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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
For the fiscal year ended January 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission file number 001-13956
PERSONNEL GROUP OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1930691
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5605 Carnegie Blvd., Suite 500
Charlotte, North Carolina 28209
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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 [ ]
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 March 24, 2000, computed by reference to the closing sale
price on such date, was $154,913,750. (For purposes of calculating this amount
only, all directors and executive officers are treated as affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.) As of the same date, 24,675,752 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 January 2, 2000 (the "Annual Report") furnished to the
Commission pursuant to Rule 14a-3(b) and definitive Proxy Statement pertaining
to the 2000 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.
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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, the Information Technology Services Division ("IT
Services") and the Commercial Staffing Services Division ("Commercial
Staffing"), and operates in strategic markets throughout the United States. The
Company's services include information technology consulting, temporary
staffing, placement of full time employees, on-site management of temporary
employees and training and testing of temporary and permanent workers. At
February 29, 2000, the Company operated through a network of 144
Company-operated offices located in major metropolitan areas throughout the
United States.
IT Services offers information technology professionals on a
temporary basis and consulting services in a range of computer-related
disciplines. Commercial Staffing offers a wide variety of temporary office and
clerical, and finance and accounting services, to more than 10,000 organizations
nationwide. This division also provides light technical and light industrial
services to its customers, but these services typically account for less than
20% of the division's total revenues. Each division also offers permanent
placement services in a range of specialties. For the year ended January 2,
2000, IT Services and Commercial Staffing represented approximately 64% and 36%,
respectively, of the Company's total revenues.
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
IT Services provides information technology professionals on a
temporary basis and consulting services through 43 offices in 21 states and the
District of Columbia at February 29, 2000. IT Services had approximately 3,800
consultants on assignment at February 29, 2000, of which approximately 1,500 (or
40%) were salaried employees. Of the balance (60% of the total), approximately
1,500 consultants were hourly employees and 800 were independent contractors.
IT Services was created in 1996 following the acquisition by the
Company of five companies in the information technology services business. IT
Services provides skilled personnel, such as web developers and consultants,
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. A number of IT
Services' offices have developed technological specialties, and have entered
into alliances with packaged software and systems vendors and other technology
partners to provide services necessary to install and maintain their partners'
technologies. Many of the division's offices also have rapidly expanding
ecommerce practices, and are providing software engineering, web design,
applications development and strategic internet consulting services both to
clients who are themselves seeking to web enable their enterprises and to a
growing number of internet infrastructure companies.
IT Services' 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. 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.
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Selected offices in IT Services also provide complementary or
stand-alone consulting services in the information technology area, typically on
a time and materials basis. For example, certain offices work 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 offer a 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 off-site development centers. The Company
intends to continue expanding the consulting services component of the IT
Services service offerings as part of its strategy to offer a full range of IT
services to its clients.
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Operations
IT Services markets its services to regional and local accounts on a
decentralized basis. The following table sets forth information at February 29,
2000 on the brand names, markets, numbers of offices and dates founded of the IT
Services companies:
<TABLE>
<CAPTION>
NUMBER OF DATE
NAME MARKETS OFFICES FOUNDED
---- ------- --------- -------
<S> <C> <C> <C>
Advanced Business Consultants Kansas City, KS 1 1986
BAL Associates Silicon Valley, CA 2 1989
Orlando, FL
BEST Consulting Seattle, WA 11 1990
Portland and Salem, OR
Salt Lake City, UT
Boise, ID
Palm Springs and Sacramento, CA
Phoenix, AZ
Minneapolis, MN
Las Vegas and Reno, NV
Denver, CO
Chicago, IL
Broughton Systems Richmond, VA 3 1980
Careers Denver, CO 1 1969
Command Technologies Denver, CO 1 1978
Computer Resources Group San Francisco, 4 1972
Sacramento and Walnut Creek, CA
Salt Lake City, UT
DRACS/SSC Atlanta, GA 2 1989
Birmingham, AL
Gentry Oakland, CA 1 1974
IMA Plus Jacksonville, FL 1 1987
IMS Consulting Irvine, CA 1 1980
InfoTech Contract Services Waltham, MA 2 1993
Atlanta, GA
Keiter Stephens Computer
Services Richmond, VA 1 1994
Lloyd-Ritter Consulting Silicon Valley, CA 1 1980
Paladin Consulting Dallas, TX 1 1984
RealTime Consulting Dallas, TX 2 1991
Kansas City, KS
Trilogy Consulting Chicago, IL 4 1982
Kalamazoo, MI
Princeton, NJ
Silicon Valley, CA
Vital Computer Services New York, NY 4 1970
Livingston, NJ
Washington, DC
Miami, FL
</TABLE>
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Sales and Marketing
IT Services 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, IT Services
has attained preferred vendor status under multiple local brand names at a
number of large clients. These accounts are typically targeted by a local IT
Services company with a presence in a specific market, and then are sold on the
basis of the strength of the IT Services' geographic presence in multiple
markets.
Local accounts are targeted and sold by account managers at the
branch offices, permitting IT Services to capitalize on the brand names of the
companies in IT Services 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 IT Services and Commercial Staffing 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.
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.
COMMERCIAL STAFFING DIVISION
At February 29, 2000, Commercial Staffing operated through 101
offices in 14 states and the District of Columbia. Commercial Staffing 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. Certain of Commercial Staffing's offices also provide
full-time placement and payrolling services. Payrolling services entail
employment by Commercial Staffing of individuals recruited by a customer on a
fee basis.
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Operations
Commercial Staffing 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 29, 2000, on the brand names,
markets, numbers of offices and dates founded of the Commercial Staffing
companies:
<TABLE>
<CAPTION>
NUMBER OF DATE
NAME MARKETS OFFICES(1) FOUNDED
---- ------- ---------- -------
<S> <C> <C> <C>
Abar Staffing San Francisco Bay Area, CA 3 1954
Allegheny Personnel Pittsburgh, PA 5 1972
Ann Wells Personnel Silicon Valley, CA 1 1980
Creative Staffing Charlotte, NC 10 1972
Denver Staffing Denver, CO 3 1978
FirstWord Staffing Services Dallas, TX 8 1978
Fox Staffing Resources Richmond and Charlottesville, VA 5 1978
Washington, DC
Jeffrey Staffing Group Boston, MA 11 1971
Warwick, RI
Profile Temporaries Loop Area of Chicago, IL 1 1979
Sloan Staffing Services New York, NY 1 1962
Temp Connection Long Island, NY 2 1982
Secaucus, New Jersey
The Temporary Connection Houston, Dallas, Austin, TX 7 1983
TempWorld Atlanta, GA 11 1980
Birmingham, AL
Thomas Staffing Los Angeles/Orange County, CA 21 1969
Riverside/San Bernardino, CA
San Diego, CA
West Personnel Service North and West Suburban Chicago, IL 8 1954
Word Processing Professionals New York, NY 2 1982
Word Processors Personnel Services Atlanta, GA 2 1978
</TABLE>
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(1) Does not include vendor-on-premises locations at customer sites.
Commercial Staffing 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 Commercial Staffing'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.
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To meet the growing demand in the staffing services business for
on-site management capability, Commercial Staffing offers SourcePLUS, its
customized on-site temporary personnel management system. SourcePLUS places an
experienced staffing service manager at the client facility to provide complete
staffing support, customized to meet client-specific needs. This program
facilitates client use of temporary personnel and allows the client to outsource
a portion of its personnel responsibility to Commercial Staffing's on-site
representative, who gathers and records requests for temporary jobs from client
department heads and then fulfills client requirements. These Commercial
Staffing representatives can also access Commercial Staffing's systems through
on-site personal computers.
Commercial Staffing's full-time placement services provide
traditional staff selection and recruiting services to its clients. In addition
to recruiting employees through referrals, Commercial Staffing places
advertisements in local newspapers to recruit employees for specific positions
at client companies. Commercial Staffing 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, Commercial Staffing charges the
employer a one-time fee, generally based on the annual salary of the employee.
To maintain a consistent quality standard for all its temporary
employees, Commercial Staffing uses a comprehensive automated system to screen
and evaluate potential temporary personnel, make proper assignments and review a
temporary employee's performance. Commercial Staffing uses the QuestPLUS System
to integrate the results of their skills testing with personal attributes and
work history and automatically matches available candidates with customer
requirements. Commercial Staffing also provides uniform training to all of its
employees in sales, customer service and leadership skills.
Sales and Marketing
Commercial Staffing 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 Commercial
Staffing are decentralized and capitalize on long-standing business
relationships with the clients of Commercial Staffing's companies and their
established brand names, which have been in use for 20 years on average.
Commercial Staffing obtains new clients primarily through personal sales
presentations and referrals from other clients of Commercial Staffing and IT
Services 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.
Commercial Staffing 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) and to other potential customers 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. Commercial Staffing generally does not seek lower margin 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 each
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) may partially mitigate the
adverse effects of economic cycles in a single industry or geographic region.
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RECRUITING AND RETENTION OF CONSULTANTS AND TEMPORARY EMPLOYEES
The Company recruits its Commercial Staffing temporary associates and
IT Services consultants through a decentralized 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, most of
the companies in IT Services and Commercial Staffing 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. Commercial Staffing employs temporary associates on an as needed basis
dependent upon client demand. These temporary associates are paid only for time
they actually work.
In an effort to attract a broad spectrum of qualified 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, IT Services 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 other computer
technologies. The Company believes that these training initiatives have improved
consultant recruitment and retention, increased the technical skills of IT
Services' personnel and resulted in better service for IT Services' clients.
The Company provides competitive compensation packages and
comprehensive benefits for all of its temporary associates and IT Services
consultants. Most of the temporary associates and IT Services consultants are
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 Company-operated 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 Company-operated offices in a
region, branch managers may report to operating company presidents, regional
managers, division vice presidents or division presidents. 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 primarily based on the incremental year-to-year
increase in the profitability of their operations and is designed to motivate
them to maximize the growth and profitability of their offices.
AUTOMATED OPERATING SYSTEMS
Commercial Staffing uses a number of automated systems to allow it to
quickly and effectively measure the skills of the temporary employee candidates
that make themselves available 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.
The Company utilizes branch paybill systems for Commercial Staffing.
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.
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The Company has also installed common financial and human resources
systems in over 45% of its IT Services offices. Installation of these systems in
the existing companies began in the second quarter of 1998 and is expected to
continue through the year 2000.
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 services industries have undergone significant consolidation. A
number of publicly owned companies specializing in professional staffing
services in the United States 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 and consulting firms, large, multi-service staffing
and consulting firms and the consulting affiliates of 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 smaller number of
preferred vendors. 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 services 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.
REGULATION
Temporary employment service firms are generally subject to one or
more of 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. Staffing services firms are the legal
employers of their temporary workers (other than independent contractors).
Therefore, such firms are governed by laws regulating the employer/employee
relationship, such as tax withholding or reporting, social security or
retirement, anti-discrimination and workers' compensation.
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TRADEMARKS
The Company maintains a number of trademarks, tradenames, service
marks and other intellectual property rights, and licenses certain other
proprietary rights in connection with its businesses. 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 29, 2000, the Company had approximately 1,350 permanent
administrative employees. Additionally, approximately 3,000 of the information
technology consultants in IT Services were full-time salaried or hourly
employees. 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. IT Services and Commercial
Staffing 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, individually or in the aggregate, have a material
adverse effect on the Company's results of operations or financial condition.
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 for Registrant's Common Equity and
Related Shareholder Matters," 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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--Market Risk Disclosures," 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 "Report of Independent Accountants",
"Consolidated Balance Sheets", "Consolidated Statements of Income",
"Consolidated Statements of Shareholders' Equity", "Consolidated Statements of
Cash Flows" and "Notes to Consolidated Financial Statements" 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 has no disagreements on accounting or financial
disclosure matters with its independent public accountants to report under this
Item 9.
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--Officers and Directors," is incorporated herein by
reference in response to this Item 10.
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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.
The Company has no relationships or transactions to report under this
Item 13.
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 Report of Independent Public Accountants and
financial statements of the Company are contained in Item 8
above:
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants
Consolidated Balance Sheets as of January 2, 2000 and
January 3, 1999
Consolidated Statements of Income for the years ended
January 2, 2000, January 3, 1999 and December 28, 1997
Consolidated Statements of Shareholders' Equity for the
years ended January 2, 2000, January 3, 1999 and December
28, 1997
Consolidated Statements of Cash Flows for the years ended
January 2, 2000, January 3, 1999 and December 28, 1997
Notes to Consolidated Financial Statements
(2) No financial statement schedules are filed as part of this
Report. All financial statement 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 notes to the financial
statements referred to above.
(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 no Current Reports on Form 8-K during the fourth
quarter of 1999.
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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 28, 2000.
PERSONNEL GROUP of AMERICA, INC.
By: /s/ James C. Hunt
------------------------------
James C. Hunt
President and Chief Operating
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 28, 2000.
Signature
/s/ Kevin P. Egan Chairman of the Board
- ---------------------------
Kevin P. Egan
/s/ James C. Hunt President, Chief Operating Officer and
- --------------------------- Director
James C. Hunt
/s/ Ken R. Bramlett, Jr. Senior Vice President, Chief Financial
- --------------------------- Officer and Director
Ken R. Bramlett, Jr.
/s/ J. Roger King Director
- ---------------------------
J. Roger King
Director
- ---------------------------
James V. Napier
/s/ William J. Simione, Jr. Director
- ---------------------------
William J. Simione, Jr.
/s/ Janice L. Scites Director
- ---------------------------
Janice L. Scites
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EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED HEREWITH (*)
NON-APPLICABLE (NA)
OR INCORPORATED BY
REFERENCE FROM
COMPANY REG.
PREVIOUS 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 and 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 Subordinates 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 1/3/99
10.3+ Employee Stock Purchase Plan, as amended *
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 10.6 10-K for year ended
between the Company and Edward P. Drudge, 12/28/97
Jr.
10.7+ Supplemental Retirement Plan for Edward *
P. Drudge, Jr.
10.8+ Form of Retirement Agreement between the *
Company and Edward P. Drudge, Jr.
