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Previous: MULTICOM PUBLISHING INC, 10QSB/A, 1997-02-11 |
Next: SOUTH STREET FINANCIAL CORP, SC 13G, 1997-02-11 |
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
AMENDMENT TO QUARTERLY REPORT
PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period September 30, 1996
Commission File No. 333-04349
-----------------------------
TeleSpectrum Worldwide Inc.
---------------------------
(Exact Name of registrant as specified in its charter)
Delaware 23-2845501
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
443 South Gulph Road
King of Prussia, Pennsylvania
(Address of principal executive offices)
19406
(Zip Code)
610-878-7400
------------
(Registrant's telephone number, including area code)
This Amendment No. 1 is filed to (i) amend and restate in its entirety Item 1 to
correct the calculation of the undersigned registrant's (a) historical earnings
per share as it relates to the calculation of the number of weighted average
shares outstanding for the period from Inception (April 26, 1996) to September
30, 1996 and for the three month period ended September 30, 1996 (b) correct
certain amounts disclosed in the notes to condensed consolidated financial
statements regarding "Acquisitions and Initial Public Offering", and (ii)
disclose filings of Reports on Form 8-K/A under Item 6 of Part II.
<PAGE>
-2-
TELESPECTRUM WORLDWIDE INC.
---------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
REGISTRANT
----------
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES (TeleSpectrum
Worldwide)-
Condensed Consolidated Balance Sheet as of September 30, 1996 4
Condensed Consolidated Statements of Income for the Three Months
Ended September 30, 1996 and for the Period from Inception (April 26,
1996) to September 30, 1996 5
Condensed Consolidated Statement of Cash Flows for the Period from
Inception (April 26, 1996) to September 30, 1996 6
Notes to Condensed Consolidated Financial Statements including Pro
Forma financial statements 7
PREDECESSOR COMPANIES:
---------------------
SOMAR, INC. (Somar)-
Condensed Balance Sheet as of December 31, 1995 16
Condensed Statements of Income for the Periods from July 1, 1996 to
August 12, 1996, from January 1, 1996 to August 12, 1996, Three Months
Ended September 30, 1995 and Nine Months Ended September 30, 1995 17
Condensed Statements of Cash Flows for the Period from January 1, 1996
to August 12, 1996, and Nine Months Ended September 30, 1995 18
Notes to Condensed Financial Statements 19
NBG SERVICES, INC. (NBG)-
Condensed Balance Sheet as of December 29, 1995 20
Condensed Statements of Income for the Periods from June 29, 1996 to
August 12, 1996, from December 30, 1995 to August 12, 1996, Thirteen
Weeks Ended September 30, 1995 and Thirty-Nine Weeks Ended
September 30, 1995 21
Condensed Statements of Cash Flows for the Periods from December 30,
1995 to August 12, 1996, and Thirty-Nine Weeks ended September 30,
1995 22
Notes to Condensed Financial Statements 23
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
(Harris)-
Condensed Combined Balance Sheet as of December 31, 1995 24
Condensed Combined Statements of Income for the Periods from July 1,
1996 to August 12, 1996, from January 1, 1996 to August 12, 1996, Three
Months Ended September 30, 1995 and Nine Months Ended
September 30, 1995 25
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C>
Condensed Combined Statements of Cash Flows for the Period from
January 1, 1996 to August 12, 1996, and Nine Months Ended
September 30, 1995 26
Notes to Condensed Combined Financial Statements 27
THE REICH GROUP COMPANIES (Reich)-
Condensed Combined Balance Sheet as of December 31, 1995 28
Condensed Combined Statements of Income for the Period from July 1,
1996 to August 12, 1996, from January 1, 1996 to August 12, 1996, Three
Months Ended September 30, 1995 and Nine Months
Ended September 30, 1995 29
Condensed Combined Statements of Cash Flows for the Periods from
January 1, 1996 to August 12, 1996, and Nine Months Ended
September 30, 1995 30
Notes to Condensed Combined Financial Statements 31
THE RESPONSE CENTER INC. AND THE TAB HOUSE, INC. (The Response
Center)-
Condensed Combined Balance Sheet as of September 30, 1995 32
Condensed Combined Statements of Income for the Periods from July 1,
1996 to August 12, 1996, from October 1, 1995 to August 12, 1996, Nine
Months Ended September 30, 1995 and Twelve Months Ended
September 30, 1995 33
Condensed Combined Statements of Cash Flows for the Periods from
October 1, 1995 to August 12, 1996, and Twelve Months Ended
September 30, 1995 34
Notes to Condensed Combined Financial Statements 35
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
(TeleSpectrum)-
Condensed Combined Balance Sheet as of December 31, 1995 36
Condensed Combined Statements of Income for the Periods from July 1,
1996 to August 12, 1996, from January 1, 1996 to August 12, 1996, Three
Months Ended September 30, 1995 and Nine Months Ended
September 30, 1995 37
Condensed Combined Statements of Cash Flows for the Period from
January 1, 1996 to August 12, 1996 and Nine Months Ended
September 30, 1995 38
Notes to Condensed Combined Financial Statements 39
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 40
PART II - OTHER INFORMATION 46
</TABLE>
<PAGE>
-4-
TELESPECTRUM WORLDWIDE INC.
---------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in thousands-- except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30,
1996 (1)
----------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 57,943
Marketable securities 441
Accounts receivable, net 21,250
Prepaid expenses and other 2,756
--------
Total current assets 82,390
PROPERTY AND EQUIPMENT, net 22,750
GOODWILL, net 152,370
OTHER ASSETS 654
--------
Total assets $258,164
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,577
Payables to former owners 3,786
Accounts payable 5,301
Accrued liabilities 5,460
Customer advances 843
Other current liabilities 7,307
--------
Total current liabilities 24,274
--------
DEFERRED INCOME TAXES 195
--------
LONG-TERM DEBT 2,626
--------
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,
24,793,000 shares issued and outstanding 248
Additional paid-in capital 229,865
Retained earnings 956
--------
Total stockholders' equity 231,069
--------
Total liabilities and stockholders' equity $258,164
========
</TABLE>
The accompanying notes are an integral part of these statements.
(1) TeleSpectrum Worldwide was incorporated on April 26, 1996.
<PAGE>
-5-
TELESPECTRUM WORLDWIDE INC.
---------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
For the Three from Inception
Months Ended (April 26, 1996) to
September 30, 1996 September 30, 1996
------------------- --------------------
<S> <C> <C>
REVENUES $17,295 $17,295
------- -------
OPERATING EXPENSES:
Cost of services 11,528 11,528
Selling, general and administrative 3,241 3,660
Goodwill amortization 834 834
------- -------
Total operating expenses 15,603 16,022
------- -------
Operating income 1,692 1,273
INTEREST INCOME 380 380
INTEREST EXPENSE (59) (59)
------- -------
Income before taxes 2,013 1,594
------- -------
INCOME TAXES (805) (638)
------- -------
NET INCOME $ 1,208 $ 956
======= =======
NET INCOME PER SHARE $ .07 $ .07
======= =======
SHARES USED IN COMPUTING NET
INCOME PER SHARE 16,923 13,409
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-6-
TELESPECTRUM WORLDWIDE INC.
