<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 26, 1997
COMMISSION FILE NUMBER 0-23198
INTERIM SERVICES INC.
(Exact name of registrant in its charter)
DELAWARE 36-3536544
(State or other jurisdiction of (IRS 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, $0.0l par
value, at October 24, 1997 was 39,541,597 shares.
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TABLE OF CONTENTS
PART I Financial Information
Item 1. Financial Statements Page
Consolidated Statements of Earnings
Quarter Ended September 26, 1997 and September 27, 1996
Nine Months Ended September 26, 1997 and September 27, 1996... 1
Consolidated Balance Sheets
September 26, 1997 and December 27, 1996....................... 2
Consolidated Statements of Cash Flows
Nine Months Ended September 26, 1997 and September 27, 1996.... 3
Notes to Consolidated Financial Statements........................ 4
Item 2.
Management's Discussion and Analysis of Results of Operations and
Financial Condition.............................................. 7
PART II Other Information
Item 4.
Matters Submitted to a Vote of Security Holders................. 10
Item 5.
Other Information................................................ 10
Proforma Condensed Consolidated Statements of Earnings
Item 6.
Exhibits and Reports on Form 8-K................................. 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM SERVICES INC.
CONSOLIDATED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
--------------------------- ----------------------------
QUARTER ENDED NINE MONTHS ENDED
--------------------------- ----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 455,770 $ 294,711 $1,195,388 $840,624
Cost of services 302,356 203,551 802,576 583,783
------------- ------------- ------------- -------------
Gross profit 153,414 91,160 392,812 256,841
------------- ------------- ------------- -------------
Selling, general and
administrative expenses 103,947 62,773 276,009 179,514
Licensee commissions 11,993 10,485 32,456 29,142
Amortization of intangibles 5,882 2,235 13,247 6,572
Interest expense 10,047 1,697 16,507 5,138
Gain on sale of healthcare business (5,300) - (5,300) -
Merger expense - - - 8,600
------------- ------------- ------------- -------------
126,569 77,190 332,919 228,966
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 26,845 13,970 59,893 27,875
Income taxes 14,798 6,143 29,399 14,905
------------- ------------- ------------- -------------
NET EARNINGS $ 12,047 $ 7,827 $ 30,494 $ 12,970
============= ============= ============= =============
NET EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES $ 0.30 $ 0.25 $ 0.76 $ 0.41
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 40,627 31,916 40,129 31,860
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
1
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INTERIM SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 26, DECEMBER 27,
1997 1996
------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,960 $ 18,938
Marketable securities - 7,499
Receivables, less allowance for doubtful
accounts of $4,831 and $3,023 242,895 186,732
Insurance deposits 22,769 32,794
Other current assets 35,907 18,301
------------- -----------
TOTAL CURRENT ASSETS 328,531 264,264
INTANGIBLE ASSETS, NET 675,411 174,747
PROPERTY AND EQUIPMENT, NET 60,995 49,795
OTHER ASSETS 20,628 23,684
------------- -----------
$ 1,085,565 $ 512,490
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 71,153 $ -
Accounts payable and other accrued expenses 72,521 27,092
Accrued salaries, wages and payroll taxes 73,588 40,948
Accrued insurance 26,205 26,782
Accrued income taxes 24,187 159
------------- -----------
TOTAL CURRENT LIABILITIES 267,654 94,981
LONG-TERM DEBT 369,322 -
DEFERRED TAX LIABILITY 3,161 2,798
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, 50,000,000 shares;
outstanding, 1997 - 39,427,031
and 1996 - 38,953,368 394 390
Treasury stock (460) (460)
Additional paid-in capital 255,488 251,041
Retained earnings 194,444 163,950
Cumulative translation adjustment (4,438) (210)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 445,428 414,711
------------- -----------
$ 1,085,565 $ 512,490
============== =============
See notes to consolidated financial statements.
2
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INTERIM SERVICES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
-----------------------
SEPT. 26, SEPT. 27,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 30,494 $ 12,970
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation and amortization 24,036 14,016
Deferred income taxes (3,325) (2,366)
Gain on sale of healthcare business (5,300) -
Changes in assets and liabilities, net of effect of
acquisitions:
Receivables (61,755) (37,798)
Insurance deposits 10,025 (2,593)
Other current assets (5,832) (2,224)
Other assets (15,538) (2,828)
Accounts payable and accrued expenses 14,718 6,610
Accrued salaries, wages and payroll taxes 29,771 10,299
Accrued insurance (633) 3,099
Accrued income taxes 2,446 (1,087)
Other 45 810
--------- --------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 19,152 (1,092)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (566,646) (6,365)
Proceeds from the sale of healthcare business, net 115,818 -
Capital expenditures (15,433) (22,145)
Net proceeds from sale of marketable securities 7,499 15,686
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (458,762) (12,824)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 542,227 8,673
Repayment of borrowings (98,483) -
Proceeds from exercise of employee stock options
and other 5,540 1,955
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 449,284 10,628
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (1,652) -
--------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 8,022 (3,288)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,938 4,025
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,960 $ 737
========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 18,057 $ 12,360
========= =======
Interest paid $ 12,689 $ 5,616
========= =======
See notes to consolidated financial statements.
