SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
COMMISSION FILE NUMBER: 0-24484
MODIS PROFESSIONAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3116655
- -------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Independent Drive, Jacksonville, FL 32202
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code): (904) 360-2000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
(Title of each class) (Name of each exchange on
which registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (assuming for these purposes, but not conceding, that all
executive officers and directors are "affiliates" of the Registrant), based upon
the closing sale price of common stock on March 19, 1999 as reported by the New
York Stock Exchange, was approximately $915,729,141.
As of March 19, 1999, the number of shares outstanding of the Registrant's
common stock was 95,787,567.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registrant's Proxy
Statement for its 1999 Annual Meeting of shareholders are incorporated by
reference in Part III.
<PAGE>
DISCUSSION OF FORM 10-K/A, AMENDED ANNUAL REPORT, FILING
This annual report on Form 10-K/A includes additional disclosure items which
were added to Item 8 - Financial Statements and Supplementary Data.
Specifically, additional disclosure was added to Notes 2, 3, 9, 11, and 12 of
the Consolidated Financial Statements. These additional disclosure items have
been added as the result of suggested additional disclosures received from the
United States Securities and Exchange Commission in connection with a review of
the Company's annual report on Form 10-K for the year ended December 31, 1998.
In addition, the Company is filing a new consent of PricewaterhouseCoopers LLP.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Consolidated Financial Statements: The following consolidated financial
statements are included in this Annual Report on Form 10-K/A:
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Report of Independent Public Accountants
Covered by the Report of Independent Public Accountants:
Consolidated Balance Sheet at December 31, 1998 and 1997
Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity at
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Modis Professional Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Modis
Professional Services, Inc. (formerly AccuStaff Incorporated) and its
Subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Jacksonville, Florida
March 26, 1999
<PAGE>
Modis Professional Services Inc. and Subsidiaries
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(dollar amounts in thousands except per share amounts) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 105,816 $ 23,938
Accounts receivable, net of allowance of $13,007 and $8,945 327,185 230,934
Prepaid expenses 11,219 9,352
Deferred income taxes 16,858 731
Net assets of discontinued operations - 366,045
Other 28,460 -
----------------------------------
Total current assets 489,538 631,000
Furniture, equipment and leasehold improvements, net 37,577 27,367
Goodwill, net 1,025,240 726,931
Other assets, net 19,526 17,328
----------------------------------
Total assets $ 1,571,881 $ 1,402,626
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 15,988 $ 16,366
Accounts payable and accrued expenses 206,681 92,433
Accrued payroll and related taxes 60,844 37,647
Income taxes payable 189,887 3,192
----------------------------------
Total current liabilities 473,400 149,638
Convertible debt - 86,250
Notes payable, long-term portion 15,525 347,785
Deferred income taxes 12,846 6,111
----------------------------------
Total liabilities 501,771 589,784
----------------------------------
Commitments and contingencies (Notes 3,4 and 6)
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value; 400,000,000 shares authorized
96,306,323 and 103,692,098 shares issued and outstanding on
December 31, 1998 and December 31, 1997, respectively 963 1,037
Additional contributed capital 564,248 634,194
Retained earnings 504,899 181,068
Deferred stock compensation - (3,457)
----------------------------------
Total stockholders' equity 1,070,110 812,842
----------------------------------
Total liabilities and stockholders' equity $ 1,571,881 $ 1,402,626
==================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Modis Professional Services Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(dollar amounts in thousands except per share amounts) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,702,113 $ 1,164,124 $ 580,016
Cost of revenue 1,234,537 835,609 426,814
------------------------------------------
Gross Profit 467,576 328,515 153,202
------------------------------------------
Operating expenses:
General and administrative 264,551 189,271 97,209
Depreciation and amortization 37,105 22,456 10,303
Restructuring and impairment charges 34,759 - -
Merger related costs - - 14,446
------------------------------------------
Total operating expenses 336,415 211,727 121,958
------------------------------------------
Income from operations 131,161 116,788 31,244
------------------------------------------
Other income (expense):
Interest expense (25,065) (15,979) (6,825)
Interest income and other, net 11,090 1,364 3,851
-------------------------------------------
Other income (expense) (13,975) (14,615) (2,974)
Income from continuing operations before provision for income taxes 117,186 102,173 28,270
Provision for income taxes 48,326 38,803 19,693
------------------------------------------
Income from continuing operations 68,860 63,370 8,577
Discontinued operations (Note 16):
Income from discontinued operations (net of income
taxes of $17,522, $26,739 and $19,079, respectively) 30,020 38,663 22,633
Gain on sale of discontinued operations (net of income
taxes of $175,000) 230,561 - -
------------------------------------------
Income before extraordinary loss 329,441 102,033 31,210
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $3,512) (5,610) - -
------------------------------------------
Net income $ 323,831 $ 102,033 $ 31,210
==========================================
Basic income per common share from continuing operations $ 0.63 $ 0.62 $ 0.09
==========================================
Basic income per common share from discontinued operations $ 0.28 $ 0.38 $ 0.25
==========================================
Basic income per common share from gain on sale of
discontinued operations $ 2.12 $ - $ -
==========================================
Basic income per common share from extraordinary item $ (0.05) $ - $ -
==========================================
Basic net income per common share $ 2.98 $ 1.00 $ 0.34
==========================================
Average common shares outstanding, basic 108,518 101,914 90,582
==========================================
Diluted income per common share from continuing operations $ 0.61 $ 0.59 $ 0.09
==========================================
Diluted income per common share from discontinued operations $ 0.26 $ 0.34 $ 0.24
==========================================
Diluted income per common share from gain on sale of
discontinued operations $ 1.97 $ - $ -
==========================================
Diluted income per common share from extraordinary item $ (0.05) $ - $ -
==========================================
Diluted net income per common share $ 2.79 $ 0.93 $ 0.33
==========================================
Average common shares outstanding, diluted 116,882 113,109 95,317
==========================================
Unaudited pro forma data (Note 3):
Net income before provision for pro forma income taxes $ 31,210
Provision for pro forma income taxes (3,642)
--------------
Pro forma net income $ 34,852
==============
Pro forma basic income per common share from continuing
operations $ 0.13
==============
Pro forma basic income per common share from discontinued
operations $ 0.25
==============
Pro forma basic net income per common share from continuing operations $ 0.38
==============
Pro forma diluted income per common share from continuing
operations $ 0.13
==============
Pro forma diluted income per common share from discontinued
operations $ 0.24
==============
Pro forma diluted net income per common share $ 0.37
==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Modis Professional Services Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Common Additional Deferred
(dollar amounts in thousands Stock Stock Contributed Retained Stock
except per share amounts) Shares Amount Shares Amount Capital Earnings Compensation Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 - - 24,701,102 $ 247 $144,925 $ 49,992 $ (79) $ 195,085
3 for 1 stock split - - 49,402,203 494 (494) - - -
Sale of common stock - - 20,017,575 200 424,477 - - 424,677
Conversion of subordinated debentures - - 1,040,000 10 1,290 - - 1,300
Issuance of restricted stock - - 345,000 3 4,889 - (4,892) -
Exercise of stock options and related
tax benefit - - 2,726,412 27 17,013 - - 17,040
Vesting of restricted stock - - - - - - 537 537
Net income - - - - - 31,210 - 31,210
Issuance of stock related to business
combinations - - 994,521 11 2,086 1,214 - 3,311
Distribution to former shareholders of
acquired S-corporations - - - - - (3,381) - (3,381)
-----------------------------------------------------------------------------
Balance, December 31, 1996 - - 99,226,813 992 594,186 79,035 (4,434) 669,779
Conversion of subordinated debentures 727,272 7 993 1,000
Exercise of stock options and related
tax benefit - - 3,069,143 31 30,169 - - 30,200
Vesting of restricted stock - - - - - - 977 977
Net income - - - - - 102,033 - 102,033
Issuance of stock related to business
combinations - - 668,870 7 8,846 - - 8,853
-----------------------------------------------------------------------------
Balance, December 31, 1997 - - 103,692,098 1,037 634,194 181,068 (3,457) 812,842
Repurchase of Common Stock - - (21,750,522) (218) (309,517) - - (309,735)
Conversion of Convertible debt - - 6,149,339 61 71,238 - - 71,299
