<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-22195
AHL SERVICES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-2277249
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3353 Peachtree Road, NE, Atlanta, GA 30326
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 267-2222
-------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 10,853,430 shares on April 30,
1997.
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AHL SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 2
March 31, 1997 (Unaudited) and December 31, 1996
Condensed Consolidated Statements of Operations 3
(Unaudited) - Quarters Ended March 31, 1997 and March 31, 1996
Condensed Consolidated Statements of Cash Flows 4
(Unaudited) - Quarters Ended March 31, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION AND SIGNATURE
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 10
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
AHL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,017 $ 1,842
Accounts receivable, less allowance for doubtful accounts
of $375 and $341 in 1997 and 1996, respectively 34,964 34,692
Prepaid expenses and other 3,787 4,341
-------- --------
Total current assets 40,768 40,875
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $8,731 and $8,308 in 1997 and 1996, respectively 7,790 5,674
INTANGIBLES, net of accumulated amortization of $580 and $497 in
1997 and 1996, respectively 4,127 4,141
OTHER ASSETS 1,209 1,263
-------- --------
$ 53,894 $ 51,953
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,926 $ 4,667
Accrued payroll and other liabilities 14,064 15,413
Current portion of self-insurance reserves 700 640
Income taxes payable 1,506 1,185
Current portion of long-term debt 1,768 1,617
-------- --------
Total current liabilities 23,964 23,522
-------- --------
LONG-TERM DEBT, less current portion 22,333 19,178
-------- --------
SELF-INSURANCE RESERVES, less current portion 2,800 2,560
-------- --------
DEFERRED INCOME TAXES 0 50
-------- --------
REDEEMABLE WARRANT 750 706
-------- --------
NOTE PAYABLE TO SHAREHOLDER 0 528
-------- --------
SHAREHOLDERS' EQUITY:
Common stock of Argenbright, $1 par value; 50,000 shares
authorized, 0 and 500 shares issued and outstanding 0 1
Common stock of ADI, no par value; 5,000,000 shares
authorized, 0 and 296,868 shares issued and outstanding 0 0
Preferred stock of AHL Services, Inc., no par value;
5,000,000 shares authorized; no shares outstanding 0 0
Common stock of AHL Services, Inc., $.01 par value;
50,000,000 shares authorized, 10,853,430 and 0 shares
issued and outstanding 109 0
Paid in Capital 21,961 0
Cumulative translation adjustment (2) 74
Retained earnings 6,187 5,952
Due from shareholder (958) (618)
Subscription receivable (23,250) 0
-------- --------
Shareholders' equity, net 4,047 5,409
-------- --------
$ 53,894 $ 51,953
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 4
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUES $ 60,424 $ 45,519
OPERATING EXPENSES:
Cost of services 45,428 33,541
Field operating 9,923 8,253
Corporate general and administrative 3,435 2,864
-------- --------
Total operating expenses 58,786 44,658
-------- --------
OPERATING INCOME 1,638 861
INTEREST EXPENSE, net 648 309
OTHER (INCOME), net (88) (57)
-------- --------
INCOME BEFORE INCOME TAXES 1,078 609
INCOME TAX PROVISION 427 244
-------- --------
NET INCOME $ 651 $ 365
======== ========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $ .08 $ .04
======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 8,673 8,557
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
AHL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 651 $ 365
--------- --------
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 1,263 938
Loss (gain) on sale of subsidiary 2 (81)
Changes in working capital, net (806) 1,726
--------- --------
Net cash provided by operating activities 1,110 2,948
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (325) (186)
Other activities, net (33) 1
--------- --------
Net cash used in investing activities (358) (185)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt, net (97) (119)
Repayments of line of credit (48,995) (32,182)
Borrowings under line of credit 49,118 29,000
Expenses of IPO (555) 0
--------- --------
Net cash used in financing activities (529) (3,301)
--------- --------
EFFECT OF EXCHANGE RATES ON CASH (48) (18)
--------- --------
NET CHANGE IN CASH 175 (556)
CASH AT BEGINNING OF PERIOD 1,842 1,169
--------- --------
CASH AT END OF PERIOD $ 2,017 $ 613
========= ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 556 $ 292
========= ========
Income taxes $ 123 $ 906
========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases under capital lease obligations $ 472 $ 0
========= ========
Contribution of real estate $ 1,637 $ 0
========= ========
Forgiveness of note payable to shareholder $ 528 $ 0
========= ========
Assumption of real estate debt S (2,532) $ 0
========= ========
Accrual of IPO Expenses S 625 $ 0
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 6
AHL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF PRESENTATION - The condensed consolidated financial
statements included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information not
misleading. In the opinion of management, the condensed consolidated
financial statements contain all adjustments necessary to present
fairly the financial position of the Company as of March 31, 1997 and
the results of its operations and cash flows for the three months ended
March 31, 1997 and 1996. All such adjustments are of a normal recurring
nature. The results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for
the year ended December 31, 1997. The accounting policies of the
Company continue unchanged from December 31, 1996. For further
information, refer to the Consolidated Financial Statements and
footnotes thereto for the fiscal year ended December 31, 1996 included
in the Company's Prospectus dated March 27, 1997.
