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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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 No. 333-24689
LOOMIS, FARGO & CO.
(Exact name of registrant as specified in its charter)
Delaware 76-0521092
(State of Incorporation) (IRS Employer Identification No.)
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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 as (Exact Name of Registrant as (Exact Name of Registrant as
Specified in its Charter) Specified in its Charter) 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
(IRS Employer Identification No.) (IRS Employer Identification No.) (IRS Employer Identification No.)
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2500 Citywest Blvd., Suite 900, Houston, Texas 77042
(Address of principal executive offices)
Registrants' telephone number (713) 435-6700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Exchange on
Title of Each Class Which Registered
------------------- -----------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrants is zero.
As of March 22, 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.
DOCUMENTS INCORPORATED BY REFERENCE
None
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LOOMIS, FARGO & CO.
LFC HOLDING CORPORATION
LOOMIS, FARGO & CO. (TEXAS)
LOOMIS, FARGO & CO. OF PUERTO RICO
FORM 10-K
For the Fiscal Year Ended December 31, 1998
INDEX
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Part I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders............ 7
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 8
Item 6. Selected Financial Data........................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 9
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..... 19
Item 8. Financial Statements and Supplementary Data.................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures......................................... 40
Part III
Item 10. Directors and Executive Officers of the Registrant............. 40
Item 11. Executive Compensation......................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 46
Item 13. Certain Relationships and Related Transactions................. 47
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 48
Signatures..................................................... 50
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report including such terms as "believe",
"intend", "estimated", "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.
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PART I
Item 1. Business
General
Loomis, Fargo & Co. ("the Company") was created in January 1997 through the
combination of Loomis Armored Inc. ("Loomis Armored"), a wholly-owned
subsidiary of Loomis Holding Corporation and Wells Fargo Armored Service
Corporation ("Wells Fargo Armored"), a wholly-owned subsidiary of Borg-Warner
Security Corporation ("Borg-Warner"). One of the largest armored transport
companies in the United States, Loomis, Fargo & Co. operates approximately 157
branches and 32 satellite sites, employs approximately 7,590 persons, and
utilizes a fleet of approximately 2,500 armored and other vehicles nationwide
to provide armored ground transport services, automated teller machine ("ATM")
services, and cash vault and related services to financial institutions and
other commercial customers. The Company is one of only two armored transport
companies in the United States which provides these services on a national
basis, including Puerto Rico. Management believes that large financial and
retail institutions are increasingly seeking vendors capable of providing an
array of services on a national basis and that the combination of Loomis
Armored and Wells Fargo Armored favorably positions the Company for additional
revenue opportunities. In addition, management believes the proliferation of
ATMs and the trend of banks and other financial and retail institutions
towards outsourcing cash vault and related services should contribute to the
Company's growth prospects.
The Company continues to focus on its management principles which have
proven to be highly effective in reducing employee turnover, increasing
customer satisfaction and decreasing "cost of risk," which consists of the
cost of cargo and casualty losses, related insurance costs, claims
administration expenses, and insurance related incentive programs. Management
believes that by combining this management strategy with its large customer
base and leading ATM services position, the Company is well positioned to
capitalize on the numerous opportunities developing in the armored transport
industry.
The Industry and Company Services
The U.S. armored transport industry consists of two national companies and
over 100 regional and local companies. Management estimates that the ten
largest of these companies have aggregate annual revenues in excess of $1.5
billion. The industry provides a variety of services which can be categorized
as (i) traditional armored ground transportation of cash and other valuables,
(ii) ATM services and (iii) cash vault and related services.
Traditional Armored Ground Transportation. Traditional armored ground
transportation is the largest sector of the armored transport industry and
represents the core service provided by the industry and the Company's
business, representing approximately 74.7%, 59.6% and 58.9% of the Company's
revenues for the six months ended December 31, 1996, and the years ended
December 31, 1997 and 1998, respectively. Armored vehicles transport currency
and other valuables between commercial enterprises and banks, between banks,
and from the Federal Reserve Banks to commercial banks. Management estimates
that approximately one-half of ground transportation revenues in the industry
were generated from financial institutions. Other customers of ground
transportation services include a wide range of commercial establishments as
well as governmental entities.
Typically, ground transportation services have been provided by a two-person
crew, comprised of a driver and a guard, operating in an armored vehicle. At
each stop, the guard exits the vehicle to pick up or deliver cargo, usually
currency and/or coin, while the driver normally remains inside the vehicle. In
higher risk areas, the Company utilizes several additional security measures,
including three-person crews and surveillance vehicles. The cargo typically is
received by the guard in a sealed bag bearing a tag indicating the amount of
cash and other valuables the bag is said to contain. The sealed bag is
ultimately delivered to its destination without being opened while in the
custody of the armored carrier. The Company schedules routes for each armored
vehicle to maximize the efficiency of the deliveries and pick-ups throughout
the day.
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In effect, the armored transport industry provides customers a logistical
service in transporting valuables as well as a form of insurance by accepting
the risk of cargo and casualty losses. Until recent years, cash-in-transit
insurance for armored transport service providers was relatively easy to
obtain, in part because armored carriers were not frequently targeted by
criminals, and carriers were able to pass most of the risk to insurance
companies. Accordingly, the economics of the industry were based largely on
routing efficiency or density and effective cost control. Quality of service
was measured primarily by timeliness of pick-up and delivery. Generally, risk
management, while important, was not a crucial service differentiator as long
as the carrier maintained adequate insurance. By the early 1990s, however,
armored vehicles had increasingly become targets of armed robbery,
particularly on the east and west coasts. As a result, cargo loss insurers
suffered substantial losses and the cost of cash-in-transit insurance
increased significantly for large carriers, forcing them to retain greater
risk and pay higher premiums.
Due to these changes, quality risk management has become increasingly
important from both a cost and marketing perspective. While the cost reduction
benefits of an effective risk management program are clear for the armored
carrier, they are even more significant to the customer, particularly banking
customers. In the event of an armed robbery at the customer's place of
business, the customer will suffer a business disruption and may be liable
should one of its employees, customers or a bystander become injured. An
armored carrier that can help prevent or avoid an incident may save its
customer from incurring a multi-million dollar liability. Consequently, the
strategy of establishing a risk management partnership between the armored
service provider and the customer becomes more appealing to the customer once
the customer recognizes the benefits of a comprehensive risk management
program.
ATM Services. ATM services represent the most dynamic growth sector of the
armored transport industry and comprised 16.5%, 29.0% and 30.5% of the
Company's revenues for the six months ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively. This segment of the industry
is expected by the Company to grow significantly over the next several years.
The expected growth results from a fundamental change in the retail delivery
channel strategy of banks in the United States as traditional, full service
bank branches are being replaced by ATMs, drive-through service centers and
banks located in supermarkets and other non-traditional locations. Each
individual point of distribution represents a potential service location and
new revenue opportunity to the armored transport industry. Additionally, many
ATM owners have begun outsourcing the servicing and maintenance of ATM
locations formerly serviced and maintained internally, resulting in further
growth prospects for this portion of the armored transport industry. As ATMs
and other remote banking services expand, the Company is positioned to
capitalize on business opportunities in this field. As a leading provider of
ATM services in the United States, the Company believes that its experience,
customer relationships, infrastructure and dominant position in this market
will enable the Company to increase its revenues.
ATM services consist of cash replenishment, deposit pick-up, and first-line
and second-line maintenance services. Cash replenishment and deposit pick-up
at ATM locations is substantially similar to normal ground transportation
services with respect to the transport of cash. However, the servicing of ATM
locations involves a greater degree of mechanical proficiency in that guards
are required to disarm and reset alarms, change bill cassettes and perform
various other administrative and mechanical tasks. First-line maintenance
services involve correction of simple non-technical problems such as
dislodging jammed bills and cards and refilling receipt paper, and are
frequently provided by armored transport carriers. Second-line maintenance
services consist of more complex technical ATM repairs and often require
specialized training, diagnostic equipment and an inventory of parts.
The Company utilizes a proprietary centralized automated dispatch system to
coordinate ATM servicing nationwide. The dispatch center coordinates customer
requests and directs field technicians throughout the country. The automated
system provides detailed service confirmation data both internally and
directly to the customer. In addition, on certain ATMs, the automated system
controls the ATM security access codes and provides such codes to technicians
upon receipt of proper identification.
The frequency of cash replenishment of ATMs varies depending upon consumer
use of an ATM location. High traffic ATM locations may require cash
replenishment on a daily basis whereas low traffic locations may
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require service only once or twice per month. Deposit pick-ups at ATM
locations that process banking deposits are typically executed on a daily
basis. First-line and second-line maintenance calls are less predictable than
cash replenishment and deposit pick-ups, but require the same level of prompt
attention as scheduled ATM services.
Cash Vault and Related Services. Cash vault and related services cover a
wide array of activities from passive, secured storage of valuables such as
currency, securities and computer chips to active services such as deposit
processing and consolidation, change order preparation and coin wrapping. Cash
vault and related services represented approximately 8.8%, 11.4% and 10.6% of
the Company's revenues for the six months ended December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively. While cash vault and
related services represent a relatively small portion of the Company's
revenues and the armored transport industry's revenues, management expects
this market to expand over the next several years as banks and other financial
institutions continue the trend toward outsourcing such services. The Company
also provides contract security officers to patrol and control access to
customer facilities in Puerto Rico.
Significant Customer. During 1998, two of the Company's customers merged.
Had these two customers been treated as one account for 1998, they would have
accounted for approximately 10.0% of the Company's total revenue.
Seasonality. Although the Company's revenues are generally level throughout
the year, revenues are favorably impacted slightly to the extent that demand
for money increases during the major holiday seasons late in the year.