---------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
---------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
from Inception
(April 26, 1996) to
September 30, 1996
-------------------
<S> <C>
OPERATING ACTIVITIES:
Net income $ 956
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 1,175
Amortization of goodwill 834
Provision for deferred taxes (195)
Changes in operating assets and liabilities-
Accounts receivable 166
Prepaid expenses and other 1,439
Accounts payable (699)
Accrued expenses and other (531)
Customer advances (116)
--------
Net cash provided by operating activities 3,029
--------
INVESTING ACTIVITIES:
Purchases of property and equipment (5,453)
Purchases of operating businesses, net of cash acquired (91,356)
Proceeds on sale of marketable securities 40
--------
Net cash used in investing activities (96,769)
--------
FINANCING ACTIVITIES:
Capital contribution received 2,110
Net proceeds from sale of stock 162,486
Repayments on long-term debt (9,949)
Payments on capital lease obligations (2,964)
--------
Net cash provided by financing activities 151,683
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS 57,943
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 57,943
========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-7-
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 1996
------------------
(unaudited)
1. BACKGROUND AND BASIS OF PRESENTATION:
TeleSpectrum Worldwide Inc. (TeleSpectrum Worldwide) was incorporated in
Delaware on April 26, 1996. 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. (See Note 3 for discussion of the TeleSpectrum
Worldwide acquisitions and initial public offering.)
There have been no material changes in accounting policies from those disclosed
in the TeleSpectrum Worldwide Form S-1 Registration Statement dated August 7,
1996. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited condensed
financial statements have been prepared in accordance with generally accepted
accounting principles. The interim financial information, while unaudited,
reflects all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the interim financial
statements. Results of operations for the three-months ended September 30, 1996
and the period from inception (April 26, 1996) to September 30, 1996 are not
necessarily indicative of the results to be expected for any other interim
period or for the year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
TeleSpectrum Worldwide Form S-1 Registration Statement.
2. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of TeleSpectrum
Worldwide Inc. and its subsidiaries. All material intercompany balances and
transactions have been eliminated.
3. ACQUISITIONS AND INITIAL PUBLIC OFFERING:
TeleSpectrum Worldwide was incorporated 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,
<PAGE>
-8-
1996 and were accounted for using the purchase method. The total purchase price
of the Operating Business 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 $0.5 million promissory note from TeleSpectrum; (iii)
$44.7 million estimated fair value of 4,403,863 shares of Common Stock issued to
the Sellers; (iv) $2.1 million estimated fair value of warrants to purchase
593,400 shares of Common Stock at the offering price of $15.00 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 earn-out arrangements, which have not yet been determined.
4. STATEMENT OF CASH FLOW INFORMATION
For the period from inception (April 26, 1996) to September 30, 1996, the
Company paid interest of $59,000.
The following table displays the net noncash assets that were consolidated on
August 12, 1996, as a result of the business acquisitions described in Note 3:
<TABLE>
<S> <C>
Noncash assets (liabilities):
Marketable securities $ 481
Accounts receivable 21,416
Prepaid expenses and other 4,461
Property and equipment 18,472
Other assets 388
Goodwill 153,204
Current maturities of debt (16,476)
Accounts payable (6,000)
Accrued liabilities (5,676)
Customer advances (959)
Other current liabilities (7,541)
Long-term debt (4,426)
Other noncurrent liabilities (471)
--------
Net noncash assets acquired 156,873
Less- Common stock issued (44,691)
Warrants issued to sellers (2,077)
CRW Warrants (18,749)
--------
Cash paid for business acquisitions $ 91,356
========
</TABLE>
5. SUBSEQUENT EVENTS:
In October 1996, TeleSpectrum Worldwide acquired substantially all of the assets
(and assumed substantially all of the liabilities) of Technical Assistance
Research Programs, 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). These acquisitions were effective as of October 1,
1996 for financial reporting purposes. The
<PAGE>
-9-
combined purchase price for TARP consisted of $15 million in cash, $5 million in
TeleSpectrum Worldwide stock, $500,000 in estimated transaction costs and earn
out provisions whereby the Sellers may be entitled to additional purchase price
during the next three years based upon the achievement of defined operating
results of their prior business. In connection with this acquisition, an
estimated $16.7 million in goodwill will be capitalized and amortized over 25
years. In addition, TeleSpectrum Worldwide Inc. entered into employment
agreements with the selling shareholders of TARP.
6. PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to
the acquisition by TeleSpectrum Worldwide of substantially all of the net assets
of the Operating Businesses which occurred contemporaneously with the closing of
TeleSpectrum Worldwide's initial public offering on August 12, 1996 and the
acquisition of TARP which closed effective October 1, 1996, as if these
acquisitions had occurred on January 1, 1995. 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 and assumptions set forth below and in the notes to the
unaudited pro forma combined financial statements.
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 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 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 statement and notes thereto included elsewhere in this
Form 10-Q and with the audited financial statements and the notes thereto
included in the TeleSpectrum Worldwide Inc. Form S-1 Registration Statement.
<PAGE>
-10-
TELESPECTRUM WORLDWIDE INC. *, OPERATING
----------------------------------------
BUSINESSES and TARP
-------------------
PRO FORMA COMBINED STATEMENT OF INCOME
--------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Businesses--Historical **
------------------------------------------------------------
Pro Forma Pro Forma
The Acquisition Tele-
Response Tele- TARP ** and Offering Spectrum
SOMAR NBG Harris Reich Center Spectrum Acquisition Adjustments Worldwide
--------- ------- --------- --------- -------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $7,617 $3,362 $2,395 $2,510 $1,520 $2,991 $2,743 $ -- $23,138
OPERATING EXPENSES:
Cost of services 6,262 2,286 1,421 1,813 881 2,082 1,019 50 (b) 15,814
Selling, general and
administrative 1,362 373 662 449 610 604 541 (405)(b) 4,196
Goodwill amortization -- -- -- -- -- -- -- 1,750 (a) 1,750
------ ------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses 7,624 2,659 2,083 2,262 1,491 2,686 1,560 1,395 21,760
------ ------ ------ ------ ------ ------ ------ ------ -------
Operating income
(loss) (7) 703 312 248 29 305 1,183 (1,395) 1,378
INTEREST INCOME -- 9 21 10 10 -- 63 -- 113
INTEREST EXPENSE (211) (12) (50) (10) -- (43) -- 232 (c) (94)
------ ------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before taxes (218) 700 283 248 39 262 1,246 (1,163) 1,397
INCOME TAXES -- -- -- -- -- -- -- (625)(e) (625)
------ ------ ------ ------ ------ ------ ------ ------- -------
NET INCOME $ (218) $ 700 $ 283 $ 248 $ 39 $ 262 $1,246 $(1,788) $ 772
====== ====== ====== ====== ====== ====== ====== ======= =======
PRO FORMA NET INCOME
PER SHARE $ 0.03(f)
=======
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE 23,716(f)
=======
</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 July
1, 1995 to September 30, 1995
<PAGE>
-11-
TELESPECTRUM WORLDWIDE INC., OPERATING
--------------------------------------
BUSINESSES and TARP
-------------------
PRO FORMA COMBINED STATEMENT OF INCOME
--------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Businesses--Historical *
----------------------------------------------------------
Tele Pro Forma
Spectrum The Acquisition
World- Response Tele- TARP ** and Offering
wide SOMAR NBG Harris Reich Center Spectrum Acquisition Adjustments
---------- ------ --------- ------- --------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $17,295 $5,618 $2,387 $937 $3,211 $696 $2,495 $3,112 $ --
OPERATING EXPENSES:
Cost of services 11,528 4,518 1,691 378 1,858 411 1,684 1,171 --
Selling, general and
administrative 3,241 725 256 465 267 223 808 887 58 (b)
Goodwill amortization 834 -- -- -- -- -- -- -- 916 (a)
------- ------ ------ ---- ------ ---- ------ ------ -----
Total operating expenses 15,603 5,243 1,947 843 2,125 634 2,492 2,058 974
------- ------ ------ ---- ------ ---- ------ ------ -----
Operating income (loss) 1,692 375 440 94 1,086 62 3 1,054 (974)
INTEREST INCOME 380 1 5 7 4 20 -- 53 (91)(d)
INTEREST EXPENSE (59) (118) (16) (18) (4) -- (10) -- 139 (c)
------- ------ ------ ---- ------ ---- ------ ------ -----
Income (loss) before taxes 2,013 258 429 83 1,086 82 (7) 1,107 (926)
INCOME TAXES (805) -- (79) -- -- -- -- -- (801)(e)
------- ------ ------ ---- ------ ---- ------ ------ -----
NET INCOME $ 1,208 $ 258 $ 350 $ 83 $1,086 $ 82 $ (7) $1,107 $(1,727)
======= ====== ====== ==== ====== ==== ====== ====== =======
<CAPTION>
Pro Forma
Tele
Spectrum
Worldwide
----------
<S> <C>
REVENUES $35,751
OPERATING EXPENSES:
Cost of services 23,239
Selling, general and
administrative 6,930
Goodwill amortization 1,750
-------
Total operating expenses 31,919
-------
Operating income (loss) 3,832
INTEREST INCOME 379
INTEREST EXPENSE (86)
-------
Income (loss) before taxes 4,125
INCOME TAXES (1,685)
-------
NET INCOME $ 2,440
=======
PRO FORMA NET INCOME PER
SHARE $ 0.10 (f)
=======
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE 23,905 (f)
=======
</TABLE>
* Includes historical results of operating businesses from July 1, 1996 to
August 12, 1996. TeleSpectrum Worldwide includes the results of the operating
businesses subsequent to August 12, 1996.
