<PAGE> 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): JUNE 12, 1996
CORESTAFF, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
----------------------------------------------------
(State or other jurisdiction
of incorporation)
<TABLE>
<S> <C>
0-26970 76-0407849
- ---------------------------------- --------------------------------------------
(Commission (IRS Employer I.D. Number)
File Number)
4400 POST OAK PARKWAY, SUITE 1130
HOUSTON, TEXAS 77027-3413
- ---------------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 961-3633
-------------------------------
(Registrant's telephone number,
including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 12, 1996, pursuant to terms of the Stock Purchase Agreement
(the "Agreement") by and among COREStaff, Inc. ("COREStaff"), Data Aid, Inc.
("Data Aid"), and Richard L. Reid, Jerry L. Chafin and Jimmy H. Wyrosdick (the
"Data Aid Stockholders"), COREStaff purchased all of the issued and outstanding
capital stock of Data Aid for $18.9 million in cash and the assumption of
certain liabilities. The Data Aid Stockholders may also receive contingent
payments of up to $7.3 million based on the increase in earnings before
interest and taxes, as defined in the Agreement. The purchase price for Data
Aid was determined as a result of direct negotiations with the Data Aid
Stockholders.
Data Aid provides information technology services through three
principal offices located in Birmingham and Montgomery, Alabama and Atlanta,
Georgia. Data Aid is now a wholly-owned subsidiary of COREStaff.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of Independent Auditors
Balance Sheets as of February 29, 1996 and May 31, 1996
(Unaudited)
Statements of Income and Retained Earnings for the Year Ended
February 29, 1996 and the three months ended May 31, 1996 and
1995 (Unaudited)
Statements of Cash Flows for the Year Ended February 29, 1996 and
the three months ended May 31, 1996 and 1995 (Unaudited)
Notes to Financial Statements (including notes to unaudited
interim periods)
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Year Ended December 31, 1995
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Six Months Ended June 30, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits
10.1* Stock Purchase Agreement dated June 12, 1996, by and
among COREStaff, Inc., Data Aid, Inc., Richard L. Reid,
Jerry L. Chafin and Jimmy H. Wyrosdick
23.1 Consent of Arthur Leadingham & Company
____________________________________
* Previously filed.
2
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Data Aid, Inc.
We have audited the accompanying balance sheet of Data Aid, Inc. as of
February 29, 1996, and the related statements of income, retained earnings, and
cash flows for the year then ended. The financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Data Aid, Inc. as
of February 29, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
ARTHUR LEADINGHAM & COMPANY
Montgomery, Alabama
April 23, 1996
3
<PAGE> 4
DATA AID, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
February 29, May 31,
1996 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 202 $ 2,138
Accounts receivable 2,731 1,211
Unbilled receivables 1,774 1,858
Other 6 18
---------------- --------------
Total Current Assets 4,713 5,225
---------------- --------------
Property, Plant and Equipment, at cost, net of
accumulated depreciation of $441 and $472 452 446
Other Assets 19 3
---------------- --------------
Total Assets $ 5,184 $ 5,674
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable $ 1,300 $ 1,300
Current portion of capital lease obligations 22 22
Accrued liabilities 1,246 1,763
Retirement plan payable 274 128
Dividends payable 75 --
Income taxes payable 708 182
Deferred income taxes 2 2
---------------- --------------
Total Current Liabilities 3,627 3,397
---------------- --------------
Capital Lease Obligations, net of current portion 31 26
Loans from Stockholders 240 643
Deferred Income Taxes 8 8
Stockholders' Equity:
Common stock - par value $1.00, 1,000 shares
authorized, 600 shares issued and outstanding 1 1
Capital surplus 16 16
Retained earnings 1,261 1,583
---------------- --------------
Total Stockholders' Equity 1,278 1,600
---------------- --------------
Total Liabilities and Stockholders' Equity $ 5,184 $ 5,674
================ ==============
</TABLE>
See notes to financial statements.
