-----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, P/ZO6p6wPfpUtIhtlo5/Vo47NFCUJVpOMrvl7GTz25Cbjup3pytyrPDT7tr3rCE6 CrYb6qyozod9RzMxTwympw== 0000950116-97-000749.txt : 19970421 0000950116-97-000749.hdr.sgml : 19970421 ACCESSION NUMBER: 0000950116-97-000749 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970202 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970418 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCO GROUP INC CENTRAL INDEX KEY: 0001022608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 232858652 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21639 FILM NUMBER: 97583756 BUSINESS ADDRESS: STREET 1: 1740 WALTON RD CITY: BLUE BELL STATE: PA ZIP: 19422-0987 BUSINESS PHONE: 6108321440 8-K/A 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 Exchange Act of 1934 ----------------------------------- Date of Report (Date of earliest event reported): February 2, 1997 NCO GROUP, INC. (Exact name of Registrant as specified in its charter)
Pennsylvania 0-21639 23-2858652 - -------------------------------------- -------------------------------------- ------------------------------------- (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification Number)
1740 Walton Road Blue Bell, Pennsylvania 19422-0987 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (610) 832-1440 NCO Group, Inc. is amending Item 7(a) and Item 7(b) of its Current Report on Form 8-K filed with the Securities and Exchange Commission on February 18, 1997 with respect to the acquisition of substantially all of the assets and business relating to the accounts receivable collection division of CRW Financial, Inc., a Delaware corporation, ("CRWCD") to supply certain financial statements and pro forma financial information. Item 7. Financial Statements and Exhibits. The following financial statements and pro forma financial information are being filed as part of this report: (a) Financial Statements of Businesses Acquired. Financial Statements of CRWCD: Report of Independent Public Accountants Balance Sheets as of December 31, 1996 Statements of Operations for the years ended December 31, 1996 and 1995 Statements of Division Equity for the years ended December 31, 1996 and 1995 Statements of Cash Flows for the years ended December 31, 1996 and 1995 Notes to Financial Statements (b) Pro Forma Financial Information. Basis of Presentation Pro Forma Consolidated Balance Sheets as of December 31, 1996 Pro Forma Consolidated Statements of Income for the year ended December 31, 1996 Notes to Consolidated Pro Forma Financial Statements 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. NCO GROUP, INC. By: /s/ Steven L. Winokur ---------------------------- Vice President, Finance and Chief Financial Officer Date: April 18, 1997 -2- CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Public Accountants F-2 Balance Sheet--December 31, 1996 F-3 Statements of Operations--For the Years Ended December 31, 1995 and 1996 F-4 Statements of Division Equity--For the Years Ended December 31, 1995 and 1996 F-5 Statements of Cash Flows--For the Years Ended December 31, 1995 and 1996 F-6 Notes to Financial Statements F-7 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CRW Financial, Inc.: We have audited the accompanying balance sheet of the Collection Division of CRW Financial, Inc. (a Delaware Corporation) as of December 31, 1996, and the related statements of operations, Division equity and cash flows for each of the two years in the period ended December 31, 1996. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Collection Division of CRW Financial, Inc. as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Philadelphia, Pa., April 17, 1997 F-2 CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. BALANCE SHEET--AS OF DECEMBER 31, 1996
ASSETS ------ CURRENT ASSETS: Cash $ 1,448,000 Cash held for clients 2,729,000 Accounts receivable, net of allowance for doubtful accounts of $127,000 2,527,000 Other current assets 153,000 ------------ Total current assets 6,857,000 ------------ PROPERTY AND EQUIPMENT, net 2,591,000 INTANGIBLE ASSETS, net 4,392,000 OTHER ASSETS 475,000 ------------- $ 14,315,000 ============= LIABILITIES AND DIVISION EQUITY ------------------------------- CURRENT LIABILITIES: Collections due to clients $ 2,729,000 Current portion of long-term debt 111,000 Accounts payable 1,784,000 Accrued expenses 1,494,000 Due to CRW Financial, Inc. 2,927,000 ------------- Total current liabilities 9,045,000 ------------- LONG-TERM DEBT 79,000 ------------- COMMITMENTS AND CONTINGENCIES (Note 6) DIVISION EQUITY 5,191,000 ------------- $ 14,315,000 =============
