1
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): December 8, 1996
----------------
Commission File No. 0-24300
-------
NORRELL CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0953709
- ------------------------------- ----------
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
3535 Piedmont Road, NE, Atlanta, GA 30305
- ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404)240-3000
-------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 8, 1996, the Company executed an agreement to purchase all of the
outstanding stock of Comtex Information Systems, Inc. ("Comtex") for
approximately $67 million of cash plus options to acquire 140,961 shares of
Norrell Corporation common stock at a weighted average exercise price of $4.56
per share. The transaction was effective on January 2, 1997. At the close of
this transaction a Comtex officer purchased 86,956 shares of Norrell Corporation
common stock.
Comtex is a New York City-based provider of information technology services,
including systems planning and development, organizational consulting related to
business transformation and staff augmentation support. Comtex has locations in
New York City, White Plains, N.Y., and Miami, FL.
The acquisition, which was accounted for by the purchase method, is being
financed by borrowings under the Company's revolving credit agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial statements of business acquired.
(1) Financial statements of Comtex Information Systems
Inc. and Subsidiaries for the nine months ended
September 30, 1996 and September 30, 1995
(unaudited).
(2) Financial statements of Comtex Information Systems
Inc. and Subsidiaries for year ended December 31,
1995 and December 31, 1994 (audited).
B. Pro forma financial information.
(1) Norrell Corporation and Subsidiaries Pro forma
Combined Balance Sheet as of October 27, 1996
(unaudited).
(2) Norrell Corporation and Subsidiaries Pro forma
Combined Statement of Income for the year ended
October 27, 1996 (unaudited).
C. Agreement and Plan of Merger by and among Norrell Corporation,
N. Acquisition Corp., Comtex Information Systems, Inc., and
Comtex Systems, Inc. Dated as of December 8, 1996, is
incorporated by reference to the Norrell Corporation's Current
Report on Form 8-K dated December 8, 1996, and filed on
December 20, 1996.
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SIGNATURE
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, thereto duly authorized.
NORRELL CORPORATION
(REGISTRANT)
Date: February 14, 1997 By: /s/ C. Kent Garner
-------------------------------
C. Kent Garner
Vice President and Chief Financial Officer
(On behalf of the Registrant and as Chief
Accounting Officer)
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COMTEX INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
C O N T E N T S
Page
----
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Consolidated Notes to Financial Statements 6
5
Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
ASSETS 1996 1995
------------ ------------
Current assets
Cash and cash equivalents $ 1,885,915 $ 1,088,608
Trade receivables, less allowance for doubtful accounts of $191,000
in 1996 and in 1995 6,978,265 4,781,059
Marketable securities 4,058,378 2,150,542
Due from employees 154,650 6,036
Deferred income taxes 453,000 574,000
Prepaid income taxes 126,337
Other current assets 161,184 175,843
------------ ------------
Total current assets 13,691,392 8,902,425
Marketable securities 1,140,156 3,577,351
Equipment, net 398,288 313,573
Deferred income taxes 294,004 335,004
------------ ------------
Total assets $ 15,523,840 $ 13,128,353
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 4,076,767 $ 3,115,394
Income taxes payable 129,245
Deferred revenue 173,233 184,711
------------ ------------
Total current liabilities 4,379,245 3,300,105
Other non-current liabilities 585,294 572,515
Commitments and contingencies
Stockholders' equity
Preferred stock (Series A convertible), $1.00 par; authorized 1,159,231 shares; 500,577 500,577
issued and outstanding, 500,577 shares (liquidation value, $1,551,789)
Class A common stock, $.001 par value; authorized, 19,000,000 shares; issued and 4,110 4,110
outstanding, 4,110,000 shares
Class B common stock (non-voting), $.001 par value; authorized, 1,000,000 192 192
shares; issued and outstanding, 192,700 in 1996 and 1995
Additional paid-in capital 1,961,688 1,961,588
Retained earnings 10,410,120 6,834,754
Less: Treasury stock - at cost, 847,366 and 22,800 shares, respectively (2,317,386) (45,488)
------------ ------------
Total stockholders' equity 10,559,301 9,255,733
------------ ------------
Total liabilities and stockholders' equity $ 15,523,840 $ 13,128,353
============ ============
The accompanying notes are an integral part of these statements.
