<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 12, 1998
AMERICAN RESIDENTIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11849 76-0484996
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
POST OAK TOWER
5051 WESTHEIMER, SUITE 725
HOUSTON, TEXAS 77056-5604
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 599-0100
Page 1
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 12, 1998, American Residential Services, Inc., a Delaware
corporation (the "Company"), acquired Freestate Electrical Service Company,
Inc., a Maryland corporation ("Freestate Service"), and Freestate Electrical
Construction Company, a Maryland corporation ("Freestate Construction", and
together with Freestate Service, "Freestate") in related merger transactions.
The acquisition consideration consisted of 496,470 shares of the Company's
common stock issued to the former stockholders of Freestate Construction and
$5,185,000 in cash paid to the former stockholder of Freestate Service. The
parties determined the consideration for the acquisitions through arms-length
negotiations. The Company used borrowings under its credit facility to pay the
cash consideration.
Freestate provides installation, maintenance, repair and
replacement of electrical systems in commercial facilities in Beltsville,
Maryland and serves the Baltimore, Maryland, Washington, D.C., and northern
Virginia areas. The Company intends to utilize the acquired operations in the
manner previously operated.
A copy of the Company's May 13, 1998 press release relating to
the acquisitions is attached as Exhibit 99 hereto and incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Index To Combined Financial Statements Of Freestate
Electrical Group
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants...................3
Combined Balance Sheet..............................4
Combined Statement of Income........................5
Combined Statement of Stockholders' Equity..........6
Combined Statement of Cash Flows....................7
Notes to Combined Financial Statements..............8
</TABLE>
2
<PAGE> 3
Independent Auditors' Report
To the Board of Directors
Freestate Electrical Group
Beltsville, Maryland
We have audited the accompanying combined balance sheet of Freestate Electrical
Group as of December 31, 1997, and the related combined statements of income,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Freestate
Electrical Group as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
WATKINS, MEEGAN, DRURY & COMPANY, L.L.C.
Bethesda, Maryland
July 3, 1998
3
<PAGE> 4
FREESTATE ELECTRICAL GROUP
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $1,262,598 $ 236,749
Accounts Receivable 3,697,722 6,637,699
Costs and Estimated Earnings in Excess of Billings 697,039 448,533
Other Current Assets 62,988 50,411
---------- ----------
Total Current Assets 5,720,347 7,373,392
PROPERTY AND EQUIPMENT 811,234 825,936
DEPOSITS AND OTHER ASSETS 27,991 27,991
---------- ----------
$6,559,572 $8,227,319
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long-Term Debt, Current Portion $ 121,760 $ 130,500
Accounts Payable and Accrued Expenses 870,568 1,532,026
Billings in Excess of Costs and Estimated Earnings 406,584 816,451
Accrued Salaries, Employee Bonuses, and Related Payroll Taxes 641,276 286,817
Retirement Contribution Payable 47,429 47,429
Income Taxes Payable 18,380 --
---------- ----------
Total Current Liabilities 2,105,997 2,813,223
LONG-TERM DEBT, Less Current Portion 269,798 265,779
STOCKHOLDER'S EQUITY
Common Stock 1,051 1,051
Paid-In Capital 24,000 24,000
Retained Earnings 4,158,726 5,123,266
---------- ----------
4,183,777 5,148,317
---------- ----------
$6,559,572 $8,227,319
========== ==========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
4
<PAGE> 5
FREESTATE ELECTRICAL GROUP
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEAR MARCH 31,
ENDED DECEMBER 31, ---------------------------
1997 1998 1997
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONTRACT AND SERVICE REVENUES $24,711,546 $ 7,426,889 $ 6,129,977
COST OF CONTRACT AND SERVICE REVENUES 19,150,615 5,719,296 4,439,424
----------- ----------- -----------
GROSS PROFIT 5,560,931 1,707,593 1,690,553
OPERATING EXPENSES 2,944,772 669,675 568,987
----------- ----------- -----------
INCOME FROM OPERATIONS 2,616,159 1,037,918 1,121,566
OTHER INCOME (EXPENSE)
Interest Income 7,693 3,210 1,309
Miscellaneous Income 1,329 212 339
Interest Expense (20,403) (5,910) (4,565)
----------- ----------- -----------
(11,381) (2,488) (2,917)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,604,778 1,035,430 1,118,649
INCOME TAXES 32,523 -- --
----------- ----------- -----------
NET INCOME $ 2,572,255 $ 1,035,430 $ 1,118,649
=========== =========== ===========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
5
<PAGE> 6