Exercise of stock options and related
tax benefit - - 2,741,895 28 27,453 - - 27,481
Vesting of restricted stock - - - - - - 3,457 3,457
Issuance of common stock related to
business combinations - - 5,473,513 55 140,880 - - 140,935
Net income - - - - - 323,831 - 323,831
-----------------------------------------------------------------------------
Balance, December 31, 1998 - - 96,306,323 $ 963 $564,248 $504,899 $ - $1,070,110
===========================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Modis Professional Services Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(dollar amounts in thousands except for per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 68,860 $ 63,370 $ 8,577
Adjustments to income from operations to net cash
provided by operating activities:
Restructuring and impairment charges 34,759 - -
Depreciation and amortization 37,105 22,456 10,303
Deferred income taxes (9,392) 3,800 1,221
Changes in assets and liabilities
Accounts receivable (55,712) (45,188) (34,761)
Prepaid expenses and other assets (9,072) 1,592 9,335
Accounts payable and accrued expenses 14,161 (8,151) 12,432
Accrued payroll and related taxes 10,007 3,701 (6,433)
Other, net (1,775) (2,623) 5,294
-----------------------------------------
Net cash provided by operating activities 88,941 38,957 5,968
-----------------------------------------
Cash flows from investing activities:
Proceeds from sale of net assets of discontinued
operations, net of costs 840,937 - -
Advances associated with sale of assets, net of
repayments (15,866) - -
Purchase of investments - - (10,438)
Investment in reverse repurchase agreements, net - - 48,449
Purchase of furniture, equipment and leasehold
improvements, net of disposals (22,873) (8,126) (7,345)
Purchase of businesses, including additional earnouts on
acquisitions, net of cash acquired (157,162) (357,776) (305,963)
-----------------------------------------
Net cash provided by (used in) investing activities 645,036 (365,902) (275,297)
-----------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering
expenses paid - - 424,677
Repurchases of common stock (309,735) - -
Repurchase of convertible debentures (23,581) - -
Proceeds from stock options exercised 24,235 23,130 6,977
Borrowings on indebtedness 302,500 446,583 92,800
Repayments on indebtedness (652,000) (133,853) (115,745)
Other, net - (100) (3,650)
-----------------------------------------
Net cash provided by (used in) provided by
financing activities (658,581) 335,760 405,059
Net increase in cash and cash equivalents -----------------------------------------
from continuing operations 75,396 8,815 135,730
Net cash provided by (used in) discontinued operations 6,482 (81,293) (77,038)
Cash and cash equivalents, beginning of year 23,938 96,416 37,724
-----------------------------------------
Cash and cash equivalents, end of year $ 105,816 $ 23,938 $ 96,416
=========================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
(dollar amounts in thousands except for per share amounts) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 26,528 $ 14,627 $ 8,049
Income taxes paid 40,440 24,323 8,308
COMPONENTS OF CASH USED IN DISCONTINUED OPERATIONS
Cash provided by (used in) operating activities 81,559 (2,413) 6,081
Cash used in investing activities (39,448) (94,323) (54,509)
Cash (used in) provided by financing activities (35,629) 15,443 (28,610)
-----------------------------------------
Net cash provided by (used in) discontinued operations 6,482 (81,293) (77,038)
=========================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1996, the Company completed numerous acquisitions. In connection
with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 383,008
Cash paid (306,958)
------------
Liabilities assumed $ 76,050
============
In fiscal 1996, Convertible Subordinated Debentures of $1,300 were converted by
the Company into 1,040,000 shares of common stock. Also, 345,000 shares of stock
were issued to the President and Chief Executive Officer pursuant to the terms
of a restricted stock grant.
During fiscal 1996, in connection with the acquisition of certain companies, the
Company issued 994,521 shares of common stock with a fair value of $3,311.
During fiscal 1997, the Company completed numerous acquisitions. In connection
with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 393,474
Cash paid (280,148)
------------
Liabilities assumed $ 113,326
============
In fiscal 1997, Covertible Subordinated Debentures of $1,000 were converted by
the Company into 727,272 shares of common stock.
During fiscal 1997, in connection with the acquisition of certain companies, the
Company issued 668,870 shares of common stock with a fair value of $8,853.
During fiscal 1998, the Company completed numerous acquisitions. In connection
with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 104,943
Cash paid (81,784)
------------
Liabilities assumed $ 23,159
============
In fiscal 1998, Convertible Subordinated Debentures of $69,800 were
converted by the Company into 6,149,339 shares of common stock. Also,
paid-in-capital was increased by $1,499 relating to unamortized debt issuance
costs associated with the conversion.
During fiscal 1998, in connection with the acquisition of certain companies, the
Company issued 5,473,513 shares of common stock with a fair value of $140,935.
</TABLE>
<PAGE>
Modis Professional Services Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS:
Modis Professional Services, Inc. (formerly known as AccuStaff
Incorporated), including all subsidiaries unless the context requires otherwise,
(Modis, or the Company), is an international provider of business services,
including consulting, training and outsourcing services to businesses,
professional and service organizations and governmental agencies through a
branch office network of approximately 264 offices throughout the United States,
Canada, United Kingdom and continental Europe. The Company's ongoing business is
organized into two divisions: the Information Technology division and the
Professional Services division, which generated 68.4% and 31.6% of the Company's
fiscal 1998 revenue from continuing operations, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions have
been eliminated in the accompanying consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include deposits in banks, government securities,
money market funds, and short-term investments with maturities, when acquired,
of 90 days or less.
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 5 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. The Company has
developed a proprietary software package which allows the Company to implement
imaging, time capture, and data-warehouse reporting. The costs associated with
the development of this proprietary software package have been capitalized and
are being amortized over a five-year period. Unamortized computer software costs
of $4,231 and $4,197, have been included in 'Furniture, equipment and leasehold
improvements, net' as of December 31, 1998 and 1997, respectively. Total
depreciation and amortization expense was $10,973, $4,871 and $3,055 for 1998,
1997 and 1996, respectively. Accumulated depreciation and amortization of
furniture, equipment and leasehold improvements as of December 31, 1998 and 1997
was $40,432 and $29,459, respectively.
Goodwill
The Company has allocated the purchase price of acquired companies
according to the fair market value of the assets acquired. Goodwill represents
the excess of the cost over the fair value of the net tangible assets acquired
through these acquisitions, including any contingent consideration paid (as
discussed in Note 3 to the Consolidated Financial Statements), and is being
amortized on a straight-line basis over periods ranging from 15 to 40 years.
Management periodically reviews the potential impairment of goodwill on a
undiscounted 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 that exceeds the
undiscounted expected future cash flows) would be recorded as a period expense.
Accumulated amortization was $51,846 and $25,714 as of December 31, 1998 and
1997, respectively. See Note 12 to the Consolidated Financial Statements for
discussion of goodwill impairment charge.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance of Goodwill, net $ 726,931 $ 348,774
Goodwill recorded for companies purchased in current year 227,442 284,242
Goodwill recorded for earn-out payments made, but not accrued at prior
year-end 41,774 77,628
Goodwill accrued, but not paid, for determinable earn-outs 65,161 33,604
Amortization (26,132) (17,317)
Impairment charge (9,936) -
--------- ---------
Net Increase in Balance of Goodwill 298,309 378,157
Ending Balance of Goodwill, net $ 1,025,240 $ 726,931
========= =========
</TABLE>
Revenue Recognition
The Company recognizes as revenue, at the time the professional services
are provided, the amounts billed to clients. In all such cases, the consultant
is the Company's employee and all costs of employing the worker are the
responsibility of the Company and are included in the cost of services.
Foreign Operations
The financial position and operating results of foreign operations are
consolidated using the local currency as the functional currency. Local currency
assets and liabilities are translated at the rate of exchange to the U.S. dollar
on the balance sheet date, and the local currency revenues and expenses are
translated at average rates of exchange to the U.S. dollar during the period.
Foreign currency translation gains and losses during fiscal 1998 and 1997 were
not material and have not been segregated in the Company's Statement of
Stockholders' Equity.
Stock Based Compensation
During 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which encourages all
companies to recognize compensation expense based on the fair value, at grant
date, of instruments issued pursuant to stock-based compensation plans. SFAS No.
