<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 MARCH 31, 1999
LOOMIS, FARGO & CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <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. 333-24689-04
LFC Holding Corporation Loomis, Fargo & Co. Loomis, Fargo & Co. of Puerto Rico
(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)
Delaware Texas Tennessee
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)
75-2371825 75-0117200 66-0215016
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
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 May 13, 1999, 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); 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, in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,548 $ 5,031
Accounts receivable, net 30,261 30,993
Prepaid expenses and other current assets 3,965 5,903
-------- --------
Total current assets 36,774 41,927
Property and equipment, net 40,736 41,982
Deferred taxes, net 3,608 3,608
Intangible assets, net 105,943 105,243
Other assets, net 3,975 3,734
-------- --------
Total Assets $191,036 $196,494
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 21,044 $ 15,384
Accrued expenses and other current liabilities 29,549 32,322
Current portion, long-term debt - affiliates 3,000 3,000
Current portion, capital lease obligations 411 367
-------- --------
Total current liabilities 54,004 51,073
Long-term liabilities:
Long-term debt - affiliates 2,988 3,000
Long-term debt - other 130,100 137,000
Capital lease obligations 318 243
Other long-term liabilities 10,613 11,697
-------- --------
Total long-term liabilities 144,019 151,940
Stockholders' deficit:
Common stock 100 100
Additional paid-in capital 24,755 24,755
Accumulated deficit (31,842) (31,374)
-------- --------
Total stockholders' deficit (6,987) (6,519)
-------- --------
Total liabilities and stockholders' deficit $191,036 $196,494
======== ========
</TABLE>
See accompanying notes.
1
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LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1999
------- -------
<S> <C> <C>
REVENUES $96,504 $94,050
COST OF OPERATIONS:
Payroll and related expense 58,615 57,884
Vehicle expense 12,238 10,991
Facilities expense 3,969 4,098
Other operating expenses 18,951 16,691
------- -------
93,773 89,664
------- -------
OPERATING INCOME 2,731 4,386
INTEREST EXPENSE 4,039 3,450
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,308) 936
INCOME TAXES 105 468
------- -------
NET INCOME (LOSS) $(1,413) $ 468
======= =======
</TABLE>
See accompanying notes.
2
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1999
---------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,413) $ 468
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 3,680 3,281
Amortization of financing costs 236 241
Accretion of discount on NOL note 48 12
(Gain) loss on disposal of property and equipment (2) 12
Provision for doubtful accounts 3,044 352
Changes in current assets and liabilities:
Accounts receivable 11,532 (1,084)
Prepaid expenses and other current assets 10 (1,938)
Accounts payable (6,252) (5,660)
Accrued expenses and other liabilities (10,779) 3,857
-------- -------
Net cash provided by (used in) operating activities 104 (459)
-------- -------
INVESTING ACTIVITIES
Acquisition of property and equipment (2,064) (3,866)
Proceeds from sale of property and equipment 40 27
-------- -------
Net cash used in investing activities (2,024) (3,839)
-------- -------
FINANCING ACTIVITIES
Net borrowings of debt 4,000 6,900
Repayments of capital lease obligations (152) (119)
Financing costs related to debt (104) -
-------- -------
Net cash provided by financing activities 3,744 6,781
-------- -------
Net increase in cash and cash equivalents 1,824 2,483
Cash and cash equivalents at beginning of period 3,659 2,548
-------- -------
Cash and cash equivalents at end of period $ 5,483 $ 5,031
======== =======
</TABLE>
See accompanying notes
3
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
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, 1998 included in the Form 10-K
filed with the Securities and Exchange Commission on March 24, 1999. 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 months ended March 31, 1999 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 1999
presentation.
NOTE 2 RECENT PRONOUNCEMENTS
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.
NOTE 3 SIGNIFICANT CUSTOMER
One of the Company's customers accounts for approximately 12% of the Company's
consolidated revenue for the first quarter of 1999.
4
<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. The Company offers secure, expedited
transportation and protection for valuable commodities, provides extensive
automatic teller machine ("ATM") services, and cash vault and related services
to financial institutions and other commercial customers. The Company also
provides contract security officers to patrol and control access to customer
facilities in Puerto Rico.