</TABLE>
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<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+ Employment Agreement between the Company 10.10 10-K for year ended
and James C. Hunt 12/29/96
10.10+ Employment Agreement between the Company 10.13 10-K for year ended
and Ken R. Bramlett, Jr. 12/29/96
10.11+ Employment Agreement between the Company 10.9 10-K for year ended
and Michael H. Barker 1/3/99
10.12 Amended and Restated Non-Qualified 10.16 10-K for year ended
Profit-Sharing Plan 12/29/96
10.13+ Director's Non-Qualified Deferred Fee Plan 10.12 10-K for year ended
12/28/97
10.14 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 Amendment No. 1 to Amended and Restated 10.14 10-Q for quarter
Credit Agreement among the Company and ended 3/29/98
its Subsidiaries, The Lenders party
thereto and NationsBank, N.A., as Agent
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
13.1 Those portions of the Annual Report *
incorporated by reference in Parts II,
Items 5, 6, 7, 7A and 8 and Part IV, Item
14(a)(1) of this report
21.1 Subsidiaries of the Company *
</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>
23.1 Consent of PricewaterhouseCoopers LLP *
27.1 Financial Data Schedule *
</TABLE>
# This Exhibit is substantially identical to Director and Officer
Indemnification Agreements (i) of the same date between the Company and the
following individuals: Kevin P. Egan, J. Roger King, and William Simione, Jr.;
(ii) dated April 17, 1998 between the Company and each of James C. Hunt and Ken
R. Bramlett, Jr.; and (iii) dated August 9, 1999 between the Company and Jancie
L. Scites.
+ 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 10.3
<PAGE> 2
PERSONNEL GROUP OF AMERICA, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
Sec. 1.01 Statement of Purpose. The purpose of the Personnel Group of America,
Inc. Employee Stock Purchase Plan is to provide eligible employees of the
Company and its Subsidiaries, who wish to become stockholders, an opportunity to
purchase common stock of the Company. The Board of Directors of the Company
believes that employee participation in ownership will be to the mutual benefit
of both the employees and the Company.
Sec. 1.02 Internal Revenue Code Considerations. The Plan is intended to
constitute an "employee stock purchase plan" within the meaning of section 423
of the Internal Revenue Code of 1986, as amended.
ARTICLE II
DEFINITIONS
Sec. 2.01 "Board" means the Board of Directors of the Company.
Sec. 2.02 "Code" means the Internal Revenue Code of 1986, as amended.
Sec. 2.03 "Company" means Personnel Group of America, Inc., a Delaware
corporation.
Sec. 2.04 "Compensation" means the total remuneration paid, during the period of
reference, to an Employee by the Company or a Subsidiary, including regular
salary or wages, overtime payments, bonuses, commissions and vacation pay, to
which has been added (a) any elective deferral amounts by which the Employee has
had his current remuneration reduced for the purposes of funding a contribution
to any plan sponsored by the Company and satisfying the requirements of section
401(k) of the Code, and (b) any amounts by which the Employee's compensation has
been reduced pursuant to a compensation reduction agreement between the Employee
and the Company for the purpose of funding benefits through any cafeteria plan
sponsored by the Company meeting the requirements of section 125 of the Code.
There shall be excluded from "Compensation" for the purposes of the Plan,
whether or not reportable as income by the Employee, expense reimbursements of
all types, payments in lieu of expenses, the Company contributions to any
qualified retirement plan or other program of deferred compensation (except as
provided above), the Company contributions to Social Security or worker's
compensation, the costs paid by the Company in connection with fringe
<PAGE> 3
benefits and relocation, including gross-ups, and any amounts accrued for the
benefit of Employee, but not paid, during the period of reference.
Sec. 2.05 "Compensation Committee" means the Compensation Committee of the
Board.
Sec. 2.06 "Continuous Service" means the period of time during which the
Employee has been employed by the Company or a Subsidiary and during which there
has been no interruption of Employee's employment by the Company. For this
purpose, periods during which an Employee is on Temporary Inactive Status shall
not be considered to be interruptions of Continuous Service. If determined by
the Compensation Committee, periods of service with an entity prior to its
becoming a Subsidiary shall be taken into account.
Sec. 2.07 "Effective Date" shall mean July 1, 1997 if, within 12 months of that
date, the Plan is or has been approved at a meeting of the stockholders of the
Company by the affirmative vote of the holders of the majority of the
outstanding Stock of the Company.
Sec. 2.08 "Eligible Employee" means each person who:
(a) is an Employee whose customary employment is for more than 20 hours
per week and more than 5 months in any calendar year;
(b) is an Employee on the Effective Date, or otherwise has completed at
least 180 days of Continuous Service; and
(c) is not deemed for purposes of section 423 (b) (3) of the Code to
own capital stock possessing 5% or more of the total combined voting
power or value of all classes of capital stock of the Company.
Sec. 2.09 "Employee" means each person employed by the Company or a Subsidiary.
Sec. 2.10 "Exercise Date" means the last day of each Purchase Period.
Sec. 2.11 "Market Value" means, with respect to Stock, the fair market value of
such Stock, determined by such methods or procedures as shall be established
from time to time by the Compensation Committee; provided, however, that if the
Stock is listed on a national securities exchange or quoted in an interdealer
quotation system, the Market Value of such Stock on a given date shall be based
upon the last sales price or, if unavailable, the average of the closing bid and
asked prices per share of the Stock on such date (or, if there was no trading or
quotation in the Stock on such date, on the next preceding date on which there
was trading or quotation) as provided by one of such organizations.
2
<PAGE> 4
Sec. 2.12 "Offering" means the offering of shares of Stock under the Plan.
Sec. 2.13 "Offering Date" means the first business day of each July, October,
January and April during which the Plan is in effect, or such dates as may
otherwise be specified by the Compensation Committee.
Sec. 2.14 "Participant" means each Eligible Employee who elects to participate
in the Plan.
Sec. 2.15 "Plan" means the Personnel Group of America, Inc. Employee Stock
Purchase Plan, as the same is set forth herein and as may hereafter be amended.
Sec. 2.16 "Purchase Agreement" means the document prescribed by the Compensation
Committee pursuant to which an Eligible Employee has enrolled to be a
Participant.
Sec. 2.17 "Purchase Period" means the period beginning on an Offering Date and
ending on the business day preceding the next following Offering Date.
Sec. 2.18 "Purchase Price" means such term as it is defined in Section 4.03
hereof.
Sec. 2.19 "Stock" means the common stock, $.01 par value, of the Company.
Sec. 2.20 "Stock Purchase Account" means a noninterest bearing account
consisting of all amounts withheld from an Employee's Compensation (or otherwise
paid into the Plan) for the purpose of purchasing shares of Stock for such
employee under the Plan, reduced by all amounts applied to the purchase of Stock
for such Employee under the Plan.
Sec. 2.21 "Subsidiary" shall mean a corporation described in section 424(f) of
the Code that has, with the permission of the Board, adopted the Plan.
Sec. 2.22 "Temporary Inactive Status" shall describe the status of a former
hourly Employee whose employment was terminated upon completion of an assignment
for the Company or a Subsidiary, for so long as such former Employee (i) remains
available for future assignments with the Company or a Subsidiary, (ii) has not,
directly or indirectly, accepted an assignment from or a position with an entity
unaffiliated with the Company and its Subsidiaries, and (iii) otherwise remains
in good standing with the Company and its Subsidiaries.
3
<PAGE> 5
ARTICLE III
ADMISSION TO PARTICIPATION
Sec. 3.01 Initial Participation. Any Eligible Employee may elect to be a
Participant and may become a Participant by executing and filing with the
Compensation Committee a Purchase Agreement at such time in advance and on such
forms as prescribed by the Compensation Committee. The effective date of an
Eligible Employee's participation shall be the Offering Date next following the
date on which the Compensation Committee receives from the Eligible Employee a
properly executed and timely filed Purchase Agreement. Participation in the Plan
will continue automatically from one Purchase Period to another unless notice to
the contrary is given pursuant to Section 3.02.
Sec. 3.02 Voluntary Discontinuance of Participation. Any Participant may
voluntarily withdraw from the Plan by filing a Notice of Withdrawal with the
Compensation Committee at such time in advance as the Compensation Committee may
specify. Upon such withdrawal, there shall be paid to the Participant the
amount, if any, standing to his credit in his Stock Purchase Account.
Sec. 3.03 Involuntary Discontinuance of Participation. If a Participant ceases
to be an Eligible Employee, the entire amount, if any, standing to the
Participant's credit in his Stock Purchase Account shall be refunded to him.
Notwithstanding the foregoing, should a Participant cease to be an Eligible
Employee by reason of acquiring Temporary Inactive Status, such Participant may
continue to participate through the end of the Purchase Period during which such
status was acquired with respect to payroll deductions attributable to the
portion of the Purchase Period prior to the time such status was acquired.
Sec. 3.04 Readmission to Participation. Any Eligible Employee who has previously
been a Participant, who has discontinued participation, and who wishes to be
reinstated as a Participant may again become a Participant for any subsequent
Purchase Period by executing and filing with the Compensation Committee, at such
time in advance as the Compensation Committee shall determine, a new Purchase
Agreement on forms provided by the Compensation Committee. Reinstatement to
Participant status shall be effective no earlier than the Offering Date that
occurs six months following the Exercise Date for the Purchase Period in which
the Eligible Employee discontinued participation.
4
<PAGE> 6
ARTICLE IV
STOCK PURCHASE
Sec. 4.01 Reservation of Shares. There shall be 500,000 shares of Stock reserved
for the Plan, subject to adjustment in accordance with the antidilution
provisions hereinafter set forth. Except as provided in Section 5.02 hereof, the
aggregate number of shares that may be purchased under the Plan shall not exceed
the number of shares reserved for the Plan.
Sec. 4.02 Limitation on Shares Available. The maximum number of shares of Stock
that may be purchased for each Participant on an Exercise Date is the lower of
(a) the number of shares of Stock that can be purchased by applying the full
balance of his Stock Purchase Account to such purchase of shares at the Price
(as hereinafter determined), or (b) the Participant's proportionate part of the
maximum number of whole shares of Stock available within the limitation
established by the maximum aggregate number of such shares reserved for the
Plan, as stated in Section 4.01 hereof. Notwithstanding the foregoing, if any
person entitled to purchase shares pursuant to any offering hereunder would be
deemed for the purposes of section 423(b) (3) of the Code to own stock
(including any number of shares that such person would be entitled to purchase
hereunder) possessing 5% or more of the total combined voting power or value of
all classes of capital stock of Company, the maximum number of shares that such
person shall be entitled to purchase pursuant to the Plan shall be reduced to
that number which, when added to the number of shares of Stock that such person
is so deemed to own (excluding any number of shares that such person would be
entitled to purchase hereunder), is one less than such 5%. Any portion of a
Participant's Stock Purchase Account that cannot be applied by reason of the
foregoing limitation shall remain in the Participant's Stock Purchase Account
for application to the purchase of Stock on the next Offering Date (unless
withdrawn before that Offering Date).
Sec. 4.03 Purchase Price of Shares. The Purchase Price per share of the Stock
sold to Participants pursuant to any Offering shall be the sum of (a) 85% of the
Market Value of such share on the Offering Date on which such Offering commences
or on the Exercise Date on which such Offering expires, whichever is lower, and
(b) any transfer, excise or similar tax imposed on the transaction pursuant to
which such share of Stock is purchased. If the Exercise Date with respect to the
purchase of Stock is a day on which the Stock is selling ex-dividend but is on
or before the record date for such dividend, then for Plan purposes the Purchase
Price per share will be increased by an amount equal to the dividend per share.
In no event shall the Purchase Price be less than the par value of the Stock.
Sec. 4.04 Exercise of Purchase Privilege.
(a) Subject to the provisions of Section 4.02 above, if on the date of
the last paycheck of a Participant issued prior to any Exercise Date
there is a bank credit
5
<PAGE> 7
in the Participant's Stock Purchase Account, there shall be purchased
for the Participant at the Purchase Price of the Purchase Period that
expires on such Exercise Date the largest number of whole shares of
Stock as can be purchased with the entire amount standing to the
Participant's credit in his Stock Purchase Account on such paycheck
issue date. Each such purchase shall be deemed to have occurred on the
Exercise Date occurring at the close of the Offering for which the
purchase was made.
(b) Any amount remaining in the Stock Purchase Account on the Exercise
Date after the purchase of the maximum number of whole shares shall
remain in the Stock Purchase Account to the credit of the Participant
and be applied to purchase additional shares of Stock on subsequent
Exercise Dates.
(c) Notwithstanding anything contained herein to the contrary, a
Participant may not during any calendar year purchase shares of Stock
having an aggregate Market Value, determined at the time of each
Offering Date during such calendar year, of more than $25,000.
Sec. 4.05 Establishment of Stock Purchase Account. Each Participant shall
authorize payroll deductions from Compensation for the purposes of funding his
Stock Purchase Account. In the Purchase Agreement, each Participant shall
authorize a deduction from each payment of his Compensation during a Purchase
Period, which deduction shall be not less than 1% nor more than 7% of the gross
amount of such payment, subject to Section 4.04 (c). Subject to Section 3.02, a
Participant may not reduce or increase his payroll deduction rate during any
Purchase Period. However, a Participant may change the deduction to any
permissible level for any subsequent Offering by filing notice thereof at such
time preceding the Offering Date on which such subsequent Offering commences as
the Compensation Committee shall determine.
Sec. 4.06 Payment for Stock. The Purchase Price for all shares of Stock
purchased by a Participant under the Plan shall be paid out of the Participant's
Stock Purchase Account. As of each Exercise Date, the entire amount standing to
the credit of each Participant in his Stock Purchase Account on the date of the
last paycheck issued to the Participant prior to the Exercise Date in the
Purchase Period that expires on such Exercise Date shall be charged with the
aggregate Purchase Price of the shares of Stock purchased by such Participant on
the Exercise Date. No interest shall be paid or payable with respect to any
amount held in the Participant's Stock Purchase Account.
Sec. 4.07 Share Ownership; Issuance of Certificates.
(a) The shares purchased by a Participant on an Exercise Date shall,
for all purposes, be deemed to have been issued and/or sold at the
close of business on such Exercise Date. Prior to that time, none of
the rights or privileges of a stockholder of the Company shall inure to
the Participant with respect to such
6
<PAGE> 8
shares. All the shares of Stock purchased under the Plan shall be
delivered by the Company in a manner as determined by the Compensation
Committee.
(b) The Compensation Committee, in its sole discretion, may determine
that the shares of Stock shall be delivered by the Company (i) by
issuing and delivering to the Participant a certificate for the number
of whole shares of Stock purchased by such Participant on an Exercise
Date or during a calendar year, or (ii) by issuing and delivering a
certificate or certificates for the number of shares of Stock purchased
by all Participants on an Exercise Date or during a calendar year to a
member firm of the New York Stock Exchange which is also a member of
the National Association of Securities Dealers, as selected by the
Compensation Committee from time to time, which shares shall be
maintained by such member firm in separate brokerage accounts of each
participant, or (iii) by issuing and delivering a certificate or
certificates for the number of shares of Stock purchased by all
Participants on an Exercise Date or during the calendar year to a bank
or trust company or affiliate thereof, as selected by the Compensation
Committee from time to time, which shares shall be maintained by such
bank or trust company or affiliate in separate accounts for each
Participant or, if he designates on his Stock Purchase Agreement, in
his name jointly with his spouse, with right of survivorship. A
Participant who is a resident of a jurisdiction that does not recognize
such joint tenancy may have a certificate or account in his name as
tenant in common with his spouse, without right of survivorship. Such
designation may be changed by filing a notice thereof signed by the
Participant and his spouse. Such spouse shall be bound by all of the
terms and conditions of the Plan as if such spouse were a Participant.
