FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
----------------------
Dated: August 1, 1996
Employee Solutions, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 0-22600 86-0676898
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2929 East Camelback Road, Suite 220, Phoenix, Arizona 85016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 955-5556
<PAGE>
Effective August 1, 1996, Employee Solutions, Inc. ("ESI") acquired
substantially all of the assets of Cleveland, Ohio-based Leaseway Personnel
Corporation and Leaseway Administrative Personnel, Inc. (collectively,
"Leaseway"). Leaseway leases both permanent and temporary employees to its
client base consisting primarily of private carriage fleets, select common
carriers, and contract carriers. Leaseway provides permanent and temporary truck
drivers, as well as non-driver employees, including warehouse workers,
mechanics, dispatchers, and administrative personnel.
The purchase price was approximately $24 million, paid in cash. The
purchase price was determined on the basis of five times Leaseway's adjusted
pretax income for the year ended December 31, 1995. Adjustments were made to the
audited pretax income for the year ended December 31, 1995 in accordance with
the purchase agreement to reduce corporate overhead expense allocated to
Leaseway by its parent company during such period to an amount that approximated
direct administrative expenses. Giving effect to such adjustment, Leaseway's
adjusted pretax income for the period ended December 31, 1995 was approximately
$4.8 million, which served as the basis for the purchase price. ESI also
recorded liabilities of approximately $1.8 million in connection with the
acquisition.
The acquisition was reported on a Report on Form 8-K dated August 1,
1996 and filed with the Securities and Exchange Commission on August 13, 1996.
ESI hereby amends Item 7(a) and Item 7(b) of its Report on Form 8-K
dated August 1, 1996 as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Attached are the financial statements required pursuant to
Item 7(a).
(b) Pro Forma Financial Information:
Attached is the pro forma financial information required
pursuant to Item 7(b).
(c) Exhibits
See Exhibit Index attached hereto.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EMPLOYEE SOLUTIONS, INC.
By: /s/ Marvin D. Brody
-----------------------
Marvin D. Brody,
Chief Executive Officer
Date: October 10, 1996
3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ------------------- ----------------------------------------------
2.1 Asset Purchase Agreement dated
July 5, 1996 by and among
Leaseway Transportation Corp.,
Leaseway Personnel Corp.,
Leaseway Administrative
Personnel, Inc. and Employee
Solutions, Inc. (previously filed)
2.2 First Amendment to Asset
Purchase Agreement dated
August 1, 1996 by and among
Leaseway Transportation Corp.,
Leaseway Personnel Corp.,
Leaseway Administrative
Personnel, Inc., Employee
Solutions, Inc. and Logistics
Personnel Corp. (previously filed)
10.1 Loan Agreement dated August 1,
1996 by and between Employee
Solutions, Inc. and Bank One
Arizona, NA (previously filed)
10.2 Secured Promissory Note dated
August 1, 1996 payable by
Employee Solutions, Inc. to Bank
One Arizona, NA (previously
filed)
10.3 Security Agreement dated August
1, 1996 between Bank One
Arizona, Inc. and Employee
Solutions, Inc. and certain of its
subsidiaries (previously filed)
23.1 Consent of Deloitte & Touche
LLP (filed herewith)
4
<PAGE>
LEASEWAY PERSONNEL CORP.
AND
LEASEWAY ADMINISTRATIVE
PERSONNEL, INC.
(Wholly Owned Subsidiaries of Leaseway Transportation Corp.)
- --------------------------------------------------------------------------------
Combined Financial Statements
- --------------------------------------------------------------------------------
Combined Balance Sheets
As of December 31, 1995 and 1994
- --------------------------------------------------------------------------------
Combined Statements of Earnings
and
Combined Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
Including Notes to Combined Financial Statements
5
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholder of Leaseway Personnel Corp. and
Leaseway Administrative Personnel, Inc.
We have audited the accompanying combined balance sheets of Leaseway Personnel
Corp. and Leaseway Administrative Personnel, Inc. (collectively, the
Companies)(wholly-owned subsidiaries of Leaseway Transportation Corp.) as of
December 31, 1995 and 1994, and the related combined statements of earnings and
of cash flows for each of the three years in the period ended December 31, 1995.