Business Strategy
Management believes that Loomis, Fargo & Co. has several distinct
competitive strengths within the armored transport industry including a strong
national presence, the leading ATM services operation, and a management team
experienced in reducing cost of risk while improving cash flow and
profitability. The Company's business strategy is to capitalize on its
competitive strengths by continuing to focus on the following initiatives:
Promote the National Presence of Loomis, Fargo & Co. With services
throughout the United States and Puerto Rico, the Company sees
opportunities to continue to expand its business with national financial
institutions and retail customers which require armored ground transport,
ATM services and/or cash vault and related services in numerous locations
across the country. Management believes that the ability to provide
nationwide service is an important factor in the armored transport industry
as banks expand geographically through the continued consolidation of the
banking industry and as many other institutions shift toward centralized
purchasing of goods and services. As one of only two armored transport
providers in the United States with nationwide service, the Company is well
positioned to augment its base of customers requiring broad geographic
coverage. The Company has dedicated a segment of its sales force to
exclusively manage national account relationships.
Focus on Growing ATM Services Market. The Company provides ATM services
nationwide, making it the leading provider of ATM services in the United
States. The number of ATM locations continues to grow. Additionally, many
ATM owners continue to outsource the servicing and maintenance of ATM
locations formerly serviced and maintained internally. With its broad range
of services and automated national dispatching system, the Company intends
to build upon its leading position in the ATM services market.
Reduce Cost of Risk and Emphasize Risk Management Partnership with
Customers. Management intends to increase profitability not only by
reducing the Company's overall cost of risk but also by using a risk
management partnership approach with its customers as a means of
differentiating the Company from its competitors. A comprehensive risk
management program which emphasizes incident avoidance and loss
minimization per incident has been implemented throughout all of the
Company's operations. The program focuses on (i) employee culture and
attitude, (ii) selectivity in hiring, (iii) operating procedures designed
to
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recognize and avoid potential danger or accidents, (iv) safety and security
procedures, including training in the proper use of firearms and the
operation of the Company's vehicles, (v) limits on the amounts of cash or
other valuables contained in a branch or vehicle or under the control of an
employee, (vi) utilization of three-person crews and surveillance or chase
cars in high-risk areas, and (vii) an extensive security oversight program,
including surveillance and evaluation by AMSEC International ("AMSEC"), an
independent, international security firm. This risk management program
produced significant cost savings with respect to cargo loss and casualty
liability claims for Loomis Armored over the five years prior to the
consummation of the business combination with Wells Fargo Armored and has
achieved similar success since the companies were combined.
As the Company enters its third year of operations following the business
combination, these initiatives have been implemented and have started to
achieve positive results. The Company will continue to focus on these areas as
well as turning more of its attention to growth, both through new business
sales and higher customer retention. To provide the quality of service
necessary to enhance customer loyalty in support of this business strategy,
the Company emphasizes an operating philosophy dedicated to attracting and
retaining quality, loyal employees. Management believes that a loyal employee
base directly contributes to reducing cost of risk and improving customer
service and that the combination of selectivity in hiring, a commitment to
employee training, responsibility and safety, and competitive wage and benefit
packages will enable the Company to attract and retain quality, loyal
employees. The Company's employee turnover rates were approximately 45% and
41% for the years ended December 31, 1997 and 1998, respectively, which
reflects an improvement from the turnover rate of Wells Fargo Armored of 62%
for the year ended December 31, 1996.
Risk Management
Management views the Company as a risk management partner rather than a
transportation company. Cost of risk, in the form of armed robberies, other
cargo losses, vehicular accidents or worker's compensation claims and
insurance premiums, represents a key component of the Company's overall cost
structure. The Company attempts to control its cost of risk by integrating
risk management into all phases of its operations: corporate culture; hiring
and training; customer and revenue management; operating procedures; and
insurance, administration and claims management. The Company has continued to
control cost of risk subsequent to the business combination with cost of risk
at 9.5% and 7.9% of revenues for the years ended December 31, 1997 and 1998,
respectively.
Corporate Culture. Management believes that the most important factor to
effective risk management for an armored transport company is that its
employees understand their safety is the primary concern of the Company. This
belief has been encouraged and consistently reinforced through all programs
and procedures of the Company and is a fundamental building block of the
Company.
Hiring and Training. The Company maintains an employee selection and
screening program which includes a series of tests and a detailed background
check. The Company emphasizes training and development at all levels. All
safety training stresses the importance of risk avoidance rather than
confrontation. The Company has implemented specialized training programs in
employee orientation, weapons safety, driving safety, back injury prevention
and virtually all other elements of operations. All training is reinforced
through a coordinated communications effort featuring posters, videotape
presentations, weekly security updates, payroll stuffers and other news
bulletins. These programs are further supported through incentive and other
employee recognition programs.
Customer and Revenue Management. The Company emphasizes its role as a risk
management partner with its customers and works closely with them to develop
safe procedures for transferring and transporting cargo. Customers in higher
risk locations or those that ship higher valued cargo pay premium prices to
support additional security costs necessary to safely provide the service and
minimize risk of loss. If the Company determines that the risk of providing
armored transport services in a given situation is too great, the Company will
decline the business.
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Operating Procedures. The Company's operating procedures are designed to
avoid robberies or, in the event of a robbery, to minimize cargo losses and
worker's compensation claims. The Company has instituted many safety and
security procedures such as (i) use of three-person crews at many locations
considered high risk, (ii) utilization of chase cars and roving guards to
scout high risk locations in advance of servicing and to provide unmarked
surveillance, and (iii) adoption of "over the pavement" limits representing
the maximum cargo a guard may carry while out of the armored vehicle,
effectively limiting the amount of cargo which could be lost in the event of
robbery.
To ensure compliance with its operating procedures, the Company utilizes
AMSEC, an international security consulting firm, to evaluate the operating
security of branches. The AMSEC team is scheduled to review or audit the
operations of each branch at least once a year. AMSEC reports each month to a
committee of the Company comprised of executive officers and senior level
operations personnel, providing an effective third party quality control
function.
Insurance, Administration and Claims Management. Insurance coverage
underlies the Company's comprehensive risk management program. The two primary
risks for which the Company carries insurance are cargo loss and casualty
claims. The policies are underwritten by insurance companies rated A by the
A.M. Best Company. In connection with its cargo loss coverage, Loomis, Fargo &
Co. has a primary cash-in-transit insurance policy which allows the Company to
participate in potential savings by actively managing claims with reduced
fixed premiums and collateral costs, but affords the Company protection for
catastrophic claims.
Sales and Marketing
The Company markets its services to a broad cross section of customer types
which can be classified as either depository or commercial institutions. The
Company further classifies these two categories into national and local
subgroups. Typically, national customers make decisions on the use of armored
transport carriers at the corporate office level. Conversely, local customers
function at an individual market level or within a fairly limited geographic
area. To optimize penetration of these customer groups, the Company has
organized its marketing effort and sales force around these general customer
profiles.
National Accounts. To promote revenue growth from and maintain strong
customer relationships with national customers, the Company has a dedicated
staff of senior-level salespersons, each of whom individually manages a very
limited number of customers and prospects in this group. These sales personnel
promote a full range of ATM services, traditional armored transport services
and cash vault and related services. They work with senior-level officers of
the customers to ensure that the Company is maximizing opportunities with
these customers, maintaining a high quality of customer service, and
identifying changes in customer needs, priorities and business strategies.
The Company markets itself to financial institutions as the premier service
provider in the armored transport industry capable of providing a wide array
of services on a national basis. The rapid expansion of ATMs across the nation
as well as bank consolidation has compelled armored transport companies to be
increasingly flexible, dependable and consistent in the delivery of services.
Management believes that customers are placing greater emphasis on quality of
service when making their purchase decisions than they have in the past. The
Company views this development as a significant opportunity to expand and
enhance the Company's business relationships with financial institutions.
Local Customers. The local customer subgroups include community and regional
depository institutions as well as regional and local retail stores, hotels
and restaurants. The sale of the Company's services at the local market level
is primarily linked to the relationship established between the Company's
salesperson or branch manager and the customer's local decision maker. The
field sales force includes sales representatives located in all of the
Company's major markets who are responsible for an integral part of the
Company's growth plan. Such sales representatives are accountable for meeting
specific new revenue objectives, as established by individual markets, as well
as building relationships with key customers in the marketplace to maintain a
high degree of customer retention.
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The Company's sales representatives receive extensive training both in basic
selling skills and product knowledge of all of the Company's services. The
Company's sales force positions the Company not only as an armored car service
provider, but more broadly as a provider of risk management services. Trust,
dependability and expertise are the main components in securing the customer
relationship. Senior management of the Company provides overall guidelines for
pricing, prioritizing sales calls and growth targets for the field sales
force; however, specific strategic plans are developed by the branch managers.
Competition
The armored transport industry in the United States consists of two national
companies (Loomis, Fargo & Co. and Pittston Brink's) and numerous regional and
local companies. The Company competes with all of the above types of companies
in the markets it serves. However, because of the national presence and
substantial resources of Pittston Brink's, the Company believes that Pittston
Brink's is the Company's primary competitor for many national accounts. While
the Company believes its pricing of services is generally competitive, certain
of its competitors offer lower prices in certain markets primarily as a result
of lower employee wages and benefits, smaller crew complements and/or more
limited services.
Government Regulation
Federal legislation became effective in 1995 that abolished all interstate
regulatory control over prices, routes and service to which the Company's
business had been previously subject. The Company's operations continue to be
subject to regulation by federal and state agencies with respect to safety of
employees, operations and equipment, vehicle emissions and fuel storage tanks.
Environmental Matters
The Company is subject to numerous and increasingly stringent federal, state
and local laws and regulations relating to the protection of the environment
as well as the storage, handling, use, emission, discharge, release or
disposal of hazardous materials and solid wastes into the environment and the
investigation and remediation of contamination associated with such materials.
These laws include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, the Water Pollution Control Act, the
Clean Air Act and the Resource Conservation and Recovery Act, as those laws
have been amended and supplemented, the regulations promulgated thereunder,
and any applicable state analogs. The Company's operations also are governed
by laws and regulations relating to employee health and safety. The Company
believes that it is in material compliance with such applicable laws and
regulations and that its current environmental controls are adequate to
address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. In the past, the Company has
undertaken remedial activities to address on-site soil contamination caused by
historical operations. None of these cleanups has resulted in any material
liability. Currently, the Company is involved with remedial/closure activities
at various locations, none of which is expected to have a material adverse
effect on the Company's operations, financial condition or competitive
position. As mentioned above, however, the risk of environmental liability and
remediation costs is present in the Company's business and, therefore, there
can be no assurance that material environmental costs, including remediation
costs, will not arise in the future. In addition, it is possible that future
developments (e.g., new regulations or stricter regulatory requirements) could
result in the Company incurring material costs to comply with applicable
environmental laws and regulations.