The accompany notes are an integral part of this statement. F-3 CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. STATEMENTS OF OPERATIONS
Year Ended December 31, ----------------------------- 1995 1996 --------------- ------------- NET REVENUES $28,742,000 $25,858,000 OPERATING EXPENSES: Compensation and payroll taxes 14,933,000 14,967,000 Telephone 2,528,000 2,745,000 Occupancy 1,994,000 2,113,000 Postage and printing 2,019,000 2,052,000 Other operating costs 5,259,000 4,060,000 Depreciation 741,000 928,000 Amortization of intangible assets 686,000 377,000 ----------- ------------- Operating income (loss) 582,000 (1,384,000) INTEREST EXPENSE (12,000) (8,000) ------------- ------------- INCOME (LOSS) BEFORE INCOME TAX BENEFIT 570,000 (1,392,000) INCOME TAX BENEFIT -- (509,000) ------------ ------------- NET INCOME (LOSS) $ 570,000 $ (883,000) ============= ==============
The accompanying notes are an integral part of these statements. F-4 CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. STATEMENTS OF DIVISION EQUITY BALANCE, DECEMBER 31, 1994 $ 5,504,000 Net income 570,000 ------------ BALANCE, DECEMBER 31, 1995 6,074,000 Net loss (883,000) ------------ BALANCE, DECEMBER 31, 1996 $ 5,191,000 ============ The accompanying notes are an integral part of these statement. F-5 CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------- 1995 1996 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 570,000 $ (883,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities- Bad debt provision -- 46,000 Depreciation and amortization 1,427,000 1,305,000 Changes in operating assets and liabilities- Accounts receivable 266,000 260,000 Prepaids and other current assets (65,000) 245,000 Accounts payable 306,000 (707,000) Accrued expenses (1,282,000) 384,000 Due to CRW Financial, Inc. 1,436,000 (115,000) Other liabilities (308,000) (11,000) --------------- --------------- Net cash provided by operating activities 2,350,000 524,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,447,000) (246,000) --------------- --------------- Net cash used in investing activities (1,447,000) (246,000) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (129,000) (140,000) --------------- --------------- Net cash used in financing activities (129,000) (140,000) --------------- --------------- NET INCREASE IN CASH 774,000 138,000 CASH, BEGINNING OF PERIOD 536,000 1,310,000 -------------- -------------- CASH, END OF PERIOD $ 1,310,000 $ 1,448,000 ============== ==============
The accompanying notes are an integral part of these statements. F-6 CRW FINANCIAL, INC. COLLECTION DIVISION OF CRW FINANCIAL, INC. NOTES TO FINANCIAL STATEMENTS 1. BACKGROUND: The Collection Division of CRW Financial, Inc. (the "Division") performs receivables management, administration and debt collection services for clients primarily in the health care, student loan, credit card and utility industries, and to commercial clients. CRW Financial, Inc. ("CRW") was a subsidiary of Casino & Credit Services, Inc. ("CCS") prior to May 11, 1995, and its operations were a division of CCS from July 1992 to May 11, 1995 when CCS contributed all of its assets and subsidiaries other than Central Credit, Inc. ("CCI") to a newly formed subsidiary, CRW Financial, Inc. CCS then spun-off CRW Financial, Inc. in a distribution of CRW Financial, Inc. stock to CCS Shareholders on May 11, 1995. 2. SALE OF DIVISION: On February 2, 1997, CRW sold the assets of the Division to NCO Group, Inc. ("NCO") for $3,750,000 in cash and 345,178 shares of NCO Common stock and a warrant to purchase 250,000 shares of NCO Common stock at $27.625 per share and the assumption of certain liabilities. The NCO Common stock and warrant have been valued at $9,050,000. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect 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. Revenue Recognition Collection fees are recorded as revenue upon collection of amounts owed by the debtor on behalf of the client. These fees are either billed to the client upon the Division's remittance of the amount collected to the client or are retained by the Division through a net remittance to the client. F-7 Property and Equipment Property and equipment are stated at cost. The Division provides for depreciation on a straight-line basis over estimated useful lives of three to five years. Leasehold improvements are amortized over the lease term. Property and equipment, for continuing operations, consist of the following:
