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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 31, 2000
Commission file number: 0-23198
INTERIM SERVICES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3536544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2050 SPECTRUM BOULEVARD, FORT LAUDERDALE,
FLORIDA 33309 (Address of principal
executive offices) (Zip code)
(954) 938-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK-$.01 PAR VALUE New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares of Registrant's Common Stock, par value $.01
per share ("Common Stock"), outstanding on April 28, 2000 was 63,825,700.
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TABLE OF CONTENTS
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PART I Financial Information
Item 1. Financial Statements PAGE
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 2000 and March 26, 1999................... 1
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999................................... 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and March 26, 1999................... 3
Notes to Condensed Consolidated Financial Statements...................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 10
PART II Other Information
Item 4. Matters Submitted to a Vote of Security Holders ......................... 11
Item 6. Exhibits and Reports on Form 8-K......................................... 11
Signatures ......................................................................... 12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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THREE MONTHS ENDED
-----------------------------------
MARCH 31, 2000 MARCH 26, 1999
----------------- ----------------
<S> <C> <C>
Revenues......................................................................... $ 958,262 $ 566,031
Cost of services................................................................. 643,866 361,161
----------------- ----------------
Gross profit..................................................................... 314,396 204,870
----------------- ----------------
Selling, general and administrative expenses..................................... 230,529 152,102
Licensee commissions............................................................. 18,869 11,714
Amortization of intangibles...................................................... 10,566 6,874
Interest expense................................................................. 12,468 6,590
Interest income.................................................................. (633) (774)
----------------- ----------------
271,799 176,506
----------------- ----------------
Earnings before income taxes................................................... 42,597 28,364
Income taxes..................................................................... 17,889 12,480
----------------- ----------------
Net earnings..................................................................... $ 24,708 $ 15,884
================= ================
Earnings per share:
Basic......................................................................... $ 0.38 $ 0.34
Diluted....................................................................... $ 0.37 $ 0.33
Weighted average shares outstanding:
Basic......................................................................... 64,222 47,386
Diluted ...................................................................... 70,772 53,318
</TABLE>
See notes to Condensed Consolidated Financial Statements.
1
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INTERIM SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 2000 DEC. 31, 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................................. $ 30,514 $ 37,539
Receivables, less allowance for doubtful accounts of $19,480 and $16,956............... 576,609 560,713
Deferred tax asset..................................................................... 44,458 45,686
Other current assets................................................................... 53,175 64,452
--------------- ---------------
Total current assets................................................................ 704,756 708,390
Goodwill, net............................................................................ 1,298,693 1,270,562
Tradenames and other intangibles, net.................................................... 196,231 200,909
Property and equipment, net.............................................................. 134,727 135,976
Other assets............................................................................. 120,001 123,064
--------------- ---------------
$ 2,454,408 $ 2,438,901
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt...................................................... $ 220,752 $ 216,108
Accounts payable and other accrued expenses............................................ 214,535 223,409
Accrued salaries, wages and payroll taxes.............................................. 182,269 184,611
Other current liabilities.............................................................. 48,004 33,774
--------------- ---------------
Total current liabilities........................................................... 665,560 657,902
Long-term debt .......................................................................... 504,102 513,611
Other long-term liabilities.............................................................. 102,517 108,128
--------------- ---------------
Total liabilities................................................................... 1,272,179 1,279,641
--------------- ---------------
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 200,000,000 shares; issued
65,341,425 shares................................................................... 653 653
Treasury stock, at cost, 1,480,300 and 1,751,143 shares, respectively ................. (25,552) (31,628)
Additional paid-in capital............................................................. 868,721 868,572
Retained earnings...................................................................... 357,806 333,098
Accumulated other comprehensive loss................................................... (19,399) (11,435)
--------------- ---------------
Total stockholders' equity.......................................................... 1,182,229 1,159,260
--------------- ---------------
$ 2,454,408 $ 2,438,901
=============== ===============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
2
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INTERIM SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
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THREE MONTHS ENDED
-----------------------------------
MARCH 31, 2000 MARCH 26, 1999
---------------- -----------------
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Cash Flows from Operating Activities:
Net earnings................................................................... $ 24,708 $ 15,884
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization................................................ 19,671 13,104
Other non-cash charges....................................................... 2,786 203
Changes in assets and liabilities, net of effects of acquisitions:
Receivables................................................................ (19,779) (28,471)
Other assets............................................................... 10,227 4,013
Accounts payable and accrued liabilities................................... 7,959 12,418
---------------- -----------------
Net Cash Provided by Operating Activities................................ 45,572 17,151
---------------- -----------------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired............................................. (53,527) (139,409)
Capital expenditures........................................................... (10,977) (9,780)
Other.......................................................................... 3,233 473
---------------- -----------------
Net Cash Used in Investing Activities.................................... (61,271) (148,716)
---------------- -----------------
Cash Flows from Financing Activities:
Debt proceeds.................................................................. 13,579 24,546
Debt repayments................................................................ (7,618) (1,178)
Purchase of treasury stock..................................................... - (2,916)
Proceeds from exercise of employee stock options and stock purchase plan....... 6,208 1,394
Other, net..................................................................... (3,495) (3,639)
---------------- -----------------
Net Cash Provided by Financing Activities................................ 8,674 18,207
---------------- -----------------
Decrease in cash and cash equivalents.......................................... (7,025) (113,358)
Cash and cash equivalents, beginning of period................................. 37,539 153,314
---------------- -----------------
Cash and cash equivalents, end of period....................................... $ 30,514 $ 39,956
================ =================
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See notes to Condensed Consolidated Financial Statements.
