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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the twelve months ended December 31, 1999
Commission file number: 0-23198
INTERIM SERVICES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3536544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2050 SPECTRUM BOULEVARD, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip code)
(954) 938-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK--$.01 PAR VALUE New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of the Registrant's
Common Stock as of January 28, 2000 on the New York Stock Exchange, was
$1,402,132,887.
Number of shares of Registrant's Common Stock, par value $.01 per share
("Common Stock"), outstanding on January 28, 2000 was 63,791,861.
Documents Incorporated by Reference:
Certain specified portions of the registrant's definitive proxy statement to
be filed within 120 days after December 31, 1999, are incorporated herein by
reference in response to Part III, Items 10 through 13, inclusive.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Interim Services Inc. ("Interim") is a $4 billion worldwide human capital
management company. It maximizes talent, processes and technology for client
organizations seeking increased efficiency. Solutions are delivered through a
global network of more than 1,000 offices across 13 distinct areas of
specialization. These include information technology, outsourcing, professional
recruiting, outplacement, talent assessment and measurement and staffing
solutions. Interim's former HealthCare Division ("HealthCare") was sold
effective September 26, 1997.
Interim operates in 12 countries: Australia, Canada, France, Germany, Hong
Kong, Italy, New Zealand, Singapore, Spain, The Netherlands, the United Kingdom
and the United States. Interim is organized into three operating segments based
upon geographic location, North America, Europe and Australia/Asia. These
operating segments generally follow the management organization structure of
Interim and also represent, in the opinion of management, the most meaningful
aggregation of Interim's multiple operating units throughout the world. This
aggregation is based upon geographic similarities including market growth rates,
foreign currency exposure and local laws and regulations. In most of these
operating segments Interim's five services, consulting, managed staffing,
outsourcing, search/recruitment and flexible staffing, are provided. Operating
segment and services financial information appears in Management's Discussion
and Analysis and the notes to the consolidated financial statements included
herein.
On July 2, 1999, Interim completed its acquisition of Norrell Corporation
("Norrell"). Under the terms of the acquisition, the shareholders of Norrell
received in exchange for each share of Norrell's common stock either a 0.9 share
of Interim's common stock or a cash payment of $18.76. The holders of
approximately 13% of Norrell's common stock elected to receive the cash payment
which amounted to approximately $75.6 million. Accordingly, Interim issued
approximately 20.8 million shares of Interim's common stock to former Norrell
shareholders and converted existing options to purchase Norrell common stock
into options to purchase approximately 1.6 million shares of Interim common
stock. The value of the transaction including stock issued, cash paid and debt
assumed, was approximately $650.0 million. Norrell is a strategic workforce
management company focusing on information technology consulting, flexible
staffing (including accounting, administrative and light industrial),
outsourcing, search/recruitment (accounting and administrative) and managed
staffing (administrative and light industrial). Operations of Norrell were
combined with Interim's existing operating segments effective with the
completion of the acquisition.
Since its January 1994 initial public offering ("IPO"), excluding
HealthCare, Interim's network of offices has more than tripled from 373 in North
America to 1,244 offices in 12 countries as of December 31, 1999. Interim's
revenues, excluding HealthCare, increased from $537.3 million in fiscal 1994 to
$3.2 billion in fiscal 1999. This growth has been accomplished through strategic
acquisitions, internal growth and by capitalizing on cross-selling
opportunities. During this period, Interim acquired 30 businesses with 658
offices, representing over $2.1 billion in annualized revenues for the year
ended prior to acquisition, including one business acquired in 1994, five
businesses acquired in 1995, three businesses in 1996, four businesses in 1997,
thirteen businesses in 1998 and four businesses in 1999. The most significant
recent acquisitions were Norrell in 1999, Computer Power Group Limited
("Computer Power" rebranded Interim Technology Consulting-Asia Pacific) and
Crone Corkill Group PLC ("Crone Corkill" also known as Interim Services--United
Kingdom) in 1998 and Michael Page Group PLC ("Michael Page") and Aim Executive
Holdings, Inc. ("Aim" rebranded Interim Career Consulting and Interim Executive
Recruiting) in 1997. The Computer Power acquisition expanded Interim's
technology consulting and flexible staffing into Australia and Southeast Asia.
The Crone Corkill acquisition expanded Interim's flexible staffing and
search/recruitment of high-end secretarial and administrative personnel in the
United Kingdom. Michael
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Page is a premier international recruiting and staffing company specializing in
accounting, banking and finance and sales and marketing. Michael Page's 67
offices are located in the United Kingdom, Australia, France, Germany, Hong
Kong, Italy, New Zealand, Singapore, Spain, The Netherlands and the United
States. The Aim acquisition broadened Interim's service offerings to include
outplacement and other career consulting services. Additionally, several smaller
strategic acquisitions were made during 1998 to expand Aim's geographic markets
and service offerings.
INDUSTRY OVERVIEW
The global staffing services industry has experienced significant growth in
response to the changing work environment worldwide. According to published
industry sources, the total staffing services market had revenues of
approximately $132.5 billion in 1998 (the latest available data). The staffing
industry is evolving from employers' traditional use of staffing services to
manage personnel costs and meet fluctuating staffing requirements to the
reduction of administrative overhead by outsourcing human resources operations
that are not part of an employer's core business competencies. The use of
staffing services has allowed employers to improve productivity, to outsource
specialized skills and to avoid the negative effects of layoffs. Rapidly
changing regulations concerning employee benefits, insurance and retirement
plans, as well as the high cost of hiring, laying off and terminating permanent
employees, has also prompted many employers to take advantage of the flexibility
offered through temporary and contract staffing arrangements. In addition to the
economic conditions driving staffing industry growth, Interim believes that
changing demographics of the workforces of developed economies and evolving
attitudes concerning work patterns also contribute to growth in the staffing
industry. These trends have accelerated with the pace of technological change
and greater global competitive pressures.
The U.S. remains the largest and most developed staffing services market in
the world. According to the Staffing Industry Report, U.S. staffing industry
revenue, including flexible staffing, managed staffing, outsourcing,
search/recruitment and outplacement, grew from approximately $29.3 billion in
1992 to an estimated $87.1 billion in 1999, representing a compound annual
growth rate of 16.8%. The National Association of Temporary and Staffing
Services has estimated that more than 90% of all U.S. businesses utilize
staffing services. Also, the U.S. Bureau of Labor Statistics has stated that
penetration of the U.S. workforce by temporary and contract workers has
increased from approximately 0.4% in 1982 to approximately 2.3% in 1998. One of
the fastest growing sectors for the staffing services industry, as well as for
Interim, has been information technology. For 1999, Interim's Technology
Consulting business grew 15% organically in spite of Year 2000 uncertainties and
a freeze on non-Year 2000 technology spending in many companies. According to
Staffing Industry Report, 1999 revenue for this sector in the U.S. is estimated
to be $22.6 billion, representing a compound annual growth rate of 23.7% since
1992. In addition, flexible staffing services revenue in the areas of
accounting, finance and legal, is estimated to have grown from $1.8 billion in
1992 to $9.7 billion in 1999, representing a compound annual growth rate of
27.2%. Interim believes that its unique mix of services in the U.S. positions it
to continue experiencing higher revenue growth rates than those companies that
provide primarily traditional flexible staffing.
The U.K. is the second largest national staffing services market in the
world. Staffing revenues in the U.K. grew an estimated 53% in 1998 to
$26.0 billion. Published industry sources estimate the U.K.'s penetration rate
of temporary workers at 2.0%, compared with the U.S. (2.3%) and The Netherlands
(4.0%). Demographic indicators produced by the U.K. Institute for Employment
Studies predict a return to labor shortages in the U.K., particularly in
technical and skilled sectors. This shortage is expected to result from a
shrinking labor pool coupled with continued demand for specialized skills. While
a shrinking labor pool may reduce the number of suitable candidates for Interim
to place with its clients, it may also increase the demand for Interim's
specialized search/recruitment services. Interim believes that these factors, as
well as the continued relatively rapid growth in the service sector, should
increase the opportunities to provide services in the U.K.
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The total staffing services market in the European Union (excluding the
U.K.) during 1998 was estimated by published industry sources to be
approximately $31.6 billion, with France, Germany, The Netherlands and Belgium
accounting for over 95% of such market. Discrete domestic markets that have no
significant cross-border contact currently characterize the continental European
staffing services industry. In 1998, staffing revenues grew 43% in Germany, 30%
in France, 27% in Spain, 24% in The Netherlands and 22% in Belgium. In many
other European countries, the staffing services industry has only recently begun
to develop. The European Commission has noted trends towards deregulation and
greater labor market flexibility that Interim believes will increase the use of
temporary and contract labor throughout Europe. For example, Spain, Sweden and
Italy have recently enacted legislation that eliminated or modified laws that
had previously significantly restricted or prohibited the operations of staffing
services companies. In the emerging markets of Eastern Europe, Interim believes
that demand for staffing services is increasing as a result of deregulation of
certain local labor laws and increasing economic development.
In certain countries in the Australia/Asia region, particularly Australia,
the staffing services industry is well developed, and Interim believes that
opportunities exist for continued expansion within all of Interim's service
offerings. The Australian Bureau of Statistics figures indicate that 25% of the
workforce now works in a "flexible" manner, i.e. as a contractor or temporary
employee. Interim now has established a footprint of more than 40 offices in the
region and is well placed to expand additional offerings throughout this
network.
The staffing services market in most countries in which Interim operates is
highly fragmented and includes a large number of small businesses, many of which
operate in a single geographic market. This fragmentation, combined with
changing client demands and competitive pressures, has resulted in a trend
towards industry consolidation. This consolidation is being driven by, among
other things, client demands for "one-stop shopping" from staffing providers.
Faced with a desire to minimize the number of vendors, coupled with the need for
sophisticated management information systems, the growth of national or global
relationships and the expansion of professional level specialties, clients have
begun to demand the services of large staffing companies capable of offering a
full range of staffing services over a broad geographic area. This ability has
been particularly important in fulfilling the needs of large regional, national
and international accounts. Within this more competitive environment, smaller
companies may have difficulties competing due to limited service offerings,
geographic concentration and lack of sufficient working capital and management
resources. As a result, many smaller companies have been acquired in recent
years and Interim believes that small and mid-sized staffing companies are
becoming increasingly responsive to acquisition proposals by larger firms, such
as Interim. Furthermore, Interim believes that consolidation may also occur
among larger regional, national and international companies.
BUSINESS STRATEGY
Interim's goal is to drive revenue and earnings growth by delivering
innovative integrated human capital solutions worldwide through its consultative
diagnostic approach to strategic workforce management. Interim intends to
achieve this goal through a growth strategy that includes strategic
acquisitions, with particular emphasis on its higher-margin consulting services
and high skill level flexible staffing services (i.e., accounting, technology,
legal, etc.), opening new offices in existing and new geographic markets and
continued development of its client base by capitalizing on cross-selling
opportunities. This growth strategy is complemented by an operating strategy of
offering a comprehensive range of innovative services under common brands
through decentralized, entrepreneurial offices providing specialized expertise.
The key elements of Interim's strategy are:
PROVIDE A COMPREHENSIVE RANGE OF SERVICES. Interim believes that
significant demand exists from current and prospective clients to procure a
substantial portion of their human resource solutions from a single provider,
thereby enabling these companies to maximize talent, processes and technology
for increased
4
efficiency and productivity. Accordingly, Interim seeks to be regarded by its
clients as their human resources partner committed to innovative, value-added
human capital solutions to meet their evolving needs on a worldwide basis. Since
the IPO, Interim has significantly increased the range of services offered,
moving from solely providing flexible staffing services to offering a full range
of human resource solutions including consulting, managed staffing, outsourcing,
search/recruitment and flexible staffing.
LEVERAGE BRAND IDENTITY. Interim is one of a small number of staffing
companies which provide a variety of human capital solutions under the same
brand name. This maximizes cross-selling opportunities (e.g., Interim
Technology, Interim Financial Solutions, Interim Legal Services, Interim
Personnel, etc.). Through this common branding, Interim and its franchisees and
licensees are better able to benefit from national media advertising. As Interim
has evolved from primarily a staffing organization into a global consultant and
provider of human capital management services, the Interim name no longer
accurately reflects the Company's range of services. With significant profits
now being generated from non-staffing sectors such as human capital consulting,
executive assessment, executive coaching, outsourcing and technology consulting,
Interim plans to introduce a new brand name as one that represents the total
Company. Interim plans to introduce the new brand name during the second quarter
of 2000; however, Interim will continue to leverage its existing brand identity
until that time. Interim also benefits from brand name recognition of certain of
its subsidiaries. Michael Page, a premier recruitment organization focusing on
the placement and staffing of professionals, has established strong name
recognition within the world's largest financial markets. The Stratford Group,
Interim's executive search business specializing in the recruitment of
high-level executives, benefits from name recognition among senior managers. The
Saratoga Institute, Interim's human capital measurement business, is widely
recognized within the human resources industry as the premier source for human
capital measurement data and consulting. Interim intends to rebrand all company
owned Norrell branches to the new brand name as soon as practicable.
DELIVER SERVICES THROUGH SPECIALIZED OFFICES SUPPORTED BY DECENTRALIZED
STRUCTURE. Interim's businesses are operated to be responsive to local business
practices and market conditions. Interim believes that its existing and
potential clients choose service providers largely on the basis of brand
awareness and local specialized expertise. Each of Interim's offices is
organized on this basis, thereby providing clients with perceived value and
enhanced services by enabling them to deal with Interim representatives who
"speak their language" and understand their specialized human resources
requirements. Furthermore, all Interim managers are compensated based on profits
generated within their scope of responsibility and cross-selling activities, and
they are responsible for their own hiring, pricing, business mix and local
promotion. Interim believes that this (i) allows Interim to capitalize on its
managers' knowledge of local business conditions and markets, (ii) makes Interim
more attractive to acquisition candidates, (iii) allows for a smooth transition
of acquired businesses and (iv) enables local operating company managers to
develop long-term relationships with key decision makers at both existing and
potential clients.
MAINTAIN STRONG ORGANIC GROWTH. A significant portion of Interim's growth
has resulted from internal expansion, which includes new office openings and
development of existing offices. Interim intends to continue to add offices by
expanding into new geographic markets, both domestically and internationally,
and to open new offices in existing markets to increase the range of services
offered in such markets. New office openings are jointly planned by corporate
and local management based upon various criteria, including market demand,
availability of quality candidates and whether a new office would complement or
broaden Interim's current geographic network or service offerings. Interim also
believes that it has been able to accelerate the growth of existing offices by
capitalizing on cross-selling opportunities. To this end, Interim's integration
managers focus on facilitating cross-selling opportunities on a regional basis.
UTILIZE ADVANCED RECRUITMENT METHODS. Interim has added new techniques to
successfully recruit and retain candidates. Through three recruitment centers in
Europe, Asia Pacific and South Africa, Interim recruits information technology
("IT") professionals, predominantly to the U.S., to fill a shortage of skills.
In addition, Interim was the first company in the staffing industry to implement
national television advertising featuring a toll-free number (1-800-A-CAREER)
and full-page Wall Street Journal advertising
5
for managerial and executive positions. Recruitment efforts are globally
supported by both Internet and Intranet-based technology and a growing central
candidate database that will allow Interim to maintain contact with candidates
throughout the duration of their careers. Once a candidate is employed, Interim
focuses on training to maintain or enhance skills and offers certain employees
salaries, benefits and participation in Interim's employee benefit plans as a
form of retention. Interim recognizes that the Internet is an important tool in
the identification and recruitment of qualified candidates and is expanding its
recruiting efforts through the Internet. At December 31, 1999, Interim had two
corporate Internet-based recruiting sites, aCareer.com and InterimIT.com, as
well as several business unit sites. aCareer.com is similar to a traditional job
posting board where job seekers register their skills and can access general
career and workforce management advice. InterimIT.com is geared for Interim's
information technology clients and is a web-based tool that serves as an
electronic order system for clients to procure pre-screened, prequalified
contract labor. InterimIT.com reduces the time to fill client job orders and
lowers Interim's cost of recruiting and screening applicants. A third web site,
CareerZone.com, has been introduced in March 2000. This site provides
comprehensive career information and strategic tools that allow individuals to
plan and manage their careers from first job through to retirement. Interim
believes the use of the Internet as a recruiting tool will expand over time.
PROVIDE INNOVATIVE PRODUCTS AND SERVICES. By taking a consultative approach
to client needs, Interim has developed innovative, value-added services that
help clients better manage their human assets. Interim On-Premise utilizes
proprietary software that provides "qualitative" measurement of performance,
quantitative analysis of staffing efficiencies and customized reporting. Interim
Assessment Services helps clients identify job applicants with the best
qualifications and the most likely cultural fit, using proprietary interactive
voice and web-based response systems to pre-screen and behaviorally assess
candidates for hourly to mid-management positions. Through Saratoga Institute,
Interim offers clients the most comprehensive database of human performance
metrics, analysis and intelligence to improve productivity and profitability.
Interim's "interim.com" website contains employment information that can be used
by both candidates and clients, and the website was made part of the Smithsonian
Institution's Permanent Research Collection on Information Technology
Innovation. In addition, Interim conducted a nationwide survey with Louis Harris
and Associates to identify emerging workforce trends to assist clients in human
resource planning.
CONTINUE TO EXPAND THROUGH ACQUISITIONS. Interim believes that there is an
opportunity to acquire additional companies consistent with its business
strategy because of the highly fragmented nature of the staffing industry and
the pressures of increased competition. Interim intends to continue to make
complementary acquisitions that can be integrated into existing operations, as
well as strategic acquisitions that provide entry into new geographic markets or
service lines. This acquisition strategy focuses on strong, well managed
companies domestically and internationally. Interim has a proven track record of
successfully acquiring companies, integrating them within Interim's existing
operations and producing growth rates of acquired companies in excess of their
historical performance. Since the IPO, Interim has added 658 offices,
representing over $2.1 billion in annualized revenues for the year ended prior
to acquisition.
ACQUISITIONS
Interim's corporate management team has extensive experience in identifying
acquisition candidates and integrating acquired operating companies into
Interim's international network. Interim believes its decentralized,
entrepreneurial management structure facilitates its efforts to acquire branded
staffing companies seeking alliances with an internationally-focused provider of
a broad range of human resources services.
Since the IPO, Interim has acquired 30 companies providing consulting,
managed staffing, outsourcing, search/recruitment and flexible staffing through
658 offices, representing over $2.1 billion in annualized revenues for the year
ended prior to acquisition. The Norrell acquisition represented approximately
$1.4 billion of the over $2.1 billion in annualized revenues. In addition to
external acquisitions, Interim is
6
generally the purchaser of choice when an Interim franchisee or licensee decides
to sell its business. Interim has a first right of refusal on any franchise sale
at the same terms and conditions as may be agreed with another purchaser and has
a standard purchase option on licenses. In 1999, Interim repurchased 1
franchisee, representing approximately $36.5 million of annualized acquired
revenues and several licensed offices which do not impact Interim's reported
revenues, as sales by the licensed offices are included in Interim's revenues.
Overall, Interim-owned branches yield higher profits than franchised or licensed
offices, and Interim therefore believes that the purchase of these offices can
be accretive to overall earnings. Interim is currently undertaking a program to
reduce possible market overlap created by the Norrell acquisition. Market
overlap is created when a Norrell licensee operates in a market where an Interim
branch, licensee or franchisee operates or where an Interim licensee or
franchisee operates in a market where a Norrell branch or licensee operates.
Interim is repurchasing licenses and franchises or selling branches to reduce
such overlap. Interim regularly evaluates potential acquisitions of companies
that can be integrated into existing operations and strategic acquisitions that
provide entry into new geographic markets or service lines. Certain information
related to external acquisitions is summarized in the following table.
NUMBER REVENUES
OF IN
ACQUISITION OFFICES MILLIONS
ACQUIRED BUSINESS DATE (1) (2) PRIMARY SERVICES (SKILLS)
- ----------------- ----------- -------- -------- ----------------------------------------------
Norrell Corporation............... 7/99 385 $1,400.0 Consulting (Technology), Flexible Staffing
(Administrative, Light Industrial &
Accounting), Outsourcing, Search/ Recruitment
(Accounting, Administrative), Managed Staffing
(Administrative & Light Industrial)
Career Insights................... 3/99 1 2.1 Flexible Staffing, Search/Recruitment
(Accounting/Finance)
Tutor Recursos Humanos/Tutor
Seleccion, S.L.................. 3/99 15 19.2 Flexible Staffing (Administrative & Light
Industrial), Search/Recruitment
Custom Counsel, Inc............... 1/99 1 2.0 Flexible Staffing, Search/Recruitment (Legal)
Computer Power Group (Australian
and Asian operations)........... 12/98 51 143.0 Consulting, Flexible Staffing (Technology)
HR Easy........................... 12/98 3 6.6 Consulting (Human Capital Measurement &
Assessment)
Ouranos Informatica Groep B.V..... 11/98 1 20.0 Consulting (Technology)
Reedie & Company.................. 9/98 3 4.4 Consulting (Outplacement & Executive Coaching)
Polmar, Inc....................... 9/98 1 5.4 Consulting (Technology)
Clarke, Poynton & Associates;
C.P.G. Partners................. 8/98 5 8.0 Consulting (Outplacement & Executive Coaching)
AGO Uitzendbureau B.V............. 7/98 30 17.9 Flexible Staffing (Administrative & Light
Industrial)
Saratoga Institute................ 6/98 1 3.0 Consulting (Human Capital Measurement &
Assessment)
Smyth, Fuchs & Company............ 3/98 5 2.5 Consulting (Outplacement)
Crone Corkill..................... 3/98 2 38.4 Flexible Staffing, Search/Recruitment
(Administrative)
Network Companies................. 2/98 2 5.0 Flexible Staffing, Search/Recruitment
(Accounting)
deRecat & Associates.............. 1/98 3 3.5 Consulting (Outplacement)
A.J. Burton Group, Inc............ 1/98 3 14.6 Flexible Staffing, Search/Recruitment
(Accounting)
7
NUMBER REVENUES
OF IN
ACQUISITION OFFICES MILLIONS
ACQUIRED BUSINESS DATE (1) (2) PRIMARY SERVICES (SKILLS)
- ----------------- ----------- -------- -------- ----------------------------------------------
Feldt Personnel Consultants....... 10/97 1 0.5 Flexible Staffing, Search/Recruitment
(Accounting)
Mainstream Access................. 4/97 16 5.7 Consulting (Outplacement)
Michael Page Group PLC............ 4/97 40 220.0 Flexible Staffing, Search/Recruitment
(Accounting, Banking & Finance)
Aim Executive Holdings............ 3/97 17 35.2 Consulting, Flexible Staffing, Search/
Recruitment (Outplacement & General
Management)
Allround/Interplan................ 11/96 6 15.0 Flexible Staffing (Administrative & Light
Industrial)
Brandon Systems................... 5/96 32 89.0 Flexible Staffing, Managed Staffing
(Technology)
Of-Counsel........................ 5/96 1 1.0 Flexible Staffing (Legal)
Computer Power Group (U.S. and
U.K. operations)................ 12/95 17 81.0 Consulting (Technology)
Hernand & Partners................ 11/95 3 2.7 Flexible Staffing (Legal)
Juntunen.......................... 10/95 2 13.6 Search/Recruitment, Flexible Staffing,
(Technology & General Management)
OCS Consulting Services........... 6/95 5 16.1 Consulting (Technology)
Career Associates/Career Temps.... 6/95 5 5.6 Flexible Staffing, Search/Recruitment
(Accounting)
ICS Temporary Services............ 12/94 1 1.6 Flexible Staffing (Administrative & Light
Industrial)
--- --------
658 $2,182.6
=== ========
- --------------------------
(1) Office count at time of acquisition.
