COMFORCE CORPORATION
Supplement dated December 16, 1997 to
Prospectus dated February 18, 1997,
as supplemented November 12, 1997, October 30, 1997,
August 29, 1997, August 14, 1997, July 10, 1997,
May 29, 1997, April 2, 1997 and March 6, 1997
Description of the Uniforce Acquisition
On August 13, 1997, COMFORCE Corporation (the "Company"), COMFORCE
Columbus, Inc., an indirect wholly-owned subsidiary of the Company (the
"Subsidiary"), and Uniforce Services, Inc. ("Uniforce"), executed an Agreement
and Plan of Merger (the "Merger Agreement") which provides for the acquisition
of Uniforce by the Company. Pursuant to the Merger Agreement, the Company caused
the Subsidiary to commence a tender offer on October 27, 1997 (the "Tender
Offer") to acquire all of the outstanding Uniforce Common Stock for a per share
price of $28.00 in cash and 0.5217 shares of the Company's Common Stock
(collectively the "Per Share Consideration").
On November 26, 1997, following the close of the Tender Offer at midnight
on November 25, 1997, the Company accepted all 2,931,741 shares of Uniforce
Common Stock (representing approximately 96.5% of the issued and outstanding
shares of Uniforce Common Stock) that had been tendered in the Tender Offer. On
December 3, 1997, the Company completed the merger of Uniforce and the
Subsidiary (the "Merger"), and made available for payment to the holders of the
remaining 106,802 shares of Uniforce Common Stock (who did not tender their
stock) cash and stock equal in amount to the Per Share Consideration. In
addition, as required under the Merger Agreement, the Company made available for
payment to the holders of options to purchase an additional 370,010 shares of
Uniforce Common Stock cash in an amount equal to the difference between (i)
$32.00 per share and (ii) the per share exercise price of each such option.
Accordingly, subject to any Uniforce shareholder subsequently exercising
statutory appraisal rights, the total consideration paid by the Company to
acquire Uniforce was $93.6 million in cash and 1,585,000 shares of its Common
Stock. In addition, the Company estimates that it will incur an additional $8.5
million in fees, commissions and expenses in connection with the Tender Offer
and Merger and related financing and other transactions in connection therewith.
Uniforce is a supplemental staffing company focused in the areas of
information services, technology, office automation, medical office support and
light industrial. It supplies supplemental staffing services to businesses,
educational institutions, professional and service organizations, health care
facilities, federal, state and local governmental agencies and others in the
United States. In addition, Uniforce supplies payroll, billing and/or financial
support services to independently owned and operated supplemental staffing
firms. Uniforce also supplies supplemental laboratory staffing support to the
scientific community and provides confidential consulting and payrolling
services, permitting clients to utilize former independent contractors and
consultants.
The Company currently expects that it will incur a restructuring charge in
the fourth quarter of 1997 in connection with certain potential severance and
other costs related to the integration of the Company and Uniforce. Management
currently believes that such restructuring charge will be approximately $2.0
million; however, no assurance can be given that any such charge, if incurred,
will not exceed such amount.
Upon completion of the Merger, Uniforce became a wholly-owned subsidiary of
COMFORCE Operating, Inc. ("COI"), which is in turn a wholly-owned subsidiary of
the Company. Accordingly, Uniforce is an indirect wholly-owned subsidiary of the
Company.
1
<PAGE>
Description of Terms of Financing
12% Senior Notes due 2007
The cash portion of the costs of acquiring Uniforce, including the payment
of certain of the fees and expenses payable upon the closing of the Tender
Offer, was financed through the private placement by COI of $110.0 million
original principal amount of 12% Senior Notes due 2007 (the "Notes"). The Notes
were issued on November 26, 1997. The Notes are senior unsecured obligations of
COI and rank pari passu in right of payment with all existing and future senior
indebtedness of COI and senior in right of payment to all existing and future
subordinated indebtedness of COI. The Notes provide for the payment of interest
semi-annually at the rate of 12% per annum and mature on December 1, 2007.
COI may redeem the Notes, in whole or in part, at any time on or after
December 1, 2002 at redemption prices of 106% for the 12 months commencing
December 1, 2002, 104% for the 12 months commencing December 1, 2003, 102% for
the 12 months commencing December 1, 2004 and 100% at any time on or after
December 1, 2005, together with accrued and unpaid interest to the date of
redemption. In addition, at any time prior to December 1, 2000, COI may, subject
to certain requirements, redeem up to 35% of the aggregate principal amount of
the Notes with the cash proceeds received from one or more equity offerings at a
redemption price equal to 112% of the principal amount to be redeemed, together
with accrued and unpaid interest to the date of redemption, provided that at
least 65% of the aggregate principal amount of the Notes issued through the date
of redemption remains outstanding immediately after each such redemption.
Upon the occurrence of certain specified events deemed to result in a
change of control of COI, it will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest to the date of repurchase.
Subject to certain qualifications and exceptions, the Indenture under which
the Notes were issued (the "Notes Indenture") limits, inter alia, (i) the
incurrence of additional indebtedness by COI and its subsidiaries, (ii) the
payment of dividends on, and redemption of, capital stock of COI and the
redemption of certain subordinated obligations of COI, (iii) investments, (iv)
sales of assets and subsidiary stock, (v) transactions with affiliates, (vi)
consolidations, mergers and transfers of all or substantially all the assets of
COI and (vii) restrictions on distributions from subsidiaries.
COI has agreed to use its best efforts to file with and seek to cause to be
declared effective by the Securities and Exchange Commission a registration
statement with respect to an offer to exchange the Notes for a series of notes
of COI with terms substantially identical to the Notes, except for the
elimination of certain transfer restrictions. COI expects to file such
registration statement in December 1997. In the event that COI fails to meet
certain target dates in connection with the registration of the Notes,
additional interest of up to 2% per annum will accrue on the Notes until the
required actions are completed.
Units Consisting of 15% Senior Secured PIK Debentures due 2009 and Warrants
On November 26, 1997, in connection with the completion of the Tender Offer
and the acquisition of Uniforce, the Company repaid (i) its then existing credit
facility with Fleet National Bank, as lender and agent, and U.S. Bank,
Washington, as lender, in the outstanding principal amount of $38.1 million and
(ii) Uniforce's then existing credit facility with Heller Financial, Inc. in the
outstanding principal amount of $36.1 million. These obligations were repaid
from proceeds available from (i) the Company's private placement of 20,000 Units
("Units") each consisting of $1,000 principal amount of 15% Senior Secured PIK
Debentures (the "Senior Debentures") and 8.45 Warrants ("Warrants"), each to
purchase one share of Common Stock, representing, in the aggregate, $20.0
million principal amount of Senior Debentures and Warrants to purchase 169,000
shares of the Company's Common
2
<PAGE>
Stock, and (ii) proceeds from a new credit facility entered into with Heller
Financial, Inc. (described below under "--New Credit Facility").
The Senior Debentures constitute direct and unconditional senior secured
obligations of the Company and are secured by a pledge by the Company of all of
the issued and outstanding common stock of COI. The payment obligations of the
Company under the Senior Debentures must at all times rank at least equal in
priority of payment with all existing and future indebtedness of the Company.
The Senior Debentures are structurally subordinated to all indebtedness of the
Company's direct and indirect subsidiaries (including the Notes and the
Company's new credit facility (described below under "--New Credit Facility")
and effectively subordinated to all future secured indebtedness of the Company.
The Senior Debentures bear interest at the rate of 15% per annum, subject
to increase in certain circumstances, payable semi-annually, and mature on
December 1, 2009. Prior to December 1, 2002, interest is payable in cash or in
additional Senior Debentures on each interest payment date, at the option of the
Company. Thereafter, interest is payable only in cash. To the extent that the
Company is prohibited pursuant to the terms of any credit facility or the Notes
Indenture from paying interest in cash subsequent to December 1, 2002, the
Company is required to pay interest equal to the interest rate then applicable
to the Senior Debentures plus 2%.
Subject to certain requirements, the Company may at any time redeem up to
100% of the aggregate principal amount of the Senior Debentures at the
redemption prices of 103% for the 12 months commencing December 1, 1997 and
107.5% at any time on or after December 1, 1998, together with accrued and
unpaid interest to the date of redemption.