FREESTATE ELECTRICAL GROUP
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stockholders' Common Stock Paid-In Retained Total
Shares Amount Capital Earnings Equity
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 1,051 $ 1,051 $ 24,000 $ 2,878,085 $ 2,903,136
NET INCOME -- -- -- 2,572,255 2,572,255
DISTRIBUTIONS -- -- -- (1,291,614) (1,291,614)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 1,051 1,051 24,000 4,158,726 4,183,777
NET INCOME (UNAUDITED) -- -- -- 1,035,430 1,035,430
DISTRIBUTIONS (UNAUDITED) -- -- -- (70,890) (70,890)
----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998 1,051 $ 1,051 $ 24,000 $ 5,123,266 $ 5,148,317
(UNAUDITED) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
6
<PAGE> 7
FREESTATE ELECTRICAL GROUP
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ----------------------------
1997 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,572,255 $ 1,035,430 $ 1,118,649
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 179,125 38,370 34,482
Change in:
Accounts Receivable 1,051,125 (2,939,977) (60,152)
Costs and Estimated Earnings in Excess of Billings (556,989) 248,506 55,831
Other Current Assets (22,767) 12,577 6,395
Deposits and Other Assets (9,073) -- (2)
Accounts Payable and Accrued Expenses (375,467) 661,458 (360,121)
Billings in Excess of Costs and Estimated Earnings (316,048) 409,867 (300,162)
Accrued Salaries, Employee Bonuses, and Related
Payroll Taxes 354,380 (354,459) (144,452)
Retirement Contribution Payable (2,863) -- --
Income Taxes Payable 14,630 (18,380) --
----------- ----------- -----------
Net Cash Provided by (Used in) Operating Activities 2,888,308 (906,608) 350,468
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (161,304) (16,627) (21,478)
----------- ----------- -----------
Net Cash Used in Investing Activities (161,304) (16,627) (21,478)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-Term Borrowings (Repayments), Net (105,000) -- (105,000)
Payments on Long-Term Debt (85,086) (31,724) (16,890)
Distributions to Stockholder (1,291,614) (70,890) (88,203)
----------- ----------- -----------
Net Cash Used in Financing Activities (1,481,700) (102,614) (210,093)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,245,304 (1,025,849) 118,897
BEGINNING CASH AND CASH EQUIVALENTS 17,294 1,262,598 17,294
----------- ----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 1,262,598 $ 236,749 $ 136,191
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Acquisition of Vehicles and Equipment
Cost of Vehicles and Equipment $ (192,286) $ (53,072) $ (41,478)
Vehicle and Equipment Loans 140,628 36,445 20,000
----------- ----------- -----------
Cash Paid for Vehicles and Equipment $ (51,658) $ (16,627) $ (21,478)
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid $ 13,802 $ 5,910 $ 4,565
=========== =========== ===========
Income Taxes Paid $ 10,253 $ 20,000 $ 5,000
=========== =========== ===========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
7
<PAGE> 8
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Nature of Business
The accompanying combined financial statements include the accounts of
Freestate Electrical Construction Company and Freestate Electrical
Service Company, Inc. (collectively, "the Group"). All significant
intercompany transactions have been eliminated in combination.
Freestate Electrical Construction Company was incorporated January
6, 1984. The principal business activity is commercial electrical
contracting. Freestate Electrical Service Company, Inc., was
incorporated January 1, 1990, and began operations August 1, 1990.
The principal business activity is commercial electrical service.
Both companies provide services primarily in the metropolitan
Washington, D.C., area.
As a condition for entering into contracts, surety bonds may be
required. Such bonds are collateralized by contract receivables.
The Group's field labor force is subject to collective bargaining
agreements with various locals of the International Brotherhood of
Electrical Workers. None of these agreements will expire during
1998.
Interim Financial Information
The interim combined financial statements as of March 31, 1998, and for
the three months ended March 31, 1997 and 1998 are unaudited, and
certain information and footnote disclosures, normally included in
combined financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the combined financial
position, results of operations and cash flows with respect to the
interim combined financial statements have been included. The
combined statements of income for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
Management uses estimates and assumptions in preparing these combined
financial statements in accordance with generally accepted
accounting principles. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
used.