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6
Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the nine month period ended September 30,
(Unaudited)
1996 1995
------------ -----------
Net revenues $ 31,160,219 $17,159,493
Cost of services provided 20,253,554 11,582,377
------------ -----------
Gross profit 10,906,665 5,577,116
------------ -----------
Operating expenses
Sales and marketing 1,688,172 1,041,253
Recruiting 992,560 513,318
General and administrative 2,844,788 2,299,486
Research and development 171,020 216,175
------------ -----------
5,696,540 4,070,232
------------ -----------
Operating income 5,210,125 1,506,884
------------ -----------
Other income
Investment income, net 180,014 232,003
Other income 400 14,240
------------ -----------
180,414 246,243
------------ -----------
Income before income taxes 5,390,539 1,753,127
Income taxes 2,418,000 702,020
------------ -----------
NET INCOME $ 2,972,539 $ 1,051,107
============ ===========
The accompanying notes are an integral part of these statements.
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Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1996 and 1995
(Unaudited)
Class A Class B Additional
Preferred common common paid-in Retained Treasury
stock stock stock capital earnings stock
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 $ 500,577 $ 4,110 $ 192 $ 1,961,588 $ 5,783,647 $ (43,968)
Purchase of Class B common (1,520)
stock, 1,000 shares
Change in unrealized loss on
securities owned
Net income 1,051,107
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1995 $ 500,577 $ 4,110 $ 192 $ 1,961,588 $ 6,834,754 $ (45,488)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 $ 500,577 $ 4,110 $ 192 $ 1,961,688 $ 7,437,581 $ (45,488)
PURCHASE OF CLASS A COMMON
STOCK, 823,966 SHARES (2,271,898)
NET INCOME 2,972,539
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1996 $ 500,577 $ 4,110 $ 192 $ 1,961,688 $ 10,410,120 $ (2,317,386)
============ ============ ============ ============ ============ ============
Unrealized
loss on Total
securities stockholders'
owned equity
------------ ------------
Balance at December 31, 1994 $ (50,000) $ 8,156,146
Purchase of Class B common (1,520)
stock, 1,000 shares
Change in unrealized loss on 50,000 50,000
securities owned
Net income 1,051,107
------------ ------------
Balance at September 30, 1995 $ 9,255,733
------------
BALANCE AT DECEMBER 31, 1995 $ 9,858,660
PURCHASE OF CLASS A COMMON
STOCK, 823,966 SHARES (2,271,898)
NET INCOME 2,972,539
------------ ------------
BALANCE AT SEPTEMBER 30, 1996 $ 0 $ 10,559,301
============ ============
The accompanying notes are an integral part of this statement.
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Comtex Information Systems, Inc. and Subsidiares
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine month period ended September 30,
1996 1995
------------ ------------
Cash flows from operating activities
Net income $ 2,972,539 $ 1,051,107
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 129,093 78,027
Deferred income taxes 162,000 94,996
Changes in operating assets and liabilities
Trade receivables (2,363,694) (1,397,522)
Other current assets (79,399) (126,337)
Accounts payable and accrued expenses 1,081,777 598,595
Income taxes payable (3,459) (569,159)
Other non-current liabilities 17,642 212,583
Deferred revenue 35,363 51,499
----------- -----------
Net cash provided (used) by operating
activities 1,951,862 (6,211)
----------- -----------
Cash flows from investing activities
Purchase of marketable securities (5,872,020) (5,092,002)
Proceeds from the sale of marketable securities 5,161,343 3,725,901
Proceeds from maturities of marketable securities 1,269,502 912,799
Purchase of equipment (201,597) (121,458)
----------- -----------
Net cash provided (used) in investing
activities 357,228 (574,760)
----------- -----------
Cash flows from financing activities
Purchase of treasury stock (2,271,898) (1,520)
----------- -----------
Net cash used in financing activities (2,271,898) (1,520)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 37,192 (582,491)
----------- -----------
Cash and cash equivalents at beginning of year 1,848,723 1,671,099
----------- -----------
Cash and cash equivalents at end of year $ 1,885,915 $ 1,088,608
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 3,208 $ --
Income taxes $ 2,256,459 $ 530,450
The accompanying notes are an integral part of these statements.