Upon the occurrence of certain specified events deemed to result in a
change of control of the Company, it will be required to make an offer to
repurchase the Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
Subject to certain qualifications and exceptions, the Indenture under which
the Senior Debentures were issued limits, inter alia, (i) the incurrence of
additional indebtedness by the Company and its subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of the Company and the redemption
of certain subordinated obligations of the Company, (iii) investments, (iv)
sales of assets and subsidiary stock, (v) transactions with affiliates, (vi)
consolidations, mergers and transfers of all or substantially all the assets of
the Company and (vii) restrictions on distributions from subsidiaries.
Each Warrant entitles the holder to acquire, at any time prior to December
1, 2009, one share of Common Stock at a price per share equal to $7.55 (based on
a 10% premium above the average closing price for the Company's Common Stock the
five trading days ended November 18, 1997), subject to adjustment from time to
time upon the occurrence of certain events which are deemed dilutive to the
holders of the Warrants.
The Company has agreed to use its best efforts to file with and seek to
cause to be declared effective by the Securities and Exchange Commission
registration statements (i) with respect to an offer to exchange the Senior
Debentures for a series of senior debentures of the Company with terms
substantially identical to the Senior Debentures, except for the elimination of
certain transfer restrictions, and (ii) covering the resale of the shares of
Common Stock of the Company issuable upon the exercise of the Warrants. The
Company expects to file such registration statements in December 1997. In the
event that the Company fails to meet certain target dates in connection with the
registration of the Senior Debentures, additional interest of up to 2% per annum
will accrue on the Senior Debentures until the required actions are completed.
3
<PAGE>
New Credit Facility
On November 26, 1997, COMFORCE Corporation and COI and certain subsidiaries
thereof, as guarantors (the "Guarantors"), and various other direct and indirect
active subsidiaries thereof, as borrowers (the "Borrowers") (COMFORCE
Corporation, the Guarantors and the Borrowers collectively referred to as the
"Company"), entered into a Loan and Security Agreement with Heller Financial,
Inc., as lender and agent for other participating lenders (collectively,
"Heller"), to provide to the Company a secured revolving credit facility (the
"New Credit Facility") providing for borrowings of up to $75.0 million based on
a specified percentage of the Company's eligible accounts receivable. At
closing, the Company borrowed $37.3 million under the New Credit Facility.
From the date of the closing until Heller receives the Company's audited
financial statements for the year ended December 31, 1998 (the "Margin Date"),
borrowings under the New Credit Facility bear interest, at the Company's option,
at a per annum rate equal to either (i) the base rate as announced from time to
time by the Board of Governors of the Federal Reserve System as the "Bank Prime
Loan" rate (the "Base Rate") plus 0.50% or (ii) LIBOR plus 2.25%. Following the
Margin Date, the interest rate is subject to adjustment quarterly by a
percentage in excess of or less than the Base Rate or LIBOR as set forth below
based upon a specified leverage ratio:
Leverage Ratio Base Rate LIBOR
- -------------- --------- -----
Greater than 6.00 +.75 +2.50
Greater than 5.50 but less than +.50 +2.25
or equal to 6.00
Greater than 4.50 but less than +.25 +2.00
or equal to 5.50
Greater than 4.00 but less than +.00 +1.75
or equal to 4.50
Equal to or less than 4.00 - .25 +1.50
The obligations evidenced by the New Credit Facility are secured by a
pledge of the capital stock of the Borrowers and the Guarantors and security
interests in substantially all of the assets of the Borrowers and the
Guarantors. In addition, John Fanning, a former shareholder of Uniforce and the
current holder of approximately 5.9% of the issued and outstanding Common Stock
of the Company, provided cash collateral to Heller in the amount of $5.0
million. Under the terms of this agreement with Heller, $2.5 million of the
amount pledged is required to be released when the Company has unused borrowing
availability under the New Credit Facility of at least $15 million for 15
consecutive business days, with the balance to be released when the Company has
$17.5 million of unused borrowing availability for a like period. As of the date
of this Report, the Company has $15.0 million of unused borrowing availability
under the New Credit Facility. As consideration for this agreement, the Company
has agreed to pay to Mr. Fanning a 12% per annum yield on his cash collateral,
less the actual return thereon as invested.
The agreements evidencing the New Credit Facility contain various financial
and other covenants and conditions, including, but not limited to, limitations
on paying dividends, engaging in affiliate transactions, making acquisitions and
incurring additional indebtedness. The scheduled maturity date of the New Credit
Facility is November 26, 2002.
4
<PAGE>
Financial Statements of Uniforce Services, Inc.
Included herein are the following financial statements of Uniforce
Services, Inc.:
Audited Consolidated Financial Statements of Uniforce Services, Inc.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings for years ended December 1, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity for years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Unaudited Interim Financial Statements of Uniforce Services, Inc.
Unaudited Consolidated Condensed Balance Sheet as of September 30, 1997
Unaudited Consolidated Condensed Statements of Earnings for the nine
months ended September 30, 1997 and 1996
Unaudited Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996
Notes to Unaudited Consolidated Condensed Financial Statements
5
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Uniforce Services, Inc.:
We have audited the accompanying consolidated balance sheets of Uniforce
Services, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniforce Services,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Jericho, New York
March 7, 1997
6
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,283,422 6,444,859
Accounts receivable (net of allowance for doubtful accounts of
$68,000 and $167,000, in 1996 and 1995, respectively) 17,224,885 14,827,862
Funding and service fees receivable (net of allowance for doubtful
accounts of $212,000 and $402,000 in 1996 and 1995,
respectively) 18,759,814 20,918,753
Current maturities of notes receivable from licensees (net of
allowance for possible loss of $42,000 and $67,000 in 1996 and
1995, respectively) 87,051 132,258
Prepaid expenses and other current assets 1,710,969 1,270,268
Deferred income taxes 201,149 347,149
------------ ------------
Total current assets 43,267,290 43,941,149
------------ ------------
Notes receivable from licensees (net of current maturities and
allowance for possible loss of $64,000 and $92,000
in 1996 and 1995, respectively) 136,157 182,642
Fixed assets - net 3,775,661 2,125,413
Deferred costs and other assets (net of accumulated amortization of
$2,105,777 and $1,685,970 in 1996 and 1995, respectively) 1,402,032 821,244
Cost in excess of fair value of net assets acquired (net of accumulated
amortization of $681,601 and $335,954 in 1996 and 1995, respectively) 6,388,240 3,525,741
------------ ------------
$ 54,969,380 50,596,189
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Loan payable $ 1,000,000 750,000
Payroll and related taxes payable 6,372,319 7,540,947
Payable to licensees and clients 1,484,238 2,025,563
Income taxes payable -- 351,690
Accrued expenses and other liabilities 5,408,070 4,092,058
------------ ------------
Total current liabilities 14,264,627 14,760,258
------------ ------------
Loan payable - non-current 25,750,000 11,250,000
Capital lease obligation - non-current 732,658 426,109
Stockholders' equity:
Common stock $.01 par value, authorized 10,000,000 shares;
issued 5,109,788 and 4,991,213 shares in 1996 and 1995,
respectively 51,098 49,912
Additional paid-in capital 8,825,128 7,789,598
Retained earnings 27,296,463 23,990,043
------------ ------------
36,172,689 31,829,553
Treasury stock, at cost, 2,084,245 and 829,500 shares in
1996 and 1995, respectively (21,950,594) (7,669,731)
------------ ------------
Total stockholders' equity 14,222,095 24,159,822
------------ ------------
$ 54,969,380 50,596,189
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Sales of supplemental staffing services $ 134,437,421 126,267,842 108,485,992
Service revenues and fees 7,713,935 8,203,490 6,694,742
------------- ------------- -------------
Total revenues 142,151,356 134,471,332 115,180,734
Cost of supplemental staffing services 104,685,598 98,162,571 83,766,726
Licensees' share of gross margin 7,976,831 9,473,431 9,895,870
General and administrative 20,074,672 19,450,728 15,730,938
Litigation settlement 360,000 -- --
Depreciation and amortization 1,073,759 940,668 941,196
------------- ------------- -------------
Total costs and expenses 134,170,860 128,027,398 110,334,730
------------- ------------- -------------
Earnings from operations 7,980,496 6,443,934 4,846,004