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements of Interim Services Inc. and
subsidiaries (the "Company"), included herein, do not include all footnote
disclosures normally included in annual financial statements and, therefore,
should be read in conjunction with the Company's financial statements and
notes thereto for each of the three years in the period ended December 27,
1996 included in the Company's Annual Report on Form 10-K.
The interim consolidated financial statements for the nine months ended
September 26, 1997 are unaudited and, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary
for fair presentation of financial position, results of operations and cash
flows for such periods. Results for the nine months ended September 26, 1997
are not necessarily indicative of results to be expected for the full fiscal
year ending December 26, 1997.
2. Earnings Per Share
Net earnings per share are based on the weighted average number of shares
of common stock and common stock equivalents outstanding during each period.
Earnings per share assuming full dilution, is not materially different than
primary earnings per share. As of September 26, 1997, the Company had
39,427,031 shares of common stock outstanding. On August 7, 1997 the Company
announced a two-for-one stock split in the form of a 100% stock dividend, to
stockholders of record as of the close of business on August 18, 1997, payable
on September 5, 1997. The effect has been reflected in the accompanying
consolidated balance sheets and consolidated statements of earnings and has
been applied on a retroactive basis.
3. Acquisitions
On April 18, 1997, Interim Services PLC ("Interim UK"), a wholly-owned
subsidiary of the Company, acquired 74.8% of the outstanding ordinary share
capital of Michael Page Group, PLC ("Michael Page") pursuant to a tender
offer. When aggregated with the 17.3% ownership held by Interim UK as a
result of open market purchases made from the announcement of the tender
offer, Interim UK's holdings totaled approximately 92% of the outstanding
ordinary share capital of Michael Page. Subsequently, the remaining shares
were purchased to complete the transaction.
This acquisition was accounted for under the purchase method of accounting.
Accordingly, the operations of Michael Page are included in the
Consolidated Statement of Earnings from April 18, 1997. The excess of the
purchase price over the fair value of the net tangible assets acquired is
$512 million. This amount has been allocated to trademarks and goodwill
based upon a valuation performed for management. Both intangible assets are
being amortized over 40 years.
During 1997, the Company made certain other acquisitions that were accounted
for under the purchase method of accounting. Their operations are included in
the consolidated statements of earnings from the date of acquisition.
4
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The pro forma consolidated statement of earnings giving effect to
acquisitions consummated during 1997 as though they occurred at the beginning
of 1997 and 1996 are included in Item 5 of this filing.
4. Intangible Assets
intangible assets (in $000s):
September 26, 1997 December 27, 1996
------------------ -----------------
Goodwill, net $463,431 $173,638
Trademarks, net 211,529 87
Other intangible assets, net 451 1,022
-------- --------
$675,411 $174,747
-------- --------
-------- --------
5. Financing
The Company has available $536.0 million under a syndicated credit agreement
entered into as of May 1, 1997 and amended as of June 2, 1997. As of
September 26, 1997, amounts outstanding were $440.5 million of which $176.8
million is a term loan terminating in 2003 and the remainder is borrowed under
a revolving loan facility. The average interest rates for the nine months
ended September 26, 1997 and September 27, 1996 were 6.9% and 6.2%,
respectively.
The Company has entered into variable to fixed interest rate swap
agreements in the notional amount of $100 million as of September 26, 1997
which have been assigned to portions of these credit facilities. These
agreements have expiration dates between 2000 and 2002. Under these
agreements, the Company received an average variable rate of 5.8% and paid
an average fixed rate fo 6.2%. The Company also has variable to variable
interest rate swap agreements outstanding at September 26, 1997 with
notional amounts of $220.6 million, which effectively convert interest from a
LIBOR basis to a broader index and cap the Company's exposure to upward
movements in rates at 8.5 %. These agreements expire in 2002. Under these
agreements, the Company received an average variable rate of 6.3 % and paid
an average variable rate of 5.5 % during the nine months ended September
26, 1997. The cost to terminate these interest rate swaps as of September
26, 1997 was approximately $3.3 million.
