<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
COMMISSION FILE NUMBER 0-23198
INTERIM SERVICES INC.
(Exact name of registrant in its charter)
DELAWARE 36-3536544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2050 SPECTRUM BOULEVARD
FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices, including zip code)
(954) 938-7600
(Registrant's telephone number, including area code)
------------------------------
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes ( x ) No ( )
The number of shares outstanding of the registrant's Common Stock, $.0l par
value, at May 1, 1996 was 11,545,394 shares.
<PAGE>
TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
March 29, 1996 and December 29, 1995 . . . . . . . . . . . . . 1
Consolidated Statements of Earnings (Unaudited)
Three Months Ended March 29, 1996 and March 31, 1995 . . . . . 2
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 29, 1996 and March 31, 1995 . . . . . . 3
Notes to Consolidated Financial Statements (Unaudited) . . . . . 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. . . . . . . . . . . . . . . . . 7
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 29,
1996 1995
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 813 $ 2,098
Receivables, less allowance for doubtful 137,649 129,861
accounts of $2,589 and $1,976
Insurance deposits 54,476 50,686
Other current assets 8,138 8,344
-------------- ---------------
TOTAL CURRENT ASSETS 201,076 190,989
INTANGIBLE ASSETS, NET 169,686 171,529
PROPERTY AND EQUIPMENT, NET 27,305 24,173
OTHER ASSETS 21,156 19,926
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$ 419,223 $ 406,617
-------------- ---------------
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 53,900 $ 54,727
Accounts payable and other accrued expenses 23,485 25,021
Accrued salaries, wages, and payroll taxes 31,267 27,045
Accrued insurance 46,664 43,206
Accrued income taxes 2,873 249
-------------- ---------------
TOTAL CURRENT LIABILITIES 158,189 150,248
LONG-TERM OBLIGATIONS 60,000 60,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
authorized-- 2,500,000 shares; none issued
or outstanding - -
Common stock, par value $.01 per share;
authorized-- 25,000,000 shares: issued and
outstanding-- 11,538,483 and 11,519,869
shares 115 115
Additional paid-in capital 80,366 79,950
Retained earnings 120,553 116,304
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 201,034 196,369
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$ 419,223 $ 406,617
-------------- ---------------
-------------- ---------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
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INTERIM SERVICES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------
MARCH 29, MARCH 31,
1996 1995
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<S> <C> <C>
Revenues from services $ 242,414 $ 173,517
Cost of services 171,871 122,080
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Gross profit 70,543 51,437
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Selling, general and administrative expenses 49,617 34,983
Licensee commissions 9,182 8,644
Amortization of intangibles 2,149 1,626
Interest expense 1,793 178
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62,741 45,431
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EARNINGS BEFORE TAXES 7,802 6,006
Income taxes 3,557 2,765
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NET EARNINGS $ 4,245 $ 3,241
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NET EARNINGS PER COMMON AND COMMON $ 0.36 $ 0.28
EQUIVALENT SHARES ------------- -------------
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WEIGHTED AVERAGE SHARES OUTSTANDING 11,852 11,633
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
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INTERIM SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
MARCH 29, MARCH 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,245 $ 3,241
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation and amortization 4,108 3,168
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables (7,802) (2,855)
Insurance deposits (3,791) (766)
Other current assets 206 (1,119)
Other assets (1,246) 741
Accounts payable and accrued expenses (1,423) (1,661)
Accrued salaries, wages and payroll taxes 4,223 1,479
Accrued insurance 3,458 957
Accrued income taxes 2,624 2,004
Other 4 42
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,606 5,231
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,063) (2,435)
Acquisitions, net of cash acquired (417) (3,025)
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NET CASH USED IN INVESTING ACTIVITIES (5,480) (5,460)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments)/Issuances of Notes Payable, net (827) 700
Proceeds from exercise of employee stock options 416 109
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NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (411) 809
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NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,285) 580
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,098 781
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 813 $ 1,361
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 931 $ 759
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Interest paid $ 1,910 $ 178
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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INTERIM SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of March 29, 1996, the Consolidated
Statements of Earnings for the quarters ended March 29, 1996 and March 31,
1995, and the Consolidated Statements of Cash Flows for the quarters ended
March 29, 1996 and March 31, 1995 have been prepared by the Company,
without audit. The Consolidated Balance Sheet as of December 29, 1995 was
derived from audited financial statements. 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 as of March 29, 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 or omitted. These consolidated financial
statements should be read in conjunction with the Company's Financial
Statements and notes thereto included in the Company's December 29, 1995
Annual Report to Shareholders.
2. Net earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
As of March 29, 1996, the Company has 11,538,483 shares of common stock
outstanding.
3. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation," which is effective for the Company beginning January
1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue
to apply Accounting Principles Board (APB) Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in our 1996 Form 10-K
and Annual Report.
