<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, 1998
LOOMIS, FARGO & CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C>
Delaware 333-24689 76-0521092
(State or other jurisdiction) (Commission File Number) (IRS Employer Identification No.)
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 of Texas Inc. Loomis, Fargo & Co. of Puerto Rico
(Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant
as Specified in its Charter) as Specified in its Charter) 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.)
2500 CityWest Blvd., Suite 900
Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
</TABLE>
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 [X] No. [_]
As of August 13, 1998, 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)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ---------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,659 $ 5,091
Accounts receivable, net 52,185 35,173
Prepaid expenses and other current assets 4,684 5,627
--------- ---------
Total current assets 60,528 45,891
Property and equipment, net 41,657 40,947
Intangible assets, net 112,421 110,965
Other assets, net 4,829 4,456
--------- ---------
Total assets $ 219,435 $ 202,259
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 20,499 $ 15,364
Accrued expenses and other current liabilities 44,754 37,345
Current portion, capital lease obligations 669 499
--------- ---------
Total current liabilities 65,922 53,208
Long-term liabilities:
Long-term debt 154,796 149,892
Capital lease obligations 511 480
Other long-term liabilities 5,474 7,617
--------- ---------
Total long-term liabilities 160,781 157,989
Common stockholders' deficit:
Common stock 100 100
Additional paid-in capital 24,755 24,755
Accumulated deficit (32,123) (33,793)
--------- ---------
Total common stockholders' deficit (7,268) (8,938)
--------- ---------
Total liabilities and common stockholders' deficit $ 219,435 $ 202,259
========= =========
</TABLE>
See accompanying notes.
1
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1998
------------- -------------
(in thousands)
<S> <C> <C>
Revenues $ 173,014 $ 193,358
Cost of operations:
Payroll and related expense 106,002 117,306
Vehicle expense 23,580 24,752
Facilities expense 7,238 8,140
Other operating expenses 29,473 36,759
Expenses relating to the business combination 2,372 -
--------- ---------
168,665 186,957
--------- ---------
Operating Income 4,349 6,401
Interest Expense 7,287 7,861
--------- ---------
Loss before income taxes and extraordinary item (2,938) (1,460)
Income taxes - 210
--------- ---------
Loss before extraordinary item (2,938) (1,670)
Extraordinary item (124) -
--------- ---------
Net loss $ (3,062) $ (1,670)
========= =========
</TABLE>
See accompanying notes.
2
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1998
------------- -------------
(in thousands)
Revenues $93,763 $96,854
Cost of operations:
Payroll and related expense 57,690 58,633
Vehicle expense 12,477 12,515
Facilities expense 3,991 4,171
Other operating expenses 13,886 17,865
Expenses relating to the business combination 1,233 -
------- -------
89,277 93,184
------- -------
Operating income 4,486 3,670
Interest expense 4,209 3,822
------- -------
Income (loss) before income taxes 277 (152)
Income taxes - 105
------- -------
Net income (loss) $ 277 $ (257)
======= =======
See accompanying notes.
3
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1998
------------- -------------
(in thousands)
Operating activities
Net loss $ (3,062) $ (1,670)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization expense 8,149 7,155
Amortization of financing costs 447 477
Accretion of discount on NOL note 228 96
Gain on disposal of property and equipment - (28)
Change in restricted cash 1,536 -
Provision for doubtful accounts 108 339
Accrued management fees 23 -
Changes in current assets and liabilities
(net of effect of the acquisition):
Accounts receivable (9,317) 16,673
Prepaid expenses and other current assets (701) (943)
Accounts payable (1,998) (5,135)
Accrued expenses and other liabilities 978 (5,266)
--------- --------
Net cash provided by (used in) operating
activities (3,609) 11,698
Investing activities
Purchase of Wells Fargo Armored (104,925) -
Acquisition of property and equipment (3,627) (4,992)
Proceeds from sale of property and equipment - 124
--------- --------
Net cash used in investing activities (108,552) (4,868)
Financing activities
Issuance of senior subordinated notes 85,000 -
Net borrowings (repayments) of debt 50,278 (5,000)
Repayments of capital lease obligations (489) (294)
Payment of accrued management fees (1,598) -
Financing costs related to debt (5,292) (104)
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 115,758 (5,398)
--------- --------
Net increase in cash and cash equivalents 3,597 1,432
Cash and cash equivalents at beginning of
period* 933 3,659
--------- --------
Cash and cash equivalent at end of period $ 4,530 $ 5,091
========= ========
* Excludes restricted cash and cash equivalents of $1,536 at December 31, 1996
See accompanying notes.
