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Filed pursuant to Rule 424(b)(4)
Registration No. 333-37327
2,700,000 SHARES
AHL SERVICES, INC.
COMMON STOCK
[AHL SERVICES, INC. LOGO]
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All of the 2,700,000 shares of Common Stock offered hereby are being sold
by AHL Services, Inc. ("AHL" or the "Company"). The Common Stock is traded on
The Nasdaq Stock Market under the symbol "AHLS." On October 29, 1997, the last
reported sale price of the Common Stock on the Nasdaq National Market was $15.50
per share. See "Price Range of Common Stock."
Upon completion of this offering, the Company's principal shareholder will
beneficially own approximately 61.7% of the outstanding Common Stock.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
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Per Share......................... $16.00 $0.88 $15.12
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Total(2).......................... $43,200,000 $2,376,000 $40,824,000
=============================================================================================================
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(1) Before deducting expenses of the offering estimated at $500,000.
(2) The Company and an affiliate of the Company's principal shareholder (the
"Selling Shareholder") have granted the Underwriters a 30-day option to
purchase up to an additional 51,570 shares and 353,430 shares of Common
Stock, respectively, solely to cover over-allotments, if any. To the extent
that the option is exercised, the Underwriters will offer the additional
shares at the Price to Public shown above. If the option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Shareholder will be $49,680,000,
$2,732,400, $41,603,738 and $5,343,862, respectively. See "Principal and
Selling Shareholders" and "Underwriting."
-----------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about November 4,
1997.
BT Alex. Brown
Credit Suisse First Boston
The Robinson-Humphrey
Company
THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1997.
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[INSERT GRAPHICS]
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CERTAIN PERSONS PARTICIPATING IN THE COMMON STOCK OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS PARTICIPATING IN THIS
OFFERING MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
AHL provides contract staffing and management of its clients'
labor-intensive operational support functions on an outsourced basis throughout
the United States and Europe. The Company's core competencies include
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
while incorporating quality systems and cost efficiency in its operations.
Founded in 1979, the Company is a leader in providing pre-departure screening,
passenger profiling and other passenger services to the aviation industry and,
increasingly, provides services to other large corporations, including Federal
Express, America Online, Georgia Power, BellSouth, Nike and Motorola. Through
its 67 offices in the United States and 27 offices in seven European countries,
AHL is able to service the multinational outsourcing needs of its largely
Fortune 1000 client base. The Company currently has approximately 500 contracts
to provide services and has established long-term relationships with its largest
clients, providing the Company with a significant source of predictable
recurring revenues. The Company intends to take advantage of market trends
toward contract staffing and become the preferred provider of outsourced labor
management solutions for its clients by leveraging its core competencies,
international scale, reputation for quality, performance-based quality
measurement systems, management depth and senior-level relationships with its
key clients. To capitalize on these market trends and to enter new complementary
business lines, the Company has completed three acquisitions since its initial
public offering in March 1997 and has two acquisitions pending.
Large corporations and other institutions are seeking to outsource a
variety of non-core functions to enable them to better focus on their core
competencies. Many enterprises need to recruit, hire, train, motivate and manage
large numbers of personnel to handle non-core functions, in labor environments
often characterized by relatively low pay and high turnover rates. Increasingly,
enterprises are contracting with specialized third party providers to better
ensure long-term labor availability for support functions. Outsourcing these
functions shifts employment costs and risks, such as workers' compensation,
recruitment and turnover costs and changes in labor regulations, to outside
vendors and allows enterprises to reduce the administrative overhead and time
necessary to properly manage non-core functions. Large enterprises are
increasingly seeking partnering opportunities whereby the third party provider,
in addition to providing on-site management of staff, assumes responsibility for
a particular function, including designing and implementing a solution for its
client, and may share in the economic benefits derived from improved execution.
The Company provides a variety of services to its clients, all of which are
focused on labor-intensive operational support functions. The Company's services
to its airline clients include pre-departure screening, passenger profiling,
cargo handling and a number of passenger services, such as baggage claim and
check, aircraft clean and search, lost baggage delivery and replacement, sky
cap, wheelchair assistance, escorting of unaccompanied minors, inter-gate cart
services and frequent flyer lounge operation. Management believes, based on its
knowledge of the industry, that the Company is the largest provider of
pre-departure screening and passenger profiling services in the United States
and Europe combined. The Company also provides commercial security and shuttle
bus services and, as a result of a recent acquisition, staffing for warehouse
"pick and pack" and light industrial functions. The Company believes that it is
well-positioned to expand the operational support services it provides to its
clients and to deliver additional services to its clients, such as order
fulfillment and inbound call management functions.
The Company believes that its national and international scale provides it
with a significant advantage in competing for contracts from targeted clients,
given market trends toward outsourced
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solutions and vendor consolidation. To demonstrate its ability to deliver
quality services at lower cost, AHL is developing performance-based quality
measurement systems to further differentiate itself in the contract staffing
industry in which quality measurement has not been prevalent. The Company
typically enters into multi-year agreements with clients under which the client
pays an hourly rate for services performed.
The Company has grown rapidly during the past five years as it has entered
new markets on behalf of its clients and expanded its range of services.
Revenues have grown from $82.6 million in 1992 to $210.2 million in 1996, a
compound annual growth rate of 26.3%. The Company follows a disciplined model
for growth, entering a new market only after it has signed a contract with a
client to provide specific services in that market. Once an initial contract is
awarded, the Company establishes an office and begins building management depth
in that market. After establishing operations in a new market and demonstrating
its ability to provide high quality services, the Company has successfully
leveraged its local infrastructure by marketing additional services to its
initial client and by providing services to additional clients in that region.
The Company's field management and direct sales force market AHL's services to
clients in their assigned regions, while senior executives concentrate on
senior-level relationships and national account management.
The key elements of the Company's growth strategy are to (i) continue to
penetrate existing accounts, (ii) expand service offerings, (iii) obtain new
clients and (iv) continue to seek strategic acquisitions. The Company believes
that substantial opportunities exist in the United States as enterprises are
increasingly outsourcing support functions which have traditionally been
performed in-house, as well as in Europe, where the trends toward labor
management outsourcing are less developed than in the United States. In
addition, the Company believes that it is well-positioned to benefit if more
stringent aviation security measures are implemented by the Federal Aviation
Administration ("FAA").
RECENT DEVELOPMENTS
Recent Financial Results. On October 23, 1997, the Company announced
results for the three months and nine months ended September 30, 1997. For the
three months ended September 30, 1997, revenues increased $15.1 million, or
26.3%, to $72.4 million from $57.3 million for the three months ended September
30, 1996. Net income for the three months ended September 30, 1997 increased
$1.1 million, or 124.7%, to $2.0 million from $899,000 for the three months
ended September 30, 1996, and earnings per share for the three months ended
September 30, 1997 increased $0.07, or 63.6%, to $0.18 from $0.11 for the three
months ended September 30, 1996. For the nine months ended September 30, 1997,
revenues increased $46.1 million, or 30.6%, to $196.6 million from $150.5
million for the nine months ended September 30, 1996. Net income for the nine
months ended September 30, 1997 increased $2.0 million, or 114.0%, to $3.7
million from $1.7 million for the nine months ended September 30, 1996, and
earnings per share for the nine months ended September 30, 1997 increased $0.16,
or 80.0%, to $0.36 from $0.20 for the nine months ended September 30, 1996. The
foregoing financial results are not audited and are not necessarily indicative
of the results that may be expected for future periods.
Completed Acquisitions. In September 1997, AHL acquired Lloyd Creative
Temporaries, Inc. ("Lloyd"), a Chicago-based company that provides staffing for
warehouse "pick and pack" and light industrial (such as product assembly)
functions, for approximately $5.0 million in cash plus contingent consideration
(the "Lloyd Acquisition"). Lloyd had revenues for the twelve months prior to the
acquisition of approximately $14.0 million. In May 1997, AHL acquired the
commercial security business of New Jersey-based USA Security Services, Inc.
("USA Security") for approximately $2.6 million in cash (the "USA Security
Acquisition"). USA Security had revenues for the twelve months prior to the
acquisition of approximately $8.6 million. In May 1997, AHL acquired British
Airways' executive aircraft services business at Heathrow Airport ("EAS") for
approximately $2.8 million in cash plus contingent consideration (the "EAS
Acquisition"). EAS provides ground
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handling and passenger services for executive aircraft and had revenues for the
twelve months prior to the acquisition of approximately $2.4 million. All of
these acquisitions have been accounted for under the purchase method of
accounting.
Pending Acquisition. In October 1997, the Company executed a definitive
agreement to purchase RightSide Up, Inc. ("RightSide Up"), a California-based
company that provides order fulfillment and inbound call management services
principally for clients in the entertainment industry, for $6.0 million in cash
plus contingent consideration (the "RightSide Up Acquisition"). RightSide Up had
revenues for the twelve months ended August 31, 1997 of approximately $6.2
million. The Company expects the RightSide Up Acquisition to close on November
1, 1997.
Potential Acquisition. In October 1997, the Company signed a letter of
intent to purchase a Chicago-based company that provides staffing for warehouse
"pick and pack" and light industrial functions, for $5.0 million in cash (the
"Chicago Acquisition"). The Chicago-based company had revenues for the twelve
months ended December 31, 1996 of approximately $6.2 million. The Company
expects to execute a definitive purchase agreement for the Chicago Acquisition
following consummation of this offering. However, there can be no assurance that
a definitive purchase agreement will be executed or that the Chicago Acquisition
will be consummated.
THE OFFERING
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Common Stock offered by the Company.......... 2,700,000 shares
Common Stock to be outstanding after the
offering................................... 13,553,430 shares(1)
Use of proceeds.............................. To repay outstanding indebtedness and for
general corporate purposes, including working
capital and possible acquisitions.
Nasdaq National Market symbol................ AHLS
</TABLE>
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(1) Excludes 1,099,500 shares of Common Stock reserved for issuance upon
exercise of outstanding options with a weighted average exercise price of
$10.21 per share. See "Management -- Employee Benefit Plans -- Stock Option
Plan."
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SUMMARY COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) JUNE 30,
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1992 1993 1994 1995 1996 1996 1997
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STATEMENT OF OPERATIONS DATA:
Revenues........................... $82,576 $104,143 $123,234 $168,601 $210,153 $93,162 $124,194
Operating income................... 2,410 1,044 1,633 2,844 5,043 1,887 4,056
Income before income taxes and
extraordinary items.............. 2,089 540 755 2,355 3,618 1,415 3,480
Income (loss) before extraordinary
items............................ 1,444 (160) 128 1,438 2,171 849 2,105(2)
Income per share before
extraordinary items.............. 0.25(3) 0.10(3) 0.21(2)
Weighted average common and common
equivalent shares................ 8,557(3) 8,557(3) 9,895
OPERATING DATA (AT PERIOD END):
Number of employees................ 3,972 5,714 7,334 9,954 12,980 10,085 13,590
Number of offices.................. 11 26 33 69 83 80 89
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JUNE 30, 1997
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PRO FORMA
ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA:
Working capital........................................... $21,368 $44,402
Total assets.............................................. 62,908 97,453
Long-term debt, net of current portion.................... 7,808 1,729
Shareholders' equity...................................... 29,414 69,738
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(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks, except that fiscal 1993
consists of 53 weeks.
(2) Excludes extraordinary items, net of taxes, of $385,000, or $0.04 per share,
resulting from early extinguishment of debt. Including the extraordinary
items, net income was $1,720,000 and net income per share was $0.17.
(3) Pro forma to give effect to the Reorganization (as hereinafter defined).
(4) Pro forma to give effect to the Lloyd Acquisition and the RightSide Up
Acquisition and adjusted to give effect to the sale of the 2,700,000 shares
of Common Stock offered hereby and application of the estimated net proceeds
therefrom as described in "Use of Proceeds."
As of February 1, 1997, all of the outstanding shares of common stock of
Argenbright Holdings Limited ("Argenbright"), a holding company for U.S.
operations, and The ADI Group Limited (together with its predecessors, "ADI"), a
holding company for European operations, were contributed to AHL by Mr. Frank A.
Argenbright, Jr., who founded both companies. As a result, Argenbright and ADI
became wholly-owned subsidiaries of the Company. The Company's executive offices
are located at 3353 Peachtree Road, NE, Atlanta, Georgia 30326 and its telephone
number is (404) 267-2222.
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Unless the context otherwise requires, (i) the "Company" or "AHL" refers to
AHL Services, Inc., including Argenbright and ADI and their predecessors and
subsidiaries, (ii) all information in this Prospectus gives effect to the
Reorganization (as hereinafter defined) and (iii) all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment options. The
"Reorganization" refers to the transactions in which Mr. Argenbright contributed
to the Company (i) the outstanding common stock of Argenbright and ADI, (ii)
certain real estate, a portion of which was previously rented by the Company
(with the Company assuming the related mortgage debt) and (iii) a note with a
balance of $528,000 as of December 31, 1996 payable by the Company to Mr.
Argenbright. All of the above transactions in the Reorganization were brought
forward at historical values. See "Management -- Compensation Committee
Interlocks and Insider Participation."
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of the Common Stock offered by this Prospectus. This Prospectus contains certain
forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, with respect to the financial condition, results
of operations and business of the Company, including statements under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." These forward-looking statements involve
certain risks and uncertainties. No assurance can be given that any of such
matters will be realized. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following: (i) competitive pressures in the contract staffing
and outsourcing industries; (ii) management and integration of the operations of
acquired businesses; (iii) the Company's business and growth strategies and (iv)
general economic conditions.
Reliance on Major Clients. The Company derives a significant portion of
its revenues from relatively few clients. During fiscal 1996, Delta Air Lines,
British Airways, United Airlines and Federal Express accounted for 23.1%, 12.6%,
11.3% and 4.2% of the Company's revenues, respectively, through an aggregate of
78 contracts and, together, represented 51.2% of the Company's revenues. During
the six months ended June 30, 1997, United Airlines, Delta Air Lines, British
Airways and Federal Express accounted for 19.5%, 17.6%, 11.7% and 4.0% of the
Company's revenues, respectively, through an aggregate of 83 contracts and,
together, represented 53.8% of the Company's revenues. During fiscal 1996 and
the six months ended June 30, 1997, the Company's ten largest clients accounted
for an aggregate of 61.2% and 62.6%, respectively, of the Company's revenues
(excluding the terminated Florida transportation operations). The Company's
contracts with its clients are generally terminable by either party upon 30 to
90 days notice, and these contracts expire at various times over the next
several years. Accordingly, although the Company currently operates under
multiple contracts with most of its major clients (including all of its airline
clients), there can be no assurance that one or more of the Company's major
clients will not terminate or decide not to renew one or more of its contracts
with the Company or that any of the Company's clients will not seek to
renegotiate its contracts at lower margins to the Company. The loss of one or
more of the Company's major clients would have a material adverse effect on the
Company. See "Business -- Services Provided -- Clients."
Dependence on Aviation Industry. The Company's continued success is
largely dependent on continuing demand for the Company's services from passenger
airlines and cargo carriers. In fiscal 1996 and the six months ended June 30,
1997, approximately 63% and 71%, respectively, of the Company's revenues were
derived from services provided to clients in the aviation industry.
Additionally, the financial condition of the Company's airline clients is likely
to have a material impact upon the nature and extent of the services which such
airlines procure from the Company and other independent suppliers and the prices
which such airlines will be willing to pay for such services. Consolidation in
the airline industry may result in the Company losing contracts. The financial
difficulties of airlines may result in their being forced to seek bankruptcy
protection or cease operating, which could result in material uncollectible
accounts receivable and a reduction in the Company's volume of business. The
aviation industry historically has been highly cyclical, and a significant
downturn in the aviation industry could have a material adverse effect on the
Company's business. Although the volume of air travel throughout the world has
experienced significant growth in the past ten years, there can be no assurance
that such growth will continue. Because the Company's typical billing
arrangements are based on the number of hours of service provided by the Company
or flights serviced, a decrease in the level of air travel would have an adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Industry Overview."
The Company intends to lessen its reliance on the aviation industry by
seeking to expand its client base in other industries and strengthen developing
relationships with its non-aviation clients.
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However, there can be no assurance that these efforts will be successful or that
the Company's services will be widely accepted outside the aviation industry.
See "Business -- Services Provided."
Risks Associated with Managing a Growing Business. The Company has rapidly
expanded its operations in the past several years, and this growth has placed
demands on its management, administrative, operating and financial resources.
The planned continued growth of the Company's client base, the types of services
offered and the geographic markets served can be expected to continue to place a
significant strain on the Company's resources. The Company's future performance
and profitability will depend in large part on its ability to attract and retain
additional management and other key personnel, its ability to successfully
implement enhancements to its management systems and its ability to adapt those
systems, as necessary, to respond to changes in its business. See
"Business -- Growth Strategy", "-- Management Information Systems" and
"Management."
Risks Associated with Acquisition Strategy. An important element of the
Company's growth strategy is to pursue acquisitions that increase density in the
Company's existing markets, add geographic coverage to its existing business,
add new complementary business lines or expand its client base. The Company has
limited experience in making acquisitions, having completed only three
acquisitions prior to its initial public offering, but the Company has recently
embarked on a more aggressive acquisition program, completing three additional
acquisitions since May 1997 and having two acquisitions pending. There can be no
assurance that the Company will be able to identify acceptable acquisition
candidates or complete the acquisition of any identified candidates on terms
favorable to the Company or in a timely manner. A substantial portion of the
Company's capital resources, including a portion of the proceeds from this
offering, could be used for these acquisitions. The Company may require
additional debt or equity financings for future acquisitions, which may not be
available on terms favorable to the Company, if at all. There is also no
assurance that the Company will be able to successfully integrate any acquired
business or new business line into the Company's business or that any acquired
business or new business line will be able to be profitably operated by the
Company. See "Business -- Acquisitions."
Dependence on Labor Force. The contract staffing industry is labor
intensive and is characterized by high rates of personnel turnover and periodic
shortages of sufficient personnel in some markets. The Company may from time to
time be required to increase the wages that it pays and the benefits that it
provides in order to attract and retain a sufficient number of qualified
employees. In addition, the Company may not be able to pass along to its clients
any additional costs associated with an increase in the minimum wage. Some of
the Company's security activities require highly trained employees. A higher
turnover rate among the Company's employees would increase the Company's
recruiting and training costs and may adversely affect productivity. If the
Company were unable to recruit and retain a sufficient number of employees, it
would be forced to limit its growth or possibly reduce the scope of its
operations. There is intense competition for qualified personnel among contract
staffing firms as well as other employers of large numbers of hourly workers
located in the markets where the Company operates. There can be no assurance
that the Company will be able to continue to hire and retain a sufficient number
of qualified personnel in its markets or elsewhere to support its planned growth
or existing operations. See "Business -- Workforce Management."
Risks of Conducting International Operations. A substantial portion of the
Company's revenues and earnings comes from its European operations.
International operations and the provision of services in foreign markets are
subject to a number of special risks, including currency exchange rate
fluctuations, trade barriers, exchange controls, national and regional labor
strikes, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of the Company.
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A substantial amount of the Company's revenues are received, and operating
costs are incurred, in foreign currencies, with a significant amount of
operating income having been derived from operations in the United Kingdom.
Because the Company's financial statements are presented in U.S. dollars, any
significant fluctuations in the exchange rates between certain Western European
currencies and the U.S. dollar will affect the Company's results of operations
and financial condition. The Company does not currently engage in
currency-hedging transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Liabilities for Client and Employee Actions and Other Claims. The Company
is in the business of placing its employees in public facilities and the
workplaces of other businesses. Attendant risks include possible claims by its
clients' customers or employees of discrimination, harassment and negligence by
the Company's employees and other similar claims. The Company is exposed to
liability for the acts or negligence of its employees while on assignment that
cause personal injury or damages, as well as claims of misuse of client
proprietary information or theft of client property. As a provider of security
services, the Company faces potential liability claims in the event of any
terrorist attempt or other criminal activity which occurs on any airline or
premises subject to the Company's security services. The Company has policies
and guidelines in place to reduce its exposure to these risks, but a failure to
follow these policies and guidelines may result in the payment by the Company of
money damages or fines and adverse publicity. The Company maintains insurance
coverage against certain of these risks, but there can be no assurance that
insurance coverage will continue to be available on acceptable terms or that it
will be adequate to cover any such liability. Any of these situations would have
a material adverse effect on the Company's reputation, business, results of
operations and financial condition. See "Business -- Risk Management and
Safety."
Employee-Related Costs and Claims Exposure. The Company is required to pay
unemployment insurance premiums and workers' compensation benefits for its
employees in the United States. Any increase in the cost of unemployment
insurance or workers' compensation benefits could adversely affect the Company's
profitability. The Company is self-insured for the first $250,000 of each
workers' compensation and automobile or shuttle bus claim and, accordingly,
establishes reserves for future claims and payments. There can be no assurance
that the Company's actual future workers' compensation or liability claims will
not exceed the amount of the Company's reserves. Furthermore, there can be no
assurance that the Company will be able to pass along to its clients any
increased costs related to unemployment and workers' compensation insurance. See
"Business -- Risk Management and Safety."
Impact of Trends Toward Outsourcing, Privatization and Preferred Vendor
Contracts. Outsourcing by U.S. airlines of an increasing number of services not
directly related to flight operations has increased significantly in the past
several years, and the privatization of airport security and other services by
Western European government agencies has recently begun. Although these trends
have increased the demand for the Company's services, there can be no assurance
that these trends will continue or not be reversed or that airlines will not
decide to bring previously outsourced functions back in-house. In addition, the
trend by airlines to select a limited number of preferred vendors to provide all
or a large part of their required pre-departure screening and other services may
not continue or, if it does continue, there can be no assurance that the Company
will be selected as a preferred vendor to provide such services. Adverse
developments with respect to any of these industry trends could have a material
adverse effect on the business, results of operations and financial condition of
the Company. See "Business -- Industry Overview."