These companies are under common ownership and common management. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Companies as of December 31,
1995 and 1994, as the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
September 24, 1996
6
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED STATEMENTS OF EARNINGS
For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
1995 1994 1993
Personnel services revenue $ 98,390 $100,714 $ 96,892
Cost of personnel services 88,678 91,576 90,021
-------- -------- --------
Gross profit 9,712 9,138 6,871
General and administrative expenses 4,617 4,081 3,907
-------- -------- --------
Contribution before corporate allocations 5,095 5,057 2,964
Corporate allocations 1,464 1,694 1,827
-------- -------- --------
Earnings before income taxes 3,631 3,363 1,137
Provision for income taxes 1,389 1,289 458
-------- -------- --------
Net earnings $ 2,242 $ 2,074 $ 679
======== ======== ========
The accompanying Notes to Combined Financial
Statements are an integral part of these statements.
7
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED BALANCE SHEETS
As of December 31, 1995 and 1994 (in thousands)
1995 1994
ASSETS
Cash $ 307 $ 200
Accounts receivable:
Trade and other, less allowance of 8,769 8,791
$130 and $84
Affiliates 1,804 -
Goodwill, less accumulated amortization of 1,634 1,726
$866 and $774
Property, equipment and other assets, net
of accumulated depreciation 35 76
-------- --------
Total Assets $ 12,549 $ 10,793
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable:
Trade and other $ 878 $ 1,002
Affiliates 253
Accrued compensation 1,477 1,562
Other accrued liabilities 2,387 2,411
-------- --------
Total liabilities 4,742 5,228
-------- --------
Shareholder's Equity:
Common Stock 1 1
Additional paid-in capital 7,521 7,521
Retained earnings (deficit) 285 (1,957)
-------- --------
Shareholder's equity 7,807 5,565
-------- --------
Total Liabilities and Shareholder's Equity $ 12,549 $ 10,793
======== ========
The accompanying Notes to Combined Financial
Statements are an integral part of these statements.
8
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows provided by (used in) operations:
Net earnings $ 2,242 $ 2,074 $ 679
Operations charges (credits) not using (providing)
operations cash flows:
Depreciation and amortization, net of gains 114 138 133
(Increase) decrease in:
Accounts receivable-trade and other 22 (811) 1,328
Accounts receivable-affiliates (1,804)
Other assets 19 (9) (36)
Increase (decrease) in:
Accounts payable-trade and other (124) (6) (410)
Accounts payable-affiliates (253) (1,704) (1,957)
Accrued compensation (85) 133 33
Other liabilities (24) 347 226
------- ------- -------
Cash flows provided by (used in) operations 107 162 (4)
Cash, beginning of year 200 38 42
------- ------- -------
Cash, end of year $ 307 $ 200 $ 38
======= ======= =======
</TABLE>
The accompanying Notes to Combined Financial
Statements are an integral part of these statements.
9
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
----------------------------------------------------
1. Organization and Basis of Presentation
Leaseway Personnel Corp. and Leaseway Administrative Personnel, Inc.
(collectively, "the Companies") are wholly-owned subsidiaries of Leaseway
Transportation Corp. ("Leaseway"). Leaseway Personnel Corp. ("the Company")
provides an array of workforce administration services under lease contracts
with its customers. Since January 1, 1995, Leaseway Administrative Personnel
Inc. ("LAP") has been dedicated to employing most management, supervisory and
staff personnel who conduct the Company's business. The accompanying combined
financial statements include the accounts of the Company and LAP. Prior to 1995,
LAP did not have any significant business activities, assets or liabilities.
On December 1, 1992 Leaseway and virtually all of its subsidiaries,
including the Companies (the "Debtors"), filed separate voluntary petitions for
protection from creditors under Chapter 11 of the United States Bankruptcy Code
in the Bankruptcy Court for the Southern District of New York. On September 30,
1993 the Debtors emerged from protection under Chapter 11 pursuant to a
confirmed plan of reorganization. Under this plan of reorganization all Debtors
share joint and several liability for settlement of prepetition claims of
creditors. The Companies have made no payments of claims, other than their own,
as a result of this joint and several liability. The plan of reorganization did
not affect Leaseway's ownership of the Companies. Had there been a change in the
control of the Companies, there would have been no material effect to these
Combined Statements of Earnings.
