<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 333-24689
Loomis, Fargo & Co.
(Exact name of registrant as specified in its charter)
Delaware 76-0521092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
16225 Park Ten Place, Suite 600, Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
(281) 647-6700
(Registrant's telephone number, including area code)
(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 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 XX
------ ------
Number of shares outstanding of issuer's common stock as of May 13, 1997 was
10,000,000.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOOMIS, FARGO & CO.
Consolidated Balance Sheets
(unaudited)
($000s)
December 31, March 31,
1996 1997
------------ ---------
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash and cash equivalents of $1,536 at
December 31, 1996 $ 2,469 $ 8,591
Accounts receivable, net 10,939 39,060
Prepaid expenses and other assets 2,253 4,928
-------- --------
Total current assets 15,661 52,579
Property and equipment,net 16,816 45,962
Goodwill 7,851 106,080
Other assets 2,718 5,201
-------- --------
Total assets $ 43,046 $209,822
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 5,439 $ 14,810
Accrued expenses and other current liabilites 11,759 29,839
Short-term debt 1,022 -
Current portion, long-term debt 1,500 -
Current portion, capital lease obligations 496 627
-------- --------
Total current liabilities 20,216 45,276
LONG-TERM LIABILITIES:
Long-term debt 20,950 163,883
Capital lease obligations 966 1,164
Accrued management fees 1,575 -
Other long-term liabilities 3,838 2,226
-------- --------
Total long-term liabilities 27,329 167,273
REDEEMABLE PREFERRED STOCK 3,500 -
REDEEMABLE COMMON STOCK WARRANTS 355 -
COMMON STOCKHOLDER'S DEFICIT:
Class A common stock 15 -
Class B common stock - -
Common stock - 100
Common stock warrants 304 -
Additional paid-in capital 1,485 24,755
Accumulated deficit (10,158) (27,582)
-------- --------
Total common stockholders' deficit (8,354) (2,727)
-------- --------
Total liabilities and common stockholders' deficit $ 43,046 $209,822
======== ========
<PAGE>
LOOMIS, FARGO & CO.
Consolidated Statements of Operations
(unaudited)
($000s, except per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES $30,229 $ 79,892
COST OF OPERATIONS:
Payroll and related expense 19,629 48,069
Vehicle expense 3,565 10,423
Facilities expense 1,288 3,286
Other operating expenses 4,930 18,226
------- --------
29,412 80,004
------- --------
OPERATING INCOME (LOSS) 817 (112)
INTEREST EXPENSE 734 3,078
------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 83 (3,190)
INCOME TAXES - 25
------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 83 (3,215)
EXTRAORDINARY ITEM (NET OF PROVISION FOR INCOME
TAXES OF $1 ) - (124)
------- --------
NET INCOME (LOSS) $ 83 $ (3,339)
======= ========
NET INCOME (LOSS) PER SHARE:
BEFORE EXTRAORDINARY ITEM $ 0.02 $ (0.37)
EXTRAORDINARY ITEM - (0.01)
------- --------
NET INCOME (LOSS) $ 0.02 $ (0.38)
======= ========
</TABLE>
<PAGE>
Loomis, Fargo & Co.
