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 earliest event reported: May 14, 1998
OutSource International, Inc.
(Exact name of registrant as specified in charter)
Florida 000-23147 65-0675628
(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification no.)
1144 East Newport Center Drive,
Deerfield Beach, Florida 33442
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 418-6200
<PAGE>
Item 2. Acquisition or Disposition of Assets.
a) On May 14, 1998, OutSource International of America, Inc. ("OSIA"), a wholly
owned subsidiary of the Registrant, purchased substantially all of the tangible
and intangible assets, excluding accounts receivable, of Mid-West Temps, Inc.,
an Illinois corporation ("Mid-West"), pursuant to the terms of an Asset Purchase
Agreement dated May 14, 1998. The initial purchase price for the assets was
$4.95 million, of which $4.0 million was paid in cash at closing and $0.95
million was placed in escrow. The escrowed portion is payable to Mid-West
approximately fourteen months after closing, less any portion paid to OSIA as
compensation for any losses resulting from any breach of the Asset Purchase
Agreement, including warranties and representations, by Mid-West. OSIA is
obligated for an additional payment to Mid-West equivalent to any increase in
the amount of gross profit of the acquired locations for the twelve months ended
May 31, 1999, as compared to the greater of a contractually defined amount or
the gross profit of those locations for the twelve months ended March 31, 1998.
In connection with the acquisition, OSIA obtained five-year non-competition
agreements from Mid-West and Teresa Usher and Deborah Weiss, stockholders of
Mid-West.
The purchase price was arrived at through arms-length negotiations
between the parties. The cash and escrowed portions of the purchase price were
funded from the Registrant's revolving credit agreement with Bank Boston, N.A.,
as agent for a syndicate of lenders.
Mid-West is a temporary industrial staffing firm with two business
locations in the Chicago, Illinois metropolitan area and 1997 revenues of
approximately $6.5 million.
The Registrant currently intends to continue to operate the business
formerly conducted by Mid-West at both of the purchased locations with the
purchased assets for the foreseeable future. The foregoing statement of the
Registrant's intention is a forward looking statement within the meaning of
Section 21E of the Securities Exchange Act of 1934, and is based on certain
assumptions, including among others, general economic conditions, management's
expectations regarding the operating results of the Registrant and the purchased
locations, the capital requirements of continuing Mid-West's current business,
the successful and efficient integration of the Mid-West business, the ability
of the Registrant to maintain customers and employees at the purchased
locations, the Registrant's business plan for its operations in the Chicago area
and others. Should these assumptions change, or prove to be inaccurate, the
Registrant's actual future conduct of Mid-West's business could differ
materially from the intention stated.
The above descriptions of the asset purchase agreement and the
non-competition agreements do not purport to be complete and are qualified in
their entirety by the full text of such documents which are attached as Exhibits
hereto.
b) On May 15, 1998, OSIA purchased substantially all of the tangible and
intangible assets, excluding accounts receivable, of Resource Dimensions, Inc.,
an Illinois corporation ("RDI"), pursuant to the terms of an Asset Purchase
Agreement dated May 15, 1998. The purchase price for the assets was $3.7
million, which included $1.75 million paid in cash at closing and the delivery
of a $1.75 million junior subordinated promissory note, which is payable in
three installments during a nineteen and one half month period after closing
plus interest at an annual rate of six percent. Payment of the remaining
$200,000 is primarily contingent upon the amount of gross profit of the acquired
location for the twelve months following the acquisition. In connection with the
acquisition, OSIA obtained five-year non-competition agreements from RDI,
Earl Pick, the President and majority stockholder of RDI, and RDI's minority
shareholders.
The purchase price was arrived at through arms-length negotiations
between the parties. The cash portion of the purchase price was funded from the
Registrant's revolving credit agreement with Bank Boston, N.A., as agent for a
syndicate of lenders.
RDI is a temporary industrial staffing firm with one business location
in the Chicago, Illinois metropolitan area and 1997 revenues of approximately
$8.1 million.
2
<PAGE>
The Registrant currently intends to continue to operate the business
formerly conducted by RDI at the purchased location with the purchased assets
for the foreseeable future. The foregoing statement of the Registrant's
intention is a forward looking statement within the meaning of Section 21E of
the Securities Exchange Act of 1934, and is based on certain assumptions,
including among others, general economic conditions, management's expectations
regarding the operating results of the Registrant and the purchased location,
the capital requirements of continuing RDI's current business, the successful
and efficient integration of the RDI business, the ability of the registrant to
maintain customers and employees at the purchased locations, the Registrant's
business plan for its operations in the Chicago area and others. Should these
assumptions change, or prove to be inaccurate, the Registrant's actual future
conduct of RDI's business could differ materially from the intention stated.
The above descriptions of the asset purchase agreement, the
non-competition agreements, and the promissory note do not purport to be
complete and are qualified in their entirety by the full text of such documents
which are attached as Exhibits hereto.
3
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired
The financial statements of Mid-West are located on pages 4 through 10 of this
Form 8-K/A and the financial statements of RDI are located on pages 11
through 18.
INDEPENDENT AUDITORS' REPORT
Mid-West Temps, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of Mid-West Temps, Inc. (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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, such financial statements present fairly, in all material
respects, the financial position of Mid-West Temps, Inc. at December 31, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
July 10, 1998
4
<PAGE>
<TABLE>
<CAPTION>
MID-WEST TEMPS, INC.
