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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________to____________
Commission File Number 001-13956
PERSONNEL GROUP OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1930691
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6302 FAIRVIEW ROAD, SUITE 201 CHARLOTTE, NORTH CAROLINA 28210
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(Address of principal executive offices) (Zip Code)
(704) 442-5100
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(Registrant's telephone number including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
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.
[X] Yes [ ] No
As of July 31, 1996 there were outstanding 12,027,510 shares of common
stock, par value $.01 per share.
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PERSONNEL GROUP OF AMERICA, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Commercial staffing $46,150 $34,202 $ 84,402 $ 67,755
Information technology staffing 1,421 - 1,421 -
Health care staffing 30,296 27,058 58,917 53,017
------- ------- -------- --------
Total revenues 77,867 61,260 144,740 120,772
------- ------- -------- --------
Expenses:
Direct cost of services 56,678 43,838 105,529 86,642
Selling, general and administrative 14,163 12,399 27,234 25,496
Depreciation and amortization 1,097 918 1,977 1,864
License fees 1,790 1,039 3,270 1,867
Interest expense 227 - 227 -
------- ------- -------- --------
Total operating expenses 73,955 58,194 138,237 115,869
------- ------- -------- --------
Income before income taxes 3,912 3,066 6,503 4,903
Provision for income taxes 1,662 1,366 2,763 2,138
------- ------- -------- --------
Net income $ 2,250 $ 1,700 $ 3,740 $ 2,765
======= ======= ======== ========
Net income per share $ 0.26 $ - $ 0.45 $ -
======= ======= ======== ========
Pro forma net income per share $ - $ 0.21 $ - $ 0.35
======= ======= ======== ========
Weighted average number of shares
outstanding 8,807 8,000 8,403 8,000
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,249 $ 5,273
Accounts receivable, net of allowance for doubtful accounts
of $470 and $514 in 1996 and 1995, respectively 46,736 36,727
Prepaid expenses and other current assets 3,756 1,889
Deferred income taxes 3,527 3,347
-------- --------
Total current assets 102,268 47,236
Property and equipment, net 5,213 3,602
Excess of cost over fair value of net assets acquired, net 96,984 50,091
Other intangibles, net 2,571 1,056
Other assets 661 638
-------- --------
Total assets $207,697 $102,623
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,337 $ 222
Accrued liabilities 21,213 16,269
Notes payable 1,374 -
Income taxes payable 135 1,776
-------- --------
Total current liabilities 24,059 18,267
Deferred income taxes 8,252 8,370
-------- --------
Total liabilities 32,311 26,637
-------- --------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding - -
Common stock $.01 par value; shares authorized 20,000;
12,027 shares issued and outstanding 120 80
Additional paid-in capital 169,179 73,559
Retained earnings 6,087 2,347
-------- --------
Total shareholders' equity 175,386 75,986
-------- --------
Total liabilities and shareholders' equity $207,697 $102,623
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
1996 1995
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<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 3,740 $ 2,765
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,977 1,864
Deferred income taxes, net (298) (135)
Changes in assets and liabilities:
Accounts receivable (7,945) (1,398)
Prepaid expenses and other current assets (1,704) (416)
Other assets (53) 32
Accounts payable and accrued liabilities 4,780 1,056
Income taxes payable (1,642) -
Other (67) 78
-------- -------
Net cash provided by (used in) operating activities (1,212) 3,846
Cash flows used in investing activities:
Purchases of property and equipment, net (2,300) (189)
Acquisitions of subsidiaries, net of cash acquired (49,172) -
-------- -------
Net cash used in investing activities (51,472) (189)
-------- -------
Cash flows provided by (used in) financing activities:
Sale of common stock, net of expenses 95,660 -
Repayments of notes payable to bank (29,775) -
Borrowings of notes payable to bank 29,775 -
Distributions to Adia, net - (4,641)
-------- -------
Net cash provided by (used in) financing activities 95,660 (4,641)
-------- -------
Net increase (decrease) in cash and cash equivalents 42,976 (984)
Cash and cash equivalents at beginning of period 5,273 2,931
-------- -------
Cash and cash equivalents at end of period $ 48,249 $ 1,947
======== =======
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Income taxes $ 3,582 $ -
Interest $ 135 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
3
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Personnel Group of America, Inc.