123 requires the fair value of the instruments granted, which is measured
pursuant to the provisions of the statement, to be recognized as compensation
expense over the vesting period of the instrument. However, the statement also
allows companies to continue to measure compensation costs for these instruments
using the method of accounting prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Companies
electing to account for stock-based compensation plans pursuant to the
provisions of APB No. 25 must make pro forma disclosures of net income as if the
fair value method defined in SFAS No. 123 had been applied. The Company has
elected to account for stock options under the provisions of APB No. 25 and has
included the disclosures required by SFAS No. 123 in Note 9 to the Consolidated
Financial Statements.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been included in the financial statements
or tax returns in accordance with SFAS No. 109, Accounting for Income Taxes.
Under this method, deferred tax liabilities and assets are determined based on
the differences between the financial statement carrying amounts and the tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Net Income Per Common Share
Basic and diluted net income per common share are presented in accordance
with SFAS No. 128, Earnings per Share. Basic net income per common share is
computed by dividing net income by the weighted average number of shares
outstanding. Diluted net income per common share includes the dilutive effect of
convertible debentures and stock options.
Comprehensive Income
During 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for the Company's 1998 fiscal year.
Management does not believe that the Company has material other comprehensive
income that would require separate disclosure.
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 amount 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 1996 and 1997 to conform to the
1998 presentation.
Recent Accounting Pronouncements
During 1998, the American Institute of Certified Public Accountants'
Executive Committee issued Statement of Position Number 98-1 (SOP 98-1),
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use". SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Management believes that the Company is substantially in compliance with this
pronouncement and that the implementation of this pronouncement will not have a
material effect on the Company's consolidated financial position, results of
operations or cash flows. Implementation is planned for fiscal 1999.
During 1998, the American Institute of Certified Public Accountants'
Executive Committee issued Statement of Position Number 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities". SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. Management does not believe that
its adoption will have a material effect on the Company's consolidated financial
position or results of operations. Implementation is planned for fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and for Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at fair value. SFAS
No. 133 requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999, and cannot be applied retroactively. We
have not yet quantified the impacts of adopting SFAS No. 133 on our financial
statements; however, SFAS No. 133 could increase the volatility of reported
earnings and other comprehensive income once adopted.
Unaudited Pro Forma Data
The McKinley Group, Inc. (McKinley) and HJM Consulting, Inc. (HJM), prior
to their acquisition by the Company, had elected to be treated as S Corporations
for federal and state income tax purposes. As such, the taxable income of each
company was reported to and subject to tax to its respective shareholders. The
unaudited pro forma data on the 1996 consolidated statement of income provides
approximate federal and state income taxes (by applying statutory income tax
rates) that would have been incurred if McKinley and HJM had been subject to tax
as a C Corporation.
3. ACQUISITIONS
For the year ended December 31, 1998
The Company acquired the following companies which have been accounted for
under the purchase method of accounting: Technology Services Corporation,
Millard Consulting Services, Inc., Diversified Consulting, Inc., Avalon, Ltd.,
Cope Management, Ltd. and Lion Recruitment, Ltd., Accountants Express of San
Diego, Inc., Software Knowledge, Ltd., Resource Control and Management, Ltd. and
Software Knowledge Systems, Ltd. and Colvin Resources, Inc. The aggregate
purchase price of these acquisitions during 1998, was $93,642, comprised of
$81,784 in cash and $11,858 in notes payable to former stockholders. In March
1998, the Company issued 4,598,698 shares of common stock, valued at $130,000,
to the former stockholders of Actium, Inc. in exchange for all of their shares
of Actium, Inc. In August 1998, the Company issued 874,815 shares of common
stock, valued at $10,935, to the former stockholders of Consulting Partners,
Inc. in exchange for all of their shares of Consulting Partners, Inc. These two
acquisitions were also accounted for under the purchase method of accounting.
The Company has allocated the purchase price according to the fair market value
of the assets acquired in the aforementioned acquisitions accounted for under
the purchase method of accounting. The excess of the purchase price over the
fair value of the tangible assets (goodwill) is being amortized on a straight
line basis over a period of 40 years, including any contingent consideration
paid.
For the year ended December 31, 1997
The Company acquired the following companies which have been accounted for
under the purchase method of accounting: Executives Monitor, Inc., Manchester,
Inc., Consultants in Computer Software, Inc., Preferred Consulting, Inc., Legal
Information Technology, Inc., Lenco Computer Consulting, Inc., Computer Action,
Inc., AMPL Inc. d/b/a Parker & Lynch, Wasser, Inc., AMICUS Staffing, Inc.,
Custom Software Services, Inc., Accounting Principals, Inc., Keystone Consulting
Group, Inc., Badenoch & Clark Ltd., Computer Systems Development Co. of America,
Inc., Technical Software Solutions, Inc., Real-Time Consulting, Inc., IT Link,
Inc., and Hunterskil Howard, plc. The aggregate purchase price of these
acquisitions during 1997 was $307,971, comprised of $280,148 in cash, $19,413 in
notes payable to former stockholders and $8,410 in the Company's common stock,
consisting of 668,870 shares of common stock. The Company has allocated the
purchase price according to the fair market value of the assets acquired in the
aforementioned acquisitions accounted for under the purchase method of
accounting. The excess of the purchase price over the fair value of the tangible
assets (goodwill) is being amortized on a straight line basis over period of 40
years, including any contingent consideration paid.
In addition, the Company merged with Schwab Carrese and Associates, Inc.
which was accounted for under the pooling-of-interests method of accounting. The
Company acquired all of the stock of Schwab Carrese and Associates, Inc. in
exchange for 263,550 shares of the Company's common stock. Due to the immaterial
affect on prior periods, the Company's historical financial statements have not
been restated for this merger.
For the year ended December 31, 1996
The Company acquired the following companies which have been accounted for
under the purchase method of accounting: Tekna, Inc., Goldfarb-Wasson
Associates, Inc. d/b/a/ GW Consulting, and an affiliated company, Programming
Enterprises, Inc. d/b/a Mini-Systems Associates, Zeitech, Inc., Career
Enhancement International, Inc., Additional Technical Support, Inc. and
affiliated companies, HNS Software, Inc., American Computer Professionals, Inc.,
Project Professionals, Inc., Logue & Rice, Inc. and affiliated companies,
Contact Recruiters, Inc. and an affiliated company, Openware Technologies, Inc.,
CAD Design, Inc., Alta Technical Services, Inc., In-House Counsel, Inc., TRAK
Services, Inc., Perspective Technology, Inc., Datacorp Business Systems, Inc.,
The Daedalian Group, Inc. d/b/a Berger & Co., North American Consulting
Services, Inc., TSG Professional Services, Inc., Contracted Services Group, Inc.
d/b/a The Blackstone Group, Scientific Staffing, Inc. and affiliated companies,
and Resource Solutions Group, Inc. The aggregate purchase price of these
acquisitions during 1996, was $336,958, comprised of $306,958 in cash, $28,000
in notes payable to former shareholders and $2,000 in the Company's common
stock. The Company has allocated the purchase price according to the fair market
value of the assets acquired in the aforementioned acquisitions accounted for
under the purchase method of accounting. 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 30 to 40 years, including any
contingent consideration paid for the purchase method acquisitions.
<PAGE>
The Company completed three mergers during 1996, McKinley, Career and HJM,
which were accounted for under the pooling-of-interests method of accounting and
for which the 1996 financial statements have been restated. Additionally, the
Company merged with Staffware, Inc. and Legal Support Personnel, Inc. which were
accounted for under the pooling-of-interests method of accounting. The Company
acquired all of the stock of the these two companies in exchange for 926,486
shares of the Company's common stock. Due to the immaterial effect on prior
periods, the Company's historical financial statements have not been restated
for these two acquisitions.
Earn-out payments
The Company is obligated under various acquisition agreements to make
earn-out payments to former stockholders of the aforementioned acquired
companies accounted for under the purchase method of accounting, over periods up
to four years, upon attainment of certain earnings targets of the acquired
companies. The agreements do not specify a fixed payment of contingent
consideration to be issued, however, the Company has limited its maximum
exposure under some earn-out agreements to a cap which is negotiated at the time
of acquisition.