6. Sale of Healthcare Business
On September 26, 1997 the Company completed the sale of its healthcare
business to Cornerstone Equity Investors IV, L.P. The Company received
$118.6 million in cash at closing, with the remainder of the $134.0 million
purchase price to be paid upon approval of the ownership transfer by the
State of New York. Accordingly, recognition of a portion of the gain on
sale has been postponed. The Company used the net proceeds received at the
closing to reduce the Company's outstanding debt under its existing credit
facilities.
The pro forma consolidated results of operations giving effect to this
transaction as though it occurred at the beginning of 1997 and 1996 are
included in Item 5 of this filing.
7. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share."
The statement is effective for financial statements for periods ending after
December 15, 1997, and changes the method in which earnings per share will
be determined. Adoption of this statement by the Company will not have a
material impact on earnings per share.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company
has not determined the effects, if any, that SFAS No. 130 will have on its
consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131
5
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establishes standards for the way that public companies
report selected information about operating segments in annual financial
statements and require that those companies report selected information about
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers and supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company has not determined the effects, if any, that SFAS No. 131 will have
on the disclosures in its consolidated financial statements.
6
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 26, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 27, 1996
Revenues increased to $455.8 million from $294.7 million last year. Revenues
were generated through two operating divisions, Commercial and HealthCare.
Commercial revenues increased 65.4% reflecting strong internal growth as well
as 1997 acquisitions including Michael Page Group PLC ("Michael Page"), an
international recruiting and staffing company, acquired in the second quarter,
and outplacement and search businesses acquired in the first quarter of 1997
("1997 Acquisitions"). Excluding the 1997 Acquisitions, revenues increased
25.1% reflecting strong growth in the Commercial Division's professional
services and traditional staffing businesses. The Commercial Division's
traditional staffing business grew significantly due to expansion of its
On-Premise program, an increase in the number of offices and increased
business in existing offices. HealthCare Division revenues increased 11.0%.
Gross profit increased 68.3% to $153.4 million compared with $91.2 million a
year ago. Gross profit margin increased to 33.7% from 30.9% last year. This
increase was principally due to the Michael Page acquisition and the
continued growth in the higher margin professional services businesses.
Professional services comprised 43% of total revenues in the third quarter of
1997 compared with 26% in the same period last year.
Selling, general and administrative expenses increased 65.6% to $103.9 million
from $62.8 million last year. Selling, general and administrative expenses as
a percentage of revenues were 22.8% compared with 21.3% a year ago. Operating
expenses increased due to the higher costs associated with the professional
services businesses. These higher gross margin businesses have higher operating
expenses than the Company's traditional personnel staffing businesses.
Licensee commissions increased 14.4% to $12.0 million from $10.5 million last
year. Licensee commissions as a percent of revenues decreased to 2.6% from 3.6%
due to licensee revenue becoming a smaller portion of overall revenue.
Amortization expense increased from $2.2 million to $5.9 million reflecting an
increase in intangible assets arising from the 1997 Acquisitions.
The effective tax rate for the third quarter of 1997 was 55.1% compared with
44.0% last year. The third quarter effective tax rate, excluding all effects
related to the sale of the healthcare business was 44.2%. The Company recorded
tax expense of approximately $5.3 million related to the sale of the healthcare
business.
Net earnings for the quarter ended September 26, 1997 were $12.0 million, or
$0.30 per share, compared with $7.8 million, or $0.25 per share last year. The
weighted average number of shares outstanding was 40,627,000 compared to
31,916,000 last year.
7
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NINE MONTHS ENDED SEPTEMBER 26, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
27, 1996
Revenues increased 42.2% to $1,195.4 million from $840.6 million last year.
Revenues are generated through two operating divisions, Commercial and
HealthCare. Commercial revenues increased 50.6% reflecting strong internal
growth as well as the 1997 acquisitions. Excluding the 1997 acquisitions,
revenues increased 23.2% reflecting strong growth rates in both the
Commercial Division's professional services and traditional staffing
businesses. The Commercial Division's traditional staffing business grew due
to expansion of its On-Premise program, an increase in the number of offices
and increased business in existing offices. HealthCare Division revenues
increased 10.1%.
Gross profit increased 52.9% to $392.8 million compared with $256.8 million a
year ago. Gross profit margin increased to 32.9% from 30.6% last year. This
increase was principally due to the Michael Page acquisition and the continued
growth in the higher margin professional services businesses. Professional
services comprised 39% of total revenues in the nine months ended September 26,
1997 compared with 27% in the same period last year.
