<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE OF 1934
For the quarterly period ended January 26, 1997
----------------
Commission File No. 0-24300
-------
NORRELL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0953709
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3535 Piedmont Road, NE, Atlanta, GA 30305
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404)240-3000
-------------
Not applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such (reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 23,987,605 shares
on February 23, 1997.
<PAGE> 2
Norrell Corporation and Subsidiaries
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -
January 26, 1997 (Unaudited) and October 27, 1996 2
Consolidated Statements of Income
(Unaudited) - Three months ended January 26, 1997
and January 28, 1996 3
Consolidated Statements of Cash Flows
(Unaudited) - Three months ended January 26, 1997
and January 28, 1996 4
Notes to Consolidated Financial Statements
(Unaudited) 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
ITEM 6. Exhibit and Reports on Form 8-K 8
SIGNATURE 11
</TABLE>
<PAGE> 3
NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS January 26, 1997 October 27, 1996
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 12,761 $ 8,876
Accounts receivable trade,
less allowances of $8,481 in 1997 165,708 145,843
and $7,411 in 1996
Prepaid expenses 3,742 2,674
Other 6,746 9,995
-------- --------
Total current assets 188,957 167,388
-------- --------
PROPERTY AND EQUIPMENT, less
accumulated depreciation 14,732 13,513
NONCURRENT DEFERRED INCOME TAXES 10,722 6,034
OTHER ASSETS
Goodwill and other intangibles, net of
amortization 114,252 45,069
MIS development costs, net of amortization 23,105 18,634
Investments and other assets 12,181 12,593
-------- --------
Total other assets 149,538 76,296
-------- --------
TOTAL ASSETS $363,949 $263,231
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 17,247 $ 9,789
Accounts payable 13,574 14,651
Accrued expenses 66,358 67,536
Deferred revenue and gain 10,159 10,822
-------- --------
Total current liabilities 107,338 102,798
LONG-TERM DEBT, less current maturities 99,281 23,316
LONG-TERM DEFERRED GAIN 11,099 11,471
LONG-TERM ACCRUED EXPENSES 37,734 27,614
-------- --------
Total liabilities 255,452 165,199
-------- --------
SHAREHOLDERS' EQUITY
Common stock, stated value $.01 per share;
50,000,000 shares authorized, with
shares issued of 23,925,184 in
1997 and 23,566,204 in 1996 239 236
Treasury stock, at cost; 47,056 shares in 1997
and 29,091 shares in 1996 (1,061) (575)
Additional paid-in capital 49,080 44,096
Receivables from officers and employees (397) (111)
Retained earnings 60,636 54,386
-------- --------
Total shareholders' equity 108,497 98,032
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $363,949 $263,231
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
January 26, 1997 January 28, 1996
---------------- ----------------
<S> <C> <C>
REVENUES $281,234 $229,251
COST OF SERVICES 220,345 179,817
-------- --------
Gross profit 60,889 49,434
OPERATING EXPENSES 45,956 39,532
DEPRECIATION AND AMORTIZATION 1,921 1,194
-------- --------
Income from operations 13,012 8,708
OTHER EXPENSE
Interest (938) (156)
Other (459) (235)
-------- --------
INCOME BEFORE INCOME TAXES 11,615 8,317
INCOME TAXES 4,414 3,203
-------- --------
NET INCOME 7,201 5,114
EARNINGS PER COMMON SHARE $ 0.28 $ 0.21
======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 25,732 24,774
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
NORRELL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
January 26, 1997 January 28, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,201 $ 5,114
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization - operating
expenses 1,921 1,194
Depreciation and amortization - cost of
services/other expenses 131 69
Gain on retirement of common stock (471) (764)
Gain on disposal of assets (111) 0
Provision for doubtful accounts 479 761
Deferred income taxes (4,304) (4,874)
Deferred gain on sale of building (372) 14,073
Long-term accrued expenses 1,825 (729)
Other 2,442 50
Change in current assets and current
liabilities
Accounts receivable, trade (11,257) 2,718
Prepaid expenses (892) (145)
Deferred revenue (460) (354)
Accounts payable (6,242) (5,505)
Accrued expenses (607) 1,502
Other 3,673 2,444
-------- -------