BALANCE SHEETS
DECEMBER 31, MARCH 31,
ASSETS 1997 1996 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................................... $ 312,685 $ 617,874 $ 827,505
Accounts receivable, net of allowances for doubtful accounts
of $0, $0 and $0................................................... 967,432 760,142 732,887
------------ ------------ ------------
Total current assets...................................................... 1,280,117 1,378,016 1,560,392
PROPERTY AND EQUIPMENT - net............................................... 23,260 38,114 20,807
OTHER ASSETS............................................................... 4,150 3,175 4,726
------------ ------------ ------------
TOTAL ASSETS............................................................... $ 1,307,527 $ 1,419,305 $ 1,585,925
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................... $ 15,011 $ 46,338 $ 5,093
Accrued payroll and related taxes...................................... 37,925 36,486 125,269
Accrued commissions.................................................... 34,256 62,770 36,512
Accrued workers' compensation insurance 1,938 36,929 3,786
Distributions payable to stockholders.................................. -- 77,668 --
Other.................................................................. 800 1,348 495
------------ ------------ ------------
Total current liabilities.......................................... 89,930 261,539 171,155
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized and outstanding, 1,000 shares -- -- --
Paid-in capital........................................................ 20,000 20,000 20,000
Retained earnings...................................................... 1,197,597 1,137,766 1,394,770
------------ ------------ ------------
Total stockholders' equity......................................... 1,217,597 1,157,766 1,414,770
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 1,307,527 $ 1,419,305 $ 1,585,925
============ ============ ============
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MID-WEST TEMPS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1997 1996 1998 1997
---------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES.................................................. $6,510,550 $ 7,014,099 $ 1,829,359 $1,538,979
---------- ----------- ----------- ----------
COST OF REVENUES:
Payroll................................................... 4,371,679 4,690,739 1,243,188 1,037,570
Taxes..................................................... 412,450 439,206 118,727 99,089
Workers' compensation insurance........................... 146,831 206,169 43,162 44,614
---------- ----------- ----------- ----------
Total cost of revenues................................ 4,930,960 5,336,114 1,405,077 1,181,273
---------- ----------- ----------- ----------
GROSS PROFIT.................................................. 1,579,590 1,677,985 424,282 357,706
---------- ----------- ----------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Stockholders' compensation................................ 151,387 139,614 34,989 35,775
Other selling, general and administrative................. 646,263 626,666 168,812 154,996
---------- ----------- ----------- ----------
Total selling, general and administrative expenses.... 797,650 766,280 203,801 190,771
---------- ----------- ----------- ----------
OPERATING INCOME.............................................. 781,940 911,705 220,481 166,935
---------- ----------- ----------- ----------
OTHER EXPENSE (INCOME):
Interest income........................................... (16,601) (17,135) (3,978) (2,130)
Other expense............................................. 40,551 4,572 14,555 13,275
---------- ----------- ----------- ----------
Total other expense (income).......................... 23,950 (12,563) 10,577 11,145
---------- ----------- ----------- ----------
NET INCOME.................................................... $ 757,990 $ 924,268 $ 209,904 $ 155,790
========== =========== =========== ==========
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MID-WEST TEMPS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
--------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996............................... $ 20,000 $ 999,529 $ 1,019,529
Net income............................................. 924,268 924,268
Distributions to stockholders.......................... - (786,031) (786,031)
--------- ------------ ------------
BALANCE, December 31, 1996............................. 20,000 1,137,766 1,157,766
Net income............................................. - 757,990 757,990
Distributions to stockholders.......................... - (698,159) (698,159)
--------- ------------ ------------
BALANCE, December 31, 1997............................. 20,000 1,197,597 1,217,597
Net income (unaudited)................................. - 209,904 209,904
Distributions to stockholders (unaudited).............. - (12,731) (12,731)
--------- ------------ ------------
BALANCE, March 31, 1998 (unaudited).................... $ 20,000 $ 1,394,770 $ 1,414,770
========= ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
MID-WEST TEMPS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- --------------------
1997 1996 1998 1997
--------- ---------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 757,990 $ 924,268 $ 209,904 $ 155,790
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 17,011 18,799 2,621 4,150
Changes in:
Accounts receivable................................ (207,290) (111,659) 234,545 86,760
Other assets....................................... (975) 13,166 (576) (475)
Accounts payable................................... (31,327) (5,459) (9,918) (35,823)
Accrued payroll and related taxes.................. 1,439 (9,358) 87,344 73,523
Accrued commissions................................ (28,514) 36,547 2,256 (37,673)
Accrued workers' compensation insurance............ (34,991) 5,526 1,848 1,619
Other ............................................. (548) 608 (305) 304
--------- ---------- --------- ---------
Net cash flows from operating activities....... 472,795 872,438 527,719 248,175
--------- ---------- --------- ---------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchases of property and equipment...................... (2,157) (16,352) (168) --
--------- ---------- --------- ---------
Net cash flows used by investing activities.... (2,157) (16,352) (168) --
--------- ---------- --------- ---------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Distributions paid to stockholders....................... (775,827) (748,080) (12,731) (497,675)
--------- ---------- --------- ---------
Net cash flows used by financing activities.... (775,827) (748,080) (12,731) (497,675)
--------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH............................ (305,189) 108,006 514,820 (249,500)
CASH - BEGINNING OF YEAR................................... 617,874 509,868 312,685 617,874
--------- --------- ---------- ---------
CASH - END OF YEAR......................................... $ 312,685 $ 617,874 $ 827,505 $ 368,374
========= ========= ========== =========
</TABLE>
See notes to financial statements.
8
<PAGE>
MID-WEST TEMPS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BUSINESS AND ORGANIZATION
Mid-West Temps, Inc. (the "Company") provided temporary industrial
staffing services to various customers. The Company provided these services
through two locations in the Chicago area.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The Company's financial statements are prepared
on the accrual basis of accounting.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The interim financial
statements as of March 31, 1998 and for the three months ended March 31, 1998
and 1997 are unaudited. Such interim financial statements have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments (including normal accruals) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
REVENUE RECOGNITION - All revenues are recognized as the related
service is performed, net of provision for credits and allowances.
CASH AND CASH EQUIVALENTS - For purposes of the balance sheet, the
Company defines cash and cash equivalents as checking accounts and certificates
of deposit, all with original maturities of three months or less from date of
acquisition.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over the estimated useful
lives of the assets using the double declining balance method. The estimated
lives are as follows:
Furniture & fixtures 7 years
Computers and equipment 5 years
Software 5 years
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews
long-lived assets for possible impairment. When circumstances indicate that the
carrying amount of such assets may not be recoverable, the carry amount is
reduced to the estimated recoverable value.
INCOME TAXES - The Company has elected to be treated as an S
corporation and, as such, all of its income is taxed directly to its
stockholders for federal and state income tax purposes. Therefore, no provision
or liability for income taxes has been included in these financial statements.
WORKERS' COMPENSATION - The Company manages its workers' compensation
risk through a premium based insurance policy. The Company's premiums are based
on actual sales and risk factors assigned to individual customers.