Other income (expense):
Interest expense - net of interest and dividend
income of $105,389, $161,504 and $131,970 in
1996, 1995 and 1994, respectively (2,170,386) (727,980) (127,378)
Other income 44,621 29,439 7,125
------------- ------------- -------------
Earnings before provision for income taxes 5,854,731 5,745,393 4,725,751
Provision for income taxes 2,185,000 2,182,000 1,775,000
------------- ------------- -------------
Net earnings $ 3,669,731 3,563,393 2,950,751
============= ============= =============
Weighted average number of shares outstanding 3,257,685 4,311,358 4,553,303
============= ============= =============
Net earnings per share $ 1.13 .83 .65
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in Retained Treasury stockholders'
Shares Par value capital earnings stock equity
------ --------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,721,443 $ 47,214 $ 5,842,145 $ 18,534,895 $ (3,716,141) $ 20,708,113
Common stock issued 225,370 2,254 1,399,303 -- -- 1,401,557
Cash dividend declared ($.12 per share) -- -- -- (533,052) -- (533,052)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 152,124 -- -- 152,124
Treasury stock acquired -- -- -- -- (1,585,086) (1,585,086)
Net earnings -- -- -- 2,950,751 -- 2,950,751
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 4,946,813 49,468 7,411,572 20,952,594 (5,301,227) 23,112,407
Common stock issued 44,400 444 259,806 -- -- 260,250
Cash dividend declared ($.12 per share) -- -- -- (525,944) -- (525,944)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 100,220 -- -- 100,220
Treasury stock acquired -- -- -- -- (2,368,504) (2,368,504)
Net earnings -- -- -- 3,563,393 -- 3,563,393
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 4,991,213 49,912 7,789,598 23,990,043 (7,669,731) 24,159,822
Common stock issued 118,575 1,186 870,908 -- -- 872,094
Cash dividend declared ($.12 per share) -- -- -- (363,311) -- (363,311)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 146,622 -- -- 146,622
Treasury stock acquired -- -- -- -- (14,280,863) (14,280,863)
Net earnings -- -- -- 3,669,731 -- 3,669,731
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 5,109,788 $ 51,098 $ 8,825,128 $ 27,296,463 $(21,950,594) $ 14,222,095
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,669,731 3,563,393 2,950,751
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 1,073,759 940,668 941,196
Deferred income taxes 146,000 32,622 175,000
Provision (recovery) for possible losses on
receivables (207,361) 583,998 140,651
Provision (recovery) for possible losses on notes
receivable and other assets (245,850) 247,165 (258,599)
Stock option compensation expense 18,000 18,000 18,000
(Increase) in accounts receivable (1,480,962) (3,137,221) (1,203,381)
(Increase) decrease in funding and service fees
receivable 2,294,726 (6,907,658) (5,164,472)
(Increase) in prepaids and other assets (431,020) (769,180) (44,131)
Increase (decrease) in payroll and related taxes
payable (1,168,628) 533,026 799,426
Increase (decrease) in payable to licensees and clients (541,325) 115,452 414,379
Increase (decrease) in income taxes payable (205,068) 451,910 (217,336)
Increase in accrued expenses and other liabilities 1,211,623 843,043 1,713,010
------------ ------------ ------------
Net cash provided (used) by operating activities 4,133,625 (3,484,782) 264,494
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of certain assets in connection with
business combinations (3,783,655) -- (3,204,772)
Purchase of receivables in connection with
acquisitions (844,487) -- (1,301,595)
Notes receivable from licensees (100,325) (163,741) (391,557)
Repayments on notes receivable from licensees 244,018 548,748 638,749
(Increase) in deferred costs and other assets (178,027) (134,358) (121,950)
Purchases of fixed assets (1,464,477) (669,979) (591,796)
------------ ------------ ------------
Net cash (used) by investing activities (6,126,953) (419,330) (4,972,921)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (146,029) (15,654) --
Borrowings under loans payable 14,750,000 15,700,000 6,300,000
Principal payments on loans payable -- (10,000,000) --
Proceeds from issuance of common stock 872,094 260,250 670,307
Cash dividends paid (363,311) (525,944) (533,052)
Purchase of treasury stock (14,280,863) (2,368,504) (1,585,086)
------------ ------------ ------------
Net cash provided by financing activities 831,891 3,050,148 4,852,169
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,161,437) (853,964) 143,742
Cash and cash equivalents at beginning of year 6,444,859 7,298,823 7,155,081
------------ ------------ ------------
Cash and cash equivalents at end of year $ 5,283,422 6,444,859 7,298,823
============ ============ ============
Supplemental disclosures:
Cash paid for:
Interest $ 1,894,606 590,524 131,328
============ ============ ============
Income taxes, net of refunds $ 2,376,805 1,690,040 1,835,734
============ ============ ============
</TABLE>
Non-cash Investing and Financing Activities:
During 1994, 127,720 shares of the Company's Common Stock, with an aggregate
market value of $731,250 were issued in connection with the purchase of certain
assets of Brannon & Tully(R).
During 1996 and 1995, the Company entered into capital leases for software and
office equipment in the amounts of $556,967 and $524,909, respectively.
See accompanying notes to consolidated financial statements.
10
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Description of Business
Uniforce Services, Inc., together with its subsidiaries (the "Company"),
provides supplemental personnel services to businesses, educational
institutions, professional and service organizations, federal, state and
local governmental agencies and others in the United States. The Company
has selected specialized product lines within several of its licensed and
company owned offices to provide skilled Information Services ("IS")
professional employees, office automation specialists and medical office
support. The Company also supplies financial, payroll and billing support
services to independent supplemental staffing services. In addition,
subsidiaries of the Company provide temporary laboratory staffing support
to the scientific community; and provide confidential employee conversion
and consulting services which enable client companies to utilize the
services of former independent contractors and consultants. One of the
Company's customers represented 10.2% of revenues in 1996.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Uniforce
Services, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Depreciation and Amortization
Depreciation and amortization of fixed assets is computed on a
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lesser of their
estimated useful lives or the respective lease periods.
Intangible assets, which include covenants not to compete and
territorial rights acquired, are being amortized over their estimated
useful lives ranging from five to ten years using the straight-line
method. The unamortized balance is included in deferred costs and
other assets in the accompanying consolidated balance sheets.
(c) Deferred Licensee Acquisition Costs
The Company has executed contracts for affiliation with existing
supplemental staffing service companies. Such contracts require the
Company to pay an affiliation fee which is amortized on a
straight-line method over the minimum terms of the affiliation
agreements which are generally five or ten years. In addition, the
Company has paid similar fees for existing supplemental staffing
service companies acquired by the Company's licensees. Under these
arrangements, the Company has agreed to pay, on behalf of its
licensees, one-half of the acquisition cost. Such costs are amortized
on a straight-line basis over five or ten years. Amortization of
deferred licensee acquisition costs amounted to $121,796, $129,530 and
$183,649 in 1996, 1995 and 1994, respectively.
(d) Income Taxes
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes." SFAS 109 provides that income taxes
be accounted for using the asset and liability method which requires
the recognition of deferred income taxes for temporary differences
between the financial reporting basis and tax basis of assets and
liabilities.
11
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Earnings Per Share
Earnings per share amounts are determined using the weighted average
number of common shares and dilutive common share equivalents
(options) outstanding.
(f) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(g) Financial Instruments
The fair values of all financial instruments classified as current
assets or liabilities approximate their respective carrying values
because of the short maturity of those instruments. The fair value of
the Company's loans approximates book value since the interest rates
are variable and accordingly are adjusted for market rate
fluctuations.
(h) Long-Lived Assets
In March 1995, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was
issued. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable measured by comparing the carrying amount of an asset to
the future net cash flows expected to be generated by the asset.
During 1996, the Company adopted SFAS No. 121 and determined that no
impairment loss need be recognized for applicable assets and thus, it
did not have a material impact on the Company's financial position or
results of operations.
