periods presented. These financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999. The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany balances and transactions have
been eliminated. Interim results of operations are not necessarily indicative of
results to be expected for the entire year.
Certain amounts in the financial statements for the three months ended March 31,
1999 have been reclassed to conform with the presentation for the three months
ended March 31, 2000.
3. DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility ....................................... $ 39,812 $ 38,100
Non-compete agreements with former shareholder of Infinity
Enterprises, Inc., maturing February 2009 .................... 892 917
-------- --------
40,704 39,017
Less--Unamortized discount ...................................... (286) (300)
-------- --------
40,418 38,717
Less--Current portion ........................................... (46) (45)
-------- --------
$ 40,372 $ 38,672
======== ========
</TABLE>
The Company's primary credit facility, as amended, (the "Credit Facility") is
provided by a syndicate of lenders pursuant to that certain Amended and Restated
Credit Agreement dated as of April 13, 1999 among the Company, Bank of America,
N.A. (formerly NationsBank, N.A.), as administrative agent and the lenders
-6-
<PAGE> 7
party thereto from time to time. Proceeds of the Credit Facility may be used to
finance working capital and general corporate purposes, capital expenditures and
permitted acquisitions.
On December 31, 1999, pursuant to that certain Amendment No. 1 to Credit
Agreement among the Company, the lenders and the administrative agent, the
Company amended the credit facility to, among other things, modify the pricing,
modify certain covenants and reduce the borrowing capacity under the Credit
Facility from $80.0 million to $55.0 million. The Amendment also changed the
maturity date of the loans under the Credit Facility from April 12, 2002 to
October 31, 2001. Management believes that the reduction of the Company's
borrowing capacity will have a minimal impact on its ability to grow the
business internally. In addition, as set forth below, the interest rates charged
under the Credit Facility will increase unless the Company is able to reduce the
amount of outstanding borrowings by certain specified dates. As of March 31,
2000, the Company had borrowed approximately $39.8 million under the Credit
Facility.
Interest under the Credit Facility accrues at a variable rate indexed, at the
Company's option, at the Administrative Agent's prime rate or the London
Interbank Offered Rate ("LIBOR"), plus an applicable margin that varies based on
certain financial covenant requirements such as the Company's Consolidated
Leverage Ratio and Consolidated Fixed Charge Ratio (as such terms are defined in
the Credit Facility) and the amount of borrowings outstanding under the Credit
Facility. Accordingly, interest rates may vary with respect to prime rate loans
from the prime rate to the prime rate plus 2.75% or with respect to LIBOR Loans
from LIBOR plus 1.5% to LIBOR plus 4.25%, provided, however, that until
September 30, 2000, the applicable margin for prime rate loans is fixed at 2%
and the applicable margin for LIBOR loans is fixed at 3.5%.
The Company's obligations under the Credit Facility are secured by a lien on
substantially all of the Company's and its subsidiaries' assets, including
accounts receivable, inventory, equipment, general intangibles and other
property. Additionally, the Credit Facility is secured by a first priority
pledge of the capital stock of its subsidiaries.
The Credit Facility contains customary affirmative covenants and certain
operating and financial covenants. The financial covenants include requirements
to not exceed a specified consolidated leverage ratio, to maintain a certain
consolidated fixed charge coverage ratio and to maintain a minimum consolidated
net worth, and to not exceed certain consolidated capital expenditures and
rental payment levels.
The Company was not in compliance on March 31, 2000 with the consolidated
leverage ratio covenant under the Credit Facility. The lenders under the Credit
Facility have waived this covenant default.
4. COMMITMENTS AND CONTINGENCIES
In connection with the business combinations, the Company entered into
employment agreements with certain shareholders who are also officers or
employees of the Company. Each employment agreement provides for a guaranteed
base salary over a three-year period and a discretionary bonus to be determined
by the board of directors. The agreements contain non-compete covenants and can
be terminated based on certain events, as defined. In addition, the agreements
provide for lump-sum payments equal to three times current salary upon certain
triggering events such as a change in control, among other events.