9
<PAGE>
MID-WEST TEMPS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Office furniture and fixtures.............................................. $ 20,275 $ 19,901
Computers and equipment.................................................... 57,062 55,279
Software................................................................... 21,883 21,883
------------ -------------
Total...................................................................... 99,220 97,063
Less accumulated depreciation.............................................. (75,960) (58,949)
------------ --------------
Property and equipment - net............................................... $ 23,260 $ 38,114
============ ==============
</TABLE>
4. RELATED PARTIES
At December 31,1996, the Company owed $77,668 to individual
stockholders for 1996 equity distributions. These amounts were paid in 1997.
5. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in various leased facilities under
leases that are classified as operating leases for financial reporting purposes.
Rental expense totaled $29,664 in 1997 and $28,810 in 1996. As of December 31,
1997, future minimum rental commitments under noncancellable operating leases
were:
1998....................................................... $ 29,102
1999 and thereafter........................................ --
----------
$ 29,102
==========
6. MAJOR CUSTOMERS
Approximately 28% of the Company's revenues for the years ended
December 31, 1997 and 1996 were accounted for by two customers. Amounts
receivable from these customers represented approximately 53% and 39% of total
accounts receivable at December 31, 1997 and 1996, respectively.
7. SUBSEQUENT EVENT
Effective May 14, 1998, the assets, excluding receivables, and business
of the Company were acquired by OutSource International of America, Inc.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
Resource Dimensions, Inc.
Lombard, Illinois
We have audited the accompanying balance sheets of Resource Dimensions, Inc.
(the "Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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, such financial statements present fairly, in all material
respects, the financial position of Resource Dimensions, Inc. at December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
July 10, 1998
11
<PAGE>
<TABLE>
<CAPTION>
RESOURCE DIMENSIONS, INC.
BALANCE SHEETS
DECEMBER 31, MARCH 31,
ASSETS 1997 1996 1998
------------ ---------- ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................................. $ 4,396 $ 62,495 $ 797,900
Accounts receivable, net of allowances for doubtful accounts
of $0, $3,707 and $0............................................. 1,167,406 547,017 750,290
Prepaid expenses..................................................... 7,452 47,347 37,181
------------ ---------- ------------
Total current assets............................................. 1,179,254 656,859 1,585,371
PROPERTY AND EQUIPMENT - net............................................. 87,912 108,314 82,532
------------ ---------- ------------
TOTAL ASSETS............................................................. $ 1,267,166 $ 765,173 $ 1,667,903
============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 2,720 $ -- $ 7,319
Accrued expenses..................................................... 9,282 56,919 146,848
Line of credit....................................................... -- 198,839 --
Current portion of notes payable..................................... 15,000 15,000 50,000
------------ ---------- ------------
Total current liabilities........................................ 27,002 270,758 204,167
------------ ---------- ------------
LONG-TERM DEBT
Due to stockholders.................................................. -- 27,600 --
Notes payable........................................................ 22,500 37,500 195,833
------------ ---------- ------------
Total long-term debt.............................................. 22,500 65,100 195,833
------------ ---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares authorized; 1997
and 1996: 84 shares outstanding, 1998: 76 shares outstanding..... -- -- --
Paid-in capital ..................................................... 204,636 204,636 199,636
Retained earnings.................................................... 1,013,028 224,679 1,068,267
------------ ---------- ------------
Total stockholders' equity....................................... 1,217,664 429,315 1,267,903
------------ ---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................... $ 1,267,166 $ 765,173 $ 1,667,903
============ ========== ============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
RESOURCE DIMENSIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1997 1996 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES.................................................. $ 8,067,815 $ 5,283,293 $ 2,346,020 $ 1,170,575
----------- ----------- ----------- -----------
COST OF REVENUES:
Payroll................................................... 5,223,127 3,396,446 1,543,152 738,765
Taxes..................................................... 562,103 398,516 155,457 81,811
Workers' compensation insurance........................... 385,709 208,511 66,839 76,080
Commissions............................................... 19,738 8,930 9,450 2,927
Other..................................................... 14,213 20,900 7,181 5,542
----------- ----------- ----------- -----------
Total cost of revenues................................ 6,204,890 4,033,303 1,782,079 905,125
----------- ----------- ----------- -----------
GROSS PROFIT.................................................. 1,862,925 1,249,990 563,941 265,450
----------- ----------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Stockholders' compensation................................ 160,605 142,309 34,401 35,001
Other selling, general and administrative................. 904,152 813,523 226,471 215,029
----------- ----------- ----------- -----------
Total selling, general and administrative expenses.... 1,064,757 955,832 260,872 250,030
----------- ----------- ----------- -----------
OPERATING INCOME.............................................. 798,168 294,158 303,069 15,420
INTEREST EXPENSE - NET........................................ 9,819 20,528 2,830 2,628
----------- ---------- ----------- -----------
NET INCOME.................................................... $ 788,349 $ 273,630 $ 300,239 $ 12,792
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
RESOURCE DIMENSIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PAID-IN RETAINED
CAPITAL EARNINGS (DEFICIT) TOTAL
---------- ------------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996.......................................... $ 254,444 $ (29,949) $ 224,495
Net income........................................................ - 273,630 273,630
Repurchase of stock............................................... (49,808) (19,002) (68,810)
---------- ------------ -----------
BALANCE, December 31, 1996........................................ 204,636 224,679 429,315
Net income........................................................ - 788,349 788,349
---------- ------------ -----------
BALANCE, December 31, 1997........................................ 204,636 1,013,028 1,217,664
Net income (unaudited)............................................ - 300,239 300,239
Repurchase of stock (unaudited)................................... (5,000) (245,000) (250,000)
---------- ------------ -----------
BALANCE, March 31, 1998 (unaudited)............................... $ 199,636 $ 1,068,267 $ 1,267,903
========== ============ ===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
RESOURCE DIMENSIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1997 1996 1998 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 788,349 $ 273,630 $ 300,239 $ 12,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 23,462 15,471 5,380 5,913
Changes in:
Accounts receivable............................... (620,389) (164,314) 417,116 108,981
Prepaid expenses.................................. 39,895 (47,347) (29,729) (22,269)
Other current assets.............................. -- 7,026 -- --
Accounts payable.................................. 2,720 (557) 4,599 28,334
Accrued expenses.................................. (47,637) (50,176) 137,566 96,018
--------- --------- --------- ---------
Net cash flows from operating activities....... 186,400 33,733 835,171 229,769
--------- --------- --------- ---------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchases of property and equipment...................... (3,060) (87,692) -- --
--------- --------- --------- ---------
Net cash flows used by investing activities.... (3,060) (87,692) -- --
--------- --------- --------- ---------
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES:
Repurchase of stock from stockholders.................... -- (68,810) (250,000) --
Net borrowing (repayments) under line of credit.......... (198,839) 141,839 -- (198,839)
Repayments of amounts due to stockholders................ (27,600) -- -- (6,900)
Net borrowings (repayments) on notes payable............. (15,000) 24,900 208,333 (3,750)
--------- --------- --------- ---------
Net cash flows from (used by) financing activities (241,439) 97,929 (41,667) (209,489)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH............................ (58,099) 43,970 793,504 20,280
CASH - BEGINNING OF YEAR................................... 62,495 18,525 4,396 62,495
--------- --------- --------- ---------
CASH - END OF YEAR......................................... $ 4,396 $ 62,495 $ 797,900 $ 82,775
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest................... $ 9,914 $ 20,528 $ 2,830 $ 2,628
========= ========= ========= =========
</TABLE>
15
<PAGE>
RESOURCE DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BUSINESS AND ORGANIZATION
Resource Dimensions, Inc. (the "Company") provided temporary industrial
staffing services to various customers. The Company provided these services
through one location in the Chicago area.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The interim unaudited
financial statements and the related information in the notes as of March 31,
1998 and for the three months ended March 31, 1998 and 1997 are unaudited. Such
interim financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, reflect all adjustments
(including normal accruals) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
REVENUE RECOGNITION - All revenues are recognized as the related
service is performed, net of provision for credits and allowances.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. The Company provides for depreciation using the
straight-line method over the useful lives of the assets ranging from 5 to 15
years.
IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets, including
intangible assets, are reviewed for possible impairment whenever events of
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. If such review indicates that the carrying amount of long-lived
assets is not recoverable, the carrying amount of such assets is reduced to its
estimated net realizable value.
INCOME TAXES - The Company has elected to be treated as an S
corporation and, as such, all of its income is taxed directly to its
stockholders for federal and state income tax purposes. Therefore, no provision
or liability for income taxes has been included in these financial statements.
WORKERS' COMPENSATION - The Company manages its workers' compensation
risk through a premium based insurance policy. The policy requires the Company
to make monthly estimated premium payments for a portion of each year based on
prior experience. At year and quarter end, the Company estimates the total
premium for the year as determined by the number of employees covered under the
policy and appropriately records an asset or liability.
16
<PAGE>
RESOURCE DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
1997 1996
--------- ----------
Office furniture and equipment....... $ 128,275 $ 125,215
Leasehold improvements............... 15,082 15,082
--------- ----------
Total................................ 143,357 140,297
Less accumulated depreciation........ 55,445 31,983
--------- ----------
Property and equipment - net......... $ 87,912 $ 108,314
========= ==========
4. ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1997 and
1996:
1997 1996
---- ----
Accrued payroll..............................$ 6,788 $ 38,000
Accrued workers' compensation insurance...... -- 11,134
Accrued payroll taxes........................ 2,494 7,785
--------- ----------
Total........................................$ 9,282 $ 56,919
========= ==========
5. DUE TO STOCKHOLDERS
As of December 31, 1996, the Company owed $27,600 to its stockholders
for loans received in 1993 for the Company's operation. The loans carried an
interest rate of 10% and were fully paid as of December 31, 1997.
6. LINE OF CREDIT
The Company entered into a line of credit agreement with Devon Bank on
September 4, 1994. The available line of credit was $400,000, of which the
Company had borrowed $198,839 as of December 31, 1996. The note was secured by
the Company's business assets and accounts receivable. Interest was calculated
at prime plus one and one-half percent. The note was due on November 4, 1997,
but was paid in full during the first quarter of 1997.
7. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
$60,000 note from Devon Bank for the purchase of computer equipment,
secured by the equipment, payable monthly for 48 months from July 4, 1996.
The interest rate is prime plus
one and one half percent (10.0% at December 31, 1997)......................... $ 37,500 $ 52,500
Less current portion.......................................................... 15,000 15,000
--------- ---------
Long-term notes payable....................................................... $ 22,500 $ 37,500
========= ========
</TABLE>
17
<PAGE>
RESOURCE DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
8. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in various leased facilities under
leases that are classified as operating leases for financial reporting purposes.
Rental expense totaled $62,439 and $69,758 in 1997 and 1996, respectively. On
March 3, 1998, the Company signed an agreement to extend their main office lease
for a period of three years commencing May 22, 1998 and terminating May 31,
2001. As of December 31, 1997 future minimum rental commitments under
noncancellable operating leases were:
1998.............................................. $ 48,782
1999.......................................... 49,770
2000.......................................... 49,770
2001.......................................... 20,738
2002.......................................... --
----------
$ 169,060
==========
9. MAJOR CUSTOMERS
Approximately 39% of the Company's revenues were accounted for by two
customers for the year ended December 31, 1997, and approximately 40% of the
Company's revenues were accounted for by three customers for the year ended
December 31, 1996. The amounts receivable from these customers represented
approximately 51% and 32% of total accounts receivable at December 31, 1997 and
1996, respectively.
10. SUBSEQUENT EVENT
Effective May 15, 1998, the assets, excluding receivables, and business
of the Company were acquired by OutSource International of America, Inc.
18
<PAGE>
(b) Pro forma financial information.
The following Unaudited Pro Forma Consolidated Statements of Income for
the year ended December 31, 1997 and for the three months ended March 31, 1998
include the historical results of operations of OutSource International, Inc.
and its subsidiaries (the "Company"), adjusted to reflect (a) the 1997 and 1998
Acquisitions (see Note 1 for the acquired businesses included), (b) the
elimination of the amount of compensation expense for the Company's three
principal shareholders and its president and chief executive officer (who is
also a shareholder) which is in excess of the compensation for such individuals
subsequent to the Reorganization (see Note 3) and the elimination of the amount
of compensation expense for the former owners of the 1997 and 1998 Acquisitions
which is in excess of the compensation for such individuals subsequent to the
acquisitions and (c) the effects of the October 1997 sale by the Company of
3,000,000 shares of Common Stock (the "Offering"), as if all such events and
transactions had occurred as of January 1, 1997. In addition, income taxes were
computed as if the Company and the 1997 and 1998 Acquisitions had been fully
subject to federal and applicable state income taxes as of January 1, 1997.
The Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998
includes the Company's historical balance sheet adjusted to reflect the 1997 and
1998 Acquisitions made subsequent to that date as if they had occured on such
date.
The Unaudited Pro Forma Consolidated Financial Information is not
necessarily indicative of the results that would have occurred if the events and
transactions referred to above had occurred on January 1, 1997 or which may be
realized in the future. The Unaudited Pro Forma Consolidated Financial
Information should be read in conjunction with the historical financial
statements and the notes thereto included in the Company's Form 10-K/A filed
with the Securities and Exchange Commission on April 2, 1998 and the Company's
Form 10-Q filed with the Securities and Exchange Commission on May 15, 1998.
19
<PAGE>
<TABLE>
<CAPTION>
7
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(in thousands, except per share data)
HISTORICAL
--------------------------
ACQUIRED PRO FORMA
COMPANY BUSINESSES (1) ADJUSTMENTS PRO FORMA
------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenues................................... $ 447,579 $ 97,122 $ 2,177 (2) $ 542,524
Cost of revenues............................... 381,273 76,672 (2,123) (2) 455,822
--------- --------- ------------
Gross profit............................... 66,306 20,450 86,702
Selling, general and administrative expenses:
Shareholders' compensation................. 292 3,422 (3,373) (3) 341
Amortization of intangible assets.......... 1,853 -- 2,369 (4) 4,222
Other selling, general and administrative
expenses............................... 53,752 13,271 (139) (2,4) 66,884
--------- --------- ------------
Operating income............................... 10,409 3,757 15,255
Interest expense, net.......................... 7,877 186 39 (5) 8,102
Other expense (income)......................... 1,821 (19) (1,842) (6) (40)
--------- --------- ------------
Income before provision for income taxes....... 711 3,590 7,193
Pro forma provision for income taxes........... 296 (7) -- 2,046 (8) 2,342
--------- --------- -------- ------------
Pro forma net income........................... $ 415 (9) $ 3,590 $ 846 $ 4,851
========= ========= ======== ============
Pro forma weighted average common shares outstanding (10):
Basic...................................... 6,055 8,507
========== ==============
Diluted.................................... 7,320 9,958
========== ==============
Pro forma earnings per share (9):
Basic...................................... $ 0.07 $ 0.57
========== ==============
Diluted.................................... $ 0.06 $ 0.49
========== ==============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 1998
(in thousands, except per share data)
HISTORICAL
ACQUIRED PRO FORMA
COMPANY BUSINESSES (1) ADJUSTMENTS PRO FORMA
------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenues................................... $ 120,986 $ 13,089 $ 244 (2) $ 133,831
Cost of revenues............................... 102,948 10,296 (244)(2) 113,000
--------- --------- ----------
Gross profit............................... 18,038 2,793 20,831
Selling, general and administrative expenses:
Shareholders' compensation................. - 464 (446)(3) 18
Amortization of intangible assets.......... 745 - 391 (4) 1,136
Other selling, general and administrative
expenses............................... 15,376 1,706 (19) (2,4) 17,063
--------- --------- ----------
Operating income............................... 1,917 623 2,614
Interest expense, net.......................... 1,080 13 595 (5) 1,688
Other expense (income)......................... (6) (36) - (42)
--------- --------- ----------
Income before provision for income taxes....... 843 646 968
Pro forma provision for income taxes........... 170 (7) - 85 (8) 255
--------- --------- ------- ----------
Pro forma net income........................... $ 673 $ 646 $ (606) $ 713
========= ========= ======= ==========
Pro forma weighted average common shares outstanding (10):
Basic...................................... 8,487 8,507
========= ==========
Diluted.................................... 10,025 10,046
========= ==========
Pro forma earnings per share:
Basic...................................... $ 0.08 $ 0.08
=========== ==========
Diluted.................................... $ 0.07 $ 0.07
=========== ==========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1998
(in thousands)
PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................ $ 2,836 $ - $ 2,836
Trade accounts receivable, net...................................... 49,169 - 49,169
Funding advances to franchises...................................... 1,231 - 1,231
Deferred income taxes and other current assets...................... 6,115 - 6,115
-------------- -------------- --------------
Total current assets................................ 59,352 - 59,352
PROPERTY AND EQUIPMENT, NET......................................... 15,833 63 15,896
GOODWILL AND OTHER INTANGIBLE ASSETS, NET........................... 54,920 10,503 65,423
OTHER ASSETS........................................................ 3,928 - 3,928
-------------- -------------- --------------
Total assets........................................ $ 134,033 $ 10,566 $ 144,599
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................... $ 2,704 $ - $ 2,704
Accrued expenses:
Payroll......................................................... 7,552 - 7,552
Payroll taxes................................................... 2,182 - 2,182
Workers' compensation and insurance............................. 10,233 - 10,233
Other........................................................... 1,238 - 1,238
Other current liabilities........................................... 2,191 - 2,191
Current maturities of long-term debt................................ 3,859 553 4,412
-------------- -------------- --------------
Total current liabilities........................... 29,959 553 30,512
NON-CURRENT LIABILITIES
Revolving credit facility........................................... 48,321 7,841 56,162
Long-term debt...................................................... 13,527 2,172 15,699
-------------- -------------- --------------
Total liabilities................................... 91,807 10,566 102,373
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Common stock........................................................ 9 - 9
Additional paid-in capital.......................................... 53,976 - 53,976
Accumulated deficit................................................. (11,758) - (11,758)
-------------- -------------- --------------
Total shareholders' equity.......................... 42,226 - 42,226
-------------- -------------- --------------
Total liabilities and shareholders' equity.......... $ 134,033 $ 10,566 $ 144,599
============ ============== ==============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
22
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The pro forma adjustments include the historical results of operations
of the acquisitions described below ("the 1997 and 1998 Acquisitions") from
January 1, 1997 to the earlier of March 31, 1998 or the date of acquisition, as
well as the assets purchased and the consideration given for those acquisitions
occurring after March 31, 1998. In certain cases, the operating results for
periods prior to the acquisition are based on (a) unaudited financial statements
provided by the seller or (b) an estimate of revenues, cost of revenues and/or
selling, general and administrative expenses based on information provided by
the seller or otherwise available to the Company. In these cases, the Company
has made a reasonable attempt to obtain the most complete and reliable financial
information and believes that the financial information it used is reasonably
accurate, although the Company has not independently verified such information.
