<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 4, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________to____________
Commission File Number 001-13956
PERSONNEL GROUP OF AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1930691
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6302 Fairview Road, Suite 201, Charlotte, North Carolina 28210
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(Address of principal executive offices) (Zip Code)
(704) 442-5100
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(Registrant's telephone number including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of May 10, 1999, there were 26,130,900 shares of outstanding common stock,
par value $.01 per share.
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PERSONNEL GROUP OF AMERICA, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (unaudited)
Unaudited Consolidated Statements of Income............... 3
Unaudited Consolidated Balance Sheets..................... 4
Unaudited Consolidated Statements of Cash Flows........... 5
Notes to Unaudited Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures................................................................ 17
Exhibit Index ............................................................ 18
2
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Statements of Income
For the periods ended April 4, 1999 and March 29, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
April 4, March 29,
1999 1998
-------- --------
<S> <C> <C>
Revenues $229,638 $154,837
Direct costs of services 165,602 113,849
-------- --------
Gross profit 64,036 40,988
Selling, general and administrative 42,935 26,302
Depreciation and amortization 5,070 3,079
-------- --------
Operating income 16,031 11,607
Interest expense 3,733 2,487
-------- --------
Income before income taxes 12,298 9,120
Provision for income taxes 5,165 3,858
-------- --------
Net income $ 7,133 $ 5,262
======== ========
Net income per basic share $ 0.22 $ 0.21
Net income per diluted share $ 0.21 $ 0.20
</TABLE>
The accompanying notes are an integral part of these statements.
3
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Balance Sheets
April 4, 1999 and January 3, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
April 4, Jan. 3,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 994 962
Accounts receivable, net 132,514 129,761
Prepaid expenses and other current assets 8,326 6,967
Deferred income taxes 4,991 5,149
Notes receivable from sale of discontinued operations 885 885
--------- ---------
Total current assets $ 147,710 143,724
Property and equipment, net 22,350 20,290
Intangible assets, net 540,415 539,977
Other assets 4,674 4,899
--------- ---------
Total assets $ 715,149 $ 708,890
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,917 $ 9,150
Accounts payable 4,983 5,310
Accrued wages, benefits and other 50,408 42,604
Income taxes payable 4,005 2,509
--------- ---------
Total current liabilities 67,313 59,573
Long-term debt 250,145 226,256
Other long-term liabilities 23,186 28,431
--------- ---------
Total liabilities 340,644 314,260
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;
33,197 and 32,929 shares issued at April 4, 1999 and
January 3, 1999, respectively 332 329
Additional paid-in capital 331,778 329,383
Retained earnings 72,216 65,083
Deferred compensation (139) (165)
--------- ---------
404,187 394,630
Less common stock held in treasury at cost -
4,224 shares at April 4, 1999 (29,682) --
--------- ---------
Total shareholders' equity 374,505 394,630
--------- ---------
Total liabilities and shareholders' equity $ 715,149 $ 708,890
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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PERSONNEL GROUP OF AMERICA, INC.
Unaudited Consolidated Statements of Cash Flows
For the periods ended April 4, 1999 and March 29, 1998
(In thousands)
<TABLE>
<CAPTION>
Three months ended
April 4, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,133 $ 5,262
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 5,070 3,079
Deferred income taxes, net 1,133 881
Changes in assets and liabilities:
Accounts receivable (2,753) (9,598)
Accounts payable and accrued liabilities 4,348 4,153
Income taxes payable 1,496 880
Other, net (1,134) (99)
--------- ---------
Net cash provided by operating activities 15,293 4,558
Cash flows from investing activities:
Cash used in acquisitions, net of cash acquired (10,095) (90,449)
Net cash provided by discontinued operations -- 27,221
Purchases of property and equipment, net (3,321) (1,241)
--------- ---------
Net cash used in investing activities (13,416) (64,469)
Cash flows from financing activities:
Repayments under credit facility (10,500) (46,000)
Borrowings under credit facility 34,500 107,200
Repurchases of common stock (26,469) --
Repayments of seller notes and acquired indebtedness (1,344) (1,000)
Proceeds from employee stock purchase plan and exercise
of stock options 1,968 431
--------- ---------
Net cash provided (used) by financing activities (1,845) 60,631
Net increase in cash and cash equivalents 32 720
Cash and cash equivalents at beginning of period 962 642
--------- ---------
Cash and cash equivalents at end of period $ 994 $ 1,362
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PERSONNEL GROUP OF AMERICA, INC.