(i) Accounting for Stock-Based Compensation
The Company records compensation expense for stock options only if the
current market price of the underlying stock exceeds the exercise
price on the date of the grant. On January 1, 1996, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company has elected not to implement the fair value based accounting
method for stock options, but has elected to disclose the pro forma
net earnings and pro forma earnings per share for employee and
director stock option and warrant grants made beginning in 1995 as if
such method had been used to account for stock-based compensation cost
as described in SFAS No. 123.
(j) Reclassifications
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 and 1996 presentation.
(3) Acquisitions
On May 17, 1996, the Company acquired certain assets of Montare
International, a provider of Information Technology ("IT") contract
professionals. The purchase price was $3,600,000 in cash. Pursuant to a
separate agreement, the Company also acquired certain accounts receivable
for $844,487. The purchase price and the accounts receivable acquired were
financed through borrowings available under the Company's credit facility.
12
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
This acquisition has been accounted for as a purchase and accordingly, the
purchase price was allocated to assets based on the estimated fair value as of
the date of the acquisition. The excess of the consideration paid over the
estimated fair value of assets acquired in the amount of $3,158,022 has been
recorded as cost in excess of fair value of net assets acquired (goodwill) and
is being amortized over 20 years on the straight-line method. The Company
assesses the recoverability of unamortized goodwill using the undiscounted
projected future earnings from the related businesses. The operating results of
Montare International have been included in the consolidated statement of
earnings from the purchase date. The acquisition of Montare did not have a
material impact on the Company's results of operations.
On April 18, 1994, the Company acquired certain assets of Brannon & Tully, a
provider of IS contract professionals. The purchase price totaled $3,881,250 and
consisted of $3,150,000 in cash and the issuance of 127,720 shares of Common
Stock of the Company. Pursuant to a separate agreement, the Company also
acquired certain accounts receivable, with recourse, for $1,301,595. The cash
portion of the purchase price and the accounts receivable acquired were financed
through borrowings available under the Company's credit facility.
This acquisition has been accounted for as a purchase and accordingly, the
purchase price was allocated to assets based on the estimated fair value as of
the date of the acquisition. The excess of the consideration paid over the
estimated fair value of assets acquired in the amount of $3,781,925 has been
recorded as cost in excess of fair value of net assets acquired (goodwill) and
is being amortized over 20 years on the straight-line method.
The operating results of Brannon & Tully have been included in the consolidated
statements of earnings from the purchase date. The following unaudited pro forma
consolidated results of operations assume the acquisition of Brannon & Tully
occurred on January 1, 1994:
December 31,
1994
------------
Revenues $118,826,683
Net earnings 3,181,632
Earnings per share $ .69
============
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition occurred at
the beginning of the period or of results which may occur in the future.
One of the former principals of Brannon & Tully entered into an employment
agreement with the Company. His employment agreement was for a term of five
years, but could be terminated by either party at any time after one year, upon
not less than 90 days notice. Beginning in 1995, the employment agreement
provided for incentive compensation based upon improvements in gross profits
relating to certain offices to which the officer rendered employment services
and provided active assistance. The amount of incentive compensation earned in
1995 under the agreement was $370,172. The employment agreement was terminated
during 1995.
13
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Fixed Assets
Fixed assets are stated at cost as follows:
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Estimated
1996 1995 useful life
---------- ---------- -----------
<S> <C> <C> <C>
Computer equipment $2,461,249 $2,050,173 8 years
Computer software 1,451,319 670,605 3-5 years
Furniture, fixtures, office
equipment and other 1,545,706 1,480,125 5-15 years
Leasehold improvements & signs 534,878 488,099 Life of lease
---------- ----------
5,993,152 4,689,002
Less accumulated depreciation and
amortization 2,217,491 2,563,589
---------- ----------
$3,775,661 $2,125,413
========== ==========
</TABLE>
Depreciation and amortization expense on fixed assets amounted to $403,952,
$364,025 and $291,751 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) Loan Payable
On December 8, 1995, the Company entered into an agreement with a financial
institution creating a three-year $35,000,000 credit facility (the "Credit
Facility"). The Credit Facility comprises a term loan in the amount of
$3,000,000 (the "Term Loan") to be paid in monthly installments of $62,500
in 1996, $83,333 in 1997 and $104,167 in 1998, with the balance outstanding
due on December 1, 1998 and a $32,000,000 revolving credit facility (the
"Revolving Facility") which expires on December 1, 1998. The Company may
borrow against the Revolving Facility up to 85% of eligible accounts
receivable and eligible service and funding fees receivable. The Term Loan
bears interest at the Company's election at either the lender's floating
base rate plus .25%, or LIBOR (London Interbank Offered Rate) plus 2.25%.
Borrowings under the Revolving Facility bear interest at the Company's
election at either the lender's floating base rate, or LIBOR plus 2.125%.
Borrowings under the Credit Facility are secured by a first priority
security interest in all owned and after-acquired real and personal
property of the Company.
At December 31, 1996, the Company had outstanding borrowings of $2,250,000
under the Term Loan bearing interest at an average rate of 7.8% and
$24,500,000 of borrowings under the Revolving Facility bearing interest at
an average rate of 7.7%.
The Credit Facility contains a variety of affirmative and negative
covenants of types customary in an asset-based lending facility including,
among other things, minimum net worth and profitability levels, with which
the Company is in compliance as of December 31, 1996.
The Credit Facility was used to repay existing indebtedness as described
below and to finance the offer to purchase the Company's Common Stock in
January 1996 as described in Note 9.
Prior to December 8, 1995, the Company maintained, with two banks, a
working capital credit facility and a revolving credit and term loan
facility. The working capital credit facility represented an open line of
credit of up to $12,000,000 (increased from $10,000,000, effective in
November 1995), borrowings under which were payable on demand. Outstanding
borrowings bore interest, at the Company's option, at the banks' prime rate
or at a rate 120 basis points above the banks' LIBOR Rate. This working
capital credit facility was terminated on
14
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 8, 1995. In addition, the Company maintained a revolving credit
and term loan agreement which provided for a two-year $6,000,000 facility,
outstanding borrowings under which, at the Company's option, could be
converted at the maturity of the revolving credit facility into a five-year
term loan. Effective November 1995, in connection with the increase in the
Company's working capital facility described above, the revolving credit
and term loan agreement (under which there were no outstanding borrowings)
was terminated.
6) Income Taxes
The components of the provision for Federal and state income taxes are as
follows:
1996 1995 1994
---------- ---------- ----------
Federal:
Current $1,756,500 $1,868,000 $1,384,000
Deferred 135,500 27,000 151,000
State:
Current 282,500 282,000 216,000
Deferred 10,500 5,000 24,000
---------- ---------- ----------
$2,185,000 $2,182,000 $1,775,000
========== ========== ==========
Income tax expense differed from that which would have resulted by applying the
statutory Federal income tax rates to earnings before provision for income taxes
as a result of the following items:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected tax on pre-tax
earnings $ 1,991,000 34.0% $ 1,953,000 34.0% $ 1,607,000 34.0%
Tax-exempt interest and
qualified dividends -- -- (5,000) (.1) (13,000) (.3)
State taxes, net of Federal
income tax benefit 193,000 3.3 189,000 3.3 158,000 3.4
Other, net 1,000 -- 45,000 .8 23,000 .5
----------- ---- ----------- ---- ----------- ----
Income tax provision $ 2,185,000 37.3% $ 2,182,000 38.0% $ 1,775,000 37.6%
=========== ==== =========== ==== =========== ====
</TABLE>
The tax effect of temporary differences which give rise to significant portions
of deferred tax assets and liabilities are as follows:
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
Notes receivable, due primarily to allowances
for possible loss $ 122,960 $ 142,356
Receivables, due primarily to allowances
for doubtful accounts 104,803 212,148
Accrued expenses not currently deductible 67,140 --
Accelerated depreciation and amortization for
tax purposes (164,094) (61,240)
Other 70,340 53,885
--------- ---------
$ 201,149 $ 347,149
========= =========
15
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Employment Agreements and Transactions
The Company has employment agreements with two of its officers providing
for, among other things, their continued employment through December 31,
1997. In addition, the agreements provide for incentive compensation which
is based upon the Company's pre-tax earnings. Incentive compensation earned
in 1996, 1995 and 1994, pursuant to such agreements, was $273,592, $221,298
and $263,677, respectively.
