<PAGE>
================================================================================
UNITED STATES
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) October 29, 1996
----------------
TeleSpectrum Worldwide Inc.
-------------------------------------------
(Exact name of registrant as specified in its Charter)
Delaware 0-21107 23-2845501
- ------------------ ----------------------- ---------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification Number)
incorporation or
organization)
443 South Gulph Road
King of Prussia, PA 19406
(610) 878-7400
---------------------------------------------
(Address, including zip code, and telephone
number [including area code] of registrant's
principal executive office)
================================================================================
<PAGE>
Item 7. Combined Financial Statements, Pro Forma Financial Information and
- --------------------------------------------------------------------------
Exhibits
- --------
<TABLE>
<CAPTION>
(a) Combined Financial Statements of TARP, Inc. TARP Information
------------------------------------------------------------
Systems and TARP (Europe) Limited. Page No.
---------------------------------- --------
<S> <C> <C>
Report of Independent Public Accountants F-1
Combined Balance Sheets F-2
Combined Statements of Income F-3
Combined Statements of Shareholders' Equity F-4
Combined Statements of Cash Flows F-5
Notes to Combined Financial Statements F-6
(b) Pro Forma Combined Financial Information of TeleSpectrum
--------------------------------------------------------
Worldwide Inc. and Subsidiaries
-------------------------------
Basis of Presentation F-15
Unaudited Pro Forma Combined Statement of Income for the
Year Ended December 31, 1995 F-16
Unaudited Pro Forma Combined Statement of Income for the
Nine Months Ended September 30, 1996 F-17
Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1996 F-18
Notes to Unaudited Pro Forma Combined Financial Statements F-19
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TARP, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of TARP, Inc. and
Affiliates as identified in Note 1 as of December 31, 1994 and 1995, and the
related combined statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of TARP, Inc. and
Affiliates as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
By: /s/ Arthur Andersen LLP
Philadelphia, Pa.,
December 13, 1996
F-1
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
COMBINED BALANCE SHEETS
-----------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
December 31,
-------------------- September 30,
ASSETS 1994 1995 1996
------ -------- -------- -------------
<S> <C> <C> <C>
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $3,234 $4,541 $4,865
Accounts receivable, net of reserves of $27, $31
and $32 in 1994, 1995 and 1996 2,772 1,720 1,563
Unbilled revenues 444 345 130
Prepaid expenses and other 201 338 235
Current portion of related party note receivable -- 224 --
------ ------ ------
Total current assets 6,651 7,168 6,793
PROPERTY AND EQUIPMENT, net 244 322 372
RELATED PARTY NOTE RECEIVABLE 207 -- --
OTHER ASSETS 61 12 11
------ ------ ------
$7,163 $7,502 $7,176
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 26 $ 7 $ --
Accounts payable 543 195 337
Accrued liabilities 855 1,291 1,303
Shareholders distributions payable -- -- 3,801
Deferred revenue 1,523 1,248 1,046
------ ------ ------
Total current liabilities 2,947 2,741 6,487
------ ------ ------
CAPITAL LEASE OBLIGATIONS 7 -- --
------ ------ ------
OTHER NONCURRENT LIABILITIES 97 71 62
------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock (Note 7) 151 151 161
Retained earnings 3,972 4,574 485
Cumulative translation adjustment (10) (34) (18)
Treasury stock, at cost (1) (1) (1)
------ ------ ------
Total shareholders' equity 4,112 4,690 627
------ ------ ------
$7,163 $7,502 $7,176
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
COMBINED STATEMENTS OF INCOME
-----------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
For the For the
Year Ended Nine Months Ended
December 31, September 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
-------- --------- -------- --------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $7,770 $10,700 $10,986 $8,423 $8,312
------- -------- -------- -------- -------
OPERATING EXPENSES:
Cost of services 3,803 4,834 4,248 3,619 3,505
Selling, general and
administrative expenses 2,489 2,085 2,729 2,060 2,367
------- -------- -------- -------- -------
Total operating expenses 6,292 6,919 6,977 5,679 5,872
------- -------- -------- -------- -------
Operating income 1,478 3,781 4,009 2,744 2,440
INTEREST INCOME 68 132 243 147 162
INTEREST EXPENSE (13) (5) (1) -- --
------- -------- -------- -------- -------
Income before
income taxes 1,533 3,908 4,251 2,891 2,602
INCOME TAXES (39) (71) (109) (72) (107)
------- -------- -------- -------- -------
NET INCOME $1,494 $ 3,837 $ 4,142 $2,819 $2,495
======= ======== ======== ======== =======