On March 13, 1995 Leaseway and Penske Dedicated Logistics ("PDL", a
wholly-owned subsidiary of Penske Truck Leasing L.L.P.) entered into an
Agreement and Plan of Merger which resulted in Leaseway becoming a wholly-owned
subsidiary of PDL in April 1995.
On July 5, 1996 Leaseway signed an asset purchase agreement committing
to sell the operations of the Company and also, at the purchaser's option, to
sell substantially all of the assets and transfer certain of the liabilities of
the Company and LAP. Less than $200,000 each of the Companies' assets and
liabilities were sold and transferred in connection with the consummation of
this agreement as of August 1, 1996.
2. Summary of Significant Accounting Policies.
Goodwill. Goodwill is being amortized on a straight-line basis using a
twenty year life. Amortization of approximately $92,000 is included within
corporate allocations for each year in the Combined Statements of Earnings.
Revenue Recognition. Revenues are recognized as services are provided
by employees who are leased to customers. Trade accounts receivable as of
December 31, for both 1995 and 1994, include $1.4 million related to earned
revenues not billed by those dates.
10
<PAGE>
Leaseway Personnel Corp. and
Leaseway Administrative Personnel, Inc.
Notes to Combined Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Concentration of Credit Risk and Fair Values. The Company's business is
dispersed across industries and the United States. Approximately half of its
1995 revenues were derived from customers involved in manufacturing businesses,
about twenty percent being derived from customers in the specialty steel
industry. At various times during the past three years, revenues from two
customers have exceeded 10% of revenues. These customers are Joseph T. Ryerson &
Son (16% for 1995, 14% for 1994 and 12% for 1993) and Abbott Laboratories (10%
for each year).
The Company generally does not require collateral. Ongoing credit
evaluations are made with regard to existing, in addition to prospective,
customers. Credit losses are recognized when credit evaluations or collection
efforts indicate they are necessary. Generally, such losses have not been large
and have been within expectations.
The recorded value of trade accounts receivable and payable approximate
fair value.
Use of Estimates. Preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires use of
estimation and assumptions which affect reported amounts and disclosures. Actual
results could differ from those estimates.
3. Bankruptcy Reorganization.
Notwithstanding the confirmation and effectiveness of the plan of
reorganization, the bankruptcy court continues to have jurisdiction over
resolution of matters that may arise in connection with or relate to that plan.
Leaseway's financial statements include an estimate of the total liabilities
which remain unpaid or might be allowed for payment under that plan. While there
can be no assurance actual amounts of such claims ultimately allowed by the
bankruptcy court will not exceed these estimates, Leaseway does not believe any
such variance will have a material adverse impact on its financial position or
the financial position of its Debtor-subsidiaries, including the Companies.
4. Income Taxes.
The Companies' results of operations are included in Leaseway's
consolidated U.S. income tax return. Federal income tax expense of the
Companies, determined as if each were a separate taxpayer, is settled through
the Companies' intercompany accounts with Leaseway.
There are no significant differences between the book and tax bases of
the Companies' assets and liabilities. Other than goodwill amortization, there
are no significant financial reporting expenses which are not deductible for
federal income tax purposes. The difference between the effective income tax
rate derived from the Companies' Combined Statements of Earnings and the
statutory federal income tax rate relates to state income taxes, net of federal
income tax benefit.
5. Insurance-related Obligations.
11
<PAGE>
Leaseway Personnel Corp. and
Leaseway Administrative Personnel, Inc.
Notes to Combined Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Leaseway's primary insurance arrangement, in which the Companies
participate, is a combined lines paid-loss program which comprehends both
workers' compensation and automobile and general liability exposures. Leaseway
obtains this coverage and that for catastrophic exposures and other risks,
including coverage required by law or contract, through contracts with insurance
providers. These insurance arrangements require Leaseway to obtain and provide
insurers letters of credit to secure its obligations under the arrangements.
