EX-99.3 6 w50083exv99w3.htm EXHIBIT 99.3 exv99w3
 

Exhibit 99.3
Compass Diversified Holdings
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
     The following unaudited pro forma condensed combined balance sheets as of December 31, 2006 and September 30, 2007, give effect to the following transactions, as if the following transactions had been completed as of the respective balance sheet date:
  •   The acquisition of approximately 76% of Fox Factory, Inc. (“Fox”) as further described on Form 8-K that we filed on January 8, 2008 for a total cash investment of approximately $87.4 million;
 
  •   The acquisition of Staffmark Investment LLC (“Staffmark”) by our subsidiary, CBS Personnel Holdings, Inc. as further described on Forms 8-K that we filed on December 20, 2007 and January 23, 2008 for a total cash investment of approximately $83.9 million; and
 
  •   The completion of the credit facility expansion used to finance these two acquisitions as further described on Form 8-K that we filed on December 11, 2007.
     The purchase price for each of these acquisitions is subject to adjustment and is further subjected to the finalization of the preliminary purchase price allocation. The actual amount of working capital adjustments, which we do not expect to be material, will depend upon the actual working capital of Fox as of January 4, 2008 and Staffmark as of January 21, 2008, the actual closing dates for these two businesses.
     The following unaudited pro forma condensed combined statements of operations for the year ended December 31, 2006 and for the nine months ended September 30, 2007, give effect to the acquisition of Fox and Staffmark and the credit facility expansion as if they had occurred on January 1, 2006. The “as reported” financial information in the unaudited pro forma condensed combined balance sheet at December 31, 2006 and September 30, 2007, and for the year ended December 31, 2006 and nine months ended September 30, 2007, for Fox and Staffmark is derived from the audited financial statements for the year ended December 31, 2006 and the unaudited financial statements for the nine months ended September 30, 2007 of each of the businesses, which are included elsewhere in this form 8-K. The “as reported” financial information for Compass Diversified Holdings at December 31, 2006 and for the year ended December 31, 2006, is derived from the audited financial statements of Compass Diversified Holdings as of December 31, 2006 and for the year ended December 31, 2006 as filed on Form 10-K dated March 13, 2007. The “as reported” financial information for Compass Diversified Holdings at September 30, 2007 and for the nine months ended September 30, 2007, is derived from the unaudited financial statements of Compass Diversified Holdings as of September 30, 2007 and for the nine months ended September 30, 2007 as filed on Form 10-Q dated November 9, 2007.
     The following unaudited pro forma condensed combined financial statements, or the pro forma financial statements, have been prepared assuming that our acquisition of the Fox and Staffmark businesses will be accounted for under the purchase method of accounting. Under the purchase method of accounting, the assets acquired and the liabilities assumed will be recorded at their respective fair value at the date of acquisition. The total purchase price has been allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values, which are subject to revision if the finalization of the respective fair values results in a material difference to the preliminary estimate used.
     The unaudited pro forma condensed combined statement of operations includes the results of operations for Fox and Staffmark as if they were purchased on January 1, 2006 and the actual historical results of operations of our other businesses as of the date of acquisition, which was May 16, 2006 for our initial businesses, August 1, 2006 for Anodyne Medical Device, February 28, 2007 for Aeroglide Corporation and Halo Branded Solutions, Inc and August 31, 2007 for American Furniture Manufacturing, Inc. As such these pro forma financial statements are not necessarily indicative of operating results that would have been achieved had the transactions described above been completed at the beginning of the period presented and should not be construed as indicative of future operating results.
     You should read these unaudited pro forma condensed financial statements in conjunction with the accompanying notes, the financial statements of Fox and Staffmark included in this Form 8-K and the consolidated financial statements for the Trust and the Company, including the notes thereto as previously filed.

