<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 24, 1998
AHL Services, Inc.
(Exact name of registrant as specified in its charter)
Georgia 0-22195 58-2277249
- ------------------------------- ------------------------ ---------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3353 Peachtree Road, NE, Atlanta, Georgia 30326
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 267-2222
---------------------
This document consists of 3 pages.
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On July 24, 1998, a wholly owned subsidiary of AHL Services, Inc. (the
"Registrant") acquired certain assets of Gage Marketing Group, LLC, and all of
the outstanding equity of Adistra, LLC (collectively "Gage" or "Gage Marketing
Support Services Group"), which together represented the marketing execution and
fulfillment business of Gage Marketing Group, LLC, for aggregate consideration
of $81.1 million, consisting of $54.1 million in cash, 461,172 shares of AHL
common stock (which were valued of $17.0 million) and $10.0 million in
convertible promissory notes, (the "Acquisition"). The $54.1 million cash
portion of the purchase price consideration was provided by the Company's credit
facility with a syndicate of banks. In connection with the Acquisition, Edwin C.
Gage, the President of Gage Marketing Group, LLC, was elected to the Board of
Directors of the Company.
Item 7. Financial Statement, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired:
Gage Marketing Support Services Group and Adistra, LLC
Report of Independent Public Accountants
Combined Statements of Net Assets--December 31, 1996 and 1997 and June
30, 1998 (unaudited)
Combined Statements of Operations and Changes in Net Assets for the
years ended December 31, 1995, 1996 and 1997 and the six months ended
June 30, 1997 and 1998 (unaudited)
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997
Notes to Combined Financial Statements
(b) Pro Forma Financial Information:
Introduction
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998
Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998
(c) Exhibits:
2.1 - Purchase Agreement, dated as of June 17, 1998, by and among
AHL Services, Inc., Gage Marketing Group LLC and Adistra LLC.*
2.2 - First Amendment to Purchase Agreement, dated as of July 24,
1998, by and among AHL Services, Inc., Gage Marketing Group, LLC
and Adistra LLC.*
4.1 - Convertible Subordinated Promissory Note dated July 24, 1998.*
10.1 - Registration Rights Agreement, dated July 24, 1998, by and
between AHL Services, Inc. and Gage Marketing Group, LLC.*
10.2 - Consulting Agreement, dated July 24, 1998, by and between AHL
Services, Inc. and Edwin C. Gage.*
23.1 Consent of Arthur Andersen LLP
- --------
* Incorporated by reference to the Company's Current Report on Form 8-K
dated July 24, 1998 which was filed on August 10, 1998.
2
<PAGE> 3
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors of
Gage Marketing Group, LLC and Adistra, LLC:
We have audited the accompanying combined statements of net assets of Gage
Marketing Support Services Group (which are entities within Gage Marketing
Group, LLC) and Adistra, LLC (a Minnesota limited liability company) as of
December 31, 1997 and 1996, and the related combined statements of operations
and changes in net assets and cash flows for each of the three years in the
period ended December 31, 1997. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined net assets of Gage Marketing Support
Services Group and Adistra, LLC as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 17, 1998
3
<PAGE> 4
GAGE MARKETING SUPPORT SERVICES GROUP AND ADISTRA, LLC
Combined Statements of Net Assets
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
June 30, --------------------
1998 1997 1996
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,234 $ 1,022 $ 3,196
Accounts receivable, net of reserves of $179 and $292 22,662 21,075 18,623
Due from affiliates (Note 4) 402 1,081 --
Work in process 5,670 4,272 4,313
Prepaids and other 1,560 1,525 1,400
-------- -------- --------
Total current assets 32,528 28,975 27,532
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and leasehold improvements 6,659 6,666 6,371
Furniture, fixtures and equipment 17,969 17,270 15,871
Accumulated depreciation (15,384) (14,037) (11,228)
-------- -------- --------
Total property, plant and equipment, net 9,244 9,899 11,014
INTANGIBLE ASSETS, net of accumulated amortization of $6,107
and $4,641 8,387 8,735 8,665
-------- -------- --------
Total assets $ 50,159 47,609 47,211
======== ======== ========