FORWARD-LOOKING INFORMATION
Certain statements in this report including such terms as "believe",
"estimate", "should", "may", "expect", "anticipate" and similar expressions
which are not historical are forward-looking statements that involve risks and
uncertainties. Such statements include, without limitation, the Company's
expectation as to future performance. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Important factors that could cause the actual results,
performance or achievements of the Company to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this report.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to leverage
and debt service, changes in interest rates, risks inherent in the armored
transport industry, general economic and business 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. All
written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Statements.
RESULTS OF OPERATIONS
The following table sets forth the Company's consolidated results of operations
expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1998 1999
------- -------
<S> <C> <C>
REVENUES 100% 100%
COST OF OPERATIONS:
Payroll and related expense 60.7 61.5
Vehicle expense 12.7 11.7
Facilities expense 4.1 4.4
Other operating expenses 19.6 17.7
------- -------
OPERATING INCOME 2.8 4.7
INTEREST EXPENSE 4.2 3.7
------- -------
INCOME (LOSS) BEFORE TAXES (1.4) 1.0
INCOME TAXES 0.1 0.5
------- -------
NET INCOME (LOSS) (1.5)% 0.5%
======= =======
</TABLE>
5
<PAGE>
Revenues. Revenues for the first quarter of 1999 decreased by approximately $2.5
million (2.5%) from last year's corresponding period. During the last half of
1997, the Company continued its initiative to improve the quality of service and
revenue on the contracts acquired in the January 1997 combination with Wells
Fargo Armored Services Corporation. A majority of the acquired contracts were
renegotiated with higher rates by the end of 1997. These rate increases, which
also occurred during 1998 to a lesser extent, resulted in higher revenues from
the acquired contracts for much of the first quarter of 1998; however, they also
resulted in the loss of certain customers. This revenue initiative also included
a conscious decision by management to discontinue relationships with specific
customers that were unprofitable or did not meet the Company's strategic
objectives. These factors largely explain the decrease in quarter over quarter
revenues.
The following table analyzes revenues by type of service. The decrease in
armored transport services results from the impacts of the revenue improvement
initiative previously discussed. Management believes ATM services continue to
represent the most dynamic growth sector of the industry and related revenues
increased during the first quarter of 1999 as compared to the respective period
in 1998. The table also reflects a slight reduction in the cash vault and
related services, partially attributable to management's revenue initiative
strategies.
<TABLE>
<CAPTION>
Quarter Ended
March 31
--------------------------------------------------
(In millions) 1998 1999 Change
-------------- -------------- --------------
<S> <C> <C> <C>
Traditional armored transport services $58.1 $54.8 $(3.3)
ATM services 28.6 29.9 1.3
Cash vault and related services 9.8 9.3 (0.5)
-------------- -------------- --------------
Total Revenues $96.5 $94.0 $(2.5)
============== ============== ==============
</TABLE>
Payroll and related expense. Payroll and related expense for the quarter ended
March 31, 1999 decreased by approximately $0.7 million (1.2%) from the
corresponding period in 1998. As a percentage of revenue, payroll and related
expense increased to 61.5% from 60.7% during the first quarters of 1999 and
1998, respectively. Slight decreases in routes being serviced and route
efficiencies resulted in a reduction in the total expenses; however, other
factors have increased these expenses as a percentage of revenue. These factors
include the business strategy of improved wages and fringe benefits throughout
the Company as well as further investments in two and three-person crew
complements to enhance security. As most of these investments had been
completed by March 31, 1999, management expects payroll and related expense will
decrease slightly as a percentage of revenue.
Vehicle expense. Vehicle expense for the first quarter of 1999 decreased by
approximately $1.2 million (10.2%) from the corresponding period in 1998.
Vehicle expense as a percent of revenues decreased to 11.7% for the first
quarter of 1999 from 12.7% for the corresponding period in 1998. The decreases
were largely a result of the revenue improvement initiative as previously
discussed. This resulted in a reduction in the number of truck hours required
to service the remaining higher quality of revenue customers. Fuel prices were
approximately 10.0% lower during the first quarter of 1999 as compared to the
corresponding quarter in 1998, which also contributed to the decreases. In
addition, route efficiencies have been achieved through the consolidation of
branches and the restructuring of routes. If fuel prices remain at their
current level, which are approximately 11.0% higher than the beginning of 1999,
second quarter vehicle expense will be negatively impacted by approximately
$200,000.