The Company records these payments as goodwill in accordance with EITF
95-8, Accounting for Contingent Consideration Paid to the Shareholders of an
Acquired Enterprise in a Purchase Business Combination, rather than compensation
expense. Earn-outs are utilized by the Company to supplement the partial
consideration initially paid to the stockholders of the acquired companies, if
certain earnings targets are achieved. All earnout payments are tied to the
ownership interests of the selling stockholders of the acquired companies rather
than being contingent upon any further employment with the Company. Any former
owners who remain as employees of the Company receive a compensation package
which is comparable to other employees of the Company at the same level of
responsibility.
The Company has accrued contingent payments related to earn-out obligations
in Accounts payable and Accrued expenses of $65.2 million and $33.6 million as
of December 31, 1998 and 1997, respectively. These accrued contingent payments
represent the liabilities related to earn-out payments that are readily
determinable, as a result of resolved and issuable earn-outs, as of the
respective fiscal year ends. The Company applies the relevant profits related to
the earn-out period to the earn-out formula, and determines the appropriate
amount to accrue. The Company records these obligations in accordance with
paragraph 80 of APB 16. 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 these payments.
Unaudited pro forma results of operations
The unaudited pro forma consolidated results of operations listed below
include the effects of the purchases discussed above assuming the acquisitions
had occurred at the beginning of the year in which each company was acquired and
also at the beginning of the preceding year. Pro forma adjustments have been
made to give effect to amortization of goodwill, interest expense on additional
borrowings used to fund the acquisitions, and the reduction of the compensation
of the former owners of the acquired companies to the amount of compensation the
former owners would be entitled to under their current employment agreements,
together with income tax effects.
The results for fiscal 1996, include $14,446, $10,818 net of taxes, in
acquisition costs related to the mergers with McKinley, Career, and HJM. The
results for fiscal 1998 include $25,202, net of taxes, in restructuring and
impairment charges. 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
-------------------------------------------
(unaudited) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue from continuing operations $ 1,829,318 $ 1,543,006 $ 1,127,786
Income from continuing operations 71,934 70,747 27,002
Income and gain on sale from discontinued operations 260,581 39,050 23,312
Net income $ 332,515 $ 109,797 $ 50,314
Diluted income per common share from continuing
operations $ 0.64 $ 0.66 $ 0.28
Diluted income per common share and gain on sale from
discontinued operations $ 2.23 $ 0.35 $ 0.24
Diluted net income per common share $ 2.87 $ 1.01 $ 0.52
</TABLE>
<PAGE>
4. NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Fiscal
---------------------------
1998 1997
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit facilities $ - $ 337,000
Notes payable to former shareholders of acquired companies (interest
ranging from 4.99% to 8.00% due through November 2004) 31,513 27,151
---------------------------
31,513 364,151
Current portion of notes payable 15,988 16,366
---------------------------
Long-term portion of notes payable $ 15,525 $ 347,785
===========================
</TABLE>
Prior to the sale of the Company's Commercial operations and Teleservices
division, the Company had a $500 million credit facility which was syndicated to
a group of 20 banks with NationsBank, N.A. as the principal agent. This facility
was unsecured, but guaranteed by each of the Company's subsidiaries. Immediately
subsequent to the sale of the Company's Commercial and Teleservices divisions,
the existing facility was paid-off, and terminated. Repayment of the existing
facility totaled $477,000.
On October 30, 1998, the Company entered into a new $500 million revolving
credit facility which is syndicated to a group of 13 banks with NationsBank,
N.A. as the principal agent. The facility expires on October 21, 2003.
Outstanding amounts under the credit facility will bear interest at certain
floating rates as specified by the credit facility. The credit facility contains
certain financial and non-financial covenants relating to the Company's
operations, including maintaining certain financial ratios. Repayments of the
credit facility is guaranteed by the material subsidiaries of the Company. In
addition, approval is required by the majority of the lenders at such time that
the cash consideration of an individual acquisition exceeds 10% of consolidated
stockholders' equity of the Company. The Company incurred certain costs directly
related to securing the credit facility in the amount of approximately $788 .
These costs have been capitalized and are being amortized over the life of the
credit facility.
On October 16, 1995, Career Horizons, Inc., issued $86.25 million of 7%
Convertible Senior Notes Due 2002 which were assumed by the Company pursuant to
the merger with Career Horizons, Inc. Interest on the notes were paid
semiannually on May 1 and November 1 of each year. The Notes were convertible at
the option of the holder thereof, unless previously redeemed, into shares of
common stock of the Company at a conversion price of $11.35 per share. The Notes
were redeemable, in whole or in part, at the option of the Company, at any time
on or after November 1, 1998, at stated redemption prices, together with accrued
interest. The Company called the Notes on October 1, 1998, to be either redeemed
or converted as of November 1, 1998. Prior to November 1, 1998, $16.45 million
of Notes were redeemed by the Company at a premium of $7.13 million, and $69.8
million were converted into shares of common stock of the Company.
During the fourth quarter of fiscal 1998, the Company recognized an
extraordinary after-tax charge of $5.61 million as a result of the Company's
early retirement of $16.45 million of 7% Convertible Senior Notes Due 2002 and
the termination of the Company's existing credit facility immediately subsequent
to the sale of the Company's Commercial operations and Teleservices division.
The Company paid a premium of $7.13 million on the early extinguishment of
the 7% Senior Convertible Senior Notes and wrote off $0.37 million of related
unamortized debt issuance costs. Additionally, the Company wrote off $1.63
million of unamortized debt financing costs related to the termination of the
credit facility.
Maturities of notes payable are as follows for the fiscal years subsequent
to December 31, 1998:
<TABLE>
<CAPTION>
Fiscal year
- - ------------------------------------
<S> <C>
1999 $ 15,988
2000 7,546
2001 -
2002 -
2003 2,475
Thereafter 5,504
--------
$ 31,513
========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Components of accounts payable and accrued expenses as of December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------- ---------
<S> <C> <C>
Trade accounts payable 96,447 58,829
Accrued earn-out payments 65,161 33,604
Restructuring charge 24,823 -
Due to Randstad (1) 20,250 -
-------- --------
Total 206,681 92,433
======== ========
<FN>
(1) The Due to Randstad represents the purchase price true-up adjustment
pursuant to the sale agreement which was paid in the first quarter of fiscal
1999.
</FN>
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office space under various noncancelable 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>
1999 $ 13,410
2000 11,828
2001 8,432
2002 6,083
2003 3,830
Thereafter 6,195
--------
$ 49,778
========
</TABLE>
Total rent expense for fiscal 1998, 1997 and 1996 was $13,834, $10,175, and
$4,303 respectively.
Litigation
The company is a party to a number of lawsuits and claims arising out of
the ordinary conduct of its business. In the opinion of management, based on the
advice of in-house and external legal counsel, the lawsuits and claims pending
are not likely to have a material adverse effect on the Company, its financial
position, or results of its operations.
<PAGE>
7. INCOME TAXES:
A comparative analysis of the provision for income taxes from continuing
operations is as follows:
<TABLE>
<CAPTION>
Fiscal
------------------------------------
1998 1997 1996
- - --------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 42,030 $ 30,210 $ 15,594
State 5,789 3,347 2,878
Foreign 6,257 1,446 -
------------------------------------
54,076 35,003 18,472
------------------------------------
Deferred:
Federal: (8,256) 2,991 948
State: (1,136) 361 273
Foreign: 3,642 448 -
------------------------------------
(5,750) 3,800 1,221
------------------------------------
$ 48,326 $ 38,803 $ 19,693
====================================
</TABLE>
The difference between the actual income tax provision and the tax
provision computed by applying the statutory federal income tax rate to income
from continuing operations before provision for income taxes is attributable to
the following:
<TABLE>
<CAPTION>
Fiscal
--------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax computed using the federal statutory rate $ 41,015 35.0% $ 35,761 35.0% $ 9,895 35.0%
State income taxes, net of federal income tax effect 3,024 2.6 2,699 2.6 1,305 4.6
Pre-acquisition earnings of acquired S corporations - - - - (1,081) (3.8)
Acquired subsidiaries change from cash to accrual basis - - - - 4,723 16.7
Non-deductible merger related costs - - - - 4,081 14.4
Non-deductible goodwill impairment charge 3,825 3.2 - - - -
Permanent differences and other 462 0.4 343 0.4 770 2.8
--------------------------------------------------------------
$ 48,326 41.2% $ 38,803 38.0% $ 19,693 69.7%
==============================================================
</TABLE>
<PAGE>
The components of the deferred tax assets and liabilities recorded in the
accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
Fiscal
---------------------------
1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred tax assets:
Self-insurance reserves $ 2,954 $ 376
Allowance for doubtful accounts receivable 4,097 897
Purchase accounting adjustments 2,887 2,910
Amortization of computer software costs - 135
Depreciation and amortization of furniture, equipment and leasehold improvements - 1,043
Restructuring and impairment charge 10,243 -
Other 2,207 1,872
---------------------------
Total gross deferred tax assets 22,388 7,233
---------------------------
Gross deferred tax liabilities:
Amortization of goodwill (15,399) (10,202)
Acquired subsidiaries change from cash to accrual basis (2,423) (2,411)
Depreciation and amortization of furniture, equipment and leasehold improvements (237) -
Other (317) -
---------------------------
Total gross deferred tax liabilities (18,376) (12,613)
---------------------------
Net deferred tax asset (liability) $ 4,012 $ (5,380)
===========================
</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 realize deferred tax assets and, accordingly, has not
reduced deferred tax assets by a valuation allowance.
