<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 001-13956
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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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
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(Title of Class)
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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 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
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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. [X]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of February 17, 1998, computed by reference to the closing
sale price on such date, was $505,968,572. (For purposes of calculating this
amount only, all directors, executive officers and greater than 10% shareholders
of the registrant are treated as affiliates.) As of the same date, 12,454,611
shares of Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Annual Report to Stockholders for
the fiscal year ended December 28, 1997 (the "Annual Report") furnished to the
Commission pursuant to Rule 14a-3(b) and definitive Proxy Statement pertaining
to the 1998 Annual Meeting of Shareholders ("the Proxy Statement") filed with
the Commission pursuant to Regulation 14A are incorporated herein by reference
into Parts II and IV, and Part III, respectively.
<PAGE> 2
PART I.
ITEM 1. BUSINESS
Personnel Group of America, Inc. (the "Company"), is a leading provider
of information technology and commercial staffing services to businesses,
professional and governmental organizations. The Company is organized into two
Divisions, Information Technology Services (the "IT Division") and Commercial
Staffing (the "Commercial Staffing Division"), and operates in strategic markets
throughout the United States. The Company's staffing services include temporary
staffing, placement of full time employees, on-site management of temporary
employees, training and testing of temporary and permanent workers and
information technology consulting. At February 17, 1998, the Company operated
through a network of 126 Company-operated offices in 24 states and the District
of Columbia.
The IT Division offers information technology professionals and
consulting services in a range of computer-related disciplines. Commercial
Staffing offers a wide variety of temporary office and clerical services to more
than 10,000 organizations nationwide. This division also provides light
technical, light industrial, and finance and accounting services to its
customers, but these services typically account for less than 20% of the
division's total revenues. For the year ended December 28, 1997 on a pro forma
basis, the IT Division and the Commercial Staffing Division represented
approximately 53% and 47%, respectively, of the Company's total revenues.
The Company reviews acquisition opportunities in the ordinary course of
business and completed the acquisition of 13 companies in seven transactions in
1997. Six of the companies acquired in 1997 are in the information technology
services business and seven are in the commercial staffing business. These
companies had combined pro forma revenues of $151.0 million in 1997.
On December 26, 1997, the Company completed the sale of its healthcare
division for $65.25 million. With the sale of the healthcare division, the
Company freed substantial economic and management resources that it has
reallocated to its faster growing and more profitable IT and Commercial Staffing
Divisions.
The Company had completed four acquisitions subsequent to fiscal
year-end, Ann Wells Personnel Services ("Ann Wells") in the Silicon Valley of
California, Creative Temporaries ("Creative") and Corporate Staffing Consultants
("Corporate") in Charlotte, North Carolina, and Advanced Business Consultants
("ABC") in Kansas City, Missouri. Ann Wells, Creative and Corporate are leading
providers of commercial staffing services in their respective markets. ABC is
the leading independent provider of information technology services in the
Kansas City area. These companies had combined revenues in excess of $58.6
million in 1997.
The Company endeavors to protect its intellectual property rights and
has obtained registrations in the United States of certain of the trademarks,
trade names and service marks that appear in this report.
INFORMATION TECHNOLOGY SERVICES DIVISION
At February 17, 1998, the IT Division provides information technology
professionals and consulting services through 31 offices in 17 states and the
District of Columbia at February 17, 1998. The IT Division employed
approximately 2,800 consultants at February 17, 1998, of which approximately 44%
were salaried employees and 56% were hourly.
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The IT Division was created in 1996 following the acquisition by the
Company of five companies in the information technology services business. The
IT Division provides skilled personnel, such as programmers, systems designers,
software engineers, LAN administrators, systems integrators, helpdesk staff and
other technology specialists, to a wide variety of clients, typically on an
as-needed time and materials basis. The IT Division's staffing services include
providing individuals or teams of computer professionals to corporations and
other organizations that need assistance with project management, analysis,
systems design, programming, maintenance, testing and special technologies for
short-term and long-term information technology projects. A number of the
division's operating companies also provide Year 2000 staffing services. The
division's service offerings encompass a wide variety of tasks, ranging from
management of all aspects of a project or the implementation of turnkey systems
to the fulfillment of temporary staffing needs for technology projects.
Selected offices in the IT Division also provide complementary or
stand-alone consulting services in the information technology area, typically on
an as needed, time and materials basis. For example, BEST Consulting's
Enterprise Division works with clients, chief executive officers and other
executives interested in alternatives to outsourcing their internal information
technology organization, as well as implementing complex systems integration
solutions, and offers a broad range of consulting services, including systems
development projects and client/server networks that span mainframe, mid-range
and desktop systems. These services are provided at the client's site or at
Enterprise's off-site development center. The Company intends to continue
expanding the consulting services component of the IT Division as part of its
strategy to offer a full range of IT services to its clients. Other IT Division
companies also provide IT consulting services to supplement their staffing
services offerings.
Operations
The IT Division markets its services to regional and local accounts on
a decentralized basis. The following table sets forth information at February
17, 1998 on the names, markets, numbers of offices, dates founded and dates
acquired of the IT Division companies:
<TABLE>
<CAPTION>
NUMBER OF DATE DATE
NAME MARKETS OFFICES FOUNDED ACQUIRED
---- ------- ------- ------ --------
<S> <C> <C> <C> <C>
Advanced Business Consultants Kansas City, MO 1 1986 Feb. 1998
BAL Associates Los Altos, CA 2 1989 Dec. 1997
Orlando, FL
BEST Consulting Seattle and Olympic, WA 11 1990 Sept. 1996
Portland, OR
Salt Lake City, UT
Boise, ID
Sacramento, CA
Phoenix, AZ
Minneapolis, MN
Las Vegas and Reno, NV
Broughton Systems Richmond, VA 2 1981 July 1996
Research Triangle Park, NC
Command Technologies Denver, CO 1 1978 July 1996
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF DATE DATE
NAME MARKETS OFFICES FORMED ACQUIRED
---- ------- ------- ------ --------
<S> <C> <C> <C> <C>
Computer Resources Group San Francisco, 4 1972 June 1996
Sacramento and Santa Clara, CA
Salt Lake City, UT
DRACS Consulting Group Atlanta, GA 1 1989 Sept. 1997
Energetix Chicago, IL 1 1988 Feb. 1997
Lipson Conroy Services Silicon Valley, CA 1 1992 Apr. 1997
Lloyd-Ritter Consulting Silicon Valley, CA 1 1980 Apr. 1997
Software Service Corp. Atlanta, GA 2 1990 Sept. 1996
Birmingham, AL
Vital Computer Services New York, NY 4 1970 June 1997
Livingston, NJ
Washington, DC
Miami, FL
</TABLE>
Sales and Marketing
The IT Division has developed a sales and marketing strategy that
focuses on both regional and local accounts, and is implemented in a
decentralized manner through its various branch locations. At the regional
level, the IT Division has attained preferred vendor status under multiple local
brand names at a variety of large clients. These accounts are typically targeted
by a local IT Division company with a presence in a specific market, and then
are sold on the basis of the strength of the IT Division's geographic presence
in multiple markets.
Local accounts are targeted and sold by account managers at the branch
offices, permitting the IT Division to capitalize on the brand names of the
companies in the IT Division and the local expertise and established
relationships of its branch office employees. Such accounts are solicited
through personal sales presentations, telephone marketing, direct mail
solicitation, referrals from clients and other companies in the IT and
Commercial Staffing Divisions and advertising in a variety of local and national
media. These advertisements appear in the Yellow Pages, newspapers and trade
publications. Local employees are also encouraged to be active in civic
organizations and industry trade groups to facilitate the development of new
customer relationships.
COMMERCIAL STAFFING DIVISION
At February 17, 1998, the Commercial Staffing Division operated through
95 offices in 12 states and the District of Columbia. The Commercial Staffing
Division provides temporary personnel who perform general office and
administrative services, word processing and desktop publishing, office
automation, records management, production/assembly/distribution, telemarketing,
finance, accounting and other staffing services, typically on an as-needed, time
and materials basis. Certain of the Commercial Staffing Division's offices also
provide full-time placement and payrolling services. Payrolling services entail
employment by the Commercial Staffing Division of individuals recruited by a
customer for which the Commercial Staffing Division is compensated on a fee
basis.
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Operations
The Commercial Staffing Division markets its staffing services to local
and regional clients through its network of offices across the United States.
The following table sets forth information at February 17, 1998, on the names,
markets, numbers of offices and dates founded of the Commercial Staffing
Division's companies:
<TABLE>
<CAPTION>
NUMBER OF DATE
NAME MARKETS OFFICES(1) FOUNDED
---- ------- ---------- -------
<S> <C> <C> <C>
Abar Staffing San Francisco Bay Area, CA 5 1954
Allegheny Personnel Pittsburgh, PA 4 1972
Ann Wells Personnel (2) Silicon Valley, CA 1 1980
Corporate Staffing Consultants (2) Charlotte, NC 5 1975
Creative Temporaries (2) Charlotte, NC 6 1972
Denver Temporaries Denver, CO 2 1978
FirstWord Staffing Services Dallas, TX 7 1978
Jeffrey Staffing Group Boston, MA 11 1971
(Franklin-Pierce Associates,
Franklin-Pierce Temporaries,
Scott-Wayne Associates,
Scott-Wayne Staffing,
Scott-Wayne Temporaries and
Integrity Technical Services)
Judith Fox Staffing Companies Richmond and Charlottesville, VA 3 1978
(Judith Fox Staffing and New York, NY
Rosemary Scott Temporaries)
Profile Temporaries Loop Area of Chicago, IL 1 1979
Staffinders Personnel Houston, TX 3 1983
Temp Connection New York and Long Island, NY 2 1982
TempWorld Atlanta, GA 14 1980
Birmingham, AL
Washington, DC
Thomas Staffing Los Angeles/Orange County, CA 20 1969
Riverside/San Bernardino, CA
San Diego, CA
West Personnel Service North and West Suburban Chicago, IL 7 1954
Word Processing Professionals New York, NY 1 1982
Word Processors Personnel Services Atlanta, GA 2 1978
</TABLE>
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(1) Does not include SourcePLUS locations at customer sites.
(2) Ann Wells Personnel, Creative Temporaries and Corporate Staffing were
acquired by the Company in January 1998.
The Commercial Staffing Division strives to satisfy the needs of its
customers by providing customized services, such as on-site workforce management
and full-time placement services. The flexibility of the Commercial Staffing
Division's decentralized organization allows it to tailor its operations to meet
local client requirements. For example, certain clients are provided with
customized billings, utilization reports and safety awareness and training
programs.
To meet the growing demand in the staffing services business for
on-site management capability, the Commercial Staffing Division offers
SourcePLUS, its customized on-site temporary personnel management system.
SourcePLUS places an experienced staffing services manager at the client
facility to provide complete staffing support, customized to meet
client-specific needs. This program
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facilitates client use of temporary personnel and allows the client to outsource
a portion of its personnel responsibility to the Commercial Staffing Division's
on-site representative, who gathers and records requests for temporary jobs from
client department heads and then fulfills client requirements. These
representatives can also access Commercial Staffing's systems through on-site
personal computers.
The Commercial Staffing Division's full-time placement services provide
traditional staff selection and recruiting services to its clients. In addition
to recruiting employees through referrals, the Commercial Staffing Division
places advertisements in local newspapers to recruit employees for specific
positions at client companies. The Commercial Staffing Division utilizes its
expertise and selection methods to evaluate the applicant's credentials. If the
applicant receives and accepts a full-time position at the client, the
Commercial Staffing Division charges the employer a one-time fee, generally
based on the annual salary of the employee.
In order to maintain a consistent quality standard for all its
temporary employees, the Commercial Staffing Division uses a comprehensive
automated system, the QuestPLUS System, to screen and evaluate potential
temporary personnel, make proper assignments and review a temporary employee's
performance. The QuestPLUS System integrates the results of skills testing with
personal attributes and work history and automatically matches available
candidates with customer requirements. The Commercial Staffing Division also
provides uniform training to all of its employees in sales, customer service and
leadership skills.
Sales and Marketing
The Commercial Staffing Division has implemented a business development
program to target potential customers with temporary staffing needs and to
maintain and expand existing customer relationships. The marketing efforts of
the Commercial Staffing Division are decentralized and capitalize on
long-standing business relationships with the clients of the Commercial Staffing
Division's companies and their established brand names, most of which have been
in use for more than 23 years. The Commercial Staffing Division obtains new
clients primarily through personal sales presentations and referrals from other
clients of the Commercial Staffing and IT Divisions and supports its sales
efforts with telemarketing, direct mail solicitation and advertising in a
variety of local and national media, including the Yellow Pages, newspapers,
magazines and trade publications.
The Commercial Staffing Division devotes the majority of its selling
efforts to the local and regional operations of a wide variety of businesses
(including a number of Fortune 500 companies) that it has identified as
consistent users of temporary staffing services. Local and regional accounts are
characterized by shorter sales cycles and higher gross margins. The Commercial
Staffing Division generally does not seek any national account agreements, but
does provide services to a wide variety of customers with national and
international businesses. Bids for large user accounts and the provision of
services to clients with multiple location requirements are coordinated at the
Company's headquarters.
The commercial staffing business is subject to the seasonal impact of
summer and holiday employment trends. Typically, the second half of the calendar
year is more heavily affected, as companies tend to increase their use of
temporary personnel during this period. While the commercial staffing industry
is cyclical, the Company believes that the broad geographic coverage of its
operations and the diversity of the services it provides (including its emphasis
on high-end white collar clerical workers) generally mitigate the adverse
effects of economic cycles in a single industry or geographic region.
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RECRUITING AND RETENTION OF TEMPORARY EMPLOYEES
The Company recruits its temporary employees and IT Division
consultants through a recruiting program that primarily utilizes local and
national advertisements and the Internet. In addition, the Company has succeeded
in recruiting qualified employees through referrals from its existing labor
force. To encourage further referrals, certain of the companies in the IT and
Commercial Staffing Divisions have initiated policies whereby they pay referral
fees to employees responsible for attracting new recruits. The Company
interviews, tests, checks references and evaluates the skills of applicants for
temporary employment, utilizing systems and procedures developed and enhanced
over the years. The Commercial Staffing Division employs temporary employees on
an as needed, time and materials basis dependent upon client demand. These
temporary employees are paid only for time they actually work.
In the IT Division, the demand for technology consultants
significantly exceeds supply. In an effort to attract a broad spectrum of
employees, the Company offers a wide variety of employment options and training
programs. The Company emphasizes the utilization of salaried full-time status
for its consultants with the payment of annual salaries irrespective of
assignment. In addition, the IT Division operates a number of formal and
informal training programs to provide its consultants with access to and
training in new software applications and a diverse mix of mainframe,
client/server and personal computer technologies. The Company believes that
these training initiatives have improved employee recruitment and retention,
increased the technical skills of the IT Division's personnel and resulted in
better service for the IT Division's clients.