6
<PAGE>
Facilities expense. Facilities expense for the first quarter of 1999, and the
expense as a percent of revenue, remained relatively constant with the
corresponding period in 1998.
Other operating expenses. Other operating expenses for the first quarter of 1999
decreased by approximately $2.3 million (11.9%) from the corresponding period in
1998. Other operating expenses as a percent of revenues decreased to 17.7% for
the quarter ended March 31, 1999 from 19.6% for the corresponding period in
1998. Other operating expenses include such expenses as cargo insurance
premiums and retained losses, costs of a centralized dispatch center,
subcontracting costs, bad debt expense, and the testing, recruiting and training
of employees. The conscious decision by management to discontinue relationships
with specific unprofitable customers and an emphasis on collections produced a
decrease in bad debt expense of $2.6 million during the first quarter of 1999 as
compared to the same period in 1998. Combined cash-in-transit insurance
premiums and cargo losses totaled approximately $3.0 million and $2.6 million
for the first quarters of 1999 and 1998, respectively.
Interest expense. Interest expense for the first quarter of 1999 decreased by
approximately $0.6 million (14.6%) from the corresponding period in 1998. This
is primarily a result of the daily average borrowings under the Company's credit
facility being approximately $21.7 million (28.2%) lower during the first
quarter of 1999 as compared to the same quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents at March 31, 1999 and 1998 were $5.0 million and
$5.5 million, respectively. Changes in cash and cash equivalents are described
in the statements of cash flows, which are summarized below.
<TABLE>
<CAPTION>
Quarter Ended
March 31
----------------------------------
(In millions) 1998 1999
-------------- --------------
<S> <C> <C>
Net cash provided by operating activities $ 0.1 $(0.5)
Net cash used in investing activities (2.0) (3.8)
Net cash provided by (used in) financing activities 3.7 6.8
-------------- --------------
Net increase in cash and cash equivalents $ 1.8 $ 2.5
============== ==============
</TABLE>
OPERATING ACTIVITIES
Net cash of $0.5 million was used by operating activities during the first
quarter of 1999. A greater reduction in accounts receivable was achieved in the
first quarter of 1998 than in the corresponding period in 1999. The largest
item impacting the first quarter of 1998 was the reduction to accrued expenses
due to an $11.7 million payment to the Company's insurance carrier in January
1998 related to the recovery of a 1997 cargo loss.
INVESTING ACTIVITIES
In the first quarter of 1999, cash of $3.9 million was used for acquisitions of
property and equipment. A substantial amount of these expenditures relate to the
enhancement of the Company's fleet.
Planned capital expenditures for the next twelve months are $16.0 million. The
Company is purchasing more of its fixed assets rather than obtaining them
through operating leases, which has increased capital expenditures.
7
<PAGE>
FINANCING ACTIVITIES
Net borrowings of $6.9 million were made on the Company's bank credit facility
during the first quarter of 1999. The Company's average daily balance
outstanding, however, was $21.7 million less during this quarter than the
corresponding period in 1998. The primary reason the Company was able to reduce
the level of debt has been due to improved collections and the subsequent
reduction of accounts receivable as previously discussed.
The Company's balance sheet reflected a working capital deficit of $9.1 million
at March 31, 1999, a decrease from the December 31, 1998 working capital deficit
of $17.2 million. The Company is highly leveraged, with long-term liabilities
comprising 77.3% of total liabilities and a common stockholders' deficit at
March 31, 1999.