PRO FORMA DATA (Unaudited):
Historical income before
income taxes $1,533 $ 3,908 $ 4,251 $2,891 $2,602
Pro forma provision for
income taxes (607) (1,545) (1,692) (1,151) (1,038)
------- -------- -------- -------- -------
Pro forma net income $ 926 $ 2,363 $ 2,559 $ 1,740 $1,564
======= ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
Cumulative
Common Retained Translation Treasury Shareholders'
Stock Earnings Adjustments Stock Equity
------ -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 $ 151 $ 1,949 $ (25) $ (1) $ 2,074
Net income -- 1,494 -- -- 1,494
Distributions to shareholders -- (700) -- -- (700)
Foreign currency translation
adjustment -- -- (1) -- (1)
------ ------- ---------- ------- ------------
BALANCE, DECEMBER 31, 1993 151 2,743 (26) (1) 2,867
Net income -- 3,837 -- -- 3,837
Distributions to shareholders -- (2,608) -- -- (2,608)
Foreign currency translation
adjustment -- -- 16 -- 16
------ ------- ---------- ------- ------------
BALANCE, DECEMBER 31, 1994 151 3,972 (10) (1) 4,112
Net income -- 4,142 -- -- 4,142
Distributions to shareholders -- (3,540) -- -- (3,540)
Foreign currency translation
adjustment -- -- (24) -- (24)
------ ------- ---------- ------- ------------
BALANCE, DECEMBER 31, 1995 151 4,574 (34) (1) 4,690
Net income (unaudited) -- 2,495 -- -- 2,495
Distributions to shareholders
(unaudited) -- (6,320) -- -- (6,320)
Issuance of stock (Note 7)
(unaudited) 10 -- -- -- 10
Foreign currency translation
adjustment (unaudited) -- -- 16 -- 16
TARP (Europe) Limited's fiscal year
conversion (Note 1) (unaudited) -- (264) -- -- (264)
------ ------- ---------- ------- ------------
BALANCE, SEPTEMBER 30, 1996 (UNAUDITED) $ 161 $ 485 $ (18) $ (1) $ 627
====== ======= ========== ======= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
For the For the
Year Ended Nine Months Ended
December 31, September 30,
----------------------------- --------------------------
1993 1994 1995 1995 1996
--------- -------- -------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,494 $ 3,837 $ 4,142 $ 2,819 $ 2,495
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities-
Gain on sale of property and equipment 35 -- 4 4 --
Provision for sublet leases 109 -- -- -- --
Depreciation and amortization 138 132 160 131 154
Changes in operating assets and liabilities--
Accounts receivable (250) (985) 987 (307) 198
Unbilled revenues (105) (181) 88 (125) 425
Prepaid expenses and other assets 21 (53) (143) (182) 67
Accounts payable (605) 336 (334) 487 144
Accrued liabilities and other 140 (102) 444 181 253
Deferred revenue 444 345 (253) 112 (284)
--------- -------- -------- --------- ----------
Net cash provided by operating activities 1,421 3,329 5,095 3,120 3,452
--------- -------- -------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (158) (96) (248) (155) (214)
(Increase) decrease in note receivable (150) 47 50 43 53
--------- -------- -------- --------- ----------
Net cash used in investing activities (308) (49) (198) (112) (161)
--------- -------- -------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (700) (2,608) (3,540) (2,040) (2,295)
Repayments of debt (35) -- -- -- --
Principal payments on capital lease obligations (13) (23) (26) (24) (7)
Increase in related-party note receivable (17) (9) (17) -- (14)
Proceeds from sale of stock -- -- -- -- 10
--------- -------- -------- --------- ----------
Net cash used in financing activities (765) (2,640) (3,583) (2,064) (2,306)
--------- -------- -------- --------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7) (10) (7) 11 19
--------- -------- -------- --------- ----------
Net increase in cash and cash equivalents 341 630 1,307 955 1,004
CASH AND CASH EQUIVALENTS, beginning of period 2,263 2,604 3,234 3,158 3,861
--------- -------- -------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 2,604 $ 3,234 $ 4,541 $ 4,113 $ 4,865
========= ======== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
1. NATURE OF BUSINESS AND PRINCIPLES OF COMBINATION:
-------------------------------------------------
Background Information
In October 1996, TeleSpectrum Worldwide Inc. ("TeleSpectrum Worldwide") acquired
substantially all of the assets (and assumed substantially all of the
liabilities) of TARP, Inc. and TARP Information Systems, Inc. and acquired all
of the outstanding stock of TARP (Europe) Limited (together the combined
companies are referred to as "TARP, Inc. and Affiliates or the "Company"). The
combined purchase price excluding transaction costs for TARP, Inc. and
Affiliates consisted of $15 million in cash, 261,632 shares of TeleSpectrum
Worldwide common stock and earnout provisions whereby the sellers may be
entitled to additional purchase price during the next three years of up to $5
million based upon the achievement of defined operating results of the Company's
businesses.
The Company provides customer research and consulting services primarily to
Fortune 500 companies in various industries. The Company's operations are
located primarily in the United States and Europe.