Sec. 4.08 Restrictions on Resale. Stock acquired under the Plan may not be sold
or otherwise disposed of for at least six months after the Exercise Date on
which the shares were acquired, except in the case of death or disability. Any
Stock certificates delivered to a Participant prior to the expiration of such
six-month period shall contain a legend to reflect such restriction.
ARTICLE V
SPECIAL ADJUSTMENTS
Sec. 5.01 Shares Unavailable. If, on any Exercise Date, the aggregate funds
available for the purchase of Stock would purchase a number of shares in excess
of the number of shares then available for purchase under the Plan, the
following events shall occur:
(a) The number of shares that would otherwise be purchased by each
Participant shall be proportionately reduced on the Exercise Date in
order to eliminate such excess;
7
<PAGE> 9
(b) The Plan shall automatically terminate immediately after the
Exercise Date as of which the supply of available shares is exhausted;
and
(c) Any amount remaining in the Stock Purchase Account of each of the
Participants shall be repaid to such Participants.
Sec. 5.02 Antidilution Provisions. The aggregate number of shares of Stock
reserved for purchase under the Plan, as hereinabove provided, and the
calculation of the Purchase Price per share may be appropriately adjusted to
reflect any increase or decease in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made by the Compensation Committee acting with the
consent of, and subject to the approval of, the Board.
Sec. 5.03 Effect of Certain Transactions. Subject to any required action by the
stockholders, if the Company shall be the surviving or resulting corporation in
any merger or consolidation, or if the Company shall be merged for the purpose
of changing the jurisdiction of its incorporation, any Offering hereunder shall
pertain to and apply to the shares of stock of the Company or the survivor.
However, in the event of a dissolution or liquidation of the Company, or of a
merger or consolidation in which the Company is not the surviving or resulting
corporation, the Plan and any Offering hereunder shall terminate upon the
effective date of such dissolution, liquidation, merger or consolidation, and
the balance then standing to the credit of each Participant in his Stock
Purchase Account shall be returned to him.
ARTICLE VI
MISCELLANEOUS
Sec. 6.01 Nonalienation. The right to purchase shares of Stock under the Plan is
personal to the Participant, is exercisable only by the Participant during his
lifetime except as hereinafter set forth, and may not be assigned or otherwise
transferred by the Participant. Notwithstanding the foregoing, there shall be
delivered to the executor, administrator or other personal representative of a
deceased Participant such shares of Stock and such residual balance as may
remain in the Participant's Stock Purchase Account as of the date the
Participant's death occurs. However, such representative shall be bound by the
terms and conditions of the Plan as if such representative were a Participant.
Sec. 6.02 Administrative Costs. The Company shall pay all Administrative
expenses associated with the operation of the Plan. No Administrative charges
shall be levied against the Stock Purchase Accounts of the Participants.
Sec. 6.03 Collection of Taxes. The Company shall be entitled to require any
Participant to remit, through payroll withholding or otherwise, any tax that it
determines it is so
8
<PAGE> 10
obligated to collect with respect to the issuance of Stock hereunder, or the
subsequent sale or disposition of such Stock, and the Compensation Committee
shall institute such mechanisms as shall insure the collection of such taxes.
Sec. 6.04 Compensation Committee. The Compensation Committee shall have the
authority and power to administer the Plan and to make, adopt, construe and
enforce rules and regulations not inconsistent with the provisions of the Plan.
The Compensation Committee shall adopt and prescribe the contents of all forms
required in connection with the administration of the Plan, including, but not
limited to the Purchase Agreement, payroll withholding authorizations,
withdrawal documents and all other notices required hereunder. The Compensation
Committee shall have the fullest discretion permissible under law in the
discharge of its duties. The Compensation Committee's interpretations and
decisions in respect of the Plan, the rules and regulations pursuant to which it
is operated, and the rights of Participants hereunder shall be final and
conclusive.
Sec. 6.05 Amendment of the Plan. The Board may amend the Plan without the
consent of stockholders or Participants, except that any such action shall be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after such Board
action if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to
stockholders for approval; provided, however, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under any award theretofore granted to him.
Sec. 6.06 Termination of the Plan. The Plan shall continue in effect unless
terminated pursuant to action by the Board, which shall have the right to
terminate the Plan at any time without prior notice to any Participant and
without liability to any Participant. Upon the termination of the Plan, the
balance, if any, then standing to the credit of each Participant in his Stock
Purchase Account shall be refunded to him.
Sec. 6.07 Repurchase of Stock. The Company shall not be required to purchase or
repurchase from any Participant any of the shares of Stock that the Participant
acquired under the Plan.
Sec. 6.08 Notice. A Purchase Agreement and any notice that a Participant files
pursuant to the Plan shall be on the form prescribed by the Compensation
Committee and shall be effective only when received by the Compensation
Committee.
Sec. 6.09 Government Regulation. The Company's obligation to sell and to deliver
the Stock under the Plan is at all times subject to all approvals of any
governmental authority required in connection with the authorization, issuance,
sale or delivery of such Stock.
9
<PAGE> 11
Sec. 6.10 Headings, Captions, Gender. The headings and captions herein are for
convenience of reference only and shall not be considered as part of the text.
The masculine shall include the feminine, and vice versa.
Sec. 6.11 Severability of Provisions; Prevailing Law. The provisions of the Plan
shall be deemed severable. In the event any such provision is determined to be
unlawful or unenforceable by a court of competent jurisdiction or by reason of a
change in an applicable statute, the Plan shall continue to exist as though such
provision had never been included therein (or, in the case of a change in an
applicable statute, had been deleted as of the date of such change). The Plan
shall be governed by the laws of the State of Delaware, to the extent such laws
are not in conflict with, or superseded by, federal law.
10
<PAGE> 12
AMENDMENT NO. 1 TO THE
PERSONNEL GROUP OF AMERICA, INC.
EMPLOYEE STOCK PURHASE PLAN
1. Purpose
The purpose of this Amendment No. 1 (this "Amendment") to the Personnel
Group of America, Inc. Employee Stock Purchase Plan, as amended (the "Plan"), is
to increase shares of Stock reserved for purchase under the Plan from 1,000,000
shares to 2,000,000 shares. Terms not otherwise defined herein shall have the
meanings given them in the Plan.
2. Effective Date
The effective date of this Amendment shall be April 1, 2000, subject to
approval of this Amendment by the Company's shareholders at the Company's 2000
Annual Meeting of Shareholders.
3. Amendment
The Plan is amended by deleting Section 4.01 in its entirety and
restating it as follows:
"Sec. 4.01 Reservation of Shares. There shall be 2,000,000
shares of Stock reserved for the Plan, subject to adjustment in
accordance with the antidilution provisions hereinafter set forth.
Except as provided in Section 5.02 hereof, the aggregate number of
shares that may be purchased under the Plan shall not exceed the number
of shares reserved for the Plan."
<PAGE> 1
EXHIBIT 10.7
<PAGE> 2
PERSONNEL GROUP OF AMERICA, INC.
SUPPLEMENTAL RETIREMENT PLAN
FOR
EDWARD P. DRUDGE, JR.
EFFECTIVE JANUARY 1, 1999
<PAGE> 3
SECTION I
DEFINITIONS
1.01 "Committee" means the Compensation Committee of the Board of Directors
of the Company, which has been given authority by the Board of
Directors to administer this Plan.
1.02 "Company" means Personnel Group of America, Inc., a Delaware
corporation.
1.03 "Control" or "Change of Control" means a change in ownership of more
than 50% of the common stock of the Company, any sale of all or
substantially all of the assets of the Company to any other person,
entity or group, or any merger or consolidation transaction involving
the Company in which the Company is not the surviving entity.
1.04 "Early Retirement Date" means the date on which the Participant reaches
age 61.
1.05 "Normal Retirement Date" means the date on which the Participant
reaches age 65.
1.06 "Participant" means Edward P. Drudge, Jr., Chairman and Chief Executive
Officer of the Company as of the date hereof. Mr. Drudge is the sole
Participant in this Plan.
1.07 "Plan" means the Personnel Group of America, Inc. Supplemental
Retirement Plan for Edward P. Drudge, Jr.
1.08 "Postponed Retirement Date" means the date on which Participant's
employment with the Company or an affiliate ceases, but only if
Participant continues to be employed by the Company or an affiliate
after his Normal Retirement Date.
1.09 "Surviving Spouse" means the legally married spouse of the Participant,
if any, on the Participant's date of death.
<PAGE> 4
SECTION II
ELIGIBILITY FOR BENEFITS
2.01 Eligibility Dates: Except as otherwise provided herein, the Participant
shall become eligible to receive a benefit under this Plan on the
occurrence of one or more of the following events (without
duplication):
(a) The Participant's retirement on or after his Early Retirement
Date, but prior to his Normal Retirement Date; or
(b) The Participant's retirement on his Normal Retirement Date; or
(c) The Participant's retirement on his Postponed Retirement Date;
or
(d) The Participant's death; or
(e) The Participant's complete disability as determined by the
Committee; or
(f) A Change of Control.
2.02 Limitations on Eligibility: Notwithstanding anything to the contrary
contained herein, if the Participant: (a) engages in competition with
the Company or any of its affiliates (without prior authorization given
by the Committee in writing) in violation of the terms of any
employment agreement the Participant has with the Company or its
affiliates, (b) is discharged from his employment with the Company or
an affiliate for cause as provided in any employment agreement the
Participant has with the Company or any of its affiliates, or (c)
otherwise performs acts of willful malfeasance or gross negligence as
determined by the Committee in a matter of material importance to the
Company; then, in any such case, the eligibility for any benefit
hereunder or the payment of any benefit thereafter payable hereunder to
the Participant or the Participant's Surviving Spouse may, at the
discretion of the Committee, be forfeited and the Company will have no
further obligation hereunder to such Participant or Surviving Spouse
after any such determination.
<PAGE> 5
SECTION III
AMOUNT AND FORM OF BENEFIT
3.01 Amount of Benefit:
(a) Following the occurrence of any of the events specified in
Sections 2.01(b) through (f) above, the benefit payable under
this Plan will be $250,000 per year and such benefit will be
payable as provided below.
(b) Following the Participant's retirement on or after his Early
Retirement Date, but prior to his Normal Retirement Date, as
specified in Section 2.01(a) above, the annual benefit payable
under this Plan will be as set forth below:
Early
Retirement Annual
Age Benefit
---------- --------
61 $ 50,000
62 100,000
63 150,000
64 200,000
The benefit payable under this Section 3.01(b) will also be
payable as set forth below.
3.02 Form of Benefit: Any benefit provided under this Plan will be payable
on a joint and 50% survivor basis if Participant is married at the time
that a benefit is first payable hereunder, and on a life only basis if
Participant is not married at the time that a benefit is first payable
hereunder.
<PAGE> 6
SECTION IV
PAYMENT OF BENEFITS
4.01 Commencement of Benefits: Except as otherwise provided in Section 2.02
above, any benefit payable under this Plan will commence on the first
day of the month following the date that Participant becomes eligible
to receive a benefit and will be paid in equally monthly installments
on the first day of each succeeding month at the annual rate provided
for in this Plan.
4.02 Termination of Benefits: The last benefit payment will be on the first
day of the month following the month in which the Participant dies, if
the Participant is single at the time a benefit is first payable
hereunder, or on the first day of the month following the month in
which the Surviving Spouse dies or the Participant dies, whichever is
later, if Participant is married at the time a benefit is first payable
hereunder; provided, however, that in no event shall any benefit be
payable under this Plan (whether to the Participant or a Surviving
Spouse, if any) for more than 180 months.
SECTION V
MISCELLANEOUS
5.01 Amendment or Termination of Plan: The Committee may, in its sole
discretion, terminate or amend this Plan at any time or from time to
time, in whole or in part.
5.02 Employment Rights: Nothing contained in this Plan will confer upon the
Participant the right to be retained in the service of the Company, nor
will this Plan interfere with the right of the Company to discharge or
otherwise deal with the Participant without regard to the existence of
this Plan. This Plan is intended to supplement, and not conflict with,
the terms of any employment agreement that the Participant may have at
any time with the Company or its affiliates.
5.03 Funding: This Plan is unfunded, and the Company will make Plan benefit
payments solely on a current disbursement basis out of general assets.
Notwithstanding the foregoing, the Company may purchase annuities or
other insurance products from a licensed insurance carrier from time to
time upon the recommendation of the Committee.
5.04 Assignment or Alienation: To the maximum extent permitted by law, no
benefit under this Plan shall be assignable or subject in any manner to
alienation, sale or transfer of any kind.
<PAGE> 7
5.05 Administration: The Company is the named fiduciary for the Plan. The
Committee, acting on behalf of the Company, has the discretionary
authority and responsibility to interpret and construe this Plan. The
Committee may adopt rules and regulations to assist it in the
administration of the Plan.
5.06 Governing Law: This Plan is established under, and will be construed
according to, the laws of the State of North Carolina, except as
provided otherwise by ERISA.
5.07 Restriction Against Establishment of Trust: Nothing contained in this
Plan and no action taken pursuant to the provisions of this Plan shall
authorize or create or be construed as authorizing or creating a trust
of any kind. In any event, it is the intent of the Company that this
Plan constitutes an unfunded plan of deferred compensation.
5.08 Tax Treatment: Any deferred compensation payable under this Plan shall
not be deemed salary or other compensation and shall not be included in
a Participant's taxable income nor deductible by the Company under
federal or state law until actually received by the Participant. For
this reason, any rights, powers, privileges or duties in connection
with the establishment and administration of the Plan shall not be
effective if and to the extent that the same, if effective, would
result in the compensation deferred under this Plan being subject to
taxation before actual receipt by the Participant. Accordingly, all
provisions of this Plan shall be subordinate to this requirement and
any interpretations or constructions to be given to this Plan shall be
made in such a manner as to carry out this intention.
IN WITNESS WHEREOF, the foregoing Plan having been duly approved and
adopted by the Compensation Committee of the Board of Directors of the Company,
the Company has caused this Plan to be duly executed in its name and on its
behalf by an officer duly authorized on this 10th day of October, 1999.
(Corporate Seal)
ATTEST PERSONNEL GROUP OF AMERICA, INC.
