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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from _______________ to ________________
Commission File Number: 1-5707
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-6097429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Tower Lane, Suite 2100, Oakbrook Terrace, IL 60181
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 954-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Names of each exchange on which registered
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
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 in
response to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of November 5,
1999 was $16,570,000. At that date, there were 5,086,656 shares
of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the General Employment Enterprises, Inc. Proxy
Statement for the annual meeting of shareholders to be held on
February 28, 2000 are incorporated by reference into Part III of
this Form 10-K.
PART I
Item 1. Business
General
General Employment Enterprises, Inc. (the "Company") was
incorporated in the State of Illinois in 1962 and is the
successor to employment offices doing business since 1893. In
1987 the Company established Triad Personnel Services, Inc., a
wholly-owned subsidiary, incorporated in the State of Illinois.
The principal executive office of the Company is located at One
Tower Lane, Suite 2100, Oakbrook Terrace, Illinois.
Services Provided
The Company operates in one industry segment, providing
professional staffing services. The Company offers its customers
both full time placement and temporary contract staffing
services, specializing in the placement of information
technology, engineering and accounting professionals.
The Company's placement services include placing candidates into
regular, full-time jobs with client-employers. The Company's
contract services include placing its professional employees on
temporary assignments, under contracts with client companies.
Contract workers are employees of the Company, typically working
at the client location and at the direction of client personnel
for periods of three months to one year. Management believes
that the combination of these two services provides a strong
marketing opportunity, because it offers customers a variety of
staffing alternatives that includes regular full-time staffing,
temporary staffing and a contract-to-hire approach to hiring.
The amount of revenues derived from these services for each of
the last three fiscal years is presented in the Company's
consolidated statement of income. In recent years, the Company's
contract service revenues have grown more rapidly than placement
services, and accordingly, contract service revenues have become
a larger percentage of the Company's business. In fiscal 1999,
the Company derived approximately 57% of its revenues from
placement services and 43% from contract services.
Marketing
The Company markets its services using the trade names General
Employment, Omni One, Business Management Personnel and Triad
Personnel Services. As of September 30, 1999, it operated 42
branch offices located in downtown or suburban areas of major
U.S. cities in 14 states. Thirty-five of the offices were full-
service branches, providing both placement and contract services,
and seven of the offices specialized in contract services only.
The offices were concentrated in California (10), Illinois (8),
Arizona (3), Texas (3), and Indiana (3), with two offices each in
Florida, Georgia, Massachusetts, Michigan, Ohio, and
Pennsylvania, and one office each in Nevada, North Carolina and
Tennessee.
The Company markets its services to prospective clients primarily
through telephone marketing by its employment consultants and
through mailing of employment bulletins listing candidates
available for placement and contract employees available for
assignment.
The Company has a diverse customer base, and no single customer
accounts for more than 4% of its revenues.
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Recruiting
The success of the Company is highly dependent on its ability to
obtain qualified candidates. Prospective employment candidates
are recruited through telephone contact by the Company's
employment consultants, through classified newspaper advertising
and through postings on the internet. For this purpose, the
Company maintains its own internet web page at
www.generalemployment.com and uses other internet job posting
bulletin board services. The Company uses a computer program to
track applicants' skills and match them with job openings. The
Company screens and interviews all applicants who are presented
to its clients.
Billing Practices
The Company charges a fee for successful placements that is based
on a percentage of the applicant's projected annual salary, and
the Company provides its clients with a guarantee under which the
fee is refundable if the applicant does not remain employed
during a guarantee period. Fees for contract services are billed
on an hourly basis each week. The Company expects payment by its
customers upon receipt of its invoices. Typical of the staffing
industry, working capital is required to finance the wages of
contract workers before the related customer accounts are
collected.
Competition
The staffing industry is highly competitive. There are
relatively few barriers to entry by firms offering placement
services, while significant amounts of working capital typically
are required for firms offering contract services. The Company's
competitors include a large number of sole-proprietorship
operations, as well as regional and national organizations. Many
of them are large corporations with substantially greater
resources than the Company.
Because the Company focuses its attention on professional
staffing positions, particularly in the highly specialized
information technology field, it competes by providing services
that are dedicated to quality. This is done by providing highly
qualified candidates who are well matched for the position, by
responding quickly to client requests, and by establishing
offices in convenient locations. As an added service, the
Company provides careful reference checking and scrutiny of
candidates' work experience and optional background checks.
Pricing is considered to be secondary to quality of service as a
competitive factor.
Geographic diversity helps the Company to balance local or
regional business cycles. Multiple offices in the Atlanta,
Boston, Chicago, Columbus, Indianapolis, Los Angeles,
Philadelphia, Phoenix and San Francisco markets help to provide
better client services through convenient office locations and
the sharing of assignments.
Regulation
Employment agency service companies are regulated by three of the
states in which the Company operates. Licenses are issued on a
year-to-year basis. As of September 30, 1999, the Company held
current licenses for all of the offices that were required to
have them.
Employees
As of September 30, 1999, the Company had approximately 540
employees.