December 31, 1996 ------------ Data processing, telecommunications equipment and software $ 6,058,000 Machinery and office equipment 600,000 Furniture and fixtures 423,000 Leasehold improvements 155,000 ---------------- 7,236,000 Less- Accumulated depreciation (4,645,000) ---------------- $ 2,591,000 ================ Intangible Assets December 31, Life 1996 ---- ------------ Goodwill, net of accumulated amortization of $902,000 15 years $ 4,021,000 Noncompete agreements, net of accumulated amortization of $1,869,000 3-5 years 371,000 ---------------- $ 4,392,000 ================
The Division determines impairments to goodwill and other intangibles based upon management's estimates of undiscounted future cash flows over the remaining useful life of the intangible asset. If the amount of such estimated undiscounted future cash flows is less than the net book value of the related intangible asset, the intangible asset is written down to the amount of the estimated discounted cash flows. No such write-down of intangible assets were made in 1995 or 1996. Income Taxes The Division accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under SFAS No. 109, deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax basis of assets and liabilities measured using enacted income tax rates and laws that are expected to be in effect when the differences reverse. Statement of Cash Flows For the years ended December 31, 1995 and 1996, the Division paid interest expense of $12,000 and $8,000, respectively. The Division did not pay any income taxes for the years ended December 31, 1995 and 1996. F-8 Investments in RTC Partnerships In January 1994, CRW entered into two partnerships with the Resolution Trust Corporation ("RTC") in which the Division is a general partner owning approximately 37.5% and the RTC is a limited partner. The Division accounts for these partnerships under the equity method. The Division has contributed approximately $143,000 of capital to the partnerships and has been retained by the partnerships as a collection agent for which it is paid a percentage of collections as a fee. The Division records such contingent fee revenue upon receipt of payment from the partnership. Revenues paid by the partnership to the Division in 1995 and 1996 were approximately $1,018,000, and $1,058,000, respectively. Included in other assets as of December 31, 1996 is the $143,000 of capital contributions made by the Division to the partnerships and the Division's share of the partnership's undistributed earnings of approximately $10,000. 4. DEBT: In February 1994, the Division entered into a Note for the purchase of certain computer equipment. The Note is for a term of 60 months and requires monthly payments of principal and interest of $6,260, through January 1999. The Note is collateralized by the equipment underlying the Note. At December 31, 1996, the remaining obligation under this Note was $154,000. In August 1994, the Division entered into a note payable to purchase certain equipment. The Note bears interest at 10.5% and is payable in monthly installments, including principal and interest, of $5,414, through August 1997. The Note is collateralized by the equipment underlying the Note. At December 31, 1996, the remaining obligation under this Note was $36,000. Future obligations under the notes discussed above, are as follows: 1997 $ 111,000 1998 73,000 1999 6,000 ------------ $ 190,000 ============ 5. INCOME TAXES: The results of operations of the Division are included in the consolidated Federal and state income tax returns of CRW. Deferred income taxes result from temporary differences between tax and financial accounting recognition of income and expense. The principal temporary differences are depreciation and certain accruals and reserves not deductible for tax purposes. F-9 In 1996, the net income tax benefit has been calculated by multiplying CRW's Federal effective income tax rate by the Division's pre-tax loss. CRW's federal effective rate was zero in 1995, therefore, the Division did not record any income taxes. Federal and state income taxes are payable by CRW. Therefore, the Division's portion of these assets have been netted against the due to CRW Financial, Inc. balance on the accompanying balance sheet. At December 31, 1996, the Division's portion of CRW's deferred tax asset amounted to $73,000. 