(2) Represents annualized revenues for the year ended prior to acquisition.
SERVICES OVERVIEW
Interim provides its operating segments with centralized national and
international support in training, information technology, recruitment,
marketing and sales. This includes national television advertising aimed at
building brand identity and recruiting candidates, centralized candidate
databases and expansive internet and intranet communication abilities. In
addition, back office support includes: payroll, billing, receivable management,
risk management, legal services and cash management. Corporate sales and
marketing staff, as well as integration managers in key markets, are dedicated
to supporting cross-selling activities and national/international account
management and expansion. Business units that pass revenue-generating leads to
other business units are rewarded with a corporate-paid fee. This approach
facilitates an environment of high communication among offices, unifies
strategic initiatives and capitalizes upon multinational resources.
Interim is organized into three operating segments based upon geographic
location, North America, Europe and Australia/Asia. These operating segments
generally follow the management organization structure of Interim. The operating
segments also represent, in the opinion of management, the most meaningful
aggregation of Interim's multiple operating units throughout the world. This
aggregation is based upon geographic similarities including market growth rates,
foreign currency exposure and local laws and regulations. Within each of these
operating segments, Interim provides its five services--consulting,
8
managed staffing, outsourcing, search/recruitment and flexible staffing. Interim
defines these services as follows:
CONSULTING--Interim counsels clients in the best ways to capitalize on
information technology to enhance how a business operates and how work is
performed. It also provides talent assessment, career development and transition
services and human performance benchmarking.
MANAGED STAFFING--Interim helps large-volume clients manage flexible or
full-time staffing costs and performance more effectively through strategic
workforce management. Utilizing proprietary metrics and consistent standards for
quality, performance and price, Interim provides Interim On-Premise workforce
management and multiple staffing vendor management.
OUTSOURCING--Interim assumes responsibility for the management and
performance of client functions in such areas as customer care, administrative
services, help desks and records management.
SEARCH/RECRUITMENT--Interim provides both retained search and contingency
recruitment services for clients' direct hiring of entry-level professionals
through CEOs, across a wide range of professions--accounting, finance,
information technology, human resources, legal services, engineering,
manufacturing, sales, marketing and general management.
FLEXIBLE STAFFING--Interim deploys talented employees to fit virtually every
flexible staffing need, with expertise in legal, accounting, finance,
information technology, human resources, technical, manufacturing, sales,
marketing, administrative and light industrial skills.
CONSULTING
Consulting Services represented 17.2% of worldwide revenues in 1999.
Interim's primary focus within this service category is technology,
outplacement, education, executive coaching, human performance benchmarking and
talent assessment.
Interim has built a leading information technology consulting group
operating through 86 offices of which 36 are in North America, 4 are in Europe
and 46 are in Australia/Asia, as well as recruiting centers in South Africa,
Asia and the U.K. This service is provided primarily through Interim Technology,
The Consulting Group ("Technology Consulting"). In today's web-enabled
environment, Technology Consulting helps clients interact more effectively with
consumers, other businesses and their own enterprises, making the critical
connection between web-based solutions and the mainframe and client-server
environments that are the backbone of every organization. Technology Consulting
professionals specialize in technology practices such as software quality
management, information design, development services and maintenance. Consulting
engagements are generally longer term, and are provided by highly trained
employees.
Technology Consulting has grown both organically and through the 1998
acquisitions of Ouranos Informatica Groep B.V. ("Ouranos" rebranded Interim
Technology Consulting--The Netherlands) and Computer Power. In addition,
Norrell's information technology business has been combined with Technology
Consulting. The Norrell technology business delivers its services through 16
offices in North America. Interim Technology Consulting--The Netherlands offers
IT development and support through its consulting services. Interim Technology
Consulting--Asia Pacific operates in Australia/Asia and provides technology
consulting, in addition to education and training in areas such as end-user
proficiency and certified vocational training.
With nationwide capabilities, Interim Career Consulting manages projects
ranging from large-scale national restructuring to individual cases and is
ranked among the top five outplacement firms in the U.S. Interim Career
Consulting operates through 45 offices in North America. Interim Career
Consulting provides career transition and talent development services to improve
organizational effectiveness. Career transition services assist companies during
change-related events, such as mergers, downsizing and
9
restructuring. Talent development services help clients strengthen the core
competencies of their executives, professionals and management teams through
individual assessment, assessment training, talent plans and succession
planning. Counseling services include individual and group outplacement, career
workshops, personal business venture, voluntary separation and early retirement
plans, executive coaching and leadership development. Interim was the first
career transition firm to receive an ISO 9001 certification for part of its
domestic operations. Through an international strategic alliance with Coutts
Consulting Group, Interim Career Consulting offers services to multinational
clients throughout Europe, Japan and Canada.
Interim expanded its core competency in applying diagnostics to human
performance with the 1998 purchase of Saratoga Institute. Through Saratoga
Institute, Interim offers clients the most comprehensive database of human
performance metrics, analysis and intelligence to improve productivity and
profitability. For nearly 20 years, Saratoga has examined crucial areas that
impact profitability using 160 key metrics, such as turnover costs, compensation
as a percent of revenue and expense, cost per hire and time to fill vacant
positions. Saratoga's wide range of custom benchmarking programs, retention
strategies and employee commitment programs can help forecast human resource
needs and costs, guide outsourcing/ insourcing decisions and assess how well an
organization is performing.
Interim acquired HR Easy, Inc. ("HReasy" rebranded Interim Assessment
Services) in late 1998, further expanding Interim's evolution from a staffing
company to a complete human capital management resource provider. Interim
Assessment Services helps clients identify job applicants with the best
qualifications and the most likely cultural fit, using proprietary interactive
voice and web-based response systems to pre-screen and behaviorally assess
candidates for hourly to mid-management positions. Interim's customized talent
assessment services result in higher-quality candidates, quicker time to fill
positions and improved retention. Interim's expertise in assessing talent more
effectively can be extended throughout a client's organization with customized
attitude and opinion surveys and exit interviews. This business unit currently
works with a wide range of companies, most notably in retail, banking, grocery,
petroleum and manufacturing industries.
MANAGED STAFFING
Managed Staffing represented 17.4% of worldwide revenues in 1999. Within
this service category, clients engage Interim for its ability to provide
strategic workforce management for flexible or full-time staffing needs.
In 1992, Interim introduced a new staffing concept, Interim On-Premise,
whereby a client delegates management of its staffing needs to Interim, allowing
the client to focus on its core business activities. Interim has expanded
Interim On-Premise into Europe and Australia. In addition to on-site, dedicated
management of the client's entire flexible staffing process--including
recruiting, hiring and training--the Interim On-Premise team introduces
proprietary technology to track costs and monitor performance. It sets
benchmarks and targets, and it identifies and implements recommendations for
productivity improvements. The Interim On-Premise program can be established at
a single client site or across a network of sites, regionally, nationally or
globally. Interim On-Premise serves clients as a high value-added extension of
their own human resource function, while opening a strategic pathway for Interim
to introduce its full range of services. Norrell's Master Vendor Partnership
program ("MVP") has similarities to On-Premise and many MVP locations are
currently being upgraded to full On-Premise sites.
Interim has found that Interim On-Premise clients, who had typically
utilized staffing services, are very receptive to other Interim services.
On-Premise managers are well positioned to enhance established relationships
with key decision-makers at client organizations and, as a result, introduce
other Interim services. Conversely, other business units such as Technology
Consulting or Interim Financial Solutions can often identify instances where
clients need additional staffing services and introduce Interim On-Premise.
10
These clients have also sought to expand the Interim On-Premise service into
their international operations. Management believes Interim's geographic and
service breadth provides a strong competitive advantage in securing such
broad-reaching assignments. Additionally, once in place, the client's reliance
on Interim's knowledge, productivity and proprietary software makes them more
reluctant to seek alternate service providers who may not be able to deliver
this value added service.
OUTSOURCING
Outsourcing represented 5.4% of worldwide revenues in 1999. Interim assumes
responsibility for the management and performance of client functions through 81
offices in North America.
Through the acquisition of Norrell, Interim provides a large portfolio of
outsourcing services. These services are normally initiated with an in-depth
analysis of functional workflow, technology enablement and human capital
utilization and then customized to client-specific needs for customer care,
administrative and financial support services, distribution and fulfillment,
help desks and human resource management. These services are provided either on
customer premises or at an offsite Interim facility, with well-defined service
levels, costs, reporting requirements and performance metrics. Assuming complete
responsibility for the management and performance of a function, Interim offers
a range of benefits few companies can match: greater efficiency and economies of
scale, operational excellence, deep functional expertise and effective
technology deployment.
Through the growth of Interim Technology--Staffing Solutions Group
("Technology Staffing"), Interim offers outsourcing services whereby its clients
delegate to Interim all responsibility for technology staffing and performance
issues in such environments as the help desk and data centers. Interim manages
day-to-day functional activities, as well as staffing services, and the client
maintains strategic control of their information systems and data. This type of
outsourcing service is provided to clients under a contractual arrangement.
SEARCH/RECRUITMENT
Search/Recruitment represented 10.5% of worldwide revenues in 1999. Interim
provides clients' direct hiring of entry-level professionals through senior
executives across a wide range of professions.
Through the acquisitions of Michael Page and Norrell and the growth of
Interim Financial Solutions, Interim provides accounting, banking and finance
and sales and marketing search/recruitment services worldwide. Michael Page
operates 67 offices in major financial centers across the globe, including
London, Paris, Frankfurt, Amsterdam, Hong Kong, Singapore, Sydney and New York.
Through 31 offices in North America, Interim Financial Solutions (which now
includes Norrell Financial Services) provides accounting and finance personnel
at a variety of levels including bookkeepers, degreed accountants, certified
public accountants, auditors and controllers. Interim Financial Solutions made
one domestic acquisition in 1999 and two domestic acquisitions in 1998 which
expanded its presence in the eastern U.S. Interim is the largest provider of
search/recruitment in the accounting, banking and financial areas worldwide.
Interim provides nationwide searches for all levels of employees, up to
president and CEO through 30 offices in the U.S. Retained searches are conducted
for executives and high-level managers through Stratford, and contingency
recruitment is available for management and professional positions through
Interim Executive Recruiting and other business units. Businesses rely on
Interim to recruit industry experts who will provide strategic direction and top
management skills. The search group has developed a prestigious client list, and
has particular expertise in the technology industry, working with many leading
technology companies in the U.S. Relationships are established with companies at
the highest levels when recruiting for executives and management. These
relationships serve as an excellent point of entry for a whole host of
additional Interim services including information technology, legal, accounting,
human resources, clerical and light industrial.
11
FLEXIBLE STAFFING
Flexible Staffing represented 49.5% of worldwide revenues in 1999. Interim
deploys talented employees to fit virtually every flexible staffing need, from
light industrial and administrative to accounting, legal and technology.
Flexible staffing is provided through most of Interim's business units, with
differences between the units based upon skill provided.
Michael Page and Interim Financial Solutions provide flexible staffing in
the areas of accounting, banking and finance in all of the same locations in
which Interim provides search/recruitment for the same skill types. The typical
office model in these businesses has search consultants that focus on flexible
staffing assignments and those that concentrate on search/recruitment. Combining
these business units' flexible staffing and search/recruitment revenues makes
Interim the second largest provider of accounting, banking and finance skills in
the world.
Technology Staffing provides services to businesses to optimize information
technology infrastructure through four practice areas: help desk operations,
data centers, networking and training, through 31 offices in North America and
one office in the U.K. Technology Staffing generally provides large numbers of
personnel for shorter assignments. Interim Technology Consulting--Asia Pacific
provides flexible staffing through 43 offices in Australia and New Zealand, an
office in both Hong Kong and the U.K. and two offices in Singapore.
Interim Legal Services provides attorneys, paralegals, court reporters,
litigation support and deposition services predominantly to law firms and
corporations in 39 offices in North America.
Interim's traditional flexible staffing business, Interim Personnel (which
includes Norrell's traditional flexible staffing operations), provides a wide
variety of clerical, administrative, assembly and light industrial skills
through 799 offices in North America. In response to client needs, a growing
number of Interim Personnel branches are becoming dedicated sources for either
office professionals or industrial staffing. Office professionals branches
supply a full range of administrative and office skills, with a strengthening
focus on the upper tiers of the skill ladder. Both flexible staffing and
full-time placement services are provided. Industrial staffing offices remain
dedicated primarily to flexible staffing, with a varied skill mix for
manufacturing, assembly, logistics and the growing area of e-business
fulfillment. Both areas of specialization share best practices for recruitment,
candidate screening, order fulfillment, performance metrics and client billing.
Interim's traditional flexible staffing business expanded its European
operations through the 1998 acquisitions of Crone Corkill in the U.K. and AGO
Uitzendbureau B.V. in The Netherlands ("AGO" rebranded Interim Personnel
Uitzendbureau). Crone Corkill places primarily high-end secretarial and
administrative personnel through 3 offices. Interim Personnel Uitzendbureau
provides clerical and light industrial flexible staffing through 32 locations in
The Netherlands. In 1999, Interim expanded further into Europe with the
acquisition of Tutor Recursos Humanos/Tutor Seleccion, S.L. ("Tutor" rebranded
Interim Recursos Humanos), one of Spain's largest staffing companies, which
operates through 15 offices.
HEALTHCARE
On September 26, 1997, Interim sold HealthCare. HealthCare revenue
represented 11.8% of total revenues for the year ended December 26, 1997. See
the notes to the Consolidated Financial Statements contained herein for
discussion of this transaction. In October 1998, Interim completed the sale of
the remaining portion of HealthCare, Interim HealthCare of New York, Inc. The
remaining portion of the sale did not have a material impact on results of
operations in 1998.
12
Through the acquisition of Norrell, Interim acquired Norrell's home health
aide business which operates in New York, New Jersey, Pennsylvania, Atlanta and
Colorado. Interim intends to divest this home health aide business in the second
or third quarter of 2000. As such, the business has been classified as an asset
held for sale and the results of operations of this business are not included in
Interim's Consolidated Statement of Earnings in fiscal 1999. This business had
annualized revenues of approximately $39.7 million in 1999.
OFFICE STRUCTURE
Interim offices are Interim-owned, franchised and licensed. Most offices
serve multiple clients in their respective geographic area, with the exception
of Interim On-Premise sites which are established at the client's location to
serve only that client. Interim believes that it can better leverage
profitability through its branch locations. Currently 83.9% of revenues are
derived from Interim-owned branches, with the remaining being franchised and
licensed. The following table details the number of offices which are
Interim-owned, franchised and licensed as of the end of the periods listed.
FISCAL YEAR ENDED
DECEMBER
------------------------------
NUMBER OF OFFICES 1999 1998 1997
- ----------------- -------- -------- --------
Branch Offices............................................ 815 543 399
Licensed Offices.......................................... 308 196 168
Franchised Offices........................................ 121 138 139
----- --- ---
Total................................................. 1,244 877 706
===== === ===
OWNED OFFICES
As of December 31, 1999, Interim operated 815 branch offices. Branch office
expansion is generally pursued in markets where Interim has an established
presence and is used to increase market penetration. Additional expansion is
achieved by establishing On-Premise operations at client sites. Interim intends
to continue to expand Interim-owned branches in those locations where it can
"cluster" multiple offices in close geographic proximity to utilize centralized
regional and area management and other administrative functions which should
increase growth opportunities and increase profitability.
LICENSED OFFICES
Interim grants licenses, which give the licensee the right to establish a
business utilizing Interim's trade names, service marks, advertising materials,
sales programs, operating procedures, manuals and forms within a designated
territory. As of December 31, 1999, Interim's 68 licensees operated 308 licensed
offices.
Licensees are required to observe Interim's operating procedures and
standards and act as a representative of Interim in recruiting, screening,
classifying, employing and placing flexible staff in response to client orders.
The licensee is responsible for establishing the office and paying related
administrative and operating expenses, such as rent, utilities and salaries of
full-time employees. Interim is responsible for paying the wages of the flexible
staff and all related payroll taxes and insurance. As a result, Interim provides
a substantial portion of the working capital needed for the licensed businesses.
Sales by the licensed offices are included in Interim's revenues, and the
direct costs of services are included in Interim's cost of services. The
licensee receives a commission from Interim, which ranges between 50% and 75% of
the licensed offices' gross profits. The licensee is required to use Interim's
billing, payroll and other data processing services.
13
FRANCHISED OFFICES
Interim has been granting franchises for approximately 40 years. The average
tenure of franchise ownership exceeds 17 years, and a number of franchisees are
second generation owners. Most franchisees operate more than one franchise. As
of December 31, 1999, Interim's 17 franchisees operated 121 offices.
Interim grants franchisees the right to market and furnish flexible staffing
services within a designated geographic area using Interim's trade names,
service marks, advertising materials, sales programs, operating procedures,
manuals and forms. Interim provides franchises with its national, regional and
local advertising. Franchisees operate their businesses autonomously within the
framework of Interim's policies and standards and recruit, employ and pay their
own full-time and flexible staff. Interim receives royalty fees from each
franchise based upon its sales, and in return supplies a variety of support and
marketing services.
COMPETITION
The staffing services industry is intensely competitive and highly
fragmented, with few barriers to entry by potential competitors at the local
level. Interim faces significant competition in the markets it serves and will
continue to face significant competition in any geographic markets or industry
sectors that it may enter. In each market in which Interim operates, it competes
for both clients and qualified personnel with other firms offering staffing
services. The majority of competitors are significantly smaller than Interim.
However, certain of Interim's competitors have greater marketing and financial
resources than Interim. Many clients use more than one staffing services company
and it is common for a major client to use several staffing services companies
at the same time.
Interim's largest competitors are Adecco S.A., Manpower Inc., Randstad
Holdings, Kelly Services, Inc., Vedior, Robert Half International, Inc.,
Modis, Inc. and CDI Corporation. Interim believes that it is one of the ten
largest worldwide providers of staffing services based upon revenue.
Interim believes that the primary competitive factor in obtaining and
retaining clients is the breadth of services provided as clients seek out
providers that can service all of their staffing needs. Additionally, other
critical competitive factors include the number and location of offices, an
understanding of clients' specific job requirements through consultative
assessments, the ability to provide personnel in a timely manner, the ability to
measure the quality of job performance and pricing. The primary competitive
factors in obtaining qualified candidates for employment assignments are quality
of available opportunities, wages, responsiveness to work schedules and number
of available work hours. Interim believes it has a competitive advantage over
its competitors because it offers a wide range of services and broad
availability of skills to its customers worldwide.
TRADEMARKS
In 1992, Interim changed its name and primary identifying trademark from
"PERSONNEL POOL" to "INTERIM" and related "INTERIM" marks. A few locations
continue to operate under the "PERSONNEL POOL" mark (or related marks used by
such locations prior to acquisition by Interim). With the exception of Norrell,
Michael Page, Saratoga and Stratford Group, the names and trademarks of
businesses acquired by Interim are being or have been transitioned to an
appropriate "INTERIM" name, typically within a period of several months
following the date of acquisition. Interim has undertaken extensive national and
local advertising and marketing efforts to increase its name recognition in the
marketplace.
Interim uses and has registered with the United States Patent and Trademark
Office the trademarks: INTERIM, INTERIM ACCOUNTING, INTERIM ATTORNEYS, INTERIM
COURT REPORTING, INTERIM LEGAL, INTERIM ON-PREMISE, INTERIM PERSONNEL SERVICES,
HOW THE WORLD IS WORKING, HR EASY, DEPOLAB, SKILL ANALYZER, STRATFORD GROUP,
14
TEMPLINK, TEST CYCLE, VALI/TEST PRO and PERSONNEL POOL; it uses and has
applications for registration pending on the trademarks: A CAREER, DELIVERABLE
QUALITY METHOD, EMERGING WORKFORCE, HUMAN CAPITAL FINANCIAL INDEX,
InterimIT.com, INTERIM CAREER CONSULTING, INTERIM FINANCIAL SOLUTIONS, SARATOGA,
SARATOGA CERTIFIED, SARATOGA ONLINE, INTERIM TECHNOLOGY, SQM TOOL SUITE, IT /
WORK REQUEST MANAGER, MICHAEL PAGE, 1-800-A-CAREER, IT / ENTERPRISE MANAGER, IT
/ REQUIREMENTS MANAGER and IT / TEST MANAGER; and it uses and claims ownership
of the unregistered trademarks: INTERIM CAREER SERVICES, INTERIM PERSONNEL,
INTERIM FACILITIES MANAGEMENT, INTERIM FINANCIAL PERSONNEL, INTERIM MANAGED
SERVICES, INTERIM OFFICE TECHNOLOGY, INTERIM STAFFING, VICTOR PERSONNEL, INTERIM
HR PROFESSIONALS, INTERIM EXECUTIVE RECRUITING, INTERIM TECHNICAL STAFFING,
INTERIM LEGAL PROFESSIONALS, INTERIM LEGAL SERVICES, INTERIM INDUSTRIAL
STAFFING, INTERIM TECHNOLOGY-STAFFING SOLUTIONS GROUP, INTERIM
TECHNOLOGY-CONSULTING GROUP and SARATOGA INSTITUTE. INTERIM is a registered
trademark of Interim in Canada and INTERIM TECHNOLOGY is a registered European
Community Trademark of Interim. Interim's U.S. trademark registration for
INTERIM expires April 6, 2003, but is renewable indefinitely for successive
ten-year terms.
Interim has licensed use of its INTERIM HEALTHCARE mark to Interim
HealthCare, Inc., (which is independent of Interim), for an initial period of
five years and renewable every two years thereafter. Interim uses and has
registered with the United States Patent and Trademark Office the following
trademarks acquired from Norrell: ANATEC, ARCHITECTURING THE CUSTOMER
EXPERIENCE, CallTask, DYNAMIC PEOPLE SKILLED PEOPLE. WITH PEOPLE SKILLS,
HEALTHTASK, HT HEALTHTASK, IMCOR, iwebclass, NORCROSS, NORRELL, NORRELL
FINANCIAL STAFFING, NORRELL I.R.I.S. INTEGRATED RESEARCH INFORMATION SYSTEM,
NORRELL SERVICES EXACT MATCH, NORRELL SERVICES EXACT MATCH INTERVIEWER, NORRELL
SERVICES EXACT MATCH MATCHWEAR, PB ARCHITECT, PROCOR, SMARTER WAYS TO GET THINGS
DONE, STRATEGIC WORKFORCE MANAGEMENT, THE PORTABLE EXECUTIVE, TASCOR, THE
WORKFORCE FOR THE NEW WORKPLACE and WWW TEMPORARY HELP SERVICE WORKFORCE; it
uses and has applications for registration pending on the following trademarks
acquired from Norrell: NORRELL MASTER VENDOR PARTNERING and T TASCOR. NORRELL is
a registered trademark of Interim in Canada. Interim's U.S. trademark
registration for NORRELL expires on March 8, 2003, but is renewable indefinitely
for successive ten-year terms.
