<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
------------------------- -----------------
Commission file number 0-25890
---------------------------------------------------------
CENTURY BUSINESS SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2769024
- --------------------------------- ----------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6480 Rockside Woods Boulevard South, Suite 330, Cleveland, Ohio 44131
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-447-9000
---------------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding At
Class of Common Stock November 4, 1998
--------------------- -----------------
Par value $.01 per share 65,453,699
-------------
Exhibit Index is on page 14 of this report.
Page 1 of 15 Pages
<PAGE> 2
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 5
Notes to the Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Item 3. Quantitative and Qualitative Information about Market Risk 11
PART II. OTHER INFORMATION:
Item 2. Changes in Securities 12-13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
Exhibit Index 14
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 48,194 $ 29,033
Accounts receivable, less allowance for doubtful
accounts of $3,394 and $1,936 83,880 45,629
Premiums receivable, less allowance for doubtful
accounts of $259 and $281 11,665 7,812
Investments:
Fixed maturities held to maturity, at amortized cost 12,952 14,528
Securities available for sale, at fair value 70,287 59,138
Other investments 3,786 6,054
------------- --------------
Total investments 87,025 79,720
Deferred policy acquisition costs 5,685 4,478
Reinsurance recoverables 18,161 15,215
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $4,501 and $1,264 222,073 89,856
Notes receivable 14,780 16,616
Property and equipment, net 21,930 10,186
Other assets 28,220 15,807
------------- --------------
TOTAL ASSETS $ 541,613 $ 314,352
============= ==============
LIABILITIES
Losses and loss adjustment expenses $ 58,455 $ 50,655
Unearned premiums 29,344 22,656
Notes payable, bank debt and capitalized leases 56,350 23,944
Income taxes 11,553 3,702
Accrued expenses 27,668 29,283
Other liabilities 39,370 27,702
------------- --------------
TOTAL LIABILITIES 222,740 157,942
------------- --------------
SHAREHOLDERS' EQUITY
Common stock 637 415
Additional paid-in capital 264,740 125,741
Retained earnings 52,896 28,507
Accumulated other comprehensive income 600 1,747
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 318,873 156,410
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 541,613 $ 314,352
============= ==============
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
-3-
<PAGE> 4
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Business service fees and commissions $ 70,313 $ 27,518 $ 197,833 $ 72,662
Specialty insurance services (regulated):
Premiums earned 11,638 10,371 33,417 26,791
Net investment income 1,492 507 4,101 3,135
Net realized gain on investments 929 992 2,350 3,026
Other income -- 54 212 157
--------- --------- --------- ---------
Total revenues 84,372 39,442 237,913 105,771
Expenses:
Operating expenses - business services 53,245 22,211 152,147 60,059
Losses and loss adjustment expenses 6,221 6,193 16,995 15,616
Policy acquisition and other expenses 4,582 2,644 15,120 8,902
Corporate general and administrative expenses 3,533 1,227 6,852 2,852
Depreciation and amortization expenses 2,517 595 6,603 1,935
--------- --------- --------- ---------
Total expenses 70,098 32,870 197,717 89,364
Income from continuing operations before interest
and other income and income tax expense 14,274 6,572 40,196 16,407
Interest and other income, net 612 409 1,231 1,042
--------- --------- --------- ---------
Income from continuing operations before
income tax expense 14,886 6,981 41,427 17,449
Income tax expense 5,244 2,716 14,343 4,704
--------- --------- --------- ---------
Income from continuing operations 9,642 4,265 27,084 12,745
Income (loss) from discontinued operations -- 50 -- (663)
--------- --------- --------- ---------
Net income $ 9,642 $ 4,315 $ 27,084 $ 12,082
========= ========= ========= =========
Earnings per share:
Basic:
Income from continuing operations $ 0.16 $ 0.10 $ 0.48 $ 0.32
Loss from discontinued operations -- -- -- (0.02)
--------- --------- --------- ---------
Net income per share $ 0.16 $ 0.10 $ 0.48 $ 0.30
========= ========= ========= =========
Diluted:
Income from continuing operations $ 0.13 $ 0.08 $ 0.39 $ 0.25
Loss from discontinued operations -- -- -- (0.02)
--------- --------- --------- ---------
Net income per share $ 0.13 $ 0.08 $ 0.39 $ 0.23
========= ========= ========= =========
Pro forma income data (from continuing operations) (note 3)