Note to Consolidated Financial Statements
(unaudited)
(In thousands, except share and per share data)
(1) GENERAL
The unaudited consolidated financial statements included herein have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and footnotes required by generally accepted accounting
principles; however, they do include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly the
results of operations of the Company for the interim periods presented. These
interim financial statements should be read in conjunction with the Company's
audited consolidated financial statements and related notes for the year ended
December 31, 1995 included in the Company's Annual Report on Form 10-K for the
year end December 31, 1995. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
entire year.
In June 1996, the Company issued 4,025,000 shares of its common stock in an
underwritten public offering ("Secondary Offering") which raised approximately
$96 million for the Company. The proceeds from the Secondary Offering were used
to repay outstanding borrowings under the Company's Credit Facility (See Note 3)
and fund several of the Company's recent acquisitions (See Note 2).
(2) ACQUISITIONS
During the six months ended June 30, 1996, the Company acquired Profile
Temporary Services in Chicago, Illinois ("Profile"), Allegheny Personnel
Services in Pittsburgh, Pennsylvania ("Allegheny"), Judith Fox Staffing
Companies in Richmond, Virginia ("Fox"), The Computer Resources Group, Inc. in
San Francisco, California ("CRG"), and converted three previously franchised
Nursefinders offices (collectively the "Transactions" or the "Acquired
Companies"). The Profile and Allegheny acquisitions were completed in March
1996, the Fox acquisition was completed in May 1996, and the CRG acquisition was
completed in June 1996. Profile, Allegheny and Fox provide personnel staffing
services to businesses, professional and governmental organizations. CRG is an
information technology services company which provides a full range of computer
consulting services. The former Nursefinders franchisees were converted in
January, March and April 1996, respectively. The Acquired Companies have
combined annual revenues of approximately $75,000.
The purchase price for the Transactions totaled approximately $53,000,
including direct acquisition costs but excluding certain contingent earnout
payments. The acquisitions of Profile and CRG provide for additional purchase
price consideration upon attainment of certain earnings targets over the next
three and two years, respectively. Any additional consideration will be
recorded as additional purchase price when paid and will increase the amount of
excess of cost over fair value of net assets acquired. All of the Transactions
have been accounted for using the purchase method of accounting. Accordingly,
the assets and liabilities of the entities acquired were recorded at the
estimated fair values at the dates of the acquisitions and the results of
operations of the Acquired Companies have been included in the Company's
consolidated results of operations from the date of the respective
acquisitions. The excess purchase price over the estimated fair value of the
net assets acquired was recorded and is being amortized on a straight-line
basis over forty years. All of the Transactions except the CRG acquisition
were primarily funded through borrowings under the Credit Facility. The CRG
acquisition was funded through use of net proceeds of the Secondary Offering.
4
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The following table presents the Company's pro forma consolidated results of
operations for the six month periods ended June 30, 1996, and 1995, as if the
Transactions had occurred on January 1, 1995:
<TABLE>
<CAPTION>
For the six months ended
June 30, 1996 June 30, 1995
-------------------------------
<S> <C> <C>
Revenues $173,321 $156,557
Net income $ 4,050 $ 2,680
Net Income per share $ .48 $ .34
</TABLE>
Subsequent to June 30, 1996, the Company completed the acquisitions of Broughton
Systems, Inc. in Richmond, Virginia ("Broughton") and Denver Temporary Services,
Inc. ("Denver Temps") and Command Technologies ("Command") in Denver, Colorado
(collectively, "Denver"). Broughton is an information technology services
company which provides data processing consulting and systems development
services. Denver Temps is a provider of personnel staffing services and Command
is an information technology staffing company. The combined revenues for these
three companies approximated $21,000 for the year ended December 31, 1995. The
Company purchased Broughton and Denver in separate transactions for an
aggregate $21,900, paying an aggregate $17,600 at closing with the remaining
$3,200 of this amount payable in installments over three years beginning within
90 days of closing. Denver may also receive additional consideration upon the
attainment of a certain earnings target for the year ended December 31, 1996,
which is payable on March 1, 1997. The Company funded the acquisitions of
Broughton and Denver through the use of existing cash balances, resulting from
net proceeds of the Secondary Offering.
