ITEM 1. BUSINESS
General
Joule Inc. and its subsidiaries are engaged in the business of personnel outsourcing, as a supplier to industry of staffing service personnel. These services focus on supplying commercial (skilled office and light industrial) workers, technical professionals, and skilled craft industrial plant and facility maintenance personnel to business and industry on a temporary basis. The Company derived 70%, 71% and 68% of its revenue from services provided to customers in New Jersey in 1998, 1997 and 1996, respectively.
All employees on assignment to the Company's clients are on the Company's payroll only during the periods of their assignments. By prior understanding, their employment is continued after completion of an assignment only if another suitable assignment is available. Historically, over 90% of revenue is billed based on direct cost plus a mark-up to cover the Company's overhead and profit. During the fiscal year ended September 30, 1998, the Company furnished approximately 9,000 employees to more than 1,200 clients. At September 30, 1998, approximately 2,000 employees were on assignment to approximately 400 clients for periods ranging in duration from one day to several years.
The Company was incorporated in New Jersey in 1967 as the successor to a business organized in 1965 and was reincorporated in Delaware on July 28, 1986.
Description of Services
The Company supplies commercial (skilled office and light industrial workers) to business and industry. The office workers are comprised of word processing, data entry, consumer service and other office service personnel. Light industrial workers may work in warehouse, packaging or light assembly environments. Recruitment and assignment of such personnel is conducted through ten offices in New Jersey and one in Florida. The assignments last from one day to several months or longer. Assignments are sometimes made to fill vacancies in a client's work force caused by vacations, illnesses, terminations or reassignments of the client's full-time employees and, in other cases to supplement the client's normal work force to meet peak work loads, handle special projects or provide special expertise. Often clients elect to staff a portion of their service requirements on a longer term basis with personnel employed and provided by the Company. The client is charged an hourly rate that comprises the direct labor rate of the personnel provided, associated costs (such as fringe benefits and payroll taxes) and a mark-up to cover the Company's overhead and profit. In 1998, the Company initiated a van transportation program to transport some of its commercial staffing workers to job sites. Employees who use this service, which is voluntary, pay a daily fee which currently partially offsets the cost of the program. During 1998, the number of office and light industrial workers on assignment per week averaged 1,100, and such services contributed approximately 37%, 38% and 31% of revenues in 1998, 1997 and 1996, respectively.
The Company's technical employees include engineers, designers, draftsmen, information technology personnel, scientists and lab technicians, who are often furnished on a project basis. Recruitment and
assignment of these personnel are conducted from Edison, New Jersey. A client that has an in-house engineering or other technical department, such as a laboratory, is able to supplement its permanent staff in a particular skill or for a specific project by utilizing personnel provided by the Company to implement the client's designs or program. Generally, several candidates are interviewed by the client before an assignment is made. The work is performed at the client's facility under the client's supervision. The Company is neither an independent consultant nor professionally liable. The client is charged at an hourly rate that comprises the direct labor rate of the personnel provided, associated costs (such as fringe benefits and payroll taxes) and a mark-up to cover the Company's overhead and profit. There are many technical personnel who choose to work on temporary assignments rather than hold permanent positions because of the opportunity to work on diverse projects and to choose times of employment. While they are not guaranteed steady employment, are not eligible for promotion and receive lesser fringe benefits than their full-time counterparts, such persons frequently are compensated at higher rates than full-time personnel with similar backgrounds and experience and have a greater opportunity for overtime compensation. During 1998, the number of technical workers on assignment per week averaged over 300, and such services contributed approximately 30%, 27% and 24% of revenues in 1998, 1997 and 1996, respectively.