As of December 31, 1998, the Company had identified 42 underground fuel
storage tanks originally located on the properties owned or operated by it and
acquired from Wells Fargo Armored. All of these tanks had been removed by
December 31, 1998. Additional remediation is expected to be required for sites
removed prior to or subsequent to the business combination where the Company
has not received federal and/or state clearance related to contamination.
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Pursuant to the terms of the business combination between Loomis Armored and
Wells Fargo Armored, the Company was indemnified by the former owners of the
two companies for environmental liabilities associated with existing storage
tanks and other known and identified environmental liabilities. The
indemnification obligations survived until December 31, 1998. To the extent
that there were remedial activities in process as of the date of termination
of such indemnification obligations, the Company provided the former owners,
as applicable, with written estimates in reasonable detail of the remaining
costs and expenses expected to be incurred by the Company, which would
otherwise have been covered by such indemnification.
The Company entered into a binding agreement on March 22, 1999 whereby Borg-
Warner agreed to pay the Company $1,450,000 to satisfy expenses which had been
incurred and unpaid totaling $450,000 as well as a reasonable estimate of any
future obligation for remediation on the sites where storage tanks had been
removed. The Company recorded a receivable of $1,450,000 for this payment as
well as an accrual for approximately $1.0 million, which is management's best
estimate for remedial expenses to be incurred on these sites subsequent to
December 31, 1998. No significant future expenses are expected to be incurred
on the Loomis Armored sites where storage tanks have been removed. In most
cases, the remediation expenses previously discussed are expected to be
incurred over a number of years. During this period, the laws governing the
remediation process may change and technological advances may occur that will
affect the cost of remediation. Such developments will be periodically
reviewed to determine if any adjustments to the Company's accrual for
remediation costs is warranted.
Employees
As of March 22, 1999, the Company employed approximately 7,590 full-time and
part-time employees, most of who are drivers and/or guards. Of these
employees, approximately 2,100 are represented by labor unions. The contracts
covering the Company's unionized work force will expire at varying times over
the next three years. The Company believes that its relations with its
employees are good.
Item 2. Properties
The Company's corporate headquarters consists of leased office space located
in Houston, Texas. The Company's fleet of approximately 2,500 armored and
other vehicles operates out of 161 branch and divisional facilities which
provide service throughout the United States and Puerto Rico. Of these sites,
133 are leased and 28 are owned. All of the Company's owned properties have
been pledged to secure the Company's indebtedness under the bank credit
facility. The Company believes that its properties are suitable and adequate
for their intended uses. However, additional locations may be constructed as
warranted in order to expand services in certain areas or to consolidate
existing locations for better geographic purposes.
Item 3. Legal Proceedings
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. In the opinion of the Company's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on the Company's results of operations or financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company is not publicly traded, and therefore has no
established market price. On March 22, 1999 there were two shareholders of
record of the Company's Common Stock. No cash dividends have been declared on
the Common Stock nor does the Company anticipate paying any cash dividends on
its Common Stock in the foreseeable future, and no retained earnings are
available for the payment of dividends as of December 31, 1998. Furthermore,
the Company is restricted under the terms of its senior credit facility and
the indenture governing its senior subordinated notes from paying dividends
unless certain conditions are met.
Item 6. Selected Financial Data
The following summarizes historical financial data of Loomis, Fargo & Co.,
successor to Loomis Holding Corporation, for each of the three fiscal years in
the period ended June 30, 1996, the six months ended December 31, 1996 and the
years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Six Months Years Ended
Years Ended June 30 Ended December 31
---------------------------- December 31 ------------------
1994 1995 1996 1996 1997 (4) 1998
-------- -------- -------- ----------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $106,447 $115,136 $119,455 $65,765 $366,130 $384,303
Income (loss) before
extraordinary item..... (1,486) (34) 1,127 2,196 (7,762) 281
Total assets............ 39,935 38,879 39,755 43,046 219,435 191,036
Long-term obligations
(1).................... 26,985 26,791 27,392 27,767 155,976 136,817
Other data:
EBITDA (2)............ 7,423 8,344 8,118 5,752 24,214 30,016
Cost of Risk (3)...... 10,578 10,134 10,210 3,974 34,710 30,286
</TABLE>
- --------
(1) Long-term obligations include debt, capital lease obligations, redeemable
preferred stock and redeemable common stock options. This includes the
current portion of debt and lease obligations.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes certain gains related to benefit plans of $1,677
in 1994 and $954 in 1996, the cumulative effect of a change in accounting
principle of $(453) in 1994, and a $124 extraordinary item during the year
ended December 31, 1997. EBITDA is presented because it is commonly used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance and to determine a company's ability to
service and incur debt. EBITDA should not be considered in isolation from
or as a substitute for net income, cash flows from operating activities or
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure
of profitability or liquidity. In addition, the Company's calculation of
EBITDA may not be comparable to similarly titled measures reported by
other companies.
(3) Cost of risk is defined as the total cost of cash-in-transit insurance
coverage (cargo), casualty and other insurance (worker's compensation,
automobile liability, general liability and other coverage), and surety
and includes premiums, broker's fees, administration charges, payments
under deductibles provisions, collateral fees and insurance-related
incentive programs.
(4) The year ended December 31, 1997 includes the acquired operations of Wells
Fargo Armored beginning January 24, 1997, as discussed in Note 4 to the
consolidated financial statements of the Company and in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
each included elsewhere herein.
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Acquisition and Results of Operations
The Company acquired certain assets and liabilities of Wells Fargo Armored
on January 24, 1997. This acquisition has been accounted for under the
purchase method. Therefore, the results for the year ended December 31, 1998
include the combined operations of the Company for the entire period while the
1997 amounts for the respective period include 23 days of Loomis Holding
Corporation ("Loomis", the predecessor to the Company) alone and 342 days of
the combined operations. The acquisition has a significant impact on the
comparability of the years as Wells Fargo Armored's annual revenue base was
almost twice as large as those of Loomis, property and equipment over twice as
large, and net assets three times as large.
The Company reported increases of 5.0% in revenues and 93.5% in operating
income for the year ended December 31, 1998 as compared to the same period in
1997. In addition, net income of $0.3 million was earned during 1998 as
compared to a $7.9 million net loss in 1997.
Management believes that the improvement reflects the successful
implementation of its merger integration strategy. In addition to realizing
certain administrative cost savings anticipated in the combination, this
strategy has focused on investing in improved compensation for front-line
employees and enhanced crew complements to reduce the Company's cost of risk.
Since the completion of the integration, employee turnover has declined and
the cost of risk has improved. The Company's management also commenced a
quality-of-revenue improvement initiative in the third quarter of 1997
directed primarily toward the acquired Wells Fargo Armored contracts. This
initiative permitted the Company to eliminate unprofitable service hours from
its routing structure while rationalizing its customer base. In addition to
improving the results of operations, management believes that service quality
has been upgraded as well. The Company has also benefited from the substantial
decreases in fuel prices and the successful efforts to reduce the level of
accounts receivable throughout 1998. These positive trends have allowed for an
$18.9 million reduction in the amount outstanding under the Company's bank
credit facility, thereby reducing interest expense.
The following unaudited pro forma information presents a summary of the
consolidated results of the Company, including Wells Fargo Armored, as if the
acquisition had occurred on January 1, 1997. These pro forma results have been
included for comparative purposes only and 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 had the acquisition occurred on January 1, 1997 or of
those results that may be obtained in the future.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1997 As
Reported 1997 Pro Forma 1998
-------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $366,130 100.0% $381,467 100.0% $384,303 100.0%
Cost of Operations:
Payroll and related expense.. 226,519 61.9 235,686 61.8 232,371 60.5
Vehicle expense.............. 49,882 13.6 51,732 13.6 48,200 12.5
Facilities expense........... 15,510 4.2 16,110 4.2 15,870 4.1
Other operating expenses..... 62,917 17.2 65,462 17.2 72,119 18.8
Business combination
expenses.................... 3,167 0.9 3,167 0.8 -- --
-------- ----- -------- ----- -------- -----
Operating Income............... $ 8,135 2.2% $ 9,310 2.4% $ 15,743 4.1%
======== ===== ======== ===== ======== =====
</TABLE>
9
<PAGE>
The following table sets forth the Company's consolidated results of
operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Six Months
Year Ended Year Ended
Ended December 31 December 31
June 30 ------------ --------------------
1996 1995 1996 1996 1997 1998
------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations:
Payroll and related expense..... 67.0 65.8 65.5 66.7 61.9 60.5
Vehicle expense................. 11.7 12.1 11.6 11.5 13.6 12.5
Facilities expense.............. 4.3 4.4 4.0 4.1 4.2 4.1
Other operating expenses........ 14.3 14.5 13.3 13.7 17.2 18.8
Expenses relating to the
business combination........... -- -- -- -- 0.9 --
Gains associated with benefit
plans.......................... (0.8) -- -- (0.7) -- --
----- ----- ----- ----- ----- -----
Operating income.................. 3.5 3.2 5.6 4.7 2.2 4.1
Interest expense.................. 2.5 2.6 2.2 2.2 4.3 4.0
----- ----- ----- ----- ----- -----
Income (loss) before income taxes
and extraordinary item........... 1.0 0.6 3.4 2.5 (2.1) 0.1
Income taxes...................... 0.1 0.1 0.1 0.1 -- --
----- ----- ----- ----- ----- -----
Income (loss) before extraordinary
item............................. 0.9 0.5 3.3 2.4 (2.1) 0.1
Extraordinary item................ -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Net income (loss)................. 0.9% 0.5% 3.3% 2.4% (2.1)% 0.1%
===== ===== ===== ===== ===== =====
</TABLE>
As previously discussed, revenues and expenses for the year ended December
31, 1998 increased over the same period in 1997 partially due to the
acquisition of Wells Fargo Armored on January 24, 1997. To facilitate
meaningful analysis for the comparable years, the following discussion
comparing 1997 to 1998 focuses on the pro forma results of operations for 1997
as well as these results expressed as a percentage of pro forma revenue and
compares these figures with the respective amounts in 1998.