6. COMMITMENTS AND CONTINGENCIES: The Division has noncancellable operating lease, including the related-party leases discussed in Note 8, for its office facilities, automobiles and certain office equipment. Rent expense under leases was $1,299,000 in 1995 and $1,209,000 in 1996. The future minimum lease payments under leases at December 31, 1996 are as follows: 1997 $ 1,264,000 1998 879,000 1999 671,000 2000 594,000 2001 365,000 ---------------- $ 3,773,000 ================ The Division is party to a number of lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these lawsuits will not have a material impact on the Division's financial position, liquidity or results of operations. 7. RELATED-PARTY TRANSACTIONS: CRW leases an aggregate of 13,000 square feet from a partnership controlled by the Chief Executive Officer of CRW. The lease requires CRW to make monthly payments of $23,478 through December 31, 2001. In connection with the sale of the Division to NCO (Note 2), NCO has subleased this facility through July 31, 1997. In addition, CRW leases an aggregate of 22,000 square feet in King of Prussia from a second partnership which is also controlled by the Chief Executive Officer of CRW. This lease requires monthly base rent payments of $28,875 through April 1, 2005. CRW allocates a portion of the rent expense associated with these facilities to the Division. In addition to rent expense on facilities, certain other costs are allocated by CRW to the Division for overhead, data processing, employee benefits, etc. The net effect of intercompany transactions is reflected in the Due to CRW Financial, Inc. balance on the accompanying balance sheet. At December 31, 1996, the obligation to CRW totaled $2,927,000 and is non-interest bearing. This obligation has no defined repayment terms. 8. MAJOR CUSTOMERS: Net revenues from the California Student Aid Commission were $4,220,000 and $3,619,000 in 1995 and 1996, respectively. F-10 Pro Forma Consolidated Financial Statements Basis of Presentation The following Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated Statement of Income as of and for the year ended December 31, 1996 give effect to the acquisition of the Collection Division of CRW Financial, Inc. (CRWCD) on February 2, 1997. The Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated Statement of Income have been prepared from the historical financial statements of CRWCD and the Pro Forma Consolidated Financial Statements reported on Form 8-K/A on April 8, 1997, which gave effect to the acquisitions of Goodyear & Associates, Inc. (Goodyear), CMS A/R Services (CMSA/R), and Tele-Research Center, Inc. (TRC) in January 1997. The following Pro Forma Consolidated Balance Sheet assumes that the acquisitions of CRWCD, Goodyear, CMSA/R, and TRC occurred on December 31, 1996 and the Pro Forma Consolidated Statement of Income assumes that these acquisitions, and the acquisition of Management Adjustment Bureau, Inc. (MAB) in September 1996, occurred on January 1, 1996. The Pro Forma Consolidated Financial Statements do not purport to represent what NCO's actual results of operations or financial position would have been had the acquisitions occurred as of such dates, or to project NCO's results of operations or financial position for any period or date, nor does it give effect to any matters other than those described in the notes thereto. In addition, the allocations of purchase price to the assets and liabilities of CRWCD, as well as Goodyear, CMSA/R and TRC are preliminary and the final allocations may differ from the amounts reflected herein. The unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the other financial statements and notes thereto filed in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. F-11 NCO GROUP, INC. Pro Forma Consolidated Balance Sheets December 31, 1996 (Unaudited)