4
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 BASIS OF PRESENTATION
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. The information included in this Form 10-Q should be read
in conjunction with the audited consolidated financial statements of Loomis,
Fargo & Co. (the "Company") as of December 31, 1997 included in Amendment No. 1
to the Form 10-K filed with the Securities and Exchange Commission on April 13,
1998. 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 and three-month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the full year.
Certain prior period amounts have been reclassified to conform with the 1998
presentation.
NOTE 2 RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS 130) requires the reporting of total comprehensive income in all
financial statement periods beginning after December 15, 1997. The Company has
adopted SFAS 130 and has no items of other comprehensive income. Therefore,
comprehensive income or loss is the same as the Company's net income or loss for
the six months and three months ended June 30, 1997 and 1998.
In June 1998, Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS 133) was issued. SFAS
133 establishes a new model for accounting for derivatives and hedging
activities and is effective for fiscal years beginning after June 15, 1999.
Management believes the adoption will not have a material impact on the
Company's financial statements.
5
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Loomis, Fargo & Co. (the "Company") provides armored car transport services to a
variety of financial, commercial, industrial and retail establishments within
the United States and Puerto Rico. It offers secure, expedited transportation
and protection for valuable commodities, provides extensive automatic teller
machine ("ATM") services, including cash replenishment, deposit pick-up and
maintenance, and provides ancillary services such as secured storage of
valuables, deposit processing and consolidation, change order preparation, coin
wrapping and food stamp processing. The Company also provides contract security
officers to patrol and control access to customer facilities in Puerto Rico.
The Company acquired certain assets and liabilities of Wells Fargo Armored
Service Corporation ("Wells Fargo Armored") on January 24, 1997. When comparing
the Company's results of operations and related cash flows for the six months
ended June 30, 1997 with those of the six months ended June 30, 1998, one should
consider that the first six months of 1997 included 23 days of Loomis Holding
Corporation ("Loomis", the predecessor to the Company) alone before the business
combination and 158 days of the combined operations of the Company. The first
six months of 1998 included the combined operations for the entire period. This
is significant with respect to certain comparisons because Wells Fargo Armored's
annual revenue base and property and equipment were almost twice as large as
those of Loomis, and net assets were three times larger. The discussion below
includes unaudited pro forma results that have been prepared for comparative
purposes only. These pro forma amounts include certain adjustments to reflect
additional revenue and operating expenses for the 23 days prior to the
combination. They do not purport to be indicative of the results that actually
would have been achieved if this acquisition had been effected on January 1,
1997 or of those results that may be obtained in the future.