10
<PAGE>
Results of Operations--Pro Forma 1997 vs. 1998
Revenues. Revenues increased from $381.5 million on a pro forma basis in
1997 to $384.3 million in 1998. These results were impacted by the loss of
approximately 8.5% of the Wells Fargo Armored customer base, largely in the
ATM market, 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. In addition, the Company undertook its initiative to
improve the quality of service and revenue on the acquired Wells Fargo Armored
contracts during the second and third quarters of 1997. A majority of the
acquired contracts were renegotiated with higher rates by the end of 1997.
These rate increases resulted in higher revenues from the acquired contracts
during the later part of 1997; however it 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. The success
of the Company's quality-of-revenue initiative as well as other growth in the
customer base have offset the early losses from the Wells Fargo Armored
customer base. The following table analyzes revenues by the type of service
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------- Pro
1997 1997 1998 Actual Forma
Actual Pro Forma Actual Change Change
------ --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Traditional armored transport
services.............................. $218.3 $228.6 $226.5 $ 8.2 $(2.1)
ATM services........................... 106.0 109.4 117.3 11.3 7.9
Cash vault and related services........ 41.8 43.5 40.5 (1.3) (3.0)
------ ------ ------ ----- -----
Total Revenues....................... $366.1 $381.5 $384.3 $18.2 $ 2.8
====== ====== ====== ===== =====
</TABLE>
Traditional armored transport services represented 60% of 1997's pro forma
revenues and 59% of revenues during 1998. Conversely, ATM services comprised
29% and 31% of revenues during 1997 and 1998, respectively. The continued
increase in ATM services revenue reflects the Company's strategic decision to
develop this growing market segment. The number of ATMs deployed by banks and
other network owners continues to expand throughout the United States.
Payroll and related expense. Payroll and related expense decreased from
$235.7 million on a pro forma basis in 1997 to $232.4 million in 1998. The
expenses as a percentage of revenue decreased from 61.8% during 1997 to 60.5%
during 1998. These decreases occurred even after the Company implemented (i)
its business strategy of improved wages and fringe benefits throughout the
acquired operations (ii) investments in two and three person crew complements
to enhance security and (iii) a results-based incentive compensation plan that
resulted in 1998 bonus expense totaling approximately $1.5 million. The
decrease in payroll and related expense was principally related to route hour
efficiencies gained during 1998 and a reduction in driver hours worked
corresponding to the slight decrease in routes being serviced.
Vehicle expense. Vehicle expense decreased from $51.7 million on a pro forma
basis in 1997 to $48.2 million in 1998. The expenses as a percentage of
revenues decreased from 13.6% during 1997 to 12.5% in 1998. These decreases
were partially a result of the loss of Wells Fargo Armored customers in 1997,
as previously discussed, resulting in a reduction in the number of truck hours
required to service the remaining higher quality of revenue customers. Vehicle
expense was also favorably impacted by fuel prices, which were approximately
20.0% lower during 1998. Finally, route efficiencies were achieved from the
consolidation of branches and the restructuring of routes. Partially
offsetting these decreases was an increase to vehicle communication costs due
to the migration from radio systems using analog technology to a digital
communication system.
Facilities expense. Facilities expense decreased from $16.1 million on a pro
forma basis in 1997 to $15.9 million in 1998. As a percentage of revenue,
these expenses decreased slightly from 4.2% in 1997 to 4.1% in 1998.
Other operating expenses. Other operating expenses increased from $65.5
million on a pro forma basis in 1997 to $72.1 million in 1998. These expenses
as a percentage of revenue increased from 17.2% in 1997 to
11
<PAGE>
18.8% in 1998. Other operating expenses include cash-in-transit insurance
premiums and retained losses, costs of a centralized dispatch center,
subcontracting costs, and the recruiting, testing and training of employees.
Combined cash-in-transit insurance premiums and cargo losses totaled
approximately $17.6 million on a pro forma basis in 1997 and $13.6 million in
1998. This decrease was primarily due to a substantial reduction in cargo
losses during 1998. Offsetting this decrease was an approximate increase of
$2.5 million in subcontracting costs related to a shift from coin operation
work previously performed in-house, $1.7 million in additional employee
related testing and recruiting, and $1.5 million of other decreases in
operating expenses. Some of the employees previously involved with the coin
operations were retrained for 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. Charges totaling $7.9 million were taken against this
liability during 1997 with corresponding decreases 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 $3.2 million were
recorded during 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 any additional costs related
to the business combination.
Interest expense. Interest expense decreased from $16.3 million on a pro
forma basis in 1997 to $15.3 million in 1998. Interest expense relates
directly to the amounts outstanding on the Company's bank credit facility and
the senior subordinated notes. While the amount of senior subordinated notes
has not changed, the monthly average borrowings under the bank credit facility
were approximately $12.0 million lower during 1998 resulting in reduced
interest expense.
Extraordinary item. An extraordinary item of $0.1 million, relating to the
write-off of deferred financing costs associated with debt retired in January
1997, was recorded during 1997.
Results of Operations--1996 vs. 1997 (as reported)
Revenues. Revenues increased from $127.4 million in 1996 to $366.1 in 1997.
The increase is primarily due to the acquisition of Wells Fargo Armored, which
had revenue of $246.0 million in 1996, although approximately 8.5% of the
Wells Fargo Armored customer base was lost early in 1997 as a result of pre-
merger service issues. The success of the Company's quality-of-revenue
improvement initiative, described below, as well as other growth in the
customer base, have offset these early losses. The following table analyzes
revenues by type of service (in millions):
<TABLE>
<CAPTION>
Year Ended
December 31
-------------
1996 1997 Change
------ ------ ------
<S> <C> <C> <C>
Traditional armored transport services.............. $ 97.1 $218.3 $121.2
ATM services........................................ 19.4 106.0 86.6
Cash vault and related services..................... 10.9 41.8 30.9
------ ------ ------
$127.4 $366.1 $238.7
====== ====== ======
</TABLE>
Although the business combination caused all of the revenue categories to
increase, the relative percentages of the three types of services changed
significantly. In the year ended December 31, 1996, traditional armored
transport services accounted for 76% of total revenues, with ATM and cash
vault and related services providing 15% and 9%, respectively. In the year
ended December 31, 1997, traditional armored transport services provided
12
<PAGE>
60% of total revenues, ATM services provided 29% and cash vault and related
services 11%. The significant increase in ATM services revenue reflects both
the Company's strategic decision to develop this growing market segment and
the strong presence of Wells Fargo Armored in the ATM services market.
During the second and third quarters of 1997, the Company undertook an
initiative to improve the quality of revenue of acquired Wells Fargo Armored
contracts, concurrent with upgrades in service, crew complements and employee
compensation rates, as discussed below. A majority of the acquired contracts
were renegotiated by the end of 1997.
Payroll and related expense. Payroll and related expense increased from
$85.0 million in 1996 to $226.5 in 1997. Payroll and related expense as a
percent of revenue decreased from 66.7% during 1996 to 61.9% during 1997. The
increase in payroll and related expense was principally related to the Wells
Fargo Armored employee wage base of approximately $122.3 million. During 1996,
payroll and related expense at Wells Fargo Armored was approximately 55% of
revenue. Consistent with its business strategy, the Company improved the wages
and fringe benefits throughout the acquired operations and invested in
improved crew complements to enhance security. These investments were offset
somewhat by cost reductions achieved through reduced casualty costs,
consolidation of the previous corporate and division administrative offices as
well as ongoing efficiencies in operations in those markets previously served
by both Loomis Armored and Wells Fargo Armored.
Vehicle expense. Vehicle expense increased from $14.7 million in 1996 to
$49.9 million in 1997, of which $31.2 million was related to the fleet
acquired from Wells Fargo Armored. Vehicle expense as a percent of revenue
increased from 11.5% during 1996 to 13.6% during 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. The number of armored vehicles in active service
increased from approximately 950 to approximately 2,600 with the business
combination.
Facilities expense. Facilities expense increased from $5.2 million for in
1996 to $15.5 million in 1997. Facilities expense as a percent of revenue
increased slightly from 4.1% during 1996 to 4.2% during 1997. The $10.3
million increase is related to the increased number of operating sites, from
69 to 168 sites, and the increased division and corporate facility space
requirements associated with the purchase of Wells Fargo Armored.
Other operating expenses. Other operating expenses increased from $17.5
million in 1996 to $62.9 million in 1997. Other operating expenses as a
percent of revenue increased from 13.7% in 1996 to 17.2% during 1997. Other
operating expenses included such expenses as cargo insurance premiums and
losses, costs of a centralized dispatch center, and the testing, recruiting
and training of employees. Other operating costs associated with the
operations acquired from Wells Fargo Armored were approximately $37.6 million.
Additionally, other operating expenses increased by $2.5 million for the
amortization of goodwill related to the business combination. The combined
cash-in-transit insurance premiums and cargo losses totaled $3.2 million and
$17.0 million in 1996 and 1997, respectively, primarily due to the significant
increase in cargo under coverage and the higher rate of cargo losses at the
acquired Wells Fargo Armored facilities.
Expenses relating to the business combination. Expenses of $3.2 million were
recorded in 1997 for items relating to the purchase of Wells Fargo Armored.
Included are the costs of maintaining the former Wells Fargo Armored corporate
headquarters in Atlanta, temporary personnel and consultants required to
convert the former Wells Fargo Armored systems and branches to the Company's
policies and costs of state registrations and surveys required by the new
business entity.
Interest expense. Interest expense increased from $2.9 million in 1996 to
$15.9 million in 1997. This increase relates directly to the Company's new
bank credit facility and the issuance of the senior subordinated notes in
connection with the business combination.