Selling, general and administrative expenses increased 53.8% to $276.0 million
from $179.5 million last year. Selling, general and administrative expenses as
a percentage of revenues were 23.1% compared with 21.4% a year ago. Operating
expenses increased due to the higher costs associated with the professional
services businesses. These higher gross margin businesses have higher operating
expenses than the Company's traditional personnel staffing businesses.
Licensee commissions increased 11.4% to $32.5 million from $29.1 million last
year. Licensee commissions as a percent of revenues decreased to 2.7% from 3.5%
due to licensee revenue becoming a smaller portion of overall revenue.
Amortization expense increased from $6.6 million to $13.2 million reflecting an
increase in intangible assets arising from the 1997 Acquisitions.
The effective tax rate for the nine months ended September 26, 1997 was 49.1%
compared with 53.5% last year. The Company recorded tax expense of
approximately $5.3 million in 1997 related to the sale of the healthcare
business. Last year's high rate resulted from a large portion of the 1996
merger expense being nondeductible. The effective tax rates excluding these
non-recurring items were 44.2% and 43.7% for the nine months ended September
26, 1997 and September 27, 1996, respectively.
Net earnings for the nine months ended September 26, 1997 were $ 30.5 million,
or $0.76 per share, compared with $13.0 million, or $0.41 per share last year.
Exclusive of 1996 merger expenses, net earnings for the nine months ended were
up 48.6% compared with $20.5 million, or $0.64 per share last year, representing
an 18.8% increase in per share earnings. The weighted average number of shares
outstanding was 40,129,000 compared to 31,860,000 last year.
SALE OF HEALTHCARE BUSINESS
As previously announced, the Company completed the divestiture of its
HealthCare Division on September 26, 1997 and recognized a gain on the sale
of $5.3 million. As anticipated, due to unique regulation in the State of
New York, the New York portion of the HealthCare Division divestiture and the
recognition thereof in the financial statements, was postponed pending routine
8
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regulatory approval of the transfer of ownership. Approval is expected
during the first quarter of 1998. The Company received $118.6 million ($115.8
million net of cash sold) at closing with the remaining monies to be received
upon approval of the ownership transfer by the State of New York. The pro
forma impacts on the consolidated statement of earnings are included in Item
5 of this filing.
FINANCIAL CONDITION
Net cash provided by operating activities was $19.2 million in the first nine
months ended of 1997 compared with operating activities using $1.1 million in
1996. The increase in cash flow provided by operating activities was primarily
attributable to increased net earnings and higher depreciation and amortization.
Investing activities used cash of $458.8 million primarily due to the
acquisition of Michael Page partially offset by the proceeds from the sale of
the healthcare business. The Company and Interim UK obtained funds from
borrowings under a $675.0 million Credit Facility for the acquisition of Michael
Page. The Credit Facility currently consists of a revolving loan facility of
$359.2 million and a term loan of $176.8 million. Proceeds from the sale of the
healthcare business, net of transaction costs, cash acquired with Michael Page
and operating cash flow were used to reduce these borrowings leaving $440.5
million outstanding at September 26, 1997. The Company has $95.5 million
available for future borrowings under its revolving credit agreement.
The Company believes that its internally generated funds and lines of credit
are sufficient to support operating activities.
OTHER
In February 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share." The
statement is effective for financial statements for periods ending after
December 15, 1997, and changes the method in which earnings per share will be
determined. Adoption of this statement by the Company will not have a
material impact on earnings per share.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effects, if any, that SFAS No. 130
will have on its consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the
way that public companies report selected information about operating segments
in annual financial statements and require that those companies report selected
information about segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers and supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131
will have on the disclosures in its consolidated financial statements.
9
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PART II - OTHER INFORMATION
ITEM 4. - There were no matters submitted to a vote of security holders in the
quarter ended September 26, 1997.
ITEM 5. - Other Information.
The historical financial statements of earnings as filed in this Form 10Q
Item 1. reflect the operations of the acquisitions in 1997 from their
respective dates of acquisitions and include the results of operations of
the healthcare business that was sold on September 26, 1997.
Accordingly, the Combined Pro Forma Condensed Consolidated Statement of
Earnings of the Company, reflect the divestiture of its wholly owned
subsidiaries, IHI and IHNY (the "Healthcare Business"), and include
certain acquisitions consummated in 1997, including Michael Page Group
PLC ("Michael Page"), and Aim Executive Holdings, Inc., Interim
Accounting Professionals of San Diego, Interim Personnel of Yakima, Inc.,
Thompson and Thompson, Inc., Centex Personnel Pool, Inc., and Mainstream
Access, Inc., Interim Personnel of Hampton Roads, L.C., Employment
Connection of Duluth, Inc., Interim Personnel of Columbia, Inc., Interim
Personnel of Piedmont, Inc., Interim Personnel of the Upstate, Inc.,
Interim Personnel of Spartanburg, Inc., Interim Personnel of Wichita,
Inc., Interim Personnel of Sebring, Inc.,("Other Acquisitions") and are
filed herewith.