3
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INTERIM SERVICES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements of Interim Services
Inc. and subsidiaries ("Interim"), included herein, do not include all
footnote disclosures normally included in annual financial statements
and, therefore, should be read in conjunction with Interim's financial
statements and notes thereto for each of the fiscal years in the
three-year period ended December 31, 1999 included in Interim's Annual
Report on Form 10-K.
The condensed consolidated financial statements for the three months
ended March 31, 2000 and March 26, 1999 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 three months ended March 31, 2000 are not
necessarily indicative of results to be expected for the full fiscal
year ending December 29, 2000. Certain 1999 amounts have been
reclassified to conform to current year presentation.
2. Change in Principal Brand Name
Interim has announced that it will be changing its principal brand name
to Spherion. This change was made to better reflect the nature of the
total company, which has shifted from a traditional staffing company to
one that provides global consulting and human capital management
services. Interim's legal name and stock ticker symbol will change in
July 2000.
3. Comprehensive Income
Comprehensive income, which totaled $16.7 million and $2.4 million for
the three months ended March 31, 2000 and March 26, 1999, respectively,
is comprised of net earnings of $24.7 million and $15.9 million,
respectively, and foreign currency translation adjustments of ($8.0)
million and ($13.5) million, respectively.
4. Earnings Per Share (EPS)
Basic earnings per share is computed by dividing Interim's net earnings
by the weighted average number of shares outstanding during the period.
Diluted earnings per share is computed by dividing Interim's earnings
by the weighted average number of shares outstanding and the impact
of all dilutive potential common shares, primarily stock options,
convertible subordinated notes, restricted stock and deferred stock
units. 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 (net earnings) and
denominator (shares) of the basic and diluted earnings per share
computations for net earnings.
4
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<CAPTION>
THREE MONTHS ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
MARCH 31, 2000 MARCH 26, 1999
-------------------------------------- ---------------------------------------
NET PER-SHARE NET PER-SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
------------ ---------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS............................. $ 24,708 64,222 $ 0.38 $ 15,884 47,386 $ 0.34
=========== ===========
Effect of dilutive securities:
Stock options and other dilutive
securities........................ - 1,002 - 384
Convertible subordinated notes...... 1,512 5,548 1,519 5,548
------------ ---------- ------------- -----------
Diluted EPS........................... $ 26,220 70,772 $ 0.37 $ 17,403 53,318 $ 0.33
============ ========== =========== ============= =========== ===========
</TABLE>
5. Segment Information
Effective in 2000, Interim changed its basis of segmentation from a
geographic approach to the following: Information Technology,
Professional Services and Commercial Staffing. Management believes
that the new reportable segments better reflect the management and
fiscal responsibilities within Interim subsequent to the Norrell
acquisition and integration of its operations. Interim evaluates the
performance of its operating segments and allocates resources based
on revenues, gross profit and segment operating margin. Segment
operating margin is defined as income before unallocated central
costs, net interest expense and income taxes. All material
intercompany revenues and expenses have been eliminated. All
previous year amounts have been restated for comparative purposes.