Consolidated Statements of Cash Flows
(unaudited)
($000s)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 83 $ (3,339)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 1,263 3,377
Amortization of financing costs - 192
Accretion of discount on NOL note - 91
Loss on disposal of property and equipment 7 -
Change in restricted cash (26) 1,536
Provision for allowance for doubtful accounts - 432
Accrued management fees 87 23
Changes in current assets and liabilities (net
of the effects of the acquisition):
Trade accounts receivable 450 (440)
Prepaid expenses (1,383) (80)
Accounts payable 248 (2,155)
Accrued expenses 1,221 (1,503)
------- ---------
Net cash provided by (used in) operating activities 1,950 (1,866)
INVESTING ACTIVITIES
Purchase of Wells Fargo Armored - (105,236)
Capital expenditures (619) (537)
------- ---------
Net cash used in investing activities (619) (105,773)
FINANCING ACTIVITIES
Borrowings of debt - 73,450
Issuance of senior subordinated notes - 85,000
Repayments of debt and capital lease obligations (344) (24,686)
Payment of accrued management fees - (1,598)
Financing costs related to senior subordinated notes
and new credit facility - (4,722)
Redemption of preferred stock - (3,500)
Exercise of common stock warrants - 96
Distributions to stockholders - (8,743)
------- ---------
Net cash provided by (used in) financing activities (344) 115,297
------- ---------
Net increase in cash and cash equivalents 987 7,658
Cash and cash equivalents at beginning of period * 274 933
------- ---------
Cash and cash equivalents at end of period * $ 1,261 $ 8,591
======= =========
</TABLE>
* Excludes restricted cash and cash equivalents of $1,523, $1,549 and $1,536 at
December 31, 1995, March 31, 1996 and December 31, 1996, respectively
<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 (14,085)
Issuance of common stock as part of
the purchase consideration for Wells
Fargo Armored 49 22,551
Net loss (3,339)
---- --- ----- ---- ------- ---------
Balances at March 31, 1997 $ - $ - $ - $100 $24,755 $ (27,582)
==== === ===== ==== ======= =========
</TABLE>
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1. BASIS OF PRESENTATION
Loomis, Fargo & Co. (the "Company"), a Delaware corporation, was incorporated in
August 1996. On January 24, 1997, Loomis Holding Corporation, a Delaware
corporation, completed its business combination 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 business combination
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 business
combination.
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 the Form S-1 Registration Statement filed with the
Securities and Exchange Commission on April 7, 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 three-month period ended March 31, 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 March 31, 1997:
Bank credit facility $ 73,450
10% senior subordinated notes 85,000
Non-interest bearing NOL note 5,433
--------
$163,883
========
Concurrent with the purchase of the assets of Wells Fargo Armored and the common
stock of Loomis Holding Corporation on January 24, 1997 and the financing
transactions discussed below, substantially all of the then-existing Loomis
Holding Corporation indebtedness was repaid (other than capital leases).
Deferred financing costs associated with the retired debt were written off as an
extraordinary item in the accompanying consolidated statement of operations for
the three months ended March 31, 1997. 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 March 31, 1997,
the interest rates on the Company's borrowings were 9.75% on base-rate
borrowings of $6.45 million and 7.69% - 7.79% on LIBOR borrowings totaling $67
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. 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.
The first required measurement date for financial condition covenants is the
fiscal quarter ending June 30, 1997. At March 31, 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. In connection with the sale, the Company entered into a Registration
Rights Agreement with the purchasers to provide for the exchange of the original
notes issued for new notes with substantially similar terms issued in a
transaction registered under the Securities Act of 1933, as amended. 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 closing of the Wells
Fargo Armored acquisition. 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 by April 1998.
The amount of interest paid in the three months ended March 31, 1996 and 1997
was $249,875 and $172,129, respectively.
<PAGE>
NOTE 3. LEASES
At March 31, 1997, the scheduled future minimum lease payments under capital
leases are as follows for years ending March 31(in thousands):
1998 $ 740
1999 647
2000 413
2001 159
2002 6
------
Total minimum lease payments 1,965
Less amount representing interest 174
------
Present value of capital lease obligations 1,791
Less current portion of capital leasee
obligations 627
------
Long-term capital lease obligations $1,164
======
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 March 31:
Lease Sublease Net
Payments Income Obligation
-------- -------- ----------
(in thousands)
1998 $ 12,541 $ 6 $ 12,535
1999 9,537 - 9,537
2000 6,633 - 6,633
2001 4,700 - 4,700
2002 2,150 - 2,150
Thereafter 1,901 - 1,901
----------------------------------
$ 37,462 $ 6 $ 37,456
==================================
Rent expense for the quarters ended March 31, 1996 and 1997 was $834,000 and
$2,093,000, respectively.