CURRENT LIABILITIES:
Current portion of long-term debt 960 960 960
Accounts payable 14,983 14,546 8,076
Accrued payroll and other current liabilities 3,509 3,642 4,632
Customer deposits 5,669 4,691 6,824
Due to affiliates (Note 4) -- -- 5,656
-------- -------- --------
Total current liabilities 25,121 23,839 26,148
LONG-TERM DEBT 320 800 6,680
OTHER LONG-TERM OBLIGATIONS 1,322 1,403 570
COMMITMENTS AND CONTINGENCIES (Note 5) -- -- --
-------- -------- --------
Total liabilities 26,763 26,042 33,398
-------- -------- --------
NET ASSETS $ 23,396 $ 21,567 $ 13,813
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
4
<PAGE> 5
GAGE MARKETING SUPPORT SERVICES GROUP AND ADISTRA, LLC
Combined Statements of Operations and
Changes in Net Assets
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, For the Years Ended December 31
------------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 40,933 $ 39,241 $ 81,318 $ 75,582 $ 75,642
COST OF SERVICES PROVIDED 18,709 18,159 37,892 37,578 36,998
-------- -------- -------- -------- --------
Gross profit 22,224 21,082 43,426 38,004 38,644
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Plant operating expenses 12,914 12,483 25,532 23,322 24,181
General and administrative 3,140 3,121 5,479 5,531 5,143
Selling and marketing 3,788 3,688 7,586 7,027 6,644
Intangible amortization 409 410 823 860 853
-------- -------- -------- -------- --------
Total operating expenses 20,251 19,702 39,420 36,740 36,821
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 1,973 1,380 4,006 1,264 1,823
-------- -------- -------- -------- --------
OTHER EXPENSE:
Interest expense (120) (362) (624) (1,170) (1,280)
Other, net (24) 18 (336) (428) (40)
-------- -------- -------- -------- --------
Net other expense (144) (344) (960) (1,598) (1,320)
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 1,829 $ 1,036 3,046 (334) 503
======== ======== ======== ======== ========
CAPITAL DISTRIBUTIONS (1,702) (410) (4,781)
GMG SHAREHOLDER NOTE CONVERSIONS 6,410 -- --
-------- -------- --------
CHANGE IN NET ASSETS 7,754 (744) (4,278)
NET ASSETS, beginning of year 13,813 14,557 18,835
-------- -------- --------
NET ASSETS, end of year $ 21,567 $ 13,813 $ 14,557
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
5
<PAGE> 6
GAGE MARKETING SUPPORT SERVICES GROUP AND ADISTRA, LLC
Combined Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,046 $ (334) $ 503
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation, amortization and other 4,152 3,978 4,191
Changes in operating items:
Receivables (2,452) 6,182 (3,562)
Work in process 41 (500) (457)
Prepaids and other (125) -- (495)
Accounts payable 6,470 (2,868) 1,350
Accrued and other liabilities 781 166 711
Customer deposits (2,133) 2,785 884
-------- -------- --------
Net cash provided by operating activities 9,780 9,409 3,125
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, equipment and intangible assets, net (3,107) (2,056) (2,942)
Change in amounts due from affiliates, net (6,737) (2,588) 5,284
-------- -------- --------
Net cash (used for) provided by investing activities (9,844) (4,644) 2,342
-------- -------- --------
FINANCING ACTIVITIES:
Repayments on long-term debt (960) (960) (960)
Other long-term obligations, net 552 (199) 271
Capital distributions (1,702) (410) (4,781)
-------- -------- --------
Net cash used for financing activities (2,110) (1,569) (5,470)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,174) 3,196 (3)
CASH AND CASH EQUIVALENTS, beginning of year 3,196 -- 3
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 1,022 $ 3,196 $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 269 $ 261 $ 228
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
6
<PAGE> 7
GAGE MARKETING SUPPORT SERVICES GROUP AND ADISTRA, LLC
Notes to Combined Financial Statements
December 31, 1997 and 1996
1. BACKGROUND INFORMATION:
The combined financial statements include the accounts of Gage Marketing Support
Services Group (GMSSG) and Adistra, LLC (Adistra) (together, the Companies).
GMSSG includes the executional business units of Gage Marketing Group, LLC
(GMG). GMG is a Minnesota limited liability company. GMG provides financing and
corporate administrative services for the Companies, and charges the Companies
for the cost of the resources used. These charges equaled $2,227,000, $2,025,000
and $1,642,000 in 1997, 1996 and 1995, respectively, and are included in general
and administrative and selling and marketing expenses in the attached combined
statements of operations and changes in net assets.
