-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LgKEd+2bCFBhV/DmGCuscW32rb24TnLD2kkVT4rNt2d6n0xWpGurrURNFvD0XyWd qORpvClxKUGt9Mir0rc25A== 0000950134-97-004331.txt : 19970602 0000950134-97-004331.hdr.sgml : 19970602 ACCESSION NUMBER: 0000950134-97-004331 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970318 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970530 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAFFMARK INC CENTRAL INDEX KEY: 0001017968 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 710788538 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20971 FILM NUMBER: 97616997 BUSINESS ADDRESS: STREET 1: 302 EAST MILLSAP CITY: FAYETTEVILLE STATE: AR ZIP: 72703 BUSINESS PHONE: 5019736000 MAIL ADDRESS: STREET 1: 302 EAST MILLSAP CITY: FAYETTEVETTE STATE: AR ZIP: 72703 8-K/A 1 AMENDMENT TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of earliest event reported): . . . . . . . March 18, 1997 STAFFMARK, INC. (Exact name of registrant as specified in its charter) Delaware 0-20971 71-0788538 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation) Identification No.) 302 East Millsap Road Fayetteville, Arkansas 72703 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: . . . . . . (501) 973-6000 2 Item 2. Acquisition or Disposition of Assets On March 18, 1997, StaffMark, Inc. (the "Company") completed the purchase of substantially all of the assets of Flexible Personnel, Inc. ("Flexible"), H.R. America, Inc. ("HR America"), and Great Lakes Search Associates, Inc. ("Great Lakes"), each an Indiana corporation (collectively, the "Acquired Businesses"). Flexible and Great Lakes were acquired through the Company's wholly-owned subsidiary, StaffMark Acquisition Corporation Two, a Delaware corporation. HR America was acquired through the Company's wholly-owned subsidiary, StaffMark Acquisition Corporation Three, a Delaware corporation. Flexible provides temporary and direct placements in the light industrial, clerical, professional, and technical industries. Great Lakes provides contingency and retainer search services. HR America is a Professional Employer Organization. The Acquired Businesses are headquartered in Fort Wayne, Indiana. The assets purchased primarily consist of cash, accounts receivable, general corporate assets, trade marks, trade names, customer contracts and related information, and employee agreements. In addition, the Company assumed certain liabilities of the Acquired Businesses related to the assets. The total consideration paid for the assets was approximately $10 million, including $7.5 million in cash and 183,823 shares of restricted Common Stock of the Company, plus an additional amount based upon future earnings of the Acquired Businesses. The purchase price for the Acquired Businesses was determined as a result of direct negotiations with the Acquired Business, and the funds used in the acquisition were proceeds from the Company's initial public offering of Common Stock. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired (b) Pro Forma Financial Information (c) Exhibits. The following exhibits are filed with this Form 8-K: 2.1 Asset Purchase Agreement, dated March 17, 1997, among StaffMark, Inc., StaffMark Acquisition Corporation Two, StaffMark Acquisition Corporation Three, and Flexible Personnel, Inc, H.R. America, Inc., and Great Lakes Search Associates, Inc.(1) incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed April, 2, 1997 99.1 Press Release dated March 18, 1997 incorporated by reference to Exhibit 99.1 to the Company's Current report on Form 8-K, filed April 2, 1997. (1) The Company will furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. 3 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. STAFFMARK, INC. (Registrant) Date: May 30, 1997 By: /s/ Terry C. Bellora ----------------------------- Terry C. Bellora Chief Financial Officer 4 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders Flexible Personnel Group of Companies: We have audited the accompanying combined balance sheet of Flexible Personnel Group of Companies (the Company) as of December 31, 1996 and the related combined statements of income, changes in stockholders' equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Flexible Personnel Group of Companies as of December 31, 1996 and the combined results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note 1 to the combined financial statements, the Company changed the entities included in the combined financial statements during 1996. Also, as discussed in Note 2 to the combined financial statements, the Company has recorded a prior period adjustment relating to liabilities previously not recorded. /s/ COOPERS & LYBRAND L.L.P. Fort Wayne, Indiana February 4, 1997 except for Note 4 for which the date is February 24, 1997 except for Note 8 for which the date is March 17, 1997. 1 5 FLEXIBLE PERSONNEL GROUP OF COMPANIES COMBINED BALANCE SHEET As of December 31, 1996 (All dollar amounts in thousands, except share data)
