<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
LOOMIS, FARGO & CO.
(Exact name of registrant as specified in its charter)
Delaware 333-24689 76-0521092
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation or Organization) File Number) Identification No.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
File No. 333-24689-01 File No. 333-24689-02 File No. 333-24689-03 File No. 333-24689-04
LFC Holding Corporation Loomis, Fargo & Co. LFC Armored Loomis, Fargo & Co.
(Exact Name of Registrant (Exact Name of Registrant of Texas Inc. of Puerto Rico
as Specified in its Charter) as Specified in its Charter) (Exact Name of Registrant (Exact Name of Registrant
as specified in its Charter) as Specified in its Charter)
Delaware Texas Texas Tennessee
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization) incorporation or organization)
75-2371825 75-0117200 58-1884701 66-0215016
(I.R.S. Employer (I.R.S Employer (I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.) Identification No.) Identification No.)
</TABLE>
2500 CityWest Blvd., Suite 900
Houston, Texas 77042
(Address of principal executive offices) (ZIP Code)
Registrants' telephone number, including area code: (713) 435-6700
Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [x]
As of August 14, 1997, 10,000,000 shares of the common stock, $0.01 par
value, of Loomis, Fargo & Co., 2,652,705 shares of the class A common stock,
$0.01 par value, of LFC Holding Corporation, 1,000 shares of the common stock,
$10.00 par value, of Loomis, Fargo & Co. (a Texas corporation), 100 shares of
common stock, $1.00 par value, of LFC Armored of Texas Inc., and 250 shares of
common stock, no par value, of Loomis, Fargo & Co. of Puerto Rico, were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOOMIS, FARGO & CO.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($000S)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, including restricted
cash and cash equivalents of $1,536 at
December 31, 1996 $ 2,469 $ 4,530
Accounts receivable, net 10,939 41,126
Prepaid expenses and other assets 2,253 10,619
-------- --------
Total current assets 15,661 56,275
Property and equipment,net 16,816 45,596
Intangible assets 7,851 109,929
Other assets 2,718 5,098
-------- --------
Total assets $ 43,046 $216,898
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 5,439 $ 14,451
Accrued expenses and other current liabilities 11,759 34,549
Short-term debt 1,022 -
Current portion, long-term debt 1,500 -
Current portion, capital lease obligations 496 771
-------- --------
Total current liabilities 20,216 49,771
Long-term liabilities:
Long-term debt 20,950 165,320
Capital lease obligations 966 745
Accrued management fees 1,575 -
Other long-term liabilities 3,838 3,506
-------- --------
Total long-term liabilities 27,329 169,571
Redeemable preferred stock 3,500 -
Redeemable common stock warrants 355 -
Common stockholders' deficit:
Class A common stock 15 100
Class B common stock - -
Common stock - -
Common stock warrants 304 -
Additional paid-in capital 1,485 24,755
Accumulated deficit (10,158) (27,299)
-------- --------
Total common stockholders' deficit (8,354) (2,444)
-------- --------
Total liabilities and common stockholders' deficit $ 43,046 $216,898
======== ========
</TABLE>
See accompanying notes.
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
REVENUES $61,649 $174,738
COST OF OPERATIONS:
Payroll and related expense 41,945 105,477
Vehicle expense 7,026 23,054
Facilities expense 2,563 7,334
Other operating expenses 8,739 32,046
Expenses relating to the business combination - 2,372
Gains associated with benefit plans (954) -
------- --------
59,319 170,283
------- --------
OPERATING INCOME 2,330 4,455
INTEREST EXPENSE 1,451 7,287
------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 879 (2,832)
INCOME TAXES 53 106
------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 826 (2,938)
EXTRAORDINARY ITEM (NET OF PROVISION FOR INCOME
TAXES OF $1 ) - (124)
------- --------
NET INCOME (LOSS) $ 826 $ (3,062)
======= ========
NET INCOME (LOSS) PER SHARE:
BEFORE EXTRAORDINARY ITEM $ 0.16 $ (0.32)
EXTRAORDINARY ITEM - (0.01)
------- --------
NET INCOME (LOSS) $ 0.16 $ (0.33)
======= ========
</TABLE>
See accompanying notes.
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000S)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
REVENUES $31,420 $94,846
COST OF OPERATIONS:
Payroll and related expense 22,316 57,845
Vehicle expense 3,461 12,631
Facilities expense 1,275 4,048
Other operating expenses 3,809 14,522
Expenses relating to the business combination - 1,233
Gains associated with benefit plans (954) -
------- -------
29,907 90,279
------- -------
OPERATING INCOME 1,513 4,567
INTEREST EXPENSE 717 4,209
------- -------
INCOME BEFORE INCOME TAXES 796 358
INCOME TAXES 53 81
------- -------
NET INCOME $ 743 $ 277
======= =======
NET INCOME PER SHARE $ 0.15 $ 0.03
======= =======
</TABLE>
See accompanying notes.