In January 1996, the Company entered into arrangements with two of its
officers. Under such arrangements, the executive officers are entitled to
receive cash bonuses aggregating $1,041,018 payable to the extent of 10%
thereof three years after consummation of the tender offer described in
Note 9, to the extent of 30% thereof four years after consummation of the
offer and as to the balance thereof five years after consummation of the
offer, provided that the recipient is then employed by the Company. The
executive officers were granted options to purchase an aggregate of 92,535
shares of Common Stock, such options to vest in installments through
January 1999. The exercise price of such options was $11.25 per share. The
cash bonus installments and option installments are subject to acceleration
in the event of death, merger of the Company, sale of all or substantially
all of the Company's assets or a change in control of the Company.
(8) Stock Options
During 1991, the Board of Directors of the Company approved the 1991 Stock
Option Plan (the 1991 Plan) which provides for the issuance of up to
500,000 stock options to officers and employees of the Company. Each option
granted pursuant to the 1991 Plan shall be designated at the time of grant
as either an "incentive stock option" or as a "non-qualified stock option."
In addition, the Company maintains two employee stock option plans, and a
non-qualified stock option plan for its Licensees. The plans (except for
options designated as non-qualified stock options) provide for options to
be granted at 100% of the fair market value of the Company's Common Stock
and provide that the exercise price of options may not be less than 110% of
such fair market value in the case of an employee owning 10% or more of the
voting power of the Company's stock. At the time options are granted, the
Company may impose a waiting period before options can be exercised.
Non-qualified stock options may not be granted at less than 75% of the fair
market value of the Company's Common Stock at the date of grant.
During 1991, non-qualified stock options with respect to 90,000 shares were
granted under the 1991 Plan at 75% of the fair market value of the
Company's Common Stock on the date of the grant. The grant resulted in
compensation expense of $180,000 to be allocated to current and future
periods as earned. Additional paid-in capital has been credited to the
extent of aggregate compensation earned since the grant of $103,500.
In 1995 the Stockholders of the Company approved the Directors' Stock
Option Plan (the "Directors' Plan") which permits the granting of a maximum
of 100,000 stock options to its outside Directors. The purpose of the plan
is to secure for the Company and its stockholders the benefits arising from
stock ownership by its outside Directors.
At December 31, 1996, an aggregate of 507,538 shares of common stock has
been reserved for issuance under the plans. Activity in stock options is
summarized as follows:
16
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Outstanding Weighted average
options exercise price
------- --------------
December 31, 1993 534,575 $7.16
Options granted 41,878 11.37
Options exercised (97,650) 6.86
Options lapsed/canceled (18,800) 11.02
-------
December 31, 1994 460,003 7.45
Options granted 2,500 8.25
Options exercised (44,400) 5.86
Options lapsed/canceled (89,553) 10.74
-------
December 31, 1995 328,550 6.77
Options granted 121,035 11.31
Options exercised (118,575) 7.35
Options lapsed/canceled (500) 11.50
-------
December 31, 1996 330,510 $8.22
=======
There are 199,060 options exercisable as of December 31, 1996 at a weighted
average exercise price of $7.85.
The per share weighted average fair value of stock options granted during
1996 was $4.06 on the date of the grant using the Black Scholes
option-pricing model with the following weighted average assumptions: risk
free interest rate of 5.3%, expected stock volatility of 50% and an
expected option life of 3.5 years. The aggregate fair value of the options
granted in 1995 was not material.
The Company applies APB Opinion No. 25 in accounting for its stock option
grants and, accordingly, no compensation cost has been recognized in the
financial statements for its stock options which have an exercise price
equal to or greater than the fair value of the stock on the date of the
grant. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
1996
----
Net earnings:
As reported $3,669,731
Pro forma 3,523,089
Earnings per share:
As reported $1.13
Pro forma 1.08
Pro forma net earnings reflect only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior to
January 1, 1995 was not considered.
Optionees have made disqualifying dispositions of common stock which had
been acquired through the exercise of incentive and non-qualified stock
options. As a result of the disqualifying dispositions, the Company
receives a tax benefit for the difference between the option price and the
fair market value of its common stock. The benefit
17
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
of $146,622, $100,220 and $152,124 in 1996, 1995 and 1994, respectively,
has been reflected in the accompanying consolidated statements of
stockholders' equity.
(9) Tender Offer
On December 11, 1995, the Company made an offer to purchase for cash up to
1,250,000 shares of its Common Stock at $11.25 net per share (the Offer).
The 1,250,000 shares that the Company offered to purchase represented
approximately 30% of the Shares outstanding. In January 1996, the Offer was
successfully completed. The total amount required to purchase the 1,250,000
shares was $14,062,500, exclusive of related fees and other expenses. The
purchase price and related expenses were funded with available borrowings
under the Credit Facility.
(10) Commitments and Contingencies
In April 1994, various prior insurance carriers and their not-for-profit
trade association filed a civil action against the Company, its officers
and various other parties. The Plaintiffs allege breach of contract and
tort causes of action for underpayment of premiums. The Company denies the
validity of the Plaintiffs' claims. The Company has asserted substantial
claims in opposition to the Plaintiffs' claims. Additionally, the Company
and its subsidiaries have filed suit against various prior worker
compensation carriers alleging claims mismanagement. Management regards as
unlikely that the outcome of those actions will have a material adverse
effect on the financial position of the Company.
In January 1996, various vendors of training films filed an action against
the Company. The plaintiffs alleged that the Company improperly used and/or
copied plaintiffs' tapes. In 1996 the Company settled this matter.
The Company is obligated under various leases for office space and
equipment through 2006. Net rental expense for the years ended December 31,
1996, 1995 and 1994 amounted to approximately $1,100,000, $871,000 and
$734,000, respectively.
Following is a schedule of total minimum lease payments under noncancelable
operating leases as of December 31, 1996:
1997 $1,153,272
1998 1,034,708
1999 857,584
2000 562,115
2001 534,847
Thereafter 2,596,140
----------
Total minimum lease payments $6,738,666
==========
18
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents $ 6,555,275
Accounts receivable - net 20,677,331
Funding and service fees receivable - net 25,845,143
Prepaid expenses and other current assets 802,412
Deferred income taxes 201,149
------------
Total current assets 54,081,310
------------
Fixed assets - net 4,336,002
Deferred costs and other assets - net 1,252,509
Cost in excess of fair value of net assets acquired 6,122,188
------------
$ 65,792,009
============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Loan payable $ 2,000,000
Payroll and related taxes payable 7,220,332
Payable to licensees and clients 1,273,888
Income taxes payable 485,147
Accrued expenses and other liabilities 2,705,757
------------
Total current liabilities 13,685,124
------------
Loan payable - non-current 34,097,655
Capital lease obligation - non-current 577,175
Stockholders' equity:
Common stock $.01 par value 51,228
Additional paid-in capital 9,027,840
Retained earnings 30,303,581
------------
39,382,649
Treasury stock, at cost, 2,084,245 shares (21,950,594)
------------
Total stockholders' equity 17,432,055
------------
$ 65,792,009
============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
19
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
1997 1996
------------- -------------
Sales of supplemental staffing services $ 127,265,243 $ 97,804,122
Service revenues and fees 5,687,806 5,589,180
------------- -------------
Total revenues 132,953,049 103,393,302
------------- -------------
Costs and expenses:
Cost of supplemental staffing services 100,783,201 76,214,231
Licensees' share of gross margin 6,665,450 5,832,735
General and administrative 17,100,195 14,556,306
Merger transaction costs 225,000 --
Depreciation & amortization 952,779 783,419
------------- -------------
Total costs and expenses 125,726,625 97,386,691
------------- -------------
Earnings from operations 7,226,424 6,006,611
Other income (expense):
Interest - net (1,829,458) (1,563,728)
Other - net 9,170 18,954
------------- -------------
Earnings before provision for income taxes 5,406,136 4,461,837
Provision for income taxes 2,126,000 1,695,000
------------- -------------
NET EARNINGS $ 3,280,136 $ 2,766,837
============= =============
Weighted average number of shares outstanding:
Primary 3,231,505 3,273,265
Fully Diluted 3,286,096 3,293,492
NET EARNINGS PER SHARE:
Primary $ 1.02 $ .85
============= =============
Fully Diluted $ 1.00 $ .84
============= =============
See accompanying notes to consolidated condensed financial statements.
