<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 16, 1996
ACCUSTAFF INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-24484 59-3116655
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
6440 ATLANTIC BOULEVARD, JACKSONVILLE, FL 32211
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 725-5574
--------------
N/A
-----------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 5. OTHER EVENTS.
On June 19, 1996, AccuStaff Incorporated (the "Company") acquired The
McKinley Group, Inc. and its affiliated company, MGI Services, Inc.
(collectively "McKinley") in a transaction accounted for as a pooling-of-
interests. The Company filed the required financial statements of McKinley and
the required AccuStaff pro forma financial statements as part of a Current
Report on Form 8-K/A dated June 19, 1996. On August 26, 1996 AccuStaff announced
that it had entered into a definitive agreement to merge with Career Horizons,
Inc. ("Career") (the "Merger"). As part of completing the Merger, AccuStaff is
required to prepare and file with the Securities and Exchange Commission a
registration statement on Form S-4 registering the AccuStaff common stock to be
issued to holders of Career common stock in the Merger. AccuStaff is required to
file, as part of the registration statement, its financial statements as
restated to reflect the McKinley acquisition. Those restated financial
statements as well as a restated Management's Discussion and Analysis of
Financial Condition and Results of Operations are filed herewith so that they
may each be incorporated by reference into AccuStaff's registration
statement on Form S-4 relating to the Merger.
ITEM 7. EXHIBITS.
23.1 Consent of Coopers & Lybrand L.L.P.
2
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACCUSTAFF INCORPORATED
By: /s/ Derek E. Dewan
-------------------------
Derek E. Dewan
President and Chief Executive
Officer
Dated: September 16, 1996
--------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
AccuStaff Incorporated
We have audited the consolidated balance sheets of AccuStaff Incorporated
and Subsidiaries as of December 31, 1995 and January 1, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The financial statements give retroactive effect to the mergers of
AccuStaff Incorporated and subsidiaries and PTA International on January 2, 1996
and The McKinley Group, Inc. and subsidiary on June 19, 1996, which have been
accounted for as a poolings of interests as described in Note 2 to the
consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AccuStaff
Incorporated and Subsidiaries at December 31, 1995 and January 1, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Jacksonville, Florida
March 15, 1996, except for
the last paragraph of Note 6 and
the last paragraph of Note 11
as to which the date is
March 27, 1996 and, except for
the basis of presentation
section of Note 12 and the
resulting effects on the
consolidated financial
statements and notes thereto
as to which the date is
September 16, 1996.
4
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JANUARY 1
1995 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 34,427,338 $ 9,086,988
Investments..................................................... - 6,814,667
Accounts receivable, net........................................ 41,265,464 17,173,576
Prepaid expenses................................................ 1,170,107 478,101
Deferred income taxes........................................... 1,353,000 705,000
------------ -----------
Total current assets............................................ 78,215,909 34,258,332
Furniture, equipment, and leasehold improvements, net............. 6,234,587 2,042,068
Goodwill, net..................................................... 65,489,186 3,766,328
Other assets...................................................... 931,302 411,732
------------ -----------
Total assets.......................................... $150,870,984 $40,478,460
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion.................................. $ 10,512,696 $ 1,354,994
Accounts payable and accrued expenses........................... 4,139,634 1,344,839
Accrued payroll and related taxes............................... 9,533,603 3,917,685
Accrued workers' compensation claims............................ 2,700,000 1,500,000
------------ -----------
Total current liabilities.............................. 26,885,933 8,117,518
Convertible subordinated debentures............................... 2,300,000 1,800,000
Notes payable, long-term portion.................................. 4,509,633 168,542
Deferred income taxes............................................. 276,000 145,000
------------ -----------
Total liabilities..................................... 33,971,566 10,231,060
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding.............................. __ __
Common stock, $.01 par value; 60,000,000 shares authorized;
51,374,022 and 34,814,160 shares issued and outstanding in
1995 and 1994, respectively................................... 513,740 58,023
Additional contributed capital.................................. 96,765,192 22,764,252
Retained earnings............................................... 19,699,730 7,600,594
------------ -----------
116,978,662 30,422,869
Less: Deferred stock compensation............................. (79,244) (175,469)
------------ -----------
Total stockholders' equity.................................... 116,899,418 30,247,400
------------ -----------
Total liabilities and stockholders' equity.................... $150,870,984 $40,478,460
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 1, JANUARY 2
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................................... $316,847,230 $166,625,549 $108,199,282
Cost of revenue........................................... 256,844,480 136,397,780 89,142,845
------------ ------------ ------------
Gross profit............................................ 60,002,750 30,227,769 19,056,437
Operating expenses:
General and administrative.............................. 38,694,864 22,073,669 16,906,817
Depreciation and amortization........................... 2,301,484 877,442 363,619
------------ ------------ ------------
Total operating expenses.............................. 40,996,348 22,951,111 17,270,436
Income from operations................................ 19,006,402 7,276,658 1,786,001
------------ ------------ ------------
Other income (expense):
Management fee.......................................... - - 127,508
Interest income......................................... 820,570 336,456 5,842
Interest expense........................................ (861,734) (557,317) (458,397)
Other, net.............................................. 146,440 46,043 6,995
------------ ------------ ------------
Total other income (expense).......................... 105,276 (174,818) (318,052)
------------ ------------ ------------
Income before provision for income taxes.................. 19,111,678 7,101,840 1,467,949
Provision for income taxes................................ 5,366,700 1,880,000 445,000
------------ ------------ ------------
Net income.......................................... $ 13,744,978 $ 5,221,840 $ 1,022,949
============ ============ ============
Earnings per share of common and common stock equivalents $ 0.32 $ 0.18 $ 0.04
============ ============ ============
Unaudited pro forma data (Note 2):
Income before provision for pro forma income
taxes................................................ $ 13,744,978 $ 5,221,840 $ 1,022,949
Provision for pro forma income taxes pro forma......... 1,987,753 791,563 119,373
------------ ------------ ------------
Pro forma net income................................. $ 11,757,225 4,430,277 903,576
============ ============ ============
Pro forma earnings per share........................... $0.27 $0.15 $0.04
============ ============ ============
Weighted average number of common shares
and common share equivalents outstanding............. 43,385,544 29,967,354 24,989,364
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------- CONTRIBUTED RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------- ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1993... - $ - 3,604,017 $ 36,040 $ 2,465,995 $ 1,445,805
Purchase of treasury stock. - - - - - -
Sale of treasury stock..... - - - - - -
Common stock issued under
employee stock
purchase plan........... - - 51,113 511 382,839 -
Grant of restricted stock
pursuant to employment
agreement................ - - - - 88,050 -
Deferred stock compensation.. - - - - 188,300 -
Vesting of stock options.... - - - - - -
Net income.................. - - - - - 1,022,949
Distribution to former
shareholders of acquired
S-corporation............. - - - - - (33,600)
------ ------ --------- -------- ---------- -----------
Balance, January 2, 1994..... - - 3,655,130 36,551 3,125,184 2,435,154
Purchase of treasury stock... - - - - - -
Sale of treasury stock....... - - - - - -
Common stock issued under
employee stock
purchase plan........... - - 12,760 127 95,573 -
Sale of Common Stock........ - - 2,048,804 20,488 19,029,357 -
Conversion of subordinated
debentures.............. - - 66,666 667 499,328 -
Issuance of restricted
stock................... - - 15,000 150 (150) -
Vesting of stock options.... - - - - - -
Vesting of restricted stock. - - - - - -
Exercise of stock options... - - 4,000 40 14,960 -
Net income.................. - - - - - 5,221,840
Distribution to former
shareholders of acquired
S-corporation............. - - - - - (56,400)
------ ------ --------- -------- ---------- -----------
Balance, January 1, 1995.... - - 5,802,360 58,023 22,764,252 7,600,594
Sale of Common Stock........ - - 2,500,000 25,000 72,378,282 -
Conversion of subordinated
debentures.............. - - 187,877 1,879 1,498,107 -
Vesting of stock options.... - - - - - -
Vesting of restricted stock. - - - - - -
Exercise of stock options... - - 72,100 721 394,968 -
Tax benefit arising from
early dispositions
of stock issued upon
exercise of stock
options - - - - 157,700 -
Net income................. - - - - - 13,744,978
McKinley income for the
three months ended
December 31, 1994......... - - - - - 704,517
Distribution to former
shareholders of acquired
S-corporation........... - - - - - (2,350,359)
2 for 1 stock split........ - - 8,562,337 85,623 (85,623) -
3 for 1 stock split........ - - 34,249,348 342,494 (342,494) -
------ ------ --------- -------- ---------- -----------
Balance, December 31, 1995.. - - 51,374,022 $513,740 $96,765,192 $19,699,730
====== ====== ========== ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
TREASURY STOCK STOCK