Leaseway administers this arrangement, part of which involves engaging
a third-party administrator to manage the claims process and make payments to
claimants on behalf of subsidiaries participating in the arrangement, including
the Companies. Leaseway charges participating subsidiaries for losses covered by
this arrangement based on a combination of their loss experience and current
business levels. Charges with respect to these coverages totaled $6.2 million in
1995, $6.8 million in 1994 and $7.8 million in 1993, and are included in the
cost of personnel services. Fixed and administrative costs of the programs are
apportioned based on business levels. Settlement of these amounts are made
through intercompany accounts between Leaseway and the Companies.
Estimates of losses for claims related to the primary insurance program
are based on certain actuarial assumptions typically used in the insurance
industry. Factors affecting these estimates are numerous and can involve use of
projections made by outside insurers and consultants. These estimates typically
involve a large number of claims for which costs might develop only over a
period of many years, during which time it is not uncommon for individual claim
estimates to change a great deal over their life cycle. This extended life cycle
and potential for change render estimation especially difficult during the early
stages of that cycle.
6. Other Liabilities.
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accrued state and local taxes $470 $ 543
Monopolistic states' workers' compensation premiums 238 258
Union pension fund contributions 305 305
Union welfare plan contributions 378 325
Self-administered employee health program 780 700
Other 216 280
------ ------
$2,387 $2,411
====== ======
</TABLE>
7. Shareholder's Equity.
The Company is authorized to issue 1,000 shares of $1.00 par value
common stock, of which 10 have been issued and are outstanding. LAP is
authorized to issue 500 shares of common stock having no par
12
<PAGE>
Leaseway Personnel Corp. and
Leaseway Administrative Personnel, Inc.
Notes to Combined Financial Statements
Years Ended December 31, 1995, 1994 and 1993
value, of which 100 are issued and outstanding. There were no changes in
outstanding shares, nor were there any dividends declared or paid, or any
additional capital contributions made, during 1995 and 1993. During 1994, the
Companies received a capital contribution of $7.5 million from Leaseway, in the
form of a reduction in the intercompany payable.
8. Employee Retirement Plans.
Union-sponsored Plans. The Company participates in many union-sponsored
multiemployer defined benefit plans under various collective bargaining
agreements. Periodic payments to these plans are generally based on time worked
during the period. Pension expense related to these plans for the years ended
December 31, 1995, 1994 and 1993 was $2.3 million, $1.9 million and $2.1
million, respectively.
Under provisions of the Multiemployer Pension Plan Amendments Act
("MEPPA"), a participating employer could be required to fund all or part of its
proportional share of a multiemployer pension plan's unfunded vested benefit
obligation should it withdraw from that plan. Also, a partial withdrawal
liability can be asserted in certain instances in which a participating
employer's contributions to a fund have decreased as a result of declining
business and employment levels or for other reasons.
A number of multiemployer funds filed proofs of claim in connection
with Leaseway's reorganization under the bankruptcy code. A claim of one of
these funds has been allowed and is being paid as that of a general unsecured
creditor. Several others have been expunged or withdrawn, and several others
remain to be resolved. Although no assurance can be given, Leaseway believes
that, to the extent they are allowed by the bankruptcy court, these remaining
claims will be classified as obligations to general unsecured creditors under
the plan of reorganization. Leaseway further believes that such will not have a
material adverse impact on its financial statements or the financial statements
of its debtor-subsidiaries, including the Company.
Leaseway-sponsored Plan. Substantially all nonunion management,
supervisory and staff personnel who conduct the Companies' business participate
in a funded nonunion defined benefit pension plan sponsored by Leaseway.
Benefits paid under this plan generally are based on years of credited service,
levels of preretirement earnings and social security covered compensation.
Because the assets of this plan have exceeded the actuarially-determined value
of its obligations, the Companies have not been assessed by Leaseway for covered
employees' participation since 1993.