Contract Revenue and Cost Recognition
Revenues on long-term contracts are recorded on the basis of the
Company's estimates of the percentage of completion of individual
contracts. Estimates are computed using that percentage of
estimated total revenue that costs incurred to date bear to
estimated total costs. Because of the inherent uncertainties in
estimating costs and revenues, it is at least reasonably possible
that the estimates used will change within the near term.
8
<PAGE> 9
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contract costs include all direct material, labor, and subcontractor
costs, as well as portions of certain operating expenses allocated
to direct costs. Changes in job performance, job conditions,
estimated profitability, including those arising from contract
penalty provisions, and final contract and change order settlements
may result in revisions and are recognized in the period in which
the revisions are determined. Claims for additional contract
compensation are not reflected as revenue until the year such
claims are allowed. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined.
The asset, "Costs and Estimated Earnings in Excess of Billings,"
represents revenues recognized in excess of amounts billed. The
liability, "Billings in Excess of Costs and Estimated Earnings,"
represents billings in excess of revenues recognized.
Service revenues are primarily derived from time and material contracts.
Such revenues are recognized when billed.
Approximately 20% of the groups 1997 revenues were derived from work on
several contracts with one general contractor.
Operating Cycle
In accordance with normal practice in the construction industry, The
Group has included assets and liabilities related to long-term
construction contracts in current assets and current liabilities on
the accompanying combined balance sheet. These assets and
liabilities will be liquidated over the course of contract
completion, which may exceed one year. The Group generally enters
into contracts ranging from six months to two years in duration.
9
<PAGE> 10
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank and money market accounts.
As of December 31, 1997, Group members had the following amounts in
excess of FDIC insurance limits on deposit at a financial
institution:
<TABLE>
<S> <C>
Freestate Electrical Construction
Company $ 932,236
Freestate Electrical Service
Company 613,238
-----------
$ 1,545,474
===========
</TABLE>
Depreciation and Amortization
Property and equipment is stated at cost. Depreciation and amortization
is provided over the estimated useful lives of the assets using the
straight-line method.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<S> <C>
Completed Construction Contracts $ 933,049
Construction Contracts in Process
Current 1,147,250
Retention 218,232
-----------
1,365,482
Service Contracts and Service Work
Current 1,245,070
Retention 154,121
-----------
1,399,191
-----------
$ 3,697,722
===========
</TABLE>
10
<PAGE> 11
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 3 - CONTRACTS IN PROCESS
Information with respect to contracts in process is as follows:
<TABLE>
<S> <C>
Expenditures on Uncompleted Contracts $ 4,311,372
Estimated Earnings Thereon 1,192,018
-----------
5,503,390
Applicable Billings 5,212,935
-----------
$ 290,455
===========
</TABLE>
Included in the accompanying balance sheet under the following headings:
<TABLE>
<S> <C>
Costs and Estimated Earnings in
Excess of Billings $ 697,039
Billings in Excess of Costs and
Estimated Earnings (406,584)
-----------
$ 290,455
===========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS
----------------
<S> <C> <C>
Vehicles 5 $ 1,012,574
Machinery and Equipment 5 - 12 168,740
Furniture and Fixtures 5 - 12 230,589
Leasehold Improvements Life of Lease 59,347
-----------
1,471,250
Accumulated Depreciation (660,016)
-----------
Property and Equipment, Net $ 811,234
===========
</TABLE>
NOTE 5 - LINE OF CREDIT
The Group has available an unsecured line of credit with a commercial
bank that provides for borrowings up to $1,500,000, bearing interest
at the prime rate. The line of credit is guaranteed by the
stockholder and expires, if not renewed, in May 1998. The
stockholder has assigned to the bank an insurance policy on his life
under the terms of this credit facility. There were no outstanding
borrowings on the line of credit at December 31, 1997.
