<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22141
COMPLETE BUSINESS SOLUTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN
(State or Other Jurisdiction of
Incorporation or Organization)
38-2606945
(IRS Employer
Identification No.)
32605 WEST TWELVE MILE ROAD
SUITE 250
FARMINGTON HILLS, MICHIGAN 48334
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code: (248) 488-2088
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NO PAR VALUE
(Class of Common Stock)
27,224,900
(Outstanding as of July 22, 1998)
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<PAGE> 2
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income................. 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Other Information........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
SIGNATURES............................................................. 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues............................................... $67,012 $46,850 $127,549 $88,319
Cost of revenues:
Salaries, wages and employee benefits................ 36,633 28,210 70,193 53,852
Contractual services................................. 6,806 3,795 12,569 6,739
Project travel and relocation........................ 2,454 1,726 5,158 3,147
Depreciation and amortization........................ 332 293 650 657
------- ------- -------- -------
Total cost of revenues....................... 46,225 34,024 88,570 64,395
------- ------- -------- -------
Gross profit................................. 20,787 12,826 38,979 23,924
Selling, general and administrative expenses........... 12,635 9,815 24,625 18,366
Merger costs........................................... -- -- 3,421 --
------- ------- -------- -------
Income from operations....................... 8,152 3,011 10,933 5,558
Interest expense (income).............................. (632) 98 (1,170) 190
------- ------- -------- -------
Income before provision for income taxes and
minority interest.......................... 8,784 2,913 12,103 5,368
Provision for income taxes............................. 2,773 862 5,821 1,997
Minority interest...................................... -- -- -- 82
------- ------- -------- -------
Net income................................... $ 6,011 $ 2,051 $ 6,282 $ 3,289
======= ======= ======== =======
Basic earnings per share --
Weighted-average shares outstanding.................. 27,223 23,169 27,089 21,504
======= ======= ======== =======
Basic earnings per share............................. $ 0.22 $ 0.09 $ 0.23 $ 0.15
======= ======= ======== =======
Diluted earnings per share --
Weighted-average shares outstanding.................. 27,223 23,169 27,089 21,504
Diluted effect of stock options...................... 1,361 871 1,422 718
------- ------- -------- -------
Diluted weighted average shares outstanding.......... 28,584 24,040 28,511 22,222
======= ======= ======== =======
Diluted earnings per share........................... $ 0.21 $ 0.09 $ 0.22 $ 0.15
======= ======= ======== =======
Net income as reported................................. $ 6,011 $ 2,051 $ 6,282 $ 3,289
Pro forma incremental income tax provision (benefit)... -- 107 (1,417) (208)
------- ------- -------- -------
Pro forma net income................................... $ 6,011 $ 1,944 $ 7,699 $ 3,497
======= ======= ======== =======
Basic earnings per share --
Weighted-average shares outstanding.................. 27,223 23,169 27,089 22,041
======= ======= ======== =======
Basic earnings per share............................. $ 0.22 $ 0.08 $ 0.28 $ 0.16
======= ======= ======== =======
Diluted earnings per share --
Weighted-average shares outstanding.................. 27,223 23,169 27,089 22,041
Diluted effect of stock options...................... 1,361 871 1,422 718
------- ------- -------- -------
Diluted weighted-average shares outstanding.......... 28,584 24,040 28,511 22,759
======= ======= ======== =======
Pro forma diluted earnings per share................. $ 0.21 $ 0.08 $ 0.27 $ 0.15
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 52,579 $ 57,458
Accounts receivable, net.................................. 54,287 38,810
Prepaid expenses and other................................ 3,256 1,806
-------- --------
Total current assets................................... 110,122 98,074
-------- --------
Property and equipment, net................................. 10,141 8,371
Goodwill, net............................................... 2,736 2,809
Other assets................................................ 635 999
-------- --------
Total assets........................................... $123,634 $110,253
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,415 $ 4,370
Accrued payroll and related costs......................... 18,820 15,630
Revolving credit facility................................. -- 3,380
Distribution and loan payable to shareholders............. 765 1,325
Deferred revenue.......................................... 2,103 1,075
Other accrued liabilities................................. 9,010 4,362
-------- --------
Total current liabilities.............................. 37,113 30,142
-------- --------
Other liabilities........................................... 170 190
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, none issued................................ -- --
Common stock, no par value, 30,000,000 shares authorized,
and 27,224,677 and 26,653,406 shares issued and
outstanding as of June 30, 1998 and December 31, 1997,
respectively...........................................