 

 

Compass Diversified Holdings
Condensed Combined Pro Forma Balance Sheet
at September 30, 2007
(Unaudited)
                                                 
                                            Pro Forma  
    Compass                                     Combined  
    Diversified     Credit                             Compass  
    Holdings as     Facility     Fox     Staffmark     Pro Forma     Diversified  
    Reported     Expansion*     (as reported)     (as reported)     Adjustments     Holdings  
    ($ in thousands)  
Assets
                                                
Current assets:
                                                
Cash and cash equivalents
   $ 6,397     $ 145,300     $       $ 10,947     $ (145,300 )   $ 17,344  
Accounts receivable, net
     126,398               15,023       54,818               196,239  
Inventories
     33,238               13,971                       47,209  
Prepaid expenses and other current assets
     17,123               298       13,764               31,185  
 
                                    
Total current assets
     183,156       145,300       29,292       79,529       (145,300 )     291,977  
Property and equipment, net
     27,017               4,333       3,247       987       35,584  
Goodwill
     265,025                       64,294       20,920       350,239  
Intangible assets, net
     209,017                       25,540       83,446       318,003  
Deferred debt issuance costs
     5,249       4,700                               9,949  
Other non-current assets
     18,753               285       939               19,977  
 
                                    
Total assets
   $ 708,217     $ 150,000     $ 33,910     $ 173,549     $ (39,947 )   $ 1,025,729  
 
                                    
Liabilities and stockholders’ equity
                                                
Current liabilities:
                                                
Accounts payable and accrued expenses
   $ 97,972     $       $ 11,350     $ 50,068     $ 5,000     $ 164,390  
Due to related party
     524                                       524  
Current portion of debt
     26,864               2,387       14,500       9,113       52,864  
 
                                    
Total current liabilities
     125,360               13,737       64,568       14,113       217,778  
Long-term debt
             150,000       1,126       69,725       (70,851 )     150,000  
Supplemental put obligation
     19,167                                       19,167  
Long-term deferred income taxes
     67,339                                       67,339  
Other non-current liabilities
     19,494                       19,469               38,963  
 
                                    
Total liabilities
     231,360       150,000       14,863       153,762       (56,738 )     493,247  
Minority interest
     30,393                       356       55,269       86,018  
Total stockholders’ equity
     446,464               19,047       19,431       (38,478 )     446,464  
 
                                    
Total liabilities and stockholders’ equity
   $ 708,217     $ 150,000     $ 33,910     $ 173,549     $ (39,947 )   $ 1,025,729  
 
                                    
 
*   Reflects the issuance of term loan notes and the net proceeds received from the issuance of such notes, after deducting related transaction fees and expenses of approximately $4.7 million that were used to partially finance the acquisitions of Fox and Staffmark.

2

 

Compass Diversified Holdings
Condensed Combined Pro Forma Balance Sheet
at December 31, 2006
(Unaudited)
                                                 
                                            Pro Forma  
    Compass                                     Combined  
    Diversified     Credit                             Compass  
    Holdings as     Facility     Fox     Staffmark     Pro Forma     Diversified  
    Reported     Expansion*     (as reported)     (as reported)     Adjustments     Holdings  
    ($ in thousands)  
Assets
                                                
Current assets:
                                                
Cash and cash equivalents
   $ 7,006     $ 145,300     $ 540     $ 10,177     $ (145,300 )   $ 17,723  
Accounts receivable, net
     74,899               8,701       61,303               144,903  
Inventories
     4,756               10,491                       15,247  
Prepaid expenses and other current assets
     7,059               410       9,925               17,394  
Current assets of discontinued operations
     46,636                                       46,636  
 
                                    
Total current assets
     140,356       145,300       20,142       81,405       (145,300 )     241,903  
Property and equipment, net
     10,858               2,828       3,712       2,493       19,891  
Goodwill
     159,151                       64,295       20,131       243,577  
Intangible assets, net
     128,890                       25,564       83,422       237,876  
Deferred debt issuance costs
     5,190       4,700                               9,890  
Other non-current assets
     15,894               185       932               17,011  
Assets of discontinued operations
     65,258                                       65,258  
 
                                    
Total assets
   $ 525,597     $ 150,000     $ 23,155     $ 175,908     $ (39,254 )   $ 835,406  
 
                                    
Liabilities and stockholders’ equity
                                                
Current liabilities:
                                                