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000S)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 826 $ (3,062)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 2,415 8,150
Amortization of financing costs - 447
Accretion of discount on NOL note - 228
Loss on disposal of property and equipment 10 -
Change in restricted cash 18 1,536
Provision for allowance for doubtful accounts - 1,459
Accrued management fees 174 23
Postretirement benefits other than pensions (954) -
Changes in current assets and liabilities (net
of the effects of the acquisition):
Trade accounts receivable (853) (6,101)
Prepaid expenses (1,838) (5,766)
Accounts payable 2,174 (3,183)
Accrued expenses 1,354 3,308
------- ---------
Net cash provided by (used in) operating activities 3,326 (2,961)
INVESTING ACTIVITIES
Purchase of Wells Fargo Armored - (105,565)
Capital expenditures (1,391) (3,568)
Proceeds from sale of property and equipment 9 -
------- ---------
Net cash used in investing activities (1,382) (109,133)
FINANCING ACTIVITIES
Borrowings of debt 1,589 74,750
Issuance of senior subordinated notes - 85,000
Repayments of debt and capital lease obligations (1,856) (24,961)
Payment of accrued management fees - (1,598)
Financing costs related to debt (80) (5,359)
Redemption of preferred stock - (3,500)
Exercise of common stock warrants - 96
Distributions to stockholders - (8,737)
------- ---------
Net cash provided by (used in) financing activities (347) 115,691
------- ---------
Net increase in cash and cash equivalents 1,597 3,597
Cash and cash equivalents at beginning of period * 274 933
------- ---------
Cash and cash equivalents at end of period * $ 1,871 $ 4,530
======= =========
- -------
* Excludes restricted cash and cash equivalents of $1,523, $1,505 and $1,536 at
December 31, 1995, June 30, 1996 and December 31, 1996, respectively.
</TABLE>
See accompanying notes.
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
($000S)
<TABLE>
<CAPTION>
COMMON COMMON COMMON ADDITIONAL
STOCK STOCK STOCK COMMON PAID-IN ACCUMULATED
CLASS A CLASS B WARRANTS STOCK CAPITAL DEFICIT
------- ------- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 15 $ - $ 304 $ - $ 1,485 $(10,158)
Exercise of common stock warrants 9 3 (304) 743
Exchange common stock of Loomis
Holding Corporation for common
stock of Loomis, Fargo & Co. (24) (3) 51 (24)
Distribution to stockholders (14,079)
Issuance of common stock as part of
the purchase consideration for Wells
Fargo Armored 49 22,551
Net loss (3,062)
------- ------- -------- ---- ------- --------
Balances at June 30, 1997 $ - $ - $ - $100 $24,755 $(27,299)
======= ======= ======== ==== ======= ========
</TABLE>
See accompanying notes.
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1. BASIS OF PRESENTATION
- -------------------------------
Loomis, Fargo & Co. (together with its subsidiaries, the Company), a Delaware
corporation, was incorporated in August 1996. On January 24, 1997, Loomis
Holding Corporation (a Delaware corporation) completed its reorganization into
Loomis, Fargo & Co. and the acquisition of certain assets and the assumption of
certain liabilities of Wells Fargo Armored Service Corporation (Wells Fargo
Armored), a wholly owned subsidiary of Borg-Warner Security Corporation. The
reorganization involved the exchange of all outstanding common stock of Loomis
Holding Corporation for 5,100,000 shares of the common stock of the Company,
which concurrently were transferred to a business trust owned by the former
shareholders of Loomis Holding Corporation (the Business Trust.) Earnings per
share have been restated to reflect retroactively the effects of the
reorganization.
The Company owns LFC Holding Corporation (formerly Loomis Holding Corporation),
which in turn owns Loomis, Fargo & Co., a Texas corporation (formerly Loomis
Armored Inc. which was originally incorporated in 1928). Loomis, Fargo & Co.
(the Texas corporation) has two subsidiaries, LFC Armored of Texas Inc., a Texas
corporation, and Loomis, Fargo & Co. of Puerto Rico, a Tennessee corporation.
The common stock of these two subsidiaries was contributed to the Company by
Wells Fargo Armored as part of the assets transferred by Wells Fargo Armored in
the business combination.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited consolidated
financial statements of Loomis Holding Corporation and Wells Fargo Armored as of
December 31, 1996 included in Amendment No. 2 to the Form S-1 Registration
Statement filed with the Securities and Exchange Commission on June 18, 1997. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Certain prior period amounts have been reclassified to conform with the 1997
presentation.
<PAGE>
NOTE 2. DEBT
- --------------
Long-term debt consists of the following at June 30, 1997:
Bank credit facility $ 74,750
10% senior subordinated notes 85,000
Non-interest bearing NOL note 5,570
--------
$165,320
========
Concurrent with the purchase of the assets of Wells Fargo Armored on January 24,
1997, the exchange of the common stock of Loomis Holding Corporation and the
financing transactions discussed below, substantially all of the then-existing
Loomis Holding Corporation indebtedness (other than capital leases) was repaid.
Deferred financing costs associated with the retired debt were written off as an
extraordinary item in the accompanying consolidated statements of operations.
The Company also entered into a five-year step-down revolving bank credit
facility agreement which provides for aggregate initial commitments of up to
$115 million. Aggregate commitments are reduced by $2.5 million per quarter in
1998, by an additional $3.75 million per quarter in 1999, by an additional
$4.375 million per quarter in 2000 and for the first two quarters of 2001, and
$31.875 million per quarter for the final two quarters of the agreement. The
interest rate of the credit facility is a variable rate based on either LIBOR or
a base rate tied to the bank's prime rate. At June 30, 1997, the interest rates
on the Company's borrowings were 9.75% on base-rate borrowings of $3.75 million,
and 8.02-8.09% on LIBOR borrowings totaling $71 million. Interest on base-rate
borrowings is payable on a quarterly basis. Interest on LIBOR borrowings is due
at the end of the repayment term, ranging from 30 to 90 days. Borrowings under
the credit facility are secured by substantially all of the assets of the
Company and its subsidiaries. The agreement contains restrictive covenants
regarding the levels of net worth and working capital, the issuance of
additional debt, the compensation of officers, the payment of dividends, capital
expenditures, new capital leases and maintenance of certain financial ratios.