The Company provides competitive compensation packages and benefits for
all of its temporary employees and IT Division consultants. Most of the
temporary employees are also eligible for the Company's 401(k) matching plans
and employee stock purchase plan.
ORGANIZATIONAL STRUCTURE
The Company operates through a network of decentralized
company-operated offices. Each office reports to a manager who is responsible
for day-to-day operations and the profitability of the office. Depending on,
among other things, the number of offices in a region, branch managers may
report to regional managers, division vice presidents or, in the Commercial
Staffing Division, a division president. Branch and regional managers are given
a high level of autonomy in making decisions about the operation of their
principal region. The compensation of branch and regional managers includes
bonuses generally based on the incremental year-to-year increase in
profitability of their operations and is designed to motivate them to maximize
the growth and profitability of their offices.
AUTOMATED OPERATING SYSTEMS
The Commercial Staffing Division uses a number of automated systems to
allow it to quickly and effectively measure the skills of temporary employee
candidates and to match skills with client requests. The ProficiencyPLUS program
is designed to test specific computer-related skills by allowing the candidate
to operate in the actual software program environment. The QuestPLUS system
integrates the results of the Company's skills testing with personal attributes
and work history and automatically matches available candidates with customer
requirements. This system also allows the Company to track the performance of
its temporary employees and provide quality reports to customers that document
the level of the Company's performance.
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The Company utilizes branch paybill systems for the Commercial
Staffing Division. The paybill processing system provides payroll processing and
customer invoicing. Installation of this system began in the second quarter of
1996 and has been completed in all of the Division companies that were part of
the Company in September 1995, when the Company went public. Installation of
this system in subsequently acquired companies is continuing.
In the IT Division, the Company has entered into an agreement with a
software company for a new branch operating system for the existing information
technology companies. Installation of this new system began in the first quarter
of 1997 and has been completed in over 50% of the Division's existing offices.
The Company expects that additional acquired companies will install this system
during 1998.
The Company has also recently entered into an agreement with a software
company to install human resources and financial systems for its information
technology companies. Installation of these systems is expected to begin in the
second quarter of 1998 and continue through the year 2000.
There can be no assurance, however, that there will not be
unanticipated costs or delays associated with these installations or that the
systems will operate as expected.
COMPETITION
The United States staffing services market is highly competitive and
highly fragmented, with more than 15,000 offices competing in the industry, and
has limited barriers to entry. However, the commercial staffing and information
technology staffing industries have been undergoing significant consolidation.
The largest publicly owned companies specializing in personnel staffing services
in the United States are Manpower Inc., Kelly Services, Inc., Adecco, Inc., The
Olsten Corporation, AccuStaff, Incorporated, Interim Services Inc. and Norrell
Corporation, all of which have greater marketing, financial and other resources
than the Company.
In the temporary staffing industry, competition generally is limited
to firms with offices located within a customer's particular local market. In
most major markets, commercial staffing competitors generally include many of
the publicly traded companies and, in addition, numerous regional and local
full-service and specialized temporary service agencies, some of which may
operate only in a single market. Competitors for information technology services
include local IT staffing firms, large, multi-purpose staffing firms and large
accounting firms.
Since many clients contract for their staffing services locally,
competition varies from market to market. In most areas, no single company has a
dominant share of the market. Many client companies use more than one staffing
services company, and it is common for large clients to use several staffing
services companies at the same time. However, in recent years, there has been a
significant increase in the number of large customers consolidating their
temporary staffing purchases with a single supplier or with a small number of
firms. The trend to consolidate temporary staffing purchases has in some cases
made it more difficult for the Company to gain business from potential customers
who have already contracted to fill their staffing needs with competitors of the
Company. In other cases, the Company has been able to increase the volume of
business with certain customers who choose to purchase staffing primarily from
the Company.
The competitive factors in obtaining and retaining clients include an
understanding of clients' specific job requirements, the ability to provide
appropriately skilled temporary personnel at the local level in a timely manner,
the monitoring of quality of job performance and the price of services. The
primary competitive factors in obtaining qualified candidates for temporary
employment assignments are wages and responsiveness to work schedules and the
number of hours of work available. Management believes that it is highly
competitive in these areas due to its focus on local markets and the autonomy
given to its local management.
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REGULATION
The Company, like other temporary employment service firms, is
generally subject to the following types of government regulation: (i)
regulation of the employer/employee relationship between a firm and its
temporary employees; (ii) registration, licensing, record keeping and reporting
requirements; and (iii) substantive limitations on its operations. The Company
is the legal employer of its temporary workers. Therefore, it is governed by
laws regulating the employer/employee relationship, such as tax withholding or
reporting, social security or retirement, anti-discrimination and workers'
compensation.
TRADEMARKS
The Company maintains a number of trademarks, tradenames, service marks
and other intangible rights. The Company is not currently aware of any
infringing uses or other conditions that would materially and adversely affect
its use of its proprietary rights.
EMPLOYEES
At February 17, 1998, the Company had approximately 900 permanent
administrative employees and approximately 2,800 information technology
consultants in the IT Division. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its relationships
with its employees are good.
ITEM 2. PROPERTIES
Generally, the Company's offices are leased under leases of
relatively moderate duration (typically three to five years, with options to
extend) containing customary terms and conditions. The IT Division and
Commercial Staffing Division offices are typically in high quality office or
industrial buildings, and occasionally in retail buildings, and the Company's
headquarters facilities and regional offices are in similar facilities.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in certain disputes and
litigation relating to claims arising out of its operations in the ordinary
course of business. Further, the Company periodically is subject to government
audits and inspections. In the opinion of the Company's management, matters
presently pending will not in the aggregate have a material adverse effect on
the Company's financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The information required by this Item is included in the Company's
Annual Report under the caption "Market and Dividend Information," which
information is set forth in Exhibit 13.1 to this Form 10-K and is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is included in the Company's
Annual Report under the caption "Selected Financial Data," which information is
set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is included in the Company's
Annual Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which information is set forth
in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is included in the Company's
Annual Report under the captions "Consolidated Balance Sheets", "Consolidated
Statements of Income", "Consolidated Statements of Shareholders' Equity",
"Consolidated Statements of Cash Flows", "Notes to Consolidated Financial
Statements" and "Report of Independent Accountants," which information is set
forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company previously disclosed the following information in a
Current Report on Form 8-K filed March 21, 1997 (the "Report"):
As the result of hiring a new Chief Financial Officer, Mr. James
Hunt, who has a family relationship with a partner in the Greensboro, North
Carolina office of Arthur Andersen LLP ("Arthur Andersen"), which had served as
the Company's independent public accountants since 1995, the Company received a
letter from Arthur Andersen dated March 17, 1997 indicating that it would
decline to stand for reappointment as the Company's independent public
accountants for the current fiscal year.
The reports of Arthur Andersen on the Company's financial statements
for the fiscal years ended December 31, 1995 and December 29, 1996 contained no
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements
for each of the fiscal years ended December 31, 1995 and December 29, 1996, and
in the subsequent interim period, there were no disagreements with Arthur
Andersen on matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures which, if not resolved to the
satisfaction of Arthur Andersen, would have caused Arthur Andersen to make
reference to such matter in its report.
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The Company furnished Arthur Andersen with a copy of the foregoing
disclosure and in response thereto, Arthur Andersen furnished the Company with a
letter dated March 21, 1997, addressed to the Securities and Exchange
Commission, indicating no disagreement with the foregoing statements.
The Report also stated that the Company's Board of Directors, upon
the recommendation of the Audit Committee, engaged Price Waterhouse LLP as of
March 17, 1997 as the Company's independent public accountants for its fiscal
year ending December 28, 1997.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information contained in the Proxy Statement in the first paragraph
under the caption "Election of Directors--Nominees," and under the caption
"Election of Directors--Directors and Executive Officers," is incorporated
herein by reference in response to this Item 10.
ITEM 11. EXECUTIVE COMPENSATION.
Information contained in the Proxy Statement under the captions
"Election of Directors--Director Compensation" and "Executive Compensation" is
incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information contained in the Proxy Statement under the caption
"Securities Ownership of Certain Beneficial Owners and Management" is
incorporated by reference herein in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. Documents filed as part of this Report
(1) The following financial statements of the Company and the
Report of Independent Public Accountants are contained in Item 8 above:
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996
Consolidated Statements of Income for the years ended
December 28, 1997, December 29, 1996 and December 31,
1995
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Consolidated Statements of Shareholders' Equity for the
years ended December 28, 1997, December 29, 1996 and
December 31, 1995
Consolidated Statements of Cash Flows for the years ended
December 28, 1997, December 29, 1996 and December 31,
1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
The report of Independent Public Accountants relating to the
Company's financial statements as of December 29, 1996 and for the two fiscal
years then ended is attached as Schedule I.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the required
information is included elsewhere in the financial statements.
(3) Exhibits:
The Exhibits to this Report on Form 10-K are listed in the
accompanying Exhibit Index.
b. Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
fourth quarter of 1997:
(1) Form 8-K, dated November 17, 1997, to report under Item 5,
"Other Events," the signing of a definitive agreement to sell
the Company's Nursefinders Division.
(2) Form 8-K, dated December 26, 1997, to report under Item 2,
"Acquisition or Disposition of Assets," the consummation of the
sale of the Company's healthcare division.
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SCHEDULE I
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.
We have audited the consolidated balance sheet of Personnel Group of
America, Inc. and subsidiaries (a Delaware corporation) as of December 29, 1996,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years in the period ended December 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Personnel Group of America, Inc. and subsidiaries as of December 29, 1996, and
the results of their operations and their cash flows for each of the two years
in the period ended December 29, 1996, in conformity with generally accepted
accounting principles
/s/ Arthur Andersen LLP
Charlotte, North Carolina
February 7, 1997 (except with
respect to the matter discussed in
Note 4, as to which the date is
December 26, 1997, and except with
respect to the matter discussed in
Note 10, as to which the date is
March 5, 1998).
<PAGE> 14
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 on March 27, 1998.
PERSONNEL GROUP of AMERICA, INC.
By: /s/ Edward P. Drudge, Jr.
--------------------------
Edward P. Drudge, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 27, 1998.
Signature
/s/ Edward P. Drudge, Jr. Chairman, Chief Executive
- ------------------------------- Officer and Director
Edward P. Drudge, Jr.
/s/ James C. Hunt Senior Vice President, Chief
- ------------------------------- Financial Officer and
James C. Hunt Director
/s/ Ken R. Bramlett, Jr. Senior Vice President, General
- ------------------------------- Counsel and Director
Ken R. Bramlett, Jr.
/s/ Kevin P. Egan Director
- -------------------------------
Kevin P. Egan
/s/ J. Roger King Director
- -------------------------------
J. Roger King
/s/ James V. Napier Director
- -------------------------------
James V. Napier
/s/ William J. Simione, Jr. Director
- -------------------------------
William J. Simione, Jr.
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED HEREWITH (*)
NON-APPLICABLE (NA)
OR INCORPORATED BY
REFERENCE FROM
PREVIOUS COMPANY REG. NO.
EXHIBIT EXHIBIT OR
NUMBER DESCRIPTION NUMBER REPORT
- ------ ----------- ------ ------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation of 3.1 333-31863
the Company, as amended
3.2 Amended and Restated Bylaws of the Company 3.2 33-95228
4.0 Specimen Stock Certificate 4.0 33-95228
4.1 Rights Agreement between the Company 1 0-27792
First Union National Bank (as successor
trustee)
4.2 Indenture between the Company and First 4.2 333-31863
Union National Bank, as Trustee
4.3 Form of Note Certificate for 5-3/4% 4.3 333-31863
Convertible Subordinate Notes
10.1+ 1995 Equity Participation Plan, as amended 10.1 333-31863
10.2+ Management Incentive Compensation Plan 10.2 10-Q for quarter
ended 9/30/95
10.3+ Employee Stock Purchase Plan 10.3 333-31863
10.4#+ Director and Officer Indemnification 10.3 10-K for year
Agreement of James V. Napier ended 12/31/95
10.5+ Employment Agreement between the Company 10.9 10-Q for quarter
and Edward P. Drudge, Jr. ended 9/30/95
10.6+ Amendment No. 1 to Employment Agreement *
between the Company and Edward P. Drudge, Jr.
10.7+ Employment Agreement between the Company 10.10 10-K for year ended
and James C. Hunt 12/29/96
10.8+ Employment Agreement between the Company 10.13 10-K for year ended
and Ken R. Bramlett, Jr. 12/29/96
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
FILED HEREWITH (*)
NON-APPLICABLE (NA)
OR INCORPORATED BY
REFERENCE FROM
PREVIOUS COMPANY REG. NO.
EXHIBIT EXHIBIT OR
NUMBER DESCRIPTION NUMBER REPORT
- ------ ----------- ------ ------
<S> <C> <C> <C>
10.9 Indemnification Agreement between the 10.14 10-Q for quarter
Company and Adia Delaware ended 9/30/95
10.10 Tax-Sharing Agreement between the 10.15 10-Q for quarter
Company, Adia Delaware and Adia California ended 9/30/95
10.11 Amended and Restated Non-Qualified 10.16 10-K for year ended
Profit-Sharing Plan 12/29/96
10.12+ Director's Non-Qualified Compensation Plan *
10.13 Amended and Restated Credit Agreement 10.15 333-31863
among the Company and its subsidiaries,
the Lenders party thereto and
NationsBank, N.A., as agent
10.15 Asset Purchase Agreement between the 2 8-K dated 9/30/96
Company and Business Enterprise Systems
and Technology, Inc. (BEST Consulting)
10.16 Stock Purchase Agreement for the sale of 1 8-K dated 12/26/97
Nursefinders between PFI Corp.,
Nursefinders, Inc., and Nursefinder
Acquisition Corp.
10.17 Registration Rights Agreement between the 10.17 333-31863
Company and the Initial Purchasers
12.1 Statement regarding computation of ratio *
of earnings to fixed charges
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
FILED HEREWITH (*)
NON-APPLICABLE (NA)
OR INCORPORATED BY
REFERENCE FROM
PREVIOUS COMPANY REG. NO.
EXHIBIT EXHIBIT OR
NUMBER DESCRIPTION NUMBER REPORT
- ------ ----------- ------ ------
<S> <C> <C> <C>
13.1 Those portions of the Annual Report *
incorporated by reference in Parts II,
Items 5,6,7 and 8 and Part IV, Item
14(a)(1) of this report.