Accounts payable and accrued expenses
   $ 52,900     $       $ 6,459     $ 47,492     $ 5,000     $ 111,851  
Due to related party
     469                                       469  
Current portion of debt
     87,604               184       11,600       14,216       113,604  
Current portion of supplemental put obligation
     7,880                                       7,880  
Current liabilities of discontinued operations
     14,019                                       14,019  
 
                                    
Total current liabilities
     162,872               6,643       59,092       19,216       247,823  
Long-term debt
             150,000       590       83,572       (84,162 )     150,000  
Supplemental put obligation
     14,576                                       14,576  
Deferred income taxes
     41,337                                       41,337  
Non-current liabilities of discontinued operations
     6,634                                       6,634  
Other non-current liabilities
     17,336                       19,233               36,569  
 
                                    
Total liabilities
     242,755       150,000       7,233       161,897       (64,946 )     496,939  
Minority interest
     27,131                       357       55,268       82,756  
Total stockholders’ equity
     255,711               15,922       13,654       (29,576 )     255,711  
 
                                    
Total liabilities and stockholders’ equity
   $ 525,597     $ 150,000     $ 23,155     $ 175,908     $ (39,254 )   $ 835,406  
 
                                    
 
*   Reflects the issuance of term loan notes and the net proceeds received from the issuance of such notes, after deducting related transaction fees and expenses of approximately $4.7 million that were used to partially finance the acquisitions of Fox and Staffmark.

3

 

Compass Diversified Holdings
Condensed Combined Pro Forma Statement of Operations
for the nine months ended September 30, 2007
(Unaudited)
                                         
                                    Pro Forma  
    Compass                             Combined  
    Diversified                             Compass  
    Holdings as     Fox     Staffmark     Pro Forma     Diversified  
    Reported     (as reported)     (as reported)     Adjustments     Holdings  
    (in thousands)  
Net Sales
   $ 629,820     $ 75,724     $ 434,772     $       $ 1,140,316  
Cost of Sales
     466,037       54,222       360,404       215       880,878  
 
                              
Gross profit
     163,783       21,502       74,368       (215 )     259,438  
Operating expenses:
                                        
Staffing Expense
     41,922               41,535               83,457  
Selling, general and administrative expense
    76,994       14,526       21,648               113,168  
Supplemental put expense
     4,591                               4,591  
Fees to Manager
     7,477                       3,404       10,881  
Research and development expense
     1,120                               1,120  
Amortization expense
     14,382                       7,078       21,460  
 
                              
Operating income (loss)
     17,297       6,976       11,185       (10,697 )     24,761  
Other income (expense):
                                        
Interest income
     1,898                               1,898  
Interest expense
     (4,271 )     (86 )     (4,952 )     (7,070 )     (16,379 )
Amortization of debt issuance costs
    (861 )                     (587 )     (1,448 )
Other income (expense), net
     275       34       (24 )             285  
 
                              
Income (loss) from continuing operations before provision for income taxes and minority interest
     14,338       6,924       6,209       (18,354 )     9,117  
Provision for income taxes
     5,699       17       239               5,955  
Minority interest
     869                       248       1,117  
 
                              
Income (loss) from continuing operations
   $ 7,770     $ 6,907     $ 5,970     $ (18,602 )   $ 2,045  
 
                              
 
                                        
Income from continuing operations per share
   $ 0.30                             $ 0.08  
 
                                    
Weighted average number of shares outstanding
     26,316                               26,316  
 
                                    

4

 

Compass Diversified Holdings
Condensed Combined Pro Forma Statement of Operations
for the year ended December 31, 2006
(Unaudited)
                                         
                                    Pro Forma  
    Compass                             Combined  
    Diversified                             Compass  
    Holdings as     Fox     Staffmark     Pro Forma     Diversified  
    Reported     (as reported)     (as reported)     Adjustments     Holdings  
    (in thousands)  
Net Sales
   $ 410,873     $ 87,846     $ 624,484     $       $ 1,123,203  
Cost of Sales
     311,641       61,792       520,409       436       894,278  
 
                              
Gross profit
     99,232       26,054       104,075       (436 )     228,925  
Operating expenses:
                                        