Information on operating segments and a reconciliation to earnings
before income taxes for the three months ended March 31, 2000 and March
26, 1999 are as follows (in thousands):
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THREE MONTHS ENDED
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MARCH 31, 2000 MARCH 26, 1999
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REVENUES:
Information Technology............................................. $ 199,268 $ 164,454
Professional Services.............................................. 323,918 176,410
Commercial Staffing................................................ 435,076 225,167
-------------------- --------------------
$ 958,262 $ 566,031
==================== ====================
GROSS PROFIT:
Information Technology............................................. $ 63,838 $ 55,610
Professional Services.............................................. 158,971 100,259
Commercial Staffing................................................ 91,587 49,001
-------------------- --------------------
$ 314,396 $ 204,870
==================== ====================
SEGMENT OPERATING MARGIN:
Information Technology............................................. $ 9,572 $ 13,426
Professional Services.............................................. 37,860 21,526
Commercial Staffing................................................ 17,791 7,228
-------------------- --------------------
65,223 42,180
Unallocated central costs.......................................... (10,791) (8,000)
Interest expense, net.............................................. (11,835) (5,816)
-------------------- --------------------
Earnings before income taxes....................................... $ 42,597 $ 28,364
==================== ====================
</TABLE>
5
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6. Acquisitions
Interim repurchased several licensed offices, which do not impact
Interim's reported revenues, as sales by the licensed offices are
included in Interim's revenues. Additionally, during the quarter ended
March 31, 2000, Interim completed one acquisition for total cash
consideration of approximately $2.3 million and made earnout
payments of $29.3 million on previous acquisitions.
7. Restructuring
During 1999, Interim incurred approximately $12.8 million of
restructuring costs related to a plan (the "Plan") adopted by
management in which certain redundant functions and assets of
Interim, as a result of the Norrell acquisition, will be eliminated.
These costs included employee severance costs of approximately $3.7
million, facility closure costs of $7.0 million primarily relating
to the elimination of redundant branch locations and $2.1 million
for the write-off of certain software programs that will no longer
be utilized as a result of the acquisition. The employee severance
related to approximately 160 positions from various job functions,
of which approximately 70 were terminated as of March 31, 2000.
The facility closure costs include approximately $5.0 million
in lease termination costs and approximately $2.0 million in losses
on the disposition of facility related fixed assets, primarily the
write-off of leasehold improvements on closed branch locations and
write-down of furniture and fixtures to their estimated fair value,
determined by comparable market information. These assets will be
taken out of service at the time properties are abandoned and
consequently will not be depreciated further after abandonment. As
of March 31, 2000, approximately $5.6 million has been paid and the
remainder is included in accounts payable and accrued expenses. The
majority of the remaining accrual relates to lease abandonment costs
of $3.5 million that will be paid through 2004 unless early
terminations can be negotiated and severance costs of $1.8 million,
which will continue to be paid during 2000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Interim is a leader in the area of human capital management operating
in 12 countries around the world. As previously mentioned, Interim
changed its basis of segmentation from a geographic approach to the
following: Information Technology, Professional Services and
Commercial Staffing. Management believes that the new reportable
segments better reflect the management and fiscal responsibilities
within Interim subsequent to the Norrell acquisition and integration
of its operations. In its operating segments, Interim provides five
services: (1) consulting-including outplacement, executive coaching and
information technology consulting; (2) managed staffing-such as
temporary and permanent workforce management, which includes Interim
On-Premise and vendor management; (3) outsourcing-includes functional
management and staffing of various administrative functions, including
full service call center management; (4) search/recruitment-such as
contingency recruiting and executive retained search; and (5) flexible
staffing-temporary personnel from administrative to executives.