** Includes historical results of TARP from June 1, 1996 to September 30, 1996.
<PAGE>
-12-
TELESPECTRUM WORLDWIDE INC.*, OPERATING
---------------------------------------
BUSINESSES and TARP
-------------------
PRO FORMA COMBINED STATEMENT OF INCOME
--------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Operating Businesses--Historical **
---------------------------------------------------------------------
Pro Forma Pro Forma
The Acquisition Tele-
Response Tele- TARP ** and Offering Spectrum
SOMAR NBG Harris Reich Center Spectrum Acquisition Adjustments Worldwide
---------- --------- --------- --------- -------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $22,412 $8,961 $9,920 $8,031 $5,076 $8,583 $8,747 $ -- $71,730
OPERATING EXPENSES:
Cost of services 17,483 5,842 4,964 5,230 2,653 5,910 3,457 150 (b) 45,689
Selling, general and
administrative 3,982 1,419 2,093 1,114 2,227 2,256 2,262 (916)(b) 14,437
Goodwill amortization -- -- -- -- -- -- -- 5,251 (a) 5,251
------- ------ ------ ------ ------ ------ ------ ------ -------
Total operating expenses 21,465 7,261 7,057 6,344 4,880 8,166 5,719 4,485 65,377
------- ------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss) 947 1,700 2,863 1,687 196 417 3,028 (4,485) 6,353
INTEREST INCOME -- 9 41 18 10 -- 147 -- 225
INTEREST EXPENSE (510) (42) (167) (45) -- (128) -- 655 (c) (237)
------- ------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before taxes 437 1,667 2,737 1,660 206 289 3,175 (3,830) 6,341
INCOME TAXES -- -- -- -- -- -- (72) (2,873)(e) (2,945)
------- ------ ------ ------ ------ ------ ------ ------- -------
NET INCOME $ 437 $1,667 $2,737 $1,660 $ 206 $ 289 $3,103 $(6,703) $ 3,396
======= ====== ====== ====== ====== ====== ====== ======= =======
PRO FORMA NET INCOME PER
SHARE $0.15(f)
=====
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE 23,054(f)
======
</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 September 30, 1995.
<PAGE>
-13-
TELESPECTRUM WORLDWIDE INC., 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- TARP **
wide SOMAR NBG Harris Reich Center Spectrum Acquisition
---------- ---------- ---------- --------- ---------- -------- ---------- ------------
<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
======= ======= ======= ====== ======= ====== ======= ======
PRO FORMA NET INCOME PER
SHARE
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE
<CAPTION>
Pro Forma Pro Forma
Acquisition 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 INCOME PER
SHARE $ 0.24(f)
=======
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.
** Includes historical results of TARP from January 1, 1996 to September 30,
1996.
<PAGE>
-14-
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME ADJUSTMENTS:
(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 officer's 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) 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
<PAGE>
-15-
OPERATING BUSINESSES
--------------------
PREDECESSOR HISTORICAL FINANCIAL STATEMENTS
INTRODUCTION
(UNAUDITED)
In connection with the offering the operating business were deemed to be
predecessor companies to TeleSpectrum Worldwide Inc. Accordingly, the following
historical financial statements are presented to comply with the unaudited
historical interim financial statement requirements in a Form 10-Q.
<PAGE>
-16-
SOMAR, INC.
-----------
CONDENSED BALANCE SHEET
-----------------------
(in thousands -- except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31,
1995
------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 25
Accounts receivable, net of reserve of $40 4,825
Amounts due from-
Stockholders 881
Affiliates 210
Prepaid expenses and other 451
-------
Total current assets 6,392
PROPERTY AND EQUIPMENT, net 4,400
-------
Total assets $10,792
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 1,182
Note payable -- Bank 1,000
Current portion of long-term debt 2,182
Current portion of capital lease obligations 852
Accounts payable 1,959
Accrued compensation 523
Other accrued expenses 122
Amounts due to an affiliate 562
-------
Total current liabilities 8,382
-------
LONG-TERM DEBT 767
-------
CAPITAL LEASE OBLIGATIONS 872
-------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 100,000
shares authorized; 12
11,765 shares issued and outstanding
Additional paid-in capital 789
Retained earnings (deficit) (30)
-------
Total stockholders' equity 771
-------
Total liabilities and
stockholders' equity $10,792
=======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-17-
SOMAR, INC.
-----------
CONDENSED STATEMENTS OF INCOME
------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Period from Period from
For the Three July 1,1996 For the Nine January 1,
Months Ended to Months Ended 1996 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 7,617 $ 5,618 $ 22,412 $ 26,421
------------- ------------- -------------- ---------------
OPERATING EXPENSES:
Cost of services 6,262 4,518 17,483 21,406
Selling, general and administrative
expenses 1,362 725 3,982 3,817
------------- ------------- -------------- ---------------
Total operating expenses 7,624 5,243 21,465 25,223
------------- ------------- -------------- ---------------
Operating income (loss) (7) 375 947 1,198
INTEREST INCOME -- 1 -- 11
INTEREST EXPENSE (211) (118) (510) (572)
------------- ------------- -------------- ---------------
NET INCOME (LOSS) $ (218) $ 258 $ 437 $ 637
============= ============= ============== ===============
PRO FORMA DATA (UNAUDITED)
Historical net income (loss) $ (218) $ 258 $ 437 $ 637
Pro forma provision for income taxes (90) 96 179 237
------------- ------------- -------------- --------------
Pro forma net income $ (128) $ 162 $ 258 $ 400
============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-18-
SOMAR, INC.