Principles of Combination
The combined financial statements for the years ended December 31, 1993, 1994
and 1995, include the accounts of TARP, Inc. and TARP Information Systems, Inc.
on a calendar-year basis ended December 31, 1993, 1994 and 1995, respectively,
and include the accounts of TARP (Europe) Limited on a fiscal year basis ended
March 31, 1994, 1995 and 1996, respectively. The financial statements are
combined due to the common ownership of each entity. In 1996 TARP (Europe)
Limited changed its year-end from March 31 to December 31. The unaudited
financial statements as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996, reflect the accounts of TARP, Inc., TARP
Information Systems, Inc. and TARP (Europe) Limited for the periods from January
1 to September 30. As a result, the Combined Statement of Shareholders' Equity
includes a reduction to retained earnings of $264,000 representing the net
income of TARP (Europe) Limited for the period of January 1, 1996 to March 31,
1996. The financial statements reflect the elimination of all significant
intercompany accounts and transactions.
F-6
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996, is unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Revenue Recognition
The Company recognizes revenue on fixed-price consulting contracts using the
percentage-of-completion method based primarily on direct costs incurred to date
compared with total estimated direct costs. Changes in total estimated contract
hours and direct costs or losses, if any, are recognized in the period they are
determined. Additional revenues for out-of-pocket and direct costs, such as
postage and printing, related to fixed-price consulting contracts are recognized
as the associated costs are incurred. Revenue from software license fees is
recognized upon installation. Revenue from software support contracts is billed
in advance and is recognized as revenue on a straight-line basis over the term
of the support contract. Revenues recognized in excess of amounts billed are
classified as unbilled revenues on the accompanying combined balance sheets.
Amounts received from clients in excess of revenues recognized to date are
classified as deferred revenue in the accompanying combined balance sheets.
Revenues from speaking engagements, training courses and other short-term
projects are primarily recognized when the services are performed.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At the balance sheet
dates, cash equivalents were composed primarily of money market funds and
overnight repurchase agreements.
The Company also maintains cash accounts that, at times, may exceed federally
insured limits. The Company has not experienced losses from maintaining cash
accounts in excess of federally insured limits. The Company believes that it is
not exposed to significant credit risk in relation to its cash accounts.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the term of the lease. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of three
to ten years.
Expenditures for maintenance, repairs and betterments that do not extend the
useful life of an asset are charged to operations as incurred. Additions and
betterments that substantially extend the useful life of the assets are
capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the respective
accounts, and the resulting gain or loss, if any, is included in income.
F-7
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996, is unaudited)
Statement of Cash Flows
For the years ended December 31, 1993, 1994 and 1995, and the nine months ended
September 30, 1995 and 1996, the Company paid interest of $30,000, $13,000,
$3,000, 2,000 and $1,000, respectively.
For the years ended December 31, 1993, 1994 and 1995, the Company paid taxes of
$36,000, $29,000, and $87,000, respectively. No taxes were paid during the nine
months ended September 30 1995 and 1996.
Income Taxes
TARP, Inc. and TARP Information Systems, Inc. have elected to be taxed under
Subchapter S of the Internal Revenue Code. As a result, these companies are not
subject to federal or state income taxes, and the taxable income of the
companies is included in the shareholders' tax returns. Therefore, no provision
for federal and state income taxes has been made related to TARP, Inc. and TARP
Information Systems, Inc. in the accompanying combined financial
statements.
TARP (Europe) Limited is subject to international income taxes (U.K. Corporation
Tax), and a provision for such taxes is included in the accompanying combined
statements of income under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The Company's
combined income tax provision for all periods consists of U.K. Corporation
taxes. Deferred taxes are immaterial.
The Company reports certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying combined financial
statements. In the event that the S Corporation status at TARP, Inc. and TARP
Information Systems, Inc. is terminated, deferred income taxes applicable to
these differences would be reflected in the accompanying combined financial
statements.
Given the sale of the businesses (see Note 1), for informational purposes, the
accompanying combined statements of income include an unaudited pro forma
adjustment for income taxes which would have been recorded if The Company had
not been an S Corporation, based on the tax laws in effect during the respective
periods. The differences between the statutory income tax rates and the pro
forma income tax rate primarily related to state and local income taxes and
expenses not deductible for tax purposes.
F-8
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996, is unaudited)
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, unbilled revenues, accounts
payable and accrued liabilities are reflected in the financial statements at
fair value due to the short-term nature of those instruments. The carrying
amount of capital lease obligations approximates fair value at the balance sheet
dates.
Currency Translation
The accounts of TARP (Europe) Limited are translated in accordance with SFAS No.
52, "Foreign Currency Translation," which requires that assets and liabilities
of international operations be translated using the exchange rate in effect at
the balance sheet date. The results of operations are translated at average
exchange rates during the year. The effects of exchange rate fluctuations in
translating assets and liabilities of international operations into U.S. dollars
are accumulated and reflected as a cumulative translation adjustment in the
combined statements of shareholders' equity. Transaction gains or losses are
included in net income. There are no material transaction gains or losses in the
accompanying financial statements for the periods presented.