16.1 Letter from Arthur Andersen LLP 16 8-K dated 3/17/97
21.1 Subsidiaries of the Company *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Price Waterhouse LLP *
27.1 Financial Data Schedule *
(For SEC purposes only)
27.2 Restated Financial Data Schedule for *
the year ended December 29, 1996,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.3 Restated Financial Data Schedule for *
three months ended March 31, 1996,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.4 Restated Financial Data Schedule for *
the six months ended June 30, 1996,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.5 Restated Financial Data Schedule for *
the nine months ended September 29, 1996,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.6 Restated Financial Data Schedule for *
three months ended March 30, 1997,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.7 Restated Financial Data Schedule for *
the six months ended June 29, 1997,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes only).
27.8 Restated Financial Data Schedule for *
the nine months ended September 28, 1997,
which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share"
(For SEC purposes 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., Kevin P. Egan, J. Roger King, and
William Simione, Jr.
+ Management Contract or Compensatory plan required to be filed under Item 14(c)
of this report and Item 601 of Regulation S-K of the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment"), dated
March 1, 1998, is entered into between Personnel Group of America, Inc., a
Delaware corporation (the "Company"), and Edward P. Drudge, Jr.
("Executive").
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated September 29, 1995 (the "Agreement"); and
WHEREAS, the Company considers it essential to the Company's best
interests to foster the continuous employment of the Company's senior management
personnel; and
WHEREAS, the Agreement currently provides that the initial Term of
Employment (as defined in the Agreement) for Executive expires on September 30,
1998; and
WHEREAS, the Company and Executive have agreed that it would be in the
Company's best interests to extend Executive's Term of Employment under the
Agreement for an additional three-year period expiring on September 30, 2001.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and Executive hereby amend the Agreement
pursuant to this Amendment and agree as follows:
1. Term of Employment. Paragraph 5 of the Agreement shall be amended by
deleting "September 30, 1998," in the third line thereof and replacing it with
"September 30, 2001," it being the intention hereof to extend the Executive's
initial Term of Employment under the Agreement for a three-year period to and
including September 30, 2001.
2. Miscellaneous. Except as otherwise set forth herein, the Agreement
shall remain in full force and effect in accordance with its terms from and
after the date hereof. All references to the Agreement from and after the date
hereof shall be deemed to include the Agreement as amended by the terms hereof.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
EXECUTIVE COMPANY
PERSONNEL GROUP OF AMERICA, INC.
/s/ Edward P. Drudge, Jr. By: /s/ Ken R. Bramlett, Jr.
- ------------------------------ ------------------------------------
Edward P. Drudge, Jr. Title: Senior Vice President
Address:
6717 Wynfaire Lane
Charlotte, NC 28210
<PAGE> 1
EXHIBIT 10.12
PERSONNEL GROUP OF AMERICA, INC.
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
Plan Document
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I PURPOSE OF PLAN
1.1 Purpose of Plan 1
ARTICLE II DEFINITIONS
2.1 Account 1
2.2 Beneficiary 1
2.3 Board 1
2.4 Change in Control 1
2.5 Committee 2
2.6 Company 2
2.7 Compensation 2
2.8 Deferred Stock Unit 2
2.9 Dividend Date 2
2.10 Effective Date 2
2.11 Eligible Director 2
2.12 Fair Market Value Per Share 2
2.13 Nonqualified Deferred Compensation 2
2.14 Participant 2
2.15 Participant Enrollment and Election Form 2
2.16 Plan 2
2.17 Plan Year 2
ARTICLE III ELIGIBILITY AND PARTICIPATION
3.1 Eligibility Requirements 3
ARTICLE IV DEFERRAL OF COMPENSATION
4.1 Nonqualified Deferral Elections 3
4.2 Failure to Elect 3
ARTICLE V PLAN ACCOUNTS
5.1 Establishment of Accounts 3
ARTICLE VI ALLOCATION OF FUNDS
6.1 Account Earnings 4
6.2 Interest Credit 4
6.3 Deferred Stock Credit 4
i
<PAGE> 3
TABLE OF CONTENTS
(cont'd)
Page
----
ARTICLE VII PAYMENT OF BENEFITS
7.1 Payment of Benefits 5
7.2 Beneficiary Designation 5
7.3 Change in Control 5
ARTICLE VIII COMMITTEE
8.1 Membership of the Committee 5
8.2 Duties of the Committee 6
ARTICLE IX ADMINISTRATION
9.1 Administrative Authority 6
9.2 Uniformity of Discretionary Acts 7
9.3 Litigation 7
9.4 Payment of Administration Expenses 7
9.5 Liability of Committee, Indemnification 7
9.6 Expenses 7
9.7 Taxes 7
ARTICLE X MISCELLANEOUS
10.1 Alienation of Benefits 7
10.2 General Creditor Status 7
10.3 Governing Law 8
10.4 Binding on Successors 8
10.5 No Guarantee of Employment 8
10.6 Construction 8
ARTICLE XI AMENDMENT, TERMINATION, OR MERGER OF PLAN
11.1 Amendment 8
11.2 Termination 8
11.3 Notice of Amendment of Termination 8
ii
<PAGE> 4
ARTICLE I
PURPOSE OF PLAN
1.1 Purpose of Plan. Personnel Group of America, Inc. ("PGA" or "the
Company"), intends and desires by the adoption of this Deferred
Compensation Plan ("the Plan") to recognize the value to the Company of
the services rendered by Eligible Directors covered by the Plan and to
encourage and assure their continued service with the Company by making
more adequate provisions for their future retirement security.
ARTICLE II
DEFINITIONS
2.1 Account. "Account" means those separate Accounts established and
maintained by the Company under the Plan in the name of each Participant
as required pursuant to the provisions of Article V.
2.2 Beneficiary. "Beneficiary" means the person or persons designated by a
Participant to receive any benefits hereunder in the event of the death
of the Participant, or in the absence of such a designated Beneficiary,
the Participant's estate.
2.3 Board. "Board" means the Board of Directors of the Company.
2.4 Change in Control. "Change in Control" means the occurrence of any of the
following events: (i) any person or entity or two or more persons or
entities acting in concert shall have acquired beneficial ownership,
directly or indirectly, of, or shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement that,
upon consummation, will result in its or their acquisition of, or control
over, shares of PGA' s common stock, $0.01 par value (or other securities
convertible into such common stock), representing 25% or more of the
combined voting power of all outstanding shares of common stock; (ii)
during any period of up to 24 consecutive months, commencing after the
Effective Date of this Plan, individuals who at the beginning of such
24-month period were directors of PGA (together with any new director
whose election by PGA's Board of Directors or whose nomination for
election by PGA's shareholders was approved by a vote of at least
two-thirds of the directors then still in office (or at least two-thirds
of the members of any nominating committee of directors) who either were
directors at the beginning of such period or whose election of nomination
for election was previously so approved) cease for any reason to
constitute a majority of the directors of PGA then in office; (iii) the
Company is merged or consolidated with another corporation and, as a
result of such merger of consolidation, outstanding securities
representing less than 50% of the voting power of the surviving or
resulting corporation shall then be owned in the aggregate by the former
stockholders of PGA other than affiliates, within the meaning of the
Securities Exchange Act of 1934, as amended, of any party to such merger
or consolidation; or (iv) the Company transfers all or substantially all
of its assets to another corporation or entity that is not a wholly owned
subsidiary of PGA. As used herein, "beneficial ownership" shall have the
meaning provided in Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934.
2.5 Committee. "Committee" means the Committee charged with managing and
administrating the Plan and the individual Participant Enrollment and
Election Forms in accordance with Articles
1
<PAGE> 5
VIII and IX hereof.
2.6 Company. "Company" means Personnel Group of America, Inc., or any
successor company as a result of merger, consolidation, liquidation,
transfer of assets, or other reorganization.
2.7 Compensation. "Compensation" means payment for services provided by an
Eligible Director to the Company in the form of retainer fees, meeting
fees, or other such fees, which would otherwise be paid in cash.
2.8 Deferred Stock Unit. "Deferred Stock Unit" means a phantom stock unit
having value at any time equivalent to the Fair Market Value Per Share of
the Company's common stock, $0.01 par value.
2.9 Dividend Date. "Dividend Date" means each date , if any, on which cash or
other dividends are paid on the Company's common stock.
2.10 Effective Date. "Effective Date" means the date on which the Company
adopts the Plan.
2.11 Eligible Director. "Eligible Director" means a person not employed by the
Company, but who is a member of the Board and receives Compensation.
2.12 Fair Market Value Per Share. "Fair Market Value Per Share" means on any
date the average of the closing sales prices per share for the Company's
common stock, $0.01 par value, over the preceding twenty (20) days on
which common stocks are traded on the New York Stock Exchange.
2.13 Nonqualified Deferred Compensation. "Nonqualified Deferred Compensation"
means Compensation that is due to be earned and which would otherwise be
paid to a Participant, which the Participant elects to defer under the
Plan, and which is credited to an Account on behalf of a Participant.
2.14 Participant. "Participant" means any Eligible Director who is or may
become (or whose beneficiaries may become) eligible to receive a benefit
under the Plan by executing a valid Participant Enrollment and Election
Form.
2.15 Participant Enrollment and Election Form. "Participant Enrollment and
Election Form" means the form on which an Eligible Director elects, prior
to the period in which services are to be performed, to defer
Compensation hereunder.
2.16 Plan. "Plan" means the PGA Board of Directors Deferred Compensation Plan.
2.17 Plan Year. "Plan Year" means the calendar year.
2
<PAGE> 6
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility Requirements. In order to be eligible for participation in
the Plan, a Participant must be an Eligible Director. Participation in
the Plan is voluntary. In order to participate, an otherwise Eligible
Director must execute a valid Participant Enrollment and Election Form in
such manner as the Committee may require.
ARTICLE IV
DEFERRAL OF COMPENSATION
4.1 Nonqualified Deferral Elections. A Participant may elect to defer all or
any part of his Compensation during any Plan Year by use of a Participant
Enrollment and Election Form submitted to the Committee no later than the
last day of the last month immediately preceding such Plan Year. Once
made, a deferral election for any Plan Year shall be irrevocable for such
Plan Year.
A Participant may change the amount of his deferred Compensation by
delivering to the Committee prior to the beginning of any subsequent Plan
Year a new Participant Enrollment and Election Form, with such change
being first effective for Compensation to be earned in such subsequent
Plan Year. Once made, an election shall continue until changed by a
Participant on a new Participant Enrollment and Election Form delivered
to the Committee.
4.2 Failure to Elect. A Participant failing to return a completed Participant
Enrollment and Election Form to the Committee on or before the specified
due date for any Plan Year shall be deemed to have elected not to defer
receipt of his Compensation with respect to such Plan Year.
ARTICLE V
PLAN ACCOUNTS
5.1 Establishment of Accounts. There shall be established and maintained by
the Company separate Accounts in the name of each Participant to which
the Company shall credit the amount of Compensation deferred by the
Participant under the Plan. For each Plan Year, the amount of
Compensation credited to a Participant's Account shall equal the amount
elected by the Participant on the Participant Enrollment and Election
Form that is effective for that Plan Year. The Company shall credit the
deferred amount of Compensation to the Participant's Account at the time
the amount would otherwise have been paid.
ARTICLE VI
ALLOCATION OF FUNDS
6.1 Account Earnings. Unless a Participant elects otherwise, each Account
shall also be credited periodically with interest as set forth below.
3
<PAGE> 7
6.2 Interest Credit. Interest will be calculated during each Plan Year on the
outstanding balance of each Account at a per annum rate equal to the
prime rate as announced from time to time by NationsBank, N.A., adjusted
monthly. Interest will be credited to each Account on the last day of
each Plan Year.
6.3 Deferred Stock Credit. If a Participant elects otherwise, such
Participant may allocate all or a portion of his Compensation into
Deferred Stock Units, and the Company will credit his Account with that
number of Deferred Stock Units equal to the deferred Compensation (or
portion thereof) of such Participant, divided by the Fair Market Value
Per Share on the date such Compensation would have otherwise been paid.
The value of any Deferred Stock Units in a Participant's Account will
fluctuate based on changes from time to time in the Fair Market Value Per
Share.
If at any time any Deferred Stock Units are maintained in a Participant's
Account, there shall be credited to such Account additional Deferred
Stock Units on each Dividend Date. The number of such additional Deferred
Stock Units shall be determined by (i) multiplying the total number of
Deferred Stock Units (including fractional Deferred Stock Units) in the
Account immediately prior to the Dividend Date by the amount of the
dividend per share to be payable on such Dividend Date and (ii) dividing
the product by the Fair Market Value Per Share on the Dividend Date. In
the case of dividends payable on the Company's common stock other than in
cash, the amount of the dividend per share shall be based on the fair
market value of the property at the time of distribution of the dividend,
as determined by the Committee.
In the event of any change in the outstanding shares of common stock of
the Company upon which the stock equivalency hereunder is based, by
reason of a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination or exchange of shares, or any
other change in corporate structure, or in the event any dividend is paid
in common shares of Company stock or other property, the number of
Deferred Stock Units credited to an Account shall be equitably adjusted
in such manner as the Committee shall determine to be fair under the
circumstances.
4
<PAGE> 8
ARTICLE VII
PAYMENT OF BENEFITS
7.1 Payment of Benefits. All benefits payable under this Plan will be payable
in cash. Except as otherwise provided herein, the benefits payable under
this Plan on account of a Participant's termination of Board membership
for any reason shall be paid to the Participant, or in the event of
death, to the Participant's Beneficiary, in a cash lump sum no later than
60 days after termination of Board membership. To the extent that any
Deferred Stock Units are in a Participant's Account at a time when
benefits would otherwise be payable under this Plan, the cash benefit
represented by such Deferred Stock Units shall be equal to the number of
Deferred Stock Units in such Account multiplied by the Fair Market Value
Per Share on the date of termination of Board membership or such other
event requiring payment of benefits (including without limitation the
occurrence of a Change in Control). The Participant may elect to receive
0 to 100 percent of any cash benefit payable under this Plan within 60
days after termination of Board membership and the remainder payable in
equal annual installments over a five- year or 10-year period, together
with interest on unpaid amounts at the rate set forth in Section 6.2.
Such election shall be made on a Participant Enrollment and Election
Form. An election to defer payment of some or all of the cash benefits
payable under this Plan beyond termination of Board membership must be
made at least three (3) months prior to termination of Board service to
be valid.
7.2 Beneficiary Designation. Each Participant may, from time to time, by
signing a form approved by the Committee, designate any legal or natural
person or persons (who may be designated contingently or successively) to
whom payments are to be made if the Participant dies before receiving
payment of all amounts due hereunder. A Beneficiary designation form will
be effective only after the signed form is filed with the Committee while
the Participant is alive and will cancel all beneficiary designation
forms signed and filed earlier. If the Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries of the
Participant die before the Participant or before complete payment of all
amounts due hereunder, the Company shall pay the unpaid amounts to the
legal representative of the estate of the last to die of the Participant
and the Participant's designated Beneficiary.