The Company's revolving bank credit facility provided aggregate commitments of
$105.0 million at December 31, 1998. The credit facility agreement includes a
step-down of the commitment over the final three years of the facility. The
commitment is reduced by $3.75 million and $4.375 million at the end of each
quarter in 1999 and 2000, respectively. Therefore, a total commitment of $101.2
million remained at March 31, 1999. The facility includes guarantees of letters
of credit, of which approximately $17.2 million were outstanding at March 31,
1999. The remaining commitment available under the facility at March 31, 1999
was $32.1 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 1999, the total commitment under the bank credit facility will
decrease to $90.0 million. It is anticipated that letters of credit
requirements, principally for casualty liabilities, should not exceed $20.0
million by December 31, 1999, leaving $70.0 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
The Year 2000 computer issue is predominantly the result of many software
programs categorizing the "year" in a two-digit format. Such programs may be
unable to interpret dates beyond the year 1999, which could cause a system
failure or other computer errors and a disruption in the operation of such
systems. The Year 2000 issue creates potential risks for the Company in both
the Information Technology ("IT") and non-IT systems that are depended on in
various aspects of the business operations. Loomis, Fargo & Co. may also be
exposed to risks from third parties with whom the Company interacts who fail to
adequately address their own Year 2000 issues.
The Company has established an internally staffed Year 2000 Readiness Committee
to address Year 2000 issues. The five objectives of this committee are to
create awareness, conduct assessment, complete renovation of critical and
important items, validate or test the success of the changes, and oversee
implementation of those tested changes into the Company's business processes.
State of Readiness
The Company is preparing for the impact of the arrival of the Year 2000 on its
internal business systems and equipment, and on the services and equipment from
its suppliers, business partners and customers. The systems potentially impacted
include 1) information systems software and hardware (e.g. billing,
route/productivity, accounting and associated systems, personal
computers/software and various end-user developed applications) and 2) building
facilities and operations equipment (e.g. national customer service center,
locking devices, communications, vehicles and alarms).
Assessment
The assessment phase entails a company-wide inventory of all hardware and
software (including business and operational applications and operating systems)
that may be at risk, and identification of key third-party businesses whose Year
2000 failures might also significantly impact the Company. The
8
<PAGE>
centralized IT system inventory process has been completed as well as the
inventories of the branch offices and key third-party business relationships (to
include all non-IT systems) have been completed.
Once each at-risk system or item of equipment has been identified, the Year 2000
Committee will assess how critical the system is to business operations and the
potential impact of failure, in order to establish priorities for repair or
replacement. Systems are classified as "critical," "important" or "non-
critical." A "critical" system is one that, if not operational, would cause the
shutdown of all or a portion of a business immediately, while an "important"
system is one that would likely cause such a shutdown within a short period of
time. Once this process is completed for all systems, the resulting
identification of business systems that are either "critical" or "important"
will determine which items will be prioritized in our testing and certification
program and the allocation of resources.
Assessment also involves the development of appropriate remedial strategies for
both IT and non-IT systems. These strategies may include repairing, testing and
certifying, replacing or abandoning particular systems. The strategy phase has
been completed for all IT systems. The process of analysis, certification,
replacement or "workaround" for embedded systems in the branch offices is
expected to consume the second quarter of 1999.
Several significant achievements have been made to date. The Company's core
financial reporting and contract billing systems were upgraded in July 1998.
Additionally, the key system located at the centralized dispatch center was
replaced during 1998. Confirmation was received from the vendors that these
systems were Year 2000 ready prior to their being installed. Since the
Company's core business relates to the transportation and handling of valuables,
the truck fleet and its supporting infrastructure is being rigorously reviewed.
To date, there have been no significant issues identified with the fleet
viability as it pertains to Year 2000. In addition, confirmation has been
received from the major truck supplier that the engines which have been supplied
for the Company's use will not cease functioning because of the Year 2000
transition. Finally, the vendor that supplies the electronic locks that Loomis,
Fargo & Co. installs on customers' ATMs for added security, has assured the
Company that their product is Year 2000 ready.
Remediation
The remediation phase involves creating plans, marshalling necessary resources
and executing the strategies chosen. For non-critical systems, most corrections
are expected to be completed by December 31, 1999. For those systems that are
not expected to be reliably functional after January 1, 2000, detailed manual
workaround plans will be developed prior to the end of 1999.
