<PAGE>
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 July 3, 1994 Commission file number 0-13195
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ADIA SERVICES, INC.
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(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 June 30, 1994
---------------------------- ----------------------------
Common Stock, $.25 par value 7,040,233
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 -
Six months and three months ended June 30, 1994 and 1993 1
Condensed Consolidated Statements of Financial Position -
June 30, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows -
Six months ended June 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 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>
Six Months Ended Three Months Ended
--------------------- --------------------
June 30, June 30,
--------------------- --------------------
1994 1993 1994 1993
-------- -------- ------- --------
<S> <C> <C> <C> <C>
NET SERVICE REVENUES AND OTHER INCOME $559,476 $427,264 $289,713 $218,527
-------- -------- -------- --------
Direct costs of services, consisting of direct
labor, payroll taxes, insurance and
benefits for temporary employees 407,277 307,421 210,815 158,148
Selling, general and administrative expenses 129,052 103,964 66,371 51,642
Amortization of intangibles 2,395 2,643 1,180 1,318
Interest expense, net (955) (1,648) (492) (921)
-------- -------- -------- --------
537,769 412,380 277,874 210,187
-------- -------- -------- --------
Income before income taxes 21,707 14,884 11,839 8,340
Provision for income taxes 9,768 6,698 5,328 3,753
-------- -------- -------- --------
NET INCOME $ 11,939 $ 8,186 $ 6,511 $ 4,587
======== ======== ======== ========
Weighted average shares outstanding 12,603 12,556 12,624 12,558
NET INCOME PER SHARE $ .95 $ .65 $ .52 $ .36
======== ======== ======== ========
Cash dividends per share
Common stock $ .08 $ .08 $ .04 $ .04
======== ======== ======== ========
Class B common stock $ .07 $ .07 $ .035 $ .035
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
ADIA SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 64,158 $ 67,828
Trade accounts receivable, net 137,666 119,210
Notes and other receivables 4,506 4,108
Deferred income taxes 17,878 15,478
Other current assets 12,207 5,034
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Total current assets 236,415 211,658
Property, equipment and
leasehold improvements $ 46,685 $ 38,338
Less, accumulated depreciation
and amortization 28,466 18,219 24,454 13,884
-------- --------
Cost in excess of net assets
of acquired companies 72,398 70,240
Other intangible assets, net 2,828 3,929
Other assets 3,391 2,937
-------- --------
$333,251 $302,648
======== ========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 96,473 $ 76,978
Income taxes payable 3,562 4,907
Current portion of long-term debt 484 239
-------- --------
Total current liabilities 100,519 82,124
Long-term debt 801 859
STOCKHOLDERS' EQUITY
Preferred stock
none, issued or outstanding
Common stock $ 3,165 $ 3,149
Additional paid-in capital 102,885 101,621
Retained earnings 126,188 115,202
-------- --------
232,238 219,972
Less: Treasury stock, at cost (307) 231,931 (307) 219,665
-------- -------- -------- --------
$333,251 $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>
Six Months Ended
----------------------------
June 30,
---------
1994 1993
-------- --------
<S> <C> <C>
OPERATIONS
Net income $ 11,939 $ 8,186
Charges and credits to income not affecting cash
Depreciation 3,108 2,591
Amortization 2,351 2,865
Deferred income taxes (2,400) (1,309)
Changes in working capital
Accounts receivable (15,595) (15,176)
Accounts payable and accrued expenses 14,376 9,823
Other working capital (8,721) 1,844
Other operating flows (258) 212
-------- --------
4,800 9,036
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INVESTING
Additions to property, equipment
and leasehold improvements (7,360) (3,457)
Acquisitions (1,046) (47)
-------- --------
(8,406) (3,504)
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FINANCING
Exercise of stock options 1,280 122
Dividends paid (953) (948)
Increase in debt 927 96
Repayments of debt (1,318) (1,056)
-------- --------
(64) (1,786)
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NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (3,670) 3,746
Cash and short term investments
Beginning of period 67,828 21,021
-------- --------
End of period $ 64,158 $ 24,767
======== ========
</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 June 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 June 30, 1994 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2: Majority Stockholder
On March 22, 1994, the Registrant received a merger proposal from Adia S.A.
("ASA"), whereby ASA would acquire all the outstanding common shares of the
Company which it does not currently own. ASA owns, through its wholly-owned
subsidiary, Adia Holdings Incorporated ("AHI"), 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 proposed merger, eight shares of common stock
of the Registrant would be exchanged for one share of ASA stock and $112.00 in
cash. As of July 25, 1994, ASA and the Registrant announced suspension of
negotiations between ASA and a special committee of the Board of Directors of
Registrant formed to evaluate the previously announced proposed merger.