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.
Interim Financial Statements
The financial statements as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996, are unaudited and, in the opinion of management of
the Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the nine months ended September 30,
1996, are not necessarily indicative of the results to be expected for the full
year.
F-9
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
3. PROPERTY AND EQUIPMENT:
----------------------
<TABLE>
<CAPTION>
December 31,
---------------------
Useful September 30,
Lives 1994 1995 1996
------ -------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Office equipment 3-5 $ 600 $ 765 $ 922
Office furniture 7-10 59 71 85
-------- --------- ---------
659 836 1,007
Less- Accumulated depreciation and
amortization (415) (514) (635)
-------- --------- ---------
$ 244 $ 322 $ 372
======== ========= =========
</TABLE>
4. NOTE RECEIVABLE
---------------
The Company had a note receivable in the original amount of $150,000 from a
company that provided direct mail services to the Company. The current and
noncurrent portion of this note receivable is included in the accompanying
combined balance sheets in prepaid expenses and other and other assets,
respectively. Interest only, at 9% per annum, was paid through April 1994.
Thereafter, principal and interest were due in monthly payments of $7,000 until
maturity in August 1996, when the note was paid off. At December 31, 1994 and
1995, the principal balance of the note was $103,000 and $53,000,
respectively.
5. ACCRUED LIABILITIES:
-------------------
<TABLE>
<CAPTION>
December 31,
-------------------
September 30,
1994 1995 1996
------- ------- -------------
(in thousands)
<S> <C> <C> <C>
Accrued compensation $ 612 $ 749 $ 733
Accrued other 243 542 570
------- -------- -------------
$ 855 $ 1,291 $ 1,303
======= ======== =============
</TABLE>
F-10
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
6. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company leases facilities and equipment under noncancelable operating leases
with terms through 2003. Rent expense under operating leases for the years
ended December 31, 1993, 1994 and 1995, was $161,000, $199,000, $231,000,
respectively.
Future minimum lease payments under the Company's operating leases as of
December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
--------------
<S> <C>
1996 $ 235
1997 232
1998 180
1999 95
2000 31
Thereafter 78
-----------
Total minimum lease payments $ 851
===========
</TABLE>
The Company is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
F-11
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
7. COMMON STOCK:
-------------
The combined common stock of the Company as of December 31, 1995 and September
30, 1996, consisted of the following:
<TABLE>
<CAPTION>
Common Stock
---------------------------
December 31, September 30,
1995 1996
----------- -----------
TARP, Inc. (in thousands)
<S> <C> <C>
$.10 par value, 15,000 shares
authorized, 10,000 shares issued and
9,900 outstanding $ 1 $ 1
TARP (Europe) Limited
(Pounds)1 par value, 50 shares
authorized, 6 shares issued
and outstanding -- --
$1 par Bearer shares, 10,000
outstanding at September 30, 1996 -- 10
TARP Information Systems, Inc.
$1 par value, 1,000,000 shares
authorized, 150,000 and 160,000 shares
issued and outstanding 150 150
-------- ---------
$ 151 $ 161
</TABLE> ======== =========
8. RELATED-PARTY TRANSACTIONS:
---------------------------
DMG Associates, Ltd.
DMG Associates, Ltd. ("DMG"), a limited partnership, is partially owned by the
Company's shareholders. DMG owns two townhouses which it rents to the Company.
The Company leased storage space from DMG until November 1995. Rent paid to DMG
for 1993, 1994 and 1995 was $29,000, $13,000 and $14,000, respectively.
Prior to 1993, the Company had at times and under various terms paid certain
expenses directly or lent monies to DMG for various repairs, maintenance and
improvements of its properties. Interest income earned on these notes in each
of the years 1993, 1994 and 1995 was $17,000. The balance of the notes
including accrued interest at December 31, 1994 and 1995, was $207,000 and
$224,000, respectively. The balance was repaid in 1996 through a distribution
to the shareholders.
F-12
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
Chesapeake Computer Resources, Inc.
Chesapeake Computer Resources, Inc. ("CCR") was started by several former
employees of TARP Information Systems, Inc. ("TIS") during 1995 and provides
services for TIS clients. The Company has an agreement with CCR to utilize
certain CCR employees' software expertise as necessary. The agreement calls for
a monthly payment to CCR of $8,000 through December 31, 1997. In return, the
Company can use up to 200 person-days per year of CCR staff. The Company
subleases office space from CCR and shares certain office costs.
Loans to officers as of December 31, 1993, 1994 and 1995 and September 30, 1996
are $11,000, $9,000, $87,000, and $62,000, respectively and are included in the
accompanying combined balance sheets in prepaid expenses and other.