Staffing Expense
     34,345               54,270               88,615  
Selling, general and administrative expense
    36,732       17,450       29,829               84,011  
Supplemental put expense
     22,456                               22,456  
Fees to Manager
     4,376                       4,538       8,914  
Research and development expense
     1,806                               1,806  
Amortization expense
     6,774                       9,437       16,211  
 
                              
Operating income (loss)
     (7,257 )     8,604       19,976       (14,411 )     6,912  
Other income (expense):
                                        
Interest income
     807                               807  
Interest expense
     (6,130 )     (152 )     (6,373 )     (9,657 )     (22,312 )
Amortization of debt issuance costs
    (779 )                     (783 )     (1,562 )
Loss on debt extinguishment
     (8,275 )                             (8,275 )
Other income (expense), net
     541       58       (2,089 )             (1,490 )
 
                              
Income (loss) from continuing operations before provision for income taxes and minority interest
     (21,093 )     8,510       11,514       (24,851 )     (25,920 )
Provision (benefits) for income taxes
     5,298       (29 )     134       1,300       6,703  
Minority interest
     1,245                       332       1,577  
 
                              
Income (loss) from continuing operations
   $ (27,636 )   $ 8,539     $ 11,380     $ (26,483 )   $ (34,200 )
 
                              
 
                                        
Income (loss) from continuing operations per share
   $ (2.18 )                           $ (2.70 )
 
                                    
Weighted average number of shares outstanding
     12,686                               12,686  
 
                                    

5

 

Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
     This information in Note 1 provides all of the pro forma adjustments from each line item in the pro forma Condensed Combined Financial Statements. Note 2 describes how the adjustments were derived or calculated. Unless otherwise noted, all amounts are in thousands of dollars ($000).
Note 1. Pro Forma Adjustments
                     
        At     At  
        December 31, 2006     September 30, 2007  
   
Balance Sheet:
                
1.  
Cash and cash equivalents
                
   
Revolving credit borrowing to partially fund acquisition of Staffmark
   $ 26,000   (a)   $ 26,000   (a)
   
Use of cash to fund acquisitions of Fox and Staffmark
     (171,300 ) (b)     (171,300 ) (b)
   
 
            
   
 
   $ (145,300 )   $ (145,300 )
   
 
            
   
 
                
2.  
Property and equipment, net
                
   
Fox
   $ 2,493   (c)   $ 987   (c)
   
 
            
   
 
                
3.  
Goodwill
                
   
Fox
   $ 18,636   (c)   $ 14,278   (c)
   
Staffmark
     1,495   (d)     6,642   (d)
   
 
            
   
 
   $ 20,131     $ 20,920  
   
 
            
   
 
                
4.  
Intangible assets, net
                
   
Fox
   $ 57,300   (c)   $ 57,300   (c)
   
Staffmark
     26,122   (d)     26,146   (d)
   
 
            
   
 
   $ 83,422     $ 83,446  
   
 
            
   
 
                
5.  
Accrued expenses
                
   
Staffmark
   $ 5,000  (d)   $ 5,000   (d)
   
 
            
   
 
                
6.  
Current portion of debt
                
   
Compass Diversified Holdings
   $ 26,000   (a)   $ 26,000   (a)
   
Fox
     (184 ) (c)     (2,387 ) (c)
   
Staffmark
     (11,600 ) (d)     (14,500 ) (d)
   
 
            
   
 
   $ 14,216     $ 9,113  
   
 
            
   
 
                
7.  
Long-term debt
                
   
Fox
   $ (590 ) (c)   $ (1,126 ) (c)
   
Staffmark
     (83,572 ) (d)     (69,725 ) (d)
   
 
            
   
 
   $ (84,162 )   $ (70,851 )
   
 
            
   
 
                
8.  
Minority interest
                
   
Fox
   $ 7,725   (c)   $ 7,725   (c)
   
Staffmark
     47,543   (d)     47,544   (d)
   
 
            
   
 
   $ 55,268     $ 55,269  
   
 
            
   
 
                
9.  
Total stockholders’ equity
                
   
Fox
   $ (15,922 ) (c)   $ (19,047 ) (c)
   
Staffmark
     (13,654 ) (d)     (19,431 ) (d)
   
 
            
   
 