Net income as reported $ 9,642 $ 4,265 $ 27,084 $ 12,745
Pro forma adjustment to provision for income taxes 264 306 710 1,295
--------- --------- --------- ---------
Pro forma net income $ 9,378 $ 3,959 $ 26,374 $ 11,450
========= ========= ========= =========
Pro forma earnings per share:
Basic earning per share $ 0.15 $ 0.09 $ 0.47 $ 0.29
========= ========= ========= =========
Diluted earnings per share $ 0.13 $ 0.07 $ 0.38 $ 0.22
========= ========= ========= =========
Weighted average common shares 60,767 42,223 55,890 39,794
========= ========= ========= =========
Weighted average common shares and dilutive
potential common shares 74,336 53,288 70,328 51,493
========= ========= ========= =========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
-4-
<PAGE> 5
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 13,924 $ 11,713
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturities, held to maturity (325) (209)
Purchases of fixed maturities, available for sale (54,419) (13,572)
Purchases of equity securities (1,961) (2,714)
Redemptions of fixed maturities, held to maturity 2,066 600
Proceeds from sale of fixed maturities, available for sale 42,166 2,644
Proceeds from sale of equity securities 1,817 1,033
Change in other investments 2,268 356
Proceeds from notes receivable 5,227 --
Business acquisitions, net of cash acquired (59,725) (20,030)
Proceeds from sale of environmental services business - 5,380
Purchases of property and equipment (8,484) (1,326)
Proceeds from dispositions of property and equipment 424 --
-------- --------
Net cash used in investing activities (70,946) (27,838)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 71,615 1,931
Repayments of debt (61,286) (4,901)
Proceeds from stock issuances, net 47,695 6,414
Proceeds from exercise of stock options and warrants, net 20,999 --
Cash distributions by pooled entities (2,692) (3,129)
Other, net (148) (628)
-------- --------
Net cash provided by (used in) financing activities 76,183 (313)
-------- --------
Net increase (decrease) in cash and cash equivalents 19,161 (16,438)
Cash and cash equivalents at beginning of period 29,033 47,198
-------- --------
Cash and cash equivalents at end of period $ 48,194 $ 30,760
======== ========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
-5-
<PAGE> 6
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statements reflect all adjustments
necessary to present fairly the financial position of the Company as of
September 30, 1998 and December 31, 1997 and the results of its
operations and cash flows for the periods ended September 30, 1998 and
1997. The results of operations for such interim periods are not
necessarily indicative of the results for the full year. The 1997
condensed consolidated balance sheet was derived from the Company's
audited consolidated balance sheet which has been restated to include
the results of acquisitions accounted for as poolings (see note 3), but
does not include all disclosures required by generally accepted
accounting principles. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31,
1997.
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", on January 1, 1998. As required
by the Statement, the Company displays the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the Balance Sheet. Items
considered to be other comprehensive income are the adjustments made
for unrealized holding gains and losses on available for sale
securities. Comprehensive income for the three months ended September
30, 1998 and 1997 was $9.2 million and $4.3 respectively. Comprehensive
income for the nine months ended September 30, 1998 and 1997 was $25.9
million and $10.2 million, respectively.
2. EARNINGS PER SHARE
Earnings per share are based on the average number of shares of common
stock outstanding during each period and such shares issuable upon
assumed exercise of stock options and warrants, using the treasury
stock method. The following data show the amounts used in computing
earnings per share and the effect on the weighted average number of
shares of dilutive potential common stock (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted average shares 60,767 42,223 55,890 39,794
Effect of dilutive stock options and warrants 13,569 11,065 14,438 11,699
------- ------ ------ ------
Diluted weighted average shares 74,336 53,288 70,328 51,493
======= ====== ====== ======
</TABLE>
3. ACQUISITIONS
During the third quarter 1998, the Company continued its strategic
acquisition program, acquiring the businesses of twenty-five
complementary companies. These acquisitions comprised the following:
twenty accounting, consulting and tax advisory businesses, four
benefits design, consulting and administration firms, and one business
valuation firm.
