INTERIM SERVICES INC, 10-Q, 1998-11-03

INTERIM SERVICES INC
10-Q, 1998-11-03
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<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 25, 1998

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 26, 1998 was 47,325,854 shares.

<PAGE>

TABLE OF CONTENTS

PART I Financial Information
<S> <C> <C>
Item 1. Financial Statements Page

Consolidated Statements of Earnings
Three Months Ended September 25, 1998 and September 26, 1997
Nine Months Ended September 25, 1998 and September 26, 1997 . . . . . . . . 1

Consolidated Balance Sheets
September 25, 1998 and December 26, 1997. . . . . . . . . . . . . . . . . . 2

Consolidated Statements of Cash Flows
Nine Months Ended September 25, 1998 and September 26, 1997 . . . . . . . . 3

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 4

Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

PART II Other Information

Item 4. Matters Submitted to a Vote of Security Holders. . . . . . . . . . . . . 10

Item 5. Other Information
Pro forma Condensed Consolidated Statement of Earnings. . . . . . . . . . . 10

Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 13

</TABLE>
<PAGE>

Item 1. Financial Statements

<TABLE>

INTERIM SERVICES INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited, amounts in thousands, except per share amounts)

THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------- ------------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 498,051 $ 455,770 $ 1,375,864 $ 1,195,388
Cost of services 330,465 302,356 910,739 802,576
--------------- -------------- ------------- ------------
Gross profit 167,586 153,414 465,125 392,812
--------------- -------------- ------------- ------------
Selling, general and administrative expenses 112,897 103,947 317,389 276,009
Licensee commissions 13,278 11,993 37,630 32,456
Amortization of intangibles 5,659 5,882 16,542 13,247
Interest expense 7,715 10,305 23,515 17,248
Interest income (2,732) (258) (3,980) (741)
Gain on sale of HealthCare Business -- (5,300) -- (5,300)
--------------- -------------- ------------- ------------
136,817 126,569 391,096 332,919
--------------- -------------- ------------- ------------
Earnings before income taxes and extraordinary item 30,769 26,845 74,029 59,893
Income taxes 13,748 14,798 32,869 29,399
--------------- -------------- ------------- ------------
Earnings before extraordinary item 17,021 12,047 41,160 30,494
Extraordinary item - early extinguishment of debt, net
of income taxes -- -- 2,773 --
--------------- -------------- ------------- ------------
Net earnings $ 17,021 $ 12,047 $ 38,387 $ 30,494
--------------- -------------- ------------- ------------
--------------- -------------- ------------- ------------
Basic earnings per share:
Earnings before extraordinary item $ 0.36 $ 0.31 $ 0.95 $ 0.78
Extraordinary item -- -- (0.06) --
--------------- -------------- ------------- ------------
Net earnings $ 0.36 $ 0.31 $ 0.89 $ 0.78
--------------- -------------- ------------- ------------
--------------- -------------- ------------- ------------
Diluted earnings per share:
Earnings before extraordinary item $ 0.35 $ 0.30 $ 0.93 $ 0.76
Extraordinary item -- -- (0.06) --
--------------- -------------- ------------- ------------
Net earnings $ 0.35 $ 0.30 $ 0.87 $ 0.76
--------------- -------------- ------------- ------------
--------------- -------------- ------------- ------------
Basic weighted average shares outstanding 47,254 39,393 43,209 39,205
--------------- -------------- ------------- ------------
--------------- -------------- ------------- ------------
Diluted weighted average shares outstanding 53,540 40,627 46,590 40,129
--------------- -------------- ------------- ------------
--------------- -------------- ------------- ------------
</TABLE>
See notes to Consolidated Financial Statements.