Additional paid-in capital................................ 74,641 75,328
Retained earnings......................................... 16,142 7,779
Stock subscriptions receivable............................ (3,270) (2,503)
Cumulative translation adjustment......................... (1,162) (683)
-------- --------
Total shareholders' equity............................. 86,351 79,921
-------- --------
Total liabilities and shareholders' equity............. $123,634 $110,253
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
4
<PAGE> 5
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Net income.................................................. $ 6,282 $ 3,289
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,844 1,367
Provision for doubtful accounts........................... 612 150
Minority interest......................................... -- 82
Equity in loss of investee................................ -- 144
Change in assets and liabilities --
Accounts receivable.................................... (16,499) (2,307)
Prepaid expenses and other............................. (1,088) (1,360)
Accounts payable....................................... 2,022 1,081
Accrued payroll and related costs and other
liabilities........................................... 7,655 2,675
Deferred revenue....................................... 1,008 707
------- -------
Net cash provided by operating activities............ 1,836 5,828
------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (3,390) (1,626)
------- -------
Net cash used in investing activities................ (3,390) (1,626)
------- -------
Cash flows from financing activities:
Net payments on revolving credit facility and long-term
debt................................................... (3,380) (4,231)
Net proceeds from issuance of common stock................ 760 24,292
S corporation distribution................................ (658) (9,417)
------- -------
Net cash provided by (used in) financing
activities.......................................... (3,278) 10,644
------- -------
Effect of exchange rate changes on cash..................... (47) --
------- -------
Increase (decrease) in cash and cash equivalents............ (4,879) 14,846
------- -------
Cash and cash equivalents at beginning of period............ 57,458 3,937
------- -------
Cash and cash equivalents at end of period.................. $52,579 $18,783
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 76 $ 668
Income taxes........................................... $ 3,646 $ 1,747
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by management, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of Complete Business Solutions, Inc. and
subsidiaries (CBSI) as of June 30, 1998, the results of its operations for the
three and six month periods ended June 30, 1998 and 1997, and cash flows for the
six-month periods ended June 30, 1998 and 1997. These financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in CBSI's Joint Proxy Statement/ Prospectus, dated
June 9, 1998.
The results of operations for the three and six month periods ended June
30, 1998 are not necessarily indicative of the results to be expected in future
quarters or for the full fiscal year ending December 31, 1998.
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the accounts of CBSI. All
significant intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
On January 27, 1998, a subsidiary of CBSI closed an agreement and plan of
merger with c.w. Costello & Associates, inc. (Costello), a privately held
Delaware corporation. The merger agreement provided for all of the outstanding
Costello Common Stock to be exchanged for 3,363,090 of CBSI's Common Stock. In
addition, outstanding Costello options totaling 16,000 as of January 27, 1998
were converted into 56,909 options of CBSI. These options retained their
original terms and vesting periods. The merger with Costello was accounted for
by the pooling of interests method of accounting, and accordingly, the
accompanying condensed consolidated balance sheets and statements of income, and
cash flows have been retroactively restated.
On November 20, 1997, a subsidiary of CBSI closed an agreement and plan of
merger with Synergy Software, Inc., (Synergy) a privately held Illinois
corporation. The merger agreement provided for all of the outstanding Synergy
Common Stock to be exchanged for 1,390,894 shares of CBSI's Common Stock. In
addition, outstanding Synergy options totaling 646,462 as of November 20, 1997
were converted into 418,210 options of CBSI. These options retained their
original terms and vesting periods. The merger with Synergy was accounted for by
the pooling of interests method of accounting, and accordingly, the accompanying
condensed consolidated balance sheets and statements of income and cash flows
have been retroactively restated.
3. STOCK DIVIDEND
On February 18, 1998, the Board of Directors declared a two-for-one split
of CBSI's common stock, effected in the form of a stock dividend payable on
March 19, 1998 to shareholders of record on March 5, 1998. All agreements
concerning stock options provide for the issuance of additional shares due to
the declaration of the stock split. All references to number of shares, except
shares authorized, the number of options and to per share information in the
condensed consolidated financial statements and related notes have been adjusted
to reflect the stock split on a retroactive basis.
6
<PAGE> 7
4. INCOME TAXES
Prior to CBSI's initial public offering and the date of the merger with
Synergy, the shareholders of the respective companies had elected, under the
provisions of Subchapter S of the United States Internal Revenue Code, to have
income and related tax benefits of CBSI included in the taxable income of the
shareholders. As a result, no provision for U.S. federal or only certain state
income taxes have been included in the condensed consolidated statements of
income prior to CBSI's initial public offering and the date of the merger with
Synergy.