-7-
<PAGE> 8
From time to time, the Company is involved in litigation incidental to its
business, including employment practices claims assessed by individuals or
governmental agencies. There is currently no litigation which management
believes is material.
5. SEVERANCE AND OFFICE CLOSING COSTS
During 1999, the Company announced plans to reduce future selling, general and
administrative costs. These plans included the closure of an under-performing
office and the termination of certain former employees, principally related to
integration efforts. The Company expensed $5,550,000, of which approximately
$5,000,000 related to severance costs and $550,000 related to office closing
costs.
As of March 31, 2000, approximately $1,956,000 of severance and office closing
costs remained to be paid. These costs will be paid in periods after March 31,
2000.
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2000 and 1999, the Company paid interest
expense of $772,000 and $600,000, respectively.
During the three months ended March 31, 2000 and 1999, the Company paid income
taxes of $69,000 and $819,000, respectively.
7. SEGMENT AND RELATED INFORMATION
The Company operates in approximately 20 major metropolitan markets in the
United States. Within each market, the Company offers a variety of professional
staffing services that result in differing profit margins. The Company has three
reportable segments: Permanent Placement, Temporary Services, and IT Contract
Services. While there is cross-selling, these segments are managed separately as
each business generally offers different services, has distinct candidate and
client pools, and requires different marketing strategies.
The Permanent Placement segment provides contingency-based placement services by
identifying, evaluating and recommending qualified candidates for permanent
employment by clients. The Permanent Placement segment generates revenue equal
to a percentage of a candidate's first-year annual salary. The Temporary
Services segment provides professional and clerical temporary employees to
clients, generally billing clients on an hourly basis. The IT Contract Services
segment provides qualified information technology professionals to clients on a
contracted or hourly basis to assist in enterprise resource planning software
implementation, systems integration services and information technology
services.
The Company does not allocate depreciation expense or assets to each of the
segments due to the nature of the Company's service-based operations, which are
not capital intensive. Depreciation expense is included in Corporate Overhead
Expense for each of the periods presented below. The Company evaluates
performance based on profit or loss from operations before depreciation,
amortization, interest and income taxes.
-8-
<PAGE> 9
The revenues and operating income (loss) for each of the three identifiable
business segments are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------
Revenues: 2000 1999
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Permanent Placements $ 7,610 $ 8,552
Temporary Services 21,585 19,754
IT Contract Services 10,664 13,760
-------- --------
$ 39,859 $ 42,066
======== ========
Operating Income (Loss):
Permanent Placements $ 807 $ 1,028
Temporary Services 2,290 2,376
IT Contract Services 1,131 1,655
Corporate Overhead Expense (2,968) (2,575)
Severance and Office Closing Costs -- (2,829)
-------- --------
$ 1,260 $ (345)
======== ========
</TABLE>
8. SHAREHOLDER PROTECTION RIGHTS AGREEMENT
During the second quarter of 1999, the Company adopted a shareholder protection
rights agreement (the "Rights Plan") and issued Rights (as defined in the Rights
Plan) in connection with the Rights Plan. The Rights Plan provided that a
dividend of one share purchase Right be issued for each outstanding share of
Common Stock to shareholders of record as of the close of business on July 2,
1999. Generally, the Rights are exercisable only if a person or group (other
than certain existing shareholders) acquires 15% or more of the Company's Common
Stock or announces a tender offer. Each Right entitles shareholders to buy one
one-thousandth of a share of a new series of junior participating preferred
stock at an exercise price of $25.
If the Company is acquired after a person has acquired 15% or more of the
Company's Common Stock, each Right will entitle its holder to purchase, at the
Right's then-current exercise price, a number of shares of the acquiring
company's common stock having a market value of twice such price. Additionally,
if the Company is not acquired, a Rights holder (other than the person or group
acquiring 15% or more) will be entitled to purchase, at the Right's then-current
exercise price, a number of shares of the Company's Common Stock having a market
value of twice such price.
Following the acquisition of 15% or more of the Company's Common Stock, but less
than 50% by any Person or Group, the Board may exchange the Rights (other than
Rights owned by such person or group) at an exchange ratio of one share of the
Company's Common Stock for each Right.