The Company also provides skilled craft industrial plant and facility maintenance labor services at oil refineries, utilities, chemical, pharmaceutical and industrial plants, and office buildings. These assignments often encompass responsibility for performance of discrete functions for customers on an ongoing basis. The Company provides the services of welders, electricians, millwrights, insulators, pipefitters and other tradesmen as well as the necessary supervisory personnel and certain materials and equipment. The Company may furnish a base crew of tradesmen that is assigned to the client's facility on a full-time basis that can be supplemented as needed to provide additional services requested by the client. The Company also undertakes specific projects, such as oil and chemical plant repairs, shutdowns, dismantling, and relocation and reassembly of plant equipment. It also sends crews throughout the United States to install original equipment for manufacturers. The Company generally charges clients at hourly rates, which include a mark up for overhead and profit, for the different classifications of tradesmen and supervisory personnel and on a cost-plus basis for materials and equipment. Travel expenses are also billed to customers when appropriate. During 1998, the average number of such skilled industrial service personnel on assignment per week to clients was approximately 300. Historically, a substantial percentage of industrial services contracts are renewed. Skilled industrial services contributed approximately 33%, 35% and 45% of revenues in fiscal 1998, 1997 and 1996, respectively.
The use by clients of staffing services personnel provided by the Company allows them to hire only such permanent employees as are required for their regular core work loads. Clients are thus able to shift to the Company the cost and inconvenience associated with the employment of non-core personnel, including advertising, interviewing, screening, testing, training, fringe benefits, record keeping, payroll taxes and insurance. The Company is able to absorb such costs more effectively than its clients because its employees, once recruited, are generally assigned to a succession of positions with different clients.
Customers and Marketing
A significant portion of the Company's business represents repeat orders. For fiscal 1998 over 70% of the Company's revenues were derived from assignments to clients with which the Company had done business for more than two years.
The Company markets its services primarily through sales calls by its own sales personnel and through direct mail solicitation, participation in trade exhibitions and advertising. No customer accounted for more than 10% of revenues in 1998, 1997 or 1996.
Personnel Assignment and Recruitment
The Company maintains a computerized data base of information on potential employees. It uses optical scanning equipment, where appropriate, to enhance its resume' data base retrieval system. The data base contains information on office services and light industrial personnel, engineering and other technical and scientific personnel, and skilled industrial personnel, classified by skill, residence, experience and current availability for assignment. When called upon to fill an assignment, the Company's recruiting specialists match the client's specifications with the information in the data base on these potential employees. The ability to update, expand and rapidly access the data base is important to the Company's success. The Company's branch offices have direct, on-line access to the data base. Direct access is especially important in the office services and technical areas where immediate response to client orders is required. In addition, it is important in the technical services operation because of the diversity of skills involved.
The Company recruits personnel through advertisements in local media and trade journals, at job fairs, and through referrals by current and past employees. Personnel listed in the Company's data base generally do not work exclusively for the Company. Compensation and location of the assignment are the principal factors considered by such personnel when choosing from competing assignments. The Company considers its pay scale to be competitive.
Competition
The Company faces intense competition from a large number of local and regional firms as well as national firms. The Company competes with these firms for potential employees as well as for clients. Many of the regional firms and all of the national firms with which it competes are substantially larger and possess substantially greater operating, financial and personnel resources than the Company. The Company competes primarily on the basis of price, quality and reliability of service. Its primary geographic market is New Jersey and, to a lesser extent, the nearby states.