   $ (29,576 )   $ (38,478 )
   
 
            

6

 

Statement of Operations:
                     
        Year Ended     Nine Months  
              Ended  
        December 31, 2006       September 30, 2007  
1.  
Amortization expense
                
   
Fox
   $ 5,084   A(1)   $ 3,813   A(1)
   
Staffmark
     4,353   B (1)     3,265   B (1)
   
 
            
   
 
   $ 9,437     $ 7,078  
   
 
            
   
 
                
2.  
Depreciation expense
                
   
Fox
   $ 436   A(2)   $ 215   A(2)
   
 
            
   
 
                
3.  
Interest expense
                
   
Staffmark
   $ (6,373 ) B(2)   $ (4,952 ) B(2)
   
Compass Diversified Holdings
     16,030   D     12,022   D
   
 
            
   
 
   $ 9,657     $ 7,070  
   
 
            
   
 
                
4.  
Fees to manager
                
   
Compass Diversified Holdings
   $ 4,538   C   $ 3,404   C
   
 
            
   
 
                
5.  
Amortization of debt issuance cost
                
   
Compass Diversified Holdings
   $ 783   G   $ 587   G
   
 
            
   
 
                
6.  
Income tax expense
                
   
Staffmark
   $ 1,300   E   $   —    E
   
 
            
   
 
                
7  
Minority interest
                
   
Compass Diversified Holdings
   $ 332   F   $ 248   F
   
 
            

7

 

Note 2. Pro Forma Adjustments by Business
As a further illustration, we have grouped the pro forma adjustments detailed in Note 1 to the Pro Forma Condensed Financial Statements by each business to show the combine effect of the pro forma adjustments on each business.
Balance Sheet
                 
    At     At  
    December 31, 2006     September 30, 2007  
a. Reflects borrowings from the revolving credit facility to partially fund the Staffmark acquisition:
                
Cash
   $ 26,000     $ 26,000  
Current portion of debt
     (26,000 )     (26,000 )
 
            
 
   $     —     $     —  
 
            
 
                
b. Reflect the use of cash for the acquisitions of Fox and Staffmark:
                
Fox– see note c
   $ (87,400 )   $ (87,400 )
Staffmark – see note d
     (83,900 )     (83,900 )
 
            
 
   $ (171,300 )   $ (171,300 )
 
            
c. Fox Acquisition
     The following information represents the pro forma adjustments made by us in Note 1 to reflect our acquisition of a 76.0% equity interest in and loans to Fox for a total cash investment of approximately $87.4 million. This investment of $87.4 million at December 31, 2006 was assigned to assets of $101.5 million, current liabilities of $6.4 million consisting of the historical carrying values for accounts payable and accrued expenses and $7.7 million to minority interest. The asset allocation represents $20.2 million of current assets valued at their historical carrying values, property and equipment of $5.4 million valued through a preliminary asset appraisal, $57.3 million of intangible assets and $18.6 million of goodwill representing the excess of the purchase price over identifiable assets.
     This investment of $87.4 million at September 30, 2007 was assigned to assets of $106.4 million, current liabilities of $11.3 million consisting of the historical carrying values for accounts payable and accrued expenses and $7.7 million to minority interest. The asset allocation represents $29.3 million of current assets valued at their historical carrying values, property and equipment of $5.4 million valued through a preliminary purchase asset appraisal, $57.3 million of intangible assets and $14.4 million of goodwill representing the excess of the purchase price over identifiable assets
     The preliminary intangible asset values at both December 31, 2006 and September 30, 2007 consist principally of customer relationships valued at $11.5 million, trade names valued at $13.3 million and core technology valued at $32.5 million.
     The customer relationships were valued at $11.5 million using an excess earnings methodology, in which an asset is valuable to the extent that the asset enables its owner to earn a return in excess of the required returns on and of the other assets utilized in the business. Customer relationships were analyzed separately for the OEM and after market segments of the business.
     The trade names were valued at $13.3 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 1.5% of sales, a royalty sales base equal to 100% of Fox’s total sales, a risk-adjusted discount rate of 13.5%, and an indefinite remaining useful life.
     The core technology was valued at $32.5 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 6.5% of sales, an initial royalty sales base equal to 100% of Fox’s total sales, an obsolescence factor (reflecting the rate at which the utility of the core technology degrades relative to time) of 6.7% per annum, a risk-adjusted discount rate of 13.5%, and a remaining useful life of 8 years.

