UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 15, 1998
NovaCare Employee Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
000-23343 23-2866146
(Commission File No.) (IRS Employer Identification No.)
2621 Van Buren Avenue, Norristown, PA 19403
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 650-4700
NONE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Page 1 of 23 pages
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
NovaCare Employee Services, Inc. on February 2, 1998 solely to add the financial
statements of the business acquired as required by Item 7(a) and the pro forma
financial information required by Item 7(b).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The required financial statements of the business acquired are set forth below.
2
AmeriCare Employer's Group PEO Business
Financial Statements
Eleven months ended November 30, 1997 and
years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors..........................................F-1
Audit Financial Statements
Balance Sheets..........................................................F-2
Statements of Income....................................................F-3
Statements of PEO Business Net Worth....................................F-4
Statements of Cash Flows................................................F-5
Notes to Financial Statements...........................................F-6
3
Report of Independent Auditors
The Shareholders of
AmeriCare Employer's Group
We have audited the accompanying balance sheets of the professional employer
organization business of AmeriCare Employer's Group ("AmeriCare Employer's Group
PEO Business" or the "PEO Business"), as of November 30, 1997 and December 31,
1996, and the related statements of income, PEO Business net worth, and cash
flows for the eleven months ended November 30, 1997 and the years ended December
31, 1996 and 1995. These financial statements are the responsibility of the PEO
Business's management. Our responsibility is to express an opinion on these
financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of AmeriCare Employer's Group PEO
Business, at November 30, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the eleven months ended November 30, 1997 and
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 19, 1998
F-1
4
AmeriCare Employer's Group PEO Business
Balance Sheets
(dollars in thousands)
November December
30, 1997 31, 1996
------------ ------------
Assets
Current assets:
Cash ........................................... $ 655 $ 2,244
Accounts receivable, net of allowance for
doubtful accounts of $492 in 1997 and $-0- in
1996........................................... 6,821 4,882
Related party receivable........................ 531 --
Deferred income taxes........................... 401 347
Income taxes receivable......................... 518 36
Other current assets............................ 191 297
------------ ------------
Total current assets.............................. 9,117 7,806
Property and equipment, net of accumulated
depreciation of $303 at November 30, 1997 and
$217 at December 31, 1996....................... 567 434
Notes receivable.................................. 229 127
Other assets...................................... 66 173
------------ ------------
Total assets...................................... $ 9,979 $ 8,540
============ ============
Liabilities and PEO Business net worth
Current liabilities:
Line of credit.................................. $ 350 $ 250
Accounts payable................................ 1,141 940
Accrued salaries, wages and payroll taxes....... 5,192 4,197
Accrued workers' compensation .................. 599 997
Other accrued expenses.......................... 667 324
Related party payable........................... 164 --
Payable to shareholder.......................... 221 --
Current maturities of long-term debt and
capital leases................................. 186 116
------------ ------------
Total current liabilities......................... 8,520 6,824
Long-term debt and capital leases, less current
maturities...................................... 187 139
Commitments and contingencies.....................
PEO Business net worth............................ 1,272 1,577
------------ ------------
Total liabilities and PEO Business net worth...... $ 9,979 $ 8,540
============ ============
See accompanying notes.
F-2
5
AmeriCare Employer's Group PEO Business
Statements of Income
(dollars in thousands)
Eleven Months
Ended
November 30, Years Ended December 31,
1997 1996 1995
------------- ------------- ------------
Revenues.......................... $ 159,104 $ 129,770 $ 100,439
Cost of revenues.................. 153,025 124,621 96,091
------------- ------------- ------------
Gross profit...................... 6,079 5,149 4,348
General and administrative expenses 6,522 4,778 3,552
------------- ------------- ------------
Operating (loss) income........... (443) 371 796
Other income (expense):
Interest expense................ (59) (26) (41)
Other income.................... -- -- 3
------------- ------------- ------------
(Loss) income before tax.......... (502) 345 758
Income tax (benefit) expense...... (197) 145 312
------------- ------------- ------------
Net (loss) income................. $ (305) $ 200 $ 446
============= ============= ============
See accompanying notes.
F-3
6
AmeriCare Employer's Group PEO Business
Statements of PEO Business Net Worth
(dollars in thousands)
Total PEO
Business
Net Worth
------------
Balance, January 1, 1995.................................... $ 931
Net income.................................................. 446
------------
Balance, December 31, 1995.................................. 1,377
Net income.................................................. 200
------------
Balance, December 31, 1996.................................. 1,577
Net loss.................................................... (305)
------------
Balance, November 30, 1997.................................. $1,272
============
See accompanying notes.
F-4
7
AmeriCare Employer's Group PEO Business
Statements of Cash Flows
(dollars in thousands)
Eleven
Months
Ended
November 30, Years Ended December 31,
1997 1996 1995
------------ ------------ -----------
Operating activities
Net (loss) income...................... $ (305) $ 200 $ 446
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization....... 136 193 163
Provision for doubtful accounts..... 492 -- --
Deferred income taxes............... (54) (177) (93)
Loss on disposal of assets.......... -- 4 --
Changes in operating assets and
liabilities:
Accounts receivable .............. (2,431) (1,448) (1,025)
Related party receivable.......... (531) -- --
Income taxes receivable........... (482) (36) --
Other current assets.............. 106 (205) (10)
Other assets...................... 107 (145) (2)
Accounts payable.................. 201 359 37
Related party payable............. 164 -- --
Accrued salaries, wages, and
payroll taxes.................... 995 1,159 1,107
Accrued workers' compensation..... (398) 505 240
Other accrued expenses............ 343 (130) 356
Income taxes payable.............. -- (134) (45)
------------ ------------ -----------
Net cash (used in) provided by
operating activities................. (1,657) 145 1,174
Investing activities
Purchases of property and equipment.... (269) (72) (236)
Issuance of notes receivable........... (102) (44) (68)
------------ ------------ -----------
Net cash used in investing activities.. (371) (116) (304)
Financing activities
Proceeds from long-term debt, net of
repayments........................... 118 (90) (26)
Proceeds from line of credit, net of
repayments........................... 100 131 93
Shareholder loans and repayment........ 221 (76) 76
------------ ------------ -----------
Net cash provided by (used in)
financing activities................. 439 (35) 143
------------ ------------ -----------
Net (decrease) increase in cash........ (1,589) (6) 1,013
Cash, beginning of period.............. 2,244 2,250 1,237
------------ ------------ -----------
Cash, end of period.................... $ 655 $ 2,244 $ 2,250
============ ============ ===========
See accompanying notes.
F-5
8
AmeriCare Employer's Group PEO Business
Notes to Financial Statements
November 30, 1997
(dollars in thousands)
1. Summary of Significant Accounting Policies
Description of Business
The professional employer organization business of AmeriCare Employer's Group
("AmeriCare Employer's Group PEO Business" or the "PEO Business") provides a
comprehensive personnel management system which encompasses a broad range of
services including benefits and payroll administration, medical and workers'
compensation programs, tax filings, personnel records management, liability
management, and other human resource services to small to medium sized
businesses in several strategically selected markets. The PEO Business operates
primarily in the state of Arizona.
Basis of Presentation
The financial statements include only the assets and liabilities of the PEO
Business that relate to its professional employer organization operations. PEO
Business net worth represents the net assets of the PEO Business. Operating
results include revenues and expenses directly relating to the PEO Business as
well as certain allocated costs of AmeriCare Employer's Group and its
subsidiaries.
Allocations
Prior to 1997 AmeriCare Employer's Group and its subsidiaries had only one line
of business, the PEO Business. As the result of certain 1997 acquisitions, the
AmeriCare Employer's Group and its subsidiaries entered an additional line of
business separate from the PEO Business. From the date of such acquisition
management believes it has separately identified substantially all of the direct
costs of each of the businesses and reflected such cost as a direct cost of each
of the business operations. Accordingly, the Company has made minimal
allocations of costs between the respective businesses. In 1996 and 1995 the PEO
business represented 100 percent of AmeriCare Employer Group and subsidiaries
operations.
Cash
Cash consists of cash held at banks with a maturity of less than three months
from the date acquired and highly liquid equity securities considered to be cash
equivalents.
F-6
9
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
1. Summary of Significant Accounting Policies (continued)
Accounts Receivable/Revenue Recognition
Revenue is recognized as services are performed. Included in accounts receivable
at November 30, 1997 and December 31, 1996, is $5,095 and $4,073, respectively,
of earned revenues relating principally to accrued salaries and wages which had
not been billed as of that date.
Property and Equipment
Property and equipment, including capital leased assets, consists primarily of
office furniture and equipment and is recorded at cost. Depreciation is recorded
on the straight-line method over the estimated useful lives of the assets which
generally range from five to seven years.
Noncompete Agreement
Pursuant to a noncompete agreement reached with a former shareholder of the PEO
Business, the PEO Business must pay to that individual $8 per month beginning on
or before the 15th day of January 1992 and continuing on the 15th day of each
month thereafter until a total of sixty payments have been made. Since the
agreement is noninterest bearing, the present value of the monthly payments
using 10 percent interest was computed to determine a value of the agreement.
The intangible asset was fully amortized in 1996. Payments are recorded as
payment of principal and interest, and the amount of principal due in the next
twelve months is disclosed as a current liability. Amortization expense was $78
for the years ended December 31, 1996 and 1995.
Workers' Compensation Claims Payable
The PEO Business maintains indemnity insurance coverage for workers'
compensation claims that are individually greater than $150 per claim and is
responsible for amounts up to $150 per claim. The PEO Business recognizes a
liability for workers' compensation claims at the time a claim is incurred. The
amount of this liability is computed utilizing statistics developed from prior
claims experience by management and a third party administrator. The liability
recorded may be more or less than the actual amount of the claims when they are
submitted and paid. Changes in the liability are charged or credited to
operations as the estimates are revised.
F-7
10
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
1. Summary of Significant Accounting Policies (continued)
Although considerable variability is inherent in such estimates, management
believes that the liability for worker's compensation claims is adequate. During
1997 the PEO Business entered into a different arrangement with the insurance
carrier whereby claims payments to the carrier to cover deductible amounts were
accelerated. As a result of the change in insurance arrangements, claims for the
deductible portion of incidents relating to 1997 were paid at a rate faster than
in previous years thereby resulting in a reduction to the accrued workers
compensation liability.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $238, $164
and $87 for the eleven months ended November 30, 1997, and the years ended
December 31, 1996 and 1995, respectively.
Income Taxes
The PEO Business's operations are included in the consolidated income tax return
of AmeriCare Employer's Group and subsidiaries. Under the tax sharing principles
used by AmeriCare Employers Group Inc. and subsidiaries, the PEO Business
accounts for its portion of income taxes as if it was a separate income tax
paying entity. Accordingly, income taxes receivable represents amounts due from
the related taxing authority and/or other operating units of AmeriCare
Employer's Group and subsidiaries. Deferred income taxes arise from temporary
differences resulting from certain revenue and expense items reported for
financial accounting and tax reporting purposes in different periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
F-8
11
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
2. Long-Term Debt, Capital Leases and Line of Credit
The components of long-term debt as of November 30, 1997 and December 31, 1996
were as follows:
1997 1996
------------ ------------
Noncompete obligation................. $ 59 $ 59
Capital lease obligations............. 314 196
------------ ------------
373 255
Less current maturities............... 186 116
------------ ------------
$ 187 $ 139
============ ============
The noncompete obligation requires monthly payments of $8 including interest at
10 percent, through December 1996. Capital lease obligations represent
obligations at interest varying from 8.5 percent to 12.2 percent and mature
through 2000.
The PEO Business has a line of credit which authorizes borrowings for up to
$350. The line expires in May 1998 and is collateralized by accounts receivable
and certain equipment. The interest rate on the line is 9.75 percent. At
November 30, 1997 and December 31, 1996, $-0- and $100, respectively, was
available under the line of credit. Interest paid on the above obligation
totaled $27 and $26 for the eleven months ended November 30, 1997 and the year
ended December 31, 1996, respectively.
Future maturities of long-term debt, including capitalized lease obligations are
as follows:
1998......................................... $ 186
1999......................................... 126
2000......................................... 61
2001......................................... --
2002 and thereafter.......................... --
-------------
$ 373
=============
F-9
12
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
3. Lease Commitments
The PEO Business leases office space under noncancelable operating lease
agreements. Future minimum lease payments due under such agreements are as
follows for the eleven months ended November 30, 1997 and the years ended
December 31, 1998 and thereafter:
1998......................................... $ 321
1999......................................... 238
2000......................................... 136
2001......................................... 114
2002 and thereafter.......................... -
-------------
$ 809
=============
Rent expense under these lease agreements totaled approximately $258, $173 and
$134 for the eleven months ended November 30, 1997 and the years ended December
31, 1996 and 1995, respectively.
4. Income Taxes
The components of the provision for income taxes for the eleven months ended
November 30, 1997 and the years ended December 31, 1996 and 1995 were as follows
based upon the income tax allocation methodology utilized by the PEO Business
(see Note 1):
1997 1996 1995
------------ ------------ ------------
Current (benefit) expense. $ (143) $ 322 $ 405
Deferred (benefit) expense (54) (177) (93)
------------ ------------ ------------
$ (197) $ 145 $ 312
============ ============ ============
F-10
13
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
4. Income Taxes (continued)
Income tax expense (benefit) differs from the amount computed by using the
statutory federal income tax rate due to the following:
1997 1996 1995
------------ ------------ ------------
Income tax (benefit)
expense at federal
statutory rate.......... $ (171) $ 117 $ 258
Nondeductible expenses.... 4 9 7
State taxes net of
federal benefit......... (30) 21 45
Other..................... -- (2) 2
------------ ------------ ------------
Provision (benefit) for
income taxes............ $ (197) $ 145 $ 312
============ ============ ============
Income taxes paid for the eleven months ended November 30, 1997 and the years
ended December 31, 1996 and 1995, were $380, $494 and $450, respectively.
Deferred tax assets and liabilities (see Note 1) are comprised of the following
temporary differences at November 30, 1997 and December 31, 1996:
1997 1996
------------ ------------
Deferred tax liabilities:
Accelerated depreciation............ $ (20) $ (20)
Deferred tax assets:
Capital loss carryforwards.......... 8 --
Allowance for doubtful accounts..... 197 --
Nondeductible reserves.............. 216 367
------------ ------------
Net deferred tax assets............... $ 401 $ 347
============ ============
5. Defined Contribution Plan
The PEO Business established two money purchase pension plans on August 1, 1991.
The PEO Business makes contributions of 7.5 percent of each employee's gross
taxable earnings to Money Purchase Pension Plan and Trust I and 10 percent of
each employee's gross taxable earnings to Money Purchase Pension Plan and Trust
II. Each employee who performs services for a recipient of the PEO Business's
employee leasing services, and whose recipient elects to provide coverage under
one of these plans, is an eligible participant as of the first day the employee
performs services for such recipient. The PEO Business contributed $279, $273
and $266 to the
F-11
14
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
5. Defined Contribution Plan (continued)
pension plans during the eleven months ended November 30,1997 and the years
ended December 31, 1996 and 1995, respectively.
The PEO Business established a 401(k) plan on April 1, 1993. The PEO Business
makes contributions equal to funds withheld from employee paychecks and the
amount matched by selected clients of the PEO Business. The PEO Business
contributed $975, $726 and $497 to the plan during the eleven months ended
November 30, 1997 and the years ended December 31, 1996 and 1995, respectively.
6. Related Party Transactions
The related party receivable represents amounts due to the PEO Business from the
other businesses of AmeriCare Employer's Group Inc. and subsidiaries. Such
amounts consist principally of billings related to the leasing of employees by
the PEO Business to the other businesses. Such amounts are considered to be in
the ordinary course of business and as such do not bear interest and are settled
periodically.
The related party payable represents short-term amounts due to the non-PEO
Business.
Payable to shareholder represents a short-term loan to the Company that was
repaid after November 30, 1997.
7. Commitments
The PEO Business has entered into contracts with individuals for incentive
compensation related to customers they were responsible for bringing to the PEO
Business. The compensation is based on a percentage of the margin realized by
the PEO Business and is payable to the individual as long as the customer
remains with the PEO Business. Under the terms of the contract, the PEO Business
does have an option to discontinue that payment obligation by making a lump sum
payment in cash and/or AmeriCare Employer's Group common stock under a formula
defined in the agreement. Payments under such incentive compensation
arrangements were approximately $438, $416 and $327 for the eleven months ended
November 30, 1997 and the years ended December 31, 1996 and 1995, respectively.
F-12
15
AmeriCare Employer's Group PEO Business
Notes to Financial Statements (continued)
(dollars in thousands)
8. Subsequent Events
Effective November 30, 1997, the PEO Business was sold to NovaCare Employee
Services, Inc. There is no assurance that the operating results of the PEO
Business as set forth in these financial statements will be indicative of future
operating results.
9. Year 2000
The PEO Business is in the process of assessing the effects of Year 2000
software issues on its present information technology structure. As of November
30, 1997, that assessment, including a determination of the exposure of the PEO
Business's business processes to these issues and the need for and estimated
costs associated with any necessary conversions had not been completed.
F-13
16
(b) Pro Forma Financial Information.
The required pro forma financial information is set forth below.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial statements give effect to the
acquisition of AmeriCare Employers Group, Inc. ("PEO Business of AmeriCare") by
NovaCare Employee Services, Inc. (the "Registrant") in a transaction to be
accounted for as a purchase.
The purchase agreement was dated as of December 1, 1997, the effective date of
acquisition. Accordingly, the historical condensed consolidated balance sheet as
of December 31, 1997 includes the effect of the acquisition and is incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1997. The unaudited pro forma condensed consolidated
statements of operations for the six months ended December 31, 1997 and for the
period from October 1, 1996 (the Registrant's commencement of operations) to
June 30, 1997 have been prepared giving effect to the acquisition of the PEO
Business of AmeriCare as if the transaction had taken place at the beginning of
the respective period.
The unaudited pro forma information is based on certain assumptions and
estimates that the Registrant believes are reasonable in the circumstances and
does not purport to be indicative of the results which actually would have been
attained had the above transaction occurred as of the date indicated, or to
project the results of operations or financial position for any future period or
date. The pro forma financial information should be read in conjunction with the
historical consolidated financial statements of the Registrant and the
historical financial statements of the PEO business of AmeriCare.
17
NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
NovaCare
Employee
Services,
Inc. and
Subsidiaries' AmeriCare's
Historical Historical
Results Results for
for the the Period
Six Months July 1, 1997
Ended to Consolidated
December 31, November 30, Pro Forma Pro Forma
1997 1997 Adjustments Results
------------- ------------- ----------- ------------
Revenues:
Related party...... $ 366,078 $ -- $ -- $ 366,078
Third parties...... 203,430 73,249 -- 276,679
------------- ------------- ----------- ------------
Total revenues.. 569,508 73,249 -- 642,757
Direct costs:
Related Party:
Salaries, wages
and employment
taxes of worksite
employees........ 336,196 -- -- 336,196
Healthcare and
workers'
compensation,
state unemployment
and other........ 21,240 -- -- 21,240
Third Parties:
Salaries, wages
and employment
taxes of worksite
employees........ 175,875 66,321 -- 242,196
Healthcare and
workers'
compensation,
state unemployment
taxes and other... 18,457 4,265 -- 22,722
------------- ------------- ----------- ------------
Gross profit .......... 17,740 2,663 -- 20,403
Selling, general
and administrative
expenses.............. 12,048 2,522 (767)(1) 13,803
Provision for
uncollectible
accounts............. 68 222 -- 290
Amortization of excess
cost of net assets
acquired.............. 1,211 -- 250 (2) 1,461
------------- ------------- ----------- ------------
Income (loss) from
operations.......... 4,413 (81) 517 4,849
Investment income...... 117 -- -- 117
Interest expense....... (76) (27) (138)(3) (241)
Interest expense -
related party......... (611) -- -- (611)
------------- ------------- ----------- ------------
Income (loss) before
income taxes.......... 3,843 (108) 379 4,114
Income taxes........... 1,787 2 124 (4) 1,913
============= ============= =========== ============
Net income (loss)...... $ 2,056 $ (110) $ 255 $ 2,201
============= ============= =========== ============
Basic and diluted
net income per share... $ .09 $ .10
============= ============
Weighted average
shares outstanding -
basic................... 22,405 602 (5) 23,007
============= =========== ============
Weighted average
shares outstanding -
assuming dilution....... 22,561 602 (5) 23,163
============= =========== ============
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
18
NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
NovaCare
Employee
Services,
Inc. and
Subsidiaries'
Historical
Results AmeriCare's
for the Historical
Period Results for
October 1, the Period
1996 October 1,
(inception) 1996 to Consolidated
to June 30, June 30, Pro Forma Pro Forma
1997 1997 Adjustments Results
------------- ------------- ----------- ------------
Revenues:
Related party...... $ 255,289 $ -- $ -- $ 255,289
Third parties...... 138,904 120,342 -- 259,246
------------- ------------- ----------- ------------
Total revenues.. 394,193 120,342 -- 514,535
Direct costs:
Related Party:
Salaries, wages
and employment
taxes of worksite
employees........ 234,182 -- -- 234,182
Healthcare and
workers'
compensation,
state unemployment
and other........ 15,368 -- -- 15,368
Third Parties:
Salaries, wages
and employment
taxes of worksite
employees........ 123,056 108,748 -- 231,804
Healthcare and
workers'
compensation,
state unemployment
taxes and other... 9,349 7,102 -- 16,451
------------- ------------- ----------- ------------
Gross profit .......... 12,238 4,492 -- 16,730
Selling, general
and administrative
expenses.............. 8,247 4,195 (1,334)(1) 11,108
Provision for
uncollectible
accounts............. 26 274 -- 300
Amortization of excess
cost of net assets
acquired.............. 1,034 -- 450 (2) 1,484
------------- ------------- ----------- ------------
Income (loss) from
operations.......... 2,931 23 884 3,838
Investment income...... 52 -- -- 52
Interest expense....... (56) (40) (207)(3) (303)
Interest expense -
related party......... (693) -- -- (693)
------------- ------------- ----------- ------------
Income (loss) before
income taxes.......... 2,234 (17) 677 2,894
Income taxes........... 1,542 42 413 (4) 1,997
============= ============= =========== ============
Net income (loss)...... $ 692 $ (59) $ 264 $ 897
============= ============= =========== ============
Basic and diluted
net income per share... $ .04(6) $ 0.05
============= ============
Weighted average
shares outstanding -
basic................... 18,078(6) 723 (5) 18,801
============= =========== ============
Weighted average
shares outstanding -
assuming dilution....... 18,449(6) 723 (5) 19,172
============= =========== ============
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
19
NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
(1) Includes adjustments representing the reduction of selling, general and
administrative expenses.
For the Six For the Period
Months Ended October 1, 1996
Expense Category December 31, 1997 to June 30, 1997
----------------------------------- ----------------- ----------------
Owner's compensation and other
related costs..................... $ (767) $ (1,334)
================= ================
(2) Reflects additional amortization of the excess of the purchase price over
the fair value of net assets acquired. The additional amortization results
from non-compete agreements, customer lists, assembled work force and
goodwill, amortized on a straight line basis over the estimated useful
lives of the assets which range from five to forty years, as if the
business was acquired as of October 1, 1996.
(3) Represents additional interest expense for funds borrowed from the
Registrant's revolving credit facility to finance the acquisition of
AmeriCare.
(4) Represents an adjustment to state and federal income taxes relating to the
net effect of the foregoing adjustments.
(5) Under the terms of the Purchase Agreement, the Registrant issued 723
shares of $.01 par value common stock as purchase price consideration. The
historical weighted average shares outstanding reflects the issuance of
these shares on December 1, 1997, the effective date of acquisition. The
unaudited pro forma financial statements gives effect to the issuance of
these shares on October 1, 1996, resulting in an increase to the pro forma
weighted average shares outstanding of 602 and 723 shares for the six
months ended December 31, 1997 and the period ended June 30, 1997,
respectively.
(6) The historical weighted average shares outstanding for the period October
1, 1996 to June 30, 1997 have been restated in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB 98"). SAB
98 revised the computation of the historical weighted average shares
outstanding from the methods previously employed under SAB 83.
20
(c) Exhibits.
The Exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Thomas D. Schubert
-----------------------------
Thomas D. Schubert
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
Date: March 31, 1998
21
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page
13 Condensed Consolidated Balance Sheet as of -
December 31, 1997 (incorporated by reference to
the Registrants Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997.)
23 Consent of Ernst & Young LLP 23
22