GOVERNMENTAL REGULATION
Flexible staffing firms are generally subject to one or more of the
following types of government regulations: (i) regulation of the
employer/employee relationship between a firm and its flexible staff,
(ii) registration, licensing, record keeping and reporting requirements and
(iii) substantive limitations on its operations. Flexible staffing firms are the
legal employers of their flexible workers. Therefore, the firm is governed by
laws regulating the employer/employee relationship such as tax withholding or
reporting, social security or retirement, anti-discrimination and workers'
compensation.
Interim has significant operations in a number of foreign countries. In some
of these countries, particularly in Europe, there is significant national and
local regulation of flexible staffing services. These laws generally require
that part-time, temporary and contract workers receive benefits similar to
full-time workers, such as vacation, welfare plan contributions and severance
pay. In some cases, hours of work and the duration of assignments are limited
and workers may not be assigned to certain industries. Industry-wide union
membership is also a requirement in some countries. Interim does not anticipate
that these legal structures and requirements will have a material effect on its
growth or prospects. However, any material change in national or local
regulation of flexible staffing services could have a material adverse effect on
Interim.
15
Through the acquisition of Norrell, Interim acquired Norrell's home health
aide business which operates in New York, New Jersey, Pennsylvania, Atlanta and
Colorado. This business requires the licensing of home care providers. In those
states, Interim is subject to periodic licensure surveys to ensure continued
compliance with licensing requirements. A change in control or the sale of the
home health aide business must be approved by the Public Health Council of the
New York State Department of Public Health. Interim intends to divest this home
health aide business in the second or third quarter of 2000.
Interim's sale of franchises and licenses is regulated by the Federal Trade
Commission and by authorities in approximately 17 states and one Canadian
province. Interim must deliver a franchise offering circular (similar to a
prospectus) to prospective franchisees or licensees. Interim has filed either
the appropriate registration or obtained an exemption from registration in
states which require franchisers to register in order to sell franchises.
Interim does not anticipate that these requirements will have any material
effect on its ability to sell franchises or licenses.
EMPLOYEES
Interim employed approximately 600,000 people in 1999. Interim estimates
that it assigned approximately 580,000 flexible personnel with its clients in
1999 (including a full year of Norrell), of whom approximately 72,000 were
assigned, on average, at any given time. Interim placed approximately
33,000 people in permanent jobs. In addition, Interim employs approximately
8,000 staff employees full-time in both its national and international
operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Interim, each of whom has been elected to serve at
the discretion of the Board of Directors of Interim, are:
NAME AND AGE POSITION
- ------------------------------- ------------------------------------------------------------
Raymond Marcy, 49.............. Chairman since August 1997; Chief Executive Officer since
September 1991; President and a Director since November
1989; Chief Operating Officer from November 1989 until
September 1991. Prior to joining Interim, Mr. Marcy served
as Senior Vice President of Operations for Adia Services,
Inc. ("Adia"), from 1980 through 1988. While retaining his
position as Senior Vice President of Operations for Adia,
from May 1988 until November 1989, Mr. Marcy was President
and Chief Executive Officer of Nursefinders, Inc., the
temporary nursing subsidiary of Adia.
Robert E. Livonius, 51......... Chief Operations Officer since February 1997, Executive Vice
President since August 1993. Vice President, HealthCare from
August 1991 to August 1993. Prior to joining Interim, he
served as Vice President-Field Operations for a division of
NYNEX Corporation, from June 1986 through June 1991.
Roy G. Krause, 53.............. Executive Vice President and Chief Financial Officer since
October 1995. Prior to joining Interim, he served as
Executive Vice President of HomeBank Federal Savings Bank
and HomeBank Mortgage Corporation from November 1980 to
September 1995.
Ronald de Heer, 57............. Executive Vice President, European Operations since
September 1996. Prior to joining Interim he served as
Managing Director for Adia Personnel for nearly 10 years in
Holland, Belgium and Luxembourg.
Shannon C. Allen, 33........... Vice President since November 1998, Treasurer since May
1997. Assistant Treasurer from October 1994 to May 1997.
Prior to joining Interim, she worked in the Treasury and
Corporate Finance Department at W. R. Grace & Co., Inc. from
April 1992 to October 1994. From August 1988 to September
1991 she worked in Corporate Finance at Kidder, Peabody &
Co., Incorporated.
16
NAME AND AGE POSITION
- ------------------------------- ------------------------------------------------------------
Jose L. Aragon, 51............. Vice President (Marketing) since December 1999. Prior to
joining Interim, he was Vice President, Marketing for
Bacardi-Martini USA from January 1997 through August 1999.
From September 1992 through December 1996, he was Vice
President, Marketing for Bacardi-Martini B.V., Amsterdam,
The Netherlands.
Robert Evans, 56............... Vice President/Chief Information Officer since May 1996.
From January 1991 to May 1996, he served in several
executive positions with AT&T including Vice President
Customer Care Strategy and Reengineering, Chief Technology
Officer, Chief Information Officer and General Manager of
the Consumer Interactive Services business unit.
Lisa G. Iglesias, 34........... General Counsel, Vice President and Secretary since July
1999. Associate Counsel from August 1998 to July 1999. Prior
to joining Interim, she was an attorney with the law firm of
Greenberg Traurig from September 1994 to August 1998. From
January 1989 to August 1991, she worked as a Certified
Public Accountant with KPMG Peat Marwick.
Kenneth Kilburn III, 46........ Vice President (Business Integration) and Chief
Administrative Officer since January 1998. Before joining
Interim, he was Director of PC Options Manufacturing for
Compaq Computer Corp. from July 1994 until January 1998. For
nearly 15 years prior thereto, he held various executive
management positions in purchasing and manufacturing
operations with Digital Equipment Corp.
Wayne M. Mincey, 42............ President (Global Alliances) since July 1999. Prior to that,
he was President, Norrell Information Services Consulting
Division, from August 1998 to July 1999. Prior to that, he
was Vice President, Strategic Planning, a position he held
since September 1997 when he joined Norrell. Prior to
joining Norrell, he served in various marketing and
operational positions with Ryder System, Inc. or its
subsidiaries as a vice president or chief financial officer
since 1986.
Robert W. Morgan, 40........... Vice President (Human Resources) since September 1996. Prior
to joining Interim, he served as Vice President (Human
Resources) for Office Depot from March 1994 to September
1996. From March 1991 until March 1994, he served as Vice
President (Human Resources), Rose's Stores, Inc.
J. Randall Nobles, 46.......... Chief Process Officer since July 1999. Prior to that, he was
Vice President (Finance) for Norrell Corporation. From
January 1996 to June 1997, he was Vice President
(International Business Development) at Ryder System, Inc.
From January 1994 to January 1996, he was Vice President
(Re-engineering) for Ryder System, Inc.
Mark W. Smith, 37.............. Vice President (Finance) since June 1997. Prior to joining
Interim, he served as Group Director--Financial Planning,
Ryder Integrated Logistics, Inc. from October 1996 to June
1997. Assistant Corporate Controller, Ryder System, Inc.
from October 1993 to September 1996. He held other positions
with Ryder System, Inc. from February 1990 to September
1993.
James W. Williamson, 39........ Vice President (Risk Management) since July 1999. Prior to
that, he was Director of Risk Management for Norrell
Corporation since November 1992. He began his career with
Norrell in May 1987 as Assistant Risk Manager. He has also
held risk management positions with Texas Instruments in
Dallas and Anheuser-Busch in St. Louis.
17
ITEM 2. PROPERTIES
The executive offices of Interim are located at 2050 Spectrum Boulevard,
Fort Lauderdale, Florida 33309, in a 113,000 square-foot building owned by
Interim which was constructed in 1989, and expanded in 1996. Interim also leases
on a short-term basis approximately 6,500 square feet in buildings within one
mile of its Florida executive offices for operations associated with its
corporate headquarters. In addition, Interim leases approximately 220,000 square
feet in Atlanta, Georgia which housed Norrell's executive offices. The executive
office and nearby facilities in Fort Lauderdale, and the office in Atlanta are
used primarily by Interim's North American operating segment. All other offices
of Interim and its subsidiaries in North America, Europe and Australia/Asia are
operated in premises held primarily under short-term leases providing fixed
monthly rentals, usually with renewal options.
ITEM 3. LEGAL PROCEEDINGS
Interim, in the ordinary course of its business, is threatened with or named
as a defendant in various lawsuits. It is not possible to determine the ultimate
disposition of these matters; however, management is of the opinion that the
final resolution of any threatened or pending litigation is not likely to have a
material adverse effect on the financial position or results of operations of
Interim. Interim maintains insurance in such amounts and with such coverages and
deductibles as management believes are reasonable and prudent. The principal
risks that Interim insures against are workers' compensation, personal injury,
bodily injury, property damage, professional malpractice, errors and omissions
and fidelity losses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the twelve months ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on The New York Stock Exchange under the symbol
"IS." High and low prices for the Common Stock by quarter appear in "Quarterly
Financial Data" on page 52. On January 28, 2000, there were approximately 1,892
holders of record of Interim's Common Stock.
Interim has not paid cash dividends and does not intend to pay cash
dividends in the foreseeable future.
18
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING
INFORMATION)
--------------------------------------------------------------
1999(1) 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA:
Revenues:
Revenues excluding HealthCare.................... $3,167,971 $1,890,113 $1,418,667 $ 915,883 $ 657,005
HealthCare (2)................................... -- -- 189,589 231,268 207,242
---------- ---------- ---------- ---------- ----------
Total revenues................................. 3,167,971 1,890,113 1,608,256 1,147,151 864,247
Expenses:
Cost of services................................. 2,129,181 1,193,856 1,044,848 792,123 600,169
---------- ---------- ---------- ---------- ----------
Gross profit................................... 1,038,790 696,257 563,408 355,028 264,078
Selling, general and admin....................... 738,728 493,744 399,417 247,318 177,105
Licensee commissions............................. 71,750 50,791 45,091 39,500 37,295
---------- ---------- ---------- ---------- ----------
Results of operations.......................... 228,312 151,722 118,900 68,210 49,678
Amortization of intangibles...................... 34,164 22,550 18,492 8,802 6,884
Interest expense................................. 39,294 30,157 25,271 5,696 990
Interest income.................................. (2,990) (6,338) (1,002) -- --
Year 2000 costs (3).............................. 4,420 -- -- -- --
Restructuring and integration costs (4).......... 29,542 -- -- -- --
Gain on sale of HealthCare business (5).......... -- -- (5,300) -- --
Merger expense (6)............................... -- -- -- 8,600 --
---------- ---------- ---------- ---------- ----------
Earnings before income taxes and extraordinary
item......................................... 123,882 105,353 81,439 45,112 41,804
Income taxes..................................... 53,049 46,776 38,928 22,097 18,071
---------- ---------- ---------- ---------- ----------
Earnings before extraordinary item............. 70,833 58,577 42,511 23,015 23,733
Extraordinary item-early extinguishment of debt,
net of income taxes............................ -- 2,773 -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings................................... $ 70,833 $ 55,804 $ 42,511 $ 23,015 $ 23,733
========== ========== ========== ========== ==========
Basic earnings per share (3)(4)(6)(7):
Earnings before extraordinary item............... $ 1.29 $ 1.32 $ 1.08 $ 0.71 $ 0.77
Extraordinary item............................... -- (0.06) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... $ 1.29 $ 1.26 $ 1.08 $ 0.71 $ 0.77
========== ========== ========== ========== ==========
Diluted earnings per share (3)(4)(6)(7):
Earnings before extraordinary item............... $ 1.27 $ 1.29 $ 1.05 $ 0.69 $ 0.76
Extraordinary item............................... -- (0.06) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... $ 1.27 $ 1.23 $ 1.05 $ 0.69 $ 0.76
========== ========== ========== ========== ==========
Earnings per share
(excl. nonrecurring merger expense, Year 2000
costs and restructuring and integration costs)
(3)(4)(6)(7):
Basic.......................................... $ 1.67 -- -- $ 0.94 --
Diluted........................................ $ 1.61 -- -- $ 0.91 --
Weighted average shares (7):
Basic.......................................... 54,949 44,237 39,305 32,450 30,804
Diluted........................................ 60,837 48,244 40,407 33,418 31,324
BALANCE SHEET DATA (8):
Total assets..................................... $2,438,901 $1,606,808 $1,091,734 $ 512,490 $ 424,489
Long-term debt, net of current portion........... 513,611 426,856 379,197 -- 60,000
Working capital.................................. 50,488 152,388 97,990 188,958 85,417
OPERATING INFORMATION:
Operating offices (9)............................ 1,244 877 706 593 537
HealthCare offices (9)........................... -- -- -- 405 403
---------- ---------- ---------- ---------- ----------
1,244 877 706 998 940
========== ========== ========== ========== ==========
(FOOTNOTES ON FOLLOWING PAGE)
19
- ------------------------------
(1) The 1999 fiscal year contained 53 weeks. All other years contained 52 weeks.
(2) Revenues for HealthCare are included through the date of disposition of
September 26, 1997.
(3) Year 2000 costs represent the costs associated with remediating Norrell's
application systems.
(4) On July 2, 1999, Interim acquired Norrell Corporation. Restructuring and
integration costs were related to a plan adopted by management in which
certain redundant functions and assets of Interim were eliminated.
(5) On September 26, 1997, Interim sold its HealthCare business. Amount
represents pre-tax gain on sale. Taxes on the gain were $5,272.
(6) On May 23, 1996, Interim completed a pooling with Brandon Systems
Corporation, an IT staffing company. Merger expense represents all fees and
expenses related to the merger, consolidation and restructuring of the
combined companies.
(7) On August 7, 1997, Interim announced a two-for-one stock split in the form
of a 100% stock dividend to stockholders of record as of the close of
business on August 18, 1997, payable on September 5, 1997. The effect has
been reflected and applied on a retroactive basis.
(8) Certain reclassifications have been made to prior periods to conform to the
current year presentation.
(9) At end of period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Interim is a leader in the area of human capital management. Interim is
organized into three operating segments, North America, Europe and
Australia/Asia. In each of its operating segments, Interim provides five
services. Interim's five services are: (1) consulting--including outplacement,
executive coaching and information technology consulting; (2) managed
staffing--such as temporary and permanent workforce management, which includes
Interim On-Premise and vendor management; (3) outsourcing--includes functional
management and staffing of various administrative functions, including full
service call center management; (4) search/recruitment--such as contingency
recruiting and executive retained search; and (5) flexible staffing--temporary
personnel from administrative personnel to executives.
On July 2, 1999, Interim completed its acquisition of Norrell. Under the
terms of the acquisition, the shareholders of Norrell received in exchange for
each share of Norrell's common stock either a 0.9 share of Interim's common
stock or a cash payment of $18.76. The holders of approximately 13% of Norrell's
common stock elected to receive the cash payment which amounted to approximately
$75.6 million. Accordingly, Interim issued approximately 20.8 million shares of
Interim's common stock to former Norrell shareholders and converted existing
options to purchase Norrell common stock into options to purchase approximately
1.6 million shares of Interim common stock. The value of the transaction
including stock issued, cash paid and debt assumed, was approximately
$650.0 million. Norrell is a strategic workforce management company focusing on
IT consulting, flexible staffing (including accounting, administrative and light
industrial), outsourcing, search/recruitment (accounting and administrative) and
managed staffing (administrative and light industrial). Operations of Norrell
were combined with Interim's existing operating segments effective with the
completion of the acquisition. As such, all the discussion in the following
Management's Discussion and Analysis includes Norrell's operations in Interim's
operating segments and services from July 2, 1999.
In 1998 and 1997, Interim made two significant acquisitions, Computer Power
and Michael Page, respectively. The Computer Power acquisition expanded both
Interim's technology consulting and flexible staffing into Australia and
Southeast Asia. The Michael Page acquisition provided Interim with its initial
launch into numerous international markets and makes Interim one of the world
leaders in accounting and finance flexible staffing and search/recruitment.
20
RESULTS OF OPERATIONS
The following table sets forth revenues and gross profit by service for the
periods indicated (in thousands):
YEAR ENDED
---------------------------------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
--------------------- --------------------- ---------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
-------- -------- --------
REVENUES:
Consulting........................ $ 544,108 17.2% $ 286,250 15.2% $ 192,262 13.6%
Managed Staffing.................. 550,342 17.4% 294,753 15.6% 236,125 16.6%
Outsourcing....................... 170,888 5.4% 21,417 1.1% 14,183 1.0%
Search/Recruitment................ 333,199 10.5% 257,507 13.6% 148,892 10.5%
Flexible Staffing................. 1,569,434 49.5% 1,030,186 54.5% 827,205 58.3%
---------- ------ ---------- ------ ---------- ------
3,167,971 100.0% 1,890,113 100.0% 1,418,667 100.0%
====== ====== ======
HealthCare*....................... -- -- 189,589
---------- ---------- ----------
Total............................... $3,167,971 $1,890,113 $1,608,256
========== ========== ==========
% OF % OF % OF
REVENUES REVENUES REVENUES
-------- -------- --------
GROSS PROFIT:
Consulting........................ $ 213,930 39.3% $ 108,864 38.0% $ 66,460 34.6%
Managed Staffing.................. 105,712 19.2% 59,453 20.2% 50,318 21.3%
Outsourcing....................... 29,165 17.1% 6,294 29.4% 1,060 7.5%
Search/Recruitment................ 333,199 100.0% 257,507 100.0% 148,892 100.0%
Flexible Staffing................. 356,784 22.7% 264,139 25.6% 220,140 26.6%
---------- ------ ---------- ------ ---------- ------
1,038,790 32.8% 696,257 36.8% 486,870 34.3%
HealthCare*....................... -- -- -- -- 76,538 40.4%
---------- ------ ---------- ------ ---------- ------
Total............................... $1,038,790 32.8% $ 696,257 36.8% $ 563,408 35.0%
========== ====== ========== ====== ========== ======
- ------------------------
* Through the date of sale on September 26, 1997.
FISCAL 1999 COMPARED WITH 1998
REVENUES. Revenues in 1999 increased 67.6% to $3.2 billion compared with
$1.9 billion in 1998. Excluding the impact of Norrell, revenues increased 31.2%
in 1999 compared with 1998. Consulting revenues (excluding Norrell) increased
52.4% in 1999 compared with 1998. Consulting growth reflects the fourth quarter
1998 acquisitions of Computer Power in Australia and Ouranos in The Netherlands
as well as strong organic growth in IT consulting. Organic growth rates in IT
consulting slowed in the second half of 1999 compared with growth rates during
the first half of the year due to weakening of demand for IT services in both
the U.S. and U.K. but showed positive growth throughout the year. Managed
staffing revenues (excluding Norrell) increased 27.2% in 1999 compared with 1998
reflecting the continued expansion in North America of both the Interim
On-Premise program and technology help-desk services. The increase in
Outsourcing revenues in 1999 was due to the Norrell acquisition.
Search/recruitment revenues (excluding Norrell) increased 24.1% in 1999 compared
with 1998 due to strong organic growth both in European finance, sales and
marketing recruitment and in North American finance recruitment. Flexible
staffing revenues (excluding Norrell) increased 28.8% in 1999 compared with
1998. Flexible staffing growth rates reflect strong organic growth within all
operating segments and with most skill types. Finance and accounting flexible
staffing worldwide was particularly strong in 1999 compared with 1998. The
acquisitions of AGO in The Netherlands in July 1998, Computer Power in
December 1998, Tutor in
21
March 1999 and the conversion of a franchise operation to Interim owned also
impacted flexible staffing growth rates.
GROSS PROFIT. Gross profit in 1999 increased 49.2% to $1.0 billion compared
with $696.3 million in 1998. Gross profit margins were 32.8% during 1999
compared with 36.8% during 1998. Excluding the impact of Norrell in 1999, gross
profit margins were 34.7%. The Norrell acquisition had the impact of lowering
overall gross profit margins due primarily to its flexible staffing business
which has slightly lower gross profit rates than Interim's existing flexible
staffing and a higher proportion of outsourcing business. Margins (excluding
Norrell) in 1999 were lower than the comparable 1998 periods due to the
inclusion this year of Computer Power's flexible staffing, lower pricing
associated with business expansion at existing On-Premise clients and higher
self-insured workers' compensation costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 49.6% to $738.7 million in 1999 compared with
$493.7 million in 1998. Selling, general and administrative expenses as a
percentage of revenues were 23.3% during 1999 compared with 26.1% during 1998.
Comparisons of selling, general and administrative expenses excluding Norrell
are less relevant as the functions and activities included in this caption were
consolidated and rationalized during third quarter 1999. Selling, general and
administrative expenses as a percentage of revenues declined in 1999 with higher
revenues allowing greater leveraging of expenses. In addition, Norrell's
outsourcing business which has a lower proportionate amount of selling, general
and administrative expenses, had the effect of lowering selling, general and
administrative expenses as a percentage of revenues in 1999. Positive trends
within selling, general and administrative expenses were somewhat offset as
Interim incurred approximately $6.5 million to deploy new technology, including
a new front-office system within its North American flexible staffing offices
and to consolidate its back office operations in North America and Australia.
LICENSEE COMMISSIONS. Licensee commissions increased 41.3% to
$71.8 million compared with $50.8 million in 1998. Licensee commissions
(excluding Norrell) in 1999 were $53.9 million and increased consistent with the
growth of Interim licensee revenue. Licensee commissions as a percentage of
revenue decreased during 1999 due to Norrell whose licensee commissions have a
lower commission structure than Interim.
AMORTIZATION OF INTANGIBLES. Amortization expense increased 51.5% to
$34.2 million compared with $22.6 million in 1998. The increase in 1999 compared
with 1998 reflects the increase in intangible assets arising from acquisitions.
Amortization expense in 1999, related to the goodwill recorded as a result of
the Norrell and Computer Power acquisitions, was $6.0 million and $3.3 million,
respectively.
INTEREST EXPENSE. Interest expense increased 30.3% to $39.3 million
compared with $30.2 million in 1998. The increase in 1999 compared with 1998
resulted from borrowings primarily associated with the Norrell acquisition and
the Computer Power acquisition. Interim had average borrowings outstanding
during 1999 of $635.4 million at an average interest rate including the effects
of interest rate swaps of 6.0%. Interim had average borrowings outstanding
during 1998 of $452.5 million at an average interest rate including the effects
of interest rate swaps of 6.5%.
INTEREST INCOME. Interest income in 1999 decreased to $3.0 million from
$6.3 million in the prior year period. Higher interest income in 1998 resulted
from higher cash balances resulting from the second quarter of 1998 common stock
and notes offerings.