SHARES AMOUNT COMPENSATION TOTAL
------ -------- --------- ------------
<S> <C> <C> <C> <C>
Balance, January 3, 1993... - $ ---- $ ---- $ 3,947,840
Purchase of treasury stock. 4,934 37,005 ---- 37,005
Sale of treasury stock..... (4,934) (37,005) ---- (37,005)
Common stock issued under
employee stock
purchase plan........... - - - 383,350
Grant of restricted stock
puursuant to employment
agreement................ - - (88,050) -
Deferred stock compensation. - - (188,300) -
Vesting of stock options... - - 23,000 23,000
Net income................. - - - 1,022,949
Distribution to former
shareholders of acquired
S-corporation........... - - - (33,600)
------ -------- --------- ------------
Balance, January 2, 1994.... - - (253,350) 5,343,539
Purchase of treasury stock... 4,530 33,795 - 33,795
Sale of treasury stock...... (4,530) (33,795) - (33,795)
Common stock issued under
employee stock
purchase plan.......... - - - 95,700
Sale of Common Stock........ - - - 19,049,845
Conversion of subordinated
debentures.............. - - - 499,995
Issuance of restricted
stock................... - - - --
Vesting of stock options.... - - 52,200 52,200
Vesting of restricted stock. - - 25,681 25,681
Exercise of stock options... - - - 15,000
Net income.................. - - - 5,221,840
Distribution to former
shareholders of acquired
S-corporation............. - - - (56,400)
------ -------- --------- ------------
Balance, January 1, 1995.... - - (175,469) 30,247,400
Sale of Common Stock........ - - - 72,403,282
Conversion of subordinated
debentures.............. - - - 1,499,986
Vesting of stock options.... - - 52,200 52,200
Vesting of restricted stock. - - 44,025 44,025
Exercise of stock options.. - - - 395,689
Tax benefit arising from
early dispositions
of stock issued upon
exercise of stock
options - - - 157,700
Net income............... - - - 13,744,978
McKinley income for the
three months ended
December 31, 1994 .... - - - 704,517
Distribution to former
shareholders of acquired
S-corporation............. - - - (2,350,359)
2 for 1 stock split........ - - - -
3 for 1 stock split........ - - - -
------ -------- --------- ------------
Balance, December 31, 1995.. - $ - $ (79,244) $116,899,418
====== ======== ========= ============
</TABLE>
7
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 1, JANUARY 2
1995 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income................................................. $ 13,744,978 $ 5,221,840 $ 1,022,949
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 2,301,484 877,442 363,619
Provision for doubtful accounts........................ 422,978 270,000 182,417
Deferred income taxes.................................. (543,700) (398,000) (266,000)
Compensation for stock options granted................. 96,225 77,881 23,000
Changes in certain assets and liabilities:
Accounts receivable.................................. (8,300,144) (5,422,354) (711,076)
Prepaid expenses..................................... (158,400) 318 (71,317)
Other assets......................................... (123,369) (87,614) (203,362)
Accounts payable and accrued expenses................ 597,228 866,855 (171,825)
Accrued payroll and related taxes.................... 2,469,957 1,592,237 (597,467)
Accrued workers' compensation........................ 1,200,000 700,000 650,372
------------- ------------ ------------
Net cash provided by operating activities 11,707,237 3,698,605 221,310
------------- ------------ ------------
Cash flows provided by (used in) investing activities:
Purchases of investments................................... (2,027,658) (8,150,269) -
Sales and maturities of investments........................ 8,842,325 1,335,602 -
Purchase of furniture, equipment and leasehold improvements (3,452,832) (644,387) (615,877)
Restricted cash............................................ -- 1,761,178 (1,651,178)
Purchase of businesses. including additional earn-outs
on acquisitions, net of cash acquired.................... (56,297,723) (1,011,183) (726,268)
------------- ------------ ------------
Net cash used in investing activities.............. (52,935,888) (6,709,059) (2,993,323)
------------- ------------ ------------
Cash flows provided by (used in) financing activities:
Bank overdraft............................................. -- (866,708) 544,459
Proceeds from issuance of common stock..................... 72,956,671 19,160,540 383,970
Proceeds from issuance of convertible subordinated
debentures............................................... 2,000,000 2,300,000 -
Borrowings on notes payable................................ 8,873,526 79,049,035 98,198,587
Repayments on notes payable................................ (15,615,354) (87,638,964) (96,212,029)
Distributions to former shareholders of acquired S-Corp... (2,350,359) (90,000) (33,600)
McKinley income for the three months ended Dec. 31, 1994... 704,517 - -
Purchase of treasury stock................................. -- (33,795) (37,005)
Sale of treasury stock..................................... -- 33,795 37,005
------------- ------------ ------------
Net cash provided by financing activities............ 66,569,001 11,913,903 2,881,387
------------- ------------ ------------
Net increase in cash and cash equivalents.................... 25,340,350 8,903,449 109,374
Cash and cash equivalents, beginning of year................. 9,086,988 183,539 74,165
------------- ------------ ------------
Cash and cash equivalents, end of year....................... $ 34,427,338 $ 9,086,988 $ 183,539
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 1, JANUARY 2
1995 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid........................ $ 561,601 $ 560,718 $454,287
Income taxes paid.................... $5,513,049 $2,217,638 $950,000
</TABLE>
SUPPLEMENTAL NON CASH INVESTING AND FINANCING ACTIVITIES:
On December 13, 1993, the Company purchased the outstanding common stock of
Mid-States Technical Staffing Services, Inc. for $900,000. In connection with
the acquisition. liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired. including goodwill of $392,433... $1,210,615
Cash paid for the capital stock................................. (900,000)
----------
Liabilities assumed............................................. $ 310,615
==========
</TABLE>
In fiscal 1993, the Company recorded deferred compensation expense with a
corresponding increase to Additional Contributed Capital of $188,300 for the
granting of compensatory stock options and $88,050 for the restricted stock
award, respectively.
On March 2, 1994, the Company acquired all of the outstanding stock of Debbie
Temps, Inc. for $1,000,000. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired. including goodwill of $392,433..... $ 1,210,615
Fair value of assets acquired, including goodwill of $3,085,282... $ 4,919,882
Cash paid for the capital stock................................... (1,000,000)
-----------
Liabilities assumed, including notes payable
to former stockholders of $3,100,000............................ $ 3,919,882
===========
</TABLE>
In fiscal 1994 a member of the Board of Directors converted a $500,000
subordinated debenture for 399,996 shares of common stock. Also in 1994, 90,000
shares of stock were issued to the President and Chief Executive Officer
pursuant to the terms of a restricted stock grant.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
During fiscal 1995, the Company acquired the operating assets, including
certain acquisition costs, of Contemporary Personnel Services, Inc. and acquired
all the outstanding stock of Attorneys Per Diem, Inc., LawStaf, Inc., Matthews
Professional Employment Specialists, Inc., Dupay Enterprises, Inc. d/b/a ASOSA
Personnel, Bogard Temps, Inc., Special Counsel International, Inc., Computer
Professionals, Inc., Advance/Possis Technical Services, Inc., and HR Management
Services, Inc. for $53,196,666. In connection with the acquisitions,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill of $59,226,180......... $ 79,950,685
Cash paid................................................................ (53,196,666)
------------
Liabilities assumed, including notes payable to sellers of $15,037.000 .. $ 26,754,019
============
</TABLE>
In fiscal 1995, convertible subordinated debentures of $1,500,000 were
converted into 1,127,262 shares of common stock.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
AccuStaff Incorporated and Subsidiaries (the Company) is a national provider
of strategic staffing and outsourcing services to businesses, professional and
service organizations and governmental agencies. As of December 31, 1995, the
Company operated 94 branch offices in 22 states and the District of Columbia (98
branch offices in 22 states and the District of Columbia after giving effect to
the mergers mentioned below). The Company's business is organized into three
divisions: the Commercial division, the Professional Services division and the
Telecommunications division. The Company's Commercial and Professional Services
divisions provide a wide range of services to a diversified mix of clients,
while its Telecommunications division furnishes trained telecommunications
personnel primarily to American Transtech, Inc. (ATI), a subsidiary of AT&T.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
On January 2, 1996 the Company acquired all of the stock of PTA International,
d/b/a/ Perma Temp Agency (PTA) in exchange for 1,766,844 shares of the
Company's voting common stock. On June 19, 1996 the Company acquired all of the
stock of The McKinley Group (McKinley) in exchange for 1,857,150 shares of the
Company's voting stock. Both acquisitions have been accounted for under the
pooling of interests method of accounting. The consolidated financial statements
of the Company have been restated to give retroactive effect to the mergers with
PTA on January 2, 1996 and McKinley on June 19, 1996. McKinley's former fiscal
years ended on September 30, 1995, 1994, and 1993. The fiscal years ended
September 30, 1994 and 1993 of McKinley were combined with the years ended
January 1, 1995 and January 2, 1994, respectively. The calendar year ended
December 31, 1995 of McKinley was combined with the fiscal year ended December
31, 1995 for AccuStaff. An adjustment to AccuStaff's retained earnings for the
income of McKinley for the three months ended December 31, 1994 has been made to
properly state the equity balance at December 31, 1995. The reconciliation below
details the effects of the poolings of PTA and McKinley on the previously
reported revenues, net income and stockholders' equity of AccuStaff.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED1 YEAR ENDED