Extraordinary item. An extraordinary item of $0.1 million, relating to the
write-off of deferred financing costs associated with the debt retired in
January 1997, was recorded in 1997.
13
<PAGE>
Six months ended December 31, 1995 compared with six months ended December
31, 1996
Revenues. Revenues increased from $57.8 million for the six months ended
December 31, 1995 to $65.8 million for the six months ended December 31, 1996.
The following table analyzes revenues by type of service (in millions):
<TABLE>
<CAPTION>
Six Months
Ended
December 31
-----------
1995 1996 Change
----- ----- ------
<S> <C> <C> <C>
Traditional armored transport services................. $48.2 $49.1 $0.9
ATM services........................................... 4.5 10.9 6.4
Cash vault and related services........................ 5.1 5.8 0.7
----- ----- ----
$57.8 $65.8 $8.0
===== ===== ====
</TABLE>
ATM services expanded dramatically with additional service opportunities in
both the number of ATM locations and the additional items being dispensed
through ATMs. The significant improvement in ATM services revenue resulted
from Loomis' strategic decision to increase its efforts in developing this
market segment.
Payroll and related expense. Payroll and related expense increased from
$38.0 million for the six months ended December 31, 1995 to $43.0 million for
the six months ended December 31, 1996. Payroll and related expense as a
percent of revenue decreased slightly from 65.8% for the six months ended
December 31, 1995 to 65.5% for the six months ended December 31, 1996. The
increase in payroll and related expenses is primarily attributable to
additional personnel required to support the growing market for ATM services.
Vehicle expense. Vehicle expense increased from $7.0 million for the six
months ended December 31, 1995 to $7.6 million for the six months ended
December 31, 1996. Vehicle expense as a percent of revenue decreased from
12.1% for the six months ended December 31, 1995 to 11.6% for the six months
ended December 31, 1996. The primary reason for the $0.6 million increase in
vehicle expense was related to an increase in the price of gasoline and diesel
fuel. The reduction in vehicle expense as a percent of revenue primarily
resulted from reduced vehicle repair expense as new armored vehicles have
replaced older vehicles that had previously been utilized at near full
capacity. The reduction in vehicle repairs has more than offset the increase
in armored vehicle depreciation.
Facilities expense. Facilities expense increased from $2.5 million for the
six months ended December 31, 1995 to $2.7 million for the six months ended
December 31, 1996. Facilities expense as a percent of revenue decreased from
4.4% for the six months ended December 31, 1995 to 4.0% for the six months
ended December 31, 1996.
Other operating expenses. Other operating expenses increased from $8.4
million for the six months ended December 31, 1995 to $8.7 million for the six
months ended December 31, 1996. Other operating expenses as a percent of
revenue decreased from 14.5% for the six months ended December 31, 1995 to
13.3% for the six months ended December 31, 1996. Other operating expenses
include such expenses as cargo insurance premiums and losses; subcontracting
costs; and testing, recruiting, uniforming, and training of employees.
Included in other operating expenses is the amortization of a covenant not to
compete and the cost of purchased contracts which became fully amortized
during the fiscal year ended June 30, 1996. Consequently, amortization of
these intangible assets decreased by $0.5 million for the six months ended
December 31, 1996.
14
<PAGE>
Liquidity and capital resources
The Company's liquidity and capital resources changed significantly as a
result of the business reorganization described in Note 1 to the consolidated
financial statements and the acquisition of Wells Fargo Armored described in
Note 4 to the consolidated financial statements each included elsewhere
herein. Total cash and cash equivalents at December 31, 1997 and 1998 were
$3.7 million and $2.5 million, respectively. Changes in cash and cash
equivalents are described in the statements of cash flows, which are
summarized below (in millions):
<TABLE>
<CAPTION>
Year Ended
December 31
---------------
1997 1998
------- ------
<S> <C> <C>
Net cash provided by operating activities............... $ 11.1 $ 28.7
Net cash used in investing activities................... (112.5) (10.3)
Net cash provided by (used in) financing activities..... 104.1 (19.5)
------- ------
Net increase (decrease) in cash and cash equivalents.. $ 2.7 $ (1.1)
======= ======
</TABLE>
Operating Activities
The net cash provided by operating activities more than doubled in 1998 as
compared to 1997. This increase was primarily a result of (i) the Company
recorded net income in 1998 of $0.3 million compared to a 1997 loss of $7.9
million, (ii) accounts receivable decreased by $21.4 million during 1998
largely due to improvements to the Company's billing system and collection
efforts, and (iii) an offsetting decrease in accrued expenses of $10.1 million
primarily 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
The cash used in 1998 investing activities primarily related to acquisitions
of property and equipment, whereas the 1997 amount included $105.1 million for
the purchase of Wells Fargo Armored.
Planned capital expenditures for 1999 are expected to total approximately
$16.0 million, which will depend largely on the growth rate experienced. These
expenditures will be financed primarily through operating cash flows.
Financing Activities
During 1998, net repayments of $18.9 million were made against the Company's
bank credit facility. This reduction in debt was achieved despite the $11.7
million payment to the Company's insurance carrier, which was financed by the
bank credit facility in January 1998. One of the primary reasons for the
Company's ability to reduce the level of debt was the reduction in accounts
receivable occurring during 1998 as previously discussed. Monthly average
borrowings under the bank credit facility were approximately $12.0 million
lower during 1998 as compared to 1997.
The Company's balance sheet reflected a working capital deficit of $17.2
million at December 31, 1998. The Company is highly leveraged, with long-term
liabilities comprising 75% of total liabilities and stockholders' deficit at
December 31, 1998. Any significant payments made to the Loomis Stockholders
Trust, as discussed in Note 5 to the consolidated financial statements
included elsewhere herein, are expected to be financed through the revolving
bank credit facility.
The Company's revolving bank credit facility provided aggregate commitments
of $105.0 million at December 1998. 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. The
facility includes guarantees of letters of credit, of which approximately
$17.2 million were outstanding at December 31, 1998. Remaining commitments
available under the facility at December 31, 1998 were $42.7 million.
15
<PAGE>
The credit facility agreement includes a step-down of commitments over the
final four years of the facility, as described in Note 5 to the consolidated
financial statements included elsewhere herein. By December 1999, total
commitments 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
repayment of the NOL note, which is expected to be partially repaid in 1999.
See Note 5 to the consolidated financial statements included elsewhere herein.
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
centralized IT system inventory process has been completed and the inventories
of the branch offices and key third-party business relationships (to include
all non-IT systems) are expected to be completed by March 31, 1999.
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. For some non-IT embedded
systems, strategy development will be determined as previously described and
will commence in late March. The process of
16
<PAGE>
analysis, certification, replacement or "workaround" for embedded systems in
the branch offices is expected to consume the first half of 1999.
Several significant assessments 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 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
December 31, 1998 was approximately $0.2 million, all of which was expensed.
These estimated costs do not include costs
17
<PAGE>
incurred by the Company as a result of the failure of any third parties,
including suppliers, to become Year 2000 ready 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.
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
18
<PAGE>
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.
Item 7a: Quantitative and Qualitative Disclosures About Market Risk
The following discussion about the Company's market risk includes "forward-
looking" statements that involve risk and uncertainties. Actual results could
differ materially from those projected in the forward-looking statements.
The Company is exposed to market risks, including interest risk and
commodity price risk (i.e., fuel prices). The adverse effects of potential
changes in these market risks are discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may have on
overall economic activity nor do they consider additional actions management
may take to mitigate the Company's exposure to such changes. See the notes to
the consolidated financial statements included elsewhere herein for a
description of the Company's accounting policies and other information related
to these financial instruments.
Interest Rate Risk. The Company manages interest rate risk through the use
of a combination of fixed and floating rate debt facilities. The $85.0 million
of subordinated notes have a fixed rate of 10.0% and a market value which
approximates the carrying value at December 31, 1998 based on quoted market
prices. The market value of these subordinated notes would not be
significantly impacted by a 100 basis point increase in interest rates. The
Company's credit facility is variable-rate based on either LIBOR or a base
rate tied to the bank's prime rate. The individual tranches borrowed under the
LIBOR portion of the credit facility ($44.0 million at December 31, 1998) have
terms of ninety days or less and have the interest rate fixed at the time the
funds are obtained. Borrowings under the base rate portion of the credit
facility ($1.1 million at December 31, 1998) are for unspecified periods with
a variable rate tied to the bank's prime rate. An increase in interest rates
of 100 basis points would not materially increase the Company's interest
expense.
Fuel Price Risk. The Company operates in the transportation industry and is
therefore subject to risks related to the price of fuel. While the Company
mitigates this risk by periodically entering into contracts with certain fuel
vendors that agree to provide fuel at a fixed rate, these contracts normally
have short (typically ninety day) terms at which time the prices are adjusted
to reflect changes in the market. Based on the Company's 1999 projected fuel
consumption, a 10% increase in fuel prices would impact the Company's annual
vehicle expense by approximately $0.9 million. All of the Company's business
is transacted in U.S. dollars and, accordingly, foreign exchange rate
fluctuations have never had a significant impact on the Company.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX
<TABLE>
<S> <C>
Report of Independent Auditors............................................. 21
Consolidated Balance Sheets as of December 31, 1997 and 1998............... 22
Consolidated Statements of Operations for the year ended June 30, 1996, the
six months ended December 31, 1996 and the years ended December 31, 1997
and 1998.................................................................. 23
Consolidated Statements of Cash Flows for the year ended June 30, 1996, the
six months ended December 31, 1996 and the years ended December 31, 1997
and 1998.................................................................. 24
Consolidated Statements of Stockholders' Deficit for the year ended
June 30, 1996, the six months ended December 31, 1996 and the years ended
December 31, 1997 and 1998................................................ 25
Notes to Consolidated Financial Statements................................. 26
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Loomis, Fargo & Co.