YEAR 2000 COSTS. Year 2000 costs represent the costs associated with
remediating Norrell's application systems--see Year 2000 Compliance below.
RESTRUCTURING AND INTEGRATION COSTS. During 1999, Interim incurred
approximately $29.5 million of restructuring and integration costs related to a
plan (the "Plan") adopted by management in which certain redundant functions and
assets of Interim, as a result of the Norrell acquisition, will be eliminated.
22
Restructuring costs and charges of approximately $12.8 million include
employee severance costs of approximately $3.7 million and facility closure
costs of $7.0 million primarily relating to the elimination of redundant branch
locations. The employee severance related to approximately 160 positions from
various job functions, of which approximately 48 were terminated and
$1.3 million was paid as of December 31, 1999. The facility closure costs
include approximately $5.0 million in lease termination costs and approximately
$2.0 million in losses on the disposition of facility related fixed assets,
primarily the write-off of leasehold improvements on closed branch locations and
write-down of furniture and fixtures to their estimated fair value, determined
by comparable market information. These assets will be taken out of service at
the time properties are abandoned and consequently will not be depreciated
further after abandonment. Depreciation expense associated with the leasehold
improvements and furniture and fixtures to be disposed of amounted to
approximately $0.7 million for the year ended December 31, 1999. As of
December 31, 1999, approximately $4.9 million has been paid and the remainder is
included in accounts payable and accrued expenses. The majority of the accrual
remaining relates to lease abandonment costs of $3.7 million that will be paid
through 2004 unless early terminations can be negotiated and severance costs of
$2.2 million which will be paid during 2000.
In addition, as part of the Plan, Interim recorded a charge of approximately
$2.1 million for the write-off of certain software programs that will no longer
be utilized as a result of the acquisition. These assets were taken out of
service at the time of the write-down and consequently were not depreciated
further after the write-down.
Nonrecurring integration costs of approximately $16.7 million include
approximately $7.6 million in costs relating to employees whose positions have
been eliminated and were involved solely in exit functions and systems
integrations, approximately $5.0 million in consulting costs primarily related
to systems integrations, approximately $2.6 million for a one-time acquisition
completion incentive bonus, approximately $0.7 million in relocation of
employees and approximately $0.8 million in other related integration costs.
Substantially all of these costs were paid by December 31, 1999.
INCOME TAXES. The effective tax rate for 1999 was 42.8% or 42.0% before
Year 2000 costs and restructuring and integration costs, compared with 44.4% in
1998. The decrease in the effective rate resulted from an increase in the Work
Opportunity tax credits and reduced state income taxes.
NET EARNINGS. Excluding the after tax impact of the Year 2000 costs and the
restructuring and integration costs, diluted earnings per share in 1999 were
$1.61. This per share amount represents an increase in 1999 of 24.8% compared
with the same period in 1998 (before the extraordinary item). Net earnings in
1999 increased 20.9% to $70.8 million ($1.27 per diluted share) compared with
$58.6 million ($1.29 per diluted share) before the extraordinary item. The
weighted average number of shares (as adjusted for the dilutive impact of common
stock equivalents) in 1999 was 60.8 million compared with 48.2 million in 1998.
Higher average shares in 1999 reflect the issuance of 20.8 million shares in
July related to the Norrell acquisition. For 1999, Interim's fiscal year
included 53 weeks whereas 1998 included 52 weeks. The extra week in 1999
resulted in approximately $40.4 million in additional revenue, but net earnings
benefited by less than $500,000 as the 53(rd) week was a holiday week.
FISCAL 1998 COMPARED WITH 1997
REVENUES. Revenues in 1998 increased 17.5% to $1.9 billion from
$1.6 billion in 1997. Excluding revenues from HealthCare, which was sold at the
end of the third quarter 1997, 1998 revenues increased 33.2% from $1.4 billion.
The following comparisons exclude HealthCare. Consulting revenues increased
48.9% reflecting strong internal growth primarily in IT; the acquisition of Aim
in March 1997, combined with continued organic growth in outplacement and
executive coaching subsequent to the acquisition; and several smaller
acquisitions in outplacement in the first and third quarters of 1998. Managed
staffing revenues increased 24.8% reflecting the continued expansion of the
Interim On-Premise program and an increase in technology help-desk contracts.
Outsourcing revenues increased 51.0% due to increased
23
business with a significant customer. Search/recruitment revenues increased
72.9% due to the acquisitions of Michael Page in April 1997 and Aim in
March 1997, combined with their continued organic growth subsequent to the
acquisitions; and several smaller accounting acquisitions in the first and third
quarters of 1998. Flexible staffing revenues increased 24.5% reflecting the
acquisitions of Crone Corkill in the U.K. in March 1998, AGO in The Netherlands
in July 1998, and Michael Page in April 1997. Each of these acquired businesses
showed strong organic growth subsequent to acquisition. North American
administrative and light industrial flexible staffing grew at a slower rate than
in the prior year.
GROSS PROFIT. Gross profit in 1998 increased 23.6% to $696.3 million from
$563.4 million in 1997. Gross profit margin was 36.8% in 1998 compared with
35.0% in fiscal 1997. Excluding HealthCare, gross profit margin was 34.3% in
1997. Higher margins, excluding HealthCare, were principally due to an increase
in the amount of consulting and search/recruitment revenues as a percentage of
total revenues. Consulting and search/recruitment revenues generate higher gross
profit margins than flexible staffing. Excluding HealthCare, consulting and
search/recruitment revenue represented 28.8% of 1998 total revenue compared with
24.1% of total revenue in 1997. Higher pricing in IT also contributed to the
increase in the gross profit margin in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 23.6% to $493.7 million in 1998 from
$399.4 million in the prior year period. Selling, general and administrative
expenses as a percentage of revenues were 26.1% in 1998 compared with 24.8% in
fiscal 1997 due to the increase in consulting and search/recruitment as a
percentage of total revenues in 1998. These higher gross margin businesses have
higher operating expenses than flexible staffing and managed services.
LICENSEE COMMISSIONS. Licensee commissions increased 12.6% to
$50.8 million in 1998 from $45.1 million in the prior year period and is
consistent with the growth in licensee revenues. Licensee commissions as a
percentage of the related licensee revenues remained constant at 17.0%.
AMORTIZATION OF INTANGIBLES. Amortization expense increased 21.9% to
$22.6 million in 1998 from $18.5 million in the prior year period reflecting the
increase in intangible assets arising from acquisitions.
INTEREST EXPENSE. Interest expense increased 19.3% to $30.2 million in 1998
from $25.3 million in 1997. This increase primarily resulted from increased
borrowings for acquisitions, which began in the second quarter of 1997. Interim
had average borrowings outstanding during 1998 of $452.5 million at an average
rate of interest, including the effects of interest rate swaps, of 6.5% compared
with $361.2 million outstanding during 1997 at an average rate of interest of
6.9%.
INTEREST INCOME. Interest income increased to $6.3 million in 1998 from
$1.0 million in the prior year period, primarily due to the investment of
proceeds from Interim's common stock and notes offerings in May 1998.
GAIN ON SALE OF HEALTHCARE BUSINESS. The gain on sale of HealthCare of
$5.3 million in 1997 resulted from the divestiture of Interim's HealthCare
business in the third quarter of 1997. Interim consummated the sale of the
remaining portion of HealthCare, Interim HealthCare of New York, Inc. in
October 1998, which did not have a material impact on results of operations in
1998.
INCOME TAXES. The effective tax rate for 1998 was 44.4% compared with 47.8%
in 1997. The 1997 effective rate includes an approximate 100% effective rate on
the $5.3 million HealthCare sale gain due to a lower tax basis than book basis
in this business. Excluding the impact of the HealthCare gain, the effective
rate in 1997 was 44.2%.
EXTRAORDINARY ITEM. In June 1998, Interim prepaid its U.S. dollar
denominated term loan with a portion of the net proceeds from its common stock
and notes offerings, and recognized an extraordinary
24
charge for early extinguishment of debt of $2.8 million (net of income taxes)
including costs associated with the termination of the related interest rate
swap agreements.
NET EARNINGS. Earnings before the extraordinary loss on debt extinguishment
increased 37.8% to $58.6 million ($1.29 per diluted share) in 1998 from
$42.5 million ($1.05 per diluted share) in the prior year period. This
represents a 22.9% increase in per share earnings before extraordinary item. The
weighted average number of shares (as adjusted for the dilutive impact of common
stock equivalents) increased to 48.2 million in 1998 from 40.4 million in the
prior year period, primarily due to the issuance of 7.0 million shares of common
stock and $207.0 million of convertible subordinated debt in the second quarter
of 1998.
OPERATING SEGMENTS
Interim currently operates in three operating segments: North America,
Europe and Australia/Asia. In 1997, Interim's operating segments also included
HealthCare. See Operations Overview and notes to the consolidated financial
statements included herein for further discussion and financial information
regarding these operating segments.
25
Information on operating segments and a reconciliation to earnings before
income taxes and extraordinary item for the years ended December 31, 1999,
December 25, 1998 and December 26, 1997 are as follows (in thousands):
YEAR ENDED
---------------------------------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
--------------------- --------------------- ---------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
-------- -------- --------
REVENUES:
North America..................... $2,274,293 71.8% $1,382,383 73.1% $1,159,089 72.1%
Europe............................ 642,828 20.3% 455,845 24.1% 223,345 13.9%
Australia/Asia.................... 250,850 7.9% 51,885 2.8% 36,233 2.2%
---------- ------ ---------- ------ ---------- ------
3,167,971 100.0% 1,890,113 100.0% 1,418,667 88.2%
HealthCare*....................... -- -- -- -- 189,589 11.8%
---------- ------ ---------- ------ ---------- ------
$3,167,971 100.0% $1,890,113 100.0% $1,608,256 100.0%
========== ====== ========== ====== ========== ======
% OF % OF % OF
REVENUES REVENUES REVENUES
-------- -------- --------
GROSS PROFIT:
North America..................... $ 625,659 27.5% $ 425,713 30.8% $ 340,603 29.4%
Europe............................ 327,121 50.9% 244,471 53.6% 127,467 57.1%
Australia/Asia.................... 86,010 34.3% 26,073 50.3% 18,800 51.9%
---------- ------ ---------- ------ ---------- ------
1,038,790 32.8% 696,257 36.8% 486,870 34.3%
HealthCare*....................... -- -- -- -- 76,538 40.4%
---------- ------ ---------- ------ ---------- ------
$1,038,790 32.8% $ 696,257 36.8% $ 563,408 35.0%
========== ====== ========== ====== ========== ======
% OF % OF % OF
REVENUES REVENUES REVENUES
-------- -------- --------
SEGMENT CONTRIBUTION:
North America..................... $ 166,920 7.3% $ 110,593 8.0% $ 91,293 7.9%
Europe............................ 77,087 12.0% 63,765 14.0% 35,057 15.7%
Australia/Asia.................... 16,282 6.5% 4,651 9.0% 4,533 12.5%
---------- ------ ---------- ------ ---------- ------
260,289 8.2% 179,009 9.5% 130,883 9.2%
HealthCare*......................... -- -- -- -- 16,340 8.6%
---------- ------ ---------- ------ ---------- ------
260,289 8.2% 179,009 9.5% 147,223 9.2%
====== ====== ======
Central costs....................... 66,141 49,837 46,815
Year 2000 costs..................... 4,420 -- --
Restructuring and integration
costs............................. 29,542 -- --
Gain on sale of HealthCare.......... -- -- (5,300)
Interest, net....................... 36,304 23,819 24,269
---------- ---------- ----------
Earnings before income taxes and
extraordinary item................ $ 123,882 $ 105,353 $ 81,439
========== ========== ==========
- ------------------------
* Through the date of sale on September 26, 1997.
NORTH AMERICA. North American revenues, which represented 71.8% of total
revenues in 1999, increased 64.5% to $2.3 billion compared with $1.4 billion in
1998. Excluding the impact of Norrell, revenues increased 17.2% in 1999 compared
with 1998. Gross profit in 1999 increased 47.0% compared with 1998. Excluding
the impact of Norrell, gross profit increased 15.1% in 1999 compared with 1998.
Segment contribution (income before central costs, Year 2000 costs,
restructuring and integration costs, gain on sale of HealthCare, interest and
income taxes) for 1999 increased 50.9% compared with 1998. Higher revenues
(excluding Norrell) for 1999 compared with 1998 resulted from strong organic
growth
26
rates in most service offerings particularly in Interim Financial Solutions and
Interim Executive Recruiting. Particularly strong growth rates were achieved for
Interim On-Premise in 1999 and within IT consulting and staffing during the
first six months of 1999. Gross profit margins decreased due to the Norrell
acquisition, with its flexible staffing and outsourcing business units having
lower gross profit margins. Also contributing to lower gross profits were higher
self insured workers' compensation costs and lower pricing at existing
On-Premise clients. Segment contribution rates decreased in 1999 compared with
1998 reflecting the impact that the Norrell business units have on overall
profitability. Segment contribution was also impacted by the costs associated
with the deployment of new technology including a new front-office system within
its North American flexible staffing offices and the consolidation of the North
American back office operations.
North American revenues, which represented 73.1% of total revenues in 1998,
increased 19.3% to $1.4 billion from $1.2 billion in the prior year period. 1998
gross profit in North America increased 25.0% over 1997 and the gross profit
margin was stable. Segment contribution increased 21.1% over 1997. Higher
revenues in 1998 compared with 1997 resulted from strong organic growth rates in
most service offerings with particularly strong growth in technology related
consulting. Several acquisitions, including Aim in March 1997 and other
acquisitions made throughout 1998 in outplacement and executive coaching, also
contributed to revenue growth. Both gross profit margin and segment contribution
rates expanded in 1998 compared with 1997 due to higher pricing from Technology
Consulting and an increase in consulting and search/recruitment revenues as a
percentage of total revenues.
EUROPE. European revenues, which represented 20.3% of total revenues in
1999, increased 41.0% to $642.8 million compared with $455.8 million in 1998.
Excluding the impact of Norrell, revenues increased 33.6% in 1999 compared with
1998. Gross profit in 1999 increased 33.8% compared with 1998. Excluding the
impact of Norrell, gross profit increased 27.5% in 1999 compared with 1998.
Segment contribution in 1999 increased 20.9% compared with 1998. Factors
contributing to the increases in revenues, gross profit and segment contribution
include the acquisitions of AGO in July 1998, Ouranos in November 1998, Tutor in
March 1999 and a full year of revenue from Crone Corkill which was acquired in
March 1998, combined with strong organic growth primarily in finance and sales
and marketing flexible staffing and search/ recruitment. The decrease in
European gross profit margin is primarily due to increased flexible staffing
revenues as a percentage of total revenues. Flexible staffing gross profit
margins are lower than search/ recruitment margins. The decrease in segment
contribution as a percentage of revenues in 1999 compared with 1998 resulted
primarily from the lower gross profit margin.
European revenues, which represented 24.1% of total revenues in 1998,
increased 104.1% to $455.8 million from $223.3 million in the prior year period.
1998 gross profit in Europe increased 91.8% over 1997 and the gross profit
margin decreased to 53.6% from 57.1% in the prior year period. Segment
contribution increased 81.9% over 1997. Factors contributing to the increase in
revenues, gross profit and segment contribution include the acquisitions of
Crone Corkill in March 1998, AGO in July 1998 and Michael Page in April 1997,
combined with Michael Page's continued organic growth subsequent to the
acquisition. The decrease in European gross profit margin is primarily due to
increased flexible staffing revenues as a percentage of total revenues. Flexible
staffing gross profit margins are lower than search/ recruitment. The decline in
gross profit margin was partially offset by an increase in technology related
consulting revenues. The decrease in segment contribution as a percentage of
revenues from 15.7% in 1997 to 14.0% in 1998 resulted primarily from lower gross
profit margin.
AUSTRALIA/ASIA. Australian/Asian revenues, which represented 7.9% of total
revenues in 1999, increased significantly to $250.9 million. Gross profit for
1999 increased to $86.0 million from $26.1 million in the prior year. Segment
contribution for 1999 increased to $16.3 million from $4.7 million in 1998. The
increase in revenues and gross profits during 1999 is due to the acquisition of
Computer Power at the end of 1998 as well as organic growth within Michael Page.
The decrease in gross profit margin and segment contribution margin in 1999
compared with 1998 is due to the addition of a significant amount of flexible
staffing revenue with the acquisition of Computer Power.
27
Australian/Asian revenues, which represented 2.8% of total revenues in 1998,
increased 43.2% to $51.9 million from the prior year period. 1998 gross profit
in Australia/Asia increased 38.7% over 1997 and the gross profit margin
decreased to 50.3% from 51.9% in the prior year period. Segment contribution
increased slightly over 1997. The increase in revenues, gross profit and segment
contribution was due to the acquisition of Michael Page in April 1997, combined
with its continued organic growth subsequent to the acquisition. The
December 1998 acquisition of Australia-based Computer Power had no impact on
1998 results. The decrease in Australian/Asian gross profit margin and segment
contribution margin is primarily due to the disproportionate increase in
flexible staffing revenues compared with search/recruitment revenues.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Historically, Interim has financed its operations through cash generated by
operating activities and bank lines of credit. Interim's principal uses of cash
are funding acquisitions, capital expenditures, working capital needs and
repayment of debt. The nature of Interim's business requires payment of wages to
its flexible staff and consultants on a weekly or bi-weekly basis, while
payments from clients are generally received 30-60 days after billing. Interim
believes that its internally generated funds and lines of credit are sufficient
to support operating activities during the next 12 months.
In July 1999, Interim completed a plan of financing which included
a) increasing the size of the senior credit facility from $359.2 million to
$675.0 million ($266.3 million outstanding at December 31, 1999); b) adding a
facility secured by Interim's accounts receivable of $250.0 million
($158.6 million drawn at December 31, 1999); c) and issuing $53.0 million in
Australian dollar term financing ($50.5 million outstanding at December 31,
1999). The debt backed by accounts receivable and the Australian financing were
used to repay existing indebtedness of Norrell, fund the cash portion of the
purchase price and fund transaction costs associated with the acquisition.
In May 1998, Interim completed an offering of 7.0 million shares of its
Common Stock (the "Common Stock Offering"), resulting in proceeds to Interim of
approximately $197.0 million net of issuance costs and offering expenses.
Concurrently with the Common Stock Offering, Interim completed an offering of
$207.0 million of 4 1/2% Convertible Subordinated Notes due 2005 (the "Notes
Offering"), resulting in proceeds to Interim of approximately $201.3 million net
of issuance costs and offering expenses. A portion of the proceeds from the
Common Stock and Notes Offerings was used to repay borrowings under Interim's
existing credit facilities and for acquisitions. The balance of the proceeds was
used for general corporate purposes, including strategic acquisitions.
Cash provided by operating activities in 1999 was $152.0 million compared
with cash provided in 1998 of $69.2 million and cash provided in 1997 of
$57.8 million. Higher operating cash flows during 1999 resulted from increased
earnings before restructuring costs, higher amortization and depreciation, and
increased deferred income tax expense primarily due to the Norrell acquisition.
Higher 1999 operating cash flow also resulted from lower receivable levels due
to a decrease in days sales outstanding, the liquidation of certain investments
previously held by Norrell and an increase in participants and contributions in
the deferred compensation plan. The increase in 1999 operating cash flow was
partially offset by higher cash payments to settle liabilities assumed in the
acquisition of Norrell and a change in the timing of estimated tax payments in
the U.K. Higher operating cash flow in 1998 compared with 1997 resulted from
increased earnings, higher amortization and depreciation, a larger increase in
other assets in 1997 associated with a long-term receivable related to a new
major customer contract and the 1997 gain on the sale of HealthCare. The
increase in 1998 operating cash flow was partially offset by less cash provided
by changes in working capital in 1998 compared with 1997. Higher cash flow from
working capital changes in 1997 was primarily due to the timing of Interim's
fiscal year end in 1997, increases in interest payable and the timing of
advertising and sub-contracted vendor payments at the end of 1997.
28
Investing activities used $325.0 million in 1999 primarily due to the
acquisition of Norrell on July 2, 1999 which included cash payments of
$87.8 million, the remaining payments of $111.0 million made in the first
quarter of 1999 on the December 1998 acquisition of Computer Power and various
buybacks of Interim's license operations. Investing activities in 1999 included
$55.8 million of capital expenditures primarily related to new computer hardware
and software to upgrade and expand Interim's information technology capabilities
including the new front office system within North American flexible staffing
and expenditures associated with Interim's Outsourcing business. Investing
activities used $158.3 million in 1998 primarily due to acquisitions in the
areas of outplacement and career consulting, technology consulting, accounting
search/recruitment and flexible staffing and European flexible staffing.
Investment activities in 1998 included capital expenditures of $37.5 million
primarily also for new computer hardware and software and new office related
expenditures. Investing activities used $474.7 million in 1997 primarily for the
acquisitions of Michael Page and Aim and capital expenditures of $24.9 million
for the expansion of Interim's headquarters and branch locations and for
furniture and fixtures for new offices. Investing activities in 1997 were
partially offset by the proceeds from the sale of the HealthCare business. In
the year 2000, Interim expects to have capital expenditures about equal to 1999
levels and plans to pay approximately $67.5 million for earnouts (contingent
consideration) associated with prior Interim and Norrell acquisitions.
Cash provided by financing activities was $57.2 million, $226.8 million and
$413.5 million in 1999, 1998 and 1997, respectively. Cash provided by financing
activities in 1999 primarily reflects net borrowings for the Norrell and other
acquisitions offset by $89.4 million of purchases of Interim's common stock. As
part of the acquisition of Norrell, Interim assumed $125.5 million in existing
Norrell debt, which was repaid with the proceeds of borrowings under Interim's
credit facilities. Cash provided by financing activities in 1998 primarily
reflects proceeds from the Common Stock and Notes Offerings, offset by repayment
of borrowings under Interim's existing credit facilities. In 1997, cash provided
by financing activities resulted from borrowings under a multi-currency credit
facility primarily for the acquisition of Michael Page.
Interim intends to continue to make strategic acquisitions to grow its
business. Funding for these acquisitions will come from: i) internally generated
funds; ii) borrowings on Interim's credit facility; and iii) raising additional
capital.
FINANCING
Interim has a multi-currency syndicated credit agreement entered into as of
May 1, 1997 and amended in July 1999 ("Credit Facility"). The Credit Facility
was increased from $359.2 million to $675.0 million and the term was extended to
2004. Outstanding borrowings at December 31, 1999 subject to this Credit
Facility were a $266.3 million revolving loan and $11.2 million in loan notes to
prior shareholders of Michael Page. The revolving loans and loan notes are
denominated in British pound sterling. Borrowings under this Credit Facility are
unsecured. The Credit Facility is available to fund Interim's acquisitions, to
supply working capital and to provide for general corporate needs. Interest
rates on amounts outstanding under the Credit Facility are based on LIBOR plus a
variable margin. The Credit Facility contains customary covenants, which include
restrictions on the payment of cash dividends, as well as the maintenance of
certain financial ratios including minimum net worth, restrictions on the
incurrence of liens and additional indebtedness. In July 1999, Interim also
added a loan facility secured by Interim's accounts receivable of
$250.0 million ($158.6 million outstanding at December 31, 1999) ("Accounts
Receivable Securitization") and issued a $53.0 million Australian dollar term
financing ($50.5 million outstanding at December 31, 1999). Interest rates on
the Accounts Receivable Securitization borrowings and the Australian dollar term
financing are based on commercial paper market rates and Australian bank bills
plus a variable margin, respectively. In addition, Interim has established
short-term, unsecured lines of credit with certain banks. Interest rates on
these lines of credit are based on LIBOR and are available to fund Interim's
short-term capital requirements. There was approximately $537.2 million
available for future borrowings under these agreements at December 31, 1999.