On December 31, 1991, through a series of transactions, the current shareholders
of GMSSG and Adistra purchased the Companies (the Acquisition). The Acquisition
was accounted for using the purchase method of accounting. As of December 31,
1997, members of the Gage family owned 100% of the Companies. All significant
intercompany balances have been eliminated in combination.
NATURE OF BUSINESSES
The Companies' businesses and services fall within the executional dimension of
marketing, including services related to consumer promotion fulfillment, direct
marketing fulfillment, trade distribution fulfillment, packaging and
distribution, teleservices, administrative services, information services,
lettershop and printing. The Companies' client base is primarily made up of
large consumer products companies located throughout the United States. Services
provided are primarily in the U.S. and Canada.
The Companies have seven operating facilities in the Minneapolis area. The
Companies also operate five facilities in Michigan, Illinois and Texas, and one
facility in Winnipeg, Canada and one facility in Mexico.
CHANGE IN EQUITY AND CORPORATE STRUCTURE
Following the close of business on December 31, 1996, a series of transactions
took place which resulted in the merger of Adistra Corporation (a Michigan
corporation) into Adistra, LLC (a Minnesota limited liability company), with no
change in the debt, aggregate capital or ownership.
INTERIM FINANCIAL DATA
The combined statement of net assets as of June 30, 1998 and the combined
statements of operations for the six months ended June 30, 1998 and 1997 have
been prepared by the Company without audit. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the results of operations for the interim
periods have been made. Results for interim periods are not necessarily
indicative of the results to be expected for a full year.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPALS OF COMBINATION
The accompanying combined financial statements include the accounts of GMSSG and
Adistra. All significant intercompany accounts have been eliminated.
USE OF ESTIMATES
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, reserves and
liabilities and disclosure of contingent assets and
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<PAGE> 8
liabilities at the date of the financial statements. The most significant
estimates relate to the reserve for bad debts, account management fees and
valuation of intangibles. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Ultimate results could differ from
those estimates.
SALES RECOGNITION AND CUSTOMERS
The Companies recognize sales as services are provided or on the completed
contract method. The Companies have one significant customer whose business
represented 13%, 18% and 19% of the combined net sales for 1997, 1996 and 1995,
respectively.
ACCOUNT MANAGEMENT FEES
The Companies recognize, as account management fees, credits which have remained
outstanding for an extended period. These fees, totaling $699,000 in 1997,
$889,000 in 1996 and $945,000 in 1995, are included in net sales in the
accompanying combined statements of operations and changes in net assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of bank deposits. There are no
restrictions on withdrawals of these funds.
WORK IN PROCESS
Work in process consists of labor and material costs for promotional programs
that have not been completed.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the respective assets,
ranging from 3 to 40 years. Repairs and maintenance are charged to expense as
incurred. Depreciation expense was $2,728,000, $2,905,000 and $3,033,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
INTANGIBLE ASSETS
Intangibles were comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Goodwill $ 10,424 $ 10,424
Capitalized software 4,418 2,882
-------- --------
14,842 13,306
Less- Accumulated amortization 6,107 4,641
-------- --------
$ 8,735 $ 8,665
======== ========
</TABLE>
Intangible assets are amortized over their estimated economic lives, which range
from 3 to 15 years. Amortization expense for goodwill and capitalized software
was $1,424,000, $1,073,000 and $1,158,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
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<PAGE> 9
CUSTOMER DEPOSITS
Customer deposits consist of funds received from customers in advance of
disbursement, pursuant to promotional programs.
LONG-LIVED ASSETS
The Companies review their long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amounts of such assets may not be recoverable. Based on the
review, the Companies believe that the carrying amounts of long-lived assets are
recoverable.
3. INCOME TAXES:
GMG is taxed as a partnership. Adistra was taxed as an S corporation for 1995
and 1996 and as a partnership for 1997 for income tax purposes.
The Companies report certain items for income tax purposes on a basis different
from that reflected in the accompanying combined financial statements. The
principal differences are related to the depreciation of certain assets on
accelerated methods and reserves and accruals not currently deductible for
income tax purposes. Tax liabilities relating to the reversal of timing
differences in future years will be the responsibility of the shareholders.