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
(Unaudited)
1. Basis of Presentation
The unaudited financial statements furnished herein reflects all
adjustments which, in the opinion of management, are necessary to
present fairly the financial position and the results of operations for
the periods presented. Such adjustments are of a normal recurring
nature. The results of operations for the interim periods are not
necessarily indicative of the results for a full year. Certain
information and footnote disclosure as of September 30, 1996 and 1995
and for the nine months ended September 30,1996 and 1995 normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
Nevertheless, management believes that the disclosures herein are
adequate to make the information presented not misleading.
2. Business Description
Comtex Information Systems, Inc. (the "Company") primarily provides
management consulting, systems development and system enhancement
services to clients in diversified industries. The Company specializes
in financial services computer operations.
3. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries which started operations in
1995: Comtex Systems Inc., DBA Comtex Client Server Systems, and
Internet Transfer Systems, Inc. All significant intercompany accounts
and transactions are eliminated in consolidation.
4. Revenue Recognition
Revenue from consulting agreements and product development is
recognized in accordance with the specific terms of the respective
agreements which are primarily on a rate-per-hour basis.
5. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the
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financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
6. Cash Equivalents
Cash equivalents consist of certificates of deposit, Treasury bills and
money market funds. For purposes of the statements of cash flows, the
Company considers all investments with an original maturity of three
months or less to be cash equivalents.
7. Reclassifications
Certain amounts in the 1995 financial statements have been reclassified
to conform to the current year's presentation.
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CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
COMTEX INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
December 31, 1995 and 1994
12
C O N T E N T S
Page
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Report of Independent Certified Public Accountants 3
Consolidated Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Income 5
Consolidated Statement of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Consolidated Notes to Financial Statements 8
13
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
COMTEX INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Comtex
Information Systems, Inc. and Subsidiaries as of December 31, 1995 and 1994 and
the related statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Comtex Information
Systems, Inc. and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
April 15, 1996
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Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1995 1994
------------ -----------
Current assets
Cash and cash equivalents $ 1,848,723 $ 1,671,099
Trade receivables, less allowance for doubtful accounts of $191,000
in 1995 and $198,400 in 1994 4,614,571 3,383,537
Marketable securities 2,212,472 2,681,637
Deferred income taxes 574,000 680,000
Other current assets 236,439 181,879
------------ ------------
Total current assets 9,486,205 8,598,152
Marketable securities 3,544,887 2,542,954
Equipment, net 325,784 270,142
Deferred income taxes 335,000 324,000
------------ ------------
Total assets $ 13,691,876 $ 11,735,248
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,994,990 $ 2,516,799
Income taxes payable 132,704 569,159
Deferred revenue 137,870 133,212
------------ ------------
Total current liabilities 3,265,564 3,219,170
Other non-current liabilities 567,652 359,932
Commitments and contingencies
Stockholders' equity
Preferred stock (aggregate liquidation preference - $1,551,789) 500,577 500,577
Class A common stock 4,110 4,110
Class B common stock 192 192
Additional paid-in capital 1,961,688 1,961,588
Retained earnings 7,437,581 5,783,647
Less: Treasury stock - at cost, 22,800 and 21,800 shares, respectively (45,488) (43,968)
Unrealized loss on securities owned (50,000)
------------ ------------
9,858,660 8,156,146
------------ ------------
Total liabilities and stockholders' equity $ 13,691,876 $ 11,735,248
============ ============
The accompanying notes are an integral part of these statements.