Primarily during the first three months of 1997, the Company purchased
the franchise rights for 13 flexible staffing locations from LaPorte, Inc.,
Superior Temporaries, Inc. and Labor World of Minneapolis, Inc., and converted
these locations to Company-owned locations. The total purchase price was
$11,125,000 (of which $9,000,000 related to Superior Temporaries, Inc.), with
$10,475,000 paid at closing and notes issued for $650,000, payable over terms of
up to two years plus interest at 7% to 10% per annum (imputed at 12% for
financial statement purposes).
During the first three months of 1997, the Company purchased flexible
staffing operations with 17 locations from Apex, Inc., Standby Personnel of
Colorado Springs, Inc., Staff Net, Inc., Staff Management, Inc. and Stand-By,
Inc. (none previously affiliated with the Company). The total purchase price was
$14,070,000, with $10,910,000 paid at closing and notes issued for $3,160,000,
payable over two years plus interest at 0% to 4% per annum (imputed at 12% for
financial statement purposes). Certain sellers received options to purchase a
total of 8,126 shares of the Company's common stock at their fair market value
at the date of issuance. Such options were issued March 12, 1997 and were still
outstanding at March 31, 1998. The contractual purchase price of Standby
Personnel of Colorado Springs, Inc. was $3,100,000, which may increase or
decrease by an amount not to exceed $500,000, based on the gross profit from the
acquired locations for the two years following the acquisition. The contractual
purchase price of Stand-By, Inc. was $5,500,000, which may increase by an amount
not to exceed $60,000 or decrease by an amount not to exceed $500,000, based on
the gross profit from the acquired locations for the two years following the
acquisition.
During the first quarter of 1998, the Company purchased the franchise
rights for six flexible staffing locations from Freuhling and Jackson, Inc.,
F.J.R. Enterprises, Inc., EJ Services, Inc. and EAZY Temporary, Inc., and
converted these locations to Company-owned locations. The total purchase price
was $5,531,050, with $3,365,525 paid at closing and notes issued for $2,165,525,
payable over two years plus interest at 6.0% per annum (imputed at 8.75% for
financial statement purposes). The amount due under one of these notes may
increase or decrease by an amount not to exceed $250,000, based on the gross
profit from the acquired locations for the year following the acquisition.
During the first three months of 1998, the Company purchased flexible
staffing operations with 18 locations from Tempus, Inc. and Grafton, Inc. (none
previously affiliated with the Company). The total purchase price was
$4,835,000, with $3,335,000 paid at closing plus a $1,500,000 note payable over
two years plus interest at 6.5% per annum (imputed at 8.75% for financial
statement purposes). The amount due under the note may decrease by up to
$300,000, based on the 1997 gross profit of the acquired locations. Immediately
following the acquisition from Tempus, Inc., the Company sold four of the
acquired locations to Cruel Dave Enterprises, LLC (a franchisee of the Company)
for a $780,000 note, payable over five years plus interest at 8.0% per annum.
During the first quarter of 1998, the Company purchased 100% of the
common stock of Employment Consultants, Inc., X-Tra Help, Inc. and Co-Staff,
Inc. (none previously affiliated with the Company), which were flexible staffing
operations with four locations. The total purchase price (which includes
$2,100,000 for the excess of net tangible assets over liabilities assumed) was
$11,259,500, with $7,509,500 in cash and $775,000 in the Company's common stock
(57,809 shares) delivered at closing. The remainder of the purchase price was
satisfied with the issuance of notes totalling $2,975,000 and payable over two
years plus interest at 6.0% per annum (imputed at 8.75% for financial statement
purposes). However, one of the notes may increase without limit or decrease by
up to $875,000 based on the gross profit from the acquired locations for the two
years following the acquisition. In the event gross profit for those two years
was equal to 1997 gross profit, the note would decrease by approximately
$125,000. In the event gross profit increased by 25% in each of those two years
as compared to the prior year, the note would increase by approximately
$150,000. Certain sellers received options to purchase a total of 6,000 shares
of the Company's common stock at their fair market value at the date of
issuance. Such options were issued January 31, 1998 and were still outstanding
at March 31, 1998.
23
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. (Continued)
During February 1998, the Company purchased the franchise rights for
four flexible staffing locations from LM Investors, Inc. and converted these
locations to Company-owned locations. The shareholders of the franchises are
shareholders of the Company but do not hold a controlling interest in the
Company. The purchase price was $6,800,000, with $5,000,000 paid at closing plus
a note for $1,700,000 bearing interest at 7.25% per annum (imputed at 8.75% for
financial statement purposes) and payable quarterly over three years. The
remaining $100,000 represents the Company's assumption of the seller's
liabilities under certain employment contracts. In addition, the Company has
agreed to concessions amounting to approximately $60,000 and agreements not to
compete of up to six months (excluding acquisitions) in the event the sellers
wish to buy out of their remaining franchise agreements (representing four
flexible staffing locations) with the Company. In connection with the Company's
acquisition of the above franchise rights, the Company granted one of the
principals of the sellers (and a minority shareholder in the Company) the
exclusive option to purchase franchise rights in five specifically identified
geographic areas. These options expire at various times from 12 to 42 months
after the acquisition date.
During the second quarter of 1998 the Company purchased the franchise
rights for three flexible staffing locations from Deb-Lar, Inc. and BLM
Enterprises, Inc., and converted these locations to Company-owned locations. The
total purchase price was $1,204,904, with $700,000 paid at closing and a note
issued for $504,904, payable over two years plus interest at 6.0% per annum
(imputed at 8.75% for financial statement purposes).