4. FINANCING ARRANGEMENTS:
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Senior notes, interest payable quarterly (8.85% at
December 31, 1997), due December 1999 $ 1,760 $ 2,720
Unsecured notes to shareholders of GMG, interest
payable annually (8.0% at December 31, 1997), due
in 1998 (contributed to capital effective
January 1, 1997) -- 4,920
-------- --------
1,760 7,640
Less- Current maturities (960) (960)
-------- --------
Net long-term debt $ 800 $ 6,680
======== ========
</TABLE>
The senior notes were assumed from and are guaranteed by Carlson Companies,
Inc., the former owner of certain GMG entities and Adistra. The senior notes are
due in semiannual installments through December 1999.
Effective January 1, 1997, certain shareholders of GMG converted the notes held
by them in the principal amount of $4,920,000 and accrued interest in the amount
of $1,490,000 into shareholders' equity of GMG and Adistra.
GMG provides financing for the Companies. Each of the business units included
within the Companies has a zero balance banking arrangement with GMG. GMG
charges or reimburses each of the business units for funds provided at the same
rate GMG borrows under its line of credit with Marquette Capital Bank and
LaSalle National Bank (8.75% at December 31, 1997). The line of credit is
collateralized by the accounts receivable and certain inventories of the
Companies. The intercompany balances on which interest is earned or paid are
calculated
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<PAGE> 10
daily, and the end-of-period balances are shown as due from or due to affiliates
in the combined statements of net assets.
The balance due to or from GMG for each company is treated as a revolving credit
line. At each year end, 50% of the life-to-date profits of each business unit
are dividended to GMG. These dividends are included in capital distributions in
the combined statements of cash flows. The average borrowings by the Companies
under this arrangement during the years ended December 31, 1997 and 1996 were
approximately $3,325,000 and $3,223,000, respectively.
The senior notes and bank line-of-credit agreements contain certain
restrictions. The senior notes agreements restrict certain payments, advances
and distributions, and require maintaining a minimum net worth, attaining
prescribed interest expense coverage and meeting selected cash flow ratios.
Similarly, the bank line-of-credit agreements restrict certain expenditures,
advances and distributions, and require maintaining a minimum net worth,
attaining a prescribed debt coverage and meeting selected earnings targets. As
of December 31, 1997, GMG and Adistra were in compliance with all of these
requirements.
Maturities of long-term debt as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 960
1999 800
2000 --
2001 --
2002 --
Thereafter --
------
$1,760
======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASES
The Companies have entered into capital lease agreements, principally for
various types of equipment. These leases range from three to five years. The
leased equipment is included in property, plant and equipment in the combined
statements of net assets. Depreciation on the capitalized amounts is included in
depreciation expense. Future principal payments under the leases are as follows
(in thousands):
<TABLE>
<S> <C>
1998 $232
1999 197
2000 187
2001 176
2002 --
----
$792
====
</TABLE>
The current and long-term capital lease principal obligations of approximately
$232,000 and $560,000 at December 31, 1997, are included in accounts payable and
other long-term obligations, respectively, in the combined statements of net
assets.
OPERATING LEASES
The Companies have entered into operating lease agreements, principally for
plant and office space. Rent expense and other costs associated with these
leases were $6,113,000, $5,670,000
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<PAGE> 11
and $4,764,000 in 1997, 1996 and 1995, respectively. Combined future minimum
lease payments are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 4,994
1999 4,804
2000 4,618
2001 3,461
2002 2,540
Thereafter 5,489
-------
$25,906
=======
</TABLE>
Included in the above are annual lease payments of $317,000 and $235,000 to a
related party, which expire in 2002 and 2005, respectively.
EMPLOYEE BENEFIT PLANS
The Companies have 401(k) savings and investment plans whereby each company
matches 50% of an eligible employee's contributions up to a maximum of 6% of the
employee's earnings. During 1997, 1996 and 1995, the Companies made
contributions of $341,000, $310,000 and $285,000 to the plans, respectively.
DEFERRED COMPENSATION AGREEMENTS
The Companies have entered into deferred compensation agreements with certain
employees. As of December 31, 1997 and 1996, the Companies have obligations
under these agreements of approximately $363,000 and $356,000, respectively.
LITIGATION MATTERS
The Companies have been named as defendants in lawsuits in the normal course of
business. Management believes that the ultimate resolution of these matters will
not have a material adverse effect on the Companies' financial position or
results of operations.