DECEMBER 31, JANUARY 1, JANUARY 2
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Revenue as previously reported $267,616,204 $137,050,963 $ 89,135,958
Revenues, PTA 29,994,246 22,830,953 16,961,038
Revenues, McKinley 19,236,780 6,743,633 2,102,286
------------ ------------ ------------
Revenues, as reported 316,847,230 166,625,549 108,199,282
------------ ------------ ------------
Net Income, as previously reported 8,699,414 3,004,637 711,343
Net Income, PTA 3,194 672,994 6,332
Net Income, McKinley 5,042,370 1,544,209 305,274
------------ ------------ ------------
Net Income, as reported $ 13,744,978 $ 5,221,840 $ 1,022,949
------------ ------------ ------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
--------------------- CONTRIBUTED RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
---------- -------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1993, as
previsoulsy reported 3,000,000 $ 30,000 $ 2,230,535 $ 189,608 $ - $ 2,450,143
Balance, January, 1993, PTA 294,492 2,945 235,460 1,101,277 - 1,339,682
Balance, January, 1993, McKinley 309,525 3,095 - 154,920 - 158,015
---------- -------- ----------- ----------- ------------- ------------
Balance, January, 1993, as
reported 3,604,017 36,040 2,465,995 1,445,805 - 3,947,840
---------- -------- ----------- ----------- ------------- ------------
Balance, January 2, 1994, as
previously reported 3,051,113 30,511 2,889,724 900,951 (253,350) 3,567,836
Prior Years adjustments for PTA
and McKinley 604,017 6,040 235,460 1,256,197 - 1,497,697
Net Income, PTA - 6,332 - 6,332
Net Income McKinley - - - 305,274 - 305,274
Distribution, McKinley - - - (33,600) - (33,600)
---------- -------- ----------- ----------- ------------- ------------
Balance, January 2, 1994, as
reported 3,655,130 36,551 3,125,184 2,435,154 (253,350) 5,343,539
---------- -------- ----------- ----------- ------------- ------------
Balance, January 1, 1995, as
previously reported 5,198,343 51,983 22,528,792 3,905,588 (175,469) 26,310,894
Prior Years adjustments for PTA
and McKinley 604,017 6,040 235,460 1,534,203 - 1,775,703
Net Income PTA - - - 672,994 - 672,994
Net Income, McKinley - - - 1,544,209 - 1,544,209
Distribution, McKinley - - - (56,400) - (56,400)
---------- -------- ----------- ----------- ------------- ------------
Balance, January 1, 1985, as
reported 5,802,360 58,023 22,764,252 7,600,594 (175,469) 30,247,400
---------- -------- ----------- ----------- ------------- ------------
Balance, December 31, 1995, as
previously reported 47,749,920 477,499 96,559,933 12,605,002 (79,244) 109,563,190
Prior Years adjustments for PTA
and McKinley 604,017 6,040 235,460 3,695,006 - 3,936,506
Net Income, PTA - - - 3,194 - 3,194
Net Income, McKinley for three
months ended December 31, 1994 - - - 704,517 - 704,517
Net Income, McKinley - - - 5,042,370 - 5,042,370
Distribution, McKinley - - - (2,350,359) - (2,350,359)
Stock Splits 3,020,085 30,201 (30,201) - - -
---------- -------- ----------- ----------- ------------- ------------
Balance, December 31, 1995, as
reported 51,374,022 $513,740 $96,765,192 $19,699,730 $ (79,244) $116,899,418
========== ======== =========== =========== ============= ============
</TABLE>
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Additionally, the Company's 49 percent owned
affiliate, PeopleSystems, Inc., has been accounted for as a consolidated
subsidiary, due to the Company's control by an agreement. All intercompany
transactions have been eliminated in the accompanying consolidated financial
statements.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to December 31 of each
year. Fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995
consist of 52 weeks.
Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks, government money market
funds, and short-term investments with original maturities of 90 days or less,
when purchased.
12
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investments
On January 3, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities "(SFAS No. 115")." SFAS No. 115 requires that investments in debt and
equity securities be designated as trading, held-to-maturity, or available-for-
sale. These reporting categories determine the recognition and measurement of
investments in the Company's financial statements. The cumulative effect as of
January 3, 1994 of adopting SFAS No. 115 was not material to stockholders'
equity.
Investments, which consisted of U.S. Government Treasury and Agency
instruments and corporate and municipal bonds with maturities of one year or
less, were carried at cost, which approximated market value.
Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements are recorded at cost less
accumulated depreciation and amortization. Depreciation of furniture and
equipment is computed using the straight-line method over the estimated useful
lives of the assets, ranging from 3 to 15 years. Amortization of leasehold
improvements is computed using the straight-line method over the useful life of
the asset or the term of the lease, whichever is shorter. Costs associated with
the development of the Company's proprietary software package have been deferred
and are being amortized over a five-year period.
Organizational Costs
Organizational costs consist of certain expenditures related to the formation
of the Company which are being amortized on a straight line basis over a period
of five years. The amount capitalized was $315,341 at December 31, 1995 and
January 1, 1995. Accumulated amortization was $229,809 and $165,519 at December
31, 1995 and January 1, 1995, respectively. These costs have been included in
other assets in the accompanying financial statements.
Goodwill
Goodwill represents the excess of cost over fair value of net tangible assets
acquired through acquisitions. Such excess of cost over fair value of net
tangible assets acquired is being amortized on a straight-line basis over
periods ranging from fifteen to thirty years. Management periodically reviews
the potential impairment of goodwill on a non-discounted cash flow basis to
assess recoverability. If the estimated future cash flows are projected to be
less than the carrying amount, an impairment write-down (representing the
carrying amount of the goodwill which exceeds the present value of estimated
expected future cash flows) would be recorded as a period expense. Accumulated
amortization was $1,500,749, and $211,987 as of December 31, 1995, and January
1, 1995, respectively.
Revenue Recognition
Revenue is recognized as income at the time the staffing services are
provided.
Advertising Costs
Advertising costs are expensed as incurred except for advertising costs which
have a contractual life. Advertising costs with a contractual life are
amortized over the life of the contract, not to exceed one year.
Income Taxes
Effective May 4, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
13
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Earnings Per Share
Net income per share has been computed using the weighted average number of
common shares and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of restricted stock,
convertible subordinated debentures, and stock options (calculated using the
treasury stock method). Pursuant to the requirements of the Securities and
Exchange Commission, common and common share equivalents issued at prices below
the initial public offering price of 1.75 per share during the twelve months
immediately preceding the effective date of the Company's initial public
offering have been included in the calculation of common and common share
equivalents, using the treasury stock method, as if they were outstanding for
all periods presented.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Although management believes these estimates and assumptions are adequate,
actual results may differ from the estimates and assumptions used.
Reclassifications
Certain amounts have been reclassified in 1993 and 1994 to conform to the 1995
presentation.
UNAUDITED PRO FORMA DATA
PTA International (PTA) and the McKinley Group (McKinley) prior to their
acquisition by the Company had elected to be treated as S Corporations for
federal and state income tax purposes. As such, PTA's and McKinley's taxable
income is reported to and subject to tax to PTA's and McKinley's stockholders,
respectively. The unaudited pro forma provision for income taxes reported on the
consolidated statements of income shows approximate federal and state income
taxes (by applying statutory income tax rates) that would have been incurred if
PTA and McKinley had been subject to tax as a C Corporation.
3. ACQUISITIONS:
For the year ended December 31, 1995
On January 2, 1995, the Company completed the acquisition of the operating
assets of Contemporary, a provider of temporary staffing services in the New
York and New Jersey area, and all the outstanding common stock of Dupay
Enterprises, Inc., d/b/a ASOSA Personnel (ASOSA), a provider of temporary
staffing services in Arizona, for $3,147,000 and $2,610,000, respectively. The
former shareholder of ASOSA may earn additional purchase price consideration up
to $400,000 upon attainment of certain financial targets. The fair value of
assets acquired, including goodwill, were $3,147,304 and $3,637,843,
respectively, and liabilities assumed totaled $2,147,304 and $1,227,843,
respectively. The excesses of purchase price over the fair value of net
tangible assets acquired (goodwill) were $3,174,795 and $1,618,986,
respectively, and are being amortized on a straight-line basis over 15 years.
On May 1, 1995, the Company acquired all the outstanding common stock of
LawStaf, Inc. (LawStaf), a provider of legal staffing services in Atlanta,
Georgia and Attorneys Per Diem, Inc. (Attorneys Per Diem), a provider of legal
staffing services in Maryland and the District of Columbia, for $1,035,000 and
$2,700,000, which includes contingent payments of $133,334 disbursed in 1995,
respectively. The former stockholders of LawStaf and Attorney's Per Diem may
earn additional purchase price consideration upon attainment of certain earnings
targets. The fair value of assets acquired, including goodwill, were $1,230,594
and $3,104,888, respectively, and liabilities assumed totaled $695,594 and
$271,554, respectively. The excesses of purchase price over the fair value of
net tangible assets acquired (goodwill) were $1,048,896 and $2,754,451,
respectively, and are being amortized on a straight-line basis over 15 years.
On July 2, 1995, the Company completed the acquisition of all the outstanding
stock of Matthews Professional Employment Specialists, Inc. (Matthews), a
provider of temporary staffing services in Illinois for $14,300,000.