RESULTS OF OPERATIONS
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THREE MONTHS ENDED
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MARCH 31, 2000 MARCH 26, 1999
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<S> <C> <C> <C> <C>
% OF % OF
TOTAL TOTAL
-------------- ---------------
REVENUES:
Information Technology................. $ 199,268 20.8% $ 164,454 29.0%
Professional Services.................. 323,918 33.8% 176,410 31.2%
Commercial Staffing.................... 435,076 45.4% 225,167 39.8%
----------------- -------------- ---------------- ---------------
$ 958,262 100.0% $ 566,031 100.0%
================= ============== ================ ===============
% OF % OF
REVENUES REVENUES
-------------- ---------------
GROSS PROFIT:
Information Technology................. $ 63,838 32.0% $ 55,610 33.8%
Professional Services.................. 158,971 49.1% 100,259 56.8%
Commercial Staffing.................... 91,587 21.1% 49,001 21.8%
----------------- -------------- ---------------- ---------------
$ 314,396 32.8% $ 204,870 36.2%
================= ============== ================ ===============
SEGMENT OPERATING MARGIN:
Information Technology.................. $ 9,572 4.8% $ 13,426 8.2%
Professional Services................... 37,860 11.7% 21,526 12.2%
Commercial Staffing..................... 17,791 4.1% 7,228 3.2%
----------------- -------------- ---------------- ---------------
65,223 6.8% 42,180 7.5%
============== ===============
Unallocated central costs............... (10,791) (8,000)
Interest expense, net................... (11,835) (5,816)
----------------- ----------------
Earnings before income taxes............ $ 42,597 $ 28,364
================= ================
</TABLE>
7
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED
MARCH 26, 1999
INFORMATION TECHNOLOGY. Revenues increased 21.2% to $199.3 million
from $164.5 million in the prior year due primarily to the Norrell
acquisition partially offset by industry related decreases in
customer demand. On a pro forma basis (including Norrell as if it
were acquired at the beginning of 1999), revenues were down 8.3%
from $217.4 million in the prior year. Information Technology
revenues declined from 1999 pro forma levels as many customers ended
Y2K-related projects and were in the start-up phase on newer
projects, such as E-commerce. Pro forma revenue, excluding
Y2K-related business, increased 6% over the prior year and 8% from
the fourth quarter of 1999. Revenues by service line for 2000
within the group were comprised of 66.9% consulting, 5.7% managed
staffing, 1.7% outsourcing, 1.0% search/recruitment and 24.7%
flexible staffing and were relatively unchanged compared with the
prior year pro forma revenues.
Gross profit increased 14.8% to $63.8 million from $55.6 million in
the prior year and the overall gross profit percentage decreased to
32.0% from 33.8% as the lower margin Norrell business was added. On
a pro forma basis, gross profit percentage for 2000 was slightly
lower than 1999 due to the slowdown in technology spending,
discussed above, and lower utilization of consultants.
Segment operating margin (earnings before unallocated central costs,
interest and income taxes) decreased 28.7% to $9.6 million from
$13.4 million in the prior year. The lower margin in 2000 was
primarily due to the increase in gross profit of $8.2 million
discussed above, offset by higher operating expenses of $11.2
million and higher amortization expense of $0.8 million (Norrell
acquisition related). Higher operating expenses were largely due to
the addition of Norrell. Operating costs as a percentage of
revenues increased from 24.9% in 1999 to 26.2% for 2000 as Interim
maintained much of its infrastructure even though revenue declined.
PROFESSIONAL SERVICES. Revenues increased 83.6% to $323.9 million
from $176.4 million in the prior year, with most of the increase due
to the acquisition of Norrell's outsourcing business and strong
organic growth in U.S. and European flexible staffing and
search/recruitment. On a pro forma basis, revenues increased 20.5%
from $268.9 million primarily due to growth in financial
search/recruitment and flexible staffing in the U.S. and Europe.
Revenues by service line within the group were comprised of 4.4%
consulting, 23.8% outsourcing, 31.6% search/recruitment and 40.2%
flexible staffing. As a percentage of total Professional Services
revenues, search/recruitment revenues increased from a 1999 pro forma
level of 27.1%, due to solid growth within this product line.
Gross profit increased 58.6% to $159.0 million from $100.3 million
in the prior year and the gross profit percentage decreased from
56.8% in the prior year to 49.1% primarily due to the addition of
Norrell's outsourcing business. On a pro forma basis, gross profit
percentage increased to 49.1% in 2000 from 45.8% in 1999 due to the
increase in the proportion of search/recruitment revenues to total
revenue.
Segment operating margin increased 75.9% to $37.9 million from $21.5
million in the prior year due to the increase in gross profit of
$58.7 million, partially offset by higher operating expenses of
$41.3 million and higher amortization expenses of $1.0 million
(Norrell acquisition related). As a percentage of revenues,
operating expenses decreased from 42.2% for 1999 to 35.7% primarily
due to the inclusion of the outsourcing business in the current year
(which classifies most of its expenses in gross profit) and greater
leveraging of operating expenses.
8
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COMMERCIAL STAFFING. Revenues increased 93.2% to $435.1 million
from $225.2 million in the prior year primarily due to the Norrell
acquisition. On a pro forma basis, revenues were about the same as
the prior year amount of $432.7 million, as Interim concentrated on
higher margin customers and began shedding some unprofitable
business towards the end of the quarter. Revenues by service line
within the group were comprised of 35.2% managed staffing, 1.5%
search/recruitment and 63.3% flexible staffing and did not vary
significantly from the prior year pro forma amounts.