We have audited the accompanying consolidated balance sheets of Loomis,
Fargo & Co. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year
ended June 30, 1996, the six months ended December 31, 1996, and for each of
the two years in the period ended December 31, 1998. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Loomis, Fargo
& Co. at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for the year ended June 30, 1996, the six months
ended December 31, 1996, and for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/S/ ERNST & YOUNG LLP
Houston, Texas
March 22, 1999
21
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------
1997 1998
ASSETS -------- --------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 3,659 $ 2,548
Trade accounts receivable, net........................... 44,339 27,525
Other receivables........................................ 7,846 2,736
Parts and supplies....................................... 1,350 998
Prepaid expenses......................................... 3,334 2,967
-------- --------
Total current assets................................... 60,528 36,774
Property and equipment:
Land..................................................... 5,486 5,420
Buildings................................................ 11,061 11,306
Armored trucks and other vehicles........................ 35,226 40,242
Other equipment.......................................... 20,230 23,231
Leasehold improvements................................... 6,853 7,785
-------- --------
78,856 87,984
Less accumulated depreciation and amortization........... 37,199 47,248
-------- --------
Property and equipment, net............................ 41,657 40,736
Deferred tax assets, net................................... -- 3,608
Intangible assets, net..................................... 112,421 105,943
Other assets, net.......................................... 4,829 3,975
-------- --------
Total assets............................................... $219,435 $191,036
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 20,499 $ 21,044
Accrued expenses and other current liabilities........... 44,754 29,549
Current portion, long-term debt--affiliates.............. -- 3,000
Current portion, capital lease obligations............... 669 411
-------- --------
Total current liabilities.............................. 65,922 54,004
Long-term liabilities:
Long-term debt--affiliates............................... 5,796 2,988
Long-term debt--other.................................... 149,000 130,100
Capital lease obligations................................ 511 318
Other long-term liabilities.............................. 5,474 10,613
-------- --------
Total long-term liabilities............................ 160,781 144,019
Stockholders' deficit:
Common stock, par value $.01 per share: Authorized
shares--20,000,000; Issued and outstanding shares--
10,000,000.............................................. 100 100
Additional paid-in capital............................... 24,755 24,755
Accumulated deficit...................................... (32,123) (31,842)
-------- --------
Total stockholders' deficit............................ (7,268) (6,987)
-------- --------
Total liabilities and stockholders' deficit................ $219,435 $191,036
======== ========
</TABLE>
See accompanying notes.
22
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Six Months
Ended Ended Year Ended Year Ended
June 30 December 31 December 31 December 31
1996 1996 1997 1998
-------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Revenues........................ $119,455 $65,765 $366,130 $384,303
Cost of operations:
Payroll and related expense... 79,974 43,031 226,519 232,371
Vehicle expense............... 14,035 7,637 49,882 48,200
Facilities expense............ 5,094 2,661 15,510 15,870
Other operating expenses...... 17,120 8,745 62,917 72,119
Expenses relating to the
business combination......... -- -- 3,167 --
Gains associated with benefit
plans........................ (954) -- -- --
-------- ------- -------- --------
115,269 62,074 357,995 368,560
-------- ------- -------- --------
Operating income................ 4,186 3,691 8,135 15,743
-------- ------- -------- --------
Interest expense--affiliates.... 1,099 550 525 192
Interest expense--other......... 1,882 895 15,372 15,090
-------- ------- -------- --------
2,981 1,445 15,897 15,282
-------- ------- -------- --------
Income (loss) before income
taxes and extraordinary item... 1,205 2,246 (7,762) 461
Income taxes.................... 78 50 -- 180
-------- ------- -------- --------
Income (loss) before
extraordinary item............. 1,127 2,196 (7,762) 281
Extraordinary item.............. -- -- 124 --
-------- ------- -------- --------
Net income (loss)............... 1,127 2,196 (7,886) 281
Increase in value of redeemable
warrants....................... 327 -- -- --
-------- ------- -------- --------
Net income (loss) available to
common stockholders............ $ 800 $ 2,196 $ (7,886) $ 281
======== ======= ======== ========
</TABLE>
See accompanying notes.
23
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Six Months
Ended Ended Year Ended Year Ended
June 30 December 31 December 31 December 31
1996 1996 1997 1998
------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Operating activities
Net income (loss)................ $1,127 $2,196 $ (7,886) $ 281
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation expense........... 3,845 1,947 13,333 11,361
Amortization of goodwill....... 1,041 114 2,746 2,912
Accretion of discounts......... 48 16 454 192
Amortization of financing
costs......................... -- -- 898 958
Deferred taxes................. -- -- -- (42)
(Gain) loss on disposal of
property and equipment........ 92 3 89 (43)
Provision for allowance for
doubtful accounts............. 14 68 708 2,229
Accrued management fees........ 175 88 23 --
Postretirement benefits other
than pensions................. (954) -- -- --
Change in restricted cash...... (5) (31) 1,536 --
Changes in assets and
liabilities, net of effect of
acquisition:
Trade accounts receivable.... (2,135) (1,788) (9,549) 14,585
Other receivables............ (239) (127) (6,362) 5,110
Parts and supplies........... (62) 55 (196) 352
Prepaid expenses............. 191 738 316 367
Accounts payable............. 733 (2,091) 4,050 545
Accrued expenses and other
long-term liabilities....... (34) (63) 10,910 (10,066)
------ ------ -------- -------
Net cash provided by operating
activities...................... 3,837 1,125 11,070 28,741
------ ------ -------- -------
Investing activities
Purchase of Wells Fargo Armored.. -- (766) (105,116) --
Acquisition of property and
equipment....................... (1,930) (1,355) (7,523) (10,592)
Proceeds from sale of property
and equipment................... 162 1 117 294
------ ------ -------- -------
Net cash used in investing
activities...................... (1,768) (2,120) (112,522) (10,298)
------ ------ -------- -------
Financing activities
Net borrowings (repayments) of
debt............................ (444) 272 39,528 (18,900)
Repayments of capital lease
obligations..................... (76) (107) (960) (550)
Issuance of senior subordinated
notes........................... -- -- 85,000 --
Payment of accrued management
fees............................ -- -- (1,598) --
Financing costs related to debt.. -- (76) (5,651) (104)
Redemption of preferred stock.... -- -- (3,500) --
Exercise of common stock
warrants........................ -- -- 96 --
Distributions to stockholders.... -- -- (8,737) --
Other............................ (80) (32) -- --
------ ------ -------- -------
Net cash provided by (used in)
financing activities............ (600) 57 104,178 (19,554)
------ ------ -------- -------
Net increase (decrease) in cash
and cash equivalents............ 1,469 (938) 2,726 (1,111)
Cash and cash equivalents at
beginning of period *........... 402 1,871 933 3,659
------ ------ -------- -------
Cash and cash equivalents at end
of period *..................... $1,871 $ 933 $ 3,659 $ 2,548
====== ====== ======== =======
</TABLE>
- --------
* Excludes restricted cash and cash equivalents of $1,500, $1,505 and $1,536
at June 30, 1995, June 30, 1996 and December 31, 1996.
See accompanying notes.
24
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Common Common Additional
Stock Stock Stock Common Paid-In Accumulated
Class A Class B Warrants Stock Capital Deficit
------- ------- -------- ------ ---------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1995................... $ 15 $ -- $ 304 $ -- $ 1,485 $(13,154)
Net income.............. -- -- -- -- -- 1,127
Increase in value of
redeemable warrants.... -- -- -- -- -- (327)
---- ---- ----- ---- ------- --------
Balances at June 30,
1996................... 15 -- 304 -- 1,485 (12,354)
Net income.............. -- -- -- -- -- 2,196
---- ---- ----- ---- ------- --------
Balances at December 31,
1996................... 15 -- 304 -- 1,485 (10,158)
Exercise of common stock
warrants............... 9 3 (304) -- 743 --
Distribution to Loomis
Holding Corporation
stockholders........... -- -- -- -- -- (14,079)
Exchange of common stock
of Loomis Holding
Corporation for common
stock of Loomis, Fargo
& Co................... (24) (3) -- 51 (24) --
Issuance of common stock
as part of the purchase
consideration for Wells
Fargo Armored.......... -- -- -- 49 22,551 --
Net loss................ -- -- -- -- -- (7,886)
---- ---- ----- ---- ------- --------
Balances at December 31,
1997................... -- -- -- 100 24,755 (32,123)
Net income.............. -- -- -- -- -- 281
---- ---- ----- ---- ------- --------
Balances at December 31,
1998................... $ -- $ -- $ -- $100 $24,755 $(31,842)
==== ==== ===== ==== ======= ========
</TABLE>
See accompanying notes.
25
<PAGE>
LOOMIS, FARGO & CO.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note 1. Basis of Presentation and Background
Loomis, Fargo & Co., (together with its subsidiaries, "Loomis" or the
"Company"), a Delaware corporation, was incorporated in August 1996. On
January 24, 1997, Loomis Holding Corporation, a Delaware corporation,
completed its reorganization into Loomis, Fargo & Co. and acquired certain
assets and assumed certain liabilities of Wells Fargo Armored Service
Corporation ("Wells Fargo Armored"), a wholly owned subsidiary of Borg-Warner
Security Corporation ("Borg-Warner"). The reorganization involved the exchange
of all outstanding Common Stock of Loomis Holding Corporation for 5,100,000
shares of the Common Stock of the Company, which concurrently were transferred
to a business trust owned by the former stockholders of Loomis Holding
Corporation (the "Loomis Stockholders Trust").
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 a subsidiary, Loomis, Fargo &
Co. of Puerto Rico, a Tennessee corporation.
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 a variety of valuable commodities such as coin and currency,
negotiable and nonnegotiable securities, precious metals, bullion, food
coupons, gems and works of art. In addition, Loomis provides extensive
automatic teller machine ("ATM") services including cash replenishment,
deposit pick-up and first-line and second-line maintenance services. The
Company also offers several ancillary services including secured storage of
valuables, such as currency, securities and computer chips, deposit processing
and consolidation, change order preparation and coin wrapping. The Company
also provides contract security officers to patrol and control access to
customer facilities in Puerto Rico.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity date of three months or less to be cash equivalents. Approximately
$1,536,000 of cash and cash equivalents at December 31, 1996 was held under
restricted arrangements as required by insurance agreements.