7.3 Change in Control. In the event of a Change in Control, all benefits
payable under this Plan shall be paid to the Participant as provided in
Section 7.1 above within 60 days after the occurrence of such Change in
Control.
ARTICLE VIII
COMMITTEE
8.1 Membership of the Committee. The Committee shall consist of at least
three people designated and appointed from time to time by the Board. Any
member of the Committee may resign by notice in writing and filed with
the Secretary of the Committee. Vacancies shall be filled promptly by the
Board.
5
<PAGE> 9
8.2 Duties of the Committee. The Committee shall adopt, administer, construe,
and interpret this Plan and shall determine the amount, if any, due a
Participant (or his Beneficiary) under this Plan. No member of the
Committee shall be liable for any act done or determination made in good
faith. In carrying out its duties herein, the Committee shall have
discretionary authority to exercise all powers and to make all
determinations, consistent with the terms of the Plan, in all matters
entrusted to it, and its determinations shall be given deference and
shall be final and binding on all interested parties.
ARTICLE IX
ADMINISTRATION
9.1 Administrative Authority. Except as otherwise specifically provided
herein, the Committee shall have the sole responsibility for and the sole
control of the operation and administration of the Plan, and shall have
the power and authority to take all actions and to make all decisions and
interpretations which may be necessary or appropriate in order to
administer and operate the Plan, including, without limiting the
generality of the foregoing, the power, duty, and responsibility to:
(a) Resolve and determine all disputes or questions arising under the
Plan, including the power to determine the rights of Participants
and Beneficiaries, and their respective benefits, and to remedy
any ambiguities, inconsistencies, or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion
may be necessary for the proper and efficient administration of
the Plan and as are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and
regulations adopted as above.
(d) Make determinations concerning the crediting and distribution of
Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or
desirable in connection with the administration and operation of
the Plan, and the Committee shall be entitled to rely conclusively
upon, and shall be fully protected in any action or omission taken
by it in good faith reliance upon the advice or opinion of such
firms or persons. The Committee shall have the power and authority
to delegate from time to time by written instrument all or any
part of its duties, powers, or responsibilities under the Plan,
both ministerial and discretionary, as it deems appropriate, to
any person or committee, and in the same manner to revoke any such
delegation of duties, powers, or responsibilities. Any action of
such person or committee in the exercise of such delegated duties,
powers, or responsibilities shall have the same force and effect
for all purposes hereunder as if such action had been taken by the
Committee. Further, the Committee may authorize one or more
persons to execute any certificate or document on behalf of the
Committee, in which event any person notified by the Committee of
such authorization shall be entitled to accept and conclusively
rely upon any such certificate or document executed by such person
as representing action by the Committee until such third person
shall have been notified of the revocation of such authority.
6
<PAGE> 10
9.2 Uniformity of Discretionary Acts. Whenever in the administration or
operation of the Plan discretionary actions by the Committee are required
or permitted, such actions shall be consistently and uniformly applied to
all persons similarly situated, and no such action shall be taken that
will discriminate in favor of any particular person or group of persons.
9.3 Litigation. Except as may be otherwise required by law, in any action or
judicial proceeding affecting the Plan, no Beneficiary shall be entitled
to any notice or service of process, and any final judgment entered in
such action shall be binding on all persons interested in, or claiming
under, the Plan.
9.4 Payment of Administration Expenses. All reasonable expenses incurred in
the administration and operation of the Plan, including any taxes payable
by the Company in respect of the Plan, shall be paid by the Company.
9.5 Liability of Committee, Indemnification. To the extent permitted by law,
the Committee shall not be liable to any person for any action taken or
omitted in connection with the interpretation and administration of this
Plan unless attributable to its own bad faith or willful misconduct.
9.6 Expenses. The cost of the establishment of the Plan and the adoption of
the Plan by Company, including but not limited to legal and accounting
fees, shall be borne by Company.
9.7 Taxes. All amounts payable hereunder shall be reduced by any and all
Federal, state, and local taxes imposed upon a Participant or his
Beneficiary, which are required to be paid or withheld by Company. Any
determination by the Company regarding applicable income tax withholding
requirements shall be final and binding on the Participant.
ARTICLE X
MISCELLANEOUS
10.1 Alienation of Benefits. Benefits payable under this Plan shall not be
subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind, either
voluntary or involuntary, and any attempt to alienate, sell or otherwise
transfer or dispose of any interest shall be void.
10.2 General Creditor Status. Each Participant shall be regarded as a general
creditor of the Company with respect to any rights derived by the
Participant from the existence of this Plan or any benefits due him. No
Participant shall have any rights as a shareholder of the Company as a
result of participation in this Plan.
10.3 Governing Law. The provisions of this Plan and the rights of the parties
hereunder shall be interpreted and construed in accordance with the laws
of the state of North Carolina.
10.4 Binding On Successors. In the event that the Company is merged or
consolidated with another entity or in the event that substantially all
the assets of the Company are sold or transferred to another entity, the
provisions of the Plan shall be binding upon and shall inure to the
benefit of the continuing entity in such merger or consolidation or the
entity to which such assets are sold or
7
<PAGE> 11
transferred.
10.5 No Guarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and any
Participant.
10.6 Construction. The masculine gender when used herein shall be deemed to
include the feminine gender, and the singular may include the plural
unless the context clearly indicates to the contrary. The words "hereof,"
"herein," "hereunder," and other similar compounds of the word "here"
shall mean and refer to the entire Policy and not to any particular
provisions or section. Whenever the words "Article" or "Section" are used
in this Policy, or a cross-reference to an "Article" or "Section" is
made, the Article or Section referred to shall be an Article or Section
of this Policy unless otherwise specified.
ARTICLE XI
AMENDMENT, TERMINATION OR MERGER OF THE PLAN
11.1 Amendment. The Committee reserves the right at any time and from time to
time to modify or amend, in whole or in part, any or all of the
provisions of the Plan, provided that no modification or amendment shall
be made that will affect adversely any right or obligation of any
Participant with respect to a Participant's Account. Notwithstanding the
foregoing, any modification or amendment of the Plan may be made,
retroactively if necessary, which the Committee deems necessary or proper
to bring the Plan into conformity with any law or governmental regulation
relating to the Plan. No amendment to this Plan shall decrease a
Participant's Account balance.
11.2 Termination. The Company may terminate the Plan in whole or in part for
any reason at any time. In the case of such termination or partial
termination, distributions shall be made pursuant to the provisions of
Article VII. The Company has established the Plan with the bona fide
intention and expectation that the Plan will continue indefinitely, but
the Company shall be under no obligation to maintain the Plan for any
given length of time and may, in its sole discretion, terminate the Plan
at any time without any liability whatsoever.
11.3 Notice of Amendment or Termination. Notice of every such amendment or
termination shall be given in writing to each Participant and Beneficiary
of a deceased Participant.
8
<PAGE> 12
PERSONNEL GROUP OF AMERICA, INC.
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
Participant Enrollment and Election Form
Please print in ink:
PARTICIPANT INFORMATION
Name: __________________________________________________
Social Security Number: __________________________________________________
Address: __________________________________________________
Telephone Number: __________________________________________________
Instructions: If this is the first election form executed by you upon becoming
eligible to participate under the Plan, complete the form in full. If this is
not the first election form executed by you, complete only the Section(s) you
want changed from prior elections that are currently effective.
<PAGE> 13
To the Benefits Committee (the "Committee") of the Personnel Group of America,
Inc. ("PGA"), Board of Directors Deferred Compensation Plan (the "Plan"). I
hereby make the following elections, effective January 1, ________, for the Plan
Year ending December 31, ______.
ARTICLE I
PLAN ELECTIONS
In accordance with Article IV of the Plan, I enter into this Agreement with PGA
for the Plan Year referenced above:
Deferral Amount. I irrevocably elect to defer _________ percent (the
"Percentage") of my Compensation.
Frequency. PGA will hold the Percentage back from each payment of Compensation
made to me.
Interest or Deferred Stock Units. Of my deferred Compensation, PGA will credit
____ percent of the sum of money represented by the Percentage to the
interest-bearing portion of my Account and _____ percent to Deferred Stock
Units.
ARTICLE II
DEFERRAL ELECTIONS
In executing this Agreement, I understand:
1. PGA will credit to my Account the Percentage of Compensation deferred
under my Plan Election as indicated above.
2. PGA will credit the deferred amounts to my Account at the time such
amounts would otherwise have been payable to me.
3. Amounts deferred will not be subject to federal or state income tax until
distributed from the Plan.
4. My Plan Election will be irrevocable with respect to the Plan Year for
which the election is made.
5. To modify my Plan Election, I must file a new Plan Election with the
Committee prior to the beginning of any subsequent Plan Year, with such
modifications being first effective for Compensation to be paid in that
subsequent Plan Year.
6. I may receive a distribution from my Account only as permitted by Article
VII of the Plan.
<PAGE> 14
ARTICLE III
PAYMENT OF CASH BENEFIT ELECTION
In accordance with Article VII of the Plan, I elect to receive ________ (0 to
100) percent of any cash balance in my Account upon termination of board
membership.
I elect to receive any remaining cash benefit in equal annual installments, plus
interest as specified in the Plan, over a period of (please check preference
below):
[ ] five years; or
[ ] 10 years.
ARTICLE IV
DESIGNATION OF BENEFICIARY
I hereby designate __________________________________
(S.S. # ___________________) as my Beneficiary under the Plan.
- ------------------------------ ------------------------------------
[Date] Participant's Signature
------------------------------------
Participant's Name (Print)
Accepted By:
------------------------------------
Personnel Group of America, Inc.
- ------------------------------
[Date]
Please return a copy of this form to the Committee.
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense including
amortization of debt issuance costs -- -- 159 1,155 6,951
Interest on Rent Expense(1/3) 413 484 551 820 1,359
---------------------------------------------
Total Fixed Charges 413 484 710 1,975 8,310
=============================================
Income before Taxes 3,906 4,950 7,612 14,299 30,800
Fixed Charges 413 484 710 1,975 8,310
---------------------------------------------
Income before Fixed Charges 4,319 5,434 8,322 16,274 39,110
=============================================
Ratio of Earnings to Fixed Charges 10.5 11.2 11.7 8.2 4.7
</TABLE>
<PAGE> 1
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $475,620 $243,608 $143,243 $125,822 $107,386
Operating income 37,751 15,454 7,771 4,950 3,906
Net income from continuing
operations 17,790 8,304 4,330 2,769 2,190
Net income $ 20,202 $ 11,517 $ 7,109 $ 3,899 $ 2,536
Net income per diluted
share(1)
Income from continuing
operations $ 0.71 $ 0.41 $ 0.27(2) -- --
Total income from
discontinued
operations $ 0.09 $ 0.16 $ 0.17(2) -- --
Net income $ 0.80 $ 0.56 $ 0.44(2) -- --
Weighted average diluted
shares outstanding 28,078 20,432 16,000 -- --
FINANCIAL POSITION
Working capital $ 69,090 $ 26,558 $ 17,719 $ 11,792 $ 11,396
Total assets 451,309 293,575 83,441 74,584 69,434
Convertible subordinated
notes 115,000 -- -- -- --
Other short- and
long-term debt 37,540 85,147 -- -- --
Shareholders' equity 205,076 183,257 75,986 68,438 64,257
</TABLE>
(1) All share data has been restated to reflect the two-for-one stock split
declared by the Company's Board of Directors on March 5, 1998.
(2) Net income per diluted share in 1995 has been computed assuming the
16,000,000 shares issued in the Company's initial public offering in
September 1995 were outstanding throughout 1995.
SIGNIFICANT FINANCIAL ACHIEVEMENTS IN 1997
- - Achieved record revenues of $475.6 million, a 95% increase over 1996.
- - Improved operating margins to 7.9%, up from 6.3% in 1996.
- - Completed seven acquisitions during 1997 totaling approximately $151.0
million in 1997 pro forma revenues.
- - Sold $115.0 million of 5 3/4 Convertible Subordinated Notes due 2004.
- - Completed divestiture of healthcare business for $65.25 million.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and related notes. 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.
The Company is organized into two Divisions: the Information Technology
Services Division, which provides information technology staffing and consulting
services in a range of computer-related disciplines; and the Commercial Staffing
Division, which provides a wide variety of temporary office, clerical, light
technical and light industrial staffing services. Substantially all of the
Company's services are performed on a time and materials basis. At February 17,
1998, the Information Technology Services Division was comprised of 12 companies
and the Commercial Staffing Division was comprised of 23 companies.
The following table sets forth the number and nature of the Company's
offices at the end of the years indicated and at February 17, 1998:
<TABLE>
<CAPTION>
FEBRUARY 17,
-------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Information technology services............................. 31 30 18 --
Commercial staffing......................................... 95 81 74 58
--- --- -- --
Total offices..................................... 126 111 92 58
</TABLE>
The Company completed its initial public offering (the "IPO") in September
1995. Prior to the IPO , the Company was an indirect wholly owned subsidiary of
an international staffing company (the "Former Parent"). The Company was
organized to facilitate the IPO. As a result of the IPO, in which the Former
Parent sold its entire ownership interest in the Company, the Company became an
independent public company. The Company did not receive any of the proceeds of
the sale of shares in the IPO.
In June 1996, the Company issued 8,050,000 shares of its common stock in a
second underwritten public offering (the "1996 Equity Offering"), which raised
approximately $95.6 million of net proceeds for the Company. The net proceeds of
the 1996 Equity Offering were used to repay outstanding borrowings under the
Company's $125.0 million revolving credit facility (the "Credit Facility") and
to fund several acquisitions.
In June and July 1997, the Company completed a private placement of $115.0
million of 5 3/4% Convertible Subordinated Notes (the "Notes"). The net proceeds
of the Notes were approximately $111.8 million and were used to repay
indebtedness under the Credit Facility and to retire a separate $10.0 million
line of credit.
In 1997, the Company acquired six information technology services companies
and seven commercial staffing companies in seven separate transactions. The
combined pro forma revenues of these 13 companies were approximately $151.0
million in 1997. At February 17, 1998, the Company had completed acquisitions
subsequent to fiscal year end: Ann Wells Personnel in Silicon Valley,
California; Creative Temporaries in Charlotte, North Carolina; Corporate
Staffing Consultants in Charlotte, North Carolina; and Advanced Business
Consultants in Kansas City, Missouri. Ann Wells Personnel, Creative Temporaries
and Corporate Staffing Consultants are leading providers of commercial staffing
services in their respective markets. Advanced Business Consultants is a leading
provider of information technology services in the Kansas City area. These
companies had combined revenues of $58.6 million in 1997. Had the Company owned
each of the acquired companies discussed above at the beginning of 1997, the
Company's pro forma 1997 revenues would have been approximately $603.9 million
and 53% and 47% of such revenues would have come from Information Technology and
Commercial Staffing, respectively.