20
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,280,136 $ 2,766,837
Adjustments to reconcile net earnings to net cash (used)
by operating activities:
Depreciation and amortization 952,779 783,419
(Increase) in receivables and prepaid expenses (9,542,167) (4,480,953)
Stock option compensation expense 13,500 13,500
(Decrease) in liabilities (1,424,021) (89,907)
------------ ------------
Net cash (used) by operating activities (6,719,773) (1,007,104)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (1,084,964) (774,916)
(Increase) in deferred costs and other assets (31,906) (410,786)
Net assets acquired from Montare -- (4,628,142)
------------ ------------
Net cash (used) by investing activities (1,116,870) (5,813,844)
------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (155,483) (195,934)
Increase in loan payable 9,347,655 17,450,609
Cash dividends paid (273,018) (272,605)
Purchase of treasury stock -- (14,280,863)
Proceeds from issuance of common stock 189,342 1,034,716
------------ ------------
Net cash provided by financing activities 9,108,496 3,735,923
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,271,853 (3,085,025)
Cash and cash equivalents at beginning of period 5,283,422 6,444,859
------------ ------------
Cash and cash equivalents at end of period $ 6,555,275 $ 3,359,834
============ ============
Supplemental disclosures:
Cash paid for:
Interest $ 1,666,718 $ 1,310,366
------------ ------------
Income taxes $ 1,433,048 $ 1,601,379
------------ ------------
</TABLE>
Non-cash financing activities:
During 1996, the Company entered into capital leases in the amount of $551,405.
See accompanying notes to consolidated condensed financial statements.
21
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts of Uniforce
Services, Inc. and its wholly-owned subsidiaries ("Uniforce"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. Consolidated condensed financial statements
The consolidated condensed financial statements, as shown in the
accompanying index, have been prepared by Uniforce without audit. In the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 1997, and for all periods presented have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed, reclassified or omitted. It is suggested that
these consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in Uniforce's
December 31, 1996 financial statements. The results of operations for the
periods ended September 30, 1997 are not necessarily indicative of the operating
results which may be achieved for the full year.
Tax accruals have been made based on estimated effective annual tax rates
for the periods presented.
3. Litigation Settlement
In April 1994, various insurance carriers and their not-for-profit trade
association filed an action against Uniforce, its officers and various other
parties; in May 1996, the Plaintiffs filed their Third Amended Complaint. The
Plaintiffs alleged breach of contract and tort causes of action for underpayment
of premiums. Uniforce denied liability and asserted substantial claims in
opposition to the Plaintiffs' claims. Additionally Uniforce and its subsidiaries
filed suit against various prior workers' compensation carriers alleging claims
mismanagement. In July 1997, both matters were settled. The terms of the
settlement are confidential by agreement. The settlement did not have a material
effect on Uniforce's financial condition or operating results.
4. Agreement and Plan of Merger
On August 13, 1997, Uniforce entered into an Agreement and Plan of Merger
(the "Merger Agreement") under which it will be acquired by COMFORCE Corporation
("COMFORCE"). Pursuant to the Merger Agreement a subsidiary of COMFORCE is to
make a tender offer (the "Tender Offer") to acquire all of the issued and
outstanding common stock of Uniforce for $28.00 in cash and .5217 shares of
COMFORCE common stock for each share of Uniforce common stock. The consummation
of the Tender Offer is contingent upon a number of conditions, including
COMFORCE obtaining debt financing sufficient to complete the purchase of
Uniforce's shares. The Merger Agreement provides that after the consummation of
the Tender Offer the COMFORCE subsidiary will be merged with and into Uniforce,
with Uniforce being the surviving corporation and becoming a wholly-owned
subsidiary of
22
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
COMFORCE. On October 27, 1997 a Joint Proxy Statement/Prospectus relating to the
Merger Agreement was declared effective by the Securities and Exchange
Commission and COMFORCE commenced the Tender Offer. The Tender Offer is expected
to remain open through November 24, 1997 unless extended.
23
<PAGE>
Pro Forma Financial Information of COMFORCE Corporation.
Included herein is the following pro forma financial information of
COMFORCE Corporation:
Unaudited Pro Forma Combined Financial Statements of COMFORCE Corporation.
Introduction
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997
Unaudited Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1997
Unaudited Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1996
Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996
Notes to Unaudited Pro Forma Combined Financial Statements
24
<PAGE>
COMFORCE Corporation and Subsidiaries
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of COMFORCE
Corporation (the "Company") reflect (i) the treatment of the operation of the
Company's jewelry business prior to January 1, 1996 as a discontinued operation;
(ii) the acquisition of business operating in the staffing industry, including
COMFORCE Telecom, Inc. ("COMFORCE Telecom") in 1995, Williams Communications
Services, Inc. ("Williams"), RRA, Inc., Project Staffing Support Team, Inc. and
DataTech Technical Services, Inc. (collectively, "RRA"), Force Five, Inc.
("Force Five"), Continental Field Services Corp. ("Continental"), and AZATAR
Computer Systems, Inc. ("AZATAR"), completed in 1996, RHO Company Incorporated
("Rhotech"), completed in 1997, and the proposed acquisition of Uniforce
Services, Inc. ("Uniforce") as if such acquisitions had occurred on January 1,
1996 (other than the unaudited pro forma balance sheet at September 30, 1997,
which has been prepared as if all such acquisitions were consummated as of such
date) (and accounted for by the purchase method); and (iii) the financing of
$167 million of debt contemplated by this transaction as if such debt were
outstanding for all periods presented and replaced all historical financing
arrangements. Prior to its acquisition by the Company, each of these acquired
businesses operated as a separate independent entity. Since the unaudited pro
forma combined financial statements set forth below show the combined financial
condition and operating results of these recently acquired businesses during
periods when they were not under common control or management, the information
presented may not be indicative of the results which would have actually been
obtained had such acquisitions been completed on the dates indicated, or the
Company's future financial or operating results. These unaudited pro forma
combined financial statements should be read in conjunction with the financial
statements of the respective entities included therein, and the related notes
thereto.
25
<PAGE>
COMFORCE Corporation
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMFORCE Uniforce Adjustments(1) (the Company)
-------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 2,670 $ 6,555 $ (7,151) $ 2,074
Restricted cash and equivalents ................................ 360 -- -- 360
Accounts receivable and Service fees receivable, net ........... 26,547 46,522 -- 73,069
Prepaid expenses ............................................... 1,050 803 -- 1,853
Deferred financing fees ........................................ 1,628 -- (1,628) --
Income tax receivable .......................................... 590 -- -- 590
Deferred income taxes .......................................... 2,028 201 3,000 5,229
Other assets ................................................... 243 -- -- 243
--------- --------- --------- ---------
Total current assets ..................................... 35,116 54,081 (5,779) 83,418
--------- --------- --------- ---------
Deferred financing fees ........................................ -- 324 7,676 8,000
Property and equipment, net of accumulated
depreciation ................................................ 1,449 4,336 -- 5,785
Intangible assets, net of accumulated amortization ............. 38,722 7,051 85,614 131,387
Other assets ................................................... 452 -- -- 452
--------- --------- --------- ---------
Total assets ............................................. $ 75,739 $ 65,792 $ 87,511 $ 229,042
========= ========= ========= =========
Current liabilities:
Borrowings under revolving line of credit ...................... $ 16,488 $ 2,000 $ (14,488) $ 4,000
Current portion of capitalized lease obligations ............... -- 204 -- 204
Accounts payable ............................................... 956 1,274 -- 2,230
Accrued expenses ............................................... 5,232 2,502 -- 7,734
Accrued payroll and payroll taxes .............................. 3,337 7,220 -- 10,557
Income taxes ................................................... -- 485 -- 485
--------- --------- --------- ---------
Total current liabilities ................................ 26,013 13,685 (14,488) 25,210
--------- --------- --------- ---------
Capitalized lease obligations .................................. -- 577 -- 577
Deferred income tax ............................................ 90 -- -- 90
Long-term bank debt ............................................ 20,000 34,098 (21,098) 33,000
Notes and Senior Debentures .................................... -- -- 130,000 130,000
Other .......................................................... 690 -- -- 690
Commitments and contingencies .................................. -- -- -- --
Stockholders' equity:
Series F Senior convertible preferred stock .................... 1 -- -- 1
Common stock ................................................... 137 51 (35) 153
Additional paid-in capital ..................................... 30,485 9,028 3,113 42,626
Retained deficit, since January 1, 1996 ........................ (1,677) -- (1,628) (3,305)
Retained earnings .............................................. -- 30,304 (30,304) --
Treasury stock ................................................. -- (21,951) 21,951 --
--------- --------- --------- ---------
Total stockholders' equity ............................... 28,946 17,432 (6,903) 39,475
--------- --------- --------- ---------
Total liabilities and stockholders' equity ..................... $ 75,739 $ 65,792 $ 87,511 $ 229,042
========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma combined financial statements.