Revenue Recognition
Revenue on service contracts is recognized as services are provided.
Unearned revenues represent billings for recurring services to be performed in
months subsequent to year-end.
Environmental Remediation Costs
The Company accrues for expenses associated with environmental remediation
obligations when such expenses are probable and reasonably estimable. Accruals
for estimated costs associated with environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such
26
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
accruals are adjusted as further information develops or circumstances change.
Recoveries of environmental remediation costs from other parties are recorded
as an asset when their receipt is deemed probable.
Property and Equipment
Property and equipment, which include assets resulting from capital leases,
are recorded at cost and are depreciated on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................... 15-40 years
Armored trucks and other
vehicles.................... 2-12 years
Other equipment.............. 2-15 years
</TABLE>
Leasehold improvements are amortized over the terms of the related leases or
the useful lives of the improvements, whichever is less. Repairs and
maintenance are charged to expense as incurred.
The Company acquired $301,000, $1,216,000, $149,000 and $99,000 of assets
under capital lease agreements in the year ended June 30, 1996, the six months
ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively, primarily for equipment and vehicles. The gross amount of assets
recorded under capital leases was approximately $1,851,000 and $1,950,000 at
December 31, 1997 and 1998, respectively. Accumulated depreciation related to
capital leases amounted to approximately $885,000 and $1,364,000 at December
31, 1997 and 1998, respectively.
Goodwill
Goodwill resulting from the 1991 purchase acquisition of Loomis Armored Inc.
and from the 1997 purchase of Wells Fargo Armored, described in Note 4,
represents the excess of cost over the fair value of assets acquired and is
being amortized on a straight-line basis over 40 years. Amortization expense
on these assets was $1,041,000, $114,000, $2,746,000 and $2,912,000 for the
year ended June 30, 1996, the six months ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively.
Long-Lived Assets
Under Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement 121), impairment losses are required to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' respective carrying amounts. Goodwill associated with assets
acquired in purchase business combinations is included in impairment
evaluations.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term maturities of
these instruments. The carrying amount of the Company's bank credit facility
approximates fair value because the debt arrangement accrues interest at
variable rates based on current market rates. The fair value of the Company's
10% senior subordinated notes approximates its carrying value at December 31,
1998 based on the quoted market price.
Stock-Based Compensation
The Company grants stock options to employees for a fixed number of shares
with an exercise price no less than the fair value of the shares at the date
of grant. The Company has elected to follow Accounting Principles
27
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations in accounting for its employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options is
no less than the fair value of the underlying stock on the date of grant, no
compensation expense is recognized.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). SFAS No. 133 requires that all derivatives be
recognized as assets and liabilities and measured at fair value. The
accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company does not
anticipate that the new standard will have a material impact on the financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the prior periods' financial
statements to conform to the current year presentation.
Fiscal Year
Effective July 1, 1996, the Company changed its fiscal year end from June 30
to December 31. Accordingly, the financial statements include a presentation
as of and for the six months ended December 31, 1996.
Significant Customer
During 1998, two of the Company's customers merged. Had these two customers
been treated as one account for 1998, they would have accounted for
approximately 10.0% of the Company's total revenue.
28
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Note 3. Balance Sheet Data
Detailed balance sheet data are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
------------------
1997 1998
-------- --------
<S> <C> <C>
Trade accounts receivable:
Gross trade accounts receivable........................... $ 69,018 $ 49,275
Unearned revenues......................................... (24,179) (19,526)
Allowance for doubtful accounts........................... (500) (2,224)
-------- --------
Net trade accounts receivable........................... $ 44,339 $ 27,525
======== ========
Intangible assets:
Goodwill.................................................. $116,469 $112,903
Less accumulated amortization............................. (4,048) (6,960)
-------- --------
Net intangible assets................................... $112,421 $105,943
======== ========
Other assets:
Deferred financing costs.................................. $ 5,727 $ 5,831
Less accumulated amortization............................. (898) (1,856)
-------- --------
Net other assets........................................ $ 4,829 $ 3,975
======== ========
Accrued expenses and other current liabilities:
Cargo, casualty and other insurance expenses.............. $ 7,474 $ 7,746
Cargo loss recoveries payable to insurer.................. 16,200 --
Payroll and related expenses.............................. 8,767 11,004
Interest.................................................. 4,577 4,281
Other..................................................... 7,736 6,518
-------- --------
Total accrued expenses and other current liabilities.... $ 44,754 $ 29,549
======== ========
</TABLE>
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 (See Note 1). The acquisition was accounted for using the purchase
method of accounting. The aggregate purchase price for the assets acquired and
the liabilities assumed was approximately $128,482,000, which included cash
payments of $105,882,000 and the issuance of 4,900,000 shares of the Common
Stock of the Company. The purchase price has been allocated to the net assets
acquired and liabilities assumed. The balance sheet reflects adjustments to
record acquired assets and assumed liabilities at their fair market values and
to conform certain accounting policies of Wells Fargo Armored to the policies
of the Company. The excess of the purchase price over the net tangible assets
acquired, approximately $107,316,000, has been allocated to goodwill, which is
being amortized over 40 years.
In connection with the allocation of the purchase price to assets and
liabilities acquired from Wells Fargo Armored, the Company reviewed all of the
acquired contracts to determine whether any contracts generated revenues that
were less than the direct variable costs associated with servicing the
contracts (e.g., payroll and related expense, vehicle expense). To the extent
that the Company was required to provide services under a contract where
direct variable costs exceeded revenues (a "loss contract"), the Company
recorded a liability
29
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
which aggregated approximately $7,900,000. All services required under such
contracts were completed by December 31, 1997.
Concurrent with the acquisition, the Company repaid substantially all of the
long-term obligations of Loomis Holding Corporation, replaced its existing
line of credit with a $115,000,000 revolving bank credit facility and issued
$85,000,000 of 10% unsecured subordinated notes due in 2004 (See Note 5).
The consolidated statements of operations and of cash flows presented for
the year ended June 30, 1996 and the six months ended December 31, 1996 are
those of Loomis Holding Corporation, predecessor to the Company. The
statements of operations and cash flows presented for the years ended December
31, 1997 and 1998 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 subsequent to the combination.
The following unaudited pro forma information presents a summary of the
consolidated results of the Company, including Wells Fargo Armored, as if the
consummation of the purchase and restructuring of the Company's debt and
capital structure had occurred on January 1, 1996. These pro forma results
have been included for comparative purposes only and do not purport to be
indicative of the results that actually would have been achieved had the
acquisition occurred on January 1, 1996 or of those results that may be
obtained in the future (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues......................................... $373,742 $381,467
=========== ===========
Net income (loss)................................ $ 2,873 $ (7,933)
=========== ===========
</TABLE>
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 and (ii) depreciation of property and equipment and
amortization of goodwill to reflect the effects of purchase accounting.
Note 5. Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------
1997 1998
-------- --------
<S> <C> <C>
10% senior subordinated notes.......................... $ 85,000 $ 85,000
Bank credit facility................................... 64,000 45,100
Non-interest bearing NOL note.......................... 6,000 6,000
-------- --------
155,000 136,100
Less discount.......................................... 204 12
Less current portion................................... -- 3,000
-------- --------
$154,796 $133,088
======== ========
</TABLE>
Concurrent with the purchase of the assets of Wells Fargo Armored on January
24, 1997, the exchange of the Common Stock of Loomis Holding Corporation and
the financing transactions discussed in Note 4, substantially all of the then-
existing Loomis Holding Corporation indebtedness (other than capital leases)
was
30
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
repaid. Deferred financing costs associated with the retired debt were written
off as an extraordinary item in the accompanying consolidated statement of
operations. The Company also entered into a five-year step-down revolving bank
credit facility agreement which provided for aggregate initial commitments of
up to $115.0 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 December 31,
1998, the interest rates on the Company's borrowings were 9.25% on base-rate
borrowings of $1.1 million, and 7.77%--8.04% on LIBOR borrowings totaling
$44.0 million. 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 issuance of additional
debt, the compensation of officers, the payment of dividends, capital
expenditures, new capital and operating leases and the maintenance of certain
financial ratios. At December 31, 1998, there were no retained earnings
available for the payment of dividends and the Company was in compliance with
the remaining covenants.
During the third quarter of 1997, the Company entered into an interest rate
cap agreement with the bank credit facility lender. The agreement limited the
maximum LIBOR base interest rate to 7% on borrowings up to $30.0 million, and
expired on January 31, 1999. Neither the cost nor the fair value of the
agreement were material to the Company.
The 10% senior subordinated notes were issued on January 24, 1997 and mature
in January 2004. The notes are subordinated to borrowings under the credit
facility and contain certain restrictive covenants.
On January 24, 1997, the Company issued a $6.0 million note to the Loomis
Stockholders Trust (the "NOL Note"). The NOL Note does not accrue interest and
has a term of fifteen years, subject to mandatory prepayments as, and to the
extent that, the Company realizes a tax benefit attributable to the
utilization of net operating losses of Loomis Holding Corporation available at
the date of the reorganization and acquisition of Wells Fargo Armored. The NOL
Note was discounted at 10% over the Company's initial expected period of
repayment of the principal. The Company expects that its utilization of net
operating losses will result in approximately $3.0 million of the NOL Note
being repaid during 1999 and the remainder between 2000 and 2001.
Letters of credit of $17,150,000 are outstanding at December 31, 1998 under
the Company's bank credit facility. Remaining commitments available for
borrowings or additional letters of credit at December 31, 1998 were
$42,750,000.
Interest of $3,100,000, $1,300,000, $10,200,000 and $14,500,000 was paid
during the year ended June 30, 1996, the six months ended December 31, 1996
and the years ended December 31, 1997 and 1998, respectively.