On December 26, 1997, the Company completed the sale of its healthcare
division for $65.25 million. Of such amount, $34.6 million was paid by delivery
of a promissory note from the purchaser, which was collected in full in January
1998. The balance was paid in cash. With the sale of the healthcare division,
the Company completed a transformation that began in 1996 when the Company made
a strategic commitment to enter the high
2
<PAGE> 3
growth, high margin information technology services business. The gain on the
sale of the healthcare division was not material. As a result of the sale, the
healthcare division has been reflected as a discontinued operation in the
Company's financial statements for all periods presented.
Each of the Company's acquisitions has been accounted for using the
purchase method of accounting and has been included in the following discussions
as applicable since the respective dates of acquisition. The Company allocates
the excess of cost over the fair value of the net tangible assets first to
identifiable intangible assets, if any, and then to goodwill. The Company
believes that buying market-leading companies and then allowing them to maintain
their separate identities and independence preserves the goodwill for an
unlimited period. Although the Company believes that goodwill has an unlimited
life, the Company amortizes such costs on a straight-line basis over 40 years.
Intangible assets represented 70.1% of total assets and 154.3% of total
shareholders' equity at December 28, 1997. The Company evaluates the
recoverability of its investment in goodwill and other intangibles in relation
to anticipated future cash flows on an undiscounted basis. Based on this
assessment, the Company expects its investments in intangible assets to be fully
recovered.
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 or businesses. The timing of such expansion activities also can affect
period-to-period comparisons of the Company's results of operations.
OVERVIEW
The following table summarizes certain income statement information for the
Company for the years ended December 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Information technology
services................... $249,749 52.5% $ 55,472 22.8% $ -- 0.0%
Commercial staffing........... 225,871 47.5 188,136 77.2 143,243 100.0
-------- -------- --------
Total revenues........ 475,620 100.0 243,608 100.0 143,243 100.0
Direct cost of services......... 349,616 73.5 186,338 76.5 109,755 76.6
-------- -------- --------
Gross profit.......... 126,004 26.5 57,270 23.5 33,488 23.4
Selling, general and
administrative................ 79,216 16.7 38,454 15.8 24,568 17.2
Depreciation and amortization... 9,037 1.9 3,362 1.4 1,149 0.8
-------- -------- --------
Operating income...... 37,751 7.9 15,454 6.3 7,771 5.4
Interest expense................ 6,951 1.5 1,155 0.5 159 0.1
-------- -------- --------
Income from continuing
operations before income
taxes......................... 30,800 6.5 14,299 5.9 7,612 5.3
Provision for income taxes...... 13,010 2.7 5,995 2.5 3,282 2.3
-------- -------- --------
Income from continuing
operations.................... 17,790 3.7 8,304 3.4 4,330 3.0
Total income from discontinued
operations, net of taxes...... 2,412 0.5 3,213 1.3 2,779 1.9
-------- -------- --------
Net income...................... $ 20,202 4.2% $ 11,517 4.7% $ 7,109 5.0%
======== ======== ========
</TABLE>
The commercial staffing business is subject to the seasonal impact of
summer and holiday employment trends. Typically, the second six months of each
calendar year is more heavily affected as companies tend to increase their use
of temporary personnel during this period. While the commercial staffing
business is cyclical, the Company believes that the broad geographic coverage of
its operations, its emphasis on high-end clerical staffing and its rapid
expansion into the less cyclical information technology services sector,
mitigate the adverse effects of economic cycles in a single industry or
geographic region.
3
<PAGE> 4
RESULTS OF OPERATIONS
Year Ended December 28, 1997, Versus Year Ended December 29, 1996
Revenues. Total revenues increased 95.2% to $475.6 million in 1997 from
$243.6 million in 1996. Information Technology Services revenue grew 350.2% as
the Company continued its aggressive acquisition program with six IT
acquisitions in 1997. In addition, the Company experienced strong internal
growth as Information Technology Services revenues on a pro forma basis grew
34.7% in 1997 over 1996. Commercial Staffing Division revenue grew 20.1% as the
result of the contribution of revenues from the four commercial staffing
companies acquired by the Company in 1997 and as a result of pro forma internal
growth of 9.0% in 1997 over 1996. High internal growth rates in 1997 were due to
the continued strong demand for IT services and the increasing acceptance by
businesses and other organizations in the use of a contingent workforce.
Direct Cost of Services and Gross Profit. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
87.6% to $349.6 million from $186.3 million in 1996. Gross margin as a
percentage of revenue increased 300 basis points to 26.5% from 23.5% during
1996. This increase reflected the Company's continued expansion into the higher
margin information technology staffing and consulting sectors. IT Services
revenues represented 52.5% of total revenues in 1997, up from 22.8% in 1996.
Gross profit margins in the Information Technology and Commercial Staffing
Divisions remained consistent with 1996 margins as pay rate pressures were
generally passed on to the Company's customers through higher bill rates.
Operating Expenses. Operating expenses, consisting of selling, general and
administrative expenses and depreciation and amortization expense, increased
111.1% to $88.3 million in 1997 from $41.8 million in 1996. As a percentage of
revenues, selling, general and administrative expenses increased to 16.7% in
1997 from 15.8% for 1996. The increase is primarily due to a shift in the
business mix to IT, which has higher selling, general and administrative costs
as a percentage of revenues in relation to the Commercial Staffing Division.
Depreciation and amortization expense during 1997 increased to 1.9% of revenues
from 1.4% of revenues for 1996 primarily due to the acquisitions completed in
1997 and 1996.
Interest Expense. Interest expense increased to $7.0 million in 1997 as
the Company borrowed funds to continue its aggressive acquisition strategy. The
Company completed a private placement of $115.0 million of 5 3/4% Convertible
Subordinated Notes due 2004 in June and July 1997. In addition, the Company
continued to borrow funds under its Credit Facility and from certain sellers of
acquired businesses to finance acquisitions. Lower interest expense of $1.2
million in 1996 reflects the application of the proceeds received from the 1996
Equity Offering to finance certain 1996 acquisitions. See "Liquidity and Capital
Resources."
Income Tax Expense. The effective tax rate increased slightly to 42.2% in
1997 from 41.9% for 1996. This increase was due to additional nondeductible
amortization expense in 1997 in relation to pretax income, as well as an
increase in state income taxes attributable to changes in the Company's business
mix geographically among the states. The Company's effective tax rate has
historically been higher than the U.S. federal statutory rate of 35.0% primarily
due to state income taxes and nondeductible amortization expense.
Income from Continuing Operations. Income from continuing operations
increased 114.2% to $17.8 million in 1997 (or 3.7% of revenue) from $8.3 million
(3.4% of revenue) in 1996 due to the factors discussed above.
Year Ended December 28, 1996, Versus Year Ended December 31, 1995
Revenues. Total revenues increased 70.1% to $243.6 million in 1996 from
$143.2 million in 1995. Commercial Staffing Division revenue grew 31.3%,
primarily as the result of the contribution of revenues from the four commercial
staffing companies acquired by the Company in 1996, internal growth attributable
to increases in billable hours and billing rates and an improved service mix.
All of the Information Technology Division's revenues resulted from acquisitions
completed in 1996.
Direct Cost of Services and Gross Profit. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
69.8% to $186.3 million from $109.8 million in 1995. Gross
4
<PAGE> 5
margin as a percentage of revenue increased slightly to 23.5% from 23.4% during
1995. This increase reflected the Company's entry into the higher margin
information technology services sector in 1996.
Operating Expenses. Operating expenses, consisting of selling, general,
and administrative expenses and depreciation and amortization expenses,
increased 62.6% to $41.8 million in 1996 from $25.7 million in 1995. As a
percentage of revenues, selling, general and administrative expenses decreased
to 15.8% in 1996 from 17.2% for 1995 primarily as the result of the spreading of
these expenses over a larger revenue base. Depreciation and amortization expense
recognized during 1996 increased to 1.4% of revenues from 0.8% of revenues for
1995 primarily due to the acquisitions completed during 1996.
Interest Expense. Interest expense increased to $1.2 million in 1996 as
the Company borrowed funds under its Credit Facility and from certain sellers at
various times during the year primarily to finance acquisitions. See "Liquidity
and Capital Resources." Prior to March 1996, the Company had not borrowed any
funds under its Credit Facility, and interest expense had been immaterial.
Income Tax Expense. The effective tax rate decreased to 41.9% in 1996 from
43.1% for 1995. This decrease was due to reductions in nondeductible
amortization expense related to pretax income and in state income taxes
attributable to changes in the Company's business mix geographically among the
states. The Company's effective tax rate has historically been higher than the
U.S. federal statutory rate of 35.0% primarily due to state income taxes and
nondeductible amortization expense.
Income from Continuing Operations. Income from continuing operations
increased 91.8% to $8.3 million in 1996 (or 3.4% of revenue) from $4.3 million
(or 3.0% of revenue) in 1995 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Changes in liquidity during the year ended December 28, 1997, represented
the net effect of cash generated by operations, financing activities and from
the sale of the Company's healthcare division, offset by the Company's principal
uses of cash to finance receivables due to the growth in business, fund
acquisitions and make capital expenditures. For the year ended December 28,
1997, cash provided by operating activities increased to $23.4 million, up from
$7.5 million for 1996, primarily as the result of higher earnings before
depreciation and amortization in 1997. Cash used for investing activities
decreased to $91.0 million in 1997 from $164.6 million in 1996. This decrease
reflects the reduction in cash used for acquisitions of $115.7 million in 1997
versus $155.8 million in 1996, as well as the cash received in connection with
the sale of the healthcare division. Cash flows from financing activities
decreased to $63.1 million in 1997 from $157.6 million in 1996. This decrease is
primarily due to net repayments under the Credit Facility in 1997 versus net
borrowings under the Credit Facility in 1996, offset by the $111.8 million net
proceeds from the issuance of the Notes.
As of December 28, 1997, receivables for the Information Technology
Services Division and the Commercial Staffing Division remained outstanding an
average of 53 and 44 days, respectively, after billing. In the aggregate, days
sales outstanding were 48 and 51 days at December 28, 1997, and December 29,
1996, respectively.
The Company's primary capital expenditure requirements relate to
acquisitions. Since the IPO, the Company has made cash payments and issued notes
aggregating approximately $292.8 million for acquisitions of existing
businesses. The Company is obligated under certain acquisition agreements to
repay notes during the next two years of $13.1 million in the aggregate and to
make contingent earnout and post-closing payments to former owners of acquired
businesses. The Company has recorded $34.1 million and $2.4 of contingent
consideration to be paid in 1998 and 1999, respectively, relating to 1997
earnings. In addition, the Company has recorded $4.6 million of post-closing
payments due to former owners of acquired businesses. Earnout payments based on
1998 earnings and beyond are contingent on the future performance of such
acquired businesses, and thus the actual amount cannot be determined until such
date. The Company estimates, based on certain assumptions as to future
performance of such acquired businesses, that aggregate earnout payments may be
in the range of $13.0 million to $21.0 million in 1999, $17.0 million to $26.0
million in 2000, and $6.0 million to $9.0 million in 2001. There can be no
assurance, however, that the future performance of the acquired businesses will
be consistent with the
5
<PAGE> 6
assumptions used in establishing the foregoing estimates, or that the actual
amounts of any earnout payments will not differ materially from the estimates
set forth herein.
The Company selectively seeks acquisition opportunities in the ordinary
course of business, and management believes that the Company will continue to
make acquisitions as attractive opportunities become available. The Company
intends to seek additional capital as necessary to fund other potential
acquisitions through one or more funding sources that may include borrowings
under the Credit Facility described below or offerings of debt or equity
securities of the Company. Cash flow from operations, to the extent available,
may also be used to fund a portion of any acquisition expenditures. The Company
also expects to spend approximately one percent of its revenues during 1998 on
field automation systems, management information systems and other capital
expenditures not directly related to acquisitions.
The Company's Credit Facility is a five-year $125.0 million revolving line
of credit due June 2002. As of December 28, 1997, $24.0 million of borrowings
were outstanding under the Credit Facility and approximately $4.0 million had
been used for the issuance of undrawn letters of credit to secure the Company's
workers' compensation programs. Borrowings under the Credit Facility bear
interest at a rate equal to LIBOR plus a percentage corresponding to the
Company's consolidated leverage ratio, as defined, or the agent's base rate, as
defined, at the Company's option. In 1997, the daily weighted average interest
rate under the Credit Facility was 7.2%.
At February 17, 1998, the amount available for borrowing under the Credit
Facility was approximately $97.8 million. The Credit Facility is secured by
pledges of the stock of the Company's subsidiaries and contains customary
covenants such as the maintenance of certain financial ratios, minimum net worth
and working capital requirements, and a restriction on the payment of cash
dividends on common stock. The Credit Facility also limits borrowing
availability for acquisition-related purposes. Subsequent to year-end, the
Company received a commitment from its bank group, subject to certain closing
conditions, to increase the Credit Facility to $200.0 million.
In June and July 1997, the Company completed the private placement of
$115.0 million of Notes. The net proceeds of approximately $111.8 million from
this offering were used to repay a substantial portion of outstanding
indebtedness under the Company's Credit Facility and permanently repay
outstanding indebtedness under a separate $10.0 million line of credit. The
Notes are subordinated to all present and future senior indebtedness of the
Company, including indebtedness under the Credit Facility. Interest on the Notes
is payable semi-annually, commencing January 1998. The Notes are convertible
into Common Stock of the Company at any time before maturity at a conversion
price of $17.81 per share. The Notes are not redeemable prior to July 2000.
Thereafter, the Company may redeem the Notes initially at 103.29% and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest.
The Company believes that cash flow from operations, borrowing capacity
under the Credit Facility and other available financing alternatives, including
offerings of debt or equity securities of the Company, will be adequate to meet
its presently anticipated needs for working capital, acquisitions, and capital
expenditures. There can be no assurance, however, that other alternative sources
of capital will be available in the future or, if available, that any such
alternative sources will be available on favorable terms.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
("FAS 131") which changes the way that public companies report information about
operating segments in annual and interim financial statements. FAS 131 will be
effective in years beginning after December 15, 1997. The Company will be
required to adopt FAS 131 beginning with its 1998 annual financial statements.
Management has not yet completed its analysis of the impact that this standard
will have on the financial statements of the Company.
6
<PAGE> 7
Year 2000 Compliance
Management believes that the Company's operational and financial reporting
systems are substantially Year 2000 compliant. Future Year 2000 compliance costs
are not expected to have a material impact on the financial position, results of
operations or cash flows of the Company. Management does not know at this time
what, if any, impact Year 2000 compliance may have on its payor and vendor
sources and the impact, if any, on the Company if such payors or vendors are not
fully compliant. Management is attempting to determine when its payors and
vendors will be Year 2000 compliant.