8. EMPLOYEE BENEFIT PLANS
Profit Sharing Plans
The Company has a qualified contributory profit sharing plan (a 401(k)
plan) which covers all full-time employees over age twenty-one with over 90 days
of employment and 375 hours of service. The Company made contributions of
approximately $6,060, net of forfeitures, to the profit sharing plan for fiscal
1998. No matching contributions were made by the Company to the profit sharing
plan in fiscal 1997 or 1996. The Company also has a non-qualified deferred
compensation plan for its highly compensated employees. The non-qualified
deferred compensation plan does not provide for any matching, either
discretionay or formula-based, by the Company.
The Company has assumed many 401(k) plans of acquired subsidiaries. From
time to time, the Company merges these plans into the Company's plan. Effective
January 1, 1998, a significant number of the profit sharing plans were merged
and amended to become contributory plans. Pursuant to the terms of the various
profit sharing plans, the Company will match 50% of employee contributions up to
the first 5% of total eligible compensation, as defined. Company contributions
relating to these merged plans are included in the aforementioned total.
Prior to the Company's sale of its Commercial operations and Teleservices
division, as discussed in Note 16 to the Consolidated Financial Statements, the
Company had two 401(k) plans: the aforementioned plan covering professional and
IT employees, and one covering non-highly compensated (as defined by IRS
regulations) full time commercial employees over age twenty-one with at least
one year of employment and 1,000 hours of service (the 'commercial plan'). In
connection with the sale, the Company transferred sponsorship of the commercial
plan to Randstad U.S., L.P. The effective date of the transfer was September 27,
1998. Company contributions relating to the commercial plan prior to the
Company's sale of its commercial businesses are included in Income from
Discontinued Operations, as disclosed in Note 16 to the Consolidated Financial
Statements.
9. STOCKHOLDERS' EQUITY
Public Offerings of Common Stock
In April 1996, the Company completed an offering for the sale of 11,790,000
shares of common stock. The Company received $304,900 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 $92,800. The remaining
proceeds have been used primarily to fund acquisitions.
The Company's subsidiary, Career Horizons, Inc., prior to the date of the
merger with the Company, completed offerings in which Career issued 8,227,575
shares of common stock, adjusted for the conversion to the Company's shares of
common stock, in which Career received $119,777, net of underwriting discounts
and expenses associated with the offerings. Career used a portion of the
proceeds from its initial offering to repay subordinated notes.
Stock Repurchase Plan
On October 31, 1998, the Company's Board of Directors authorized the
repurchase of up to $200.0 million of the Company's common stock pursuant to a
share buyback program. On December 4, 1998, the Company's Board of Directors
increased the authorized repurchase by an additional $110.0 million, bringing
the total authorized share buyback program amount to $310.0 million. As of
December 31, 1998, the Company had repurchased approximately 21,751,000 shares
under the share buyback program. Included in the shares repurchased as of
December 31, 1998 were approximately 6,150,000 shares repurchased under an
accelerated stock acquisition plan ("ASAP"). The Company entered into the ASAP
with a certain investment bank who agreed to sell the Company shares at a
certain cost. The investment bank borrowed these shares from its customers and
was required to enter into market transactions, subject to Company approval, and
purchase shares to return to its customers. The Company, pursuant to the
agreement, agreed to compensate the investment bank for any increases in the
Company's stock price that would cause the investment bank to pay an amount to
purchase the stock over the ASAP price. Conversely, the Company received a
refund in the purchase price if the Company's stock price fell below the ASAP
price. Subsequent to December 31, 1998, the Company used refunded proceeds from
the ASAP to complete the program during January and February 1999, with the
repurchase of approximately 597,000 shares, bringing the total shares
repurchased under the program to approximately 22,348,000 shares. All of these
shares were retired upon purchase.
Incentive Employee Stock Plans
Effective December 19, 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 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. The Committee has not issued
non-qualified options at an exercise price less than 100% of the fair market
value and, therefore, the Company does not currently recognize compensation
expense for its stock option plans in accordance with APB Opinion 25.
On August 24, 1995, the Board of Directors approved the 1995 Stock Option
Plan (the 1995 Plan) which provided 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. During fiscal 1998, 1997 and 1996, the 1995
Plan was amended to provide for the granting of an additional 8,000,000,
3,000,000 and 6,000,000 shares, respectively. During fiscal 1998, the 1995 Plan
was amended to, among other things, eliminate the Company's ability to issue
SARS and to amend the definition of a director to comply with Rule 16b-3 of the
Securities Exchange Act of 1934, as amended and with Section 162(m) of the
Internal Revenue Code of 1986, as amended.
The Company assumed the stock option plans of its subsidiaries, Career
Horizons, Inc., Actium, Inc. and Consulting Partners, Inc., upon acquisition in
accordance with terms of the respective merger agreements. At the date of
respective acquisitions, the assumed plans had 2,566,252 options outstanding. As
of December 31, 1998 and 1997 the assumed plans had 340,719 and 372,445 options
outstanding, respectively.
Non-Employee Director Stock Plan
Effective December 29, 1993, the Board of Directors of the Company 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 upon election to the Board. In addition, each non-employee director is
granted 20,000 options upon the anniversary date of the director's initial
election date. 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. In fiscal 1997 and 1996, the Company
granted 120,000 and 80,000 options, respectively, at an average exercise price
of $28.35 and $25.31, respectively. During 1997, the Director plan was amended
to increase the number of shares available under the plan to 1.6 million shares.
In fiscal 1998, the Company granted 240,000 options at an average exercise price
of $21.56.
<PAGE>
The following table summarizes the Company's Stock Option Plans:
<TABLE>
<CAPTION>
Weighted
Range of Average
Shares Exercise Prices Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 6,064,456 $ 0.18 - $11.00 $ 3.88
Granted 6,594,535 $11.27 - $33.75 $ 19.50
Exercised (2,029,163) $ 0.18 - $12.09 $ 2.76
Canceled (61,467) $ 5.81 - $22.22 $ 11.69
----------------------------------------------
Balance, December 31, 1996 10,568,361 $ 0.69 - $33.75 $ 13.67
Granted 2,452,176 $16.13 - $31.38 $ 18.92
Exercised (3,069,143) $ 0.69 - $32.00 $ 7.02
Canceled (43,273) $11.80 - $24.92 $ 23.18
----------------------------------------------
Balance, December 31, 1997 9,908,121 $ 0.83 - $33.75 $ 16.76
Granted 8,560,721 $ 4.80 - $35.13 $ 16.00
Exercised (2,741,895) $ 0.83 - $28.50 $ 13.57
Canceled (4,522,954) $ 1.25 - $35.13 $ 20.22
----------------------------------------------
BALANCE, DECEMBER 31, 1998 11,203,993 $ 0.83 - $33.38 $ 15.38
==============================================
</TABLE>
Effective December 15, 1998, the Company's Board of Directors approved a
stock option repricing program whereby substantially all holders of outstanding
options who were active employees (except those officers and directors) with
exercise prices above $14.44 per share were amended so as to change the exercise
price to $14.44 per share, the fair market value on the effective date. A total
of 3,165,133 shares, with exercise prices ranging from $16.13 to $35.13, were
amended under this program. All other terms of such options remained unchanged.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- -----------------------------
Average Average
Average Exercise Exercise
Shares life (a) Price Shares Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.83 - $ 1.25 180,600 5.03 $ 1.22 168,600 $ 1.22
$ 2.54 - $ 2.54 84,078 8.50 2.54 84,078 2.54
$ 2.85 - $ 5.17 595,492 6.85 4.84 487,234 4.98
$ 6.63 - $ 9.00 36,633 8.85 7.85 32,433 7.76
$ 10.20 - $ 14.50 7,513,857 8.49 13.52 2,351,947 14.37
$ 16.38 - $ 24.00 1,328,333 8.80 21.16 55,336 19.62
$ 24.50 - $ 33.38 1,465,000 7.97 26.46 1,044,668 26.16
-------------------------------------------------------------------------
Total 11,203,993 8.31 $ 15.39 4,224,296 $ 15.49
=========================================================================
</TABLE>
(a) Average contractual life remaining in years.