9. SUBSEQUENT EVENTS
On April 16, 2000, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Tiberia B.V., a company organized in The Netherlands
("Parent"), Platform Purchaser Inc., a Georgia corporation ("Purchaser"), Vedior
N.V., a company organized in The Netherlands ("Vedior") and Select Appointments
North America Inc., a Delaware corporation and a wholly owned subsidiary of
Vedior ("SANA"). The Merger Agreement provides for transactions that will
ultimately lead to Acsys becoming a wholly owned subsidiary of Parent.
Also on April 16, 2000, prior to the execution of the Merger Agreement, we
amended our Rights Plan, such that the execution and delivery of, and the
consummation of the transactions contemplated by, the Merger Agreement and the
ancillary agreements thereto would not result in the Rights becoming
exercisable.
The obligations of Parent and Purchaser to accept for payment and to pay for
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn are subject to the following conditions: (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer that number of
Shares which represents at least a majority of the Shares on a fully diluted
basis, (ii) the expiration of (or the termination of the applicable waiting
periods under) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended and (iii) certain customary conditions contained in the Merger
Agreement.
Pursuant to the Merger Agreement, following the completion of the Offer, Parent
will acquire Acsys pursuant to the merger (the "Merger") of Purchaser and Acsys.
Acsys will survive the Merger as a wholly owned subsidiary of Parent. In the
Merger, any remaining Shares will cease to be outstanding and, except for shares
held by Acsys shareholders who exercise their statutory dissenters' rights under
the Georgia Business Corporation Code, will be converted into the right to
receive cash in the amount of $5.00. If Parent and Purchaser acquire at least
90% of the Shares pursuant to the Offer, then the Merger will become effective
asf soon as practicable after the Offer without the necessity of obtaining the
approval of the Merger by the Acsys shareholders.
Concurrently with the execution of the Merger Agreement, David C. Cooper, Acsys'
Chief Executive Officer and Chairman of its Board of Directors, and his spouse
and Harry J. Sauer, an Acsys director and Executive Vice President, and a family
foundation controlled by Mr. Sauer entered into support agreements with Vedior
and Purchaser whereby they agreed to tender all shares of Acsys common stock
beneficially owned by them (approximately 17% of Acsys' currently outstanding
shares) in the Offer, and if applicable, to vote their shares in favor of the
Merger. Also concurrently with the execution of the Merger Agreement, as an
requirement to the entering into the Merger Agreement by Vedior, Parent,
Purchaser and SANA, David C. Cooper, Harry J. Sauer, Brady W. Mullinax, Jr. and
Pat Kennedy entered into amendments to their employment agreements with Acsys
that will govern their continued employment with Acsys from and after the time
of the completion of the Offer.
On April 27, 2000, Parent through Purchaser commenced a tender offer (the
"Offer") to acquire all of our outstanding shares of common stock together with
the associated rights (collectively, the "Shares"), at a price of $5.00, net to
the shareholders in cash.
Pursuant to the terms of the Merger Agreement, at the time of the initial
purchase of Shares under the Offer, Parent and Purchaser will be required to
repay, or cause to be repaid all of the obligation of the Company and its
subsidiaries under the Company's credit facility with Bank of America, N.A. and
the other lenders dated April 13, 1999 and as further amended on December 31,
1999 (the "Credit Agreement") under such facility and to terminate such
facility. Parent and Purchaser, however, have the right to negotiate with Bank
of America, N.A. and the other lenders to seek their approval for postponing
such repayment and termination.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate to future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items that are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. The words "expect," "estimate,"
"anticipate," "believe," "intend," and similar expressions are intended to
identify forward-looking statements. Such statements involve assumptions,
uncertainties and risks. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on our expected operating results, performance or
financial condition are economic conditions facing the staffing industry
generally; uncertainties related to the job market and our ability to attract
qualified candidates; uncertainties associated with our brief operating history;
our ability to manage our debt level and interest expense; our ability to
achieve and manage growth; our ability to successfully identify suitable
acquisition candidates, complete acquisitions or integrate the acquired business
into our operations; our ability to attract and retain qualified personnel; our
ability to develop new services; our ability to cross-sell our services to
existing clients; our ability to enhance and expand existing offices; our
ability to open new offices; general economic conditions; and other factors
discussed from time to time in our filings with the Securities and Exchange
Commission. These factors are not intended to represent a complete list of all
risks and uncertainties inherent in our business, and should be read in
conjunction with the more detailed cautionary statements included in our annual
report Form 10-K for the year ended December 31, 1999, under the caption
"Business--Risk Factors."