Testing and Certification
This phase includes establishing a test environment, performing systems testing
(with third parties if necessary), and certifying the results. The Company
expects all critical IT systems to be IT certified by mid-1999. Testing for
non-IT systems has not yet been initiated and due to the reliance on many third-
party vendors for these systems, the Company cannot estimate precisely when this
phase will be completed. Our target for all critical and important non-IT
systems is late-1999. We have initiated written and telephone communications
with key third-party suppliers/vendors, as well as public and private providers
of infrastructure services, to ascertain and evaluate their efforts in
addressing Year 2000 readiness. It is anticipated that the majority of testing
and certification with these entities will occur in 1999.
Third-Party Exposure
The Company is tracking the Year 2000 readiness status of its material vendors
and suppliers via the Company's own internal vendor readiness effort. Loomis,
Fargo & Co. is aggressively seeking Year 2000 certification from these
companies, especially because of the dependent business relationships deemed
critical by the Year 2000 Readiness Committee. Year 2000 correspondence is
being sent to critical vendors and suppliers, with continued follow-up for those
who fail to respond. To date, the Company is not aware of any problems that
would materially impact results of operations, liquidity or capital resources;
however, the Company has no means of ensuring that these suppliers and vendors
will be
9
<PAGE>
Year 2000 ready. The inability of those parties to complete their Year 2000
resolution process could materially impact the Company. In late-1999, the
Company expects to implement additional procedures for assessing the Year 2000
readiness status of its most critical vendors and will modify its contingency
plans accordingly.
Costs
The Company does not expect that the costs associated with its Year 2000 efforts
will be material. The Company estimates aggregate expenditures of approximately
$1.1 million to address Year 2000 issues and is being funded through operating
cash flows. These aggregate expenditures include $0.5 million of costs that
are being charged to expense and $0.6 million of costs, related to the
accelerated replacement of non-compliant systems due to Year 2000 issues, which
will be capitalized. The total amount expended through March 31, 1999 was
approximately $0.3 million, all of which was expensed. These estimated costs do
not include costs incurred by the Company as a result of the failure of any
third parties, including suppliers, to become Year 2000 compliant nor do they
include any potential costs related to any customer or other claim or costs to
implement any contingency plans. In addition, these cost estimates are based on
current assessments of the ongoing activities described above, and are subject
to changes as the Company continuously monitors these activities.
Risks
The following describes the Company's most reasonably likely worst-case
scenario, given current uncertainties. If our renovated or replaced internal
information technology systems fail the testing phase, or any software
application or embedded microprocessors central to the Loomis, Fargo & Co's.
operations are overlooked in the assessment or remediation phases, significant
problems including delays may be incurred in billing major customers for
services performed. If our major customers' systems do not become Year 2000
ready on a timely basis, Loomis, Fargo & Co. will have problems and incur delays
in receiving and processing correct reimbursement. If the vendors or suppliers
fail to become Year 2000 ready, we may be unable to provide pickup and delivery
services to our customers.
If any of these uncertainties were to occur, the Company's core business,
financial condition and results of operations would be adversely affected. The
Company is unable to assess the likelihood of such events occurring or the
extent of the effect on its organization.
Based on the Company's current assessment efforts, management does not believe
that Year 2000 issues will have a material adverse effect on its financial
condition or results of operations. However, the Company's Year 2000 issues and
any potential business interruptions, costs, damages or losses related thereto,
are dependent, to a certain degree, upon the Year 2000 readiness of third
parties such as customers, governmental agencies, vendors and suppliers.
Consequently, the Company is unable to determine at this time whether Year 2000
failures will materially affect the Company. The Company believes that its
readiness efforts have and will reduce the impact on the Company of any such
failures.
Contingency Planning
This phase involves addressing any remaining open issues expected in 1999 and
early 2000. As a precautionary measure, the Company is currently developing
contingency plans for all systems that are not expected to be Year 2000 ready.
Loomis, Fargo & Co. is working jointly with customers, strategic vendors and
business partners to identify and resolve any Year 2000 issues that may impact
the Company. However, there can be no assurance that the companies with which
the Company does business will achieve a Year 2000 conversion in a timely
fashion, or that such failure by another company to convert will not have a
material adverse effect on Loomis, Fargo & Co. Therefore, we have begun to
develop a detailed and comprehensive "Business Contingency Plan" designed to
address situations that may result if the Company or any of the third parties
upon which we are dependent is unable to achieve Year 2000 readiness.