(3) CREDIT FACILITY
The Company has a three-year $30 million revolving line of credit (the
"Credit Facility") from a bank dated September 29, 1995, extendible for up to
two additional years. No borrowing under this facility were outstanding as of
June 30, 1996. In addition, approximately $2.8 million of the Credit Facility
has been used for the issuance of undrawn letters of credit to secure the
Company's workers' compensation program. Borrowings under the Credit Facility
bear interest, payable quarterly, at a rate equal to LIBOR plus 0.75% or the
lender's base rate, as defined, at the Company's option. The Credit Facility
contains customary convenants such as the maintenance of certain financial
ratios and minimum net worth and working capital requirements and a restriction
on the payment of cash dividends on common stock. The Credit Facility also
limits the availability for acquisition-related purposes and further limits the
aggregate purchase price for permitted acquisitions in a single year. The
Company has a commitment from its lender to use its best efforts to syndicate
the Credit Facility and increase the maximum availability thereunder to $60.0
million and is currently negotiating with this lender to further increase this
facility.
5
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION AND OVERVIEW
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and notes thereto
included elsewhere in this report. The Company's fiscal year ends on the
Sunday nearest to December 31 and the fiscal quarters end on the Sunday nearest
to the end of the respective calendar quarters. For presentation purposes,
fiscal periods are shown as ending on December 31 and June 30.
The Company provides personnel staffing services in selected markets throughout
the United States to businesses, professional and governmental organizations,
health care facilities, and individuals who require home health care and related
services. The Company operates within one industry segment, and is organized
into three divisions: the Commercial Staffing Division, which provides a wide
variety of staffing services, the Information Technology Staffing Division,
which provides personnel in a variety of computer-related disciplines and the
Health Care Staffing Division, which through Company-operated, franchised and
licensed offices provides home health care services and supplemental staffing
for health care facilities. At August 12, 1996, the Commercial Staffing
Division included 71 Company-operated offices doing business under 12
proprietary brands, the Information Technology Staffing Division operated 6
offices under 3 proprietary brands and the Health Care Staffing Division
included 51 Company-operated, 33 franchised, and 14 licensed offices doing
business under the Nursefinders brand.
The Company recognizes as revenues the amounts billed to clients of
Company-operated and licensed offices. In these cases, the temporary worker is
the Company's employee and all costs of employing the temporary worker are the
responsibility of the Company and are included in direct cost of services. The
Company remits monthly to licensees the gross profits of the licensed office
less 7% of gross revenues, uncollectible receivables and certain other expenses
of the licensed office. The Company also records a 5% royalty on gross
revenues of franchised offices.
6
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RECENT ACQUISITIONS
Since January 1, 1996, the Company has acquired four commercial staffing
services companies and three information technology staffing services companies
in a series of six separate transactions. The Company acquired Allegheny
Personnel Services ("Allegheny") in Pittsburgh, Pennsylvania, and Profile
Temporary Services ("Profile") in Chicago, Illinois, in March 1996, Judith Fox
Staffing Companies ("Fox") in Richmond, Virginia in May 1996, The Computer
Resources Group ("CRG") in June 1996 and Denver Temporary Services ("Denver
Temps"), Command Technologies ("Command") and Broughton Systems, Inc.