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Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
1995 1994
----------- -----------
Net revenues $24,270,660 $20,890,635
Cost of services provided 16,943,635 14,909,099
----------- -----------
Gross profit 7,327,025 5,981,536
----------- -----------
Operating expenses
Sales and marketing 1,484,590 1,105,508
General and administrative 3,145,423 3,214,192
Research and development 269,421 168,600
----------- -----------
4,899,434 4,488,300
----------- -----------
Operating income 2,427,591 1,493,236
----------- -----------
Other income
Investment income, net 305,771 221,259
Other income 23,572 91,195
----------- -----------
329,343 312,454
----------- -----------
Income before income taxes 2,756,934 1,805,690
Income taxes 1,103,000 877,000
----------- -----------
NET INCOME $ 1,653,934 $ 928,690
=========== ===========
The accompanying notes are an integral part of these statements.
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Comtex Information Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995 and 1994
Class A Class B Additional
Preferred common common paid-in Retained Treasury
stock stock stock capital earnings stock
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1993 $ 500,577 $ 4,110 $ 192 $ 1,961,588 $ 4,854,957 $ (42,448)
Purchase of Class B common (1,520)
stock, 1,000 shares
Change in unrealized loss on
securities owned
Net income 928,690
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 500,577 4,110 192 1,961,588 5,783,647 (43,968)
PURCHASE OF CLASS B COMMON
STOCK, 1,000 SHARES (1,520)
CONTRIBUTION TO CAPITAL 100
OF COMTEX SYSTEMS, INC
CHANGE IN UNREALIZED GAIN
ON SECURITIES OWNED
NET INCOME 1,653,934
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 $ 500,577 $ 4,110 $ 192 $ 1,961,688 $ 7,437,581 $ (45,488)
=========== =========== =========== =========== =========== ===========
Unrealized
loss on Total
securities stockholders'
owned equity
----------- -----------
Balance at December 31, 1993 $ 7,278,976
Purchase of Class B common (1,520)
stock, 1,000 shares
Change in unrealized loss on $ (50,000) (50,000)
securities owned
Net income 928,690
----------- -----------
Balance at December 31, 1994 (50,000) 8,156,146
PURCHASE OF CLASS B COMMON
STOCK, 1,000 SHARES (1,520)
CONTRIBUTION TO CAPITAL 100
OF COMTEX SYSTEMS, INC
CHANGE IN UNREALIZED GAIN 50,000 50,000
ON SECURITIES OWNED
NET INCOME 1,653,934
----------- -----------
BALANCE AT DECEMBER 31, 1995 $ 0 $ 9,858,660
=========== ===========
The accompanying notes are an integral part of this statement.
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Comtex Information Systems, Inc. and Subsidiares
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1995 1994
----------- -----------
Cash flows from operating activities
Net income $1,653,934 $ 928,690
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 113,609 58,274
Deferred income taxes 95,000 (180,000)
Changes in operating assets and liabilities
Trade receivables (1,231,034) (705,711)
Other current assets (54,460) (72,783)
Accounts payable and accrued expenses 478,191 (239,282)
Income taxes payable (436,455) 255,202
Other non-current liabilities 207,720 359,932
Deferred revenue 4,658 (266,640)
----------- -----------
Net cash provided by operating
activities 831,163 137,682
----------- -----------
Cash flows from investing activities
Purchase of marketable securities (5,923,896) (5,317,587)
Proceeds from the sale of marketable securities 4,400,901
Proceeds from maturities of marketable securities 1,040,227
Purchase of equipment (169,251) (301,697)
----------- -----------
Net cash used in investing
activities (652,019) (5,619,284)
----------- -----------
Cash flows from financing activities
Purchase of treasury stock (1,520) (1,520)
----------- -----------
Net cash used in financing activities (1,520) (1,520)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 177,624 (5,483,122)
----------- -----------
Cash and cash equivalents at beginning of year 1,671,099 7,154,221
----------- -----------
Cash and cash equivalents at end of year $ 1,848,723 $ 1,671,099
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ -- $ --
Income taxes $ 675,650 $ 810,880
The accompanying notes are an integral part of these statements
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Business Description
Comtex Information Systems, Inc. (the "Company") primarily provides
management consulting, systems development and system enhancement
services to clients in diversified industries. The Company specializes
in financial services computer operations.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries which started operations in
1995: Comtex Systems Inc., DBA Comtex Client Server Systems, and
Internet Transfer Systems, Inc. All significant intercompany accounts
and transactions are eliminated in consolidation.