-----------
CONDENSED STATEMENTS OF CASH FLOW
---------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the
Period from
For the Nine January 1,
Months Ended 1996 to
September 30, August 12,
1995 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES: $ 437 $ 637
Net income
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 466 749
Stock option compensation expense 17 -
Changes in operating assets and liabilities
Accounts receivable (905) (1,705)
Prepaid expenses and other (302) (85)
Accounts payable 1,008 1,706
Accrued expenses 181 822
------------- -------------
Net cash provided by operating activities 902 2,124
------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (2,161) (828)
Advances to stockholder (324) (847)
Advances to affiliates (167) (248)
------------- -------------
Net cash used in investing activities (2,652) (1,923)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,941 1,286
Repayments on long-term debt (244) (1,498)
Repayments on note payable--Bank -- (1,000)
Borrowings (repayments) from affiliates 240 (102)
Distributions paid to shareholders (200) (535)
Payments on capital lease obligations (436) (641)
Net borrowings on line of credit agreement 450 2,269
------------- -------------
Net cash provided by (used in) financing activities 1,751 (221)
------------- -------------
NET INCREASE (DECREASE) IN CASH 1 (20)
CASH, BEGINNING OF PERIOD 2 25
------------- -------------
CASH, END OF PERIOD $ 3 $ 5
============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 509 $ 552
============= =============
Income taxes paid $ - $ -
============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-19-
SOMAR, INC.
-----------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
SOMAR, Inc. ("SOMAR") is a provider of outsourced telephone-based sales,
marketing and customer management services, to clients principally in the
insurance industry and also to clients in the financial services,
telecommunications and consumer products industries.
Basis of Presentation
On August 12, 1996, SOMAR sold substantially all of its assets and liabilities
to TeleSpectrum Worldwide Inc. Somar is a predecessor company to TeleSpectrum
Worldwide Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the TeleSpectrum
Worldwide Inc. Form S-1 Registration Statement.
<PAGE>
-20-
NBG SERVICES, INC.
------------------
CONDENSED BALANCE SHEET
-----------------------
(in thousands -- except share data)
(unaudited)
<TABLE>
<CAPTION>
December 29,
1995
------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 700
Short-term investments 210
Accounts receivable, net of reserve of $90 1,757
Prepaid expenses and other 129
------------
Total current assets 2,796
PROPERTY AND EQUIPMENT, net 1,336
OTHER ASSETS 102
------------
Total assets $ 4,234
============
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 277
Demand note 500
Accounts payable 212
Accrued expenses 537
------------
Total current liabilities 1,526
------------
CAPITAL LEASE OBLIGATIONS 454
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 10,000 shares authorized
100 shares issued and outstanding --
Retained earnings 2,254
------------
Total shareholders' equity 2,254
------------
Total liabilities andshareholders' equity
shareholders' equity $ 4,234
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-21-
NBG SERVICES, INC.
------------------
CONDENSED STATEMENTS OF INCOME
------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
For the Period from For the Period from
Thirteen June 29, 1996 Thirty-Nine December 30
Weeks Ended to Weeks Ended 1995 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 3,362 $ 2,387 $ 8,961 $ 11,311
--------- --------- --------- ----------
OPERATING EXPENSES:
Cost of services 2,286 1,691 5,842 7,686
Selling, general and administrative expenses 373 256 1,419 1,645
--------- --------- --------- ----------
Total operating expenses 2,659 1,947 7,261 9,331
--------- --------- --------- ----------
Operating income 703 440 1,700 1,980
INTEREST INCOME 9 5 9 37
INTEREST EXPENSE (12) (16) (42) (70)
--------- --------- --------- ----------
Income before income taxes 700 429 1,667 1,947
INCOME TAXES -- (79) -- (79)
--------- --------- --------- ----------
NET INCOME $ 700 $ 350 $ 1,667 $ 1,868
========= ========= ========= ==========
PRO FORMA DATA (UNAUDITED):
Historical net income $ 700 $ 350 $ 1,667 $ 1,868
Pro forma provision for income taxes 287 143 683 765
--------- --------- --------- ----------
Pro forma net income $ 413 $ 207 $ 984 $ 1,103
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-22-
NBG SERVICES, INC.
------------------
CONDENSED STATEMENTS OF CASH FLOW
---------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
For the Thirty- from
Nine December 30,
Weeks Ended 1995 to
September 29, August 12,
1995 1996
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,667 $ 1,868
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 217 273
Provision for loss on accounts receivable 72 --
Changes in operating assets and liabilities-
Accounts receivable (527) (952)
Due from TeleSpectrum Worldwide Inc. -- (62)
Prepaid expenses and other (95) (91)
Accounts payable 99 184
Accrued expenses 243 114
---------- ---------
Net cash provided by operating activities 1,676 1,334
---------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments (160) --
Proceeds from short-term investments -- 45
Purchases of property and equipment (198) (126)
---------- ---------
Net cash used in investing activities (358) (81)
---------- ---------
FINANCING ACTIVITIES:
Bank overdraft (82) --
Repayment of capital lease obligations (195) (260)
Repayment of demand note -- (500)
Distributions to shareholders -- (120)
---------- ---------
Net cash used in financing activities (277) (880)
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,041 373
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 700
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,041 $ 1,073
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 42 $ 70
========== =========
Income taxes paid $ - $ 28
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-23-
NBG SERVICES, INC.
------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
RG Associates, Inc., d/b/a NBG Services, Inc. was incorporated in June 1991. In
April 1996, RG Associates, Inc., d/b/a NBG Services, Inc., amended its Articles
of Incorporation to change the name of the corporation to NBG Services, Inc.
("NBG"). The Company provides outbound telemarketing data processing and
fulfillment services in the financial services, telecommunications and high
technology industries.
NBG operated on a fifty-two, fifty-three week fiscal year ending on the last
Friday of the calendar year during 1995.
Basis of Presentation
On August 12, 1996, NBG sold substantially all of its assets and liabilities to
TeleSpectrum Worldwide Inc. NBG Services, Inc. is a predecessor company to
TeleSpectrum Worldwide Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflect all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results to be expected for a full year. These
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in the TeleSpectrum Worldwide Inc.
Form S-1 Registration Statement.