At June 30, 1997 there were no retained earnings available for the payment of
dividends.
The 10% senior subordinated notes were issued on January 24, 1997 in a private
placement, and were subsequently exchanged and registered with the Securities
and Exchange Commission. The notes mature in January 2004, and provide for
semiannual interest payments of $4.25 million beginning in July 1997. The notes
are subordinated to borrowings under the credit facility and contain certain
restrictive covenants.
On January 24, 1997, the Company issued a $6,000,000 NOL note to the Business
Trust. The NOL note does not accrue interest and has a term of fifteen years,
subject to mandatory prepayments as, and to the extent that, the Company
realizes a tax benefit attributable to the utilization of net operating losses
of Loomis Holding Corporation available at the date of the reorganization and
acquisition of Wells Fargo Armored. The NOL note was discounted at 10% over the
Company's expected period of repayment of the principal. The Company expects
that its utilization of net operating losses will result in the NOL note being
repaid in full in April 1998.
Interest of $1,586,600, and $2,154,900, respectively, was paid during the six
months ended June 30, 1996 and 1997.
<PAGE>
NOTE 3. LEASES
- ----------------
At June 30, 1997, the scheduled future minimum lease payments under capital
leases are as follows for years ending June 30 (in thousands):
1998 $ 872
1999 544
2000 226
2001 48
2002 10
------
Total minimum lease payments 1,700
Less amount representing interest 184
------
Present value of capital lease obligations 1,516
Less current portion of capital lease
obligations 771
------
Long-term capital lease obligations $ 745
======
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2006. The Company also
subleases certain office space under a noncancelable operating lease expiring in
1997.
The following is a schedule of future minimum lease payments and future minimum
sublease income under noncancelable operating leases with terms exceeding one
year for years ending June 30:
Lease Sublease Net
Payments Income Obligation
-------- --------- ----------
(In thousands)
1998 $12,294 $ 4 $12,290
1999 9,246 - 9,246
2000 6,394 - 6,394
2001 4,213 - 4,213
2002 2,203 - 2,203
Thereafter 1,426 - 1,426
-------- --------- ----------
$35,776 $ 4 $35,772
======== ========= ==========
Rent expense was $1,585,000, and $7,552,000, respectively, for the six months
ended June 30, 1996 and 1997, and $751,000 and $4,187,000, respectively, for the
three months ended June 30, 1996 and 1997.
The Company has certain operating leases which contain (i) rent escalation
clauses, some of which are fixed annual increases with others tied to the
Consumer Price Index and (ii) the passthrough of operating expenses and property
taxes. In addition, certain leases contain renewal options.
<PAGE>
NOTE 4. PURCHASE OF WELLS FARGO ARMORED SERVICE CORPORATION
- -------------------------------------------------------------
On January 24, 1997 the Company purchased certain assets and assumed certain
liabilities of Wells Fargo Armored, a wholly-owned subsidiary of Borg-Warner
Security Corporation. (See Note 1.) The acquisition was accounted for using
the purchase method of accounting. The aggregate purchase price for the assets
acquired and the liabilities assumed was approximately $128,165,000, which
included cash payments of $105,565,000 and the issuance of 4,900,000 shares of
the common stock of the Company. The purchase price has been preliminarily
allocated to the net assets acquired and liabilities assumed. The purchase
price allocation will be finalized when all fair market value appraisals and
reviews of acquired contracts are completed and severance, relocation and
leasehold abandonment costs are finalized.
The excess of the purchase price over the net tangible assets acquired,
approximately $103,725,000, has been allocated primarily to identifiable
intangible assets (principally $60,000,000 for customer lists, which are being
amortized over 25 years, pending completion of a third party valuation which may
result in an adjustment of the amortization period). The remaining amount is
being amortized over 40 years. The June 30, 1997 financial statements reflect
this allocation, which represents a change from the March 31, 1997 financial
statements, as the Company had not yet identified significant identifiable
intangible assets at that date. Additional amortization expense of
approximately $170,000 related to the first quarter is recorded in the second
quarter to reflect this change.
The balance sheet reflects adjustments to record acquired assets and assumed
liabilities at their fair market values and to conform certain accounting
policies of Wells Fargo Armored to the policies of the Company. Accruals
totalling approximately $5,466,000 have been recorded for costs associated with
consolidating headquarters and branch facilities, related relocation costs and
severance payments, and obligations under noncancelable leases for space,
vehicles and equipment that extend beyond the expected periods of use by the
Company. At June 30, 1997, charges of $1,053,000 have been taken against these
accruals. The Company anticipates charges of $2,000,000 against these purchase
accounting accruals in the next twelve months, all of which will represent cash
outflows. Substantially all reorganization and consolidation activities are
expected to be completed by December 31, 1997.
In connection with the allocation of purchase price to assets and liabilities
acquired from Wells Fargo Armored, the Company reviewed all of the acquired
contracts to determine whether any contracts generated revenues that were less
than the direct variable costs associated with servicing the contract (e.g.,
payroll and related expense, vehicle expense). To the extent that the Company
is required to provide services under a contract where direct variable costs
exceed revenues (a "loss contract"), the Company has assumed a liability that
must be recorded at fair value in connection with the purchase price allocation.