("Broughton") in July 1996. Allegheny, Profile, Fox and Denver Temps are
commercial staffing companies and CRG, Command and Broughton are information
technology staffing companies. The combined revenues of these companies for
fiscal 1995 were approximately $96 million and the aggregate purchase price was
approximately $70 million (including direct acquisition costs and excluding
certain contingent earnout payments).
Each of these acquisitions has been or will be accounted for using the purchase
method of accounting. The results of the operations of Allegheny, Profile, Fox
and CRG, which were acquired prior to June 30, 1996, have been included in the
following discussion since the date of acquisition. 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.
FRANCHISE CONVERSIONS
During the six months ended June 30, 1996, the Company converted three former
Nursefinders franchised offices to Company-operated offices by acquiring the
franchise. The combined revenues of these three offices for the year ended
December 31, 1995, were approximately $11 million. The Company recorded
approximately $0.5 million in franchise fee revenue in 1995 relating to these
offices, which are located in Hawaii, California and Missouri.
RESULTS OF OPERATIONS
Typically the second six months of the calendar year is more heavily affected as
companies tend to increase their use of temporary personnel during this period.
The staffing industry is also cyclical, but the Company believes that the broad
geographic coverage of its operations and the diversity of the services it
provides generally mitigates the adverse effects of economic cycles in a single
industry or geographic region.
7
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 1996 VERSUS
THREE MONTHS ENDED JUNE 30, 1995
REVENUES
Total revenues for the three months ended June 30, 1996, increased 27.1% to
$77.9 million from $61.3 million for the three months ended June 30, 1995.
Commercial Staffing Division revenue grew 34.9%, of which 14.3% was primarily
due to increases in billable hours and the average billable hourly rate of
existing operations as compared to the same period of the prior year. These
changes were primarily attributable to an improvement in economic conditions
which led to a higher demand for the Company's services, particularly the
clerical and light technical services. The remainder of the increase was due to
revenues generated from this division's acquisitions, which aggregated $6.9
million during this period. The Information Technology Staffing Division
revenues for the three month period ended June 30, 1996 were $1.4 million.
These revenues were generated from a business acquired during the period.
During this period, the Health Care Staffing Division experienced a 12.0%
increase in revenues (including franchise fees), which was attributable to
increases in home health care visits and billing rates as well as the conversion
of three franchised operations to Company-operated locations which contributed
revenues of approximately $2.9 million.
During the three month period ended June 30, 1996, the Company's Commercial
Staffing Division added five offices, three of which were added through
acquisitions, and the Information Technology Staffing Division added 4 offices
through its acquisition of CRG. Also during this period, the Company's Health
Care Staffing Division had a net decrease of one Company-operated office,
converted a franchised office to a Company-operated office and converted two
Company-operated offices to licensed offices.
DIRECT COST OF SERVICES
Direct costs, consisting of payroll and related expenses of temporary workers,
increased 29.3% to $56.7 million for the three months ended June 30, 1996, from
$43.8 million for the three months ended June 30, 1995, primarily due to
increases in revenues during this period. Direct costs of services as a
percentage of revenues increased to 72.8% during the three months ended June 30,
1996 from 71.6% during the same period of the prior year. This increase
reflects the reclassification of certain non-billable administrative costs
related to the Medicare program as direct costs of patient services in 1996. On
a combined basis, direct costs of services and selling, general and
administrative expenses before license fees as a percentage of revenues
decreased to 91.0% for the three months ended June 30, 1996 from 91.8% for the
same period of the prior year.
8
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OTHER OPERATING EXPENSES
Other operating expenses, consisting of selling, general and administrative
expenses, depreciation and amortization expense and license fees, increased
18.8% to $17.1 million for the three months ended June 30, 1996, from $14.4
million for the three months ended June 30, 1995. As a percentage of revenues,
selling, general and administrative expenses decreased to 18.2% for the three
months ended June 30, 1996 from 20.2% for the same period of the prior year
primarily due to the treatment of the non-billable administrative cost related
to the Medicare program as discussed above. Depreciation and amortization
expense recognized during the three months ended June 30, 1996, decreased to
1.4% of revenues from 1.5% of revenues for the same period of the prior year due
to the completion of the amortization of certain intangibles early in 1995 and
increased revenues. License fees increased by $0.8 million due to increased
revenues from the licensed offices and an increase in the number of licensed
offices as compared to the same period of the prior year.