Upon termination of the Subchapter S elections, future income of CBSI is
subject to federal and state income taxes at the corporate level. Accordingly,
the application of the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," (SFAS No. 109) resulted in the
recognition of deferred tax assets and liabilities, and a corresponding charge
to the provision for income taxes of approximately $920 during the six month
period ended June 30, 1997.
As discussed in Note 2, on January 27, 1998, the Company merged with
Costello, an S corporation. As a result of the merger, the S corporation status
was terminated thereby subjecting future income of Costello to federal and state
income taxes at the corporate level. Accordingly, the application of SFAS No.
109 resulted in the recognition of deferred tax assets and liabilities, and a
corresponding charge to the provision for income taxes of approximately $1,400
during the six month period ended June 30, 1998.
CBSI has provided federal and state income taxes in the condensed
consolidated statements of income based on the anticipated effective tax rate
for fiscal years 1998 and 1997. The unaudited pro forma net income in the
condensed consolidated statements of income reflect applicable pro forma
adjustments to the provision for income taxes to reflect net income as if the
Subchapter S elections had been revoked prior to January 1, 1997.
CBS Mauritius is incorporated in Mauritius and is not subject to income
taxes. CBS India is an Indian corporation subject to income taxes and receives
exemptions from Indian income taxes under free trade zone and software exporters
provisions of Indian tax law. CBSI considers all undistributed earnings of its
foreign subsidiaries to be permanently invested. Therefore, no United States
income taxes have been provided on these earnings.
5. SUBSEQUENT EVENTS
On April 9, 1998, CBSI announced that it had signed a definitive Merger
Agreement with Claremont Technology Group, Inc. (Claremont), a publicly traded
Oregon corporation.
On July 16, 1998 and July 22, 1998, respectively, the shareholders of
Claremont and CBSI approved the Merger Agreement, and on July 24, 1998 the
Merger was completed.
The Merger Agreement provided that all of the outstanding Claremont common
stock be exchanged for approximately 7.2 million shares of CBSI's common stock
and that outstanding Claremont stock options be converted into approximately 1.2
million options to acquire CBSI Common Stock. In negotiating the purchase price,
CBSI considered the current market value of its Common Stock, Claremont's
reputation as a leading IT Systems Integrator, Claremont expertise in ERP
(enterprise resource planning) software implementation and client/server
technology, the minimal overlap of Claremont's and CBSI's clients, and the
opportunity to improve Claremont's margins.
The merger with Claremont will be accounted for by the pooling of interests
method of accounting. The following table presents unaudited summarized results
of operations and other changes in Shareholders' equity for CBSI for the six
month period ended June 30, 1998, and Claremont for the six month period ended
7
<PAGE> 8
March 31, 1998. Financial information for Claremont as of and for the periods
ended June 30, 1998 is not currently available.
<TABLE>
<CAPTION>
COMPLETE BUSINESS CLAREMONT
SOLUTIONS, INC. TECHNOLOGY GROUP, INC.
----------------- ----------------------
<S> <C> <C>
Revenues.................................................. $127,549 $44,895
======== =======
Gross profit.............................................. 38,979 18,723
======== =======
Income (loss) from Operations............................. 10,933 (6,244)
======== =======
Net Income (loss)......................................... 6,282 (6,495)
Other significant changes to Shareholders' equity -- S
Corporation distributions and other..................... 133 --
======== =======
</TABLE>
On July 22, 1998, the shareholders of CBSI approved to increase the number
of CBSI Common Stock authorized for issuance from 30,000,000 to 200,000,000.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with CBSI's condensed
consolidated financial statements and notes thereto included in this Quarterly
Report. With the exception of statements regarding historical matters and
statements regarding CBSI's current status, certain matters discussed below and
throughout this management discussion and analysis are forward-looking
statements that involve substantial risks and uncertainties that could cause
actual results to differ materially from targets or projected results. Such
forward-looking statements regarding targets or projections may be identified by
the use of the words "anticipate", "believe", "estimate", "plan", and similar
expressions. Factors that could cause such differences include the recruitment
and retention of IT professionals, government regulation of immigration,
increasing significance and risks of non-U.S. operations, variability of
operating results, decrease in demand for Year 2000 services, exposure to
conditions in India, fixed-price projects, competition, management of growth,
rapid technological change, risks related to mergers and acquisitions and
potential liability to clients.