A significant element of the Company's growth strategy is to take advantage
of the trends toward outsourcing by seeking contracts to provide labor-intensive
operational support services for companies outside the aviation industry. To the
extent these potential clients decide not to expand the range of services they
outsource or decide to select vendors other than the Company to perform the
outsourced services, the Company may be unsuccessful in executing this element
of its growth strategy. See "Business -- Industry Overview" and "-- Growth
Strategy."
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Fluctuations in Demand for the Company's Services. Demand for the types of
security services provided by the Company is affected by the perceived threat of
terrorist and other criminal activity in the world generally and, specifically,
in the aviation industry. In addition, the Company's business is affected by
determinations of government agencies that regulate aviation security (e.g., the
FAA and the United Kingdom Department of Transport ("U.K. DOT")). Typically,
demand for the Company's aviation security services rises after events involving
or potentially involving terrorist activity and may thereafter decline as the
threat is perceived to diminish. There can be no assurance that the Company will
be able to manage fluctuations in the demand for its services successfully or
that a decline in demand for the Company's services will not have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Business -- Government Regulation."
Failure to Meet Performance Requirements. The success of the Company will
be dependent upon its ability to continue to meet the performance requirements
set by its clients and the government agencies which regulate them. The Company
is subject to random periodic testing by the FAA with regard to adherence to
regulations relating to pre-departure screening and passenger profiling, hiring
practices (including background checks, drug testing, training and individual
employee file maintenance) and baggage handling, and by the U.K. DOT regarding
regulations relating to passenger and baggage handling, aircraft security,
document verification and employee background checks. Any failure to meet these
performance standards or to pass these tests may result in the loss of a
contract or the Company's license to perform services, either of which is likely
to have a material adverse effect on the Company's reputation, business, results
of operations and financial condition. See "Business -- Government Regulation."
Loss of Required Licenses. In many airports in which the Company operates
(including most of the major international airports in Western Europe), a
license is required from the airport authority in order to perform services at
the airport. Some airport authorities limit the number of licenses they issue.
Although the Company currently has licenses to operate in several of the major
international airports in Western Europe where licenses are required, the loss
of, or failure to obtain, a license to operate in one or more airports is likely
to result in the loss of, or the inability to compete for, a major contract. See
"Business -- Government Regulation."
Development of Alternative Services. The pre-departure screening services
and passenger profiling services currently offered by the Company utilize a
large number of personnel and, in certain markets, include the direct
interviewing of each passenger boarding an aircraft. The development of
technologies requiring less manpower or alternative passenger classification
methodologies which are more effective or less expensive than the Company's
current services would reduce demand for the Company's services. In particular,
the costs associated with the performance of passenger profiling and its impact
on passengers may serve as an incentive for airlines to seek the development of
technological alternatives which would be more effective in detecting weapons
and explosives and identifying terrorists. The Company is aware of ongoing
efforts by certain airlines and the FAA to develop such alternatives and of
various governmental authorities' endorsement of these initiatives. The
development and implementation of such alternative systems could have a material
adverse effect on the Company. See "Business -- Services Provided."
Government Regulation. Aviation security matters affecting airports and
passenger airlines are subject to extensive regulation by the FAA and foreign
government agencies. Demand for the Company's pre-departure screening, passenger
profiling, aviation security and various other services is significantly
affected by applicable regulatory requirements and security directives issued by
governmental authorities. There can be no assurance that applicable regulations
will not be changed in a manner that would adversely affect the demand for the
Company's services. For example, from time to time there have been proposals to
shift responsibility for certain aviation security functions from the airlines
to airport authorities or other governmental agencies and any such shift could
reduce demand for the Company's services. Additionally, major U.S. airlines have
considered the creation of a nationwide non-profit security corporation, funded
by the airlines, to handle airport
10
<PAGE> 11
security. Any shift in responsibility for aviation security functions or any
trend toward the relaxation of aviation security measures could have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Business -- Government Regulation."
Competition. The contract staffing industry is extremely competitive and
highly fragmented, with limited barriers to entry. Companies within the contract
staffing industry compete on the basis of the quality of service provided, their
ability to provide national and international services, the range of services
offered, as well as price. The Company competes in international, national,
regional and local markets with outsourcing companies, specialized contract
service providers and in-house organizations that provide services to potential
clients and third parties. AHL's principal competitors include, in the aviation
services industry, ICTS International N.V., Globe Aviation Securities
Corporation and International Total Services, Inc. and, in the commercial
security industry, Borg-Warner Security Corporation, Guardsmark, Inc. and The
Wackenhut Corporation. The Company's warehouse "pick and pack," light industrial
and shuttle bus services compete primarily with numerous local and regional
companies as well as divisions of several major staffing companies. Certain of
the Company's competitors and potential competitors have significantly greater
financial resources and larger operations than the Company. The Company expects
that the level of competition will remain high or increase in the future, and
there can be no assurance that the Company will continue to compete
successfully. See "Business -- Competition."
Fluctuations in Quarterly Operating Results. The Company has experienced
and expects to continue to experience quarterly variations in revenues and net
income as a result of various factors, including the timing of commencement of
new contracts, changes in its revenue mix, the timing of additional selling,
general and administrative expenses to support new business and the seasonality
of air travel. Since the Company's revenues are typically based on the number of
hours of service provided by the Company or the number of flights serviced,
decreases in air travel generally result in lower revenues for the Company.
While the effects of seasonality on AHL's business often are obscured by the
timing of the addition of new clients, the performance of new services for
existing clients or the timing of acquisitions, the demand for aviation services
tends to decline in the first and fourth fiscal quarters. Consequently, the
Company's operating results may experience significant quarterly fluctuations.
The Company's planned operating expenditures are based on revenue forecasts, and
if revenues are below expectations in any given quarter, operating results are
likely to be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
and Seasonality."
Dependence on Key Personnel. The Company is highly dependent on the
efforts of its senior management team, particularly Frank A. Argenbright, Jr.,
Chairman and Co-Chief Executive Officer; Edwin R. Mellett, Vice Chairman and
Co-Chief Executive Officer; David L. Gamsey, Chief Financial Officer; Thomas J.
Marano, President and Chief Operating Officer - Argenbright Holdings Limited;
Ernest Patterson, Chief Executive - The ADI Group Limited and A. Trevor
Warburton, Managing Director - The ADI Group Limited. The loss of the services
of any of these individuals could have a material adverse effect on the Company.
The Company has key-man life insurance only for Mr. Argenbright and has
employment agreements with Messrs. Mellett, Gamsey, Marano, Patterson and
Warburton. Mr. Mellett's employment agreement expires in December 2000, and the
remaining U.S. employment agreements expire in December 2001. As the Company
continues to grow, it will need to recruit and retain additional qualified
management personnel, and there can be no assurance that it will be able to do
so. See "Management."
Control by Principal Shareholder. Immediately following this offering, Mr.
Argenbright will beneficially own approximately 61.7% of the outstanding Common
Stock (approximately 58.8% if the Underwriters' over-allotment option is
exercised in full). As a result, Mr. Argenbright will continue to be able to
elect the entire Board of Directors and to control the outcome of all other
matters requiring shareholder approval. Such voting concentration may have the
effect of delaying or preventing a change in control of the Company. See
"Management" and "Principal and Selling Shareholders."
11
<PAGE> 12
Potential Volatility of Stock Price. The market price of the Common Stock
may be volatile and be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
acquisitions or new services by the Company or its competitors, developments
with respect to conditions and trends in the contract staffing industry or in
the industries served by the Company, governmental regulation, changes in
estimates by securities analysts of the Company's future financial performance,
general market conditions and other factors. In addition, the stock markets have
from time to time experienced significant price and volume fluctuations that
have adversely affected the market prices of securities of companies for reasons
often unrelated to their operating performance.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the market
price of the Common Stock. An aggregate of 8,353,430 shares of Common Stock, all
of which are beneficially owned by Mr. Argenbright, are eligible for public sale
pursuant to Rule 144 under the Securities Act of 1933 (the "Securities Act").
Mr. Argenbright, as well as all persons holding currently exercisable stock
options, have agreed not to sell, offer for sale, or otherwise dispose of any
Common Stock for a period of 90 days from the date of this Prospectus without
the prior written consent of BT Alex. Brown Incorporated. In addition, the
Company has registered the shares of Common Stock issuable pursuant to stock
options and, prior to consummation of this offering, intends to register the
shares of Common Stock issuable pursuant to an employee stock purchase plan that
the Company recently adopted. As of September 30, 1997, outstanding options to
purchase 240,125 shares were currently exercisable and options to purchase
859,375 shares become exercisable at various times between December 1997 and
August 2001. See "Shares Eligible for Future Sale."
Certain Anti-Takeover Provisions. The Company's Amended and Restated
Articles of Incorporation and Bylaws provide for a five member Board of
Directors to be elected to staggered one, two and three year terms and,
thereafter, for successive three year terms. Additionally, directors may only be
removed from office for cause upon a vote of 70% of the Common Stock
outstanding. The Articles and Bylaws also provide that they may not be amended
in certain respects except pursuant to the vote of 70% of the Common Stock
outstanding. These provisions of the Articles of Incorporation and Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. See "Description of Capital Stock."
12
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,700,000 shares of Common Stock offered by it hereby are estimated to be
approximately $40.3 million ($41.1 million if the overallotment option is
exercised in full), after deducting underwriting discounts and commissions and
offering expenses.
The Company intends to use the net proceeds from the offering as follows:
(i) approximately $16.0 million to repay outstanding indebtedness, consisting of
(a) approximately $14.0 million outstanding under a revolving line of credit
(the "Credit Facility") with First Union National Bank of Georgia ("First
Union"), which matures in May 2000 and bears interest, at the Company's option,
at the prime rate, the Federal Funds rate plus 50 basis points or LIBOR plus 150
basis points (approximately 7.12% as of June 30, 1997), which was incurred
primarily to finance acquisitions, including the Lloyd Acquisition and the
RightSide Up Acquisition, and (b) approximately $2.0 million outstanding under a
mortgage loan with First Bank of Georgia, which matures in January 1999 and
bears interest at 8.5%, and (ii) the balance for general corporate purposes,
including working capital to support the Company's growth and possible
acquisitions. The Company intends to use $5.0 million of the net proceeds from
this offering for the Chicago Acquisition if it is consummated. Pending such
uses, the Company intends to invest the net proceeds of this offering in
investment-grade, short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock, and the
Board of Directors currently intends to retain all earnings for use in the
Company's business for the foreseeable future. The Company's credit facility
with First Union prohibits the payment of dividends. Any future payment of
dividends will depend upon the Company's results of operations, financial
condition, cash requirements and other factors deemed relevant by the Board of
Directors.
13
<PAGE> 14
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on March 27, 1997 at
$10.00 per share and, since that date, the Company's Common Stock has traded on
the Nasdaq National Market under the symbol "AHLS." The following table sets
forth the high and low closing sale prices per share for the Common Stock, for
the periods indicated, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1997:
First Quarter (from March 27, 1997)................ $10.75 $10.00
Second Quarter..................................... 15.50 9.50
Third Quarter...................................... 19.50 15.125
Fourth Quarter (through October 29, 1997).......... 18.875 15.25
</TABLE>
On October 29, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $15.50 per share and there were 12 holders of
record of the Common Stock.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of June 30, 1997 (i) on a historical basis, (ii) on a pro forma
basis to give effect to the Lloyd Acquisition and the RightSide Up Acquisition
and (iii) as adjusted to reflect receipt of the net proceeds from the sale of
the 2,700,000 shares of Common Stock pursuant to this offering:
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt................. $ 725 $ 725 $ 636
======= ======= =======
Long-term debt, net of current portion:
Credit facility................................. $ 3,842 $14,842 $ --
Mortgage debt(2)................................ 2,237 2,237 --
Equipment financing and other................... 1,729 1,729 1,729
------- ------- -------
Total long-term debt.................... 7,808 18,808 1,729
------- ------- -------
Shareholders' equity:
Preferred Stock: no par value; 5,000,000 shares
authorized; none issued or outstanding....... -- -- --
Common Stock: $.01 par value; 50,000,000 shares
authorized; 10,853,430 shares issued and
outstanding actual and pro forma; 13,553,430
shares issued and outstanding pro forma as
adjusted..................................... 109 109 136
Paid in capital................................. 21,978 21,978 62,275
Cumulative translation adjustment............... 71 71 71
Retained earnings............................... 7,256 7,256 7,256
------- ------- -------
Total shareholders' equity.............. 29,414 29,414 69,738
------- ------- -------
Total capitalization............... $37,222 $48,222 $71,467
======= ======= =======
</TABLE>
- ---------------
(1) Does not include the Chicago Acquisition, for which a definitive agreement
has not yet been executed.
(2) Consists of mortgage debt on the real estate contributed to the Company by
Mr. Argenbright in the Reorganization. See "Management -- Compensation
Committee Interlocks and Insider Participation."
14
<PAGE> 15
SELECTED COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected financial and operating data of the Company are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Combined Financial Statements and Notes thereto included elsewhere
in this Prospectus. The selected financial data presented below as of and for
each of the fiscal years in the four-year period ended December 31, 1996 have
been derived from the Company's financial statements which have been audited by
Arthur Andersen LLP, independent accountants. The selected financial data for
the fiscal year ended December 31, 1992 and the six months ended June 30, 1996
and 1997 have been derived from the Company's unaudited financial statements,
which have been prepared on the same basis as the audited financial statements
and, in the opinion of management, contain all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $82,576 $104,143 $123,234 $168,601 $210,153 $93,162 $124,194
Operating expenses:
Cost of services...................... 59,805 78,019 91,873 124,491 155,926 68,883 92,769
Field operating....................... 13,552 18,284 20,931 30,328 37,492 16,680 20,266
Corporate general and
administrative...................... 6,809 6,796 8,797 10,938 11,692 5,712 7,103
------- -------- -------- -------- -------- ------- --------
Operating income................. 2,410 1,044 1,633 2,844 5,043 1,887 4,056
Interest expense, net................... 429 593 904 1,309 1,726 610 818
Other income, net....................... (108) (89) (26) (820) (301) (138) (242)
------- -------- -------- -------- -------- ------- --------
Income before income taxes and
extraordinary items............ 2,089 540 755 2,355 3,618 1,415 3,480
Income tax provision(2)................. 645 700 627 917 1,447 566 1,375
------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary items............ 1,444 (160) 128 1,438 2,171 849 2,105
Extraordinary items, net of taxes(3).... -- -- -- -- -- -- (385)
------- -------- -------- -------- -------- ------- --------
Net income (loss)................ $ 1,444 $ (160) $ 128 $ 1,438 $ 2,171 $ 849 $ 1,720
======= ======== ======== ======== ======== ======= ========
Net income per share.................... $ 0.25(4)$ 0.10(4)$ 0.17(5)
======== ======= ========
Weighted average common and common
equivalent shares..................... 8,557(4) 8,557(4) 9,895
======== ======= ========
OPERATING DATA (AT PERIOD END):
Number of employees..................... 3,972 5,714 7,334 9,954 12,980 10,085 13,590
Number of offices....................... 11 26 33 69 83 80 89
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 1,898 $ 4,341 $ (763) $ 13,216 $ 17,353 $21,368
Total assets...................................... 11,426 21,036 29,094 40,687 51,953 62,908
Long-term debt, net of current portion(6)......... 2,446 7,281 1,437 14,609 19,706 7,808
Shareholder's equity.............................. 2,443 2,123 2,252 3,577 5,409 29,414
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks except that fiscal 1993 consists
of 53 weeks.
(2) The income tax provision for 1993 and 1994 was negatively impacted by the
significance of non-deductible expenses relative to income before income
taxes.
(3) In the second quarter of 1997, the Company recorded extraordinary items
resulting from the early extinguishment of debt.
(4) Pro forma to give effect to the Reorganization.
(5) Excluding the extraordinary items, net income would have been $0.21 per
share.
(6) Includes a note payable to shareholder in the amount of $650,000 and
$528,000 at December 31, 1995 and 1996, respectively.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AHL provides contract staffing and management of its clients'
labor-intensive operational support functions on an outsourced basis throughout
the United States and Europe. Through its 67 offices in the United States and 27
offices in seven European countries, AHL is able to service the multinational
outsourcing needs of its largely Fortune 1000 client base. The Company currently
has approximately 500 contracts to provide services and has established
long-term relationships with its largest clients, providing the Company with a
significant source of predictable recurring revenues. Revenues have grown from
$82.6 million in 1992 to $210.2 million in 1996, a compound annual growth rate
of 26.3%. Frank A. Argenbright, Jr., the Company's Chairman and Co-Chief
Executive Officer, founded the Company in 1979. As of February 1, 1997, all of
the outstanding shares of common stock of Argenbright, a holding company for
U.S. operations, and ADI, a holding company for European operations, were
contributed to AHL by Mr. Argenbright. As a result, Argenbright and ADI became
wholly-owned subsidiaries of the Company.
Since 1992, the Company has completed six acquisitions, all of which have
been accounted for under the purchase method of accounting. In March 1992, Mr.
Argenbright acquired a portion of the passenger services operation of British
Airways at Heathrow Airport. This passenger services operation had revenues in
the first twelve months of operations of approximately $18.0 million. The
Company has used ADI as a platform to expand its operations in Europe. In August
1993, ADI acquired Express Baggage Reclaim Services Limited, a provider of lost
baggage delivery and replacement services in the United Kingdom, with revenues
of approximately $1.8 million for the twelve months prior to the acquisition. In
July 1996, the Company acquired Intersec, a provider of commercial and
governmental security services in the mid-Atlantic region of the United States,
with revenues of approximately $10.0 million for the twelve months prior to the
acquisition (the "Intersec Acquisition"). In the second quarter of 1997, the
Company recorded a non-recurring after-tax charge of $385,000 as a result of the
early extinguishment of debt incurred to finance the Intersec Acquisition.
Since its initial public offering in March 1997, the Company has completed
three additional acquisitions. In September 1997, AHL acquired Lloyd, a
Chicago-based company that provides staffing for warehouse "pick and pack" and
light industrial functions, with revenues for the twelve months prior to the
acquisition of approximately $14.0 million. In May 1997, AHL acquired the
commercial security business of New Jersey-based USA Security, with revenues for
the twelve months prior to the acquisition of approximately $8.6 million. In May
1997, AHL acquired EAS, an operation of British Airways at London's Heathrow
Airport. EAS provides ground handling and passenger services for executive
aircraft with revenues for the twelve months prior to the acquisition of
approximately $2.4 million. These acquisitions were financed with borrowings
under the Credit Facility.
The Company's services are primarily provided under contracts, typically
having terms of one to five years, which provide the Company with a significant
source of predictable recurring revenues. Although the terms of the Company's
contracts vary significantly, clients generally agree that the Company will
provide a stated service level and agree to pay an hourly rate for services
provided. Certain of the Company's clients, especially in the cargo services
area, are billed a fixed dollar amount per month for services performed. Under
some contracts, the Company is entitled to rate increases when there are
increases in the Federal minimum wage although most of the Company's employees
are paid at rates in excess of the Federal minimum wage.
The Company recognizes revenues as services are performed. A substantial
amount of the Company's revenues are received, and operating costs are incurred,
in foreign currencies (primarily the British Pound and the German Deutsche
Mark), with a significant amount of operating income
16
<PAGE> 17
having been derived from operations in the United Kingdom. The denomination of
foreign subsidiaries' account balances in their local currency exposes the
Company to certain foreign exchange rate risks. The Company addresses the
exposure by financing most working capital needs in the applicable foreign
currencies. The Company does not engage in other purchased hedging transactions
to reduce any remaining exposure to fluctuations in foreign currency exchange
rates. However, management does not believe the remaining risks to be
significant.
In the fall of 1996, the Company made the decision to terminate the
paratransit and municipal bus services offered by its transportation subsidiary
in Florida. The Company incurred nonrecurring pre-tax losses (including
termination costs) associated with these operations aggregating $665,000 in
1996.
RESULTS OF OPERATIONS
The following table sets forth Statement of Operations data as a percentage
of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS
DECEMBER 31,(1) ENDED JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of services............... 74.6 73.8 74.2 73.9 74.7
Field operating................ 17.0 18.0 17.8 17.9 16.3
Corporate general and
administrative.............. 7.1 6.5 5.6 6.1 5.7
------ ------ ------ ------ ------
Operating income............ 1.3 1.7 2.4 2.1 3.3
Interest expense, net............ 0.7 0.8 0.8 0.7 0.7
Other income, net................ -- (0.5) (0.1) (0.1) (0.2)
------ ------ ------ ------ ------
Income before income taxes
and extraordinary items... 0.6 1.4 1.7 1.5 2.8
Income tax provision (2)......... 0.5 0.5 0.7 0.6 1.1
------ ------ ------ ------ ------
Income before extraordinary
items..................... 0.1 0.9 1.0 0.9 1.7
Extraordinary items, net of
taxes.......................... -- -- -- -- (0.3)
------ ------ ------ ------ ------
Net income.................. 0.1% 0.9% 1.0% 0.9% 1.4%
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks.
(2) The income tax provision for 1994 was negatively impacted by non-deductible
expenses relative to income before income taxes.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues increased $31.0 million, or 33.3%, to $124.2 million in
the six months ended June 30, 1997 from $93.2 million in the six months ended
June 30, 1996. Of this increase, approximately $6.3 million was attributable to
the Intersec Acquisition, which was completed in July 1996, and $1.2 million was
attributable to the USA Security Acquisition and the EAS Acquisition, both of
which were completed in May 1997. The remaining increase was the result of
entering into contracts to provide services to new clients and providing
additional services to existing clients.
Cost of Services. Cost of services represents the direct costs
attributable to a specific contract, predominantly wages and related benefits,
as well as certain related expenses such as workers' compensation and other
direct labor related expenses. Cost of services increased $23.9 million, or
34.7%, to $92.8 million in the six months ended June 30, 1997 from $68.9 million
in the six months
17
<PAGE> 18
ended June 30, 1996. As a percentage of revenues, cost of services increased to
74.7% in the six months ended June 30, 1997 from 73.9% in the six months ended
June 30, 1996. This percentage increase was primarily attributable to a change
in business mix due to the termination in 1996 of the Company's Florida
transportation operations which had a high gross margin but generated operating
losses.