INCOME TAX EXPENSE
For the three months ended June 30, 1996, the effective tax rate decreased to
42.5% from 44.6% for the comparable period of the prior year. The decrease is
due to a reduction in the estimated annual effective tax rate primarily
attributable to a reduction in nondeductible intangible amortization expense
relative to pretax income for the period.
NET INCOME
Net income increased 32.4% to $ 2.3 million, or 2.9% of revenue, for the three
months ended June 30, 1996 from $1.7 million, or 2.8% of revenue, for the three
months ended June 30, 1995, due to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
REVENUES
Total revenues increased 19.9% to $144.7 million for the six months ended June
30, 1996, from $120.8 million for the six months ended June 30, 1995. Commercial
Staffing Division revenue grew 24.6%, of which 12.2% was primarily due to
increases in billable hours and average hourly billing rates of existing
operations as compared to the same period of the prior year. The remainder was
due to revenues generated by this division's acquisitions, which aggregated
approximately $8.4 million during this period. The Information Technology
Staffing Division revenues for the six month period ended June 30, 1996 were
$1.4 million. These revenues were generated from a business acquired during
this period. During this period, the Health Care Staffing Division experienced
an 11.1% increase in revenues (including franchise fees), which was
attributable to increases in home health care visits and billing rates as well
as the conversion of three franchised offices to Company-operated locations.
9
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DIRECT COST OF SERVICES
Direct costs, consisting of payroll and related expenses of temporary workers,
increased 21.8% to $105.5 million for the six months ended June 30, 1996, from
$86.6 million for the six months ended June 30, 1995. Direct cost of services
as a percentage of revenue increased to 72.9% during the six months ended
June 30, 1996, from 71.7% during the same period of the prior year. This
increase reflects the reclassification of certain non-billable administrative
costs related to the Medicare program as direct costs of patient services in
1996. On a combined basis, direct cost of services and selling, general and
administrative expenses before license fees as a percentage of revenues
decreased to 91.7% for six months ended June 30, 1996 from 92.9% for the same
period of the prior year.
OTHER OPERATING EXPENSES
Other operating expenses, consisting of selling, general, and administrative
expenses, depreciation and amortization expenses and license fees increased
11.1% to $ 32.5 million for the six months ended June 30, 1996, from $29.2
million for the six months ended June 30, 1995. As a percentage of revenues,
selling, general and administrative expenses decreased to 18.8% for the six
months ended June 30, 1996, from 21.1% for the same period of the prior year due
primarily to the treatment of non-billable administrative cost related to the
Medicare program as discussed above. Depreciation and amortization expense
recognized during the six months ended June 30, 1996 decreased to 1.4% of
revenues from 1.5% of revenues for the same period of the prior year primarily
due to the completion of the amortization of certain intangibles early in 1995,
and increased revenues. License fees increased by $1.4 million due to increased
revenues from the licensed offices and an increased number of licensed offices.
INCOME TAX EXPENSE
For the six months ended June 30, 1996, the effective tax rate decreased to
42.5% from 43.6% for the comparable period of the prior year. The decrease is
due to a reduction in the estimated annual effective tax rate primarily
attributable to a reduction in nondeductible intangible amortization expense
relative to pretax income for the period. The Company's effective tax rate is
higher than the U. S. federal statutory rate of 35.0% primarily due to the
amortization of certain goodwill that is not deductible for tax purposes, and
state income taxes.