9. BENEFIT PLANS:
-------------
The Company maintained a 401(k) profit sharing plan for employees of TARP, Inc.
and Affiliates. The Company had matched 1% of employee contributions from 3% up
to 15% of the employee's salary. Total employer contributions were $11,000 and
$13,000 in 1995 and 1994, respectively. In conjunction with the sale of the
business, as discussed in Note 1, the plan was terminated on October 25, 1996.
Upon termination of the plan all participants became 100% vested in their
employer contributions.
TARP (Europe) Limited maintains a defined contribution pension plan for its
employees. TARP (Europe) Limited makes discretionary contributions from time to
time. Total employer contributions were $15,000, $12,000 and $55,000 for 1993,
1994 and 1995, respectively.
F-13
<PAGE>
TARP, INC. AND AFFILIATES
-------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------
(Information as of September 30, 1996, and for the nine months ended
September 30, 1995 and 1996 is unaudited)
10. INTERNATIONAL OPERATIONS DATA:
------------------------------
The Company operates in one business segment. The following table presents
summarized data for the Company's international operations (principally in
Europe) which are shown without elimination of intercompany transactions.
<TABLE>
<CAPTION>
Fiscal Year (Note 1)
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Revenues $2,484 $3,418 $4,345
Operating income(loss) $ (84) $ 288 $ 162
Identifiable assets $1,592 $3,096 $4,315
</TABLE>
F-14
<PAGE>
TELESPECTRUM WORLDWIDE, INC. AND SUBSIDIARIES
---------------------------------------------
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
-------------------------------------------------
BASIS OF PRESENTATION
---------------------
The following unaudited pro forma combined financial statements give effect to
the acquisitions by TeleSpectrum Worldwide of substantially all of the net
assets of the Operating Businesses (see Note 1) (which occurred
contemporaneously with the closing of TeleSpectrum Worldwide's initial public
offering on August 12, 1996--see previously filed Form S-1 Registration
Statement) and the acquisition of TARP, Inc. and Affiliates (which occurred
effective October 1, 1996). These acquisitions were accounted for using the
purchase method of accounting. These statements are based on the historical
financial statements of TeleSpectrum Worldwide, the Operating Businesses and
TARP, Inc. and Affiliates and assumptions set forth below and in the notes to
the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the TARP, Inc.
and Affiliates transaction as if it had occurred on September 30, 1996. The
unaudited pro forma combined statements of income give effect to all of the
acquisitions as if they had occurred on January 1, 1995.
The pro forma adjustments are based upon estimates, currently available
information and certain assumptions that management deems appropriate. In
management's opinion, the estimates regarding allocation of the purchase price
of the Operating Businesses and TARP, Inc. and Affiliates are not expected to
materially differ from the final adjustments. The unaudited pro forma combined
financial data presented herein are not necessarily indicative of the results
that TeleSpectrum Worldwide would have obtained had such events occurred at the
beginning of the period, as assumed, or of the future results of TeleSpectrum
Worldwide. The unaudited pro forma combined financial statements should be read
in conjunction with the other financial statements and notes thereto included
elsewhere in this Form 8-K/A, together with the audited financial statements and
the notes thereto included in the TeleSpectrum Worldwide Inc. Form S-1
Registration Statement and with TeleSpectrum Worldwide Inc.'s Form 10-Q for the
period ended September 30, 1996.
F-15
<PAGE>
TELESPECTRUM WORLDWIDE INC.* OPERATING
--------------------------------------
BUSINESSES AND TARP
-------------------
PRO FORMA COMBINED STATEMENT OF INCOME
--------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Businesses--Historical**
-------------------------------------------------------------------------------
The
Response Tele-
SOMAR NBG Harris Reich Center Spectrum TARP**
----- --------- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 31,900 $ 12,829 $ 12,690 $ 12,253 $ 6,428 $ 11,854 $ 10,986
-------- --------- -------- -------- --------- ---------- ---------
OPERATING EXPENSES:
Cost of services 25,048 8,572 6,402 7,836 3,401 8,338 4,248
Selling, general and
administrative 5,162 2,115 2,986 2,534 2,662 3,072 2,729
Goodwill amortization -- -- -- -- -- -- --
-------- --------- -------- -------- --------- ---------- ---------
Total operating
expenses 30,210 10,687 9,388 10,370 6,063 11,410 6,977
-------- --------- -------- -------- --------- ---------- ---------
Operating income 1,690 2,142 3,302 1,883 365 444 4,009
INTEREST INCOME 45 19 70 14 10 -- 243
INTEREST EXPENSE (756) (55) (214) (57) -- (184) (1)
-------- --------- -------- -------- --------- ---------- ---------
Income before taxes 979 2,106 3,158 1,840 375 260 4,251
INCOME TAXES -- -- -- -- -- 18 (109)
-------- --------- -------- -------- --------- ---------- ---------
NET INCOME $ 979 $ 2,106 $ 3,158 $ 1,840 $ 375 $ 278 $ 4,142
======== ========= ======== ======== ========= ========== =========
<CAPTION>
Pro Forma Pro Forma
Acquisitions Tele-
and Offering Spectrum
Adjustments Worldwide
------------ ---------
<S> <C> <C>
REVENUES $ -- $ 98,940
------- ---------
OPERATING EXPENSES:
Cost of services 200 (b) 64,045
Selling, general and
administrative (1,091)(b) 20,169
Goodwill amortization 7,008 (a) 7,008
-------- ---------
Total operating
expenses 6,117 91,222
-------- ---------
Operating income (6,117) 7,718
INTEREST INCOME -- 401
INTEREST EXPENSE 1,172 (c) (95)
-------- ---------
Income before taxes (4,945) 8,024
INCOME TAXES (3,612)(e) (3,703)
-------- ---------
NET INCOME $ (8,557) $ 4,321
======== =========
PRO FORMA NET INCOME
PER SHARE $ 0.19 (f)
---------
SHARES USED IN
COMPUTING
PRO FORMA
NET INCOME PER 23.054 (f)
SHARE =========
</TABLE>
* TeleSpectrum Worldwide Inc. was incorporated on April 26, 1996; accordingly,
there were no historical results prior to that date.