/s/ Ken R. Bramlett, Jr. By: /s/ James C. Hunt
- ----------------------- ------------------------------
Secretary Title: Senior Vice President - Chief
Financial Officer
<PAGE> 1
EXHIBIT 10.8
<PAGE> 2
FORM OF
RETIREMENT AGREEMENT
This RETIREMENT AGREEMENT (this "Agreement or this "Retirement
Agreement") is made and entered into as of the 13th day of February 2000, by and
between PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation with its
principal place of business in Charlotte, North Carolina, ("the Company"), and
EDWARD P. DRUDGE, JR. ("Employee").
STATEMENT OF PURPOSE
Employee has served as an officer, director and employee of the
Company. Employee desires to retire and resign from all of his current positions
with the Company, and Company has agreed to accept Employee's retirement and
resignation, on the terms and conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the Company and
Employee hereby agree as follows:
1. Date of Termination. Employee hereby retires and resigns from all
executive positions and capacities with the Company and/or the Company's
subsidiaries, including without limitation as an officer and director of the
Company and the Company's subsidiaries, and the Company hereby accepts all such
resignations, and all such resignations are deemed to be effective, as of
February 13, 2000 (the "Retirement Date"). From the Retirement Date through
April 13, 2000 (the "Employment Termination Date"), Employee shall be deemed,
for purposes of salary and certain other benefits expressly provided herein, a
non-executive employee of the Company, entitled to certain benefits expressly
provided herein. Employee hereby resigns his employment with the Company and the
Company's subsidiaries in all capacities, effective as of the Employment
Termination Date.
2. Consulting; Term; Duties. For the period beginning as of the
Employment Termination Date and continuing through April 13, 2002 (the
"Consulting Period"), Employee will act as a consultant and general advisor to
the Company and its subsidiaries on all matters pertaining to the business
conducted by the Company and to the retention of selected employees and the
goodwill and business of the customers and suppliers of the Company and its
subsidiaries. Employee will use his best efforts to maintain the goodwill of the
customers and suppliers of the Company and its subsidiaries and to provide for a
smooth and orderly transition of power and responsibility to Employee's
successor as selected by the Company. Employee will be available to perform
services hereunder on an as needed basis upon the reasonable request of the
Company.
3. Retirement Payments and Other Benefits. Subject to Employee's full
compliance with the terms of this Agreement, including the conditions set forth
below, Employee shall be entitled to the following benefits:
<PAGE> 3
(a) Salary Continuation. The Company shall continue to pay the
current base salary of Employee ($385,000 per year) from the Retirement Date
through the end of the Consulting Period. These salary continuation payments
shall be payable at times and in accord with the regular payroll practices of
the Company with respect to its executive officers. All such payments shall be
subject to, and reduced by, any applicable federal and state withholding taxes
and other charges for health and other benefits as applicable.
(b) Stock Options. All outstanding options to purchase the
Company's common stock that have been granted to Employee prior to the
Retirement Date and are summarized on Exhibit A attached hereto (collectively,
the "Options") shall continue to be outstanding and shall continue to vest and
become exercisable in accordance with their respective stated vesting schedules
from the Retirement Date throughout the Consulting Period. Employee shall be
entitled to exercise such Options, according to the terms thereof, to the extent
then vested as of the end of the Consulting Period, at any time prior to the
90th day following the end of the Consulting Period (the "Option Expiration
Date"). After the Option Expiration Date, all unexercised Options held by
Employee shall expire.
(c) SERP Benefit. Effective on the last day of the Consulting
Period, Employee shall be entitled to an annual benefit under that certain
Supplemental Retirement Plan for Edward P. Drudge, Jr., effective as of January
1, 1999 (the "SERP"), as if Employee's retirement had occurred on the last day
of the Consulting Period, which benefit would be $150,000 annually, payable in
accordance with the terms of the SERP, for a period of 15 years following the
end of the Consulting Period; provided, however, that notwithstanding the terms
of the SERP, Employee and the Company agree as follows: (1) in no event will the
maximum benefit payable to Employee under the SERP exceed $150,000 per year; (2)
in the event Employee becomes entitled to a benefit under the SERP because of,
or upon the occurrence of, a Change of Control (as defined in the SERP), the
amount of such benefit will be $150,000 per year (irrespective of when such
Change of Control occurs); and (3) the term "employment agreement" in subsection
(a) of Section 2.02 of the SERP, which provides that Employee's benefit may be
forfeited in the event Employee engages in competition with the Company in
violation of his employment agreement, shall be deemed to mean and include this
Agreement. The Company and Employee agree that the SERP is hereby amended if,
and to the extent, necessary to give effect to this Agreement.
(d) Company Property. Employee agrees that, on or prior to
April 13, 2000, he will purchase from the Company, at book value as set forth on
Exhibit B, attached hereto (or exchange, in the manner set forth in Exhibit B),
all Company property set forth on Exhibit B hereto. Employee may continue to use
his Company-issued cellular phone for business-related purposes through April
13, 2000, and shall return such phone to the Company immediately after April 13,
2000.
(e) Company Car. From the Retirement Date through May 9, 2000,
Employee shall be entitled to receive a $1,200 monthly car allowance, which will
be payable towards existing lease payments on the Employee's leased Mercedes
S500 Sedan. As of May 9, 2000, Employee shall either (i) return such vehicle to
the Company for surrender in accordance with the terms of
2
<PAGE> 4
such lease or (ii) purchase such vehicle upon payment by Employee of the
residual value and all other fees and expenses required for purchase and payoff
under the terms of such lease.
(f) Health Care Benefits. From and after the Retirement Date,
Employee and his spouse and dependents shall be entitled to continue to be
covered by the Company's group health, dental and life insurance provided to the
Company's executive employees, at the same coverage level and on the same terms
and conditions as in effect on the Retirement Date or as available upon any
amendment of such insurance plans applicable to all executive employees of the
Company (including without limitation, Employee's payment of his portion of
applicable premiums), until the earlier of (i) such time as Employee obtains
alternative comparable coverage under another group plan, which coverage does
not contain any pre-existing condition exclusions or limitations, or (ii) the
end of the Consulting Period. Upon the termination of the benefits coverage
under the preceding sentence, Employee and his spouse and dependents shall be
entitled to obtain, at Employee's sole cost and expense, continuation coverage
under the Company's health insurance plan pursuant to Section 4980B of the
Internal Revenue Code of 1986, as amended, and under any other applicable law,
to the extent required by such laws, as if Employee had terminated employment
with the Company on the date such benefits coverage terminates. Employee agrees
to cooperate with the Company in discharging its obligations hereunder and, in
that connection, to execute any required forms or applications, and to submit
required underwriting information, should they be required by any insurer
hereunder.
(g) Other Benefits. Except as expressly set forth herein,
after the Retirement Date, Employee shall not have the right to participate in
or receive any other benefit under any employee benefit plan of the Company, any
fringe benefit plan of the Company, or any other plan, policy or arrangement of
the Company providing benefits or perquisites to employees of the Company
generally or individually. Specifically, without limitation, Employee shall not
be entitled to payment of any cash bonus, any payment for accrued but unused
vacation time or paid time off or any continuation of Company-paid country club
or dining club membership fees or dues, and Employee shall not be allowed to
continue to participate in the Company's Employee Stock Purchase Plan; provided,
however, that the following benefits will continue from the Retirement Date
through, and terminate effective as of, April 13, 2000: the Company will
continue payment of Employee's existing Carmel Country Club dues and Tower Club
dues (including a pro-rated amount of such dues for April 2000).
EMPLOYEE ACKNOWLEDGES AND AGREES THAT THE COMPANY'S OBLIGATION TO
PROVIDE ALL BENEFITS AND PAYMENTS TO EMPLOYEE PURSUANT TO THIS AGREEMENT IS
EXPRESSLY CONDITIONED UPON EMPLOYEE'S COMPLIANCE IN FULL WITH ALL OF EMPLOYEE'S
OBLIGATIONS HEREUNDER, AND THAT ANY FAILURE OF EMPLOYEE TO COMPLY IN FULL WITH
ALL SUCH OBLIGATIONS WILL CONSTITUTE A MATERIAL BREACH OF THIS AGREEMENT, WILL
RELEASE THE COMPANY FROM ANY FURTHER OBLIGATION TO PROVIDE ANY SUCH BENEFITS AND
PAYMENTS.
4. Return of Company Property. All records, files, lists, including
computer generated lists, drawings, notes, notebooks, letters, handbooks,
blueprints, manuals, sketches,
3
<PAGE> 5
specifications, formulas, financial documents, sales and business plans,
customer lists, lists of customer contacts, pricing information, computers,
software, cellular phones, credit cards, keys, equipment and similar items
relating to the Company's business, together with any other property of the
Company or property which the Employee received in the course of Employee's
employment with the Company (except as may be purchased by Employee pursuant to
Section 3 hereof), shall be returned to the Company immediately after the
Retirement Date (or, in the case of Company property with respect to which
Employee's usage or benefit has been extended under the terms of Section 3,
hereof, immediately upon the termination of such benefit continuation period).
Employee further represents that Employee will not copy or cause to be copied,
print out or cause to be printed out any software, documents or other materials
originating with or belonging to the Company. Employee will cease usage of all
Company credit cards as of the Retirement Date, and the Company may deactivate
or cancel all such account or access numbers pertaining to any Company credit
cards in Employee's possession as of the Retirement Date.
5. Confidentiality and Nondisparagement. Employee agrees not to make
any statement, written or oral (including but not limited to any media source),
regarding any of the following subjects without the prior approval of the Board
of Directors of the Company: (a) any of the circumstances leading up to or
surrounding Employee's retirement or resignation from the Company; or (b) the
terms of this Agreement. Furthermore, Employee, for the good and valuable
consideration furnished herein, agrees not to disparage, bring into disrepute or
make any negative statement concerning the Company or any of its employees,
officers or directors or make any other statement that would disrupt, impair or
affect adversely the reputation, business interests, or profitability of the
Company, or its employees, officers or directors, or place the Company or such
individuals in any negative light. Any breach of this Agreement by Employee
shall constitute a material breach of this Agreement, and shall permit the
Company to cease all payments to Employee hereunder.
6. Release. As consideration for the payments to be made by the Company
to Employee pursuant to Section 3 hereof, Employee agrees for Employee and for
Employee's heirs, executors, administrators and assigns, to release and forever
discharge the Company and all of its parent and subsidiary corporations,
together with each of their respective agents, officers, employees, directors
and attorneys, from and to waive any and all rights with respect to all manner
of claims, actions, causes of action, suits, judgments, rights, demands, debts,
damages, or accountings of whatever nature, legal, equitable or administrative,
whether the same are now known or unknown, which Employee ever had, now has or
may claim to have, upon or by reason of the occurrence of any matter, cause or
thing whatsoever up to the date of this Agreement, including without limitation:
(i) any claim whatsoever (whether under federal or state statutory or common
law) arising from or relating to Employee's employment or changes in Employee's
employment relationship with the Company, including Employee's retirement,
separation, termination or resignation therefrom, (ii) all claims and rights for
additional compensation or benefits of whatever nature; (iii) any claim for
breach of contract, implied or express, impairment of economic opportunity,
intentional or negligent infliction of emotional distress, wage or benefit
claim, prima facie tort, defamation, libel, slander, negligent termination,
wrongful discharge, or any other tort, whether intentional or negligent; (iv)
all claims and rights under Title VII of the Civil Rights Act of
4
<PAGE> 6
1964, the Civil Rights Acts of 1866, 1871, or 1991, the Age Discrimination in
Employment Act, the Employee Retirement Income Security Act, the Americans With
Disabilities Act of 1993, the Family and Medical Leave Act, all as amended, or
any other federal, state, county or municipal statute or ordinance relating to
any condition of employment or employment discrimination; and (v) all claims
under any employment agreement between Employee and the Company; provided,
however, that this release shall not (i) include any claims relating to the
obligations of the Company under this Agreement or (ii) operate to release
Employee's ownership of any common stock or, to the extent provided herein,
options to acquire common stock of the Company.
7. Acknowledgement of Waiver of Rights. Employee acknowledges that
Employee's waiver of rights and claims under this Agreement includes a waiver of
rights and claims under the Federal Age Discrimination in Employment Act of
1967, as amended, and that such waiver and the waiver and release of all other
rights and claims contemplated by the release set forth in Section 6 above are
made knowingly and voluntarily. Employee acknowledges that he has been given a
period of at least twenty-one (21) days to consider the provisions of the
release stated above, and to consult with Employee's attorney, accountant, tax
advisor, spouse or other persons prior to making a decision to sign this
Agreement. Employee further acknowledges that the Company has not pressured or
coerced Employee to execute this Agreement prior to the expiration of 21 days
from the date it was furnished to Employee and that any decision to execute this
Agreement prior to such time has been made freely and voluntarily. Employee
certifies that the Company has advised Employee in writing to consult with an
attorney regarding the legal consequences of the execution of this Agreement.
8. Governing Law and Forum Selection. Employee agrees that any claim
against the Company or any of its affiliates or their employees arising out of
or relating in any way to this Agreement or to Employee's employment with the
Company shall be brought exclusively in the Superior Court of Mecklenburg
County, North Carolina, or the United States District Court for the Western
District of North Carolina, and in no other forum. Employee hereby irrevocably
consents to the personal and subject matter jurisdiction of these courts for the
purpose of adjudicating any claims subject to this forum selection clause.
Employee also agrees that any dispute of any kind arising out of or relating to
this Agreement or to Employee's employment (including without limitation any
claim released herein by Employee) shall at the Company's sole election or
demand be submitted to final, conclusive and binding arbitration before and
according to the rules then prevailing of the American Arbitration Association
in Mecklenburg County, North Carolina, which election or demand may be made by
the Company at any time prior to the last day to answer and/or respond to a
summons and/or complaint or counterclaim made by Employee. The results of any
such arbitration proceeding shall be final and binding both upon the Company and
upon Employee, and shall be subject to judicial confirmation as provided by the
Federal Arbitration Act and/or the terms of Chapter 1, Article 45A of the North
Carolina General Statutes, which are incorporated herein by reference.
9. Entire Agreement. This Agreement contains the entire agreement
between the Company and Employee and supersedes all prior agreements relating to
the subject matter hereof or otherwise, specifically including, without
limitation, that certain Employment Agreement dated as of September 29, 1995 (as
amended), between the Company and Employee and any stock option
5
<PAGE> 7
agreements relating to the Options between Employee and the Company, all of
which are hereby expressly terminated, and may be changed only by a writing
signed by the parties hereto. Any and all prior representations, statements and
discussions regarding the subject matter of this Retirement Agreement have been
merged into and replaced by the terms of this Retirement Agreement.