-6-
<PAGE> 7
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
(continued)
3. ACQUISITIONS (continued)
Sixteen of the acquisitions were accounted for as purchases, and
accordingly, the operating results of the acquired companies have been
included in the accompanying condensed consolidated financial
statements since the dates of acquisition. The aggregate purchase price
of these acquisitions was approximately $64.628 million, excluding
future contingent consideration of up to $4.846 million in cash and
$7.929 million of restricted common stock of the Company (estimated
stock value at date of acquisition) which is based on the acquired
companies' ability to meet certain performance goals. The aggregate
purchase price, excluding future contingent consideration, has been
allocated to the net assets of the companies acquired based upon their
respective fair market values. The excess of purchase price over fair
value of assets acquired (goodwill) approximated $58.380 million and is
being amortized over forty years.
The unaudited pro forma information for the periods set forth below
give effect to 1998 acquisitions as if they had occurred on January 1,
1998 and January 1, 1997. The pro forma information is presented for
informational purposes only and is not necessarily indicative of the
results of operations that actually would have been achieved had these
transactions been consummated at the beginning of the periods presented
(in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues - pro forma $ 91,764 $ 70,044 $ 284,738 $ 197,637
Net income - pro forma $ 11,701 $ 5,949 $ 36,067 $ 16,984
Earnings per share - pro forma
- Basic $ 0.17 $ 0.12 $ 0.61 $ 0.36
- Diluted $ 0.14 $ 0.10 $ 0.49 $ 0.29
</TABLE>
The Company exchanged 2.318 million shares of its common stock for all
of the common stock of the nine acquisitions accounted for under the
pooling-of-interests method of accounting for business combinations.
Accordingly, the Company's financial statements have been restated to
include the results of the pooled entities for all periods presented.
Five of the aforementioned pooling-of-interests transactions involved
enterprises that previously had not been subjected to income taxes.
Accordingly, pro forma adjustments have been presented in the financial
statements to reflect that tax effects of those enterprises in prior
periods.
4. SUBSEQUENT EVENTS
Since September 30, 1998, the Company has closed the following six
acquisitions, including two tuck-in acquisitions: five accounting,
consulting and tax advisory businesses and one employee benefits design
and administration firm. In addition, the Company has announced the
acquisition of six additional companies, two of which have been
subsequently terminated by the Company, and include the following:
three accounting, consulting and tax advisory businesses and one
business valuation firm. The combined cost of the aforementioned
transactions (closed and pending) is approximately $45.614 million.
-7-
<PAGE> 8
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
(continued)
5. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
6. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
-8-
<PAGE> 9
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Century Business Services, Inc. ("the Company") is a leading provider of
outsourced business services to small and medium sized companies throughout the
United States. The Company provides integrated services in the following areas:
accounting systems, advisory and tax, employee benefits design and
administration, human resources, information technology systems, payroll
administration, specialty insurance, valuation, and workers' compensation.
RESULTS OF OPERATIONS
- ---------------------
Revenues
Total revenues increased to $84.4 million and $237.9 million for the
three and nine month periods ended September 30, 1998, respectively, from $39.4
million and $105.8 million for the comparable periods in 1997. The increase in
revenues was primarily attributable to the Company's acquisition activity in
outsourced business services.
Business service fees and commissions increased to $70.3 million and
$197.8 million for the three and nine month periods ended September 30, 1998,
respectively, from $27.5 million and $72.7 million for the comparable periods in
1997. The increase was primarily attributable to the acquisitions completed in
1998, as well as from internal growth resulting from the Company's cross-selling
program. A significant amount of our recent acquisitions have been accounted for
under the purchase method, and as such, the Company's consolidated financial
statements give effect to such acquisitions only from their respective
acquisition dates.