INTRODUCTION
Acsys is one of the leading specialty professional staffing and permanent
placement firms in the United States. We operate more than 40 offices serving
major metropolitan markets across the United States, with a more significant
presence in the Eastern and Midwestern United States.
RESULTS OF OPERATIONS
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999
Service Revenues. Total service revenues decreased $2.2 million, or 5.2%, to
$39.9 million for the three months ended March 31, 2000 from $42.1 million for
the corresponding period in 1999. Temporary staffing service revenues, excluding
IT contract service revenue, increased $1.8 million, or 9.3%, to $21.6 million
for the three months ended March 31, 2000 as compared to $19.8 million for 1999.
The increase in temporary staffing service revenues is primarily attributable to
the increase in billing rates. IT contract service revenue decreased $3.1
million, or 22.5% to $10.7 million in 2000 as compared to $13.8 million in 1999
due to the decrease in our Enterprise Resource Planning ("ERP") service revenue.
Permanent placement service revenues decreased $942,000, or 11%, to $7.6 million
for the three months ended March 31, 2000 from $8.6 million for the
corresponding period in 1999. Permanent placement service revenues
-10-
<PAGE> 11
decreased due to a decrease in the number of permanent placements and a decrease
in the average fee per placement.
Gross Profit. Gross profit decreased $981,000, or 5.2%, to $18.0 million for the
three months ended March 31, 2000 from $18.9 million for the corresponding
period in 1999. Gross profit as a percentage of service revenues increased to
45.1% for the first quarter of 2000 compared to 45.0% for the first quarter of
1999. The gross profit percentage is comparable between the three months ended
March 31, 2000 and 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $75,000, to $15.7 million for the three months
ended March 31, 2000 from $15.8 million for the three months ended March 31,
1999. As a percentage of revenues, selling, general and administrative expenses
were 39.4% for the three months ended March 31, 2000 compared with 37.5% for the
corresponding period in 1999. This increase as a percentage of revenues is
primarily attributed to the spreading of overhead costs over a smaller revenue
base.
Amortization and Depreciation. Amortization and depreciation expense for the
three months ended March 31, 2000 increased $318,000 from the corresponding
period of 1999 principally from capital expenditures.
Severance and Office Closing Costs. During the first quarter of 1999, we
announced plans to reduce future selling, general and administrative costs.
These plans included the closure of an under-performing office and the
termination of certain former employees, principally related to integration
efforts. We expensed $2.8 million for the three months ended March 31, 1999, of
which approximately $2.7 million related to severance costs and $550,000 related
to office closing costs.
Other Expense, net. For the three months ended March 31, 2000, we recorded net
interest expense of $1.1 million consisting principally of interest expense
under our credit facility and interest on non-compete and severance
arrangements. For the three months ended March 31, 1999, we recorded net
interest expense of $742,000 consisting principally of interest expense on our
credit facility.
Income Tax Expense (Benefit). For the three months ended March 31, 2000, we
recorded income tax expense of $79,000 on pre-tax income of $172,000. In the
first quarter of 1999, we recognized an income tax benefit of $496,000 on
pre-tax loss of $1.1 million.
Net Income (Loss). We recognized net income and net income per share of $93,000
and $0.01, respectively, in the first quarter of 2000. In the comparable period
for 1999, we recognized a net loss and net loss per share of $591,000 and $0.04,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, net cash used for operating
activities was $468,000 primarily due to a decrease in accrued liabilities which
was partially offset by an increase in amortization and depreciation. For the
three months ended March 31, 1999, cash used for operations was $3.2 million
primarily due to an increase in accounts receivable and prepaid expenses which
was only partially offset by an increase in accrued liabilities.