9. Lease Commitments and Rent Expense.
At December 31, 1995 the Company was lessee under noncancellable lease
agreements relating principally to office locations and equipment. Minimum
annual rental commitments under these leases are $102,000 in 1996 and $46,000 in
1997. Rent expense, including month-to-month rentals, was $132,000 during 1995,
$137,000 during 1994 and $138,000 during 1993.
10. Related Party Transactions.
13
<PAGE>
Leaseway Personnel Corp. and
Leaseway Administrative Personnel, Inc.
Notes to Combined Financial Statements
Years Ended December 31, 1995, 1994 and 1993
The Companies are allocated a portion of certain costs incurred and
administered centrally by Leaseway. These costs relate principally to common
services and programs provided by and through Leaseway, including cash
management and other treasury, legal, accounting, audit and other services.
These charges are shown in the Combined Statements of Earnings as corporate
allocations. Settlement of these charges is made through intercompany accounts
between Leaseway and the Companies. Open account balances between the Companies
and Leaseway and its other affiliates are non-interest-bearing.
11. Contingencies.
Various lawsuits, claims and other proceedings have been or might be
instituted or asserted against the Companies in connection with the conduct of
their business. The outcome of litigation cannot be predicted with certainty and
some lawsuits, claims or proceedings might be disposed of unfavorably.
Nevertheless, the Companies believe disposition of matters which are pending or
asserted will not have a material adverse effect on their financial statements.
14
<PAGE>
LEASEWAY PERSONNEL CORP.
AND
LEASEWAY ADMINISTRATIVE
PERSONNEL, INC.
(Wholly-Owned Subsidiaries of Leaseway Transportation Corp.)
- --------------------------------------------------------------------------------
Combined Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Combined Balance Sheets
As of June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Combined Statements of Earnings
and
Combined Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Including Notes to Combined Financial Statements
15
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED STATEMENTS OF EARNINGS (UNAUDITED)
For the Six Months Ended June 30, 1996 and 1995 (in thousands)
1996 1995
Personnel services revenue $51,188 $50,007
Cost of personnel services 46,057 45,085
------- -------
Gross profit 5,131 4,922
General and administrative expenses 2,296 2,448
------- -------
Contribution before corporate allocations 2,835 2,474
Corporate allocations 685 748
------- -------
Earnings before income taxes 2,150 1,726
Provision for income taxes 819 661
------- -------
Net earnings $ 1,331 $ 1,065
======= =======
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
16
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED BALANCE SHEETS (UNAUDITED)
As of June 30, 1996 and 1995 (in thousands)
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash $ 614 $ 514
Accounts receivable:
Trade and other, less allowance of
$160 and $119 9,846 8,463
Affiliates 1,251 335
Goodwill, less accumulated amortization of
$912 and $820 1,588 1,680
Property, equipment and other assets, net
of accumulated depreciation 30 537
-------- --------
Total Assets $ 13,329 $ 11,529
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable, trade and other $ 306 $ 994
Accrued compensation 1,841 1,797
Other accrued liabilities 2,043 2,108
-------- --------
Total liabilities 4,190 4,899
-------- --------
Shareholder's Equity:
Common Stock 1 1
Additional paid-in capital 7,521 7,521
Retained earnings (deficit) 1,617 (892)
-------- --------
Shareholder's equity 9,139 6,630
-------- --------
Total Liabilities and Shareholder's Equity $ 13,329 $ 11,529
======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
17
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 1996 and 1995 (in thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows provided by (used in) operations:
Net earnings $ 1,331 $ 1,065
Operations charges (credits) not using (providing)
operations cash flows:
Depreciation and amortization, net of gains 54 58
(Increase) decrease in:
Accounts receivable-trade and other (1,077) 328
Accounts receivable-affiliates 553 (335)
Other assets (3) (473)
Increase (decrease) in:
Accounts payable-trade and other (572) (8)
Accounts payable-affiliates (253)
Accrued compensation 364 235
Other liabilities (343) (303)
Cash flows provided by (used in) operations 307 314
Cash, beginning of period 307 200
------- -------
Cash, end of period $ 614 $ 514
======= =======
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
18
<PAGE>
LEASEWAY PERSONNEL CORP.
and
LEASEWAY ADMINISTRATIVE PERSONNEL, INC.