Gross profit increased 86.9% to $91.6 million from $49.0 million in
the prior year and the overall gross profit percentage decreased
from 21.8% in the prior year to 21.1% in the first quarter of 2000.
These changes were due to the Norrell acquisition, which has
slightly lower gross profit rates in the flexible staffing business.
On a pro forma basis, gross profit percentage increased to 21.1%
from 20.9% in the prior year due to the concentration on improving
margins with certain customers and a reduction in state unemployment
taxes.
Segment operating margin more than doubled to $17.8 million from $7.2
million in the prior year. The increase in segment operating margin
was due to the increase in gross profit of $42.6 million, partially
offset by higher operating expenses of $30.1 million and higher
amortization of $1.9 million (primarily Norrell acquisition
related). Operating expenses as a percentage of revenue decreased
from 18.0% for 1999 to 16.2% for 2000 as Interim was able to
leverage fixed costs by eliminating redundant personnel and offices.
The segment operating margin increased from 3.2% of revenues in the
prior year to 4.1%.
UNALLOCATED CENTRAL COSTS. Unallocated central costs increased 34.9%
to $10.8 million from $8.0 million in the prior year, primarily due
to the Norrell acquisition. These costs decreased to 1.1% of
consolidated revenues from 1.4% in the prior year due to greater
leveraging of resources.
INTEREST EXPENSE, NET. Gross interest expense increased 89.2% to
$12.5 million from $6.6 million last year. This increase resulted
from higher debt levels, primarily due to the Norrell acquisition,
and higher overall interest rates. Interim had average borrowings
outstanding during the first quarter of 2000 of $744.3 million at an
average rate of interest, including the effects of interest rate
swaps, of 6.6% compared with $454.6 million outstanding during the
first quarter of 1999 at an average rate of interest of 5.7%.
Interest income was relatively unchanged at $0.6 million.
INCOME TAXES. The effective income tax rate for the first quarter of
2000 was 42.0% compared with 44.0% in 1999. The decrease in the
effective tax rate resulted from an increase in earnings, higher
levels of Work Opportunity tax credits and reduced state income taxes.
NET EARNINGS. Net earnings increased 55.6% to $24.7 million ($0.37 per
diluted share) from $15.9 million ($0.33 per diluted share) in the
prior year period. This represents a 12.1% increase in per share net
earnings. The weighted average number of shares (as adjusted for the
dilutive impact of common stock equivalents) increased to 70.8 million
from 53.3 million in the prior year, primarily due to the issuance of
20.8 million shares in July 1999 related to the Norrell acquisition,
offset by the repurchase of 3 million shares during the second quarter
of 1999.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Cash provided by operating activities for the three months ended
March 31, 2000 was $45.6 million compared with $17.2 million in the
prior year. Higher operating cash flows this period were primarily
due to increased earnings, lower working capital needs and higher
amortization, depreciation and other non-cash charges. Working
capital items used were $1.6 million this year compared with $12.0
million last year. Less cash used for working capital items during
the three months ended March 31, 2000 primarily resulted from slower
revenue growth in 2000 versus 1999, partially offset by an increase
in days sales outstanding. Working capital in the first quarter of
2000 also benefited from a decrease in other assets resulting from
the receipt of an $8.0 million federal income tax refund related to
Norrell, partially offset by a reduction in accounts payable and
accrued liabilities.
Investing activities used $61.3 million for the three months ended
March 31, 2000 primarily due to the repurchase of licensee operations
to reduce market overlap created by the Norrell merger and earnout
payments associated with prior acquisitions. Investing activities also
included $11.0 million of capital expenditures, primarily for new
computer hardware and software to continue to upgrade and expand
Interim's information technology capabilities and new office related
expenditures.
Cash provided by financing activities was $8.7 million for the three
months ended March 31, 2000 and primarily reflects increased net
borrowings to fund acquisitions and higher proceeds from employee stock
option and purchase plan activity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, Interim maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three
months or less. These financial instruments are subject to interest
rate risk and will decline in value if interest rates increase. Due to
the short duration of these financial instruments, an immediate
increase of 1% in interest rates would not have a material effect on
Interim's financial condition.
Interim's outstanding variable rate debt at March 31, 2000 and March
26, 1999 was $517.8 million and $259.3 million, respectively. Interest
rates on the Credit Facility and other short-term borrowings are based
on LIBOR plus a variable margin. Interest rates on the Accounts
Receivable Securitization borrowings and the Australian dollar term
financing are based on commercial paper market rates and Australian
bank bills plus a variable margin, respectively. Based on the
outstanding balance, a change of 1% in the interest rate would cause a
change in interest expense of approximately $5.2 million and $2.6
million in 2000 and 1999, respectively, on an annual basis not
considering the offset of the interest rate swap discussed below.
