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Page 1 of _____ pages
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 2, 1994 Commission file number 0-13195
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ADIA SERVICES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2933186
- - - ---------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
100 Redwood Shores Parkway, Redwood City, CA 94065
- - - -------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 610-1000
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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 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.
Class Outstanding at October 31 , 1994
---------------------------- --------------------------------
Common Stock, $.25 par value 7,063,313
Class B Common Stock 5,600,000
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ADIA SERVICES, INC. AND SUBSIDIARIES
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INDEX
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<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Information (unaudited)
Condensed Consolidated Statements of Income -
Nine months and three months ended September 30, 1994
and 1993 1
Condensed Consolidated Statements of Financial Position -
September 30, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1994 and 1993 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 6
Item 6. Exhibits and Reports on Form 8-K 6
Signatures 7
</TABLE>
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ADIA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
-------------------- --------------------
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SERVICE REVENUES AND OTHER INCOME $873,533 $669,437 $314,057 $242,173
-------- -------- -------- --------
Direct costs of services, consisting of direct
labor, payroll taxes, insurance and
benefits for temporary employees 639,233 485,522 231,956 178,101
Selling, general and administrative expenses 196,045 158,619 66,993 54,655
Amortization of intangibles 3,658 3,950 1,263 1,307
Interest expense, net (1,554) (2,558) (599) (910)
-------- -------- -------- --------
837,382 645,533 299,613 233,153
-------- -------- -------- --------
Income before income taxes 36,151 23,904 14,444 9,020
Provision for income taxes 15,568 10,257 5,800 3,561
-------- -------- -------- --------
NET INCOME $ 20,583 $ 13,647 $ 8,644 $ 5,459
======== ======== ======== ========
Weighted average shares outstanding 12,618 12,559 12,649 12,565
NET INCOME PER SHARE $ 1.63 $ 1.09 $ .68 $ .43
======== ======== ======== ========
Cash dividends per share
Common stock $ .12 $ .12 $ .04 $ .04
======== ======== ======== ========
Class B common stock $ .105 $ .105 $ .035 $ .035
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
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ADIA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
-------------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 75,737 $ 67,828
Trade accounts receivable, net 146,107 119,210
Deferred income taxes 19,078 15,478
Notes and other receivables 2,509 4,108
Other current assets 10,940 5,034
-------- --------
Total current assets 254,371 211,658
Property, equipment and
leasehold improvements $ 48,501 $ 38,338
Less, accumulated depreciation
and amortization 29,250 19,251 24,454 13,884
-------- --------
Cost in excess of net assets
of acquired companies 70,792 70,240
Other intangible assets 2,391 3,929
Other assets 4,531 2,937
-------- --------
$351,336 $302,648
======== ========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses 105,897 76,978
Income taxes payable 3,713 4,907
Current portion of long-term debt 383 239
-------- --------
Total current liabilities 109,993 82,124
Long-term debt 794 859
STOCKHOLDERS' EQUITY
Preferred stock
none, issued or outstanding
Common stock $ 3,171 $ 3,149
Additional paid-in capital 103,331 101,621
Retained earnings 134,354 115,202
Less: Treasury stock, at cost (307) 240,549 (307) 219,665
-------- -------- -------- --------
$351,336 $302,648
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
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ADIA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30,
-------------
1994 1993
---- ----
<S> <C> <C>
OPERATIONS
Net income $ 20,583 $ 13,647
Charges and credits to income not affecting cash
Depreciation 4,885 3,954
Amortization 3,612 4,280
Deferred income taxes (3,600) (2,235)
Changes in working capital
Accounts receivable (24,036) (32,144)
Accounts payable and accrued expenses 24,692 17,728
Other working capital (5,306) 2,144
Other operating flows (1,368) 219
-------- --------
19,462 7,593
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INVESTING
Additions to property, equipment
and leasehold improvements (10,229) (5,517)
Acquisitions (1,094) (411)
-------- --------
(11,323) (5,928)
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FINANCING
Exercise of stock options 1,732 282
Dividends paid (1,431) (1,423)
Increase in debt 936 157
Repayments of debt (1,467) (1,213)
-------- --------
(230) (2,197)
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NET INCREASE(DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 7,909 (532)
Cash and short-term investments
Beginning of period 67,828 21,021
-------- --------
End of period $ 75,737 $ 20,489
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ADIA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Adia Services,
Inc. and subsidiaries for the periods ended September 30, 1994 and 1993 are
unaudited. However, in the opinion of the Company, all adjustments necessary
for a fair presentation have been reflected therein.
Certain financial information which is normally included in financial statements
prepared in accordance with generally accepted accounting principles, but which
is not required for interim reporting purposes, has been condensed or omitted.
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report.
The results of operations for the periods ended September 30, 1994 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2: Majority Stockholder
On September 27, 1994, the Registrant's Board of Directors approved the terms of
the merger with Adia S.A. ("ASA") after receiving a favorable recommendation
from its special committee of outside directors. ASA will acquire all the
outstanding common shares of the Company which it does not currently own. ASA,
through its wholly-owned subsidiary, Adia Holdings Incorporated ("AHI"), owns
4,632,348 shares of the Registrant's common stock and 5,600,000 shares (100%) of
the Registrant's Class B common stock, which together represent 81% of the
Registrant's outstanding shares. Based upon the higher voting power of the
Class B common stock, ASA controls 96% of the votes. In the merger, each share
of common stock of the Registrant will be exchanged for $15.00 in cash and one
American Depositary Share representing one-eighth of one ASA bearer share,
nominal value Sfr 10.00 per share. The consummation of the merger is subject
to a number of conditions and to approval by the Registrant's stockholders,
including approval by a majority of the shares voted by minority stockholders.