4
<PAGE> 5
DATA AID, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended May 31,
February 29, ---------------------------
1996 1996 1995
---------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Revenues from Services $ 20,410 $ 5,482 $ 3,652
Cost of Services 14,961 3,721 2,580
-------------- ------------- ------------
Gross Profit 5,449 1,761 1,072
Costs and Expenses:
Selling, general and administrative 4,480 1,301 612
Depreciation and amortization 115 30 27
-------------- ------------- ------------
4,595 1,331 639
-------------- ------------- ------------
Operating Income 854 430 433
Other Income (Expense):
Interest expense (53) (42) (8)
Other, net 28 116 6
-------------- ------------- ------------
(25) 74 (2)
-------------- ------------- ------------
Income Before Income Taxes 829 504 431
Provision for Income Taxes 326 182 169
-------------- ------------- ------------
Net Income 503 322 262
Retained Earnings, Beginning of Period 833 1,261 833
Dividends Paid (75) -- --
-------------- ------------- ------------
Retained Earnings, End of Period $ 1,261 $ 1,583 $ 1,095
============== ============= ============
</TABLE>
See notes to financial statements.
5
<PAGE> 6
DATA AID, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended May 31,
February 29, ------------------------
1996 1996 1995
------------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 503 $ 322 $ 262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 115 30 27
Loss on sale of fixed assets 2 -- --
Changes in assets and liabilities:
Accounts receivable (2,051) 1,521 (457)
Unbilled receivables (678) (83) 897
Other receivables 19 (13) 1
Loan receivable - ABL Associates (8) 17 (10)
Income tax receivable 6 -- 6
Accounts payable (8) -- (8)
Retirement plan payable 94 (146) (130)
Accrued operating expenses 820 739 (39)
Accrued liabilities 262 (222) 24
Income taxes payable 702 (526) 169
Deferred income taxes (393) -- --
------------- ----------- ---------
Net cash provided by (used in) operating activities (615) 1,639 742
------------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (218) (25) (13)
Proceeds from sale of fixed assets 20 -- --
Payments for equipment under capital lease obligations (7) (5) --
Other (2) (1) --
------------- ---------- ---------
Net cash used in investing activities (207) (31) (13)
------------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term note arrangements 800 -- (230)
Net borrowings from stockholders 144 403 102
Dividends paid to stockholders -- (75) --
-------------- ---------- ---------
Net cash provided by (used in) financing activities 944 328 (128)
-------------- ----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 122 1,936 601
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 80 202 80
-------------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 202 $ 2,138 $ 681
============== =========== =========
Cash paid during the period for:
Interest (net of capitalized amount) $ 27 $ 42 $ 8
Income taxes $ 17 $ 705 $ 6
</TABLE>
See notes to financial statements.
6
<PAGE> 7
DATA AID, INC.
NOTES TO FINANCIAL STATEMENTS
(including notes to unaudited interim periods)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company provides information technology services for various
industries. The Company's services are sold through offices located in
Alabama, Georgia, Missouri and Texas.
Cash and Cash Equivalents
All short-term debt securities purchased with a maturity of three months or
less are considered cash equivalents.
Services
The Company's services are provided on a contract basis with its customers.
The Company grants credit to its customers under the terms of the contract and
does not typically require collateral. The Company provides an allowance for
doubtful contracts receivable based on historical collection experience along
with a review of existing receivable balances at the balance sheet date. As of
February 29, 1996, management did not expect any losses on current contract
receivables.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using an accelerated method for financial reporting
purposes at rates based on the following estimated useful lives:
YEARS
-----
Computer equipment 3 - 5
Furniture and fixtures 7 - 10
Automotive equipment 3 - 5
Buildings 20 - 30
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Income Taxes
The Company follows the liability method of accounting for income taxes.
The liability method measures deferred taxes by applying enacted statutory
rates in effect at the balance sheet date to the differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
7
<PAGE> 8
DATA AID, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The balance sheet as of May 31, 1996 and the interim financial statements
for the three months ended May 31, 1995 and 1996 are unaudited. In the opinion
of management, these financial statements include all adjustments, consisting
of normal recurring adjustments, necessary for fair presentation of the results
of operations for the interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
The interim financial statements should be read in conjunction with the
financial statements for the year ended February 29, 1996 and notes thereto
included in the Company's audited financial statements included herein.
NOTE 2 - FIXED ASSETS
Cost of fixed assets and related accumulated depreciation at February 29,
1996 follow:
ACCUMULATED
COST DEPRECIATION
----------------- ------------
Land $ 10,000 $ --
Building and Improvements 87,935 54,046
Equipment and Machinery 341,373 212,093
Furniture and Fixtures 127,143 38,960
Transportation Equipment 265,852 124,097
Equipment Under Capital Lease 60,984 12,197
--------------- ------------
Totals $ 893,287 $ 441,393
=============== ============
NOTE 3 - SHORT-TERM NOTES PAYABLE
The Company is obligated on a $300,000 line-of-credit to Sterling Bank.