(Wholly-owned Subsidiaries of Leaseway Transportation Corp.)
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996 and 1995
-----------------------------------------------
(UNAUDITED)
1. Organization and Basis of Presentation
Leaseway Personnel Corp. and Leaseway Administrative Personnel, Inc.
(collectively, "the Companies") are wholly-owned subsidiaries of Leaseway
Transportation Corp. ("Leaseway"). Leaseway Personnel Corp. ("the Company")
provides an array of workforce administration services under lease contracts
with its customers. Since January 1, 1995, Leaseway Administrative Personnel
Inc. ("LAP") has been dedicated to employing most management, supervisory and
staff personnel who conduct the Company's business. The accompanying combined
financial statements include the accounts of the Company and LAP.
On December 1, 1992 Leaseway and virtually all of its subsidiaries,
including the Companies (the "Debtors"), filed separate voluntary petitions for
protection from creditors under Chapter 11 of the United States Bankruptcy Code
in the Bankruptcy Court for the Southern District of New York. On September 30,
1993 the Debtors emerged from protection under Chapter 11 pursuant to a
confirmed plan of reorganization. Under this plan of reorganization all Debtors
share joint and several liability for settlement of prepetition claims of
creditors. The Companies have made no payments of claims, other than their own,
as a result of this joint and several liability. The plan of reorganization did
not affect Leaseway's ownership of the Companies. Had there been a change in the
control of the Companies, there would have been no material effect to these
Combined Statements of Earnings.
On March 13, 1995 Leaseway and Penske Dedicated Logistics ("PDL", a
wholly-owned subsidiary of Penske Truck Leasing L.L.P.) entered into an
Agreement and Plan of Merger which resulted in Leaseway becoming a wholly-owned
subsidiary of PDL in April 1995.
The accompanying unaudited combined financial statements of the
Companies reflect normal recurring adjustments which are, in the opinion of
management, necessary to fairly state the results of operations, financial
position and cash flows for the interim periods presented. These interim
combined financial statements should be read in conjunction with the Companies'
annual combined financial statements and notes thereto. The results of
operations for the six months ended June 30, 1996 are not indicative of results
expected for the year ended December 31, 1996.
2. Subsequent Event
On July 5, 1996 Leaseway signed an asset purchase agreement committing
to sell the operations of the Company and also, at the purchaser's option, to
sell substantially all of the assets and transfer certain of the liabilities of
the Company and LAP. Less than $200,000 each of the Companies' assets and
liabilities were sold and transferred in connection with the consummation of
this agreement as of August 1, 1996.
19
<PAGE>
EMPLOYEE SOLUTIONS, INC.
- --------------------------------------------------------------------------------
Pro Forma Financial Statements
- --------------------------------------------------------------------------------
20
<PAGE>
EMPLOYEE SOLUTIONS, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined balance sheet gives effect to the
acquisition of Leaseway Personnel Corp. and Leaseway Administrative Personnel,
Inc. (collectively, "Leaseway") as if the transaction had occurred on June 30,
1996. The following unaudited pro forma combined statements of operations for
the year ended December 31, 1995 and the six months ended June 30, 1996,
combined the historical results of operations of Employee Solutions, Inc.
("Company") and Leaseway and assumed that the acquisition had been effective as
of the beginning of each respective period. The acquisition, which was an asset
purchase, will be accounted for as a purchase. The pro forma adjustments are
based upon the estimated fair value of the assets and liabilities of Leaseway as
of June 30, 1996, and are based on preliminary estimates, evaluations and other
data which are currently available and may change as a result of information
gained subsequent to June 30, 1996.
The pro forma statements of operations are not necessarily indicative of the
actual results which would have occurred had the acquisition been consummated at
the beginning of such period or of future consolidated operations of the Company
and accordingly, does not reflect results that would occur from a change in
management and planned restructuring of the operations of Leaseway. The pro
forma financial information has been prepared by the Company and all
calculations have been made by the Company based upon assumptions deemed
appropriate by the Company. Certain of these assumptions are set forth under the
notes to the unaudited pro forma combined financial statements. These statements
should be read in conjunction with the historical consolidated financial
statements and the notes thereto of the Company included in the Company's latest
annual report on Form 10-K/A, the Company's latest quarterly report on Form 10-Q
and the historical financial statements and the notes thereto of Leaseway filed
with this Form 8-K/A.