Premiums earned increased to $11.6 million and $33.4 million for the
three and nine month periods ended September 30, 1998, respectively, from $10.4
million and $26.8 million for the comparable periods in 1997. The increase in
premiums earned was primarily attributable to the growth in surety bonds and
commercial liability premiums over 1997 levels, the introduction of workers
compensation coverage emanating from an August 1997 business transaction and the
assumption of contract surety premiums under a certain reinsurance agreement
entered into in 1997.
Net investment income increased to $1.5 million and $4.1 million for
the three and nine month periods ended September 30, 1998, respectively, from
$0.5 million and $3.1 million for the comparable periods in 1997. This increase
was primarily attributable to increased invested assets.
Net realized gain on investments decreased to $0.9 million and $2.4
million for the three and nine month periods ended September 30, 1998,
respectively, from $1.0 million and $3.0 million for the comparable periods in
1997. This decrease was primarily attributable to the composition of investments
sold during the three and nine month periods ended September 30, 1998 versus the
comparable periods in 1997.
Expenses
Total expenses increased to $70.1 million and $197.7 million for the
three and nine month periods ended September 30, 1998, respectively, from
$32.9 million and $89.4 million for the comparable periods in 1997. Such
increase was primarily attributable to the increase in operating expenses, which
reflects the impact of the Company's acquisitions made in 1998. As a percentage
of revenues, total expenses decreased to 83.1% for the three and nine month
periods ended September 30, 1998, from 83.3% and 84.5% for the three and nine
month periods ended September 30, 1998, respectively.
Operating expenses for the business services operations increased to
$53.2 million and $152.1 million for the three and nine month periods ended
September 30, 1998, respectively, from $22.2 million and $60.1 million for the
comparable periods in 1997. Such increase was attributable to business services
acquisitions completed in 1998. As a percentage of fees and commissions,
operating expenses decreased to 75.7% and 76.9% for the three and nine month
periods ended September 30, 1998, respectively, from 80.7% and 82.7% for the
comparable periods in 1997.
-9-
<PAGE> 10
Loss and loss adjustment expenses increased to $6.2 million and $17.0
million for the three and nine month periods ended September 30, 1998,
respectively, from $6.2 million and $15.6 million for the comparable periods in
1997. Such increase for the nine month period was attributable to increased
premium volume for commercial liability coverage and workers compensation. As a
percentage of premiums earned, loss and loss adjustment expenses decreased to
53.5% and 50.9% for the three and nine month periods ended September 30, 1998,
respectively, from 59.7% and 58.3% for the comparable periods in 1997. Such
decreases were the result of better than expected incurred loss results for
certain lines of business.
Policy acquisition and other expenses increased to $4.6 million and
$15.1 million for the three and nine month periods ended September 30, 1998,
respectively, from $2.6 million and $8.9 million for the comparable periods in
1997. The increase corresponds primarily to the increase in premium volume and
regionalization of the property and casualty operation.
Corporate general and administrative expenses increased to $3.5 million
and $6.9 million for the three and nine month periods ended September 30, 1998,
respectively, from $1.2 million and $2.9 million for the comparable periods in
1997. Such increase was attributable to the expansion of the corporate function
to accommodate the Company's acquisition strategy. In addition, the increase for
the three months ended September 30, 1998 was due primarily to external costs
incurred in conjunction with acquisitions accounted for as pooling-of-interests,
and internal related costs associated with increased acquisition activity. Costs
associated with the Company's new cross-selling program also contributed to the
increase in the third quarter 1998. Corporate general and administrative
expenses represented 4.2% and 3.1% of total revenues for the three-month periods
ended September 30, 1998 and 1997, respectively, and 2.9% and 2.7% for the nine
month periods ended September 30, 1998 and 1997, respectively.