Field Operating Expenses. Field operating expenses represent expenses
which directly support field operations, such as each district's management,
facilities expenses (such as rent, communication costs and taxes), employee
uniforms, equipment leasing, depreciation and maintenance, local sales and
marketing activities and acquisition-related goodwill. These expenses increased
$3.6 million, or 21.5%, to $20.3 million in the six months ended June 30, 1997
from $16.7 million in the six months ended June 30, 1996. As a percentage of
revenues, field operating expenses decreased to 16.3% in the six months ended
June 30, 1997 from 17.9% in the six months ended June 30, 1996. This percentage
decrease was primarily attributable to the termination of the Company's Florida
transportation operations, which had significant field operating expenses, and
to better leveraging of existing field operations.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the cost of services the Company provides to
support and manage its field activities. These expenses, which include corporate
management, accounting and payroll, general administration, human resources
management, professional fees, headquarters occupancy, marketing and management
information services, increased $1.4 million, or 24.4%, to $7.1 million in the
six months ended June 30, 1997 from $5.7 million in the six months ended June
30, 1996. As a percentage of revenues, these expenses decreased to 5.7% in the
six months ended June 30, 1997 from 6.1% in the six months ended June 30, 1996.
This percentage decrease was primarily due to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $2.2 million, or 114.9%, to
$4.1 million in the six months ended June 30, 1997 from $1.9 million in the six
months ended June 30, 1996. As a percentage of revenues, operating income
improved to 3.3% in the six months ended June 30, 1997 from 2.0% in the six
months ended June 30, 1996.
Interest Expense, Net. Interest expense, net, increased $208,000, or
34.1%, to $818,000 in the six months ended June 30, 1997 from $610,000 in the
six months ended June 30, 1996. Interest expense for the six months ended June
30, 1997 increased primarily due to the inclusion of interest and amortization
of debt discount associated with the Intersec Acquisition.
Income Before Extraordinary Items. Income before extraordinary items for
the six months ended June 30, 1997 increased $1.3 million, or 147.9%, to $2.1
million from $849,000 for the six months ended June 30, 1996. The Company
expensed extraordinary items during the second quarter of 1997 of $385,000, net
of taxes of $257,000. The extraordinary items consisted of the write-off of
unamortized loan origination costs and debt discount.
Net Income. Net income increased $871,000, or 103%, to $1.7 million, or
1.4% of revenues, in the six months ended June 30, 1997 from $849,000, or 0.9%
of revenues, in the six months ended June 30, 1996. The Company's effective
income tax rate was approximately 40.0%.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. Revenues increased $41.6 million, or 24.6%, to $210.2 million in
fiscal 1996 from $168.6 million in fiscal 1995. Of this increase, approximately
$26.2 million was attributable to higher revenues from existing clients,
approximately $9.1 million to services initiated for new clients and $6.3
million to the Intersec Acquisition. Revenues from existing clients increased
15.5% in fiscal 1996 over fiscal 1995 primarily as a result of providing
additional services and expanding into new markets with these clients.
18
<PAGE> 19
Cost of Services. Cost of services increased $31.4 million, or 25.3%, to
$155.9 million in fiscal 1996 from $124.5 million in fiscal 1995. As a
percentage of revenues, cost of services increased to 74.2% in fiscal 1996 from
73.8% in fiscal 1995. This percentage increase was primarily attributable to
lower gross margins on the terminated Florida transportation operations and
operating inefficiencies associated with a contract in Detroit which began in
April 1996. The Company believes based on subsequent operating results that it
has corrected these inefficiencies through a change in management at the Detroit
location and increases in rates paid to the Company with respect to this Detroit
contract.
Field Operating Expenses. Field operating expenses increased $7.2 million,
or 23.6%, to $37.5 million in fiscal 1996 from $30.3 million in fiscal 1995,
primarily as a result of administrative staff, systems and facilities expenses
for new operations in Chicago, Cincinnati, San Francisco, Los Angeles and
Seattle opened during fiscal 1996. As a percentage of revenues, these expenses
decreased to 17.8% in fiscal 1996 from 18.0% in fiscal 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $754,000, or 6.9%, to $11.7 million in fiscal
1996 from $10.9 million in fiscal 1995. As a percentage of revenues, these
expenses decreased to 5.6% in fiscal 1996 from 6.5% in fiscal 1995. This
percentage decrease was primarily due to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $2.2 million, or 77.3%, to
$5.0 million in fiscal 1996 from $2.8 million in fiscal 1995. As a percentage of
revenues, operating income improved to 2.4% in fiscal 1996 from 1.7% in fiscal
1995.
Interest Expense, Net. Net interest expense increased $417,000 to $1.7
million in fiscal 1996 from $1.3 million in fiscal 1995. This was the result of
approximately $4.7 million of additional indebtedness incurred in connection
with the Intersec Acquisition in July 1996 and higher borrowings under the
Company's revolving line of credit.
Other Income, Net. Other income, net decreased $519,000 to $301,000 in
fiscal 1996 from $820,000 in fiscal 1995. This decrease was primarily due to the
non-recurring collection of notes received in the sale of the Company's drug
testing subsidiary in October 1995. See Note 3 of the Notes to the Company's
Combined Financial Statements.
Net Income. Net income increased $733,000, or 51.0%, to $2.2 million, or
1.0% of revenues, in fiscal 1996 from net income of $1.4 million, or 0.9% of
revenues, in fiscal 1995. The Company's effective income tax rate was
approximately 40.0% for fiscal 1996 compared to 38.9% in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues. Revenues increased $45.4 million, or 36.8%, to $168.6 million in
fiscal 1995 from $123.2 million in fiscal 1994. Of this increase, approximately
$37.1 million was attributable to higher revenues from existing clients and
approximately $8.3 million to services initiated for new clients. Revenues from
existing clients increased 30.1% in fiscal 1995 over fiscal 1994 primarily as a
result of providing additional services and expanding into new markets with
these clients.
Cost of Services. Cost of services increased $32.6 million, or 35.5%, to
$124.5 million in fiscal 1995 from $91.9 million in fiscal 1994. As a percentage
of revenues, cost of services decreased to 73.8% in fiscal 1995 from 74.6% in
fiscal 1994. The percentage decrease was primarily attributable to improved
scheduling which reduced the amount of non-billable overtime and lower workers'
compensation claims.
Field Operating Expenses. Field operating expenses increased $9.4 million,
or 44.9%, to $30.3 million in fiscal 1995 from $20.9 million in fiscal 1994
primarily as a result of increased expenses attributable to expanded operations,
including entering the Denver and Frankfurt markets, and an increase in the size
of the field sales force from six to 11 people. As a percentage of revenues,
these
19
<PAGE> 20
expenses increased to 18.0% in fiscal 1995 from 17.0% in fiscal 1994. This
percentage increase was primarily attributable to significantly higher
maintenance cost associated with the paratransit and municipal bus services in
Florida (terminated in 1996), increased expenses attributable to expanded
operations and the increase in the size of the field sales force.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $2.1 million, or 24.3%, to $10.9 million in
fiscal 1995 from $8.8 million in fiscal 1994 primarily due to continuing
additions to the Company's senior management team. As a percentage of revenues,
these expenses decreased to 6.5% in fiscal 1995 from 7.1% in fiscal 1994. This
percentage decrease was attributable to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $1.2 million, or 74.2%, to
$2.8 million in fiscal 1995 from $1.6 million in fiscal 1994. As a percentage of
revenues, operating income improved to 1.7% in fiscal 1995 from 1.3% in fiscal
1994.
Interest Expense, Net. Net interest expense increased to $1.3 million in
fiscal 1995 from $904,000 in fiscal 1994. This increase was attributable to
higher borrowings under the Company's credit facility.
Other Income, Net. Other income, net increased $794,000 to $820,000 in
fiscal 1995 from $26,000 in fiscal 1994. This increase was attributable to
receipt of the cash portion of the sale price for the Company's drug testing
subsidiary in October 1995, net of associated disposition costs.
Net Income. Net income increased $1.3 million to $1.4 million in fiscal
1995 from $128,000 in fiscal 1994. As a percentage of revenues, net income
increased to 0.9% in fiscal 1995 from 0.1% in fiscal 1994. The Company's
effective tax rate was approximately 38.9% in fiscal 1995 compared to 83.0% in
fiscal 1994, resulting from decreases in nondeductible expenses relative to
income before income taxes. The Company's effective tax rate subsequent to 1994
has more closely approximated statutory rates.
20
<PAGE> 21
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth statement of operations data for the second
two quarters of fiscal 1995, each of the four quarters of fiscal 1996 and the
first two quarters of fiscal 1997. This quarterly information is unaudited but
has been prepared on a basis consistent with the Company's audited financial
statements presented elsewhere herein and, in the Company's opinion, includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.............................. $57,320 $59,671 $60,424 $63,770
Operating expenses:
Cost of services.................... 42,453 44,590 45,428 47,341
Field operating..................... 10,193 10,619 9,923 10,343
Corporate general and
administrative................... 2,708 3,272 3,435 3,668
------- ------- ------- -------
Operating income................. 1,966 1,190 1,638 2,418
Interest expense, net................. 549 567 648 170
Other income, net..................... (81) (82) (88) (154)
------- ------- ------- -------
Income before income taxes and
extraordinary items............ 1,498 705 1,078 2,402
Income tax provision.................. 599 282 427 948
------- ------- ------- -------
Income before extraordinary
items.......................... 899 423 651 1,454
Extraordinary items, net of taxes..... -- -- -- (385)
------- ------- ------- -------
Net income....................... $ 899 $ 423 $ 651 $ 1,069
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.............................. $43,625 $45,482 $45,519 $47,643
Operating expenses:
Cost of services.................... 31,858 33,798 33,541 35,342
Field operating..................... 8,131 8,195 8,253 8,427
Corporate general and
administrative................... 2,736 2,995 2,864 2,848
------- ------- ------- -------
Operating income................. 900 494 861 1,026
Interest expense, net................. 370 441 309 301
Other income, net..................... (10) (785) (57) (81)
------- ------- ------- -------
Income before income taxes....... 540 838 609 806
Income tax provision.................. 210 326 244 322
------- ------- ------- -------
Net income....................... $ 330 $ 512 $ 365 $ 484
======= ======= ======= =======
</TABLE>
The Company's contracts at airports with large volumes of international
passengers (such as New York -- Kennedy and London -- Heathrow) result in an
increase in staffing for certain passenger services during periods of higher air
travel, typically in the summer. The Company's contracts at airports with fewer
international passengers generally require more constant staffing throughout the
year. Therefore, the Company has experienced, and expects to continue to
experience, quarterly variations in its results of operations principally as a
result of the seasonality of air travel primarily to and from Europe. While the
effects of seasonality on AHL's business often are obscured by the timing of the
addition of new clients and the commencement of new services for existing
clients, the Company's operating income tends to be lower in the first and
fourth quarters of
21
<PAGE> 22
the fiscal year and highest in the third quarter of the fiscal year.
Additionally, the Company's operating margin tends to be lower in the fourth
quarter because of the occurrence of holidays during which the Company pays
overtime wages to employees. Under certain of the Company's contracts, the
Company is not entitled to recoup the cost of these overtime wages.
LIQUIDITY AND CAPITAL RESOURCES
To support its rapid growth, AHL has historically relied on borrowings
under its bank revolving credit facility. In May 1997, the Company entered into
a three-year, $35.0 million revolving bank line of credit (of which $10.0
million is available in foreign currencies) (the "Credit Facility") to replace
the Company's prior $25.0 million revolving credit facility. The material terms
of the Credit Facility are described herein. The interest rate was reduced from
the prime rate or LIBOR plus 250 basis points (280 basis points for the European
operations) to the prime rate, the Federal Funds rate plus 50 basis points or
LIBOR plus 150 basis points (approximately 7.12% as of June 30, 1997). The
Credit Facility is collateralized by substantially all of the Company's assets.
In addition, the Credit Facility is subject to certain restrictive covenants. As
of June 30, 1997, there was approximately $3.8 million outstanding under the
Credit Facility. The Company will repay all amounts outstanding under the Credit
Facility from the proceeds of this offering.
Cash provided by operating activities was $1.7 million for the six months
ended June 30, 1997 compared to $3.1 million for the six months ended June 30,
1996. This decrease was the result of the increase of $2.5 million in net income
before depreciation and amortization and extraordinary items offset by $3.9
million of changes in working capital due to increases in accounts receivable as
a result of the increase in revenues and the timing of payments of accounts
payable and accrued expenses. Cash used in investing activities for the six
months ended June 30, 1997 was $6.8 million compared to $470,000 for the six
months ended June 30, 1996. This was principally the result of the USA Security
Acquisition and the EAS Acquisition, both of which were completed in May 1997.
Cash provided by financing activities for the six months ended June 30, 1997 was
$6.6 million compared to the use of cash of $3.1 million for the six months
ended June 30, 1996. The increase in cash in the six months ended June 30, 1997
was principally the result of proceeds from the initial public offering in March
1997, net of expenses, of $22.0 million offset by net payments of debt of $16.0
million. The use of cash in the six months ended June 30, 1996 was principally
the result of repayments under the Company's credit facility.
Cash provided by operating activities was $1.2 million for the year ended
December 31, 1996. This was the result of $6.3 million of net income before
depreciation and amortization and other non-cash charges offset by $5.1 million
of changes in operating assets, primarily accounts receivable, offset by accrued
salaries and related benefits payable. These changes were consistent with the
Company's higher volume of business. Cash used in investing activities for the
year ended December 31, 1996 was $4.0 million, principally as a result of the
Intersec Acquisition made in July 1996. Cash provided by financing activities
for the year ended December 31, 1996 was $3.3 million, principally representing
increases in borrowings under the Company's credit facility and issuance of the
subordinated notes associated with the Intersec Acquisition.
Cash used in operating activities was $3.5 million in fiscal 1995. This was
the result of $4.5 million of net income before depreciation and amortization
and other non-cash charges offset by $8.0 million of changes in operating assets
and liabilities. Cash used in investing activities for fiscal 1995 was $1.6
million, primarily related to the purchase of $2.6 million of management
information systems upgrades and shuttle buses offset by $1.0 million from the
proceeds from the sale of the Company's drug testing subsidiary. Cash provided
by financing activities for fiscal 1995 of $5.1 million resulted primarily from
the refinancing of, and net borrowings under, the previous bank line of credit
and term debt.
Cash provided by operating activities was $132,000 in fiscal 1994. This was
the result of $2.2 million of net income before depreciation and amortization
and other non-cash charges offset by
22
<PAGE> 23
$2.1 million of changes in operating assets and liabilities. Cash used in
investing activities for fiscal 1994 was $1.2 million, primarily related to the
purchase of management information systems upgrades and shuttle buses. Cash
provided by financing activities of $1.1 million resulted primarily from
borrowings under the Company's previous bank line of credit.
Capital expenditures were $2.0 million, $2.6 million and $1.3 million in
fiscal 1996, 1995 and 1994, respectively, and $1.0 million and $551,000 for the
six months ended June 30, 1997 and 1996, respectively. Historically, capital
expenditures have been, and future expenditures are anticipated to be, primarily
to support expansion of the Company's operations and management information
systems. The Company's capital expenditures over the next several years, as a
percentage of its revenues, are expected to be generally consistent with those
of the past three fiscal years.
The Company completed its initial public offering of Common Stock in March
1997, raising net proceeds of approximately $22.0 million. These proceeds were
used to repay all outstanding amounts under the Company's credit facility, to
repurchase an outstanding warrant and to retire other outstanding
acquisition-related debt.
The Company believes that any funds generated from operations, together
with existing cash, the net proceeds of this offering and borrowings under the
Credit Facility, will be sufficient to finance its current operations, planned
capital expenditure requirements, additional acquisitions and internal growth
for at least the next several years. The Company expects the RightSide Up
Acquisition to close on November 1, 1997 and has an executed letter of intent
with respect to the Chicago Acquisition. If the Company were to make a
significant acquisition for cash, it may be necessary for the Company to obtain
additional debt or equity financing.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
23
<PAGE> 24
BUSINESS
AHL provides contract staffing and management of its clients'
labor-intensive operational support functions on an outsourced basis throughout
the United States and Europe. The Company's core competencies include
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
while incorporating quality systems and cost efficiency in its operations.
Founded in 1979, the Company is a leader in providing pre-departure screening,
passenger profiling and other passenger services to the aviation industry and,
increasingly, provides services to other large corporations, including Federal
Express, America Online, Georgia Power, BellSouth, Nike and Motorola. Through
its 67 offices in the United States and 27 offices in seven European countries,
AHL is able to service the multinational outsourcing needs of its largely
Fortune 1000 client base. The Company currently has approximately 500 contracts
to provide services and has established long-term relationships with its largest
clients, providing the Company with a significant source of predictable
recurring revenues. The Company intends to take advantage of market trends
toward contract staffing and become the preferred provider of outsourced labor
management solutions for its clients by leveraging its core competencies,
international scale, reputation for quality, performance-based quality
measurement systems, management depth and senior-level relationships with its
key clients. To capitalize on these market trends and to enter new complementary
business lines, the Company has completed three acquisitions since its initial
public offering in March 1997 and has two acquisitions pending.
INDUSTRY OVERVIEW
Many corporations and other institutions need to recruit, hire, train,
motivate and manage large numbers of personnel to handle non-core functions, in
labor environments often characterized by relatively low pay and high turnover
rates. Enterprises incur considerable expense and invest substantial amounts of
management time in managing this process. These enterprises are increasingly
contracting with specialized third party providers to better ensure long-term
labor availability for support functions. Contract staffing providers often are
able to provide higher quality services at a lower cost than these enterprises
are able to do themselves. Outsourcing these functions shifts employment costs
and risks, such as workers' compensation, recruitment and turnover costs and
changes in labor regulations, to outside vendors and allows enterprises to
reduce the administrative overhead and time necessary to properly manage
non-core functions.
The nature of the contract staffing industry is changing. As enterprises
centralize purchasing decisions and seek to reduce the number of vendors with
whom they do business, the ability of providers to offer national account
capability and national and international coverage is growing in importance.
Large enterprises are increasingly seeking partnering opportunities whereby the
third party provider, in addition to providing on-site management of staff,
assumes responsibility for a particular function, including designing and
implementing a solution for its client and shares in the economic benefits
derived from improved execution of the function. These trends, as well as the
increasing need for capital and management depth for growth, are creating
consolidation opportunities in the highly fragmented contract staffing industry.
While the aviation industry has historically outsourced certain functions,
such as food service, fueling and pre-departure screening, aviation companies
are increasingly outsourcing operational support functions not directly related
to flight operations. Functions which are increasingly being outsourced include
passenger profiling, baggage claim and check, sky cap, cargo and baggage
handling, aircraft clean and search, frequent flyer lounge operation, ramp
services, wheelchair assistance, shuttle bus, inter-gate cart, ticketing and
check-in services. Opportunities for outsourcing of security-related
labor-intensive operational support functions within the aviation industry have
increased in recent years and are expected to continue to increase if the FAA
approves more stringent security measures. Measures under consideration or
recently recommended by the FAA and the White House Commission on Aviation
Safety and Security (the "Gore Commission") in the United States include
certification of service providers, X-raying and matching all checked baggage,
24
<PAGE> 25
implementation of a passenger profiling system and under-the-wing security
guards for parked aircraft.
Growth in demand for contract staffing and outsourcing services in the
United States and Europe is expected to continue. Companies in numerous
industries are seeking to reduce costs and focus on their core competencies and,
as a result, are increasingly outsourcing support functions which have
traditionally been performed in-house. The trend toward outsourcing labor
management in Europe is not as developed as it is in the United States, due in
part to historically more restrictive labor regulations which are beginning to
be liberalized. Two trends are expected to increase demand for aviation-related
contract staffing services in Europe: (i) the privatization of major airlines,
which should increase their focus on improving operating performance, and (ii)
the liberalization of airport authority licensing, which currently restricts the
number of vendors that may provide aviation services at a particular airport.
The European Union has mandated that European airports be opened to increased
competition to provide various ground services beginning in January 1999.
BUSINESS STRATEGY
The Company intends to take advantage of market trends toward contract
staffing and become the preferred provider of outsourced labor management
solutions for its clients by leveraging its core competencies, international
scale, reputation for quality, increasing focus on performance-based quality
measurement systems, management depth and senior-level relationships with its
key clients. Key elements of the Company's business strategy include:
Exploit Core Competencies. The Company's core competencies include
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
and incorporating quality systems and cost efficiency in its operations. In
1996, the Company recruited, hired and trained over 9,000 full-time employees to
provide services for its clients. The Company completed drug tests and
background checks for substantially all of these individuals. Since inception,
the Company has been able to provide quality service and expand its business
despite the high employee turnover that is inherent in low wage, labor-intensive
positions. The Company has been able to leverage its core competencies in labor
management to regularly expand the range of services it offers. The Company
currently performs a variety of aviation passenger services, commercial
security, shuttle bus services and cargo handling and provides staffing for
warehouse "pick and pack" and light industrial functions.
Target Fortune 1000 Clients. AHL targets large corporations and
institutions that have significant contract staffing needs for labor-intensive
operational support functions. AHL's major clients include Delta Air Lines,
British Airways, United Airlines, Federal Express, America Online, The Coca-Cola
Company, Northwest Airlines, BellSouth, Nike, Motorola, United Parcel Service,
Georgia Power, Emory University and several federal, state and local government
agencies. The Company has established long-term relationships with its largest
clients, providing the Company with a significant source of predictable
recurring revenues and establishing the Company as a preferred outsourcing
vendor for these clients. The Company's high quality of services has enabled it
to experience an average annual retention rate of approximately 93% of contract
billable hours over the last three fiscal years (excluding operations the
Company has elected to terminate). The Company's field management and direct
sales force market AHL's services to clients in their assigned regions, while
senior executives concentrate on senior-level relationships and national account
management. Building and maintaining relationships with its clients' senior
executives and local operating personnel has been, and will continue to be, an
important operating philosophy for the Company.