ASSETS Current assets: Cash $ 117 Accounts receivable, trade, net of allowance for doubtful accounts of $69 3,869 Accounts receivable, related parties 26 Notes receivable, related parties 502 Other 403 ------ Total current assets 4,917 Property and equipment, at cost: Leasehold improvements 267 Office equipment 1,252 Automobiles 113 ------ 1,632 Less accumulated depreciation and amortization 864 ------ 768 Notes receivable, related parties 47 Other assets 242 ------ Total assets $5,974 ====== LIABILITIES Current liabilities: Accrued expenses $ 1,376 Accounts payable, trade 70 Accounts payable, related parties 1 Notes payable 867 ------ Total current liabilities 2,314 Workers compensation payable 520 Notes payable 206 STOCKHOLDERS' EQUITY Common stock 8 Additional paid-in capital 914 Retained earnings 2,928 ------ 3,850 Less notes receivable from stockholders 644 Less treasury stock, 71 shares, at cost 272 ------ 2,934 ------ Total liabilities and stockholders' equity $5,974 ======
The accompanying notes are an integral part of the financial statements. 2 6 FLEXIBLE PERSONNEL GROUP OF COMPANIES COMBINED STATEMENT OF INCOME For the year ended December 31, 1996 (All dollar amounts in thousands)
Sales $49,342 Cost of sales 39,928 ------- Gross profit 9,414 Operating, selling and administrative expenses 8,085 Depreciation and amortization 316 ------- Operating income 1,013 Interest expense 121 ------- Net income $ 892 =======
The accompanying notes are an integral part of the financial statements. 3 7 FLEXIBLE PERSONNEL GROUP OF COMPANIES COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the year ended December 31, 1996 (All dollar amounts in thousands, except per share data)
Common stock, $0 par -------------------------- Notes $10 per $0 per Additional receivable share share paid-in Retained from Treasury stated value stated value capital earnings stockholders stock Total ------------ ------------ -------- ---------- ------------ ------- -------- Balance, December 31, 1995, as restated $ 7 $ 1 $ 744 $ 2,153 $ (707) $ 2,198 Distributions paid (117) (117) Acquisition of stock into treasury $ (272) (272) Shareholder advances foregiven 63 63 Capital contribution 170 170 Net income 892 892 ------ ------- ------- ---------- ------- ------- -------- Balance, December 31, 1996 $ 7 $ 1 $ 914 $ 2,928 $ (644) $ (272) $ 2,934 ====== ======= ======= ========== ======= ======= ========
The accompanying notes are an integral part of the financial statements. 4 8 FLEXIBLE PERSONNEL GROUP OF COMPANIES COMBINED STATEMENT OF CASH FLOWS For the year ended December 31, 1996 (All dollar amounts in thousands) Cash flows from operating activities: Net income $ 892 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 316 Non-cash write off of notes receivable, stockholder 63 Changes in assets and liabilities: Accounts receivable, trade (335) Accounts receivable, related parties (19) Other assets (395) Accrued expenses 450 Accounts payable, trade 65 Accounts payable, related parties (43) -------------- Net cash provided by operating activities 994 -------------- Cash flows from investing activities: Purchases of property and equipment (204) Issuance of notes receivable, related parties (28) Issuance of notes receivable, stockholders (760) Principal payments received from notes receivable, related party 402 -------------- Net cash used for investing activities (590) -------------- Cash flows from financing activities: Principal payments on notes payable (4,034) Proceeds from notes payable 3,617 Capital contribution 170 Distributions paid (117) -------------- Net cash used for financing activities (364) -------------- Net increase in cash 40 Cash, beginning of year 77 -------------- Cash, end of year $ 117 ==============