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. Factors that could
cause or contribute to such differences include, but are not limited to, risks
and uncertainties relating to leverage and debt service, risks inherent in the
armored transport industry, general marketplace conditions, restrictions imposed
by the bank credit facility, the ability to attract and retain qualified
employees, timely identification and resolution of all year 2000 issues,
environmental and other regulatory matters and future legal proceedings.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the Company's consolidated results of operations
expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
---------------- ------------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations:
Payroll and related expense 61.3 60.7 61.5 60.6
Vehicle expense 13.6 12.8 13.3 12.9
Facilities expense 4.2 4.2 4.3 4.3
Other operating expenses 17.0 19.0 14.8 18.5
Expenses relating to the business
combination 1.4 - 1.3 -
----- ----- ----- -----
Operating income 2.5 3.3 4.8 3.7
Interest expense 4.2 4.1 4.5 3.9
----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item (1.7) (0.8) 0.3 (0.2)
----- ----- ----- -----
Income taxes - 0.1 - 0.1
----- ----- ----- -----
Income (loss) before extraordinary
item (1.7) (0.9) 0.3 (0.3)
Extraordinary item (0.1) - - -
----- ----- ----- -----
Net income (loss) (1.8)% (0.9)% 0.3% (0.3)%
===== ===== ===== =====
</TABLE>
Six months ended June 30, 1997 compared with six months ended June 30, 1998
Revenues. Revenues increased from $173.0 million for the six months ended June
30, 1997 to $193.4 million for the six months ended June 30, 1998, an increase
of $20.4 million or 11.8%. The increase is partially due to the acquisition of
Wells Fargo Armored on January 24, 1997.
If the business combination had occurred on January 1, 1997, revenue for the
first six months of 1997 would have been approximately $188.3 million.
Therefore, revenues increased by approximately $5.1 million over a comparable
period. These results were impacted by the loss of approximately 8.5% of the
Wells Fargo Armored customer base early in 1997 as a result of pre-merger
service related issues. Management took action to address the cause of these
losses and does not anticipate a recurrence. During the second and third
quarters of 1997, the Company undertook an initiative to improve the quality of
revenue of the acquired Wells Fargo Armored contracts, concurrent with upgrades
in service, crew complements and employee compensation rates. A majority of the
acquired contracts were renegotiated by the end of 1997. The success of this
revenue improvement initiative, as well as other growth in the customer base,
has offset the early losses and resulted in an increase in revenues of 2.7% for
the first six months of 1998 over pro forma revenues for the comparable period
in 1997.
7
<PAGE>
The following table analyzes revenues by type of service. The increases
reflected in the table are primarily a result of the 1998 amounts including the
combined operations of the Company for the entire period while the 1997 amounts
include 23 days of Loomis alone and 158 days of the combined operations. The
1998 amounts also reflect the revenue improvement initiative previously
discussed and an overall increase in the ATM market.
Six Months Ended
June 30
----------------
1997 1998 Change Percent
------ ------ ------ -------
($ in millions)
Traditional armored transport services $102.3 $114.9 $12.6 12.3%
ATM services 50.5 58.3 7.8 15.4%
Cash vault and related services 20.2 20.2 - -%
------ ------ -----
Total Revenues $173.0 $193.4 $20.4 11.8%
====== ====== =====
Payroll and related expense. Payroll and related expense increased from $106.0
million for the six months ended June 30, 1997 to $117.3 million for the six
months ended June 30, 1998, an increase of $11.3 million or 10.7%. Payroll and
related expense as a percent of revenue decreased from 61.3% for the six months
ended June 30, 1997 to 60.7% for the six months ended June 30, 1998.
If the business combination had occurred on January 1, 1997, total payroll and
related expense for the first six months of 1997 would have been approximately
$115.4 million. The $117.3 million payroll and related expense for the six
months ended June 30, 1998 would have represented an increase of $1.9 million or
1.6%. The increase over the pro forma payroll and related expense was
principally related to increases in former Wells Fargo Armored employee wages.
Consistent with its business strategy, the Company has improved the wages and
fringe benefits throughout the acquired operations and invested in two and three
person crew complements to enhance security. During the full year 1996, payroll
and related expense at Wells Fargo Armored was approximately 55.0% of revenue.
During the full year 1997, the Company's payroll and related expense was
approximately 61.9% of revenue. The first three months of 1998 began a gradual
decrease to 60.8% and then decreased slightly to 60.5% for the quarter ended
June 30, 1998.
Vehicle expense. Vehicle expense increased from $23.6 million for the six
months ended June 30, 1997 to $24.8 million for the six months ended June 30,
1998, an increase of $1.2 million, or 5.0%. Vehicle expense as a percent of
revenue decreased from 13.6% for the six months ended June 30, 1997 to 12.8% for
the six months ended June 30, 1998.