<PAGE>

<TABLE>
INTERIM SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

(unaudited)
SEPTEMBER 25, DECEMBER 26,
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 168,564 $ 15,570
Receivables, less allowance for doubtful
accounts of $7,774 and $5,229 307,462 230,947
Insurance deposits 25,891 23,974
Other current assets 46,301 37,610
-------------- -------------
TOTAL CURRENT ASSETS 548,218 308,101
Goodwill, net 562,768 475,656
Tradenames and Other Intangibles, net 217,955 219,472
Property and Equipment, net 77,286 65,475
Other Assets 29,665 23,030
-------------- -------------
$ 1,435,892 $ 1,091,734
-------------- -------------
-------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 15,564 $ 33,827
Accounts payable and other accrued expenses 100,363 77,104
Accrued salaries, wages and payroll taxes 104,152 74,641
Accrued self-insurance losses 33,065 28,466
Accrued income taxes 16,597 20,853
-------------- -------------
TOTAL CURRENT LIABILITIES 269,741 234,891
Long-Term Debt 436,381 379,197
Deferred Tax Liability 6,020 4,054
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, 100,000,000 shares;
outstanding, 47,287,895 and 39,745,761 shares 473 397
Additional paid-in capital 466,243 260,067
Retained earnings 244,848 206,461
Cumulative translation adjustment 12,186 6,667
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 723,750 473,592
-------------- -------------
$ 1,435,892 $ 1,091,734
-------------- -------------
-------------- -------------
</TABLE>
See notes to Consolidated Financial Statements.

<PAGE>
<TABLE>
INTERIM SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in thousands)

NINE MONTHS ENDED
-------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings before extraordinary item $ 41,160 $ 30,494
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation and amortization 33,018 24,036
Deferred income tax benefit (2,078) (3,325)
Gain on Sale of HealthCare Business -- (5,300)
Changes in assets and liabilities, net of effect of acquisitions:
Receivables (56,813) (61,755)
Other assets (13,009) (11,345)
Accounts payable and accrued liabilities 33,277 46,302
Other 261 45
------------- -------------
Net Cash Provided by Operating Activities 35,816 19,152
------------- -------------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired (90,997) (566,646)
Capital expenditures (25,450) (15,433)
Net proceeds from sale of marketable securities -- 7,499
Proceeds from the sale of HealthCare Business, net -- 115,818
------------- -------------
Net Cash Used in Investing Activities (116,447) (458,762)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from debt 207,802 542,227
Debt repayments (180,505) (98,483)
Net proceeds from common stock offering 197,140 --
Proceeds from exercise of employee stock options and other 9,188 3,888
------------- -------------
Net Cash Provided by Financing Activities 233,625 447,632
------------- -------------
Increase in cash and cash equivalents 152,994 8,022
Cash and cash equivalents, beginning of period 15,570 18,938
------------- -------------
Cash and cash equivalents, end of period $ 168,564 $ 26,960
------------- -------------
------------- -------------
</TABLE>
See notes to Consolidated Financial Statements.

<PAGE>

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 26,
1997 included in the Company's Annual Report on Form 10-K.

The interim consolidated financial statements for the three and nine months
ended September 25, 1998 and 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. Certain
reclassifications have been made to the prior year's financial statements to
conform with the 1998 presentation. Results for the three and nine months
ended September 25, 1998 are not necessarily indicative of results to be
expected for the full fiscal year ending December 25, 1998.

2. Comprehensive Income

Comprehensive income, which totaled $25.8 million and $2.5 million for the
three months ended September 25, 1998 and September 26, 1997, respectively,
is comprised of net earnings of $17.0 million and $12.0 million,
respectively, and foreign currency translation adjustments of $8.8 million
and ($9.5 million), respectively.

Comprehensive income, which totaled $43.9 million and $26.3 million for the
nine months ended September 25, 1998 and September 26, 1997, respectively,
is comprised of net earnings of $38.4 million and $30.5 million,
respectively, and foreign currency translation adjustments of $5.5 million
and ($4.2 million), respectively.

3. Earnings Per Share

Basic earnings per share is computed by dividing the Company's earnings by
the weighted average number of shares outstanding during the period.

Diluted earnings per share is computed by dividing the Company's earnings by
the weighted average number of shares outstanding and the dilutive impact of
common stock equivalents, primarily stock options and convertible
subordinated notes. The dilutive impact of stock options is determined by
applying the treasury stock method and the dilutive impact of the
convertible subordinated notes is determined by applying the "if converted"
method.

The following table reconciles the numerator (earnings) and denominator
(shares) of the basic and diluted earnings per share computations for
earnings before extraordinary item.