Notes to Unaudited Consolidated Financial Statements
(In thousands, except per share data)
(1) General
The unaudited consolidated financial statements included herein have
been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles; however, they do include all adjustments of a normal
recurring nature which, in the opinion of management, are necessary to present
fairly the results of operations of the Company for the interim periods
presented. These interim financial statements should be read in conjunction with
the Company's audited consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended January
3, 1999. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
(2) Intangible Assets
Intangible assets primarily consist of goodwill associated with the
acquired businesses. 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. Other intangibles consist primarily of covenants not to compete and
are amortized over the term of the Agreement, generally three to five years.
Accumulated amortization of intangible assets amounted to $27,140 and $23,332 at
April 4, 1999 and January 3, 1999, respectively.
The Company periodically evaluates the recoverability of its investment
in intangible assets 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 and other intangibles to be
fully recovered.
(3) Acquisitions
During 1998, the Company acquired the following businesses:
Name of Business Type of Business Date Acquired
---------------- ---------------- -------------
Ann Wells Personnel Commercial Staffing January 1998
Creative Temporaries Commercial Staffing January 1998
Corporate Staffing Commercial Staffing January 1998
Advanced Business Consultants Information Technology February 1998
IMA Plus Information Technology March 1998
The Temporary Connection Commercial Staffing March 1998
Trilogy Consulting Information Technology April 1998
Sloan Staffing Services Commercial Staffing May 1998
Careers Information Technology June 1998
IMS Consulting Information Technology June 1998
Gentry Information Technology July 1998
PALADIN Consulting Information Technology August 1998
Keiter Stephens Computer Services Information Technology September 1998
InfoTech Contract Services Information Technology November 1998
RealTime Consulting Information Technology November 1998
These acquired businesses are collectively referred to hereinafter as the
"Acquired Companies." The Acquired Companies had combined annual revenues of
approximately $259,500 in 1998.
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The aggregate purchase price for the Acquired Companies was $220,000,
including direct acquisition costs but excluding certain contingent earnout
payments. Certain of these acquisitions require additional payments, contingent
upon attainment of certain earnings targets for various periods during the next
four years. Any such contingent payments will be recorded as additional purchase
price when paid and will increase the amount of excess cost over fair value of
net assets acquired. All of these acquisitions 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 acquisition and the results of operations
of the Acquired Companies have been included in the Company's consolidated
results of operations from the dates of each acquisition. Final allocation of
the purchase price may result in adjustments to the amounts previously recorded
as excess of cost over fair market value of assets acquired.