The aggregate liability for loss contracts assumed from Wells Fargo Armored
currently is estimated to be $4,520,000, against which operating losses on
acquired loss contracts will be charged, primarily through the third quarter of
1997 when substantially all such contracts will have expired. This estimate is
based on analyses performed to date. However, the Company continues to review
acquired contracts to refine this estimate and the amount of this liability
could be revised as the Company completes its analysis during the third quarter
of 1997. Because the Company had not reviewed a sufficient number of contracts
to formulate an estimate of this liability until the second quarter of 1997, the
liability was not reflected in the March 31, 1997 balance sheet. Accordingly,
charges against the reserve for losses of $3,800,000 for the period from January
24, 1997 through June 30, 1997 were recorded in the second quarter of 1997.
Concurrent with the acquisition, the Company repaid substantially all of the
long-term obligations of Loomis Holding Corporation, replaced its existing lines
of credit with a $115,000,000 revolving bank credit facility and issued
$85,000,000 of 10% unsecured subordinated notes due in 2004 in a private
placement. (See Note 2.)
<PAGE>
NOTE 4. PURCHASE OF WELLS FARGO ARMORED SERVICE CORPORATION (CONTINUED)
- --------------------------------------------------------------------------
The consolidated statements of operations and cash flows presented for the six
months ended June 30, 1996 are those of Loomis Holding Corporation, predecessor
to the Company. The statements of operations and cash flows presented for the
six months ended June 30, 1997 include the transactions of Loomis Holding
Corporation for the twenty-three days before the business combination on January
24, 1997, and those of the Company for the remainder of the six-month period.
The pro forma unaudited results of operations for the three and six month
periods ended June 30, 1996 and June 30, 1997, assuming consummation of the
purchase and the restructuring of the Company's debt and capital structure as of
January 1, 1996, are as follows (in thousands, except per share data):
1996 1997
------------------ -------------------
Second Year-to- Second Year-to-
Quarter Date Quarter Date
------- -------- ------- --------
Revenues $92,153 $181,386 $94,846 $190,067
======= ======== ======= ========
Net income (loss) $ 973 $ 793 $ 277 $ (3,159)
======= ======== ======= ========
Net income (loss) per
common share $ 0.10 $ 0.08 $ 0.03 $ (0.32)
======= ======== ======= ========
The net income (loss) presented above includes pro forma adjustments to (i)
interest expense to reflect the Company's revised capital structure after the
business combination (ii) depreciation and (iii) amortization of goodwill to
reflect the effects of purchase accounting.
NOTE 5. EMPLOYEE COMPENSATION PLANS
- -------------------------------------
Before the reorganization of Loomis Holding Corporation into the Company,
certain key employees of Loomis Holding Corporation were compensated under a
Management Equity Growth and Appreciation Plan (the MEGA Plan), under which
Loomis Holding Corporation issued participation units representing unfunded,
unsecured, potential rights to receive deferred compensation. The units vested
over a five-year schedule and required the occurrence of a triggering event (as
defined) before they became exercisable.
Upon the reorganization of the Company and the acquisition of Wells Fargo
Armored, the MEGA Plan was terminated and all of its units canceled. The Loomis,
Fargo & Co. Unitholders Option Plan (the Option Plan) was established, under
which options to purchase shares of the Company's common stock were issued to
the holders of units under the MEGA Plan that were substantially equivalent to
the canceled units. Options under the Option Plan are subject to vesting
requirements and other limitations that are substantially similar to those that
existed with respect to the units under the MEGA Plan. The Option Plan also
requires a triggering event before the options may be exercised. A triggering
event is the first to occur of (i) any sale or disposition of more than
1,250,000 shares of common stock of the Company by the majority shareholder to a
non-affiliate, (ii) any sale or disposition of substantially all of the assets
of the Company to a non-affiliate, (iii) a merger of the Company with or into a
non-affiliated entity, or (iv) a public offering or series of offerings
producing aggregate gross proceeds of at least $100 million.
As of June 30, 1997, there are 623,945 options outstanding under the Option
Plan, 478,804 of which are vested. These shares are exercisable at
approximately $1.96 per share.
<PAGE>
NOTE 6. COMMON STOCK
- ----------------------
The capital structure of the Company changed with the reorganization of Loomis
Holding Corporation into Loomis, Fargo & Co. and the acquisition of Wells Fargo
Armored on January 24, 1997. The 3,500,000 outstanding shares of $.01 par value
Loomis Holding Corporation Series 1 Preferred Stock were redeemed out of the
proceeds of the new financing arrangements. The 2,383,911 outstanding shares of
Class A Loomis Holding Corporation common stock and the 268,794 outstanding
shares of Class B Loomis Holding Corporation common stock (both having a par
value of $.01 per share) were exchanged for 5,100,000 shares of common stock of
Loomis, Fargo & Co., which were concurrently transferred to a Business Trust
owned by the former stockholders of Loomis Holding Corporation. (See Note 1.)
Under certain circumstances, shares held by the Business Trust may be provided
subsequent to the exercise of certain stock options. The remaining 4,900,000
outstanding shares of common stock of the Company were issued as part of the
purchase price consideration.
The common stock of the Company consists of one class and has a $.01 par value.
Twenty million shares are authorized, ten million of which are issued and
outstanding as described in the preceding paragraph. Ten million shares of $.01
preferred stock are authorized, but none have been issued at June 30, 1997.
In 1991 and 1992, warrants were issued to certain lenders and shareholders of
Loomis Holding Corporation to purchase an aggregate of 877,646 shares of
Loomis's Class A Common Stock and 268,794 shares of Loomis's Class B Common
Stock. On January 23, 1997, all warrant holders exercised their warrants. The
shares issued upon exercise of the warrants were included in the January 24,
1997 exchange of common stock of Loomis Holding Corporation for common stock of
the Company.