The obligation is secured by all equipment, inventory and accounts receivable
of the Company. The note provides for monthly payment of interest at prime
plus 1%, which at February 29, 1996 was 9.25%. The note matures on February 7,
1997. At February 29, 1996, the Company had utilized the full amount of the
line-of-credit.
The Company is also obligated on a $1,000,050 single-pay note to Sterling
Bank with interest at prime plus 1%. The obligation is secured by all accounts
receivable of the Company and matures on May 29, 1996.
8
<PAGE> 9
DATA AID, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - RETIREMENT PLAN
The Company is the sponsor of a 401(k) Profit Sharing Plan. All employees
meeting the age and service requirements are eligible to participate in the
plan. The Company will match employee contributions up to a maximum
contribution rate of 7.5% annually. For the year ended February 29, 1996, the
Company contributed $248,088 on behalf of its employees. At February 29, 1996,
the Company owed $273,381 in 401(k) contributions, consisting of $248,088 for
the Company's annual match and $25,293 representing February 1996 employee
contributions.
NOTE 5 - COMMITMENTS
The Company is the lessee of several operating leases for various types of
equipment and office space. Rent expense for the year ended February 29, 1996
was $168,579.
The related future minimum lease payments as of February 29, 1996 follow:
1997 $ 99,349
1998 49,167
Thereafter --
-----------
$ 148,516
===========
NOTE 6 - CAPITALIZED LEASE OBLIGATIONS
The Company leases computer equipment under various capital lease
agreements expiring through 1999, which it entered into during the year ended
February 29, 1996. Property and equipment include assets capitalized under
capital leases of $60,984, less accumulated amortization of $12,197 at February
29, 1996.
The minimum future lease payments and present value of the net minimum
lease payments committed under the aforementioned agreements for succeeding
years, as of February 29, 1996 follow:
1997 $ 26,262
1998 25,702
1999 7,516
Thereafter --
-----------
Total Minimum Lease Payments 59,480
Less: Imputed Interest (5,738)
-----------
Present Value of Minimum
Lease Payments $ 53,742
===========
9
<PAGE> 10
DATA AID, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 - PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the year ended February 29,
1996 was comprised of the following:
Current provision $ 719,309
Deferred tax benefit (393,282)
-----------
$ 326,027
===========
The difference between income taxes computed at the federal statutory
income tax rate and the provision for income taxes for the year ended February
29, 1996 follows:
Income taxes computed at federal
statutory income tax rate $ 281,737
State income taxes, net of federal benefit 44,290
----------
$ 326,027
==========
Deferred tax liabilities as of February 29, 1996 were comprised primarily
of temporary differences related to the different methods used to calculate
depreciation expense of property and equipment for financial reporting and
income tax purposes.
Note 8 - RELATED PARTY TRANSACTIONS
As of February 19, 1996, the Company was indebted to its stockholders in
the amount of $239,980. These notes are payable on demand and bear interest at
prime plus 1% per annum adjusted quarterly. Interest is paid quarterly.
During the year ended February 29, 1996, the stockholders loaned a total of
$120,000 to the Company. Interest in the amount of $23,714 was accrued and
added to the stockholders' loan balances as of February 29, 1996.
The Company paid expenses of $12,864 on behalf of ABL Associates ("ABL"),
a related Partnership, during the year ended February 29, 1996. ABL repaid
$4,639 plus interest of $345. At February 29, 1996, ABL was indebted to the
Company in the amount of $17,214.
The Company pays rent to one of its stockholders for an apartment in
Birmingham, Alabama. The lease is on a monthly basis and the Company paid
$5,900 under this arrangement for the year ended February 29, 1996.
In an effort to provide employment alternatives for non-corporate
subcontractors, the stockholders of Data Aid, Inc. formed Data Aid Services,
Inc. ("DASI"), which is 50%-owned by the Company's stockholders. During the
year ended February 29, 1996, the Company paid DASI $452,518 for sub-contract
services. The stockholders of the Company do not receive compensation from
DASI.
10
<PAGE> 11
DATA AID, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9 - CONCENTRATIONS OF CREDIT RISK - CASH
The Company maintains its cash balances in principally one financial
institution in Montgomery, Alabama. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. At February 29, 1996, the
Company's uninsured cash balances totaled $98,937.
NOTE 10 - CONCENTRATIONS OF CREDIT RISK - MAJOR CUSTOMER
The Company generated approximately 82% of its revenues for the year ended
February 29, 1996 from one customer. Concentration of credit risk exists with
respect to the amount of trade receivables from the Company's major customer.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The carrying value of the Company's note payable, related party notes and
credit agreement approximate fair value because the rates on such agreements
are variable, based on current market.