8

 

     The value assigned to minority interest was derived from the equity value contributed by the minority holders at the time of acquisition.
  1.   Reflects (1) purchase accounting adjustments to reflect Fox’s assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Fox and (3) elimination of Fox’s historical shareholders’ equity:
                 
    At     At  
    December 31, 2006     September 30, 2007  
Property and equipment
   $ 2,493     $ 987  
Goodwill
     18,636       14,278  
Intangible assets
     57,300       57,300  
Current portion of long-term debt
     184       2,387  
Long-term debt
     590       1,126  
Establishment of minority interest
     (7,725 )     (7,725 )
Elimination of historical shareholders’ equity
     15,922       19,047  
 
            
Cash used to fund acquisition
   $ 87,400     $ 87,400  
 
            
d. Staffmark Acquisition
     The following information represents the pro forma adjustments made by us in Note 1 to reflect the acquisition by our subsidiary CBS Personnel Holdings, Inc (“CBS”) to acquire Staffmark for a total cash investment of approximately $83.9 million. This investment of $83.9 million at December 31, 2006 was assigned to assets of $203.6 million, current liabilities of $52.5 million consisting largely of the historical carrying values for accounts payable and accrued expenses, $19.3 million of other non current liabilities consisting primarily of workers’ compensation reserves and $47.9 million to minority interest. The asset allocation represents $81.4 million of current assets valued at their historical carrying values, property and equipment of $3.7 million valued through a preliminary asset appraisal, $51.7 million of intangible assets, $0.9 million of other assets and $65.8 million of goodwill representing the excess of the purchase price over identifiable assets.
     This investment of $83.9 million at September 30, 2007 was assigned to assets of $206.4 million, current liabilities of $55.1 million consisting of the historical carrying values for accounts payable and accrued expenses, $19.5 million of other non current liabilities consisting primarily of workers’ compensation reserves and $47.9 million to minority interest. The asset allocation represents $79.5 million of current assets valued at their historical carrying values, property and equipment of $3.2 million valued through a preliminary purchase asset appraisal, $51.7 million of intangible assets, $0.9 million of other assets and $71.0 million of goodwill representing the excess of the purchase price over identifiable assets.
     The preliminary intangible asset values at both December 31, 2006 and September 30, 2007 consist principally of customer relationships valued at $25.0 million; trademarks valued at $25.6 million and non-compete covenants of $1.1 million.
     The customer relationships were valued at $25.0 million using an excess earnings methodology, in which an asset is valuable to the extent that the asset enables its owner to earn a return in excess of the required returns on and of the other assets utilized in the business. Customer relationships were analyzed separately for the retail, transportation, output solutions and executive search segments of the business.
     The trade names were valued at $25.0 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 0.8% of sales, a royalty sales base equal to 100% of Staffmark’s total sales, a risk-adjusted discount rate of 15.2% and a remaining useful life of 15 years.
     The non-compete agreements were valued in aggregate (for two Staffmark executives) at $1.1 million.

9

 

     The value assigned to minority interest was derived from the equity value of the shares of CBS issued to the minority holders at the time of acquisition.
  1.   Reflects (1) purchase accounting adjustments to reflect Staffmark’s assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Staffmark and (3) elimination of Staffmark’s historical shareholders’ equity:
                 
    At     At  
    December 31, 2006     September 30, 2007  
Goodwill
   $ 1,495     $ 6,642  
Intangible assets
     26,122       26,146  
Accrued expenses
     (5,000 )     (5,000 )
Current portion of long-term debt
     11,600       14,500  
Long-term debt
     83,572       69,725  
Elimination of historical minority interest
     357       356  
Establishment of minority interest
     (47,900 )     (47,900 )
Elimination of historical shareholders’ equity
     13,654       19,431  
 
            
Cash used to fund acquisition
   $ 83,900     $ 83,900  
 
            
Statement of Operations:
                         