14
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS, CONTINUED
The former stockholder of Matthews may earn additional purchase price
consideration up to $10,700,000 upon attainment of certain targets. The fair
value of assets acquired, including goodwill, was $14,943,814 and liabilities
assumed totaled $643,814. The excess of purchase price over the fair value of
net tangible assets acquired (goodwill) was $11,894,161 and is being amortized
on a straight-line basis over 30 years.
On July 30, 1995, the Company acquired the business of Special Counsel
International, Inc., and its affiliate companies (Special Counsel), pursuant to
certain asset purchases and mergers, for $1,000,000 in cash and $9,190,000 in
notes payable, collateralized by standby letters of credit in the same amount
which reduces the amount available to the Company under its revolving line of
credit by a like amount, plus a contingent payment of $3,384,000 disbursed in
1995 and $2,308,750 in the first quarter of 1996. Special Counsel is an
established provider of legal staffing services in New York City. The fair
value of assets acquired, including goodwill, was $10,433,517 and liabilities
assumed totaled $9,433,517. The excess of purchase price over the fair value of
net tangible assets acquired (goodwill) was $9,478,321 and is being amortized on
a straight-line basis over 30 years.
Additionally effective on July 30, 1995, the Company acquired all the
outstanding common stock of Bogard Temps, Inc. (Bogard) for $2,501,066. Bogard
is a provider of clerical and other staffing services in Los Angeles. The
former stockholder of Bogard may earn additional purchase price consideration
upon attainment of certain arnings targets. The fair value of assets acquired,
including goodwill, was $2,765,997 and liabilities assumed totaled $264,931. The
excess of purchase price over the fair value of net tangible assets acquired
(goodwill) was $1,431,949 and is being amortized on a straight-line basis over
15 years.
On October 29, 1995, the Company acquired all of the outstanding common stock
of Computer Professionals, Inc. (Computer Professionals) for $18,000,000.
Computer Professionals is a provider of staffing solutions for companies with
computer software and information technology needs. The fair value of assets
acquired, including goodwill, was $23,294,933 and liabilities assumed totaled
$8,294,933. The excess of purchase price over the fair value of net tangible
assets acquired (goodwill) was $17,910,692 and is being amortized on a straight-
line basis over 30 years.
On November 26, 1995, the Company acquired all of the outstanding common stock
of HR Management Services, Inc. (HR Management), a provider of managed services,
strategic outsourcing, and traditional temporary services in Detroit, St. Louis,
Chicago, and Washington, D.C., for $5,500,000. The former shareholders of HR
Management may earn additional purchase price consideration upon attainment of
certain earnings targets. The fair value of assets acquired, including
goodwill, was $6,930,133 and liabilities assumed totaled $1,430,133. The excess
of purchase price over the fair value of net tangible assets acquired (goodwill)
was $3,467,761 and is being amortized on a straight-line basis over 30 years.
On November 30, 1995, the Company acquired all of the outstanding stock of
Advance/Possis Technical Services, Inc. (Advance/Possis), a provider of
technical staffing and outsourced engineering, for $8,250,600. The former
shareholders of Advance/Possis may earn additional purchase price consideration
upon attainment of certain earnings targets. The fair value of assets acquired,
including goodwill, was $10,461,662 and liabilities assumed totaled $2,211,062.
The excess of purchase price over the fair value of net tangible assets acquired
(goodwill) was $6,446,168 and is being amortized on a straight-line basis over
30 years.
For the year ended January 1, 1995
On March 2, 1994, the Company acquired all of the outstanding stock of Debbie
Temps, Inc. (Debbie Temps), a provider of on a temporary, permanent or temporary
to permanent basis in Illinois for $4,100,000. The fair value of assets acquired
was $1,834,600 and liabilities assumed totaled $819,882. The excess of the
purchase price over the fair value of the net assets acquired (goodwill) was
$3,085,282 and is being amortized on a straight-line basis over 15 years.
For the year ended JANUARY 2, 1994
On December 13, 1993, the Company purchased all of the outstanding stock of
Mid-States Technical Staffing, Inc. (Mid-States), which provides contract
engineering staffing on a temporary, permanent, or temporary to permanent basis
in Iowa
15
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS, CONTINUED
and Illinois, for $900,000, plus contingent payments of $321,000 and $228,000
disbursed in 1994 and 1995, respectively, in accordance with the purchase
agreement. The fair value of assets acquired, including goodwill, was
$1,759,615 and liabilities assumed totaled $310,615. The excess of the purchase
price over the fair value of the net assets acquired (goodwill) was $941,433 and
is being amortized over 15 years.
Pursuant to the terms of the acquisition, the former shareholders of Mid-
States may earn additional purchase price consideration, based on the percentage
of Mid-States' gross profit, as defined in the agreement, for three years from
the acquisition date. If Mid-States achieves the maximum gross profit
percentages, additional consideration could approximate $242,000. Such
additional consideration, if paid, will be accounted for as goodwill.
The Company has accounted for all acquisitions through December 31, 1995 using
the purchase method of accounting. The results of the acquired companies'
operations have been included with those of the Company from the dates of the
respective acquisitions.
The unaudited pro forma results of operations listed below include the effects
of the mergers discussed in Note 2 and reflect purchase accounting adjustments
and pro-forma adjustments, including reduction of officers' compensation as the
result of negotiated employment agreements, assuming the acquisition of Mid-
States occurred at the beginning of fiscal 1993 and Debbie Temps occurred at the
beginning of fiscal 1993 and 1994 and the acquisitions in fiscal 1995 had
occurred at the beginning of fiscal 1994 and 1995. These pro forma amounts are
not necessarily indicative of what actually would have occurred if the
acquisitions had been in effect for the entire periods presented. In addition,
they are not intended to be projections of future results and do not reflect any
synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
FISCAL
------------------------------------------
1995 1994 1993
------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue.................................... $405,181,314 $284,343,720 $125,211,071
Gross profit............................... 81,307,252 225,247,174 23,521,360
Income from operations..................... 57,292,430 11,147,591 2,270,391
Income before provision for income taxes... 19,522,907 7,571,642 1,818,645
Net income................................. 11,995,435 2,847,025 1,120,409
Earnings per share......................... $0.27 $0.16 $0.04
</TABLE>
Acquisitions Subsequent to December 31, 1995
The Company has completed twenty-three acquisitions subsequent to December 31,
1995 including PTA and McKinley, for which the financial statements have been
restated. (See Note 2). In January 1996, the company acquired (i) the stock of
Tekna, Inc., Goldfarb-Wasson Associates, Inc. d/b/a GW Consulting, and an
affiliated company and Excel Temporary Services, Inc. and affiliated companies;
and (ii) the operating and business assets of Career Enhancement International,
Inc. and Advantage Personnel Services, Inc. and an affiliated company. In
February 1996, the Company acquired the stock of Additional Technical Support
Inc. and affiliated companies. In March 1996, the Company acquired the
operating assets and business operations of HNS Software, Inc. In April 1996,
the Company acquired the operating assets and business operations of Alternative
Temps, Inc. In May 1996, the Company acquired the operating assets and business
operations of TempsAmerica East, Inc. and affiliated companies, the stock of
Project Professionals, Inc.; the operating assets and business operations of
Logue & Rice, Inc. and the stock of its affiliated companies; and the stock of
Contact Recruiters, Inc. and an affiliated company. In June 1996, the Company
acquired the stock of Openware Technologies, Inc. and the operating assets and
business operations of CAD Design, Inc. In July 1996, the Company acquired the
operating assets and business operations of Alta Technical Services, Inc., In-
House Counsel, Inc. and TRAK Services, Inc. In August 1996, the Company
acquired the stock of Perspective Technology, Inc., Datacorp Business Systems,
Inc. and Staffware, Inc.
The acquisition of Staffware has been accounted for under the pooling-of-
interests method of accounting while the other acquisitions completed subsequent
to December 31, 1995 have been accounted for under the purchase method of
accounting. The Company acquired all of the stock of Staffware in exchange for
364,706 shares of the Company's common stock. The aggregate purchase price of
the acquisitions accounted for under the purchase method of accounting was
16
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS, CONTINUED
$176.9 million, which was comprised of an aggregate of $160.1 million in cash,
notes payable to the former shareholders of $14.8 million and stock of $2.0
million. In addition, certain former shareholders of the acquired companies are
eligible to receive contingent consideration upon attainment of certain earnings
targets. The excess of the purchase price over the fair value of the tangible
assets (goodwill) is being amortized on a straight line basis over periods
ranging from 15 to 30 years, including any contingent consideration paid for the
purchase method acquisitions.
The unaudited pro forma results of operations for fiscal 1995 listed below
reflect purchase accounting adjustments and pro forma adjustments, including
reduction of officers' compensation as the result of negotiated employment
agreements, assuming the acquisitions which occurred subsequent to the year
ended December 31, 1995 had occurred at the beginning of fiscal 1995. These pro
forma amounts are not necessarily indicative of what actually would have
occurred if the acquisitions had been in effect for the entire period presented.