** Includes historical results of the Operating Businesses and TARP from January
1, 1995 to December 31, 1995.
The accompanying notes are an integral part of this statement.
F-16
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES,
---------------------------------------------
OPERATING BUSINESSES AND TARP
-----------------------------
PRO FORMA COMBINED STATEMENT OF INCOME
--------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Businesses--Historical*
-----------------------------------------------------------------------------
Tele
Spectrum The
World- Response Tele-
wide* SOMAR NBG Harris Reich Center Spectrum TARP**
-------- ------- ------- -------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $17,295 $26,421 $11,311 $6,304 $14,558 $3,927 $10,529 $8,312
------- ------- ------- ------ ------- ------ ------- ------
OPERATING EXPENSES:
Cost of services 11,528 21,406 7,686 3,140 8,550 2,101 6,974 3,505
Selling, general and
administrative 3,660 3,817 1,645 1,986 1,466 1,519 2,929 2,367
Goodwill amortization 834 -- -- -- -- -- -- --
------- ------- ------- ------ ------- ------ ------- ------
Total operating
expenses 16,022 25,223 9,331 5,126 10,016 3,620 9,903 5,872
------- ------- ------- ------ ------- ------ ------- ------
Operating income
(loss) 1,273 1,198 1,980 1,178 4,542 307 626 2,440
INTEREST INCOME 380 11 37 53 19 20 -- 162
INTEREST EXPENSE (59) (572) (70) (97) (50) -- (129) --
------- ------- ------- ------ ------- ------ ------- ------
Income (loss) before
taxes 1,594 637 1,947 1,134 4,511 327 497 2,602
INCOME TAXES (638) -- (79) -- -- -- -- (107)
------- ------- ------- ------ ------- ------ ------- ------
NET INCOME $ 956 $ 637 $ 1,868 $1,134 $ 4,511 $ 327 $ 497 $2,495
======= ======= ======= ====== ======= ====== ======= ======
<CAPTION>
Pro Forma Pro Forma
Acquisitions Tele-
and Offering Spectrum
Adjustments Worldwide
------------ ---------
<S> <C> <C>
REVENUES $ -- $ 98,657
------------ ---------
OPERATING EXPENSES:
Cost of services (30) (b) 64,860
Selling, general and
administrative (192) (b) 19,197
Goodwill amortization 4,417 (a) 5,251
--------- ---------
Total operating
expenses 4,195 89,308
--------- ---------
Operating income
(loss) (4,195) 9,349
INTEREST INCOME (90) (d) 592
INTEREST EXPENSE 668 (c) (309)
--------- ---------
Income (loss) before
taxes (3,617) 9,632
INCOME TAXES (3,333) (e) (4,157)
--------- ---------
NET INCOME $ (6,950) $ 5,475
========= =========
PRO FORMA NET $ 0.24 (f)
INCOME PER SHARE
SHARES USED IN
COMPUTING PRO
FORMA NET INCOME
PER SHARE 23,117 (f)
=========
</TABLE>
* Includes historical results of Operating Businesses from January 1, 1996 to
August 12, 1996. TeleSpectrum Worldwide includes the results of the Operating
Businesses subsequent to August 12, 1996, except for TARP.
** Includes historical results of TARP from January 1, 1996 to September 30,
1996.
The accompanying notes are an integral part of this statement.