10. Further Conditions. The obligations of the Company set forth in
this Agreement, including specifically in Section 3 hereof, are conditional upon
Employee's execution and full ratification of this Agreement, including the
release set forth herein, no later than twenty-one (21) days following the date
on which this Agreement is submitted to Employee, as well as upon Employee's
failure to revoke the same following the expiration of seven days following such
execution. In the event that Employee fails to execute this Agreement within
such 21-day period or revokes the execution thereof within seven days following
such execution thereof, the Company's obligations hereunder shall be null and
void.
11. Severability. If any of the provisions set forth in this Agreement
shall be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein; provided, however, that
this provision shall not affect Employee's ability to ratify any provision of
this Agreement.
12. Confidential Information, Non-Solicitation and Non-Competition.
(a) From the date hereof through and including February 13,
2004, Employee shall not, except as may be required to perform his duties
hereunder or as required by applicable law, disclose to others or use, whether
directly or indirectly, any Confidential Information regarding the Company.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not available to the general public and that was learned by Employee in the
course of his employment by the Company, including (without limitation) any
proprietary knowledge, trade secrets, data, formulae, information, and client
and customer lists and all papers, resumes, records (including computer records)
and the documents containing such Confidential Information. Employee
acknowledges that such Confidential Information is specialized, unique in nature
and of great value to the Company, and that such information gives the Company a
competitive advantage.
(b) From the date hereof through and including February 13,
2004, Employee shall not, directly or indirectly (e.g., as an advisor,
principal, agent, partner, officer, director, shareholder, employee, member of
any association or otherwise) engage in, work for, consult, provide advice or
assistance or otherwise participate in a business that provides commercial
staffing, commercial permanent placement, information technology consulting,
information technology staffing or information technology permanent placement
services in the following geographic areas: (i) each and every city in which the
Company (which, for purposes of this Section 12, shall mean and include the
Company and its subsidiaries and affiliates) has an office or place of business
as of the Retirement Date; (ii) each and every county in which each of the
cities described in Section 12(b)(i) above is located; (iii) a 50-mile radius
outside the boundary limits of each city described in Section 12(b)(i) above;
and (iv) a 50-mile radius outside the boundary limits
6
<PAGE> 8
of each county described in Section 12(b)(ii) above. Employee further agrees
that during such period he will not assist or encourage any other person in
carrying out any activity that would be prohibited by the foregoing provisions
of this Section 12 if such activity were carried out by Employee and, in
particular, Employee agrees that he will not induce any employee of the Company
to carry out any such activity; provided, however, that the "beneficial
ownership" by Employee, either individually or as a member of a "group," as such
terms are used in Rule 13d of the General Rules and Regulations under the
Securities Exchange Act of 1934, of not more than five percent (5%) of the
voting stock of any publicly held corporation shall not be a violation of this
Agreement. It is further expressly agreed that the Company will or would suffer
irreparable injury if Employee were to compete with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive relief
in a court of appropriate jurisdiction, and Employee further consents and
stipulates to the entry of such injunctive relief in such a court prohibiting
Employee from competing with the Company or any subsidiary or affiliate of the
Company in violation of this Agreement.
(c) From the date hereof through and including February 13,
2004, Employee shall not, directly or indirectly, influence or attempt to
influence customers or suppliers of the Company or any of its subsidiaries or
affiliates, to divert their business to any competitor of the Company.
(d) Employee recognizes that he will possess confidential
information about other employees of the Company relating to their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with customers of the Company. Employee recognizes that the
information he will possess about these other employees is not generally known,
is of substantial value to the Company in developing its business and in
securing and retaining customers, and was acquired by him because of his
business position with the Company. Employee agrees that, from the date hereof
through and including February 13, 2004, he will not, directly or indirectly,
solicit or recruit any employee of the Company for the purpose of being employed
by him or by any competitor of the Company on whose behalf he is acting as an
agent, representative or employee and that he will not convey any such
confidential information or trade secrets about other employees of the Company
to any other person.
(e) If it is determined by a court of competent jurisdiction
in any state that any restriction in this Section 12 is excessive in duration or
scope or is unreasonable or unenforceable under the laws of that state, it is
the intention of the parties that such restriction may be modified or amended by
the court to render it enforceable to the maximum extent permitted by the law of
that state.
(f) Employee acknowledges that he has been informed of the
time, territory, scope and other essential requirements of the restrictions in
this Section 12 in connection with this Agreement, and Employee further
acknowledges that he has received sufficient and valuable consideration for his
agreement to such restrictions.
7
<PAGE> 9
13. Voluntary Agreement. Employee hereby represents that Employee has
carefully read and completely understands the provisions of this Agreement and
that Employee has entered into this Agreement voluntarily and without any
coercion whatsoever, and in order to receive certain benefits not otherwise owed
to Employee by the Company. Employee represents that he has been advised of his
right to secure counsel to assist in his reviewing this Agreement, that he has
retained counsel so to advise him, that he has had sufficient time to review
carefully each of the provisions hereto with his counsel, and that his execution
hereof is the product of his own free will and volition.
14. Assistance and Cooperation. Employee agrees to cooperate with and
provide assistance to the Company and its legal counsel in connection with any
litigation (including arbitration or administrative hearings) or investigation
affecting the Company, in which, in the reasonable judgment of the Company's
counsel, Employee's assistance or cooperation is needed. Employee shall, when
requested by the Company, provide testimony or other assistance and shall travel
at the Company's request in order to fulfill this obligation; provided, however,
that, in connection with such litigation or investigation, the Company shall
attempt to accommodate Employee's schedule, shall provide him with reasonable
notice in advance of the times in which his cooperation or assistance is needed,
and shall reimburse Employee for any reasonable expenses incurred in connection
with such matters. In addition, during the time he is receiving the payments set
forth in Section 3 herein, Employee agrees to cooperate fully with the Company
on all matters relating to his employment and the conduct of the Company's
business. This obligation to cooperate, however, shall not be considered to
prohibit or restrict other employment by the Employee, except as is set forth in
Section 12 herein.
[Signatures on Following Page]
8
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed by their authorized
representatives as of the day and year first above written.
COMPANY:
[CORPORATE SEAL] PERSONNEL GROUP OF AMERICA, INC.
Attest:
By: __________________________________
Position: ____________________________
______________________________
____________________ Secretary
EMPLOYEE:
_______________________________ (SEAL)
WITNESS: Edward P. Drudge, Jr.
______________________________
9
<PAGE> 11
EXHIBIT A
OPTIONEE STATEMENT PERSONNEL GROUP OF AMERICA, INC.
EXERCISABLE AS OF 3/27/2000
EDWARD P. DRUDGE
6717 WYNFAIRE LANE
CHARLOTTE, NC 28210
SSN ###-##-####
<TABLE>
<CAPTION>
GRANT EXPIRATION GRANT OPTIONS OPTION OPTIONS OPTIONS
DATE DATE PLAN ID TYPE GRANTED PRICE OUTSTANDING VESTED
- ----- ---------- ------- ----- ------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/25/1995 9/25/2005 Non-Qualified 357,144 $7.0000 357,144 357,144 CURRENT
9/26/1996 9/26/2006 Non-Qualified 440,000 $12.4700 440,000 352,000 CURRENT
88,000 ON 9/26/2000
1/2/1997 1/2/2007 Non-Qualified 103,634 $11.5900 103,634 103,634 CURRENT
9/26/1997 9/26/2007 Incentive 23,696 $16.8750 23,696 11,848 CURRENT
5,924 ON 9/26/2000
5,924 ON 9/26/2001
9/26/1997 9/26/2007 Non-Qualified 76,304 $16.8750 76,304 38,152 CURRENT
19,076 ON 9/26/2000
19,076 ON 9/26/2001
12/31/1997 12/31/2007 Incentive 6,236 $16.0313 6,236 6,236 CURRENT
12/31/1997 12/31/2007 Non-Qualified 72,680 $16.0313 72,680 72,680 CURRENT
9/28/1998 9/28/2008 Incentive 100,000 $12.2500 100,000 25,000 CURRENT
25,000 ON 9/28/2000
25,000 ON 9/28/2001
25,000 ON 9/28/2002
12/31/1998 12/31/2008 Incentive 17,114 $17.5313 17,114 17,114 CURRENT
9/28/1999 9/28/2009 Incentive 25,000 $5.3100 25,000 0 CURRENT
6,250 ON 9/28/2000
6,250 ON 9/28/2001
6,250 ON 9/28/2000
6,250 ON 9/28/2003
12/8/1999 12/8/2009 Incentive 25,000 $9.0000 25,000 0 CURRENT
6,250 ON 12/8/2000
6,250 ON 12/8/2001
6,250 ON 12/8/2002
6,250 ON 12/8/2003
TOTALS 1,246,808 1,246,808 983,808
</TABLE>
10
<PAGE> 12
EXHIBIT B
COMPANY PROPERTY
Property Book Value
-------- ----------
*IBM 600 laptop computer $ 3,198.00
*Battery $ 216.00
*A/C Adaptor $ 65.00
*Docking Station $ 868.00
*Mouse and Keyboard $ 108.00
*Laser Printer $ 659.00
*Monitor $ 1,074.00
*Chair $ 818.00
*Employee and the Company agree that these items may, collectively, be exchanged
by Employee in an even exchange with the Company for Employee's existing
membership and all related rights in the Charlotte Motor Speedway's Speedway
Club.
11
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest Expense including
Amortization of debt issuance costs $ 159 $ 1,155 $ 6,951 $12,491 $16,447
Interest on Rent Expense (1/3) 551 820 1,359 2,463 3,419
------ ------- ------- ------- -------
Total Fixed Charges 710 1,975 8,310 14,954 19,866
EARNINGS:
Income before Taxes 7,612 14,299 30,800 53,757 51,830
Fixed Charges 710 1,975 8,310 14,954 19,866
------ ------- ------- ------- -------
Income before Fixed Charges 8,322 16,274 39,110 68,711 71,696
RATIO OF EARNINGS TO FIXED CHARGES 11.7 8.2 4.7 4.6 3.6
</TABLE>
<PAGE> 1
EXHIBIT 13.1
PART II EXHIBITS FOR ITEMS 5 THROUGH 8
<PAGE> 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, $.01 par value (the "Common Stock"), is
listed on the New York Stock Exchange under the symbol "PGA." As of February 29,
2000, there were approximately 6,183 shareholders based on the number of holders
of record and an estimate of the number of individual participants represented
by securities position listings.
The Company's policy has been to retain earnings for use in its
business and, accordingly, it has not historically paid cash dividends on the
Common Stock. In addition, the Company's Credit Facility currently restricts the
payment of dividends, subject to certain terms contained therein. In the future,
the Company's Board of Directors will determine whether to pay cash dividends
based on conditions then existing, including the Company's earnings, financial
condition, capital requirements, financing arrangements and any other factors
deemed relevant by the Board of Directors.
The following table sets forth the high, low and closing sales prices
for the Common Stock as reported on the New York Stock Exchange during the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
1999
----
First Quarter $ 18 9/16 $ 5 7/8 $ 7 3/16
Second Quarter 11 5/8 6 13/16 9 15/16
Third Quarter 10 5/8 4 15/16 6 1/4
Fourth Quarter 11 11/16 6 10 1/4
1998
----
First Quarter $ 23 3/8 $ 15 $ 22 3/8
Second Quarter 23 3/8 17 17 1/6
Third Quarter 20 3/4 11 12 15/16
Fourth Quarter 17 1/2 8 5/8 17 1/2
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
</TABLE>
The last reported sales price on March 24, 2000 was $6.31.
1
<PAGE> 3
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for the Company as of and for each of years 1999, 1998, 1997, 1996 and 1995. The
consolidated financial data as of and for years ended 1999, 1998 and 1997 are
derived from consolidated financial statements of the Company that have been
audited by PricewaterhouseCoopers LLP, independent public accountants. The
consolidated financial data as of and for years 1996 and 1995 are derived from
consolidated financial statements of the Company that were audited by other
auditors. All of such data should be read in conjunction with the financial
statements and other financial information, including Management's Discussion
and Analysis of Financial Condition and Results of Operations, included
elsewhere in this report.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $918,437 $783,925 $475,620 $243,608 $143,243
Operating income 68,277 66,248 37,751 15,454 7,771
Net income from continuing operations 29,753 31,017 17,790 8,304 4,330
Net income $ 29,753 $ 31,017 $ 20,202 $ 11,517 $ 7,109
Net income per diluted share (1):
Income from continuing operations $ 0.99 $ 0.96 $ 0.71 $ 0.41 $ 0.27(2)
Income from discontinued
operations, net -- -- 0.09 0.16 0.17(2)
-------- -------- -------- -------- --------
Net Income $ 0.99 $ 0.96 $ 0.80 $ 0.56 $ 0.44(2)
======== ======== ======== ======== ========
Diluted weighted average shares
outstanding 34,299 36,752 28,078 20,432 16,000
FINANCIAL POSITION AT YEAR-END
Working capital $ 86,787 $ 84,151 $ 69,090 $ 26,558 $ 17,719
Total assets 735,350 708,890 451,309 293,575 83,441
Short- and long-term debt 254,351 235,406 152,540 85,147 --
Shareholders' equity 369,843 394,630 205,076 183,257 75,986
</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 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 the year.
2
<PAGE> 4
ITEM 7. 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 appearing
elsewhere in this report. The Company's fiscal years end on the Sunday nearest
to each December 31 and its fiscal quarters end on the Sunday nearest to the end
of each calendar quarter.
The Company is organized into two Divisions: the Information Technology
Services Division ("IT Services"), which provides information technology
staffing and consulting services in a range of computer-related disciplines, and
the Commercial Staffing Services Division ("Commercial Staffing"), which
provides a variety of temporary office, clerical, accounting and finance, light
technical and light industrial staffing services. Approximately 64% of the
Company's 1999 revenues came from IT Services and 36% came from Commercial
Staffing.
The following table sets forth the number and nature of the Company's
offices by Division at the end of the years indicated and at February 29, 2000:
<TABLE>
<CAPTION>
FEBRUARY
29, 2000 1999 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
IT Services 43 43 47 30
Commercial Staffing 101 101 100 82
----- ----- ----- -----
Total offices 144 144 147 112
</TABLE>
After the end of the fourth quarter of 1999, the Company's Chief Executive
Officer retired from his positions as an officer, employee and director of the
Company. The Company will incur a non-recurring expense of approximately $1.5
million in the first quarter of 2000 relating to severance and other benefits
for the departed executive.
In May 1998, the Company completed an offering of 7.0 million shares of
Common Stock. The net proceeds from this offering of approximately $133.3
million were used to repay indebtedness under the Company's $200.0 million
revolving credit facility (the "Credit Facility").
Also in 1998, the Company acquired ten information technology services
companies and five commercial staffing companies. The combined revenues of these
15 companies were approximately $259.5 million in 1998 and $280.2 million in
1999.