Interim utilizes interest rate swap agreements to reduce the impact
on interest expense of fluctuating interest rates on its variable
rate debt. Interim had a variable to variable interest rate swap
agreement outstanding as of March 31, 2000 and March 26, 1999 with
the notional amount of $119.3 million and $121.8 million,
respectively, which effectively converts interest from a British
Pound LIBOR basis to a broader index and caps Interim's exposure to
upward movement in rates at 8.5%. This agreement expires in 2002.
The cost to terminate (i.e. fair value) the outstanding interest
rate swap as of March 31, 2000 and March 26, 1999 was $1.5 million
and $3.6 million, respectively.
10
<PAGE>
In May 1998, Interim issued $207.0 million of 4 1/2% Convertible
Subordinated Notes due June 2005. The fair value of Interim's fixed
rate convertible subordinated debt as of March 31, 2000 and March 26,
1999 was $167.1 million and $158.7 million, respectively, compared with
the related carrying value of $207.0 million.
The purpose of Interim's foreign exchange hedging activities is to
mitigate the impact of changes in foreign currency exchange rates.
Interim attempts to hedge transaction exposures through natural
offsets. To the extent this is not practicable, exposure areas which
are considered for hedging include foreign currency denominated
receivables and payables, intercompany loans, firm committed
transactions and dividends related to foreign subsidiaries. Interim
uses financial instruments, principally forward exchange contracts, in
its management of foreign currency exposures. Interim does not enter
into forward contracts for trading purposes. At March 31, 2000 and
March 26, 1999, Interim had outstanding foreign currency forward
contracts to sell Australian dollars in the notional amount of $76.9
million and $59.6 million, respectively. At March 31, 2000, Interim had
an outstanding foreign currency forward contract to sell British pounds
and buy French francs in the notional amount of $3.6 million. The
fair value of the foreign currency forward contracts as of March 31,
2000 and March 26, 1999 was $5.6 million gain and $0.7 million loss,
respectively.
FORWARD-LOOKING STATEMENTS
Part I, Items 2 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) and 3 (Quantitative and
Qualitative Disclosures about Market Risk) of this Quarterly Report
on Form 10-Q may contain forward-looking statements, including
statements regarding future prospects, industry trends, competitive
conditions, litigation and quantitative and qualitative estimates as
to market risk. This notice is intended to take advantage of the
"safe harbor" provided by the Private Securities Litigation Reform
Act of 1995 with respect to such forward-looking statements. These
forward-looking statements involve a number of risks and
uncertainties. Among others, factors that could cause actual results
to differ materially from Interim's beliefs or expectations are the
following: industry trends and trends in the general economy;
competitive factors in the markets in which Interim operates;
changes in regulatory requirements which are applicable to Interim's
business; and other factors referenced herein or from time to time
in Interim's reports to the Securities and Exchange Commission.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<S> <C>
27. Financial Data Schedule is filed herewith.
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the
Registrant during the period covered by this report.
11
<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 - May 15, 2000 BY /s/ Roy G. Krause
-------------------------------------
Roy G. Krause
Executive Vice President
and Chief Financial Officer
(principal financial officer)
DATE - May 15, 2000 BY /s/ Mark W. Smith
-------------------------------------
Mark W. Smith
Vice President, Finance
(principal accounting officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914536
<NAME> INTERIM SERVICES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 30,514
<SECURITIES> 0
<RECEIVABLES> 596,089
<ALLOWANCES> 19,480
<INVENTORY> 0
<CURRENT-ASSETS> 704,756
<PP&E> 229,886
<DEPRECIATION> 95,159
<TOTAL-ASSETS> 2,454,408
<CURRENT-LIABILITIES> 665,560
<BONDS> 504,102
0
0
<COMMON> 653
<OTHER-SE> 1,181,576
<TOTAL-LIABILITY-AND-EQUITY> 2,454,408
<SALES> 0
<TOTAL-REVENUES> 958,262
<CGS> 0
<TOTAL-COSTS> 643,866
<OTHER-EXPENSES> 18,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,835
<INCOME-PRETAX> 42,597
<INCOME-TAX> 17,889
<INCOME-CONTINUING> 24,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,708
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.37
</TABLE>