11
<PAGE> 12
CORESTAFF, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
Year Ended December 31, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------------------------------
Tri-Starr Regal
Services, Cutler- Datronics Data Data
COREStaff, Inc. and Williams Management, Systems, Leafstone, Aid,
Inc. Affiliate Incorporated Inc. Inc. Inc. Inc. Other Adjustments
--------- --------- ------------ ----------- -------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from Services . . $ 344,548 $ 6,726 $ 28,765 $ 20,072 $27,809 $ 34,883 $ 20,410 $22,942 $ (619) (a)
Cost of Services . . . . . 262,092 5,404 19,280 12,210 21,641 28,125 14,961 18,365 (4) (a)
420 (b)
--------- ------- -------- -------- ------- -------- --------- ------- ------
Gross Profit . . . . . . . 82,456 1,322 9,485 7,862 6,168 6,758 5,449 4,577 (1,035)
Operating Costs and Expenses:
Selling, general and
administrative . . . 60,434 832 6,384 6,693 5,020 6,713 4,480 3,360 (1,519) (a)
(5,759) (c)
230 (d)
(420) (b)
(223) (e)
Depreciation and amortization 4,215 12 372 50 38 130 115 108 (36) (a)
(24) (e)
1,604 (f)
218 (g)
--------- ------- -------- -------- ------- -------- --------- ------- ------
64,649 844 6,756 6,743 5,058 6,843 4,595 3,468 (5,929)
--------- ------- -------- -------- ------- -------- --------- ------- ------
Operating Income (Loss) . . 17,807 478 2,729 1,119 1,110 (85) 854 1,109 4,894
Other Income (Expense):
Interest expense . . . (6,978) (23) (28) (28) (89) (156) (53) (58) (8,626) (h)
Other, net . . . . . . 118 (11) 10 208 12 -- 28 (234) (232) (i)
--------- ------- -------- -------- ------- -------- --------- ------- ------
(6,860) (34) (18) 180 (77) (156) (25) (292) (8,858)
--------- ------- -------- -------- ------- -------- --------- ------- ------
Income (Loss) Before Income
Taxes . . . . . . . . . 10,947 444 2,711 1,299 1,033 (241) 829 817 (3,964)
Provision (Benefit) for
Income Taxes . . . . . 4,590 -- 1,077 86 98 (66) 326 -- (297) (j)
--------- ------- -------- -------- ------- -------- --------- ------- -------
Net Income (Loss) . . . . . $ 6,357 $ 444 $ 1,634 $ 1,213 $ 935 $ (175) $ 503 $ 817 $(3,667)
========= ======= ======== ======== ======= ======== ========= ======= =======
Earnings per Common Share . $ 0.43
=========
Number of Shares Used to
Compute Earnings per Share 13,143
=========
<CAPTION>
Pro
Forma
-------
<S> <C>
Revenues from Services . . $505,536
Cost of Services . . . . . 382,494
--------
Gross Profit . . . . . . . 123,042
Operating Costs and Expenses:
Selling, general and
administrative . . . 86,225
Depreciation and amortization 6,802
--------
93,027
--------
Operating Income (Loss) . . 30,015
--------
Other Income (Expense):
Interest expense . . . (16,039)
Other, net . . . . . . (101)
--------
(16,140)
--------
Income (Loss) Before Income
Taxes . . . . . . . . . 13,875
Provision (Benefit) for
Income Taxes . . . . . 5,814
--------
Net Income (Loss) . . . . . $ 8,061
========
Earnings per Common Share . $ 0.56
========
Number of Shares Used to
Compute Earnings per Share 13,143
========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
12
<PAGE> 13
CORESTAFF, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------
Regal
Datronics Data Data
COREStaff, Management, Systems, Leafstone, Aid Pro
Inc. Inc. Inc. Inc. Inc. Other Adjustments Forma
--------- ---------- ------- --------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from Services . . $237,545 $ 1,682 $7,594 13,520 $10,557 $ 1,815 $ (210)(a) $272,503
Cost of Services . . . . . 179,225 947 5,968 10,934 7,918 1,437 206,429
-------- ------- ------ ------ ------- ------- ------- --------
Gross Profit . . . . . . . 58,320 735 1,626 2,586 2,639 378 (210) 66,074
Operating Costs and Expenses:
Selling, general and
administrative . . . . 40,995 664 2,434 2,244 2,796 348 (406)(a) 46,659
(130)(b)
(2,258)(c)
(28)(e)
Depreciation and amortization 3,139 5 9 53 58 10 (14)(a) 3,675
(4)(e)
379 (f)
40 (g)
-------- ------- ------ ------ ------- ------- ------- --------
44,134 669 2,443 2,297 2,854 358 (2,421) 50,334
-------- ------- ------ ------ ------- ------- ------- --------
Operating Income (Loss) 14,186 66 (817) 289 (215) 20 2,211 15,740
Other Income (Expense):
Interest expense (2,827) -- (3) (54) (63) (13) (1,466)(h) (4,426)
Other, net 203 946 6 -- 119 -- (944)(i) 330
-------- ------- ------ ------ ------- ------- ------- --------