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Item 2. Properties
The Company's policy is to lease commercial office space for all
of its offices. The Company's headquarters are located in a
modern 31-story building near Chicago, Illinois. The Company
leases 12,900 square feet of space at this location, under a
lease that will expire in January 2006.
The Company's staffing offices are located in downtown
metropolitan and suburban business centers in 14 states.
Generally, the Company enters into six-month leases for new
locations, using shared office facilities whenever possible.
Established offices are operated from leased space ranging from
1,000 to 2,000 square feet, generally for periods of one to five
years, with cancellation clauses after certain periods of
occupancy. Management believes that existing facilities are
adequate for the Company's current needs and that its leasing
strategies provide the Company with sufficient flexibility to
open or close offices to accommodate business needs.
Item 3. Legal Proceedings
As of September 30, 1999, there were no material legal
proceedings pending against the Company.
Item 4. Results of Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the 1999 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Information regarding this item is contained in "Item 8.
Financial Statements and Supplementary Data."
Item 6. Selected Financial Data
Year Ended September 30
(In Thousands, Except Per Share) 1999 1998 1997 1996 1995
Operating results:
Net revenues $39,553 $36,734 $29,341 $23,241 $16,744
Income from operations 4,569 4,710 3,780 2,539 1,137
Net income 3,025 3,090 2,441 1,641 1,068
Per share data (1):
Net income - basic $0.59 $0.61 $0.49 $0.34 $0.23
Net income - diluted 0.59 0.58 0.48 0.33 0.22
Cash dividend declared 0.04 0.04 0.03 0.02 --
Balance sheet data:
Net working capital $11,391 $ 9,261 $ 6,418 $ 4,410 $2,246
Long-term obligations 484 460 433 375 443
Shareholders' equity 13,137 10,335 7,149 4,806 2,543
Total assets 18,085 15,632 12,323 9,581 5,825
(1) Per share amounts have been adjusted to reflect a 15% stock
dividend paid on October 29, 1999.
4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company provides placement and contract staffing services for
business and industry, specializing in the placement of
professional information technology, engineering and accounting
professionals. As of September 30, 1999, the Company operated 42
offices located in major metropolitan and business centers in 14
states.
A strong demand for information technology professionals in
recent years has had a favorable impact on the Company's results
of operations. This demand has resulted in increased contract
hours billed to clients, and the average placement fee has risen
as the average base salary of individuals placed has grown. For
the five fiscal years ended September 30, 1999, the Company's
average annual rate of revenue growth was 23%. To accommodate
the demand for its services, the Company opened 25 new branch
offices since October 1995, including one in fiscal 1999, nine in
fiscal 1998 and nine in fiscal 1997.
The growth in the Company's contract service revenues has been
particularly strong, with a compound average annual growth rate
of 33% over the last five years, and the percentage of
consolidated revenues derived from contract services has grown
from 28% in fiscal 1994 to 43% in fiscal 1999. This growth is
attributable to the strong demand for this service and the
Company's strategy to develop it. This trend has had the effect
of decreasing the Company's operating profit margin, because
contract services have lower margins than placement services.
Although the Company's contract service division continued to
grow during the 1999 fiscal year, the Company experienced a
decline in placement service revenues. Management attributes
this decline to several factors, including client employers'
decisions for increased utilization of contract employees in lieu
of full-time employment staffing, more employer emphasis on
retention of new hires by increased scrutiny and screening of
full-time employee candidates, therefore, lengthening the hiring
process time, and lower productivity with inexperienced branch
office staff at some of the Company's locations. Management also
believes that client spending on year 2000 computer issues may
have deferred clients' hiring plans during the second half of the
fiscal year.
The Company closed six marginally performing branch offices
during fiscal 1999, and it has deferred any new branch office
openings while it addresses issues related to the changing
marketplace, under-performing branch operations and staff
development.
Fiscal 1999 Results of Operations
Fiscal 1999 was an excellent year for the Company, with
consolidated net revenues and contract service revenues reaching
all-time highs. However, operating income and net income for the
year were slightly less than for fiscal 1998. For the year ended
September 30, 1999, consolidated revenues were $39,553,000, up
$2,819,000 (8%) from $36,734,000 the prior year. Placement
service revenues decreased $2,427,000 (10%), as a decrease in the
number of placements was partially offset by a 5% higher average
placement fee. Contract service revenues increased $5,246,000
(45%) primarily due to a 34% increase in billable hours and an 8%
higher average hourly billing rate. Contract service revenues
represented 43% of the Company's consolidated revenues for the
1999 fiscal year, while placement service revenues accounted for
57% of the consolidated total.
5
The cost of contract services increased $3,359,000 (45%) over
1998. The gross profit on contract services was $6,008,000 this
year, a $1,887,000 (46%) increase compared with $4,121,000 last
year, and the gross profit margin was 35.7% this year compared
with 35.5% last year. Selling expenses for 1999 decreased
$1,459,000 (10%) from last year, in line with the lower placement
service revenues. General and administrative expenses in 1999
increased $1,060,000 (11%) from 1998. This was largely
associated with the combined effects of opening new branch
offices during fiscal 1998 and inflationary cost increases.