RESULTS OF OPERATIONS
Revenues. The Company's revenues increased approximately 43% to $67 million
for the three month period ended June 30, 1998 from $46.9 million for the same
period in 1997. Revenue increased approximately 44% to $127.5 million for the
six month period ended June 30, 1998 from $88.3 million for the same period in
1997. This growth in revenues is primarily attributable to increases in the
Company's IT professional workforce, increases in average billing rates, further
expansion of the Company's international operations and additional services
provided to existing clients. The Company's IT professional workforce increased
approximately 39% for the three month period ended June 30, 1998 from the
comparable three month period in 1997, and approximately 38% for the six month
period ended June 30, 1998 from the comparable six month period in 1997.
Revenues from international operations, principally offshore development
centers, increased approximately 245% to $16.9 million for the six month period
ending June 30, 1998 from $4.9 million for the same six month period in 1997.
Revenues from existing clients increased $19 million and $37.9 million for the
three month and six month periods ended June 30, 1998, respectively, over the
same periods in 1997.
Gross Profit. Gross profit increased approximately 62% to $20.8 million for
the three month period ended June 30, 1998 from $12.8 million for the same
period in 1997, and approximately 63% to $39 million for the six month period
ended June 30, 1998 from $24 million for the same six month period in 1997.
These increases are primarily attributable to increases in the Company's IT
professional workforce and average U.S. billing rates, as well as the continued
expansion of the Company's offshore development centers. Gross profit as a
percentage of revenues increased to approximately 31% for the three month period
ended June 30, 1998 from approximately 27% for the same period in 1997. For the
six month period ended June 30, 1998, gross profit margin increased to
approximately 31% from 27% for the same period in 1997. These increases in gross
profit margin as a percentage of revenues are primarily attributable to the
Company's continued strategic shift of its business toward higher margin service
offerings, including Year 2000 services, and the increasing utilization and
expansion of the Company's offshore development centers which operate at higher
gross profit and operating margins. For the three month period ended June 30,
1998, approximately 16% of revenues were generated from contract programming
services, as compared with approximately 18% for the three month period ended
March 31, 1998 and approximately 25% for the six month period ended June 30,
1997. Year 2000 services, a higher margin service offering, represented 22% of
revenues for the three month period ended June 30, 1998 compared to 12% for the
same period in 1997.
Selling, General and Administrative. Exclusive of merger costs, selling,
general and administrative expenses increased approximately 29% to $12.6 million
for the three month period ended June 30, 1998 from $9.8 million for the same
period in 1997, and approximately 34% to $24.6 million for the six month period
ended June 30, 1998 from $18.4 million for the same six month period in 1997.
These increases resulted from the continued expansion of the Company's direct
selling and marketing effort, further enhancement of the infrastructure, and
other general overhead cost increases necessary to support the Company's
continued revenue growth. Exclusive of merger costs, as a percentage of
revenues, selling, general and administrative
9
<PAGE> 10
expenses decreased to 19% for the three and six month periods ending June 30,
1998, compared to 21% for the same periods in 1997.
Interest Expense (Income). Interest expense (income) represents interest
earned on cash equivalents, net of interest expense on borrowings. Interest
income for the six month period ended June 30, 1998 was $1.2 million, as
compared to other expense of $0.2 million for the six month period ended June
30, 1997. This change is primarily due to reduced interest expense, resulting
from the repayment of CBSI outstanding debt in 1997 and the repayment of
Costello's debt in 1998 and interest earned from the investment of net proceeds
from CBSI's public offerings of Common Stock in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations was $1.8 million for the six
month period ended June 30, 1998 compared to $5.8 million for the six month
period ended June 30, 1997. The decrease in net cash provided by operating
activities for the six month period ending June 30, 1998 compared to the same
period in 1997, is primarily due to increases in accounts receivable and the
payment of costs related to CBSI's Merger with Costello in January 1998.
The principal use of cash for investing activities during the six month
periods ended June 30, 1998 and 1997 was for the purchase of property and
equipment and computer software primarily as part of the development and
enhancement of the Company's software development centers.
Historically, borrowings and repayments under CBSI's revolving credit
facilities represented the most significant components of cash provided or used
by financing activities. All outstanding borrowings under the revolving credit
facility as of March 5, 1997 were repaid from the proceeds of the initial public
offering. In connection with the terminations of CBSI's S corporation status,
CBSI made partial distributions of its previously undistributed S corporation
earnings. Net cash provided by financing activities for the six month period
ended June 30, 1997 of $10.6 million was primarily due to CBSI realizing net
proceeds of approximately $24.3 million from its initial public offering in
March 1997.