There can be no assurance that the conditions of the merger will be satisfied or
that the merger will be consummated.
The Company acquired Adia Canada, Ltd., a wholly-owned subsidiary of ASA for
$1 million as of the beginning of 1994. This transaction was accounted for as
a purchase based upon a purchase price determined by independent appraisal.
Recording this transaction as a deemed distribution to ASA would not have
produced a materially different result.
Under the existing tax sharing agreement between the Company and AHI, the
Company shares in any Federal tax savings realized as a result of its
consolidation for tax purposes with other AHI companies. Based on interest and
royalty expenses expected to be incurred at AHI, the Company anticipates tax
savings for 1994 totalling approximately $4.3 million. Of that total the
Company recorded $700,000 during the third quarter of 1994.
4
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ADIA SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- - - ---------------------
For the first nine months of 1994, net income increased 51% to $20.6 million
($1.63 per share) from $13.6 million ($1.09 per share) in the prior year.
During the third quarter of 1994, net income increased 58% to $8.6 million ($.68
per share) as compared to $5.5 million ($.43 per share) for the third quarter of
1993. The Company's operating results reflect significantly higher volume for
both general temporary help business and specialty operations as companies
continue to utilize temporary help as a means of meeting their staffing needs.
Revenues for the third quarter of 1994 increased 30% to $314.1 million as
compared to $242.2 million in 1993. For the first nine months of 1994 revenues
also increased 30% to $873.5 million from $669.4 million for the first nine
months of 1993. The increase in revenues for the nine month period reflects a
27% increase in volume of temporary placement business and a 3% increase in
overall average bill rates. Higher outplacement and permanent placement
revenues also contributed to this increase. Gross margin dollars during the
first nine months of 1994 increased by 27% even though gross margin as a
percentage of revenues fell from 27.5% to 26.8%. The higher overall gross
margin dollars result from the increase in volume while the decrease in the
gross margin percentage stems from, among other things, higher employer
related costs for workers' compensation and unemployment taxes. The Company's
gross margin percentage has also been affected by the continued emphasis on high
volume general temporary help business.
As compared to the third quarter a year ago, selling, general and administrative
expenses increased by 23%. For the nine month period, these expenses
increased by 24%. As a percentage of revenues, these expenses have decreased
slightly as compared to last year. The overall dollar increase is comprised
principally of higher personnel costs to service additional outplacement
business and increased incentive compensation directly related to improved
branch profitability.
Net interest income for the first nine months of 1994 has decreased as compared
to the first nine months of 1993. In the prior year, the Company was able to
mitigate the general decline in interest rates through its loan to Adia Holdings
Incorporated ("AHI"), the Company's majority stockholder, which provided for a
yield on all funds loaned to AHI higher than the yield on the Company's other
short-term investments. The loan was repaid in full during December 1993.
Liquidity and Capital Resources
- - - -------------------------------
The Company continues to generate internally sufficient cash to support its
ongoing operations.
The Company continues to have a credit agreement with AHI whereby AHI may borrow
up to $50 million from the Company. As of September 30, 1994, there were no
outstanding borrowings under this line.
The Company has paid uninterrupted quarterly dividends on its Common Stock since
its initial public offering in October 1984. Quarterly cash dividends are
currently $.04 per share for Common Stock and $.035 per share for Class B common
stock.
5
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ADIA SERVICES, INC. AND SUBSIDIARIES
PART II - Other information
Item 4. Submission of Matters to a Vote of Security Holders
- - - ------- ---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- - - ------ --------------------------------
(a) Exhibits
(b) Reports on Form 8-K
6
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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.
ADIA SERVICES, INC.
Date: November 4, 1994 By /s/ John P. Bowmer
----------------------------------
John P. Bowmer
Chief Executive Officer and Director
Date: November 4, 1994 By /s/ Jon H. Rowberry
-----------------------------------
Jon H. Rowberry
Senior Vice President,
Chief Financial Officer and Director
7
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EXHIBIT INDEX
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EXHIBITS
- - - --------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-02-1994
<CASH> 75,737
<SECURITIES> 0
<RECEIVABLES> 146,107
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 254,371
<PP&E> 48,501
<DEPRECIATION> 29,250
<TOTAL-ASSETS> 351,336
<CURRENT-LIABILITIES> 109,993
<BONDS> 0
<COMMON> 3,171
0
0
<OTHER-SE> 237,378
<TOTAL-LIABILITY-AND-EQUITY> 351,336
<SALES> 0
<TOTAL-REVENUES> 873,533
<CGS> 0
<TOTAL-COSTS> 639,233
<OTHER-EXPENSES> 199,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,554)
<INCOME-PRETAX> 36,151
<INCOME-TAX> 15,568
<INCOME-CONTINUING> 20,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,583
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
</TABLE>