10
<PAGE>
Year 2000 Forward-Looking Statements
The foregoing Year 2000 discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties 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 ability to
identify and remediate all relevant IT and non-IT systems, results of Year 2000
testing, adequate resolution of Year 2000 issues by businesses and other third
parties who are service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to develop and implement
contingency plans and similar uncertainties. The "forward-looking statements"
made in the foregoing Year 2000 discussion speak only as of the date on which
such statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
11
<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)
3.9 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)
10.1 First Amendment to Unitholders Option Plan and Agreement.*
10.2 Settlement Agreement, dated as of May 14, 1999, between Borg-Warner
Security Corporation and the Company.*
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.
12
<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)
Loomis, Fargo & Co. of Puerto Rico
Date: May 14, 1999 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)
13
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
UNITHOLDERS OPTION PLAN AND AGREEMENT
This First Amendment to the Unitholders Option Plan and Agreement (this
"Amendment"), dated as of October 21, 1998, amends the Unitholders Option Plan
and Agreement, dated as of January 24, 1997 (the "Plan Agreement"), among
Loomis, Fargo & Co., a Delaware corporation (the "Company"), LFC Holding
Corporation, a Delaware corporation, formerly known as Loomis Holding
Corporation, and the signatories as Unitholders thereto (the "Unitholders").
WHEREAS, the Company has previously established the Unitholders Option Plan
(the "Plan") pursuant to the Plan Agreement, whereby the Unitholders were
granted options (the "Options") to purchase shares of the common stock, $0.01
par value ("Common Stock"), of the Company; and
WHEREAS, the Company, together with the Loomis Stockholders Trust, a Delaware
business trust (the "Stockholders Trust"), in accordance with Section 18 of the
Plan Agreement, desire to amend the Plan to provide certain additional benefits
to the Unitholders thereunder in furtherance of the Plan's objectives.
NOW, THEREFORE, in consideration of the premises and the agreements contained
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Amendment of Section 4(d). Section 4(d) of the Plan Agreement is hereby
amended and restated to read in its entirety as follows:
"the consummation of an underwritten public offering or series of offerings
of Common Stock by the Company or a Successor Entity pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Securities
Act") producing aggregate gross proceeds to the Company or any Successor Entity
and any selling stockholders of at least $50 million."
2. Amendment of Section 3. The last paragraph of Section 3 of the Plan
Agreement is hereby amended and restated to read in its entirety as follows:
"Notwithstanding anything in this Section 3 to the contrary, (1) the
Exercise Price per Option Share shall never be less than $0.01 per Option Share,
and (2) in the event a Triggering Event occurs due to an underwritten public
offering or series of offerings of Common Stock of the Company or any Successor
Entity pursuant to Section 4(d), the Exercise Price of each Option granted
hereunder shall be fixed at $0.01 per Option Share."
3. Counterparts. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, all of which shall constitute one
and the same instrument.
4. Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Texas.
5. Headings. The headings contained herein are for convenience of reference
only and shall not control or affect the meaning or construction of any
provision hereof.
6. Inconsistencies. In the case of any inconsistencies between this Amendment
and the Plan Agreement, the terms of this Amendment shall govern.
<PAGE>
7. Effect of Amendment. Except as amended hereby, the terms and provisions of
the Plan Agreement shall remain in full force and effect and are hereby in all
respects ratified and confirmed by the parties hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by the
undersigned, effective as of the day and year first written above.
LOOMIS, FARGO & CO.
By: /s/ James B. Mattly, President
---------------------------------
James B. Mattly, President
LOOMIS STOCKHOLDERS TRUST
By: /s/ Frederick B. Hegi, Jr.
---------------------------
Frederick B. Hegi, Jr.,
as Trust Manager
2
<PAGE>
EXHIBIT 10.2
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into as of the 14th day of May, 1999
by and between Borg-Warner Security Corporation ("BWSC") and Loomis, Fargo & Co.