26
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(2)
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMFORCE Rhotech Uniforce Adjustments(3) (the Company)
-------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 145,986 $ 15,416 $ 132,953 -- $ 294,355
Cost of revenues ................................ 127,227 14,411 107,449 -- 249,087
--------- --------- --------- --------- ---------
Gross profit ................................. 18,759 1,005 25,504 -- 45,268
Operating expenses:
Selling, general and administrative .......... 11,842 1,524 17,325 -- 30,691
Depreciation and amortization ................ 1,241 40 953 1,480 3,714
--------- --------- --------- --------- ---------
Income (loss) from operations ................... 5,676 (559) 7,226 (1,480) 10,863
Other (income) expense:
Bridge financing costs .......................... 5,822 -- -- -- 5,822
Other ........................................... (344) 384 (9) -- 31
Interest expense ................................ 2,151 207 1,829 11,091 15,278
--------- --------- --------- --------- ---------
7,629 591 1,820 11,091 21,131
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............... (1,953) (1,150) 5,406 (12,571) (10,268)
Provision (credit) for income taxes ............. (646) -- 2,126 (4,721) (3,241)
--------- --------- --------- --------- ---------
Net income (loss) ............................... (1,307) $ (1,150) $ 3,280 $ (7,850) (7,027)
========= ========= =========
Dividends on preferred stock .................... 732 18
--------- ---------
Loss available for common stockholders .......... $ (2,039) $ (7,045)
========= =========
Loss per share from operations .................. $ (0.15) $ (0.45)
========= =========
Weighted average shares outstanding ............. 13,256 15,512(4)
========= =========
</TABLE>
See notes to unaudited pro forma combined financial statements.
27
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996(2)
(in thousands except per share data)
<TABLE>
<CAPTION>
FORCE
COMFORCE Williams RRA FIVE AZATAR Continental
-------- -------- --- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $33,514 $657 $22,799 $4,598 $5,781 $7,377
Cost of revenues ........................... 28,690 499 20,959 3,454 4,619 6,259
-------- -------- -------- -------- -------- --------
Gross profit ............................... 4,824 158 1,840 1,144 1,162 1,118
Operating expenses:
Selling, general and
administrative .......................... 2,891 64 1,375 1,274 555 802
Depreciation and
amortization ............................ 343 1 34 24 25 13
-------- -------- -------- -------- -------- --------
Income (loss) from
operations .............................. 1,590 93 431 (154) 582 303
Other expense (income) ..................... (29) -- -- -- (54) (23)
Interest expense (income) .................. 102 -- 34 7 29 5
-------- -------- -------- -------- -------- --------
73 -- 34 7 (25) (18)
-------- -------- -------- -------- -------- --------
Income (loss) before income
taxes ................................... 1,517 93 397 (161) 607 321
Provision (credit) for income
taxes ................................... 610 39 -- (49) 254 --
-------- -------- -------- -------- -------- --------
Net income (loss) .......................... 907 $54 $397 $112 $353 $321
======== ======== ======== ======== ======== ========
Less dividends on preferred
stock.................. 193
--------
Add dividends on common
stock equivalents...... 18
--------
Income (loss) available for
common stockholders.... $732
========
Income (loss) per share from
operations............. $0.06
========
Weighted average shares
outstanding............ 12,661
========
<CAPTION>
Pro Forma Pro Forma
Rhotech Uniforce MONTARE Adjustment(3) (the Company)
------- -------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .................................. $63,556 $103,393 $2,474 -- $244,149
Cost of revenues .......................... 56,656 82,047 1,671 -- 204,854
--------- --------- --------- --------- ---------
Gross profit .............................. 6,900 21,346 803 -- 39,295
Operating expenses:
Selling, general and
administrative ......................... 5,321 14,556 546 -- 27,384
Depreciation and
amortization ........................... 226 783 6 2,184 3,639
--------- --------- --------- --------- ---------
Income (loss) from
operations ............................. 1,353 6,007 251 (2,184) 8,272
Other expense (income) .................... 197 (19) (14) -- 58
Interest expense (income) ................. 984 1,564 -- 12,553 15,278
--------- --------- --------- --------- ---------
1,181 1,545 (14) 12,553 15,336
--------- --------- --------- --------- ---------
Income (loss) before income
taxes .................................. 172 4,462 265 (14,737) (7,064)
Provision (credit) for income
taxes .................................. -- 1,695 -- (4,509) (1,960)
--------- --------- --------- --------- ---------
Net income (loss) ......................... $172 $2,767 $265 $(10,228) (5,104)
========= ========= ========= ========= =========
Less dividends on preferred
stock ............................... 18(5)
---------
Add dividends on common
stock equivalents
---------
Income (loss) available for
common stockholders ................. $(5,122)
=========
Income (loss) per share from
operations .......................... $(0.40)
=========
Weighted average shares
outstanding ......................... 12,980(4)
=========
</TABLE>
See notes to unaudited pro forma combined financial statements.
28
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (2)
(in thousands except per share data)
<TABLE>
<CAPTION>
FORCE
COMFORCE Williams RRA FIVE AZATAR Continental Rhotech
-------- -------- --- ---- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ............. $55,867 $657 $22,799 $4,598 $6,403 $8,368 $85,746
Cost of revenues ..... 47,574 499 20,959 3,454 5,054 7,017 76,457
--------- --------- --------- --------- --------- --------- ---------
Gross profit ......... 8,293 158 1,840 1,144 1,349 1,351 9,289
Operating expenses:
Selling, general and
administrative .... 5,266 64 1,375 1,274 612 898 7,215
Depreciation and
amortization ...... 614 1 34 14 28 13 297
--------- --------- --------- --------- --------- --------- ---------
Income(loss) from
operations ........ 2,413 93 431 (144) 709 440 1,777
Other (income) expense (40) -- (54) (25) 260
Interest expense
(income) .......... 201 -- 34 7 29 5 1,317
--------- --------- --------- --------- --------- --------- ---------
161 -- 34 7 (25) (20) 1,577
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes ...... 2,252 93 397 (151) 734 460 200
Provision (credit) for
income taxes ...... 900 39 -- (49) 301 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) .... 1,352 $54 $397 $(102) $433 $460 $200
========= ========= ========= ========= ========= =========
Dividends on preferred
stock.............. 325
Accretive dividend on
Series F Preferred
Stock.............. 665
--------
Income (loss) available
for common
stockholders....... $362
========
Income (loss) per share
from operations.... $0.03
========
Weighted average
shares outstanding. 12,991
========
<CAPTION>
Pro Forma Pro Forma
Uniforce MONTARE Adjustments(3) (the Company)
-------- ------- ------------ -------------
<S> <C> <C> <C>
Revenues ............. $142,151 $2,474 -- $329,063
Cost of revenues ..... 112,663 1,671 -- 275,348
--------- --------- --------- ---------
Gross profit ......... 29,488 803 -- 53,715
Operating expenses:
Selling, general and
administrative .... 20,434 546 -- 37,684
Depreciation and
amortization ...... 1,074 6 2,769 4,850
--------- --------- --------- ---------
Income(loss) from
operations ........ 7,980 251 (2,769) 11,181
Other (income) expense (45) (14) -- 82
Interest expense
(income) .......... 2,170 -- 16,607 20,370
--------- --------- --------- ---------
2,125 (14) 16,607 20,452
--------- --------- --------- ---------
Income (loss) before
income taxes ...... 5,855 265 (19,376) (9,271)
Provision (credit) for
income taxes ...... 2,185 -- (5,937) (2,561)
--------- --------- --------- ---------
Net income (loss) .... $3,670 $265 $(13,439) $(6,710)
========= ========= ========= =========
Dividends on preferred
stock.............. $25(5)
Accretive dividend on
Series F Preferred
Stock.............. $100
---------
Income (loss) available
for common
stockholders....... $(6,835)
=========
Income (loss) per share
from operations.... $(0.51)
=========
Weighted average
shares outstanding. 13,527(4)
=========
</TABLE>
See notes to unaudited pro forma combined financial statements.
