SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
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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 number 0-11876
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UNIFORCE SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-1996648
- -------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
415 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 437-3300
----------------------------
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 / /.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date. 3,001,538 (as of May 1, 1996).
<PAGE>
UNIFORCE SERVICES, INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements
Consolidated condensed statements of earnings
three months ended March 31, 1996 and 1995
(unaudited) 1
Consolidated condensed balance sheets -
March 31, 1996 (unaudited) and December
31, 1995 2
Consolidated condensed statements of cash flows -
three months ended March 31, 1996 and 1995
(unaudited) 3
Notes to consolidated condensed financial
statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
MARCH 31,
-------------------------------
1996 1995
---- ----
Sales of supplemental staffing
services $30,763,328 $29,194,701
Service revenues and fees 1,716,005 1,488,349
----------- -----------
Total revenues 32,479,333 30,683,050
----------- -----------
Costs and expenses:
Cost of supplemental staffing
services 24,113,367 22,707,847
Licensees' share of gross
margin 1,810,375 2,219,473
General and administrative 4,851,348 4,479,213
Depreciation and amortization 211,784 230,242
---------- -----------
Total costs and expenses 30,986,874 29,636,775
---------- -----------
Earnings from operations 1,492,459 1,046,275
Other income (expense):
Interest - net (435,587) (84,125)
Other income (expense) 1,956 8,843
---------- ----------
Earnings before provision for
income taxes 1,058,828 970,993
Provision for income taxes 402,000 368,000
---------- -----------
NET EARNINGS $ 656,828 $ 602,993
========== ===========
Weighted average number
of shares outstanding 3,353,338 4,429,659
NET EARNINGS PER SHARE $ .20 $ .14
========== ===========
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,710,877 $ 6,444,859
Accounts receivable - net 14,706,166 14,827,862
Funding and service fees
receivable - net 20,679,452 20,918,753
Current maturities of notes
receivable from licensees - net 118,672 132,258
Prepaid expenses and other
current assets 944,549 1,270,268
Deferred income taxes 347,149 347,149
----------- -----------
Total current assets 44,506,865 43,941,149
----------- -----------
Notes receivable from licensees - net 163,881 182,642
Fixed assets - net 2,327,210 2,125,413
Deferred costs and other assets - net 825,779 821,244
Cost in excess of fair value of net
assets acquired 3,476,532 3,525,741
----------- -----------
$51,300,267 $50,596,189
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable $ 812,500 $ 750,000
Payroll and related taxes payable 6,577,950 7,540,947
Payable to licensees and clients 2,044,140 2,025,563
Income taxes payable 320,584 351,690
Accrued expenses and
other liabilities 5,956,800 4,092,058
----------- -----------
Total current liabilities 15,711,974 14,760,258
----------- -----------
Loan payable - non-current 24,000,000 11,250,000
Capital lease obligation - non-current 403,758 426,109
STOCKHOLDERS' EQUITY:
Common stock $.01 par value 50,638 49,912
Additional paid-in capital 8,395,188 7,789,598
Retained earnings 24,555,258 23,990,043
----------- -----------
33,001,084 31,829,553
Treasury stock, at cost, 2,079,500
shares in 1996 and 829,500
shares in 1995 (21,816,549) (7,669,731)
----------- -----------
Total stockholders' equity 11,184,535 24,159,822
----------- -----------
$51,300,267 $50,596,189
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 656,828 $ 602,993
Adjustments to reconcile net
earnings to net cash provided (used)
by operating activities:
Depreciation and amortization 211,784 230,242
(Increase) decrease in receivables
and prepaid expenses 686,716 (4,651,470)
Stock option compensation expense 4,500 4,500
Increase in liabilities 846,332 641,534
----------- ----------
Net cash provided (used) by operating
activities 2,406,160 (3,172,201)
----------- ----------
Cash flows from investing activities:
Purchases of fixed assets (264,024) (232,773)
(Increase) in deferred costs and other
investments (84,350) (109,064)
Decrease in notes receivable
from licensees 32,347 64,562
----------- ----------
Net cash (used) by investing
activities (316,027) (277,275)
----------- ----------
Cash flows from financing activities:
Increase in loan payable 12,812,500 1,700,000
Cash dividends paid (91,613) (136,412)
Purchase of treasury stock (14,146,818) (1,689,773)
Proceeds from issuance of
common stock 601,816 137,926
----------- ----------
Net cash provided (used) by financing
activities (824,115) 11,741
----------- ----------
Net increase (decrease) in cash
and cash equivalents 1,266,018 (3,437,735)
Cash and cash equivalents at
beginning of period 6,444,859 7,298,823
----------- ----------
Cash and cash equivalents at
end of period $ 7,710,877 $3,861,088
=========== ==========
Supplemental disclosures:
Cash paid for:
Interest $ 256,142 $ 118,516
----------- ----------
Income taxes $ 304,834 $ 70,554
----------- ----------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Uniforce Services, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as shown in the accompanying
index have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1996, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed, reclassified or omitted. It is suggested that
these consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's December 31, 1995 financial statements. The results of operations for
the period ended March 31, 1996 are not necessarily indicative of the operating
results which may be achieved for the full year.