Negotiations were suspended due to inability to reach agreement on the terms of
the merger. ASA has engaged CS First Boston as an additional advisor to assist
in determining whether there is a basis for further negotiations, and to assist
in any further negotiations. Copies of the press releases of ASA dated July 26,
1994 and Registrant dated July 26, 1994 are filed herewith and are incorporated
herein by reference.
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. Because of the
expected 1994 operating results of the other AHI companies included in the tax
consolidation, the Company does not presently anticipate any tax savings for
1994 and, accordingly, did not record any such tax benefit in the six month
period ending June 30, 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
- - ---------------------
During the second quarter of 1994, net income increased to $6.5 million ($.52
per share) as compared to $4.6 million ($.36 per share) for the second quarter
of 1993. For the first six months of 1994, net income increased 46% to $11.9
million ($.95 per share) from $8.2 million ($.65 per share) in the prior year.
For the first six months of 1994 revenues increased 31% to $559.5 million from
$427.2 million for the first six months of 1993. Revenues for the second
quarter increased 33% to $289.7 million as compared to $218.5 million in the
second quarter of 1993.
The Company's operating results during 1994 have been positively affected by the
growth in the general economy. Additionally, the trend on the part of business
to incorporate temporary help into their manpower planning continues to
favorably impact Adia's business as well as the industry as a whole. Adia's
number of hours sold has increased 29% during both the second quarter and the
first six months as the Company continues to achieve record revenues. Gross
margin dollars during the second quarter increased 31% to $78.9 million although
gross margin as a percentage of revenues fell to 27.2%. For the six month
period gross margin dollars increased 27% to $152.2 million also representing
27.2% of revenues. The increase in revenues reflects the increase in the total
number of hours sold, slight increases in overall average bill rates and higher
permanent placement and outplacement revenues. The higher overall gross margin
dollars also results from the increase in volume while the decrease in the gross
margin percentage stems from a combination of higher pay rates required to
attract and retain highly qualified temporaries and higher employer related
costs for workers' compensation and unemployment taxes. Because of continued
competitive pricing pressures, the full amount of these benefit costs could not
be passed along in the form of higher bill rates.
Selling, general and administrative expenses increased 24.1% during the first
six months of 1994. As a percentage of revenues, these expenses decreased to
23.1% from 24.3%. The overall increase is comprised principally of higher
personnel costs to service additional outplacement business and increased
incentive compensation directly related to improved branch profitability. The
Company continues to pursue cost efficiency measures to continue decreasing
these costs as a percentage of revenues.
Net interest income decreased during the first six months of 1994 as compared to
the first six months of 1993. In the prior year, the Company was able to offset
the general decline in market interest rates through its loan with Adia Holdings
Incorporated ("AHI"), the Company's majority stockholder, which provided a yield
on all funds loaned to AHI higher than the yield on current short-term
investments. This loan was repaid in full during December 1993.
Liquidity and Capital Resources
- - -------------------------------
The Company continues to internally generate sufficient cash to support its
ongoing operations.
The Company continues to have a credit agreement with Adia Holdings Incorporated
(its majority stockholder - "AHI"), whereby AHI may borrow up to $50 million
from the Company. As of June 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 6. Exhibits and Reports on Form 8-K
- - ------ --------------------------------
(a) Exhibits
28.1 Press Release issued by Registrant on July 26, 1994 with respect
to merger negotiations.
28.2 Press Release issued by Adia S.A. on July 26, 1994 with respect
to merger negotiations.
(b) Reports on Form 8-K
A Form 8-K was filed as of March 22, 1994 to report under Item 5
the merger proposal received by the Registrant from its majority
stockholder, Adia S.A.
6
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ADIA SERVICES, INC. AND SUBSIDIARIES
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: July 26, 1994 By JOHN P. BOWMER
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John P. Bowmer
Chief Executive Officer and Director
Date: July 26, 1994 By JON H. ROWBERRY
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Jon H. Rowberry
Senior Vice President,
Chief Financial Officer and Director
7
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EXHIBIT 28.1
CONTACT: Jon Rowberry
Senior Vice President and
Chief Financial Officer
Adia Services, Inc.