For the three months ended March 31, 2000 and March 31, 1999, net cash used in
investing activities was $1.1 million and $830,000, respectively, and related to
capital expenditures.
-11-
<PAGE> 12
For the three months ended March 31, 2000 and March 31, 1999, net cash provided
by financing activities was $1.6 million and $2.3 million, respectively, and was
principally due to increases in our borrowing under the Credit Facility.
On December 31, 1999 we amended the credit facility to, among other things,
modify the pricing, modify certain of our covenants and reduce our borrowing
capacity under the credit facility from $80.0 million to $55.0 million. The
amendment also changed the maturity date of the loans under the credit facility
from April 12, 2002 to October 31, 2001. We believe that the reduction of our
borrowing capacity will have a minimal impact on our ability to grow our
business internally. In addition, as set forth below, the interest rates charged
under the credit facility will increase unless we are able to reduce the amount
of outstanding borrowings by certain specified dates.
Our primary credit facility is provided by a syndicate of lenders pursuant to
that certain Amended and Restated Credit Agreement dated as of April 13, 1999
among Acsys, Bank of America, N.A. (formerly NationsBank, N.A.), as
administrative agent and the lenders party thereto from time to time. Proceeds
of our credit facility may be used to finance working capital and general
corporate purposes, capital expenditures and permitted acquisitions.
Interest under the credit facility accrues at a variable rate indexed, at our
option, at the administrative agent's prime rate or the London Interbank Offered
Rate, or LIBOR, plus an applicable margin that varies based on certain financial
covenant requirements such as our Consolidated Leverage Ratio and Consolidated
Fixed Charge Ratio (as these terms are defined in the credit facility) and the
amount of borrowings outstanding under the credit facility. Accordingly,
interest rates may vary with respect to prime rate loans from the prime rate to
the prime rate plus 2.75% or with respect to LIBOR Loans from LIBOR plus 1.5% to
LIBOR plus 4.25%, provided, however, that until September 30, 2000, the
applicable margin for prime rate loans is fixed at 2% and the applicable margin
for LIBOR loans is fixed at 3.5%.
Our obligations under the credit facility are secured by a lien on substantially
all of our subsidiaries' assets, including accounts receivable, inventory,
equipment, general intangibles and other property. Additionally, the credit
facility is secured by a first priority pledge of the capital stock of our
subsidiaries.
The credit facility contains customary affirmative covenants and certain
operating and financial covenants. The financial covenants include requirements
to not exceed a specified consolidated leverage ratio, to maintain a certain
consolidated fixed charge coverage ratio and to maintain a minimum consolidated
net worth, and to not exceed certain consolidated capital expenditures and
rental payment levels.
The Company was not in compliance on March 31, 2000 with the consolidated
leverage ratio covenant under the Credit Facility. Our lenders under the Credit
Facility have waived this covenant default.
-12-
<PAGE> 13
RECENT TRENDS AND DEVELOPMENTS
On April 16, 2000, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Tiberia B.V., a company organized in The Netherlands
("Parent"), Platform Purchaser Inc., a Georgia corporation ("Purchaser"), Vedior
N.V., a company organized in The Netherlands ("Vedior") and Select Appointments
North America Inc., a Delaware corporation and a wholly owned subsidiary of
Vedior ("SANA"). The Merger Agreement provides for transactions that will
ultimately lead to Acsys becoming a wholly owned subsidiary of Parent.
Also on April 16, 2000, prior to the execution of the Merger Agreement, we
amended our Rights Agreement, dated June 20, 1999, such that the execution and
delivery of, and the consummation of the transactions contemplated by, the
Merger Agreement and the ancillary agreements thereto would not result in the
Rights, (as defined in the Shareholder Protection Rights Agreement), becoming
exercisable.
The obligations of Parent and Purchaser to accept for payment and to pay for
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn are subject to the following conditions: (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer that number of
Shares which represents at least a majority of the Shares on a fully diluted
basis, (ii) the expiration of (or the termination of the applicable waiting
periods under) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended and (iii) certain customary conditions contained in the Merger
Agreement.
Pursuant to the Merger Agreement, following the completion of the Offer, Parent
will acquire Acsys pursuant to the merger (the "Merger") of Purchaser and Acsys.