Concurrent with the business combination on January 24, 1997, the non-interest
bearing NOL note described in Note 2, having a discounted value at that date of
approximately $5,342,000, and net cash consideration of approximately $8,737,000
were distributed for the benefit of the shareholders of Loomis Holding
Corporation.
NOTE 7. NET INCOME (LOSS) PER SHARE
- -------------------------------------
Net income (loss) per share amounts are computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
and common stock equivalents outstanding during the period. Common stock
equivalents include stock options and warrants and are computed under the
treasury stock method. The numbers of shares outstanding used in the
computation of net income (loss) per share for the six months ended June 30,
1996 and 1997 were 5,092,171 and 9,376,353, respectively. For the three months
ended June 30, 1996 and 1997, shares outstanding were 5,092,171 and 10,138,374,
respectively. Earnings per share have been restated to reflect retroactively
the effects of the recapitalization described in Note 6.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. This change would not impact the net loss per
share of the six months ended June 30, 1997, because the use of stock options
was dilutive and therefore excluded from the calculation. The change in net
income per share for the three months ended June 30, 1997, and for the three and
six months ended June 30, 1996, is expected to be immaterial.
NOTE 8. INCOME TAXES
- ----------------------
The Company had a federal net operating loss carryforward of $15,100,000 at
December 31, 1996. Accordingly, the Company's income tax expense is limited to
the amount resulting from the computation of the alternative minimum tax.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A comparison of the Company's results of operations for the first six months
of 1997 with Loomis Holding Corporation's results of operations for the first
six months of 1996 is necessarily focused on the significant difference in the
size of the Company before and after the acquisition of certain assets and
liabilities of Wells Fargo Armored. The audited financial statements of the
separate companies as of December 31, 1996 (which were included in Amendment No.
2 to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on June 18, 1997) reflect annual 1996 revenues of Wells
Fargo Armored almost twice as large as those of Loomis Holding Corporation,
property and equipment over twice as large, and net assets three times as large.
While this increase in the Company's size offers potential for future growth and
profitability, the business combination tends to dominate any financial
comparison of periods before and after the combination. Results of operations
and related cash flows for the first six months of 1997 include 23 days of
Loomis Holding Corporation alone before the combination, and 158 days of
combined operations beginning with the January 24, 1997 closing date. For a
condensed comparison of second quarter and year-to-date operations of 1996 and
1997 on a pro forma basis, as if the companies had been combined for the
entirety of the two periods, see Note 4 to the financial statements.
Certain of the matters discussed in this discussion and analysis may
constitute forward-looking statements for purposes of the Securities Exchange
Act of 1934 and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Results of Operations
The following table sets forth Loomis' results of operations expressed as a
percentage of revenue.
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
---------------- ------------------
INCOME STATEMENT DATA: 1996 1997 1996 1997
-------- ------ --------- -------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations:
Payroll and related expense 68.0 60.4 71.0 61.0
Vehicle expense 11.4 13.2 11.0 13.3
Facilities expense 4.2 4.2 4.1 4.3
Other operating expenses 14.2 18.3 12.1 15.3
Expenses relating to the
business combination - 1.4 - 1.3
Gains associated with benefit
plans (1.6) - (3.0) -
----- ----- ----- -----
Operating income 3.8 2.5 4.8 4.8
Interest expense 2.4 4.1 2.3 4.4
----- ----- ----- -----
Income (loss) before income
taxes and extraordinary item 1.4 (1.6) 2.5 0.4
Income taxes 0.1 0.1 0.1 0.1
----- ----- ----- -----
Income (loss) before
extraordinary item 1.3 (1.7) 2.4 0.3
Extraordinary item (net of
provision for income taxes) - (0.1) - -
----- ----- ----- -----
Net income (loss) 1.3% (1.8)% 2.4% 0.3%
===== ===== ===== =====
<PAGE>
Six months ended June 30, 1996 compared with six months ended June 30, 1997
Revenues. Revenues increased from $61.6 million for the six months ended
June 30, 1996 to $174.7 million for the six months ended June 30, 1997, an
increase of $113.1 million or 183.6%, of which $105.7 million is due to the
acquisition of the assets of Wells Fargo Armored. Excluding the increase from
the acquisition, revenues increased $7.4 million or 12.0% over the six months
ended June 30, 1996. The primary reason for this increase is due to the growth
in the ATM market as discussed below. The following table analyzes revenues by
type of service.
SIX MONTHS ENDED
JUNE 30
----------------
1996 1997 CHANGE PERCENT
-------- ------ ------ -------
(DOLLARS IN MILLIONS)
Traditional armored transport
services $48.0 $103.4 $ 55.4 115.4%
ATM services 8.5 51.0 42.5 500.0%
Cash vault and related services 5.1 20.3 15.2 298.0%
-------- ------ -------
$61.6 $174.7 $113.1 183.6%
======== ====== =======
Although the business combination caused all of the revenue categories to
increase, the relative percentages of the three types of services changed
significantly. In the six months ended June 30, 1996, traditional armored
transport services accounted for 78% of total revenues, with ATM and cash vault
and related services providing 14% and 8%, respectively. In the six months
ended June 30, 1997, traditional armored transport services provided 59% of
total revenues, ATM services provided 29% and cash vault and related services
12%.