("LFC"). BWSC and LFC may be referred to collectively as the "Parties" or
either of them individually as the "Party." Capitalized terms in this Agreement
which are not herein defined shall have the meaning ascribed to them in the
Contribution Agreement (as hereinafter defined).
WHEREAS, BWSC and LFC, among other parties, entered into the Contribution
Agreement dated as of November 28, 1996 (as amended, the "Contribution
Agreement") whereby, among other things, the Parties agreed to defend and
indemnify each other for certain stated losses and liabilities;
WHEREAS, under the Contribution Agreement, BWSC agreed to defend and
indemnify LFC for certain stated losses and liabilities related to the
operations of Wells Fargo Armored Service Corporation and its subsidiaries
("WFASC") and for breaches of the representations and warranties of BWSC and
WFASC in the Contribution Agreement, subject to the limitations set forth in the
Contribution Agreement;
WHEREAS, LFC has submitted claims to BWSC for indemnification related to
the WFASC cargo losses and liabilities;
WHEREAS, BWSC has objected to certain claims for indemnification made by
LFC related to the WFASC cargo losses and liabilities; and
WHEREAS, the Parties desire to resolve and settle all actual or potential
cargo loss claims, liabilities and obligations that LFC has or may have in the
future against BWSC and its subsidiaries, together with the global resolution
and settlement of all other claims, liabilities and obligations related to or
arising in connection with the Contribution Agreement, other than as
specifically identified and reserved herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants, undertakings and conditions herein, and for other good and valuable
consideration, the adequacy of which is hereby acknowledged, the Parties agree
as follows:
1. Consideration. Within thirty (30) days of the execution of this Settlement
Agreement, BWSC will pay to LFC, via wire transfer, one million six hundred
fifty thousand dollars and no cents ($1,650,000.00).
<PAGE>
2. Releases and Indemnification. Subject to Section 3 below, LFC, on behalf of
itself and its current and former officers, directors, employees, agents,
stockholders (other than BWSC), attorneys, subsidiaries, predecessors,
successors and assigns, or anyone claiming by, through, or under them, hereby
releases, relinquishes and forever discharges BWSC, its current and former
parents, subsidiaries (including, without limitation, WFASC), affiliated
companies (with the exception of LFC), and their respective predecessors,
successors, assigns, and all their respective current and former officers,
directors, employees, agents, stockholders, attorneys, heirs and
representatives, from and against any and all Indemnifiable Losses arising out
of or in any way connected with, directly or indirectly, any acts, omissions to
act, or any other form of obligation or omission by BWSC, or any of its
aforementioned privies, related to any claim, liability, or obligation arising
out of or related to the operations of WFASC or any claim, liability, or
obligation which has been or could be raised under the Contribution Agreement,
including, without limitation, all cargo claims, cargo liabilities and cargo
obligations (including, without limitation, any claims previously made under
notice letters from LFC to BWSC dated April 17, 1998, May 21, 1998, September
17, 1998 and November 20, 1998), which LFC or any of its aforementioned privies,
and their respective successors and assigns ever had, now have, or hereafter may
have, whether grounded in tort or contract or otherwise, in any and all courts
or other forums, of whatever kind or nature, whether known or unknown
(collectively, "Released Claims"). LFC agrees to defend and indemnify BWSC, and
all of its aforementioned privies, for any of the Released Claims made by any
third party and BWSC agrees to provide LFC with prompt written notice of any
such third party claim. Furthermore, for any third party claim that LFC accepts
the obligation to defend and indemnify BWSC and all of its aforementioned
privies under this section, LFC has the right to control the defense or
settlement of such third party claim; provided, however, LFC will not agree to
settle any third party claim in a manner which would result in any additional
cost, expense, liability or loss to BWSC or the aforementioned privies.
Notwithstanding anything to the contrary herein, the foregoing release shall not
extend to or be construed to release the Parties' obligations under this
Settlement Agreement.