Acsys will survive the Merger as a wholly owned subsidiary of Parent. In the
Merger, any remaining Shares will cease to be outstanding and, except for shares
held by Acsys shareholders who exercise their statutory dissenters' rights under
the Georgia Business Corporation Code, will be converted into the right to
receive cash in the amount of $5.00. If Parent and Purchaser acquire at least
90% of the Shares pursuant to the Offer, then the Merger will become effective
as soon as practicable after the Offer without the necessity of obtaining the
approval of the Merger by the Acsys shareholders.
Concurrently with the execution of the Merger Agreement, David C. Cooper, Acsys'
Chief Executive Officer and Chairman of its Board of Directors, and his spouse
and Harry J. Sauer, an Acsys director and Executive Vice President, and a family
foundation controlled by Mr. Sauer entered into support agreements with Vedior
and Purchaser whereby they agreed to tender all shares of Acsys common stock
beneficially owned by them (approximately 17% of Acsys' currently outstanding
shares) in the Offer, and if applicable, to vote their shares in favor of the
Merger. Also concurrently with the execution of the Merger Agreement, as an
requirement to the entering into the Merger Agreement by Vedior, Parent,
Purchaser and SANA, David C. Cooper, Harry J. Sauer, Brady W. Mullinax, Jr. and
Pat Kennedy entered into amendments to their employment agreements with Acsys
that will govern their continued employment with Acsys from and after the time
of the completion of the Offer.
On April 27, 2000, Vedior and Parent, through Purchaser, commenced a tender
offer (the "Offer") to acquire all of our outstanding shares of common stock
together with the associated Rights (collectively, the "Shares"), at a price of
$5.00, net to the shareholders in cash.
Pursuant to the terms of the Merger Agreement, at the time of the initial
purchase of Shares under the Offer, Parent and Purchaser will be required to
repay, or cause to be repaid all of the obligation of the Company and its
subsidiaries under the Company's credit facility with Bank of America, N.A. and
the other lenders dated April 13, 1999 and as further amended on December 31,
1999 (the "Credit Agreement") under such facility and to terminate such
facility. Parent and Purchaser, however, have the right to negotiate with Bank
of America, N.A. and the other lenders to seek their approval for postponing
such repayment and termination.
In 1999, we generated approximately 14.1% of our revenues and 7.5% of our gross
profit from the placement of contract professionals in positions related to the
implementation of ERP software licensed by SAP AG. SAP announced that it
experienced a slowdown in orders for its
-13-
<PAGE> 14
software. SAP believed that this slowdown related to its clients allocating
resources away from ERP implementation in order to address year 2000 and other
resource allocation issues. We experienced a decrease in our SAP implementation
staffing business and expect this trend to continue into the beginning of 2000.
We experienced a decrease in our permanent placement staffing business,
which we believe was principally related to hiring delays related to Year 2000
issues, and we expect this trend to continue into the second quarter of 2000.
We believe decreases are due to clients allocating their resources away from SAP
implementation to address year 2000 issues and thus, that the decrease will be
temporary. Our belief that this trend is temporary is a forward-looking
statement that is subject to numerous risks and uncertainties. Actual results
may differ materially from our estimate due to a variety of factors, including
continued decreased demand for SAP software and the attendant implementation
services.
The Company was not in compliance on March 31, 2000 with the consolidated
leverage ratio covenant under the Credit Facility. Our lenders under the Credit
Facility have waived this covenant default.
The Year 2000 issue referred to problems that could have resulted from computer
software programs and operating systems that use only two digits rather than
four to define the applicable year in a date field. These programs were designed
and developed without considering the impact of the upcoming change in the
century. If not corrected, many computer applications could have failed or
created erroneous results by or at the Year 2000. In 1999 we spent $4.4 million
in capital expenditures that principally related to company integration. Due to
these integration efforts our systems were Year 2000 compliant and accordingly
our systems were not impacted by the date change.