Depreciation and amortization expenses increased to $2.5 million and
$6.6 million for the three and nine month periods ended September 30, 1998,
respectively, from $0.6 million and $1.9 million for the comparable periods in
1997. The increase is a result of the increase of goodwill amortization
resulting from the acquisitions completed by the Company in 1998 and 1997. As a
percentage of total revenues, depreciation and amortization expense was 3.0% and
1.5% for the three month periods ended September 30, 1998 and 1997,
respectively, and was 2.8% and 1.8% for the nine month periods ended
September 30, 1998 and 1997, respectively. Such increase was attributable to the
implementation of the Company's acquisition strategy.
OTHER
- -----
The Company's 1998 condensed consolidated balance sheet includes a net
increase in goodwill of $132.2 million since December 31, 1997 and relates to
goodwill recorded in accordance with APB Opinion No. 16 upon the consummation of
thirty-three acquisitions which were accounted for as purchases during 1998. No
goodwill is recorded for transactions which are accounted for as
poolings-of-interests.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the nine month period ended September 30, 1998, cash and cash
equivalents increased $19.2 million as cash provided by operating activities of
$13.9 million and financing activities of $76.2 million exceeded cash used in
investing activities of $70.9 million. The normal seasonal changes occurred
between year-end and the end of the third quarter and resulted in increased
accounts receivable and premiums receivable. Cash used in investing activities
consisted primarily of investment activity, new business acquisitions, and
capital expenditures. Cash provided by financing activities consisted primarily
of proceeds received from a private placement of 3.8 million shares during the
first quarter 1998.
YEAR 2000
- ---------
The Company's business depends, in part, upon its ability to store,
retrieve, process and manage significant databases and, periodically, to
expand and upgrade its information processing capabilities. The Company
primarily utilizes personal computers and laptops connected to a local area
network to satisfy its information processing requirements. Interruption or loss
of the Company's information processing capabilities through loss of stored
data, security breach, breakdown or malfunction of computer equipment or
software systems, telecommunications failure, conversion difficulties or damage
to the Company's computer equipment or software systems could have a material
adverse effect on the Company's business, financial condition and results of
operations.
-10-
<PAGE> 11
Currently, the Company is reviewing its internal information management
and other systems in order to identify and modify any products, services or
systems that are not Year 2000 compliant. Until recently, many computer
programs were written to store only two digits of year-related date information
in order to make the storage and manipulation of such data more efficient.
Programs which use two-digit date fields, however, may not be able to
distinguish between such years as 1900 and 2000. In certain situations, this
date limitation could result in system failures or miscalculations, potentially
causing disruptions of business processes or system operations.
The Company has been and continues to review the potential overall
impact of such Year 2000 risks on the Company's business, financial condition
and results of operations. To date, the Company has not encountered any
material Year 2000 problems with its computer systems or any other equipment.
Based on its ongoing survey of such risks for the Company, its subsidiaries and
recently acquired businesses, management estimates that the total cost of the
Company's Year 2000 compliance activities will be approximately $1.0 to $2.0
million. This estimate assumes that all businesses that have been and that may
be acquired in the future by the Company will not have significant Year 2000
compliance issues. However, there can be no assurance that actual compliance
costs will fall within the range of this estimate, that any future acquisition
of a business will not require substantial Year 2000 compliance expenditures or
that precautions that the Company has taken to protect itself from or minimize
the impact of such events will be adequate. Any damage to the Company's data
information processing system, failure of telecommunications links or breach of
the security of the Company's computer systems could result in an interruption
of the Company's operations or other loss which may not be covered by the
Company's insurance. Any such event could have a material adverse effect on the
Company's business, financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
- --------------------------
Statements included in the Form 10-Q, which are not historical in
nature, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward
looking statements are commonly identified by the use of such terms as
"intends", "estimates", "expects", "projects", "anticipates", "seeks",
"believes", and "scheduled". Such statements are subject to certain risks,
uncertainties or assumptions. Should one or more of these risks or assumptions
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. Although the
Company believes that the assumptions upon which such forward-looking statements
are based are reasonable, it can give no assurance that such assumptions will
prove to be correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") include:
(i) the Company's ability to grow through acquisitions of strategic and
complementary businesses; (ii) the Company's ability to finance such
acquisitions; (iii) the Company's ability to manage growth; (iv) the Company's
ability to integrate the operations of the acquired businesses; (v) the
Company's ability to share, retrieve, process and manage significant databases;
(vi) the Company's ability to attract and retain experienced personnel; (vii)
the Company's ability to manage pricing of its insurance products and adequately
reserve for losses; (viii) the impact of current and future laws and
governmental regulations affecting the Company's operations; and (ix) market
fluctuations in the values or returns on assets in the Company's investment
portfolios. All forward-looking statements in this Form 10-Q are expressly
qualified by the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive
instruments and does not purchase hedging instruments or "other than trading"
instruments that are likely to expose the Company to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk.