Employees
At September 30, 1998, the Company employed approximately 130 full and part-time permanent employees in its headquarters and branch offices other than those on assignment to clients and had approximately 2,000 persons on assignment to approximately 400 clients. The Company is a party to collective bargaining agreements covering approximately 200 employees engaged in skilled craft industrial and facility maintenance work. The Company considers its relationships with its employees to be satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
The Company leases most of its facilities. The Company's corporate headquarters are located in Edison, New Jersey and comprise approximately 8,000 square feet. The Company owns that building and also owns a building adjacent to its corporate headquarters which serves as operational headquarters for some of the Company's divisions and is linked to other offices by computer network and communications equipment. Three facilities are leased from Emanuel N. Logothetis, the Chairman of the Board of the Company, at an aggregate annual rent of approximately $50,000, plus applicable real estate taxes, under terms and conditions that, in the opinion of management, are not less favorable than would have been available from unaffiliated parties. The Company entered into a three year lease with the purchaser of property formerly owned by an affiliate, in 1997. Annual rentals under this lease approximate $133,000. The Company subleases most of this space to the affiliate which reimburses the Company approximately $118,000 annually. Eleven additional facilities, comprising approximately 35,000 square feet of space, are leased from unaffiliated parties at rentals and under terms and conditions prevailing in the various locations. The Company's facilities are appropriate and adequate for its current needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management, there are no material pending legal proceedings to which the Company is a party or of which any of its property is the subject. In October 1998, the Company decided to settle a lawsuit. While the Company felt that the case was without merit, it settled to contain legal expenses, which began to escalate during the fourth quarter; legal settlement and related costs provided for and incurred amounted to $285,000 in the fourth quarter and $323,000 for all of fiscal 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Executive Officers of the Company
The names, ages and positions of all of the executive officers of the Company as of December 2, 1998 are listed below along with their business experience during the past five years. Officers are elected annually by the Board of Directors and serve at the pleasure of the Board. There are no arrangements or understandings between any officer and any other person pursuant to which the officer was selected. Emanuel N. Logothetis and John Logothetis are second cousins.
Emanuel N. Logothetis, age 68, founded the Company in 1965 and was President and Chief Executive Officer until August 10, 1987, when he was elected Chairman of the Board. He was reelected President on August 3, 1988.
John G. Wellman, Jr., age 50, was elected Executive Vice President and Chief Operating Officer on May 6, 1998. He was appointed to the same positions when he joined the Company in March, 1998. Prior to that he was Executive Vice President of Oxford and Associates, Inc., a technical staffing firm, from 1986 through March, 1998.
Bernard G. Clarkin, age 49, was elected Vice President in February 1994 and Chief Financial Officer, Treasurer, and Secretary in February 1990. He was Controller, Treasurer and Secretary of the Company from February 1989 until February 1990.
John Logothetis, age 45, was elected a Vice President on July 1, 1986. He had been General Manager of the Facilities Maintenance Operation since June 1984 and prior thereto had been Manager of Supplemental Services since joining the Company in December 1976.
Stephen Demanovich, age 44, was elected a Vice President in May, 1997. He had been General Manager of Joule Technical Staffing since March, 1995 and prior thereto had been Recruiting Manager since joining the Company in February, 1989.
Anthony Trotter, age 41, was elected a Vice President on February 4, 1998. He was appointed Vice President in August, 1997 when he joined the Company. Prior to that he was employed as Vice President of Staff Management Services from October, 1995 through July, 1997. He was Vice President of Best Temporaries from December, 1994 through September, 1995. Prior to that he was an Area Manager for Novell Services, Inc. from March, 1992 through August, 1994.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the information under the caption "Stock Market Information" on page 12 of the 1998 Annual Report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the "Selected Financial Information", included on the inside cover of the 1998 Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the information under the same caption on page 6 of the 1998 Annual Report.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the Consolidated Financial Statements appearing on pages 7 to 11 of the 1998 Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company required to be included pursuant to this Item 10 will be included under the caption "Election of Directors - Director Compensation" in the Company's Proxy Statement, and is incorporated in this Item 10 by reference. The information with respect to the executive officers of the Company required to be included pursuant to this Item 10 is included under the caption "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation required to be included pursuant to this Item 11 will be included under the caption "Compensation of Executive Officers-Certain Transactions" in the Proxy Statement and is incorporated in this Item 11 by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to this Item 12 will be included under the captions "Beneficial Ownership of More than 5% of the Outstanding Common Stock" and "Beneficial Ownership of Management" in the Proxy Statement and is incorporated in this Item 12 by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to any reportable transaction, business relationship or indebtedness between the Company and the beneficial owners of more than 5% of the Common Stock, the directors or nominees for director of the Company, the executive officers of the Company or the members of the immediate families of such individuals that is required to be included pursuant to this Item 13 will be included under the caption "Compensation of Executive Officers-Certain Transactions" in the Proxy Statement and is incorporated in this Item 13 by reference.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements --------------------
The following Financial Statements of JOULE Inc. and subsidiaries and Report of Independent Public Accountants are incorporated in Part IV by reference to the 1998 Annual Report.