-14-
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Acsys does not engage in investing in or trading market risk sensitive
instruments. We also do not purchase, for investment, hedging, or for purposes
"other than trading," instruments that are likely to expose Acsys to market
risk, whether interest rate, foreign currency exchange, commodity price or
equity price risk, except as discussed in the following paragraph. We have not
entered into any forward or futures contracts, purchased any options or entered
into any interest rate swaps. We currently do not have any foreign operations
and thus we do not believe that we have any exposure to foreign currency
exchange rate risk.
We have interest rate risk under our credit facility. A change in either our
lender's prime rate, the federal funds rate or the London Inter-Bank Offering
Rate (LIBOR) would affect the rate at which that we could borrow funds under our
existing credit agreement. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
for a further discussion of the terms of our credit facility.
-15-
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Information with respect to the amendment to our Shareholder Protection Rights
Agreement on April 16, 2000, in connection with our execution and delivery of
that certain Agreement and Plan of Merger by and among Tiberia B.V. Platform
Purchaser Inc., Vedior N.V., Select Appointments North America Inc. and Acsys,
Inc. dated as of April 16, 2000, may be found under Item 5 of our Current Report
on Form 8-K filed with the Securities and Exchange Commission on April 18, 2000.
Such information is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 16, 2000, by
and among Tiberia B.V., Platform Purchaser Inc., Vedior N.V.,
Select Appointments North America Inc. and Acsys, Inc.
(incorporated by reference to Exhibit 2.1 of the Current
Report on Form 8-K of Acsys, Inc. filed on April 18, 2000).
2.2 Support Agreement dated as of April 16, 2000 between Vedior
N.V., Platform Purchaser Inc., David C. Cooper and Teri L.
Cooper (incorporated by reference to Exhibit 2.2 of the
Current Report on Form 8-K of Acsys, Inc. filed on April 18,
2000).
2.3 Support Agreement dated as of April 16, 2000 between Vedior
N.V., Platform Purchaser Inc., Harry J. Sauer and The Sauer
Family Foundation (incorporated by reference to Exhibit 2.3 of
the Current Report on Form 8-K of Acsys, Inc. filed on April
18, 2000).
10.1 Amendment of Employment Agreement between Acsys, Inc. and
David C. Cooper dated April 16, 2000 (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K of
Acsys, Inc. filed on April 18, 2000).
10.2 Amendment of Employment Agreement between Acsys, Inc., Acsys
Resources, Inc. and Harry J. Sauer dated April 16, 2000
(incorporated by reference to Exhibit 10.2 of the Current
Report on Form 8-K of Acsys, Inc. filed on April 18, 2000).
10.3 Amendment of Employment Agreement between Acsys, Inc. and
Brady W. Mullinax, Jr. dated April 16, 2000 (incorporated by
reference to Exhibit 10.3 of the Current Report on Form 8-K of
Acsys, Inc. filed on April 18, 2000).
10.4 Amendment of Employment Agreement between Acsys, Inc. and Pat
Kennedy dated April 16, 2000 (incorporated by reference to
Exhibit 10.4 of the Current Report on Form 8-K of Acsys, Inc.
filed on April 18, 2000).
10.5 Employment Agreement, dated May 16, 1997, as amended on May
16, 1997, by and between Acsys, Inc. and David C. Cooper
(incorporated by reference to Exhibit (d)(4) to the Amendment
No. 1 to the Schedule TO of Vedior N.V., Tiberia B.V. and
Platform Purchaser Inc. filed on April 27, 2000).
10.6 Employment Agreement, dated September 1997, by and between
Acsys, Inc., ACSYS Resources and Harry J. Sauer (incorporated
by reference to Exhibit (d)(2) to the Amendment No. 1 to the
Schedule TO of Vedior N.V., Tiberia B.V. and Platform
Purchaser Inc. filed on April 27, 2000).
27 Financial Data Schedule. (For SEC use only).
99.1 Amendment No. 1 dated April 16, 2000 to Shareholder Protection
Rights Agreement, dated June 20, 1999, between Acsys, Inc. and
SunTrust Bank, Atlanta, as Rights Agent (incorporated by
reference to Exhibit 99.1 of the Current Report on Form 8-K of
Acsys, Inc. filed on April 18, 2000).