The following table presents the Company's pro forma consolidated
results of operations for the three-month periods ended April 4, 1999 and March
29, 1998, as if the Acquired Companies had each been acquired on December 29,
1997:
<TABLE>
<CAPTION>
April 4, March 29,
1999 1999
-------- --------
<S> <C> <C>
Revenues $229,638 $203,483
Net income 7,133 6,302
Net income per diluted share $ 0.21 $ 0.22
======== ========
Weighted average diluted shares outstanding 38,995 32,890
======== ========
</TABLE>
(4) Long-term Debt
Long-term debt consisted of the following at April 4, 1999 and January
3, 1999:
<TABLE>
<CAPTION>
April 4, March 29,
1999 1999
--------- ---------
<S> <C> <C>
5-3/4% Convertible Subordinated Notes due
July 2004 $ 115,000 $ 115,000
$200,000 revolving credit facility due June 2002 134,000 110,000
Notes payable to sellers of acquired companies
and other 9,062 10,406
--------- ---------
258,062 235,406
Less current portion (7,917) (9,150)
$ 250,145 $ 226,256
========= =========
</TABLE>
7
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(5) Net Income Per Share
In accordance with FAS 128, the following tables reconcile net income
and weighted average diluted shares outstanding to the amounts used to calculate
basic and diluted earnings per share for each of the quarters ended April 4,
1999 and March 29, 1998:
<TABLE>
<CAPTION>
April 4, March 29,
1999 1998
------- -------
<S> <C> <C>
Net income per basic share:
Net income $ 7,133 $ 5,262
======= =======
Weighted average shares outstanding 32,310 24,762
Net income per basic share $ 0.22 $ 0.21
======= =======
Net income per diluted share:
Net income $ 7,133 $ 5,262
Add: Interest expense on Convertible Notes, net of tax 1,064 1,064
------- -------
Diluted net income 8,197 6,326
Weighted average shares outstanding 32,310 24,762
Add: Dilutive employee stock options 229 776
Add: Assumed conversion of Convertible Notes 6,456 6,456
------- -------
Weighted average diluted shares outstanding 38,995 31,994
Net income per diluted share $ 0.21 $ 0.20
======= =======
</TABLE>
(6) Segment Information
The Company has two reportable segments, the Information Technology
Services Division ("Information Technology") and the Commercial Staffing
Division ("Commercial Staffing"). The Information Technology Division provides
technical staffing, training and information technology consulting services.
Commercial Staffing provides temporary staffing services, placement of full-time
employees and on-site management of temporary employees. The Company evaluates
segment performance based on income from operations before corporate expenses,
amortization of intangible assets, interest and income taxes.
The table below presents operating results by reported segments for the
quarters ended April 4, 1999 and March 29, 1998:
<TABLE>
<CAPTION>
April 4, March 29,
1999 1998
-------- --------
<S> <C> <C>
Revenues
Information technology $146,600 $ 85,428
Commercial staffing 83,038 69,409
-------- --------
Total revenues 229,638 154,837
-------- --------
Operating income
Information technology 15,410 9,279
Commercial staffing 6,960 6,329
-------- --------
Total operating income 22,370 15,608
Corporate expenses 2,531 1,725
Amortization of intangible assets 3,808 2,276
Interest expense 3,733 2,487
-------- --------
Income before income taxes $ 12,298 $ 9,120
======== ========
</TABLE>
8
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The Company does not report total assets by segment. The following
table sets forth identifiable assets by segment at April 4, 1999 and March 29,
1998:
<TABLE>
<CAPTION>
April 4, March 29,
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable, net
Information Technology $ 90,593 $ 57,039
Commercial Staffing 41,571 37,794
Corporate 350 236
-------- --------
Total accounts receivable, net $132,514 $ 95,069
======== ========
</TABLE>
9
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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 unaudited consolidated financial statements and related notes
appearing elsewhere in this report. The Company's fiscal year ends on the Sunday
nearest to December 31.
The Company is organized into two divisions: the Information Technology
Services Division (the "IT Division") and the Commercial Staffing Division
("Commercial Staffing"). The IT Division provides technical staffing, training
and information technology consulting services. Commercial Staffing provides
temporary staffing services, placement of full-time employees and on-site
management of temporary employees. At April 4, 1999, the IT Division was
comprised of 20 companies and Commercial Staffing was comprised of 24 companies.