If the business combination had occurred on January 1, 1997, total vehicle
expense for the first six months of 1997 would have been approximately $25.2
million. Vehicle expense of $24.8 million in the first six months of 1998 would
have represented a decrease of approximately $0.4 million, or 1.6%. Vehicle
expense as a percent of revenue would have decreased from approximately 13.4%
for the six months ended June 30, 1997 to 12.8% for the six months ended June
30, 1998. The decrease is largely a result of three items: (i) an increase in
vehicle communication costs of approximately $0.6 million due to the migration
from radio systems using analog technology to digital communication systems;
(ii) the loss of Wells Fargo Armored customers in early 1997, as discussed
above, resulting in a reduction in the number of truck hours required to service
the remaining higher quality of revenue customers, and (iii) a decrease in fuel
costs of approximately $1.5 million. Not only was the cost of fuel per gallon
approximately 20.0% lower in 1998, but route efficiencies were achieved from the
consolidation of branches and the restructuring of routes to achieve operational
efficiencies.
8
<PAGE>
Facilities expense. Facilities expense increased from $7.2 million for the six
months ended June 30, 1997 to $8.1 million for the six months ended June 30,
1998, an increase of $0.9 million, or 12.5%. Facilities expense as a percent of
revenue remained constant at 4.2% for the six months ended June 30, 1997 and
1998.
If the business combination had occurred on January 1, 1997, total facilities
expense for the first six months of 1997 would have been approximately $7.8
million. Facilities expense of $8.1 million in the first six months of 1998
would have represented an increase of approximately $0.3 million, or 3.8%.
Facilities expense would have remained unchanged at 4.2% of revenue.
Other operating expenses. Other operating expenses increased from $29.5 million
for the six months ended June 30, 1997 to $36.8 million for the six months ended
June 30, 1998, an increase of $7.3 million, or 24.7%. Other operating expenses
as a percent of revenue increased from 17.0% for the six months ended June 30,
1997 to 19.0% for the six months ended June 30, 1998. Other operating expenses
include such expenses as cargo insurance premiums and losses, costs of a
centralized dispatch center, and the testing, recruiting and training of
employees.
If the business combination had occurred on January 1, 1997, other operating
expenses for the first six months of 1997 would have been approximately $32.4
million. Other operating expenses of $36.8 million in the first six months of
1998 would have represented an increase of $4.4 million, or 13.6%. Other
expenses as a percent of revenue would have increased from approximately 17.2%
for the six months ended June 30, 1997 to 19.0% for the six months ended June
30, 1998. The following discussion relates to these comparisons.
Combined cash-in-transit insurance premiums and cargo losses totaled
approximately $8.5 million and $5.9 million for the six months ended June 30,
1997 and 1998, respectively. This substantial decrease was primarily due to
material cargo losses in March and May of 1997 which did not recur in 1998.
Partially offsetting this $2.6 million decrease was an approximate $1.7 million
increase in subcontracting costs related to a shift from coin operation work
previously performed in-house to subcontractors. The Company began shifting
this work to subcontractors in 1996 and has continued to do so with some of the
acquired Wells Fargo Armored branches. Some of the coin operations employees
were retrained to traditional crew positions as part of the enhanced crew
complement and security improvements.
In connection with the business combination, the Company recorded a liability
for contracts acquired from Wells Fargo Armored for which variable costs
exceeded revenues. A $3.8 million charge was taken against this liability
during the six months ended June 30, 1997 with a corresponding decrease in other
operating expenses. All losses associated with these contracts had been
incurred by December 31, 1997.
Expenses relating to the business combination. Expenses of $2.4 million were
recorded in the six months ended June 30, 1997 for items relating to the
purchase of Wells Fargo Armored. Included were 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 to the Company's systems and costs of state registrations and surveys
required by the new business entity. The Company does not anticipate material
additional costs related to the business combination.