<PAGE>
-24-
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
----------------------------------------------------------
CONDENSED COMBINED BALANCE SHEET
--------------------------------
(in thousands)
<TABLE>
<CAPTION>
December 31,
1995
------------
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 2,919
Accounts receivable, net of reserve of $161 2,930
Prepaid expenses and other 651
------------
Total current assets 6,500
PROPERTY AND EQUIPMENT, net 4,139
OTHER ASSETS 164
------------
Total assets $10,803
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 299
Accounts payable 362
Accrued expenses 635
Customer advances 1,463
------------
Total current liabilities 2,759
------------
LONG-TERM DEBT 1,530
------------
DEFERRED RENT 120
------------
OTHER NONCURRENT LIABILITIES 19
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (Harris Direct Marketing, Inc.), no par
value, 10,000 shares authorized, 99 shares issued 1
Common stock (Harris Fulfillment, Inc.), $1 par value,
1,000 shares authorized, 111-1/9 shares issued and outstanding --
Additional paid-in capital 45
Retained earnings 6,454
Treasury stock, at cost (125)
------------
Total shareholders' equity 6,375
------------
Total liabilities and shareholders' equity $ 10,803
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-25-
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
----------------------------------------------------------
CONDENSED COMBINED STATEMENTS OF INCOME
---------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Period from Period from
For the Three July 1, 1996 For the Nine January 1,
Months Ended to Months Ended 1996 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 2,395 $ 937 $ 9,920 $ 6,304
OPERATING EXPENSES:
Cost of services 1,421 378 4,964 3,140
Selling, general and administrative expenses 662 465 2,093 1,986
---------- --------- ---------- ----------
Total operating expenses 2,083 843 7,057 5,126
---------- --------- ---------- ----------
Operating income 312 94 2,863 1,178
INTEREST INCOME 21 7 41 53
INTEREST EXPENSE (50) (18) (167) (97)
---------- --------- ---------- ----------
NET INCOME $ 283 $ 83 $ 2,737 $ 1,134
========== ========= ========== ==========
PRO FORMA DATA (UNAUDITED):
Historical net income $ 283 $ 83 $ 2,737 $ 1,134
Pro forma provision for income taxes 128 37 1,238 511
---------- --------- ---------- ----------
Pro forma net income $ 155 $ 46 $ 1,499 $ 623
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-26-
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
----------------------------------------------------------
CONDENSED COMBINED STATEMENTS OF CASH FLOW
------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine January 1,
Months Ended 1996 to
September 30, August 12,
1995 1996
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,737 $ 1,134
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 441 347
Provision for loss on accounts receivable 125 36
Provision for deferred rent 2 18
Changes in operating assets and liabilities-
Accounts receivable (347) 65
Prepaid expenses and other (126) 209
Accounts payable 79 (33)
Accrued expenses (99) (164)
Customer advances 432 (810)
------- -------
Net cash provided by operating activities 3,244 802
------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment (346) (289)
------- -------
Net cash used in investing activities (346) (289)
------- -------
FINANCING ACTIVITIES:
Repayment of long-term debt (316) (170)
Proceeds from long-term debt -- 16
Shareholder distributions (1,363) (1,575)
------- -------
Net cash used in financing activities
(1,679) (1,729)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,219 (1,216)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 975 2,919
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,194 $ 1,703
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 145 $ 88
======= =======
Income taxes paid $ - $ -
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-27-
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
----------------------------------------------------------
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
------------------------------------------------
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
Harris Direct Marketing, Inc. and Harris Fulfillment, Inc. (together "Harris")
are a regional, vertically-integrated direct mail and fulfillment organization
which provides its services primarily to companies in the pharmaceutical,
financial services and insurance industries.
The financial statements reflect the combined financial position, results of
operations and cash flows of Harris Direct Marketing, Inc. and Harris
Fulfillment, Inc. The companies are engaged in related operations, and are owned
by the same shareholders who have identical ownership in each entity. The
financial statements reflect the elimination of all significant intercompany
accounts and transactions.
Basis of Presentation
On August 12, 1996, Harris sold substantially all of its assets and liabilities
to TeleSpectrum Worldwide Inc. Harris Direct Marketing, Inc. and Harris
Fulfillment, Inc. are predecessor companies to TeleSpectrum Worldwide Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflects all normal recurring adjustments which
are, in the opinion of management necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results to be expected for a full year. These
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in the TeleSpectrum Worldwide Inc.
Form S-1 Registration Statement.
<PAGE>
-28-
THE REICH GROUP COMPANIES
-------------------------
CONDENSED COMBINED BALANCE SHEET
--------------------------------
(in thousands -- except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31,
1995
------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 220
Accounts receivable, net of reserve of $73 2,544
Due from shareholder 132
Prepaid expenses and other 79
-----------
Total current assets 2,975
EQUIPMENT AND FURNITURE, net 1,328
OTHER ASSETS 15
-----------
Total assets $ 4,318
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 155
Current portion of deferred rent 68
Accounts payable 930
Accrued salaries and wages 363
Notes payable to shareholder 570
Other current liabilities 68
-----------
Total current liabilities 2,154
-----------
LONG-TERM DEBT 371
-----------
DEFERRED RENT 125
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 2
Additional paid-in capital 450
Retained earnings 1,455
Treasury stock, at cost (TRG/Communications, Inc. 150 shares) (239)
Total shareholders' equity 1,668
-----------
Total liabilities and shareholders' equity $ 4,318
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-29-
THE REICH GROUP COMPANIES
-------------------------
CONDENSED COMBINED STATEMENTS OF INCOME
---------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Period from Period from
For the Three July 1, 1996 For the Nine January 1,
Months Ended to Months Ended 1996 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES $2,510 $3,211 $8,031 $14,558
OPERATING EXPENSES:
Cost of services 1,813 1,858 5,230 8,550
Selling, general and administrative
expenses 449 267 1,114 1,466
------ ------ ------ -------
Total operating expenses 2,262 2,125 6,344 10,016
------ ------ ------ -------
Operating income 248 1,086 1,687 4,542
INTEREST INCOME 10 4 18 19
INTEREST EXPENSE (10) (4) (45) (50)
------ ------ ------ -------
NET INCOME $ 248 $1,086 $1,660 $ 4,511
====== ====== ====== =======
PRO FORMA DATA (UNAUDITED):
Historical net income $ 248 $1,086 $1,660 $ 4,511
Pro forma provision for income taxes 102 443 680 1,840
------ ------ ------ -------
Pro forma net income $ 146 $ 643 $ 980 $ 2,671
====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-30-
THE REICH GROUP COMPANIES
-------------------------
CONDENSED COMBINED STATEMENTS OF CASH FLOW
------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
from
For the Nine January 1,
Months Ended 1996 to
September 30, August 12,
1995 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,660 $ 4,511
Adjustments to reconcile net income to
net cash provided by operating
activities-
Depreciation and amortization 152 279
Amortization of deferred rent (47) (40)
Changes in operating assets and liabilities-
Accounts receivable (908) (2,025)
Due from shareholder (22) (5)
Prepaid expenses and other assets 22 (81)
Accounts payable 61 (264)
Accrued salaries and wages 72 196
Other current liabilities (166) (36)
------- -------
Net cash provided by operating activities 824 2,535
------- -------
INVESTING ACTIVITIES:
Purchases of furniture and equipment, net of capital
lease obligations of $250 in 1996 and $95 in 1995 (634) (935)
------- -------
Net cash used in investing activities (634) (935)
------- -------
FINANCING ACTIVITIES:
Net borrowings on line of credit 40 700
Repayment of long-term debt (77) (133)
Proceeds from long-term debt 165 --
Proceeds repayments of notes payable to shareholder -- (500)
Distribution to shareholder (300) (1,770)
------- -------
Net cash used in financing activities (172) (1,703)
------- -------
NET INCREASE (DECREASE) IN CASH 18 (103)
CASH, BEGINNING OF PERIOD 31 220
------- -------
CASH, END OF PERIOD $ 49 $ 117
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 45 $ 50
======= =======
Income taxes paid $ 10 $ 41
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-31-
THE REICH GROUP COMPANIES
-------------------------
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
------------------------------------------------
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
The Reich Group Companies ("Reich Group") offers telemarketing services to
clients in the financial services, insurance, telecommunications and publishing
industries. In 1995, the Reich Group derived 93% of its revenue from
telemarketing activities.
The 1995 and 1996 financial statements reflect the combined financial position,
results of operations and cash flows of The Reich Group, Inc., Dial Direct,
Inc., Dial Direct Telemarketing, LTD., TRG/Communications, Inc. and InsureDirect
Agency, Inc. The accompanying financial statements are presented on a combined
basis, as all companies are owned by the same shareholder. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
Basis of Presentation
On August 12, 1996, the Reich Group sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. The Reich Group is a predecessor
company to TeleSpectrum Worldwide Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results of operations to be expected for a
full year. These financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the TeleSpectrum
Worldwide Inc. Form S-1 Registration Statement.