The significant increase in ATM services revenue reflects both Loomis
Holding Corporation's strategic decision to develop this market segment and the
strong presence of Wells Fargo Armored in the ATM services market. ATM
services have continued to expand dramatically with additional service
opportunities in both the number of ATM locations and the additional items
being dispensed through ATMs. The increase in ATMs served has also benefited
armored transport and cash vault revenues as customers often prefer to use one
risk management service provider. Although the Company's revenues are
generally level throughout the year, revenues vary due to the extent that
demand for money increases during the major holiday seasons.
During the latter part of the second quarter of 1997, the Company started
its conversion process of the acquired Wells Fargo Armored contracts to its
improved revenue management system that identifies those contracts that were
inappropriately priced relative to the cost of service. These costs include
changes in existing crew compliments and market employee compensation rate
adjustments as discussed below. As a result of this review, a substantial number
of contracts are being renegotiated at prices significantly higher than at the
date of acquisition. A majority of contracts will be renegotiated on a planned
schedule through the end of 1997.
Payroll and related expense. Payroll and related expense increased from
$41.9 million for the six months ended June 30, 1996 to $105.5 million for the
six months ended June 30, 1997, an increase of $63.6 million or 151.8%.
Payroll and related expense as a percent of revenue decreased from 68.0% for
the six months ended June 30, 1996 to 60.4% for the six months ended June 30,
1997. The increase in payroll and related expense was principally related to
the employee base acquired from Wells Fargo Armored of approximately $57.2
million. The remaining increase relates to growth in the employee base
due to crew compliment changes and to improved wages and fringe benefits to
remain competitive in the marketplace. The decrease of payroll and related
expense as a percentage of revenues reflects the lower wage rates of the
employee base acquired from Wells Fargo Armored.
Vehicle expense. Vehicle expense increased from $7.0 million for the six
months ended June 30, 1996 to $23.1 million for the six months ended June 30,
1997, an increase of $16.1 million, or 230.0%, of which $14.6 million was
related to the fleet acquired from Wells Fargo Armored. Vehicle expense as a
percent of revenue increased from 11.4% for the six months ended June 30, 1996
to 13.2% for the six months ended June 30, 1997.
<PAGE>
The increase as a percentage of revenues can be attributed to the higher
depreciation and lease expenses of the relatively newer fleet of Wells Fargo
Armored acquired in the business combination, and management's emphasis on
preventive maintenance programs on the acquired fleet. The number of armored
vehicles in active service increased from approximately 950 to approximately
2,800 with the business combination.
Facilities expense. Facilities expense increased from $2.6 million for the
six months ended June 30, 1996 to $7.3 million for the six months ended June
30, 1997, an increase of $4.7 million, or 180.8%. Facilities expense as a
percent of revenue remained constant at approximately 4.2% for the six months
ended June 30, 1996 and the six months ended June 30, 1997. This $4.7 million
increase is related to the increased number of operating sites, from 69 to 197
sites, and the increased division and corporate facility space requirements
associated with the purchase of Wells Fargo Armored.
Other operating expenses. Other operating expenses increased from $8.7
million for the six months ended June 30, 1996 to $32.0 million for the six
months ended June 30, 1997, an increase of $23.3 million, or 267.8%. Other
operating expenses as a percent of revenue increased from 14.2% for the six
months ended June 30, 1996 to 18.3% for the six months ended June 30, 1997.
Other operating expenses include such expenses as cargo insurance premiums, a
centralized dispatch center, and the testing, recruiting and training of
employees. Other operating costs associated with the facilities acquired from
Wells Fargo Armored were approximately $17.6 million. Additionally, operating
expense increased by $1.5 million for the amortization of intangible assets
related to the business combination. The combined cash-in-transit insurance
premiums and cargo losses totaled $1.9 million and $8.5 million for the six
months ended June 30, 1996 and 1997, respectively, primarily due to the
significant increase in cargo under coverage and the higher rate of cargo
losses at the acquired Wells Fargo Armored facilities.
Expenses relating to the business combination. Expenses of $2.4 million
were recorded in 1997 for items relating to the purchase of Wells Fargo
Armored. Included are the costs of maintaining the former Wells Fargo Armored
corporate headquarters in Atlanta, temporary personnel and consultants required
to convert the former Wells Fargo Armored systems and branches to the Company's
policies and costs of state registrations and surveys required by the new
business entity.
Extraordinary item. An extraordinary item of $0.1 million was recorded in
the six months ended June 30, 1997, resulting from the write-off of deferred
financing costs associated with the debt retired in January 1997.
Three months ended June 30, 1996 compared with three months ended June 30,
1997
Revenues. Revenues increased from $31.4 million for the three months ended
June 30, 1996 to $94.8 million for the three months ended June 30, 1997, an
increase of $63.4 million or 201.9%, of which $59.8 million is due to the
acquisition of the assets of Wells Fargo Armored. Excluding the increase from
the acquisition, revenues increased $3.6 million or 11.5% over the three months
ended June 30, 1996. The primary reason for this increase is due to the growth
in the ATM market as discussed below. The following table analyzes revenues by
type of service.
THREE MONTHS ENDED
JUNE 30
------------------
1996 1997 CHANGE PERCENT
-------- -------- ------ -------
(DOLLARS IN MILLIONS)
Traditional armored transport
services $23.8 $ 55.6 $ 31.8 133.6%
ATM services 4.9 27.7 22.8 465.3%
Cash vault and related services 2.7 11.5 8.8 325.9%
-------- ------ -------
$31.4 $ 94.8 $ 63.4 201.9%
======== ====== =======
<PAGE>
Although the business combination caused most of the increase in each
revenue category, the change in the relative percentages of the three types of
service was even more significant. In the three months ended June 30, 1996,
traditional armored transport services accounted for 76% of total revenues,
with ATM and cash vault and related services providing 16% and 8%,
respectively. In the three months ended June 30, 1997, armored services
provided 59% of total revenues, ATM provided 29%, and cash vault and related
services 12%.