Leverage National and International Coverage. As companies centralize
purchasing decisions and seek to reduce the number of vendors with whom they do
business, the ability of contract staffing providers to offer national and
international coverage is growing in importance. Through its operations in 67
offices in the United States and 27 offices in seven European countries, AHL is
able
25
<PAGE> 26
to service the multinational needs of its Fortune 1000 client base. The Company
believes its ability to provide a consistently high level of service at numerous
locations worldwide provides it with a significant competitive advantage. The
Company's four largest clients use AHL's services in both their North American
and European operations.
Utilize Performance-Based Measurement Systems. The Company's goal is to
assume a leadership position in the adoption of technology-driven,
performance-based measurement systems which will further differentiate AHL in
the contract staffing industry in which quality measurement has not been
prevalent. The Company believes its efforts will enable it to become a preferred
vendor for its clients and attract additional clients. AHL has been developing
and will continue to develop systems to measure performance in order to
demonstrate the quality of the Company's services and productivity gains
achievable by outsourcing labor-intensive functions to the Company. For example,
in conjunction with United Airlines, the Company is reengineering the
pre-departure screening process at Chicago's O'Hare Airport to measure passenger
and baggage throughput, employee retention and labor utilization rates.
Continue Investment in Management and Systems. Historically, the Company
focused primarily on increasing revenues and expanding client relationships. In
December 1994, AHL made the strategic decision to strengthen its management team
and develop a corporate infrastructure to continue its growth strategy and
improve profitability. The Company has recruited senior and regional managers
with operating experience in a variety of industries. For example, the Company
recently hired Ernest Patterson as Chief Executive of The ADI Group Limited and
hired a Vice President of Finance and a Chief Information Officer of
Argenbright. The Company continues to invest substantial resources to develop
budgeting, financial reporting, contract control and human resource tracking
systems designed to provide quality service to its clients and to manage and
effectively control all aspects of its business. These systems represent a
competitive advantage and are designed to enable the Company to improve its
profitability.
GROWTH STRATEGY
AHL believes there are significant opportunities to expand its business as
large corporations and other institutions outsource labor-intensive operational
support functions in order to focus on their core competencies. The Company
follows a disciplined model for growth, entering a new market only after it has
signed a contract with a client to provide specific services in that market.
Once an initial contract is awarded, the Company establishes an office and
begins building management depth in that market. After establishing operations
in a new market and demonstrating its ability to provide high quality services,
the Company has successfully leveraged its local infrastructure by marketing
additional services to its initial client and by providing services to
additional clients in that region. Key elements of the Company's growth strategy
include:
Penetrate Existing Accounts. The Company believes there are substantial
opportunities to expand relationships with existing clients by increasing the
number of client locations served by AHL as well as by cross-selling the full
range of the Company's services. The Company seeks to capitalize on the services
provided in one location of a client by providing its services to other
locations or operations, including foreign operations, of its clients. For
example, in 1993 the Company provided pre-departure screening for United
Airlines in three of United's domestic hubs. As a result of the quality of its
service and its ability to provide national and international coverage, AHL now
provides pre-departure screening and a range of other services at all of
United's domestic hubs and at four European locations.
Expand Service Offerings. The Company believes its core labor management
competencies can be leveraged across a wide range of labor-intensive operational
support functions. The Company seeks to provide new value-added services, which
can increase the average account size, present national account cross-selling
opportunities and strengthen long-term relationships with its clients. As a
result of the Lloyd Acquisition, the Company has begun providing staffing for
warehouse "pick
26
<PAGE> 27
and pack" and light industrial functions. The Company believes that it is
well-positioned to expand its operational support services and to deliver
additional services such as order fulfillment and inbound call management.
Obtain New Clients. To take advantage of the trend towards outsourcing of
non-core functions, the Company intends to target new clients that are seeking
cost-effective solutions for labor-intensive functions. The Company believes it
has a competitive advantage in competing for new clients because of its
reputation for quality service, management depth, ability to provide a broad
range of services and national and international coverage. The Company hired a
Vice President of Marketing and Strategic Planning in September 1996 and is
currently developing a new marketing program that focuses on national accounts.
The Company has fifteen sales representatives in the United States and Europe
and is actively seeking new sales representatives. The Company intends to hire a
national account sales representative in 1997.
Continue to Seek Strategic Acquisitions. AHL intends to take advantage of
the fragmented nature of the contract staffing and operational support
outsourcing industries by seeking domestic and international acquisitions,
thereby leveraging the Company's existing infrastructure and enabling the
Company to expand its geographic coverage and service offerings. The Company
believes it has developed the management team and systems to enable it to
identify acquisition candidates and to successfully acquire and integrate
businesses. To capitalize on these market trends and to enter new complementary
business lines, the Company has completed three acquisitions since its initial
public offering in March 1997 and has two acquisitions pending.
ACQUISITIONS
Since 1992, the Company has completed six acquisitions. In March 1992, the
Company acquired a portion of the passenger services operation of British
Airways at Heathrow Airport. The Company has used ADI as a platform to expand
its operations in Europe. In August 1993, ADI acquired Express Baggage Reclaim
Services Limited, a provider of lost baggage delivery and replacement services
in the United Kingdom. In July 1996, the Company acquired Intersec, a provider
of commercial and governmental security services in the Baltimore/Washington
metropolitan area. The Intersec Acquisition added density in a region where the
Company had an existing well-developed infrastructure. All of these acquisitions
have been fully integrated into the Company's operations.
To strengthen its outsourcing relationship with British Airways, in May
1997 ADI entered into a joint venture with British Airways to acquire EAS. EAS
provides ground handling (including arranging fueling, runway and gate access,
baggage handling and transport), passenger handling and concierge services for
executive aircraft. Heathrow licensing rules prevented an outright purchase of
the business by ADI, so the parties entered in a joint venture and agency
agreement under which ADI retained an option to purchase all of the business
when regulatory authorities permit and ADI receives all of the revenues and
profits from the business performed by EAS. ADI paid approximately $2.8 million
to British Airways and British Airways contributed the license to operate the
executive aircraft services business at Heathrow Airport to the joint venture.
In addition, ADI has committed to pay British Airways up to $400,000 for each of
three years if EAS achieves certain operating results. EAS had revenues for the
twelve months prior to the acquisition of approximately $2.4 million.
To increase its operational density in the northeastern region of the
United States, in May 1997 AHL acquired the commercial security business of USA
Security, located in New Jersey, for approximately $2.6 million in cash. USA
Security had revenues for the twelve months prior to the acquisition of
approximately $8.6 million. Since completion of the USA Security Acquisition,
AHL has realized cost efficiencies by integrating USA Security into its existing
New York and New Jersey operations.
27
<PAGE> 28
To begin providing warehouse "pick and pack" and light industrial staffing
services, in September 1997 AHL acquired Lloyd for approximately $5.0 million in
cash plus contingent consideration based on future operating results. Lloyd, a
provider of staffing for warehouse "pick and pack" and light industrial (such as
product assembly) functions to companies in the Chicago area, had revenues for
the twelve months prior to the acquisition of approximately $14.0 million. Lloyd
also provides staffing for customers who operate telemarketing call centers. The
Lloyd Acquisition will serve as a platform from which the Company intends to
begin adding branch offices and increasing the number of "vendor on premises"
locations.
In October 1997, the Company executed a definitive agreement to purchase
RightSide Up, a California company, for $6.0 million in cash plus contingent
consideration based on future operating results. RightSide Up had revenues of
approximately $6.2 million for the twelve months ended August 31, 1997.
RightSide Up operates telemarketing call centers that take inbound customer
orders and fulfills these orders by "picking and packing" and shipping the items
from the company's warehouse. RightSide Up's clients are predominantly in the
entertainment industry and its clients own the actual inventory, such as
promotional material, shipped to customers. The Company expects the RightSide Up
Acquisition to close on November 1, 1997. Through the RightSide Up Acquisition,
the Company intends to expand its services to include order fulfillment, whereby
it would operate telemarketing call centers, provide warehousing services, fill
orders and ship consignment inventory and other materials to customers.
In October 1997, the Company signed a letter of intent to purchase a
Chicago-based company that provides staffing for warehouse "pick and pack" and
light industrial functions, for $5.0 million in cash. The Chicago-based company
had revenues for the twelve months ended December 31, 1996 of approximately $6.2
million. The Company expects to execute a definitive purchase agreement
following consummation of this offering. However, there can be no assurance that
a definitive purchase agreement will be executed or that the acquisition will be
consummated. This acquisition is consistent with the Company's strategy of
building geographic density in key markets.
The Company intends to continue to seek acquisitions that will build
density in the Company's existing markets, add geographic coverage to the
Company's existing businesses, broaden the Company's service offerings and
expand the Company's client base. Through acquisitions of smaller operations
providing the same type of services already provided by the Company, AHL
believes it can leverage its existing management and systems infrastructure and
increase its market share in locations at which the Company already has an
established presence. In most instances, these operations can be integrated into
the Company's existing operations, resulting in elimination of duplicative
overhead and operating costs. The Company also intends to seek strategic
acquisitions that will enable it to enter new markets, provide new services and
complement its client base. The Company will seek to efficiently integrate these
acquired companies while retaining the existing management of those companies.
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SERVICES PROVIDED
The following table presents information with respect to the percentage of
the Company's revenues by major service category for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------------- ----------
SERVICES PROVIDED 1994 1995 1996 1997
----------------- ---- ---- ---- ----------
<S> <C> <C> <C> <C>
Passenger services:
Pre-departure screening and passenger
profiling.......................... 56% 54% 50% 46%
Other passenger services(1).......... 4 4 5 10
Commercial security(2).................. 24 23 28 31
Shuttle bus services.................... 8 8 9 9
Warehouse "pick and pack" and light
industrial(3)........................ 3 6 4 4
Other(4)................................ 5 5 4 *
--- --- --- ---
Total........................... 100% 100% 100% 100%
=== === === ===
</TABLE>
- ---------------
* Less than 1%.
(1) Includes baggage claim and check, aircraft clean and search, lost baggage
delivery and replacement, sky cap, wheelchair assistance, escorting of
unaccompanied minors, inter-gate cart services and frequent flyer lounge
operation. Includes revenues of EAS from the date of acquisition in May
1997.
(2) Includes revenues of Intersec and USA Security, providers of commercial
security services, from the dates of acquisition in July 1996 and May 1997,
respectively.
(3) Includes cargo handling. Does not include revenues of Lloyd.
(4) Includes the terminated paratransit and municipal bus services in Florida.
Passenger Services
Pre-Departure Screening and Passenger Profiling. Management believes,
based on its knowledge of the industry, that the Company is the largest provider
of pre-departure screening and passenger profiling services in the United States
and Europe combined, with approximately 4,100 employees currently providing
services at 34 airports in the United States and 27 airports in Europe.
Pre-departure screening is a security approach maintained at all commercial
airports in the United States and the United Kingdom under mandates of the FAA
and the U.K. DOT and at many other airports throughout the world under similar
mandates of other regulatory authorities. At pre-departure screening
checkpoints, all passengers and other airport patrons must physically pass
through a device called a magnetometer, designed to reveal the presence of metal
objects, and all carry-on baggage and other items carried into the concourse or
gate area must pass through an X-ray device to determine whether certain
suspicious materials are present. Major airports at which the Company provides
pre-departure screening services include Los Angeles International, New York --
Kennedy, Washington -- National and Dulles, Denver International,
Chicago -- O'Hare, San Francisco, Orlando, Boston and Memphis in the United
States.
In Europe, the Company provides a sophisticated passenger profiling
procedure which has been used by certain major European airlines for several
years at high-risk international airports in Europe and was mandated in 1994 by
the FAA for U.S. airlines' international flights from those airports. Passenger
profiling seeks to identify a potential threat before it materializes by means
of interviewing, document verification and behavioral analysis. This procedure
results in the classification of the vast majority of passengers as low risk,
thereby enabling more scrutiny to be focused on higher risk passengers. The
Company has been providing profiling services in Europe since 1992, currently
has over 250 employees providing these services and believes that if the FAA
were to mandate profiling in the United States, the Company would be
well-positioned to quickly implement profiling
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procedures for its U.S. clients. See "-- Government Regulation." The Company has
developed TOPS2 and OSCARGO, proprietary state-of-the-art computer-based
profiling systems, to meet expected future profiling requirements. Major
airports at which the Company provides passenger profiling services include
London -- Heathrow and Gatwick, Paris -- Charles de Gaulle, Frankfurt, Berlin,
Dublin, Vienna and Zurich.
Other Passenger Services. Historically, airlines have utilized their own
employees to provide most passenger services but are increasingly seeking to
outsource support functions. The Company provides a variety of other passenger
services to its airline clients, including baggage claim and check in 22
airports in the United States and Europe, aircraft clean and search in four
European airports and lost baggage delivery or replacement services in 11
European airports. At 18 airports in the United States and Europe, the Company
provides an assortment of services including sky cap, wheelchair assistance,
escorting of unaccompanied minors, inter-gate cart services and frequent flyer
lounge operation (front desk, bartending and cleaning).
Commercial Security
The Company provides uniformed security officer services, business and
facility access control, security consulting, special event security and
security assessment to a broad range of commercial and governmental clients. The
Company's security officers are used at office and government buildings,
airports, hospitals, distribution centers, sports arenas, museums and other
facilities. For aviation clients, the Company provides guarding and control of
airport entrances, checking of employee identification cards and baggage,
guarding and control of employee parking lots and under-the-wing guarding of
parked aircraft in Europe.
Depending on the needs of the client, security officers are on premises,
often around-the-clock, to provide facility security, access control, personnel
security checks and traffic and parking control and to guard against fire,
theft, sabotage and safety hazards. The Company's security officers are trained
to respond appropriately to emergency situations and report fires, intrusions,
natural disasters, work accidents and medical crises to appropriate authorities.
Fewer than one percent of the Company's security personnel are armed. See "Risk
Factors -- Liabilities for Client and Employee Actions and Other Claims."
Shuttle Bus Services
The Company provides dedicated, fixed route shuttle bus services in 10
locations within the United States and two locations in the United Kingdom
through its fleet of approximately 365 shuttle bus vehicles, which generally
seat between 15 and 50 passengers. Under all of its shuttle bus contracts, the
Company provides the shuttle bus and the driver. During fiscal 1996, AHL
vehicles traveled more than seven million miles and operated for more than
700,000 hours. For example, AHL currently provides (i) campus shuttle services
at The Georgia Institute of Technology, Emory University and The American School
in London, (ii) corporate shuttle services between various facilities of The
Coca-Cola Company, Delta Air Lines and the Federal Reserve Bank in Atlanta,
(iii) public parking shuttle services for the Memphis/Shelby County Airport
Authority and the Nashville Airport Authority, (iv) aviation employee
transportation services from employee parking lots for Delta Air Lines (Los
Angeles, Cincinnati, Atlanta and New York) and Federal Express (Memphis,
Indianapolis and Newark) and (v) airside crew and passenger transport at
Heathrow Airport.
Warehouse "Pick and Pack" and Light Industrial
The Company provides staffing for warehouse "pick and pack" and light
industrial functions, which includes providing staffing for warehousing
functions and inventory distribution. The Company entered the warehouse "pick
and pack" and light industrial markets with completion of the Lloyd Acquisition.
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The Company prepares cargo and mail for flight by sorting, packaging and
transporting the cargo and mail to and from airplanes in certain markets, such
as Cincinnati and New York. In certain other markets, such as Las Vegas and
Washington, D.C., the Company provides the actual staffing of customer counters
and data input into the airline's cargo computer system, in addition to handling
the cargo. Cargo services are provided in these other markets pursuant to
outsourcing arrangements, under which the Company manages the entire process for
its clients. The Company processes air cargo for several of its major aviation
clients, including Delta Air Lines in New York, Cincinnati, Washington D.C.,
Seattle, New Orleans, Newark, Philadelphia and Los Angeles, and for United
Airlines, Alaska Airlines, America Trans Air, and Royal Airlines in Las Vegas.
The Company also provides cargo services to Air China and SwissAir in New York
and Cathay Pacific and Vanguard in Seattle pursuant to subcontracts from Delta
Air Lines. In addition to cargo handling, the Company provides U.S. Postal
Service mail handling for Delta Air Lines in Cincinnati, New York, Philadelphia
and Los Angeles.
Other
The Company provides polygraph training and testing services, conducts
investigations such as criminal and background checks, and provides facility
receptionists at commercial locations. The Company utilizes its polygraph
testing and background check services in its own hiring process. The Company has
provided paratransit and municipal bus services, but in 1996, made the decision
to terminate these services. The Company terminated its Tampa paratransit
business in the fall of 1996.
Contract Terms
The Company's services, other than staffing for warehouse "pick and pack"
and light industrial functions, are primarily provided under contracts,
typically having terms of one to five years, which provide the Company with a
significant source of predictable recurring revenues. Although the terms of the
Company's contracts vary significantly, clients generally agree that the Company
will provide a stated service level and agree to pay the Company an hourly rate
for services provided. Certain of the Company's clients, especially in the cargo
services area, are billed a fixed dollar amount per month for services
performed. Under some contracts, the Company is entitled to rate increases when
there are increases in the Federal minimum wage, although most of the Company's
employees are paid at rates in excess of the Federal minimum wage. Most
contracts have multi-year terms and are generally terminable by either party
upon 30 to 90 days written notice. Most of the contracts entered into by the
Company have been renewed or extended upon the expiration of their original
terms. The Company (excluding Lloyd and USA Security) has experienced an average
annual retention rate of approximately 93% of contract billable hours over the
last three fiscal years (excluding operations the Company has elected to
terminate). The Company's security officer services are generally provided under
contracts in which AHL assumes responsibility to employ, schedule and pay all
security officers and provide uniforms, equipment, training, supervision, fringe
benefits, bonding and workers' compensation insurance. The Company's contracts
typically provide that the Company will indemnify the client from and against
any claims for personal injury or death to any person (other than an employee of
the client) and for damage to any property arising out of the acts or omissions
of the Company unless the claim results from any negligent act of the client.
Clients
AHL's ten largest clients in fiscal 1996, which accounted for an aggregate
of 61.2% of the Company's revenues, were Delta Air Lines, British Airways,
United Airlines, Federal Express, the United States government, American
Airlines, Northwest Airlines, Georgia Power, The Coca-Cola Company and the
Nashville Airport Authority (excluding the terminated Florida transportation
operations). During the six months ended June 30, 1997, the Company's ten
largest clients accounted for an aggregate of 62.6% of the Company's revenues.
During fiscal 1996, Delta Air Lines, British Airways, United Airlines and
Federal Express accounted for 23.1%, 12.6%, 11.3% and 4.2% of
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<PAGE> 32
the Company's revenues, respectively, through an aggregate of 78 contracts and,
together, represented 51.2% of the Company's revenues. During the six months
ended June 30, 1997, United Airlines, Delta Air Lines, British Airways and
Federal Express accounted for 19.5%, 17.6%, 11.7% and 4.0% of the Company's
revenues, respectively, through an aggregate of 83 contracts and, together,
represented 53.8% of the Company's revenues. AHL is increasingly providing
services to other large corporations, including America Online, BellSouth, Nike
and Motorola. The Company has 15 contracts in the United States and seven
contracts in Europe that provide annual revenues in excess of $2 million each.
CASE STUDIES
The Company has built strong relationships with a number of Fortune 1000
and other large, multinational companies. The following case studies demonstrate
the Company's ability to effectively utilize its operating and growth strategies
to develop its relationships with its clients.
United Airlines. The Company's relationship with United Airlines began in
1989 with a contract to perform pre-departure screening services at Washington
National Airport and, by 1993, included pre-departure screening services at six
airports in the United States. Since 1993, the Company has expanded the services
provided to United Airlines to include baggage handling, sky cap, wheelchair
services and cargo handling. Today, the Company provides services to United
Airlines at 15 airports in the United States and four in Europe, and provides
commercial security services at United Airlines' corporate headquarters in
Chicago.
British Airways. The Company established its relationship with British
Airways when Mr. Argenbright acquired a portion of the airline's passenger
service operation at Heathrow Airport in March 1992. In the following year,
British Airways awarded AHL additional Heathrow service contracts to provide
under-the-wing guarding of parked aircraft as well as clean and search and
passenger profiling services. The Company subsequently was awarded similar
British Airways service contracts at Gatwick and 16 additional airports
throughout the United Kingdom and in France and Germany. Contemporaneously, AHL
began providing airport services to other international air carriers at these
locations. In 1995 and 1996, AHL was awarded contracts for pre-departure
screening services for British Airways in both Detroit and Philadelphia. In
1996, British Airways and the Company formed a joint venture to provide
passenger and baggage check-in and other passenger services for British Airways
in Nice, France and, in connection with its acquisition of EAS in May 1997,
formed a joint venture to provide ground handling services for executive
aircraft at Heathrow Airport.
Federal Express. In August 1986, the Company began providing shuttle bus
services for Federal Express employees at the Memphis airport. In 1993, AHL was
selected from a pool of 3,500 vendors as Federal Express' Service Provider of
the Year. The services provided by the Company were expanded in August 1994 to
include pre-departure screening of Federal Express' crews. Currently, the
Company provides shuttle bus and/or pre-departure screening or security services
for Federal Express in Atlanta, Indianapolis, Cincinnati, Newark, Memphis, San
Francisco, Dallas, Orlando, Paris, London, Frankfurt and Manila.