<PAGE>

THREE MONTHS ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

----------------------------------------------------------------------------------------
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997
------------------------------------------ ------------------------------------------
EARNINGS EARNINGS
BEFORE PER- BEFORE PER-
EXTRAORDINARY SHARE EXTRAORDINARY SHARE
ITEM SHARES AMOUNT ITEM SHARES AMOUNT
------------- --------- ---------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 17,021 47,254 $ 0.36 $ 12,047 39,393 $ 0.31
---------- ----------
---------- ----------

Effect of Dilutive Securities:
Stock options -- 737 -- 1,234
Convertible subordinated notes 1,501 5,549 -- --
------------- -------- --------------- ---------
Diluted EPS $ 18,522 53,540 $ 0.35 $ 12,047 40,627 $ 0.30
------------- --------- ---------- --------------- -------- ----------
------------- --------- ---------- --------------- -------- ----------

NINE MONTHS ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Basic EPS $ 41,160 43,209 $ 0.95 $ 30,494 39,205 $ 0.78
---------- ----------
---------- ----------

Effect of Dilutive Securities:
Stock options -- 925 -- 924
Convertible subordinated notes 1,957 2,456 -- --
------------- -------- --------------- ---------
Diluted EPS $ 43,117 46,590 $ 0.93 $ 30,494 40,129 $ 0.76
------------- --------- ---------- --------------- -------- ----------
------------- --------- ---------- --------------- -------- ----------

</TABLE>

4. Subsequent Event

On October 1, 1998, the Company announced a cash tender offer to purchase all
of the outstanding shares of Computer Power Group Limited, the leading
provider of information technology services in Australia, for approximately
$120 million, valued at the exchange rate on the date of the announcement.
The Company expects to complete the tender offer by the end of 1998.

<PAGE>

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 26, 1997

REVENUES. Revenues in the three months ended September 25, 1998 increased
9.3% to $498.1 million from $455.8 million in the prior year. Excluding revenues
from the Company's former HealthCare Business ("HealthCare"), which was sold at
the end of the third quarter 1997, revenues increased 27.0% from $392.0 million.
Professional Services revenues increased 34.6% reflecting strong internal
growth, primarily in Information Technology ("IT") services and financial
staffing and placement, both in the United States and Europe. Several smaller
acquisitions in the first and third quarters of 1998 also contributed to this
revenue growth. Commercial Staffing revenues increased 19.2% reflecting the
continued expansion of the Interim On-Premise program; increased demand for
traditional commercial staffing services; and the acquisition of Crone Corkill
Group, PLC, a UK-based Commercial Staffing company in March 1998 and AGO
Uitzendbureau in The Netherlands in July 1998.

GROSS PROFIT. Gross profit increased 9.2% to $167.6 million from $153.4
million a year ago. Gross profit margin was 33.6% compared with 33.7% last
year. Excluding HealthCare, gross profit margin was 32.6% last year. Higher
margins, excluding HealthCare, were principally due to an increase in the amount
of Professional Services revenues as a percentage of total revenues.
Professional Services generate higher gross profit rates than Commercial
Staffing. Excluding HealthCare, Professional Services revenue represented
52.6% of 1998 total revenue compared with 49.4% of total revenue in 1997.
Other factors contributing to the increase in the gross profit rate include
higher pricing in IT, growth in Interim Career Consulting and a 43.3% increase
in placement revenues compared with the three months ended September 26, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 8.6% to $112.9 million from $103.9 million in
the prior year period. Selling, general and administrative expenses as a
percentage of revenues were 22.7% compared with 22.8% a year ago.

LICENSEE COMMISSIONS. Licensee commissions increased 10.7% to $13.3 million
from $12.0 million in the prior year period. Licensee commissions as a
percentage of total revenues increased slightly to 2.7% from 2.6%.

AMORTIZATION OF INTANGIBLES. Amortization expense decreased slightly to $5.7
million from $5.9 million in the prior year period due primarily to the
divestiture of the HealthCare Business in September 1997.

INTEREST EXPENSE. Interest expense decreased to $7.7 million from $10.3
million last year, primarily due to the repayment of borrowings under the
Company's existing credit facilities in June 1998. The Company had average
borrowings outstanding during the third quarter of 1998 of $459.1 million at an
average rate of interest, including the effects of interest rate swaps, of 6.7%
compared with $562.1 million outstanding during the third quarter of 1997 at an
average rate of interest of 7.3%.