Under an arrangement with a commercial bank, CBSI may borrow an amount not
to exceed $21 million with interest at the bank's prime interest rate, or the
Libor rate plus 1 1/2%. The borrowings under this facility are short-term,
payable on demand and are secured by trade accounts receivable and equipment of
CBSI. As of June 30, 1998, there were no borrowings outstanding under this
facility. In recent years, CBSI has executed several short-terms notes with the
bank to finance the purchase of equipment and software. During fiscal year 1997,
the balances outstanding on these notes were repaid. In 1997 and through
February 1998, Costello had a line of credit with a commercial bank which
included a base borrowing line of $11 million and a special advance of $1.5
million. As of December 31, 1997, approximately $3.4 million was outstanding
under this line of credit. In conjunction with the merger and during the first
quarter of 1998, the outstanding balance on this line of credit was repaid.
The international operations of CBSI, principally the offshore development
centers, accounted for approximately 13% of CBSI's total revenues during the six
month period ended June 30, 1998. Most of the CBSI's revenues are billed in U.S.
dollars. CBSI recognizes transaction gains and losses in the period of
occurrence. Foreign currency fluctuations during the six month period ended June
30, 1998 did not have a material impact on income from operations as currency
fluctuations on revenue denominated in a foreign currency were offset by
currency fluctuations on expenses denominated in a foreign currency. There were
no material operating trends or effects on liquidity as a result of fluctuations
in the functional currency. CBSI does not generally use any types of derivatives
to hedge against foreign currency fluctuations, nor does it speculate in foreign
currency.
Inflation did not have a material impact on CBSI's revenues or income from
operations during the six month period ended June 30, 1998.
CBSI continues to address the impact of the year 2000 issue on its internal
systems. CBSI believes the cost associated with its plan to convert its internal
systems will not be material. In addition, CBSI anticipates that Year 2000
conversion services will represent a significant percentage of its revenues for
the next few years.
10
<PAGE> 11
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," was issued in February 1997. CBSI will be
required to adopt the new standard for the year ended December 31, 1998. This
statement requires specific disclosure regarding CBSI's capital structure,
including descriptions of the securities comprising the capital structure and
the contractual rights of the holders of such securities. CBSI's adoption of
this statement during the six month period ended June 30, 1998 resulted in no
significant changes to the financial statements.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," was issued in June 1997. CBSI will be required to adopt
the new standard for the year ended December 31, 1998, although early adoption
is permitted. The primary objective of this statement is to report and disclose
a measure ("comprehensive income") of all changes in equity of a company that
result from transactions and other economic events of the period other than
transactions with owners. CBSI's adoption of this statement during the first
quarter of 1998 resulted in no significant changes to the financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997.
CBSI will be required to adopt the new standard for the year ended December 31,
1998, although early adoption is permitted. This statement requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way CBSI's management organizes segments within CBSI for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company. CBSI will adopt this
statement in fiscal year 1998.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued in
February 1998. CBSI will be required to adopt the new standard for the year
ended December 31, 1998. This statement standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer as useful as they were when Statement of
Financial Accounting Standards No. 87, 88 and 106 were issued. CBSI will adopt
this statement in fiscal year 1998.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 8, 1998 the annual meeting of shareholders was held. The meeting was
held for the following purposes:
1. to consider and act upon a proposal to amend the Bylaws of CBSI to
increase the maximum number of directors from 7 to 9;
2. to consider and act upon a proposal to increase the number of
shares of CBSI Common Stock authorized for issuance pursuant to the CBSI
1996 Stock Option Plan from 3,247,454 shares to 7,247,454 shares of CBSI
Common Stock;
3. to consider and act upon a proposal to approve the CBSI Employee
Stock Purchase Plan;
4. to elect directors;
5. to consider and act upon a proposal to confirm the appointment of
Arthur Andersen LLP as the independent auditors of CBSI for the year ending
December 31, 1998
The shareholders approved to increase the maximum number of directors from
7 to 9. The vote was 20,097,868 approved, 98,065 against, and 4,368 abstentions.
The shareholders approved to increase the number of shares authorized for
issuance pursuant to the CBSI Employee Stock Option Plan from 3,247,454 shares
to 7,247,454 shares. The vote was 18,428,082 approved, 1,760,499 against, and
11,720 abstentions.