Each of the Company's acquisitions, including its 1998 acquisitions, has
been accounted for using the purchase method of accounting. 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. 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
76.2% of total assets and 151.4% of total shareholders' equity at January 2,
2000. 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 investments in intangible assets to be
fully recovered.
Although the Company's acquisition program was much less active in 1999
than in previous years, the Company intends to continue evaluating acquisition
opportunities in the normal course of its business. 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-
3
<PAGE> 5
to-period comparisons of the Company's results of operations.
On December 26, 1997, the Company completed the sale of its healthcare
division for $65.3 million. 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 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 was reflected
as a discontinued operation in the Company's financial statements for all
periods presented.
In June and July 1997, the Company completed a private placement of $115.0
million of 5-3/4% Convertible Subordinated Notes (the "Convertible Notes"). The
net proceeds from this private placement 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.
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 are 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, 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.
4
<PAGE> 6
OVERVIEW
The following table summarizes certain income statement information for
the Company for years 1999, 1998 and 1997:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
IT Services $584,032 63.6% $445,485 56.8% $249,749 52.5%
Commercial Staffing 334,405 36.4% 338,440 43.2% 225,871 47.5%
-------- ----- -------- ----- -------- -----
TOTAL REVENUES 918,437 100.0% 783,925 100.0% 475,620 100.0%
DIRECT COSTS OF SERVICES 656,918 71.5% 564,711 72.0% 349,616 73.5%
-------- ----- -------- ----- -------- -----
GROSS PROFIT 261,519 28.5% 219,214 28.0% 126,004 26.5%
OPERATING EXPENSES:
Selling, general and administrative 171,950 18.8% 136,937 17.5% 79,216 16.7%
Depreciation and amortization 21,292 2.3% 16,029 2.0% 9,037 1.9%
-------- ----- -------- ----- -------- -----
TOTAL OPERATING EXPENSES 193,242 21.1% 152,966 19.5% 88,253 18.6%
OPERATING INCOME 68,277 7.4% 66,248 8.5% 37,751 7.9%
INTEREST EXPENSE 16,447 1.8% 12,491 1.6% 6,951 1.5%
-------- ----- -------- ----- -------- -----
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 51,830 5.6% 53,757 6.9% 30,800 6.5%
PROVISION FOR INCOME TAXES 22,077 2.4% 22,740 2.9% 13,010 2.7%
-------- ----- -------- ----- -------- -----
INCOME FROM CONTINUING OPERATIONS 29,753 3.2% 31,017 4.0% 17,790 3.7%
-------- ----- --------
DISCONTINUED OPERATIONS:
Income from discontinued
operations, net of taxes -- N/A -- N/A 2,323 0.5%
Gain on disposal of discontinued
operations, net of taxes -- N/A -- N/A 89 0.0%
-------- ----- -------- ----- -------- -----
DISCONTINUED OPERATIONS, NET -- N/A -- N/A 2,412 0.5%
NET INCOME $ 29,753 3.2% $ 31,017 4.0% $ 20,202 4.2%
======== ===== ======== ===== ======== =====
</TABLE>
5
<PAGE> 7
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 2, 2000 VERSUS YEAR ENDED JANUARY 3, 1999
REVENUES
Total revenues increased 17.2% to $918.4 million in 1999 from $783.9
million in 1998. IT Services revenue grew 31.1% primarily as the result of
acquisitions that the Company completed in 1998 and internal growth of 8.1% in
1999. IT Services internal growth in 1999 was lower than in prior years, and
lower than the Company's expectations, primarily as the result of lower
utilization of IT services generally and the resulting billable headcount
reduction during the second half of 1999 related to the year 2000 phenomenon.
The Company expects these demand issues to continue through the first half of
2000. Commercial Staffing revenues in 1999 were slightly below 1998 due
primarily to the impact of certain non-recurring revenues in the second half of
1998 and the elimination of certain low margin Commercial Staffing business late
in that year. Same store sales declined 4.6% in 1999 over 1998.
DIRECT COSTS OF SERVICES AND GROSS PROFIT
Direct costs, consisting of payroll and related expenses of consultants
and temporary workers, increased 16.3% to $656.9 million in 1999. Gross profit
as a percentage of revenue increased 50 basis points to 28.5% from 28.0% during
1998. This increase in gross profit percentage reflected the Company's continued
expansion into the higher margin sectors of the information technology staffing
and consulting business and the continuing strength of its high margin permanent
placement business. IT Services revenues represented 64% of total revenues in
1999, up from 57% in 1998. Although pay rate increases in 1999 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 rate increases to its
customers in the future.
OPERATING EXPENSES
Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, increased 26.3% to $193.2
million in 1999 from $153.0 million in 1998. As a percentage of revenues,
selling, general and administrative expenses increased to 18.8% in 1999 from
17.5% in 1998. This increase was caused by continuing investments in management
personnel and management systems, the continuing business mix shift into
information technology services, and several acquisitions in 1998 of companies
that provided information technology and permanent placement services. Both of
these lines of business typically carry higher gross margins, as well as higher
selling, general and administrative expenses as a percentage of sales. In
addition, depreciation and amortization expense increased to 2.3% of revenues in
1999 from 2.0% in 1998 due to increased amortization expense resulting from the
acquisitions completed by the Company in 1998 and recent investments in
management information systems.
INTEREST EXPENSE
Interest expense increased to $16.4 million in 1999 from $12.5 million
in 1998 as the Company borrowed additional funds to finance its share repurchase
programs. See "Liquidity and Capital Resources."
6
<PAGE> 8
INCOME TAX EXPENSE
The effective tax rate increased to 42.6% in 1999 from 42.3% in 1998
primarily because nondeductible amortization expense related to acquisitions
increased during the year as a percentage of the Company's pretax income. The
Company's effective tax rate has historically been higher than the U.S. federal
statutory rate of 35% primarily due to state income taxes and nondeductible
amortization expense.
NET INCOME
Income from continuing operations decreased 4.1% to $29.8 million in
1999 (or 3.2% of revenue) from $31.0 million (4.0% of revenue) in 1998 due to
the factors discussed above.
YEAR ENDED JANUARY 3, 1999 VERSUS YEAR ENDED DECEMBER 28, 1997
REVENUES
Total revenues increased 64.8% to $783.9 million in 1998 from $475.6
million in 1997. IT Services revenue grew 78.4% as the Company continued its
aggressive acquisition program and experienced strong internal growth as same
store sales grew 20.9% in 1998 over 1997. Commercial Staffing revenues grew
49.8% as the result of the contribution of revenues from the commercial staffing
companies acquired by the Company in 1997 and 1998 and strong same store sales
growth. Commercial Staffing same store sales growth was approximately 11.3% in
1998 over 1997. High internal growth rates were due to the continued strong
demand for information technology services, a significant new project in
Commercial Staffing and the increasing acceptance by businesses and other
organizations of the use of a contingent workforce.
DIRECT COSTS OF SERVICES AND GROSS PROFIT
Direct costs, consisting of payroll and related expenses of consultants
and temporary workers, increased 61.5% to $564.7 million in 1998. Gross profit
as a percentage of revenue increased 150 basis points to 28.0% from 26.5% during
1997. This increase in gross profit as a percentage of revenue reflected the
Company's continued expansion into the higher margin information technology
staffing and consulting sectors and the acquisition of several companies that
provide high margin permanent placement services. IT Services revenues
represented 57% of total revenues in 1998, up from 53% in 1997. Pay rate
increases 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 73.3% to $153.0
million in 1998 from $88.3 million in 1997. As a percentage of revenues,
selling, general and administrative expenses increased to 17.5% in 1998 from
16.7% in 1997. This increase was caused by investments in management personnel
and management systems, the continued business mix shift into information
technology services, and several acquisitions of companies that provided
information technology and permanent placement services. Both of these lines of
business typically carry higher gross margins as well as higher selling, general
and administrative expenses as a percentage of sales. In addition, depreciation
and amortization expense increased to 2.0% of revenues in 1998 from 1.9% in 1997
due to increased amortization expense resulting from the acquisitions completed
by the Company.
INTEREST EXPENSE
Interest expense increased to $12.5 million in 1998 from $7.0 million
in 1997 as the Company continued to borrow funds to finance its acquisition
strategy. See "Liquidity and Capital Resources."
7
<PAGE> 9
INCOME TAX EXPENSE
The effective tax rate increased to 42.3% in 1998 from 42.2% in 1997.
This increase was due to additions in the amount of nondeductible amortization
expense related to acquisitions in relation to pretax income. The Company's
effective tax rate has historically been higher than the U.S. federal statutory
rate of 35% primarily due to state income taxes and nondeductible amortization
expense.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased 74.4% to $31.0 million in
1998 (or 4.0% of revenue) from $17.8 million (3.7% of revenue) in 1997 due to
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are from operations and borrowings
under the Credit Facility. The Company's principal uses of cash are to fund
working capital, capital expenditures and share repurchases under the Company's
share buyback programs. Prior to 1999, the Company had also used substantial
cash to fund its acquisition program. The Company's acquisition activity
declined substantially in 1999, however, and the use of cash for acquisitions
declined accordingly.
For 1999, cash provided by operating activities increased to $71.7 million
primarily as the result of reduced working capital needs associated with slower
growth during the year. As of January 2, 2000, receivables for IT Services and
Commercial Staffing remained outstanding an average of 55 and 46 days,
respectively, after billing. In the aggregate, days sales outstanding were 51
and 52 days at January 2, 2000 and January 3, 1999, respectively. Cash used for
investing activities decreased to $30.1 million in 1999 from $241.1 million in
1999 primarily as a result of the Company's decreased acquisition activity in
1999.
As of January 2, 2000, the Company was obligated to make certain
contingent earnout payments to former owners of acquired businesses. Earn-out
payments made during 1999 were approximately $32.0 million in the aggregate
(including $16.6 million in payments made on January 3, 2000). Earnout payments
based on earnings for periods ending after December 31, 1999 and beyond are
contingent on the future performance of such acquired businesses, and thus the
actual amount cannot be determined at this time. 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 $14.0 million to $22.0 million
in 2000 (excluding the January 3, 2000 payments). 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 began a project in 1998 to replace the financial and human
resource systems for its IT Services companies. Installation of these systems
for the remaining companies is expected to continue through the end of the year
2000. The Company expects to spend one to one and one-half percent of its 2000
revenues on management information systems and other capital expenditures not
directly related to acquisitions, including the project to replace the financial
and human resource systems discussed above. 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. As of February 29, 2000, over 45% of
the IT Services offices have been converted to this common system.
8
<PAGE> 10
The Credit Facility is a five-year, $200.0 million revolving line of
credit due June 2002. As of March 24, 2000, $152.0 million of borrowings were
outstanding under the Credit Facility and approximately $4.9 million had been
used for the issuance of undrawn letters of credit to secure the Company's
workers' compensation programs. At March 24, 2000, the amount available for
borrowing under the Credit Facility was approximately $43.1 million. The daily
weighted average interest rate under the Credit Facility was 6.2% during 1999.
The Company repurchased approximately 8.2 million shares of its Common
Stock in 1999 at an aggregate purchase price of $60.0 million. Share repurchases
made under these programs were made from time to time in accordance with
applicable securities regulations in open market or privately negotiated
transactions. All share repurchases in 1999 were financed with cash from
operations and borrowings under the Credit Facility and all repurchased shares
have been held in PGA's treasury and are available for resale and for general
corporate purposes. Between January 2, 2000 and March 24, 2000, the Company
repurchased an additional .8 million shares for an aggregate purchase price of
$5.7 million. As of March 24, 2000, the Company had authorization from its Board
of Directors to repurchase an additional $16.2 million of Common Stock.
The Company believes that cash flow from operations and borrowing capacity
under the Credit Facility will be adequate to meet its presently anticipated
needs for working capital, capital expenditures, and share repurchases. In the
event that significant acquisition activity resumed short-term, the Company
would likely be required to seek additional sources of capital, such as an
expansion of the Credit Facility or one or more offerings of additional debt or
equity securities of the Company. There can be no assurance, however, that other
alternative sources will be available on favorable terms.
YEAR 2000 COMPLIANCE
The Company uses software and related information technologies and systems
throughout its business that could be affected by the failure to correctly
interpret and process dates after 1999. Accordingly, the Company attempted to
identify and assess its areas of risk related to the year 2000 issue. The
Company experienced no disruptions to its business as the result of the change
to calendar year 2000 and believes, based on its experience and upon
representations from certain of its software vendors, that its key computer
systems and related software are substantially year 2000 compliant.
IT Services has performed work for clients to assist them in modifying
their computer systems and software to make them year 2000 compliant, although
this type of work did not represent a significant portion of IT Services'
services. Generally, this work is performed under the direction and supervision
of the client, and the Company seeks to limit its liability contractually.
Additionally, the Company maintains errors and omissions insurance to protect
against these risks. Although to date the Company is unaware of any claims from
its clients based on its work on year 2000 projects, there can be no assurance
that the Company will not incur liabilities or experience other problems in the
future related to the year 2000 issue or that any such liabilities or problems
will not be material
9
<PAGE> 11
ITEM 7A. MARKET RISK DISCLOSURES
The Company's outstanding debt under the Credit Facility at January 2,
2000, was $138.0 million. Interest on borrowings under the Credit Facility is
based on LIBOR plus a variable margin. Based on the outstanding balance at
January 2, 2000, a change of 1% in the interest rate would cause a change in
interest expense of approximately $1.4 million on an annual basis.
In June and July 1997, the Company issued $115.0 million of the Notes. The
fair value of the Notes at January 2, 2000 was $93.3 million as compared to the
carrying value of $115.0 million.
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, 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 wage inflation and other matters
discussed in this report and the Company's other filings with the Securities and
Exchange Commission.
10
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.:
In our opinion, the accompanying consolidated balance sheets 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. and subsidiaries (collectively, the "Company") at January
2, 2000 and January 3, 1999, and the results of their operations and their cash
flows for each of the three years in the period ended January 2, 2000, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, 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 our audits provide a reasonable basis for the
opinion expressed above.
Charlotte, North Carolina
February 2, 2000, except for Notes 11 and 18,
for which the date is March 10, 2000.