Delta Air Lines. The Company began its relationship with Delta Air Lines
in the early 1980s when it began providing shuttle bus services at Delta's
Atlanta headquarters complex. Over the past 15 years, AHL has significantly
expanded both the services it provides Delta as well as the number of locations
at which they are provided. In 1986, the Company began performing pre-departure
screening services for Delta, which currently includes operations in New
York -- Kennedy, Los Angeles, Washington, D.C., Orlando, Boston, Little Rock and
West Palm Beach. In addition, the Company now provides passenger services for
Delta at seven airports in four European countries, including Paris -- Charles
de Gaulle, Vienna, London -- Gatwick and Warsaw. Similarly, Delta awarded the
Company a cargo handling contract for New York in 1992 and thereafter for
Washington, D.C., Cincinnati and Seattle. In 1997, the Company significantly
expanded its cargo and mail
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handling operations for Delta by adding contracts at Newark, Philadelphia, Los
Angeles and New Orleans, bringing the total to eight U.S. cities. In September
1997, the Company was awarded a special services contract (wheelchair and
inter-gate cart services) in Atlanta. The award of this contract was largely
attributable to the introduction of performance measurements developed jointly
by Delta and the Company.
America Online. AHL was initially hired by America Online to provide
commercial security services at its Northern Virginia headquarters in May 1996.
These services were expanded in 1996 to provide commercial security services at
America Online's Jacksonville, Tucson and Albuquerque locations. In February
1997, the Company began these services in Oklahoma City and Salt Lake City. The
America Online contracts demonstrate the success of the Company's new national
account sales program. America Online recently designated AHL as its preferred
national security provider.
SALES AND MARKETING
Building and maintaining relationships with personnel at various levels of
its clients' organizations, including relationships with both senior executives
and local operating personnel has been, and will continue to be, an important
operating philosophy for the Company. The Company uses these relationships to
market its services to potential clients through individuals having senior
management and local operating responsibilities. AHL targets large corporations
and institutions that have significant contract staffing needs for
labor-intensive, task-repetitive functions. The Company has a local sales force
in the United States of 13 representatives located in AHL's regional offices in
New York, Atlanta, Florida, Memphis, Washington, D.C. and Los Angeles and two
sales representatives in Europe. The Company's eight regional vice presidents in
the United States are each responsible for two or three districts. Regional and
district managers also have sales responsibilities and a portion of their
incentive compensation is dependent on meeting sales goals.
The Company is developing a national sales and marketing strategy, under
which the Company focuses on improving the consistency of its sales approach.
Furthermore, the Company has designated certain senior managers as responsible
for specific national account relationships with specific large clients and
intends to add a national accounts sales representative during 1997.
In September 1996, the Company hired a Vice President of Marketing and
Strategic Planning to lead the Company's sales and marketing initiatives. These
initiatives include the development of branded services, strategic partnering
through national accounts, positioning AHL as a full service provider capable of
reducing a client's total costs by establishing performance-based quality
measurement systems, creating national, regional and local marketing plans, and
coordinating the Company's participation in trade shows. In 1996, the Company
began conducting in-house sales seminars, at which regional, district and
national account managers, along with the Company's local sales personnel, focus
on how to sell services to larger accounts.
WORKFORCE MANAGEMENT
The Company's core competencies include recruiting, hiring, training,
motivating and managing the large numbers of personnel required to provide many
of the support services needed by its clients. The Company's district managers
have ongoing responsibility for hiring, recruiting and training the Company's
local workforce.
Recruiting. The Company has developed innovative recruiting methods that
have been particularly effective in reaching targeted pools of prospective
employees, in addition to utilizing traditional recruiting methods such as job
fairs, trade journals, local advertising, and interviewing at vocational
schools. After analyzing the demographics of each market, the Company seeks to
establish relationships with community groups and leaders. For example, in a
number of markets, the Company has found that senior citizens are an excellent
source of potential employees for its pre-departure screening services and
recruiters frequently visit senior citizen centers. The Company leverages these
community relationships to provide a feeder into the Company's employment pool
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and believes that current Company employees serve as effective recruiters for
the Company. The Company believes these methods are more cost-effective than
more traditional recruiting methods.
Hiring. In 1996, the Company recruited, hired and trained over 9,000
full-time employees to provide services for its clients. Within the United
States, every employee must complete a written application and provide proof of
citizenship or resident alien status and is subject to a ten-year background
check, which is conducted internally by the Company. Unlike many of its
competitors, the Company requires mandatory pre-employment drug testing for all
aviation and commercial security services employees. Employees stationed at
airport checkpoint screening monitors are subject to psychological testing.
In Europe, the Company screens potential applicants through a telephone
interview, and each potential employee must complete a written application and
undergo an interview that includes vision, hearing and psychological testing. An
initial one-year background check is required for every new employee. Each
European employee is hired subject to a three month probationary period and
continuity of employment is subject to a 20-year background check. Where legally
permitted, employees in certain European countries are also subject to random
drug testing.
Training. The Company provides in-house classroom and on-the-job training
programs for its hourly personnel through videos, guest lecturers and full-time
trainers who are employed at the Company's major district locations. The Company
is in the process of establishing performance measures to improve job focus and
accountability, create a quality audit process and implement "best practices and
procedures" in the Company's field operations. The Company is ISO 9002-certified
in the United Kingdom. The Company is the only organization approved by the U.K.
DOT to provide aviation security training to personnel of the U.K. DOT, the
agency that regulates aviation security matters in the United Kingdom.
Retention. The Company believes that employee retention is critical to
lowering operating costs and providing high quality service to its clients.
Accordingly, the Company places significant emphasis on programs to motivate its
employees and reduce employee turnover. Since inception, the Company has been
able to provide quality service and expand its business despite the high
employee turnover that is inherent in low wage, task-repetitive positions. The
Company's "110% Club" recognizes employees for superior attendance, attitude,
appearance and performance. Members receive quarterly bonuses and other rewards,
and are recognized throughout the Company. The Company's pre-departure screening
employees receive bonuses for detecting weapons and other illegal objects at
airport security checkpoints, including those detected during FAA-mandated
tests.
Field Management. The Company has developed a management structure under
which significant workforce decisions are made at the local level, thereby
requiring field managers to assume responsibility for recruiting, hiring and
retention. The Company's bonus system for regional and district managers is
based upon achievement of specific performance objectives, including revenue,
gross margin and net contribution, new business and client retention and losses
and claims incurred. Regional and district managers can earn bonuses of up to
35% of their base compensation by achieving all of their objectives established
annually by the Company. As an added incentive, the Company established a stock
option plan for key corporate and field management in early 1997.
Employees. As of September 30, 1997, the Company had over 15,000
employees. A total of 1,285 of the Company's security employees working at New
York -- Kennedy, 789 working at Chicago -- O'Hare and 34 working at government
facilities in the Washington, D.C. area are covered by collective bargaining
agreements. Each of these agreements was assumed by the Company in connection
with an acquisition or an outsourcing contract previously held by another
vendor. In 1996 and 1997, unions initiated three efforts and one effort,
respectively, to organize certain Company employees, each of which failed to
receive sufficient support to require an election. The Company considers its
relations with its employees to be good.
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MANAGEMENT INFORMATION SYSTEMS
The Company has invested, and intends to continue to invest, substantial
resources to develop systems that will enable it to deliver quality customer
service, centrally manage its operations and achieve substantial cost savings.
In April 1997, the Company hired a Vice President and Chief Information Officer.
In addition, the Company recently completed installation of a management
information system, which integrates the Company's financial, human resources,
general ledger, payables, receivables and payroll functions. The system
completes budgeting, forecasting and monthly profit and loss statements on a
contract-by-contract basis. In 1996, the Company brought the payroll function
in-house, resulting in estimated annual savings of approximately $225,000. The
Company has networked its corporate offices and all regional and district
offices in the United States and has E-mail capability to all U.S. offices and
its London headquarters. The Company has also made significant investments to
upgrade field computers and has leased two HP9000 systems which are run parallel
to prevent downtime and give the Company the capacity needed to handle
anticipated future growth.
In 1998, the Company intends to enhance the computerized scheduling,
timekeeping and payroll system for hourly employees. This will enable AHL to
continue to develop performance measurements for its customers and to improve
scheduling to reduce the amount of non-billable overtime. In addition, the
Company will establish real-time links with the Company's European operations.
COMPETITION
The contract staffing industry is extremely competitive and highly
fragmented, with limited barriers to entry. Companies within the contract
staffing industry compete on the basis of the quality of service provided, their
ability to provide national and international services, the range of services
offered, as well as price. The Company believes its competitive advantages
include its reputation for providing high quality service and its ability to
serve large clients in the United States and Europe. Most of the Company's
competitors offer a more limited range of services and focus on a few specific
industries.
The Company competes in international, national, regional and local markets
with outsourcing companies, specialized contract service providers and in-house
organizations that provide services to potential clients and third parties.
AHL's principal competitors include, in the aviation services industry, ICTS
International N.V., Globe Aviation Securities Corporation and International
Total Services, Inc. and, in the commercial security industry, are Borg-Warner
Security Corporation, Guardsmark, Inc. and The Wackenhut Corporation. The
Company's warehouse "pick and pack," light industrial and shuttle bus services
compete primarily with numerous local and regional companies as well as
divisions of several major staffing companies. Certain of the Company's
competitors and potential competitors have significantly greater financial
resources and larger operations than the Company.
GOVERNMENT REGULATION
Current Regulations Relating to Aviation Security. Aviation security in
the United States is subject to regulations and directives issued by the FAA.
Under current regulations, responsibility for aviation security is shared
between the FAA and various other federal, state and local agencies and industry
participants (which include air carriers and airport authorities as well as
independent contractors that perform services for or on behalf of these industry
participants). The FAA conducts threat and vulnerability assessments and,
through its regulatory authority, directs the aviation industry to implement
measures that address existing and anticipated threat situations. The FAA also
tests security measures at airports to assess vulnerabilities in current airport
security systems.
Under FAA regulations, each air carrier and airport authority must adopt
and carry out an FAA-approved security program that provides for the safety of
persons and property traveling in air
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transportation against acts of criminal violence and aircraft piracy. Air
carriers are responsible for providing security measures for all people and
items connected with their aircraft, including passengers, baggage, and
maintenance and flight crews. Airport authorities are responsible for
maintaining a secure environment on airport grounds and for providing law
enforcement support and training.
Each security program adopted by an airline must include: (i) the screening
of passengers and their carry-on baggage, and other persons having access to
controlled areas, to prevent the carriage aboard aircraft of weapons or
explosive devices, (ii) controlling access to aircraft, checked baggage and
cargo, (iii) appropriate controls on shipping of cargo and (iv) security
inspection of any aircraft left unattended.
Airlines may utilize either their own employees or third-party contractors
to carry out their security programs. Proposed FAA regulations would require
pre-departure screeners to undergo a 10-year criminal and employment background
check and a five-year employment verification, with the employer required to
maintain records of these investigations throughout the term of employment.
Screeners operating X-ray systems must receive initial and recurrent training in
the detection of weapons and other dangerous articles.
From time to time, the FAA issues directives requiring the implementation
of specific actions by air carriers and airport authorities. For example,
following the destruction of TWA flight 800 in July 1996, the FAA began to
require additional passenger profiling for specified types of flights, matching
of passengers and checked baggage, additional searching of aircraft cabins and
cargo areas, additional physical searches of carry-on items and other enhanced
security measures.
Generally, European standards for aviation security are more stringent than
those currently in effect in the United States. Passengers are subject to more
comprehensive "profiling" and review of documents; parked aircraft must be
guarded, searched and cleaned in accordance with applicable regulations;
passenger baggage is subject to match procedures as well as random X-ray and
hand searches; commercial cargo is guarded and subject to random X-ray searches;
and airline employees and other crews are subject to additional security
measures. The FAA requires that U.S. airlines utilize similar passenger
profiling programs in their European operations.
Recent Developments Relating to Aviation Security. Several recent
initiatives by United States governmental authorities and industry participants
have considered or recommended significant changes in regulatory requirements
relating to aviation security. These recent initiatives have been undertaken by
the United States Congress, through provisions of the Federal Aviation
Reauthorization Act of 1996 (the "1996 Act"); the White House Commission on
Aviation Safety and Security (the "Gore Commission"), which published its final
report on February 12, 1997; and the Aviation Security Advisory Committee
("ASAC"), a committee of government and industry participants that issued its
recommendations on December 12, 1996. Each of these groups has considered issues
that have ranged from the fundamental structure of, and sharing of
responsibilities relating to, aviation security to specific near-term measures
that could be implemented to improve aviation security.
The Gore Commission, which was formed following the destruction of TWA
Flight 800 in July 1996, included the heads of various federal agencies and was
charged with making recommendations as to how the partnership between the U.S.
government and industry participants can achieve improved aviation security. The
Gore Commission issued its final report on February 12, 1997 and recommended:
(i) development of uniform performance standards for the selection, training and
certification of pre-departure screening companies; (ii) implementation of
procedures for matching of passengers and checked baggage on a nationwide basis
no later than December 31, 1997; (iii) the continued development and
implementation of an automated passenger profiling system; and (iv) utilization
of U.S. Customs Service personnel and computer systems to complement the efforts
of the FAA and other federal agencies. The FAA has initiated rulemaking
procedures that would implement certain of these recommendations.
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The 1996 Act requires that the FAA conduct a study and report to Congress
on whether to transfer certain responsibilities of air carriers to either
airport authorities or to the federal government or whether to provide for some
other sharing of current responsibilities. This report has not yet been issued
by the FAA. However, the Company believes that the FAA is likely to follow the
final recommendation released by the Gore Commission, as described above. The
1996 Act directs the FAA to "certify" companies that provide pre-departure
screening, continue to assist air carriers in developing computer-assisted
passenger profiling programs, assess programs for matching of passengers and
checked baggage that are currently being utilized in the industry on a test
basis, and report on changes to enhance and supplement the screening and
inspection of cargo and mail shipments.
ASAC was formed following the crash of Pan Am flight 103 in 1989 and is
charged with coordinating the flow of aviation security information and
countermeasures within the United States. ASAC includes representatives of
numerous federal agencies, associations of industry participants and public
interest groups and is chaired by the FAA's Director of Civil Aviation Security.
In July 1996, ASAC began to undertake an effort to strengthen the domestic
aviation security "baseline" and formed a working group to recommend specific
measures. In its report issued on December 12, 1996, ASAC recommended that no
change be made in the current structure or assignment of responsibilities for
aviation security. ASAC did recommend that the FAA initiate rulemaking
procedures for "certification" of security contractors and made numerous
recommendations with respect to specific aviation security measures, which are
generally consistent with those proposed by the Gore Commission.
Other Applicable Regulations. Airport authorities in many foreign
countries require that companies receive licenses in order to be able to perform
services at the airport and limit the number of licenses that are issued. The
Company is also required to maintain various licenses and permits from state and
local government authorities in order to provide commercial security, shuttle
bus and certain other services.
RISK MANAGEMENT AND SAFETY
Because the Company's business is labor intensive, workers' compensation is
a significant operating expense for the Company in the United States. In
addition, the Company is exposed to possible claims by its clients' customers or
employees, alleging discrimination or harassment by the Company's employees. The
Company is also exposed to liability for the acts or negligence of its employees
who cause personal injury or damage while on assignment, as well as claims of
misuse of client proprietary information or theft of client property. The
Company has adopted policies and procedures intended to reduce its exposure to
these risks.
The Company maintains insurance against these risks with policy limits it
considers sufficient, subject to self insurance of $250,000 per incident and an
aggregate stop-loss. In addition, the Company maintains aviation liability
insurance of $500 million per incident. The Company establishes reserves in its
financial statements for the estimated costs of pending claims as well as the
estimated costs of incurred but not yet reported claims. The reserve for these
unreported claims is based on prior experience. The Company's reserves are
periodically revised, as necessary, based on developments related to pending
claims. As of December 31, 1996 and June 30, 1997, the Company's reserve for
workers' compensation and automobile claims was $3.2 million and $3.8 million,
respectively.
In 1996, the Company hired a professional risk management specialist who,
with the assistance of the Company's regional managers, is responsible for
claims management and the establishment of appropriate reserves for the
deductible portion of claims. Additionally, in the first quarter of 1997, the
Company implemented a number of new risk control strategies. These include
establishing a risk allocation program which provided local managers with
financial incentives to improve safety performance by decreasing the number of
workplace accidents. The Company has also implemented quarterly safety committee
meetings with its local managers and field employees, conducted
37
<PAGE> 38
defensive driving training sessions for its transportation employees, conducted
routine safety inspections of local work sites and instructed personnel in
proper lifting techniques in an effort to reduce the number of preventable
accidents.
EQUIPMENT AND FACILITIES
As of June 30, 1997, the Company operated a fleet of approximately 365
shuttle bus vehicles, which generally seat between 15 and 50 passengers. A
majority of these vehicles are leased, with lease terms that generally match the
term of the contract for which the vehicles are provided. In the event of early
termination of a contract, certain of the Company's clients are required to
assume liability for the vehicle leases.
The Company performs its own vehicle maintenance at each major location
through a separate maintenance division. Preventive maintenance is provided at
defined mileage intervals. Each maintenance shop has experience with all
maintenance and repair requirements for the Company's fleet, including air
conditioning and component maintenance. The Company has made reduction in bus
maintenance expense a corporate initiative for 1997.
The Company maintains 94 offices in various metropolitan areas in the
United States and Europe. The Company's executive headquarters and corporate
operations are located in Atlanta, Georgia in leased facilities consisting of
approximately 3,700 and 15,200 square feet of office space, respectively. The
initial term of the executive headquarters lease expires in November 2001. In
February 1997, the Company acquired the corporate operations building from Mr.
Argenbright. See "Management -- Compensation Committee Interlocks and Insider
Participation." In addition, the Company's regional offices each consist of
between 150 and 6,350 square feet. The Company believes its facilities are
adequate to meet its needs for the foreseeable future.
LITIGATION
From time to time, the Company is involved in routine legal proceedings
incidental to the conduct of its business. In the opinion of management, the
litigation, individually or in the aggregate, to which the Company is currently
a party, is not likely to have a material adverse effect on the Company's
results of operations or financial condition.
38
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- --------------------------------- --- --------
<S> <C> <C>
Frank A. Argenbright, Jr. ......... 48 Chairman and Co-Chief Executive Officer
Edwin R. Mellett................... 58 Vice Chairman and Co-Chief Executive
Officer
David L. Gamsey.................... 40 Chief Financial Officer
Thomas J. Marano................... 46 President and Chief Operating Officer -
Argenbright Holdings Limited
Ernest Patterson................... 50 Chief Executive - The ADI Group Limited
A. Trevor Warburton................ 55 Managing Director - The ADI Group
Limited
Robert McCullough(1)(2)............ 55 Director
Hamish Leslie Melville(1)(2)....... 52 Director
KEY EMPLOYEES:
- ---------------
Henry F. Anthony................... 45 Vice President of Human Resources -
Argenbright Holdings Limited
Nicholas G. Bailey................. 46 Finance Director - The ADI Group Limited
L. Celeste Bottorff................ 44 Vice President of Marketing and
Strategic Planning - Argenbright
Holdings Limited
Nigel D.J. Cotton.................. 44 Human Resources Director - The ADI Group
Limited
Daniel E. DiGiusto................. 45 Senior Vice President of Field
Operations - Argenbright Holdings
Limited
Barry J. Jenkins................... 35 Vice President of Finance - Argenbright
Holdings Limited
Mark T. Ryall...................... 38 Vice President and Chief Information
Officer - Argenbright Holdings Limited
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Argenbright founded the Company in 1979 and has been its Chairman and
Chief Executive Officer since that time. Mr. Argenbright graduated from the
Owner/President Management Program at Harvard Business School in 1991.
Mr. Mellett has been Vice Chairman and Co-Chief Executive Officer of the
Company since December 1994 and served on the Company's Advisory Board during
1994. From 1993 to 1994, he was a consultant and private investor. From 1984 to
1992, Mr. Mellett was Senior Vice President of The Coca-Cola Company, serving
also as President of Coca-Cola Northern Europe from 1990 to 1992 and President
of Coca-Cola USA from 1986 to 1988. From 1972 to 1984, Mr. Mellett was President
of the Food Services Division of PepsiCo.
Mr. Gamsey has been Chief Financial Officer of the Company since September
1995. From 1988 to September 1995, Mr. Gamsey was a Managing Director of
Investment Banking of Price Waterhouse LLP. From 1987 to 1988, Mr. Gamsey was
Chief Financial Officer of Visiontech, Inc., and from 1979 to 1987, Mr. Gamsey
was a Senior Audit Manager for Arthur Andersen LLP. Mr. Gamsey is a Certified
Public Accountant.
39
<PAGE> 40
Mr. Marano has been President and Chief Operating Officer - Argenbright
Holdings Limited, the holding company for the Company's U.S. operations, since
July 1995. From 1990 to June 1995, Mr. Marano was Vice President and a Global
Customer Director for The Coca-Cola Company, and from 1986 to 1990, he was Vice
President of U.S. Sales, Fountain Division, of The Coca-Cola Company. From 1985
to 1986, Mr. Marano was Vice President of U.S. Sales of Apple Computer.
Mr. Patterson has been Chief Executive - The ADI Group Limited, the holding
company for AHL's European operations, since June 1997. From 1996 to 1997, Mr.
Patterson was the Group Chief Executive Officer for National Express Group PLC.
From 1990 to 1996, he was the Chief Executive Officer, Worldwide Distribution
Services for B.E.T. PLC, and from 1985 to 1990, he was the Managing Director of
a foreign subsidiary of B.E.T. PLC.
Mr. Warburton has been Managing Director - The ADI Group Limited since
January 1993. From 1990 to 1992, Mr. Warburton was Senior Vice President of
Ground Services for Ogden Aviation Services. From 1989 to 1990, he was
Operations Director for Ogden Aviation Services at London-Gatwick. From 1987 to
1989, he was head of Ground Operations for British Airways at London-Gatwick,
and from 1961 to 1987, he held a number of senior management positions with
British Caledonian Airways.
Mr. McCullough has been a director of the Company since consummation of its
initial public offering in March 1997. Mr. McCullough has been Chief Financial
Officer and member of the Board of Directors of AMVESCO PLC (formerly INVESCO
PLC) since April 1996. He was a partner for Arthur Andersen LLP from 1974 until
April 1996.