<PAGE>
-32-
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
-------------------------------------------------
CONDENSED COMBINED BALANCE SHEET
--------------------------------
(in thousands -- except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30,
1995
-------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 282
Marketable securities 324
Accounts receivable, net of reserve of $28 1,522
Prepaid expenses and other 23
-------------
Total current assets 2,151
PROPERTY AND EQUIPMENT, net 139
OTHER ASSETS 8
-------------
Total assets $ 2,298
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 119
Accrued expenses 275
Deferred revenue 92
-------------
Total current liabilities 486
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (The Response Center, Inc.), no
par value, 1,000 shares authorized, 550
shares issued and outstanding 51
Common stock (The Tab House, Inc.), $.01 par value,
1,000 shares authorized, 550 shares issued
and outstanding -
Additional paid-in capital 1
Net unrealized gain on marketable securities available
for sale 121
Retained earnings 1,639
-------------
Total shareholders' equity 1,812
-------------
Total liabilities and shareholders' equity $ 2,298
=============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-33-
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
-------------------------------------------------
CONDENSED COMBINED STATEMENTS OF INCOME
---------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Period from Period from
For the Three July 1, For the Nine January 1,
Months Ended 1996 to Months Ended 1996 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,520 $ 696 $ 5,076 $ 3,927
------------- ----------- ------------- -----------
OPERATING EXPENSES:
Cost of services 881 411 2,653 2,101
Selling, general and administrative
expenses 610 223 2,227 1,519
------------- ---------- ------------ -----------
Total operating expenses 1,491 634 4,880 3,620
------------- ---------- ------------ -----------
Operating income 29 62 196 307
INTEREST INCOME 10 20 10 20
------------- ---------- ------------ -----------
NET INCOME $ 39 $ 82 $ 206 $ 327
============= ========== ============ ===========
PRO FORMA DATA (UNAUDITED):
Historical net income $ 39 $ 82 $ 206 $ 327
Pro forma provision for income taxes 16 32 85 130
------------- ---------- ------------ -----------
Pro forma net income $ 23 $ 50 $ 121 $ 197
============= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-34-
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
-------------------------------------------------
CONDENSED COMBINED STATEMENTS OF CASH FLOW
------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
from
For the Nine January 1,
Months Ended 1996 to
September 30, August 12,
1995 1996
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 206 327
Adjustments to reconcile net income to net cash used in
operating activities-
Depreciation and amortization 32 43
Gain on sale of marketable securities (22) -
Changes in operating assets and liabilities-
Accounts receivable (615) (200)
Due from TeleSpectrum Worldwide - (49)
Due from shareholders - (10)
Prepaid expenses and other 4 (22)
Other assets - (45)
Accounts payable (42) 49
Accrued expenses (9) 5
Deferred revenue (130) (275)
---------- ---------
Net cash used in operating activities (576) (177)
---------- ---------
INVESTING ACTIVITIES:
Purchases of marketable securities - (2)
Proceeds on sales of marketable securities 67 16
Purchases of property and equipment (2) (107)
---------- ---------
Net cash provided by (used in) investing
activities
65 (93)
---------- ---------
FINANCING ACTIVITIES:
Distributions to shareholders - (798)
---------- ---------
Net cash used in financing activities - (798)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (511) (1,068)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 793 1,178
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 282 $ 110
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ - -
========== =========
Income taxes paid $ - $ -
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-35-
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
-------------------------------------------------
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
------------------------------------------------
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
The Response Center, Inc. and the Tab House, Inc. (collectively "Response
Center") provide custom market research and analysis, principally to clients in
the telecommunications, financial services, pharmaceutical and healthcare
industries.
The accompanying financial statements reflect the combined financial position
and results of operations of The Response Center, Inc. and The Tab House, Inc.
The accompanying financial statements are presented on a combined basis, as The
Response Center, Inc. and The Tab House, Inc. are owned by the same shareholders
who have identical ownership in each entity. The financial statements reflect
the elimination of all significant intercompany accounts and transactions.
Basis of Presentation
On August 12, 1996, the Response Center sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. The Response Center and the Tab
House, Inc. are predecessor companies to TeleSpectrum Worldwide Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results of operations to be expected for a
full year. These financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the TeleSpectrum
Worldwide Inc. Form S-1 Registration Statement.
<PAGE>
-36-
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
-----------------------------------------------------------
CONDENSED COMBINED BALANCE SHEET
--------------------------------
(in thousands -- except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31,
1995
------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 15
Accounts receivable, net of reserve of $22 2,690
Due from shareholder/officer 4
Prepaid expenses and other 95
------------
Total current assets 2,804
PROPERTY AND EQUIPMENT, net 657
OTHER ASSETS 88
------------
Total assets $3,549
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 1,350
Current portion of long-term debt 198
Accounts payable 498
Accrued compensation 161
Deferred revenue 197
Other accrued expenses 363
------------
Total current liabilities 2,767
------------
LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES 81
------------
DEFERRED TAXES 14
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, TeleSpectrum, Inc. $.01 par value, 5,000
shares authorized, 3,000 shares issued and outstanding --
Common stock, TeleSpectrum Training Services, Inc. no par
value, 5,000 shares authorized, 200 shares issued
and outstanding 6
Additional paid-in capital 217
Retained earnings 464
------------
Total stockholders' equity 687
------------
Total liabilities and stockholders' equity $ 3,549
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
-37-
TELESPECTRUM INC. AND TELESPECTRUM TRAINING
-------------------------------------------
SERVICES, INC.
--------------
CONDENSED COMBINED STATEMENTS OF INCOME
---------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Period from Period from
Three Months July 1, Nine Months January 1,
Ended 1996 to Ended 1996 to
September 30, August 12, September 30, August 12,
1995 1996 1995 1996
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
REVENUES $ 2,991 $ 2,495 $ 8,583 $ 10,529
OPERATING EXPENSES:
Cost of services 2,082 1,684 5,910 6,974
Selling, general and administrative
expenses 604 808 2,256 2,929
---------- -------- ---------- ---------
Total operating expenses 2,686 2,492 8,166 9,903
---------- -------- ---------- ---------
Operating income 305 3 417 626
INTEREST EXPENSE (43) (10) (128) (129)
---------- -------- ---------- ---------
Net Income $ 262 $ (7) $ 289 $ 497
========== ======== ========== =========
PRO FORMA DATA (UNAUDITED):
Historical net income (loss) $ 262 $ (7) $ 289 $ 497
Pro forma provision for income taxes 107 (3) 118 196
---------- -------- ---------- ---------
Pro forma net income (loss) $ 155 $ (4) $ 171 301
========== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-38-
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING
--------------------------------------------
SERVICES, INC.
--------------
CONDENSED COMBINED STATEMENTS OF CASH FLOW
------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months For the
Ended Period from
September 30, January 1, 1996 to
1995 August 12, 1996
-------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES: $ 289 $ 497
Net income
Adjustments to reconcile net income to net cash used in
operating activities--
Depreciation and amortization 179 127
Provision for bad debt -- 53
Changes in operating assets and liabilities--
Accounts receivable (403) (1,246)
Prepaid expenses and other (18) 257
Accounts payable and accrued liabilities 111 1,281
---------- ------------
Net cash provided by operating activities 158 969
---------- ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (75) (2,044)
Cash received from officers 3 --
---------- ------------
Net cash used in investing activities (72) (2,044)
---------- ------------
FINANCING ACTIVITIES:
Net borrowings on line of credit 723 3,060
Proceeds from notes payable -- 500
Principal payments on long-term debt and capital leases 765) (1,844)
---------- ------------
Net cash provided by (used in) financing
activities (42) 1,716
---------- ------------
NET INCREASE IN CASH 44 641
CASH, BEGINNING OF PERIOD 163 15
---------- ------------
CASH, END OF PERIOD $ 207 $ 656
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 9 $ 120
========== ============
Income taxes paid $ - $ -
========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
-39-
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING
--------------------------------------------
SERVICES, INC.