INTEREST INCOME. Interest income increased to $2.7 million from $0.3 million
last year, primarily due to the investment of proceeds from the Company's common
stock and notes offerings in May 1998.

GAIN ON SALE OF HEALTHCARE BUSINESS. The gain on sale of HealthCare Business
of $5.3 million for the three months ended September 26, 1997 resulted from the
divestiture of the Company's HealthCare Business in the third quarter of 1997.
The pro forma consolidated results of operations for the nine months ended
September 26, 1997, giving effect to this transaction, as well as the
acquisition of Michael Page and other acquisitions, as though such events
occurred as of December 27, 1996, are included in Item 5 of this filing. The
Company consummated the sale of the remaining portion of its HealthCare
Business, Interim HealthCare of New York, Inc. in October 1998. As such, the
Company reflected this remaining HealthCare operation as sold at September 25,
1998. The sale did not have a material impact on results of operations.

<PAGE>

TAXES ON EARNINGS. The effective tax rate for the third quarter of 1998 was
44.7% compared with 55.1% last year. The effective tax rate in 1997 includes an
approximate 100% effective rate on the $5.3 million HealthCare Business sale
gain due to a lower tax basis than book basis in this business. Excluding the
impact of the HealthCare gain, the effective rate in 1997 was 44.2%. The higher
1998 effective tax rate compared with the 1997 effective rate, excluding the
HealthCare gain, resulted from increased foreign earnings as a percentage of
total earnings.

NET EARNINGS. Net earnings for the quarter increased 41.3% to $17.0 million
($0.35 per diluted share), from $12.0 million ($0.30 per diluted share) in the
prior year period. This represents a 16.7% increase in per share earnings.
The weighted average number of shares (as adjusted for the dilutive impact of
common stock equivalents) increased to 53,540,000 from 40,627,000 in the prior
year, primarily due to the issuance of 7.0 million shares of common stock and
$207.0 million of convertible subordinated debt in the second quarter of 1998.

NINE MONTHS ENDED SEPTEMBER 25, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 26, 1997

REVENUES. Revenues in the nine months ended September 25, 1998 increased
15.1% to $1.4 billion from $1.2 billion in the prior year period. Excluding
revenues from the Company's former HealthCare Business, which was sold at the
end of the third quarter 1997, revenues increased 36.8% from $1.0 billion.
Professional Services revenues increased 55.9% reflecting strong internal
growth, primarily in IT services; the acquisitions of Michael Page in April 1997
and AimExecutive Holdings, Inc. in March 1997, combined with their continued
organic growth subsequent to the acquisitions; and several smaller acquisitions
in the first and third quarters of 1998. Commercial Staffing revenues increased
20.1% reflecting the continued expansion of the Interim On-Premise program;
increased demand for traditional commercial staffing services; and the
acquisition of Crone Corkill Group, PLC, a UK-based Commercial Staffing company
in March 1998 and AGO Uitzendbureau in The Netherlands in July 1998.

GROSS PROFIT. Gross profit increased 18.4% to $465.1 million from $392.8
million a year ago. Gross profit margin increased to 33.8% from 32.9% last
year. Excluding HealthCare, gross profit margin was 31.4% last year. Higher
margins, excluding HealthCare, were due to an increase in the amount of
Professional Services revenues as a percentage of total revenues. Professional
Services generate higher gross profit rates than Commercial Staffing. Excluding
HealthCare, Professional Services revenue represented 53.0% of 1998 total
revenue compared with 46.5% of total revenue in 1997. Other factors contributing
to the increase in the gross profit rate include higher pricing in IT, growth in
Interim Career Consulting and a 99.3% increase in placement revenues compared
with the nine months ended September 26, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 15.0% to $317.4 million from $276.0 million in
the prior year period. Selling, general and administrative expenses as a
percentage of revenues remained constant at 23.1%.

LICENSEE COMMISSIONS. Licensee commissions increased 15.9% to $37.6 million
from $32.5 million in the prior year period. Licensee commissions, as a
percentage of total revenues remained constant at 2.7%.

AMORTIZATION OF INTANGIBLES. Amortization expense increased 24.9% to $16.5
million from $13.2 million reflecting the increase in intangible assets arising
from acquisitions, primarily the Michael Page acquisition in April 1997.