Mr. Melville has been a director of the Company since consummation of its
initial public offering in March 1997. Mr. Melville has been Chairman of
Scottish Woodlands Limited since 1992. He was Chairman of Dunedin Fund Managers
Limited from 1992 to 1995, Chairman and Chief Executive Officer of Capel Cure
Myers Capital Management from 1988 to 1991 and Founder and Chief Executive of
Enskilda Securities from 1982 to 1987. Mr. Melville is a director of Fleming
Mercantile Investment Trust PLC, Mithras Investment Trust PLC, Old Mutual South
Africa Trust plc, Persimmon plc and the Scottish Investment Trust PLC. He is
also Chairman of the National Trust for Scotland.
Mr. Anthony has been Vice President of Human Resources - Argenbright
Holdings Limited since January 1996. From 1993 to 1995, Mr. Anthony was Vice
President of Human Resources of National Linen Service. From 1989 to 1993, Mr.
Anthony was Vice President of Human Resources for BET Plant Services, Inc.
Mr. Bailey has been Finance Director - The ADI Group Limited since May
1995. From January 1994 to April 1995, he worked in Kazakhstan establishing the
financial operations for Tengizchevroil, a joint venture between the Government
of Kazakhstan and Chevron Petroleum. From 1992 to 1993, Mr. Bailey was an
independent consultant to the airline industry. Prior thereto, Mr. Bailey held a
number of positions in the airline industry. Mr. Bailey is a Chartered
Accountant.
Ms. Bottorff has been Vice President of Marketing and Strategic
Planning - Argenbright Holdings Limited since September 1996. From 1994 to 1996,
Ms. Bottorff was Marketing Director of The Atlanta Journal-Constitution. From
1990 to 1994, Ms. Bottorff was Director of Strategic Planning of Holiday Inn
Worldwide. From 1987 to 1990, she was Manager of Field Planning for The
Coca-Cola Company and, from 1983 to 1987, she was an Engagement Manager for
McKinsey & Co., Inc.
Mr. Cotton has been Human Resources Director - The ADI Group Limited since
August 1993. From 1989 to 1992, he was Head of Human Resources - United Kingdom
for Ericsson plc and, during 1988, he was a Personnel Manager with British
Airways. Prior thereto, he was employed by British Caledonian Airways.
40
<PAGE> 41
Mr. DiGiusto has been Senior Vice President of Field
Operations - Argenbright Holdings Limited since 1989. From 1974 to 1989, Mr.
DiGiusto was employed by Burns International Security, most recently as its
Northeast Division Vice President.
Mr. Jenkins has been Vice President of Finance - Argenbright Holdings
Limited since May 1997. From 1984 to 1997, he was a senior manager with Price
Waterhouse LLP. Mr. Jenkins is a Certified Public Accountant.
Mr. Ryall has been Vice President and Chief Information
Officer - Argenbright Holdings Limited since April 1997. From 1990 to 1997, he
was Group Manager of Ryder System, Inc. From 1983 to 1990, he was a manager for
Andersen Consulting.
The Company has a four member Board of Directors, with members serving
staggered terms as follows: term expiring 1998, Mr. Melville; term expiring
1999, Mr. McCullough; and term expiring 2000, Messrs. Argenbright and Mellett.
COMPENSATION OF DIRECTORS
Prior to the Company's initial public offering, directors did not receive
compensation for their service as directors. Since consummation of the initial
public offering in March 1997, the Company has paid its independent directors
$10,000 annually plus $1,000 for each Board meeting attended and $500 for each
committee meeting attended. In addition, directors are reimbursed for expenses
incurred in connection with attendance at Board and committee meetings. The
Company has granted to each independent director options to purchase 5,000
shares of Common Stock at an exercise price of $10.00 per share. See "--Employee
Benefit Plans--Stock Option Plan."
EMPLOYMENT AGREEMENTS
In February 1997, the Company entered into employment agreements with
Messrs. Mellett, Marano and Gamsey. The agreement with Mr. Mellett expires on
December 1, 2000, and the agreements with Messrs. Marano and Gamsey expire on
December 1, 2001 (the "Expiration Date"). Each agreement also may be terminated
by the Company with or without cause or upon the employee's death or inability
to perform his duties on account of a disability for a period of three months
during any consecutive twelve month period or by the employee. If any agreement
is terminated by the Company prior to the Expiration Date, except for cause or
upon the employee's death or disability, the Company must continue to pay the
employee's base salary and bonus for one year (six months with respect to Mr.
Gamsey) from the date of termination. The agreements provide for annual base
salaries of $200,000, $250,000 and $165,000 for Messrs. Mellett, Marano and
Gamsey, respectively, and for annual bonuses dependent upon the Company's
financial performance and achievement of personal objectives established for
each employee by the Board of Directors. On July 1, 1997, Mr. Marano's salary
was increased to $300,000, after the achievement of a specified revenue level by
Argenbright Holdings Limited. Each agreement also contains two-year
noncompetition and nonsolicitation provisions.
The Company also has an employment agreement with Mr. Patterson. The
agreement is indefinite in length but provides that in the event Mr. Patterson
is terminated without cause, he will be entitled to receive 12 months salary.
The agreement provides for an annual base salary of approximately $300,000 and
for an annual bonus of up to 50% of base salary, based upon the Company's
financial performance and achievement of personal objectives established for Mr.
Patterson by the Board of Directors. The agreement also grants Mr. Patterson
options to purchase 150,000 shares of Common Stock, exercisable 25% per year
over four years, at an exercise price of $15.00 per share. As a condition to
employment, Mr. Patterson also agreed to one year noncompetition and
nonsolicitation provisions.
The Company also has an employment agreement with Mr. Warburton. The
agreement is indefinite in length but may be terminated (i) immediately by the
Company for cause, (ii) by the
41
<PAGE> 42
Company on December 31 of any year with or without cause provided that the
Company gives at least twelve months prior written notice, (iii) automatically
upon Mr. Warburton's sixtieth birthday or (iv) by Mr. Warburton at any time
provided that he gives at least six months prior written notice. The agreement
provides for an annual base salary of $144,000 and for an annual bonus dependent
upon the Company's financial performance and achievement of personal objectives
established for Mr. Warburton by the Board of Directors. The agreement also
contains one-year noncompetition and nonsolicitation provisions.
Substantially all of the employees of ADI have also entered into employment
agreements. In addition, substantially all of the Company's officers and
managers sign a noncompetition agreement as a condition to their employment.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the aggregate
compensation earned by the Co-Chief Executive Officers and the other three
highest paid executive officers (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during the fiscal year
ended December 31, 1996:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
--------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Frank A. Argenbright, Jr...... $600,000(1) $ -- $200,388(2) -- $12,000(3)
Chairman and Co-Chief
Executive Officer
Edwin R. Mellett.............. 160,577 100,000 -- 322,500 --
Vice-Chairman and Co-Chief
Executive Officer
Thomas J. Marano.............. 250,000(4) 125,000 -- 268,750 --
President and Chief
Operating Officer --
Argenbright Holdings
Limited
David L. Gamsey............... 153,173 65,000 -- 107,500 --
Chief Financial Officer
A. Trevor Warburton........... 144,000 45,000 -- -- 27,176(5)
Managing Director --
The ADI Group Limited
</TABLE>
- ---------------
(1) Effective January 1, 1997, Mr. Argenbright's annual salary was reduced to
$350,000.
(2) Includes approximately $55,000 relating to club dues and initiation fees.
Effective January 1, 1997, other annual compensation will be significantly
reduced as the Company has revised its expense reimbursement policies.
(3) Represents life insurance premiums paid by the Company.
(4) Effective July 1, 1997, Mr. Marano's annual salary was increased to
$300,000.
(5) Represents medical and life insurance payments and contributions to Mr.
Warburton's pension plan.
42
<PAGE> 43
OPTION GRANTS
The following table sets forth information regarding option grants during
fiscal 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED RATES OF STOCK PRICE
SECURITIES TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
GRANTED(#)(1) 1996 ($/SH) DATE 5%($) 10%($)
------------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Argenbright, -- -- -- -- -- --
Jr......................
Edwin R. Mellett.......... 107,500 15.4% $ 4.64 10/15/06 $ 313,693 $ 794,959
215,000 30.8 10.00(2) 12/01/06 1,352,123 3,426,546
Thomas J. Marano.......... 268,750 38.4 10.00(2) 12/01/06 1,690,154 4,283,183
David L. Gamsey........... 107,500 15.4 10.00(2) 12/01/06 676,062 1,713,273
A. Trevor Warburton....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Subsequent to December 31, 1996, the Company granted Messrs. Mellett, Marano
and Gamsey additional options to purchase 7,500, 6,250 and 2,500 shares of
Common Stock, respectively, with an exercise price of $10.00 per share.
(2) The exercise price of these options was changed to $10.75 per share from
$11.76 per share on February 28, 1997 and was changed to $10.00 on the date
of the Prospectus relating to the initial public offering.
OPTION HOLDINGS
The following table sets forth certain information concerning the value of
unexercised options held by each of the Named Executive Officers as of December
31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Frank A. Argenbright, Jr................ -- -- -- --
Edwin R. Mellett........................ 161,250 161,250 $576,200 --
Thomas J. Marano........................ 53,750 215,000 -- --
David L. Gamsey......................... 21,500 86,000 -- --
A. Trevor Warburton(2).................. -- -- -- --
</TABLE>
- ---------------
(1) Based on the initial public offering price of $10.00 per share.
(2) Concurrently with the consummation of the initial public offering, the
Company granted to Mr. Warburton options to purchase 30,000 shares of Common
Stock at an exercise price of $10.00 per share.
EMPLOYEE BENEFIT PLANS
Stock Option Plan. The Company's stock option plan (the "Stock Option
Plan") provides for the award of incentive stock options to officers and
employees of the Company and non-qualified stock options to independent
directors of the Company. AHL has reserved 385,000 shares of Common Stock for
issuance under the Stock Option Plan, of which options to purchase 384,500
shares of Common Stock are currently outstanding. The Plan is administered by
the Compensation Committee of the Board of Directors. The purchase price of
Common Stock upon exercise of incentive stock options must not be less than the
fair market value of the Common Stock on the date of grant or, in the case of
incentive stock options issued to holders of more than 10% or greater of the
outstanding voting securities of the Company, 110% of fair market value on the
date of grant. The maximum term of any incentive stock option is ten years, or
five years in the case of options granted to 10% or greater shareholders. The
aggregate fair market value on the date of the grant of
43
<PAGE> 44
the stock for which incentive stock options are exercisable for the first time
by an employee during any calendar year may not exceed $100,000. Options are
exercisable over a period of time in accordance with the terms of option
agreements entered into at the time of grant. Options granted under the Stock
Option Plan are generally nontransferable by the optionee and, unless otherwise
determined by the Committee, must be exercised by the optionee during the period
of the optionee's employment or service with the Company.
Employee Stock Purchase Plan. The Company has adopted an Employee Stock
Purchase Plan, pursuant to which employees are able to purchase shares of Common
Stock through a payroll deduction program. The Company intends to purchase such
shares of Common Stock on the open market.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Company did not have a compensation committee
of the Board of Directors. Executive officer compensation decisions were made by
Messrs. Argenbright and Mellett.
On February 1, 1997, pursuant to the Reorganization, Mr. Argenbright
contributed all of the outstanding shares of common stock of Argenbright and ADI
to the Company in exchange for 8,352,430 shares of Common Stock of the Company
and $5,000 in cash.
In March 1989, the Company borrowed $650,000 from Mr. Argenbright as
evidenced by a subordinated promissory note due January 12, 1999 at an interest
rate of 12% per annum. The Company used the proceeds of the loan for general
working capital purposes. The outstanding balance was approximately $528,000 at
December 31, 1996. The Company paid interest of $78,000, $78,000 and $75,000 for
the years ended December 31, 1994, 1995 and 1996, respectively. On February 1,
1997, Mr. Argenbright contributed this note to the Company as part of the
Reorganization, along with certain Company-occupied offices and facilities in
Atlanta, Orlando and Memphis and other assets. These properties were transferred
at their carrying values (which are less than their appraised values). In
connection with this transaction, the Company assumed the associated mortgage
debt of approximately $2.5 million, which is less than the appraised value. The
Company was a guarantor of certain of these mortgages.
Through the end of December 1996, the Company periodically made loans to
unrelated businesses which are solely owned by Mr. Argenbright in the aggregate
principal amount of $438,000. In addition, Mr. Argenbright has periodically
borrowed money from the Company which aggregated approximately $449,000. These
loans, which do not bear interest, were unsecured and are repayable on demand.
Mr. Argenbright repaid all of such indebtedness in May 1997.
The Company has adopted a policy, effective upon the consummation of the
initial public offering in March 1997, prohibiting loans (other than travel
advances in the ordinary course of business) to its executive officers,
directors and principal shareholders unless such loans first are approved by the
Compensation Committee, which must determine that such loans are in the best
interests of the Company. Any loans made will bear interest at a rate and be on
such terms as determined by the Compensation Committee to be fair to the
Company.
During fiscal years 1994, 1995 and 1996, the Company purchased uniforms for
approximately $1.3 million, $1.4 million and $1.8 million, respectively, from
ASAP Uniform Co., a company that is 20% owned by AHL. During the fiscal years
ended 1994, 1995 and 1996, the Company made rent payments of approximately
$461,000, $435,000 and $372,000, respectively, to Argenbright Office Park, a
company that is wholly-owned by Mr. Argenbright. The Company believes that the
terms of the lease were no less favorable than could be obtained from an
unaffiliated third party.
Any future transactions between the Company and its officers, directors or
principal shareholders will be approved by a majority of the disinterested
members of the Board of Directors.
44
<PAGE> 45
CERTAIN TRANSACTIONS
See "Management -- Compensation Committee Interlocks and Insider
Participation" for a description of certain transactions between the Company and
its affiliates.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of September 30, 1997 and as adjusted for the
sale of shares offered hereby by (i) each Named Executive Officer; (ii) each of
the Company's directors; (iii) all executive officers and directors of the
Company as a group and (iv) each person who beneficially owns more than 5% of
the Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED(1) OFFERING OFFERING
---------------- --------------------- -------- --------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Frank A. Argenbright, Jr.(2).................. 8,358,430 77.0% 61.7%
Edwin R. Mellett(3)........................... 218,750 2.0 1.6
Thomas J. Marano(3)........................... 110,000 1.0 *
David L. Gamsey(3)............................ 44,000 * *
A. Trevor Warburton........................... -- -- --
Robert McCullough............................. 1,000 * *
Hamish Leslie Melville........................ 11,600 * *
All executive officers and directors as a group
(8 persons)................................ 8,743,780 77.9 62.8
OTHER 5% SHAREHOLDER:
Caledonia Investments (Bermuda) Limited(4).... 850,000 7.8 6.3
</TABLE>
- ---------------
* Less than 1.0%.
(1) Includes shares of Common Stock that may be acquired upon the exercise of
stock options exercisable within 60 days. Each person named above has sole
voting and dispositive power with respect to all shares listed opposite such
person's name, except as otherwise noted.
(2) Includes (a) 1,022,090 shares beneficially owned by Argenbright Partners,
L.P., of which a limited liability company managed by Mr. Argenbright and
his spouse is the general partner and (b) 2,500 shares owned by Mr.
Argenbright's spouse. If the Underwriters exercise the over-allotment option
in full to purchase up to 353,430 shares from Argenbright Partners, L.P.,
Mr. Argenbright will beneficially own 8,005,000 shares of Common Stock, or
58.8% of the outstanding Common Stock. Mr. Argenbright's address is c/o AHL
Services, Inc., Atlanta Financial Center, 3353 Peachtree Road, Northeast,
Suite 1120, North Tower, Atlanta, Georgia 30026.
(3) Represents shares of Common Stock issuable pursuant to currently exercisable
options.
(4) Represents shares of Common Stock beneficially owned by Caledonia
Investments (Bermuda) Limited, an investment holding company ("Caledonia").
This information is included in reliance upon a Schedule 13D filed by
Caledonia on April 2, 1997. Caledonia's address is c/o Caledonia Investments
plc, Cayzer House, 1 Thomas More Street, London E1 9AR.
45
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 55,000,000 shares of capital stock
consisting of 50,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of preferred stock, no par value. Immediately prior to the date
of this offering, 10,853,430 shares of Common Stock were outstanding and
1,099,500 shares of Common Stock were issuable pursuant to outstanding options
to purchase Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Subject to the prior rights of any outstanding
preferred stock, each outstanding share of Common Stock is entitled to
participate equally in any distribution of net assets made to the shareholders
in liquidation of the Company and is entitled to participate equally in
dividends as and when declared by the Board of Directors. There are no
redemption, sinking fund, conversion, or preemptive rights with respect to the
shares of Common Stock. All outstanding shares of Common Stock are fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors of the Company generally has the power to issue
shares of preferred stock without shareholder approval. The Board of Directors
is authorized to establish the rights, preferences and limitations of the
undesignated stock and to divide such shares into one or more classes, with or
without voting rights. The ability of the Board of Directors to issue additional
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company. Shares of undesignated stock could be issued with terms,
provisions and rights which would make more difficult and, therefore, less
likely, a takeover of the Company not approved by the Board of Directors. The
rights of the holders of the Common Stock could be adversely affected by the
future issuance of Preferred Stock. The Company has no current plans to issue
any Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Company's Restated and Amended Articles of Incorporation and Bylaws
provide for a five member Board of Directors to be elected to staggered one, two
and three year terms and, thereafter, for successive three year terms. In
addition, directors may only be removed from office for cause upon a vote of 70%
of the Common Stock outstanding. The Articles of Incorporation and Bylaws also
provide that they may not be amended in certain respects except pursuant to the
vote of 70% of the Common Stock outstanding. These provisions of the Articles of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company.
GEORGIA ANTI-TAKEOVER STATUTES
The Georgia Business Combination Code restricts certain business
combinations with "interested shareholders" and contains fair price requirements
applicable to certain mergers with certain "interested shareholders" that are
summarized below. The restrictions imposed by these statutes will not apply to a
corporation unless it elects to be governed by these statutes. The Company has
elected to be covered by such restrictions.
The Georgia business combination statute regulates business combinations
such as mergers, consolidations, share exchanges and asset purchases where the
acquired business has at least 100 shareholders residing in Georgia and has its
principal office in Georgia, and where the acquiror became an "interested
shareholder" of the corporation, unless either (i) the transaction resulting in
46
<PAGE> 47
such acquiror becoming an "interested shareholder" or the business combination
received the approval of the corporation's board of directors prior to the date
on which the acquiror became an "interested shareholder", or (ii) the acquiror
became the owner of at least 90% of the outstanding voting stock of the
corporation (excluding shares held by directors, officers and affiliates of the
corporation and shares held by certain other persons) in the same transaction in
which the acquiror became an "interested shareholder." For purposes of this
statute, an "interested shareholder" generally is any person who directly or
indirectly, alone or in concert with others, beneficially owns or controls 10%
or more of the voting power of the outstanding voting shares of the corporation.
The statute prohibits business combinations with an unapproved "interested
shareholder" for a period of five years after the date on which such person
became an "interested shareholder." The statute restricting business
combinations is broad in its scope and is designed to inhibit unfriendly
acquisitions.
The Georgia fair price statute prohibits certain business combinations
between a Georgia business corporation and an "interested shareholder" unless
(i) certain "fair price" criteria are satisfied, (ii) the business combination
is unanimously approved by the continuing directors, (iii) the business
combination is recommended by at least two-thirds of the continuing directors
and approved by a majority of the votes entitled to be cast by holders of voting
shares, other than voting shares beneficially owned by the "interested
shareholder," or (iv) the interested shareholder has been such for at least
three years and has not increased his ownership position in such three-year
period by more than one percent in any twelve-month period. The fair price
statute is designed to inhibit unfriendly acquisitions that do not satisfy the
specified "fair price" requirements.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 13,553,430 shares
of Common Stock outstanding. Of these shares, 5,200,000 shares of Common Stock
will be freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company, as defined
under the Securities Act.
The remaining 8,353,430 shares of Common Stock are "restricted shares" and
are subject to restrictions under the Securities Act and lock-up agreements. Mr.
Argenbright, who beneficially owns all of the restricted shares of Common Stock,
as well as all persons holding currently exercisable stock options, have agreed
not to sell, offer for sale, or otherwise dispose of any Common Stock for a
period of 90 days from the date of this prospectus without the prior written
consent of BT Alex. Brown Incorporated. Following expiration of the lock-up
agreement, all of these restricted shares will become available for sale in the
public market, subject to the volume and other limitations of Rule 144.
In general, under Rule 144, a person (or person whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 135,534 shares after giving effect to this offering) or the
average weekly trading volume of the Common Stock on the Nasdaq Stock Market
during the four calendar weeks preceding such sale. Sales under Rule 144 are
subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the 90 days preceding a
sale and who has beneficially owned shares for at least two years would be
entitled to sell such shares without regard to the volume limitations, manner of
sale provisions and other requirements of Rule 144.
47
<PAGE> 48
In addition, the Company has registered on Form S-8 under the Securities
Act all shares of Common Stock subject to outstanding options or future grants
under the Company's Stock Option Plan. Shares covered by this registration
statement will be eligible for sale after the lock-up agreements with the
Underwriters have expired. Prior to consummation of this offering, the Company
intends to register the shares of Common Stock issuable pursuant to the
Company's employee stock purchase plan.
Sales of substantial amounts of such shares in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities.
48
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to purchase
from the Company the following respective number of shares of Common Stock at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated................................. 900,000
Credit Suisse First Boston Corporation...................... 900,000
The Robinson-Humphrey Company, LLC.......................... 900,000
---------
Total............................................. 2,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase the total number of shares of Common Stock offered
hereby if any of such shares are purchased.
The Company and the Selling Shareholder have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.50 per share. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed $0.10 per share to certain other dealers. After
commencement of the public offering, the offering price and other selling terms
may be changed by the Underwriters.