Branch office salaries and wages increased 31% for the year,
while occupancy costs increased 16%. All other general and
administrative expenses decreased 4%. As a result, total 1999
operating expenses of $34,984,000 were $2,960,000 (9%) greater
than the $32,024,000 in 1998.
The Company had income from operations of $4,569,000, which was a
$141,000 (3%) decrease from $4,710,000 in the prior year, and the
operating profit margin was 11.6% this year compared with 12.8%
last year. The lower margin was largely due to the combination
of lower placement revenues and higher general and administrative
expenses.
Interest income was $496,000 for the year, compared with $440,000
last year. The $56,000 (13%) increase was due to higher
investable funds.
The Company had pretax income of $5,065,000 for the year, which
was a decrease of $85,000 (2%) from $5,150,000 last year. The
effective income tax rate was 40.1%, about the same as the 40.0%
tax rate last year.
After taxes, net income was $3,025,000 for the year ended
September 30, 1999, which was a $65,000 (2%) decline compared
with net income of $3,090,000 last year. Diluted net income per
share increased to $ .59 this year, compared with $ .58 last
year, as the average number of diluted shares decreased 4%.
Fiscal 1998 Results of Operations
For the year ended September 30, 1998, consolidated revenues were
$36,734,000, up $7,393,000 (25%) from $29,341,000 the prior year.
Placement service revenues increased $4,605,000 (22%), due to a
3% increase in the number of placements and a 17% higher average
placement fee. Contract service revenues increased $2,788,000
(32%) primarily due to a 25% increase in billable hours and a 4%
higher average hourly billing rate. Contract service revenues
represented 32% of the Company's consolidated revenues for the
1998 fiscal year, while placement service revenues accounted for
68% of the consolidated total.
The cost of contract services increased $1,685,000 (29%) over
1997. The gross profit on contract services was $4,121,000 this
year, a $1,103,000 (37%) increase compared with $3,018,000 the
prior year, and the gross profit margin was 35.5% this year
compared with 34.2% the prior year. Selling expenses for 1998
increased $3,110,000 (25%) from the prior year. In line with the
consolidated revenue growth, commission expense and related
payroll costs increased 25%, and recruitment advertising expenses
increased 27% for the year. General and administrative expenses
in 1998 increased $1,668,000 (22%) from 1997. This was largely
associated with the effects of opening new branch offices during
the 1998 and 1997 fiscal years. Branch office salaries and wages
increased 40% for the year, while administrative compensation was
up 8%. Occupancy costs increased 26% and all other general and
administrative expenses increased 18%. As a result, total 1998
operating expenses of $32,024,000 were $6,463,000 (25%) greater
than the $25,561,000 in 1997.
The Company had income from operations of $4,710,000, which was a
$930,000 (25%) increase from $3,780,000 in the prior year. Since
the increase in operating expenses was in proportion to the
revenue growth, the Company's
6
operating profit margin remained about the same as the prior year
- - 12.8% in 1998 compared with 12.9% in 1997.
Interest income was $440,000 for the year, compared with $281,000
last year. The $159,000 (57%) increase was due to higher
investable funds.
The Company had pretax income of $5,150,000 for the year, which
was an increase of $1,089,000 (27%) from $4,061,000 the prior
year. The effective income tax rate was 40.0%, about the same as
the 39.9% tax rate the prior year.
After taxes, net income was $3,090,000 for the year ended
September 30, 1998, which was a $649,000 (27%) improvement
compared with net income of $2,441,000 the prior year. Diluted
net income per share was $ .58 in 1998, compared with $.48 in
1997.
Financial Condition
During the year ended September 30, 1999, the Company's cash and
short-term investments increased by $1,373,000 to a balance of
$11,832,000. Net cash provided by operating activities was
$2,692,000 for the year. Net income provided $3,025,000, while
other operating activities required $333,000. The Company used
$1,098,000 during the year for investments in property and
equipment and other assets, and the payment of a cash dividend
required $221,000.
The Company's net working capital was $11,391,000 as of September
30, 1999, compared with $9,261,000 at September 30, 1998, and
shareholders' equity was $13,137,000 at September 30, 1999,
compared with $10,335,000 last September.
As of September 30, 1999, the Company had no debt outstanding,
and it had a $1,000,000 line of credit available for working
capital purposes. All of its facilities are leased, and
information about future minimum lease payments is presented in
the notes to consolidated financial statements. Management
believes that existing resources are adequate to meet the
Company's anticipated operating needs.
Year 2000 Issues
Issues surrounding the year 2000 are the result of older computer
programs being written using two digits rather than four digits
to define a year. As a result, date-sensitive computer software
or hardware containing this defect could be susceptible to
miscalculations or system failures if not corrected or replaced.
In 1998 the Company completed the installation of software
programs as part of an ongoing project to upgrade and modernize
all of its internal financial systems. During fiscal 1999 the
Company reviewed all of its critical and non-critical computer
hardware installations and software applications to ensure
compliance with the year 2000. Verification of compliance was
obtained from hardware and software providers, and critical
applications were tested. The Company has determined that all of
its critical systems and most of its non-critical systems are
compliant with the year 2000. A minor number of computers and
software applications used in non-critical applications are not
compliant and will be replaced prior to the end of calendar year
1999.
