ITEM 1. BUSINESS
Personnel Group of America, Inc. (the "Company"), is a leading provider of information technology and commercial staffing services to businesses, professional and governmental organizations. The Company is organized into two Divisions, the Information Technology Services Division ("IT Services") and the Commercial Staffing Services Division ("Commercial Staffing"), and operates in strategic markets throughout the United States. The Company's services include information technology consulting, temporary staffing, placement of full time employees, on-site management of temporary employees and training and testing of temporary and permanent workers. At February 29, 2000, the Company operated through a network of 144 Company-operated offices located in major metropolitan areas throughout the United States.
IT Services offers information technology professionals on a temporary basis and consulting services in a range of computer-related disciplines. Commercial Staffing offers a wide variety of temporary office and clerical, and finance and accounting services, to more than 10,000 organizations nationwide. This division also provides light technical and light industrial services to its customers, but these services typically account for less than 20% of the division's total revenues. Each division also offers permanent placement services in a range of specialties. For the year ended January 2, 2000, IT Services and Commercial Staffing represented approximately 64% and 36%, respectively, of the Company's total revenues.
The Company endeavors to protect its intellectual property rights and has obtained registrations in the United States of certain of the trademarks, trade names and service marks that appear in this report.
INFORMATION TECHNOLOGY SERVICES DIVISION
IT Services provides information technology professionals on a temporary basis and consulting services through 43 offices in 21 states and the District of Columbia at February 29, 2000. IT Services had approximately 3,800 consultants on assignment at February 29, 2000, of which approximately 1,500 (or 40%) were salaried employees. Of the balance (60% of the total), approximately 1,500 consultants were hourly employees and 800 were independent contractors.
IT Services was created in 1996 following the acquisition by the Company of five companies in the information technology services business. IT Services provides skilled personnel, such as web developers and consultants, programmers, systems designers, software engineers, LAN administrators, systems integrators, helpdesk staff and other technology specialists, to a wide variety of clients, typically on an as needed time and materials basis. A number of IT Services' offices have developed technological specialties, and have entered into alliances with packaged software and systems vendors and other technology partners to provide services necessary to install and maintain their partners' technologies. Many of the division's offices also have rapidly expanding ecommerce practices, and are providing software engineering, web design, applications development and strategic internet consulting services both to clients who are themselves seeking to web enable their enterprises and to a growing number of internet infrastructure companies.
IT Services' staffing services include providing individuals or teams of computer professionals to corporations and other organizations that need assistance with project management, analysis, systems design, programming, maintenance, testing and special technologies for short-term and long-term information technology projects. The division's service offerings encompass a wide variety of tasks, ranging from management of all aspects of a project or the implementation of turnkey systems to the fulfillment of temporary staffing needs for technology projects.
Selected offices in IT Services also provide complementary or stand-alone consulting services in the information technology area, typically on a time and materials basis. For example, certain offices work with clients, chief executive officers and other executives interested in alternatives to outsourcing their internal information technology organization, as well as implementing complex systems integration solutions, and offer a range of consulting services, including systems development projects and client/server networks that span mainframe, mid-range and desktop systems. These services are provided at the client's site or at off-site development centers. The Company intends to continue expanding the consulting services component of the IT Services service offerings as part of its strategy to offer a full range of IT services to its clients.
Operations
IT Services markets its services to regional and local accounts on a decentralized basis. The following table sets forth information at February 29, 2000 on the brand names, markets, numbers of offices and dates founded of the IT Services companies:
Sales and Marketing
IT Services has developed a sales and marketing strategy that focuses on both regional and local accounts, and is implemented in a decentralized manner through its various branch locations. At the regional level, IT Services has attained preferred vendor status under multiple local brand names at a number of large clients. These accounts are typically targeted by a local IT Services company with a presence in a specific market, and then are sold on the basis of the strength of the IT Services' geographic presence in multiple markets.
Local accounts are targeted and sold by account managers at the branch offices, permitting IT Services to capitalize on the brand names of the companies in IT Services and the local expertise and established relationships of its branch office employees. Such accounts are solicited through personal sales presentations, telephone marketing, direct mail solicitation, referrals from clients and other companies in IT Services and Commercial Staffing and advertising in a variety of local and national media. These advertisements appear in the Yellow Pages, newspapers and trade publications. Local employees are also encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships.