In addition, they are not intended to be projections of future results and do
not reflect any synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
FISCAL
-------------
1995
-------------
(Unaudited)
<S> <C>
Revenue................................... $744,095,832
Gross profit.............................. 155,636,125
Income from operations.................... 41,083,786
Income before provision for income taxes.. 25,168,915
Net income................................ 15,364,221
Earnings per share........................ $ 0.35
</TABLE>
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
FISCAL
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period...... $ 325,000 $ 209,864 $ 203,197
Provision for doubtful accounts... 422,978 270,000 182,417
Charge-offs, net of recoveries.... (147,978) (154,864) (175,750)
--------- --------- ---------
Balance, end of period............ $ 600,000 $ 325,000 $ 209,864
========= ========= =========
</TABLE>
The Company's management provides an allowance for doubtful accounts based
upon an analysis of the economic condition of the Company's clients combined
with the Company's historical performance of accounts receivable.
5. FURNITURE. EQUIPMENT, LEASEHOLD IMPROVEMENTS, AND COMPUTER SOFTWARE COSTS:
Furniture, equipment. leasehold improvements, and computer software costs
consisted of the following at December 31, 1995 and January 1, 1995:
<TABLE>
<CAPTION>
FISCAL
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Furniture and equipment...................... $ 5,511,427 $ 2,511,190
Computer equipment........................... 3,019,577 725,643
Computer software costs...................... 1,643,159 549,546
Leasehold improvements....................... 475,500 198,944
Automobiles.................................. 242,973 15,937
----------- -----------
10,892,636 4,001,260
Accumulated depreciation and amortization.... (4,658,049) (1,959,192)
----------- -----------
$ 6,234,587 $ 2,042,068
=========== ===========
</TABLE>
17
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. FURNITURE. EQUIPTMENT, LEASEHOLD IMPROVEMENTS, AND COMPUTER SOFTWARE COSTS,
CONTINUED
The Company recognized depreciation expense of $752,247, $455,448 and $237,946
and amortization expense of computer software costs of $109,909, $103,734, and
$150,118 in fiscal 1995, 1994, and 1993, respectively.
6. NOTES PAYABLE:
Notes payable at December 31, 1995 and January 1, 1995 consisted of the
following:
<TABLE>
<CAPTION>
FISCAL
------------ ----------
1995 1994
----------- ----------
<S> <C> <C>
Revolving credit facility......................................................... $ -- $ --
Note payable to former shareholder of Special Counsel International, including
interest at 5.5% compounded annually, paid January 2, 1996.................... 9,190,000 --
Note payable to former shareholders of Computer Professionals, including
interest at 5.73% compounded annually due October 31, 1998.................... 3,000,000 --
Note payable to Contemporary including interest at 6.19% payable in twelve
quarterly installments, beginning on April 1, 1995 and $173,634, including
interest at 6.34%, payable in thirty equal monthly installments beginning on
August 1, 1995................................................................ 1,602,463 --
Notes payable to former shareholders of Debbie Temps, including interest
at 3.96% payable $1,250,000 on March 2, 1995 and $225,000 over 26
months, collateralized by the stock of Debbie Temps, Inc...................... 113,878 1,475,000
Other notes payable............................................................... 1,115,988 48,536
----------- ----------
15,022,329 1,523,536
Current portion of notes payable.................................................. 10,512,696 1,354,994
----------- ----------
Long-term portion of notes payable................................................ $ 4,509,633 $ 168,542
=========== ==========
</TABLE>
The revolving credit facility contains certain covenants, such as requiring
the Company to maintain specified current and tangible net worth ratios. In
addition, the revolving line of credit does not permit the payment of dividends.
The Company was in compliance with all covenants as of December 31, 1995 and
January 1, 1995.
On February 1, 1996, the revolving credit facility was amended and restated,
increasing the available line from $25 million to $100 million. The facility
has a five year maturity and bears interest using an incentive pricing model
based on the LIBOR, federal funds, or the prime rate.
Maturities of loans and Convertible Subordinated Debentures (see Note 15)
maturities are as follows for the fiscal years subsequent to December 31, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1996........................................... $10,513,805
1997........................................... 3,524,756
1998........................................... 3,181,919
1999........................................... 3,826
2000........................................... 98,023
-----------
$17,322,329
===========
</TABLE>
18
<PAGE>
7. COMMITMENTS:
Leases
The Company leases office space under various non-cancelable operating leases.
The following is a schedule of future minimum lease payments with terms in
excess of one year:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1996............................................. $ 4,539,785
1997............................................. 3,880,741
1998............................................. 3,186,894
1999............................................. 1,801,595
2000............................................. 871,414
Thereafter....................................... 98,915
-----------
$14,379,344
===========
</TABLE>
Total rent expense for fiscal 1995, 1994, and 1993 was $2,044,798, $1,336,043,
and $1,064,104, respectively, which includes approximately $411,478, $319,066,
and $290,420, respectively, to related parties (see Note 8).
8. RELATED PARTY TRANSACTIONS:
The Company leases its corporate offices from ATS Services, Inc. (ATS), an
entity owned by a director of the Company, under a non-cancelable operating
lease. Total rent paid in fiscal 1995, 1994, and 1993 was $120,000, annually.
The Company leases several of its branch offices under non-cancelable
operating leases from stockholders and paid rent of $291,478, $199,066. and
$170,420 in fiscal 1995, 1994, and 1993, respectively.
The Company provided management services to ATS for which the Company received
approximately $127,500 during fiscal 1993. The Company did not provide such
services in fiscal 1994 and 1995.
The Company had trade receivables from related parties of $318.226 and
$173,540 as of December 31, 1995 and January 1, 1995, respectively. These
amounts have been included in accounts receivable in the accompanying financial
statements.
The Company provided temporary staffing to affiliated entities (other than
PeopleSystems, Inc.) which are owned by stockholders of the Company and recorded
revenue of $2,468,661, $2,024,670, and $1,706,534. and cost of revenue of
$2,267,313, $1,811,748. and $1,536,817 for fiscal 1995, 1994, and 1993,
respectively.
The Company, beginning January 2, 1995, began providing temporary staffing to
PeopleSystems. Inc., which in turn provides the temporary staffing to ATI. The
Company recorded revenue of $99,470,000. and cost of revenue of $89,540,000
under this arrangement for fiscal 1995.
9. INCOME TAXES:
Comparative analysis of the provisions for income taxes follows:
<TABLE>
<CAPTION>
FISCAL
-----------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal........... $4,992,700 $1,913,000 $ 596,000
State and local... 891,000 365,000 115,000
---------- ---------- ---------
5,883,700 2,278,000 711,000
---------- ---------- ---------
Deferred:
Federal........... (423,000) (333,000) (223,000)
State and local... (94,000) (65,000) (43,000)
---------- ---------- ---------
(517,000) (398,000) (266,000)
---------- ---------- ---------
$5,366,700 $1,880,000 $ 445,000
========== ========== =========
</TABLE>
19
<PAGE>
The difference between the actual income tax provision and the tax provision
computed by applying the statutory federal income tax rate to income before
provision for income taxes is attributable to the following:
<TABLE>
<CAPTION>
FISCAL
------------------------------------------------------------------------
1995 1994 1993
------------------------ ----------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax computed using the
federal statutory rate..... $4,923,000 35.0% $1,661,000 34.0% $393,000 34.0%
State income taxes, net of
federal income tax effect.. 619,000 4.4% 186,000 3.8% 44,000 3.8%
Other........................... (175,300) (1.2)% 33,000 .7% 8,000 .7%
---------- ----- ---------- ---- -------- ----
$5,366,700 38.2% $1,880,000 38.5% $445,000 38.5%
========== ===== ========== ==== ======== ====
</TABLE>
The components of the deferred income tax assets and deferred income tax
liabilities recorded on the accompanying consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
FISCAL
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Deferred income tax assets:
Self-insurance reserves................................ $1,063,000 $ 615,000
Allowance for doubtful accounts receivable............. 236,000 124,000
Other.................................................. 54,000 38,000
---------- ---------
Total deferred income tax assets...................... 1,353,000 777,000
---------- ---------
Deferred income tax liabilities:
Amortization of computer software costs................ (113,000) (145,000)
Depreciation and amortization of furniture, equipment
and leasehold improvements........................... (110,000)
Amortization of goodwill............................... (53,000)
Accounts receivable.................................... - (72,000)
---------- ---------
Total deferred income tax liabilities (276,000) (217,000)
---------- ---------
Net deferred income tax asset $1,077,000 $ 560,000
========== =========
</TABLE>
The net deferred income tax assets (liabilities) are reflected in the
accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
FISCAL
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Deferred income tax assets---current portion......... $1,353,000 $ 705,000
Deferred income tax liabilities-non-current portion.. (276,000) (145,000)
---------- ---------
$1,077,000 $ 560,000
========== =========
</TABLE>
Management has determined, based on the history of prior taxable earnings and
its expectations for the future , taxable income will more likely than not be
sufficient to fully recognize deferred tax assets.
20
<PAGE>
10. EMPLOYEE BENEFIT PLANS:
Profit Sharing Plan
The Company has a noncontributory profit sharing plan that includes a 401(k)
plan, which covers all full-time employees over age twenty-one with at least one
year of employment and 1,000 hours of service. The Company may make annual
contributions at the discretion of the Board of Directors, but contributions are
limited to the maximum amount allowed under the provisions of the Internal
Revenue Code. The Company did not contribute to the profit sharing plan during
fiscal 1995, 1994, or 1993.