3. Revenue Recognition
Revenue from consulting agreements and product development is
recognized in accordance with the specific terms of the respective
agreements which are primarily on a rate-per-hour basis.
4. Equipment at Cost
Equipment is stated at cost, less accumulated depreciation.
Depreciation on equipment is calculated using the straight-line method
over the estimated useful lives of the assets.
5. Income Taxes
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
requires the use of the liability method of computing deferred income
taxes. Under the liability method, deferred tax assets and liabilities
are determined based on the difference between the financial accounting
and tax bases of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the
currently enacted tax rate expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be
settled or realized. The Company and its subsidiaries file consolidated
federal and certain state tax returns.
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE A (CONTINUED)
6. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Cash Equivalents
Cash equivalents consist of certificates of deposit, Treasury bills and
money market funds. For purposes of the statements of cash flows, the
Company considers all investments with an original maturity of three
months or less to be cash equivalents.
8. Marketable Securities
Effective December 31, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with
the provisions of this Statement, the Company classifies its
investments as available-for-sale securities, classifies them as
current or non-current assets at market value and includes unrealized
gains and losses, net of tax, in a separate component of stockholders'
equity. Gains and losses on the disposition of securities are
recognized on the specific identification method in the period in which
they occur.
9. Reclassifications
Certain amounts in the 1994 financial statements have been reclassified
to conform to the current year's presentation.
NOTE B - MARKETABLE SECURITIES
Marketable securities primarily consist of tax-exempt debt securities. The
amortized costs of these securities were $5,757,359 and $5,317,587 and the
market values were $5,773,399 and $5,224,591 at December 31, 1995 and 1994,
respectively.
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE C - EQUIPMENT
Equipment, net, at December 31, 1995 and 1994 consists of the following:
1995 1994
----------- -----------
Furniture and fixtures $ 261,488 $ 255,385
Computer equipment 1,573,676 1,410,528
Automobiles 41,113 41,113
Leasehold improvements 63,943 63,943
----------- -----------
1,940,220 1,770,969
Less accumulated depreciation 1,614,436 1,500,827
----------- -----------
$ 325,784 $ 270,142
=========== ===========
NOTE D - LINE OF CREDIT
As of December 31, 1995, the Company maintained a $2,000,000 line of credit
expiring on June 30, 1996. Borrowings under the line bear interest at the
bank's prime rate or LIBOR plus 2%. The agreement requires the Company to
maintain $200,000 in compensating balances and to comply with certain
restrictions including providing the bank with a security interest in all
accounts receivable. At December 31, 1995, there were no borrowings
outstanding under this agreement.
NOTE E - LEASE
The Company is obligated under an operating lease for its office facility.
The lease expires in March, 2004 and includes a one-time option to
terminate the lease as of January 31, 1999. Rent expense charged on a
straight-line basis over the respective term of the lease was approximately
$367,000 and $303,000 for the years ended December 31, 1995 and 1994,
respectively. The excess of rent expense over the required lease payments
is reflected as other non-current liabilities for both years at December
31.