The accompanying notes are an integral part of the financial statements. 5 9 FLEXIBLE PERSONNEL GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (All dollar amounts in thousands) 1. COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. COMBINATION: The combined financial statements of Flexible Personnel Group of Companies (the Company) contain the accounts of Flexible Personnel, Inc. (FPI) H.R. America, Inc. (HRA) and Great Lakes Search Associates, Inc. (GLSA), which are of common ownership. These Companies offer temporary, direct, and employee leasing services to customers mainly in the midwestern portion of the United States. The December 31, 1995 financial statement information was restated to reflect exclusion of National On-Site Personnel, Inc. (NOPS), which had previously been combined with the aforementioned entities. This entity has been excluded as the nature of its business focus differs from that of the Companies included. All significant intercompany accounts and transactions have been eliminated in the combination. b. DEPRECIATION AND AMORTIZATION: Depreciation of equipment and amortization of leasehold improvements are determined principally on accelerated methods used for income tax reporting purposes. The amount of depreciation and amortization under these methods is not significantly different than that based on the estimated economic useful lives for financial reporting purposes. Costs and related accumulated depreciation are removed from the accounts for assets retired or disposed of and a gain or loss on disposition is recorded when realized. c. CASH FLOWS: Cash paid for interest approximated $130 for 1996. d. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. PRIOR PERIOD ADJUSTMENT: During 1996 the Company was notified of and recorded a $797 liability for workers compensation claims related to a plan that the Company previously participated in. The Company withdrew from the plan in 1995, and the liability represents prior and future claims relating to injuries incurred prior to terminating the Company's participation in the plan. 3. INCOME TAXES: No provision is made for federal or state income taxes in as much as the Company's stockholders have consented to have the Companies' income taxed directly to them as provided by Section 1362(a) of the Internal Revenue Code. 6 10 NOTES TO FINANCIAL STATEMENTS, CONTINUED 4. NOTES PAYABLE: During 1996, the Company maintained a line of credit with a commercial bank which aggregated $4,600. The agreement, which expires May 31, 1997, requires quarterly interest payments charged at 2.25% above the 30, 60, or 90 day LIBOR for comparable 30, 60, or 90 day periods (effective rate of 7.75%). The total amount borrowed against the agreement was $1,245. The Company was contingently liable for $444 at December 31, 1996, which was borrowed by NOPS. The additional amount available at December 31, 1996 was $2,750. The agreement also provides for an additional $605 letter of credit. The agreement is collateralized by substantially all the trade accounts receivable of FPI and NOPS, which approximated $4,514 at December 31, 1996. The agreement also contains certain restrictive covenants common to such agreements related to the Company's operations, including the maintenance of working capital, net worth, limitations on capital expenditures, limitations on stockholder distributions and incurrence of additional indebtedness. Subsequent to December 31, 1996, the Company received a waiver for loan covenant violations that occurred during the year ended December 31, 1996. During 1996, a key employee and minority shareholder's employment was terminated with the Company. Under the terms of the termination agreement, the Company agreed to buy back the employee's shares of stock and forgive approximately $63 of shareholder advances that the minority shareholder owed to the Company. The former shareholder also signed a non-compete agreement in the amount of $157 that will be paid out over the term of the agreement (four years). In total, based on the terms of the termination agreement, including the items discussed above, the Company is required to pay approximately $293 in monthly installments of approximately $7 for a period of four years. Notes payable at December 31 consisted of the following: Line of credit $801 8.25% note to former shareholder due in monthly principal and interest payments of approximately $7 through August 1, 2001 272 ---- 1073 Less current maturities 867 ---- $206 ====
Aggregate maturities of long-term debt in the ensuing four years are $867, $72, $78, and $56, respectively. 7 11 NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 5. COMMON STOCK: The components of Common Stock at December 31 are as follows: Common stock, no par value, $10 per share stated value, 1,000 shares authorized; 677.9 shares issued; 623.6 shares outstanding $ 7 Common stock, no par value, no stated value, 2,000 shares authorized; 49 shares issued and outstanding 1 ---- $ 8 ====