10
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NET INCOME
Net income increased 35.3% to $3.7 million, or 2.6% of revenue, for the six
months ended June 30, 1996, from $2.8 million, or 2.3% of revenue, for the six
months ended June 30, 1995, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of cash are to finance receivables and fund capital
expenditures and acquisitions. The Company pays wages to its employees on a
weekly basis and, in the Health Care Services Division, makes payments to
vendors under its SingleSource program on a monthly basis. However, receivables
for the Commercial Staffing Division, the Information Technology Staffing
Division and the Health Care Staffing Division remain outstanding an average of
42, 46 and 62 days, respectively, after billing. Health care receivables are
generally paid by insurance companies and governmental agencies and therefore
tend to be outstanding longer than commercial receivables. Due to these timing
differences, if home health care revenues as a percentage of total revenues
increase, average days receivable outstanding would increase accordingly. In
the aggregate, days sales outstanding were 49 as of June 30, 1996 and December
31, 1995.
Cash flows used in operating activities amounted to $1.2 million for the six
months ended June 30, 1996, compared to cash flows from operating activities of
$3.8 million for the six months ended June 30, 1995. The change in cash flows
resulted from the payment of income taxes during the first half of 1996 as well
as increases in accounts receivable. Cash used for investing activities
increased to $51.5 million for the six months ended June 30, 1996, from $0.2
million for the six months ended June 30, 1995, reflecting the Company's
acquisitions completed through June 30, 1996 and additions to property and
equipment. Cash flows from financing activities during the same period
approximated $95.7, primarily reflecting the net proceeds from the issuance of
4,025,000 shares of the Company's common stock in an underwritten public
offering completed in June 1996. The Company made distributions to its former
parent company of $4.6 million for the six months ended June 30, 1995, in
accordance with its normal policies as a wholly owned subsidiary of that
company. No such distributions have been made subsequent to the Company's
initial public offering in September 1995.
11
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While the Company currently has no indebtedness for borrowed money, the Company
has a three-year $30 million revolving line of credit (the "Credit
Facility") from a bank extendible for up to two additional years. Approximately
$3.0 million of the Credit Facility has been used for the issuance of undrawn
letters of credit to secure the Company's workers' compensation program.
Borrowings under the Credit Facility will bear interest, payable quarterly, at a
rate equal to LIBOR plus 0.75% or the lender's base rate, at the Company's
option. The Credit Facility contains customary covenants such as the
maintenance of certain financial ratios and minimum net worth and working
capital requirements and a restriction on the payment of cash dividends on
common stock. The Credit Facility also limits the availability for
acquisition-related purposes and further limits the aggregate purchase price for
permitted acquisitions in a single year. The Company has a commitment from its
lender to use its best efforts to syndicate the Credit Facility and increase the
maximum availability thereunder to $60.0 million and is currently negotiating
with this lender to further increase this facility. There can be no assurance,
however, that the syndicated Credit Facility will close, and until such time,
there can be no assurance that the amount available to the Company under the
Credit Facility will be increased.
The Company's primary capital expenditure requirements relate to the acquisition
of staffing services businesses. Since January 1, 1996, the Company has made
cash payments of approximately $50 million for acquisitions of staffing services
businesses. The Company is obligated to pay an additional amount of
approximately $1.0 million under the Fox acquisition agreement on or about
August 19, 1996. The Company is also obligated under various other acquisition
agreements to make earnout payments to former stockholders of acquired companies
over the next four years. The Company cannot currently estimate the total
amount of these payments, but anticipates that the cash generated by the
operations of the acquired companies will provide a substantial part of the
capital required to fund the earnout payments. The Company is actively seeking
acquisition opportunities and management believes that the Company will complete
several acquisitions during the balance of 1996 as attractive opportunities
become available. The Company intends to use the remaining net proceeds of its
recent stock offering (approximately $28.0 million at August 12, 1996) and to
seek additional capital as necessary to fund other possible acquisitions
through one or more funding sources that may include borrowings under the
Credit Facility or offerings of debt or equity securities of the Company. In
addition, the Company regularly evaluates its asset base and business mix and
could elect to make changes in such in order to take advantage of attractive
acquisition opportunities. Cash flow from operations, to the extent available,
may also be used to fund a portion of these expenditures.