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE E (CONTINUED)
The minimum rental commitments under the lease are as follows:
Year ended December 31,
1996 $ 388,000
1997 416,000
1998 416,000
1999 423,000
2000 444,000
Thereafter 1,445,000
-----------
$ 3,532,000
===========
NOTE F - INCOME TAX EXPENSE
Income tax expense for the years ended December 31, 1995 and 1994 consists
of the following:
1995 1994
--------------------------------------- -----------------------------------------
CURRENT DEFERRED TOTAL Current Deferred Total
----------- ----------- ----------- ----------- ----------- -----------
Federal $ 622,000 $ 7,000 $ 629,000 $ 623,000 $ (112,000) $ 511,000
State and local 468,000 6,000 474,000 434,000 (68,000) 366,000
----------- ----------- ----------- ----------- ----------- -----------
$ 1,090,000 $ 13,000 $ 1,103,000 $ 1,057,000 $ (180,000) $ 877,000
----------- ----------- ----------- ----------- ----------- -----------
The Company is being examined by the Internal Revenue Service for the years
back to 1991 and the results of the examination are not expected to have a
material adverse effect on the consolidated financial position or results
of operations of the Company.
For the years ended December 31, 1995 and 1994, total income tax expense
differed from the amounts computed by applying the U.S. Federal income tax
rate of 34% to income before income taxes as a result of the following:
1995 1994
----------- -----------
Statutory Federal income tax rate $ 937,000 $ 614,000
Interest on obligations of state and political subdivisions (87,000) --
State and local taxes, net of Federal income tax benefit 313,000 242,000
Other (60,000) 21,000
----------- -----------
$ 1,103,000 $ 877,000
=========== ===========
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Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE F (CONTINUED)
Deferred income taxes reflect the impact of "temporary differences" between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts as measured by tax laws and regulations. Not
included in the income tax expense for the year ended December 31, 1994 is
approximately $ 43,000 of deferred taxes relating to unrealized losses of
marketable securities.
Deferred tax assets and liabilities at December 31, 1995 and 1994 consist
of the following:
1995 1994
---------- ----------
Deferred tax assets
Allowance for doubtful accounts $ 90,000 $ 93,000
Depreciation on equipment 65,000 155,000
Employee benefits 484,000 482,000
Free rent 270,000 169,000
Other accrued expenses -- 127,000
---------- ----------
Total deferred tax assets $ 909,000 $1,026,000
---------- ----------
Deferred tax liabilities
Installment income -- 22,000
---------- ----------
Total deferred tax liabilities -- 22,000
---------- ----------
Net deferred income taxes $ 909,000 $1,004,000
---------- ----------
NOTE G - CAPITAL STOCK
Capital stock consists of the following:
1995 1994
---------- ----------
Preferred stock (Series A convertible), $1 par value; authorized,
1,159,231 shares; issued and outstanding, 500,577 shares
(liquidation value $ 3.10 per share) $ 500,577 $ 500,577
Class A common stock, $.001 par value;
authorized, 19,000,000 shares; issued and
outstanding, 4,110,000 shares 4,110 4,110
Class B common stock (nonvoting), $.001 par value; authorized, 1,000,000
shares; issued and outstanding, 192,700 shares at December 31,
1995 and 1994 192 192
- 12 -
23
Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE G (CONTINUED)
The Company and the Company's principal stockholder have agreements
which provide the right to purchase the stock of another significant
stockholder, which stock was purchased by the Company in 1996. The
agreements also contain a stockholder non-compete restriction clause.
NOTE H - STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "Plan") for its officers and
key employees. 500,000 shares of the Company's Class B common stock
were reserved for issuance. The Plan, which terminates on December 31,
1999, is administered by the Compensation Committee (the "Committee"). The
Committee, as defined under the Plan, consists of three or more Directors
designated by the Board of Directors of the Company. Options granted
containing various vesting schedules under the Plan are exercisable for a
period of up to ten years beginning six months after the grant date.