F-17
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
PRO FORMA COMBINED BALANCE SHEET
--------------------------------
SEPTEMBER 30, 1996
------------------
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
Historical Pro Forma
---------------------- ----------------------------
TWI TARP Adjustments Consolidated
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 57,943 $ 4,865 $ (15,600)(g) $ 47,208
Marketable securities 441 -- -- 441
Accounts receivable, net 21,250 1,563 -- 22,813
Unbilled revenues -- 130 -- 130
Receivable from former owners -- -- 1,223 (g) 1,223
Prepaid expenses and other 2,756 235 -- 2,991
--------- -------- ---------- ---------
Total current assets 82,390 6,793 (14,377) 74,806
PROPERTY AND EQUIPMENT, NET 22,750 372 -- 23,122
GOODWILL, NET 152,370 -- 17,000 (g) 169,370
OTHER ASSETS 654 11 -- 665
--------- -------- ---------- ---------
Total assets $ 258,164 $ 7,176 $ 2,623 $ 267,963
========= ======== ========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,577 $ -- $ -- $ 1,577
Payable to former owners 3,786 -- -- 3,786
Stockholder distribution payable -- 3,801 -- 3,801
Accounts payable 5,301 337 -- 5,638
Accrued liabilities 5,460 1,303 -- 6,763
Customer advances 843 -- -- 843
Deferred revenue -- 1,046 -- 1,046
Other current liabilities 7,307 -- -- 7,307
--------- -------- ---------- ---------
Total current liabilities 24,274 6,487 -- 30,761
--------- -------- ---------- ---------
DEFERRED INCOME TAXES 195 -- -- 195
--------- -------- ---------- ---------
LONG-TERM DEBT 2,626 -- -- 2,626
--------- -------- ---------- ---------
OTHER NONCURRENT LIABILITIES -- 62 -- 62
--------- -------- ---------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no shares
issued or outstanding -- -- -- --
Common stock, $.01 par value,
200,000,000 shares
authorized, 25,054,632 shares issued 248 161 (158)(g) 251
and outstanding (pro forma)
Additional paid-in capital 229,865 -- 3,247 (g) 233,112
Retained earnings 956 485 (485)(g) 956
Cumulative foreign currency translation
adjustments
-- (18) 18 (g) --
Treasury stock, at cost -- (1) 1 (g) --
--------- -------- ---------- ---------
Total shareholders' equity 231,069 627 2,623 234,319
--------- -------- ---------- ---------
Total liabilities and shareholders'
equity $ 258,164 $ 7,176 $ 2,623 $ 267,963
========= ======== ========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE>
TELESPECTRUM WORLDWIDE, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO UNAUDITED PRO FORMA COMBINED
-------------------------------------
FINANCIAL STATEMENTS
--------------------
1. BACKGROUND:
-----------
TeleSpectrum Worldwide Inc. ("TeleSpectrum Worldwide") was incorporated in
Delaware on April 26, 1996, as a wholly owned subsidiary of CRW Financial, Inc.
("CRW"). In May 1996, CRW assigned to TeleSpectrum Worldwide its rights to
acquire substantially all of the net assets of SOMAR, Inc. ("SOMAR"), NBG
Services, Inc. ("NBG"), Harris Direct Marketing, Inc. and Harris Fulfillment,
Inc. ("Harris"), The Reich Group Companies ("Reich"), The Response Center, Inc.
and The Tab House, Inc. (the "Response Center"), and TeleSpectrum, Inc. and
TeleSpectrum Training Services, Inc. ("TeleSpectrum"); together, the "Operating
Businesses." These acquisitions occurred contemporaneously with the closing of
TeleSpectrum Worldwide's initial public offering (the "Offering") on August 12,
1996, and were accounted for using the purchase method. The total purchase price
of the Operating Businesses was $161.2 million, which consisted of (i) $90.9
million in cash paid to the sellers of the Operating Businesses (the "Sellers");
(ii) forgiveness of a $500,000 promissory note from TeleSpectrum; (iii) $44.7
million estimated fair value of 4,403,863 shares of Common stock issued to
the Sellers; (iv) the $2.1 million estimated fair value of warrants to purchase
593,400 shares of Common Stock at the offering price of $15 per share issued in
connection with the acquisitions of the Operating Businesses ("Acquisitions");
(v) $18.7 million deemed value for accounting purposes of the CRW Lender
Warrants and CRW Management Warrants to purchase 2,272,562 shares of Common
Stock ("owned by CRW") at $1.50 per share; and (vi) transaction costs of $4.3
million. The purchase price for the Acquisitions is subject to certain purchase
price adjustments and earnout arrangements, which have not yet been determined.
TeleSpectrum Worldwide provides inbound and outbound telemarketing, inbound
customer services, direct mail and fulfillment, market research, and other
services such as strategic and database marketing, consulting and training.
Effective October 1, 1996, TeleSpectrum Worldwide acquired substantially all of
the assets and assumed substantially all of the liabilities of TARP, Inc. and
TARP Information Systems, Inc. and purchased all of the outstanding stock of
TARP (Europe) Limited (collectively, "TARP, Inc. and Affiliates" or "TARP"). The
combined purchase price excluding transaction costs for TARP consisted of $15
million in cash, 261,632 shares of TeleSpectrum Worldwide common stock and
earnout provisions whereby the sellers may be entitled to additional purchase
price during the next three years of up to $5 million based upon the achievement
of defined operating results of the TARP businesses.