--------------
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
------------------------------------------------
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Industry Information
TeleSpectrum Inc. and TeleSpectrum Training Services, Inc. (together
"TeleSpectrum ") specializes in providing both outbound and inbound
telemarketing services and fulfillment to the high technology, pharmaceutical
and healthcare and consumer products industries.
The financial statements reflect the combined financial position and results of
operations of TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. The
accompanying financial statements are presented on a combined basis, as
TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. are owned by the
same stockholders who have identical ownership in each entity. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
Basis of Presentation
On August 12, 1996, TeleSpectrum sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. TeleSpectrum, Inc. and TeleSpectrum
Training Services, Inc. are predecessor companies to TeleSpectrum Worldwide Inc.
Upon signing the asset purchase agreement, TeleSpectrum was advanced $500,000 in
the form of promissory note due one year from the date the proceeds were
received with interest at 9%. Upon the closing of the transaction on August 12,
1996, a portion of the purchase price was paid by cancellation of the promissory
note.
The accompanying unaudited combined financial statements have been prepared in
accordance with generally accepted accounting principles. The interim financial
information, while unaudited, reflects all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
interim financial statements. The results of operations for interim periods are
not necessarily indicative of the results of operations to be expected for a
full year. These financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the TeleSpectrum
Worldwide Inc. Form S-1 Registration Statement.
<PAGE>
-40-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES - PRO FORMA
The unaudited pro forma combined financial data give effect to the acquisition
by TeleSpectrum Worldwide of substantially all of the net assets of the
Operating Businesses which occurred contemporaneously with the closing of
TeleSpectrum Worldwide's initial public offering on August 12, 1996 and the
acquisition of TARP which closed effective October 1, 1996, as if these
acquisitions had occurred on January 1, 1995. (See Note 6 to the TeleSpectrum
Worldwide financial statements.)
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 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 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.
Pro Forma Results of Operations
The following table sets forth selected pro forma financial data and data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
Dollars in thousands 1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 23,138 $ 35,751 $ 71,730 $ 98,657
Cost of services 15,814 23,239 45,689 64,860
Selling, general and administrative 4,196 6,930 14,437 19,197
Goodwill amortization 1,750 1,750 5,251 5,251
Operating income 1,378 3,832 6,353 9,349
% of revenues 6% 11% 9% 9%
Interest, net 19 293 (12) 283
Income taxes (625) (1,685) (2,945) (4,157)
Net income $ 772 $ 2,440 $ 3,396 $ 5,475
% of revenues 3% 7% 5% 6%
</TABLE>
<PAGE>
-41-
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Revenues. Revenues increased to $35.8 million in the three months ended
September 30, 1996 from $23.1 million in the three months ended September 30,
1995, an increase of $12.7 million, or 55%. The increase in revenues resulted
primarily from increased call volume from new and existing clients.
Cost of Services. Cost of services, which consists primarily of labor,
telephone and other call center related operating and support expenses,
increased to $23.2 million in the three months ended September 30, 1996 from
$15.8 million in the three months ended September 30, 1995, an increase of $7.4
million, or 47%. As a percentage of revenues, cost of services decreased to 65%
in the three months ended September 30, 1996 from 68% in the three months ended
September 30, 1995. This decrease was primarily the result of a higher margin
business mix as well as improved operating efficiencies.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $6.9 million in the three months ended September 30, 1995
from $4.2 million in the three months ended September 30, 1995, an increase of
$2.7 million, or 65%. The increase was primarily the result of additional
administrative, personal and related corporate expenses associated with the
Company's growth. As a percentage of revenues, selling, general and
administrative expenses increased to 19% in the three months ended September 30,
1996 from 18% in the three months ended September 30, 1995, primarily as a
result of building infrastructure to support integration and growth.
Interest Income (Expense), Net. Interest income (expense), net, increased
in the three months ended September 30, 1996 as compared to the corresponding
period of 1995 as a result of investment returns on the net proceeds of the
Company's initial offering of common stock, which occurred on August 12, 1996.
Income Taxes. Income taxes increased to $1.7 million in the three months ended
September 30, 1996 from $0.6 million in the three months ended September 30,
1995, an increase of $1.1 million, or 170%. The effective income tax rate
decreased to 41% in the three months ended September 30, 1996 from 45% in the
three months ended September 30, 1995. The decrease was the result of the use of
certain state tax planning measures in the three months ended September 30,
1996.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Revenues. Revenues increased to $98.7 million in the nine months ended
September 30, 1996 from $71.7 million in the nine months ended September 30,
1995, an increase of $27.0 million, or 38%. The increase in revenues resulted
primarily from increased call volume from existing clients and the addition of
new telecommunications clients.
Cost of Services. Cost of services, which consists primarily of labor,
telephone and other call center related operating and support expenses,
increased to $64.9 million in the nine months ended September 30, 1996 from
$45.7 million in the nine months ended September 30, 1995, an increase of $19.2
million, of 42%. As a percentage of revenues, cost of services increased to 66%
<PAGE>
-42-
in the three months ended September 30, 1996 from 64% in the three months ended
September 30, 1995. This increase was primarily the result of a lower margin
business mix a well as start-up costs associated with adding new capacity to
support growth.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $19.2 million in the nine months ended September 30, 1996
from $14.4 million in the nine months ended September 30, 1995, an increase of
$4.8 million, or 33%. The increase was primarily the result of additional
administrative, personal and related corporate expenses associated with the
Company's growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 19% in the nine months ended September 30,
1996 from 20% in the nine months ended September 30, 1995, primarily as a result
of the spreading of expenses over increased revenues.
Interest Income (Expense), Net. Interest income (expense), net, increased in the
nine months ended September 30,1996 as compared to the corresponding period of
1995 as a result of investment returns on the net proceeds of the Company's
initial offering of common stock, which occurred on August 12, 1996.
Income Taxes. Income taxes increased to $4.2 million in the nine months ended
September 30, 1996 from $2.9 million in the nine months ended September 30,
1995, an increase of $1.3 million, or 41%. The effective income tax rate
decreased to 43% in the nine months ended September 30, 1996 from 46% in the
nine months ended September 30, 1995. The decrease was the result of the use of
certain state tax planning measures in the nine months ended September 30, 1996.
TELESPECTRUM WORLDWIDE, INC. AND SUBSIDIARIES - HISTORICAL RESULTS OF OPERATIONS
TeleSpectrum Worldwide was incorporated on April 26, 1996. Therefore, no
comparable historical data is available. For the period from inception (April
26, 1996) to the date the operating businesses were acquired (August 12, 1996),
TeleSpectrum Worldwide incurred losses of approximately $0.6 million mainly
relating to certain startup costs incurred in preparation of the Acquisitions.
For the period from August 12, 1996 to September 30, 1996, the results of
operations of the Operating Businesses are included in the TeleSpectrum
Worldwide historical financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the period from inception (April 26, 1996) to September 30, 1996,
TeleSpectrum Worldwide generated net cash from operations of $3.0 million.
Net cash used in investing activities during the period from inception (April
26, 1996) to September 30, 1996 was $96.8 million. The primary use of cash in
investing activities was the $91.4 million cash portion of the aggregate
purchase price of the Operating Businesses. In addition, TeleSpectrum Worldwide
used $5.5 million to purchase property and equipment.