11
<PAGE> 13
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- JANUARY 2, 2000 AND JANUARY 3, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,752 $ 962
Accounts receivable, net of allowance for doubtful accounts of $2,690
and $2,031 in 1999 and 1998, respectively 125,968 129,761
Prepaid expenses and other current assets 5,690 6,967
Deferred income taxes 6,594 5,149
Notes receivable from sale of discontinued operation 885 885
--------- ---------
Total current assets 144,889 143,724
Property and equipment, net 25,776 20,290
Intangible assets, net 560,113 539,977
Other assets 4,572 4,899
--------- ---------
Total assets $ 735,350 $ 708,890
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 956 $ 9,150
Accounts payable 8,535 5,310
Accrued liabilities 47,859 42,604
Income taxes payable 752 2,509
--------- ---------
Total current liabilities 58,102 59,573
Long-term debt 253,395 226,256
Other long-term liabilities 54,010 28,431
--------- ---------
Total liabilities 365,507 314,260
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;
33,065 and 32,929 shares issued and outstanding in 1999
and 1998, respectively 331 329
Additional paid-in capital 330,237 329,383
Retained earnings 94,836 65,083
Deferred compensation (61) (165)
--------- ---------
Less common stock held in treasury at cost - 425,343 394,630
7,587 shares at January 2, 2000 (55,500) --
--------- ---------
Total shareholders' equity 369,843 394,630
--------- ---------
Total liabilities and shareholders' equity $ 735,350 $ 708,890
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
12
<PAGE> 14
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999
AND DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES $918,437 $783,925 $475,620
DIRECT COSTS OF SERVICES 656,918 564,711 349,616
-------- -------- --------
GROSS PROFIT 261,519 219,214 126,004
OPERATING EXPENSES:
Selling, general and administrative 171,950 136,937 79,216
Depreciation and amortization 21,292 16,029 9,037
-------- -------- --------
TOTAL OPERATING EXPENSES 193,242 152,966 88,253
OPERATING INCOME 68,277 66,248 37,751
INTEREST EXPENSE 16,447 12,491 6,951
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 51,830 53,757 30,800
PROVISION FOR INCOME TAXES 22,077 22,740 13,010
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 29,753 31,017 17,790
-------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of taxes -- -- 2,323
Gain on disposal of discontinued operations, net of taxes -- -- 89
-------- -------- --------
Discontinued operations, net of taxes -- -- 2,412
-------- -------- --------
NET INCOME $ 29,753 $ 31,017 $ 20,202
======== ======== ========
NET INCOME PER BASIC SHARE:
Income from continuing operations $ 1.07 $ 1.05 $ 0.74
Income from discontinued operations, net of taxes -- -- 0.10
-------- -------- --------
NET INCOME PER BASIC SHARE $ 1.07 $ 1.05 $ 0.83
======== ======== ========
NET INCOME PER DILUTED SHARE:
Income from continuing operations $ 0.99 $ 0.96 $ 0.71
Income from discontinued operations, net of taxes -- -- 0.09
-------- -------- --------
NET INCOME PER DILUTED SHARE $ 0.99 $ 0.96 $ 0.80
======== ======== ========
WEIGHTED BASIC AVERAGE SHARES OUTSTANDING 27,680 29,600 24,204
WEIGHTED DILUTED AVERAGE SHARES OUTSTANDING 34,299 36,752 28,078
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 15
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999
AND DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON STOCK TOTAL
--------------- PAID-IN RETAINED DEFERRED HELD IN SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TREASURY EQUITY
------ ------- ---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
------ ------- -------- -------- --------- -------- --------
Issuance of common stock 7,000 70 133,230 -- -- -- 133,300
Stock issued for acquisitions 1,368 14 22,160 -- -- -- 22,174
Stock issued for employee stock purchase
plan and exercises of stock options 283 3 2,955 -- -- -- 2,958
Amortization of deferred compensation -- -- -- -- 105 -- 105
Net income -- -- -- 31,017 -- -- 31,017
------ ------- -------- -------- --------- -------- --------
BALANCE, January 3, 1999 32,929 $ 329 $329,383 $ 65,083 $ (165) $ -- $394,630
------ ------- -------- -------- --------- -------- --------
Stock issued for acquisitions 24 -- 605 -- -- 539 1,144
Repurchase of common stock -- -- -- -- -- (60,025) (60,025)
Stock issued for employee stock purchase
plan and exercises of stock options 112 2 249 -- -- 3,986 4,237
Amortization of deferred compensation -- -- -- -- 104 -- 104
Net income -- -- -- 29,753 -- -- 29,753
------ ------- -------- -------- --------- -------- --------
BALANCE, January 2, 2000 33,065 $ 331 $330,237 $ 94,836 $ (61) $(55,500) $369,843
====== ======= ======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 16
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999
AND DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 29,753 $ 31,017 $ 17,790
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 21,292 16,029 9,037
Deferred income taxes, net 8,105 5,822 3,083
Changes in assets and liabilities:
Accounts receivable 5,019 (21,248) (14,684)
Prepaid assets and other, net 1,468 (2,597) (430)
Accounts payable and accrued liabilities 7,833 (297) 9,238
Income taxes payable (1,763) 216 (597)
--------- --------- ---------
Net cash provided by operating activities 71,707 28,942 23,437
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired (18,715) (259,057) (115,663)
Net cash provided by discontinued operations -- 28,012 29,812
Purchase of property and equipment, net (11,368) (10,028) (5,162)
--------- --------- ---------
Net cash used in investing activities (30,083) (241,073) (91,013)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 133,300 --
Proceeds from convertible subordinated notes issuance, net -- -- 111,750
Repayments under credit facility (59,500) (222,450) (190,632)
Borrowings under credit facility 87,500 308,450 147,307
Repurchases of common stock (59,971) -- --
Proceeds from employee stock purchase plan and stock
option exercises 4,237 3,066 1,617
Repayments of seller notes and acquired indebtedness (9,100) (9,915) (6,935)
--------- --------- ---------
Net cash provided by (used in) financing activities (36,834) 212,451 63,107
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 4,790 320 (4,469)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 962 642 5,111
========= ========= =========
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,752 $ 962 $ 642
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for--
Income taxes $ 15,241 $ 17,523 $ 10,888
Interest $ 12,673 $ 11,969 $ 5,042
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Accrued acquisition related earnout payments $ 27,445 $ 13,392 $ 41,084
Accrued repurchases of common stock $ 54 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 17
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND NATURE OF OPERATIONS:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Personnel
Group of America, Inc. and its subsidiaries (collectively, the "Company"). All
significant intercompany transactions have been eliminated.
The Company's fiscal years ended January 2, 2000, January 3, 1999 and
December 28, 1997 are referred to in these financial statements as years 1999,
1998 and 1997, respectively.
NATURE OF OPERATIONS
The Company is organized into two Divisions: the Information Technology
Services Division ("IT Services"), which provides information technology
staffing and consulting services in a range of computer-related disciplines, and
the Commercial Staffing Services Division ("Commercial Staffing"), which
provides a variety of temporary office, clerical, accounting and finance, light
technical and light industrial staffing services. All of the IT Services and
Commercial Staffing branch offices are Company owned.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
The Company recognizes revenue at the time its 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). Computer software costs consist of costs to purchase and develop
software. The Company capitalizes internally developed software costs based on a
project-by-project analysis of each project's significance to the Company and
its estimated useful life. The majority of capitalized software costs are
depreciated on a straight-line basis over a period of six years. In 1999, the
Company implemented Statement of Position (SOP) 98-1, "Accounting For the Costs
of Computer Software Developed For or Obtained For Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. In 1999, the Company made
certain changes in its capitalization policy to conform to SOP 98-1, the impact
of which was not material to its results of operations or financial position.
Leasehold improvements are stated at cost and amortized over the shorter of the
lease term or the useful life of the improvements.
16
<PAGE> 18
INTANGIBLE ASSETS
The Company's businesses have been acquired from unrelated third
parties for cash and other consideration. Excess of cost over fair value of net
assets acquired resulting from such acquisitions has been recorded at historical
cost and is being amortized on a straight-line basis over 40 years. Other
intangible assets consist mainly of covenants not to compete. Total intangible
assets and accumulated amortization of intangible assets were $598,803 and
$38,690 at January 2, 2000, respectively, and $563,309 and $23,332 at January 3,
1999, respectively. Amortization expense for 1999, 1998 and 1997 was $15,358,
$11,986 and $6,494, respectively.
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 excess of cost over fair
value of net assets acquired and other intangibles to be fully recovered.
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."
SEGMENT REPORTING
Segment reporting is based upon a management approach which designates the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable segments.
The Company uses two reportable segments: IT Services and Commercial Staffing.
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 estimates include 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 management's estimates.
3. ACQUISITIONS
During 1998, the Company acquired 10 IT Services companies and five
Commercial Staffing companies. These acquisitions are collectively referred to
hereinafter as the "Transactions" and the acquired businesses are collectively
referred to hereinafter as the "Acquired Companies." The Acquired Companies had
combined annual revenues of approximately $259,500 in 1998 and $280,201 in 1999.
The Company paid approximately $220,000 in cash, and issued common stock
valued at $22,174 as of the acquisition date, to close the Transactions (which
included direct acquisition costs but excluded contingent earnout payments
associated with certain of the Transactions). Certain of the Company's
acquisitions (including a number of the Transactions) provided for additional
purchase price consideration upon attainment of certain specified targets for
various periods after closing of the acquisition. The Company paid $32,048
(including two payments made on January 3, 2000) and $35,985 in contingent
consideration in 1999 and 1998, respectively. As of January 2, 2000, the Company
also had accrued $11,591 (excluding the January 3, 2000, payments) for the
payment of
17
<PAGE> 19
additional contingent consideration in 2000, based on 1999 earnings. Earnout
payments for periods ending after December 31, 1999 and beyond are contingent on
the future performance of such acquired businesses and thus the actual amount
cannot be determined at this time. All consideration is recorded as additional
purchase price when earned and increases the amount of excess of cost over fair
value of net assets acquired.
All of the Company's acquisitions (including 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 all 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 with respect to an
acquisition may result in adjustments to the amounts previously recorded as
excess of cost over fair market value of net assets acquired. The excess of cost
over the estimated fair value of the net assets acquired is amortized on a
straight-line basis over 40 years.
The following table presents the Company's pro forma consolidated results
of operations for 1998, as if each of the Transactions had occurred on December
28, 1997:
1998
--------
Revenues $889,016
Net income from continuing operations 33,548
Net income per diluted share $ 1.01
========
Diluted weighted average shares outstanding 37,348
========
During 1999, three of the Company's operating units acquired certain
assets to enhance their existing businesses. The aggregate purchase price for
these assets was approximately $4,743 (excluding contingent earnout payments).
The impact on revenues and net income from these transactions was not
significant.
4. DISCONTINUED OPERATIONS:
On December 26, 1997, the Company completed the sale of its Healthcare
Division for $65,250. The assets, liabilities, results of operations and cash
flows of the Healthcare Division were segregated and reported as discontinued
operations for all periods presented, and previously reported results were
restated. The sale of the Healthcare Division resulted in a gain of $89.
During 1997, the Company allocated $2,217 of interest expense to the
discontinued operation based on the ratio of net assets of the discontinued
operation to the total net assets of the consolidated Company. No other
corporate overhead expenses were allocated to the discontinued operation.
Summary operating results of the discontinued operation in 1997 were as follows:
1997
--------
Revenues $133,442
Total expenses 129,438
--------
Income before income taxes 4,004
Provision for income taxes 1,681
--------
Net income $ 2,323
========
18
<PAGE> 20
5. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following at January 2, 2000 and
January 3, 1999:
1999 1998
--------- ---------
Trade accounts receivable $ 128,658 $ 131,792
Less - Allowance for doubtful accounts (2,690) (2,031)
--------- ---------
$ 125,968 $ 129,761
========= =========
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>
January 2, 2000 $ 2,031 $ 5,536 $ (4,877) $2,690
January 3, 1999 1,063 3,261 (2,293) 2,031
December 28, 1997 519 1,138 (594) 1,063
</TABLE>
6. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consisted of the following at January 2,
2000 and January 3, 1999:
1999 1998
-------- --------
Software and computer equipment $ 29,916 $ 20,943
Furniture and other equipment 6,463 5,777
Leasehold improvements 2,725 1,680
-------- --------
39,104 28,400
Less - Accumulated depreciation (13,328) (8,110)
-------- --------
$ 25,776 $ 20,290
======== ========
7. LONG-TERM DEBT:
Long-term debt at January 2, 2000 and January 3, 1999 was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
5-3/4% Convertible Subordinated Notes due July 2004 $115,000 $115,000
$200,000 revolving credit facility due June 2002 138,000 110,000
Notes payable to sellers of acquired companies and other 1,351 10,406
-------- --------
254,351 235,406
Less current portion 956 9,150
-------- --------
$253,395 $226,256
======== ========
</TABLE>
The Company's 5-3/4% Convertible Subordinated Notes are due July 2004 (the
"Notes"). Interest on the Notes is payable semi-annually. 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
19
<PAGE> 21
interest. The Notes are subordinated to all present and future senior
indebtedness of the Company (as defined), including indebtedness under the
Company's $200,000 revolving credit facility (the "Credit Facility").
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 collateralized 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 common stock. The Credit
Facility also limits borrowing availability for acquisition-related purposes.
During 1999, the maximum aggregate outstanding borrowing under the
Credit Facility was $157,000 and the average outstanding balance during the year
was $135,900. In addition, approximately $5,500 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 6.2% during 1999. The weighted average interest rate of
the Company's borrowings under the Credit Facility was 7.2% at January 2, 2000.
At January 2, 2000, the amount available for borrowing under the Credit Facility
was approximately $56,500.
Scheduled maturities of long-term debt at January 2, 2000 were as
follows:
2000 $ 956
2001 395
2002 138,000
2003 --
2004 115,000
--------
$254,351
========
20
<PAGE> 22
8. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at January 2, 2000 and
January 3, 1999:
1999 1998
------- -------
Accrued wages and benefits $34,194 $34,621
Accrued interest 5,289 460
Accrued workers' compensation benefits 2,664 1,700
Other 5,712 5,823
------- -------
$47,859 $42,604
======= =======
9. OTHER LONG-TERM LIABILITIES:
Other long-term liabilities consisted of the following at January 2,
2000 and January 3, 1999:
1999 1998
------- -------
Amounts due sellers of acquired businesses $28,195 $12,709
Deferred tax liabilities 21,476 11,926
Workers' compensation reserves and other 4,339 3,796
------- -------
$54,010 $28,431
======= =======
10. 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
$3,329, $1,989 and $523 in 1999, 1998 and 1997, respectively.
The Company does not provide postretirement health care and life
insurance benefits to retired employees or postemployment benefits to terminated
employees.
During 1999, the Company established a Supplemental Employee Retirement
Plan ("SERP") for its Chief Executive Officer. The benefit payable under the
SERP is dependent upon years of service. As of January 2, 2000, the Company had
accrued approximately $855 for this Plan.