Pro Forma Collection NCO Group, Combined Division of Inc. As Previously CRW Fin'l Acquisition Pro Forma ASSETS (Historical) Presented (Historical) Adjustments (1) Combined -------------- ------------- ------------- --------------- --------- Current assets: Cash and cash equivalents $ 12,058,798 $ 4,609,457 $ 1,448,000 $ (195,000) $ 4,586,457 (1,276,000) Accounts receivable, trade, net of allowance for doubtful accounts 4,701,364 6,398,828 2,527,000 (38,000) 8,887,828 Other current assets 499,815 583,546 153,000 778,000 1,514,546 ------------- ------------ ------------ ------------- ------------- Total current assets 17,259,977 11,591,831 4,128,000 (731,000) 14,988,831 Funds held in trust for clients Property and equipment, net 2,830,062 3,615,329 2,591,000 (1,000,000) 5,322,329 116,000 Other assets: Intangibles, net of accumulated amortization 14,673,155 25,062,604 4,392,000 (4,392,000) 37,302,604 12,240,000 Deferred taxes 70,760 70,760 70,760 Deferred financing costs 684,390 684,390 684,390 Other assets 308,011 334,788 475,000 809,788 ------------- ------------ ------------ ------------- ------------- Total other assets 15,736,316 26,152,542 4,867,000 7,848,000 38,867,542 ------------- ------------ ------------ ------------- ------------- Total assets $ 35,826,355 $ 41,359,702 $ 11,586,000 $ 6,233,000 $ 59,178,702 ============= ============ ============ ============= =============
The accompanying notes are an integral part of this consolidated statement. F-12 NCO GROUP, INC. Pro Forma Consolidated Balance Sheets December 31, 1996 (Unaudited)
Pro Forma Collection NCO Group, Combined Division of Inc. As Previously CRW Fin'l Acquisition Pro Forma LIABILITIES AND SHAREHOLDERS' EQUITY (Historical) Presented (Historical) Adjustments (1) Combined ------------ ------------- ------------ ---------------- ------------ Current liabilities: Long-term debt, current portion $ 46,946 $ 46,946 $ 111,000 $ (36,000) $ 121,946 Capitalized lease obligations, current portion 62,131 144,248 31,000 175,248 Corporate taxes payable 216,709 227,909 227,909 Accounts payable 657,647 709,899 1,784,381 (364,381) 2,129,899 Accrued expenses 1,044,536 1,783,967 1,078,701 1,805,000 4,584,967 (82,701) Accrued compensation and related expenses 1,376,982 1,376,982 415,312 123,688 1,915,982 Unearned revenue, net of related costs 225,817 225,817 225,817 Other current liabilities 2,927,000 (2,893,000) 34,000 ------------ ------------ ------------ ----------- ------------ Total current liabilities 3,630,768 4,515,768 6,316,394 (1,416,394) 9,415,768 Long-term liabilities: Long term debt, net of current portion 1,091,901 5,591,901 79,000 3,750,000 9,420,901 Capitalized lease obligations, net of current portion 385,683 480,724 480,724 Other liabilities 53,306 53,306 Unearned revenue, net of related costs 70,385 70,385 70,385 Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding Common stock, no par value, 25,000,000 shares authorized, 6,713,447 and 4,213,447 shares issued and outstanding at December 31, 1996 and 1995 respectively 29,362,326 29,362,326 8,215,000 37,577,326 Unexercised warrants 396,054 396,054 875,000 1,271,054 Divisional equity 5,190,606 (5,190,606) Retained earnings 889,238 889,238 889,238 ------------ ------------ ------------ ----------- ------------ Total shareholders' equity 30,647,618 30,647,618 5,190,606 3,899,394 39,737,618 ------------ ------------ ------------ ----------- ------------ Total liabilities and shareholders' equity $ 35,826,355 $ 41,359,702 $ 11,586,000 $ 6,233,000 $ 59,178,702 ============ ============ ============ =========== ============
The accompanying notes are an integral part of this consolidated statement. F-13 NCO GROUP, INC. Pro Forma Consolidated Statements of Income For the Year Ended December 31, 1996 (Unaudited)
Pro Forma Collection NCO Group, Combined Division of Inc. As Previously CRW Fin'l Acquisition Pro Forma (Historical) Presented (Historical) Adjustments (1) Combined ------------- ------------- ------------ --------------- --------- Revenue $ 30,760,452 $ 54,086,152 $ 25,857,862 (2) $79,944,014 Operating costs and expenses: Payroll and related expenses 14,651,384 26,358,496 14,967,000 (1,117,090)(3) 40,208,406 Selling, general and administrative expenses 10,032,216 18,467,844 10,970,256 (649,112)(4) 28,788,988 Depreciation and amortization expense 1,253,867 2,193,308 1,305,000 (455,000)(4) 3,043,308 ------------ ------------ ------------ ------------ ------------ Total operating costs and expenses 25,937,467 47,019,648 27,242,256 (2,221,202) 72,040,702 ------------ ------------ ------------ ------------ ------------ Income from operations 4,822,985 7,066,504 (1,384,394) 2,221,202 7,903,312 Other