Inflation
The effects of inflation on the Company's operation were not material in
1997. Inflationary increases in payroll costs were generally passed on to the
Company's customers through higher bill rates.
FORWARD-LOOKING INFORMATION
This report, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations," may contain various "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, which are based on
management's belief and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate," "estimate,"
"expect," and similar expressions may identify forward-looking statements.
Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's actual results, performance or financial conditions may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on the Company's actual results, performance or
financial condition are fluctuations in the economy, general employment trends,
including wage trends, the degree and nature of competition, demand for the
Company's services, changes in laws and regulations affecting the Company's
business, the Company's ability to complete acquisitions and integrate the
operations of acquired businesses, to recruit and place temporary professionals,
to expand into new markets, and to maintain profit margins in the face of
pricing pressures and other matters discussed in this report and the Company's
other filings with the Securities and Exchange Commission.
7
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Personnel Group of
America, Inc. (the "Company") and its subsidiaries at December 28, 1997, and the
results of their operations and their cash flows for the year then ended, 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above. The financial statements of the Company for the two years ended December
29, 1996 were audited by other independent accountants whose report dated
February 7, 1997, except for Note 4, for which the date is December 26, 1997 and
except for Note 10, for which the date is March 5, 1998, expressed an
unqualified opinion on those statements.
/s/ PRICE WATERHOUSE LLP
Charlotte, North Carolina
February 3, 1998, except for Note 10,
for which the date is March 5, 1998.
8
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 642 $ 5,111
Accounts receivable, net of allowance for doubtful
accounts of $1,063 and $519 in 1997 and 1996,
respectively........................................... 77,869 46,219
Prepaid expenses and other current assets................. 1,674 1,075
Deferred income taxes..................................... 4,165 1,701
Notes receivable from sale of discontinued operations..... 36,276 --
-------- --------
Total current assets.............................. 120,626 54,106
Property and equipment, net................................. 9,162 5,746
Intangible assets, net...................................... 316,413 178,943
Other assets................................................ 5,108 1,815
Net assets of discontinued operations....................... -- 52,965
-------- --------
Total assets...................................... $451,309 $293,575
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 7,490 $ 6,670
Accounts payable.......................................... 2,200 2,596
Accrued wages and benefits................................ 19,544 11,514
Other accrued liabilities................................. 12,777 5,990
Income taxes payable...................................... 9,525 778
-------- --------
Total current liabilities......................... 51,536 27,548
Long-term debt.............................................. 145,050 78,477
Other long-term liabilities................................. 49,647 4,293
-------- --------
Total liabilities................................. 246,233 110,318
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 95,000;
24,278 and 12,034 shares issued and outstanding in 1997
and 1996, respectively................................. 242 120
Additional paid-in capital................................ 171,038 169,273
Retained earnings......................................... 34,066 13,864
Deferred compensation..................................... (270) --
-------- --------
Total shareholders' equity........................ 205,076 183,257
-------- --------
Total liabilities and shareholders' equity........ $451,309 $293,575
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
REVENUES.................................................... $475,620 $243,608 $143,243
DIRECT COST OF SERVICES..................................... 349,616 186,338 109,755
-------- -------- --------
GROSS PROFIT................................................ 126,004 57,270 33,488
SELLING, GENERAL AND ADMINISTRATIVE......................... 79,216 38,454 24,568
DEPRECIATION AND AMORTIZATION............................... 9,037 3,362 1,149
-------- -------- --------
OPERATING INCOME............................................ 37,751 15,454 7,771
INTEREST EXPENSE............................................ 6,951 1,155 159
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 30,800 14,299 7,612
PROVISION FOR INCOME TAXES.................................. 13,010 5,995 3,282
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 17,790 8,304 4,330
-------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of taxes......... 2,323 3,213 2,779
Gain on disposal of discontinued operations, net of
taxes.................................................. 89 -- --
-------- -------- --------
Total discontinued operations..................... 2,412 3,213 2,779
-------- -------- --------
NET INCOME.................................................. $ 20,202 $ 11,517 $ 7,109
======== ======== ========
NET INCOME PER BASIC SHARE:
Income from continuing operations......................... $ 0.74 $ 0.41 $ 0.27
-------- -------- --------
Discontinued operations:
Income from discontinued operations, net of taxes...... 0.10 0.16 0.17
Gain on disposal of discontinued operations, net of
taxes................................................ -- -- --
-------- -------- --------
Total discontinued operations..................... 0.10 0.16 0.17
-------- -------- --------
NET INCOME PER BASIC SHARE........................ $ 0.83 $ 0.56 $ 0.44
-------- -------- --------
NET INCOME PER DILUTED SHARE:
Income from continuing operations......................... $ 0.71 $ 0.41 $ 0.27
-------- -------- --------
Discontinued operations:
Income from discontinued operations, net of taxes...... 0.09 0.16 0.17
Gain on disposal of discontinued operations, net of
taxes................................................ -- -- --
-------- -------- --------
Total discontinued operations..................... 0.09 0.16 0.17
-------- -------- --------
NET INCOME PER DILUTED SHARE...................... $ 0.80 $ 0.56 $ 0.44
======== ======== ========
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING................... 24,204 20,432 16,000
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING................. 28,078 20,432 16,000
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION NET ASSETS EQUITY
------ ------ ---------- -------- ------------ ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995.................... -- $ -- $ -- $ -- $ -- $ 68,438 $ 68,438
====== ==== ======== ======= ===== ======== ========
Cash distributions........ -- -- -- -- -- (7,351) (7,351)
Contributions of assets... -- -- -- -- -- 7,790 7,790
Net income................ -- -- -- 2,347 -- 4,762 7,109
Reclassification of net
assets as of September
30, 1995................ 8,000 80 73,559 -- -- (73,639) --
------ ---- -------- ------- ----- -------- --------
BALANCE, December 31,
1995.................... 8,000 $ 80 $ 73,559 $ 2,347 $ -- $ -- $ 75,986
====== ==== ======== ======= ===== ======== ========
Issuance of common
stock................... 4,025 40 95,589 -- -- -- 95,629
Exercises of stock
options................. 9 -- 125 -- -- -- 125
Net income................ -- -- -- 11,517 -- -- 11,517
------ ---- -------- ------- ----- -------- --------
BALANCE, December 29,
1996.................... 12,034 $120 $169,273 $13,864 $ -- $ -- $183,257
====== ==== ======== ======= ===== ======== ========
Exercises of stock
options................. 95 1 1,570 -- -- -- 1,571
Issuance of restricted
stock................... 10 -- 316 -- (316) -- --
Amortization of deferred
compensation............ -- -- -- -- 46 -- 46
Net income................ -- -- -- 20,202 -- -- 20,202
Two-for-one stock split... 12,139 121 (121) -- -- -- --
------ ---- -------- ------- ----- -------- --------
BALANCE, December 28,
1997.................... 24,278 $242 $171,038 $34,066 $(270) $ -- $205,076
====== ==== ======== ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations..................... $ 17,790 $ 8,304 $ 4,330
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,037 3,362 1,149
Deferred income taxes, net............................. 3,083 (286) 73
Changes in assets and liabilities:
Accounts receivable.................................. (14,684) (8,890) (3,201)
Prepaid expenses and other current assets............ (490) 1,319 (395)
Other assets......................................... 60 (1,402) (136)
Accounts payable and accrued liabilities............. 9,238 6,091 (467)
Income taxes payable................................. (597) (1,026) 1,776
--------- -------- -------
Net cash provided by operating activities......... 23,437 7,472 3,129
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired........... (115,663) (155,837) --
Net cash provided (used) by discontinued operations....... 29,812 (5,535) 7,956
Purchase of property and equipment, net................... (5,162) (3,239) (21)
--------- -------- -------
Net cash (used in) provided by investing
activities...................................... (91,013) (164,611) 7,935
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes issuance,
net.................................................... 111,750 -- --
Proceeds from issuance of common stock, net............... -- 95,629 --
Repayments under Credit Facility.......................... (190,632) (30,775) --
Borrowings under Credit Facility.......................... 147,307 98,100 --
Proceeds from exercise of stock options................... 1,617 125 --
Repayments of seller notes and acquired indebtedness...... (6,935) (5,524) --
Distributions to the Former Parent, net................... -- -- (7,351)
--------- -------- -------
Net cash provided by (used in) financing
activities...................................... 63,107 157,555 (7,351)
--------- -------- -------
Net (decrease) increase in cash and cash equivalents........ (4,469) 416 3,713
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 5,111 4,695 982
--------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 642 $ 5,111 $ 4,695
========= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for:
Income taxes........................................... $ 10,888 $ 9,617 $ 3,737
Interest............................................... $ 5,042 $ 1,307 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
Basis of Presentation
Personnel Group of America, Inc. and its subsidiaries (collectively, the
"Company") completed its initial public offering (the "IPO") in September 1995.
Prior to the IPO, the Company was an indirect wholly owned subsidiary of an
international staffing company (the "Former Parent"). The operations of the
Company are presented on an historical cost basis, and all significant
intercompany transactions have been eliminated.
As a result of the IPO, in which the Former Parent sold its entire
ownership interest in the Company, the Company became an independent public
company. The Company did not receive any of the proceeds of the sale of its
shares in the IPO.
Nature of Operations
The Company operates through a network of Company-operated offices. The
Company is organized into two Divisions: Information Technology Services, which
provides information technology staffing and consulting services in a range of
computer-related disciplines; and Commercial Staffing, which provides temporary
office, clerical and light industrial and light technical services. At December
28, 1997, the Information Technology Division was comprised of 11 companies and
the Commercial Staffing Division was comprised of 20 companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue at the time services are performed.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Property and Equipment
Property and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives (generally three to seven
years). Leasehold improvements are stated at cost and amortized over the shorter
of the lease term or the useful life of the improvements.
Intangible Assets
The Company's businesses were acquired from unrelated third parties in
exchange for cash and other consideration. The Company allocates the excess of
cost over the fair value of net tangible assets first to identifiable intangible
assets, if any, and then to goodwill. Although the Company believes that
goodwill has an unlimited life, the Company amortizes such costs on a
straight-line basis over 40 years. Gross amounts and accumulated amortization of
excess of cost over fair value of net assets acquired amounted to $323,952 and
$10,295 at December 28, 1997, respectively, and $181,179 and $4,508 at December
29, 1996, respectively.
Other intangible assets consist primarily of covenants not to compete and
other, and are amortized over three to five years. Gross amounts and accumulated
amortization of such other intangible assets amounted to $3,807 and $1,051 at
December 28, 1997, respectively, and $2,718 and $446 at December 29, 1996,
respectively.
The Company evaluates the recoverability of its investment in excess of
cost over fair value of net assets acquired and other intangibles in relation to
anticipated future cash flows on an undiscounted basis. Based on this
assessment, the Company expects its investment in excess of cost over fair value
of net assets acquired and other intangibles to be fully recovered.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred tax assets and liabilities are recorded for the expected tax
consequences of temporary differences arising between the tax bases of assets
and liabilities and their reported amounts in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
The Company's operating results through September 29, 1995, were included
in the Former Parent's consolidated federal income tax return and combined state
tax returns filed in various states. The Company has filed its own consolidated
federal income tax return and various state returns for the periods ending after
September 29, 1995.
Net Income Per Share
The computation of net income per basic share was based on the weighted
average number of shares of common stock outstanding. The computation of net
income per diluted share was based on the weighted average number of common
stock and common stock equivalents outstanding and also assumed the conversion
of the Company's Convertible Notes in 1997. In 1996 and 1995, the computation of
both basic and diluted net income per share have been retroactively restated in
accordance with FAS 128.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
3. ACQUISITIONS
During 1997, the Company acquired the following businesses in seven
separate transactions:
<TABLE>
<CAPTION>
NAME OF BUSINESS TYPE OF BUSINESS DATE ACQUIRED
- ---------------- ---------------- -------------
<S> <C> <C>
Word Processing
Professionals Commercial Staffing January 1997
Energetix Information Technology February 1997
Lipson Conroy Services Information Technology April 1997
Lloyd-Ritter Consulting Information Technology April 1997
Vital Computer Services Information Technology June 1997
DRACS Consulting Group Information Technology September 1997
Jeffrey Staffing Group* Commercial Staffing September 1997
BAL Associates Information Technology December 1997
</TABLE>
- ---------------
* Includes Franklin-Pierce Companies, Scott-Wayne Companies and Integrity
Technical Services
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company acquired the following businesses in eight
separate transactions:
<TABLE>
<CAPTION>
NAME OF BUSINESS TYPE OF BUSINESS DATE ACQUIRED
- ---------------- ---------------- -------------
<S> <C> <C>
Profile Temporary Services Commercial Staffing March 1996
Allegheny Personnel Services Commercial Staffing March 1996
Judith Fox Staffing
Companies Commercial Staffing May 1996
Computer Resources Group Information Technology June 1996
Broughton Systems Information Technology July 1996
Denver Temporary Services Commercial Staffing July 1996
Command Technologies Information Technology July 1996
BEST Consulting Information Technology September 1996
Software Service Corporation Information Technology September 1996
</TABLE>
The acquisitions are collectively referred to hereinafter as the
"Transactions," and the acquired businesses are collectively referred to
hereinafter as the "Acquired Companies." The companies acquired in 1997 had pro
forma 1997 revenues of approximately $151,000.
In 1997 and 1996, the Company paid approximately $112,500 and $176,900,
respectively, in cash and notes to consummate the Transactions (which included
direct acquisition costs but excluded contingent earnout payments associated
with certain of the Transactions). Certain of the acquisitions provide for
additional purchase price consideration upon attainment of certain earnings
targets for various periods during the next three years. The Company paid $3,421
in contingent consideration in 1997. The Company has recorded $34,079 and $2,375
of contingent consideration to be paid in 1998 and 1999, respectively, relating
to 1997 earnings. In addition, the Company has recorded $4,630 of post-closing
payments due to former owners of acquired businesses. Contingent earnout
payments based on 1998 earnings and beyond are contingent on the future
performance of such acquired businesses, and thus the actual amount cannot be
determined until such date. Any additional consideration will be recorded as
additional purchase price when earned 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, based on preliminary allocations, were
recorded at their 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 dates of the respective
acquisitions. Final allocation of the purchase price may result in adjustments
to the amounts previously recorded as excess of cost over fair market value of
net assets acquired.
Since December 28, 1997, the Company has completed the acquisitions of Ann
Wells Personnel ("Ann Wells") in Silicon Valley, California; Creative
Temporaries ("Creative") in Charlotte, North Carolina; and Corporate Staffing
Consultants ("Corporate") in Charlotte, North Carolina. Ann Wells, acquired in
January 1998, provides word processing and desktop publishing services to
professional services firms and financial institutions in the Silicon Valley.