Because the Company has maintained an ongoing program of
upgrading its computer hardware and software systems, there were
no significant costs directly associated with year 2000
remediation.
7
The Company has identified outside parties that play a critical
role in its operations. These include the buildings where the
Company occupies space, utility and telephone companies that
provide their services to the Company, and major customers. The
Company has made compliance inquiries of these third parties and
plans to continue its review in this area throughout the
remainder of calendar year 1999. All respondents to date have
indicated that they are now or expect to be compliant by the end
of the calendar year 1999. Even where assurances have been
received from third parties, however, there remains a risk that
their services could be interrupted. This risk is beyond the
control of the Company.
As described above, the Company has taken every reasonable action
to identify and correct potential year 2000 issues, both
internally and externally, and will continue to address the
issues through the end of the 1999 calendar year. Based on these
actions, the Company does not anticipate any difficulty
processing transactions or conducting business in the year 2000
or beyond. However, there can be no assurance that disruptions
will not occur.
The most reasonably likely worst-case year 2000 scenario is that
individual branch offices or the corporate headquarters office
could be temporarily closed or certain services interrupted due
to failures by third parties. To the extent possible, the
Company would expect to use manual means to work around such
problems. Nevertheless, such disruptions could potentially
result in a loss of revenues. The Company believes that the
likelihood of these possible occurrences is remote. Furthermore,
the risk to the Company is greatly reduced by the diversity of
its operations. Because the Company operates 42 branch offices
in 14 states, the effect of service interruptions would be
limited.
The potential inability of customers to make payments to the
Company could also pose a credit risk. However, the Company's
diverse customer base helps to mitigate potential collection
problems because no single customer represents more than 4% of
the Company's revenues.
The Company has not pursued year 2000 remediation projects in its
staffing operations. As a result, consolidated revenues from
such sources were insignificant during the three fiscal years
ended September 30, 1999. The sources of the Company's staffing
revenues are generally from more traditional information
technology development projects. Management believes that
clients that diverted their spending from traditional projects to
year 2000 remediation projects may have adversely affected the
Company's business, particularly placement services, during the
last half of the 1999 fiscal year. Management believes that this
trend is likely to continue through the end of the 1999 calendar
year and possibly into the first calendar quarter of 2000.
Because client spending on traditional projects has been
deferred, however, the Company expects that the demand for its
services will be particularly strong when clients return to
spending on these projects in 2000.
Forward Looking Statements
As a matter of policy, the Company does not provide forecasts of
future financial performance. However, the Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
press announcements, reports to shareholders and filings with the
Securities and Exchange Commission. All statements which address
expectations about future operating performance and cash flows,
future events and business developments, and future economic
conditions are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. This
includes statements relating to business expansion plans,
expectations about revenue and earnings growth, and general
statements of optimism about the future. These statements are
based on management's
8
then-current expectations and assumptions. Actual outcomes could
differ significantly. The Company and its representatives do not
assume any obligation to provide updated information.
Some of the factors that could affect the Company's future
performance include, but are not limited to, general business
conditions, the demand for the Company's services, competitive
market pressures, the ability of the Company to attract and
retain qualified personnel for regular full-time placement and
contract project assignments, and the ability to attract and
retain qualified corporate and branch management.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
The Company's investment portfolio is exposed to the risk of
interest rate fluctuations. The primary objective for its
portfolio is to provide maximum protection of principal and high
liquidity. By investing in high-quality securities having
relatively short maturity periods, the Company reduces its
exposure to interest rate fluctuations. The Company has the
intention and ability to hold its short-term investments until
maturity, so there are no realized gains or losses. All of its
investments are fixed rate instruments having maturity periods of
two years or less when purchased. A summary of investments at
amortized cost, which approximates market value, as of September
30, 1999 is as follows:
Average
(In Thousands) Amount Interest Rate
Maturity Period:
Up to 3 months $6,671 5.4%
3 months to one year 2,018 5.6
One to two years 1,996 5.7
Item 8. Financial Statements and Supplementary Data
9
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace, Illinois
We have audited the accompanying consolidated balance sheets of
General Employment Enterprises, Inc. and subsidiary as of
September 30, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1999.
Our audits also included the financial statement schedule listed
in the Index at Item 14. These financial statements and the
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and the 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, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of General Employment Enterprises, Inc. and
subsidiary at September 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999, in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly in all material aspects the information
set forth therein.
/s/ Ernst & Young LLP
November 11, 1999
10
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 1999 1998
ASSETS
Current assets:
Cash and short-term investments $11,832 $10,459
Accounts receivable, less allowances
(1999--$440; 1998--$565) 4,023 3,639
Total current assets 15,855 14,098
Property and equipment:
Furniture, fixtures and equipment 3,846 3,089
Accumulated depreciation (2,615) (2,391)
Net property and equipment 1,231 698
Other assets 999 836
Total assets $18,085 $15,632
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 700 $ 478
Accrued compensation and payroll taxes 3,606 4,041
Other current liabilities 158 318
Total current liabilities 4,464 4,837
Long-term obligations 484 460
Shareholders' equity:
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding --
5,087 shares in 1999 and
4,424 shares in 1998 51 44
Capital in excess of stated value of shares 4,569 4,576
Retained earnings 8,517 5,715
Total shareholders' equity 13,137 10,335
Total liabilities and shareholders' equity $18,085 $15,632
See notes to consolidated financial statements.