(415) 610-1000
NATIONAL, INTERNATIONAL AND ANALYST WIRES
- - -----------------------------------------
FOR IMMEDIATE RELEASE
REDWOOD CITY, Calif., July 26, 1994 - Adia Services, Inc. (NASDAQ - "ADIA"),
announced today the suspension of negotiations regarding a proposed merger in
which Adia SA ("ASA"), the principal stockholder of Adia, planned to acquire all
the approximately 19% of Adia common stock which it does not currently own.
ASA announced its merger proposal on March 22, 1994, at which time ASA proposed
to exchange $14.00 in cash and an American Depositary Receipt representing one-
eighth share of its stock (which is traded on Swiss Stock Exchanges) for each
share of Adia common stock. Negotiations between ASA and a special committee of
Adia's board commenced shortly after the announcement. However, ASA and the
special committee have not been able to reach agreement on the terms of the
merger.
John Bowmer, the Chief Executive Officer of ASA and Adia, said: "ASA and Adia's
special committee have been negotiating for four months but have been unable to
reach agreement on terms which are satisfactory to both companies. ASA has
engaged CS First Boston as an additional advisor to assist it in determining
whether there is a basis for further negotiations, and to assist in any further
negotiations. Discussions between ASA and the special committee have been
suspended until that determination is made."
<PAGE>
EXHIBIT 28.2
PRESS RELEASE
LAUSANNE, JULY 26, 1994
ADIA'S FIRST HALF RESULTS BEAT FULL YEAR FORECAST
Adia SA announced today that net income for the first half of 1994 had exceeded
earlier estimates for the full year. At the company's General Assembly, held in
Lausanne on April 21, 1994, CEO John Bowmer had predicted that net income would
reach Sfr. 5 million for the year, marking a return to profitability for the
organization after two years of losses. In fact, the first half of 1994
produced net income of Sfr. 8.3 million, compared to a net loss of Sfr. 31.6
million in 1993. Total revenues grew 10% from last year, to a total of Sfr. 1.65
billion.
The better than expected financial performance is principally the result of the
beginning of the economic recovery in Continental Europe. Adia had not expected
to see much benefit from the recovery until the end of 1994, but hours sold in
Europe during the first half of 1994 were 10% higher than a year earlier,
signaling the beginning of improving demand for temporary help. By maintaining
operating costs at levels close to the prior year, resulting productivity
improvements have been translated into higher profits.
Mr. Bowmer pointed out that this is very similar to the early stages of recovery
noted in the United States about 18 months ago. He cautions that only time will
tell if the recovery in Europe is as strong for personnel companies as it was in
America. In the meantime, revenues and profits continue to grow in the United
States, Australia and the United Kingdom. Mr. Bowmer predicted that if no
adverse economic events arise between now and the end of the year Adia should
report close to Sfr. 20 million in net income for the full year.
In Japan there has been no sign of economic recovery to date and none is
expected before 1995. However, cost controls that local management has put in
place have allowed Adia to continue to operate profitably in that part of the
world.
The results for the first six months of the year are summarized in the following
table.
<TABLE>
<CAPTION>
(In Sfr. thousands) Jan-Jun 1994 Jan-Jun 1993
<S> <C> <C>
Revenues 1,653,398 1,502,923
Gross Margin 400,878 365,777
Operating Income 46,841 12,235
Net Income 8,315 (31,629)
</TABLE>
<PAGE>
ADIA SA SUSPENDS NEGOTIATIONS WITH ADIA SERVICES, INC.
Adia announced today the suspension of negotiations regarding a proposed merger
in which Adia planned to acquire all the approximately 19% of Adia Services,
Inc. (the U.S. Company) which it does not currently own.
Adia announced its merger proposal on March 22, 1994, at which time Adia
proposed to exchange $14.00 in cash and an American Depositary Receipt
representing one-eighth share of its stock for each share of the U.S. Company
common stock. Negotiations between Adia and a special committee of the U.S.
Company's board commenced shortly after the announcement. However, Adia and the
special committee have not been able to reach agreement on the terms of the
merger.
Mr. Bowmer said, "Adia and the U.S. Company's special committee have been
negotiating for four months, but have been unable to reach agreement on terms
which are satisfactory to both companies. Adia has engaged CS First Boston as
an additional advisor to assist it in determining whether there is a basis for
further negotiations, and to assist in any further negotiations. Discussions
between Adia and the special committee have been suspended until that
determination is made."
For Information: Jon Rowberry, Chief Financial Officer, or
John Bowmer, Chief Executive Officer
Phone: +1-415-610-1000.