Operating income. Operating income increased from $4.3 million for the six
months ended June 30, 1997 to $6.4 million for the six months ended June 30,
1998, an increase of $2.1 million, or 47.2%, for the reasons stated above. If
the business combination had occurred on January 1, 1997 as discussed above, the
six months ended June 30, 1997 would have had operating income of approximately
$5.1 million, giving the six months ended June 30, 1998 an increase of
approximately $1.3 million, or 25.5%.
9
<PAGE>
Interest expense. Interest expense increased from $7.3 million for the six
months ended June 30, 1997 to $7.9 million for the six months ended June 30,
1998, an increase of $0.6 million, or 7.9%. The increase relates directly to
the Company's bank credit facility and the issuance of the senior subordinated
notes in connection with the business combination. Interest expense as a
percent of revenue decreased slightly from 4.2% for the six months ended June
30, 1997 to 4.1% for the six months ended June 30, 1998.
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.
Results of operations. The Company's net loss declined from $3.1 million in the
six months ended June 30, 1997 to $1.7 million in the six months ended June 30,
1998, an improvement of $1.4 million or 45.5%, for the reasons stated above.
Three months ended June 30, 1997 compared with three months ended June 30, 1998
Revenues. Revenues increased from $93.8 million for the three months ended June
30, 1997 to $96.9 million for the three months ended June 30, 1998, an increase
of $3.1 million or 3.3%. This increase represents the Company's steady recovery
from the loss of approximately 8.5% of the Wells Fargo Armored customer base
early in 1997, as discussed above. The actions taken by management to address
the cause of these losses and to improve the quality of revenue of the remaining
acquired Wells Fargo Armored contracts, as well as other growth in the customer
base, have offset the early losses of customers.
The table below analyzes revenues by type of service. The 1998 amounts reflect
the revenue improvement initiative previously discussed and an overall increase
in the ATM market. The decrease in cash vault and related services partially
resulted from a reduction in contract security services in Puerto Rico.
Three Months Ended
June 30
------------------
1997 1998 Change Percent
------ ------ ------ -------
($ in millions)
Traditional armored transport services $54.9 $56.8 $ 1.9 3.5%
ATM services 27.4 29.7 2.3 8.4%
Cash vault and related services 11.5 10.4 (1.1) (9.6)%
----- ----- -----
Total Revenues $93.8 $96.9 $ 3.1 3.3%
===== ===== =====
Payroll and related expense. Payroll and related expense increased from $57.7
million for the three months ended June 30, 1997 to $58.6 million for the three
months ended June 30, 1998, an increase of $0.9 million or 1.6%. The increase in
payroll and related expense was principally related to increases in former Wells
Fargo Armored employee wages. Consistent with its business strategy, the Company
has improved the wages and fringe benefits throughout the acquired operations
and invested in larger crew complements to enhance security. Payroll and related
expense as a percent of revenue decreased from 61.5% for the three months ended
June 30, 1997 to 60.6% for the three months ended June 30, 1998.
Vehicle expense. Vehicle expense remained relatively stable at $12.5 million
for the three months ended June 30, 1997 and 1998. Vehicle expense as a percent
of revenue decreased slightly from 13.3% for the three months ended June 30,
1997 to 12.9% for the three months ended June 30, 1998. As discussed in the
results for the six months ended June 30, 1998, slightly higher communication
costs were offset by reduced fuel prices and truck hours during the period.
10
<PAGE>
Facilities expense. Facilities expense increased from $4.0 million for the
three months ended June 30, 1997 to $4.2 million for the three months ended June
30, 1998, an increase of $0.2 million, or 4.5%. Facilities expense as a percent
of revenue remained constant at 4.3% for the three months ended June 30, 1997
and June 30, 1998.