The following table sets forth the number of the Company's offices by
division at the end of the years indicated and at May 10, 1999:
<TABLE>
<CAPTION>
May 10, Fiscal Year End
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
IT Division 49 47 30 18
Commercial Staffing 100 100 82 74
------ ------ ------ ------
Total offices 149 147 112 92
====== ====== ====== ======
</TABLE>
In 1998, the Company acquired 10 information technology services
companies and five commercial staffing companies. The combined revenues of these
15 companies were approximately $259.5 million in 1998. Had the Company owned
each of these acquired companies at the beginning of fiscal 1998, the Company's
pro forma 1998 revenues would have been approximately $889.0 million and 61% and
39% of such revenues would have come from the IT Division and Commercial
Staffing, respectively.
Also in May 1998, the Company completed a public offering of 7.0
million shares of common stock. The net proceeds of approximately $133.3 million
from this offering were used to repay indebtedness under the Company's $200.0
million revolving credit facility (the "Credit Facility").
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 June 1996, the Company issued 8.1 million shares of its common stock
in its second underwritten public offering (the "Secondary Offering"), which
raised approximately $95.6 million of net proceeds for the Company. The net
proceeds of the Secondary Offering were used to repay outstanding borrowings
under the Credit Facility and to fund several acquisitions.
Each of the Company's acquisitions has been accounted for using the
purchase method of
10
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accounting, and has been included in the following discussions as applicable
since the respective dates of acquisition. The Company allocates the excess of
cost of 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 excess of cost over the fair
value of net assets acquired 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 75.6% of
total assets and 144.7% of total shareholders' equity at April 4, 1999. The
Company periodically 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 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.
The information technology services business is affected by the timing
of holidays and seasonal vacation patterns, generally resulting in lower IT
revenues and lower operating margins in the fourth quarter of each year. 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. 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
staffing and consulting sectors may partially mitigate the adverse effects of
economic cycles in a single industry or geographic region.
11
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RESULTS OF OPERATIONS
Quarter Ended April 4, 1999 Versus Quarter Ended March 29, 1998
Revenues. Total revenues increased 48.3% to $229.6 million in the first
quarter of 1999 from $154.8 million in 1998. IT Division revenues grew 71.6% in
the first quarter as the result of a 19% increase in IT Division same store
sales and the addition of revenues from the 10 IT Division acquisitions
completed in 1998. Commercial Staffing revenues grew 19.6% to $83.0 million in
the first quarter primarily due to the contribution of revenues from the
commercial staffing companies acquired by the Company in 1998. Commercial
Staffing same store growth in the first quarter was approximately 3%. Management
currently expects internal growth for 1999 of 15% to 17% in the IT Division and,
excluding the impact of certain non-recurring revenues in the second half of
1998 associated with a large vendor-on-premises client, for Commercial Staffing
to continue at its current growth rate, down in each case from 1998 internal
growth rates.
Direct Costs of Service and Gross Profit. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
45.5% to $165.6 million in the first quarter of 1999. Gross margin as a
percentage of revenues increased 140 basis points to 27.9% from 26.5% during
1998. This increase reflected the Company's continued expansion into the higher
margin information technology staffing and consulting sectors and the
acquisition of several companies in 1998 that offer higher margin permanent
placement services. IT Division revenues grew to 64% of total revenues in the
first quarter of 1999, up from 55.2% in 1998. Although pay rate increases during
the first quarter were generally passed on to the Company's customers through
higher bill rates, there can be no assurance that the Company will be able to
pass on pay rates increases to its customers in the future.
Operating Expenses. Operating expenses, consisting of selling, general
and administrative expenses and depreciation and amortization expense, increased
63.4% to $48.0 million in the first quarter of 1999 from $29.4 million in 1998.
As a percentage of revenues, selling, general and administrative expenses
increased to 18.7% in the first quarter, up 170 basis points from last year.
This increase was caused by investments in management personnel and information
systems, the continued business mix shift into IT services, and several recent
acquisitions of companies that provide IT and permanent placement services (both
of which typically carry higher gross margins, as well as higher operating
expenses, than Commercial Staffing). In addition, depreciation and amortization
expense increased to 2.2% of revenues in the first quarter of 1999 from 2.0%
last year primarily as the result of the 1998 acquisitions completed by the
Company.