Options are exercisable at a price per share fixed by the Committee on or
before the date of grant, but in no event is the price to be less than
$1.00 per share. The option agreement sets forth certain restrictions on
the transferability of the option shares including the right of first
refusal of the Company with respect to such granted shares.
The following table summarizes the options granted under the Plan:
Shares Option
under option price
------------ -----
Outstanding at December 31, 1993 349,500 $2.00-$4.00
Terminated-1994 245,750 $2.00-$4.00
-------
Outstanding at December 31, 1994 103,750 $2.00-$3.00
GRANTED-1995 339,000 $2.50
-------
OUTSTANDING AT DECEMBER 31, 1995 442,750 $2.00-$3.00
-------
EXERCISABLE AT DECEMBER 31, 1995 153,438 $2.00-$3.00
=======
- 13 -
24
Comtex Information Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company has a 401(k) savings plan whereby eligible employees may
contribute at least 2% but no more than 15% of compensation. In
addition, 50% of each employee's contribution up to $2,000 is matched
by the Company. Total expense related to the 401(k) savings plan
amounted to approximately $50,000 and $35,000 for the years ended
December 31, 1995 and 1994, respectively.
In the ordinary course of business, the Company is party to various
legal proceedings, none of which, in the opinion of management, will
have a material effect on the Company's financial position or results
of operations.
NOTE J - CONCENTRATION OF CREDIT RISK
Trade Receivables and Revenues
The Company grants unsecured trade credit to customers, substantially
all of whom are located in the Northeastern United States and starting
in 1995, customers in Florida.
For the year ended December 31, 1995, five customers accounted for
approximately 50% of net revenues. For the year ended December 31,
1994, three customers accounted for approximately 40% of net revenues.
- 14 -
25
NORRELL COPORATION AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of October 27, 1996,
presents the pro forma financial position of Norrell Corporation (the
"Company"), giving effect to the acquisition of Comtex Information Systems, Inc.
and Comtex Systems, Inc. (collectively "Comtex") as of the balance sheet date.
The unaudited pro forma statement of income for the year ended October 27, 1996,
presents the pro forma combined results of the continuing operations of the
Company assuming the acquisition had been consummated at the beginning of the
period indicated. The statements include all material adjustments necessary to
present the combined historical results under these assumptions.
The pro forma information should be read in conjunction with the Company's
historical Consolidated Financial Statements and notes thereto contained in the
1996 annual report on Form 10-K.
The pro forma financial information is not necessarily indicative of
the actual financial position and results of operations of the Company, nor does
it purport to indicate the future financial position or results of operations of
the Company.
26
NORRELL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
AS OF OCTOBER 27, 1996
(Unaudited)
(In thousands)
Historical
------------------------------
Norrell Pro Forma
Corporation Comtex (a) Adjustments Pro Forma
------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 8,876 $ 5,267 $ (5,267)(b) $ 8,876
Accounts receivable, net 145,843 7,133 -- 152,976
Prepaid expenses 2,674 -- -- 2,674
Other 9,995 1,292 -- 11,287
--------- --------- --------- ---------
Total current assets 167,388 13,692 (5,267) 175,813
--------- --------- --------- ---------
PROPERTY AND EQUIPMENT, less
accumulated depreciation 13,513 398 -- 13,911
--------- --------- --------- ---------
NONCURRENT DEFERRED INCOME TAXES 6,034 294 -- 6,328
--------- --------- --------- ---------
OTHER ASSETS
Goodwill and other intangibles, net of amortization 45,069 -- 62,035(b) 107,104
MIS development costs, net of amortization 18,634 -- -- 18,634
Investments and other assets 12,593 1,140 -- 13,733
--------- --------- -------- ---------