(2,624) 946 3 (54) 56 (13) (2,410) (4,096)
-------- ------- ------ ------ ------- ------- ------- --------
Income (Loss) before Income
Taxes . . . . . . . . . . 11,562 1,012 (814) 235 (159) 7 (199) 11,644
Provision for Income Taxes 4,855 -- 28 121 -- (113)(j) 4,891
-------- ------- ------ ------ ------- ------- ------- --------
Net Income (Loss) . . . . . $ 6,707 $ 1,012 $ (842) $ 114 $ (159) $ 7 $ (86) $ 6,753
======== ======= ====== ====== ======== ======= ======= ========
Earnings per Common Share . $ 0.36 $ 0.36
======== ========
Number of Shares Used to
Compute Earnings per
Common Share . . . . . . 18,808 18,808
======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
13
<PAGE> 14
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on adjustments to
the historical consolidated financial statements of COREStaff, Inc. (the
"Company") to give effect to the acquisitions described in Note 3 (the "Acquired
Companies"). The pro forma statements of operations assume all acquisitions
described in Note 3 were consummated as of the beginning of the periods
presented. The historical financial statements of Data Aid, Inc. for the fiscal
year ended February 29, 1996 were used in preparing the pro forma statements of
operations for the year ended December 31, 1995. The pro forma statements of
operations are not necessarily indicative of results that would have occurred
had the acquisitions been consummated as of the beginning of the periods
presented or that might be attained in the future. Certain information normally
included in the financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). The
Pro Forma Financial Statements should be read in conjunction with the historical
consolidated financial statements of the Company and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996,
previously filed with the SEC.
(2) EARNINGS PER SHARE
Earnings per share were computed by dividing net income applicable to
common stock by the weighted average number of shares of common stock (after
giving retroactive effect to the conversion of one-half of the preferred stock
into common stock) and common stock equivalents outstanding during the period
and the dilutive effect of common stock issued within one year prior to the
Company's initial public offering in November 1995. Common stock equivalents
consisted of the number of shares issuable on exercise of the outstanding stock
options less the number of shares that could have been purchased with the
proceeds from the exercise of the options based on the average price of the
common stock during the period. The dilutive effect of common stock issued
within one year prior to the initial public offering for the periods prior to
issuance was determined in the same manner except that the initial public
offering price of $11.33 per share, which has been adjusted for the
three-for-two stock split in May 1996, was used for the repurchase price.
(3) ACQUISITIONS
On January 9, 1995, the Company acquired Regency Staffing, Inc., a
Florida-based support services company. The purchase price totaled $4.9
million, consisting of cash of $4.7 million paid to sellers and direct
acquisition costs of $0.2 million. The sellers may also receive contingent
payments of up to $1.8 million based on the increase in earnings before
interest and taxes ("EBIT"), as defined in the purchase agreement.
On April 9, 1995, the Company acquired Tri-Starr Services, Inc. and an
affiliate, both of which are Texas-based support services companies. The
purchase price totaled $12.0 million, consisting of cash of $6.0 million paid
to sellers at closing and the remainder paid in February 1996.
14
<PAGE> 15
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
On June 30, 1995, the Company acquired Cutler-Williams Incorporated, a
Texas-based information technology services company. The purchase price
totaled $28.3 million, consisting of (i) cash of $25.6 million paid to sellers,
(ii) interest-bearing notes of $2.0 million, which were paid in June 1996, and
(iii) direct acquisition costs of $0.7 million.
During 1995, the Company also acquired two small support services companies
(Friends & Company of Phoenix and CTS Personnel Services) and one small
physical therapy company (Occupational Therapy Contract Services, Inc.). The
purchase price for these companies totaled $0.6 million.