The information technology services business is affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower IT revenues and lower operating margins in the fourth quarter of each year.
COMMERCIAL STAFFING DIVISION
At February 29, 2000, Commercial Staffing operated through 101 offices in 14 states and the District of Columbia. Commercial Staffing provides temporary personnel who perform general office and administrative services, word processing and desktop publishing, office automation, records management, production/assembly/distribution, telemarketing, finance, accounting and other staffing services. Certain of Commercial Staffing's offices also provide full-time placement and payrolling services. Payrolling services entail employment by Commercial Staffing of individuals recruited by a customer on a fee basis.
Operations
Commercial Staffing markets its staffing services to local and regional clients through its network of offices across the United States. The following table sets forth information at February 29, 2000, on the brand names, markets, numbers of offices and dates founded of the Commercial Staffing companies:
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(1) Does not include vendor-on-premises locations at customer sites.
Commercial Staffing strives to satisfy the needs of its customers by providing customized services, such as on-site workforce management and full-time placement services. The flexibility of Commercial Staffing's decentralized organization allows it to tailor its operations to meet local client requirements. For example, certain clients are provided with customized billings, utilization reports and safety awareness and training programs.
To meet the growing demand in the staffing services business for on-site management capability, Commercial Staffing offers SourcePLUS, its customized on-site temporary personnel management system. SourcePLUS places an experienced staffing service manager at the client facility to provide complete staffing support, customized to meet client-specific needs. This program facilitates client use of temporary personnel and allows the client to outsource a portion of its personnel responsibility to Commercial Staffing's on-site representative, who gathers and records requests for temporary jobs from client department heads and then fulfills client requirements. These Commercial Staffing representatives can also access Commercial Staffing's systems through on-site personal computers.
Commercial Staffing's full-time placement services provide traditional staff selection and recruiting services to its clients. In addition to recruiting employees through referrals, Commercial Staffing places advertisements in local newspapers to recruit employees for specific positions at client companies. Commercial Staffing utilizes its expertise and selection methods to evaluate the applicant's credentials. If the applicant receives and accepts a full-time position at the client, Commercial Staffing charges the employer a one-time fee, generally based on the annual salary of the employee.
To maintain a consistent quality standard for all its temporary employees, Commercial Staffing uses a comprehensive automated system to screen and evaluate potential temporary personnel, make proper assignments and review a temporary employee's performance. Commercial Staffing uses the QuestPLUS System to integrate the results of their skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. Commercial Staffing also provides uniform training to all of its employees in sales, customer service and leadership skills.
Sales and Marketing
Commercial Staffing has implemented a business development program to target potential customers with temporary staffing needs and to maintain and expand existing customer relationships. The marketing efforts of Commercial Staffing are decentralized and capitalize on long-standing business relationships with the clients of Commercial Staffing's companies and their established brand names, which have been in use for 20 years on average. Commercial Staffing obtains new clients primarily through personal sales presentations and referrals from other clients of Commercial Staffing and IT Services and supports its sales efforts with telemarketing, direct mail solicitation and advertising in a variety of local and national media, including the Yellow Pages, newspapers, magazines and trade publications.
Commercial Staffing devotes the majority of its selling efforts to the local and regional operations of a wide variety of businesses (including a number of Fortune 500 companies) and to other potential customers that it has identified as consistent users of temporary staffing services. Local and regional accounts are characterized by shorter sales cycles and higher gross margins. Commercial Staffing generally does not seek lower margin national account agreements, but does provide services to a wide variety of customers with national and international businesses. Bids for large user accounts and the provision of services to clients with multiple location requirements are coordinated at the Company's headquarters.
The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second half of each calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. While the commercial staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations and the diversity of the services it provides (including its emphasis on high-end white collar clerical workers) may partially mitigate the adverse effects of economic cycles in a single industry or geographic region.
RECRUITING AND RETENTION OF CONSULTANTS AND TEMPORARY EMPLOYEES
The Company recruits its Commercial Staffing temporary associates and IT Services consultants through a decentralized recruiting program that primarily utilizes local and national advertisements and the Internet. In addition, the Company has succeeded in recruiting qualified employees through referrals from its existing labor force. To encourage further referrals, most of the companies in IT Services and Commercial Staffing pay referral fees to employees responsible for attracting new recruits. The Company interviews, tests, checks references and evaluates the skills of applicants for temporary employment, utilizing systems and procedures developed and enhanced over the years. Commercial Staffing employs temporary associates on an as needed basis dependent upon client demand. These temporary associates are paid only for time they actually work.