INTEREST EXPENSE. Interest expense increased to $23.5 million from $17.2
million last year. This resulted from increased borrowings for acquisitions,
primarily Michael Page. The Company had average borrowings outstanding during
the first nine months of 1998 of $454.9 million at an average rate of interest,
including the effects of interest rate swaps, of 6.9% compared with $327.0
million outstanding during the first nine months of 1997 at an average rate of
interest of 7.0%.

INTEREST INCOME. Interest income increased to $4.0 million from $0.7 million
last year, primarily due to the investment of proceeds from the Company's common
stock and notes offerings in May 1998.

GAIN ON SALE OF HEALTHCARE BUSINESS. The gain on sale of HealthCare Business
of $5.3 million for the nine months ended September 26, 1997 resulted from the
divestiture of the Company's HealthCare Business in the third quarter of 1997.
The pro forma consolidated results of operations for the nine months ended
September 26, 1997,

7
<PAGE>

giving effect to this transaction, as well as the acquisition of Michael Page
and other acquisitions, as though such events occurred as of December 27,
1996, are included in Item 5 of this filing. The Company consummated the sale
of the remaining portion of its HealthCare Business, Interim HealthCare of
New York, Inc. in October 1998. As such, the Company reflected this
remaining HealthCare operation as sold at September 25, 1998. The sale did
not have a material impact on results of operations.

TAXES ON EARNINGS. The effective tax rate for the nine months ended
September 25, 1998 was 44.4% compared with 49.1% last year. The effective tax
rate in 1997 includes an approximate 100% effective rate on the $5.3 million
HealthCare Business sale gain due to a lower tax basis than book basis in this
business. Excluding the impact of the HealthCare gain, the effective rate in
1997 was 44.2%. The higher 1998 effective tax rate compared with the 1997
effective rate, excluding the HealthCare gain, resulted from increased foreign
earnings as a percentage of total earnings.

EXTRAORDINARY ITEM. In June 1998, the Company prepaid its U.S. dollar
denominated term loan with a portion of the net proceeds from its common stock
and notes offerings, and recognized an extraordinary charge for early
extinguishment of debt of $2.8 million (net of income taxes) for the early
extinguishment of such debt and the termination of the related interest rate
swap agreements.

NET EARNINGS. Net earnings before the extraordinary loss on debt
extinguishment for the nine months ended September 25, 1998 increased 35.0% to
$41.2 million ($0.93 per diluted share) from $30.5 million ($0.76 per diluted
share) in the prior year period. This represents a 22.4% increase in per share
earnings before extraordinary item. The weighted average number of shares (as
adjusted for the dilutive impact of common stock equivalents) increased to
46,590,000 from 40,129,000 in the prior year, primarily due to the issuance of
7.0 million shares of common stock and $207.0 million of convertible
subordinated debt in the second quarter.

FINANCIAL CONDITION

In May 1998 the Company completed an offering of 7,000,000 shares of its common
stock (the "Common Stock Offering"), resulting in proceeds to the Company of
approximately $197.1 million net of issuance costs and offering expenses.
Concurrently with the Common Stock Offering, the Company completed an offering
of $207.0 million of 4 1/2% Convertible Subordinated Notes due 2005 (the "Notes
Offering"), resulting in proceeds to the Company of approximately $201.4 million
net of issuance costs and offering expenses. A portion of the proceeds from the
Common Stock and Notes Offerings was used to repay borrowings under the
Company's existing credit facilities and for recent acquisitions. The balance
of the proceeds will be used for general corporate purposes, including strategic
acquisitions.

Net cash provided by operating activities was $35.8 million and $19.2 million
for the nine months ended September 25, 1998 and September 26, 1997,
respectively. Higher operating cash flow in 1998 resulted from increased
earnings and higher depreciation and amortization. The increase in 1998
operating cash flow was partially offset by less cash provided by changes in
working capital in 1998 compared with 1997. Higher cash flow from working
capital changes in 1997 was primarily due to increases in interest payable,
as well as the timing of advertising and sub-contracted vendor payments.