Interest Expense. Interest expense increased to $3.7 million in the
first quarter of 1999 from $2.5 million in 1998 primarily as the result of
borrowings during the last three quarters of 1998 to finance acquisitions and
borrowings in the first quarter of 1999 to finance the Company's share
repurchase program. See "Liquidity and Capital Resources."
Income Tax Expense. The effective tax rate decreased slightly to 42.0%
in the first quarter of 1999 from 42.3% in 1998. This decrease was due to a
reduction in nondeductible amortization expense relative to pretax income for
the period. 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.
Net Income. Net Income increased 35.6% to $7.1 million in the first
quarter of 1999 from $5.3 million in 1998 due to the factors discussed above.
12
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are from operations, borrowings
under the Credit Facility and proceeds of equity and debt offerings. The
Company's principal uses of cash are to fund working capital, capital
expenditures, acquisitions and share repurchases under the Company's share
buyback program.
For the quarter ended April 4, 1999, cash provided by operating activities
increased to $15.2 million, primarily as a result of higher earnings before
depreciation and amortization in the quarter, offset by increases in receivables
reflecting the growth in the volume of business over the prior year. As of April
4, 1999, receivables for the IT Division and Commercial Staffing remained
outstanding an average of 56 and 45 days, respectively, after billing. In the
aggregate, days sales outstanding were 52 and 51 days at April 4, 1999 and March
29, 1998, respectively. Cash used for investing activities decreased to $13.3
million in the quarter from $64.5 million in 1998 primarily as a result of the
Company not completing any acquisitions during the first quarter of 1999.
As of April 4, 1999, the Company was obligated under certain
acquisition agreements to repay seller notes during the next two years of $8.4
million in the aggregate and to make contingent earnout payments to former
owners of acquired businesses. Earnout payments based on earnings for periods
ending after January 3, 1999 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 the
future performance of such acquired businesses, that aggregate earnout payments
may be in the range of $15.0 million to $23.0 million in 1999, $15.0 million to
$30.0 million in 2000, and $8.0 million to $15.0 million in 2001. There can be
no assurance, however, that the future performance of the acquired businesses
will be consistent with the 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 expects to spend approximately one percent of its annual
revenues in 1999 on management information systems and other capital
expenditures not directly related to acquisitions. The Company recently
initiated a project to replace the financial and human resource systems for its
information technology companies. Installation of these systems is expected to
continue through the year 2000. There can be no assurance that there will not be
unanticipated costs or delays associated with these installations or that the
systems will operate as expected.
On October 6, 1998, the Company's Board of Directors authorized a share
repurchase program, which was subsequently expanded, covering up to $52.0
million of its outstanding shares of common stock in the aggregate (including
shares previously purchased under the program). Share repurchases made under
this program are made from time to time in accordance with applicable securities
regulations in open market or privately negotiated transactions. As of May 10,
1999, the Company had purchased approximately 7.1 million shares of common stock
in the aggregate for a total cost of approximately $52.0 million, substantially
completing the buyback program approved by the Board. The purchases were made on
the open market and were financed with borrowings under the Credit Facility. The
repurchased shares will be held in the Company's treasury and will be available
for resale and for general corporate purposes.
The Credit Facility is a five-year $200.0 million revolving line of credit
due June 2002. As of May 10, 1999, $156.0 million of borrowings were outstanding
under the Credit Facility and approximately $5.5 million had been used for the
issuance of undrawn letters of credit to secure the Company's workers'
compensation programs. An additional $2.5 million will be borrowed under the
Credit Facility to pay for shares acquired as of May 10, 1999. In the first
quarter of 1999, the weighted average interest rate under the Credit Facility
was 6.2%.