Creative and Corporate, acquired in January 1998, provide commercial staffing
services in the Charlotte area. These companies had combined revenues in excess
of $40.0 million in 1997. The Company funded the acquisitions of Ann Wells,
Creative and Corporate primarily through borrowings under the Credit Facility
(see Note 11).
The following table presents the Company's unaudited pro forma consolidated
results of operations for 1997 and 1996 as if the Transactions and the
acquisitions subsequent to year-end 1997 discussed above had occurred on January
1, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $585,906 $482,834
Income from continuing operations........................... 21,007 11,416
Income from continuing operations per diluted share......... $ 0.81 $ 0.54
Weighted average diluted shares outstanding................. 28,678 21,032
</TABLE>
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DISCONTINUED OPERATIONS
On December 26, 1997, the Company completed the sale of its healthcare
division for $65,250. Of such amount, $34,600 was paid by delivery of a
promissory note from the purchaser. The assets, liabilities, results of
operations and cash flows of the healthcare division have been segregated and
reported as discontinued operations for all periods presented, and previously
reported results have been restated. The sale of the healthcare division
resulted in a gain of $89.
In January 1998, the $34,600 note was collected in full. The total proceeds
received in connection with the sale were used to repay outstanding borrowings
under the Credit Facility (see Note 11).
During 1997 and 1996, the Company allocated interest expense to the
discontinued operations based on the ratio of net assets of the discontinued
operations to the total net assets of the consolidated Company. Interest expense
allocated in 1997 and 1996 was $2,217 and $445, respectively. No other corporate
overhead expenses have been allocated to the discontinued operations.
Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................... $133,442 $122,937 $107,812
Total expenses......................................... 129,438 117,387 103,010
-------- -------- --------
Income before income taxes............................. 4,004 5,550 4,802
Provision for income taxes............................. 1,681 2,337 2,023
-------- -------- --------
Net income............................................. $ 2,323 $ 3,213 $ 2,779
======== ======== ========
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Trade accounts receivable................................... $78,932 $46,738
Less -- Allowance for doubtful accounts..................... (1,063) (519)
------- -------
$77,869 $46,219
======= =======
</TABLE>
The following table sets forth further information on the Company's
allowance for doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
YEAR ENDED OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 28, 1997.............................. $519 $1,138 $(594) $1,063
December 29, 1996.............................. 332 899 (712) 519
December 31, 1995.............................. 295 243 (206) 332
</TABLE>
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following at December 28,
1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Computer equipment and software............................. $ 9,504 $ 6,669
Furniture and other equipment............................... 3,145 3,663
Leasehold improvements...................................... 589 590
------- -------
13,238 10,922
Less -- Accumulated depreciation............................ (4,076) (5,176)
------- -------
$ 9,162 $ 5,746
======= =======
</TABLE>
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Accrued interest............................................ $ 4,073 $ --
Workers' compensation reserves.............................. 1,616 1,605
Other....................................................... 7,089 4,385
------- ------
$12,777 $5,990
======= ======
</TABLE>
8. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at December 28,
1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Amounts due sellers of acquired businesses.................. $41,084 $2,792
Deferred tax liabilities.................................... 4,428 --
Workers' compensation reserves and other.................... 4,135 1,501
------- ------
$49,647 $4,293
======= ======
</TABLE>
The amounts due sellers of acquired business are for additional purchase
price consideration and for post-closing payments based upon the operating
results of 1997. Of the amounts due at December 28, 1997, $37,659 is due in 1998
and will be paid with borrowings under the Company's Credit Facility (see Note
11).
9. EMPLOYEE BENEFIT PLANS
The Company has 401(k) profit sharing and nonqualified profit sharing
plans, which cover substantially all of its employees. Company contributions or
allocations are made on a discretionary basis for these plans (except for
matching contributions made to certain 401(k) profit sharing plans as required
by the terms of such plans). Contributions charged to operating expenses were
$523, $492 and $383 for the years ended December 28, 1997, December 29, 1996,
and December 31, 1995, respectively.
The Company does not provide postretirement healthcare and life insurance
benefits to retired employees or postemployment benefits to terminated
employees.
10. CAPITAL STOCK AND STOCK OPTIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA):
On March 5, 1998, the Board of Directors authorized a two-for-one split of
common stock to be effected in the form of a 100% stock dividend payable to
shareholders of record on March 16, 1998. The par value remained at $0.01 per
share. Shareholders' equity has been restated by reclassifying from additional
paid-in capital to common stock the par value of the additional shares arising
from the split. All references in the accompanying consolidated financial
statements to the number of common shares, except shares authorized, and to per
share amounts have been restated to reflect the stock split.
In June 1996, the Company issued 8,050,000 shares of its common stock in an
underwritten public offering (the "1996 Equity Offering"), which raised $95,629
for the Company, net of offering expenses. The proceeds from the 1996 Equity
Offering were used to repay outstanding borrowings under the Company's Credit
Facility and fund several acquisitions.
The Company's Board of Directors adopted its 1995 Equity Participation Plan
(the "Incentive Plan") to attract and retain officers, key employees,
consultants and directors. The Incentive Plan has reserved for issuance 15% of
the Company's issued and outstanding common stock from time to time. The
Incentive Plan allows for the issuance of options, stock appreciation rights,
and other awards, or restricted or other deferred stock awards.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Incentive stock options may be granted only to employees and, when granted, have
an exercise price equal to at least 100% of the fair market value of the common
stock on the grant date and a term not longer than 10 years.
In addition, nonemployee directors (including the directors who administer
the plan) are eligible to receive nondiscretionary grants of nonqualified stock
options ("NQSOs") under the Incentive Plan pursuant to a formula. The NQSOs
granted to nonemployee directors are fully vested and exercisable upon grant and
the term of each such option is 10 years. NQSOs may also be granted to an
employee or consultant for any term specified by the compensation committee of
the Board and will provide for the right to purchase common stock at a specified
price which, except with respect to NQSOs intended to qualify as
performance-based compensation, may be less than fair market value on the date
of grant (but not less than par value), and may become exercisable (at the
discretion of the compensation committee) in one or more installments after the
grant date.
In 1997, the Company issued each outside member of the Board of Directors a
restricted share grant of 5,000 shares, for a total of 20,000 shares. These
shares will vest ratably over a three-year period. The non-vested portion of the
restricted share grant is included as deferred compensation on the Company's
Statement of Shareholders' Equity.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER PRICE PER
OPTION SHARE
--------- ---------
<S> <C> <C>
Outstanding, January 1, 1995................................ -- $ --
Granted in 1995........................................... 865,410 6.93
Outstanding, December 31, 1995.............................. 865,410 6.93
Granted in 1996........................................... 841,296 12.66
Exercised.............................................. 18,620 6.69
Canceled............................................... 48,180 7.31
--------- ------
Outstanding, December 29, 1996.............................. 1,639,906 $10.15
========= ======
Granted in 1997........................................... 867,792 15.50
Exercised.............................................. 190,196 8.26
Canceled............................................... 121,950 10.32
========= ======
Outstanding, December 28, 1997.............................. 2,195,552 $12.20
========= ======
Exercisable, December 31, 1995............................ 223,082 $ 6.93
========= ======
Exercisable, December 29, 1996............................ 527,112 $ 8.93
========= ======
Exercisable, December 28, 1997............................ 870,982 $ 9.98
========= ======
</TABLE>
Pursuant to the requirements of SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), the following disclosures are presented to reflect
the Company's pro forma net income for the three years ended December 28, 1997,
December 29, 1996, and December 31, 1995, as if the fair value method of
accounting prescribed by SFAS 123 had been used. In preparing these disclosures,
the Company has determined the value of all options granted using the minimum
value method, as discussed in SFAS 123, and based on the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.1% 6.9% 6.7%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
Expected life............................................... 5 years 5 years 5 years
</TABLE>
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Using these assumptions, the fair value of the stock options granted in
1997, 1996 and 1995 was approximately $5,976, $4,920 and $2,744, respectively.
Had compensation expense been determined consistent with SFAS 123, utilizing the
assumptions above and the straight-line amortization method over the vesting
period, the Company's net income would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income, as reported................................... $20,202 $11,517 $ 7,109
Net income per diluted share, as reported................. 0.80 0.56 0.44
Pro forma net income...................................... 18,720 9,922 6,400
Pro forma net income per diluted share.................... 0.75 0.49 0.40
</TABLE>
On February 6, 1996, the Board of Directors of the Company declared a
dividend of one nonvoting preferred share purchase right (a "Right") for each
outstanding share of common stock. The dividend was paid on February 27, 1996,
to the shareholders of record on that date. In the event of an acquisition, or
the announcement of an acquisition, by a party of a beneficial interest of at
least 15% of the Company's common stock, each right would become exercisable
(the "Distribution Date"). Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company at a price of $95.00
per one one-hundredth of a share of Preferred Stock, subject to adjustment. In
addition, each Right entitles the right holder to certain other rights as
specified in the Company's rights agreement. The Rights are not exercisable
until Distribution Date. The Rights will expire on February 6, 2006 (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by the Company.
11. LONG-TERM DEBT
Long-term debt consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
5 3/4% Convertible Subordinated Notes due July 2004......... $115,000 $ --
$125,000 revolving Credit Facility due June 2002............ 24,000 67,325
Notes payable to sellers of acquired companies and other.... 13,540 17,822
-------- -------
152,540 85,147
Less current portion........................................ (7,490) (6,670)
-------- -------
$145,050 $78,477
======== =======
</TABLE>
In June and July 1997, the Company completed a private placement of
$115,000 of 5 3/4% Convertible Subordinated Notes due July 2004 (the "Notes").
The net proceeds of approximately $111,750 were used to repay a substantial
portion of outstanding indebtedness under the Company's $125,000 Revolving
Credit Facility (the "Credit Facility") and permanently repay outstanding
indebtedness under a separate $10,000 line of credit. Interest on the Notes is
payable semi-annually, commencing January 1998. The Notes are convertible into
Common Stock of the Company at any time before maturity at an initial conversion
price of $17.81 per share. The Notes are not redeemable prior to July 2000.
Thereafter, the Company may redeem the Notes initially at 103.29% and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. The Notes are subordinated to all present and future senior
indebtedness of the Company (as defined), including indebtedness under the
Credit Facility.
Concurrent with the issuance of the Notes, the Credit Facility was amended
and restated. The term of the Credit Facility was extended to June 2002.
Borrowings under the Credit Facility bear interest, at a rate equal to LIBOR
plus a percentage corresponding to the Company's consolidated leverage ratio, as
defined, or the agent's base rate, as defined, at the Company's option. The
Credit Facility is secured by pledges of stock of the Company's subsidiaries and
contains customary covenants such as the maintenance of certain financial
ratios, minimum net worth and working capital requirements and a restriction on
the payment of cash dividends on
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock. The Credit Facility also limits borrowing availability for
acquisition-related purposes. At December 28, 1997, the Company was in
compliance with the covenants contained in the Credit Facility.
During 1997, the maximum aggregate outstanding borrowing under the Credit
Facility was $125,000 and the average outstanding balance during the year was
$55,900. In addition, approximately $4,000 of the Credit Facility has been used
for the issuance of undrawn letters of credit to secure the Company's workers'
compensation program. The daily weighted average interest rate under the Credit
Facility was 7.2% during 1997. The Company's borrowings under the Credit
Facility bore interest at the agent's base rate of 8.5% at December 28, 1997. At
February 3, 1998, the amount available for borrowing under the Credit Facility
was approximately $118,500.
The Company has also issued notes payable in connection with certain
acquisitions. These notes are due in varying installments and carry variable
interest rates ranging from 6.8% to 7.0% at December 28, 1997.
Scheduled maturities of long-term debt at December 28, 1997, are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 7,490
1999........................................................ 6,050
2000........................................................ --
2001........................................................ --
2002 and thereafter......................................... 139,000
--------
$152,540
========
</TABLE>
12. INCOME TAXES
The provision for income taxes for the years ended December 28, 1997,
December 29, 1996, and December 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current provision
Federal................................................... $ 8,863 $5,119 $2,666
State..................................................... 2,183 1,162 543
------- ------ ------
Total current provision........................... 11,046 6,281 3,209
Deferred provision (benefit)
Federal................................................... 1,576 (233) 61
State..................................................... 388 (53) 12
------- ------ ------
Total deferred provision (benefit)................ 1,964 (286) 73
------- ------ ------
Total............................................. $13,010 $5,995 $3,282
======= ====== ======
</TABLE>
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit......................... 5.4 5.0 4.7
Effect of nondeductible amortization and other.............. 1.8 1.9 3.4
---- ---- ----
Total............................................. 42.2% 41.9% 43.1%
==== ==== ====
</TABLE>
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's net deferred tax assets and liabilities
were as follows at December 28, 1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Deferred tax liability -- Excess of cost over fair value of
net assets acquired....................................... $3,883 $ --
Other deferred tax liabilities.............................. 545 --
------ -------
4,428 --
Deferred tax assets:
Accrued workers' compensation and other................... 2,698 961
Allowance for doubtful accounts........................... 425 208
Other..................................................... 1,042 532
------ -------
4,165 1,701
------ -------
Net deferred tax liability (asset)................ $ 263 $(1,701)
====== =======
</TABLE>
Tax-Sharing Agreement
Generally, the Former Parent is liable for income taxes of the Company for
any taxable period that ends on or before September 29, 1995, and the Company is
liable for income taxes for any period beginning after September 29, 1995.
13. NET INCOME PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS 128
simplifies the calculation of earnings per share ("EPS") primarily by removing
common stock equivalents from consideration in calculating basic EPS.
In accordance with FAS 128, the following tables reconcile net income and
weighted average shares outstanding to the amounts used to calculate basic and
diluted earnings per share for each of the three years ended December 28, 1997,
December 29, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(SHARE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS PER BASIC SHARE:
Net income.............................................. $20,202 $11,517 $ 7,109
======= ======= =======
Weighted average shares outstanding....................... 24,204 20,432 16,000(1)
Earnings per basic share.................................. $ 0.83 $ 0.56 $ 0.44
======= ======= =======
EARNINGS PER DILUTED SHARE:
Net income.............................................. $20,202 $11,517 $ 7,109
Add: Interest expense on Convertible Notes, net of
tax................................................ 2,217 -- --
------- ------- -------
Diluted net income...................................... 22,419 11,517 7,109
Weighted average shares outstanding..................... 24,204 20,432 16,000(1)
Add: Dilutive employee stock options.................... 502 -- --
Add: Assumed conversion of Convertible Notes............ 3,372 -- --
------- ------- -------
Weighted average diluted shares outstanding............. 28,078 20,432 16,000
Earnings per diluted share................................ $ 0.80 $ 0.56 $ 0.44
======= ======= =======
</TABLE>
- ---------------
(1) Assumes that the weighted average common shares outstanding equals the
16,000 shares sold by the Former Parent in the IPO.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximates the book value
at December 28, 1997, due to the short-term nature of these instruments. The
fair value of the Company's borrowings under the Credit Facility and the notes
payable to sellers of acquired businesses approximate the book value at December
28, 1997, because of the variable rate associated with these borrowings. The
Convertible Notes had a fair value of $129,231 at December 28, 1997, as compared
to the carrying value of $115,000.