4. On February 27, 1996, the Company entered into a merger agreement to
acquire all the outstanding shares of Brandon Systems Corporation
("Brandon"), for .88 shares of the Company's common stock for each share of
Brandon stock outstanding. Brandon provides supplemental staffing to
support data center operations, help desks, PC/LANs, client/server and
legacy systems. The merger is subject to approval by stockholders of both
companies and certain other conditions. The Proxy Statement, which
describes the proposed merger between Interim and Brandon, was declared
effective by the Securities and Exchange Commission and distributed to
shareholders on April 24, 1996. Shareholders' meetings are to take place
on May 23, 1996.
4
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 1 and 3,
respectively.
Working capital including effects of acquisitions increased from $40.7 million
at December 29, 1995 to $42.9 million at March 29, 1996. The working capital
ratio at March 29, 1996 was 1.3, the same as at December 29, 1995. The increase
in working capital is due to increases in receivables resulting from increased
service revenues and increases in insurance deposits, partially offset by
increases in accruals for salaries, wages, payroll taxes and insurance.
The Company's principal use of cash in the first quarter of 1996 was for capital
expenditures related to computer hardware and construction in progress for the
expansion of the Corporate Service Center. The Company believes that its
internally generated funds and lines of credit are sufficient to support
anticipated levels of growth.
RESULTS OF OPERATIONS
The following analysis of operations for the quarter ended March 29, 1996
compared to the quarter ended March 31, 1995 should be read in conjunction with
the Consolidated Statements of Earnings found on page 2.
Revenues from services increased 39.7% to $242.4 million from $173.5 million
last year. Revenues from services are generated primarily through two operating
divisions, Commercial and HealthCare. Commercial Division revenues increased
49.8% reflecting the significant acquisition activity in the Information
Technology (IT) service line, expansion of the On-Premise program and an
increase in the number of offices. IT represented approximately half of this
increase. HealthCare Division revenues increased 14.5% due to increases in
number of offices and expansion of the Occupational Health and Physicians
services.
Cost of services increased 40.8% to $171.9 million from $122.1 million last
year. Gross profit increased 37.1% to $70.5 million compared to $51.4 million a
year ago. The increases in cost of services and gross profit are associated
with the increase in revenues from services. Gross profit margin decreased to
29.1% from 29.6% last year principally due to the decline in franchise royalties
as a percent of total company revenue. Franchise royalties contribute 100% to
gross profit. Sales of company-owned offices are growing at a faster rate than
franchise sales principally due to acquisition activity and increased company-
owned On-Premise locations.
Selling, general and administrative expenses increased 41.8% to $49.6 million
from $35.0 million last year. Selling, general and administrative expenses
as a percentage of revenues from services were 20.5% compared to 20.2% a year
ago. Operating expenses continue to be negatively affected by our niche
operations, which produce higher gross margins but have corresponding higher
operating expenses.
5
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RESULTS OF OPERATIONS (Cont'd)
Licensee commissions increased 6.2% to $9.2 million compared to $8.6 million
last year. The increase in commissions is due to an increase in the number of
licensees during the period and to increased sales by existing licensees.
Net earnings for the quarter were up 31.0% to $4.2 million, or $.36 per share,
compared to $3.2 million, or $.28 per share last year, representing a 28.6%
increase in per share earnings. The weighted average number of shares
outstanding was 11,852,000 compared to 11,633,000 last year. The effective tax
rate was 45.6% compared to 46.0% last year. The decline in the effective tax
rate is due primarily to the fact that during these periods amortization of
certain non-deductible intangibles has remained relatively fixed while earnings
before taxes have increased at a greater rate.
OTHER MATTERS
On February 27, 1996, the Company entered into a merger agreement to acquire all
the outstanding shares of Brandon Systems Corporation ("Brandon"), for .88
shares of the Company's common stock for each share of Brandon stock
outstanding. Brandon provides supplemental staffing to support data center
operations, help desks, PC/LANs, client/server and legacy systems. The merger
is subject to approval by stockholders of both companies and certain other
conditions. The Proxy Statement, which describes the proposed merger between
Interim and Brandon, was declared effective by the Securities and Exchange
Commission and distributed to shareholders on April 24, 1996. Shareholders'
meetings are to take place on May 23, 1996.