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GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ended September 30
(In Thousands, Except Per Share) 1999 1998 1997
Net revenues:
Placement services $22,702 $25,129 $20,524
Contract services 16,851 11,605 8,817
Net revenues 39,553 36,734 29,341
Operating expenses:
Cost of contract services 10,843 7,484 5,799
Selling 13,859 15,318 12,208
General and administrative 10,282 9,222 7,554
Total operating expenses 34,984 32,024 25,561
Income from operations 4,569 4,710 3,780
Interest income 496 440 281
Income before income taxes 5,065 5,150 4,061
Provision for income taxes 2,040 2,060 1,620
Net income $ 3,025 $ 3,090 $ 2,441
Net income per share:
Basic $ .59 $ .61 $ .49
Diluted $ .59 $ .58 $ .48
Average number of shares:
Basic 5,087 5,080 5,032
Diluted 5,122 5,316 5,110
See notes to consolidated financial statements.
12
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30
(In Thousands) 1999 1998 1997
Operating activities:
Net income $ 3,025 $ 3,090 $2,441
Depreciation expense 361 247 194
Other noncurrent items 63 -- 5
Accounts receivable (384) (227) (666)
Accrued compensation and payroll taxes (435) 102 429
Other current liabilities 62 (6) (88)
Net cash provided by operating
activities 2,692 3,206 2,315
Investing activities:
Acquisition of property and equipment (793) (332) (387)
Other noncurrent items (305) (261) (151)
Increase in short-term investments (848) (1,400) (4,059)
Net cash used by investing activities (1,946) (1,993) (4,597)
Financing activities:
Exercises of stock options -- 300 65
Cash dividend declared (221) (201) (159)
Net cash provided (used) by
financing activities (221) 99 (94)
Increase (decrease)in cash and cash
equivalents 525 1,312 (2,376)
Cash and cash equivalents at beginning
of year 4,500 3,188 5,564
Cash and cash equivalents at end of year 5,025 4,500 3,188
Short-term investments at end of year 6,807 5,959 4,559
Cash and short-term investments $11,832 $10,459 $7,747
See notes to consolidated financial statements.
13
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended September 30
(In Thousands) 1999 1998 1997
Common shares outstanding:
Number at beginning of year 4,424 3,987 2,652
Stock dividend declared 663 402 1,329
Exercises of stock options -- 35 6
Number at end of year 5,087 4,424 3,987
Common stock:
Balance at beginning of year $ 44 $ 40 $ 27
Stock dividend declared 7 4 13
Balance at end of year $ 51 $ 44 $ 40
Capital in excess of stated value:
Balance at beginning of year $4,576 $4,280 $4,228
Stock dividend declared (7) (4) (13)
Exercises of stock options -- 300 65
Balance at end of year $4,569 $4,576 $4,280
Retained earnings:
Balance at beginning of year $5,715 $2,829 $ 551
Net income 3,025 3,090 2,441
Cash dividend declared (221) (201) (159)
Stock dividend declared (2) (3) (4)
Balance at end of year $8,517 $5,715 $2,829
See notes to consolidated financial statements.
14
GENERAL EMPLOYMENT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
General Employment Enterprises, Inc. (the "Company") and its
wholly-owned subsidiary, Triad Personnel Services, Inc., operate
in one industry segment, providing staffing services through a
network of branch offices located in major metropolitan areas
throughout the United States. The Company specializes in
providing information technology and other professionals to
clients on either a regular placement basis or a temporary
contract basis.
The Company has a diverse customer base, and no single customer
accounts for more than 4% of its revenues.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and
transactions of the Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Estimates and Assumptions
Preparing financial statements in accordance with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported.
Management believes that its estimates are reasonable and proper,
however, actual results could ultimately differ from those
estimates.
Revenues from Services
Placement fees are recognized as income at the time applicants
accept employment. Provision is made for estimated losses in
realization, principally due to applicants not remaining in
employment for a guarantee period. Contract service revenues are
recognized when work is performed.
Cost of Contract Services
The cost of contract services includes the wages and the related
payroll taxes and benefits of contract workers.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in effect when the
differences reverse.
Net Income Per Share
Basic net income per share is based on the average number of
common shares outstanding. Diluted net income per share is based
on the average number of common shares and the dilutive effect of
stock options.
Cash and Short-term Investments
Highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. The
Company classifies its cash equivalents and short-term
investments as held-to-maturity securities, which are recorded at
amortized cost.
15
Property and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
estimated useful lives of two to ten years.
Stock Options
The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, there is no compensation
expense to the Company when stock options are granted at prices
equal to the fair market value at the date of grant. Proceeds on
exercises of stock options and the associated income tax benefits
are credited to shareholders' equity when received.