Total other assets 76,296 1,140 62,035 139,471
--------- --------- --------- ---------
TOTAL ASSETS $ 263,231 $ 15,524 $ 56,768 $ 335,523
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 9,789 $ -- $ -- $ 9,789
Accounts payable 14,651 4,077 -- 18,728
Accrued expenses 67,536 129 -- 67,665
Deferred revenue and gain 10,822 173 -- 10,995
--------- --------- --------- ---------
Total current liabilities 102,798 4,379 -- 107,177
LONG-TERM DEBT, less current maturities 23,316 -- 59,233(b),(c) 82,549
LONG-TERM DEFERRED GAIN 11,471 -- -- 11,471
LONG-TERM ACCRUED EXPENSES 27,614 585 6,095(b) 34,294
--------- --------- --------- ---------
Total liabilities 165,199 4,964 65,328 235,491
--------- --------- --------- ---------
SHAREHOLDERS' EQUITY
Preferred Stock -- 501 (501)(b) --
Common stock 236 4 (3)(b),(c) 237
Treasury stock (575) (2,317) 2,317(b) (575)
Additional paid-in-capital 44,096 1,962 37(b),(c) 46,095
Notes receivable from officers and employees (111) -- -- (111)
Retained earnings 54,386 10,410 (10,410)(b) 4,386
--------- --------- --------- ---------
Total shareholders' equity 98,032 10,560 (8,560) 100,032
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 263,231 $ 15,524 $ 56,768 $ 335,523
========= ========= ========= =========
See accompanying notes to pro forma financial information.
27
NORRELL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 27, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
------------------------------
NORRELL PRO FORMA
CORPORATION COMTEX ADJUSTMENTS PRO FORMA
------------------------------ ----------- -----------
REVENUES $ 1,013,877 $ 38,271 $ -- $ 1,052,148
COST OF SERVICES 795,013 25,615 -- 820,628
----------- ----------- ----------- -----------
GROSS PROFIT 218,864 12,656 -- 231,520
OPERATING EXPENSES 169,206 6,378 -- 175,584
DEPRECIATION AND AMORTIZATION 5,904 148 1,551(D) 7,603
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 43,754 6,130 (1,551) 48,333
OTHER INCOME (EXPENSE)
INTEREST (1,200) -- (3,524)(E) (4,724)
OTHER (1,485) 264 -- (1,221)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 41,069 6,394 (5,075) 42,388
INCOME TAXES 15,812 2,819 (1,357)(F) 17,274
----------- ----------- ----------- -----------
NET INCOME $ 25,257 $ 3,575 $ (3,718) $ 25,114
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 1.00 $ 0.98
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 25,344 205(G) 25,549
=========== =========== ===========
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL INFORMATION.
28
NORRELL CORPORATION AND SUBSIDIARIES
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Reflects the historical balance sheet which approximates the fair value
of assets and liabilities acquired (before goodwill acquired).
(b) To record the acquisition of Comtex and the resulting increase in debt to
fund the $67 million purchase price of Comtex, net of (i) cash acquired,
(ii) cash received from the transaction discussed in Note (c), and (iii)
the second installment payment of $3.5 million and to record the issuance
of options to acquire 140,961 shares of Company common stock , and
consolidating elimination entries.
(c) To record the purchase, by an officer of Comtex, of 86,956 shares of
Company common stock at $23.00 per share, the closing market price on
December 8, 1996, the date at which the acquisition agreement was
executed.
(d) To record the amortization of goodwill of $62 million resulting from the
purchase adjustment to record the excess of purchase price over the value
of Comtex's tangible assets on a straight line basis over 40 years.
(e) To record the increase in interest expense at 5.95%, the weighted average
interest rate for the 1996 period, as a result of the higher outstanding
debt for the cash purchase price of Comtex.
(f) To record the income tax expense, giving effect to the interest expense
and nondeductible goodwill amortization adjustments.
(g) To give effect to Company common stock purchased by an officer of Comtex
and Company stock options issued as part of the purchase price. See Notes
(b) and (c).