The Company and the Selling Shareholder have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 51,570 shares and 353,430 shares, respectively, of Common Stock
at the public offering price set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof that the number of shares of Common Stock purchased by each of them as
shown in the above table, bears to 2,700,000, and the Company and the Selling
Shareholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 2,700,000 shares are being offered.
In connection with this offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market immediately prior to the commencement of sales in this offering in
accordance with Rule 103 of Regulation M. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and making purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified period and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with
this offering, may place bids for or make purchases of the Common Stock in the
open market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with this offering. The Underwriters are not
required to engage in these activities and may end these activities at any time.
49
<PAGE> 50
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company and the Selling Shareholder with
respect to certain civil liabilities, including liabilities under the Securities
Act.
The Company's directors and executive officers, who following the offering
will beneficially own an aggregate of 8,741,180 shares of Common Stock, and the
Company have agreed not to offer, sell or otherwise dispose of any of such
Common Stock or any shares of Common Stock issuable upon exercise of any options
for Common Stock for a period of 90 days after the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Piper
& Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its regional offices located at Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed
rates or through the Commission's Internet address at "http://www.sec.gov". The
Company's Common Stock is quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement under
the Securities Act, with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such shares of Common Stock,
reference is hereby made to such Registration Statement and to the exhibits and
schedules thereto. The Registration Statement can be inspected without charge at
the office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the Commission's Regional Offices at Seven
World Trade Center, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at prescribed rates from the public reference section of the SEC,
Washington, D.C. 20549. The Registration Statement may also be obtained through
the Commission's Internet address at "http://www.sec.gov".
50
<PAGE> 51
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Combined Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)................................. F-3
Combined Statements of Operations for the Years Ended
December 31, 1994,
1995 and 1996 and the Six Months Ended June 30, 1996 and
1997 (unaudited).......................................... F-4
Combined Statements of Shareholder's Equity for the Years
Ended December 31, 1994, 1995 and 1996 and the Six Months
Ended June 30, 1997 (unaudited)........................... F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1994,
1995 and 1996 and the Six Months Ended June 30, 1996 and
1997 (unaudited).......................................... F-6
Notes to Combined Financial Statements...................... F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AHL Services:
We have audited the accompanying combined balance sheets of ARGENBRIGHT
HOLDINGS LIMITED (a Georgia corporation) AND THE ADI GROUP LIMITED (an English
corporation) (collectively "AHL SERVICES") as of December 31, 1995 and 1996 and
the related combined statements of operations, shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AHL Services as of December
31, 1995 and 1996 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 28, 1997
F-2
<PAGE> 53
AHL SERVICES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 1,169 $ 1,842 $ 3,298
Restricted cash........................................... 2,287 0 0
Accounts receivable, less allowance for doubtful accounts
of $200, $341 and $420, in 1995, 1996 and 1997.......... 27,452 34,692 35,083
Due from related parties.................................. 113 269 0
Uniforms in service, net.................................. 1,388 1,987 1,947
Prepaid expenses and other................................ 1,548 2,085 3,686
------- ------- -------
Total current assets............................... 33,957 40,875 44,014
------- ------- -------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$6,846, $8,308 and $9,253 in 1995, 1996 and 1997.......... 5,282 5,674 7,883
------- ------- -------
INTANGIBLES, net of accumulated amortization of $211, $497
and $527 in 1995, 1996 and 1997........................... 380 4,141 9,796
------- ------- -------
DEFERRED INCOME TAXES....................................... 595 708 708
------- ------- -------
OTHER ASSETS................................................ 473 555 507
------- ------- -------
$40,687 $51,953 $62,908
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,199 $ 4,667 $ 2,257
Accrued payroll and other liabilities..................... 11,260 15,413 16,663
Current portion of self-insurance reserves................ 440 640 760
Income taxes payable...................................... 3,580 1,018 2,030
Current portion of long-term debt......................... 1,089 1,617 725
Deferred income taxes..................................... 173 167 211
------- ------- -------
Total current liabilities.......................... 20,741 23,522 22,646
------- ------- -------
LONG-TERM DEBT, less current portion........................ 13,959 19,178 7,808
------- ------- -------
SELF-INSURANCE RESERVES, less current portion............... 1,760 2,560 3,040
------- ------- -------
DEFERRED INCOME TAXES....................................... 0 50 0
------- ------- -------
DEBT GUARANTEES, COMMITMENTS AND CONTINGENCIES (Notes 6, 7
and 10)
REDEEMABLE WARRANT.......................................... 0 706 0
------- ------- -------
NOTE PAYABLE TO SHAREHOLDER................................. 650 528 0
------- ------- -------
SHAREHOLDER'S EQUITY:
Common stock of Argenbright, $1 par value; 50,000 shares
authorized, 500, 500 and no shares issued and
outstanding in 1995, 1996 and 1997...................... 1 1 0
Common stock of ADI, no par value; 5,000,000 shares
authorized, 296,868, 296, 868 and no shares issued and
outstanding in 1995, 1996 and 1997...................... 0 0 0
Preferred stock of AHL Services, Inc., no par value;
5,000,000 shares authorized; no shares outstanding...... 0 0 0
Common Stock of AHL Services, Inc., $.01 par value;
50,000,000 shares authorized, 10,853,430 shares issued
and outstanding at June 30, 1997........................ 0 0 109
Cumulative translation adjustment......................... 2 74 71
Paid in capital........................................... 0 0 21,978
Retained earnings......................................... 3,869 5,952 7,256
Due from shareholder...................................... (295) (618) 0
------- ------- -------
Shareholder's equity, net............................... 3,577 5,409 29,414
------- ------- -------
$40,687 $51,953 $62,908
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-3
<PAGE> 54
AHL SERVICES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $123,234 $168,601 $210,153 $ 93,162 $124,194
OPERATING EXPENSES:
Cost of services...................... 91,873 124,491 155,926 68,883 92,769
Field operating....................... 20,931 30,328 37,492 16,680 20,266
Corporate general and
administrative..................... 8,797 10,938 11,692 5,712 7,103
-------- -------- -------- -------- --------
Total operating expenses...... 121,601 165,757 205,110 91,275 120,138
-------- -------- -------- -------- --------
OPERATING INCOME........................ 1,633 2,844 5,043 1,887 4,056
INTEREST EXPENSE, net................... 904 1,309 1,726 610 818
OTHER INCOME, net....................... (26) (820) (301) (138) (242)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................... 755 2,355 3,618 1,415 3,480
INCOME TAX PROVISION.................... 627 917 1,447 566 1,375
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS....... 128 1,438 2,171 849 2,105
EXTRAORDINARY ITEMS FOR EARLY
EXTINGUISHMENT OF DEBT, NET OF TAXES
OF $257............................... 0 0 0 0 (385)
-------- -------- -------- -------- --------
NET INCOME.............................. $ 128 $ 1,438 $ 2,171 $ 849 $ 1,720
======== ======== ======== ======== ========
INCOME BEFORE EXTRAORDINARY ITEMS PER
COMMON AND COMMON EQUIVALENT SHARES... $ 0.25 $ 0.10 $ 0.21
======== ======== ========
EXTRAORDINARY ITEMS PER COMMON AND
COMMON EQUIVALENT SHARES.............. $ 0 $ 0 $ (0.04)
======== ======== ========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES..................... $ 0.25 $ 0.10 $ 0.17
======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES..................... 8,557 8,557 9,895
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE> 55
AHL SERVICES
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ARGENBRIGHT ADI
COMMON STOCK COMMON STOCK AHL SERVICES, INC. CUMULATIVE
--------------- ----------------- ------------------- TRANSLATION RETAINED PAID IN DUE FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ADJUSTMENT EARNINGS CAPITAL SHAREHOLDER
------ ------ -------- ------ ---------- ------ ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993............... 500 $1 296,868 $0 0 $ 0 $ 17 $2,303 $ 0 $(198)
Translation
adjustment....... 0 0 0 0 0 0 1 0 0 0
Net income......... 0 0 0 0 0 0 0 128 0 0
---- -- -------- -- ---------- ---- ---- ------ ------- -----
BALANCE, December 31,
1994............... 500 1 296,868 0 0 0 18 2,431 0 (198)
Increase in due
from
shareholder...... 0 0 0 0 0 0 0 0 0 (97)
Translation
adjustment....... 0 0 0 0 0 0 (16) 0 0 0
Net income......... 0 0 0 0 0 0 0 1,438 0 0
---- -- -------- -- ---------- ---- ---- ------ ------- -----
BALANCE, December 31,
1995............... 500 1 296,868 0 0 0 2 3,869 0 (295)
Increase in due
from
shareholder...... 0 0 0 0 0 0 0 0 0 (323)
Accretion of
redeemable
warrant.......... 0 0 0 0 0 0 0 (88) 0 0
Translation
adjustment....... 0 0 0 0 0 0 72 0 0 0
Net income......... 0 0 0 0 0 0 0 2,171 0 0
---- -- -------- -- ---------- ---- ---- ------ ------- -----
BALANCE, December 31,
1996............... 500 1 296,868 0 0 0 74 5,952 0 (618)
Reorganization (Note
1)................. (500) (1) (296,868) 0 8,353,430 84 0 (372) 0 0
Issuance of Common
Stock.............. 0 0 0 0 2,500,000 25 0 0 21,978 0
Accretion of
Redeemable
Warrant............ 0 0 0 0 0 0 0 (44) 0 0
Decrease in due from
shareholder........ 0 0 0 0 0 0 0 0 0 618
Translation
Adjustment......... 0 0 0 0 0 0 (3) 0 0 0
Net Income........... 0 0 0 0 0 0 0 1,720 0 0
---- -- -------- -- ---------- ---- ---- ------ ------- -----
Balance, June 30,
1997 (unaudited)... 0 $0 0 $0 10,853,430 $109 $ 71 $7,256 $21,978 $ 0
==== == ======== == ========== ==== ==== ====== ======= =====
<CAPTION>
TOTAL
-------
<S> <C>
BALANCE, December 31,
1993............... $ 2,123
Translation
adjustment....... 1
Net income......... 128
-------
BALANCE, December 31,
1994............... 2,252
Increase in due
from
shareholder...... (97)
Translation
adjustment....... (16)
Net income......... 1,438
-------
BALANCE, December 31,
1995............... 3,577
Increase in due
from
shareholder...... (323)
Accretion of
redeemable
warrant.......... (88)
Translation
adjustment....... 72
Net income......... 2,171
-------
BALANCE, December 31,
1996............... 5,409
Reorganization (Note
1)................. (289)
Issuance of Common
Stock.............. 22,003
Accretion of
Redeemable
Warrant............ (44)
Decrease in due from
shareholder........ 618
Translation
Adjustment......... (3)
Net Income........... 1,720
-------
Balance, June 30,
1997 (unaudited)... $29,414
=======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE> 56
AHL SERVICES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 128 $ 1,438 $ 2,171 $ 849 $ 1,720
------- -------- --------- -------- --------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Extraordinary items.................................... 0 0 0 0 385
Depreciation and amortization.......................... 2,060 3,897 4,158 1,376 2,482
(Gain) loss on sales of subsidiary..................... 0 (823) (325) (81) 2
Loss on sales of assets................................ 6 0 133 0 0
Amortization of debt discount.......................... 0 0 180 0 93
Minority interest in net income........................ (32) (26) 0 0 0
Changes in assets and liabilities, net of assets of
acquired businesses:
Accounts receivable, net........................... (2,630) (12,511) (7,860) 1,109 (626)
Due from related parties........................... (40) 305 (538) 10 205
Uniforms in service, net........................... (1,006) (1,912) (2,575) 433 (1,048)
Prepaid expenses and other......................... (3,738) 1,343 3,304 1,398 (1,953)
Accounts payable................................... 1,685 (343) 141 (137) (2,386)
Accrued payroll and other liabilities.............. 3,114 2,844 4,068 (1,658) 903
Self-insurance reserves............................ 773 1,427 1,000 750 600
Income taxes payable............................... 118 1,769 (2,634) (985) 1,283
Deferred income taxes.............................. (306) (949) (42) 6 0
------- -------- --------- -------- --------
Total adjustments.................................... 4 (4,979) (990) 2,221 (60)
------- -------- --------- -------- --------
Net cash provided by (used in) operating
activities......................................... 132 (3,541) 1,181 3,070 1,660
------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net................... (1,254) (2,571) (1,974) (551) (992)
Proceeds from sale of property and equipment............... 0 0 245 0 0
Proceeds from sale of subsidiary........................... 0 975 325 81 0
Purchase of businesses..................................... 0 0 (2,500) 0 (5,655)
Other activities, net...................................... 77 0 (102) 0 (136)
------- -------- --------- -------- --------
Net cash used in investing activities................ (1,177) (1,596) (4,006) (470) (6,783)
------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................................ (1,550) (909) (1,609) (599) (5,848)
Repayments of line of credit............................... (85,658) (115,617) (142,350) (65,761) (69,318)
Borrowings under line of credit............................ 88,623 107,938 144,094 63,300 59,119
Proceeds from IPO.......................................... 0 0 0 0 23,250
Expenses of IPO............................................ 0 0 0 0 (818)
Repurchase of outstanding warrants......................... 0 0 0 0 (750)
Proceeds from refinancing of debt.......................... 0 13,965 0 0 0
Proceeds from issuance of long-term debt................... 0 0 4,000 0 0
(Increase) decrease in due from shareholder................ 0 (97) (323) 0 618
Repayment of notes from shareholder........................ 0 0 0 0 346
Repayment of note payable to shareholder................... (200) 0 (122) 0 0
Payment of debt issuance costs............................. (149) (166) (340) 0 0
------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities......................................... 1,066 5,114 3,350 (3,060) 6,599
------- -------- --------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH............................ 53 (18) 148 15 (20)
------- -------- --------- -------- --------
NET CHANGE IN CASH.......................................... 74 (41) 673 (445) 1,456
CASH AT BEGINNING OF PERIOD................................. 1,136 1,210 1,169 1,169 1,842
------- -------- --------- -------- --------
CASH AT END OF PERIOD....................................... $ 1,210 $ 1,169 $ 1,842 $ 724 $ 3,298
======= ======== ========= ======== ========
CASH PAID DURING THE PERIOD FOR:
Interest................................................... $ 827 $ 1,381 $ 1,427 $ 610 $ 818
======= ======== ========= ======== ========
Income taxes............................................... $ 791 $ 562 $ 2,538 $ 1,391 $ 130
======= ======== ========= ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases under capital lease obligations........ $ 413 $ 530 $ 546 $ 0 $ 472
======= ======== ========= ======== ========
Redeemable warrant issued in connection with Sirrom
Notes.................................................... $ 0 $ 0 $ 618 $ 0 $ 0
======= ======== ========= ======== ========
Accretion of redeemable warrant............................ $ 0 $ 0 $ 88 $ 0 $ 44
======= ======== ========= ======== ========
Notes issued for Intersec acquisition...................... $ 0 $ 0 $ 1,155 $ 0 $ 0
======= ======== ========= ======== ========
Contribution of real estate................................ $ 0 $ 0 $ 0 $ 0 $ 1,637
======= ======== ========= ======== ========
Forgiveness of note payable to shareholder................. $ 0 $ 0 $ 0 $ 0 $ 528
======= ======== ========= ======== ========
Assumption of real estate debt............................. $ 0 $ 0 $ 0 $ 0 $ 2,532
======= ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-6
<PAGE> 57
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. DESCRIPTION OF THE BUSINESS
The accompanying AHL Services financial statements represent the
combination of the consolidated financial statements of Argenbright Holdings
Limited ("Argenbright") and The ADI Group Limited and its predecessor entities
("ADI") (collectively, "AHL" or the "Company"). The Company provides
pre-departure screening, passenger profiling, commercial security, shuttle bus,
cargo handling and other services primarily throughout the United States, the
United Kingdom, France and Germany to various customers, including airlines,
governmental entities, corporations and other enterprises. Frank A. Argenbright,
Jr. (the "sole shareholder") beneficially owns all of the outstanding shares of
Common Stock of both Argenbright and ADI.
On February 1, 1997, Mr. Argenbright contributed all of the outstanding
shares of Common Stock of Argenbright and ADI to AHL. In addition to the
contribution of the shares of Argenbright and ADI to AHL, Mr. Argenbright
contributed certain real estate, a portion of which was previously rented by the
Company (with the Company assuming the related mortgage debt) and a note with a
balance of $528,000 as of December 31, 1996 payable by the Company to Mr.
Argenbright (collectively the "Reorganization"). All of these transactions were
brought forward at historical values. Effective with the Reorganization, the
capital structure of AHL consists of 50,000,000 shares authorized, 8,353,430
shares issued and outstanding of $.01 par value Common Stock and 5,000,000
shares authorized, 0 shares issued and outstanding of no par value preferred
stock. Shares outstanding and all other references to shares of Common Stock as
of June 30 and December 31, 1996 are pro forma to give effect to the revised
capital structure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of
Argenbright and its wholly-owned subsidiaries and ADI and its wholly-owned
subsidiaries. All significant intercompany accounts have been eliminated.
FISCAL YEAR-END
Argenbright maintains its books using a 52/53-week fiscal year ending on
the last Friday in December. Fiscal years 1994, 1995 and 1996 contain 52 weeks.
The end of Argenbright's 1996 fiscal year was December 27. ADI's fiscal year-end
is December 31. For purposes of the combined financial statements, the year-end
is stated as of December 31. The impact of the use of different year-ends is
immaterial.
PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements and footnote data as of June 30, 1997
and for the six months ended June 30, 1996 and 1997 are unaudited. In the
opinion of the management of the Company, these financial statements reflect all
adjustments, consisting only of normal and recurring
F-7
<PAGE> 58
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
adjustments, necessary for a fair presentation of the financial statements. The
results of operations for the six months ended June 30, 1996 and 1997, are not
necessarily indicative of the results that may be expected for the full year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
purchase maturities of three months or less.
RESTRICTED CASH
During 1995, the Company was required to maintain an insurance collateral
account. The cash, which was held in an interest-bearing trust account, was
restricted to offset any potential claims. In January 1996, the account was
closed, and the cash was returned to the Company and applied against the
outstanding line of credit. The collateral account was satisfied with letters of
credit.
UNIFORMS IN SERVICE
Uniforms in service are recorded at cost and are amortized over their
estimated useful life of 18 months.
START-UP COSTS
One-time, nonrecurring and incremental out-of-pocket expenditures directly
related to and incurred during the start-up phase of new major contracts,
typically 3 to 6 months, are deferred and amortized on a straight-line basis
over a period not to exceed 12 months. Amortization begins upon the conclusion
of the start-up period. There were no capitalized start-up costs at December 31,
1995 and 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of 2 to 10 years for office
furniture and equipment and transportation equipment and 25 years for buildings.
Leasehold improvements are amortized over the lesser of their useful lives or
the lives of the related leases.
At December 31, 1995 and 1996, property and equipment was comprised of the
following items:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold improvements........................ $ 1,345 $ 1,493
Office furniture and equipment.............................. 5,313 6,223
Transportation equipment.................................... 5,470 6,266
------- -------
12,128 13,982
Less accumulated depreciation............................... 6,846 8,308
------- -------
$ 5,282 $ 5,674
======= =======
</TABLE>
F-8
<PAGE> 59
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INTANGIBLES
Goodwill and other intangibles are amortized using the straight-line method
over periods ranging up to 40 years. Amortization expense for goodwill and other
intangibles was $184,000, $153,000 and $236,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
ACCOUNTS PAYABLE
Accounts payable include book overdrafts created by outstanding checks. At
December 31, 1995 and 1996, the book overdrafts totaled $1,564,000 and
$2,098,000, respectively.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed. At December 31,
1995 and 1996, the Company recorded $7,843,000 and $9,957,000, respectively, of
unbilled revenues, which is included in accounts receivable.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of Common Stock and dilutive common stock equivalent shares ("CSEs") from
stock options and warrants (using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common stock and
CSEs issued at prices below the expected public offering price during the
12-month period prior to the Company's planned Offering have been included in
the calculation as if they were outstanding for all periods prior to the
Offering, regardless of whether they are dilutive (using the treasury stock
method). Net income is not reduced by the $88,000 provision for accretion of the
redeemable warrant redemption value because the calculation assumes that the
related Common Stock was outstanding in lieu of the Redeemable Warrant (Notes 6
and 8).
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share" which specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company will be required to adopt SFAS
No. 128 in the fourth quarter 1997. All prior period earnings per share data
will be restated to conform with the provisions of SFAS No. 128. Based on a
preliminary evaluation of this Standards' requirements, the Company does not
expect the per share amounts reported under SFAS No. 128 to be materially
different from those calculated and presented under Accounting Principles Board
Opinion. No. 15.
LONG-LIVED ASSETS
In October 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have
a material impact on the Company's financial statements.
FOREIGN CURRENCY TRANSLATION AND EXPOSURE
All asset and liability accounts of foreign subsidiaries are translated
into U.S. dollars at the rate of exchange in effect at the balance sheet date.
Shareholder's equity is translated at historical rates. All income statement
accounts of foreign subsidiaries are translated at average exchange rates during
the year. Resulting translation adjustments arising from these translations are
charged or credited directly to shareholder's equity. Gains or losses on foreign
currency transactions are included in income as incurred. The denomination of
foreign subsidiaries' account balances in their local currency exposes the
Company to certain foreign exchange rate risks. The Company addresses the
F-9
<PAGE> 60
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
exposure by financing most working capital needs in the applicable foreign
currencies. The Company does not engage in other purchased hedging transactions
to reduce any remaining exposure to fluctuations in foreign currency exchange
rates. However, management does not believe the remaining risks to be
significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, trade accounts receivable and trade accounts
payable approximate their fair values principally because of the short-term
maturities of these instruments. The fair value of the Company's long-term debt
is estimated based on current rates offered to the Company for debt of similar
terms and maturities. Under this method, the Company's fair value of long-term
debt was not significantly different than the stated value at December 31, 1995
and 1996.