Employee Stock Purchase Plan
Effective January 1, 1993, the Company adopted an employee stock purchase plan
(Plan) providing for the sale of 399,996 shares of stock to employees of the
Company at the market value at date of grant. As of December 31, 1995 and
January 1, 1995, 383,238 shares had been issued pursuant to the Plan.
11. STOCKHOLDERS' EQUITY:
Public Offerings of Common Stock
On August 23, 1994, the Company completed its Initial Public Offering for the
sale of 10,200,000 shares of common stock. Coincident with the offering, the
underwriters of the offering exercised their 15% over-allotment option and
accordingly an additional 1,800,000 shares of the Company's common stock were
sold by the Company. The Company received $18,684,000 from the sale of the
shares, net of underwriting discount and expenses associated with the offering.
The net proceeds were used to repay all outstanding indebtedness under the
Company's credit facility, which was approximately $4,900,000 and approximately
$1,500,000 in acquisition indebtedness. The remaining proceeds were used
primarily to fund additional acquisitions.
On October 3, 1995, the Company completed another offering for the sale of
15,000,000 shares of common stock. The Company received $72,400,000 from the
sale of the shares, net of underwriting discount and expenses associated with
the offering. The net proceeds have been used to repay all outstanding
indebtedness under the Company's credit facility, which was approximately
$8,500,000. The remaining proceeds have been used primarily to fund additional
acquisitions.
Incentive Employee Stock Plans
Effective December 29, 1993, the Board of Directors approved the 1993 Stock
Option Plan (the 1993 Plan) which provides for the granting of options for the
purchase of up to an aggregate of 2,400,000 shares of common stock to key
employees. Under the 1993 Plan, the Stock Option Committee (the Committee) of
the Board of Directors has the discretion to award stock options, stock
appreciation rights (SARS) or restricted stock to employees. Options may be
either incentive stock options or non-qualified options and the option price
shall be established by the Committee. Incentive stock options may be granted
at an exercise price not less than 100% of the fair market value of a share on
the effective date of the grant and non-qualified options may be granted at an
exercise price not less than 50% of the fair market value of a share on the
effective date of the grant.
On August 24, 1995, the Board of Directors approved the 1995 Stock Option Plan
(the 1995 Plan), subject to stockholder approval, which provides for the
granting of options up to an aggregate of 3,000,000 shares of common stock to
key employees under terms and provisions similar to the 1993 Plan. Subsequent
to December 31, 1995, the 1995 Plan has been amended, subject to stockholder
approval, to provide for the granting of an additional 6,000,000 shares, of
which 2,841,000 additional options to acquire shares have been granted to key
employees.
21
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS, CONTINUED
11. STOCKHOLDER'S EQUITY, CONTINUED
Information pertaining to the 1993 and 1995 Plans is as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
--------------------------- -----------------------
AVERAGE AVERAGE
SHARES OPTION PRICE SHARES OPTION PRICE
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Options granted...................... 2,766,006 $4.94 37,500 $2.19
Options vested....................... 2,128,500 $3.61 511,500 $0.96
Options exercised.................... 440,700 $1.02 24,000 $0.63
Options canceled..................... - - 75,000 $1.25
Options available for future grants.. 800,994 - 567,000 -
Options outstanding at year end...... 4,134,306 $3.59 1,809,000 $1.00
</TABLE>
The Company has recorded deferred stock compensation expense, representing the
difference between the fair market value and the option price at the date of the
grant, in a separate component of stockholders' equity for the non-vested
portion of stock options granted. The Company recognized $52,200 of
compensation expense in both fiscal 1995 and 1994 for the vesting of options.
Additional compensation expense of $60,900 will be recognized for the remaining
vesting period for the options granted.
Changes in the deferred stock compensation account are as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
-------------------- ------------------------
NUMBER NUMBER
OF SHARES OF SHARES
GRANTED AMOUNT GRANTED AMOUNT
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.. 780,000 $113,100 1,140,000 $165,300
Options granted during year....... - - - -
Amortized and vested.............. (660,000) (52,200) (360,000) (52,200)
--------- -------- ---------- --------
Outstanding at year-end........... 120,000 $ 60,900 780,000 $113,100
========= ======== ========== ========
</TABLE>
Non-Employee Director Stock Plan
Effective December 29, 1993, the Board of Directors approved a stock option
plan (Director Plan) for non-employee directors, whereby 600,000 shares of
common stock have been reserved for issuance to non-employee directors. The
Director Plan allows each non-employee director to purchase 60,000 shares at an
exercise price equal to the fair market value at the date of the grant. The
options become exercisable ratably over a five-year period and expire ten years
from the date of the grant. However, the options are exercisable for a maximum
of three years after the individual ceases to be a director and if the director
ceases to be a director within one year of appointment. the options are
canceled. The Company granted 120,000 options under the Director's Plan with an
exercise price of $1.25 during fiscal 1994.
Common Stock Sales
In 1994, the Company sold 320,004 shares of common stock, including 180,000
shares to a member of the Board of Directors, at $1.25 per share, representing
the fair value at date of sale.
Stock Splits
Effective November 27, 1995, the Company's Board of Directors approved a two-
for-one stock split of common stock for stockholders of record as of November 9,
1995. A total of $79,583 was transferred from additional contributed capital to
the stated value of common stock in connection with the stock split. The par
value of the common stock remains unchanged. All share and per share amounts
have been restated to retroactively reflect the stock split.
22
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS, CONTINUED
11. STOCKHOLDERS' EQUITY, CONTINUED:
Effective March 6, 1996, the Company's Board of Directors approved a three-
for-one stock split of common stock for stockholders of record as of March 20,
1996 for which the ex-dividend date is March 27, 1996. A total of $318,333 was
transferred from additional contributed capital to the stated value of common
stock in connection with the stock split. The par value of the common stock
remains unchanged. All share and per share amounts have been restated to
retroactively reflect the stock split.
12. CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The
Company places its cash with what it believes to be high credit quality
institutions. At times such investments may be in excess of the FDIC insurance
limit. The Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable credit risk
exposure is limited.
13. SIGNIFICANT CUSTOMER INFORMATION:
The Company provides clerical, light industrial, professional and technical
staffing services to a wide range of businesses and government on both a
temporary and permanent basis, primarily in the Southeastern, Midwestern, and
Mid-Atlantic states. The Company has provided staffing services to ATI, a
subsidiary of AT&T, which has comprised 31%, 24%, and 17% of revenue for fiscal
1995, 1994 and 1993, respectively. Such customer accounted for approximately
8%, 15% and 16% of trade accounts receivable for fiscal years 1995, 1994, and
1993, respectively.
In January 1995, the Company was selected by ATI to become the primary
provider of temporary staffing services for ATI's Telecommunications Operations.
Those services are being provided through PeopleSystems, Inc., an affiliate of
the Company, utilizing the Company's temporary employees.
14. ACCRUED WORKERS' COMPENSATION CLAIMS:
During November 1993, the Company became self-insured with respect to workers'
compensation claims for all employees, supplemented by insurance coverage which
limits the Company's liability per occurrence. The limit of the Company's
liability per occurrence was increased from $250,000, which has been the limit
since the inception of the plan, to $350,000 in November, 1995. The excess
insurance coverage provides coverage in excess of the limit of the Company's
liability per occurrence.
The Company has provided an accrual for the estimated amount of unsettled
workers' compensation claims. This estimate was based, in part, on an
evaluation of information provided by the Company's third-party administrator
and its independent actuary, and represents management's best estimate of the
Company's future liability. The Company's management believes that the
difference, if any, between the amounts recorded at December 31, 1995, for its
estimated liability and the costs of settling the actual claims, will not be
material to the results of operations.
<TABLE>
<CAPTION>
FISCAL
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Balance, beginning of period....... $ 1,500,000 $ 800,000
Estimated cost of claims incurred.. 4,417,189 1,748,606
Payments........................... (3,217,189) (1,048,606)
----------- -----------
Balance, end of period............. $ 2,700,000 $ 1,500,000
=========== ===========
</TABLE>
23
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. ACCRUED WORKERS' COMPENSATION CLAIMS, CONTINUED:
The Company's primary insurance carrier requires the Company to maintain an
irrevocable letter of credit to cover potential claim losses under the self-
insurance portion of the plan. At December 31, 1995 and January 1, 1995, the
letter of credit amounted to $2,400,000 and $1,500,000, respectively.
15. CONVERTIBLE SUBORDINATED DEBENTURES:
During the first quarter of 1994, the Company sold $2,300,000 principal amount
of 6% Convertible Subordinated Debentures, due January 31, 1997. The debentures
are convertible at the option of the debenture holders into shares of the
Company's common stock at a price of $1.25 per share. In addition to the
convertible subordinated debentures, the Company has also granted options to
certain debenture holders, whereby they can purchase an additional $2,000,000 of
6% Convertible Subordinated Debentures, due January 31, 1997, which are
convertible into shares of common stock at a conversion price of $1.38 per
share. Included in the debentures was a $500,000 debenture to a Board member
which was redeemable at the Company's option at 100% of principal. During
fiscal 1994, this debenture was called by the Company. The holder exercised his
option to convert the debenture for 399,996 shares of common stock.