29
In May 1998, Interim also issued $207.0 million of 4 1/2% Convertible
Subordinated Notes due June 1, 2005. See notes to the consolidated financial
statements for discussion of these notes.
YEAR 2000 COMPLIANCE
Interim has completed its Year 2000 project and all systems are functioning
adequately. Interim's cost of the project was $4.9 million, most of which was to
remediate Norrell's systems subsequent to the July 2, 1999 acquisition. These
costs include both personnel costs related to project management, programming
and hardware and software upgrades.
INFLATION
The effects of inflation on Interim's operations were not significant during
the periods presented in the financial statements.
IMPACT OF THE EURO
The Euro was introduced on January 1, 1999, at which time the eleven
irrevocable participating European Monetary Union (EMU) member countries
established fixed conversion rates between their existing currencies (legacy
currencies) and the Euro. The legacy currencies will continue to be used as
legal tender through January 1, 2002. Interim has initiated an internal analysis
regarding the business and systems issues related to the Euro conversion and has
begun a comprehensive action plan to ensure that all necessary modifications are
made on a timely basis. The costs of addressing the Euro conversion are not
expected to be material. Depending upon the type of cost, the amount will be
charged to operations as incurred or capitalized as software consistent with
Interim's policies. Interim believes that the conversion to the Euro will not
have a significant impact on the marketing strategy for Interim's international
operations. Interim has studied the implications of the overall Euro conversion
and does not expect it to have a material impact on Interim's financial
condition or results of operations upon adoption.
SEASONALITY AND CYCLICALITY OF BUSINESS
Interim's businesses are not seasonal in nature. However, the staffing
industry has historically been considered to be cyclical, often acting as a
coincidental indicator of both economic downswings and upswings. Interim
believes that the balance between Interim's service lines may help reduce the
impact of cyclicality. The growth of Interim Career Consulting, which
specializes in outplacement, is also expected to mitigate the impact of
cyclicality as outplacement growth rates amplify during a slower economy,
offsetting other services which may be fairly sensitive to economic declines. As
a result of general shifting of employment patterns, Interim believes it may
become less cyclical.
OTHER
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement" or "SFAS No. 133"). The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB No. 133" ("SFAS No. 137").
SFAS No. 133 is amended to be effective for fiscal years beginning after
June 15, 2000 and cannot be applied retroactively. Interim has not yet
quantified the impacts of adopting SFAS No. 133 on its financial statements.
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, Interim maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate risk and will
decline in value if interest rates increase. Due to the short duration of these
financial instruments, an immediate increase of 1% in interest rates would not
have a material effect on Interim's financial condition.
Interim's outstanding variable rate debt at December 31, 1999 and
December 25, 1998 was $522.7 million and $241.8 million, respectively. Interest
rates on the Credit Facility and other short-term borrowings are based on LIBOR
plus a variable margin. Interest rates on the Accounts Receivable Securitization
borrowings and the Australian dollar term financing are based on commercial
paper market rates and Australian bank bills plus a variable margin,
respectively. Based on the outstanding balance, a change of 1% in the interest
rate would cause a change in interest expense of approximately $5.2 million and
$2.4 million in 1999 and 1998, respectively, on an annual basis not considering
the offset of the interest rate swap discussed below.
Interim utilizes interest rate swap agreements to reduce the impact on
interest expense of fluctuating interest rates on its variable rate debt.
Interim had a variable to variable interest rate swap agreement outstanding as
of December 31, 1999 and December 25, 1998 with the notional amount of
$121.4 million and $125.5 million, respectively, which effectively converts
interest from a British pound LIBOR basis to a broader index and caps Interim's
exposure to upward movement in rates at 8.5%. This agreement expires in 2002.
The fair value of the outstanding interest rate swap as of December 31, 1999 and
December 25, 1998 was $1.3 million and $4.1 million, respectively.
In May 1998, Interim issued $207.0 million of 4 1/2% Convertible
Subordinated Notes due June 2005. The fair value of Interim's fixed rate
convertible subordinated debt as of December 31, 1999 and December 25, 1998 was
$183.7 million and $175.6 million, respectively, compared with the related
carrying value of $207.0 million.
The purpose of Interim's foreign exchange hedging activities is to mitigate
the impact of changes in foreign currency exchange rates. Interim attempts to
hedge transaction exposures through natural offsets. To the extent this is not
practicable, exposure areas which are considered for hedging include foreign
currency denominated receivables and payables, intercompany loans, firm
committed transactions and dividends related to foreign subsidiaries. Interim
uses financial instruments, principally forward exchange contracts, in its
management of foreign currency exposures. Interim does not enter into forward
contracts for trading purposes. At December 31, 1999 and December 25, 1998,
Interim had outstanding foreign currency forward contracts to sell Australian
dollars in the notional amount of $76.9 million and $96.1 million, respectively.
The cost to terminate foreign currency forward contracts as of December 31, 1999
and December 25, 1998 was $0.1 million and $2.5 million, respectively.
FORWARD-LOOKING STATEMENTS
Part I and Part II, Items 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) and 7A (Quantitative and
Qualitative Disclosures about Market Risk) of this Annual Report on Form 10-K
contain forward-looking statements, including statements regarding, among other
matters: (i) Interim's plans, intentions and expectations with respect to its
future prospects, including its business and growth strategies; (ii) industry
trends and competitive conditions; (iii) expected capital expenditures to be
made in the future; (iv) resolution of pending litigation without material
adverse effect on Interim; (v) Interim's expectations about the transition to
the Euro; and (vi) Interim's quantitative and qualitative estimates as to market
risk. This notice is intended to take advantage of the "safe harbor" provided by
the Private Securities Litigation Reform Act of 1995 with respect to such
forward-looking statements. These forward-looking statements involve a number of
risks and uncertainties. Among others, factors that could cause actual results
to differ materially from Interim's beliefs or expectations are the following:
industry trends and trends in the general economy; competitive factors in the
markets in which Interim operates; changes in regulatory requirements which are
applicable to Interim's business; and other factors referenced herein or from
time to time in Interim's Securities and Exchange Commission reports.
31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Interim Services Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Interim
Services Inc. and subsidiaries ("Interim") as of December 31, 1999 and
December 25, 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of Interim's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Interim Services Inc. and
subsidiaries as of December 31, 1999 and December 25, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
February 15, 2000
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERIM SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED
---------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Revenues................................................. $3,167,971 $1,890,113 $1,608,256
Cost of services......................................... 2,129,181 1,193,856 1,044,848
---------- ---------- ----------
Gross profit........................................... 1,038,790 696,257 563,408
---------- ---------- ----------
Selling, general and administrative expenses............. 738,728 493,744 399,417
Licensee commissions..................................... 71,750 50,791 45,091
Amortization of intangibles.............................. 34,164 22,550 18,492
Interest expense......................................... 39,294 30,157 25,271
Interest income.......................................... (2,990) (6,338) (1,002)
Year 2000 costs.......................................... 4,420 -- --
Restructuring and integration costs...................... 29,542 -- --
Gain on sale of HealthCare business...................... -- -- (5,300)
---------- ---------- ----------
914,908 590,904 481,969
---------- ---------- ----------
Earnings before income taxes and extraordinary item.... 123,882 105,353 81,439
Income taxes............................................. 53,049 46,776 38,928
---------- ---------- ----------
Earnings before extraordinary item..................... 70,833 58,577 42,511
Extraordinary item--early extinguishment of debt, net of
income taxes of $1,849................................. -- 2,773 --
---------- ---------- ----------
Net earnings........................................... $ 70,833 $ 55,804 $ 42,511
========== ========== ==========
Basic earnings per share:
Earnings before extraordinary item....................... $ 1.29 $ 1.32 $ 1.08
Extraordinary item....................................... -- (0.06) --
---------- ---------- ----------
Net earnings............................................. $ 1.29 $ 1.26 $ 1.08
========== ========== ==========
Diluted earnings per share:
Earnings before extraordinary item....................... $ 1.27 $ 1.29 $ 1.05
Extraordinary item....................................... -- (0.06) --
---------- ---------- ----------
Net earnings............................................. $ 1.27 $ 1.23 $ 1.05
========== ========== ==========
Basic weighted average shares outstanding................ 54,949 44,237 39,305
========== ========== ==========
Diluted weighted average shares outstanding.............. 60,837 48,244 40,407
========== ========== ==========
See notes to Consolidated Financial Statements.
33
INTERIM SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, DEC. 25,
1999 1998
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 37,539 $ 153,314
Receivables, less allowance for doubtful accounts of
$16,956 and $8,937...................................... 560,713 327,296
Deferred tax asset........................................ 45,686 10,480
Other current assets...................................... 64,452 45,906
---------- ----------
Total current assets.................................. 708,390 536,996
Goodwill, net............................................... 1,270,562 705,837
Tradenames and other intangibles, net....................... 200,909 213,357
Property and equipment, net................................. 135,976 90,622
Other assets................................................ 71,112 58,854
Deferred tax asset.......................................... 51,952 1,142
---------- ----------
$2,438,901 $1,606,808
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 216,108 $ 21,943
Due to Computer Power shareholders........................ -- 111,008
Accounts payable and other accrued expenses............... 223,409 101,469
Accrued salaries, wages and payroll taxes................. 184,611 114,015
Other current liabilities................................. 33,774 36,173
---------- ----------
Total current liabilities............................. 657,902 384,608
Long-term debt, net of current portion...................... 513,611 426,856
Other long-term liabilities................................. 108,128 57,404
---------- ----------
Total liabilities..................................... 1,279,641 868,868
---------- ----------
Commitments and contingencies (see footnotes)............... -- --
Stockholders' Equity:
Preferred stock, par value $.01 per share; authorized
2,500,000 shares; none issued or outstanding............ -- --
Common stock, par value $.01 per share; authorized
200,000,000 and 100,000,000 shares; issued 65,341,425
and 47,335,654.......................................... 653 473
Treasury stock, at cost, 1,751,143 shares................. (31,628) --
Additional paid-in capital................................ 868,572 468,032
Retained earnings......................................... 333,098 262,265
Accumulated other comprehensive (loss)/income............. (11,435) 7,170
---------- ----------
Total stockholders' equity............................ 1,159,260 737,940
---------- ----------
$2,438,901 $1,606,808
========== ==========
See notes to Consolidated Financial Statements.
34
INTERIM SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR FISCAL YEARS ENDED DECEMBER 31, 1999, DECEMBER 25, 1998 AND DECEMBER 26,
1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
ADDITIONAL OTHER
COMMON TREASURY PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS (LOSS)/INCOME TOTAL
-------- -------- ---------- -------- -------------- ----------
Balance as of December 27, 1996.................... $390 $ (460) $251,041 $163,950 $ (210) $ 414,711
----------
Comprehensive income:
Net earnings..................................... -- -- -- 42,511 -- 42,511
Other comprehensive income:
Foreign currency translation adjustments....... -- -- -- -- 6,877 6,877
----------
Comprehensive income............................. 49,388
----------
Proceeds from exercise of employee stock options,
including tax benefit............................ 7 460 8,744 -- -- 9,211
Common stock issued under Employee Stock Purchase
Plan............................................. -- -- 177 -- -- 177
Other.............................................. -- -- 105 -- -- 105
---- -------- -------- -------- -------- ----------
Balance as of December 26, 1997.................... 397 -- 260,067 206,461 6,667 473,592
----------
Comprehensive income:
Net earnings..................................... -- -- -- 55,804 -- 55,804
Other comprehensive income:
Foreign currency translation adjustments....... -- -- -- -- 503 503
----------
Comprehensive income............................. 56,307
----------
Sale of 7,000,000 shares of common stock in a
public offering, net............................. 70 -- 196,945 -- -- 197,015
Proceeds from exercise of employee stock options,
including tax benefit............................ 5 -- 8,966 -- -- 8,971
Common stock issued under Employee Stock Purchase
Plan............................................. 1 -- 2,054 -- -- 2,055
---- -------- -------- -------- -------- ----------
Balance as of December 25, 1998.................... 473 -- 468,032 262,265 7,170 737,940
----------
Comprehensive income:
Net earnings..................................... -- -- -- 70,833 -- 70,833
Other comprehensive loss:
Foreign currency translation adjustments....... -- -- -- -- (18,605) (18,605)
----------
Comprehensive income............................. 52,228
----------
Purchase of treasury stock......................... -- (89,368) -- -- -- (89,368)
Common stock issued and treasury stock reissued in
connection with the Norrell acquisition.......... 175 54,182 383,025 -- -- 437,382
Proceeds from exercise of employee stock options,
including tax benefit............................ 3 1,498 4,821 -- -- 6,322
Common stock issued and treasury stock reissued
under Employee Stock Purchase Plan............... 2 1,651 1,481 -- -- 3,134
Common stock issued, treasury stock reissued and
compensation earned in connection with deferred
compensation..................................... -- 409 11,236 -- -- 11,645
Other.............................................. -- -- (23) -- -- (23)
---- -------- -------- -------- -------- ----------
Balance as of December 31, 1999.................... $653 $(31,628) $868,572 $333,098 $(11,435) $1,159,260
==== ======== ======== ======== ======== ==========
See notes to Consolidated Financial Statements.
35
INTERIM SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
FISCAL YEARS ENDED
---------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Cash Flows from Operating Activities:
Earnings before extraordinary item........................ $ 70,833 $ 58,577 $ 42,511
Adjustments to reconcile earnings to net cash from
operating activities:
Depreciation and amortization........................... 65,151 44,351 34,874
Deferred income tax expense/(benefit)................... 8,174 (5,206) (5,654)
Restructuring charge.................................... 12,650 -- --
Gain on sale of HealthCare business..................... -- -- (5,300)
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables........................................... (43,309) (47,645) (48,288)
Other assets.......................................... 10,902 (5,199) (12,615)
Accounts payable and accrued expenses................. 21,554 23,911 50,772
Other................................................. 6,010 453 1,457
--------- --------- ---------
Net Cash Provided by Operating Activities......... 151,965 69,242 57,757
--------- --------- ---------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired........................ (269,189) (136,223) (570,356)
Capital expenditures...................................... (55,778) (37,502) (24,913)
Proceeds from the sale of HealthCare business, net........ -- 15,410 113,109
Net proceeds from the sale of marketable securities....... -- -- 7,499
--------- --------- ---------
Net Cash Used in Investing Activities............. (324,967) (158,315) (474,661)
--------- --------- ---------
Cash Flows from Financing Activities:
Debt proceeds............................................. 284,257 205,730 509,019
Debt repayments........................................... (134,487) (186,843) (101,911)
Net proceeds from common stock offering................... -- 197,015 --
Purchase of treasury stock................................ (89,368) -- --
Proceeds from exercise of employee stock options and stock
purchase plan........................................... 8,774 9,877 8,019
Other, net................................................ (11,949) 1,038 (1,591)
--------- --------- ---------
Net Cash Provided by Financing Activities......... 57,227 226,817 413,536
--------- --------- ---------
(Decrease)/increase in cash and cash equivalents.......... (115,775) 137,744 (3,368)
Cash and cash equivalents, beginning of period............ 153,314 15,570 18,938
--------- --------- ---------
Cash and cash equivalents, end of period.................. $ 37,539 $ 153,314 $ 15,570
========= ========= =========
Supplemental Cash Flow Information:
CASH PAID DURING THE YEAR FOR:
Income taxes............................................ $ 58,506 $ 44,435 $ 37,917
========= ========= =========
Interest................................................ $ 34,759 $ 32,896 $ 21,316
========= ========= =========
NON-CASH ACTIVITIES:
Payable in connection with purchase of Computer Power... $ -- $ 111,008 $ --
========= ========= =========
Stock issuance in connection with the Norrell
acquisition........................................... $ 383,200 $ -- $ --
========= ========= =========
Reissuance of treasury stock in connection with the
Norrell acquisition................................... $ 54,182 $ -- $ --
========= ========= =========
See notes to Consolidated Financial Statements.
36
INTERIM SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Interim Services Inc. and subsidiaries ("Interim") is a global
human capital management company. Through consulting, managed staffing,
outsourcing, search/recruitment and flexible staffing, Interim provides
professionals in the fields of information technology, finance, law,
manufacturing and human resources, as well as clerical, administrative and light
industrial staffing.
Interim operates in 12 countries: Australia, Canada, France, Germany, Hong
Kong, Italy, New Zealand, Singapore, Spain, The Netherlands, the United Kingdom
and the United States. Interim considers its operating segments to be North
America, Europe and Australia/Asia. These operating segments generally follow
the management organization structure of Interim. The operating segments also
represent, in the opinion of management, the most meaningful aggregation of
Interim's multiple operating units across the world. This aggregation is based
upon geographic similarities including market growth rates, profitability,
foreign currency exposure and local laws and regulations. In each of these
operating segments, Interim's five services, consulting, managed staffing,
outsourcing, search/recruitment and flexible staffing, are provided.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Interim Services Inc. and its wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated. Certain
prior year amounts have been restated to conform with the current year
presentation.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
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. Due to the inherent uncertainty involved in making
estimates, actual results reported in future periods may be different from those
estimates.
FISCAL YEAR -- Interim's fiscal year is comprised of 52 or 53 weeks, ending
on the last Friday in December. The fiscal year ended December 31, 1999 was 53
weeks and the fiscal years ended December 25, 1998 and December 26, 1997 were 52
weeks.
CASH AND CASH EQUIVALENTS -- Interim considers all highly liquid investments
with original maturities of 90 days or less at the time of purchase to be cash
equivalents. Cash equivalents are carried at cost which approximates fair value.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- Interim carries accounts receivable at
the amount it estimates to be collectible. Accordingly, Interim provides
allowances for accounts receivable it estimates to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of accounts receivable that become uncollectible
could differ from those estimated.
INTANGIBLE ASSETS -- Intangible assets consist principally of goodwill and
tradenames and are being amortized on a straight-line basis over periods of
approximately 39 years. Interim evaluates the recoverability of intangible
assets, as well as amortization periods, to determine whether an adjustment to
carrying values or a revision to estimated useful lives is appropriate.
Recoverability is determined through evaluation of anticipated cash flows on an
undiscounted basis. If the estimated future cash flows are projected to be less
than the carrying value, an impairment write-down would be recorded.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over the shorter of
their estimated useful life or the lease term using the straight-line method.
Maintenance and repairs which do not improve or extend the life of an asset are
expensed as incurred.
37
ACCRUED SELF-INSURANCE LOSSES -- Interim retains a portion of the risk under
its workers' compensation, general liability/professional liability, employment
practices liability insurance programs and health insurance benefits programs.
Reserves have been recorded which reflect the discounted estimated liabilities
including claims incurred but not reported. Workers' compensation losses,
general liability/professional liability and employment practices liability
losses have been discounted at approximately 6.0% and 4.9% at December 31, 1999
and December 25, 1998, respectively. Such liabilities are necessarily based on
estimates and, while management believes that the amount is adequate, there can
be no assurance that changes to management's estimates may not occur due to
limitations inherent in the estimation process. Changes in the estimates of
these accruals are charged or credited to income in the period determined.
Interim funds portions of its retained risks through deposits with insurance
carriers and others. These deposits are reflected in other current assets on the
accompanying Consolidated Balance Sheets and reflect the estimated fair market
value of such amounts.
FOREIGN CURRENCY TRANSLATION -- Interim's foreign operations use the local
currency as their functional currency. Assets and liabilities of these
operations are translated at the exchange rates in effect on the balance sheet
date. Income statement items are translated at the average exchange rates for
the year. The impact of currency fluctuation is included in stockholders' equity
as part of accumulated other comprehensive (loss)/income.
REVENUE RECOGNITION -- Interim generates revenues from sales of services by
its own branch and licensed operations and from royalties earned on sales of
services by its franchise operations. Franchise royalties, which are included in
revenues, were $8.8 million, $9.4 million and $23.1 million for the years ended
December 31, 1999, December 25, 1998 and December 26, 1997, respectively.
Revenues and the related labor costs and payroll taxes are recorded in the
period in which flexible staffing services are performed. Revenues on placements
are recognized when services provided are substantially completed. Allowances
are established to estimate losses due to placed candidates not remaining
employed for Interim's guarantee period.
Interim utilizes two forms of franchising agreements. Under the first form,
Interim records franchise royalties, based upon the contractual percentage of
franchise sales, in the period in which the franchisee provides the service.
Under the second form (termed "licensee" by Interim), revenues generated by the
licensee and related direct costs are included as part of Interim's revenues and
cost of services, respectively. The net distribution paid to the licensee is
based upon a percentage of the gross profit generated, and is captioned
"licensee commissions" in the Consolidated Statements of Earnings.
INCOME TAXES -- Deferred taxes arise from temporary differences between the
tax basis of an asset or liability and its reported amount in the financial
statements. Interim does not provide for U.S. income taxes on the undistributed
earnings of foreign operations as such earnings are considered to be invested
for an indefinite period of time and such earnings will only be repatriated when
tax effective to do so. At December 31, 1999 and December 25, 1998,
undistributed earnings of foreign subsidiaries totaled $5.8 million and
$22.8 million, respectively. It is not practicable to estimate the amount of the
deferred tax liability on such earnings; however, foreign tax credits would be
available to reduce U.S. income taxes in the event of distribution of earnings
of foreign subsidiaries.
EARNINGS PER SHARE -- Basic earnings per share is computed by dividing
Interim's earnings by the weighted average number of shares outstanding during
the period. Diluted earnings per share is computed by dividing Interim's
earnings by the weighted average number of shares outstanding and the impact of
all potential dilutive common shares, primarily stock options and convertible
subordinated notes. The dilutive impact of stock options is determined by
applying the treasury stock method and the dilutive impact of the convertible
subordinated notes is determined by applying the "if converted" method.
On August 7, 1997, Interim announced a two-for-one stock split in the form
of a 100% stock dividend, to stockholders of record as of the close of business
on August 18, 1997, payable on September 5, 1997. All shares outstanding and per
share amounts have been restated to reflect the stock split.
38
DERIVATIVE FINANCIAL INSTRUMENTS -- Interim enters into interest rate swap
agreements and foreign exchange forward contracts as part of the management of
its interest rate and foreign currency exchange rate exposures; it has no
derivative financial instruments held for trading purposes and none of the
instruments are leveraged. All financial instruments are put into place to hedge
specific exposures. Amounts to be paid or received under swap agreements are
recognized over the terms of the agreements as adjustments to interest expense.