INTERIM SERVICES INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
The following pro forma condensed consolidated statements of earnings of the
Company for the nine months ended September 26, 1997 and September 27, 1996
are based on historical financial statements of the Company and have been
adjusted to reflect the acquisition of Michael Page and Other Acquisitions,
and the sale of the Company's Healthcare Business.
On September 26, 1997, Interim completed the sale of substantially all of its
healthcare business. The consummation of the sale of IHNY has been postponed
but is reflected in the following pro forma financial information as being
sold.
The pro forma condensed consolidated statements of earnings for the periods
ended September 26, 1997 and September 27, 1996 give effect to each of these
transactions as if such transactions had been completed as of December 28,
1996 and December 30, 1995, respectively.
The pro forma condensed consolidated financial information does not purport
to represent the actual financial position or results of operations of the
Company had the transactions assumed therein in fact occurred on the dates
specified, nor are they necessarily indicative of the results of operations
that may be achieved in the future. The pro forma condensed consolidated
financial information is based on certain assumptions and adjustments
described in the notes hereto and should be read in conjunction therewith.
10
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<TABLE>
<CAPTION>
INTERIM SERVICES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1997
------------------------------------------------------------------
ACQUISITIONS
-------------------------------------------------
HISTORICAL OTHER PRO FORMA
INTERIM MICHAEL PAGE a) ACQUISITIONS a) ADJUSTMENTS
------------ --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 1,195,388 $ 76,253 $ 25,200 $ (138) b)
Cost of services 802,576 38,213 15,717 (138) b)
----------- --------- -------- -----------
Gross Profit 392,812 38,040 9,483 -
----------- --------- -------- -----------
Selling, general and administrative expenses 276,009 25,073 6,764 536 c)
Licensee commissions 32,456 - - (536)c)
Amortization of intangibles 13,247 - - 3,948 d)
Interest expense 16,507 (964) - 13,455 e)
Gain on sale of healthcare business (5,300) - - -
Merger expense - 5,064 - (5,064)f)
----------- --------- -------- -----------
332,919 29,173 6,764 12,339
----------- --------- -------- -----------
Earnings before taxes 59,893 8,867 2,719 (12,339)
Income taxes 29,399 4,593 - (3,473)g)
----------- --------- -------- -----------
Net earnings $ 30,494 $ 4,274 $ 2,719 $ (8,866)
----------- --------- -------- -----------
----------- --------- -------- -----------
Net earnings per common and common
equivalant shares $ 0.76
-----------
-----------
Weighted average shares outstanding 40,129
-----------
-----------
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1997
-----------------------------------------------------------
PRO FORMA EFFECT
PRO FORMA OF HEALTHCARE
AFTER ACQUISITIONS BUSINESS DIVESTMENT PRO FORMA
------------------ ------------------- -------------
<S> <C> <C> <C>
Revenues $ 1,296,703 $ (189,589) h) $ 1,107,114
Cost of services 856,368 (113,050) h) 743,318
------------------ ------------------- -------------
Gross Profit 440,335 (76,539) 363,796
------------------ ------------------- -------------
Selling, general and administrative expenses 308,382 (61,094) h) 247,288
Licensee commissions 31,920 (597) h) 31,323
Amortization of intangibles 17,195 (1,812) h) 15,383
Interest expense 28,998 (5,288) i) 23,710
Gain on sale of healthcare business (5,300) 5,300 k) -
Merger expense - - -
------------------ ------------------- -------------
381,195 (63,491) 317,704
------------------ ------------------- -------------
Earnings before taxes 59,140 (13,048) 46,092
Income taxes 30,519 (9,414) j) 21,105
------------------ ------------------- -------------
Net earnings $ 28,621 $ (3,634) $ 24,987
------------------ ------------------- -------------
Net earnings per common and common
equivalant shares $ 0.62
-------------
Weighted average shares outstanding 40,129
-------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INTERIM SERVICES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1996
---------------------------------------------------------------
ACQUISITIONS
-------------------------------------------------
HISTORICAL OTHER PRO FORMA
INTERIM MICHAEL PAGE a) ACQUISITIONS a) ADJUSTMENTS
----------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 840,624 $ 160,289 $ 37,415 $ (319) b)
Cost of services 583,783 78,794 22,515 (319) b)