At year-end 1997, options with an average exercise price of $15.16 were
exercisable on 5.1 million shares; at year-end 1996, options with an average
exercise price of $8.07 were exercisable on 5.0 million shares.
The Company adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, issued in October 1995. As permitted
by the provisions of SFAS No. 123, the Company applies APB Opinion 25 and
related interpretations in accounting for its employee stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost for options granted in 1998 and 1997, based on the
fair value of the options granted at the grant date as prescribed by SFAS No.
123, net income and earnings per share would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income
As reported $ 323,831 $ 102,033
Pro forma $ 312,029 $ 92,353
Basic net income per common share
As reported $ 2.98 $ 1.00
Pro forma $ 2.88 $ 0.91
Diluted net income per common share
As reported $ 2.79 $ 0.93
Pro forma $ 2.69 $ 0.85
</TABLE>
The weighted average fair values of options granted during 1998 and 1997 were
$5.20 and $6.16 per share, respectively. The fair value of each option grant is
estimated on the date of grant using the Black Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
Fiscal
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield - -
Expected stock price volatility .35 .30
Risk-free interest rate 5.57 6.12
Expected life of options (years) 3.50 3.40
</TABLE>
During Fiscal 1996, under the 1995 Plan, the Company's Board of Directors
issued a restricted stock grant of 345,000 shares to the Company's President and
Chief Executive Officer, which was scheduled to vest over a five year period.
The Company recorded $4,892 in deferred compensation expense which was amortized
on a straight line basis over the vesting period of the grant. In December 1998,
the Company's Board of Directors removed the vesting restrictions, thus vesting
the unamortized portion of the grant in the amount of $2,686.
Stock Splits
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. A total of $494 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.
<PAGE>
10. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, Earnings per Share, the calculation of
basic net income per common share and diluted net income per common share from
continuing and discontinued operations is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic net income per common share computation:
Net Income available to common shareholders from
continuing operations $ 68,860 $ 63,370 $ 8,577
------------------------------------------
Net Income available to common shareholders from
discontinued operations $ 30,020 $ 38,663 $ 22,633
------------------------------------------
Gain on sale of discontinued operations, net of income
taxes $ 230,561 $ - $ -
------------------------------------------
Extraordinary item of loss on early extinguishment of
debt, net of income benefit $ (5,610) $ - $ -
------------------------------------------
Basic average common shares outstanding 108,518 101,914 90,582
------------------------------------------
Basic income per common share from continuing
operations $ 0.63 $ 0.62 $ 0.09
==========================================
Basic income per common share from discontinued
operations $ 0.28 $ 0.38 $ 0.25
==========================================
Basic income per common share from gain on sale of
discontinued operations $ 2.12 $ - $ -
==========================================
Basic income per common share from extraordinary item $ (0.05) $ - $ -
==========================================
Basic net income per common share $ 2.98 $ 1.00 $ 0.34
==========================================
Diluted net income per common share computation:
Income available to common shareholders from continuing
operations $ 68,860 $ 63,370 $ 8,577
Interest paid on convertible debt, net of tax benefit (1) 2,784 3,712 -
Income available to common shareholders and assumed ------------------------------------------
conversions from continuing operations $ 71,644 $ 67,082 $ 8,577
Income available to common shareholders from ------------------------------------------
discontinued operations $ 30,020 $ 38,663 $ 22,633
------------------------------------------
Average common shares outstanding 108,518 101,914 90,582
Incremental shares from assumed conversions:
Convertible debt (1) 5,699 7,599 -
Stock options 2,665 3,596 4,735
------------------------------------------
Diluted average common shares outstanding 116,882 113,109 95,317
------------------------------------------
Diluted income per common share from continuing
operations $ 0.61 $ 0.59 $ 0.09
==========================================
Diluted income per common share from discontinued
operations $ 0.26 $ 0.34 $ 0.24
==========================================
Diluted income per common share from gain on sale of
discontinued operations $ 1.97 $ - $ -
==========================================
Diluted income per common share from extraordinary item $ (0.05) $ - $ -
==========================================
Diluted net income per common share $ 2.79 $ 0.93 $ 0.33
==========================================
(1) The Company's convertible debt did not have a dilutive effect on earnings per
share from continuing operations during fiscal 1996 and the Fourth quarter of
fiscal 1998.
</TABLE>
Options to purchase 2,201,757 shares of common stock that were outstanding
during 1998 were not included in the computation of diluted earnings per share
as the exercise prices of these options were greater than the average market
price of the common shares.
<PAGE>
11. 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.
In connection with the Company's sale of its health care operations, the
Company entered into an agreement with the purchaser of the health care assets
whereby the Company agreed to make advances to the purchaser to fund its working
capital requirements not to exceed the lesser of $25.0 million or 85% of
accounts receivable through September 30, 1999. These advances are
collateralized by all the assets of the sold operations. As of December 31,
1998, the Company had advanced approximately $15.9 million under this agreement.
Additionally, the Company has $5.0 million in notes receivable from the sale of
the health care operations, which is offset by a reserve of $1.5 million.
12. RESTRUCTURING OF OPERATIONS AND IMPAIRMENT CHARGE
Restructuring and impairment charge. In December 1998, the Company's Board
of Directors approved the Restructuring Plan to strengthen overall profitability
of the Company by implementing a back office integration program and branch
repositioning plan in an effort to consolidate or close branches whose financial
performance does not meet the Company's expectations. Pursuant to the plan, the
Company recorded a restructuring and impairment charge of $34,759. The
restructuring component of the plan is based, in part, on the evaluation of
objective evidence of probable obligations to be incurred by the Company or of
specifically identified assets.
The Company, formerly AccuStaff Incorporated, was formed in 1992 and grew
over the next 6 1/2 years through both acquisitions and internal growth. Prior
to the disposition of the Commercial operations and the Teleservices and Health
Care divisions in 1998, the Company was largely organized and structured from an
administrative, operations and systems capabilities standpoint as a commercial
staffing business. The Restructuring Plan focuses on meeting the needs of an
information technology and professional services company and is designed to
result in a back office environment tailored to serve these businesses. Upon
completion of the Restructuring Plan, certain back office operations will be
centralized at the Company's headquarters and possibly one additional location,
and certain positions which were necessary under the previous organizational and
operational structure will be eliminated.
The Restructuring Plan calls for the consolidation or closing of 23
Professional Services division branches, certain organizational improvements and
the consolidation of 15 back office operations. This restructuring, which will
result in the elimination of approximately 290 positions, will be completed over
a 12- to 18-month period. The reduction in annualized revenue, gross profit, and
operating losses from the consolidation or closing of the 23 Professional
Services branches is estimated to be $12.0 million, $3.4 million and $4.9
million, respectively.