Investing activities used $116.4 million for the nine months ended September 25,
1998 due primarily to acquisitions in the areas of outplacement and career
consulting, IT, accounting and European commercial staffing in the first and
third quarters of 1998. Investing activities in 1998 were also impacted by
capital expenditures for new computer hardware and software to upgrade and
expand the Company's information technology capabilities. Investing activities
used $458.8 million for the nine months ended September 26, 1997 relating
primarily to the Michael Page and AIM acquisitions, partially offset by the
proceeds from the sale of HealthCare.

Cash provided by financing activities was $233.6 million and $447.6 million
for the nine months ended September 25, 1998 and September 26, 1997,
respectively. Cash provided by financing activities in 1998 primarily
reflects proceeds from the Common Stock and Notes Offerings, offset by
repayment of borrowings under the Company's existing credit facilities. In
1997, cash provided by financing activities resulted from borrowings under a
credit facility primarily due to the acquisition of Michael Page.

<PAGE>

YEAR 2000 COMPLIANCE

As discussed in the Company's Annual Report on Form 10-K, the Company
determined it will be required to upgrade certain application systems to
ensure operability after the year 1999. To ensure that the Company's
computer systems are Year 2000 compliant, the Company continues to utilize
internal and external resources for testing and project management of the
Year 2000 modifications ("Year 2000 project" or "project"). The Company
anticipates completion of the Year 2000 project in mid 1999, which is based
upon expected vendor upgrades to compliant versions of software.

The Company has implemented a five-step process, which consists of awareness,
assessment, renovation, validation and implementation. This uniform process
is being used across the entire Company, including new acquisitions, to
ensure consistent results throughout the project. A majority of the
Company's applications are in the late phases of validation, and some of the
Company's applications are in the implementation stage. The most critical
business system, the Company's largest payroll and billing system, has been
validated and implemented.

The Company is in the process of contacting vendors and others on whom it
relies to assure that their systems will be converted in a timely fashion.
Based on current information received, the Company does not foresee any
material potential risk with its significant vendors and business partners.
However, there can be no guarantee that the systems of other companies on
which the Company's systems rely will be converted timely, or that a failure
to convert by another company would not have a material adverse effect on the
Company.

The Company estimates that the total cost of the project will be
approximately $750,000, which includes both personnel costs related to
project management, programming and hardware and software upgrades. Of this
total, approximately $250,000 has been incurred to date. The cost of the
project and the estimated completion dates are based on management's best
estimates, which were derived utilizing assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no guarantee that these
estimates will prove accurate, and actual results could differ from those
estimated if these assumptions prove inaccurate. Based upon progress to
date, the Company believes that it is unlikely that the foregoing factors
will cause actual results to differ significantly from those estimated.
However, for those systems in the pre-implementation phases, no assurance can
be given that those systems will be Year 2000 compliant, or that the ultimate
costs required to address the Year 2000 issue or the impact of any failure to
achieve substantial Year 2000 compliance will not have a material adverse
effect on the Company's financial condition. If certain systems or systems
of other companies on which the Company relies fail to be converted timely,
the Company will develop a contingency plan in early 1999.

<PAGE>

PART II - OTHER INFORMATION

ITEM 4. - MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the security holders for a vote during the
period covered by this report.

ITEM 5. - OTHER INFORMATION

The historical statements of earnings as filed in this Form 10-Q Item 1.
reflect the operations of the Company's acquisitions in 1997 from their
respective dates of acquisitions and include the results of operations of its
HealthCare business (the "HealthCare Business") that was sold on September 26,
1997. The pro forma condensed consolidated statement of earnings of the
Company reflects the divestiture of the HealthCare Business and includes
acquisitions consummated in 1997, including the acquisition of Michael Page
Group PLC ("Michael Page"), and AimExecutive Holdings, Inc., Interim
Accounting Professionals of San Diego, Interim Personnel of Yakima, Inc.,
Thompson and Thompson, Inc., Centex Personnel Pool, Inc., 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 is filed herewith.

The following pro forma condensed consolidated statement of earnings
of the Company for the nine months ended September 26, 1997 is based on
historical financial statements of the Company and has been adjusted to
reflect the acquisition of Michael Page and Other Acquisitions, and the sale
of the Company's HealthCare Business in each case as if such events had
occurred as of December 27, 1996.

On September 26, 1997, Interim completed the sale of substantially all of its
HealthCare Business. The consummation of the sale of Interim HealthCare of
New York, Inc. was completed in October 1998, but is reflected in the
following pro forma financial information as being sold in the third quarter
of 1997.