Tax accruals have been made based on estimated effective annual
tax rates for the periods presented.
3. CONTINGENCIES
In April 1994, various insurance carriers and their not-for-profit
trade association filed an action against the Company, certain officers and
various other parties. The Plaintiffs allege breach of contract and tort causes
of action for underpayment of workers compensation insurance premiums. Since
April 1994, some of the officers have been released or dismissed; extensive
jurisdictional discovery and some substantive discovery has been conducted; and
the Plaintiffs must file their third amended complaint on or before May 28,
1996. The Company intends to assert substantial claims in opposition to the
claims of the Plaintiffs. Additionally, the Company and its subsidiaries have
filed suit against the trade association alleging various anti-trust allegations
and against various prior worker compensation carriers alleging claims
mismanagement. The Plaintiffs prevailed in the anti-trust action and that case
is on appeal. Management believes that the ultimate outcome of these matters
will not have a material adverse effect upon the financial position of the
Company.
4
<PAGE>
In January 1996, various vendors of training films filed an action
against the Company. The plaintiffs allege that the Company improperly used
and/or copied plaintiffs' tapes. Motions have been filed to have the plaintiffs'
claims dismissed and/or severed. Management intends to vigorously defend the
claims and believes that the claims will not have a material adverse effect upon
the financial position of the Company.
4. TENDER OFFER
On December 11, 1995, the Company made an offer to purchase for
cash up to 1,250,000 shares of its Common Stock at $11.25 net per share (the
Offer). The 1,250,000 shares that the Company offered to purchase represented
approximately 30% of the Shares outstanding as of December 11, 1995. In January
1996, the Offer was successfully completed.
The total amount required to purchase the 1,250,000 shares was
$14,062,500, exclusive of related fees and other expenses. The purchase price
and related expenses were funded with available borrowings under the Company's
Credit Facility.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Total revenues increased by $1,796,283, or 5.9%, from $30,683,050
in the first quarter of 1995 to $32,479,333 in the first quarter of 1996. Sales
of supplemental staffing services increased by $1,568,627, or 5.4%, from
$29,194,701 in the first quarter of 1995 to $30,763,328 in the first quarter of
1996. Sales by two of the Company's subsidiaries, PrO Unlimited and Brannon &
Tully/Uniforce Information Services continued to increase during the first
quarter of 1996. PrO Unlimited sales increased by $3,325,691 or 64.0% in the
first quarter of 1996 as compared to the first quarter of 1995. Brannon &
Tully/Uniforce Information Services sales increased by $1,975,458 or 34.7% in
the first quarter of 1996 as compared to the first quarter of 1995. These
increases were partially offset by lower sales by licensees which were due to a
reduction in the number of licensed offices in the first quarter of 1996 as
compared to the first quarter of 1995.
The Company's strategy is to expand through the development of
higher margin professional services such as IS, technical, automated office and
other professional support services as well as its PrO Unlimited and LabForce
subsidiaries, while continuing to reduce the percentage of its sales derived
from light industrial assignments. In addition, the Company intends to continue
to pursue acquisitions of established independent supplemental staffing service
companies that offer specialty services.