Amounts receivable or payable under the agreements are included in receivables
or accrued expenses in the Consolidated Balance Sheets. Gains and losses on
foreign currency forward contracts offset gains and losses resulting from the
underlying transactions. Gains and losses on contracts that hedge specific
foreign currency commitments are deferred and recorded in net income in the
period in which underlying transaction is recorded.
STOCK BASED COMPENSATION -- Interim accounts for stock-based compensation to
employees using the intrinsic value method as prescribed by Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options issued to employees is measured as the excess, if any, of the
quoted market price of Interim's stock at the date of grant over the amount an
employee must pay for the stock. Compensation cost related to restricted stock
or deferred stock units granted is recognized in the period the bonus is earned
and measured using the quoted market price on the effective grant date.
RESEARCH AND DEVELOPMENT SYNDICATES -- Included in other assets in the
accompanying Consolidated Balance Sheets as of December 31, 1999 and
December 25, 1998 is $29.6 million and $26.6 million, respectively, related to
funds held in escrow by Computer Power pursuant to the terms of two Research and
Development Syndicates ("R&D Syndicates") formed to develop new, commercially
viable technology products. The R&D Syndicates were formed under special
legislation in Australia to promote research and development. At the end of the
research and development projects, the R&D Syndicate investors can exercise put
options through June 2002 to sell project results back to Interim for a return
of the escrowed funds. As such, Interim has recorded a liability for the
probable exercise of these put options. Such amounts are included in accounts
payable and other long-term liabilities totaling $29.6 million and
$26.6 million in the accompanying Consolidated Balance Sheets as of
December 31, 1999 and December 25, 1998, respectively.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (the "Statement"
or "SFAS No. 133"). The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 was amended by SFAS No. 137 to be
effective for fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. Interim has not yet quantified the impacts of adopting SFAS
No. 133 on its financial statements.
ACQUISITIONS AND DISPOSITION
ACQUISITIONS
NORRELL CORPORATION -- On July 2, 1999, Interim completed its acquisition of
Norrell. Norrell is a strategic workforce management company focusing on IT
consulting, flexible staffing (including accounting, administrative and light
industrial), outsourcing, search/recruitment (accounting and administrative) and
managed staffing (administrative and light industrial). Norrell shareholders
received either a 0.9 share of Interim common stock or a cash payment of $18.76
per share. The holders of
39
approximately 13% of Norrell's common stock elected to receive cash in lieu of
Interim stock and Interim issued approximately 20.8 million shares to former
Norrell shareholders and converted existing Norrell stock options into options
to purchase approximately 1.6 million shares of Interim common stock. The value
of the transaction including stock issued, cash paid and debt assumed, was
approximately $650.0 million. The acquisition has been accounted for using the
purchase method of accounting. Accordingly, the operations of Norrell are
included in the Consolidated Statements of Earnings from the date of
acquisition. Norrell's tangible and intangible assets and liabilities have been
adjusted to their fair market values in the accompanying balance sheet. The
excess of the purchase price over the fair market value of Norrell's net
tangible assets was approximately $520 million. This amount has been allocated
to goodwill on a preliminary basis while Interim obtains final information
regarding the fair value of assets acquired and liabilities assumed. The
goodwill is being amortized over 40 years. Although the allocation and
amortization periods are subject to adjustment, Interim does not expect that
such adjustments will have a material effect on the consolidated financial
statements.
COMPUTER POWER GROUP LIMITED -- During December 1998, Interim acquired
Computer Power for approximately $124.4 million plus liabilities assumed.
Computer Power provides information technology services, including consulting,
flexible staffing, education and training services with offices in Australia,
New Zealand, Hong Kong, the U.K. and Singapore. This acquisition was accounted
for under the purchase method of accounting. Accordingly, the operations of
Computer Power are included in the Consolidated Statements of Earnings from the
date of acquisition. Computer Power's operations were immaterial to Interim's
Consolidated Statements of Earnings in fiscal 1998. At December 31, 1999, the
excess of the purchase price over the fair value of the net tangible assets
acquired was $134.6 million. This amount has been allocated to goodwill based
upon an independent valuation performed to assist management in this allocation
and is being amortized over 40 years. In 1999, $111.0 million of the purchase
price was paid and is included as Due to Computer Power shareholders in the
Consolidated Balance Sheet at December 25, 1998.
MICHAEL PAGE GROUP, PLC -- On April 18, 1997, Interim completed the purchase
of the outstanding shares of Michael Page, a public company in the United
Kingdom, for $577.6 million. This acquisition was accounted for under the
purchase method of accounting. Accordingly, the operations of Michael Page are
included in the Consolidated Statements of Earnings from the date of
acquisition. The excess of the purchase price over the fair value of the net
tangible assets acquired was $512.5 million. This amount has been allocated to
tradenames and goodwill based upon an independent valuation performed to assist
management in this allocation. Both intangible assets are being amortized over
40 years.
OTHER ACQUISITIONS -- During 1999, 1998 and 1997, Interim made certain other
acquisitions that were accounted for under the purchase method of accounting.
Their operations are included in the Consolidated Statements of Earnings from
the dates of acquisition.
The fair value of assets acquired and liabilities assumed (excluding cash
acquired) in connection with all acquisitions follows (in thousands):
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Working capital (deficit)................................ $ 179,415 $ (1,537) $ (8,456)
Goodwill and tradenames.................................. 578,162 132,042 563,802
Other net assets......................................... 78,044 14,300 15,327
Debt assumed............................................. (129,050) (8,582) (317)
--------- --------- ---------
Net assets acquired...................................... $ 706,571 $ 136,223 $ 570,356
========= ========= =========
Net assets acquired include the non-cash issuance of stock to Norrell
stockholders in the amount of $437.4 million in the year ended December 31,
1999.
40
DISPOSITION
HEALTHCARE -- On September 26, 1997, Interim completed the sale of its
HealthCare business to Cornerstone Equity Investors IV, L.P. ("Buyer"). Interim
received $118.6 million in cash at closing ($113.1 million net of transaction
related cash costs), with the remainder of the $134.0 million purchase price
paid in October 1998 when regulatory approval was received for the ownership
transfer of Interim HealthCare of New York Inc. to the Buyer. The sale did not
have a material impact on results of operations in 1998. The pre-tax gain on
sale recognized in 1997 was $5.3 million with taxes on the gain of
$5.3 million.
Pursuant to the terms of the sales agreement and subject to certain
restrictions, the Buyer is permitted to use the "Interim" trademark and trade
names for an initial period of five years. After that time, a license fee will
be charged. Interim has provided indemnification to the Buyer on various pending
issues with respect to the HealthCare business including certain Medicare
reimbursement issues and the collectibility of loans related to the businesses'
physical therapy student loan program. Interim does not expect that the outcome
of these matters will have a material effect on Interim's financial position or
results of operations.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information presents the results of
operations of Interim for the years ended December 31, 1999 and December 25,
1998 as if the acquisitions of Norrell, Computer Power and other acquisitions
had occurred at the beginning of the periods presented (in thousands, except for
per share data):
DEC. 31, 1999 DEC. 25, 1998
------------- -------------
Revenues............................................ $3,903,452 $3,531,109
Net earnings before extraordinary item.............. 76,903 81,334
Net earnings........................................ 76,903 78,561
Net earnings per share before extraordinary item:
Basic............................................. $ 1.17 $ 1.21
Diluted........................................... 1.16 1.19
Basic weighted average shares outstanding........... 65,750 65,038
Diluted weighted average shares outstanding......... 71,638 69,045
The pro forma consolidated results of operations are based on historical
financial information of Interim and include adjustments to give effect to the
following: additional amortization of goodwill and other intangibles arising
from the transactions; increased interest on borrowings to finance the
acquisitions; reduced depreciation related to the disposition and write down of
certain fixed assets; the elimination of the operating results of Norrell's home
health aide business which has been classified as an asset held for sale;
elimination of one-time costs incurred by Norrell and Computer Power related to
their being acquired by Interim; and certain other adjustments, together with
estimated related income tax effects. These unaudited pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of the results of operations which would have actually resulted had the
acquisitions occurred on the date indicated, or of future results of operations
of the consolidated entities.
RESTRUCTURING AND INTEGRATION
During 1999, Interim incurred approximately $29.5 million of restructuring
and integration costs related to a plan (the "Plan") adopted by management in
which certain redundant functions and assets of Interim, as a result of the
Norrell acquisition, will be eliminated.
41
Restructuring costs and charges of approximately $12.8 million include
employee severance costs of approximately $3.7 million and facility closure
costs of $7.0 million primarily relating to the elimination of redundant branch
locations. The employee severance related to approximately 160 positions from
various job functions, of which approximately 48 were terminated and
$1.3 million was paid as of December 31, 1999. The facility closure costs
include approximately $5.0 million in lease termination costs and approximately
$2.0 million in losses on the disposition of facility related fixed assets,
primarily the write-off of leasehold improvements on closed branch locations and
write-down of furniture and fixtures to their estimated fair value, determined
by comparable market information. These assets will be taken out of service at
the time properties are abandoned and consequently will not be depreciated
further after abandonment. Depreciation expense associated with the leasehold
improvements and furniture and fixtures to be disposed of amounted to
approximately $0.7 million for the year ended December 31, 1999. As of
December 31, 1999, approximately $4.9 million has been paid and the remainder is
included in accounts payable and accrued expenses. The majority of the accrual
remaining relates to lease abandonment costs of $3.7 million that will be paid
through 2004 unless early terminations can be negotiated and severance costs of
$2.2 million which will be paid during 2000.
In addition, as part of the Plan, Interim recorded a charge of approximately
$2.1 million for the write-off of certain software programs that will no longer
be utilized as a result of the acquisition. These assets were taken out of
service at the time of the write-down and consequently were not depreciated
further after the write-down.
Nonrecurring integration costs of approximately $16.7 million include
approximately $7.6 million in costs relating to employees whose positions have
been eliminated and were involved solely in exit functions and systems
integrations, approximately $5.0 million in consulting costs primarily related
to systems integrations, approximately $2.6 million for a one-time acquisition
completion incentive bonus, approximately $0.7 million in relocation of
employees and approximately $0.8 million in other related integration costs.
Substantially all of these costs were paid by December 31, 1999.
INTANGIBLE ASSETS
A summary of intangible assets follows (in thousands):
WEIGHTED WEIGHTED
AVERAGE LIFE AVERAGE LIFE
(IN YEARS) DEC. 31, 1999 (IN YEARS) DEC. 25, 1998
------------ ------------- ------------ -------------
Goodwill...................................... 39 $1,355,985 37 $763,098
Tradenames.................................... 40 215,411 40 222,643
Other......................................... 5 564 5 787
---------- ---------- -------- --------
39 1,571,960 37 986,528
Less accumulated amortization................. (100,489) (67,334)
---------- --------
$1,471,471 $919,194
========== ========
Amortization of intangible assets for the years ended December 31, 1999,
December 25, 1998 and December 26, 1997 amounted to $34.2 million,
$22.6 million and $18.5 million, respectively.
42
PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
LIFE (IN
YEARS) DEC. 31, 1999 DEC. 25, 1998
-------- ------------- -------------
Land........................................................ - $ 4,167 $ 4,167
Buildings................................................... 10-40 15,117 14,727
Equipment................................................... 3-8 170,641 107,194
Software, primarily third party purchased software.......... 3-5 17,384 19,490
Leasehold improvements and other............................ 3-5 17,500 11,609
-------- --------
224,809 157,187
Less accumulated depreciation and amortization.............. (88,833) (66,565)
-------- --------
$135,976 $ 90,622
======== ========
Depreciation and amortization of property and equipment for the years ended
December 31, 1999, December 25, 1998 and December 26, 1997 amounted to
$31.0 million, $21.8 million, and $16.4 million, respectively.
LONG-TERM DEBT
A summary of long-term debt follows (in thousands):
DEC. 31, 1999 DEC. 25, 1998
------------- -------------
Revolving loan facility, due 2004:
British pound sterling denominated borrowings............. $ 261,339 $ 214,144
U.S. dollar denominated borrowings........................ 5,000 --
U.S. dollar convertible subordinated notes, due 2005........ 207,000 207,000
U.S. dollar loan facility, secured by accounts
receivable, due 2000...................................... 158,618 --
Australian dollar term loan, due 2006....................... 50,459 --
Other foreign debt, due 2000 to 2001 with interest rates
ranging from 4.6% to 7.0%................................. 36,108 13,333
Loan notes denominated in British pound sterling, due
2002...................................................... 11,176 14,322
Other domestic debt......................................... 19 --
--------- ---------
729,719 448,799
Less current maturities of long-term debt................... (216,108) (21,943)
--------- ---------
$ 513,611 $ 426,856
========= =========
Interim has a multi-currency syndicated credit agreement ("Credit Facility")
entered into as of May 1, 1997 and amended in July 1999 to increase the capacity
from $359.2 million to $675.0 million and extend the term to 2004. This
agreement provides a multi-currency revolving loan facility and also allows for
and guarantees sterling denominated loan notes due to certain former
shareholders of Michael Page. Borrowings under this facility are unsecured and
interest rates on amounts outstanding under the revolving loan and loan notes
are based on LIBOR plus a variable margin. The facility contains customary
covenants, which include restrictions on the payment of cash dividends, as well
as the maintenance of certain financial ratios including minimum net worth,
restrictions on the incurrence of liens and additional indebtedness. The average
interest rates on outstanding borrowings under the Credit Facility, including
the effects of interest rate swaps, for the years ended December 31, 1999 and
December 25, 1998 were 6.7% and 7.4%, respectively. In July 1999, Interim also
added a $250 million facility secured by Interim's accounts receivable under
which $158.6 million was outstanding at December 31, 1999. This facility is due
in
43
July 2000, can be extended annually and interest is based on commercial paper
market rates plus a margin, and the total rate on average was 5.8% for the year
ended December 31, 1999. Interim also issued $53.0 million of Australian dollar
financing, which is due in 2006. The Australian dollar financing is unsecured
and interest is based on Australian bank bills plus a variable margin and the
total rate on average was 7.2% for the year ended December 31, 1999. As of
December 31, 1999, Interim had the ability to borrow $537.2 million under the
Credit Facility and other available lines.
On April 23, 1998, Interim filed a registration statement on Form S-3 with
the SEC for the sale of $207.0 million of 4 1/2% Convertible Subordinated Notes
(the "Notes Offering") due June 1, 2005. The Notes Offering was consummated in
May 1998 and resulted in proceeds to Interim of approximately $201.3 million,
net of issuance costs and offering expenses. A portion of the proceeds from the
Notes Offering was used to repay a U.S. dollar denominated term loan and other
U.S. dollar denominated amounts outstanding under the Credit Facility. The
prepayment of the term loan and termination of the related interest rate swap
agreements resulted in an extraordinary charge for early extinguishment of debt
of $2.8 million ($4.6 million before tax) or $0.06 per diluted share in 1998.
The 4 1/2% Convertible Subordinated Notes (the "Notes") are convertible into
common stock at any time prior to maturity at a conversion rate of 26.8052
shares per each $1,000 principal amount, equivalent to a conversion price of
approximately $37.31 per share. Interest on the Notes is payable semi-annually
on June 1 and December 1 of each year. The Notes are redeemable, in whole or in
part, at the option of Interim at any time on or after June 1, 2001 at the
redemption prices (together with accrued interest to the redemption date) set
forth below. Such redemption prices (expressed as a percentage of principal
amount) are as follows for the 12-month period beginning on June 1 of the
following years:
YEAR REDEMPTION PRICE
- ---- ----------------
2001........................................................ 102.571%
2002........................................................ 101.929%
2003........................................................ 101.286%
2004........................................................ 100.643%
June 1, 2005 and thereafter................................. 100.000%
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Debt (as defined in the indenture) of Interim and
will be effectively subordinated in right of payment to all Senior Debt and
other liabilities of Interim and Interim's subsidiaries. The Notes will not
restrict Interim or its subsidiaries from incurring additional Senior Debt or
other indebtedness.
Maturities of debt outstanding at December 31, 1999 are $216.1 million,
$8.5 million, $7.6 million, $8.1 million and $270.0 million in 2000, 2001, 2002,
2003 and 2004, respectively.
44
INCOME TAXES
A summary of the provision for income taxes follows (in thousands):
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Current tax expense:
Federal................................ $14,646 $24,058 $23,220
State and local........................ 2,776 5,745 6,055
Foreign................................ 27,453 22,179 15,307
------- ------- -------
44,875 51,982 44,582
------- ------- -------
Deferred tax (benefit) expense:
Federal................................ 4,308 (3,100) (3,029)
State and local........................ 1,188 (715) (721)
Foreign................................ 2,678 (1,391) (1,904)
------- ------- -------
8,174 (5,206) (5,654)
------- ------- -------
Total Provision for Income Taxes......... $53,049 $46,776 $38,928
======= ======= =======
The following table reconciles the U.S. Federal income tax rate to Interim's
effective tax rate:
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Statutory Rate........................... 35.0% 35.0% 35.0%
Increase (decrease) in rate resulting
from:
State and local income taxes, net of
Federal benefit...................... 2.1 3.1 4.3
Nondeductible amortization of
intangibles.......................... 7.8 5.7 5.9
Wages to work credits.................. (2.3) (0.8) (1.1)
Sale of HealthCare business............ -- -- 3.2
Other, net............................. 0.2 1.4 0.5
---- ---- ----
Effective Tax Rate....................... 42.8% 44.4% 47.8%
==== ==== ====
Significant components of Interim's deferred tax assets and liabilities are
as follows (in thousands):
DEC. 31, 1999 DEC. 25, 1998
------------- -------------
Current deferred tax assets (liabilities):
Self-insurance.................................... $ 8,055 $ 2,451
Sale of HealthCare business....................... 2,348 3,058
Accrued expenses, including acquisition and
restructure costs............................... 28,931 5,042
Receivables allowances............................ 6,352 (71)
------- -------
45,686 10,480
------- -------
Noncurrent deferred tax assets (liabilities):
Employee benefits................................. 13,343 4,396
Self-insurance.................................... 14,231 2,942
Fixed assets...................................... (3,513) (651)
Intangible assets................................. 27,891 (5,545)
------- -------
51,952 1,142
------- -------
Net deferred tax assets............................. $97,638 $11,622
======= =======
As of December 31, 1999, Interim had foreign tax credit carryforwards of
approximately $22.0 million that will expire in 2004. Additionally, Interim has
net operating loss carryforwards of approximately $2.7 million in Australia that
will begin to expire in 2011. Interim has reviewed its net deferred tax asset
and believes that a valuation allowance is not required.
45
EMPLOYEE BENEFIT PLANS
Interim has a voluntary defined contribution 401(k) benefit plan covering
substantially all eligible U.S. employees. Interim's subsidiary, Michael Page,
operates a defined contribution plan covering substantially all eligible U.K.
employees. Interim contributions to the plans are based on employee
contributions, the level of Interim match and, in the U.S., the attainment of
certain financial objectives. Contributions, net of forfeitures, by Interim
under the plan amounted to $7.3 million, $3.7 million and $2.4 million for the
years ended December 31, 1999, December 25, 1998 and December 26, 1997,
respectively.
Interim also has a non-qualified deferred compensation plan for those highly
compensated employees who are not eligible to participate in Interim's 401(k)
benefit plan. The plan allows eligible employees to defer receipt of a portion
of their compensation. Employee deferrals earn a return based on each employee's
elected hypothetical plan investments including amounts represented by deferred
stock units of Interim's common stock. Interim matches and accrues certain
amounts deferred pursuant to this plan based upon the same criteria as the
401(k) plan. All Interim matches are represented by deferred stock units of
Interim's common stock. The plan is not funded but Interim has investments in
company owned life insurance policies in the amount of $13.6 million and
$8.1 million at December 31, 1999 and December 25, 1998, respectively, and the
earnings from these investments partially offset Interim's cost of providing the
benefit. The deferred compensation, along with company matching amounts and
accumulated investment earnings, is accrued. Such accrual amounted to
$24.5 million, including $9.4 million assumed in the Norrell acquisition,
$11.9 million and $5.5 million at December 31, 1999, December 25, 1998 and
December 26, 1997, respectively. The deferred compensation and company matching
of amounts represented by deferred stock units of Interim are included in
additional paid-in capital.
Effective July 1997, Interim adopted an Employee Stock Purchase Plan to
provide substantially all eligible employees who have been employed for at least
six months an opportunity to purchase shares of its common stock at a discount
of 15%. The aggregate amount an employee may purchase each calendar year is
limited to a maximum of 15% of an employee's compensation up to $25,000 of
stock. There were 356,576 and 95,516 shares issued in 1999 and 1998,
respectively, under this plan. A total of 247,380 shares are available as of
December 31, 1999 for purchase under the plan which expires on July 1, 2002.
STOCK-BASED COMPENSATION PLANS
Interim has three primary option stock plans, the 1997 Long-Term Executive
Compensation and Outside Directors Stock Option Plan, the 1997 Stock Option Plan
for employees of Michael Page and the 1994 Stock Option Plan for Franchisees,
Licensees and Agents. Under the plans, options may be granted to outside
directors, selected employees of Interim and its subsidiaries, franchisees,
licensees and agents to purchase Interim's common stock for periods not to
exceed ten years at a price that is not less than 100% of fair market value on
the date of grant. Options granted under all plans are exercisable cumulatively
20% to 100% each year beginning one-year after the initial date of grant. At
December 31, 1999 and December 25, 1998, Interim had 833,000 and 1.9 million
shares, respectively, reserved for future grants under these plans.
During 1999, Interim granted approximately 235,000 deferred stock units of
Interim's common stock with prices ranging from $20.85 to $21.87. The deferred
stock units vest between one and seven years or a shorter period based upon
certain earnings performance criteria. The value of these deferred stock units
is being amortized ratably over the vesting period.
46
Changes under these option stock plans for 1999, 1998 and 1997 were as
follows:
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- --------- -------- --------- --------
Outstanding at beginning of year......... 4,140,866 $20.24 3,101,604 $16.28 2,642,554 $13.24
Granted.................................. 4,135,119 20.71 1,719,176 25.60 1,678,910 18.53
Converted from Norrell options........... 1,612,446 20.13 -- -- -- --
Exercised................................ (401,965) 14.77 (497,841) 14.07 (866,241) 11.09
Forfeited................................ (1,222,343) 22.78 (182,073) 20.43 (353,619) 16.85
---------- --------- ---------
Outstanding at end of year............... 8,264,123 $20.35 4,140,866 $20.24 3,101,604 $16.28
========== ========= =========
Options exercisable at end of year....... 2,677,204 $17.92 1,321,478 $15.10 908,495 $13.01
========== ========= =========
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT DEC. 31, 1999 LIFE PRICE AT DEC. 31, 1999 PRICE
- ------------------------ ---------------- ----------- --------- ---------------- --------
$ 0.00-$ 9.99 138,857 2.40 $ 5.10 138,319 $ 5.10
$10.00-$14.99 933,960 5.16 12.33 848,778 12.13
$15.00-$19.99 2,574,539 7.70 19.01 987,045 18.48
$20.00-$24.99 3,059,269 9.31 21.19 98,426 21.75
$25.00-$29.99 1,473,810 7.28 26.85 557,120 27.15
$30.00-$34.99 83,688 8.16 31.12 47,516 31.22
--------- ------ --------- --------- ------
8,264,123 7.85 $ 20.35 2,677,204 $17.92
========= ====== ========= ========= ======
The weighted average per share fair values of options granted under
Interim's stock option plans during 1999, 1998 and 1997 were $5.30, $6.25 and
$3.90, respectively. Had the fair value of the grants under these plans and the
estimated fair value of Interim's Employee Stock Purchase Plan been recognized
as compensation expense over the vesting period of the awards, compensation cost
would have been increased by $10.9 million ($7.5 million after tax, $0.12 per
share), $5.8 million ($4.0 million after tax, $0.08 per share) and $2.9 million
($2.0 million after tax, $0.05 per share) in 1999, 1998 and 1997, respectively.