----------- ---------- --------- -------------
Gross Profit 256,841 81,495 14,900 -
----------- ---------- --------- -------------
Selling, general and administrative expenses 179,514 44,305 12,245 1,478 c)
Licensee commissions 29,142 - - (1,478) c)
Amortization of intangibles 6,572 - - 10,339 d)
Interest expense 5,138 (1,712) - 29,200 e)
Merger expense 8,600 - - - f)
---------- ---------- --------- -------------
228,966 42,593 12,245 39,539
----------- ---------- --------- -------------
Earnings before taxes 27,875 38,902 2,655 (39,539)
Income taxes 14,905 13,795 - (9,953) g)
----------- ---------- --------- -------------
Net earnings $ 12,970 $ 25,107 $ 2,655 $ (29,586)
=========== ========= ========= ===============
Net earnings per common and common
equivalant shares $ 0.41
----------
Weighted average shares outstanding 31,860
==========
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1996
-------------------------------------------------------
PRO FORMA EFFECT
PRO FORMA OF HEALTHCARE
AFTER ACQUISITIONS BUSINESS DIVESTMENT PRO FORMA
------------------ ------------------- --------------
<S> <C> <C> <C>
Revenues $ 1,038,009 $ (172,327) h) $ 865,682
Cost of services 684,773 (101,802) h) 582,971
------------------ ------------------- --------------
Gross Profit 353,236 (70,525) 282,711
------------------ ------------------- --------------
Selling, general and administrative expenses 237,542 (53,007) h) 184,535
Licensee commissions 27,664 (641) h) 27,023
Amortization of intangibles 16,911 (1,665) h) 15,246
Interest expense 32,626 (5,916) i) 26,710
Merger expense 8,600 - 8,600
------------------ ------------------- --------------
323,343 (61,229) 262,114
------------------ ------------------- --------------
Earnings before taxes 29,893 (9,296) 20,597
Income taxes 18,747 (4,836) j) 13,911
------------------ ------------------- --------------
Net earnings $ 11,146 $ (4,460) $ 6,686
================== =================== ==============
Net earnings per common and common
equivalant shares $ 0.21
-------------
Weighted average shares outstanding 31,860
=============
See notes to pro forma condensed consolidated financial information
</TABLE>
12
<PAGE>
INTERIM SERVICES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
a) Reflects the historical financial statements of the acquired companies.
Michael Page's financial statements have been adjusted for differences
between U.S. and U.K. Generally Accepted Accounting Principles. Michael
Page's statement of income has been translated into U.S. dollars using
average exchange rates for the period.
b) To eliminate royalties as a result of the repurchase of Interim franchises.
c) To eliminate licensee commissions as a result of the repurchase of several
Interim license operations.
d) To reflect amortization of goodwill and other intangibles generated by the
acquisitions on a straight-line basis over a weighted average life of 40
years.
e) To reflect the pro forma effect of interest on the additional borrowings
used to fund the acquisitions. Interest on the credit facilities is
computed at LIBOR plus 85 basis points.
f) To eliminate one-time costs incurred by Michael Page related to it being
acquired by the Company.
g) To reflect the aggregate tax benefit associated with the pro forma
adjustments to the statement of earnings.
h) To eliminate the results of operations of the healthcare business. A
portion of the eliminated selling, general and administrative costs
reflect corporate expenses that have been transferred to the healthcare
business or that will be eliminated. These corporate expenses reflect
management's best estimate of the costs no longer expected to be incurred
by Interim subsequent to the disposition of the healthcare business.
i) To reduce interest expense due to the reduction of debt from cash flows
generated from the sale of the healthcare business.
j) To reflect the aggregate tax benefit of eliminating the healthcare
business, taxes on the gain, and reducing borrowings.
k) To eliminate gain on the sale of the healthcare business.
13
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT NAME
- ---------- ---------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the registrant, as
amended September 12, 1996, filed as Exhibit 3.1 to the
registrant's Form 10-Q for the quarter ending September 27,
1996, is incorporated herein by reference.
3.2 By-Laws of registrant, as amended, filed as Exhibit 3.2 to the
registrant's Form 10-Q for the quarter ending September 27,
1996, are incorporated herein by reference.
4.1 Form of Stock Certificate, filed as Exhibit 4.3 to the
registrant's Form 10-K for the fiscal year ended December 27,
1996, is incorporated herein by reference.