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. The aggregate purchase price for the assets acquired and the
liabilities assumed was approximately $128,000,000, which included cash payments
of $105,236,000 and the issuance of 4,900,000 shares of the common stock of the
Company. The excess of the purchase price over the net assets acquired,
approximately $98,715,000, will be amortized to expense principally over 40
years. The purchase price has been preliminarily allocated to the net assets
acquired and liabilities assumed. The purchase price will be finalized when all
fair market value appraisals are completed and severance, relocation and
leasehold abandonment costs are finalized.
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 notes due in 2004 in a private placement. See
Note 2.
The consolidated statements of operations and cash flows presented for the three
months ended March 31, 1996 are those of Loomis Holding Corporation, predecessor
to the Company. The statements of operations and cash flows presented for the
three months ended March 31, 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 three-month period.
The pro forma unaudited results of operations for the three months ended March
31, 1996 and March 31, 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:
1996 1997
------ ------
(In thousands, except per share data)
Revenues $ 89,233 $ 95,221
======== ========
Income (loss) before
extraordinary item $ 1,003 $ (3,596)
======== ========
Net income (loss) $ 1,003 $ (3,720)
======== ========
Income (loss) before extraordinary
item per common share $ 0.10 $ (0.36)
======== ========
Net income (loss) per common share $ 0.10 $ (0.37)
======== ========
<PAGE>
NOTE 4. PURCHASE OF WELLS FARGO ARMORED SERVICE CORPORATION (CONTINUED)
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. Additional adjustments include cost
savings related to headcount reduction, elimination of duplicate facilities and
elimination of management fees paid by both of the combined companies to their
former owners.
The March 31, 1997 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.
Reserves 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 March 31, 1997, charges of $398,000 have been taken against the established
reserves. The Company anticipates charges of $2,864,000 against the purchase
accounting reserves in the next twelve months, all of which will represent cash
outflows. All reorganization and consolidation activities are expected to be
completed by August 31, 1997.
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 March 31, 1997, there are 612,967 options outstanding under the Option
Plan, 457,113 of which are vested.
<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 to Wells Fargo
Armored as part of the purchase price consideration.
The common stock of the Company consists of one class and has a $.01 par value.
Twenty thousand shares are authorized, ten thousand of which are issued and
outstanding as described in the preceding paragraph. Ten thousand shares of $.01
preferred stock are authorized, but none have been issued at March 31, 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 shares of
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 $8,743,000
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 three months ended March 31,
1996 and 1997 were 5,092,171 and 8,745,777, respectively. Earnings per share
have been restated to reflect retroactively the effects of the recapitalization
described in Note 6.
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 quarter of
1997 with Loomis Holding Corporation's results of operations for the first
quarter 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 the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on April 7, 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 three months of 1997 include 23 days of
Loomis Holding Corporation alone before the combination, and 67 days of combined
operations beginning with the January 24, 1997 closing date. For a condensed
comparison of first quarter 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.
THREE MONTHS ENDED
MARCH 31
------------------
1996 1997
------ ------
INCOME STATEMENT DATA:
Revenues 100.0% 100.0%
Cost of operations:
Payroll and related expense 64.9 60.2
Vehicle expense 11.8 13.0
Facilities expense 4.3 4.1
Other operating expense 16.3 22.8
------ ------
Operating income 2.7 (0.1)
Interest expense 2.4 3.9
------ ------
Income (loss) befoe income taxes and
extraordinary item 0.3 (4.0)
Income taxes - -
------ ------
Income (loss) before extraordinary item 0.3 (4.0)
Extraordinary item (net of provision for
income taxes) - 0.2
------ ------
Net income (loss) 0.3% (4.2)%
====== ======
<PAGE>
Three months ended March 31, 1996 compared with three months ended March 31,
1997
Revenues. Revenues increased from $30.2 million for the three months ended
March 31, 1996 to $79.9 million for the three months ended March 31, 1997, an
increase of $49.7 million or 164.6%, of which $46.6 million is due to the
acquisition of the assets of Wells Fargo Armored. Excluding the increase from
the acquisition, revenues increased $3.1 million or 10% over the three months
ended March 31, 1996. The following table analyzes revenues by type of service.