The significant increase in ATM services revenue reflects both Loomis
Holding Corporation's strategic decision to develop this market segment and the
strong presence of Wells Fargo Armored in the ATM services market even before
the combination. ATM services have continued to expand dramatically with
additional service opportunities in both the number of ATM locations and the
additional items being dispensed through ATMs. The increase in ATMs served has
also benefited armored transport and cash vault revenues as customers often
prefer to use one risk management service provider.
During the latter part of the second quarter of 1997, the Company started
its conversion process of the acquired Wells Fargo Armored contracts to its
improved revenue management system that identifies those contracts that were
inappropriately priced relative to the cost of service. These costs include
changes in existing crew compliments and market employee compensation rate
adjustments as discussed below. As a result of this review, a substantial number
of contracts are being renegotiated at prices significantly higher than at the
date of acquisition. A majority of contracts will be renegotiated on a planned
schedule through the end of 1997.
Payroll and related expense. Payroll and related expense increased from
$22.3 million for the three months ended June 30, 1996 to $57.8 million for the
three months ended June 30, 1997, an increase of $35.5 million or 159.2%.
Payroll and related expense as a percent of revenue decreased from 71.0% for
the three months ended June 30, 1996 to 61.0% for the three months ended June
30, 1997. The increase in payroll and related expense was principally related
to the employee base acquired from Wells Fargo Armored of approximately $32.5
million. Additional increases for growth in the employee base for new business
and wage increases totaled approximately $3.3 million. The decrease of payroll
and related expense as a percentage of revenues reflects the lower wage rates
of the employee base acquired from Wells Fargo Armored.
Vehicle expense. Vehicle expense increased from $3.5 million for the three
months ended June 30, 1996 to $12.6 million for the three months ended June 30,
1997, an increase of $9.1 million, or 260.0%, of which $8.3 million was related
to the fleet acquired from Wells Fargo Armored. Vehicle expense as a percent
of revenue increased from 11.0% for the three months ended June 30, 1996 to
13.3% for the three months ended June 30, 1997. The increase as a percentage
of revenues can be attributed to the higher depreciation and lease expenses of
the relatively newer fleet of Wells Fargo Armored acquired in the business
combination, and management's emphasis on preventive maintenance programs on
the acquired fleet.
Facilities expense. Facilities expense increased from $1.3 million for the
three months ended June 30, 1996 to $4.0 million for the three months ended
June 30, 1997, an increase of $2.7 million, or 207.7%. Facilities expense as a
percent of revenue increased from 4.1% for the three months ended June 30, 1996
to 4.3% for the three months ended June 30, 1997. This $2.7 million increase
is related to the increased number of operating sites, from 69 to 197 sites,
and the increased division and corporate facility space requirements associated
with the purchase of Wells Fargo Armored.
Other operating expenses. Other operating expenses increased from $3.8
million for the three months ended June 30, 1996 to $14.5 million for the three
months ended June 30, 1997, an increase of $10.7 million, or 281.6%. Other
operating expenses as a percent of revenue increased from 12.1% for the three
months ended June 30, 1996 to 15.3% for the three months ended June 30, 1997.
Other operating expenses include such expenses as cargo insurance premiums and
losses, a centralized dispatch center, and the testing, recruiting and training
of employees. Other operating costs associated with the facilities acquired
from Wells Fargo Armored were approximately $9.6 million. Additionally,
operating expenses increased by $1.1 million for the amortization of
intangibles related to the business combination. The combined cash-in-transit
insurance premiums and cargo losses totaled $1.1 million and $4.9 million for
the three months ended June 30, 1996 and 1997, respectively, primarily due to
the significant increase in cargo under coverage and the higher rate of cargo
losses at the acquired Wells Fargo Armored facilities.
<PAGE>
Expenses relating to the business combination. Expenses of $1.2 million
were recorded in the second quarter of 1997 for items relating to the purchase
of Wells Fargo Armored. Included are costs of the former Wells Fargo Armored
corporate headquarters in Atlanta, temporary personnel and consultants required
to convert the former Wells Fargo Armored systems and branches to the Company's
policies and costs of state registrations and surveys required by the new
business entity.
Liquidity and capital resources
The Company's liquidity and capital resources changed significantly as a
result of the business reorganization described in Note 1 and the acquisition
of Wells Fargo Armored described in Note 4. At June 30, 1997 cash and cash
equivalents were $4.5 million. Changes in cash and cash equivalents are
described in the statements of cash flows, which are summarized below.
SIX MONTHS ENDED
JUNE 30
1997
----------------
(DOLLARS IN MILLIONS)
Net cash used in operating activities $ (3.0)
Net cash used in investing activities (109.1)
Net cash provided by financing activities 115.7
----------
Net increase in cash and cash equivalents $ 3.6
==========
Net cash used in operating activities in the six months ended June 30, 1997
was primarily due to the net loss in 1997.
In the six months ended June 30, 1997 cash used in investing activities was
primarily for the acquisition of the assets of Wells Fargo Armored.
In the six months ended June 30, 1997, cash was provided by financing
activities entered into in connection with the business combination.
Borrowings of $74.8 million were drawn against the Company's new credit
facility, and $85.0 million of senior subordinated notes were sold in a private
placement. Long-term obligations of $26.6 million were repaid, preferred stock
of $3.5 million was redeemed, $8.7 million of cash distributions were made for
the benefit of the stockholders of Loomis Holding Corporation and $5.4 million
of financing costs were paid in connection with the refinancing of the
Company's debt.