The shareholders approved the CBSI Employee Stock Purchase Plan. The vote
was 20,012,376 approved, 178,100 against, and 9,825 abstentions.
The shareholders re-elected Mr. Douglas Land as director. The vote was
22,416,284 approved and 7,400 against.
The shareholders re-elected Mr. Frank Stella as director. The vote was
22,416,534 approved and 7,650 against.
The shareholders re-elected Mr. John Stanley as director. The vote was
22,416,284 approved and 7,400 against.
The shareholders elected Mr. Charles Costello as director. The vote was
22,415,546 approved and 7,542 against.
The shareholders elected Mr. Ronald Machtley as director. The vote was
22,416,284 approved and 7,400 against.
The shareholders approved the appointment of Arthur Andersen LLP as the
independent auditors of CBSI for the year ending December 31, 1998. The vote was
20,190,253 approved, 4,492 against, and 5,556 abstentions.
ITEM 5. OTHER INFORMATION
On June 9, 1998, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission for the registration of shares to be
issued in the merger between Complete Business Solutions, Inc. and Claremont
Technology Group, Inc.
On June 30, 1998, the Company filed a Registration Statement on Form S-8
with the Securities and Exchange Commission for the registration of 1,000,000
shares of its Common Stock to be issued pursuant to the Complete Business
Solutions, Inc. 1997 Employee Stock Purchase Plan.
12
<PAGE> 13
On June 30, 1998, the Company filed a Registration Statement on Form S-8
with the Securities and Exchange Commission for the registration of 4,000,000
shares of its Common Stock to be issued pursuant to the Complete Business
Solutions, Inc. 1996 Stock Option Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
(11) Computation of Earnings per share
(27) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On April 9, 1998, the Company filed a Report on Form 8-K with the
Securities and Exchange Commission announcing that it had signed a definite
Merger Agreement with Claremont Technology Group, Inc., a publicly traded Oregon
corporation.
On July 27, 1998, the Company filed a Report on Form 8-K amending and
restating Item 7 of its report on Form 8-K dated April 9, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPLETE BUSINESS SOLUTIONS, INC.
By: /s/ RAJENDRA B. VATTIKUTI
------------------------------------
Rajendra B. Vattikuti
President and Chief Executive
Officer
/s/ TIMOTHY MANNEY
------------------------------------
Timothy Manney
Executive Vice President of Finance
and
Administration, Treasurer and
Director
Dated: August 4, 1998
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
(11) Computation of Earnings per share
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
PRO FORMA OR ACTUAL NET INCOME PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Weighted average number of shares of Common Stock
outstanding............................................... 27,222,997 23,168,781
Common Stock equivalents calculated using the weighted
average stock price per share for the periods presented... 1,360,915 870,794
----------- -----------
Weighted average shares outstanding......................... 28,583,912 24,039,575
=========== ===========
Actual or pro forma net income.............................. $ 6,011,000 $ 1,944,000
=========== ===========
Actual or pro forma net income per common share............. $ 0.21 $ 0.08
=========== ===========
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
Weighted average number of shares of Common Stock
outstanding............................................... 27,088,555 21,502,966
Common Stock equivalents calculated using the weighted
average stock price per share for the periods presented... 1,422,419 349,802
Stock options and convertible stock issued during the twelve
months immediately preceding the offering date............ -- 368,422
Stock issued to satisfy S corporation distribution based
upon the estimated initial public offering price per
share..................................................... -- 537,333
----------- -----------
Weighted average shares outstanding......................... 28,510,974 22,758,523
=========== ===========
Pro forma net income........................................ $ 7,699,000 $ 3,497,000
=========== ===========
Pro forma net income per common share....................... $ 0.27 $ 0.15
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 52,579
<SECURITIES> 0
<RECEIVABLES> 54,287
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,122
<PP&E> 10,141
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,634
<CURRENT-LIABILITIES> 37,113
<BONDS> 0
0
0
<COMMON> 74,641
<OTHER-SE> 11,710
<TOTAL-LIABILITY-AND-EQUITY> 123,634
<SALES> 0
<TOTAL-REVENUES> 67,012
<CGS> 0
<TOTAL-COSTS> 46,225
<OTHER-EXPENSES> 33,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (632)
<INCOME-PRETAX> 8,784
<INCOME-TAX> 2,773
<INCOME-CONTINUING> 6,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,011
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