4.2 Rights Agreement dated as of March 17, 1994 between the
registrant and Boatmen's Trust Company, filed as Exhibit 1.1 to
the registrant's Form 8-A filed April 11, 1994, is incorporated
herein by reference
4.3 Certificate of Designation, Preferences and Rights filed with
the Secretary of State of the State of Delaware, filed as
Exhibit 2.1 to the registrant's Form 8-A filed April 11, 1994,
is incorporated herein by reference.
4.4 Amendment No. 1 to Rights Agreement dated June 26, 1996 between
the registrant, Boatmen's Trust Company and ChaseMellon
Shareholder Services L.L.C., filed as Exhibit 4.1(A) to the
registrant's Form 10-Q for the quarter ended September 27, 1996,
is incorporated herein by reference.
4.5 Amendment No. 2 to Rights Agreement dated February 25, 1997
between the registrant and ChaseMellon Shareholder Services
L.L.C., filed as Exhibit 4.1(B) to the registrant's Form 10-Q
for the quarter ended March 28, 1997, is incorporated herein by
reference
4.6 Articles Fourth, Fifth, Seventh, Eighth and Tenth of the
Restated Certificate of Incorporation of the registrant, as
amended September 12, 1996, filed as part of Exhibit 4.4 to the
registrant's Form 10-K for the fiscal year ended December 27,
1996, are incorporated herein by reference.
4.7 Sections Four through Twelve and Thirty-Five through Forty-One
of the Bylaws of the registrant, as amended, filed as part of
Exhibit 4.2 to registrant's Form S-3 filed September 16, 1996,
are incorporated herein by reference.
10.1 1993 Long Term Executive Compensation Plan, as amended, filed as
Exhibit A to the registrant's Proxy Statement dated March 28,
1996, is incorporated herein by reference.
10.2 1993 Stock Option Plan for Outside Directors, as amended, filed
as Exhibit B to the registrant's Proxy Statement dated March 28,
1996, is incorporated herein by reference.
14
<PAGE>
EXHIBIT
NUMBER EXHIBIT NAME
- ---------- ---------------------------------------------------------------
10.3 1994 Stock Option Plan for Franchisees, Licensees and Agents, as
amended, filed as Exhibit 10.4A to the registrant's Form S-3,
filed on July 12, 1995, is incorporated herein by reference.
10.4 Tax Sharing Agreement dated October 1993, by and between H&R
Block, Inc. and Interim Services Inc. filed as Exhibit 10.5 to
the registrant's Form S-1 dated November 5, 1993, is
incorporated herein by reference.
10.5 Indemnification Agreement dated January 1, 1994, by and between
Interim Services Inc. and H&R Block, Inc., filed as Exhibit 10.8
to the registrant's Form S-1 dated November 5, 1993, is
incorporated herein by reference.
10.6 Employment Agreement dated as of May 1, 1994, by and between
Interim Services Inc. and Raymond Marcy, filed as Exhibit 10(L)
to the registrant's Form 10-K for the fiscal year ended December
30, 1994, is incorporated herein by reference.
10.7 Amendment No. 2 dated November 28, 1995 to Amended and Restated
Revolving Credit Agreement of Interim Services Inc. dated as of
June 2, 1995, filed as Exhibit 10.2 to the registrant's Form 8-K
dated December 15, 1995, is incorporated herein by reference.
10.8 Second Amended and Restated Credit Agreement of Interim
Services dated as of January 15, 1997, filed as Exhibit 10.3 to
the registrant's Form 10-Q for the quarter ending March 28,
1997, is incorporated herein by reference.
15
<PAGE>
EXHIBIT
NUMBER EXHIBIT NAME
- ---------- ---------------------------------------------------------------
10.9 Credit Agreement between Interim Services Inc. and NationsBank
dated as of May 1, 1997, filed as Exhibit 10.11 to the
registrant's Form 10-Q for the quarter ending March 28, 1997, is
incorporated herein by reference.
10.10 Recommended Cash Offer dated March 14, 1997, by J.P. Morgan on
behalf of Interim Services (UK) PLC, a wholly-owned subsidiary
of Interim Services Inc., for Michael Page Group PLC filed as
Exhibit 10.12 to the registrant's Form 10-Q for the quarter
ending June 27, 1997, is incorporated herein by reference.
10.11 Interim Services Inc. 1997 Long Term Executive Compensation and
Outside Directors Stock Option Plan, filed as Exhibit I to the
registrant's Proxy Statement dated April 10, 1997, is
incorporated herein by reference.
10.12 Interim Services Inc. Incentive Plan for 162(m) Executives,
filed as Exhibit III to the registrant's Proxy Statement dated
April 10, 1997, is incorporated herein by reference.