During the second quarter of 1998 the Company purchased flexible
staffing operations with five locations from Pro Select, Inc., Ready Help, Inc.,
Mid-West Temps, Inc. and Resource Dimensions, Inc. (none previously affiliated
with the Company). The total purchase price was $9,406,800, with $7,096,800 paid
at closing (which included $946,800 placed in escrow) plus notes issued for
$2,110,000, payable over a nineteen and one half month period plus interest at
6.0% per annum (imputed at 8.75% for financial statement purposes). Payment of
the remaining $200,000 is primarily contingent upon the gross profit of one of
the acquired locations for the twelve months following the acquisition. The
escrowed portion is payable to one of the sellers approximately fourteen months
after closing, less any portion paid to the Company as compensation for any
losses resulting from certain breaches of one of the asset purchase agreements.
The Company is obligated for an additional payment to one of the sellers
equivalent to any increase in the amount of gross profit of the locations
acquired from such seller for the twelve months ended May 31, 1999, as compared
to the greater of a contractually defined amount or the gross profit of those
locations for the twelve months ended March 31, 1998.
The agreements for certain acquisitions contain provisions for
contingent payments of additional purchase price based on the net revenues,
gross margin or income before income taxes of the acquired businesses over
periods of two years after the acquisition. Should the contingent payments be
made, they would be recorded as additional purchase price and increase the
amount of goodwill. The above purchase prices are stated before the Company's
adjustment to reflect imputed interest on acquisition financing and do not
include acquisition related professional fees and other costs capitalized as
additional purchase price.
NOTE 2
To eliminate revenues of the Company and (i) related expenses and costs
of Laporte Enterprises, Inc., Superior Temporaries, Inc., Labor World of
Minneapolis, Inc., Freuhling and Jackson, Inc., F.J.R. Enterprises, Inc., LM
Investors, Inc., E.J. Services, Inc., EAZY Temporary, Inc., Deb-Lar, Inc. and
BLM Enterprises, Inc. related to franchise royalties, (ii) related expenses and
costs of Laporte Enterprises, Inc. and Deb-Lar, Inc. related to funding fees and
(iii) related expenses and costs of Labor World of Minneapolis, Inc., Freuhling
and Jackson, Inc. and F.J.R. Enterprises, Inc. related to PEO services provided
by the Company to these acquired businesses, which were franchisees prior to
their acquisition.
24
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3
To (i) eliminate the amount of compensation for the Company's three
principal shareholders and its president and chief executive officer (who is
also a shareholder) which is in excess of the compensation for such individuals
established at the time of the Reorganization (as defined below), (ii) to reduce
the amount of compensation and other expenses of the former owners of the 1997
and 1998 Acquisitions to the amounts paid to them in accordance with the terms
of their compensation contracts after such acquisitions and (iii) to eliminate
the amount of compensation and other expenses of the former owners of the 1997
and 1998 Acquisitions that was discontinued due to the termination of their
employment at the time of the acquisition.
On February 21, 1997, the Company consummated a reorganization (the
"Reorganization") with nine operating companies existing under the laws of the
State of Florida: OutSource International of America, Inc., Synadyne I, Inc.,
Synadyne II, Inc., Synadyne III, Inc., Synadyne IV, Inc., Synadyne V, Inc.,
OutSource Franchising, Inc., Capital Staffing Fund, Inc., and Employees
Insurance Services, Inc. (collectively, the "Subsidiaries") and the shareholders
of each of the Subsidiaries (the "Existing Shareholders"). As a result of the
Reorganization, the Subsidiaries became wholly-owned by the Company and the
Existing Shareholders received Common Stock in approximately the same proportion
as the capital stock of the Subsidiaries was owned by them immediately prior to
the Reorganization.
NOTE 4
To reflect additional depreciation and amortization of the assets
purchased in the 1997 and 1998 Acquisitions. The following table summarizes the
values assigned to the assets acquired and the weighted average amortization or
depreciation periods.
WEIGHTED AVERAGE
AMORTIZATION OR
AMOUNT DEPRECIATION PERIODS
----------- --------------------
Tangible assets........................ $ 3,680,613 4.6 years
Identifiable intangible assets:
Covenants not to compete........... 1,993,840 7.9 years
Customer lists..................... 9,081,647 6.8 years
Employee lists..................... 324,590 0.1 year
Goodwill............................... 48,523,929 31.4 years
-----------
$63,604,619
===========
The costs of each acquisition have been allocated to the assets
acquired and liabilities assumed based on their fair values at the date of
acquisition as determined by management with the assistance of an independent
valuation consultant. The allocation of the costs of acquisition for the 1998
Acquisitions is preliminary while the Company obtains final information
regarding the fair values of all assets acquired and liabilities assumed.
Although the allocation and amortization periods are subject to adjustment, the
Company believes that any such adjustments will not have a material effect on
the Company's financial position or results of operations.
NOTE 5
To adjust for the additional interest expense for indebtedness incurred
(a) to pay the purchase price and acquisition costs and to provide working
capital for the 1997 and 1998 Acquisitions; and (b) to pay the distributions to
shareholders and the consideration for the purchase of shares of common stock of
the Subsidiaries from certain shareholders, each of which occurred in connection
with the Reorganization.
This also includes the effects of the reduced interest and other debt
related expenses as a result of the application of the net proceeds of the
Offering to retire (a) the $25 million balance due to two investors holding
senior subordinated notes (the "Senior Notes") in full, (b) a portion of the
outstanding indebtedness under the Company's revolving credit facility with a
syndicate of commercial banks, (c) various promissory notes due to certain
existing shareholders of the Company, their family members and an executive
officer of the Company and (d) various promissory notes issued in connection
with certain acquisitions.
25
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. (Continued)
The following is a summary of the adjustments to interest expense:
<TABLE>
INTEREST YEAR ENDED THREE MONTHS ENDED
RATES DECEMBER 31, 1997 MARCH 31, 1998
-------- ----------------- ------------------
<S> <C> <C> <C>
Additional Interest Expense
Notes due to sellers for 1997 and 1998 Acquisitions.......... 8-12% $ 974,938 $ 146,569
Borrowings under Revolving Credit Facility................... 8.75% 3,163,531 448,611
Senior Notes................................................. 11% 365,620 -
------------ ----------
4,504,089 595,180
------------ ----------
Additional Amortization of Discount and Debt Issuance Costs
Discount on Senior Notes..................................... 296,520 -
Debt issuance costs, Senior Notes............................ 99,015 -
Debt issuance costs, Revolving Credit Facility............... 91,871 -
------------ ----------
487,406 -
------------ ----------
Reduction of Interest Expense
Senior Notes - interest...................................... 11% (2,275,342) -
Senior Notes - discount and debt issuance costs.............. - (1,291,032) -
Retirement of acquisition debt............................... 10-14% (333,991) -
Retirement of other promissory notes......................... 10-21% (358,727) -
Reduction of Revolving Credit Facility....................... 8.75% (693,062) -
------------ ----------
(4,952,154) -
------------ ----------
Total adjustments to interest expense........................ $ 39,341 $ 595,180
============ ==========
</TABLE>
NOTE 6
To eliminate expense arising from a put warrants valuation adjustment
included in the Company's historical results for the twelve months ended
December 31, 1997, which elimination increased pro forma basic and diluted
earnings per share by $0.21 and $0.18 per share, respectively.