11
<PAGE> 12
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Various Vehicle and Equipment Notes,
Payable in Monthly Installments of
$12,072 Including Interest Ranging
from 2.9% to 8.92% Per Annum, Secured
by Respective Assets Purchased $ 391,558
Current Portion (121,760)
-----------
$ 269,798
===========
</TABLE>
Future principal maturities are due as follows:
<TABLE>
<S> <C>
1998 $ 121,760
1999 120,424
2000 103,322
2001 46,052
-----------
$ 391,558
===========
</TABLE>
NOTE 7 - RETIREMENT CONTRIBUTION PAYABLE
The Group maintains qualified profit sharing and pension plans for the
benefit of eligible employees not covered under a collective
bargaining agreement. The Group is required to make annual
contributions equal to 6 percent of eligible compensation to the
pension plan. Additional discretionary contributions may be made to
the profit sharing plan. The Group's retirement contribution totalled
$47,429 in 1997.
NOTE 8 - RELATED PARTY TRANSACTIONS
Beginning October 1996, the Group leases office and warehouse space in
Beltsville, Maryland from a limited liability company whose members
include the Group's stockholder. The lease agreement specifies a
five year lease term with a base monthly rental of $6,700, subject to
annual increases of 2 percent. Rent expense was $87,400 for 1997.
12
<PAGE> 13
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
Future minimum lease payments under this agreement are as follows:
<TABLE>
<S> <C>
1998 $ 82,282
1999 83,927
2000 85,604
2001 72,520
-----------
$ 324,333
===========
</TABLE>
NOTE 9 - INCOME TAXES
The separate entities of the Group have elected, with the consent of their
respective stockholder, to be treated as S corporations for federal
income tax purposes. As a result, taxable income or loss is passed
through to and reportable by the stockholder on his individual income
tax returns.
The entities within the Group will continue to be subject to corporate
income taxes imposed by the District of Columbia (D.C.) because under
present law D.C. does not recognize S corporation status.
Accordingly, the accompanying statement of income includes a
provision for D.C. income taxes only.
For income tax reporting purposes, depreciation is provided using
accelerated methods.
Income tax expense consists of the following:
District of Columbia $ 32,523
===========
It is estimated that the stockholder will pay approximately $1,255,000 of
income taxes on taxable income passed through for the year ended
December 31, 1997. As of December 31, 1997, the stockholder had paid
approximately $955,000 of his total projected 1997 individual income
tax liability of $1,530,000, through withholdings and stockholder
distributions.
13
<PAGE> 14
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDER'S EQUITY
Freestate Electrical Construction Company common stock has a par
value of $1 per share, 100 shares are authorized, and 51 shares are
issued and outstanding at December 31, 1997.
Freestate Electrical Service Company, Inc., common stock has a par value
of $1 per share, and 1,000 shares are authorized, issued, and
outstanding at December 31, 1997.
NOTE 11 - BACKLOG
<TABLE>
<S> <C>
Beginning Balance $ 2,947,387
New Contract Work, Service Work, and
Contract Adjustments 27,223,765
-----------
30,171,152
Less Contract and Service Revenue Earned 24,711,546
-----------
Ending Balance $ 5,459,606
===========
</TABLE>
NOTE 12 - SIGNIFICANT REVISION IN ESTIMATE
During the year ended December 31, 1997, the Group successfully negotiated
several outstanding change order issues on an apartment project which
necessitated adjustment of the previously estimated gross profit of
$270,000 to a revised final gross profit of $607,227.
14
<PAGE> 15
FREESTATE ELECTRICAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 13 - CONTINGENCIES
Freestate Electrical Construction Company is involved in a lawsuit
(filed subsequent to December 31, 1997) and a regulatory
investigation relating to employment matters. Although the final
outcome of these matters cannot presently be determined, management
does not expect their resolution to have a material adverse effect on
the Group's financial position or results of operations.
NOTE 14 - SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Group's line of credit facility was
increased to $3,200,000. Borrowings on the line were used to finance
stockholder distributions of $2,650,000 on May 8, 1998.
Compensation in the form of cash and stock in Freestate Electrical
Construction Company was accrued on April 30, 1998 and paid to
employees on May 11, 1998. Taken together, the cash and stock
compensation was valued at $1,400,000.
On May 12, 1998, American Residential Services, Inc. (ARS), an unrelated
publicly traded commercial entity, acquired all of the outstanding
common stock of both Freestate Electrical Construction Company and
Freestate Electrical Service Company, Inc., in exchange for cash and
shares of ARS's common stock.
15
<PAGE> 16
(b) PRO FORMA FINANCIAL INFORMATION.