The Company's balance sheet reflected working capital of $6.5 million at
June 30, 1997. The Company is highly leveraged, with long-term liabilities
comprising 78% of total liabilities and common stockholders' deficit at June
30, 1997.
An aggressive program is under way to increase billing rates to profitable
levels on all customer contracts. Management expects profitability to be
achieved on all fixed-service contracts once the rate-increase program is
completed.
The Company's revolving bank credit facility provides initial aggregate
commitments of $115 million through December 1997. These funds can be borrowed
for unspecified periods of time at a base rate tied to the bank's prime rate,
or for set periods of time under variable rates tied to LIBOR. The facility
includes guarantees of letters of credit, of which approximately $12.3 million
were outstanding at June 30, 1997. The agreement includes a step-down of
commitments over the final four years of the facility, as described in Note 2.
Remaining commitments available under the facility at June 30, 1997 are $27.9
million.
By June 1998, total commitments under the agreement will decrease to $110
million. It is anticipated that letters of credit requirements, principally
for casualty liabilities, may increase up to approximately $24 million, leaving
$86 million in commitments. The cash-in-transit insurance currently contains
no requirements for letters of credit.
<PAGE>
The Company's management is not certain if such a requirement will be added in
the future. Management believes that the operating cash flow and this remaining
financing commitment will be more than adequate to fund future operating needs,
capital expenditures, and anticipated payment of the NOL note in April 1998. See
Note 2 to the financial statements.
Planned capital expenditures, primarily for vehicles, for the next twelve
months are $12 million, which will depend on the growth rate experienced.
Committed capital expenditures of $2.2 million include $1.5 million for
vehicles.
As discussed in Note 4 to the financial statements, the Company recorded a
liability for contracts acquired from Wells Fargo Armored that operated at a
loss ("loss contracts"). A liability of $4,520,000 was recorded in the second
quarter of 1997 based on the estimated liability as of the January 24, 1997
acquisition date. The delay in recognizing the liability was a result of the
time-consuming process of evaluating acquired contracts to determine which
contracts, if any, represented loss contracts. As the Company has not yet
completed this analysis, the recorded amount of the acquired liability may be
revised during the third quarer. $3,800,000 was charged against this liability
during the quarter ended June 30, 1997. This amount includes $1,700,000 for
operating losses on loss contracts during the first quarter of 1997 and
$2,100,000 for operating losses on loss contracts during the second quarter of
1997. The remaining liability of $720,000 is expected to be substantially
exhausted during the third quarter of 1997. Management has begun an aggressive
rate-increase program on all loss contracts. As rates on the acquired contracts
are renegotiated to profitable levels, the need for a loss contract liability is
expected to end.
<PAGE>
PART II OTHER INFORMATION
ITEM 5 OTHER INFORMATION
In the six months ended June 30, 1997, the Company experienced several material
cargo losses, which are currently under investigation. The Company does not
expect the losses to have a material adverse effect on the Company's liquidity
or earnings in 1997. However, such losses could have negative consequences on
the Company's insurance coverage or costs at some future time. Due to the fact
that the Company's premiums on cash-in-transit insurance are influenced by
various factors, including general market conditions and the Company's risk
management performance in future periods, the Company's management is currently
unable to predict the effect such cargo losses will have on the Company's
insurance coverage or costs when its current policies expire.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Loomis, Fargo & Co. (Delaware), as
amended(1)
3.2 Bylaws of Loomis, Fargo & Co. (Delaware)(1)
3.3 Certificate of Incorporation of LFC Holding, as amended(1)
3.4 Bylaws of LFC Holding, as amended(1)
3.5 Articles of Incorporation of Loomis, Fargo Texas, as amended(1)
3.6 Bylaws of Loomis, Fargo Texas, as amended(1)
3.7 Articles of Incorporation of LFC Armored of Texas Inc., as
amended(1)
3.8 Bylaws of LFC Armored of Texas Inc.(1)
3.9 Amended and Restated Articles of Incorporation of Loomis, Fargo
& Co. of Puerto Rico, as amended(1)
3.10 Bylaws of Loomis, Fargo & Co. of Puerto Rico(1)
4.1 Indenture, dated as of January 24, 1997, among the Company, as
Issuer, LFC Holding, Loomis, Fargo Texas, LFC Armored of Texas
Inc. (formerly known as Wells Fargo Armored Service Corporation of
Texas) ("LFC of Texas"), and Loomis, Fargo & Co of Puerto Rico
(formerly known as Wells Fargo Armored Service Corporation of
Puerto Rico) ("LFC of Puerto Rico"), as Guarantors, and Marine
Midland Bank, as trustee(1)
4.2 Form of New Note (included in Exhibit 4.1, Exhibit A-3)(1)
27.1 Financial Data Schedule for Loomis, Fargo & Co.
- ----------
* Filed herewith.
(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-24689) of Loomis, Fargo & Co. initially filed with the Securities
and Exchange Commission on April 7, 1997, as amended.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the quarter for
which this report is filed.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LOOMIS, FARGO & CO. (DELAWARE)
LFC HOLDING CORPORATION
LOOMIS, FARGO & CO. (TEXAS)
LFC ARMORED OF TEXAS INC.
LOOMIS, FARGO & CO. OF PUERTO
RICO
Date: August 14, 1997 By: /s/ James K. Jennings, Jr.
--------------------------------
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer of the
Registrants)
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