6. NOTES RECEIVABLE, RELATED PARTIES: Notes receivable from related parties consisted of the following at December 31: 9% notes from certain franchises of Flexible Personnel, Inc., principal and interest due in 1997 $ 47 8.50% demand notes from shareholders 644 8.50% demand notes from shareholders to be repaid in 1997 502
7. LEASE COMMITMENTS: The Company has several noncancelable operating lease agreements for buildings where their operations are located. Certain of these lease agreements contain renewal options. Rent expense under these leases approximated $607 in 1996. Minimum annual rental payments due under these leases during the remaining lease terms approximate the following: YEAR 1997 $454 1998 282 1999 210 2000 129 2001 81
8. SUBSEQUENT EVENT: On March 17, 1997, the Company was sold and these financial statements reflect the entities which were sold to StaffMark, Inc. 8 12 SUPPLEMENTARY FINANCIAL DATA To the Stockholders Flexible Personnel Group of Companies: Our report on audit of the combined financial statements of Flexible Personnel Group of Companies as of December 31, 1996 and for the year then ended appears on page 1. This audit was conducted for the purpose of forming an opinion on the combined financial statements taken as a whole. The supplementary combining information accompanying the combined financial statements is not necessary for fair presentation of the combined financial position, results of operations, and cash flows of Flexible Personnel Group of Companies in conformity with generally accepted accounting principles. The supplementary information is presented only for purposes of additional analysis and is not a required part of the basic combined financial statements. The supplementary combining information has been subjected to the auditing procedures applied in the audit of the combined financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the combined financial statements taken as a whole. /s/ COOPERS & LYBRAND L.L.P. Fort Wayne, Indiana February 4, 1997 except for Note 4 , for which the date is February 24, 1997 except for Note 8 for which the date is March 17, 1997. 9 13 FLEXIBLE GROUP OF COMPANIES Supplementary Financial Data COMBINING BALANCE SHEET As of December 31, 1996 (All dollar amounts in thousands)
Great Lakes Flexible H.R. Search Personnel, America, Associates, ASSETS Inc. Inc. Inc. Eliminations Combined ---------- ---------- ---------- ------------ ----------- Current assets: Cash $ 92 $ 24 $ 1 $ 117 Accounts receivable, trade, net of allowance for doubtful accounts of $69 3,714 115 40 3,869 Accounts receivable, related parties 47 170 $ (191) 26 Notes receivable, related party 470 32 502 Other 401 2 403 ---------- ---------- ---------- ---------- ---------- Total current assets 4,724 173 211 (191) 4,917 ---------- ---------- ---------- ---------- ---------- Property and equipment, at cost: Leasehold improvements 266 1 267 Office equipment 1,209 33 10 1,252 Automobiles 113 113 ---------- ---------- ---------- ---------- ---------- 1,588 34 10 1,632 Less accumulated depreciation and amortization 833 27 4 864 ---------- ---------- ---------- ---------- ---------- 755 7 6 768 ---------- ---------- ---------- ---------- ---------- Note receivable, related party 47 47 Other assets 208 34 242 ---------- ---------- ---------- ---------- ---------- Total assets $ 5,734 $ 214 $ 217 $ (191) $ 5,974 ========== ========== ========== ========== ==========
10 14 FLEXIBLE PERSONNEL GROUP OF COMPANIES Supplementary Financial Data COMBINING BALANCE SHEET, CONTINUED As of December 31, 1996 (All dollar amounts in thousands)
Great Lakes Flexible H.R. Search Personnel, America, Associates, LIABILITIES Inc. Inc. Inc. Eliminations Combined ---------- ---------- ---------- ------------ --------- Current liabilities: Accrued expenses $ 1,107 $ 266 $ 3 $ 1,376 Accounts payable, trade 70 70 Accounts payable, related parties 171 3 18 $ (191) 1 Notes payable (receivable) 1,030 (265) 102 867 ---------- ---------- ---------- ---------- ---------- Total current liabilities 2,378 4 123 (191) 2,314 ---------- ---------- ---------- ---------- ---------- Long term liabilities: Workers compensation payable 520 520 Notes payable, related parties 206 206 ---------- ---------- ---------- ---------- ---------- Total liabilities 3,104 4 123 (191) 3,040 ---------- ---------- ---------- ---------- ---------- STOCKHOLDERS' EQUITY Common stock 7 1 8 Additional paid-in capital 493 421 914 Notes receivable from stockholders (644) (644) Treasury stock (212) (60) (272) Retained earnings (accumulated deficit) 2,986 269 (327) 2,928 ---------- ---------- ---------- ---------- ---------- 2,630 210 94 2,934 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity $ 5,734 $ 214 $ 217 $ (191) $ 5,974 ========== ========== ========== ========== ==========