INDEX TO PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Statements
Pro Forma Combined Balance Sheet as of March 31, 1998
(unaudited).............................................. 17
Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1997 (unaudited)...................... 18
Pro Forma Combined Statement of Operations for the Three
Months Ended March 31, 1998 (unaudited).................. 19
Notes to Unaudited Pro Forma Combined Financial Statements... 20
16
<PAGE> 17
AMERICAN RESIDENTIAL SERVICES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED MARCH 31, 1998 BALANCE SHEETS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
ARS AND SUBSEQUENT
SUBSIDIARIES FREESTATE ACQUISITIONS ADJUSTMENTS AS ADJUSTED
------------ --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 3,001 $ 237 $ 468 $ (141)(a) $ 3,565
Accounts receivable --
Trade, net of allowance ............................... 47,266 6,638 486 -- 54,390
Other.................................................. 9,450 -- 1 -- 9,451
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 6,119 449 105 -- 6,673
Inventories.............................................. 16,326 -- 131 -- 16,457
Prepaid expenses and other current assets................ 3,832 50 -- -- 3,882
Net assets held for resale............................... 771 -- -- -- 771
-------- ------ ------ ------- --------
Total current assets.............................. 86,765 7,374 1,191 (141) 95,189
PROPERTY AND EQUIPMENT, net.............................. 34,347 826 113 -- 35,286
GOODWILL, net............................................ 207,728 -- -- 9,703 (a) 217,431
OTHER NONCURRENT ASSETS.................................. 5,921 28 -- -- 5,949
-------- ------ ------ ------- --------
Total assets...................................... $334,761 $8,228 $1,304 $ 9,562 $353,855
======== ====== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt..................... $ 1,363 $ 131 $ 128 $ -- $ 1,622
Accounts payable and accrued liabilities................. 46,757 1,866 216 -- 48,839
Unearned revenue on service and warranty contracts....... 6,082 -- 21 -- 6,103
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 2,417 816 82 -- 3,315
------- ------ ------ ------- -------
Total current liabilities......................... 56,619 2,813 447 -- 59,879
LONG-TERM DEBT, net of current maturities.................. 142,822 266 12 9,938 (a) 153,038
UNEARNED REVENUE ON SERVICE AND WARRANTY
CONTRACTS................................................ 474 -- -- -- 474
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................................. 15 1 1 (1)(a) 16
Additional paid-in capital............................... 153,171 24 -- (24)(a) 158,788
5,617 (a)
Retained deficit......................................... (18,340) 5,124 844 (5,968)(a) (18,340)
-------- ------ ------ ------- -------
Total stockholders' equity........................ 134,846 5,149 845 (376) 140,464
-------- ------ ------ ------- --------
Total liabilities and stockholders' equity...... $334,761 $8,228 $1,304 $ 9,562 $353,855
======== ====== ====== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
17
<PAGE> 18
AMERICAN RESIDENTIAL SERVICES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
ARS AND SUBSEQUENT
SUBSIDIARIES FREESTATE ACQUISITIONS ADJUSTMENTS AS ADJUSTED
------------ --------- ------------ ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES....................................... $ 382,518 $ 24,712 $ 89,734 $ -- $ 496,964
COST OF SERVICES............................... 276,225 19,151 56,712 -- 352,088
--------- -------- -------- -------- ---------
Gross profit................................. 106,293 5,561 33,022 -- 144,876
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 81,405 2,945 28,908 (2,769)(b) 111,009
(629)(c)
1,149 (d)
SPECIAL CHARGE AND OTHER COSTS ................ 24,194 -- -- -- 24,194
--------- -------- -------- -------- ---------
INCOME FROM OPERATIONS......................... 694 2,616 4,114 2,249 9,673
OTHER INCOME (EXPENSE):
Interest expense............................. (7,469) (20) (326) (2,512)(e) (10,327)
Interest income.............................. 227 7 62 -- 296
Other........................................ 846 1 117 -- 964
--------- -------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.............. (5,702) 2,604 3,967 (263) 606
PROVISION (BENEFIT) FOR INCOME TAXES........... (1,001) 33 -- 1,246 (f) 278
--------- -------- -------- -------- ---------
NET INCOME (LOSS).............................. $ (4,701) $ 2,571 $ 3,967 $ (1,509) $ 328
========= ======== ======== ======== =========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING ................................. 14,330 1,494 (g) 15,824
========= ======== =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ... $ (0.33) $ 0.02
========= =========
See accompanying notes to unaudited pro forma combined financial statements.
