Results of Operations
1996 versus 1995
Cost of services, representing payroll and related taxes and benefits for temporary employees, increased 25%. Increases in pay rates, payroll taxes and other direct costs accounted for these changes. Overall, the percentage of gross profit to sales decreased to 18.6% in 1996 from 20.1% in 1995. A major factor influencing the decrease was competitive conditions worldwide, including reduced margins on large national contracts and staff leasing.
Selling, general and administrative expenses increased 13% over 1995. The increase reflects normal growth, including opening and equipping new offices. As a percentage of sales, expenses decreased to 14.9%, from 16.2% in 1995.
Earnings from operations in 1996 were $121 million, a new record for the Company, and an increase of 14% over 1995. These earnings were 3.7% of sales, compared to 4.0% in 1995.
Interest income declined to $4.2 million in 1996 from $8.2 million in 1995. This decline was the result of the need for cash to be used for operating activities, including capital expenditures.
Interest expense, which grew from $1.2 million in 1995 to $2.2 million in 1996, was related to short-term borrowings in Europe to finance business expansion and operations.
Earnings before income taxes were a record $122.9 million, an increase of 8% over 1995. Pre-tax margins as a percentage of sales were 3.7% in 1996 and 4.2% in 1995. Income taxes increased 14% over 1995 with an effective tax rate of 40.6% of pre-tax income. The current tax rate rose primarily as a result of reduced tax exempt income, the expiration of the targeted jobs tax credit and higher foreign taxes.
Net earnings were a record $73.0 million in 1996, 5% higher than the 1995 results of $69.5 million. The rate of return on sales was 2.2% in 1996 and 2.6% in 1995. Earnings per share were $1.92, a 5% increase over the $1.83 per share earned in 1995.
1995 versus 1994
Cost of services, representing payroll and related taxes and benefits for temporary employees, increased 13%. Increases in pay rates, payroll taxes and other direct costs accounted for these changes. Overall, the percentage of gross profit to sales increased to 20.1% in 1995 from 19.6% in 1994.
Selling, general and administrative expenses increased 17% over 1994. As a percentage of sales, expenses increased to 16.2%, up from 15.7% in 1994. The increase principally reflects the opening of new offices, the effect of acquired companies for full years and normal growth.
Earnings from operations in 1995 totaled $106 million, a new record for the Company, and an increase of 15% over 1994. These earnings were 4.0% of sales, compared to 3.9% in 1994.
Interest income increased to $8.2 million in 1995 which was 22% higher than the $6.7 million earned in 1994. The increase resulted from higher rates of return on investments. Interest expense, which related to short-term borrowings in Europe, increased from $.3 million to $1.2 million.
Earnings before income taxes were a record $113.3 million, an increase of 15% over 1994. Pre-tax margins as a percentage of sales were 4.2% in both years. Income taxes increased 17% over 1994 with an effective tax rate of 38.7% of pre-tax income. The current tax rate rose primarily as a result of higher state and local taxes and higher foreign tax rates. Net earnings were $69.5 million in 1995, 14% higher than the 1994 results of $61.1 million. The rate of return on sales was 2.6% in both 1995 and 1994. Earnings per share were $1.83, a 14% increase over the $1.61 per share earned in 1994.
Liquidity and Capital Resources In 1996, strong sales increases including a significant growth in business with large national and international customers (generally with longer payment cycles) resulted in a 39% increase in trade accounts receivable over 1995. This increase, investments to expand and improve the worldwide branch network, business acquisitions and dividends were financed through operations, investing and financing activities. Lines of credit with banks have been utilized to finance short term needs of foreign subsidiaries. At the end of 1996, the amounts due under these lines were $42 million, up from $16 million in 1995 and $9 million in 1994. In 1995 and 1994, cash was directed primarily toward purchases of equipment, dividends and the acquisitions of businesses. The Company's working capital of $337 million in 1996 increased $21 million over 1995 and 1994. The current ratio was 2.0 in 1996, 2.3 in 1995 and 2.5 in 1994. The current ratios have declined over this period due principally to the use of current assets to finance continued business expansion, including the acquisition of businesses and additional properties.
Stockholders' equity grew 9% in 1996 following growth of 10% in 1995 and 12% in 1994. The return on average stockholders' equity was 14.7% in 1996, 15.3% in 1995 and 14.9% in 1994. Dividends paid per share were $.83 in 1996, an increase of 6% over the $.78 per share paid in 1995.
The Company's financial position continues to be strong. This strength will allow it to continue to aggressively pursue growth opportunities, while supporting current operations.