Cash and Short-term Investments
The Company's primary objective for its investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, the Company reduces its exposure to the risks
associated with interest rate fluctuations. Investments in
securities of corporate issuers are rated A2 and P2 or better. A
summary of cash and short-term investments as of September 30 is
as follows:
(In Thousands) 1999 1998
Cash $ 1,147 $ 618
Certificates of deposit 800 1,400
U.S. federal agency notes 1,000 2,000
Commercial paper 4,867 3,474
Corporate notes 3,007 2,967
Municipal notes 1,011 --
Total cash and short-term investments $11,832 $10,459
As of September 30, 1999, all short-term investments had
maturities of two years or less. Unrealized gains and losses
were not significant.
16
Income Taxes
The components of the provision for income taxes are as follows:
(In Thousands) 1999 1998 1997
Current tax provision:
U.S. federal $1,577 $1,685 $1,360
State and local 430 415 315
Total current tax provision 2,007 2,100 1,675
Deferred tax provision (credit) 33 (40) (55)
Provision for income taxes $2,040 $2,060 $1,620
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's
provision for income taxes are as follows:
(In Thousands) 1999 1998 1997
Income tax at statutory federal
tax rate $1,722 $1,751 $1,381
State income taxes, less federal
benefit 287 271 205
Other 31 38 34
Provision for income taxes $2,040 $2,060 $1,620
The net deferred tax asset balance, included in other assets as
of September 30, related to the following temporary differences:
(In Thousands) 1999 1998
Retirement benefits $148 $141
Accrued vacation 126 118
Other (33) 15
Deferred income tax asset $241 $274
The Company made income tax payments of $2,171,000 in 1999,
$2,040,000 in 1998, and $1,795,000 in 1997.
The income tax benefit resulting from exercises of stock options
reduced income taxes payable and increased shareholders' equity
by $94,000 in 1998 and $26,000 in 1997.
Line of Credit
The Company has a loan agreement with a bank, renewable annually,
that makes a $1,000,000 line of credit available to the Company
for working capital purposes. Under the terms of the agreement,
borrowings would be secured by accounts receivable and would bear
interest at the prime rate. There were no borrowings outstanding
under the line of credit as of September 30, 1999 and 1998.
17
Lease Obligations
The Company leases space for all of its branch offices, which are
located either in downtown or suburban metropolitan business
centers, and space for its corporate headquarters. The branch
offices are generally leased over periods from six months to five
years, and the corporate headquarters is leased for ten years,
expiring in 2006. Certain lease agreements provide for increased
rental payments contingent upon future increases in real estate
taxes, building maintenance costs and the cost of living index.
Rent expense was $1,781,000 in 1999, $1,515,000 in 1998 and
$1,247,000 in 1997. As of September 30, 1999, future minimum
lease payments under lease agreements having initial terms in
excess of one year were: 2000 - $1,265,000, 2001 - $1,003,000,
2002 - $847,000, 2003 - $686,000, 2004 - $502,000 and beyond 2004
- - $605,000.
Retirement Benefits
The Company has a 401(k) retirement plan in which all full-time
employees may participate after one year of service. Under the
plan, eligible participants may contribute a portion of their
earnings to a trust, and the Company makes matching
contributions, subject to certain limitations. The Company also
has an agreement with an officer to provide defined benefits at
retirement, death or termination. The Company's accumulated
obligation under the defined benefit arrangement was $400,000 as
of September 30, 1999 and September 30, 1998, all of which was
vested. This benefit is unfunded, and the Company has recorded a
liability for the present value of the obligation at a discount
rate of 7.0%. The total cost of both retirement plans was
$131,000 in 1999, $141,000 in 1998 and $101,000 in 1997.
Preferred Stock
As of September 30, 1999 there were 100,000 shares of preferred
stock authorized, including 50,000 shares that were designated as
Series A Junior Participating Preferred Stock. The Series A
shares are reserved for issuance pursuant to the Company's share
purchase rights plan. None of the preferred shares have been
issued.
Common Stock
The Company declared a 15% stock dividend payable on October 29,
1999, a 10% stock dividend payable on October 30, 1998 and a 3-
for-2 stock split payable on October 31, 1997. All per-share
amounts have been restated to reflect these actions.
The Company declared cash dividends of $ 0.04 per common share on
November 16, 1998, $0.04 per common share on November 17, 1997
and $0.03 per common share on November 18, 1996.
Stock Options
The Company has stock option plans for directors, officers and
employees. As of September 30, 1999, there were stock options
outstanding under the Company's 1999 Stock Option Plan, 1997
Stock Option Plan, 1995 Stock Option Plan and 1992 Stock Option
Plan. Under these plans, incentive or non-statutory stock
options may be granted to officers and employees, and they may be
exercisable for up to ten years. Outside directors were
automatically
18
granted non-statutory options to purchase specified numbers of
shares on the effective dates of the plans. The Stock Option
Committee of the Board of Directors, which has the authority to
select the employees and to determine the terms of each option
granted, administers the plans.