Three Months Ended
March 31
----------------
1996 1997 Change Percent
------ ------ ------ -------
(Dollars in millions)
Traditional armored transport services $ 24.2 $ 50.8 $ 26.6 109.9%
ATM services 3.6 23.3 19.7 547.2%
Cash vault and related services 2.4 5.8 3.4 141.7%
------ ------ ------
$ 30.2 $ 79.9 $ 49.7 164.6%
------ ------ ------
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. Exclusive of the ATM locations added in the acquisition
of Wells Fargo Armored, the number of ATMs served increased by approximately
1,500 machines in the three months ended March 31, 1997 compared to the three
months ended March 31, 1996. The increase in ATMs served has also benefitted
armored transport and cash vault revenues as customers often prefer to use one
risk management service provider. 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. 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.
Payroll and related expense. Payroll and related expense increased from $19.6
million for the three months ended March 31, 1996 to $48.1 million for the three
months ended March 31, 1997, an increase of $28.5 million or 145.4%. Payroll
and related expense as a percent of revenue decreased from 64.9% for the three
months ended March 31, 1996 to 60.2% for the three months ended March 31, 1997.
The increase in payroll and related expense was principally related to the
employee base acquired from Wells Fargo Armored of approximately $25.0 million
and included payments for a certain amount of redundant functions until such
time as the Company can fully consolidate duplicate facilities and functions.
Additional increases for growth in the employee base for new business and wage
increases totaled approximately $3.0 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. Some of the duplicate
administrative functions were reduced during February and March 1997. Management
estimates that, upon completion of its consolidation plan by August 31, 1997,
annual savings of approximately $3.4 million will be realized in the area of
payroll and related expense, over the cost of operating Loomis Holding
Corporation and Wells Fargo Armored separately.
Vehicle expense. Vehicle expense increased from $3.6 million for the three
months ended March 31, 1996 to $10.4 million for the three months ended March
31, 1997, an increase of $6.8 million, or 188.9%, of which $6.3 million was
related to the fleet acquired from Wells Fargo Armored. Vehicle expense as a
percent of revenue increased from 11.8% for the three months ended March 31,
1996 to 13.0% for the three months ended March 31, 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. The number of trucks in active service increased
from approximately 950 to approximately 2,800 with the business combination.
<PAGE>
Facilities expense. Facilities expense increased from $1.3 million for the
three months ended March 31, 1996 to $3.3 million for the three months ended
March 31, 1997, an increase of $2.0 million, or 153.8%. Facilities expense as a
percent of revenue decreased from 4.3% for the three months ended March 31, 1996
to 4.1% for the three months ended March 31, 1997. The number of operating
sites increased from 69 to 197 sites with the purchase of Wells Fargo Armored,
with $1.6 million of the increase in facilities expense associated with the
acquired branches. The remaining $0.4 million increase includes the maintenance
of the duplicate headquarters in Atlanta. The phaseout of duplicate facilities
is scheduled to be completed by August 31, 1997.
Other operating expenses. Other operating expenses increased from $4.9 million
for the three months ended March 31, 1996 to $18.2 million for the three months
ended March 31, 1997, an increase of $13.3 million, or 271.4%. Other operating
expenses as a percent of revenue increased from 16.3% for the three months ended
March 31, 1996 to 22.8% for the three months ended March 31, 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 $9.0 million. The Company experienced
higher cargo losses in the three months ended March 1997 compared to the three
months ended March 1996, due to the substantially higher rate of cargo losses at
the acquired Wells Fargo Armored facilities. The total increase in retained
cargo losses was $3.8 million over the prior year. Also, cargo premiums
increased from $0.6 million in the three months ended March 31, 1996 to $0.8
million in the three months ended March 31, 1997. Additionally, operating
expense increased by $0.4 million for the incremental amortization of goodwill
related to the business combination.