2. INITIAL PUBLIC OFFERING AND REORGANIZATION - In the second quarter of
1997, the Company completed an initial public offering (the "Offering"
or "IPO") of its Common Stock. In connection with the Offering and
effective February 1, 1997, Mr. Argenbright contributed all of the
outstanding shares of Common Stock of Argenbright Holdings Limited
("Argenbright") and The ADI Group Limited ("ADI") to AHL Services, Inc.
("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 payable by the Company to Mr. Argenbright (collectively the
"Reorganization"). All of these transactions were brought forward at
historical values. Effective with the Reorganization and prior to
completion of the Offering, the capital structure of AHL consisted 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. All
references to outstanding shares of Common Stock give effect to the
revised capital structure.
3. PENDING ACQUISITION - On April 30, 1997, the Company entered into a
definitive agreement, subject to final due diligence, to acquire the
commercial security business of USA Security Services, Inc. ("USA"),
based in Hackensack, New Jersey. The annual revenues of USA for the
trailing twelve month period was approximately $8.6 million. This
acquisition is currently expected to close on May 30, 1997.
5
<PAGE> 7
AHL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. ACQUISITION - On May 1, 1997, the Company acquired the assets of
Executive Aircraft Services ("EAS"), an operation of British Airways at
London's Heathrow Airport. EAS provides ground handling and passenger
services for non-commercial aircraft. The annual revenues of EAS for
the trailing twelve month period was approximately $2.3 million.
5. REFINANCING - 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 the credit facility. The credit facility is to be
used for general working capital purposes and to fund future
acquisitions.
6. EARNINGS PER SHARE - In February 1997, the FASB issued 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.
6
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Operating Results - Three Months Ended March 31, 1997 and 1996
--------------------------------------------------------------
Revenues increased $14.9 million, or 32.7%, to $60.4 million in the
first quarter of 1997 from $45.5 million in the first quarter of 1996.
Of this increase, approximately $3.1 million was attributable to the
Intersec acquisition. The remaining increase was a result of entering
into contracts to provide services to new clients and as a result of
providing additional services to existing clients.
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 $11.9 million, or 35.4%,
to $45.4 million in the first quarter of 1997 from $33.5 million in the
first quarter of 1996. As a percentage of revenues, cost of services
increased to 75.2% in the first quarter of 1997 from 73.7% in the first
quarter of 1996. This percentage increase was primarily attributable to
the termination of the Florida transportation operations which had a
higher gross margin than the other operations of the Company.
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 $1.7 million, or 20.2%, to $9.9 million in the first
quarter of 1997 from $8.2 million in the first quarter of 1996. As a
percentage of revenues, field operating expenses decreased to 16.4% in
the first quarter of 1997 from 18.1% in the first quarter of 1996. This
percentage decrease was primarily attributable to the termination of
the Florida transportation operations which had significant field
operating expenses.
Corporate general and administrative expenses, which includes the cost
of services the Company provides to support and manage its field
activities, increased $571,000, or 19.9%, to $3.4 million in the first
quarter of 1997 from $2.9 million in the first quarter of 1996. As a
percentage of revenues, these expenses decreased to 5.7% in the first
quarter of 1997 from 6.3% in the first quarter of 1996. This percentage
decrease was primarily due to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating income increased $777,000, or 90.2%, to $1.6 million in the
first quarter of 1997 from $861,000 in the first quarter of 1996. As a
percentage of revenues, operating income improved to 2.7% in the first
quarter of 1997 from 1.9% in the first quarter of 1996.