13
<PAGE> 14
The Company believes that cash flow from operations, borrowing capacity
under the existing or expanded Credit Facility and the proceeds from future
offerings of debt or equity securities of the Company will be adequate to meet
its presently anticipated needs for working capital, capital expenditures,
acquisitions and share repurchases. There can be no assurance, however, that
other alternative sources will be available on favorable terms.
Year 2000 Compliance. In 1998, the Company initiated a project to
replace the financial and human resource systems for its information technology
companies. In addition, the Company expects to complete the installation of
branch payroll and billing systems at its existing commercial staffing companies
during 1999. Management believes that these new systems are year 2000 compliant
based on representations from the software vendors. The Company also believes
that its other key computer systems and related software, including systems used
at corporate headquarters are substantially year 2000 compliant. An assessment
to determine what modifications are necessary to other systems is underway. The
Company expects to complete this assessment and make the necessary modifications
by the end of the third quarter of 1999. As of April 4, 1999, approximately $.5
million has been expensed related to the assessment and remediation of year 2000
issues. The Company estimates the total expense to be between $1.0 million and
$1.2 million. In addition, the Company is assessing the year 2000 preparedness
of its vendors and customers. To date, no significant concerns have been
identified. However, there can be no assurance that no year 2000 problems or
expenses will arise with the Company's computer systems and software or in the
computer systems and software of the Company's vendors and customers. Upon
completion of discussions with the Company's vendors and customers, the Company
will assess the need for contingency plans in the case of failure of computer
systems and software of either the Company or its vendors and customers.
Due to the Company's dependence upon, and its current uncertainty with,
the year 2000 compliance of certain government agencies, third-party suppliers,
vendors and customers with whom the Company deals, the Company is unable to
determine at this time its most reasonably likely worst case scenario. While
costs related to the lack of year 2000 compliance by third parties, business
interruptions, litigation and other liabilities related to year 2000 issues
could materially and adversely affect the Company's business, results of
operations and financial condition, the Company expects its internal year 2000
compliance efforts to reduce significantly the Company's level of uncertainty
about the impact of year 2000 issues.
The Company's IT Division performs work for clients to assist them in
modifying their computer systems and software to make them year 2000 compliant,
although this type of work does not represent a significant portion of the
Division's services. Generally, this work is performed under the direction and
supervision of the client and the Company seeks to limit the liability
contractually. Additionally, the Company maintains errors and omissions
insurance to protect against these risks. Although the Company does not believe
that it will incur any material liabilities to clients for its work on their
year 2000 projects, there can be no assurance that the Company will not incur
liabilities or that such liabilities, if any, will not be material.
14
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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, that 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
condition 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, the
degree and nature of competition, demand for the Company's services, including
the impact of changes in utilization rates and unexpected changes in demand
attributable to the Year 2000 phenomenon, 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 professions, to expand into new markets, and to maintain profit
margins in the face of pricing pressures and wage inflation and other matters
discussed in this report and the Company's other filings with the Securities and
Exchange Commission.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - The exhibits filed with or incorporated by reference into
this Form 10-Q are set forth in the Exhibit Index, which immediately
precedes the exhibits to this report.
(b) Reports on Form 8-K -The Company filed no current reports on Form 8-K
during the quarter ended April 4, 1999.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERSONNEL GROUP OF AMERICA, INC.
(Registrant)
Date: May 18, 1999 By: /s/ Edward P. Drudge Jr.
-----------------------------------------
Edward P. Drudge Jr.
Chief Executive Officer
Date: May 18, 1999 By: /s/ James C. Hunt
-----------------------------------------
James C. Hunt
Senior Vice President,
Chief Financial Officer and Treasurer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*),or
Incorporated by
Reference from Previous
Exhibit
Exhibit Company Reg. No.