Other operating expenses. Other operating expenses increased from $13.9 million
for the three months ended June 30, 1997 to $17.9 million for the three months
ended June 30, 1998, an increase of $4.0 million, or 28.7%. Other operating
expenses as a percent of revenue increased from 14.8% for the three months ended
June 30, 1997 to 18.5% for the three months ended June 30, 1998. Other
operating expenses include such expenses as cargo insurance premiums and losses,
costs of a centralized dispatch center, and the testing, recruiting and training
of employees.
Combined cash-in-transit insurance premiums and cargo losses totaled
approximately $3.6 million and $3.3 million for the three months ended June 30,
1997 and 1998, respectively. This decrease was primarily due to a material cargo
loss in May 1997. Offsetting this $0.3 million decrease was an approximate $1.1
million increase in subcontracting costs related to a shift from coin operation
work previously performed in-house to subcontractors. The Company began shifting
this work to subcontractors in 1996 and has continued to do so with some of the
acquired Wells Fargo Armored branches. Some of the coin operations employees
were retrained to traditional crew positions as part of the enhanced crew
complement and security improvements, as discussed above.
In connection with the business combination, the Company recorded a liability
for contracts acquired from Wells Fargo Armored for which variable costs
exceeded revenues. A $3.8 million charge was taken against this liability
during the quarter ended June 30, 1997 with a corresponding decrease in other
operating expenses. All losses associated with these contracts had been
incurred by December 31, 1997.
Expenses relating to the business combination. Expenses of $1.2 million were
recorded in the three months ended June 30, 1997 for items relating to the
purchase of Wells Fargo Armored. Included were 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 to the Company's systems and costs of state registrations and surveys
required by the new business entity. The Company does not anticipate material
additional costs related to the business combination.
Operating income. Operating income decreased from $4.5 million for the three
months ended June 30, 1997 to $3.7 million for the three months ended June 30,
1998, a decrease of $0.8 million or 18.2%, for the reasons stated above.
Interest expense. Interest expense decreased from $4.2 million for the three
months ended June 30, 1997 to $3.8 million for the three months ended June 30,
1998, a decrease of $0.4 million, or 9.2%. Interest expense as a percent of
revenue decreased from 4.5% for the three months ended June 30, 1997 to 3.9% for
the three months ended June 30, 1998. This decrease relates to significantly
lower borrowings under the Company's bank credit facility in the second quarter
of 1998.
Results of Operations. The Company's operating results declined from net income
of $0.3 million in the three months ended June 30, 1997 to a net loss of $0.2
million in the three months ended June 30, 1998, a decline of $0.5 million for
the reasons stated above.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources changed significantly as a result
of the business combination in January 1997. Total cash and cash equivalents at
June 30, 1997 and 1998 were $4.5 million and $5.1 million, respectively.
Changes in cash and cash equivalents are described in the statements of cash
flows, which are summarized below.
Six Months Ended
June 30
----------------
1997 1998
------ ------
(in millions)
Net cash provided by (used in) operating activities $ (3.6) $11.7
Net cash used in investing activities (108.6) (4.9)
Net cash provided by (used in) financing activities 115.8 (5.4)
------- -----
Net increase in cash and cash equivalents $ 3.6 $ 1.4
======= =====
Operating Activities
Net cash was provided by operating activities in the six months ended June 30,
1998 despite the net loss, partially because the loss included $7.6 million of
noncash depreciation and amortization expense. Accounts receivable decreased by
approximately $16.7 million in the six months ended June 30, 1998 largely due to
improvements to the Company's billing system and improved collection efforts.
Offsetting this improvement was a decrease in accounts payable and accrued
expenses of $10.4 million. This was primarily due to an $11.7 million payment to
the Company's insurance carrier in January 1998 related to the recovery of a
material cargo loss in December 1997.
Approximately $0.6 million of charges were made against purchase accounting
accruals in the six months ended June 30, 1998. The Company anticipates charges
of $0.5 million against purchase accounting accruals in the next twelve months,
all of which represent cash outflows.