Concentration of Credit Risk
The Company maintains cash and cash equivalents with various financial
institutions.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced. The Company performs credit evaluations of its customers.
15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under operating leases, certain of which
require it to pay property taxes, insurance and maintenance costs. Operating
leases for facilities are usually renewable at the Company's option and include
escalation clauses linked to inflation.
Future minimum annual rentals for the next five years are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 4,682
1999........................................................ 4,021
2000........................................................ 3,201
2001........................................................ 2,522
2002 and thereafter......................................... 2,594
-------
$17,020
=======
</TABLE>
Total rent expense under operating leases amounted to $4,078, $2,461 and
$1,652 for the years ended December 28, 1997, December 29, 1996, and December
31, 1995, respectively.
Insurance
The Company maintains a self-insurance program for workers' compensation
and medical and dental claims. The Company accrues liabilities under the
workers' compensation program based on the loss and loss adjustment expenses as
estimated by an outside administrator. At December 28, 1997, the Company had
standby letters of credit with a bank in connection with a portion of its
workers' compensation program.
The Company is subject to claims and legal actions by customers in the
ordinary course of business. The Company maintains professional liability
insurance for losses.
Employment Agreements
The Company has agreements with several executive officers providing for
cash compensation and other benefits in the event that a change in control of
the Company occurs.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Legal Proceedings
The Company is involved in various legal actions and claims. In the opinion
of management, after considering appropriate legal advice, the future
resolutions of all actions and claims will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Indemnification Obligation
Pursuant to the agreement to sell the healthcare division, the Company
agreed to indemnify the purchaser against certain specified expenses or losses
incurred by the purchaser. Management believes that future indemnification
claims, if any, made by the purchaser should not have a material impact on the
Company's financial position or results of operations.
16. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth quarterly financial information for each
quarter in the years ended December 28, 1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997
----------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $94,161 $113,205 $128,994 $139,261
Operating income............................... 6,081 8,410 10,698 12,562
Net income from continuing operations.......... 2,769 3,854 5,130 6,037
Net income..................................... 3,461 4,449 5,764 6,528
Net income per diluted share
Income from continuing operations............ $ 0.11 $ 0.15 $ 0.20 $ 0.23
Total discontinued operations................ 0.03 0.02 0.02 0.01
------- -------- -------- --------
Net income................................... $ 0.14 $ 0.18 $ 0.22 $ 0.24
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.......................................... $38,251 $47,572 $67,327 $90,458
Operating income.................................. 859 2,865 4,916 6,814
Net income from continuing operations............. 476 1,495 2,952 3,381
Net income........................................ 1,490 2,250 3,575 4,202
Net income per diluted share
Income from continuing operations............... $ 0.03 $ 0.08 $ 0.12 $ 0.14
Total discontinued operations................... 0.06 0.04 0.03 0.03
------- ------- ------- -------
Net income...................................... $ 0.09 $ 0.13 $ 0.15 $ 0.17
======= ======= ======= =======
</TABLE>
23
<PAGE> 24
CORPORATE DATA
STOCKHOLDER INFORMATION
CORPORATE OFFICES
Personnel Group of America, Inc.
6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
(704) 442-5100
REGISTRAR AND TRANSFER AGENT
First Union National Bank
Shareholder Services
Two First Union Center
Charlotte, North Carolina
(704) 374-2064
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP
Charlotte, North Carolina
COUNSEL
Robinson, Bradshaw & Hinson, P.A.
Charlotte, North Carolina
ANNUAL MEETING OF STOCKHOLDERS
9:30 a.m.
Wednesday, May 20, 1998
The Park Hotel
Charlotte, North Carolina
MARKET AND DIVIDEND INFORMATION
The common stock of Personnel Group of America, Inc. is listed on The New York
Stock Exchange (NYSE) under the symbol PGA. As of February 27, 1998, the
Company had approximately 6,500 stockholders based on the number of holders of
record and an estimate of the number of individual participants represented by
securities position listings.
The following table sets forth the reported high and low sales prices for PGA's
common stock as reported by NYSE for the periods indicated:
High Low Close
- --------------------------------------------------------------------------------
1997
First Quarter $ 13 5/8 $ 9 13/16 $ 9 13/16
Second Quarter 15 7/8 8 5/8 14 13/32
Third Quarter 18 1/32 14 1/2 17 1/8
Fourth Quarter 19 3/32 14 5/8 16 1/2
1996
First Quarter $ 10 $ 6 1/2 $ 9 1/8
Second Quarter 13 1/8 9 3/16 12 5/16
Third Quarter 13 9 15/16 13
Fourth Quarter 14 3/8 9 11/16 12 1/16
PGA has never paid a dividend on its common stock. The Company presently intends
to retain its earning to finance the growth and development of its business and
does not expect to pay cash dividends in the foreseeable future.
ANNUAL REPORT ON FORM 10-K
A copy of the Annual Report on Form 10-K for Personnel Group of America, Inc.
for the year ended December 28, 1997, filed with the Securities and Exchange
Commission, may be obtained without charge by writing Ken R. Bramlett, Jr.,
corporate secretary, at the corporate address.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation Does Business As
- ---------- ------------- ----------------
<S> <C> <C>
PFI Corp Delaware N/A; PFI serves as a Delaware holding company
NF Services, Inc. * New York Nursefinders
StaffPLUS, Inc. Delaware Abar Staffing, Allegheny Personnel Services, Ann Wells
Personnel, Denver Temp, Judith Fox Staffing, FirstWord
Staffing Services, Franklin-Pierce Temporaries,
Integrity Technical Services, Profile Temporaries,
Scott-Wayne Staffing, Scott- Wayne Temporaries,
Staffinders Personnel, Temp Connection, TempWorld,
West Personnel and Word Processing Personnel Services
(WPPS)
Word Processing Professionals, Inc. New York Word Processing Professionals
Franklin-Pierce Associates, Inc. Massachusetts Franklin Pierce Associates
Scott Wayne Associates, Inc. Massachusetts Scott Wayne Associates
Creative Corporate Staffing, Inc. North Carolina Creative Temporaries, Corporate Staffing Consultants
InfoTech Services, Inc. North Carolina InfoStaff (Utah and California), BEST Consulting,
DRACS Consulting Group, Computer Resources Group,
Command Technologies, Energetix, Lipson Conroy
Services, Software Service Corporation and Vital
Computer Services
Lloyd-Ritter Consulting, Inc. California Lloyd Ritter Consulting
BAL Associates, Inc. California BAL Associates
Advanced Business Consultants, Inc. Missouri Advanced Business Consultants
Broughton Systems, Inc. Virginia Broughton Systems
</TABLE>
* The stock of NF Services, Inc. (which operates Nursefinders' sole New York
branch) has been placed in escrow pending approval by the New York Department of
Health of the Nursefinders sale transaction. Upon approval by the New York
Department of Health, NF Services, Inc. will be transferred to Nursefinders'
buyer.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report on the consolidated balance sheet of Personnel
Group of America, Inc. as of December 29, 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the two
years in the period ended December 29, 1996, included in this Form 10-K into
Personnel Group of America, Inc.'s previously filed registration statements on
Form S-8 (File No. 333-19541 and File No. 333-39361) and Form S-3 (File No.
333-31863).
/s/ ARTHUR ANDERSEN LLP
Charlotte, North Carolina
March 26, 1998.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-19541 and No. 333-39361) and Form S-3 (No.
333-31863) of Personnel Group of America, Inc. of our report dated February 3,
1998, except for Note 10, for which the date is March 5, 1998, which appears on
page 30 of the 1997 Annual Report to Shareholders, which is included as Exhibit
13.1 in this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Charlotte, North Carolina
March 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC. FOR THE
FISCAL YEAR ENDED DECEMBER 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 642
<SECURITIES> 0
<RECEIVABLES> 78,932
<ALLOWANCES> (1,063)
<INVENTORY> 0
<CURRENT-ASSETS> 120,626
<PP&E> 13,238
<DEPRECIATION> (4,076)
<TOTAL-ASSETS> 451,309
<CURRENT-LIABILITIES> 51,536
<BONDS> 145,050
0
0
<COMMON> 242
<OTHER-SE> 204,834
<TOTAL-LIABILITY-AND-EQUITY> 451,309
<SALES> 475,620
<TOTAL-REVENUES> 475,620
<CGS> 349,616
<TOTAL-COSTS> 428,832
<OTHER-EXPENSES> 9,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,951
<INCOME-PRETAX> 30,800
<INCOME-TAX> 13,010
<INCOME-CONTINUING> 17,790
<DISCONTINUED> 2,412
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,202
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC. FOR THE
YEAR ENDED DECEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 5,111
<SECURITIES> 0
<RECEIVABLES> 46,738
<ALLOWANCES> (519)
<INVENTORY> 0
<CURRENT-ASSETS> 54,106
<PP&E> 10,922
<DEPRECIATION> (5,176)
<TOTAL-ASSETS> 293,575
<CURRENT-LIABILITIES> 27,548
<BONDS> 78,477
0
0
<COMMON> 120
<OTHER-SE> 183,137
<TOTAL-LIABILITY-AND-EQUITY> 293,575
<SALES> 243,608
<TOTAL-REVENUES> 243,608
<CGS> 186,338
<TOTAL-COSTS> 224,792
<OTHER-EXPENSES> 3,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,155
<INCOME-PRETAX> 14,299
<INCOME-TAX> 5,995
<INCOME-CONTINUING> 8,304
<DISCONTINUED> 3,213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,517
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,427
<SECURITIES> 0
<RECEIVABLES> 16,937
<ALLOWANCES> (281)
<INVENTORY> 0
<CURRENT-ASSETS> 22,994
<PP&E> 5,769
<DEPRECIATION> (4,039)
<TOTAL-ASSETS> 93,345
<CURRENT-LIABILITIES> 8,844
<BONDS> 7,025
0
0
<COMMON> 80
<OTHER-SE> 77,396
<TOTAL-LIABILITY-AND-EQUITY> 93,345
<SALES> 38,251
<TOTAL-REVENUES> 38,251
<CGS> 30,778
<TOTAL-COSTS> 37,105
<OTHER-EXPENSES> 287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 859
<INCOME-TAX> 383
<INCOME-CONTINUING> 476
<DISCONTINUED> 1,014
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 48,627
<SECURITIES> 0
<RECEIVABLES> 26,983
<ALLOWANCES> (687)
<INVENTORY> 0
<CURRENT-ASSETS> 79,648
<PP&E> 7,059
<DEPRECIATION> (4,206)
<TOTAL-ASSETS> 189,230
<CURRENT-LIABILITIES> 13,844
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 175,380
<TOTAL-LIABILITY-AND-EQUITY> 189,230
<SALES> 85,823
<TOTAL-REVENUES> 85,823
<CGS> 68,117
<TOTAL-COSTS> 81,343
<OTHER-EXPENSES> 756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 3,462
<INCOME-TAX> 1,491
<INCOME-CONTINUING> 1,971
<DISCONTINUED> 1,769
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,740
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 22,352
<SECURITIES> 0
<RECEIVABLES> 32,421
<ALLOWANCES> (341)
<INVENTORY> 0
<CURRENT-ASSETS> 59,303
<PP&E> 8,061
<DEPRECIATION> (4,473)
<TOTAL-ASSETS> 201,274
<CURRENT-LIABILITIES> 20,096
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 178,842
<TOTAL-LIABILITY-AND-EQUITY> 201,274
<SALES> 153,150
<TOTAL-REVENUES> 153,150
<CGS> 119,344
<TOTAL-COSTS> 142,916
<OTHER-EXPENSES> 1,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 8,540
<INCOME-TAX> 3,617
<INCOME-CONTINUING> 4,923
<DISCONTINUED> 2,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,315
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 1,069
<SECURITIES> 0
<RECEIVABLES> 52,062
<ALLOWANCES> (668)
<INVENTORY> 0
<CURRENT-ASSETS> 57,711
<PP&E> 11,404
<DEPRECIATION> (5,342)
<TOTAL-ASSETS> 309,911
<CURRENT-LIABILITIES> 33,975
<BONDS> 88,624
0
0
<COMMON> 121
<OTHER-SE> 187,191
<TOTAL-LIABILITY-AND-EQUITY> 309,911
<SALES> 94,161
<TOTAL-REVENUES> 94,161
<CGS> 70,152
<TOTAL-COSTS> 86,195
<OTHER-EXPENSES> 1,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,308
<INCOME-PRETAX> 4,773
<INCOME-TAX> 2,004
<INCOME-CONTINUING> 2,769
<DISCONTINUED> 692
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,461
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC.
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND JUNE 29, 1997 AND THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1997
<PERIOD-END> JUN-29-1997
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 66,830
<ALLOWANCES> (991)
<INVENTORY> 0
<CURRENT-ASSETS> 70,211
<PP&E> 12,015
<DEPRECIATION> (4,618)
<TOTAL-ASSETS> 371,314
<CURRENT-LIABILITIES> 41,736
<BONDS> 137,240
0
0
<COMMON> 121
<OTHER-SE> 192,217
<TOTAL-LIABILITY-AND-EQUITY> 371,314
<SALES> 207,366
<TOTAL-REVENUES> 207,366
<CGS> 153,655
<TOTAL-COSTS> 188,861
<OTHER-EXPENSES> 4,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,033
<INCOME-PRETAX> 11,460
<INCOME-TAX> 4,837
<INCOME-CONTINUING> 6,623
<DISCONTINUED> 1,288
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,910
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UN-
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC.
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 29, 1997 AND
THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 29,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-26-1997
<CASH> (654)
<SECURITIES> 0
<RECEIVABLES> 74,846
<ALLOWANCES> (1,102)
<INVENTORY> 0
<CURRENT-ASSETS> 76,336
<PP&E> 12,324
<DEPRECIATION> (3,824)
<TOTAL-ASSETS> 906,214
<CURRENT-LIABILITIES> 45,106
<BONDS> 161,200
0
0
<COMMON> 121
<OTHER-SE> 198,306
<TOTAL-LIABILITY-AND-EQUITY> 406,214
<SALES> 336,360
<TOTAL-REVENUES> 336,360
<CGS> 248,409
<TOTAL-COSTS> 304,780
<OTHER-EXPENSES> 6,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,834
<INCOME-PRETAX> 20,358
<INCOME-TAX> 8,602
<INCOME-CONTINUING> 11,756
<DISCONTINUED> 1,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,677
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