11 15 FLEXIBLE PERSONNEL GROUP OF COMPANIES Supplementary Financial Data COMBINING STATEMENT OF INCOME For the year ended December 31, 1996 (All dollar amounts in thousands)
Great Lakes Flexible H.R. Search Personnel, America, Associates, Inc. Inc. Inc. Eliminations Combined ---------- ---------- ---------- ------------ ----------- Sales $ 44,847 $ 9,565 $ 427 $ (5,497) $ 49,342 Cost of sales 36,000 9,045 380 (5,497) 39,928 ---------- ---------- ---------- ---------- ---------- Gross profit 8,847 520 47 9,414 Operating, selling and administrative expenses 7,612 289 184 8,085 Depreciation and amortization 307 6 3 316 ---------- ---------- ---------- ---------- ---------- Operating income (loss) 928 225 (140) 1,013 Interest expense 112 1 8 121 ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 816 $ 224 $ (148) $ $ 892 ========== ========== ========== ========== ==========
12 16 STAFFMARK, INC. - FORM 8-K/A 1996 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS INTRODUCTION StaffMark, Inc. (the "Company" or "StaffMark") was founded in March 1996 to create a leading provider of diversified staffing services to businesses, healthcare providers, professional and service organizations and governmental agencies, primarily in growth markets in the southeastern and southwestern United States. On October 2, 1996, StaffMark and six staffing service businesses, Brewer Personnel Services, Inc. ("Brewer"), Prostaff Personnel, Inc. and its related entities ("Prostaff"), Maxwell Staffing, Inc. and its related entities ("Maxwell"), HRA, Inc. ("HRA"), First Choice Staffing, Inc. ("First Choice") and Blethen Temporaries, Inc. and its related entities ("Blethen"), (each a "Founding Company" and collectively, the "Founding Companies"), merged through a series of separate transactions (the "Merger") simultaneously with the closing of the Company's initial public offering (the "Offering"). Between March 1996 and the consummation of the Offering, the Company did not conduct any operations and all activities prior to the Offering related to the Merger and the Offering. Pursuant to the requirements of the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 97 ("SAB 97"), which was issued and became effective July 31, 1996, Brewer was designated as the acquirer, for financial reporting purposes, of Prostaff, Maxwell, HRA, First Choice, and Blethen (collectively, the "Other Founding Companies"). Based upon the applicable provisions of SAB 97, these acquisitions were accounted for as combinations at historical cost. Effective March 1, 1997, StaffMark acquired Flexible Personnel, Inc., Great Lakes Search Associates, Inc., and HR America, Inc. (collectively, "Flexible"). Located in Fort Wayne, Indiana, Flexible operates a total of 40 offices throughout Indiana, Michigan and Ohio and provides clerical, light industrial, professional/information technology, accounting services, and staff leasing. Flexible had 1996 revenues of approximately $49.3 million and operates in the Commercial and Professional/Information Technology divisions. The total consideration paid for Flexible's assets was approximately $10.0 million, including $7.5 million in cash and 183,823 restricted shares of StaffMark Common Stock. In addition to the purchase price disclosed above, Flexible's acquisition agreement includes provisions for the payment of additional consideration contingent upon the achievement of certain performance measures during the twelve months immediately following the acquisition. Although the contingent consideration could be significant to the accompanying unaudited pro forma combined financial statements, the amounts are not currently determinable and, accordingly, have not been reflected in the accompanying financial statements. The obligations for this contingent consideration, which will be payable in a combination of cash and Common Stock, will be recorded in the Company's financial statements when they become fixed and determinable. The following unaudited pro forma combined financial statements present Brewer and StaffMark and give effect to the following pro forma adjustments: (i) the acquisition of the Other Founding Companies at historical cost in accordance with the applicable