29
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements
(1) Adjustment to record the acquisition of Uniforce and related financing as
follows (based on balance sheet data as of September 30, 1997):
Source of Funds: (in thousands)
Notes ................................................... $110,000
Units ................................................... 20,000
Borrowings under New Credit Facility .................... 37,000
Existing cash balances .................................. 7,151
--------
Total Sources ................................................. $174,151
========
Use of Funds:
Refinance Existing Credit Facility ...................... $36,488
Refinance Uniforce Credit Facility ...................... 36,098
Purchase of Uniforce shares ............................. 93,565
Transaction Costs ....................................... 8,000
--------
Total Uses .................................................... $174,151
========
In addition, the Company will issue approximately 1,585,000 shares of the
Company's common stock with a value of $12,157,000, which, together with
the cash portion of the purchase price of $93,565,000, will result in
additional intangibles, principally goodwill, of approximately $85,614,000.
In addition, the Company will write off $1,628,000 of deferred financing
fees associated with Uniforce's previous financing arrangements, which
amount has not been recorded as an expense in the pro forma statement of
operations.
(2) The unaudited pro forma statements of operations include the statements of
operations for the companies listed for the periods prior to their
acquisition by COMFORCE. The unaudited pro forma statement of operations
for the period ended September 30, 1997 presents the financial statements
of COMFORCE and Uniforce for their respective 1997 nine month periods and
the results of operations for Rhotech (which was acquired on February 28,
1997 for a purchase price of $14.8 million and a contingent payout not to
exceed $3.3 million) from January 1, 1997 to February 28, 1997. The
unaudited pro forma statement of operations for the period ended September
30, 1996 presents the financial statements of COMFORCE, Uniforce (to be
acquired for a purchase price of $105.7 million), Rhotech, Force Five
(which was acquired for a purchase price of $2 million and contingent
payouts not to exceed $2 million), AZATAR (which was acquired for a
purchase price of $5.15 million and a contingent payout not to exceed $1.2
million) and Continental (which was acquired for a purchase price of $5
million and contingent payout not to exceed $1.02 million) for their
respective 1996 nine month periods and the results of operations for
companies acquired during the nine month period ended September 30, 1996 as
follows: Williams (which was acquired for a purchase price of $2 million
and a contingent payout not to exceed $2 million) (January 1 through March
3, 1996), RRA (which was acquired for a purchase price of $5.1 million and
a contingent payout not to exceed $650,000) (January 1 through May 10,
1996) and Montare International ("Montare") January 1, 1996 through May 17,
1996. Montare was acquired by Uniforce on May 17, 1996. The acquisition of
Montare did not have a material impact on Uniforce results of operations.
The unaudited pro forma statement of operations for the year ended December
31, 1996 includes the annual 1996 results of operations for COMFORCE,
Uniforce, and Rhotech and the results of operations for companies acquired
during the period as follows: Williams (January 1 through March 3, 1996),
RRA (January 1 through May 10, 1996), Force Five (January 1 through July
31, 1996), AZATAR (January 1 through November 3, 1996), Continental
(January 1 through November 17, 1996) and Montare (January 1, 1996 through
May 17, 1996). The pro forma results of operations are presented as if
these companies
30
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements (Continued)
were acquired on January 1, 1996 (and accounted for by the purchase method)
and do not purport to be an indication of the results of operations had
these acquisitions been made as of that date or of results which may occur
in the future.
(3) Pro forma adjustments include the following:
Nine Months Ended Year Ended
September 30, December 31,
----------------
1997 1996 1996
---- ---- ----
(in thousands)
Additional amortization of intangibles (a).. $(1,480) $(2,184) $(2,769)
(Increase) in interest expense (b) ......... (11,091) (12,553) (16,607)
Decrease in provision for income taxes (c).. 4,721 4,509 5,937
-------- -------- --------
Total pro forma adjustments ................ $(7,850) $(10,228) $(13,439)
======== ======== ========
(a) Amortization of intangibles assumes all of the acquisitions and
proposed acquisitions occurred on January 1, 1996. The table below reflects the
amortization of intangibles with lives ranging from 5 to 40 years, including
Uniforce goodwill amortized over 40 years:
Nine Months Ended Year ended
September 30, December 31,
-------------
1997 1996 1996
---- ---- ----
(In thousands)
Pro forma amortization:
Telecom ........................ $194 $194 $258
Williams ....................... 39 39 52
RRA ............................ 127 127 169
Force Five ..................... 39 39 52
Continental .................... 100 100 133
AZATAR ......................... 168 168 224
Rhotech ........................ 268 268 357
Uniforce ....................... 2,028 2,028 2,704
Less: historical amortization ........ (1,483) (779) (1,180)
------- ------- -------
forma adjustment ..................... $1,480 $2,184 $2,769
======= ======= =======
The allocation of excess purchase price over the fair value of the assets
acquired has not been finalized and management believes that any change to the
allocation will not have a material effect on the pro forma financial statements
of COMFORCE.
(b) The pro forma adjustment to interest expense reflects interest expense
on the placement of the Notes and Senior Debentures, borrowings under the New
Credit Facility and capital lease obligations aggregating $167.8 million. Pro
forma interest expense has been calculated using interest rates of 8.25%, 12.0%
and 15% per annum for the New Credit Facility, Notes and Senior Debentures,
respectively plus the amortization of debt financing costs. Financing costs do
not include the effects of the warrants.
31
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements (Continued)
(c) The pro forma adjustment for income taxes reflects the tax effect of
the proforma adjustments (excluding non-deductible amortization), the tax effect
of S Corporation earnings treated as C Corporation earnings and the tax benefit
of losses by other entities within the pro forma combined group.
(4) Pro forma weighted average shares outstanding are calculated as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------
1997 1996 1996
---- ---- ----
(In thousands of shares)
<S> <C> <C> <C>
Historical weighted average shares outstanding ..................... 13,256 12,661 12,991
Shares issued-Uniforce acquisition ................................. 1,585 1,585 1,585
Shares issued as compensation ...................................... * * *
Shares issued-Telecom acquisition .................................. * * *
Shares issued-Force Five acquisition ............................... * * *
Shares issued-AZATAR acquisition ................................... * 243 *
Shares issued-Continental acquisition .............................. * 37 *
Common stock sold to fund Continental acquisition .................. * 460 *
Common stock equivalents Series D and E preferred stock ............ 671 1,107 893
Common stock equivalents on Series F preferred stock ............... ** ** **
Warrants issued in connection with the Continental acquisition ..... ** ** **
Warrants issued in connection with the Telecom acquisition ......... ** ** **
Shares issued to certain shareholders .............................. * ** **
Common stock equivalents which have become anti-dilutive ........... ** (3,113) (1,942)
Contingent shares .................................................. ** ** **
------ ------ ------
Total Pro Forma Shares ........................................... 15,512 12,980 13,527
====== ====== ======
</TABLE>
- ----------
* Included in historical weighted average shares outstanding.
** Excluded as the effect would be anti-dilutive.
(5) Pro forma dividends for all periods presented represent dividends and
accretive dividends on $500,000 of Series F preferred stock remaining
outstanding as of September 30, 1997 and deemed outstanding for all periods
presented. Proceeds from this transaction of $167 million have been deemed
to be fully outstanding on a pro forma basis for all periods presented.
Accordingly, Series D preferred stock, the proceeds of which were utilized
for working capital purposes, and Series E preferred stock, the proceeds of
which were utilized to acquire RRA, have been deemed to have been converted
to common stock effective January 1, 1996, with the effects of such common
shares included in weighted average shares outstanding for all periods
presented.
32