SIGNIFICANT CUSTOMER CONCENTRATION
During the years ended December 31, 1994, 1995 and 1996, the following
clients individually accounted for more than 10% of the Company's revenues:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 1996
---- ---- ----
(PERCENT OF TOTAL
REVENUES)
<S> <C> <C> <C>
Customer A.................................................. 29.1% 23.6% 23.1%
Customer B.................................................. 16.6 15.7 12.6
Customer C.................................................. * 10.5 11.3
</TABLE>
- ---------------
* Accounted for less than 10% of total revenues for the period indicated.
In addition, a substantial portion of the Company's revenues is from
clients in the aviation industry. As of December 31, 1995 and 1996,
approximately 40.4% and 37.9%, respectively, of the Company's accounts
receivable were from three clients. The Company's policy does not require
significant collateral or other security to support such receivables.
3. SALE OF SUBSIDIARY
In October 1995, the Company sold substantially all of the assets of
Intergram, Inc., Argenbright's wholly-owned subsidiary which provided drug
testing, for $1,300,000, of which $975,000 was received in cash and the
remaining $325,000 was in the form of a note receivable. During fiscal 1995, the
cash portion of the sale resulted in a gain of $823,000, which is reflected in
the accompanying statements of operations as other income, net in 1995. The
balance of the gain reflected by the note receivable of $325,000 was recognized
during 1996 upon receipt of the proceeds.
4. ACQUISITION
In July 1996, the Company acquired Intersec, Inc. ("Intersec") for
$2,500,000 in cash and $1,155,000 in the form of notes payable. The transaction
was accounted for as a purchase. Intangibles of approximately $3,605,000 were
recognized in connection with the purchase, of which $250,000 was allocated to
purchased customer contracts and $75,000 to non-compete agreements that are
being amortized over 5 and 10 years, respectively, and which $3,280,000 was
allocated to goodwill that is being amortized over 40 years. The combined
financial statements include the operating results of Intersec from the date of
acquisition.
F-10
<PAGE> 61
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's unaudited pro forma results of operations are presented
assuming that the Intersec acquisition had been consummated January 1 of each
year presented and are not necessarily indicative of the results of operations
which would have actually been obtained for the years ended December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Pro forma revenue........................................... $178,361 $216,540
======== ========
Pro forma net income........................................ $ 1,067 $ 2,131
======== ========
Pro forma earnings per share................................ $ 0.25
========
</TABLE>
Pro forma adjustments were recorded to include (i) increased net interest
expense to reflect interest expense on long-term debt that would have been
incurred to finance the purchase, (ii) increased depreciation and amortization
expense as a result of the excess of the purchase price over the book value, and
(iii) provision for income taxes for net income of the acquired company and for
pro forma adjustments. No pro forma adjustments have been made for rent and
owners compensation, which were eliminated upon purchase.
5. INCOME TAXES
The income tax provision (benefit) consists of the following as of December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $265 $ 861 $ 517
State..................................................... 165 153 76
Foreign................................................... 181 852 785
---- ----- ------
611 1,866 1,378
---- ----- ------
Deferred:
United States............................................. (50) (630) 39
Foreign................................................... 66 (319) 30
---- ----- ------
16 (949) 69
---- ----- ------
Total............................................. $627 $ 917 $1,447
==== ===== ======
</TABLE>
The reconciliation of the federal statutory rate to the Company's effective
tax provision is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate.................................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.................. 8.6 2.5 2.0
Effect of foreign losses and foreign taxes greater than U.S.
statutory federal rate.................................... 22.8 0.0 2.2
Other....................................................... 17.6 2.4 1.8
----- ---- ----
Total............................................. 83.0% 38.9% 40.0%
===== ==== ====
</TABLE>
F-11
<PAGE> 62
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts. The tax effect of significant temporary differences
representing deferred tax assets and liabilities is as follows as of December
31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 80 $ 115
Targeted jobs tax credit.................................. 141 0
Self-insurance reserves................................... 880 1,229
Accruals.................................................. 0 339
Other..................................................... 0 61
------- ------
1,101 1,744
------- ------
Deferred tax liabilities:
Tax depreciation in excess of book........................ (85) (351)
Prepaid expenses currently deductible..................... (429) (882)
Other..................................................... (165) (20)
------- ------
(679) (1,253)
------- ------
Net deferred tax asset............................ $ 422 $ 491
======= ======
</TABLE>
6. LONG-TERM DEBT
At December 31, 1995 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving lines of credit, interest at prime (8.25% at
December 31, 1996) with a LIBOR option at LIBOR plus 2.5%
(8.25% at December 31, 1996), due in full in December
1998...................................................... $12,166 $14,088
Term note, interest at prime plus .75% (9.0% at December 31,
1996) with a LIBOR option at LIBOR plus 3.0% (8.75% at
December 31, 1996), payable in 36 equal monthly
installments through December 1998........................ 1,500 542
Subordinated notes payable to Sirrom Capital Corporation
("Sirrom" or "Sirrom Notes"), interest at 13.5%, principal
of $3,500,000 due July 9, 2001, secured by a second
security interest in substantially all of the assets of
Argenbright............................................... 0 3,130
Subordinated notes payable to former owners of Intersec,
interest at 9%, payable in varying installments through
April 1998................................................ 0 1,155
Transportation and other equipment notes payable, interest
ranging from 7% to 15%, payable monthly through 2001,
secured by related equipment.............................. 1,357 1,780
Other....................................................... 25 100
------- -------
15,048 20,795
Less current portion........................................ 1,089 1,617
------- -------
$13,959 $19,178
======= =======
</TABLE>
F-12
<PAGE> 63
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future aggregate annual maturities of long-term debt are as follows as of
December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 1,617
1998........................................................ 15,197
1999........................................................ 256
2000........................................................ 188
2001........................................................ 3,308
Thereafter.................................................. 229
-------
$20,795
=======
</TABLE>
In December 1995, the Company refinanced its revolving line of credit
("revolver"), raising the availability to $25,000,000, of which $20,000,000 is
denominated in U.S. dollars and $5,000,000 is denominated in either U.S. dollars
or pounds sterling, at the Company's option. Borrowings are based on a
percentage of accounts receivable, less amounts outstanding under letters of
credit. At December 31, 1996, $14,088,000 was outstanding and $7,527,000 was
available under the revolver. In January 1996, $3,320,000 of the availability
was utilized via the issuance of letters of credit in connection with the
Company's insurance program. Concurrent with the issuance of the letters of
credit, restricted cash of $2,287,000 was returned to the Company and applied
against the revolver. Any unpaid balance on the revolver is due upon expiration
of the agreement in December 1998. The revolver is secured by substantially all
of the Company's assets. In addition, the revolver is subject to certain
restrictive covenants, including maintaining minimum tangible net worth and a
specified debt-to-net worth ratio, and is personally guaranteed by the Company's
chairman and sole shareholder. In connection with the refinancing, the Company
entered into a term note agreement with financial covenants and other
restrictions similar to the revolver.
The Sirrom Notes were issued in July 1996 for $3,500,000. As discussed in
Note 8, a warrant ("Redeemable Warrant") to purchase 3.5% of Argenbright's
common shares for an exercise price of $18.00 was issued with the notes (before
adjustment associated with the Reorganization). The value of this warrant at
issuance was determined to be $618,000 based on the relative fair value of the
warrant to the notes. A corresponding amount of the proceeds that has been
allocated to the warrant, net of deferred tax effects, has been accounted for as
a debt discount and is being amortized over the expected life of the related
notes using the effective interest method. At December 31, 1996, the unamortized
debt discount amounted to $370,000.
Under the terms of a contract with a major airline customer, the customer
will buy all buses used by the Company to serve the customer if the customer
terminates the contract prior to the expiration date, which has been extended
through 1997. The purchase price paid by the customer for each bus would be
equal to the remaining balance owed by the Company on debt secured by the bus or
$500, whichever is greater. The related debt balance at December 31, 1995 and
1996 totaled $239,000 and $92,000, respectively, and is included in
transportation equipment notes payable.
See Note 7 regarding the Company's guarantee of outstanding debt of the
Company's chairman and sole shareholder.
June 30, 1997 (unaudited)
On May 2, 1997, the Company and its lender, First Union National Bank,
entered into a new three year credit facility which increased the maximum
borrowings to $35 million, lowered the interest rate to Prime or LIBOR plus 150
basis points and reduced certain other fees associated with
F-13
<PAGE> 64
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the credit facility. The credit facility is to be used for general working
capital purposes and to fund future acquisitions.
7. RELATED PARTY TRANSACTIONS
The note payable to shareholder at December 31, 1995 and 1996 consists of a
$650,000 and $528,000, respectively subordinated note payable to the Company's
chairman and sole shareholder, due in full on March 23, 1999, including interest
at 12%. The Company incurred interest expense of $78,000 and $75,000 in 1995 and
1996 related to the aforementioned note.
In addition to the note payable discussed above, the Company has other
transactions with the Company's chairman and sole shareholder and other
companies related by common ownership, including Argenbright Investments, Inc.,
Argenbright Leasing, Inc., and other affiliates. Significant related-party
transactions during 1994, 1995 and 1996 are as follows:
- Unsecured, noninterest-bearing advances were made to the Company's
chairman and sole shareholder totaling $295,000 and $449,000 at December
31, 1995 and 1996, respectively, which are included in due from
shareholder, a component of shareholder's equity, in the accompanying
balance sheets. Additionally, the Company's assets, as of December 31,
1996, included $77,000 of deposits paid on behalf of the sole shareholder.
- Unsecured, non-interest bearing advances were made to the sole
shareholder in connection with certain real estate holdings totaling
$169,000 at December 31, 1996. Effective February 1, 1997 the underlying
real estate was contributed to the Company (Note 12) and the amounts owed
became a liability of the sole shareholder. The amounts are included in
due from shareholder in the accompanying balance sheets.
- Unsecured, noninterest-bearing advances were made to an affiliate
totaling $105,000 and $269,000 at December 31, 1995 and 1996 and are
included in due from related parties in the accompanying balance sheets.
- Certain real estate is leased from the Company's chairman and sole
shareholder under informal agreements. Actual rental expense related to
these agreements was $461,000, $435,000 and $372,000 for the years ended
December 31, 1994, 1995, and 1996, respectively.
- The Company has an unsecured promissory note from Argenbright
Investments, Inc. with a balance of $8,000 and $0 as of December 31, 1995
and 1996, respectively, bearing interest at a rate of 10.5% per annum.
- The Company's chairman and sole shareholder has personally guaranteed the
revolver, the term note and the Sirrom Notes, as described in Note 6. The
Company has guaranteed the outstanding mortgage payable of $2,140,000 as
of December 31, 1996 for certain real estate leased by the Company from
the Company's chairman and sole shareholder. The real estate and related
mortgage notes were contributed to the Company in connection with the
Reorganization.
- During fiscal 1996, the Company bought a 20% and a 49% interest in ASAP
Uniform Company, Inc. ("ASAP") and Premium Services Management, Inc.
("PSM"), respectively. Both investments are accounted for using the equity
method of accounting and had an immaterial effect on the current year
financial statements. The Company made payments of $1,829,000 and $48,000
to ASAP and PSM, respectively, for uniforms and services performed.
F-14
<PAGE> 65
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. REDEEMABLE WARRANT
In connection with issuance of the Sirrom Notes (Note 6), the Company
issued a Redeemable Warrant to purchase 3.5% of Argenbright's common shares
(146,185 pro forma shares of AHL at December 31, 1996, as adjusted for the
Reorganization), for an exercise price of $18.00. In the event that the notes
remain outstanding on December 31, 1997, Sirrom receives an additional warrant
to purchase 1% of Argenbright's shares. Beginning July 30, 1998, warrants to
purchase additional shares accrue at 1% per year until prepayment or maturity of
the notes. The Company has the right to repurchase the warrant through December
31, 1997 for a purchase price of $750,000.
Sirrom also has the option to require the Company to redeem the warrant
beginning in 2001 for fair value, as defined. The excess of the redemption value
over the carrying value is being accrued by periodic charges to retained
earnings over the redemption period. This accretion amounted to $88,000 for the
year ended December 31, 1996.
9. STOCK BASED COMPENSATION
In October 1996, the Company issued nonqualified stock options to purchase
107,500 common shares at $4.64 per share. The options became exercisable upon
grant.
In December 1996, the Company issued nonqualified stock options to purchase
591,250 common shares at $11.76 per share. The options become exercisable in
varying percentages over four years.
The options above were granted at exercise prices which were not less than
estimated fair value of the Common Stock at the dates of grant as determined by
the Board of Directors. While the Company estimates that the fair value of the
common stock increased between the October and December grant dates, the Company
believes that the $11.76 per share exercise price exceeds the estimated fair
value of the Common Stock at December 1, 1996, as there was no public market for
the Company's stock at that time. Events that contributed to the increase in the
value of the common stock between the dates of the grants included the award of
new contracts to the Company by certain major clients and commitments by these
clients for additional contract awards.
The Company had 698,750 total options outstanding and 237,000 exercisable
at December 31, 1996 with a weighted-average exercise price of $10.66 and $5.85,
respectively.
The Company accounts for these stock option grants under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with the SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Net income:
As reported............................................... $2,171,000
Pro forma................................................. $1,701,000
Primary EPS:
As reported............................................... $ 0.25
Pro forma................................................. $ 0.20
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
the October and December grants,
F-15
<PAGE> 66
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively: risk-free interest rates of 5.95% and 5.80%; no expected
dividends; expected lives of 2 and 4.5 years, and expected volatility of 37%.
See Note 12 for a discussion of option activity subsequent to December 31,
1996.
June 30, 1997 (unaudited)
In April, 1997 the Company adopted a stock incentive plan (the "Plan"),
under which the Company may grant 385,000 incentive or nonqualified common stock
options to directors and full-time employees. Options are granted at an exercise
price which is not less than fair market value as estimated by the Board of
Directors and become exercisable as determined by the Board of Directors,
generally 4 to 5 years. Options granted under the Plan expire 10 years from the
date of grant. As of June 30, 1997, 378,500 options have been granted under the
Plan.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, transportation equipment and office
equipment from unrelated parties under lease agreements expiring through
December 1999. Rental expense under these operating leases was $3,071,000,
$4,390,000 and $6,297,000 in 1994, 1995 and 1996, respectively.
Future minimum lease payments for noncancelable leases, including leases
with the Company's chairman and sole shareholder discussed in Note 7, were as
follows at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING: (IN THOUSANDS)
<S> <C>
1997...................................................... $4,801
1998...................................................... 2,396
1999...................................................... 1,674
2000...................................................... 1,211
2001...................................................... 826
</TABLE>
PERFORMANCE BONDS
At December 31, 1996, the Company has outstanding performance bonds of
$4,502,000.
INSURANCE
In 1994, Argenbright began participating in partially self-insured,
large-deductible workers' compensation, auto and health insurance plans.
Argenbright's exposure is limited per occurrence ($250,000 for workers'
compensation and auto liability claims) and in the aggregate. Reserves are
estimated for both reported and unreported claims. Revisions to estimated
reserves are recorded in the periods in which they become known. Estimated
self-insurance reserves as of December 31, 1995 and 1996 totaling $2,200,000 and
$3,200,000, respectively, represent management's best estimate. While there can
be no assurance that actual future claims will not exceed the amount of the
Company's reserves, in the opinion of the Company's management, any future
adjustments to estimated reserves included in the accompanying balance sheets
will not have a material impact on the financial statements.
The Company is exposed to liability for the acts or negligence of its
employees while on assignment that cause personal injury or damages, as well as
claims of misuse of client proprietary information or theft of client property.
As a provider of security services, the Company faces potential liability claims
in the event of any terrorist attempt or other criminal activity which occurs
F-16
<PAGE> 67
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
on any airline or premises subject to the Company's security services. The
Company has policies, guidelines and insurance to reduce its exposure to these
risks.
EMPLOYMENT AGREEMENTS
In December 1996, the Company entered into employment agreements with three
officers which expire through December 1, 2001. If any agreement is terminated
by the Company prior to the expiration date, except for cause or upon the
employee's death or disability, the Company must continue to pay the employee's
base salary and bonus for up to one year. The agreements provide for annual-base
salaries of up to $300,000 per officer and bonuses up to 50% of salaries.
DEFERRED COMPENSATION
In September 1996, Argenbright entered into a non-qualified deferred
compensation arrangement with certain eligible employees by which they could
elect to defer a specified portion of their compensation. The participant may
choose among several investment options, but returns are not guaranteed. As of
December 31, 1996, the Company has an obligation of $10,000 under the plan.
BENEFIT PLAN
In April 1996, Argenbright began a 401(k) plan covering salaried employees,
excluding highly compensated employees, who were employed as of such date.
Employees who were not employed as of April 1, 1996 must complete one year of
service to become eligible. Participants may contribute up to 15% of their
compensation to the plan. The Company has the discretion to match these
contributions. As of December 31, 1996, no company contributions have been made
to the plan.
LITIGATION
The Company is involved in various routine litigation arising in the
ordinary course of business. Management is of the opinion that the resolution of
these matters will not have a material effect on the combined results of
operations or financial condition of the Company.
F-17
<PAGE> 68
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATIONS BY GEOGRAPHICAL AREA
The following table presents information regarding the Company's different
geographical regions based on the historical operations of the Company as of
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
DOLLARS
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
United States..................................... $ 81,256 $107,388 $140,295
United Kingdom.................................... 26,313 41,013 47,028
Germany........................................... 13,767 15,638 17,617
Other European.................................... 1,898 4,562 5,213
-------- -------- --------
$123,234 $168,601 $210,153
======== ======== ========
Operating income:
United States..................................... $ 1,316 $ 1,208 $ 2,639
United Kingdom.................................... 686 1,809 2,182
Germany........................................... (127) 312 319
Other European.................................... (242) (485) (97)
-------- -------- --------
$ 1,633 $ 2,844 $ 5,043
======== ======== ========
Capital expenditures:
United States..................................... $ 683 $ 1,143 $ 1,556
United Kingdom.................................... 571 1,351 357
Germany........................................... -- 66 47
Other European.................................... -- 11 14
-------- -------- --------
$ 1,254 $ 2,571 $ 1,974
======== ======== ========
Identifiable assets:
United States..................................... $ 18,232 $ 27,681 $ 36,740
United Kingdom.................................... 7,230 8,994 10,487
Germany........................................... 2,905 2,792 3,715
Other European.................................... 727 1,220 1,011
-------- -------- --------
$ 29,094 $ 40,687 $ 51,953
======== ======== ========
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
In March 1997, the Company completed an initial public offering of its
Common Stock. The Company issued 2,500,000 shares at an initial public offering
price of $10.00 per share. The total proceeds of the initial public offering,
net of underwriting discounts and offering expenses, were approximately $22.0
million. Subsequent to the public offering of Common Stock, the Company repaid
outstanding debt of approximately $19.3 million, repurchased the outstanding
warrant of $750,000 and wrote off $642,000 of debt issuance costs, before income
tax benefit of $257,000.
REORGANIZATION
Effective February 1, 1997, the Company's chairman and sole shareholder
contributed all of the outstanding shares of Common Stock of Argenbright and ADI
to AHL. In addition, the sole shareholder contributed certain real estate and
other properties, with a net carrying value of $1,731,000 as of December 31,
1996, and the related mortgage notes payable, with an outstanding
F-18
<PAGE> 69
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
balance of $2,485,000 as of December 31, 1996, to the Company. Simultaneously,
the Company's chairman and sole shareholder contributed the note payable to
shareholder, which had a balance of $528,000 as of December 31, 1996. The net
result of these transactions was a reduction of shareholder's equity of
approximately $226,000. Effective with the Reorganization, the capital structure
of AHL consists of 50,000,000 shares authorized, 8,353,430 shares issued and
outstanding of $.01 par value Common Stock and 5,000,000 shares authorized, 0
shares issued and outstanding of no par value preferred stock.
EMPLOYEE STOCK PURCHASE PLAN
Subsequent to the planned offering, the Company intends to adopt an
employee stock purchase plan.
EMPLOYMENT AGREEMENTS
Effective February 28, 1997, the Company amended its employment agreements
with three officers. The amendment provides for 16,250 additional options to
purchase shares of Common Stock at $10.75 per share exercisable in varying
percentages over four years. The amendment also reduces the exercise price of
the December 1996 option grants (Note 9) from $11.76 per share to $10.75 per
share. Both the additional option grants and the amended option grants are
exercisable at prices which are not less than the fair value of the stock at the
date of amendment, as determined by the Board of Directors. Concurrent with the
initial public offering in March 1997, the exercise prices were changed from
$10.75 to $10.00 per share.
13. ACQUISITIONS AND POTENTIAL STOCK OFFERING SUBSEQUENT TO JUNE 30, 1997
(UNAUDITED)
In September 1997, AHL acquired Lloyd Creative Temporaries, Inc., a
Chicago-based company that provides staffing for light industrial and warehouse
"pick and pack" functions for approximately $5.0 million in cash plus contingent
consideration. In May 1997, AHL acquired the commercial security business of New
Jersey-based USA Security Services, Inc. for approximately $2.6 million in cash.
In May 1997, AHL acquired British Airways' executive aircraft services business
at Heathrow Airport ("EAS"), for approximately $2.8 million in cash plus
contingent consideration. EAS provides ground handling and passenger services
for non-commercial aircraft. All of these acquisitions have been accounted for
under the purchase method of accounting. As a result, the purchase prices have
been allocated to the assets acquired, including intangibles, on a preliminary
basis according to their respective fair values.
In October 1997, the Company is planning an offering of 2,700,000 shares of
its common stock (the "Offering"). There can, however, be no assurance that the
Offering will be completed.
F-19
<PAGE> 70
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 14
Capitalization........................ 14
Selected Combined Financial and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 24
Management............................ 39
Certain Transactions.................. 45
Principal and Selling Shareholders.... 45
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 50
Index to Combined Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
2,700,000 SHARES
AHL SERVICES, INC.
COMMON STOCK
(AHL LOGO)
-----------------------
PROSPECTUS
-----------------------
BT Alex. Brown
Credit Suisse First Boston
The Robinson-Humphrey
Company
October 30, 1997
======================================================