A summary of stock options is as follows:
(Number of Shares in Thousands) 1999 1998 1997
Number of shares outstanding:
Beginning of year 554 512 74
Granted 167 90 451
Exercised -- (44) (13)
Terminated -- (4) --
End of year 721 554 512
Number of shares exercisable
at end of year 650 361 264
Number of shares available for grant
at end of year 192 71 157
Weighted average option prices per share:
Granted during the year $4.68 $6.01 $6.07
Exercised during the year -- 4.74 3.14
Outstanding at end of year 5.45 5.69 5.56
Exercisable at end of year 5.47 5.03 5.11
Information about stock options outstanding as of September 30,
1999 is as follows (number of shares in thousands):
Weighted Average
Range of Number Number Average Remaining
Exercise Prices Outstanding Exercisable Price Life (Years)
Under $4.00 46 46 $1.40 3
$4.00 to $7.00 609 538 5.34 8
Over $7.00 66 66 9.29 8
The issuance of stock options under the Company's plans does not
result in any present or future cash outlay by the Company.
Moreover, the Company benefits financially through the receipt of
cash proceeds and income tax benefits when options are exercised.
In accordance with generally accepted accounting principles,
there was no compensation expense resulting from the issuance of
stock options because the option exercise prices were equal to
the market prices of the underlying stock on the dates of grant.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," requires companies to calculate a
hypothetical value of stock options on their dates of grant. The
Company has calculated the following weighted average option
values using the assumptions indicated and the Black-Scholes
option pricing model:
19
1999 1998 1997
Weighted average estimated fair value per
share of stock options granted $1.88 $2.73 $2.74
Expected option life (years) 3.00 3.00 3.25
Stock price volatility 57% 64% 62%
Risk-free interest rate 5.3% 5.3% 5.9%
Dividend yield 1.0% 0.5% 0.5%
Assuming that stock options granted during 1999, 1998 and 1997
were valued using these assumptions and the values were reflected
as compensation expense over their vesting periods, the Company's
pro forma net income would have been $2,793,000 ($ .55 per share)
in 1999, $2,821,000 ($ .54 per share) in 1998 and $1,866,000 ($
.38 per share) in 1997.
Share Purchase Rights Plan
The Company adopted a share purchase rights plan in 1990 and
declared a dividend of one Preferred Share Purchase Right
("Right") on each outstanding common share. Each Right may be
exercised to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock (the economic equivalent of
one common share) at an exercise price of $12 (which may be
adjusted under certain circumstances). The Rights become
exercisable (and separate from the common shares) when specified
events occur, including the acquisition after December 31, 1989
of 5% or more of the outstanding common shares by a person or
group ("Acquiring Person") that then owns 10% or more of the
outstanding common shares. Upon the occurrence of such an
acquisition (other than pursuant to a tender offer for all of the
outstanding common shares at a price and on other terms deemed
fair and in the best interests of the Company and its
shareholders by a majority of the continuing directors) or if the
Company is acquired in a merger or other business combination
transaction, each Right will entitle the holder (other than an
Acquiring Person) to purchase at the current exercise price,
stock of the Company or the acquiring company having a market
value of twice the exercise price. Each Right is nonvoting,
expires on February 22, 2000 and may be redeemed by the Company
at a price of $ .01 under certain circumstances.
Employment Contracts
The Company has agreements with two of its officers and a
separate plan covering branch managers and key corporate
employees that would become effective if the employment of any of
these officers or employees should terminate under certain
conditions following a change in control of the Company. Under
these circumstances, the Company would be obligated to make lump
sum payments to the two officers equal to two times their annual
salary, to make lump sum payments to covered employees ranging
from $20,000 to $50,000, and to provide continued benefits under
the Company's welfare plans for two years.
20
GENERAL EMPLOYMENT ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended September 30
(In Thousands) 1999 1998 1997
Reserve for falloffs and doubtful accounts:
Balance at beginning of year $565 $466 $341
Additions charged to operating expenses 287 476 --
Adjustments charged (credited) to revenues (74) 24 125
Deductions for bad debt write-offs (338) (401) --
Balance at end of year $440 $565 $466
21
GENERAL EMPLOYMENT ENTERPRISES, INC.
SELECTED QUARTERLY FINANCIAL DATA AND MARKET INFORMATION
First Second Third Fourth
(In Thousands, Except Per Share)Quarter Quarter Quarter Quarter
Fiscal 1999:
Net revenues $9,161 $9,991 $10,470 $9,931
Operating expenses 8,315 9,004 9,062 8,603
Income from operations 846 987 1,408 1,328
Interest income 126 108 123 139
Income before income taxes 972 1,095 1,531 1,467
Provision for income taxes 385 440 620 595
Net income $ 587 $ 655 $ 911 $ 872
Net income per share:
Basic $ .12 $ .13 $ .18 $ .17
Diluted .11 .13 .18 .17
Market price per share:
High 7.39 6.20 5.11 6.09
Low 4.55 3.48 3.59 3.48
Fiscal 1998:
Net revenues $9,478 $8,841 $9,136 $9,279
Operating expenses 8,190 7,737 8,088 8,009
Income from operations 1,288 1,104 1,048 1,270
Interest income 99 99 112 130
Income before income taxes 1,387 1,203 1,160 1,400
Provision for income taxes 555 480 460 565
Net income $ 832 $ 723 $ 700 $ 835
Net income per share:
Basic $ .16 $ .14 $ .14 $ .16
Diluted .16 .14 .13 .16
Market price per share:
High 16.60 15.12 11.66 8.50
Low 8.30 7.81 6.92 4.25
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. There were 975 holders of
record as of October 15, 1999.