Net cash (used in) provided by operating
activities (7,044) 15,554
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of acquisitions, net of cash acquired (67,082) 0
Increase in MIS development costs, net (4,896) (2,916)
Additions to property and equipment (1,772) (1,341)
Increase in investments and other assets (701) (2,521)
Cash investments in and advances to joint ventures (714) (793)
Cash distributions from joint venture 0 325
Decrease in goodwill and other intangibles, net (78) 0
-------- -------
Net cash used in investing activities (75,243) (7,246)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt 159,352 0
Repayments of long-term debt (75,931) (2,122)
Proceeds from the issuance of common stock 2,663 120
Stock options exercised 1,011 492
Dividends paid on common stock (951) (669)
Preferred stock redeemed 0 0
Issuance (acquisition) of treasury stock 11 (51)
Reduction in receivables from officers and
employees 17 173
-------- -------
Net cash provided by (used in) financing
activities 86,172 (2,057)
-------- -------
NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS 3,885 6,251
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 8,876 5,115
-------- -------
CASH AND SHORT-TERM INVESTMENTS AT END
OF PERIOD $ 12,761 $11,366
======== =======
SUPPLEMENTARY CASH FLOW DISCLOSURES
Cash payments during the period for
Interest $ 451 $ 124
Income taxes, net of refunds 5,205 194
Noncash investing and financing activity
Issuance of options to benefit plan 679 39
Exercise of benefit plan stock options 157 120
</TABLE>
The accompanying financial statements are an integral part of these consolidated
financial statements.
4
<PAGE> 6
NORRELL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
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 the
rules and regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual
Report on Form 10-K. The information furnished reflects all
adjustments which, in the opinion of management, are necessary for a
fair statement of the results of operations for the periods presented.
Such adjustments are of a normal recurring nature.
2. Acquisition
Effective January 2, 1997, the Company acquired all of the outstanding
common and preferred stock and all vested and unvested stock rights of
Comtex Information Systems, Inc. ("Comtex") for $67,000,000 of cash
plus stock options to acquire approximately 141,000 shares of Norrell
Corporation Common Stock at a weighted average exercise price of $4.56
per share.
Comtex is a New York City-based provider of information technology
services, including systems planning and development, organizational
consulting related to business transformation and staff augmentation
support. Comtex has locations in New York City, White Plains, New
York and Miami, Florida.
The acquisition, which was accounted for by the purchase method, was
financed with borrowings under the Company's revolving credit
facility.
The results of operations of Comtex are included in the statements of
income beginning January 2, 1997. At December 31, 1996, Comtex had
net assets of $10,066,000.
3. Long-Term Debt and Financial Instruments
Effective January 2, 1997, the Company amended its $95,000,000
unsecured revolving credit facility to increase available borrowings to
$150,000,000. In addition, the Company increased its available
borrowings under its unsecured lines of credit from $40,000,000 to
$50,000,000.
The Company also entered into four interest rate swap agreements
to reduce its exposure to fluctuations in interest rates. The
difference between fixed and variable interest amounts, calculated by
reference to agreed-upon notional principal amounts, is recognized as
an adjustment to interest expense over the life of the swaps. Two of
the four swaps are for notional principal amounts of $20,000,000 each;
the remaining two swaps are for notional principal amounts of
$12,000,000 and $8,000,0000. The company exchanges floating rates
based on LIBOR for a fixed rate of 6.43% at quarterly settlement
dates. The swap agreements terminate between November 2001 and
January 2002. At January 26, 1997, the total fair market value of the
swaps was $105,000.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING RESULTS FIRST QUARTER JANUARY 26, 1997 COMPARED TO FIRST QUARTER
JANUARY 28, 1996
Revenues increased 22.7%, or $52.0 million, to $281.2 million in 1997.