During the period from inception (April 26, 1996) to September 30, 1996,
TeleSpectrum Worldwide generated net cash from financing activities of $151.7
million. The primary source of cash from financing activities was the
TeleSpectrum Worldwide initial public offering which generated net proceeds of
$162.5 million. Repayments on long term debt and capital lease
<PAGE>
-43-
obligations was $9.9 million and $3.0 million, respectively.
TeleSpectrum Worldwide believes that existing cash, as well as cash to be
generated from operations, will be sufficient to meet its operating needs for
the foreseeable future. TeleSpectrum Worldwide is in the process of negotiating
a credit facility with a bank, to finance acquistions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Operating Businesses have in the past experienced, and TeleSpectrum
Worldwide could in the future experience, quarterly variations in revenues,
operating income and cash flow as a result of many factors, including the timing
and magnitude of clients' marketing campaigns and customer service programs, the
opening of new call centers, the loss of a major client, weather-related
interruptions, additional selling, general and administrative expenses to
acquire and support new business, the timing and magnitude of required capital
expenditures and changes in the revenue mix among TeleSpectrum Worldwide's
various service offerings. In connection with certain contracts, TeleSpectrum
Worldwide could incur costs in periods prior to recognizing revenues under those
contracts. In addition, TeleSpectrum Worldwide must plan its operating
expenditures based on revenue forecasts, and a revenue shortfall below such
forecasts in any quarter would likely adversely affect TeleSpectrum Worldwide's
operating results for that quarter.
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
PREDECESSOR COMPANIES
The Period from July 1, 1995 to September 30, 1995, Compared to the Period from
July 1, 1996 to August 12, 1996
SOMAR -
If the periods presented were of equal length, the revenue comparison would
show a significant increase period over period. This increase was the
result of adding several new clients. The increase in operating margin as a
percent of revenues period over period was the result of leveraging
selling, general and administrative expenses over larger revenues, a higher
margin business mix, as well as improved operating efficiencies.
NBG -
If the periods presented were of equal length, the revenue comparison would
show a significant increase period over period. This increase was primarily
the result of increased volume from existing clients. The decrease in
operating margin as a percent of revenues period over period was the result
of a lower margin business mix.
<PAGE>
-44-
HARRIS -
If the periods presented were of equal length, the revenue comparison would
show an increase period over period. This increase was primarily the result
of increased volume from an existing client. The decrease in operating
margin as a percent of revenues period over period was the result of a
lower volume of business being unable to absorb the fixed selling, general
and administrative expenses.
REICH -
If the periods presented were of equal length, the revenue comparison would
show a greater increase period over period. This increase was the result of
increased volume from existing clients. The increase in operating margin as
a percent of revenues period over period was the result of leveraging
selling, general and administrative expenses over larger revenues, a higher
margin business mix, as well as improving operating efficiencies.
RESPONSE CENTER -
If the periods presented were of equal length, the revenue comparison would
show an increase period over period. This increase was primarily the result
of adding several new clients. The increase in operating margin as a
percent of revenues period over period was the result of leveraging
selling, general and administrative expenses, over larger revenues.
TELESPECTRUM, INC. -
If the periods presented were of equal length, the revenue comparison would
show a significant increase period over period. This increase was the
result of adding several large new clients. The decrease in operating
margin as a percent of revenues period over period was the result of
additional depreciation expense associated with the operation of three
additional call centers during 1996.
THE PERIODS FROM JANUARY 1, 1995 TO SEPTEMBER 30, 1995, COMPARED TO THE PERIOD
FROM JANUARY 1, 1996 TO AUGUST 12, 1996
SOMAR -
If the periods presented were of equal length, the revenue comparison would
show a significant increase period over period. This increase was primarily
the result of adding several new clients. The increase in operating margin
as a percent of revenues period over period was the result of leveraging
selling, general and administrative expenses over larger revenues.
NBG -
If the periods presented were of equal length, the revenue comparison would
show a significant increase period over period. This increase was primarily
the result of increased volume from existing clients. The decrease in
operating margin as a percent of revenues period over period was the result
of a lower margin business mix.
HARRIS -
If the periods presented were of equal length, the revenue comparison would
show a decrease period over period. This decrease was primarily the result
of decreased volume from an existing client. The decrease in operating
margin as a percent of
<PAGE>
-45-
revenues period over period was the result of a lower volume of business
being unable to absorb the fixed selling, general and administrative
expenses.
REICH -
If the periods presented were of equal length, the revenue comparison would
show a greater increase period over period. This increase was the result of
increased volume from existing clients. The increase in operating margin as
a percent of revenues period over period was the result of leveraging
selling, general and administrative expenses over larger revenues, a higher
margin business mix, as well as improved operating efficiencies.
RESPONSE CENTER -
If the periods were of equal length, the revenue comparison would show a
decrease period over period. This decrease was primarily the result of less
volume from one client. The increase in operating margin as percent of
revenues period over period was the result of lower selling, general and
administrative costs as a percent of revenues in the most recent period.
TELESPECTRUM, INC.
If the periods presented were of equal length , the revenue comparison
would show a significant increase period over period. This increase was the
result of adding several large new clients. The increase in operating
margin as a percent of revenues period over period was the result of a
higher margin business mix.
The foregoing discussion contains historical information as well as forward
looking statements that involves a number of risks and uncertainties. In
addition to the risks discussed above, these risks include the lack of combined
operating history of the operating businesses, the potential and ability to
manage growth, reliance on major clients and key industries, risks associated
with acquisitions and other factors.
<PAGE>
-46-
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K filed by TeleSpectrum Worldwide Inc. on
November 14, 1996 regarding the acquisition of assets of and the
assumption of certain liabilities of Technical Assistance Research
Programs, Inc. and TARP Information Systems, Inc. and of the stock of
TARP (Europe) Limited.
Current Report on Form 8-K/A filed by TeleSpectrum Worldwide Inc. on
January 13, 1997 regarding the acquisition of assets of and the
assumption of certain liabilities of Technical Assistance Research
Programs, Inc. and TARP Information Systems, Inc. and of the stock of
TARP (Europe) Limited, specifically, Item 7., Combined Financial
Statements, Pro Forma Financial Information and Exhibits of TARP, Inc.,
TARP Information Systems and TARP (Europe) Limited.
<PAGE>
-47-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELESPECTRUM WORLDWIDE INC.
-----------------------------------------------------
(Registrant)
Date: February 11, 1997 /s/ Richard C. Schwenk, Jr.
------------------------------------------------------
Richard C. Schwenk, Jr.,
TeleSpectrum Worldwide Inc.
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 APR-26-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 57,943 0
<SECURITIES> 441 0
<RECEIVABLES> 21,250 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 82,390 0
<PP&E> 23,925 0
<DEPRECIATION> 1,175 0
<TOTAL-ASSETS> 258,164 0
<CURRENT-LIABILITIES> 24,274 0
<BONDS> 2,626 0
0 0
0 0
<COMMON> 248 0
<OTHER-SE> 230,821 0
<TOTAL-LIABILITY-AND-EQUITY> 258,164 0
<SALES> 17,295 17,295
<TOTAL-REVENUES> 17,295 17,295
<CGS> 11,528 11,528
<TOTAL-COSTS> 11,528 11,528
<OTHER-EXPENSES> 4,075 4,494
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 59 59
<INCOME-PRETAX> 2,013 1,594
<INCOME-TAX> 805 638
<INCOME-CONTINUING> 1,208 956
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,208 956
<EPS-PRIMARY> .07 .07
<EPS-DILUTED> 0 0
</TABLE>
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