Service revenues and fees increased by 15.3% from $1,488,349 in
the first quarter of 1995 to $1,716,005 in the first quarter of 1996. This
reflects increased service revenues and fees generated by existing and new
clients of Temporary Help Industry Servicing Company, Inc. ("THISCO") and
Brentwood Service Group, Inc. ("BSG"), two of the Company's subsidiaries. The
Company intends to continue to expand this portion of its business through
THISCO and BSG during the remainder of 1996. In addition, system- wide sales,
which include sales of associated offices serviced by THISCO and BSG, increased
by 16.7%, from $67,133,526 in the first quarter of 1995 to $78,316,429 in the
first quarter of 1996.
Cost of supplemental staffing services was 78.4% of sales of
supplemental staffing services in the first quarter of 1996 and 77.8% in the
first quarter of 1995. The higher percentage in 1996 was principally due to
increased sales by PrO Unlimited which has a higher percentage of payroll
expense in relation to sales.
Licensees' share of gross margin is principally based upon a
percentage of the gross margin generated from sales by licensed offices. The
gross margin from sales of supplemental staffing services amounted to $6,649,961
and $6,486,854 for the first quarter of 1996 and 1995, respectively. Licensees'
share of gross margin was 27.2% for the first quarter of 1996 as compared to
34.2% for the first quarter of 1995. The lower share as a
6
<PAGE>
percentage of total gross margin in 1996 is due to lower licensee sales,
increased sales of Brannon & Tully/Uniforce Information Services for which there
are no related licensee distributions, and to the increased sales of PrO
Unlimited for which there are limited distributions.
General and administrative expenses increased by $372,135 or 8.3%
during the first quarter of 1996 as compared to the first quarter of 1995. As a
percentage of revenues, general and administrative expenses were 14.9% and 14.6%
for 1996 and 1995, respectively. These increases resulted principally from
higher expenses in payroll and recruiting costs with respect to permanent staff
and increased professional fees related to the litigation described in Note 3 to
the consolidated condensed financial statements.
Net interest expense increased by $351,462 during the first
quarter of 1996 as compared to the first quarter of 1995. The increase in the
first quarter of 1996 as compared to the first quarter of 1995 is a direct
result of the increased borrowings used for the repurchase of 1,250,000 shares
of the Company's common stock described in Note 4 to the consolidated condensed
financial statements.
As a result of the factors discussed above, net earnings increased
by 8.9% from $602,993 ($.14 per share) in the first quarter of 1995 to $656,828
($.20 per share) in the first quarter of 1996.
FINANCIAL CONDITION
As of March 31, 1996, the Company's working capital decreased to
$28,794,891, as compared to $29,180,891 at December 31, 1995. This decrease was
due primarily to the continuing profitable operations of the Company being more
than offset by the acquisitions of fixed assets, the payment of cash dividends
and the use of available funds to partially fund the purchase of treasury stock.
On January 24, 1996, the Board of Directors declared a quarterly
cash dividend on shares of common stock of Uniforce at $.03 per share which was
paid on February 13, 1996 to holders of record as of February 5, 1996.
On December 8, 1995, the Company entered in an agreement with a
financial institution creating a three-year $35,000,000 credit facility (the
"Credit Facility"). The Credit Facility comprises a term loan in the amount of
$3,000,000 (the "Term Loan") to be paid in monthly installments of $62,500 in
1996, $83,333 in 1997 and $104,167 in 1998, with the balance outstanding due on
December 1, 1998, and a $32,000,000 revolving credit facility (the "Revolving
Facility"), which expires on December 1, 1998. The Company may borrow against
the Revolving Facility up to 85% of eligible accounts receivable and eligible
service and funding fees receivable. The Term Loan bears interest at the
Company's election
7
<PAGE>
at either the lender's floating base rate plus .25%, or LIBOR (London Interbank
Offered Rate) plus 2.25%. Borrowings under the Revolving Facility bear interest
at the Company's election at either the lender's floating base rate, or LIBOR
plus 2.125%. Borrowings under the Credit Facility are secured by a first
priority security interest in all owned and after-acquired real and personal
property of the Company.