12
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During the remainder of 1996, the Company expects to open four offices and
convert five additional health care franchised operations to Company-operated
locations. Start-up costs related to the opening of the new branches vary, but
are expected to approximate $100,000 per branch. Costs for furniture, fixtures,
and equipment are capitalized and depreciated, and other start-up costs are
expensed as incurred. New Company-operated and licensed offices impose
additional working capital requirements on the Company. In addition to opening
new branches, the Company is in the process of purchasing and installing an
accounting and financial information system and branch operating and paybill
systems, portions of which are complete. The Company expects that its capital
expenditures relating to these projects will aggregate $2.5 million during 1996
and 1997.
The Company believes that the remaining net proceeds from the offering of Common
Stock, cash flow from operations, the current borrowing capacity under the
existing Credit Facility and other available financing alternatives, including
the possible syndication and enlargement of the Credit Facility, will be
adequate to meet its presently anticipated needs for working capital, capital
expenditures and acquisitions.
INFLATION
The effects of inflation on the Company's operation were not significant during
the six months ended June 30, 1996.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 23, 1996.
The matters voted upon at the meeting were proposals (1) to elect one
director to serve a term of three years and (2) to ratify the
selection of Arthur Andersen LLP as the Company's independent public
accountants for fiscal 1996. Each of these proposals was approved by
the following margins:
<TABLE>
<CAPTION>
Votes Votes Against
Proposal For or Withheld
-------- ----- -------------
<S> <C> <C>
Election of Director
Michael P. Bernard 6,096,049 46,235
</TABLE>
<TABLE>
<CAPTION>
Votes Votes Against
Proposal For or Withheld Abstentions
-------- ----- ------------- -----------
<S> <C> <C> <C>
Ratification of Selection
of Independent Public
Accountants 6,105,288 2,600 34,396
</TABLE>
ITEM 6. - Exhibits and reports on Form 8-K
(a) Exhibits - The exhibits filed with or incorporated by reference into
this Form 10-Q are set forth in the Exhibit Index, which immediately
precedes the exhibits to this report.
(b) Reports on Form 8-K - There were no Current Reports on Form 8-K filed
during the quarter ended June 30, 1996. On July 3, 1996, the Company
filed a Current Report on Form 8-K dated June 18, 1996 (the "Report")
to report the closing of the acquisition of Computer Resources Group,
Inc. An Unaudited Pro Forma Balance Sheet as of March 31, 1996 and
notes thereto and Unaudited Pro Forma Statements of Income for the
year ended December 31, 1995 and the three-month period ended March
31, 1996 and notes thereto were filed with the Report by incorporation
by reference of such financial statements from the Company's
Registration Statement on Form S-1 (SEC File No. 333-04573).
14
<PAGE> 17
SIGNATURES
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 thereunto duly authorized.
PERSONNEL GROUP OF AMERICA, INC.
(Registrant)
Date: August 14, 1996 By: /s/ Edward P. Drudge Jr.
------------------------------------
Edward P. Drudge Jr.
Chief Executive Officer
Date: August 14, 1996 By: /s/ Michael P. Bernard
------------------------------------
Michael P. Bernard
Chief Financial Officer and
Treasurer
15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED HEREWITH(*),
OR
INCORPORATED BY
REFERENCE FROM
Previous
Exhibit Exhibit Company Reg. No.