10.13 Restated Stock Purchase Agreement, dated September 26, 1997
among Interim Services Inc., Catamaran Acquisition Corp. and
Cornerstone Equity Investors IV, L.P., filed as Exhibit 2.1 to
the registrant's Form 8-K dated September 26, 1997 and filed
October 13, 1997, is incorporated herein by reference.
10.14 The Deferred Compensation Plan of Interim Services Inc., filed
as Exhibit 4.1 to the registrant's Form S-8 filed on July 23,
1997, is incorporated herein by reference.
*10.15 The Interim Services Inc. Outside Directors Compensation Plan is
filed herewith as Exhibit 10.15.
*11. Statement re: Computation of Per Share Earnings is filed
herewith as Exhibit 11.
*27. Financial Data Schedule is filed herewith as Exhibit 27.
- ---------------------
*Filed as an Exhibit to this Form
(b) Reports on Form 8-K
Report on Form 8-K dated June 29, 1997 was received by the SEC on July 11,
1997. The Report was filed under Item 5 of Form 8-K.
During the period covered by this report, the registrant filed a Report on
Form 8-K dated August 7, 1997 and received by the SEC on August 12, 1997.
The Report was filed under Item 5 of Form 8-K
During the period covered by this report, the Company filed a Report on
Form 8-K dated September 26, 1997 and received by the SEC on October 13,
1997. The Report was filed under Item 2 of Form 8-K.
16
<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 - November 10, 1997 BY /s/ Roy G. Krause
----------------------------
Roy G. Krause
Executive Vice President
and Chief Financial Officer
DATE - November 10, 1997
BY /s/ Mark W. Smith
------------------------------
Mark W. Smith
Vice President, Finance
<PAGE>
INTERIM SERVICES INC.
OUTSIDE DIRECTORS' COMPENSATION PLAN
The annual retainer payable to each outside director (presently $17,500.)
shall be determined by the Board of Directors at the regularly scheduled
meeting of the directors coinciding with the annual meeting of the
shareholders of the Company, and such annual retainer shall be effective for
the twelve month period commencing on the next July 1st.
Effective October 1, 1996, the annual retainer payable to outside directors
of the Company shall be payable in the form of shares of the Company's Common
Stock, in lieu of cash.
The number of shares distributable to each outside director in payment of the
director's annual retainer shall be equal to the number of shares determined
by dividing the annual retainer amount by the closing price of the Company's
common stock on the date of the annual shareholder's meeting, rounded up to
the next highest even number; provided, however, that the number of shares
distributable to each outside director on October 1, 1996, the effective date
of this plan, shall be determined by dividing $13,125 by the closing price of
the Company's stock on October 1, 1996.
Attendance at meetings of the directors shall be compensated at the rate of
$2,000. per meeting, payable in cash. Attendance at board committee
meetings, in person or by telephone, shall be compensated at the rate of
$1,000. per meeting, payable in cash.
This Plan shall remain in effect until amended or terminated by the Board of
Directors.
18
<PAGE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Both primary and fully-diluted earnings per share are computed by dividing
earnings available to common shares by the weighted average number of common
and common equivalent shares outstanding during the period.
For purposes of computing primary earnings per share, common equivalent shares
include the average number of common shares issuable upon the exercise of all
employee stock options plus the effect of treasury shares purchasable with the
assumed proceeds at the average stock price, if dilutive.
For purposes of computing fully-diluted earnings per share, common equivalent
shares are computed on a basis comparable to that for primary earnings per
share, except that common shares are assumed to be purchased with proceeds at
the market price at the end of the period, if dilutive.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> JUN-28-1997
<PERIOD-END> SEP-26-1997
<CASH> 26,960
<SECURITIES> 0
<RECEIVABLES> 247,726
<ALLOWANCES> 4,831
<INVENTORY> 0
<CURRENT-ASSETS> 328,531
<PP&E> 106,806
<DEPRECIATION> 45,811
<TOTAL-ASSETS> 1,085,565
<CURRENT-LIABILITIES> 267,654
<BONDS> 0
0
0
<COMMON> 394
<OTHER-SE> 445,034
<TOTAL-LIABILITY-AND-EQUITY> 1,085,565
<SALES> 0
<TOTAL-REVENUES> 1,195,388
<CGS> 0
<TOTAL-COSTS> 802,576
<OTHER-EXPENSES> 32,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,507
<INCOME-PRETAX> 59,893<F1>
<INCOME-TAX> 29,399<F1>
<INCOME-CONTINUING> 30,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,494
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
<FN>
<F1>Includes gain on the sale of healthcare business of $5,300 pretax
and taxes of $5,272.
</FN>
</TABLE>