In an effort to attract a broad spectrum of qualified employees, the Company offers a wide variety of employment options and training programs. The Company emphasizes the utilization of salaried full-time status for its consultants with the payment of annual salaries irrespective of assignment. In addition, IT Services operates a number of formal and informal training programs to provide its consultants with access to and training in new software applications and a diverse mix of mainframe, client/server and other computer technologies. The Company believes that these training initiatives have improved consultant recruitment and retention, increased the technical skills of IT Services' personnel and resulted in better service for IT Services' clients.
The Company provides competitive compensation packages and comprehensive benefits for all of its temporary associates and IT Services consultants. Most of the temporary associates and IT Services consultants are eligible for the Company's 401(k) matching plans and employee stock purchase plan.
ORGANIZATIONAL STRUCTURE
The Company operates through a network of decentralized Company-operated offices. Each Company-operated office reports to a manager who is responsible for day-to-day operations and the profitability of the office. Depending on, among other things, the number of Company-operated offices in a region, branch managers may report to operating company presidents, regional managers, division vice presidents or division presidents. Branch and regional managers are given a high level of autonomy in making decisions about the operation of their principal region. The compensation of branch and regional managers includes bonuses primarily based on the incremental year-to-year increase in the profitability of their operations and is designed to motivate them to maximize the growth and profitability of their offices.
AUTOMATED OPERATING SYSTEMS
Commercial Staffing uses a number of automated systems to allow it to quickly and effectively measure the skills of the temporary employee candidates that make themselves available and to match skills with client requests. The ProficiencyPLUS program is designed to test specific computer-related skills by allowing the candidate to operate in the actual software program environment. The QuestPLUS system integrates the results of the Company's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. This system also allows the Company to track the performance of its temporary employees and provide quality reports to customers that document the level of the Company's performance.
The Company utilizes branch paybill systems for Commercial Staffing. The paybill processing system provides payroll processing and customer invoicing. Installation of this system began in the second quarter of 1996 and has been completed in all of the Division companies.
The Company has also installed common financial and human resources systems in over 45% of its IT Services offices. Installation of these systems in the existing companies began in the second quarter of 1998 and is expected to continue through the year 2000.
COMPETITION
The United States staffing services market is highly competitive and highly fragmented, with more than 15,000 offices competing in the industry, and has limited barriers to entry. However, the commercial staffing and information technology services industries have undergone significant consolidation. A number of publicly owned companies specializing in professional staffing services in the United States have greater marketing, financial and other resources than the Company.
In the temporary staffing industry, competition generally is limited to firms with offices located within a customer's particular local market. In most major markets, commercial staffing competitors generally include many of the publicly traded companies and, in addition, numerous regional and local full-service and specialized temporary service agencies, some of which may operate only in a single market. Competitors for information technology services include local IT staffing and consulting firms, large, multi-service staffing and consulting firms and the consulting affiliates of large accounting firms.
Since many clients contract for their staffing services locally, competition varies from market to market. In most areas, no single company has a dominant share of the market. Many client companies use more than one staffing services company, and it is common for large clients to use several staffing services companies at the same time. However, in recent years there has been a significant increase in the number of large customers consolidating their temporary staffing purchases with a single supplier or with a smaller number of preferred vendors. The trend to consolidate temporary staffing purchases has in some cases made it more difficult for the Company to gain business from potential customers who have already contracted to fill their staffing needs with competitors of the Company. In other cases, the Company has been able to increase the volume of business with certain customers who choose to purchase staffing services primarily from the Company.
The competitive factors in obtaining and retaining clients include an understanding of clients' specific job requirements, the ability to provide appropriately skilled temporary personnel at the local level in a timely manner, the monitoring of quality of job performance and the price of services. The primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages and responsiveness to work schedules and the number of hours of work available. Management believes that it is highly competitive in these areas due to its focus on local markets and the autonomy given to its local management.