Number Description Number or Report
------- ----------- ------ ----------------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation of the 3.1 333-31863
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 and 1 0-27792
First Union National Bank (as successor
trustee)
4.2 Indenture between the Company and First Union 4.2 333-31863
National Bank, as Trustee
4.3 Form of Note Certificate for 5-3/4% 4.3 333-31863
Convertible Subordinated Notes
10.1+ 1995 Equity Participation Plan, as amended 10.1 333-31863
10.2+ Amended and Restated Management Incentive 10.2 10-K for year
Compensation Plan ended January 3, 1999
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 and 10.9 10-Q for quarter
Edward P. Drudge, Jr. ended 9/30/95
10.6+ Amendment No. 1 to Employment Agreement 10.6 10-K for year ended
between the Company and Edward P. Drudge, Jr. 12/28/97
10.7+ Employment Agreement between the Company and 10.10 10-K for year
James C. Hunt ended 12/29/96
10.8+ Employment Agreement between the Company and 10.13 10-K for year
Ken R. Bramlett, Jr. ended 12/29/96
10.9+ Employment Agreement between the Company and 10.9 10-K for year ended
Michael H. Barker 1/3/99
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
10.10+ Employment Agreement between the Company and 10.10 10-K for year ended
William T. McCarthy 1/3/99
10.11+ Employment Agreement between the Company and 10.11 10-K for year ended
Donald Kierson 1/3/99
10.12 Indemnification Agreement between the Company 10.14 10-Q for quarter
and Adia Delaware ended 9/30/95
10.13 Tax-Sharing Agreement between the Company, 10.15 10-Q for quarter
Adia Delaware and Adia California ended 9/30/95
10.14 Amended and Restated Non-Qualified 10.16 10-K for year
Profit-Sharing Plan ended 12/29/96
10.15+ Director's Non-Qualified Deferred Fee Plan 10.12 10-K for year ended
12/28/97
10.16 Amended and Restated Credit Agreement between 10.15 333-31863
the Company and its subsidiaries, the Lenders
party thereto and NationsBank N.A., as Agent
10.17 Amendment No. 1 to Amended and Restated 10.14 10-Q for quarter ended
Credit Agreement among the Company and its 3/29/98
Subsidiaries, The Lenders party thereto and
NationsBank, N.A., as agent
10.18 Asset Purchase Agreement between the Company 2 8-K dated 9/30/96
and Business Enterprise Systems and
Technology, Inc. (BEST Consulting)
10.19 Stock Purchase Agreement for the sale of 1 8-K dated 12/26/97
Nursefinders between PFI Corp., Nursefinders,
Inc., and Nursefinder Acquisition Corp.
10.20 Registration Rights Agreement between the 10.17 333-31863
Company and the Initial Purchasers
27.1 Financial Data Schedule *
(For SEC Purposes Only)
</TABLE>
# This Exhibit is substantially identical to Director and Officer
Indemnification Agreements (i) of the same date between the Company and
the following individuals: Edward P. Drudge, Jr., Kevin P. Egan, J.
Roger King, William Simione, Jr.; and (ii) dated April 17, 1998 between
the Company and each of James C. Hunt and Ken R. Bramlett, Jr.
+ Management contract or compensation 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.
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> APR-04-1999
<CASH> 994
<SECURITIES> 0
<RECEIVABLES> 134,589
<ALLOWANCES> (2,075)
<INVENTORY> 0
<CURRENT-ASSETS> 147,710
<PP&E> 31,737
<DEPRECIATION> (9,387)
<TOTAL-ASSETS> 715,149
<CURRENT-LIABILITIES> 67,313
<BONDS> 250,145
0
0
<COMMON> 332
<OTHER-SE> 374,173
<TOTAL-LIABILITY-AND-EQUITY> 715,149
<SALES> 229,638
<TOTAL-REVENUES> 229,638
<CGS> 165,602
<TOTAL-COSTS> 208,537
<OTHER-EXPENSES> 5,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,733
<INCOME-PRETAX> 12,298
<INCOME-TAX> 5,165
<INCOME-CONTINUING> 7,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,133
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