Investing Activities
In the six months ended June 30, 1998, cash of $5.0 million was used for
acquisitions of property and equipment.
Planned capital expenditures for the next twelve months are $12.0 million. The
Company is evaluating the future acquisition of some of its trucks under
operating leases, however, which would reduce the planned capital expenditures.
These expenditures will be financed primarily through operating cash flows.
Financing Activities
In the six months ended June 30, 1998, net repayments of $5.0 million were made
against the Company's bank credit facility. The reduction in debt was achieved
despite the $11.7 million payment to the Company's insurance carrier in January
1998, as described above. The primary reason the Company was able to reduce the
level of debt was due to the conversion of the Company's billing system, with
improved collections and the subsequent reduction in accounts receivable.
Average borrowings under the credit facility were over $10.0 million lower in
the second quarter of 1998 than in the second quarter of 1997.
The Company's balance sheet reflected a working capital deficit of $(7.3)
million at June 30, 1998, an increase from the December 31, 1997 working capital
deficit of $(5.4) million. The Company is highly leveraged, with long-term
liabilities comprising 78.1% of total liabilities and common stockholders'
deficit at June 30, 1998.
The Company's revolving bank credit facility provided an initial aggregate
commitment of $115.0 million through December 1997. The credit facility
agreement includes a step-down of the commitment over the final four years of
12
<PAGE>
the facility. The commitment is reduced by $2.5 million at the end of each
quarter of 1998. Therefore, a total commitment of $110.0 million remained at
June 30, 1998. The facility includes guarantees of letters of credit, of which
approximately $17.6 million were outstanding at June 30, 1998. The remaining
commitment available under the facility at June 30, 1998 was $33.4 million.
Under the facility, funds can be borrowed either 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.
By December 1998, the total commitment under the bank credit facility will
decrease to $105.0 million. It is anticipated that letters of credit
requirements, principally for casualty liabilities, should not exceed $18.0
million by December 31, 1998, leaving $87.0 million in available borrowing
capacity. 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 any required repayments of debt.
IMPACT OF YEAR 2000
Based on a recent assessment, the Company determined that its accounting
software is year 2000 compliant. However, the Company will be required to
modify or replace portions of its Puerto Rican operations and billing software
so that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company has decided to purchase the upgrade to
this software, which is year 2000 compliant. The cost is expected to be
immaterial.
The Company has substantially completed its internal review of all operational
equipment and also has hired independent consultants to assist in a more in-
depth analysis of the computer hardware, software and equipment purchased from
third parties that potentially could be impacted by year 2000 issues. To date,
no evidence has arisen that would require that material costs be incurred. The
review and any necessary upgrades or replacements are estimated to be completed
not later than mid-1999. The Company presently believes that with modifications
to existing software and conversions to new software, the year 2000 issue will
not pose significant operational problems for its computer and operational
systems. However, if such modifications and conversions are not made, or are not
completed timely, the year 2000 issue could have a material impact on operations
of the Company.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the cost and extent of training
associated with needed conversions and similar uncertainties.
13
<PAGE>
PART II OTHER INFORMATION
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 Corporation, as
amended (1)
3.4 Bylaws of LFC Holding Corporation, as amended (1)
3.5 Articles of Incorporation of Loomis, Fargo & Co. (Texas), as
amended (1)
3.6 Bylaws of Loomis, Fargo & Co. (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 Loomis, Fargo & Co.
(Delaware), as Issuer, LFC Holding Corporation, Loomis, Fargo & Co.
(Texas), LFC Armored of Texas Inc. (formerly known as Wells Fargo
Armored Service Corporation of Texas), and Loomis, Fargo & Co. of
Puerto Rico (formerly known as Wells Fargo Armored Service Corporation
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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the co-registrants have duly caused this report to be signed on their
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, 1998 By: /s/ James K. Jennings, Jr.
-----------------------------
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer of the
Co-registrants)
15
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<FISCAL-YEAR-END> DEC-31-1998
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