provisions of SAB 97; (ii) the effect of Brewer's February 1996 acquisition of On Call Employment Services, Inc. ("On Call"); (iii) the effect of StaffMark's March 1997 acquisition of Flexible; (iv) the adjustment to compensation expense for the difference between the historical compensation paid to certain previous owners of the Founding Companies and Flexible and the employment contract compensation ("Compensation Differential"); and (v) the incremental provision for income taxes attributable to the income of subchapter S Corporations, net of the income tax benefits related to the Compensation Differential. The pro forma financial data do not purport to represent what the Company's financial position or results of operations would actually have been if such transactions in fact had occurred at the beginning of 1996 or to project the Company's financial position or results of operations for any future period. 17 STAFFMARK, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 (Dollars in Thousands)
Pro Forma Merger ASSETS StaffMark Flexible (a) Adjustments Pro Forma - --------------------------- --------- ------------ ----------- --------- CURRENT ASSETS: Cash and cash equivalents $ 13,856 $ 117 $ (7,500)(f) $ 5,774 (699)(g) Accounts receivable, net of allowance for doubtful accounts 21,065 3,869 -- 24,934 Accounts receivable, related parties -- 26 (26)(b) -- Notes receivable, related parties -- 502 (502)(b) -- Prepaid expenses and other 1,578 403 (48)(b) 1,933 -------- -------- -------- -------- Total current assets 36,499 4,917 (8,775) 32,641 PROPERTY AND EQUIPMENT, net 4,004 768 (69)(b) 4,703 NOTES RECEIVABLE, RELATED PARTIES -- 47 (47)(b) -- INTANGIBLE ASSETS, net 30,512 -- 6,051 (c) 36,563 OTHER ASSETS 483 242 (206)(b) 519 -------- -------- -------- -------- $ 71,498 $ 5,974 $ (3,046) $ 74,426 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------ CURRENT LIABILITIES: Accounts payable and other accrued liabilities $ 1,907 $ 1,447 $ (1)(b) $ 3,353 Outstanding checks 176 -- -- 176 Payroll and related liabilities 3,516 -- -- 3,516 Reserve for workers' compensation claims 3,771 520 -- 4,291 Current maturities of debt -- 867 (168)(b) -- (699)(g) Income taxes payable 2,415 -- -- 2,415 Deferred income taxes 663 -- (663)(d) -- -------- -------- -------- -------- Total current liabilities 12,448 2,834 (1,531) 13,751 LONG-TERM DEBT, less current maturities -- 206 (206)(b) -- OTHER LONG TERM LIABILITIES 519 -- -- 519 DEFERRED INCOME TAXES 421 -- -- 421 -------- -------- -------- -------- Total liabilities 13,388 3,040 (1,737) 14,691 STOCKHOLDERS' EQUITY: Common stock 134 8 (8)(b) 136 2 (e) Paid-in capital 55,379 914 (914)(b) 57,002 1,623 (e) Retained earnings 2,597 2,928 (2,928)(b) 2,597 Notes receivable from stockholders -- (644) 644 (b) -- Treasury stock -- (272) 272 (b) -- -------- -------- -------- -------- Total stockholders' equity 58,110 2,934 (1,309) 59,735 -------- -------- -------- -------- $ 71,498 $ 5,974 $ (3,046) $ 74,426 ======== ======== ======== ========
The accompanying notes are an integral part of this balance sheet. 18 STAFFMARK, INC. NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 (a) Records the audited December 31, 1996 balance sheet of Flexible, which was purchased by StaffMark in March 1997. (b) Records the adjustment to remove assets and liabilities not assumed by StaffMark in conjunction with the acquisition of Flexible. (c) Records the net intangible assets recorded by StaffMark in conjunction with the acquisition of Flexible. (d) Records the adjustment to the recorded deferred income tax balances attributable to the temporary differences between financial reporting and income tax basis of assets and liabilities held by Flexible. (e) Records the issuance of 183,823 shares of restricted StaffMark Common Stock issued to the stockholders of Flexible in connection with the acquisition of Flexible. (f) Records the distribution of the cash portion of the consideration due to the stockholders of Flexible in connection with the acquisition. (g) Records the repayment of Flexible's debt obligations assumed by StaffMark in conjunction with the acquisition. 19 STAFFMARK, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 (Dollars in Thousands)