6
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER EXHIBIT NAME NOTE
2.1 Agreement and Plan of Merger (1)
3.1 Restated Articles of Incorporation of Registrant (2)
3.2 By-Laws of Registrant (2)
4.1 Rights Agreement dated as of April 1, 1994, between Interim
Services and Boatmen's Trust Company (3)
4.2 Form of Certificate of Designations, Preferences and Rights
of Participating Preferred Stock of Interim Services (3)
4.3 Form of Stock Certificate (4)
10.1 Interim Services' 1993 Long-Term Executive Compensation Plan,
as amended (5)
10.2 Interim Services' 1993 Stock Option Plan for Outside
Directors, as amended (5)
10.3 Revolving Credit Agreement of Interim Services dated as of
April 6, 1994, as replaced by the Amended and Restated
Revolving Credit Agreement of Interim Services dated as of
June 2, 1995 (6)
10.4 Tax Sharing Agreement dated October 1993, by and between
H&R Block, Inc. and Interim Services (2)
10.5 Amendment No. 2 to Amended and Restated Credit Agreement
of Interim Services (7)
10.6 Indemnification Agreement dated January 1, 1994, by and
between Interim Services and H&R Block, Inc. (2)
10.7 Franchise/License Agreement dated July 12, 1993, by and
between Interim Services and Keco Health Care, Inc. (2)
10.8 Interim Services' 1994 Stock Option Plan for Franchisees,
Licensees and Agents, as amended (8)
10.9 Employment Agreement dated as of May 1, 1994, by and
between Interim Services and Ray Marcy (6)
10.10 Employment, Confidentiality, and Noncompetition Agreement
by and between Interim Services and Allan Sorensen (6)
11 Statement re: Computation of Per Share Earnings Page 9
27 Financial Data Schedule
7
<PAGE>
(1) This Exhibit is filed as an Exhibit to Interim Services' Proxy
Statement/Prospectus, dated April 24, 1996, and is incorporated herein by
reference.
(2) These Exhibits are filed as Exhibits to Interim Services' Form S-1,
Amendment No. 2, dated January 12, 1994, SEC Registration No. 33-71338, and are
incorporated herein by reference.
(3) These Exhibits are filed as Exhibits to Interim Services' Form 8-A, dated
April 11, 1994, SEC Registration No. 0-23198, and are incorporated herein by
reference.
(4) This Exhibit is filed as an Exhibit to Interim Services' Form 10-K for the
fiscal year ended March 25, 1994, and is incorporated herein by reference.
(5) These Exhibits are filed as Exhibits to Interim Services' definitive proxy
statement filed in connection with Interim Services' 1996 Annual Meeting, and
are incorporated herein by reference.
(6) These Exhibits are filed as Exhibits to Interim Services' Form 10-K for the
twelve month period ended December 30, 1994, and are incorporated herein by
reference.
(7) This Exhibit is filed as an Exhibit to Interim Services' Form 8-K dated
December 15, 1995, and is incorporated herein by reference.
(8) This Exhibit is filed as an Exhibit to Interim Services' Form S-8, as filed
with the SEC in July 1995, and is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
During the first quarter of the period covered by this Report, the Company
filed a Report on Form 8-K/A dated February 6, 1996 and received by the SEC on
February 9, 1996. The report was filed under Items 2 and 7 of Form 8-K and
contained certain audited and pro forma unaudited financial statements.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERIM SERVICES INC.
-----------------------
(Registrant)
DATE 5/13/96 BY /s/ Roy G. Krause
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Roy G. Krause
Executive Vice President
and Chief Financial Officer
DATE 5/13/96 BY /s/ Paul Haggard
------- ---------------------
Paul Haggard
Financial Vice President/Treasurer
10
<PAGE>
Exhibit 11
CALCULATION OF PRIMARY NET EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE AND PRO FORMA PRIMARY NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
MARCH 29, MARCH 31,
1996 1995
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<S> <C> <C>
Net earnings per common and common
equivalent share $ 4,245,000 $ 3,241,000
-------------- --------------
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Average number of shares outstanding -
primary:
Average number of common shares
outstanding 11,527,000 11,503,000
Dilutive effect of stock options after
application of treasury stock method 325,000 130,000
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Average number of shares outstanding 11,852,000 11,633,000
-------------- --------------
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Earnings per share:
Primary $ 0.36 $ 0.28
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</TABLE>
CALCULATION OF FULLY DILUTED NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE AND PRO FORMA PRIMARY NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
MARCH 29, MARCH 31,
1996 1995
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<S> <C> <C>
Net earnings per common and common
equivalent share $ 4,245,000 $ 3,241,000
-------------- --------------
-------------- --------------
Shares used in calculating primary earnings
per share:
Average number of common shares
outstanding fully-diluted 11,527,000 11,503,000
Additional effect of stock options after
application of treasury stock method 340,000 195,000
-------------- --------------
Average number of shares outstanding 11,867,000 11,698,000
-------------- --------------
-------------- --------------
Earnings per share:
Fully-diluted $ 0.36 $ 0.28
-------------- --------------
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</TABLE>
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
<CASH> 813
<SECURITIES> 0
<RECEIVABLES> 140,238
<ALLOWANCES> 2,589
<INVENTORY> 0
<CURRENT-ASSETS> 201,076
<PP&E> 58,195
<DEPRECIATION> 30,890
<TOTAL-ASSETS> 419,223
<CURRENT-LIABILITIES> 158,189
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 200,919
<TOTAL-LIABILITY-AND-EQUITY> 419,223
<SALES> 0
<TOTAL-REVENUES> 242,414
<CGS> 0
<TOTAL-COSTS> 171,871
<OTHER-EXPENSES> 9,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,793
<INCOME-PRETAX> 7,802
<INCOME-TAX> 3,557
<INCOME-CONTINUING> 4,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,245
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