The pro forma condensed consolidated statement of earnings does not purport
to represent the actual 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
<PAGE>
<TABLE>

INTERIM SERVICES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited, amounts in thousands, except per share amounts)

FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1997
----------------------------------------------------------------------------------------
ACQUISITIONS PRO FORMA
PRO FORMA EFFECT -------------------------------- AFTER
OF HEALTHCARE PRO FORMA DISPOSITION
HISTORICAL BUSINESS AFTER MICHAEL OTHER PRO FORMA AND
INTERIM DISPOSITION DISPOSITION PAGE(d) ACQS.(d) ADJUSTMENTS ACQUISITIONS
---------- ----------- ----------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,195,388 $(189,589)a) $1,005,799 $76,253 $25,200 $ (138)j) $1,107,114
Cost of services 802,576 (113,050)a) 689,526 38,213 15,717 (138)j) 743,318
---------- ----------- ----------- -------- -------- ----------- ------------
Gross Profit 392,812 (76,539) 316,273 38,040 9,483 -- 363,796
---------- ----------- ----------- -------- -------- ----------- ------------

Selling, general
and administrative expenses 276,009 (61,094)a) 214,915 25,073 6,764 536 e) 247,288
Licensee commissions 32,456 (597)a) 31,859 -- -- (536)e) 31,323
Amortization of intangibles 13,247 (1,812)a) 11,435 -- -- 3,948 f) 15,383
Interest expense 16,507 (5,288)b) 11,219 (964) -- 13,455 g) 23,710
Gain on sale of HealthCare Business (5,300) 5,300 k) -- -- -- -- --
Merger expense -- -- -- 5,064 -- (5,064)h) --
---------- ----------- ----------- -------- -------- ----------- ------------
332,919 (63,491) 269,428 29,173 6,764 12,339 317,704
---------- ----------- ----------- -------- -------- ----------- ------------
Earnings before taxes 59,893 (13,048) 46,845 8,867 2,719 (12,339) 46,092

Income taxes 29,399 (9,414)c) 19,985 4,593 -- (3,473)i) 21,105
---------- ----------- ----------- -------- -------- ----------- ------------
Net earnings $ 30,494 $ (3,634) $ 26,860 $ 4,274 $ 2,719 $ (8,866) $ 24,987
---------- ----------- ----------- -------- -------- ----------- ------------
---------- ----------- ----------- -------- -------- ----------- ------------
Basic earnings per share $ 0.78 $ 0.64
---------- ------------
---------- ------------
Basic weighted average
shares outstanding 39,205 39,205
---------- ------------
---------- ------------
Diluted earnings per share $ 0.76 $ 0.62
---------- ------------
---------- ------------
Diluted weighted
average shares outstanding 40,129 40,129
---------- ------------
---------- ------------
See notes to Proforma Condensed Consolidated Statement of Earnings.
</TABLE>

<PAGE>

INTERIM SERVICES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF EARNINGS

a) 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.

b) To reduce interest expense, due to the reduction of debt, from cash flows
generated by the sale.

c) To reflect the aggregate tax benefit of eliminating the HealthCare Business
and reducing borrowings.

d) 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.

e) To eliminate licensee commissions as a result of the repurchase of several
Interim license operations.

f) 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.

g) 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.

h) To eliminate one-time costs incurred by Michael Page related to it being
acquired by the Company.

i) To reflect the aggregate tax benefit associated with the pro forma
adjustments to the statement of earnings.

j) To eliminate royalties as a result of the repurchase of Interim franchises.

k) To eliminate gain on sale of the HealthCare Business.

<PAGE>

ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits Required by Item 601 of Regulation S-K

EXHIBIT
NUMBER EXHIBIT NAME
<S> <C>
3.1 Restated Certificate of Incorporation of the registrant, as last
amended May 18, 1998, filed as Exhibit 3.1 to the registrant's Form
10-Q for the quarter ended June 26, 1998, 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 ended 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
Service 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 last amended May
18, 1998, filed as Exhibit 4.6 to the registrant's Form 10-Q for the
quarter ended June 26, 1998, is 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.

4.8 Certificate of Increase of Shares Designated as Participating
Preferred Stock, filed as Exhibit 2.2 to the Corporation's Form 8-
A/A2, dated November 3, 1997, is incorporated herein by reference.