6. RELATED PARTIES:
Several of the divisions of the Companies were purchased from Carlson Companies,
Inc. on January 1, 1992. Skip and Barbara Gage are members of the board of
directors of Carlson Companies, Inc.
As part of the purchase agreement, Carlson Companies, Inc. agreed to provide
certain services to the Companies at the same rates charged for internal company
services. All other purchases from Carlson Companies, Inc. are at
customer-quoted rates. Carlson Companies, Inc. also purchases certain services
from the Companies. These services include promotional services, mailing
services, marketing consulting and other marketing-related services. Sales to
Carlson Companies, Inc. totaled approximately $2,800,000, $3,600,000 and
$5,800,000 and purchases totaled approximately $1,000,000, $1,800,000 and
$1,300,000 in 1997, 1996 and 1995, respectively.
7. SALE OF THE COMPANIES SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
On June 17, 1998, the owners entered into an agreement to sell the net assets of
the Companies to an independent third party for total consideration of
$81,100,000 consisting of $54,100,000 in cash, $10,000,000 of convertible
promissory notes of the acquiring company and common stock valued at $17,000,000
of the acquiring company. The transaction closed on July 24, 1998.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma condensed consolidated balance
sheet as of June 30, 1998 gives effect to the Gage acquisition as if it had
occurred on that date. The accompanying unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
the six months ended June 30, 1998 give effect to the Gage acquisition as if it
had occurred at the beginning of the respective periods. The pro forma
adjustments are based upon available information and certain assumptions that
management believes to be reasonable. Final purchase adjustments may differ
from the pro forma adjustments herein.
The accompanying pro forma statements are not necessarily indicative of
the results of operations which would have been attained had the acquisition
been consummated on the dates indicated or which may be attained in the future.
These pro forma statements should be read in conjunction with the historical
consolidated financial statements of the Company and related notes thereto.
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<PAGE> 13
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
JUNE 30, 1998
(Dollars In Thousands)
<TABLE>
<CAPTION>
PRO FORMA
AHL GAGE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 5,222 $ 2,234 $(2,234)(1) $ 5,222
Accounts receivable 67,398 22,662 -- 90,060
Due from affiliates -- 402 (402)(1) --
Work in process -- 5,670 -- 5,670
Inventory 1,894 -- -- 1,894
Prepaid expenses and other 4,552 1,560 -- 6,112
-------- ------- ------- --------
TOTAL CURRENT ASSETS 79,066 32,528 (2,636) 108,958
Property and equipment 12,037 9,244 (2,327)(2) 18,954
Intangibles 45,059 8,387 61,983 (2) 115,429
Other assets 714 -- -- 714
Deferred taxes 980 -- -- 980
-------- ------- ------- --------
TOTAL ASSETS $137,856 $50,159 $57,020 $245,035
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,534 $14,425 $ -- $ 18,959
Accrued payroll and other liabilities 29,215 9,713 800 (3) 39,728
Current portion of self-insurance reserves 920 -- -- 920
Income taxes payable 2,049 23 -- 2,072
Deferred income taxes 467 -- -- 467
Current portion of long-term debt 471 960 (960)(1) 471
-------- ------- ------- --------
TOTAL CURRENT LIABILITIES 37,656 25,121 (160) 62,617
-------- ------- ------- --------
Long-term debt, less current portion 17,446 320 (320)(1)
54,100 (3) 71,546
-------- ------- ------- --------
Self-insurance reserves, less current portion 3,680 -- -- 3,680
-------- ------- ------- --------
Convertible securities -- -- 10,000 (3) 10,000
-------- ------- ------- --------
Other long-term obligations -- 1,322 (204)(1) 1,118
-------- ------- ------- --------
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 136 -- 5 (3) 141
Paid in capital 62,973 17,037 16,995 (3)
(17,037)(4) 79,968
Cumulative translation adjustment 4 -- -- 4
Retained earnings 15,961 6,359 (6,359)(4) 15,961
-------- ------- ------- --------
TOTAL SHAREHOLDERS' EQUITY 79,074 23,396 (6,396) 96,074
-------- ------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $137,856 $50,159 $57,020 $245,035
======== ======= ======= ========
</TABLE>
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<PAGE> 14
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Reflects elimination of Gage cash, bank debt, deferred compensation
liability and intercompany balances not assumed by the Company.