In connection with the issuance of the Senior Notes, the Company also
issued warrants to purchase 1,360,304 shares of common stock at $0.015 per share
(the "Warrants"). The holders of the Warrants had a put right, as a result of
which the Company recorded a liability at the time of the issuance of the
Warrants based on the fair market value. Until the Offering was consummated,
which terminated the put right, the Company adjusted this liability at the end
of each accounting period.
Although the Senior Notes were assumed to be paid in full as of January
1, 1997, the Warrants issued in connection with them would remain outstanding,
and therefore were included in the calculation of both the historical and pro
forma diluted shares outstanding.
NOTE 7
To reflect income taxes computed as if the Company had been fully
subject to federal and applicable state income taxes. The Company's 1997
historical results include a one-time tax benefit of $423,897, as a result of
the termination at the time of Reorganization of the Subsidiaries' elections to
be treated as S corporations, that is not reflected in these pro forma
statements.
NOTE 8
To adjust for the effects of income taxes on (a) the historical
earnings of the 1997 and 1998 Acquisitions, all of which (except Stand-By, Inc.)
were S corporations prior to acquisition, as if they had been fully subject to
federal and applicable state income taxes and (b) the effect of the pro forma
adjustments.
26
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9
Pro forma net income and earnings per share for the year ended December
31, 1997 exclude an extraordinary loss of $13,384,416 (net of a $6,647,099
income tax benefit) arising from the early retirement of the Senior Notes.
NOTE 10
To reflect the effect on outstanding shares of (a) the purchase of
shares of common stock of the Subsidiaries from certain shareholders in the
Reorganization, (b) the issuance of the Warrants, (c) shares issued in the
Offering and (d) the issuance of shares and options in connection with the 1997
and 1998 Acquisitions, as if all transactions had occurred as of January 1,
1997, calculated as follows:
<TABLE>
BASIC DILUTED
--------------------------------- ---------------------------------
DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998
<S> <C> <C> <C> <C>
Total outstanding shares, historical........................... 6,055,439 8,486,685 7,320,362 10,025,379
Decrease in weighted average number of shares issued in the
Reorganization, based on assumed transaction date of
January 1, 1997............................................ (46,213) - (46,213) -
Increase in weighted average number of shares calculated using
the treasury stock method, based on the assumed issuance of
Warrants on January 1, 1997 and the actual exercise price of
$0.015 per share........................................... - - 186,643 -
Increase in weighted average number of shares issued in the
Offering, based on assumed transaction date of January 1, 1997 2,439,560 - 2,439,560 -
Increase in weighted average shares and options issued
for the 1997 and 1998 Acquisitions......................... 57,809 19,912 58,059 20,645
--------- --------- --------- ----------
Total outstanding shares, pro forma............................ 8,506,595 8,506,597 9,958,411 10,046,024
========= ========= ========= ==========
</TABLE>
27
<PAGE>
(c) Exhibits.
2.1 Asset Purchase Agreement, dated May 14, 1998, by and among
OutSource International of America, Inc., Mid-West Temps,
Inc., Teresa Usher and Deborah Weiss. *
2.2 Asset Purchase Agreement, dated May 15, 1998, by and among
OutSource International of America, Inc., Resource Dimensions,
Inc., and Earl M. Pick. *
10.1 Non-Competition Agreement, dated May 18, 1998, between
OutSource International of America, Inc. and Teresa Usher. *
10.2 Non-Competition Agreement, dated May 18, 1998, between
OutSource International of America, Inc. and Deborah Weiss. *
10.3 Non-Competition Agreement, dated May 18, 1998, between
OutSource International of America, Inc. and Mid-West Temps,
Inc. *
10.4 Junior Subordinated Promissory Note, dated as of May 15, 1998,
issued by OutSource International of America, Inc. to Resource
Dimensions, Inc. *
10.5 Non-Competition Agreement, dated May 15, 1998, between
OutSource International of America, Inc. and Earl M. Pick. *
10.6 Non-Competition Agreement, dated May 15, 1998, between
OutSource International of America, Inc. and Resource
Dimensions, Inc. *
23.1 Consent of Deloitte & Touche LLP--Mid-West Temps, Inc.
23.2 Consent of Deloitte & Touche LLP--Resource Dimensions, Inc.
* Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 29, 1998.
28
<PAGE>
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 thereunto duly authorized.
OUTSOURCE INTERNATIONAL, INC.
By:/S/ PAUL M. BURRELL
-------------------------
Paul M. Burrell
President
Dated: July 28, 1998
29
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.1 Consent of Deloitte & Touche LLP--Mid-West Temps, Inc.
23.2 Consent of Deloitte & Touche LLP--Resource Dimensions, Inc.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement of OutSource International, Inc., as filed with the Securities and
Exchange Commission on Form S-8 dated June 17, 1998, of our report dated July
10, 1998, related to the financial statements of Mid-West Temps, Inc. and
appearing in the Current Report on Form 8-K/A, dated July 28, 1998, of OutSource
International, Inc.
/S/ DELOITTE & TOUCHE LLP
Chicago, Illinois
July 28, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement of OutSource International, Inc., as filed with the Securities and
Exchange Commission on Form S-8 dated June 17, 1998, of our report dated July
10, 1998, related to the financial statements of Resource Dimensions, Inc. and
appearing in the Current Report on Form 8-K/A, dated July 28, 1998, of OutSource
International, Inc.
/S/ DELOITTE & TOUCHE LLP
Chicago, Illinois
July 28, 1998