F-19
<PAGE>
TELESPECTRUM WORLDWIDE, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO UNAUDITED PRO FORMA COMBINED
-------------------------------------
FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
2. HISTORICAL:
-----------
The historical balances for the Operating Businesses for the Pro Forma Combined
Statements of Income for the year ended December 31, 1995, and the nine months
ended September 30, 1996, include the historical results of the Operating
Businesses, described above, for the period from January 1, 1995 to December 31,
1995, and for the period from January 1, 1996 to August 12, 1996 (date of the
closing of the offering), respectively. The historical balances for TeleSpectrum
Worldwide for the Pro Forma Combined Statements of Income for the nine months
ended September 30, 1996, include the historical results of TeleSpectrum
Worldwide Inc. from its inception on April 26, 1996 to September 30, 1996, which
includes the operating results of the Operating Businesses from August 13, 1996
to September 30, 1996. The historical balances of TeleSpectrum Worldwide for the
pro forma combined balance sheet as of September 30, 1996, include the accounts
of TeleSpectrum Worldwide and its Subsidiaries including the Operating
Businesses described above (see previously filed Form S-1).
The historical balances for TARP, Inc. and Affiliates were derived from the
historical combined statements of income for the year ended December 31, 1995,
and the nine months ended September 30, 1996, and the historical combined
balance sheet as of September 30, 1996, which are included elsewhere in this
Form 8-K/A.
3. PRO FORMA ADJUSTMENTS:
----------------------
Statements of Income
- --------------------
The following pro forma adjustments for the acquisitions of the Operating
Businesses and TARP, Inc. and Affiliates are reflected in the pro forma combined
statements of income for the year ended December 31, 1995, and the nine months
ended September 30, 1996:
(a) To reflect the amortization expense for the goodwill recorded in connection
with the acquisitions of the Operating Businesses and TARP. The goodwill is
being amortized on a straight-line basis over an estimated life of 25
years.
(b) To reflect officers' compensation expense of the Operating Businesses, TARP
and TeleSpectrum Worldwide based upon employment agreements entered into
upon the closing of the Acquisitions.
(c) To reflect the elimination of interest expense resulting from the reduction
of debt from the net proceeds of the Offering.
(d) To reflect the elimination of interest income resulting from the reduction
of cash used in the acquisition of TARP.
(e) To calculate the provision for income taxes on the combined pro forma
income before taxes at the effective tax rates of the combined companies.
F-20
<PAGE>
TELESPECTRUM WORLDWIDE, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO UNAUDITED PRO FORMA COMBINED
-------------------------------------
FINANCIAL STATEMENTS (CONTINUED)
--------------------------------
(f) The weighted average shares outstanding used to calculate pro forma
earnings per share is based upon the estimated average number of shares of
Common Stock and common stock equivalents outstanding during the period
less shares issued in the Offering whose proceeds will be used for working
capital and capital expenditures. In addition, the weighted averages shares
outstanding includes the shares of Common stock issued in the acquisition
of TARP, Inc, and Affilates.
The pro forma net income and pro forma net income per share for the nine months
ended September 30, 1995 was $3,227,000 and $0.14 per share, respectively.
TeleSpectrum Worldwide Inc's previously reported pro forma net income and pro
forma net income per share for the nine months ended September 30, 1995 was
$3,396,000 and $0.15 per share, respectively.
Balance Sheet
- -------------
The following pro forma adjustments for the acquisition of TARP, Inc. and
Affiliates are reflected in the pro forma combined balance sheet as of September
30, 1996.
(g) To reflect (i) the cash portion of the purchase price of TARP, Inc., and
Affilates, payable at closing; (ii) the issuance of 261,632 shares of
Common Stock to the sellers at fair market value discounted 35% to reflect
restrictions on the sale of the shares; (iii) estimated transaction costs;
(iv) estimated purchase price adjustment based upon certain closing net
worth requirements and (v) the allocation of the purchase price.
<TABLE>
<CAPTION>
(i) (ii) (iii) (iv) (v) Total
---------- ----------- ----------- ----------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents $ (15,000) $ (600) $ (15,600)
Receivable from
former owners $ 1,223 $ 1,223
Goodwill $ 15,000 $ 3,250 $ 600 $ (1,223) $ (627) $ 17,000
Common stock $ (3) $ 161 $ 158
Additional paid-in
capital $ (3,247) $ (3,247)
Retained earnings $ 485 $ 485
Cumulative foreign
currency
translation
adjustments $ (18) $ (18)
Treasury stock $ (1) $ (1)
</TABLE>
F-21
<PAGE>
SIGNATURE
---------
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.
TELESPECTRUM WORLWIDE INC.
BY: /s/ Richard C. Schwenk, Jr.
-------------------------
Richard C. Schwenk, Jr.
Senior Vice President and
Chief Financial Officer
January 13, 1996