</TABLE>
(b) Reports on Form 8-K
Acsys, Inc. did not file any Current Reports on Form 8-K during the
three months ended March 31, 2000.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Acsys, Inc.
-------------------------------------------
(registrant)
Date: May 12, 2000
------------ /s/ Brady W. Mullinax, Jr.
-------------------------------------------
Brady W. Mullinax, Jr.
Executive Vice President,
Finance & Administration
(the registrant's principal financial and
chief accounting officer, who is duly
authorized to sign this report)
-17-
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 16, 2000, by
and among Tiberia B.V., Platform Purchaser Inc., Vedior N.V.,
Select Appointments North America Inc. and Acsys, Inc.
(incorporated by reference to Exhibit 2.1 of the Current
Report on Form 8-K of Acsys, Inc. filed on April 18, 2000).
2.2 Support Agreement dated as of April 16, 2000 between Vedior
N.V., Platform Purchaser Inc., David C. Cooper and Teri L.
Cooper (incorporated by reference to Exhibit 2.2 of the
Current Report on Form 8-K of Acsys, Inc. filed on April 18,
2000).
2.3 Support Agreement dated as of April 16, 2000 between Vedior
N.V., Platform Purchaser Inc., Harry J. Sauer and The Sauer
Family Foundation (incorporated by reference to Exhibit 2.3 of
the Current Report on Form 8-K of Acsys, Inc. filed on April
18, 2000).
10.1 Amendment of Employment Agreement between Acsys, Inc., Inc.
and David C. Cooper dated April 16, 2000 (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K of
Acsys, Inc. filed on April 18, 2000).
10.2 Amendment of Employment Agreement between Acsys, Inc.,
Acsys Resources, Inc. and Harry J. Sauer dated April 16,
2000 (incorporated by reference to Exhibit 10.2 of the Current
Report on Form 8-K of Acsys, Inc. filed on April 18, 2000).
10.3 Amendment of Employment Agreement between Acsys, Inc.
and Brady W. Mullinax, Jr. dated April 16, 2000 (incorporated
by reference to Exhibit 10.3 of the Current Report on Form 8-K
of Acsys, Inc. filed on April 18, 2000).
10.4 Amendment of Employment Agreement between Acsys, Inc. and Pat
Kennedy dated April 16, 2000 (incorporated by reference to
Exhibit 10.4 of the Current Report on Form 8-K of Acsys, Inc.
filed on April 18, 2000).
10.5 Employment Agreement, dated May 16, 1997, as amended on May
16, 1997, by and between Acsys, Inc. and David C. Cooper
(incorporated by reference to Exhibit (d)(4) to the Amendment
No. 1 to the Schedule TO of Vedior N.V., Tiberia B.V. and
Platform Purchaser Inc. filed on April 27, 2000).
10.6 Employment Agreement, dated September 1997, by and between
Acsys, Inc., ACSYS Resources and Harry J. Sauer (incorporated
by reference to Exhibit (d)(2) to the Amendment No. 1 to the
Schedule TO of Vedior N.V., Tiberia B.V. and Platform
Purchaser Inc. filed on April 27, 2000).
27 Financial Data Schedule. (For SEC use only.)
99.1 Amendment No. 1 dated April 16, 2000 to Shareholder Protection
Rights Agreement, dated June 20, 1999, between Acsys, Inc. and
SunTrust Bank, Atlanta, as Rights Agent (incorporated by
reference to Exhibit 99.1 of the Current Report on Form 8-K of
Acsys, Inc. filed on April 18, 2000).
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 24,630
<ALLOWANCES> 1,558
<INVENTORY> 0
<CURRENT-ASSETS> 26,115
<PP&E> 8,028
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,571
<CURRENT-LIABILITIES> 12,198
<BONDS> 0
0
0
<COMMON> 30,548
<OTHER-SE> 2,398
<TOTAL-LIABILITY-AND-EQUITY> 87,571
<SALES> 39,859
<TOTAL-REVENUES> 39,859
<CGS> 21,897
<TOTAL-COSTS> 38,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,088
<INCOME-PRETAX> 172
<INCOME-TAX> 79
<INCOME-CONTINUING> 93
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