income (expense): Interest and investment income 242,380 262,853 262,853 Interest expense (817,951) (602,976) (8,000) (300,000)(6) (910,976) Other 1,636 1,636 ------------ ------------ ------------ ------------ ------------ (575,571) (338,487) (8,000) (300,000) (646,487) ------------ ------------ ------------ ------------ ------------ Income before provision for income taxes 4,247,414 6,728,017 (1,392,394) 1,921,202 7,256,825 Income tax expense 612,748 1,020,776 (509,000) 511,776 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 3,634,666 $ 5,707,241 $ (883,394) $ 1,921,202 $ 6,745,049 ============ ============ ============ ============ ============ Pro forma: Historical income before income taxes $ 7,256,825 Pro forma provision for income taxes 3,114,868(7) ============ Pro forma net income $ 4,141,957 ============ Pro forma net income per share $ 0.63(8) ============ Pro forma weighted average shares outstanding 6,587,838 ============
The accompanying notes are an integral part of this consolidated statement. F-14 Notes to Consolidated Pro Forma Financial Statements (Unaudited) All of the Company's acquisitions have been accounted for under the purchase method of accounting with the results of the acquired companies included in the Company's statements of income beginning on the date of acquisition. (1) Gives effect to the acquisition of CRWCD, as if it occurred on December 31, 1996, for $3.75 million in cash and the issuance of 345,178 shares of the Common Stock, and the issuance of a warrant for 250,000 shares of Common Stock at $27.625 per share. The Common Stock and warrants issued were valued at $9,090,000. In addition, the Company recognized $195,000 of direct closing costs related to the acquisition and accrued $1,805,000 of costs related to the termination of employees and other items. Acquisition adjustments include changes in assets and liabilities of CRWCD from December 31, 1996 to the closing date, February 2, 1997, as well as the elimination of assets and liabilities which were not acquired in this transaction. After allocating the purchase price to the estimated fair market value of the assets acquired and liabilities assumed, the Company recognized $12,240,000 of goodwill. (2) Due to the consolidation or closing of certain CRWCD branch offices, and the loss of certain contracts during 1996, revenue for CRWCD for 1997 is anticipated to be 10-15% lower than the revenue shown on the historical financial statements. (3) Reflects the elimination of payroll and related expenses relating to the elimination of certain redundant collection and administration personnel costs immediately identifiable at the time of the acquisition of CRWCD. (4) Reflects the elimination of certain rental expenses attributable to facilities which were immediately identified for closure or consolidation into other existing facilities. (5) Reflects amortization expense assuming CRWCD had been acquired on January 1, 1996. In addition, reflects the elimination of depreciation and amortization expense related to assets revalued or not acquired by NCO as part of the acquisition of CRWCD. (6) Reflects the interest expense attributable to additional borrowings on the Company's credit facility in connection with the acquisition of CRWCD. (7) Reflects estimated provision for income taxes, at an assumed rate of 40% after giving consideration to non-deductible goodwill expenses, assuming the Company had converted from an S Corporation to a C Corporation on January 1, 1996. F-15 (8) Pro forma net income per share was computed by dividing the pro forma net income for the year ended December 31, 1996 by the pro forma weighted average number of shares outstanding. Pro forma weighted average shares outstanding are based on the weighted average number of shares outstanding including common share equivalents giving retroactive effect as of January 1, 1996 to the 46.56-for-one stock split; the issuance of 1,604,620 shares of common stock (at $13.00 per share) net of estimated underwriting discounts and offering expenses payable by the Company, to result in net proceeds sufficient to finance the $3.2 million S Corporation distribution and repay $15,000,000 of acquisition-related debt; and giving retroactive effect as of January 1, 1996 to the issuance of 345,178 shares of Common Stock in conjunction with the acquisition of CRWCD. F-16 -----END PRIVACY-ENHANCED MESSAGE-----