Staffing Services revenues grew 13.9% to $194.5 million, and accounted for
69.2% and 74.5% of total 1997 and 1996 period revenues, respectively. Staffing
Services volume, as measured by hours that staffing employees worked, increased
9.1% and prices rose 4.4% compared to 12.3% and 4.8%, respectively, for the
1996 period. Outsourcing Services revenues grew 16.6% to $55.5 million.
Outsourcing Services revenues from customers other than IBM increased $5.2
million from 1996 to $17.6 million. Effective January 2, 1997, the Company
added to its Professional Services Group by acquiring Comtex Information
Systems, Inc. ("Comtex"), which specializes in information technology services
including systems planning and development, organizational consulting related
to business transformation and staff augmentation support. Professional
Services revenues were $31.2 million in the 1997 period compared to $10.8
million in the 1996 period, a 187.6% increase.
Gross profit increased 23.2%, or $11.5 million, to $60.9 million in
1997. Gross margin (gross profit as a percent of revenues) increased from
21.6% in the 1996 period to 21.7% in the 1997 period. Staffing Services gross
margin decreased from 22.4% in 1996 to 21.4% in 1997. During the first quarter
of 1996, workers' compensation liability for the franchise division of Norrell
Services was adjusted to give effect to much better than expected loss
experience. The adjustment resulted in a reduction of $800,000 in cost of
services which added 0.4% to the 1996 period Staffing Services gross margin.
Without this adjustment, gross margin would have been 22.0% in the 1996 period.
The remaining decline of 0.6% was primarily the result of higher wage rates and
costs of services such as employee drug testing, pre-employment screening and
background checks which were not fully passed along to customers. Outsourcing
Services gross margin increased from 17.9% in 1996 to 18.1% in the 1997 period
due to the higher proportion of outsourcing contracts with non-IBM customers
which have higher margins. Professional Services gross margin increased from
25.3% in the 1996 period to 29.3% in the 1997 period. Margins increased as a
result of adding higher end information technology consulting services in the
1997 period through acquisition of ANATEC and Comtex. The 1996 period included
the results of ATR, which was accounted for as a pooling of interests, and
Financial Staffing.
Operating expenses increased 16.3%, or $6.4 million, primarily as a
result of acquisitions and the added costs of supporting organic growth.
Depreciation and amortization expense increased $727,000, or 60.9%, from the
1996 period due to the addition of desk top computers required by new
operations and support software. Operating expenses and depreciation and
amortization, as a percentage of revenues, declined from 17.8% in the 1996
period to 17.0% in the 1997 period as the Company experienced favorable
operating leverage.
Interest expense increased from $156,000 in the 1996 period to
$938,000 in the 1997 period as a result of borrowings to fund the purchase of
Comtex in January 1997, Accounting Resources, Inc. in November 1996 and
Analytical Technologies Inc. and ANATEC Canada, Inc. (collectively "ANATEC") in
July 1996.
Other expense increased from $235,000 in the 1996 period to $459,000
in the 1997 period as a result of higher losses from the Company's 50%
ownership in a joint venture to provide administrative outsourcing for health
care facilities.
The effective income tax rate declined from 38.5% during the 1996
period to 38.0% in the 1997 period.
Net income increased from $5.1 million in the 1996 period to $7.2
million in the 1997 period, a 40.8% increase. Earnings per share from
continuing operations rose to $.28 in the 1997 period from $.21 in the 1996
period.
6
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations in the 1997 period was $7.0 million compared
to cash provided of $15.6 million in the 1996 period. Included in the 1996
amount was $13.2 million provided by the gain from the December 1995 sale of
the Company's interest in its Atlanta headquarters building that was sold by
its joint venture owner. The Company had a 50% interest in the joint venture.