21
<PAGE>
EMPLOYEE SOLUTIONS, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
Pro Forma
Company Leaseway Adjustments Pro Forma
--------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,718 $ 614 $ (614) (a) $ 10,718
Restricted cash 5,000 - - 5,000
Accounts receivable, net 24,363 9,846 (9,846) (a) 24,363
Notes receivable, including related parties 475 - - 475
Prepaid workers' compensation and other assets 1,525 1,251 (1,227) (a) 1,549
Deferred income taxes 186 - - 186
--------- ----------- --------- --------
Total current assets 42,267 11,711 (11,687) 42,291
PROPERTY AND EQUIPMENT, net 885 30 (2) (a) 913
OTHER ASSETS, net 17,972 1,588 24,458 (c) 44,018
--------- ----------- --------- --------
Total assets $ 61,124 $ 13,329 $ 12,769 $ 87,222
========= =========== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 1,604 $ - $ - $ 1,604
Accrued salaries, wages and payroll taxes 16,064 1,841 (1,791) (a) (b) 16,114
Other accrued liabilities 5,408 2,043 715 (a) (b) 8,166
Accounts payable 1,637 306 (306) (a) 1,637
--------- ----------- --------- --------
Total current liabilities 24,713 4,190 (1,382) 27,521
LINE OF CREDIT - - 23,290 (d) 23,290
DEFERRED INCOME TAXES 43 - - 43
--------- ----------- --------- --------
Total liabilities 24,756 4,190 21,908 50,854
--------- ----------- --------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Class A convertible preferred stock, non-voting
no par value, 10,000,000 shares authorized,
0 shares issued and outstanding - - - -
Common stock, no par value, 75,000,000
shares authorized, 30,505,754 shares issued
and outstanding 26,562 1 (1) (c) 26,562
Additional paid-in capital - 7,521 (7,521) (c) -
Retained earnings 9,806 1,617 (1,617) (c) 9,806
--------- ----------- --------- --------
Total stockholders' equity 36,368 9,139 (9,139) 36,368
--------- ----------- --------- --------
Total liabilities and stockholders' equity $ 61,124 $ 13,329 $ 12,769 $ 87,222
========= =========== ========= ========
</TABLE>
The accompanying notes to the unaudited pro forma combined financial statements
are an integral part of this unaudited combined balance sheet.
22
<PAGE>
EMPLOYEE SOLUTIONS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Company Leaseway Adjustments Pro Forma
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 164,942 $ 51,188 $ - $ 216,130
Cost of revenues 148,446 46,057 - 194,503
----------- ----------- ------------ --------------
Gross profit 16,496 5,131 - 21,627
Selling, general and administrative
expenses 7,629 2,981 388 (a) 10,998
Other expense (income), net (403) - 919 (b) 516
----------- ----------- ------------ --------------
Income (loss) before provision for
income taxes 9,270 2,150 (1,307) 10,113
Income tax provision 3,801 819 (536)(c) 4,084
----------- ----------- ----------- --------------
Net income (loss) $ 5,469 $ 1,331 $ (771) $ 6,029
=========== =========== =========== ==============
Net income (loss) per common share
Primary $ .17 $ .19
============ ============
Fully Diluted $ .17 $ .19
============ ============
Weighted average number of common
and common equivalent shares
outstanding
Primary 32,200,621 32,200,621
========== ==========
Fully Diluted 32,276,888 32,276,888
========== ==========
</TABLE>
The accompanying notes to the unaudited pro forma combined financial statements
are an integral part of this unaudited combined statement.