Report of Independent Public Accountants with respect to the financial statements for the fiscal years, 1998, 1997 and 1996, respectively.
Consolidated Balance Sheets as of September 30, 1998 and 1997, respectively.
Consolidated Statements of Income for the Years Ended September 30, 1998, 1997 and 1996, respectively.
Consolidated Statements of Changes in Stockholders Equity for the Years Ended September 30, 1998, 1997 and 1996, respectively.
Consolidated Statements of Changes in Cash Flows for the Years Ended September 30, 1998, 1997 and 1996, respectively.
Notes to Consolidated Financial Statements.
The following financial statement schedules are included at the indicated page in this Annual Report on Form 10-K and incorporated in this Item 14(a) by reference:
Report of Independent Public Accountants as to Schedules......F-1
Financial Statement Schedules:
VIII - Valuation and Qualifying Accounts.................F-2
IX - Short-term Borrowings...............................F-3
All other schedules are omitted since they are not required or are not applicable or since the information is furnished elsewhere in the financial statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
(c) Exhibits
3.1 -- Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-7617) under the Securities Act of 1933, as amended (the "Form S-1"), and incorporated herein by reference.
3.2 -- By-laws, as amended, filed as Exhibit 3.2 to the Form S-1 and incorporated herein by reference.
4.1 -- Loan and Security Agreement, dated as of February 20, 1991, between Registrant and United Jersey Bank Central, N.A., filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
4.1a -- Third Modification and Extension Agreement, dated August 23, 1995, between Registrant and United Jersey Bank, filed as Exhibit 4.1a to the Company's Annual Report on Form 10-K for the year ended September 30, 1995 and incorporated herein by reference.
4.1b -- Fourth Modification and Extension Agreement dated February 6, 1996 between Registrant and United Jersey Bank, filed as Exhibit 4.1b to the Company's Annual Report on form 10-K for the year ended September 30, 1996 and incorporated herein by reference.
4.1c -- Fifth Modification and Extension Agreement dated May 31, 1996 between Registrant and United Jersey Bank, filed as Exhibit 4.1c to the Company's Annual Report on form 10-K for the year ended September 30, 1996 and incorporated herein by reference.
4.1d -- Sixth Modification and Extension Agreement dated May 31, 1997 between Registrant and Summit Bank, filed as Exhibit 4.1d to the Company's Annual Report on form 10-K for the year ended September 30, 1997 and incorporated herein by reference.
4.1e -- Seventh Modification and Extension Agreement dated May 31, 1998 between registrant and Summit bank.
The Company hereby agrees to furnish to the Commission upon its request any instrument defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries and for any of its unconsolidated subsidiaries for which financial statements are required to be filed with respect to long-term debt which does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.
10.1 -- Lease Agreement, dated April 1, 1986, between Registrant and Emanuel N. Logothetis for premises at 362 Parsippany Road, Parsippany, New Jersey, filed as Exhibit 10.5 to the Form S-1 and incorporated herein by reference.
10.2 -- Lease Agreement, dated January 1, 1987, between Registrant and E.N. Logothetis for Unit G, Mercerville Professional Park Condominiums, 2333 Whitehorse - Mercerville Road, Hamilton Township, New Jersey, filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended September 25, 1987 and incorporated herein by reference.
10.3*-- 1988 Non-qualified Stock Option Plan, filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
10.4*-- 1991 Stock Option Plan, filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
13 -- Annual Report to Stockholders for the year ended September 30, 1998.
21 -- List of Subsidiaries.
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule (in EDGAR filing only)
- ---------- * Compensatory Plan
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.
JOULE INC.
Dated: December 24, 1998 Emanuel N. Logothetis ----------------------------------- Emanuel N. Logothetis, Chairman of the Board and President
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 indicated on December 24, 1998.