The Company has issued no debt instruments, entered into no forward or futures
contracts, purchased no options and entered into no swaps. The Company's primary
market risk exposure is that of interest rate risk. A change in the Federal
Funds Rate, or the Reference Rate set by the Bank of America (San Francisco),
would affect the rate at which the Company could borrow funds under its Credit
Facility.
-11-
<PAGE> 12
PART II - OTHER INFORMATION
---------------------------
ITEM 2. CHANGES IN SECURITIES
(c) Issuance of unregistered shares during the three months ended September 30,
1998, were as follows:
All transactions listed below involve the issuance of shares of Common Stock by
the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended.
On July 14, 1998, in connection with the acquisition of Mesarvey, Russell & Co.
(MRC), the Company issued 261,422 shares of Common Stock in exchange for all the
outstanding shares of MRC.
On July 24, 1998, in connection with the acquisition of Sloan and Letson, Inc.,
and Sloan & Letson Investment Advisors, Inc., the Company issued 116,522 shares
of Common Stock in exchange for all the outstanding shares of Sloan and Letson,
Inc. and Sloan & Letson Investment Advisors, Inc.
On July 31, 1998, in connection with the acquisition of Rosemont & Associates,
Inc., the Company issued 351,756 shares of Common Stock in exchange for all the
outstanding shares of Rosemont & Associates, Inc.
On August 3, 1998, in connection with the acquisition of Evans & Evans,
Incorporated, the Company paid cash and issued 23,414 shares of Common Stock in
exchange for all the outstanding shares of Evans & Evans, Incorporated.
On August 7, 1998, in connection with the acquisition of Edward Davis, dba Ed
Davis/Comprehensive Accounting Services, the Company paid cash and issued 6,667
shares of Common Stock in exchange for certain assets of Edward Davis.
On August 20, 1998, in connection with the acquisition of Highwood Associates,
Inc., the Company issued 175,182 shares of Common Stock in exchange for all the
outstanding shares of Highwood Associates, Inc.
On August 20, 1998, in connection with the acquisition of Bertram, Vallez,
Kaplan & Talbot, Ltd., the Company paid cash and issued 250,904 shares of Common
Stock in exchange for all the outstanding shares of Bertram, Vallez, Kaplan &
Talbot, Ltd.
On August 21, 1998, in connection with the acquisition of Sayler, Soetebier,
Lane & Whitmore, Chartered, the Company issued 52,308 shares of Common Stock in
exchange for all the outstanding shares Sayler, Soetebier, Lane & Whitmore,
Chartered.
On August 27, 1998, in connection with the acquisition of Leff, Malone &
Company, the Company paid cash and issued 16,421 shares of Common Stock in
exchange for all the outstanding shares of Leff, Malone & Company.
On August 28, 1998, in connection with the acquisition of Daniel/Pappadakis &
Co., PC, the Company paid cash and issued 78,698 shares of Common Stock in
exchange for all the outstanding shares of Daniel/Pappadakis & Co., PC.
On August 31, 1998, in connection with the acquisition of RS & A Business
Services, Inc., the Company issued 81,081 shares of Common Stock in exchange for
all the outstanding shares of RS & A Business Services, Inc.
On August 31, 1998, in connection with the acquisition of Southern Ohio Benefits
Agency, Inc., the Company issued 228,938 shares of Common Stock in exchange for
all the outstanding shares of Southern Ohio Benefits Agency, Inc.