The major components of the restructuring and impairment charge include:(1)
costs to recognize severance and related benefits for the approximately 290
employees to be terminated of $7,494. The severance and related benefit accruals
are based on the Company's severance plan and other contractual termination
provisions. These accruals include amounts to be paid to employees upon
termination of employment. Prior to December 31, 1998, management had approved
and committed the Company to a plan that involved the involuntary termination of
certain employees. The benefit arrangements associated with this plan were
communicated to all employees in December 1998. The plan specifically identified
the number of employees to be terminated and their job classifications. (2)
costs to write down certain furniture, fixtures and computer equipment to net
realizable value at branches not performing up to the Company's expectations of
$2,476,(3) costs to write down goodwill associated with the acquisition of Legal
Information Technology, Inc. which was acquired in January, 1996, calculated in
accordance with SFAS 121 as described in Note 2 to the Consolidated Financial
Statements, Summary of Significant Accounting Policies - Goodwill of $9,936. The
write down of goodwill associated with Legal Information Technology became
necessary due to the branch incurring losses combined with the Company's
decision not to further invest in this capital intensive legal specialty
solution in the future. The decision to close down the facility was made in
December 1998. (4) costs to terminate leases and other exit and shutdown costs
associated with the consolidated or closed branches including closing the
facilities of $8,035 million, and (5) costs to adjust accounts receivable due to
the expected increase in bad debts which results directly from the termination
or change in client relationships which results when branch and administrative
employees, who have the knowledge to effectively pursue collections are
terminated of $6,818. These costs were based upon management's best estimates
based upon available information.
Since payments pursuant to the Restructuring Plan will not commence until
fiscal 1999, there were no charges recognized by the Company against the
restructuring reserve as of December 31, 1998, at which time the total
restructuring reserve amount of $24,823 (which does not include the $9,936
goodwill impairment charge which was recorded against goodwill in the fouth
quarter of fiscal 1999) was included in accounts payable and accrued
liabilities.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents and
its debt obligations. Management believes that these financial instruments bear
interest at rates which approximate prevailing market rates for instruments with
similar characteristics and, accordingly, that the carrying values for these
instruments are reasonable estimates of fair value.
14. SEGMENT REPORTING
The Company has adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, issued during 1997, which changes the way
public companies report information about segments. SFAS No. 131, which is based
on the management approach to segment reporting, includes requirements to report
selected segment information on a quarterly basis and to report certain
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues.
<PAGE>
The Company has two reportable segments: information technology (IT) and
professional services. The Company's reportable segments are strategic business
units that offer different services and are managed separately as each business
unit requires different resources and marketing strategies. The IT segment
provides computer related consulting services. The professional segment provides
personnel who perform specialized services such as accounting, legal, technical,
outplacement and scientific. See Note 16 to the Consolidated Financial
Statements for information on the discontinued operations of the Company as
these operations are not contained within the scope of this footnote.
Discontinued operations included the Company's former Commercial, Teleservices
and Health Care divisions.
The accounting policies of the segments are consistent with those described
in the summary of significant accounting policies in Note 2 to the Consolidated
Financial Statements, and all intersegment sales and transfers are eliminated.
The Company does not have a material reliance on any one customer
relationship as the Company is able to provide a breadth of services to numerous
Fortune 1000 and other leading businesses.
The Company evaluates segment performance based on revenues, gross margin
and pre-tax income from continuing operations. The Company does not allocate
income taxes or unusual items to the segments. The following table summarizes
segment and geographic information:
<TABLE>
<CAPTION>
Fiscal
------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
IT $ 1,164,140 $ 780,634 $ 400,408
Professional 537,973 383,490 179,608
------------ ------------ ------------
Total Revenues $ 1,702,113 $ 1,164,124 $ 580,016
============ ============ ============
Gross Profit
IT $ 301,816 $ 209,170 $ 107,869
Professional 165,760 119,345 45,333
------------ ------------ ------------
Total Gross Profit $ 467,576 $ 328,515 $ 153,202
============ ============ ============
Income from Operations
IT $ 114,332 $ 79,339 $ 20,673
Professional 51,588 37,449 10,571
------------ ------------ ------------
165,920 116,788 31,244
Restucturing and impairment charges and
Other expenses 48,734 14,615 2,974
------------ ------------ ------------
Total pre-tax income from Continuing Operations $ 117,186 $ 102,173 $ 28,270
============ ============ ============
Assets
IT $ 1,037,722 $ 687,283
Professional 400,563 330,553
------------ ------------
1,438,285 1,017,836
Corporate 133,596 384,790
------------ ------------
Total Assets $ 1,571,881 $ 1,402,626
============ ============
Geographic Areas
Revenues
United States $ 1,348,120 $ 1,074,183 $ 580,016
U.K. 329,746 73,679 -
Other 24,247 16,262 -
------------ ------------ ------------
Total $ 1,702,113 $ 1,164,124 $ 580,016
============ ============ ============
Identifiable Assets
United States $ 1,222,821 $ 1,175,056
U.K. 345,182 222,095
Other 3,878 5,475
------------ ------------
Total $ 1,571,881 $ 1,402,626
============ ============
</TABLE>
<PAGE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Period Ended For the
---------------------------------------------------------- Year Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1998 1998 1998 1998(1) 1998
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ 374,492 $ 425,383 $ 441,580 $ 460,658 $ 1,702,113
Gross profit 104,443 117,810 120,700 124,623 467,576
Income from continuing operations 22,097 24,124 22,021 618 68,860
Income from discontinued operations,
net of taxes 10,479 12,634 6,907 - 30,020
Gain on sale of discontinued
operations, net of taxes (1) - - 216,365 14,196 230,561
Extraordinary item of loss on early
extinguishment of debt, net of
benefit - - - (5,610) (5,610)
Net income 32,576 36,758 245,293 9,204 323,831
Basic income per common share from
continuing operations 0.21 0.22 0.20 0.01 0.63
Basic income per common share from
discontinued operations 0.10 0.11 0.06 - 0.28
Basic income per common share from
gain on sale of discontinued
operations - - 1.94 0.13 2.12
Basic income per common share from
extraordinary item - - - (0.05) (0.05)
Basic net income per common share 0.31 0.33 2.20 0.09 2.98
Diluted income per common share from
continuing operations 0.20 0.21 0.19 0.01 0.61
Diluted income per common share from
discontinued operations 0.09 0.10 0.06 - 0.26
Diluted income per common share from
gain on sale of discontinued
operations - - 1.79 0.13 1.97
Diluted income per common share from
extraordinary item - - - (0.05) (0.05)
Diluted net income per common share $ 0.29 $ 0.31 $ 2.04 $ 0.09 $ 2.79
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Period Ended For the
---------------------------------------------------------- Year Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1997 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue $ 242,234 $ 273,675 $ 302,271 $ 345,944 $ 1,164,124
Gross profit 65,413 75,888 87,991 99,223 328,515
Income from continuing operations 14,750 12,886 16,549 19,185 63,370
Income from discontinued operations,
net of taxes 6,711 11,001 12,142 8,809 38,663
Net income 21,461 23,887 28,691 27,994 102,033
Basic income per common share from
continuing operations 0.14 0.13 0.16 0.19 0.62
Basic income per common share from
discontinued operations 0.07 0.11 0.12 0.08 0.38
Basic net income per common share 0.21 0.24 0.28 0.27 1.00
Diluted income per common share from
continuing operations 0.14 0.12 0.15 0.18 0.59
Diluted income per common share from
discontinued operations 0.06 0.10 0.11 0.07 0.34
Diluted net income per common share $ 0.20 $ 0.22 $ 0.26 $ 0.25 $ 0.93
</TABLE>
(1) In the fourth quarter of 1998, the Company recorded a restructuring and
impairment charge of $34,759. See Note 12 to the Consolidated Financial
Statements for further discussion on the restructuring and impairment charge.
(2) During the fourth quarter of 1998, the Company recorded adjustments to
estimated costs relating to the third quarter gain on sale of net assets of
discontinued operations to reflect the final determination of transaction
related costs and income taxes.
<PAGE>
16. DISCONTINUED OPERATIONS
Effective September 27, 1998 and March 30, 1998, the Company sold its
Commercial operations and Teleservices division, and the operations and certain
assets of its Health Care division, respectively, (jointly the "Commercial
Businesses"). As a result, the Commercial Businesses have been reported as a
discontinued operation, and the consolidated financial statements have been
reclassified to segregate the net assets and operating results of the Commercial
Businesses. The Commercial operations and Teleservices division were sold with a
final adjusted purchase price of $826.2 million in cash to Randstad U.S., L.P.