Extraordinary item. An extraordinary item of $0.1 million was recorded in the
three months ended March 31, 1997, resulting from the write-off of deferred
financing costs associated with the debt retired in January 1997.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents at March 31, 1996 and March 31, 1997 were $2.5
million and $8.6 million, respectively. Included in the March 31, 1996 balance
is restricted cash and cash equivalents of $1.5 million. Changes in cash and
cash equivalents are described in the statements of cash flows, which are
summarized below.
Three Months Ended
March 31
------------------
1996 1997
-------- ---------
(Dollars in millions)
Net cash provided by (used in) operating activities $ 2.0 $ (1.8)
Net cash used in investing activities (0.6) (105.8)
Net cash provided by (used in) financing activities (0.4) 115.3
The cash provided by operating activities in the three months ended March 31,
1996 decreased to net cash used in operating activities in the three months
ended March 31, 1997, primarily due to the net loss in 1997.
In the three months ended March 31, 1996, cash was used in investing activities
primarily for vehicles and computer equipment. In the three months ended March
31, 1997, cash was primarily used in the acquisition of the assets of Wells
Fargo Armored.
In the three months ended March 31, 1996, cash was used to repay debt and
capital leases. In the three months ended March 31, 1997, cash was provided by
financing activities entered into in connection with the business combination.
Long-term obligations of $24.7 million were repaid, preferred stock of $3.5
million was redeemed, $8.7 million of cash distributions were made for the
benefit of stockholders of Loomis Holding Corporation and $4.7 million of
financing costs were paid in connection with the refinancing of the
<PAGE>
Company's debt. Borrowings of $73.5 million were drawn against the Company's new
credit facility, and $85.0 million of senior subordinated notes were sold in a
private placement.
The Company's balance sheet reflected working capital of $7.3 million at March
31, 1997. The Company is highly leveraged, with long-term liabilities comprising
80% of total liabilities and common stockholders' deficit at March 31, 1997.
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 $11.7 million
were outstanding at March 31, 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 March 31, 1997 are $29.9
million.
In one year, total commitments under the agreement will decrease to $112.5
million. It is anticipated that letters of credit requirements, principally for
casualty liabilities, will increase to approximately $24.0 million, leaving
$88.5 million in commitments. The Company's management believes that the
operating cash flow and this remaining financing commitment will be more than
adequate to fund future operating needs and anticipated payment of the NOL note
in April 1998. See Note 2.
Planned capital expenditures for the next twelve months are $12 million,
primarily vehicles, which will depend on growth rate experienced. Committed
capital expenditures of $2.2 million include $1.5 million for vehicles.
<PAGE>
PART II OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
On January 24, 1997, the Company issued 10,000,000 shares of its common stock,
$0.01 par value, to two purchasers in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, in reliance on Section
4(2) thereof. Such shares of common stock were issued in exchange for
securities and assets in connection with the initial capitalization of the
Company.
ITEM 5 OTHER INFORMATION
On March 29, 1997, the Company experienced a material cargo loss, which is
currently under investigation. The Company believes that the cargo loss will
not have a material adverse effect on the Company's liquidity or earnings in
1997, but that such loss could have negative consequences on the Company's
insurance coverage and/or costs at some future time.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Contribution Agreement, dated as of November 28, 1996, among the
Company, LFC Holding Corporation (formerly known as Loomis
Holding Corporation) ("LFC Holding") Loomis Fargo & Co (Texas)
(formerly known as Loomis Armored Inc.) ("Loomis, Fargo Texas"),
Borg-Warner Security Corporation, Wells Fargo Armored Service
Corporation, and the Loomis Stockholders Trust.*
2.2 Business Trust Agreement, dated as of November 27, 1996, among
Wingate Partners, L.P. and Wingate Affiliates, L.P., as initial
grantors, Wilmington Trust Company, as trustee, Frederick B.