In the first quarter of 1995, the debenture holders converted their options to
purchase an $2,000,000 of 6% Convertible Subordinated Debentures, due January
31, 1997, which are convertible into shares of common stock at a conversion
price of $1.38 per share. In addition, on October 24, 1995, the holders of
$1,500,000 million in principal amount of the Company's 6% Convertible
Subordinated Debentures presented their debentures to the Company for
conversion. The debentures were converted into 1,127,262 shares of the
Company's common stock.
16. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (IN THOUSANDS):
The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which
requires the disclosure of fair value information about both on-and off-balance
sheet financial instruments where it is practicable to estimate the value. Fair
value is defined in SFAS No. 107 as the amount at which an instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. It is not the Company's intent to enter into such
exchanges.
The following methods and assumptions were used in estimating the fair value
of financial instruments:
Cash and cash equivalents. The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate their estimated fair values.
Investments. The value approximates fair value based on quoted market prices.
Debt. The fair value of debt instruments is based on rates available to the
Company for debt with similar terms and maturities.
Convertible Subordinated Debentures.
Convertible Subordinated debentures are convertible into shares of common
stock at EITHER $1.25 or $1.38 per share. The fair value of the subordinated
debt instrument is based on estimated rates for debt instruments with similar
terms and maturities.
Because SFAS No. 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements, any aggregation of the
fair value amounts presented would not represent the underlying value of the
Company.
24
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
16. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (IN THOUSANDS), CONTINUED:
DECEMBER 31, 1995 JANUARY 1, 1995
----------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............ $34,427 $34,427 $9,087 $9,087
Investments.......................... - - 6,815 6,815
Liabilities:
Debt................................. 15,023 14,900 1,524 1,524
Convertible subordinated debentures.. 2,300 2,289 1,800 1,783
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion has been updated for the effects of the mergers of
PTA International ("Perma Temps") and The McKinley Group, Inc. ("McKinley") on
the Company's Consolidated Financial Statements and should be read in connection
with the Company's Consolidated Financial Statements and the related notes
thereto included elsewhere herein. The Company's fiscal year ends on the Sunday
closest to December 31.
INTRODUCTION
Through September 16, 1996, the Company has acquired 35 staffing companies
since its formation in 1992. Each of these acquisitions, other than the mergers
of Perma Temps, McKinley and Staffware which were or will be accounted for under
the pooling-of-interests method of accounting, has been or will be accounted for
using the purchase method of accounting. The results of the operations of each
of the companies acquired through December 31, 1995, have been included in the
financial statements since the date of acquisition. Under the pooling-of-
interests method of accounting, the Company's financial statements have been
restated to reflect the Perma Temps and McKinley acquisitions; therefore, the
following discussion of the Company's results of operations includes those
acquisitions. In the future, the Company's revenues and expenses may be
significantly affected by the number and timing of the opening or acquisition of
additional offices. The timing of such expansion activities also can affect
period-to-period comparisons.
The Company offers a broad range of staffing and outsourcing services
through three divisions: the Professional Services division, which provides
specialized services such as information technology, technical, legal and
accounting; the Commercial division, which provides clerical and light
industrial staffing services; and the Telecommunications division, which
provides personnel for customer care and inbound and outbound telemarketing
services to American Transtech, Inc. ("ATI"). The Professional Services division
generally enjoys higher gross margins than the Company's other divisions. The
Telecommunications division is characterized by higher volumes, lower gross
margins and lower operating expenses than the Company's other divisions.
See --Results of Operations."
Temporary personnel placed by AccuStaff are generally Company employees.
AccuStaff is responsible for employee related expenses for its temporary
employees, including workers' compensation, unemployment -compensation
insurance, Medicare and Social Security taxes and general payroll expenses. The
Company does not provide health, dental, disability or life insurance to its
temporary employees except in certain circumstances. Generally, the Company
bills its clients for the hourly wages paid to the temporary employees placed
with the client, plus a negotiated markup. Depending on the arrangements
26
<PAGE>
negotiated with the client, the markup may be fixed or may allow direct pass-
throughs of increases in expenses such as unemployment compensation insurance
and workers' compensation insurance. Because the Company pays its temporary
employees only for the hours they actually work, wages for the Company's
temporary personnel are a variable cost that increase or decrease in proportion
to revenue. See "Business-Operations-Temporary Employees."
RESULTS OF OPERATIONS
The following table set-, forth the percentage of revenues represented by
certain items the Company's consolidated statement of income for the indicated
periods.
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
<S> <C> <C> <C>
Jan. 2, Jan. 1, Dec. 31,
1994 1995 1995
Revenue
--------- --------- ----------
Commercial division 71.2% 61.0% 51.1%
Professional Services division 10.4 15.3 17.5
Telecommunications division 18.4 23.7 31.4
--------- --------- ----------
Total 100.0 100.0 100.0
Cost of revenue 82.4 81.9 81.1
--------- --------- ----------
Gross profit 17.6 18.1 18.9
Operating expenses 16.0 13.8 12.9
--------- --------- ----------
Income from operations 1.6 4.3 6.0
Interest expense (0.4) (0.3) (0.3)
Other income 0.1 0.2 0.3
--------- --------- ----------
Income before provision for income taxes 1.3 4.2 6.0
Provision for income taxes 0.4 1.1 1.7
--------- --------- ----------
Net income 0.9% 3.1% 4.3%
========= ========= ==========
</TABLE>
The following table sets forth the gross profit as a percentage of revenue
("gross margin" or "margin") for each of the Company's three divisions for the
indicated periods.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
<S> <C> <C> <C>
JAN. 2, JAN. 1, DEC. 31,
1994 1995 1995
-----------------------------------
Commercial 18.7% 19.4% 20.4%
Professional Services 26.2 28.6 30.8
Telecommunications 8.3 8.1 10.0
</TABLE>
27
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
Revenue. Revenue increased $150.2 million, or 90.2%, to $316.8 million in
fiscal 1995 from $166.6 million in fiscal 1994. The increase was attributable
by division to: Commercial, $60.2 million, or an increase of 59.3%; -
Professional Services, $30.1 million, or an increase of 118.3%; and
Telecommunications, $59.9 million, or an increase of 151.2%. Of the increase in
the Commercial division, $44.0 million was attributable to acquisitions,
primarily the acquisitions of ASOSA and Contemporary in January 1995, and
Matthews in July 1995, and $16.2 million was attributable to internal growth of
existing offices. Of the increase in the Professional Services division, $13.4
million was attributable to acquisitions, primarily the acquisitions of Special
Counsel International in July 1995 and CPI in October 1995 and $16.7 million was
attributable to the internal growth of existing offices and the opening of new
branches. The increase in the Telecommunications division was attributable to
increasing volumes with ATI. See "Business-The Company's Staffing Services
Telecommunications Division."
Gross Profit. Gross profit increased $29.8 million, or 98.5%, to $60.0
million in fiscal 1995 from $30.2 million in fiscal 1994. Gross margin
increased to 18.9% in fiscal 1995 from 18.1% in fiscal 1994. In the Commercial,
Professional Services and Telecommunications divisions gross profits increased
$13.2 million, $9.9 million and $6.7 million and gross margins increased by
1.0%, 2.2%, and 1.9%, respectively, over fiscal 1994 amounts. Of the gross
profit increases, $8.5 million and $4.8 million were due to acquisitions in both
the Commercial and Professional Services division, respectively.
Operating Expenses. Operating expenses increased $18.0 million, or 78.6%,
to $41.0 million in fiscal 1995 from $23.0 million in fiscal 1994. Operating
expenses as a percentage of revenue decreased to 12.9% in fiscal 1995, from
13.8% in fiscal 1994. The decline in operating expenses as a percentage of
revenue is attributable to the Company's ability to spread expenses over a
larger revenue base, particularly in the Telecommunications division.
Income from Operations. Income from operations increased $11.7 million, or
161.2%. to $19.0 million in fiscal 1995 from $7.3 million in fiscal 1994.
Income from operations as a percentage of revenue increased to 6.0% in fiscal
1995 from 4.3% in fiscal 1994.
Interest Expense. Interest expense increased $305,000, or 54.6 %, to
$862,000 in fiscal 1995 from $557,000 in fiscal 1994. The increase is
attributable to acquisitions which were funded with borrowings under the
Company's revolving line of credit prior to the October 1995 closing of the
Company's Common Stock offering. The average interest rate paid by the Company
28
<PAGE>
on borrowings under its revolving credit facility in fiscal 1995 and fiscal 1994
was 6.6% per annum and 8.0% per annum, respectively.
Other Income. Other income consists primarily of interest income.
Interest income increased $485,000, or 143.9%, to $821,000 in fiscal 1995 from
$336,000 in fiscal 1994 and was generated primarily from the net proceeds from
the Company's initial public offering of Common Stock completed in August 1994
and the net proceeds from the Company's Common Stock offering completed in
October 1995.