Acquisition Related Adjustments ------------------------------------------------------------- Other Founding On Call for Companies from the period from January 1, 1996 to January 1, 1996 to StaffMark September 30, 1996 February 2, 1996 (a) Flexible(b) --------- ------------------- -------------------- -------- SERVICE REVENUES $104,476 $93,968 $1,127 $49,342 COST OF SERVICES 81,607 73,865 945 39,928 -------- ------- ------ ------- Gross profit 22,869 20,103 182 9,414 OPERATING EXPENSES: Selling, general and administrative 14,624 15,217 116 8,085 Depreciation and amortization 1,373 537 3 316 -------- ------- ------ ------- Operating income 6,872 4,349 63 1,013 -------- ------- ------ ------- OTHER INCOME (EXPENSE): Interest expense (1,376) (353) -- (121) Other, net 301 422 5 -- -------- ------- ------ ------- INCOME BEFORE INCOME TAXES 5,797 4,418 68 892 INCOME TAX PROVISION 1,774 465 -- -- -------- ------- ------ ------- Net income (loss) $ 4,023 $ 3,953 $ 68 $ 892 ======== ======= ====== ======= Acquisition Related Adjustments ------------------------------- Pro Forma Total Adjustments Adjustments Pro Forma ----------- ----------- --------- SERVICE REVENUES $ -- $144,437 $248,913 COST OF SERVICES -- 114,738 196,345 ------- -------- -------- Gross profit -- 29,699 52,568 OPERATING EXPENSES: Selling, general and administrative (678) (f) 22,740 37,364 Depreciation and amortization 16 (c) 1,074 2,447 202 (d) ------- -------- -------- Operating income 460 5,885 12,757 ------- -------- -------- OTHER INCOME (EXPENSE): Interest expense (27) (e) (501) (1,877) Other, net -- 427 728 ------- -------- -------- INCOME BEFORE INCOME TAXES 433 5,811 11,608 INCOME TAX PROVISION 2,527(g) 2,992 4,766 ------- -------- -------- Net income (loss) $(2,094) $ 2,819 $ 6,842 ======= ======== ======== PRO FORMA NET INCOME PER COMMON SHARE $ 0.70 ======== WEIGHTED AVERAGE SHARES OUTSTANDING $ 9,753 (h) ========
The accompanying notes are an integral part of this statement. 20 STAFFMARK, INC. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 (a) Records the audited financial results of On Call, which was purchased by Brewer on February 2, 1996, for the period from January 1, 1996 through the date of acquisition. (b) Records the audited financial results of Flexible, which was purchased by StaffMark effective March 1, 1997. (c) Adjustment to reflect the amortization expense relating to the intangible assets recorded in conjunction with the acquisition of On Call for the period from January 1, 1996 through the date of acquisition. Intangible assets recorded in conjunction with this acquisition include goodwill of approximately $3.1 million which is being amortized over thirty years, a noncompete agreement of approximately $360,000 which is being amortized over five years and deferred financing fees of approximately $56,000 which are being amortized over five years. (d) Adjustment to reflect the amortization expense relating to the intangible assets recorded in conjunction with the acquisition of Flexible for fiscal year 1996. Intangible assets recorded in conjunction with this acquisition include goodwill of approximately $6.1 million which is being amortized over thirty years. (e) Adjustment to reflect the increase in interest expense relating to debt incurred in conjunction with the acquisition of On Call for the period from January 1, 1996 through the date of acquisition. This pro forma expense calculation is based on the $3.0 million borrowed by Brewer under a term note in conjunction with this acquisition. Pro forma interest expense is computed based upon the applicable variable rate in effect on the term note which, based upon the terms of the agreement, would have approximated 9.9% during the pro forma period. (f) Adjusts compensation to the level the owners have agreed to receive from the Founding Companies and Flexible subsequent to the Merger and respective acquisition. (g) Records the incremental provision to reflect federal and state income taxes as if the Founding Companies, On Call and Flexible had been subchapter C Corporations. This adjustment records income tax expense at an effective combined tax rate of 39%, adjusted for nondeductible goodwill amortization. (h) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering; (ii) 5,618,249 shares issued to the stockholders of the Founding Companies in connection with the Merger; (iii) 1,326,459 shares issued in connection with the Offering to pay the cash portion of the consideration for the Founding Companies for the period from January 1, 1996 through the date of the Offering; (iv) 6,325,000 shares issued in connection with the Offering; (v) 118,763 shares issued in conjunction with the November 1996 acquisition of The Technology Source L.L.C.; and (vi) 183,823 shares issued in conjunction with the March 1997 acquisition of Flexible. -----END PRIVACY-ENHANCED MESSAGE-----