                    Nine Months  
            Year Ended     Ended  
            December 31,     September 30,  
            2006     2007  
A.      
The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Fox upon the results of their operations for the year ended December 31, 2006 and for nine months ended September 30, 2007 as if we had acquired Fox on January 1, 2006:
                
       
 
                
    1.  
Additional amortization expense of intangible assets resulting from the acquisition of Fox:
                
       
 
                
       
Customer relationship – OEM of $7,700 which will be amortized over 12 years
   $ 642     $ 482  
       
Customer relationship – after market of $3,800 which will be amortized over 10 years
     380       285  
       
Core technology of $32,500 which will be amortized over 8 years
     4,062       3,046  
       
 
            
       
Total
   $ 5,084     $ 3,813  
       
 
            
       
 
                
    2.  
Additional depreciation expense resulting from the acquisition of Fox
   $ 436     $ 215  
       
 
            
       
 
                
B.      
The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Staffmark upon the results of their operations for the year ended December 31, 2006 and for the nine months ended September 30, 2007 as if we had acquired Staffmark on January 1, 2006:
                
       
 
                
    1.  
Additional amortization expense of intangible assets resulting from the acquisition of Staffmark:
                
       
 
                
       
Customer relationships retail of $13,820 which will be amortized over 8 years
   $ 1,728     $ 1,296  
       
Customer relationships - transportation of $4,920 which will be amortized over 20 years
     246       184  
       
Customer relationships – output solutions of $5,860 which will be amortized over 20 years
     293       220  
       
Customer relationship – executive search of $380 which will be amortized over 20 years
     19       14  
       
 
            
       
Total
   $ 2,286     $ 1,174  
       
 
            

10

 

                         
                    Nine Months  
            Year Ended     Ended  
            December 31,     September 30,  
            2006     2007  
       
Trademarks of $25,630 which will be amortized over 15 years
   $ 1,709     $ 1,282  
       
 
            
       
 
                
       
Non-compete agreement of $1,075 which will be amortized over 3 years
   $ 358     $ 269  
       
 
            
       
 
                
       
Total amortization
   $ 4,353     $ 3,265  
       
 
            
       
 
                
    2.  
Reduction of interest expense with respect to debt redeemed in connection with acquisition of Staffmark
   $ (6,373 )   $ (4,952 )
       
 
            
       
 
                
C.      
Adjustment to record the additional estimated management fee expense pursuant to the Management Services Agreement to be incurred in connection with the acquisition of Fox and Staffmark
                
       
 
                
       
Net purchase price of Fox
   $ 87,400     $ 87,400  
       
Net purchase price of Staffmark
     83,900       83,900  
       
Minority interest of Fox
     7,725       7,725  
       
Minority Interest of Staffmark
     47,900       47,900  
       
 
            
       
Additional net assets
     226,925       226,925  
       
Management fee %
     2.0 %     1.5 %
       
 
            
       
 
   $ 4,538     $ 3,404  
       
 
            
       
 
                
D.      
Adjustment to record interest expense:
                
       
 
                
       
Interest expense on $150 million term loan at an assumed 8.5% interest rate
   $ 12,750     $ 9,562  
       
Interest expense on $26 million of revolving borrowings at an assumed 8.0% interest rate
     2,080       1,560  
       
Letter of credit fee and other
     1,200       900  
       
 
            
       
 
   $ 16,030     $ 12,022  
       
 
            
       
 
                
E.      
Adjustment to record tax expense:
                
       
 
                
       
Tax expense on pro forma net income applicable to Staffmark due to change in structure from a limited liability company to a corporation
   $ 1,300     $ —  
       
 
            
       
 
                
F.      
Adjustment to record the minority interest in net income:
                
       
 
                
       
The adjustment for minority interest was calculated by applying the minority ownership percentage for Fox and Staffmark to the net income applicable to the minority interest holders
   $ 332     $ 248  
       
 
            
       
 
                
G.      
Adjustment to record amortization of debt issuance cost:
                
       
 
                
       
$4.7 million of debt issuance cost to be amortized over 6 years
   $ 783     $ 587  
       
 
            

11