23
<PAGE>
EMPLOYEE SOLUTIONS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Company Leaseway Adjustments Pro Forma
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 164,455 $ 98,390 $ - $ 262,845
Cost of revenues 150,675 88,678 - 239,353
------------- ----------- ----------- --------------
Gross profit 13,780 9,712 - 23,492
Selling, general and administrative
expenses 7,608 6,081 868 (a) 14,557
Other expense (income), net (509) - 1,840 (b) 1,331
------------- ----------- ----------- --------------
Income (loss) before provision for
income taxes 6,681 3,631 (2,708) 7,604
Income tax provision 2,846 1,389 (1,110) (c) 3,125
------------- ----------- ----------- --------------
Net income (loss) $ 3,835 $ 2,242 $ (1,598) $ 4,479
============= =========== =========== ==============
Net income (loss) per common share
Primary $ .16 (d) $ .18 (d)
============= =============
Fully Diluted $ .14 (d) $ .16 (d)
============= =============
Weighted average number of common
and common equivalent shares
outstanding
Primary 23,506,782 (d) 23,506,782 (d)
========== ==========
Fully Diluted 26,430,586 (d) 26,430,586 (d)
========== ==========
</TABLE>
The accompanying notes to the unaudited pro forma combined financial statements
are an integral part of this unaudited combined statement.
24
<PAGE>
EMPLOYEE SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The pro forma adjustments reflected in the pro forma combining financial
statements give effect to the following:
Pro Forma Combined Balance Sheet:
(a) To eliminate assets not purchased and liabilities not assumed by the
Company.
(b) To reflect those additional liabilities assumed by the Company.
(c) To record the excess of the purchase price over the estimated fair
value of the net assets of Leaseway Personnel Corp. and Leaseway
Administrative Personnel (collectively "Leaseway") acquired by the
Company ($25,746,000), to eliminate the existing net goodwill resulting
from the Leaseway Transportation Corp. purchase of Leaseway
($1,588,000) and to record transaction costs related to the acquisition
of Leaseway by the Company ($300,000).
(d) To record line of credit borrowings drawn to finance the acquisition.
Pro Forma Combined Statement of Operations for the Six Months Ended June 30,
1996:
(a) To reflect the elimination of the existing amortization of the goodwill
resulting from the Leaseway Transportation Corp. purchases of Leaseway
of ($46,000) and to record amortization of goodwill, using a 30 year
period, arising out of the acquisition of Leaseway by the Company
($434,000).
(b) To reflect interest expense ($919,000) on the line of credit used in
financing the acquisition. Interest on the line accrues at LIBOR plus
250 basis points (approximately 7.9%).
(c) To reflect the decrease of the income tax provision based on the pro
forma results of operations.
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1995:
(a) To reflect the elimination of the existing amortization of the goodwill
resulting from the Leaseway Transportation Corp. purchases of Leaseway
($92,000) and to record amortization of goodwill, using a 30 year
period, arising out of the acquisition of Leaseway by the Company
($868,000).
(b) To reflect interest expense ($1,840,000) on the line of credit used in
financing the acquisition. Interest on the line accrues at LIBOR plus
250 basis points (approximately 7.9%).
(c) To reflect the decrease of the income tax provision based on the pro
forma results of operations.
25
<PAGE>
(d) On December 18, 1995 and June 26, 1996, the Board of Directors of the
Company authorized two-for-one common stock splits, effected in the
form of 100% stock dividends, effective on January 16, 1996 and July
26, 1996, respectively, to shareholders of record at the close of
business on January 2, 1996 and July 12, 1996, respectively. All per
share amounts and numbers of shares, including options and warrants,
have been restated to reflect these splits. The earnings per share
calculation reflects adjustments to net income to reflect amortization
of contingent goodwill related to certain prior transactions.
26
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-88416, 33-93822, 33-95838, 33-62548, 333-776, 333-1242, and 333-8325 of
Employee Solutions, Inc. on Forms S-3 and Forms S-8 of our report dated
September 24, 1996 relating to the combined balance sheets of Leaseway Personnel
Corp. and Leaseway Administrative Personnel, Inc. as of December 31, 1995 and
1994, and the related combined statements of earnings and of cash flows for each
of the three years in the period ended December 31, 1995, appearing in this
Amendment to Form 8-K of Employee Solutions, Inc. originally filed August 1,
1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Cleveland, Ohio
September 24, 1996