Number Description Number or Report
------ ----------- -------- ----------------
<S> <C> <C> <C>
Amended and Restated Certificate of 3.1 33-95228
3.1 Incorporation of the Company
3.2 Amended and Restated Bylaws of the 3.2 33-95228
Company
4.0 Specimen Stock Certificate 4.0 33-95228
4.1 Rights Agreement between the Company and 1 0-27792
The First National Bank of Boston
10.1 1995 Equity Participation Plan 10.1 10-Q for quarter
ended 9/30/95
10.2 Management Incentive Compensation Plan 10.2 10-Q for quarter
ended 9/30/95
10.3# Director and Officer Indemnification 10.3 10-K for year
Agreement of James V. Napier ended 12/31/95
10.4 License Agreement between Adia Services, 10.4 10-Q for quarter
Inc., a California corporation ("Adia ended 9/30/95
California") and StaffPLUS, Inc.
10.5 License Agreement between Adia Services, 10.5 10-Q for quarter
Inc., a Delaware corporation ("Adia ended 9/30/95
Delaware") and Nursefinders, Inc.
10.6 Administrative Services Agreement between 10.6 10-Q for quarter
the Company and Adia California ended 9/30/95
10.7 Paybill Services Agreement between the 10.7 10-Q for quarter
Company and Adia California ended 9/30/95
10.8 Software License Agreement between the 10.8 10-Q for quarter
Company and Adia California ended 9/30/95
10.9 Employment Agreement between the Company 10.9 10-Q for quarter
and Edward P. Drudge, Jr. ended 9/30/95
10.10 Employment Agreement between the Company 10.10 10-Q for quarter
and Michael P. Bernard ended 9/30/95
10.11 Employment Agreement between Adia 10.13 33-95228
Delaware, PFI Corp. and Richard L.
Peranton
10.12 Employment Agreement between Adia 10.14 33-95228
California and Gene C. Wilson
10.13 Employment Agreement between the Company 10.13 10-K for year
and Rosemary Payne-Harris ended 12/31/95
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
FILED HEREWITH(*),
OR
INCORPORATED BY
REFERENCE FROM
Previous
Exhibit Exhibit Company Reg. No.
Number Description Number or Report
------ ----------- -------- ----------------
<S> <C> <C> <C>
10.14 Indemnification Agreement between the 10.14 10-Q for quarter
Company and Adia Delaware ended 9/30/95
10.15 Tax-Sharing Agreement between the 10.15 10-Q for quarter
Company, Adia Delaware and Adia ended 9/30/95
California
10.16 Non-Qualified Profit-Sharing Plan 10.16 10-K for year
ended 12/31/95
10.17 Revolving Credit Facility Loan Agreement 10.17 10-Q for quarter
between the Company and NationsBank of ended 9/30/95
Texas, N.A.
10.18 Amendment No. 1 to Revolving Credit 10.18 333-04573
Facility Loan Agreement between the
Company and Nationsbank, N.A.
10.19 Asset Purchase Agreement between the 10.19 333-04573
Company and Judith Fox Staffing Companies
10.20 Asset Purchase Agreement between the 10.20 333-04573
Company and Computer Resources Group,
Inc.
27 Financial Data Schedule (for SEC use only). *
</TABLE>
# This Exhibit is substantially identical to Director and Officer
Indemnification Agreements of the same date between the Company and the
following individuals: Edward P. Drudge, Jr., Richard L. Peranton, Gene C.
Wilson, Rosemary Payne-Harris, Michael P. Bernard, Kevin P. Egan, J. Roger
King, Joyce G. Mazero and William Simione, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 48,249
<SECURITIES> 0
<RECEIVABLES> 47,206
<ALLOWANCES> (470)
<INVENTORY> 0
<CURRENT-ASSETS> 102,268
<PP&E> 11,952
<DEPRECIATION> (6,739)
<TOTAL-ASSETS> 207,697
<CURRENT-LIABILITIES> 24,059
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 175,380
<TOTAL-LIABILITY-AND-EQUITY> 207,697
<SALES> 144,740
<TOTAL-REVENUES> 144,740
<CGS> 105,529
<TOTAL-COSTS> 108,799
<OTHER-EXPENSES> 1,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> 6,503
<INCOME-TAX> 2,763
<INCOME-CONTINUING> 3,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,740
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
</TABLE>