(2) Reflects adjustments to record the estimated fair value of the
identifiable assets acquired plus the resulting goodwill related to the
excess purchase price over the fair value of net assets acquired (in
thousands).
<TABLE>
<S> <C>
Total consideration and costs ............... $81,900
Estimated fair value of net assets
purchased .................................. (13,187)
-------
Adjustments to goodwill ..................... $68,713
=======
</TABLE>
(3) Reflects (A) $81.1 million purchase price consisting of $54.1 million
in cash provided through the Company's credit facility, issuance of
461,172 shares of AHL common stock with an estimated fair value of
approximately $17.0 million as of the acquisition date of July 24,
1998, and issuance of $10.0 million in an interest bearing convertible
subordinated note, with an interest rate of 4.5% and (B) the accrual of
transaction related expenses of $800,000.
(4) Reflects the elimination of Gage shareholders' equity.
14
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
AHL GAGE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Revenues $276,013 $81,318 $ -- $357,331
-------- ------- ------- --------
Operating expenses:
Cost of services 204,512 37,892 -- 242,404
Field operating 45,956 33,941 1,035 (1)
(1,688)(2) 79,244
Corporate general and administrative 14,840 5,479 - 20,319
-------- ------- ------- --------
Total operating expenses 265,308 77,312 (653) 341,967
-------- ------- ------- --------
Operating income 10,705 4,006 653 15,364
Interest expense, net 1,159 624 3,200 (3) 4,983
Other (income) expense, net (723) 336 -- (387)
-------- ------- ------- --------
Income before income taxes 10,269 3,046 (2,547) 10,768
Income tax provision 3,850 -- 200 (4) 4,050
-------- ------- ------- --------
Income before extraordinary items 6,419 3,046 (2,747) 6,718
Extraordinary items (385) -- -- (385)
-------- ------- ------- --------
Net income $ 6,034 $ 3,046 $(2,747) $ 6,333
-------- ------- ------- --------
Diluted EPS:
Number of weighted average shares
outstanding 10,960 461 (5) 11,421
======== ======= ========
Earnings per share $ 0.55 $ 0.55
======== ========
</TABLE>
15
<PAGE> 16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
AHL GAGE ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Revenues $183,371 $40,933 $ -- $224,304
-------- ------- ------- --------
Operating expenses:
Cost of services 135,597 18,709 -- 154,306
Field operating 31,494 17,111 520 (1)
(846)(2) 48,279
Corporate general and administrative 9,047 3,140 -- 12,187
-------- ------- ------- --------
Total operating expenses 176,138 38,960 (326) 214,772
-------- ------- ------- --------
Operating income 7,233 1,973 326 9,532
Interest expense, net 214 120 1,792 (3) 2,126
Other (income) expense, net (299) 24 -- (275)
-------- ------- ------- --------
Income before income taxes 7,318 1,829 (1,466) 7,681
Income tax provision 2,927 -- 145 (4) 3,072
-------- ------- ------- --------
Net income $ 4,391 $ 1,829 $(1,611) $ 4,609
-------- ------- ------- --------
Diluted EPS:
Number of weighted average shares
outstanding 14,163 461 (5) 14,624
======== ======= ========
Earnings per share $ 0.31 $ 0.32
======== ========
</TABLE>
16
<PAGE> 17
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Reflects additional amortization of intangible assets, primarily
goodwill, over an estimated useful life of 20 to 40 years.
(2) Reflects change in depreciation and amortization as a result of the
allocation of the purchase price to the estimated fair value of net
assets acquired.
(3) Reflects interest expense on the increase in the Company's credit
facility at an annual rate of 6.2% and interest expense on the
subordinated convertible subordinated note at an annual rate of 4.5%.
(4) Reflects effect of income taxes at 40% on Gage pre-tax income net of
pro forma adjustments.
(5) Weighted average common shares outstanding assumes that the 461,172
shares of AHL common stock issued as part of the purchase price
occurred at the beginning of the respective periods.
17
<PAGE> 18
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: October 5, 1998 By: /s/ David L. Gamsey
------------------------------------------
David L. Gamsey
Vice President and Chief Financial Officer
(On behalf of the Registrant and as Chief
Accounting Officer)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-KA into AHL Services, Inc.'s previously filed
Registration Statement File Nos. 333-37627 and 333-36813.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 2, 1998