Pro Forma Income Taxes. The Company's effective tax rate was 38.5% in
fiscal 1995 and 37.6% in fiscal 1994. Note that the Company's financial
statements have been restated to give effect to the acquistions of PTA and
McKinley which were both S-Corporations prior to their acquisition by the
Company. Therefore, the net income of PTA and McKinley was not subject to
income taxes. The Company has applied a pro forma provisions for income taxes
to account for income taxes of PTA and McKinley as if such income had been
taxable at the Company's effective tax rate.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $7.4 million or 165.4%, to $11.8 million in fiscal 1995 from $4.4
million in fiscal 1994. Pro forma net income as a percentage of revenue
increased to 3.7% in fiscal 1995 from 2.7% in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Revenue. Revenue increased $58.4 million, or 54.0%, to $166.6 million in
fiscal 1994 from $108.2 million in fiscal 1993. Of the increase, $12.9 million
was attributable to the acquisition of Debbie Temps in March 1994 and $5.3
million was attributable to the acquisition of Mid-States in December 1993. The
remaining increase of $29.7 million was attributable by division to: Commercial,
$11.6 million, or an increase of 40.2%-, Professional Services, $8.9 million, or
an increase of 47.5%; and Telecommunications, $19.7 million, or an increase of
99.0%.
Gross Profit. Gross profit increased $11.2 million, or 58.6%, to $30.2
million in fiscal 1994 from $19.1 million in fiscal 1993. Gross margin
increased to 18.1% in fiscal 1994 from 17.6% in fiscal 1993. The increase in
gross profit of $11.2 million was from the following sources: Debbie Temps
contributed $3.4 million, MidStates contributed $1.6 million and AccuStaff
contributed $6.2 million. These increases in gross profit were largely
attributable to increases in volume rather than increases in margin.
Operating Expenses. Operating expenses increased $5.7 million, or 32.9%,
to $23.0 million in fiscal 1994 from $17.3 million in fiscal 1993. Operating
expenses as a percentage of revenue decreased to 13.8% in fiscal 1994 from 16.0%
in fiscal 1993. The decline was attributable to the Company's ability to spread
expenses over a larger revenue base in fiscal 1994.
29
<PAGE>
Income From Operations. Income from operations increased $5.5 million, or
307.4%, to $7.3 million in fiscal 1994 from $1.8 million in fiscal 1993. Income
from operations as a percentage of revenue increased to 4.3% in fiscal 1994 from
1.7% in fiscal 1993.
Interest Expense. Interest expense increased $99,000, or 21.6%, to
$557,000 in fiscal 1994 from $458,000 in fiscal 1993. This increase reflects
additional borrowings in fiscal 1994, incurred prior to the Company's initial
public offering, to fund working capital requirements, improvement of the
Company's management information systems and the acquisitions of Mid-States and
Debbie Temps. The average interest rate paid by the Company on borrowings under
its revolving credit facility in fiscal 1994 and fiscal 1993 was 8.0% per annurn
and 6.7% per annum. respectively.
Other Income. Interest income was $383,000 for fiscal 1994 and was
generated primarily from the investment of the net proceeds from the Company's
initial public offering of Common Stock completed in August 1994. During fiscal
1993, the Company received management fees of $128,000 from ATS Services, Inc.,
a company affiliated with the Company's chairman, resulting from the provision
of human resources, accounting, payroll and other back office services.
Effective January 1, 1994, ATS Services, Inc. completed the hiring of its own
management team. ATS Services, Inc. has not received any management services
from the Company nor has it paid any management fees to the Company since prior
to fiscal 1994.
Pro Forma Income Taxes. The Company's effective income tax rate was 37.6%
in fiscal 1994 and 38.5% fiscal 1993. Note that the Company's financial
statements have been restated to give effect to the acquistions of PTA and
McKinley which were both S-Corporations prior to their acquisition by the
Company. Therefore, the net income of PTA and McKinley was not subject to
income taxes. The Company has applied a pro forma provisions for income taxes
to account for income taxes of PTA and McKinley as if such income had been
taxable at the Company's effective tax rate.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $3.5 million, or 390.3%, to $4.4 million in fiscal 1994 from $904,000
in fiscal 1993. Pro forma net income as a percentage of revenue increased to
2.7% in fiscal 1994 from 0.8% in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are from operations, proceeds of
Common Stock offerings and borrowings under its $150 million revolving credit
facility. The Company's principal uses of cash are to fund acquisitions,
working capital and capital expenditures. The Company generally pays its
temporary employees weekly for their services while receiving payments from
customers 35 to 60 days from the date of invoice. As new offices are
established or acquired, or as existing offices expand, there will be increasing
requirements for cash resources to fund current operations.
30
<PAGE>
In October 1995, the Company completed a Common Stock offering from which
it realized net proceeds of approximately $72.4 million. The net proceeds were
used primarily to fund new acquisitions and repay outstanding indebtedness from
prior acquisitions.
In March 1995, the holders of certain debentures exercised their option to
purchase $2.0 million of 6% Convertible Subordinated Debentures, convertible
into the Company's Common Stock at $1.38 per share. The Company used the
proceeds of the sales to partially fund acquisitions.
During April 1996, the Company completed a secondary offering of 11.79
million shares of common stock from which the Company received net proceeds of
approximately $304.7 million. The net proceeds have been used, in part, to
repay $92.8 million in outstanding indebtedness under the Company's revolving
credit facility, while an additional $44.4 was used to fund acquisitions and for
other general corporate purposes through June 30, 1996. As of June 30, 1996,
the Company had $167.5 million in cash and cash equivalents which are available
for other general corporate purposes, including possible acquisitions.
The Company is also obligated under various acquisition agreements to make
earn-out payments to former stockholders of acquired companies over the next
five years. The Company cannot currently estimate the total amount of these
payments; however, the Company anticipates that the cash generated by the
operations of the acquired companies will provide a substantial part of the
capital required to fund the earn-out payments.
The Company anticipates that capital expenditures for improvements to its
management information and operating systems will require capital expenditures
during the next twelve months of approximately $6.0 million. The Company
anticipates recurring capital expenditures in future years to be approximately
$1.5 million per year.
The Company believes that funds provided by operations, available
borrowings under the credit facility, current amounts of cash and the net
proceeds from the sale of Common Stock offered hereby will be sufficient to meet
its presently anticipated needs for working capital, capital expenditures and
acquisitions for at least the next 12 months.
INDEBTEDNESS OF THE COMPANY
The Company has a revolving credit facility with a commercial bank which is
secured by substantially all of the Company's assets. The facility has a limit
of $150 million. The facility was syndicated to a group of 13 banks, with
NationsBank (South), N.A. as agent.
31
<PAGE>
The credit facility has a term of five years expiring February 1, 2001.
Outstanding amounts under the credit facility bear interest at certain floating
rates as specified by the credit facility. The credit facility contains certain
affirmative and negative covenants relating to the Company's operations,
including a prohibition on making any business acquisition without the consent
of the lenders holding not less than two-thirds of the credit exposure under the
credit facility for acquisitions of a size requiring lender consent, if the cost
of the acquisition (including cash or non-cash consideration paid and the amount
of indebtedness assumed) exceeds the lesser of $20 million or 10% of the
Company's consolidated stockholders equity.
The Company has certain notes payable to shareholders of acquired
companies. The notes payable bear interest at rates ranging from 5.0% to 8.0%
and have repayment terms from April 1996 to March 1999. As of September 16,
1996, the Company owed approximately $19.3 million in such acquisition
indebtedness.
The Company had $2.3 million of 6% Convertible Subordinated Debentures
outstanding as of December 31, 1995, $1.3 million of which are convertible into
Common Stock at a price of $1.25 per share and $1.0 million of which are
convertible into Common Stock at $1.38 per share. During 1996, the holders of
$1.3 million of the Company's 6% Convertible Subordinated Debentures converted
their debt into shares of the Company's common stock at a conversion price of
$1.25 per share leaving the Company with $1.0 million of 6% Convertible
Subordinated Debentures outstanding which are convertible into Common Stock at
$1.38 per share. All of the Convertible Subordinated Debentures mature in
January 1997 and are not redeemable.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements. Generally, throughout
the periods discussed above, the increases in revenue have resulted primarily
from higher volumes, rather than price increases.
32
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OTHER MATTERS
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard did not have a material effect on reported earnings,
financial condition or cash flows because this was essentially the same method
used in the past to measure and record asset impairments.
In 1996 the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard establishes a fair value method for accounting for
stock-based compensation plans, either through recognition or disclosure. The
Company intends to adopt this standard by disclosing the pro forma net income
and earnings per share amounts assuming the fair value method was adopted on
January 1, 1995. The adoption of this standard will not impact results of
operations, financial position or cash flows.
33
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EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
AccuStaff Incorporated on Form S-8 (Reg. Nos. 33-88262 and 333-06899) of our
report dated March 15, 1996, except for the last paragraph of Note 6 and the
last paragraph of Note 11 as to which the date is March 27, 1996 and, except for
the basis of presentation section of Note 2 and the resulting effects on the
consolidated financial statements and notes thereto as to which the date is
September 16, 1996, on our audit of the consolidated financial statements of
AccuStaff Incorporated as of December 31, 1995 and January 1, 1995 and for each
of the three years in the period ended December 31, 1995, which report is
included in this Current Report on Form 8-K.
/s/ COOPERS & LYBRAND L.L.P.
Jacksonville, FL
September 16, 1996