Emanuel N. Logothetis Bernard G. Clarkin - ------------------------------------ ----------------------------------- Emanuel N. Logothetis Bernard G. Clarkin Chairman of the Board, President and Vice President and Chief Financial Director (Principal Executive Officer (Principal Financial Officer) Officer and Accounting Officer)
Nick M. Logothetis - ------------------------------------ ----------------------------------- Nick M. Logothetis - Director Steven Logothetis - Director
Richard Barnitt Paul De Bacco - ------------------------------------ ----------------------------------- Richard Barnitt - Director Paul DeBacco - Director
- ------------------------------------ Robert W. Howard - Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
To Joule Inc.:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Joule Inc. and subsidiaries annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated November 19, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey November 19, 1998
SCHEDULE VIII -------------
JOULE INC. AND SUBSIDIARIES
VALUATION AND QUALIFICATION ACCOUNTS AND RESERVES
SCHEDULE IX -----------
JOULE INC AND SUBSIDIARIES
SHORT-TERM BORROWINGS
* Average amount outstanding is based on daily averages. Weighted average interest rate during each year is calculated by dividing interest expense on short term borrowings by the average amount outstanding.
EXHIBIT INDEX
Exhibit Number Description of Exhibit Page - ------ ---------------------- ----
3.1 Certificate of Incorporation, filed as Exhibit 3.1 to * the Company's Registration Statement on Form S-1 (File No. 33-7617) under the Securities Act of 1933, as amended (the AForm S-1"), and incorporated herein by reference.
3.2 By-laws, as amended, filed as Exhibit 3.2 to the Form * S-1 and incorporated herein by reference.
4.1 Loan and Security Agreement, dated as of February 20, * 1991, between Registrant and United Jersey Bank Central, N.A., filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
4.1a Third Modification and Extension Agreement, dated * August 23, 1995, between Registrant and United Jersey Bank, filed as Exhibit 4.1a to the Company's Annual Report on Form 10-K for the year ended September 30, 1995 and incorporated herein by reference.
4.1b Fourth Modification and Extension Agreement dated * February 6, 1996 between Registrant and United Jersey Bank, filed as Exhibit 4.1b to the Company's Annual Report on form 10-K for the year ended September 30, 1996 an incorporated herein by reference.
4.1c Fifth Modification and Extension Agreement dated May * 31, 1996 between Registrant and United Jersey Bank, filed as Exhibit 4.1c to the Company's Annual Report on form 10-K for the year ended September 30, 1996 and incorporated herein by reference.
4.1d Sixth Modification and Extension Agreement dated May * 31, 1997 between Registrant and Summit Bank, filed as Exhibit 4.1d to the Company's Annual Report on form 10-K for the year ended September 30, 1997 and incorporated herein by reference.
4.1e Seventh Modification and Extension Agreement dated May 18 31, 1998, between registrant and Summit bank.
Page ----
The Company hereby agrees to furnish to the Commission upon its request any instrument defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries and for any of its unconsolidated subsidiaries for which financial statements are required to be filed with respect to long-term debt which does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.
10.1 Lease Agreement, dated April 1, 1986, between * Registrant and Emanuel N. Logothetis for premises at 362 Parsippany Road, Parsippany, New Jersey, filed as Exhibit 10.5 to the Form S-1 and incorporated herein by reference.
10.2 Lease Agreement, dated January 1, 1987, between * Registrant and E.N. Logothetis for Unit G, Mercerville Professional Park Condominiums, 2333 Whitehorse - Mercerville Road, Hamilton Township, New Jersey, filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended September 25, 1987 and incorporated herein by reference.
10.3** 1988 Non-qualified Stock Option Plan, filed as Exhibit * 10.13 to the Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
10.4** 1991 Stock Option Plan, filed as Exhibit 10.11 to the * Company's Annual Report on Form 10-K for the year ended September 30, 1991 and incorporated herein by reference.
13 Annual Report to Stockholders for the year ended 35 September 30, 1998.
21 List of Subsidiaries 52
23 Consent of Independent Public Accountants 54
27 Financial Data Schedule (in EDGAR Filing only)
* Incorporated by Reference ** Compensatory Plan
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