Interest expense, net, increased $339,000, or 109.7%, to $648,000 in
the first quarter of 1997 from $309,000 in the first quarter of 1996.
First quarter 1997 interest expense primarily increased due to the
inclusion of interest associated with the July 1996 acquisition of
Intersec, Inc.
Net income increased $286,000, or 78.4%, to $651,000, or 1.1% of
revenues, in the first quarter of 1997 from net income of $365,000, or
0.8% of revenues, in the first quarter of 1996. The Company provided
income taxes at an estimated rate of 40% which is equal to the annual
effective rate in 1996. The Company's effective income tax rate is
higher than the U.S. Federal statutory rate of 34% due to state income
taxes.
7
<PAGE> 9
Liquidity and Capital Resources
-------------------------------
Cash provided by operating activities was $1.1 million for the first
quarter ended March 31, 1997 compared to $2.9 million for the first
quarter ended March 31, 1996. This was the result of $1.9 million of
net income before depreciation and amortization and other non-cash
charges offset by $806,000 of changes in working capital. Cash used in
investing activities for the quarter ended March 31, 1997 was $358,000
compared to $185,000 for the quarter ended March 31, 1996. This was
principally the result of purchases of property and equipment. Cash
used in financing activities for the quarter ended March 31, 1997 was
$529,000 compared to $3.3 million for the quarter ended March 31,
1996. The use of cash in the quarter ended March 31, 1997 was
principally the result of expenses associated with the IPO. The use of
cash in the quarter ended March 31, 1996 was principally the result of
repayments under the Company's credit facility.
Capital expenditures were $325,000 for the first quarter ended March
31, 1997 compared to $186,000 for the first quarter ended March 31,
1996. 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 completed it's initial public offering on April 2, 1997
raising net proceeds of approximately $23.2 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. Following the IPO, interest
expense will be substantially reduced and warrant amortization will
cease. The Company will have an extraordinary charge in the quarter
ending June 30, 1997 of approximately $400,000, net of tax, associated
with the early extinguishment of debt.
The Company believes that funds generated from operations, together
with existing cash, the net proceeds from the IPO, and borrowings under
the credit facility, will be sufficient to finance its current
operations, planned capital expenditures and internal growth for at
least the next several years.
Outstanding borrowings under the credit facility at March 31, 1997 were
$14.3 million. Concurrent with the receipt of the IPO proceeds on April
2, 1997, all outstanding amounts under the credit facility were repaid
in full. Effective May 2, 1997, the Company increased the size of its
credit facility to $35 million.
8
<PAGE> 10
AHL SERVICES, INC.
PART II - OTHER INFORMATION AND SIGNATURE
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
(For SEC Filing Purposes Only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
9
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AHL SERVICES, INC.
(REGISTRANT)
Date: May 15, 1997 By: /s/ David L. Gamsey
--------------------------------
David L. Gamsey
Vice President and Chief
Financial Officer (On behalf of
the Registrant and as Chief
Accounting Officer)
10
<PAGE> 1
EXHIBIT 11
AHL SERVICES, INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------ --------
<S> <C> <C>
Net Income Applicable to Common Stock $ 651 $ 365
====== ======
Weighted Average Shares
Primary:
Common Shares 8,492 8,353
Common share equivalents applicable to
stock options and warrants outstanding 181 204
------ ------
Weighted average common and common equivalent shares
outstanding during the period 8,673 8,557
====== ======
Per Share Amount $ .08 $ .04
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AHL
SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,017
<SECURITIES> 0
<RECEIVABLES> 35,339
<ALLOWANCES> 375
<INVENTORY> 0
<CURRENT-ASSETS> 40,768
<PP&E> 16,521
<DEPRECIATION> 8,731
<TOTAL-ASSETS> 53,894
<CURRENT-LIABILITIES> 23,964
<BONDS> 22,333
0
0
<COMMON> 109
<OTHER-SE> 3,938
<TOTAL-LIABILITY-AND-EQUITY> 53,894
<SALES> 60,424
<TOTAL-REVENUES> 60,424
<CGS> 45,428
<TOTAL-COSTS> 45,428
<OTHER-EXPENSES> 13,324
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 648
<INCOME-PRETAX> 1,078
<INCOME-TAX> 427
<INCOME-CONTINUING> 651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 651
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