11. CAPITAL STOCK AND STOCK OPTIONS:
The Company repurchased 8,202,500 shares of its Common Stock at an
aggregate purchase price of $60,025 in 1999 under two separate repurchase
programs. Share repurchases under these programs were made from time to time in
accordance with applicable securities regulations in open market or privately
negotiated transactions. All share repurchases in 1999 were financed with cash
from operations and borrowings under the Credit Facility, and all repurchased
shares have been held in the Company's treasury and are available for resale and
for general corporate purposes. Between January 2, 2000 and March 10, 2000, the
Company repurchased an additional 340,000 shares at an aggregate purchase price
of $2,760. As of March 10, 2000, the Company had authorization from its Board of
Directors to repurchase an additional $19,158 of Common Stock.
21
<PAGE> 23
In May 1998, the Company completed an offering of 7,000,000 shares of
Common Stock. The net proceeds from this offering of $133,300 were used to repay
indebtedness under the Credit Facility (see Note 7).
In March 1998, the Board of Directors authorized a two-for-one split of
Common Stock, which was effected in the form of a 100% stock dividend paid to
shareholders of record on March 16, 1998. The par value remained at $0.01 per
share. The split has been reflected in shareholders' equity 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.
The Company's Board of Directors adopted the 1997 Employee Stock
Purchase Plan (The "Stock Purchase Plan") for the purpose of encouraging
employee participation in the ownership of the Company. Under the Stock Purchase
Plan, employees may elect to have payroll deductions made to purchase the stock
at a discount. At the end of each quarterly purchase period, each participant's
payroll deductions are used to acquire Common Stock of the Company at a price
equal to 85% of the market value on either the first or last day of the
quarterly purchase period, whichever is lower. During 1999 and 1998, 542,280 and
234,889 shares, respectively, of Common Stock were issued under the Stock
Purchase Plan. An additional 222,831 shares were reserved for issuance under the
Stock Purchase Plan at January 2, 2000.
In 1997, the Company issued each outside member of the Board of
Directors at the time a deferred share grant of 2,500 shares of Common Stock,
for a total of 10,000 shares. These grants vest ratably over a three-year
period, and will be fully vested in 2000. The non-vested portion of each
deferred share grant is included as deferred compensation on the Company's
Statements of Shareholders' Equity.
The Company's Board of Directors adopted its 1995 Equity Participation
Plan (the "Stock Option Plan") to attract and retain officers, key employees,
consultants and directors. The Stock Option Plan has reserved for issuance 15%
of the Common Stock issued and outstanding, as defined, from time to time. The
Stock Option Plan allows for the issuance of options, stock appreciation rights,
restricted or deferred stock awards and other awards. Incentive stock options
may be granted only to employees and, when granted, have an exercise price equal
to at least 100% of fair market value of common stock on the grant date and a
term not longer than 10 years. As of January 2, 2000, 1,314,588 shares were
reserved for issuance under the stock option plan.
In addition, nonemployee directors (including the directors who
administer the Stock Option Plan) are eligible to receive nondiscretionary
grants of nonqualified stock options ("NQSOs") under the Stock Option Plan
pursuant to a formula specified in the Plan. 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.
22
<PAGE> 24
A summary of stock option activity follows:
WEIGHTED
SHARES AVERAGE
UNDER PRICE
OPTION PER SHARE
--------- ---------
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
========= ======
Granted in 1998 1,181,416 13.74
Exercised 128,448 7.64
Canceled 125,235 14.60
--------- ------
Outstanding, January 3, 1999 3,123,285 $12.87
========= ======
Granted in 1999 563,667 6.91
Exercised 34,157 10.54
Canceled 177,490 13.87
--------- ------
Outstanding, January 2, 2000 3,475,305 $11.88
========= ======
Exercisable, December 28, 1997 870,982 $ 9.98
========= ======
Exercisable, January 3, 1999 1,382,873 $12.09
========= ======
Exercisable, January 2, 2000 1,961,394 $12.25
========= ======
The following table summarizes options outstanding and options
exercisable as of January 2, 2000, and the related weighted average remaining
contractual life (years) and weighted average exercise price:
OPTIONS OUTSTANDING
Weighted
Average Weighted
Number Remaining Average
Range of exercise prices Outstanding Contractual Life Exercise Price
- ------------------------ ----------- ---------------- --------------
$5.31 - $8.00 841,829 7.6 $ 6.22
$8.01 - $12.00 523,998 7.9 10.97
$12.01 - $18.00 1,785,403 7.9 13.50
$18.01 - $23.08 324,075 8.0 19.13
--------- ------ ------
3,475,305 7.8 $11.88
========= ====== ======
23
<PAGE> 25
OPTIONS EXERCISABLE
Weighted
Number Average
Range of exercise prices Exercisable Exercise Price
- ------------------------ ----------- --------------
$5.31 - $8.00 457,104 $ 6.97
$8.01 - $12.00 368,698 11.51
$12.01 - $18.00 949,869 13.70
$18.01 - $23.08 185,723 19.25
--------- ------
1,961,394 $12.25
========= ======
The weighted average fair value at date of grant for options granted
during 1999, 1998 and 1997 was $7.09, $13.73, and $15.50 per option,
respectively.
Pursuant to the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," the following disclosures are presented to reflect
the Company's pro forma net income for 1999, 1998 and 1997 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 stock options granted
using the Black-Scholes model, as discussed in SFAS 123, and based on the
following weighted average assumptions used for grants:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.8% 5.3% 6.1%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life 5 years 5 years 5 years
Expected volatility 56.1% 40.0% 40.4%
The fair value of the stock options granted and Stock Purchase Plan
issuances in 1999, 1998 and 1997 was approximately $3,652, $8,268 and $5,976,
respectively. Had compensation expense been determined consistent with SFAS 123,
utilizing the assumptions set forth 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $ 29,753 $ 31,017 $ 20,202
Net income per diluted share, as reported 0.99 0.96 0.80
========== ========== ==========
Pro forma net income 26,140 28,209 18,720
Pro forma net income per diluted share $ 0.89 $ 0.88 $ 0.75
========== ========== ==========
</TABLE>
On February 6, 1996, the Company declared a dividend of one nonvoting
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. This 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 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
24
<PAGE> 26
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 prior to a
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.
12. INCOME TAXES:
The provision for income taxes for 1999, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current provision
Federal $11,191 $13,324 $ 8,863
State 2,781 2,902 2,183
------- ------- -------
Total current provision 13,972 16,226 11,046
Deferred provision
Federal 6,492 5,349 1,576
State 1,613 1,165 388
------- ------- -------
Total deferred provision 8,105 6,514 1,964
Total $22,077 $22,740 $13,010
======= ======= =======
</TABLE>
The reconciliation of the effective tax rate is as follows:
1999 1998 1997
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.8 4.9 5.4
Effect of nondeductible amortization and other 2.8 2.4 1.8
---- ---- ----
Total 42.6% 42.3% 42.2%
==== ==== ====
The components of the Company's net deferred tax assets and liabilities
were as follows at January 2, 2000, and January 3, 1999:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax liability -
Excess of cost over fair value of net assets acquired $17,417 $ 9,300
Excess tax over book depreciation of fixed assets 3,476 1,847
Other deferred tax liabilities 583 779
------- -------
21,476 11,926
------- -------
Deferred tax assets-
Accrued workers' compensation and other 2,149 2,203
Allowance for doubtful accounts 762 753
Accrued benefits 976 1,292
Other 2,707 901
------- -------
6,594 5,149
------- -------
Net deferred tax liability $14,882 $ 6,777
======= =======
</TABLE>
25
<PAGE> 27
13. NET INCOME PER SHARE
The computation of basic net income per share was based on the weighted
average number of shares of Common Stock outstanding. The computation of diluted
net income per share was based on the weighted average shares of Common Stock
and Common Stock equivalents outstanding and also assumed the conversion of the
Company's Notes.
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 1999, 1998 and 1997 (share amounts in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $29,753 $31,017 $20,202
======= ======= =======
Weighted average common shares outstanding 27,680 29,600 24,204
Basic earnings per share $ 1.07 $ 1.05 $ 0.83
======= ======= =======
DILUTED EARNINGS PER SHARE
Net income $29,753 $31,017 $20,202
Add: Interest expense on Convertible Notes, net of tax 4,257 4,257 2,217
------- ------- -------
Diluted net income $34,010 $35,274 $22,419
Weighted average common shares outstanding 27,680 29,600 24,204
Add: Dilutive employee stock options 163 695 502
Add: Assumed conversion of Convertible Notes 6,456 6,456 3,372
------- ------- -------
Diluted weighted average common shares outstanding 34,299 36,752 28,078
Diluted earnings per share $ 0.99 $ 0.96 $ 0.80
======= ======= =======
</TABLE>
Stock options to purchase 2,519,976, 378,400 and 537,900 shares of Common Stock
were outstanding for 1999, 1998 and 1997, respectively, but were excluded from
the computation of net income per diluted share because their effect was
antidilutive.
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 approximated the book value
at January 2, 2000, due to the short-term nature of these instruments. The fair
value of the Company's borrowings under the Credit Facility and other long-term
debt approximated the book value at January 2, 2000, because of the variable
rate associated with the borrowings. The Notes had a fair value of $93,294 and
$133,009 at January 2, 2000, and January 3, 1999, respectively, 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,
26
<PAGE> 28
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:
2000 $9,950
2001 8,259
2002 6,410
2003 4,727
2004 3,241
Thereafter 5,788
-------
$38,375
=======
Total rent expense under operating leases amounted to $10,257, $7,397
and $4,078 for 1999, 1998 and 1997, 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 January 2, 2000, 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 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.
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
Pursuant to the Company's agreement to sell its healthcare division in
1997, the Company agreed to indemnify the Purchaser against certain expenses or
losses incurred by the Purchaser. Management believes that future claims made by
the Purchaser will not have a material impact on the Company's financial
position or results of operations.
27
<PAGE> 29
16. SEGMENT INFORMATION:
The Company is organized in two segments: the Information Technology
Services Division and the Commercial Staffing Services Division. IT Services
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. Because
of the Company's substantial intangible assets, management does not consider
total assets by segment an important management tool and, accordingly, the
Company does not report this information separately. The table below presents
segment information for IT Services and Commercial Staffing for 1999, 1998 and
1997:
OPERATING RESULTS
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total revenues
IT Services $584,032 $445,485 $249,749
Commercial Staffing 334,405 338,440 225,871
-------- -------- --------
Total revenues 918,437 783,925 475,620
Operating Income
IT Services 66,329 51,581 29,787
Commercial Staffing 31,557 33,573 19,667
-------- -------- --------
Total operating income 97,886 85,154 49,454
Corporate expenses 14,251 6,920 5,209
Amortization of intangible assets 15,358 11,986 6,494
Interest expense 16,447 12,491 6,951
-------- -------- --------
Income before income taxes $ 51,830 $ 53,757 $ 30,800
======== ======== ========
OTHER FINANCIAL INFORMATION
Accounts receivable, net
IT Services $ 81,990 $ 84,999 $ 44,860
Commercial Staffing 43,602 44,226 33,009
Corporate 376 536 --
-------- -------- --------
Total accounts receivable, net $125,968 $129,761 $ 77,869
======== ======== ========
</TABLE>
28
<PAGE> 30
17. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following table sets forth quarterly financial information for each
quarter in 1999 and 1998:
<TABLE>
<CAPTION>
1999
--------------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $229,638 $234,826 $233,215 $220,758
Operating income 16,031 18,533 17,952 15,761
Net income 7,133 8,201 8,020 6,399
Diluted net income per share $ 0.21 $ 0.28 $ 0.28 $ 0.23
======== ======== ======== ========
1998
--------------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $154,837 $190,291 $211,807 $226,990
Operating income 11,607 15,821 18,784 20,038
Net income 5,262 6,920 9,238 9,597
Diluted net income per share $ 0.20 $ 0.23 $ 0.26 $ 0.27
======== ======== ======== ========
</TABLE>
18. SUBSEQUENT EVENTS
In connection with the retirement of the Company's Chief Executive
Officer in February 2000, the Company has agreed to provide certain severance,
retirement and other benefits to such officer. The total pre-tax cost to the
Company of this arrangement (reduced by amounts that the Company had previously
accrued for retirement benefits for this officer) will be approximately $1.5
million and will be recorded in the first quarter of 2000.
29
<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 Staffing, Fox Staffing Resources,
FirstWord Staffing Services, Franklin-Pierce
Temporaries, Integrity Technical Services, Profile
Temporaries, Scott-Wayne Staffing, Scott- Wayne
Temporaries, Sloan Staffing Services, Temp Connection,
The Temporary Connection, TempWorld, West Personnel
and Word Processing Personnel Services
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 Staffing
Gentry, Inc. California Gentry
IMS Consulting, Inc. North Carolina IMS Consulting
InfoTech Services, Inc. North Carolina InfoStaff (Utah and California), BEST Consulting,
Broughton Systems, Careers, DRACS/SSC, Computer
Resources Group, Command Technologies, IMA Plus,
Keiter Stephens Computer Services, Trilogy Consulting
and Vital Computer Services
InfoTech Contract Services, Inc. Massachusetts InfoTech Contract Services
Lloyd-Ritter Consulting, Inc. California Lloyd Ritter Consulting
BAL Associates, Inc. California BAL Associates
Advanced Business Consultants, Inc. Missouri Advanced Business Consultants
PALADIN Consulting, Inc. Texas PALADIN Consulting
RealTime Consulting, Inc. Texas RealTime Consulting
</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 (which was completed in December
1997). Upon approval by the New York Department of Health, the stock of NF
Services, Inc. will be transferred to Nursefinders' buyer.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 333-19541 and 333-39361) and Form S-3 (File No.
333-31863) of Personnel Group of America, Inc. of our report dated February 2,
2000, except for Note 11 and Note 18, for which the date is March 10, 2000,
relating to the financial statements, which appears in the Annual Report to
Shareholders, which is included as Exhibit 13.1 in this annual report on Form
10-K.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 29, 2000
<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 JANUARY 2, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 5,752
<SECURITIES> 0
<RECEIVABLES> 128,658
<ALLOWANCES> (2,690)
<INVENTORY> 0
<CURRENT-ASSETS> 144,889
<PP&E> 39,104
<DEPRECIATION> (13,328)
<TOTAL-ASSETS> 735,350
<CURRENT-LIABILITIES> 58,102
<BONDS> 253,395
0
0
<COMMON> 331
<OTHER-SE> 369,512
<TOTAL-LIABILITY-AND-EQUITY> 735,350
<SALES> 918,437
<TOTAL-REVENUES> 918,437
<CGS> 656,918
<TOTAL-COSTS> 828,868
<OTHER-EXPENSES> 21,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,447
<INCOME-PRETAX> 51,830
<INCOME-TAX> 22,077
<INCOME-CONTINUING> 29,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,753
<EPS-BASIC> 1.07
<EPS-DILUTED> 0.99
</TABLE>