On August 31, 1998, in connection with the acquisition of Cornerstone Broker
Insurance Services Agency, Ltd., the Company issued 267,094 shares of Common
Stock in exchange for all the outstanding shares of Cornerstone Broker Insurance
Services Agency, Ltd.
On September 1, 1998, in connection with the acquisition of William K. Groleau &
Associates, Inc., the Company paid cash and issued 27,546 shares of Common Stock
in exchange for all the outstanding shares of William K. Groleau & Associates,
Inc.
-12-
<PAGE> 13
On September 10 1998, in connection with the acquisition of Gibraltar Real
Estate Services Corporation, the Company issued 56 shares of Common Stock in
exchange for all the outstanding shares of Gibraltar Real Estate Services
Corporation.
On September 18, 1998, in connection with the acquisition of MHM Professional
Resources, Inc., the Company paid cash, issued a short term note payable and
issued 1,607,742 shares of Common Stock in exchange for all the outstanding
shares of MHM Professional Resources, Inc.
On September 23, 1998, in connection with the acquisition of Gottschalk &
Company, Chartered, the Company issued 75,416 shares of Common Stock in exchange
for all the outstanding shares of Gottschalk & Company, Chartered.
On September 28, 1998, in connection with the acquisition of Niederhofer-Henkel
& Co, L.L.C., the Company paid cash and issued 37,190 shares of Common Stock in
exchange for all the outstanding shares of Niederhofer-Henkel & Co, L.L.C.
On September 30, 1998, in connection with the acquisition of Beall, Garner,
Screen and Geare, Inc., the Company issued 944,444 shares of Common Stock in
exchange for all the outstanding shares of Beall, Garner, Screen and Geare, Inc.
On September 30, 1998, in connection with the acquisition of Regan, Russell,
Schickner & Shah, P.A., the Company issued 189,474 shares of Common Stock in
exchange for all the outstanding shares of Regan, Russell, Schickner & Shah,
P.A.
On September 30, 1998, in connection with the acquisition of Meeks, Ross, Paulk
and Associates, P.A. the Company issued 90,141 shares of Common Stock in
exchange for all the outstanding shares of Meeks, Ross, Paulk and Associates,
P.A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K/A
There were no reports on Form 8-K filed during the
quarter ended September 30, 1998.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century Business Services, Inc.
-------------------------------
(Registrant)
Date: November 13, 1998 By: /s/ Charles D. Hamm, Jr.
------------------- -----------------------------------
Charles D. Hamm, Jr.
Chief Financial Officer
-13-
<PAGE> 14
CENTURY BUSINESS SERVICES, INC. AND SUBSIDIARIES
------------------------------------------------
EXHIBIT INDEX
-------------
Exhibit Number:
---------------
27.1 Financial Data Schedule (SEC only)..................... 15
-14-
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 62,869
<DEBT-CARRYING-VALUE> 12,952
<DEBT-MARKET-VALUE> 13,163
<EQUITIES> 6,408
<MORTGAGE> 713
<REAL-ESTATE> 0
<TOTAL-INVEST> 87,025
<CASH> 48,194
<RECOVER-REINSURE> 18,161
<DEFERRED-ACQUISITION> 5,685
<TOTAL-ASSETS> 541,613
<POLICY-LOSSES> 58,455
<UNEARNED-PREMIUMS> 29,344
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 56,350
0
0
<COMMON> 637
<OTHER-SE> 318,236
<TOTAL-LIABILITY-AND-EQUITY> 541,613
33,417
<INVESTMENT-INCOME> 4,101
<INVESTMENT-GAINS> 2,350
<OTHER-INCOME> 212
<BENEFITS> 16,995
<UNDERWRITING-AMORTIZATION> 10,350
<UNDERWRITING-OTHER> 4,770
<INCOME-PRETAX> 41,427
<INCOME-TAX> 14,343
<INCOME-CONTINUING> 27,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,084
<EPS-PRIMARY> .48
<EPS-DILUTED> .39
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