22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with the Company's
independent accountants during the two most recent fiscal years.
PART III
Item 10. Directors, Executive Officers, Promoters and Control
Persons of the Registrant
Information concerning directors and the executive officers of
the registrant is set forth in the registrant's Proxy Statement
for the annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
Information concerning executive compensation is set forth in the
registrant's Proxy Statement for the annual meeting of
shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial
owners and management is set forth in the registrant's Proxy
Statement for the annual meeting of shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related
transactions is set forth in the registrant's Proxy Statement for
the annual meeting of shareholders and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are filed as a part of this report:
Page
Report of independent accountants 10
Consolidated Balance Sheet as of September 30, 1999 and 1998 11
Consolidated Statement of Income for the years
ended September 30, 1999, 1998 and 1997 12
Consolidated Statement of Cash Flows for the years
ended September 30, 1999, 1998 and 1997 13
Consolidated Statement of Shareholders' Equity for the years
ended September 30, 1999, 1998 and 1997 14
Notes to Consolidated Financial Statements 15
Schedule II - Valuation and qualifying accounts for the years
ended September 30, 1999, 1998 and 1997 21
23
All other financial statement schedules are omitted because they
are not applicable.
Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 1999.
Exhibits
The following exhibits are filed as a part of this report:
No. Description of Exhibit
3(a) Articles of Incorporation and amendments thereto.
Incorporated by reference from Exhibit 3 to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996, File No. 1-5707.
3(b) By-Laws, as amended September 22, 1997.
10(a)Amended and Restated Defined Benefit Deferred Compensation
and Salary Continuation Agreement with Herbert F. Imhoff.
Incorporated by reference from Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, File No. 1-5707.
10(b)Employment contract with Herbert F. Imhoff.
Incorporated by reference from Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1981, File No. 1-5707.
10(c)Senior Executive Agreement with Herbert F. Imhoff
dated May 22, 1990. Incorporated by reference from Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990, File No. 1-5707.
10(d)Senior Executive Agreement with Herbert F. Imhoff,
Jr. dated May 22, 1990. Incorporated by reference from
Exhibit 10(f) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, File No. 1-5707.
10(e)Key Manager Plan, adopted May 22, 1990.
Incorporated by reference from Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30 1990, File No. 1-5707.
10(f)Rights Agreement with The First National Bank of Chicago as
Rights Agent, dated as of February 12, 1990. Incorporated
by reference from Exhibit (1) of Registration on Form 8-A
dated February 19, 1990.
10(g)First Amendment to Rights Agreement with The First National
Bank of Chicago as Rights Agent, dated as of September 27,
1991. Incorporated by reference from Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1991, File No. 1-5707.
10(h)Agreement with Sheldon Brottman dated October 3, 1991.
Incorporated by reference from Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1991, File No. 1-5707.
10(i)General Employment Enterprises, Inc. Stock
Option Plan. Incorporated by reference from Exhibit 4.1 to
the Registrant's Form S-8 Registration Statement dated March
3, 1992, Registration No. 33-46124.
24
10(j)General Employment Enterprises, Inc. 1995
Stock Option Plan. Incorporated by reference from Exhibit
4.1 to the Registrant's Form S-8 Registration Statement
dated April 25, 1995, Registration No. 33-91550.
10(k)Resolution of the Board of Directors, adopted November 16,
1998, establishing a Senior Executive Bonus Pool for fiscal
1999. Incorporated by reference from Exhibit 10 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998, File No. 1-5707.
10(l)General Employment Enterprises, Inc. 1997
Stock Option Plan. Incorporated by reference from Exhibit
10(n) of the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended September 30,1998, File No. 1-5707.
10(m)Resolution of the Board of Directors adopted September 28,
1998, amending the General Employment Enterprises, Inc. 1997
Stock Option Plan. Incorporated by reference from Exhibit
10(o) of the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended September 30,1998, File No. 1-5707.
10(n)General Employment Enterprises, Inc. 1999
Stock Option Plan. Incorporated by reference from Exhibit
10 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 1-5707.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
25
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.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: November 15, 1999 By: /s/ Herbert F. Imhoff
Herbert F. Imhoff
Chairman of the Board 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
dates indicated.
Date: November 15, 1999 By: /s/ Herbert F. Imhoff
Herbert F. Imhoff
Chairman of the Board and
Chief Executive Officer
Principal executive officer
Date: November 15, 1999 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
President and Chief Operating Officer
and Director
Date: November 15, 1999 By: /s/ Kent M. Yauch
Kent M. Yauch
Chief Financial Officer and Treasurer
Principal financial and accounting officer
Date: November 15, 1999 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: November 15, 1999 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: November 15, 1999 By: /s/ Walter T. Kerwin, Jr.
Walter T. Kerwin, Jr., Director
26