Concurrent with the sale, the Company extended its lease for office space in
the building for an additional seven years to now expire in 2007. The gain is
being deferred and amortized on a straight-line basis through July 2005, the
date on which landlord may terminate the lease, and is recorded as a reduction
in rent expense. The 1996 period included a decrease of $2.7 million in trade
accounts and notes receivable compared to an increase of $11.3 million in the
1997 period. The 1997 increase resulted from higher revenues in part as a
result of the acquisitions of Comtex, ANATEC and Accounting Resources, Inc.
Investing activities used cash of $75.2 million in the 1997 period
compared to cash used of $7.2 million in the 1996 period. The January 1997
purchase of Comtex and the November 1996 purchase of Accounting Resources, Inc.
resulted in cash uses of $59.5 million and $7.6 million, respectively, in the
1997 period. The 1997 and 1996 amounts included MIS development costs of $4.9
million and $2.9 million, respectively. In connection with its acquisition of
ANATEC, the Company is obligated to make an additional cash payment of up to
approximately $10.0 million if ANATEC'S gross profit for the twelve month
period ending December 31, 1996 exceeds a specified level. An agreement as to
the final payment has not been reached but is expected to be reached in the
second fiscal quarter of 1997.
At January 26, 1997, the Company had $116.5 million of total debt outstanding.
7
<PAGE> 9
(a) Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The following reports on Form 8-K filed for the period covered
under this quarterly filing are incorporated by reference.
Form 8-K report dated December 8, 1996, filed on December 20,
1996.
Form 8-K/A report dated December 8, 1996, filed on February
19, 1997.
8
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORRELL CORPORATION (REGISTRANT)
Date: February 26, 1997 By: /s/ C. Kent Garner
-----------------------------
C. Kent Garner
Vice President and Chief
Financial Officer
(On behalf of the Registrant
and as Chief Accounting Officer)
9
<PAGE> 1
EXHIBIT 11
NORRELL CORPORATION AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
January 26, January 28,
1997 1996
---- ----
<S> <C> <C>
INCOME AVAILABLE TO COMMON SHARES
PRIMARY:
Net income applicable to common stock $ 7,201 $ 5,114
======= =======
WEIGHTED AVERAGE SHARES
PRIMARY:
Common shares 23,720 23,270
Common share equivalents applicable to
stock options 2,012 1,504
------- -------
Total 25,732 24,774
======= =======
EARNINGS PER SHARE
PRIMARY:
Net income applicable to common stock $ 0.28 $ 0.21
======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11
NORRELL CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
January 26, January 28
1997 1996
<S> <C> <C>
INCOME AVAILABLE TO COMMON SHARES
FULLY DILUTED:
Net income applicable to common stock $ 7,201 $ 5,114
======= =======
WEIGHTED AVERAGE SHARES
FULLY DILUTED:
Common shares 23,720 23,270
Common share equivalents applicable to
stock options 2,145 1,310
------- -------
Total 25,865 24,580
======= =======
EARNINGS PER SHARE (A)
FULLY DILUTED:
Net income applicable to common stock $ 0.28 $ 0.21
======= =======
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778397
<NAME> NORRELL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> JAN-26-1997
<CASH> 12,761
<SECURITIES> 0
<RECEIVABLES> 165,708
<ALLOWANCES> 8,481
<INVENTORY> 0
<CURRENT-ASSETS> 188,957
<PP&E> 40,825
<DEPRECIATION> 26,093
<TOTAL-ASSETS> 363,949
<CURRENT-LIABILITIES> 107,338
<BONDS> 0
0
0
<COMMON> 239
<OTHER-SE> 108,258
<TOTAL-LIABILITY-AND-EQUITY> 363,949
<SALES> 281,234
<TOTAL-REVENUES> 281,234
<CGS> 0
<TOTAL-COSTS> 220,345
<OTHER-EXPENSES> 47,877
<LOSS-PROVISION> 479
<INTEREST-EXPENSE> 938
<INCOME-PRETAX> 11,615
<INCOME-TAX> 4,414
<INCOME-CONTINUING> 7,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,201
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