On January 4, 1996, the Company acquired substantially all of the assets of
Taylor Temporary Services, Inc., a North Carolina-based support services
company, for $3.5 million in cash. The seller is also entitled to contingent
consideration of up to $0.6 million based on the increase in EBIT, as defined
in the purchase agreement.
On January 31, 1996, the Company acquired Datronics Management, Inc., a New
York-based information technology services company, and its United Kingdom
affiliate, Datronics U.K. Limited, for approximately $17.5 million in cash.
On February 12, 1996, the Company acquired the assets of Richard Keith
Enterprises, Inc. and Provincial Staffing Services, Inc., Colorado-based
support services companies, for $5.9 million in cash. The sellers are also
entitled to contingent consideration of up to $3.2 million based on the
increase in EBIT, as defined in the purchase agreement.
On April 2, 1996, the Company acquired Regal Data Systems, Inc., a New
Jersey-based information technology services company, for $21.8 million in
cash. The sellers are also entitled to contingent consideration of up to $1.0
million based on the increase in EBIT, as defined in the purchase agreement.
On April 23, 1996, the Company acquired Leafstone, Inc., a New York-based
support services company, for $11.8 million in cash. The sellers are also
entitled to contingent consideration of up to $4.0 million based on the
increase in EBIT, as defined in the purchase agreement.
On June 12, 1996, the Company acquired Data Aid, Inc., an Alabama-based
information technology services company, for $18.9 million in cash. The
sellers are also entitled to contingent consideration of up to $7.3 million
based on the increase in EBIT, as defined in the purchase agreement.
All of the acquisitions of businesses by the Company have been accounted
for as purchases and, accordingly, the results of operations of the acquired
companies have been included in the consolidated results of operations of the
Company from the date of acquisition. Payments of any contingent consideration
on any of the acquisitions, as described above, will increase the amount of
goodwill related to such acquisition.
15
<PAGE> 16
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
(4) ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
statements of operations of the Company as if all the acquisitions described in
Note 3 were consummated as of the beginning of the periods presented:
(a) To eliminate revenues and expenses related to a division not
acquired by the Company.
(b) To reclassify certain expenses to conform with the presentation
used by the Company.
(c) To reduce expenses for the difference between compensation of
certain sellers prior to consummation of the acquisitions and their
compensation following the acquisitions as stipulated in the respective
employment agreements with the Company.
(d) To eliminate the adjustment made by an acquired company to
write-off its estimated excess self-insurance reserve. Most of the excess
reserve related to prior years.
(e) To reduce expenses for certain other non-recurring expenses.
(f) To reflect amortization of goodwill related to the purchase of the
Acquired Companies, which is being amortized on a straight-line basis over
40 years.
(g) To reflect amortization of other intangible assets (principally
non-compete agreements) related to the purchase of the Acquired Companies.
The cost of the non-compete agreements is amortized over the term of the
agreements.
(h) To reflect the amortization of the costs related to the borrowings
and the interest expense on the borrowings to fund the purchase of the
Acquired Companies.
(i) To eliminate income on investments that were liquidated
immediately following the acquisition of an acquired company.
(j) To reflect (1) the change in income taxes related to pro forma
adjustments and (2) income taxes on the Acquired Companies that were S
corporations as if they were C corporations for federal income tax
purposes.
16
<PAGE> 17
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.
CORESTAFF, INC.
(Registrant)
Dated: August 23, 1996 By: /s/ EDWARD L. PIERCE
----------------------------------------
Edward L. Pierce
Chief Financial Officer, Vice President
and Assistant Secretary
<PAGE> 18
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1* Stock Purchase Agreement dated June 12, 1996, among COREStaff, Data
Aid, Inc., Richard L. Reid, Jerry L. Chafin and Jimmy H. Wyrosdick
23.1 Consent of Arthur Leadingham & Company
</TABLE>
_________________________
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation of our report dated April 23, 1996 on Data
Aid, Inc.'s financial statements for the year ended February 29, 1996 into the
Registration Statements of COREStaff, Inc. listed below and in each related
prospectus.
<TABLE>
<CAPTION>
Registration Statement No. Relating to
-------------------------- ----------------------------------------------------------
<S> <C>
No. 33-80325 Form S-8 Registration Statement pertaining to the 1995
Long-Term Incentive Plan
No. 333-03030 Form S-8 Registration Statement pertaining to the Employee
Stock Purchase Plan
</TABLE>
ARTHUR LEADINGHAM & COMPANY
Montgomery, Alabama
August 23, 1996