</TABLE>
18
<PAGE> 19
AMERICAN RESIDENTIAL SERVICES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
ARS AND SUBSEQUENT AS
SUBSIDIARIES FREESTATE ACQUISITIONS ADJUSTMENTS ADJUSTED
----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ 101,080 $ 7,427 $ 1,919 $ -- $ 110,426
COST OF SERVICES................................. 76,028 5,719 1,109 -- 82,856
---------- ---------- ---------- ---------- ----------
Gross profit................................ 25,052 1,708 810 -- 27,570
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 22,711 670 650 (80)(b) 23,996
45 (d)
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS........................... 2,341 1,038 160 35 3,574
OTHER INCOME (EXPENSES):
Interest expense............................ (2,750) (6) (8) (167)(e) (2,931)
Interest income............................. 43 3 -- -- 46
Other, net.................................. 536 -- (1) -- 535
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES....................... 170 1,035 151 (132) 1,224
PROVISION FOR INCOME TAXES....................... 75 -- -- 488 (f) 563
---------- ---------- ---------- ---------- ----------
NET INCOME....................................... $ 95 $ 1,035 $ 151 $ (620) $ 661
========== ========== ========== ========== ==========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING........
15,363 515 (g) 15,878
========== ========== ==========
BASIC EARNINGS PER SHARE......................... $ 0.01 $ 0.04
========== ==========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING......
15,440 515 (g) 15,955
========== ========== ==========
DILUTED EARNINGS PER SHARE....................... $ 0.01 $ 0.04
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
19
<PAGE> 20
AMERICAN RESIDENTIAL SERVICES, INC.
Notes to Pro Forma Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet presented herein consists of
the unaudited historical consolidated balance sheet of American Residential
Services, Inc. ("ARS" and, collectively with its subsidiaries, the "Company")
as of March 31, 1998 as set forth in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (the "Form 10-Q"), combined with (i)
the unaudited combined balance sheet of Freestate Electrical Group
("Freestate") as of March 31, 1998 presented herein and (ii) the unaudited
combined balance sheet of two additional businesses acquired by the Company
during the period from April 1, 1998 to June 30, 1998. For purposes of the
unaudited pro forma combined balance sheet as of March 31, 1998 presented
herein, the term "Subsequent Acquisitions" includes those acquisitions
described in clause (ii) of the preceding sentence.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1997 presented herein consists of the audited historical
consolidated statement of operations of the Company as set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
combined with (i) the unaudited combined results of operations from January 1,
1997 to the respective effective acquisition dates of 44 businesses acquired by
the Company under the purchase method of accounting during 1997, (ii) the
unaudited combined results of operations from January 1, 1997 to the respective
effective acquisition dates of eight businesses acquired by the Company under
the pooling-of-interests method of accounting, but for which the historical
financial statements of the Company were not restated, as the results of
operations of those acquisitions were not deemed by the Company to be
significant to its prior historical periods, (iii) the unaudited combined
results of operations for the year ended December 31, 1997 for four additional
businesses acquired by the Company under the purchase method of accounting
during the first six months of 1998, (iv) the unaudited results of operations
for the year ended December 31, 1997 of one business acquired by the Company
under the pooling-of-interests method of accounting during the first six months
of 1998, but for which the historical financial statements of the Company were
not restated, as the results of operations of that acquisition are not deemed
by the Company to be significant to its prior historical periods (the "1998
Non-Restated Pooling"), and (v) the audited combined results of operations for
the year ended December 31, 1997 for Freestate, which are reflected in the
audited combined statement of income for the year ended December 31, 1997
presented herein. For purposes of the unaudited pro forma combined statement
of operations for the year ended December 31, 1997 presented herein, the term
"Subsequent Acquisitions" includes those acquisitions described in clauses (i),
(ii), (iii) and (iv) of the preceding sentence.