Hegi, Jr., as manager, and the Unitholders parties thereto.*
2.3 Trust Unit Exchange Agreement, dated as of January 24, 1997,
among the Loomis Stockholders Trust and the Exchanging
Shareholders parties thereto.*
3.1 Certificate of Incorporation of Loomis, Fargo & Co. (Delaware),
as amended.*
3.2 Bylaws of Loomis, Fargo & Co. (Delaware).*
3.3 Certificate of Incorporation of LFC Holding, as amended.*
3.4 Bylaws of LFC Holding, as amended.*
3.5 Articles of Incorporation of Loomis, Fargo Texas, as amended.*
3.6 Bylaws of Loomis, Fargo Texas, as amended.*
3.7 Articles of Incorporation of LFC Armored of Texas Inc., as
amended.*
3.8 Bylaws of LFC Armored of Texas Inc.*
3.9 Amended and Restated Articles of Incorporation of Loomis, Fargo
& Co. of Puerto Rico, as amended.*
<PAGE>
3.10 Bylaws of Loomis, Fargo & Co. of Puerto Rico.*
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.*
4.2 Form of Old Note (included in Exhibit 4.1, Exhibit A-1).
4.3 From of New NOte (included in Exhibit 4.1, Exhibit A-3).
4.4 Registration Rights Agreement, dated as of January 24,1997,
among Loomis, the Company, LFC Holding, Loomis, Fargo Texas, LFC
of Texas, LFC of Puerto Rico and Lehman Brothers Inc. and
NationsBanc Capital Markets, Inc.*
4.5 Purchase Agreement, dated as of January 17, 1997, among the
Company, LFC Holding, Loomis, Fargo Texas and Lehman Brothers
Inc. and NationsBanc Capital Markets, Inc., as initial
purchasers.*
10.1 Credit Agreement, dated as of January 24, 1997, among the
Company, as borrower, the several lenders parties thereto,
Lehman Commercial Paper Inc. ("LCPI") and NationsBank of Texas,
N.A. ("NationsBank"), as arrangers, LCPI and NatonsBanc Capital
Markets, Inc., as syndication agents, LCPI as documentation
agent, and NationsBank as administrative agent.*
10.2 Guarantee and Collateral Agreement made by the Company, LFC
Holding, Loomis, Fargo Texas, LFC of Texas and LFC of Puerto
Rico, in favor of NationsBank of Texas, N.A.*
10.3 Stockholders Agreement dated as of January 24, 1997 among the
Company, Wells Fargo Armored Service Corporation, the Loomis
Stockholders Trust and Wingate Partners, L.P.*
<PAGE>
10.4 Loomis Indemnity Trust Agreement, dated as of January 24, 1997,
among the Company, the Loomis Stockholders Trust, and Frederick
B. Hegi, Jr., as trustee.*
10.5 Excess Claims Assumption Agreement, dated as of January 24,
1997, among the Company, LFC Holding, Loomis, Fargo Texas, and
the Loomis Stockholders Trust.*
10.6 Unitholders Option Plan and Agreement, dated as of January 24,
1997, among the Company and the Unitholders signatories
thereto.*
10.7 Stock Contribution Agreement, dated as of January 24, 1997,
between the Company and the Loomis Stockholders Trust.*
10.8 NOL Promissory Note, dated as of January 24, 1997, of the
Company in the principal amount of $6,000,000 payable to the
Loomis Stockholders Trust.*
10.9 Fleet Lease Agreement, dated as of December 2, 1996, between
Associates Leasing, Inc. and Wells Fargo Armored Service
Corporation.*
10.10 Transfer and Assumption Agreement, dated as of January 2, 1997,
among Wells Fargo Armored Service Corporation, Borg-Warner
Security Corporation, the Company and Associates Leasing, Inc.*
10.11 Transition Services Agreement, dated as of January 24, 1997,
between the Company and Pony Express Courier Corp.*
10.12 Employment Agreement, dated as of November 11, 1991, between LFC
Holding Corporation (formerly known as Loomis Holding
Corporation) and James B. Mattly.*
- ------------
* 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LOOMIS, FARGO & CO.
Date: May 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
Registrant)
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