At March 31, 1996, the Company had outstanding borrowings of
$2,812,500 under the Term Loan bearing interest at an average rate of 8.1% and
$22,000,000 of borrowings under the Revolving Facility bearing interest at an
average rate of 8%.
The Credit Facility contains a variety of affirmative and negative
covenants of types customary in an asset-based lending facility, including those
relating to reporting requirements, maintenance of records, properties and
corporate existence, compliance with laws, incurrence of other indebtedness and
liens, restrictions on certain payments and transactions and extraordinary
corporate events. The Credit Facility also contains financial covenants relating
to maintenance of levels of minimal tangible net worth, EBITDA (earnings before
interest, taxes, depreciation and amortization), net income and fixed charge
coverage and restricting the amount of capital expenditures. In addition, the
Credit Facility contains certain events of default of types customary in an
asset-based lending facility. Generally, if the Credit Facility is terminated
(i) during the first nine months of its term, a fee of 1% of the amount thereof
is payable, or (ii) during the succeeding nine months of its term, a fee of .5%
of the amount thereof is payable. The Company was in compliance with all
covenants at March 31, 1996.
Prior to December 8, 1995, the Company had maintained with two
banks, a working capital credit facility and a revolving credit and term loan
facility. Amounts outstanding under these facilities were repaid with borrowings
available under the Credit Facility.
In January 1996, the Company successfully completed its offer to
purchase 1,250,000 shares of its common stock at $11.25 net per share. The total
amount required to purchase such shares was $14,062,500, exclusive of related
fees and other expenses. The purchase price and related expenses were funded
with borrowings available under the Credit Facility.
The Company moved its corporate headquarters in April 1996. The
cost of the move, including purchases of fixed assets, will be approximately
$800,000 and will be financed from cash flow from operations and financing from
the Credit Facility. The Company believes that internally generated cash flow
and funding from the Credit Facility will be adequate to meet current operating
requirements. The Company intends to expand its business through the further
development of higher margin professional services as well as through PrO
Unlimited and Brannon & Tully/Uniforce Information Services. Additionally, the
Company continues to
8
<PAGE>
pursue expansion by acquisition of established independent supplemental staffing
service companies that offer specialty services. The Company anticipates that
internal expansion will also be financed from its cash flow and available
borrowings under the Credit Facility. The magnitude of future acquisitions will
determine whether they can be financed in the same manner or whether additional
external sources of financing will be required. While the Company believes that
such sources would be available on terms satisfactory to it, there can be no
assurance in this regard.
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 123, "Accounting for Stock-Based Compensation," which must
be adopted by the Company in 1996. The Company has elected not to implement the
fair value based accounting method for employee stock options, but has elected
to disclose commencing in its 1996 Form 10-K the pro forma net income and
earnings per share as if such method had been used to account for stock-based
compensation cost as described in Statement No.123.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1996.
10
<PAGE>
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.
Dated: May 13, 1996 UNIFORCE SERVICES, INC.
By: /S/ JOHN FANNING
----------------------------------
John Fanning, Chairman of the Board
and President
By: /S/ HARRY MACCARRONE
----------------------------------
Harry Maccarrone, V.P. of Finance,
Principal Financial and Accounting
Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIFORCE'S
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,710,877
<SECURITIES> 0
<RECEIVABLES> 36,318,530
<ALLOWANCES> 650,359
<INVENTORY> 0
<CURRENT-ASSETS> 44,506,865
<PP&E> 4,973,559
<DEPRECIATION> 2,646,349
<TOTAL-ASSETS> 51,300,267
<CURRENT-LIABILITIES> 15,711,974
<BONDS> 0
0
0
<COMMON> 50,638
<OTHER-SE> 11,133,897
<TOTAL-LIABILITY-AND-EQUITY> 51,300,267
<SALES> 0
<TOTAL-REVENUES> 32,479,333
<CGS> 0
<TOTAL-COSTS> 30,986,874
<OTHER-EXPENSES> (1,956)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 435,587
<INCOME-PRETAX> 1,058,828
<INCOME-TAX> 402,000
<INCOME-CONTINUING> 656,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656,828
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