The unaudited pro forma combined statement of operations for the three
months ended March 31, 1998 presented herein consists of the unaudited
historical consolidated statement of operations of the Company for the three
months ended March 31, 1998, as set forth in the Form 10-Q, combined with (i)
the unaudited combined results of operations from January 1, 1998 to the
respective effective acquisition dates of two businesses acquired by the Company
under the purchase method of accounting during first quarter of 1998, (ii) the
unaudited combined results of operations from January 1, 1998 to the effective
acquisition date of the 1998 Non-Restated Pooling, (iii) the unaudited combined
results of operations for the three months ended March 31, 1998 for two
additional businesses acquired by the Company under the purchase method of
accounting during the second quarter of 1998, and (iv) the unaudited combined
results of operations for the three months ended March 31, 1998 for Freestate,
which are reflected in the unaudited combined statement of income for the three
months ended March 31, 1998 presented herein. For purposes of the unaudited pro
forma combined statement of operations for the three months ended March 31, 1998
presented herein, the term "Subsequent Acquisitions" includes those acquisitions
described in clauses (i), (ii) and (iii) of the preceding sentence.
The pro forma combined financial statements presented herein have been
prepared based on certain assumptions and include adjustments as detailed in
Note 2. ARS has not completed all the evaluations necessary for the final
purchase price allocations related to certain of the acquired businesses;
accordingly, actual adjustments that reflect final evaluations of the purchased
assets and assumed liabilities may differ from the pro forma adjustments
reflected herein.
The pro forma results included herein are not necessarily indicative of
actual results that might have occurred had the operations and management teams
of ARS and the acquired businesses been combined during all periods presented.
20
<PAGE> 21
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro forma adjustments to the accompanying pro forma combined balance
sheet as of March 31, 1998 are as follows:
(a) To record the net disbursement of $0.1 million in cash
consideration paid for businesses acquired subsequent to March 31,
1998, the borrowing of $8.3 million to fund the cash consideration
paid, the issuance by ARS of $1.6 million aggregate principal amount of
Convertible Senior Subordinated Notes, Series A and 496,470 shares of
common stock related to the acquisition of the businesses acquired
subsequent to March 31, 1998.
The pro forma adjustments to the accompanying pro forma combined
statements of operation are as follows:
(b) To adjust compensation to the levels the owners of the acquired
businesses have agreed to receive subsequent to the acquisition of the
acquired businesses.
(c) To adjust rent expense on certain facilities leased from
previous owners to amounts which such owners agreed to following the
acquisition of certain of the businesses described above and adjusts
for other nonrecurring expenses.
(d) To adjust goodwill amortization expense using a 40-year life.
(e) To record interest expense of funds borrowed to acquire the
businesses acquired.
(f) To record the incremental provision for federal and state
income taxes relating to compensation differential, S-corporation
income and other pro forma adjustments.
(g) To adjust the weighted average shares outstanding to reflect
the pro forma effect of the shares issued for the subsequent
acquisitions during the preacquisition period.
21
<PAGE> 22
(c) EXHIBITS
*2.1 Agreement and Plan of Reorganization dated as of May 12, 1998 by
and among American Residential Services, Inc., Freestate
Electrical Acquisition, Inc., Freestate Electrical Service
Company, Inc. and the Stockholder named therein.
*2.2 Agreement and Plan of Reorganization dated as of May 12, 1998 by
and among American Residential Services, Inc., Freestate
Acquisition, Inc., Freestate Electrical Construction Company and
the Stockholder named therein.
*2.3 Standard Provisions for Business Combinations.
23.1 Consent of Watkins, Meegan, Drury & Company L.L.C.
*99 Press release issued May 13, 1998.
- -------------
* Filed previously.
22
<PAGE> 23
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 hereunto duly authorized.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ HARRY O. NICODEMUS, IV
-----------------------------------------
Harry O. Nicodemus, IV
Senior Vice President, Chief Financial
Officer and Chief Accounting Officer
Date: July 24, 1998
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
23.1 Consent of Watkins, Meegan, Drury & Company, L.L.C.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 3, 1998 (and to all references to our firm) included in or
made a part of this Current Report on Form 8-K dated May 12, 1998 of American
Residential Services, Inc. (the "Company") and to the incorporation by reference
of such report (and to all references to our firm) in the Company's registration
statements on Form S-4 (No. 333-31815), Form S-3 (No. 333-27785) and Form S-8
(Nos. 333-13299, 333-33479 and 333-44913).
WATKINS, MEEGAN, DRURY & COMPANY, L.L.C.
Bethesda, Maryland
July 3, 1998