The fair value of options at grant date was estimated using the
Black-Scholes multiple option model where each vesting increment is treated as a
separate option with its own expected life and own fair value. The following
weighted average assumptions were used:
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
Expected life............................ 2 2 2
Interest rate............................ 5.34% 5.51% 5.99%
Volatility............................... 39.00% 32.91% 29.79%
Dividend Yield........................... -- -- --
47
SHAREHOLDER RIGHTS PLAN
On February 17, 1994, Interim's Board of Directors adopted a shareholder
rights plan to protect shareholders in the event of an unsolicited attempt to
acquire Interim which is not believed by the Board of Directors to be in the
best interest of shareholders. Under the plan, a dividend of one right (a
"Right") per share was declared and paid on each share of Interim's common stock
outstanding on April 1, 1994. As to shares issued after such date, rights will
automatically attach to them after their issuance.
Under the plan, registered holders of each Right may purchase from Interim
one one-hundredth of a share of a new class of Interim's preferred stock, $0.01
par value per share, at a price of $150.00, subject to adjustment, when the
Rights become exercisable. The Rights become exercisable when a person or group
of persons acquires 15% or more of the outstanding shares of Interim's common
stock without the prior written approval of Interim's Board of Directors (an
"Unapproved Stock Acquisition"), and after ten business days following the
commencement of a tender offer that would result in an Unapproved Stock
Acquisition. If a person or group of persons makes an Unapproved Stock
Acquisition, the registered holder of each Right has the right to purchase, for
the exercise price of the Right, a number of shares of Interim's common stock
having a market value equal to twice the exercise price of the Right. Following
an Unapproved Stock Acquisition, if Interim is involved in a merger, or 50% or
more of Interim's assets or earning power are sold, the registered holder of
each Right has the right to purchase, for the exercise price of the Right, a
number of shares of the common stock of the acquiring company having a market
value equal to twice the exercise price of the Right.
After an Unapproved Stock Acquisition, but before any person or group of
persons acquires 50% or more of the outstanding shares of Interim's common
stock, the Board of Directors may exchange all or part of the then outstanding
and exercisable Rights for common stock at an exchange ratio of one share of
common stock per Right. Upon any such exchange, the right of any holder to
exercise a Right terminates.
Interim may redeem the Rights at a price of $0.01 per Right at any time
prior to an Unapproved Stock Acquisition. The Rights expire on April 1, 2004,
unless extended by the Board of Directors. Until a Right is exercised, the
holder thereof, as such, has no rights as a stockholder of Interim, including
the right to vote or to receive dividends. The issuance of the Rights alone has
no dilutive effect and does not affect reported earnings per share.
FINANCIAL INSTRUMENTS AND FAIR VALUES
Interim utilizes interest rate swap agreements to reduce the impact on
interest expense of fluctuating interest rates on its variable rate debt.
Interim had a variable to variable interest rate swap agreement outstanding as
of December 31, 1999 with the notional amount of $121.4 million which
effectively converts interest from a British LIBOR basis to a broader index and
caps Interim's exposure to upward movement in rates at 8.5%. Interim received an
average variable rate of 5.9% and paid an average variable rate of 6.1% during
the twelve months ended December 31, 1999. This agreement expires in 2002. The
notional amount outstanding at December 25, 1998 was $125.5 million. In
June 1998, Interim terminated variable to variable interest rate swap agreements
in the notional amount of $100.0 million when Interim repaid the related U.S.
dollar denominated debt. Interim received an average variable rate of 7.0% and
paid an average variable rate of 6.0% during the twelve months ended
December 25, 1998.
In June 1998, Interim terminated variable to fixed interest rate swap
agreements in the notional amount of $100.0 million when Interim repaid the
related U.S. dollar denominated debt. Interim received an average variable rate
of 5.7% and paid an average fixed rate of 6.2% during the twelve months ended
December 25, 1998. The costs to terminate the variable to variable and variable
to fixed interest rate swap agreements in June 1998 are included in the
extraordinary charge for early extinguishment of debt.
48
At December 31, 1999, Interim had outstanding foreign currency forward
contracts to sell Australian dollars in the notional amount of $76.9 million for
the purpose of hedging intercompany amounts outstanding with its Australian
operations. At December 25, 1998, Interim had outstanding foreign currency
forward contracts to purchase Australian dollars in the notional amount of
$96.1 million for the purpose of hedging the final payments for the purchase of
Computer Power subsequent to December 25, 1998.
Exposure to market risk on interest rate and foreign currency financial
instruments results from fluctuations in interest and currency rates,
respectively, during the periods in which the contracts are outstanding. The
counterparties to Interim's interest rate swap agreements and currency exchange
contracts consist of a diversified group of major financial institutions, each
of which is rated investment grade A or better. Interim is exposed to credit
risk to the extent of potential nonperformance by counterparties on financial
instruments. Any potential credit exposure does not exceed the fair value as
stated below. Interim believes the risk of incurring losses due to credit risk
is remote.
The carrying amount of cash and cash equivalents approximates fair value due
to the short-term maturities of these instruments. The cost to terminate the
outstanding interest rate swap and the book value as of December 31, 1999 were
approximately $1.3 million and a $0.1 million payable, respectively. The cost to
terminate the outstanding interest rates swaps as of December 25, 1998 was
$4.1 million. Book value at December 25, 1998 was a $0.2 million receivable. The
cost to terminate foreign currency forward contracts as of December 31, 1999 and
December 25, 1998 was $0.1 million and $2.5 million, respectively. In estimating
the fair value of its derivative positions, Interim utilizes quoted market
prices, if available, or quotes obtained from outside sources. The cost to
terminate Interim's fixed rate convertible subordinated debt as of December 31,
1999 and December 25, 1998 was $183.7 million and $175.6 million, respectively,
with a $207.0 million carrying value. The fair value of Interim's fixed rate
debt is estimated based on quoted market prices for the same issue. The fair
values of all other financial instruments, including debt other than the Notes,
approximate their book values as the instruments are short-term in nature or
contain market rates of interest.
COMMITMENTS AND CONTINGENCIES
Substantially all of Interim's field operations are conducted in leased
premises. Interim also leases data processing equipment. Total lease expense for
the years ended December 31, 1999, December 25, 1998 and December 26, 1997 was
$37.6 million, $25.2 million and $19.1 million, respectively. Future minimum
lease payments under non-cancelable leases as of December 31, 1999 are
$34.7 million, $33.0 million, $27.8 million, $21.0 million and $17.1 million in
2000, 2001, 2002, 2003 and 2004, respectively.
Interim is party to a contract for the purchase of information systems
operations services with payments ending in 2000 for approximately
$6.1 million. In the year 2000, Interim expects to have capital expenditures
about equal to 1999 levels and plans to pay approximately $67.5 million for
earnouts (contingent consideration) associated with prior Interim and Norrell
acquisitions.
Interim had outstanding irrevocable letters of credit of approximately
$34.3 million (same as fair value) and a surety bond outstanding of
approximately $12.9 million. These instruments primarily collateralize Interim's
recorded obligations under certain workers' compensation insurance programs.
Interim in the ordinary course of its business is threatened with or named
as a defendant in various lawsuits. It is not possible to determine the ultimate
disposition of these matters; however, management is of the opinion that the
final resolution of any threatened or pending litigation is not likely to have a
material adverse effect on the financial position or results of operations of
Interim.
49
SEGMENT INFORMATION
Interim is a human capital management company which operates in 12
countries: Australia, Canada, France, Germany, Hong Kong, Italy, New Zealand,
Singapore, Spain, The Netherlands, the United Kingdom and the United States.
Interim considers its operating segments to be North America, Europe and
Australia/Asia. These operating segments generally follow the management
organization structure of Interim and also represent, in the opinion of
management, the most meaningful aggregation of Interim's multiple operating
units across the world. This aggregation is based upon geographic similarities
including market growth rates, profitability, foreign currency exposure and
local laws and regulations. In each of these operating segments Interim's five
services, consulting, managed staffing, outsourcing, search/recruitment and
flexible staffing, are provided. Interim evaluates the performance of its
operating segments and allocates resources to them based on revenues, gross
profit and segment contribution. Segment contribution is defined as income
before central costs, Year 2000 costs, restructuring and integration costs, gain
on sale of HealthCare, interest and income taxes. All material intercompany
revenues and expenses are eliminated in computing segment revenues, gross profit
and segment contribution. Prior years' data has been restated to conform to the
current year's presentation.
50
Information on operating segments and a reconciliation to earnings before
income taxes and extraordinary item for the periods indicated are as follows (in
thousands):
YEAR ENDED
---------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
REVENUES:
North America.......................................... $2,274,293 $1,382,383 $1,159,089
Europe................................................. 642,828 455,845 223,345
Australia/Asia......................................... 250,850 51,885 36,233
---------- ---------- ----------
3,167,971 1,890,113 1,418,667
HealthCare............................................. -- -- 189,589
---------- ---------- ----------
$3,167,971 $1,890,113 $1,608,256
========== ========== ==========
GROSS PROFIT:
North America.......................................... $ 625,659 $ 425,713 $ 340,603
Europe................................................. 327,121 244,471 127,467
Australia/Asia......................................... 86,010 26,073 18,800
---------- ---------- ----------
1,038,790 696,257 486,870
HealthCare............................................. -- -- 76,538
---------- ---------- ----------
$1,038,790 $ 696,257 $ 563,408
========== ========== ==========
SEGMENT CONTRIBUTION:
North America.......................................... $ 166,920 $ 110,593 $ 91,293
Europe................................................. 77,087 63,765 35,057
Australia/Asia......................................... 16,282 4,651 4,533
---------- ---------- ----------
260,289 179,009 130,883
HealthCare............................................. -- -- 16,340
---------- ---------- ----------
260,289 179,009 147,223
Central costs.......................................... 66,141 49,837 46,815
Year 2000 costs........................................ 4,420 -- --
Restructuring and integration costs.................... 29,542 -- --
Gain on sale of HealthCare............................. -- -- (5,300)
Interest, net.......................................... 36,304 23,819 24,269
---------- ---------- ----------
Earnings before income taxes and extraordinary item.... $ 123,882 $ 105,353 $ 81,439
========== ========== ==========
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
TOTAL ASSETS:
North America.......................................... $1,484,660 $ 688,331 $ 466,350
Europe................................................. 678,278 656,360 548,183
Australia/Asia......................................... 275,963 262,117 77,063
---------- ---------- ----------
2,438,901 1,606,808 1,091,596
HealthCare............................................. -- -- 138
---------- ---------- ----------
$2,438,901 $1,606,808 $1,091,734
========== ========== ==========
LONG-LIVED ASSETS:
North America.......................................... $ 92,337 $ 55,069 $ 47,049
Europe................................................. 35,580 28,130 16,751
Australia/Asia......................................... 8,059 7,423 1,675
---------- ---------- ----------
135,976 90,622 65,475
HealthCare............................................. -- -- --
---------- ---------- ----------
$ 135,976 $ 90,622 $ 65,475
========== ========== ==========
51
Interim provides skills through its business units in five service
lines--consulting, managed staffing, outsourcing, search/recruitment and
flexible staffing. The following table sets forth revenues and gross profit by
service for the periods indicated (in thousands):
YEAR ENDED
---------------------------------------------
DEC. 31, 1999 DEC. 25, 1998 DEC. 26, 1997
------------- ------------- -------------
REVENUES:
Consulting............................. $ 544,108 $ 286,250 $ 192,262
Managed Staffing....................... 550,342 294,753 236,125
Outsourcing............................ 170,888 21,417 14,183
Search/Recruitment..................... 333,199 257,507 148,892
Flexible Staffing...................... 1,569,434 1,030,186 827,205
---------- ---------- ----------
3,167,971 1,890,113 1,418,667
HealthCare............................. -- -- 189,589
---------- ---------- ----------
Total.................................. $3,167,971 $1,890,113 $1,608,256
========== ========== ==========
GROSS PROFIT:
Consulting............................. $ 213,930 $ 108,864 $ 66,460
Managed Staffing....................... 105,712 59,453 50,318
Outsourcing............................ 29,165 6,294 1,060
Search/Recruitment..................... 333,199 257,507 148,892
Flexible Staffing...................... 356,784 264,139 220,140
---------- ---------- ----------
1,038,790 696,257 486,870
HealthCare............................. -- -- 76,538
---------- ---------- ----------
Total.................................. $1,038,790 $ 696,257 $ 563,408
========== ========== ==========
Interim has no single customer representing greater than 10% of revenues.
Revenues in the U.K. were $401.3 million, $318.0 million and $160.5 million for
the years ended December 31, 1999, December 25, 1998 and December 26, 1997,
respectively. Long-lived assets in the U.K. were $19.4 million, $17.6 million
and $11.6 million at December 31, 1999, December 25, 1998 and December 26, 1997,
respectively.
QUARTERLY FINANCIAL DATA (unaudited--amounts in thousands, except share data)
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1999 and December 25, 1998.
QUARTER ENDED
-------------------------------------------------------------------------------------------
DEC. 31, SEPT. 24, JUNE 25, MARCH 26, DEC. 25, SEPT. 25, JUNE 26, MARCH 27,
1999 1999 1999 1999 1998 1998 1998 1998
---------- --------- -------- --------- -------- --------- -------- ---------
Revenues............................ $1,038,446 $956,419 $607,075 $566,031 $514,249 $498,051 $461,622 $416,191
Gross profit (c).................... 316,076 300,199 217,645 204,870 185,291 183,532 174,365 153,069
Earnings before extraordinary
item.............................. 22,757 13,353 18,839 15,884 17,417 17,021 13,586 10,553
Net earnings........................ 22,757 13,353 18,839 15,884 17,417 17,021 10,813(a) 10,553
Basic earnings per share (b)........ 0.35 0.21 0.42 0.34 0.37 0.36 0.32 0.26
Diluted earnings per share (b)...... 0.35 0.21 0.40 0.33 0.36 0.35 0.31 0.26
Share price:
High................................ 24 13/16 23 1/4 23 7/16 24 22 15/16 32 1/4 34 1/4 33 13/16
Low................................. 15 1/8 15 1/8 14 1/4 13 3/4 13 1/4 18 15/16 26 15/16 22 7/8
- ------------------------------
(a) Includes $2,773 after tax extraordinary loss resulting from the early
extinguishment of debt.
(b) Before extraordinary item in the quarter ended June 26, 1998.
(c) Beginning with the third quarter of 1999, commissions related to permanent
placements have been included in selling, general and administrative
expenses whereas these costs were previously included in determining gross
profit. All prior periods have been restated.
52
EARNINGS PER SHARE
The following table reconciles the numerator (earnings) and denominator
(shares) of the basic and diluted earnings per share computations for earnings
before extraordinary item.
YEAR ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------
DEC. 31, 1999 DEC. 25, 1998
----------------------------------- ------------------------------------
EARNINGS
BEFORE
PER-SHARE EXTRAORDINARY PER-SHARE
NET EARNINGS SHARES AMOUNT ITEM SHARES AMOUNT
------------ -------- --------- ------------- -------- ---------
Basic EPS................................ $70,833 54,949 $1.29 $58,577 44,237 $1.32
===== =====
Effect of Dilutive Securities:
Stock options and other dilutive
securities........................... -- 339 -- 778
Convertible subordinated notes......... 6,167 5,549 3,471 3,229
------- ------ ------- ------
Diluted EPS.............................. $77,000 60,837 $1.27 $62,048 48,244 $1.29
======= ====== ===== ======= ====== =====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in the registrant's principal accountants during
the two most recent fiscal years or any subsequent interim time period.
PART III
ITEMS 10, 11, 12 AND 13.
Information regarding executive officers of the Registrant is contained in
Part I. The remaining information required by Item 10 and the information
required by Items 11, 12 and 13 of this Part III is omitted because, no later
than 120 days from December 31, 1999, Interim will file and distribute its
definitive proxy statement containing the information required by such Items.
Such omitted information is incorporated herein by this reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Interim Services Inc. and
subsidiaries are filed as part of this Report:
PAGE
--------
Independent Auditors' Report.................... 32
Consolidated Statements of Earnings............. 33
Consolidated Balance Sheets..................... 34
Consolidated Statements of Stockholders'
Equity........................................ 35
Consolidated Statements of Cash Flows........... 36
Notes to Consolidated Financial Statements...... 37
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of this Report:
Schedule II--Valuation and Qualifying Accounts
53
Schedules not filed herewith are either not applicable, the information is
not material or the information is set forth in the financial statements or
notes thereto.
(3) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------
3.1 Restated Certificate of Incorporation of the registrant, as
last amended on July 6, 1999, filed as Exhibit 3.1 to the
registrant's Form 10-Q for the quarter ended September 24,
1999, is incorporated herein by reference.
3.2 By-Laws of registrant, as amended, filed as Exhibit 3.2 to
the registrant's Form 10-Q for the quarter ended September
27, 1996, are incorporated herein by reference.
4.1 Form of Stock Certificate, filed as Exhibit 4.3 to the
registrant's Form 10-K for the fiscal year ended December
26, 1997, is incorporated herein by reference.
4.2 Rights Agreement dated as of March 17, 1994 between the
registrant and Boatmen's Trust Company, filed as Exhibit 1.1
to the registrant's Form 8-A filed April 11, 1994, is
incorporated herein by reference.
4.3 Certificate of Designation, Preferences and Rights filed
with the Secretary of State of the State of Delaware, filed
as Exhibit 2.1 to the registrant's Form 8- A filed April 11,
1994, is incorporated herein by reference.
4.4 Amendment No. 1, dated as of June 26, 1996, to Rights
Agreement dated March 17, 1994, between the registrant,
Boatmen's Trust Company and ChaseMellon Shareholder Services
L.L.C., filed as Exhibit 4.1(A) to the registrant's Form
10-Q for the quarter ended September 27, 1996, is
incorporated herein by reference.
4.5 Amendment No. 2, dated as of February 25, 1997, to Rights
Agreement dated March 17, 1994, between the registrant and
ChaseMellon Shareholder Services L.L.C., filed as Exhibit
4.1(B) to the registrant's Form 10-Q for the quarter ended
March 28, 1997, is incorporated herein by reference.
4.6 Articles Fourth, Fifth, Seventh, Eighth and Tenth of the
Restated Certificate of Incorporation of the registrant, as
last amended May 18, 1998, filed as Exhibit 4.6 to the
registrant's Form 10-Q for the quarter ended June 26, 1998,
are incorporated herein by reference.
4.7 Sections Four through Twelve and Thirty-five through
Forty-one of the Bylaws of the registrant, as amended, filed
as part of Exhibit 4.2 to registrant's Form S-3 filed
September 16, 1996, are incorporated herein by reference.
4.8 Certificate of Increase of Shares Designated as
Participating Preferred Stock, filed as Exhibit 2.2 to the
registrant's Form 8-A/A2, dated November 3, 1997, is
incorporated herein by reference.
4.9 Indenture, including form of Notes, dated as of May 27,
1998, from the registrant to The Bank of New York with
respect to the registrant's 4 1/2% Convertible Subordinated
Notes due 2005, issued or to be issued pursuant to the
registrant's Form S-3 dated April 23, 1998, filed on May 6,
1998, filed as Exhibit 4.9 to the registrant's Form 10-Q for
the quarter ended June 26, 1998, is incorporated herein by
reference.
4.10 Amendment No. 3, dated as of January 20, 1998, to Rights
Agreement dated as of March 17, 1994, between the registrant
and ChaseMellon Shareholder Services L.L.C., filed as
Exhibit 4.10 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
54
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------
10.1 Registrant's 1994 Stock Option Plan for Franchisees,
Licensees and Agents, as amended through and restated as of
August 10, 1999, filed as Exhibit 10.1 to the registrant's
Form 10-Q for the quarter ended September 24, 1999, is
incorporated herein by reference.
10.2 Indemnification Agreement dated January 1, 1994, by and
between Interim Services Inc. and H&R Block, Inc., filed as
Exhibit 10.8 to the registrant's Form S-1 dated November 5,
1993, is incorporated herein by reference.
10.3 Form of Indemnification Agreement dated August 10, 1999
between the registrant and each director of the registrant,
filed as Exhibit 10.2 to the registrant's Form 10-Q for the
quarter ended September 24, 1999, is incorporated herein by
reference.
10.4 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Raymond Marcy, filed as
Exhibit 10.3 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
10.5 Amended and Restated Credit Agreement, dated July 2, 1999,
by and among the registrant, the Borrowing Subsidiaries and
Nationsbank, N.A. as Administrative Agent, The First
National Bank of Chicago, as Documentation Agent, Banc of
America Securities LLC, as Sole Lead Arranger and Book
Manager, and the Bank Parties thereto, filed as Exhibit 10.4
to the registrant's Form 10-Q for the quarter ended
September 24, 1999, is incorporated herein by reference.
10.6 Recommended Cash Offer dated March 14, 1997, by J.P. Morgan
on behalf of Interim Services (UK) PLC, a wholly-owned
subsidiary of Interim Services Inc., for Michael Page Group
PLC filed as Exhibit 10.12 to the registrant's Form 10-Q for
the quarter ended June 27, 1997, is incorporated herein by
reference.
10.7 Interim Services Inc. 1997 Long Term Executive Compensation
and Outside Directors Stock Option Plan, filed as Exhibit I
to the registrant's Proxy Statement dated April 10, 1997, is
incorporated herein by reference.
10.8 Interim Services Inc. Incentive Plan for 162(m) Executives,
filed as Exhibit III to the registrant's Proxy Statement
dated April 10, 1997, is incorporated herein by reference.
10.9 Norrell Corporation Employee Stock Purchase Plan, filed as
Exhibit 10.2 to Norrell Corporation's Form 10-K for the
fiscal year ended October 29, 1995, is incorporated herein
by reference.
10.10 Second Amendment to the Norrell Corporation Employee Stock
Purchase Plan, dated August 28, 1997, by Norrell
Corporation to be effective September 30, 1997, filed as
Exhibit 10.2.2 to Norrell Corporation's Form 10-K for the
fiscal year ended November 2, 1997, is incorporated herein
by reference.
10.11 Norrell Corporation 1994 Stock Incentive Plan, filed as
Exhibit 10.27 to Norrell Corporation's Registration
Statement on Form S-1, as filed with the Securities and
Exchange Commission on June 10, 1994, is incorporated herein
by reference.