REGULATION
Temporary employment service firms are generally subject to one or more of the following types of government regulation: (i) regulation of the employer/employee relationship between a firm and its temporary employees; (ii) registration, licensing, record keeping and reporting requirements; and (iii) substantive limitations on its operations. Staffing services firms are the legal employers of their temporary workers (other than independent contractors). Therefore, such firms are governed by laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation.
TRADEMARKS
The Company maintains a number of trademarks, tradenames, service marks and other intellectual property rights, and licenses certain other proprietary rights in connection with its businesses. The Company is not currently aware of any infringing uses or other conditions that would materially and adversely affect its use of its proprietary rights.
EMPLOYEES
At February 29, 2000, the Company had approximately 1,350 permanent administrative employees. Additionally, approximately 3,000 of the information technology consultants in IT Services were full-time salaried or hourly employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relationships with its employees are good.
ITEM 2.
ITEM 2. PROPERTIES
Generally, the Company's offices are leased under leases of relatively moderate duration (typically three to five years, with options to extend) containing customary terms and conditions. IT Services and Commercial Staffing offices are typically in high quality office or industrial buildings, and occasionally in retail buildings, and the Company's headquarters facilities and regional offices are in similar facilities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in certain disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Company periodically is subject to government audits and inspections. In the opinion of the Company's management, matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
PART II.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The information required by this Item is included in the Company's Annual Report under the caption "Market for Registrant's Common Equity and Related Shareholder Matters," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is included in the Company's Annual Report under the caption "Selected Financial Data," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Market Risk Disclosures," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is included in the Company's Annual Report under the captions "Report of Independent Accountants", "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has no disagreements on accounting or financial disclosure matters with its independent public accountants to report under this Item 9.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information contained in the Proxy Statement in the first paragraph under the caption "Election of Directors--Nominees," and under the caption "Election of Directors--Officers and Directors," is incorporated herein by reference in response to this Item 10.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information contained in the Proxy Statement under the captions "Election of Directors--Director Compensation" and "Executive Compensation" is incorporated herein by reference in response to this Item 11.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information contained in the Proxy Statement under the caption "Securities Ownership of Certain Beneficial Owners and Management" is incorporated by reference herein in response to this Item 12.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has no relationships or transactions to report under this Item 13.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. Documents filed as part of this Report
(1) The following Report of Independent Public Accountants and financial statements of the Company are contained in Item 8 above:
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants
Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999
Consolidated Statements of Income for the years ended January 2, 2000, January 3, 1999 and December 28, 1997
Consolidated Statements of Shareholders' Equity for the years ended January 2, 2000, January 3, 1999 and December 28, 1997
Consolidated Statements of Cash Flows for the years ended January 2, 2000, January 3, 1999 and December 28, 1997
Notes to Consolidated Financial Statements
(2) No financial statement schedules are filed as part of this Report. All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the notes to the financial statements referred to above.
(3) Exhibits:
The Exhibits to this Report on Form 10-K are listed in the accompanying Exhibit Index.
b. Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the fourth quarter of 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2000.
PERSONNEL GROUP of AMERICA, INC.
By: /s/ James C. Hunt ------------------------------ James C. Hunt President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 28, 2000.
Signature
/s/ Kevin P. Egan Chairman of the Board - --------------------------- Kevin P. Egan
/s/ James C. Hunt President, Chief Operating Officer and - --------------------------- Director James C. Hunt
/s/ Ken R. Bramlett, Jr. Senior Vice President, Chief Financial - --------------------------- Officer and Director Ken R. Bramlett, Jr.
/s/ J. Roger King Director - --------------------------- J. Roger King
Director - --------------------------- James V. Napier
/s/ William J. Simione, Jr. Director - --------------------------- William J. Simione, Jr.
/s/ Janice L. Scites Director - --------------------------- Janice L. Scites
EXHIBIT INDEX
# This Exhibit is substantially identical to Director and Officer Indemnification Agreements (i) of the same date between the Company and the following individuals: Kevin P. Egan, J. Roger King, and William Simione, Jr.; (ii) dated April 17, 1998 between the Company and each of James C. Hunt and Ken R. Bramlett, Jr.; and (iii) dated August 9, 1999 between the Company and Jancie L. Scites.
+ Management Contract or Compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission.