SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) SEPTEMBER 16, 1996
-----------------------
CAREER HORIZONS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-23534 22-3038096
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
177 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 682-1400
----------------------
ITEM 7. Financial Statements and Pro Forma Financial Information
(a) Financial Statements of Businesses Acquired
PAGE
Financial Statements of TSG Professional Services,
Inc. as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995:
Unaudited Condensed Balance Sheets as of
June 30, 1996 and 1995
Unaudited Condensed Statements of Income
for the six months ended
June 30, 1996 and 1995
Unaudited Condensed Statements of Cash Flows
for the six months ended
June 30, 1996 and 1995
Notes to Unaudited Condensed Financial Statements
Financial Statements and Other Financial Information of TSG
Professional Services, Inc. as of December 31, 1995 and
January 1, 1995 and for the years then ended:
Independent Auditor s Report
Balance Sheets as of December 31, 1995 and
January 1, 1995
Statements of Income for the years ended
December 31, 1995 and January 1, 1995
Statements of Changes in Stockholders Equity
for the years ended December 31, 1995
and January 1, 1995
Statements of Cash Flows for the years ended
December 31, 1995 and January 1, 1995
Notes to Financial Statements
Independent Auditors Report on Other Financial
Information
Schedules of Direct Expenses, Selling Expenses,
Recruiting Expenses, Management Expenses
and Support Services
Schedules of Overhead Expenses
(b) Pro Forma Information
Unaudited Pro Forma Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial
Statements
Unaudited Pro Forma Combined Balance Sheet as of
June 30, 1996
Notes to Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Combined Statements of Income for the
Year ended June 30, 1995, the six months ended
December 31, 1995 and the six months ended
June 30, 1996
Notes to Unaudited Pro Forma Combined Statements of Income
Supplemental Unaudited Pro Forma Combined Statements of
Income for the Year ended December 31, 1995
Notes to Supplemental Unaudited Pro Forma Combined
Statements of Income
(a) Financial Statements of Businesses Acquired
TSG PROFESSIONAL SERVICES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
JUNE 30,
-----------------------------
1996 1995
-------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 950 $ 750
Accounts receivable, net of allowance
of $68,000 and $50,000 6,449,062 5,638,964
Other Receivables 88,804 88,158
Prepaid expenses 287,486 59,064
Current portion of covenant
not to compete 34,500 34,500
--------- ----------
Total current assets 6,860,802 5,821,436
PROPERTY AND EQUIPMENT, Net 719,563 407,330
OTHER ASSETS 255,070 315,480
--------- ----------
$7,835,435 $6,544,246
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED FINANCIAL
STATEMENTS.
TSG PROFESSIONAL SERVICES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY
JUNE 30,
---------------------
1996 1995
____ _____
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 421,598 $ 157,228
Accrued payroll and payroll taxes 920,571 834,861
Accrued contractors fees 131,145 126,127
Accrued income taxes 7,764 7,185
Current portion of long-term obligations 59,051 55,855
_________ __________
Total current liabilities 1,540,129 1,181,256
REVOLVING LOAN 3,342,899 2,652,778
CHECKS DRAWN AGAINST LOAN 517,267 479,659
OTHER LONG-TERM OBLIGATIONS,
net of current portion 473,471 534,064
DEFERRED INCOME TAXES 6,500 6,500
_________ __________
Total liabilities 5,880,266 4,854,257
_________ __________
STOCKHOLDERS EQUITY:
Common stock, no par value;
300 shares authorized;
200 shares issued and outstanding 32, 848 32,848
Additional paid-in capital 1,546,091 1,096,091
Retained earnings 376,230 561,050
_________ __________
Total stockholders equity 1,955,169 1,689,989
_________ __________
$7,835,435 $6,544,246
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED FINANCIAL
STATEMENTS.
TSG PROFESSIONAL SERVICES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
------------------------------------
1996 1995
------------ ------------
Revenues $28,056,688 $22,839,355
Direct Expenses 22,264,186 18,122,226
---------- ----------
Gross Profit 5,792,502 4,717,129
Selling, general and administrative
expenses 5,092,756 3,814,244
---------- ----------
Income from operations 699,746 902,885
Other expenses:
Interest expense (187,509) (147,368)
Amortization of covenant not to compete (18,074) (18,078)
---------- ----------
Income before tax provision 494,163 737,439
Provision for income taxes (13,200) (21,000)
---------- ----------
Net income $ 480,963 $ 716,439
========== ==========
Net income Per Share $2,404.82 $3,582.20
========== ==========
Weighted average number of shares
outstanding 200 200
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED FINANCIAL
STATEMENTS.
TSG PROFESSIONAL SERVICES, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING JUNE 30,
----------------------------------
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $1,199,427 $(1,053,600)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (302,756) (168,688)
Payments on covenant not to compete ( 29,098) (27,556)
---------- ----------
Net cash used by investing activities (331,854) (196,244)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in revolving
loan balance (719,901) 1,141,141
(Decrease) increase in checks drawn
against loan (147,672) 103,453
---------- ----------
Net cash used by financing activities (867,573) 1,244,594
---------- ----------
DECREASE IN CASH AND
CASH EQUIVALENTS ---- (5,250)
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF PERIOD 950 6,000
---------- ----------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $ 950 $ 750
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED FINANCIAL
STATEMENTS.
TSG PROFESSIONAL SERVICES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with Rule 10-01 of Regulation S-X and,
accordingly, do not include all of the information and disclosures
required by generally accepted accounting principles. The
accompanying condensed consolidated financial statements have not
been audited by independent accountants in accordance with
generally accepted auditing standards, but, in the opinion of
the Company, such financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly its financial position as of June 30, 1996 and 1995, and
the results of operations and changes in cash flows for the six
months ended June 30, 1996 and 1995, and are not necessarily
indicative of the results to be expected for the full year.
In reading the interim condensed combined financial statements,
reference should be made to the summary of accounting policies
and notes to the audited financial statements of TSG Professional
Services, Inc. as of December 31, 1995 and January 1, 1995 and
for the years then ended, contained herein.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
TSG PROFESSIONAL SERVICES, INC.
Manchester, New Hampshire
We have audited the accompanying balance sheet of TSG PROFESSIONAL
SERVICES, INC., as of December 31, 1995 and the related statements
of income, changes in stockholders equity and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
The financial statements as of January 1, 1995, were audited by other
auditors whose report dated February 6, 1995, expressed an unqualified
opinion on those statements.
We conducted our audit 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 audit provides 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 TSG PROFESSIONAL
SERVICES, INC.. as of December 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Dubois & Bornstein
Professional Corporation
February 5, 1996
BALANCE SHEETS
TSG PROFESSIONAL SERVICES, INC.
DECEMBER 31, 1995 AND JANUARY 1, 1995
ASSETS 12/31/95 1/01/95
---------- ----------
CURRENT ASSETS
Cash $ 950 $ 6,000
Accounts receivable, net of allowance
for doubtful accounts 7,162,260 4,063,694
Other receivables 98,085 67,584
Prepaid expenses 144,394 86,284
Current portion of covenant not to compete 34,500 34,500
---------- ----------
TOTAL CURRENT ASSETS 7,440,189 4,258,062
PROPERTY AND EQUIPMENT
Office equipment 517,047 475,795
Furniture and fixtures 147,116 155,964
---------- ----------
664,163 631,759
Less: Accumulated depreciation 169,056 346,600
---------- ----------
495,107 285,159
OTHER ASSETS
Deposits 31,920 17,179
Covenant not to compete, net of
current portion 236,636 272,788
Financing costs, net of amortization 17,367 47,139
---------- ----------
285,923 337,106
---------- ----------
$8,221,219 $4,880,327
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 339,677 $ 157,813
Accrued payroll and payroll taxes 834,236 1,028,452
Accrued insurance 151,619 60,305
Accrued contractors' fees 105,812 132,477
Accrued income taxes 19,810 15,912
Current portion of long-term obligations 59,051 55,855
---------- ----------
TOTAL CURRENT LIABILITIES 1,510,205 1,450,814
REVOLVING LOAN 4,062,800 1,511,637
CHECKS DRAWN AGAINST LOAN 664,939 376,206
OTHER LONG-TERM OBLIGATIONS,
net of current portion 502,569 561,620
DEFERRED INCOME TAXES 6,500 6,500
---------- ----------
5,236,808 2,455,963
STOCKHOLDERS' EQUITY
Common stock, no par value, 300 shares
authorized, 200 shares issued
and outstanding 32,848 32,848
Additional paid-in capital 1,546,091 1,096,091
Accumulated deficit (104,733) (155,389)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,474,206 973,550
---------- ----------
$ 8,221,219 $ 4,880,327
========== ==========
THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
STATEMENTS OF INCOME
TSG PROFESSIONAL SERVICES, INC.
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
12/31/95 1/01/95
---------- ----------
REVENUE:
Consulting fees $48,712,447 $35,400,465
Placement fees 271,815 164,398
Other revenue 375,775 337,337
---------- ----------
49,360,037 35,902,200
DIRECT EXPENSES 39,121,290 28,444,345
---------- ----------
GROSS PROFIT 10,238,747 7,457,855
ADMINISTRATIVE EXPENSES:
Selling 1,896,011 1,631,253
Recruiting 1,132,561 604,725
Management 3,281,089 2,212,258
Support services 1,247,722 956,367
Overhead 2,231,732 1,725,172
---------- ----------
9,789,115 7,129,775
---------- ----------
INCOME FROM OPERATIONS 449,632 328,080
OTHER EXPENSE:
Interest expense (309,393) (217,618)
Amortization of covenant not
to compete (36,152) (36,977)
Loss on disposition of assets (14,836) 0
---------- ----------
(360,381) (254,595)
---------- ----------
INCOME BEFORE TAX PROVISION 89,251 73,485
PROVISION FOR INCOME TAXES
Current year state tax expense 38,595 28,263
---------- ----------
NET INCOME $50,656 $45,222
========== ==========
Net income per share $253.28 $226.11
========== ==========
Weighted average shares outstanding 200 200
========== ==========
THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
TSG PROFESSIONAL SERVICES, INC.
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
------ ---------- --------- --------
Balance, January 2, 1994 $32,848 $805,596 $(200,611) $637,833
Contributed capital 290,495 290,495
Net Income, year ended
December 31, 1995 0 0 45,222 45,222
-------- --------- --------- --------
Balance, January 1, 1995 $32,848 $1,096,091 $(155,389) $973,550
========= ========== ========= ========
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
------ ---------- --------- --------
Balance, January 1,1995 $32,848 $1,096,091 $(155,389) $973,550
Contributed capital 450,000 450,000
Net Income, year ended
December 31, 1995 0 0 50,656 50,656
-------- --------- --------- -------
Balance, December 31, 1995 $32,848 $1,546,091 $(104,733) $1,474,206
======== ========= ========= =========
THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
STATEMENTS OF CASH FLOWS
TSG PROFESSIONAL SERVICES, INC.
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
12/31/95 1/01/95
---------- ----------
Cash Flows from Operating Activities:
Cash received from customers $46,329,262 $35,182,143
Cash paid to employees (33,007,355) (23,934,184)
Cash paid for other goods
and services (13,047,567) (10,725,423)
Interest paid (309,393) (217,618)
Taxes and other fees paid (2,610,228) (15,158)
---------- ----------
Net Cash Provided (Used)
by Operating Activities (2,645,281) 289,760
Cash Flows from Investing Activities:
Purchases of fixed assets (319,913) (149,616)
Payments on covenant not to compete (34,500) (34,500)
Loss on disposition of assets 14,836 0
---------- ----------
Net Cash Used by Investing Activities (339,577) (184,116)
Cash Flows from Financing Activities:
Additional paid-in capital 450,000 290,495
Proceeds from revolving loan 4,062,800 1,511,637
Repayment of revolving loan (1,511,637) (1,911,089)
Repayment of long-term debt (21,355) (21,355)
---------- ----------
Net Cash Provided (Used)
by Financing Activities 2,979,808 (130,312)
---------- ----------
Net Decrease In Cash (5,050) (24,668)
Cash and Cash Equivalents at Beginning of Period
6,000 30,668
---------- ----------
Cash and Cash Equivalents at
End of Period $ 950 $ 6,000
========== ==========
THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
STATEMENTS OF CASH FLOWS (CONTINUED)
THE SYSTEMS GROUP, INC.
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY
OPERATING ACTIVITIES 12/31/95 1/01/95
---------- ----------
Net Income $ 50,656 $ 45,222
---------- ----------
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating Activities:
Depreciation 95,127 64,711
Amortization of intangible assets 65,924 67,243
Provision for bad debts (9,000) 25,174
(Increase) Decrease In:
Accounts receivable, net of
bad debts (3,089,566) (708,410)
Other receivables (30,501) (3,908)
Prepaid expenses (58,110) (34,680)
Deposits (14,741) (1,185)
Prepaid income taxes 9,193
Increase (Decrease) In:
Accounts payable 181,864 68,994
Accrued payroll and payroll taxes (194,210) 571,299
Accrued insurance 91,310 16,129
Accrued contractors' fees (26,665) 49,534
Accrued income taxes 3,898 3,912
Checks drawn against loan 288,733 116,532
---------- ----------
Total Adjustments (2,695,937) 244,538
---------- ----------
Net Cash Provided (Used) by
Operating Activities $ (2,645,281) $ 289,760
========== ==========
SUPPLEMENTAL DISCLOSURES:
For the purposes of the statement of cash flows, the Company considers
cash to include currency on hand and demand deposits with banks.
Noncash Investing and Financing Activities:
Loss on disposition of assets $14,836
Cash Paid During the Year For:
Interest $309,963 $217,618
Income taxes $34,696 $25,407
THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
TSG PROFESSIONAL SERVICES, INC.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
The significant accounting policies of TSG Professional Services,
Inc., (The Company), formerly The Systems Group, Inc., are as follows:
DESCRIPTION OF BUSINESS ACTIVITY:
---------------------------------
The Company was established in 1980 to provide consultant services in
the form of skilled, technical, temporary consultants to Fortune 500,
mid-size and start-up companies. The Company found success in a
very specific computer programming related services market niche and
has since expanded into the allied health care specialties. The
Company now operations in approximately 47 states.
FINANCIAL STATEMENT PRESENTATION:
---------------------------------
The Company is a Subchapter S corporation as defined under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, in lieu of Federal corporate income taxes, each stockholder
of an S-corporation is taxed on an individual basis on his proportionate
share of the Company's taxable income. The Company has also elected,
under the Internal Revenue Code Section 441, to have an accounting
period ending on the Sunday closest to December 31. The year-end
for the current year is December 31, 1995.
ACCOUNTS RECEIVABLE AND CHANGE IN ACCOUNTING PRINCIPLE:
-------------------------------------------------------
The Company includes as receivables both invoiced amounts and revenues
which have been earned but not invoiced. For the years ended December 31,
1995 and January 1, 1995, this category included the following:
12/31/95 01/01/95
---------- ----------
Invoiced, net $5,805,216 $3,352,794
Unbilled 1,387,044 749,900
---------- ----------
$7,192,260 $4,102,694
========== ==========
All accounts receivable are pledged to a bank as security for the
revolving loan. See Note B.
Accounts receivables are shown on the balance sheets net of an
allowance for doubtful accounts. The allowances at December 31,
1995 and January 1, 1995 were $30,000 and $39,000, respectively.
In order to provide a better matching between expense and receivables,
the Company uses the allowance method for recording bad debts. During
the year ended December 31, 1995, the Company's bad debt recoveries
exceeded bad debt expense. In the year ended January 1, 1995 bad debt
expense was $38,000.
For tax purposes, bad debts are deductible only when the specific account
is written off.
PROPERTY AND EQUIPMENT:
-----------------------
The Company records property and equipment at cost. Depreciation
is computed on the straight-line method over the estimated useful lives
of the assets for financial reporting purposes and on the accelerated
method prescribed at the time of purchase for income tax purposes.
In 1995, the Company disposed of assets having a book cost of
approximately $287,000 and accumulated depreciation of approximately
$273,000, resulting in a loss of $15,000.
Expenditures for repairs and maintenance are charged to expense
when incurred and betterments are capitalized.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TSG PROFESSIONAL SERVICES, INC.
NOTE A SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
INTANGIBLE ASSETS: The Company amortizes intangible assets over the
-----------------
anticipated useful life of the asset.
INCOME TAXES: In accordance with the Financial Accounting Standards
-------------
Board Statement No. 109, issued in February 1992, the objective of
accounting for income taxes is to recognize (a) the amount of taxes
payable or refundable for the current year and (b) deferred tax
liabilities and assets for the future tax consequences of events that
have been recognized in an enterprises' financial statements or
tax returns. Income taxes payable or refundable are based on the
income tax returns for the current year. A deferred tax liability
or asset is recognized for tax consequences attributable to
temporary differences and carryforwards.
The temporary differences arise primarily from the use of the
straight-line method of depreciation for financial accounting and
accelerated methods of depreciation for tax purposes. Additional
differences arise from the use of an allowance method for recording
bad debts. See Note D.
NOTE B WORKING CAPITAL REVOLVING LOAN
-------------------------------------
The Company's revolving loan agreement was modified subsequent to the
balance sheet date. The Company, subsequent to December 31, 1995
maintains a $8,500,000 revolving loan with the First National Bank of
Boston, to provide working capital. The loan is secured by all Company
assets. Funds received are deposited into a lockbox and are then applied
to the principal reduction of the loan. Advances are made under a
"borrowing base" formula that utilizes 80% of eligible billed accounts
receivable and 70% of eligible unbilled accounts receivable.
The loan matures and becomes due on January 31, 1999. Except for the
formula limits on the maximum amount that may be outstanding at a
particular time, there are no current obligations to repay the loan.
The loan is therefore classified as long-term on the balance sheet.
Interest on the revolving loan accrues at the bank's "base rate", with
interest on any over-advance at two percent (2.0%) above the base rate.
Interest is payable monthly, in arrears.
The revolving loan agreement includes various covenants, including
an obligation to maintain a minimum tangible capital base adjusted
by certain annual amounts; a ratio of senior debt to tangible capital
base less than 4.0:1 during November 1 to July 31, and 3.25:1 during
August 1 to October 31; and a ratio of cash flow to total debt service
of at least 1.3:1. The agreement also provides that any amounts
credited by or due from the bank may be set off against obligations
relating to the revolving loan. At December 31, 1995, the Company was
in compliance with all of the loan covenants.
For the year ended December 31, 1995, the highest amount outstanding
was $4,226,000. For the fiscal year ended January 1, 1995, the highest
amount outstanding was $2,632,000.
Costs of $89,000, associated with the negotiations for the revolving
loan were capitalized and are being amortized over the initial 36
months of the loan agreement.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TSG PROFESSIONAL SERVICES, INC.
NOTE B WORKING CAPITAL REVOLVING LOAN (CONTINUED)
-------------------------------------------------
The Company's banking agreements provide for a "zero balance account"
for the general business and payroll accounts. Under this arrangement,
at the end of each day the bank advances funds from the revolving
loan sufficient to cover net withdrawals from the general and business
accounts. At December 31, 1995, there were $665,000 in outstanding
checks that had not cleared these accounts.
NOTE C STANDBY LETTER OF CREDIT
--------------------------------
The Company has a $10,000 standby letter of credit with the First
National Bank of Boston in favor of the National Association of
Computer Consulting Businesses, to be used for the establishment of
a legal defense fund. The letter is secured by a lien on all assets of
the Company. This letter of credit expires on July 26, 1996.
NOTE D INCOME TAXES
-------------------
Current income taxes are based on the taxable income for the year,
as measured by the current year's tax returns. The deferred tax
adjustment is the amount required to adjust the deferred tax liability
or asset to that amount expected to be realized in future years.
Temporary differences are due to the difference in depreciation methods
and the difference in accounting for bad debts used for book and tax
accounting. Due to the S-Corporation status, there is no provision
for deferred federal taxes. Deferred state tax liability at December 31,
1995 is $6,500.
NOTE E LEASES
-------------
The Company leases facilities in six states under operating leases
expiring in various years through 2000. Total rent expense under
these leases for the year ended December 31, 1995 was $334,000.
Certain of these operating leases provide for renewal options. In
the normal course of business, operating leases are generally renewed
or replaced.
The Company also leases two automobiles under operating leases expiring
in 1997 and 1998. Total auto lease expense for the year ended December
31, 1995, was $25,000.
Minimum future lease payments for the above are as follows:
Facilities Automobiles Total
--------- ----------- -----
1996 $ 427,457 $ 23,257 $ 450,714
1997 399,331 16,579 415,910
1998 324,216 5,324 329,540
1999 235,995 0 235,995
2000 83,539 0 83,539
Thereafter 2,727 0 2,727
--------- ---------- ------
Total future minimum
lease payments as of
December 31, 1995 $1,473,265 $ 45,160 $1,518,425
========= ========= ==========
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TSG PROFESSIONAL SERVICES, INC.
NOTE F RELATED PARTY TRANSACTIONS
---------------------------------
The Company rents a condominium for business purposes from the
stockholders (and former stockholder) of TSG Professional Services,
Inc. The lease is month to month at the will of the parties.
During the year ended December 31, 1995, the Company paid $16,000, in
rent to the stockholders. The Company also paid $ 6,000 in other
expenses related to the condominium.
The Company occasionally pays expenses on behalf of its stockholders.
These amounts are normally repaid during the following month. At
December 31, 1995, approximately $7,000 due from stockholders is
included with other receivables.
NOTE G PENSION PLAN
-------------------
The Company has, under the Internal Revenue Code Section 401(k),
established a pension and profit sharing plan for the benefit of its
employees. Any employee twenty-one years old with at least six months
of service with the Company may participate by funding pre-tax
contributions from salary. The plan allows the Company to make
matching contributions and/or profit sharing contributions determined
on an annual basis by a vote of the Board of Directors.
NOTE H ECONOMIC DEPENDENCY AND CONCENTRATIONS OF CREDIT RISK
------------------------------------------------------------
The Company provides temporary help to a diversified group of customers
in the technical and health care industries. The technical services
clients are located primarily in the eastern seaboard of the United
States. Credit is extended based on an evaluation of each customer's
financial condition. Credit losses, if any, have been provided for
in the financial statements and have been generally within management's
expectations.
Approximately twenty-two percent ($10.5 million) of the Company's 1995
sales were to two customers. At December 31, 1995, these two customers
accounted for 21.5% ($1,248,000) of the invoiced receivables. Seventy-
five percent of these invoiced amounts are current (less than 30 days)
and approximately ninety percent of them are less than 60 days old.
NOTE I STOCK REDEMPTION AND COVENANT NOT-TO-COMPETE
---------------------------------------------------
In July 1993, the stockholders, pursuant to the terms and provisions
of the Company's Stock Redemption Agreement , voted to redeem all of
the 100 shares of the no par value common stock owned by one of the
stockholders. Payment of the redemption price included cash and a
promissory note payable to the stockholder in the amount of $351,160,
with an interest rate of fourteen percent (14.0%) per annum. The
note is payable in 120 equal monthly payments of $5,452 for principal
and interest, through July 1, 2003. The note is guaranteed by each
of the remaining stockholders, and is secured by a subordinated
security interest in all of the assets of the corporation.
The Covenant Not to Compete includes an agreement by the redeemed
stockholder not to compete with the Company for a period of ten years.
Payments are due to the redeemed stockholder in 120 equal monthly
payments, without interest, of $2,875 each.
Legal fees of $16,500 associated with the covenant were
capitalized and are being amortized over the ten years of the covenant.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TSG PROFESSIONAL SERVICES, INC.
NOTE I STOCK REDEMPTION AND COVENANT NOT-TO-COMPETE (CONTINUED)
----------------------------------------------------------------
"Other long term obligations" on the balance sheet at December 31, 1995
include these amounts:
Note payable at 14% to former stockholder $302,870
Covenant not to compete 258,750
561,620
Less current portion:
Note payable 24,551
Covenant 34,500
--------
$502,569
========
Future minimum payments under these two agreements are as follows:
Redemption Covenant
Agreement Not to Compete Total
--------- --------------- -----
1996 (current portion) $ 24,551 $ 34,500 $ 59,051
1997 28,225 34,500 62,725
1998 32,450 34,500 66,950
1999 37,306 34,500 71,806
2000 and beyond 180,338 120,750 301,088
------- ------- -------
$302,870 $258,750 $561,620
======== ======== ========
INDEPENDENT AUDITORS' REPORT
ON OTHER FINANCIAL INFORMATION
TO THE BOARD OF DIRECTORS
TSG PROFESSIONAL SERVICES, INC.
MANCHESTER, NEW HAMPSHIRE
Our report on our audit of the basic financial statements of TSG
PROFESSIONAL SERVICES, Inc. for the year ended December 31, 1995
appears on page one. That audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The
accompanying other financial information regarding the Schedules
of Direct, Selling, Recruiting, Management, Support Services, and
Overhead Expenses is presented for the purpose of additional
analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
The January 1, 1995 financial statements of TSG PROFESSIONAL SERVICES,
INC. were audited by other accountants, whose report dated February
6, 1995 stated that the other financial information was presented for
the purpose of additional analysis and was not a required part of
the basic financial statements, and that such information was subjected
to the auditing procedures applied in the audit of the basic financial
statements, and in their opinion is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Professional Corporation
February 5, 1996
SCHEDULES OF DIRECT EXPENSES, SELLING EXPENSES, RECRUITING EXPENSES,
MANAGEMENT EXPENSES, AND SUPPORT SERVICES
TSG PROFESSIONAL SERVICES, INC.
Years Ended December 31, 1995 and January 1, 1995
12/31/95 1/01/95
---------- ----------
DIRECT EXPENSES
Wages $26,473,015 $19,301,404
Payroll taxes 2,185,380 1,646,647
Insurance 567,391 278,835
Independent services 8,298,271 6,258,828
Other direct expenses 1,597,233 958,631
---------- ----------
TOTAL DIRECT EXPENSES $39,121,290 $ 28,444,345
========== ==========
SELLING EXPENSES
Wages $ 1,547,134 $ 1,358,298
Payroll taxes 111,752 105,765
Insurance 62,523 37,775
Travel and entertainment 174,602 129,415
---------- ----------
TOTAL SELLING EXPENSES $ 1,896,011 $ 1,631,253
========== ==========
RECRUITING EXPENSES
Wages $ 980,096 $ 538,288
Payroll taxes 69,497 39,114
Insurance 43,130 18,723
Travel and entertainment 39,841 8,600
---------- ----------
TOTAL RECRUITING EXPENSES $ 1,132,561 $ 604,725
========== ==========
MANAGEMENT EXPENSES
Officers' salaries $ 1,689,066 $ 1,512,393
Wages 1,312,909 442,033
Payroll taxes 96,658 79,212
Insurance 18,991 14,813
Travel and entertainment 163,465 163,807
---------- ----------
TOTAL MANAGEMENT EXPENSES $ 3,281,089 $ 2,212,258
========== ==========
SUPPORT SERVICES
Wages $ 1,011,536 $ 781,768
Payroll taxes 72,194 55,392
Insurance 53,176 44,696
Travel and entertainment 44,474 16,873
Other support expenses 66,342 57,638
---------- ----------
TOTAL SUPPORT EXPENSES $ 1,247,722 $ 956,367
========== ==========
See independent auditors' report on other financial information.
SCHEDULES OF OVERHEAD EXPENSES
TSG PROFESSIONAL SERVICES, INC.
12/31/95 1/01/95
---------- ----------
OVERHEAD EXPENSES
Advertising and promotion $ 489,167 $ 428,680
Bad debt and credit expense (9,000) 39,597
Bank and other fees 150,920 108,186
Depreciation 95,127 64,711
Dues and subscriptions/education 52,253 37,188
Equipment expense 176,337 79,725
Miscellaneous expenses 54,840 34,352
Non-medical insurance 66,846 57,790
Office supplies and expense 135,421 134,686
Other facilities expense 63,989 49,770
Postage 115,963 74,471
Professional fees 162,176 149,385
Rent 349,890 235,853
Telephone 327,803 230,778
---------- ----------
TOTAL OVERHEAD EXPENSES $2,231,732 $1,725,172
========== ==========
See independent auditors' report on other financial information.
(b) Pro Forma Information
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements presented below
reflect the results of operations and financial position of the
Company after giving effect to the transactions described below
and in the notes hereto as if such transactions had occurred
at July 1, 1994 for purposes of the pro forma combined statements of
income, as of January 1, 1995 for purposes of the supplemental pro forma
combined statements of income and as of December 31, 1995 for purposes
of the pro forma combined balance sheet, and give effect to the two
for one split of the Common Stock effective February 22, 1996.
The unaudited pro forma financial statements of the Company and
accompanying notes should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in
the Company s Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on February 28, 1996.
Management believes that the assumptions used in preparing the
unaudited pro forma financial statements provide a reasonable
basis on which to present the pro forma financial data. The
unaudited pro forma financial statements are provided for
informational purposes only and should not be construed to be
indicative of the Company s results of operations or financial
position had the transactions described below been consummated on
or as of the dates assumed, and are not intended to project the
Company's results of operations or its financial position for any
future period or as of any future date.
The unaudited pro forma combined balance sheet as of June 30, 1996
has been prepared to reflect the financial position of the
Company as if the acquisition of the TSG Professional Services,
Inc. d.b.a. Berger & Co. ("Berger"), effective August 28, 1996 and
the acquisition of TSG Professional Services, Inc. ("TSG"), effective
September 16, 1996, had both occurred on June 30, 1996. The unaudited
pro forma combined statements of income for the year ended June 30,
1995, the six months ended December 31, 1995 and the six months
ended June 30, 1996 have been prepared to reflect the operations of
the Company as if (i) the acquisition of Contract Staffing Group,
Inc. d.b.a. Computer Consulting Group ("CCG"), effective August 18,
1995, (ii) the acquisition of Professionals for Computing,Inc. ("PFC"),
effective August 31, 1995, (iii) the acquisition of Programming
Enterprises, Inc. d.b.a. Mini-Systems Associates ("Mini-Systems"),
effective January 2, 1996, (iv) the acquisition of Zeitech Inc.
("Zeitech"), effective January 11, 1996, (v) the acquisition of the
temporary services business of Management Search, Inc. and its
affiliate Temps & Co. Services, Inc. ("MSI"), effective March 4,
1996, (vi) the acquisition of American Computer Professionals, Inc.
("ACP"), effective April 2, 1996, (vii) the acquisition of Century
Temporary Services, Inc. d.b.a. CenCor Temporary Services and its
affiliate Grant Management Company d.b.a. Le-Gals ("CenCor" ),
effective April 29, 1996, (viii) the acquisition of Richard Michael
Temps, Inc. and The Richard Michael Group, Inc. ("Richard Michael"),
effective April 29, 1996, (ix) the acquisition of WHY Systems, Inc.,
effective May 15, 1996, (x) the acquisition of Dial A Temporary,
effective June 24, 1996, (xi) the acquisition of Berger, effective
August 28, 1996 and (xii) the acquisition of TSG, effective
September 16, 1996 (collectively the "Acquired Companies"), and
(xiii) the issuance of the 7% Convertible Senior Notes Due 2002
(the "Convertible Notes") and (xiv) the Stock Offering and the
application of the net proceeds therefrom, all had occurred as of
July 1, 1994. The supplemental unaudited pro forma combined
statements of income for the year ended December 31, 1995 has
been prepared to reflect the operations of the Company as if
(i) the acquisitions of the Acquired Companies, (ii) the issuance
of the Convertible Notes and (iii) the Stock Offering and the
application of the net proceeds therefrom, all had occurred as
of January 1, 1995.
The Mini-Systems acquisition was treated as a purchase for financial
reporting purposes. The Company acquired Mini-Systems for
$28,500,000 in cash, financed in part by the proceeds received
from the offering in October 1995 of the Convertible Notes, a portion of
which proceeds at December 31, 1995 was invested in reverse repurchase
agreements. The acquisition agreement provides for additional
purchase price consideration of up to $10,000,000 based upon
Mini-Systems' results of operations over a six-year period. Any
additional consideration paid will be reported as additional
purchase price.
The Zeitech acquisition was treated as a purchase for financial
reporting purposes. The Company acquired Zeitech for $17,175,000
in cash, financed in part by the proceeds received from the
offering in October 1995 of the Convertible Notes, a portion of
which proceeds at December 31, 1995 was invested in reverse
repurchase agreements. The acquisition agreement provides for
additional purchase price consideration based upon Zeitech's
results of operations over a six-year period. Any additional
consideration paid will be reported as additional purchase price.
The MSI acquisition was treated as a purchase for financial
reporting purposes. The Company acquired MSI for $13,868,000
in cash, financed in part by the proceeds received from the Stock
Offering, plus a note payable to the seller in the amount of
$1,539,000 due September 1997.
The CenCor acquisition was treated as a purchase for financial reporting
purposes. The Company acquired CenCor for $11,792,000 in cash, financed
in part by the proceeds received from the Stock Offering. The
acquisition agreement provides for additional purchase price
consideration based upon CenCor's results of operations over a
five-year period. Any additional consideration paid will be reported
as additional purchase price.
The Berger acquisition was treated as a purchase for financial reporting
purposes. The Company acquired Berger for $30,750,000 in cash, financed
in part by the proceeds received from the Stock Offering. The
acquisition agreement provides for additional purchase price
consideration based upon Berger's results of operations over a
six-year period. Any additional consideration paid will be reported
as additional purchase price.
The TSG acquisition was treated as a purchase for financial reporting
purposes. The Company acquired TSG for $18,250,000 in cash and the
issuance of $2,000,000 in notes payable to the sellers, due September
1998. The cash payment was financed in part by the proceeds received
from the stock offering. The acquisition agreement provides for
additional purchase price consideration based upon TSG's results of
operations over a three-year period. Any additional consideration
will be reported as additional purchase price.
The CCG, PFC, ACP, Richard Michael, WHY and Dial A Temporary acquisitions
were treated as purchases for financial reporting purposes. The Company
acquired CCG, PFC, ACP, Richard Michael, WHY and Dial A Temporary for
an aggregate of $20,231,000 in cash, financed in part by the proceeds
of the Stock Offering. The acquisition agreements provide for
additional purchase price consideration (up to a maximum of $12,000,000
in the case of Richard Michael and up to a maximum of $5,000,000 in
the case of Dial A Temporary), based upon the respective companies'
results of operations over periods ranging from one to five years.
Any additional consideration paid will be reported as additional
purchase price.
CAREER HORIZONS, INC.
Pro Forma Combined Balance Sheet
As of June 30, 1996
(unaudited)
($ in Thousands)
ASSETS
HISTORICAL
-------------------------------
CAREER
HORIZONS, PRO FORMA PRO
INC. BERGER TSG ADJUSTMENTS FORMA
--------- ------ ---- ----------- -----
Current Assets:
Cash and cash
equivalents and
reverse repurchase
agreements $79,531 $486 $1 ($49,000)(a),(b) $31,018
Accounts receivable,
net 89,041 5,880 6,449 101,370
Due from Associated
Offices, net 38,442 38,442
Other receivables,
net 1,799 8 89 1,896
Prepaid expenses and
other 2,762 469 322 (35) (d) 3,518
Deferred income
taxes 4,617 4,617
------ ------ ------- ------ --------
Total current assets 216,192 6,843 6,861 (49,035) 180,861
Intangible assets,
net 115,687 48,200 (c) 163,887
Furniture, fixtures
and equipment, net 7,602 1,248 720 9,570
Other receivables,
net 299 299
Deferrred income taxes 1,197 (7) 1,190
Other assets 3,298 45 255 (253) (d) 3,345
------- ----- ------- ------ -------
$344,275 $8,136 $7,829 $1,088) $359,152
======== ====== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
HISTORICAL
-----------------------------------
CAREER
HORIZONS, PRO FORMA PRO
INC. BERGER TSG ADJUSTMENTS FORMA
--------- ------- ---- ------------ -----
Current Liabilities:
Bank overdrafts $12,259 $0 $12,259
Accounts payable and 16,062 1,369 553 3,000 20,984
accrued liabilities (a),(b)
Accrued compensation
and related taxes 35,076 1,448 921 37,445
Notes payable 1,539 2,258 59 1,013 4,869
(b),(d)
Current income taxes
payable 1,774 8 1,782
------- ------- ------ ------- --------
Total current
liabilities 66,710 5,075 1,541 4,013 77,339
7% Convertible Senior
Notes Due 2002 86,250 86,250
Revolving Loan 3,343 3,343
Other liabilities 40 388 990 (473)(d) 945
------- ------ ------- ------- ---------
Total liabilities 153,000 5,463 5,874 3,540 167,877
--------- ------- ------ ------- --------
Stockholders' Equity:
Preferred Stock
Common Stock 177 4 33 (37)(a),(b) 177
Additional paid-in
capital 169,510 1,546 (1,546) (b) 169,510
Retained Earnings 21,643 2,669 376 (3,045)(a),(b) 21,643
-------- ------- ------- ------- ---------
191,330 2,673 1,955 (4,628) 191,330
Less-treasury stock, (55) (55)
at cost -------- ------- ------- ------- --------
Total stockholders' 191,275 2,673 1,955 (4,628) 191,275
equity -------- ------- ------- ------ --------
TOTAL LIABILITIES &
EQUITY $344,275 $8,136 $7,829 ($1,088) $359,152
======== ======= ======= ======= ========
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
BASIS OF RECORDING
The accompanying pro forma combined balance sheet as of June 30, 1996
gives effect to the acquisitions of Berger and TSG as if the
transactions occurred on June 30, 1996. The acquisitions of
Berger and TSG have been accounted for using the purchase
method of accounting.
BALANCE SHEET ADJUSTMENTS
a. To record the purchase price of Berger in part with cash from the
reduction in investment in reverse repurchase agreements, as follows,
and consolidating elimination entries:
Cash paid to seller at closing $30,750
Fees and expenses 1,500
-------
Total $32,250
=======
b. To record the purchase price of TSG in part with cash from the
reduction in investment in reverse repurchase agreements, as
follows, and consolidating elimination entries:
Cash paid to seller at closing $18,250
Notes payable, September 1998 2,000
Fees and expenses 1,500
-------
Total $21,750
=======
c. Adjustment to reflect the excess of the purchase price (including
$3,000 of acquisition expenses) over the estimated fair value of
the net assets acquired in the acquisition of Berger, which has
been allocated as follows:
Purchase price $54,000
Estimated fair value of
net assets acquired (5,800)
--------
Goodwill $48,200
=======
d. To record the subtraction of assets not acquired and liabilities
not assumed from Berger and TSG as follows:
Prepaid expenses and other $35; other assets $253; notes
payable $987; and other liabilities $473.
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the year ended June 30, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
-----------------------------------------
CAREER MINI-
HORIZONS, SYSTEMS ZEITECH,
INC. ASSOCIATES INC.
--------- ---------- ---------
REVENUES $361,026 $40,364 $31,067
EXPENSES
Cost of Services 276,864 31,403 22,965
Selling, general 48,990 5,570 5,542
and administrative
Remittance to 18,747
franchisees
Other expense, net 1,276
-------- -------- --------
Total Expenses 345,877 36,973 28,507
-------- -------- --------
Income from operations 15,149 3,391 2,560
Interest (expense) (1,803) (225)
income, net -------- -------- --------
Income before minority 13,346 3,391 2,335
interest and income
taxes
Minority Interest
------- ------- -------
Income before income 13,346 3,391 2,335
taxes
(Provision) benefit for (5,399) 22 (122)
income taxes
-------- ------- -------
NET INCOME $7,947 $3,413 $2,213
====== ====== ======
INCOME PER COMMON SHARE $0.65
=====
WEIGTED AVERAGE NUMBER 12,304
OF SHARES ======
HISTORICAL
-------------------------------------------
MSI/
TEMPS & CENCOR/
CO. LEGALS BERGER
------- ------ ------
REVENUES $51,845 $29,177 $23,651
EXPENSES
Cost of Services 34,767 21,765 16,487
Selling, general 13,421 6,207 5,828
and administrative
Remittance to 2,926
franchisees
Other expense, net 151 (84)
------- ------- -------
Total Expenses 51,265 27,888 22,315
------- ------- -------
Income from operations 580 1,289 1,336
Interest (expense) (315) (218) (139)
income, net ------- ------- ------
Income before minority 265 1,071 1,197
interest and income
taxes
Minority Interest (65)
------- ------- -------
Income before income 200 1,071 1,197
taxes
(Provision) benefit for (104) (34)
income taxes
------- ------- -------
NET INCOME $96 $1,071 $1,163
===== ===== =====
INCOME PER COMMON SHARE
WEIGTED AVERAGE NUMBER
OF SHARES
HISTORICAL
----------------------- PRO
ALL FORMA PRO
TSG OTHERS ADJUSTMENTS FORMA
--- ------- ----------- -----
REVENUES $41,268 $33,150 ($9,810)(a) $601,139
(599)(b)
EXPENSES
Cost of Services 32,584 21,964 458,799
Selling, general 7,917 8,848 (6,261)(c) 90,622
and administrative 4,290 (d)
(9,730)(a)
Remittance to 21,673
franchisees
Other expense, net
------- ------- ------- -------
Total Expenses 40,501 30,812 (11,701) 572,437
------- ------- ------- -------
Income from operations 767 2,338 1,292 28,702
Interest (expense) income, (254) 5 (3,148)(e) (6,097)
net ------- ------- ------- -------
Income before minority 513 2,343 (1,856) 22,605
interest and income taxes
Minority Interest 65(a) 0
------- ------- ------- -------
Income before income taxes 513 2,343 (1,791) 22,605
(Provision) benefit for (35) (4,147)(f) (9,103)
income taxes
716(g)
------- ------- ------- -------
NET INCOME $478 $2,343 ($5,222) $13,502
======= ======= ======== =======
INCOME PER COMMON SHARE (h) $0.88
=======
WEIGTED AVERAGE NUMBER OF (h) 19,804
SHARES =======
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the six months ended December 31, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
----------------------------------------
CAREER MINI-
HORIZONS, SYSTEMS ZEITECH,
INC. ASSOCIATES INC.
-------- ---------- --------
REVENUES $201,556 $24,386 $18,106
EXPENSES
Cost of Services 153,531 18,644 13,308
Selling, general and 27,979 3,761 3,535
administrative
Remittance to franchisees 9,254 0 0
Other expense, net 201
------- ------- -------
Total Expenses 190,965 22,405 16,843
------- ------- -------
Income from operations 10,591 1,981 1,263
Interest (expense) income, net (1,245) 0 (76)
------- ------- -------
Income before income taxes 9,346 1,981 1,187
(Provision) benefit for income (3,662) (3) (221)
taxes ------- ------- -------
NET INCOME $5,684 $1,978 $966
======= ======= =======
INCOME PER COMMON SHARE $0.44
=======
WEIGTED AVERAGE NUMBER OF 14,638
SHARES =======
HISTORICAL
------------------------------------
MSI/
TEMPS & CENCOR/
CO. LEGALS BERGER
------- ------ ------
REVENUES $26,100 $14,362 $14,285
EXPENSES
Cost of Services 18,181 10,616 10,077
Selling, general and 6,523 3,080 3,983
administrative
Remittance to franchisees 1,549
Other expense, net (353) 20
------- ------- -------
Total Expenses 25,900 13,716 14,060
------- ------- -------
Income from operations 200 646 225
Interest (expense) income, net (193) (85) (69)
------- ------- -------
Income before income taxes 7 561 156
(Provision) benefit for income 0
taxes
------- ------- -------
NET INCOME $7 $561 $156
======= ======= =======
INCOME PER COMMON SHARE
WEIGTED AVERAGE NUMBER OF
SHARES
HISTORICAL
---------------------
PRO
ALL FORMA PRO
TSG OTHERS ADJUSTMENTS FORMA
--- ------ ----------- -----
REVENUES $26,521 $11,549 ($4,136)(a) $332,729
EXPENSES
Cost of Services 20,999 7,320 252,676
Selling, general 6,008 3,674 (5,592)(c) 50,917
and administrative 2,066 (d)
(4,100)(a)
Remittance to 10,803
franchisees
Other expense, net (132)
------- ------- ------- -------
Total Expenses 27,007 10,994 (7,626) 314,264
------- ------- ------- -------
Income from operations (486) 555 3,490 18,465
Interest (expense) (162) 4 (655)(e) (2,481)
income, net ------- ------- ------- -------
Income before income (648) 559 2,835 15,984
taxes
(Provision) benefit for (18) (1,222)(f) (6,217)
income taxes (1,091)(g)
------- ------- ------- -------
NET INCOME ($666) $559 $522 $9,767
======= ======= ======= =======
INCOME PER COMMON SHARE (h) $0.58
=======
WEIGTED AVERAGE NUMBER (h) 20,194
OF SHARES =======
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the six months ended June 30, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
------------------------------------------
CAREER MINI-
HORIZONS, SYSTEMS ZEITECH,
INC. ASSOCIATES INC.
--------- ---------- --------
REVENUES $275,026
EXPENSES
Cost of Services 210,233
Selling, general and 41,637
administrative
Remittance to franchisees 9,898
Other expense, net 389
------- ------- -------
Total Expenses 262,157 0 0
------- ------- -------
Income from operations 13,694 0 0
Interest (expense) income, (1,802)
net ------- ------- -------
Income before minority 11,892 0 0
interest and income taxes
Minority Interest
------- ------- -------
Income before income taxes 11,892 0 0
(Provision) benefit for (4,578)
income taxes
------- ------- -------
NET INCOME $7,314 $0 $0
======= ======= =======
INCOME PER COMMON SHARE $0.43
=======
WEIGTED AVERAGE NUMBER OF 12,452
SHARES =======
HISTORICAL
----------------------------------------
MSI/
TEMPS & CENCOR/
CO. LEGALS BERGER
-------- ------ ------
REVENUES $4,177 $7,361 $16,123
EXPENSES
Cost of Services 3,295 5,646 10,510
Selling, general and 490 1,841 5,018
administrative
Remittance to franchisee 243
Other expense, net 0 0
------- ------- -------
Total Expenses 4,028 7,487 15,528
------- ------- -------
Income from operations 149 (126) 595
Interest (expense) income, (45) (95)
net ------- ------- -------
Income before minority 149 (171) 500
interest and income taxes
Minority Interest
------- ------- -------
Income before income taxes 149 (171) 500
(Provision) benefit for (134)
income taxes
------- ------- -------
NET INCOME $149 ($171) $366
======= ======= =======
INCOME PER COMMON SHARE
WEIGTED AVERAGE NUMBER OF
SHARES
HISTORICAL
-----------------
PRO
ALL FORMA PRO
TSG OTHERS ADJUSTMENTS FORMA
--- ------ ----------- -----
REVENUES $28,057 $11,360 $342,929
EXPENSES
Cost of Services 22,264 8,475 260,423
Selling, general and 5,111 2,013 (2,536)(c) 54,606
administrative 1,032 (d)
Remittance to 10,141
franchisees
Other expense, net 389
------- ------- ------- -------
Total Expenses 27,375 10,488 (1,504) 325,559
------- ------- ------- -------
Income from operations 682 872 1,504 17,370
Interest (expense) (188) 1 (327)(e) (1,802)
income, net ------- ------- ------- -------
Income before minority 494 873 1,831 15,568
interest and income
taxes
Minority Interest 0
------- ------- ------- -------
Income before income 494 873 1,831 15,568
taxes
(Provision) benefit for (13) (563)(f) (5,993)
income taxes
(705)(g)
------- ------- ------- -------
NET INCOME $481 $873 $563 $9,575
======= ======= ======= =======
INCOME PER COMMON SHARE (h) $0.52
=======
WEIGTED AVERAGE NUMBER (h) 22,296
OF SHARES =======
CAREER HORIZONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
BASIS OF RECORDING
The accompanying pro forma combined statements of income for the year
ended June 30, 1995 ("fiscal 1995"), the six months ended December 31,
1995 (the "1995" interim period ) and the six months ended June 30, 1996
give effect to (i) the acquisitions of the Acquired Companies, (ii)
the issuance by the Company of the Convertible Notes and the application
of the net proceeds therefrom, including the payment of then
outstanding indebtedness under the Company's Senior Credit Facility,
and (iii) the Stock Offering and the application of the net
proceeds therefrom, including investment in cash and cash equivalents
as if all such transactions were consummated on July 1, 1994.
The acquisitions of the Acquired Companies have been accounted for
using the purchase method of accounting.
STATEMENTS OF INCOME ADJUSTMENTS
The following pro forma adjustments were made (dollars in thousands):
a. To eliminate the results of operations of the portion
of the business not acquired from MSI consisting of
revenues of $9,810 and $4,136, general and administrative
expenses of $9,730 and $4,100 and minority interest of $65
and $0 for fiscal 1995 and the 1995 interim period,
respectively.
b. To reflect the elimination and/or reduction of certain
non-recurring revenues resulting from the acquisitions
of the Acquired Companies totaling $599 for fiscal 1995.
c. To reflect the elimination and/or reduction of certain
non-recurring general and administrative expenses resulting
from the acquisitions of the Acquired Companies totaling
$6,261, $5,592 and $2,536 for fiscal 1995, the 1995 interim
period and the six months ended June 30, 1996, respectively.
d. To record the increase in amortization expense related
to the goodwill recorded under the purchase method of
accounting for the acquisitions of the Acquired Companies
totaling $4,290, $2,066 and $1,032 for fiscal 1995, the
1995 interim period and the six months ended June 30, 1996,
respectively.
e. To record interest expense, net, of $5,347, $1,351 and $0
in respect of the Convertible Notes and to eliminate
interest expense, net of $2,199, $696 and $327 recorded
by the Company on indebtedness under the Senior Credit
Facility for fiscal 1995, the 1995 interim period and for
the six months ended June 30, 1996, respectively.
CAREER HORIZONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
STATEMENTS OF INCOME ADJUSTMENTS (CONT'D)
f. To increase the provision for income taxes on the
historical results of operations of the Acquired
Companies pursuant to the provisions of FASB #109
Accounting for Income Taxes.
g. To record the provision for income taxes on the pro
forma adjustments based on the Company's federal and
state statutory tax rate of approximately 40%.
h. Calculation of pro forma income per common share,
after giving effect to the two for one split of the
Common Stock effective February 22, 1996, is as
follows:
Six Months Six Months
Year Ended Ended Ended
June 30, 1995 December 31, 1995 June 30, 1996
-------------- ---------------- -------------
Pro forma net income ............ $13,502 $ 9,767 $9,575
Add: Interest expense on
Convertible Notes,
net of tax benefit............. 3,831 1,915 1,915
------- ------- -------
$17,333 $11,682 11,490
======= ======== =======
Weighted average number
of shares...................... 12,304 12,694 16,484
Pro forma adjustment to
include shares issued
in public offering............. 2,532 2,532 844
Add: Pro forma deemed
conversion of
Convertible Notes.............. 4,968 4,968 4,968
------ ----- ------
19,804 20,194 22,296
====== ====== ======
Pro Forma Income Per
Common Share $ .88 $ .58 $ .52
====== ====== ======
CAREER HORIZONS, INC.
Supplemental Pro Forma Combined Statements of Income
For the year ended December 31, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
---------------------------------------
Career Mini-
Horizons, Systems Zeitech,
Inc. Associates Inc.
--------- ---------- --------
REVENUES $385,289 $45,287 $34,199
EXPENSES
Cost of Services 294,646 34,906 25,347
Selling, general 53,408 6,373 6,381
and administrative
Remittance to 18,489
franchisees
Other expense, net 1,335 (24)
------- ------- -------
Total Expenses 367,878 41,279 31,704
------- ------- -------
Income from operations 17,411 4,008 2,495
Interest (expense) income, (2,205) (191)
net ------- ------- -------
Income before minority 15,206 4,008 2,304
interest and income taxes
Minority interest ------- ------- -------
Income before income taxes 15,206 4,008 2,304
(Provision) benefit for (5,878) (6) (233)
income taxes
------- ------- -------
NET INCOME $9,328 $4,002 $2,071
======= ======= =======
INCOME PER COMMON SHARE $0.75
=======
WEIGTED AVERAGE NUMBER OF 13,373
SHARES =======
HISTORICAL
-------------------------------------
MSI/
TEMPS & CENCOR/
CO. LEGALS BERGER
------- ------ ------
REVENUES $50,703 $27,389 $26,977
EXPENSES
Cost of Services 33,684 20,269 18,438
Selling, general and 14,064 6,162 6,430
administrative
Remittance to franchisees 2,858
Other expense, net 145 (6)
------- ------- -------
Total Expenses 50,751 26,425 24,868
------- ------- -------
Income from operations (48) 964 2,109
Interest (expense) income, net (309) (196) (151)
------- ------- -------
Income before minority (357) 768 1,958
interest and income taxes
Minority interest (65)
------- ------- -------
Income before income taxes (422) 768 1,958
(Provision) benefit for income (104) (3)
taxes
------- ------- -------
NET INCOME ($526) $768 $1,955
======= ======= =======
INCOME PER COMMON SHARE
WEIGHTED AVERAGE NUMBER OF
SHARES
HISTORICAL
------------------
PRO
ALL FORMA PRO
TSG OTHERS ADJUSTMENTS FORMA
--- ------ ----------- ------
REVENUES $49,360 $42,662 ($7,929)(a) $653,338
(599)(b)
EXPENSES
Cost of Services 39,121 30,183 496,594
Selling, general and 9,840 9,127 (7,231)(c) 97,491
administrative 4,211 (d)
(11,274)(a)
Remittance to 21,347
franchisees
Other expense, net 1,450
------- ------- ------- -------
Total Expenses 48,961 39,310 (14,294) 616,882
------- ------- ------- -------
Income from operations 399 3,352 5,766 36,456
Interest (expense) (309) (8) (2,221)(e) (5,590)
income, net ------- ------- ------- -------
Income before minority 90 3,344 3,545 30,866
interest and income
taxes
Minority interest 65(a) 0
------- ------- ------- -------
Income before income 90 3,344 3,610 30,866
taxes
(Provision) benefit for (39) (21) (4,253)(f) (11,933)
income taxes (1,396)(g)
------- ------- ------- -------
NET INCOME $51 $3,323 ($2,039) $18,933
======= ======= ======= =======
INCOME PER COMMON SHARE (h) $1.15
=======
WEIGTED AVERAGE NUMBER (h) 19,879
OF SHARES =======
CAREER HORIZONS, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
BASIS OF RECORDING
The accompanying supplemental pro forma combined statements of income
for the year ended December 31, 1995 give effect to (i) the acquisitions
of the Acquired Companies, (ii) the issuance by the Company of the
Convertible Notes and the application of the net proceeds therefrom,
including the payment of then outstanding indebtedness under the
Company's Senior Credit Facility, and (iii) the Stock Offering and
the application of the net proceeds therefrom, including investment
in cash and cash equivalents as if all such transactions were
consummated on January 1, 1995. The acquisitions of the Acquired
Companies have been accounted for using the purchase method of
accounting.
STATEMENTS OF INCOME ADJUSTMENTS
The following pro forma adjustments were made (dollars in thousands):
a. To eliminate the results of operations of the portion of
the business not acquired from MSI consisting of revenues
of $7,929 and general and administrative expenses of
$11,274.
b. To reflect the elimination and/or reduction of certain
non-recurring revenues resulting from the acquisitions
of the Acquired Companies totaling $599.
c. To reflect the elimination and/or reduction of certain
non-recurring general and administrative expenses
resulting from the acquisitions of the Acquired Companies
totaling $7,231.
d. To record the increase in amortization expense related to
the goodwill recorded under the purchase method of
accounting for the acquisitions of the Acquired Companies
totaling $4,211.
e. To record interest expense, net, of $4,015 in respect of
the Convertible Notes and to eliminate interest expense,
net of $1,794 recorded by the Company on indebtedness under
the Senior Credit Facility.
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
STATEMENTS OF INCOME ADJUSTMENTS (CONT'D)
f. To increase the provision for income taxes on the historical
results of operations of the Acquired Companies pursuant to
the provisions of FASB #109 Accounting for Income Taxes.
g. To record the provision for income taxes on the pro forma
adjustments based on the Company's federal and state
statutory tax rate of approximately 40%.
h. Calculation of pro forma income per common share, after
giving effect to the two for one split of the Common
Stock effective February 22, 1996, is as follows:
Year Ended
December 31, 1995
-----------------
Pro forma net income................ $18,933
Add: Interest expense on Convertible
Notes, net of tax benefit........ 3,831
--------
$22,764
========
Weighted average number of shares... 12,379
Pro forma adjustment to include shares
issued in public offering........... 2,532
Add: Pro forma deemed conversion of
Convertible Notes................ 4,968
-------
19,879
=======
Pro Forma Income Per Common Share $1.15
=======
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CAREER HORIZONS, INC.
-----------------------------
(Registrant)
Date September 24, 1996 By: /s/ Michael T. Druckman
--------------------- -----------------------------
Michael T. Druckman
Senior Vice President,
Treasurer and Asst. Secretary
(Principal Financial and
Accounting Officer)
CAREER HORIZONS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- ------------
2.1 Stock Purchase Agreement dated September 17, 1996
by and among Career Horizons, Inc., TSG Professional
Services, Inc., Richard P. Merriam and Stephen I. Evanoff.
23.1 Consent of Dubois & Bornstein, P.C.
99.1 Press release announcing the acquisition of TSG