10.12 Norrell Corporation 1991 Stock Option Plan, filed as Exhibit
10.29 to Norrell Corporation's Registration Statement on
Form S-1, as filed with the Securities and Exchange
Commission on June 10, 1994, is incorporated herein by
reference.
10.13 Norrell Corporation 401(k) Retirement Savings Plan, filed as
Exhibit 10.41.1 to Norrell Corporation's Form 10-K for the
fiscal year ended October 27, 1996, is incorporated herein
by reference.
55
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------
10.14 Second Amendment to the Norrell Corporation 401(k)
Retirement Savings Plan dated December 30, 1996 by Norrell
Corporation to be effective January 1, 1997, filed as
Exhibit 10.41.2 to Norrell Corporation's Form 10-K for the
fiscal year ended November 2, 1997, is incorporated herein
by reference.
10.15 Norrell Corporation Non-Qualified Deferred Compensation
Plan, effective January 1, 1995, filed as Exhibit 10.42 to
Norrell Corporation's Form 10-K for the fiscal year ended
October 29, 1995, is incorporated herein by reference.
10.16 Amendment to Norrell Corporation Non-Qualified Deferred
Compensation Plan, filed as Exhibit 10.42.2 to Norrell
Corporation's Form 10-K for the fiscal year ended November
2, 1997, is incorporated herein by reference.
10.17 Restated Stock Purchase Agreement, dated September 26, 1997
among Interim Services Inc., Catamaran Acquisition Corp. and
Cornerstone Equity Investors IV, L.P., filed as Exhibit 2.1
to the registrant's Form 8-K dated September 26, 1997 and
filed October 13, 1997, is incorporated herein by reference.
10.18 The Deferred Compensation Plan of Interim Services Inc.,
filed as Exhibit 4.1 to the registrant's Form S-8 filed on
July 23, 1997, is incorporated herein by reference.
10.19 Interim Services Inc.'s Outside Directors' Compensation
Plan, effective July 1, 1999, filed as Exhibit 10.10 to the
registrant's Form 10-Q for the quarter ended September 24,
1999, is incorporated herein by reference.
10.20 The 1997 Stock Purchase Assistance Plan for executives of
the registrant, filed as Exhibit 10.16 to the registrant's
Form 10-K for the fiscal year ended December 25, 1998, is
incorporated herein by reference.
10.21 Amendment Agreement No. 1, dated as of June 1, 1997, to the
Credit Agreement dated as of May 1, 1997, between the
registrant and NationsBank filed as Exhibit 10.17 to the
registrant's Form 10-K for the fiscal year ended December
25, 1998, is incorporated herein by reference.
10.22 Interim Services Inc. Amended and Restated 1998 Stock
Incentive Plan, filed as Exhibit A to the registrant's Proxy
Statement dated April 5, 1999, is incorporated herein by
reference.
10.23 Receivables Sale Agreement, dated as of July 1, 1999,
between the registrant and each of its direct and indirect
wholly-owned subsidiaries who from time to time thereafter
becomes a Seller thereunder and Interim Receivables Corp,
filed as Exhibit 10.13 to the registrant's Form 10-Q for the
quarter ended September 24, 1999, is incorporated herein by
reference.
10.24 Credit and Security Agreement, dated as of July 1, 1999, by
and among Interim Services Receivables Corp., the
registrant, Blue Ridge Asset Funding Corporation, Falcon
Asset Securitization Corporation, Wachovia Bank N.A., and
The First National Bank of Chicago, filed as Exhibit 10.14
to the registrant's Form 10-Q for the quarter ended
September 24, 1999, is incorporated herein by reference.
10.25 Amendment No. 1 to the Credit and Security Agreement dated
as of October 19, 1999, by and among Interim Services
Receivables Corp., the registrant, Blue Ridge Asset Funding
Corporation, Falcon Asset Securitization Corporation,
Wachovia Bank N.A., and The First National Bank of Chicago,
filed as Exhibit 10.25 hereto.
56
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------
10.26 Joinder Agreement dated as of October 19, 1999 by and among
Norrell Corporation, American Technical Resources, Inc.,
CallTask Incorporated, Comtex Information Systems, Inc.,
Dynamic Temporary Services, Inc., a Georgia corporation,
NorCross Teleservices, Inc., Norrell Information Services,
Inc., Norrell Resources Corporation, Norrell Services of
Texas, Inc., Norrell Services, Inc., Norrell Temporary
Services Inc., Tascor Incorporated, Tascor Resources
Corporation, Interim Atlantic Enterprises LLC, Interim
Pacific Enterprises LLC, and Interim Services Receivables
Corp., filed as Exhibit 10.26 hereto.
10.27 Recommended cash offer dated November 8, 1998 by Interim
Services Australia Pty. Limited, a wholly owned (indirect)
subsidiary of Interim Services Inc. for Computer Power
(Interim Technology Consulting-Asia Pacific) Group Limited
filed as Exhibit 10.16 to the registrant's form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.28 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Robert E. Livonius, filed
as Exhibit 10.18 to the registrant's Form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.29 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Roy G. Krause, filed as
Exhibit 10.19 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
10.30 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Gary Peck, filed as
Exhibit 10.20 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
10.31 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Robert Evans, filed as
Exhibit 10.21 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
10.32 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Robert W. Morgan, filed as
Exhibit 10.32 hereto.
10.33 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Raymond Marcy,
filed as Exhibit 10.22 to the registrant's Form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.34 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Robert E. Livonius,
filed as Exhibit 10.23 to the registrant's Form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.35 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Roy G. Krause,
filed as Exhibit 10.24 to the registrant's Form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.36 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Gary Peck, filed as
Exhibit 10.25 to the registrant's Form 10-K for the fiscal
year ended December 25, 1998, is incorporated herein by
reference.
10.37 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Robert Evans, filed
as Exhibit 10.26 to the registrant's Form 10-K for the
fiscal year ended December 25, 1998, is incorporated herein
by reference.
10.38 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Robert W. Morgan,
filed as Exhibit 10.38 hereto.
57
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------
11. See "Earnings Per Share" in the Notes to Consolidated
Financial Statements included at page 53 herein.
21. Subsidiaries of Registrant filed as Exhibit 21 to the
registrant's Form 10-K for the fiscal year ended December
25, 1998, is incorporated herein by reference.
23.1 Consent of Deloitte & Touche LLP.
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K
During the last quarter of the period covered by this report, no reports on
Form 8-K were filed.
(c) EXHIBITS FILED WITH THIS FORM
EXHIBIT
NUMBER EXHIBIT NAME
- --------------------- ------------------------------------------------------------
10.25 Amendment No.1 to the Credit and Security Agreement dated as
of October 19, 1999, by and among Interim Services
Receivables Corp., the registrant, Blue Ridge Asset Funding
Corporation, Falcon Asset Securitization Corporation,
Wachovia Bank N.A., and The First National Bank of Chicago.
10.26 Joinder Agreement dated as of October 19, 1999 by and among
Norrell Corporation, American Technical Resources, Inc.,
CallTask Incorporated, Comtex Information Systems, Inc.,
Dynamic Temporary Services, Inc., a Georgia corporation,
NorCross Teleservices, Inc., Norrell Information Services,
Inc., Norrell Resources Corporation, Norrell Services of
Texas, Inc., Norrell Services, Inc., Norrell Temporary
Services, Inc., Tascor Incorporated, Tascor Resources
Corporation, Interim Atlantic Enterprises LLC, Interim
Pacific Enterprises LLC, and Interim Services Receivables
Corp.
10.32 Employment Agreement dated as of November 18, 1998, by and
between Interim Services Inc. and Robert W. Morgan.
10.38 Change In Control Agreement dated as of November 18, 1998,
by and between Interim Services Inc. and Robert W. Morgan.
(d) OTHER FINANCIAL STATEMENTS
There were no other financial statements of the type described in
subparagraph (d) of Item 14 of Part IV required to be filed herein.
58
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.
INTERIM SERVICES INC.
March 13, 2000 By /s/ RAYMOND MARCY
-----------------------------------------
Raymond Marcy,
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE
--------- -----
/s/ STEVEN S. ELBAUM
------------------------------------------- Director
Steven S. Elbaum
/s/ WILLIAM F. EVANS
------------------------------------------- Director
William F. Evans
/s/ JEROME B. GROSSMAN
------------------------------------------- Director
Jerome B. Grossman
/s/ CINDA A. HALLMAN
------------------------------------------- Director
Cinda A. Hallman
/s/ RAYMOND MARCY
------------------------------------------- Director
Raymond Marcy
/s/ J. IAN MORRISON
------------------------------------------- Director
J. Ian Morrison
/s/ GUY W. MILLNER
------------------------------------------- Director
Guy W. Millner
(Signed as to each on March 13, 2000)
59
SIGNATURE TITLE
--------- -----
/s/ A. MICHAEL VICTORY
------------------------------------------- Director
A. Michael Victory
/s/ RAYMOND MARCY Chairman, President and Chief
------------------------------------------- Executive Officer (principal
Raymond Marcy executive officer)
/s/ ROY G. KRAUSE Executive Vice President and Chief
------------------------------------------- Financial Officer (principal
Roy G. Krause financial officer)
/s/ MARK W. SMITH
------------------------------------------- Vice President Finance (principal
Mark W. Smith accounting officer)
(Signed as to each on March 13, 2000)
60
INTERIM SERVICES INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
-------- -------- ----------------------- ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 26, 1997
Allowance for doubtful accounts....... $ (3,023) $ (4,863) $ (2,274) $ 4,931 $ (5,229)
========= ========= ========= ========= =========
Accumulated Amortization:
Goodwill............................ $ (40,778) $ (14,193) $ (117) $ 14,686 $ (40,402)
Tradenames.......................... (309) (3,877) (67) 111 (4,142)
Other............................... (3,537) (422) -- 1,259 (2,700)
--------- --------- --------- --------- ---------
$ (44,624) $ (18,492) $ (184) $ 16,056 $ (47,244)
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 25, 1998
Allowance for doubtful accounts....... $ (5,229) $ (6,946) $ (363) $ 3,601 $ (8,937)
========= ========= ========= ========= =========
Accumulated Amortization:
Goodwill............................ $ (40,402) $ (16,828) $ (43) $ 12 $ (57,261)
Tradenames.......................... (4,142) (5,558) (25) 204 (9,521)
Other............................... (2,700) (164) -- 2,312 (552)
--------- --------- --------- --------- ---------
$ (47,244) $ (22,550) $ (68) $ 2,528 $ (67,334)
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts....... $ (8,937) $ (6,685) $ (5,944) $ 4,610 $ (16,956)
========= ========= ========= ========= =========
Accumulated Amortization:
Goodwill............................ $ (57,261) $ (28,605) $ 443 $ -- $ (85,423)
Tradenames.......................... (9,521) (5,422) 320 21 (14,602)
Other............................... (552) (137) -- 225 (464)
--------- --------- --------- --------- ---------
$ (67,334) $ (34,164) $ 763 $ 246 $(100,489)
========= ========= ========= ========= =========
61
EXHIBIT 21
---------
SUBSIDIARIES OF INTERIM SERVICES INC.
------------------------------------------
Following is a list of the direct and indirect subsidiaries of Interim
Services Inc., a Delaware corporation. Certain inactive subsidiaries have been
excluded from the list below as such subsidiaries, when considered in the
aggregate as one subsidiary, would not constitute a "significant subsidiary."
All active subsidiaries do business under their corporate name listed below, or
close derivatives thereof, except where indicated otherwise:
Interim Financial Corporation............................... Delaware (1)
Interim Real Estate Solutions Inc........................... Florida (1)
Interim Services (Europe) Inc............................... Delaware (1)
Interim U.S. Inc. (f/k/a Interim Technology Inc.)........... Florida (1)
Interim Technology (UK) Limited............................. United Kingdom (1)
Michael Page International Inc.............................. Delaware (1)
Rich Field Agency, Inc...................................... Florida (1)
Saratoga Institute, Inc..................................... California (1)
Spectrum Financial Corporation.............................. Delaware (1)
Spectrum Insurance Company Ltd.............................. Cayman Islands (1)
Michael Page International Pte Ltd.......................... Singapore (1)
Interim Assessment Services Inc. (f/k/a HR Easy, Inc.)...... North Carolina (1)
Interim Acquisition Corporation............................. Delaware (1)
Norrell Corporation (f/k/a Interim Merger Corporation)...... Delaware (1)
Atrium (U.S.-B) Inc......................................... Delaware (1)
Atrium (U.S.-B) LLC......................................... Delaware (1)
Interim Services Receivables Corp........................... Delaware (1)
Interim Services Atlantic LLC............................... Delaware (2)
Interim Services Pacific LLC................................ Delaware (2)
Interim Atlantic Enterprises LLC............................ Delaware (3)
Interim Pacific Enterprises LLC............................. Delaware (3)
Michael Page Group Plc...................................... United Kingdom (4)
Interim UK Limited.......................................... United Kingdom (4)
Atrium (NL-A) Inc (f/k/a Interim Temporary Personnel
Inc.)..................................................... Florida (4)
Interim Staffing Solutions Limited.......................... Ireland (4)
Interim Personnel B.V. (f/k/a Ago Uitzendbureau B.V.)....... Netherlands (5)
Interim Services Australia Pty Limited...................... Australia (5)
Interim Flexsupport B.V. (f/k/a Interim Detachering B.V.)... Netherlands (5)
Interim Registratie B.V. (f/k/a Interim Services Netherlands
B.V.)..................................................... Netherlands (5)
Ouranos Informatica Groep B.V............................... Netherlands (5)
Tutor Recursos Humanos ETT, S.L............................. Spain (5)
Tutor Seleccion, S.L........................................ Spain (5)
Michael Page Recruitment Group Ltd.......................... United Kingdom (6)
Plusbox Limited............................................. United Kingdom (6)
Michael Page Holdings Ltd................................... United Kingdom (7)
Accountancy Additions (North) Ltd........................... United Kingdom (8)
Michael Page UK Ltd......................................... United Kingdom (8)
Michael Page Ltd............................................ United Kingdom (9)
Sales Recruitment Specialist Ltd............................ United Kingdom (9)
Questor International Ltd................................... United Kingdom (9)
Michael Page International (Italia) SRL..................... Italy (10)
62
Michael Page (Espana) SA.................................... Spain (10)
Michael Page International (France) SA...................... France (10)
Page Interim SA............................................. Spain (10)
Michael Page International (Australia) Pty Ltd.............. Australia (10)
Michael Page International (Deutschland) GmbH............... Germany (10)
Michael Page International (Hong Kong) Ltd.................. Hong Kong (10)
Michael Page International (Nederland) B.V.................. Netherlands (10)
Michael Page International (New Zealand) Ltd................ New Zealand (10)
Page Interim SA............................................. France (11)
Page Interim (Banking) EURL................................. France (12)
Page Interim (East) EURL.................................... France (12)
Page Interim (South) EURL................................... France (12)
Page Interim (West) EURL.................................... France (12)
Business Interim EURL....................................... France (12)
Compagnie Du Recrutor EURL.................................. France (13)
Societe Des Nouveaux Recruteurs EURL........................ France (13)
Michael Page Advertising EURL............................... France (13)
MP Services EURL............................................ France (13)
Les Recrutuers Reunis EURL.................................. France (13)
Michael Page Conseil Informatique EURL...................... France (13)
Interim Services UK PLC (f/k/a Crone Corkill Group PLC)..... United Kingdom (14)
Interim Technology Training Limited......................... United Kingdom (14)
C.C. Agency Services Limited................................ United Kingdom (15)
Crone Corkill Limited....................................... United Kingdom (15)
Interim Office Professionals Limited (f/k/a Hobstones
Limited).................................................. United Kingdom (15)
Interim Technology Limited (f/k/a Westwood Young Limited)... United Kingdom (15)
Interim On-Premise (UK) Ltd................................. United Kingdom (15)
ONS Nederlanse Software Bedrijf (ONS) B.V................... Netherlands(16)
Maintain Software Management B.V............................ Netherlands (17)
Pontos Project ManageMens B.V............................... Netherlands (17)
Q&B Serving the Client B.V.................................. Netherlands (17)
Ouranos Enterprises to be B.V............................... Netherlands (17)
Kronos Software Engineering B.V............................. Netherlands (17)
Novos Joined IT Generations B.V............................. Netherlands (17)
Screenup Client Engineering B.V............................. Netherlands (17)
Novos Noord Nederland B.V................................... Netherlands (18)
Maintain Operational Services B.V........................... Netherlands (19)
Interim Technology Group Limited (f/k/a Computer Power Group
Limited).................................................. Australia (20)
Interim Technology Solutions Pty Ltd (f/k/a Computer Power
Pty Ltd).................................................. Australia (21)
Interim Technology Associates Pty Ltd (f/k/a Computer People
Pty Ltd).................................................. Australia (21)
Interim Technology Education Pty Ltd (f/k/a Computer Power
Education Pty Ltd)........................................ Australia (21)
Equus People Pty Ltd........................................ Australia (21)
Emppay Pty Ltd.............................................. Australia (21)
CP Software Export Pty Ltd.................................. Australia (21)
Parity People Pty Ltd....................................... Australia (21)
Edilina Pty Ltd............................................. Australia (21)
Computer Power Group (S) Pte Ltd............................ Singapore (21)
MTE Management Technology Education Pty Ltd................. Australia (22)
Computer Power Education Pty Ltd............................ New Zealand (22)
MTE Management Technology Education Pty Ltd................. New Zealand (22)
63
Parity People Pty Ltd....................................... New Zealand (23)
CP International Limited.................................... Hong Kong (24)
Computer Power Educational Services Limited................. Hong Kong (24)
DP Recruitment Services (S) Pte Ltd......................... Singapore (24)
CPG Computer Power Group (M) SDN BHD........................ Malaysia (24)
Interim Services Worldwide Holding B.V...................... Netherlands (25)
Accountancy Additions Ltd................................... United Kingdom (26)
Atrium (AU-B) Pty Limited................................... Australia (27)
Career Temporaries, Inc. *.................................. Louisiana (28)
Norrell Finance Company *................................... Nevada (28)
Norrell Enterprises Corporation *........................... Nevada (28)
Norrell Licensing Company................................... Nevada (28)
Norrell Resources Corporation............................... Delaware (28)
Comtex Asset Management Company............................. Nevada (28)
ATR Asset Management Company................................ Nevada (28)
ANATEC Asset Management Company............................. Nevada (28)
Norrell International Ltd................................... Nevada (28)
American Technical Resources, Inc........................... Virginia (28)
CallTask Incorporated *..................................... Georgia (28)
Comtex Information Systems, Inc............................. Delaware (28)
Dynamic Temporary Services, Inc. *.......................... Georgia (28)
NC Holding Corporation...................................... Georgia (28)
NorCross Teleservices Inc................................... Delaware (28)
Norrell Acquisition Corp.................................... Delaware (28)
Norrell Asset Management Company............................ Nevada (28)
Tascor Incorporated *....................................... Georgia (29)
Tascor Resources Corporation *.............................. Georgia (29)
Norrell Services, Inc. *.................................... Georgia (29)
Norrell Health Care, Inc.................................... Georgia (29)
Norrell Information Services, Inc........................... Georgia (29)
HealthTask, L.P............................................. Delaware (30)
Norrell Services of Texas, Inc. *........................... Georgia (31)
Norrell Services International, Inc.*....................... Georgia (31)
Norrell Temporary Services, Inc............................. Georgia (31)
Norrell Services, Ltd....................................... Canada (32)
HCA--Home Care Services, Inc................................ New York (33)
Norrell Health Care of New York, Inc........................ New York (33)
Norrell (UK) Limited........................................ United Kingdom (34)
FSS International Limited................................... United Kingdom (34)
Financial Selection Services (London) Limited............... United Kingdom (35)
Financial Selection Services (St. Albans) Limited........... United Kingdom (35)
HealthTask Corporation...................................... Delaware (36)
- ------------------------
* Merged with and into Norrell Corporation as of January 2, 2000.
64
NOTES TO SUBSIDIARIES OF INTERIM SERVICES INC.:
1. Subsidiary of Interim Services Inc.
2. Sole member is Interim U.S. Inc. (f/k/a Interim Technology Inc.)
3. As of December 31, 1999, Atlantic Enterprises members are: Norrell
Corporation, Interim Services Atlantic LLC, Norrell Resources Corporation,
Tascor Resources Corporation, Tascor Incorporated, Norrell Temporary
Services, Inc., Norrell Services, Inc., Dynamic Temporary Services, Inc.,
CallTask Incorporated and Career Temporaries, Inc. Pacific Enterprises'
members are: Norrell Corporation, Norrell Resources Corporation, Tascor
Incorporated, Norrell Temporary Services, Inc. and Norrell Services, Inc.
4. Subsidiary of Interim Services (Europe) Inc.
5. Subsidiary of Interim Services Worldwide Holding B.V.
6. Subsidiary of Michael Page Group Plc
7. Subsidiary of Michael Page Recruitment Group Ltd
8. Subsidiary of Michael Page Partnership Ltd (an inactive subsidiary)
9. Subsidiary of Michael Page (UK) Ltd
10. Subsidiary of Michael Page International Holdings Ltd (an inactive
subsidiary)
11. Subsidiary of LPM Professional Recruitment Ltd (an inactive subsidiary)
12. Subsidiary of Page Interim SA (France)
13. Subsidiary of Michael Page International (France) SA
14. Subsidiary of Plusbox Limited
15. Subsidiary of Interim Services UK PLC (f/k/a Crone Corkill Group PLC)
16. Subsidiary of Ouranos Informatica Groep B.V. (25%) and third parties (75%)
17. Subsidiary of Ouranos Informatica Groep B.V.
18. Subsidiary of Novos Joined IT Generations B.V.
19. Subsidiary of Maintain Software Management B.V.
20. Subsidiary of Interim Services Australia Pty Limited
21. Subsidiary of Interim Technology Group Limited (f/k/a Computer Power Group
Limited)
22. Subsidiary of Interim Technology Education Pty Ltd (f/k/a Computer Power
Education Pty Ltd)
23. Subsidiary of Parity People Pty Ltd (Australia)
24. Subsidiary of Computer Power Group (S) Pte Ltd
25. Subsidiary of Atrium (NL-A) Inc. (f/k/a Interim Temporary Personnel Inc.)
26. Subsidiary of Michael Page Partnership Ltd (90%) and Interim's directors
(10%)
27. Subsidiary of Atrium (U.S.-B) LLC
28. Subsidiary of Norrell Corporation
29. Subsidiary of Norrell Finance Company
30. Subsidiary of Tascor Incorporated (49%), Ernst & Young U.S., LLP (49%) and
65
HealthTask Corporation (2%)
31. Subsidiary of Norrell Services, Inc.
32. Subsidiary of Norrell Services International, Inc.
33. Subsidiary of Norrell Health Care, Inc.
34. Subsidiary of Norrell International Ltd.
35. Subsidiary of FSS International Limited
36. Subsidiary of Norrell Corporation (50%) and Ernst & Young Resources L.L.C.
(50%)
66