('Randstad'), the U.S. operating company of Ranstad Holding nv, an
international staffing company based in The Netherlands. The after-tax gain on
the sale was $230.6 million. The operations and certain assets of the Health
Care division were sold for consideration of $8.0 million, consisting of $3.0
million in cash and $5.0 million in a note receivable due March 30, 2000 bearing
interest at 2% in excess of the prime rate. The after-tax gain on the sale was
$0.1 million
In connection with the Company's sale of its health care operations, the
Company entered into an agreement with the purchaser of the health care assets
whereby the Company agreed to extend capital to the purchaser to fund its
working capital requirements. Any amounts extended are collateralized by the
accounts receivable and certain other assets of the related health care
operations. Any advances made under this agreement accrue interest at 10% per
year. As of December 31, 1998, the Company had extended approximately $15.9
million under this agreement.
The sale of the Commercial Businesses represents the disposal of a segment
of the Company's business. Accordingly, the financial statements for the years
ended December 31, 1998, 1997 and 1996 have been reclassified to separate the
revenues, costs and expenses, assets and liabilities, and cash flows of the
Commercial Businesses sold. The net operating results of the Commercial
Businesses have been reported, net of applicable income taxes, as 'Income from
Discontinued Operations'. The net assets of the Commercial Businesses have been
reported as 'Net Assets of Discontinued Operations'; and the net cash flows of
the Commercial Businesses have been reported as 'Net Cash Used In Discontinued
Operations'.
Summarized financial information for the discontinued operations follows:
<TABLE>
<CAPTION>
For the years ended
December 31 1998 1997 1996
(dollars in thousands)
<CAPTION>
<S> <C> <C> <C>
Revenue $ 919,400 $ 1,260,702 $ 1,031,431
Cost of Revenue 708,930 975,489 807,940
Operating Expense 156,180 215,437 181,350
Operating Income 54,290 69,776 42,141
Interest, net 4,200 4,374 429
Provision for income taxes 20,070 26,739 19,079
Income from discontinued operations 30,020 38,663 22,633
</TABLE>
<PAGE>
Results of the discontinued Commercial Business include the allocation of
certain net common expenses for corporate support and back office functions
totaling approximately $0.9 million, $1.2 million, and $1.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Corporate support
and back office allocations are based on the ratio of the Company's consolidated
revenues, operating income and assets to that of the discontinued Commercial
Business. Additionally, the results of discontinued operations include
allocations of consolidated interest expense totaling $4.2 million, $4.4 million
and $0.4 million for fiscal 1998,1997 and 1996, respectively. Interest expense
is allocated based on the historic funding needs of the discontinued operations,
using a rate that approximates the weighted average interest rate outstanding
for the Company for each fiscal year presented. Historic funding needs include:
the purchases of property, plant and equipment, acquisitions, current income tax
liabilities and fluctuating working capital needs. The net assets of the
Company's discontinued operations are as follows:
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1997
<S> <C>
Receivables $ 195,415
Other current assets 60,674
Total current assets 256,089
Furniture, Equipment and Leasehold Improvements, net 21,210
Goodwill, net 189,659
Other Assets 9,581
Total Assets 476,539
Current Liabilities 79,623
Non-current liabilities 30,871
Total liabilities 110,494
----------------
Total Net assets of discontinued operations $ 366,045
================
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8 of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1998
<PAGE>
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1998
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1998
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Financial statement schedules required to be included in this
report are either shown in the financial statements and notes thereto
included in Item 8 of this report or have been omitted because they
are not applicable.
3. Exhibits
3.1 Amended and restated Articles of Incorporation.(1)
3.2 Amended and Restated Bylaws.
10.1 AccuStaff Incorporated Employee Stock Plan. (2)
10.2 AccuStaff Incorporated amended and restated Non-Employee
Director Stock Plan.
10.3 Form of Employee Stock Option Award Agreement. (2)
10.4 Form of Non-Employee Director Stock Option Award Agreement,
as amended.
10.5 Profit Sharing Plan. (2)
10.6 Revolving Credit and Reimbursement Agreement by and between
the Company and NationsBank National Association as
Administration Agent and certain lenders named therein,
dated October 30, 1998.
10.7 Employment Agreement with Derek E. Dewan, as amended. (3)
10.8 Modis Professional Services, Inc., 1995 Stock Option Plan, as
amended.
10.9 Form of Stock Option Agreement under Modis Professional
Services, Inc.amended and restated 1995 Stock Option Plan. (5)
10.10 Executive Employment Agreement with Michael D. Abney. (1)
10.11 Executive Employment Agreement with Marc M. Mayo.
<PAGE>
10.12 Form of Director's and Officer's Indemnification Agreement.(2)
10.13 Executive Employment Agreement with Timothy D. Payne
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Definitive Proxy Statement
on Schedule 14A filed July 14, 1998.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-79806).
(3) Employment Agreement, First, Second and Third Amendments incorporated
by reference to the Company's Registration Statement on Form S-1, filed
August 29, 1996(Reg. No. 33-96372). Fourth Amendment incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1996.
(5) Incorporated by reference to the Company's Registration on Form S-8
(No. 333-49495).
(b) Reports on Form 8-K. The Registrant filed the following reports on Form
8-K during the fourth quarter of 1998:
(i) Form 8-K dated October 1, 1998 as amended by Forms 8-K/A dated
October 16, 1998, and November 13, 1998, reporting the following:
1. The completion of the sale of its commercial staffing
business to Randstad U.S., L.P. filed pursuant to Item 2.
2. The change of the Company's name from AccuStaff Incorporated
to Modis Professional Services, Inc., and the change of the
Company's trading symbol on the New York Stock Exchange from
'ASI' to 'MPS' filed pursuant to Item 5.
<PAGE>
3. The Company's Notice of Redemption to the holders of the
Company's 7% Convertible Senior Notes due 2002 filed pursuant
to Item 5. Included in such Form 8-K, as amended, were: (a)
unaudited pro forma condensed consolidated balance sheet as
of June 30, 1998; (b) unaudited pro forma condensed
consolidated statement of income for the year ended December
31, 1997; (c) unaudited pro forma condensed consolidated
statement of income for the six months ended June 30, 1998;
and (d) notes to unaudited pro forma condensed consolidated
financial statements.
(ii) Form 8-K dated November 13, 1998, reporting the closing of the
sale of the operations and certain assets of its Commercial
Businesses to Randstad U.S., L.P. filed pursuant to Item 5 of Form
8-K. Included in such Form 8-K were: (a) audited consolidated
financial statements; (b) management's discussion and analysis of
results of operations for the three years in the period ended
December 31, 1997 and as of December 31, 1997 and 1996; and (c)
selected financial highlights.
(c) The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedule - not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized
MODIS PROFESSIONAL SERVICES, INC.
By:/s/ Derek E. Dewan
------------------------------------------------
Derek E. Dewan
President, Chairman of the Board
and Chief Executive Officer
September 8, 1999
<PAGE>
EXHIBIT INDEX
3.2 Amended and restated bylaws
10.2 AccuStaff Incorporated amended and restated non-employee director stock
option plan
10.6 Revolving Credit and Reimbursement Agreement
10.7 Fifth amendment to employment agreement of Derek E. Dewan
10.8 Modis Professional Services, Inc., 1995 Stock Option Plan, as
amended.
10.11 Executive employment agreement of Marc M. Mayo
10.13 Executive employment agreement of Timothy D. Payne
23 Consents of Experts and Counsel
27 Financial Data Schedule
Consent of Independent Certified Public Accountants
Consent of PricewaterhouseCoopers LLP
September 8, 1999
We consent to the incorporation by reference in the registration statements of
Modis Professional Services, Inc. on Form S-3 (Reg. Nos. 333-17715, 333-18695,
333-49505 and 333-67271) and on Form S-8 (Reg. Nos. 33-99262, 333-06899,
333-15701, 333-16043, 333-30455, 333-41305, 333-49495, 333-49493, 333-58261,
333-69915 and 333-79001) of our report dated March 26, 1999, on our audits of
the consolidated financial statements of Modis Professional Services, Inc. as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in the Company's filing on Form
10-K/A.
PricewaterhouseCoopers LLP
Jacksonville, Florida