4.9 Indenture, including form of Notes, dated as of May 27, 1998, from
the registrant to The Bank of New York with respect to the
registrant's 4 1/2 % Convertible Subordinated Notes due 2005, issued
or to be issued pursuant to the registrant's Form S-3 dated April 23,
1998, filed on May 6, 1998, filed as Exhibit 4.9 to the registrant's
Form 10-Q for the quarter ended June 26, 1998, is incorporated herein
by reference.

10.1 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.

</TABLE>

<PAGE>

EXHIBIT
NUMBER EXHIBIT NAME
<S> <C>
10.2 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.

10.3 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.

10.4 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.

10.5 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 ended March 28, 1997, is incorporated herein by
reference.

10.6 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 ended June 27, 1997, is
incorporated herein by reference.

10.7 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.

10.8 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.

10.9 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.

10.10 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.

10.11 The Interim Services Inc. Outside Directors Compensation Plan filed
as Exhibit 10.15 to the registrant's Form 10-Q for the quarter ended
September 26, 1997 is incorporated herein by reference.

10.12 The 1997 Stock Purchase Assistance Plan for executives of the
registrant filed as Exhibit 10.16 to the registrant's Form 10-K for
the fiscal year ended December 26, 1997 is incorporated herein by
reference.

10.13 Amendment Agreement No. 1, dated as of June 1, 1997 to the Credit
Agreement dated as of May 1, 1997 between the registrant and
NationsBank is incorporated herein by reference.

10.14 Interim Services Inc. 1998 Stock Incentive Plan, filed as Exhibit B
to the registrant's Proxy Statement dated March 24, 1998, is
incorporated herein by reference.

</TABLE>

<PAGE>

EXHIBIT
NUMBER EXHIBIT NAME
<S> <C>
10.15 Amendment Agreement No. 2, dated as of May 21, 1998, to the Credit
Agreement, dated as of May 1, 1997, between the registrant and
NationsBank, filed as Exhibit 10.15 to the registrant's Form 10-Q
for the quarter ended June 26, 1998, is incorporated herein by
reference.

10.16 Amendment Agreement No. 3, dated as of May 21, 1998, to the Credit
Agreement, dated as of May 1, 1997, between the registrant and
NationsBank, filed as Exhibit 10.16 to the registrant's Form 10-Q
for the quarter ended June 26, 1998, is incorporated herein by
reference.

27. Financial Data Schedule is filed herewith.

</TABLE>

(b) During the quarter covered by this report, no reports on Form 8-K were
filed.

EXHIBIT
NUMBER EXHIBIT NAME
- -------- --------------

27. Financial Data Schedule.

<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 2, 1998 BY /s/ Roy G. Krause
-----------------------------
Roy G. Krause
Executive Vice President
and Chief Financial Officer
(principal financial officer)

DATE - November 2, 1998 BY /s/ Mark W. Smith
------------------------------
Mark W. Smith
Vice President, Finance
(principal accounting officer)

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> SEP-25-1998
<CASH> 168,564
<SECURITIES> 0
<RECEIVABLES> 315,236
<ALLOWANCES> 7,774
<INVENTORY> 0
<CURRENT-ASSETS> 548,218
<PP&E> 147,987
<DEPRECIATION> 70,701
<TOTAL-ASSETS> 1,435,892
<CURRENT-LIABILITIES> 269,741
<BONDS> 0
0
0
<COMMON> 473
<OTHER-SE> 723,277
<TOTAL-LIABILITY-AND-EQUITY> 1,435,892
<SALES> 0
<TOTAL-REVENUES> 1,375,864
<CGS> 0
<TOTAL-COSTS> 910,739
<OTHER-EXPENSES> 37,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,515
<INCOME-PRETAX> 74,029
<INCOME-TAX> 32,869
<INCOME-CONTINUING> 41,160
<DISCONTINUED> 0
<EXTRAORDINARY> 2,773
<CHANGES> 0
<NET-INCOME> 38,387
<EPS-PRIMARY> .95<F1>
<EPS-DILUTED> .93<F2>
<FN>
<F1>EPS before extraordinary item.
<F2>EPS before extraordinary item.
</FN>

</TABLE>