3. Other Indemnification Obligations and Excluded Liabilities. This
Settlement Agreement shall have no effect on indemnification obligations under
the Contribution Agreement related to or arising in connection with the tax
matters specifically set forth on Annex A attached hereto ("Indemnifiable Tax
Matters") or the Excluded Liabilities, and each Party hereby specifically
reserves any claims or defenses thereto that such Party may have with respect to
such indemnification claims. BWSC acknowledges that the $250,000 deductible set
forth in Section 12.4(a) of the Contribution Agreement has previously been met,
exclusive of the Indemnifiable Tax Matters, and that the Indemnifiable Tax
Matters shall not be subject to any deductible, basket or other setoff. LFC
agrees that it will provide its commercially reasonable assistance to BWSC to
mitigate any losses that
2
<PAGE>
BWSC may incur by virtue of its continuing indemnification obligations with
respect to the Indemnifiable Tax Matters, provided that such assistance shall
not include any consent, election, concession, agreement or other action which
would result in any additional cost, expense, liability or loss to LFC or its
aforementioned privies. BWSC represents to LFC that the tax audits previously
conducted by the States of Texas, Pennsylvania and Ohio with respect to the
operations of WFASC have been entirely resolved and that LFC and its
subsidiaries shall not be subject to any liability relating to or arising in
connection with such audits. To the extent that any liability does exist or
arises in the future relating to such audits, such liability will constitute
"Indemnifiable Tax Matters" for purposes of this Settlement Agreement and will
continue to be subject to the indemnification provisions of Section 12.4 of the
Contribution Agreement.
4. Covenants. LFC will provide to BWSC in an expeditious manner all
information BWSC reasonably requests relating to WFASC's New York State sales
tax audit, but in no case will LFC provide said information later than ten (10)
days after LFC's receipt of such request (unless such requested information does
not exist and, using commercially reasonable efforts, cannot be produced within
such 10-day period).
5. Miscellaneous.
(a) This Settlement Agreement may be executed and delivered in multiple
counterparts, each of which when so executed and delivered shall be an
original, which collectively shall together constitute one and the same
instrument and agreement.
(b) This Settlement Agreement is solely for the benefit of the Parties and such
other persons to the extent identified and provided herein, and no
provision of this Settlement Agreement shall be deemed to confer upon other
third parties any remedy, claim, liability, reimbursement, cause of action
or other right.
(c) This Settlement Agreement shall be binding upon and inure to the benefit of
BWSC, its current and former parents, subsidiaries and affiliates, and
their respective predecessors, successors and assigns, and the former and
current officers, directors, employees, agents, attorneys, and stockholders
of all such parties and LFC, its current and former parents, subsidiaries
and affiliates, and their respective predecessors, successors and assigns,
and the former and current officers, directors, employees, agents,
attorneys, and stockholders of all such parties.
(d) The Parties represent and warrant that they have entered into this
Settlement Agreement based upon their own independent assessment of the
rights and obligations of the Parties and not based upon any
3
<PAGE>
representations (other than as provided herein) made by the other Party to
this Settlement Agreement.
(e) Other than the Settlement Agreement between the Parties dated March 22,
1999 (the "March Settlement Agreement") which will remain in effect, all
understandings and agreements, written or oral, heretofore related to the
subject matter addressed in this Settlement Agreement between and among
BWSC and LFC are merged into this Settlement Agreement, which (together
with the March Settlement Agreement) fully and completely expresses their
agreement. This Settlement Agreement (together with the March Settlement
Agreement) constitutes the entire agreement between Parties related to the
subject matter hereof. This Settlement Agreement may not be amended or
modified, except by a written amendment duly executed by the Parties.
(Remainder of page intentionally left blank)
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement to be executed by their authorized representatives as of the day and
year first written above.
BORG-WARNER SECURITY CORPORATION
By: /s/ John A. Edwardson
---------------------
John A. Edwardson
President and Chief Executive Officer
LOOMIS, FARGO & CO.
By: /s/ James K. Jennings, Jr.
--------------------------
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
5
<PAGE>
ANNEX A
Pending Tax Audits
1. State of Alabama
2. State of New York
3. Multi-State Tax Commission
4. State of South Dakota
6
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<NAME> LOOMIS, FARGO & CO.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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0
0
<COMMON> 100
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<TOTAL-LIABILITY-AND-EQUITY> 196,494
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