31
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Note 6. Leases
At December 31, 1998, the scheduled future minimum lease payments under
capital leases are as follows for years ending December 31 (in thousands):
<TABLE>
<S> <C>
1999................................................................ $496
2000................................................................ 344
2001................................................................ 25
2002................................................................ 7
2003................................................................ --
----
Total minimum lease payments........................................ 872
Less amount representing interest................................... 143
----
Present value of capital lease obligations.......................... 729
Less current portion of capital lease obligations................... 411
----
Long-term capital lease obligations................................. $318
====
</TABLE>
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2006. The following is a
schedule of future minimum lease payments under noncancelable operating leases
with terms exceeding one year for years ending December 31 (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 9,621
2000.............................................................. 7,742
2001.............................................................. 5,698
2002.............................................................. 3,314
2003.............................................................. 2,273
Thereafter........................................................ 6,952
-------
$35,600
=======
</TABLE>
Rent expense was $3,093,000, $1,765,000, $14,521,000 and $16,106,000,
respectively, for the year ended June 30, 1996, the six months ended December
31, 1996, and the years ended December 31, 1997 and 1998.
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.
32
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Note 7. Income Taxes
The Company accounts for income taxes using the liability method required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Six Months Year Ended
Year Ended Ended December 31
June 30 December 31 -------------
1996 1996 1997 1998
---------- ----------- ----- ------
<S> <C> <C> <C> <C>
Current:
Federal.................................. $78 $50 $-- $158
State.................................... -- -- -- 64
--- --- ----- ------
Total current.......................... 78 50 -- 222
--- --- ----- ------
Deferred:
Federal.................................. -- -- -- (42)
State.................................... -- -- -- --
--- --- ----- ------
Total deferred......................... -- -- -- (42)
--- --- ----- ------
Total.................................. $78 $50 $-- $180
=== === ===== ======
</TABLE>
The reconciliation of income tax attributable to income (loss) before
extraordinary item computed at the federal statutory tax rates to income tax
expense is (in thousands):
<TABLE>
<CAPTION>
Six Months Year Ended
Year Ended Ended December 31
June 30 December 31 ---------------
1996 1996 1997 1998
---------- ----------- ------- ------
<S> <C> <C> <C> <C>
Tax (benefit) at statutory rate....... $410 $764 $(2,639) $ 157
Change in valuation allowance......... (418) (977) 1,450 (1,501)
Nondeductible goodwill amortization
and other............................ 86 263 1,189 1,524
---- ---- ------- ------
$ 78 $ 50 $ -- $ 180
==== ==== ======= ======
</TABLE>
33
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the related amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 8,998 $ 6,189
Minimum and foreign tax credit carryforwards.......... 119 276
Receivable valuations and reserves.................... 2,733 1,324
Accrued vacation and bonuses.......................... 2,266 2,302
Self-insurance reserves............................... 3,521 6,476
Depreciation and amortization......................... -- 417
Other accruals........................................ 1,578 553
Other, net............................................ 70 82
------- -------
Total deferred tax assets........................... 19,285 17,619
Valuation allowances for deferred tax assets............ (18,027) (12,960)
------- -------
Net deferred tax assets................................. 1,258 4,659
Deferred tax liabilities:
Depreciation and amortization......................... 556 --
Prepaid pension cost.................................. 456 556
Other................................................. 246 495
------- -------
Total deferred tax liabilities...................... 1,258 1,051
------- -------
Net deferred tax assets............................. $ -- $ 3,608
======= =======
</TABLE>
The Company has federal net operating loss carryforwards of $24,320,000 and
$16,728,000 as of December 31, 1997 and 1998, respectively, which expire in
2007 through 2012.
During the year ended June 30, 1996, the six months ended December 31, 1996
and the years ended December 31, 1997 and 1998, the Company paid income taxes
of $84,000, $50,000, $80,000, and $60,000, respectively.
Valuation allowances were recognized as of May 5, 1991 and January 24, 1997
related to deductible temporary differences recorded in purchase accounting
for acquisitions on those dates. Additionally, valuation allowances related to
other deductible temporary differences and net operating loss carryforwards
created from post-acquisition operating losses were recorded. Reductions in
the valuation allowances related to purchase accounting result in a reduction
to the goodwill related to the acquisitions on those dates. Reductions in the
valuation allowance related to other items result in a reduction in income tax
expense. The Company continually reviews the adequacy of the valuation
allowance and during 1998, reduced the reserve by $5,067,000. The reduction
was the result of net changes in temporary differences and a reassessment by
the Company which indicates that it is more likely than not that additional
benefits will be realized. Of the total decrease, $3,566,000 resulted in the
reduction of goodwill and the remainder resulted in a reduction to income tax
expense in 1998.
34
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Note 8. Benefit Plans
Employees of the Company participate in a qualified, defined-benefit pension
plan (the "Plan") sponsored by the Company, covering substantially all
employees who met the eligibility requirements regarding age and length of
service and who are not participants in another plan to which the Company may
contribute. Plan assets are comprised of investments in equity and fixed
income securities. The Company froze future benefits under the Plan as of June
30, 1994. Funding is based on the accrued benefit cost method.
The reconciliation of beginning and ending balances of the benefit
obligation and the fair value of Plan assets is as follows (in thousands):
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- -------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year................. $16,129 $17,127
Interest cost........................................... 1,171 1,162
Actuarial (gains)/losses................................ 756 (644)
Benefits paid........................................... (929) (933)
------- -------
Benefit obligation at end of year....................... 17,127 16,712
------- -------
Change in Plan assets
Fair value of Plan assets at beginning of year.......... 16,373 18,177
Actual return on Plan assets............................ 2,733 2,564
Benefits paid........................................... (929) (933)
------- -------
Fair value of Plan assets at end of year................ 18,177 19,808
------- -------
Funded status of the Plan............................... 1,050 3,096
Unrecognized net actuarial (gains)/losses............... 90 (1,706)
------- -------
Prepaid benefit cost.................................... $ 1,140 $ 1,390
======= =======
</TABLE>
A summary of the components of the net periodic pension cost is as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended
Year Ended Six Months Ended December 31
June 30 December 31 ----------------
1996 1996 1997 1998
---------- ---------------- ------- -------
<S> <C> <C> <C> <C>
Interest cost................... $ 1,120 $ 563 $ 1,171 $ 1,162
Actual return on Plan assets.... (1,511) (1,444) (2,733) (2,564)
Deferred gain on Plan assets.... 362 848 1,464 1,152
------- ------- ------- -------
Net periodic pension cost
(income)....................... $ (29) $ (33) $ (98) $ (250)
======= ======= ======= =======
Weighted average assumptions:
Discount rate................... 8.00% 7.50% 7.00% 6.75%
Expected return on Plan assets.. 8.00% 8.00% 8.00% 8.00%
</TABLE>
The Company contributes to certain multi-employer, defined-benefit plans
covering certain employees under collective bargaining agreements which cover
approximately 8% of the Company's workforce. Total expenses of these plans
were $1,029,000, $593,000, $1,033,000 and $933,000 for the year ended June 30,
1996, the six months ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively.
35
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The Company also contributes to a 401(k) defined-contribution plan.
Employees in Puerto Rico are currently not eligible to participate in the
401(k) plan; however, the plan covers approximately 90% of the remaining
employees of the Company. Employee contributions up to $750 are matched by the
Company at a rate of 25%. Total expenses of the plan were $109,000, $89,000,
$271,000 and $367,000 for the year ended June 30, 1996, the six months ended
December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively.
In addition to providing pension benefits, the Company had a defined-benefit
postretirement plan that provided medical care to certain employees. The
postretirement plan was contributory and contained other cost-sharing features
such as deductibles and Medicare coordination. The funding policy was to pay
for these benefits as incurred. During the year ended June 30, 1996, the
Company terminated the postretirement benefit plan and made lump-sum payments
totaling approximately $89,000 to current retirees and certain employees,
incurred costs of approximately $150,000 associated with the plan termination
and recognized a gain of $954,000.
Note 9. Transactions With Affiliates
The consolidated statements of operations include management fees charged by
affiliates of $350,000 for the year ended June 30, 1996, $175,000 for the six
months ended December 31, 1996 and $23,000 for the year ended December 31,
1997. Cumulative management fees of $1,575,000 that had been accrued and
unpaid at December 31, 1996 were paid concurrent with the business
combination. In addition, the Company paid interest of $1,076,000, $542,000
and $71,000 to affiliates in the year ended June 30, 1996, the six months
ended December 31, 1996 and the year ended December 31, 1997, respectively.
In the ordinary course of business, the Company purchases services from
various other subsidiaries of Borg-Warner. During 1997 and 1998, the Company
paid approximately $1,700,000 and $509,000, respectively for such services,
including electronic security installation, maintenance and monitoring,
physical security, courier services, and certain shared lease expenses.
Pursuant to the terms of the business combination between Loomis Holding
Corporation and Wells Fargo Armored, the Company was indemnified by the former
owners of the two companies for environmental liabilities associated with
existing storage tanks and other known and identified environmental
liabilities. (See Note 13).
Included in the Company's other receivables are $400,000 and $1,530,000 from
Borg-Warner at December 31, 1997 and 1998, respectively. In addition, $100,000
and $104,000 is due from an indemnity trust, (the "Loomis Indemnity Trust") at
December 31, 1997 and 1998, respectively.
Note 10. 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. Unitholder Option Plan (the "Unitholder 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
36
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
the Unitholder Plan are subject to vesting requirements and other limitations
that are substantially similar to those that existed under the MEGA Plan. The
Unitholder 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
Wingate Partners 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 December 31, 1998, there are 585,061 options outstanding under the
Unitholder Plan, 521,720 of which are vested. There are 10,978 additional
options outstanding to an employee that are exercisable upon 60 days notice.
The exercise price on both the Unitholder Plan and the additional options will
be approximately $1.96 per share, adjusted for contributions or distributions
to/from the Loomis Stockholders Trust.
On August 15, 1997, the Board of Directors and stockholders of the Company
adopted the Loomis, Fargo & Co. 1997 Stock Option Plan (the "Option Plan"),
pursuant to which options to purchase up to 1,000,000 shares of the Company's
common stock, $0.01 par value ("Common Stock") may be granted. Options granted
under the Option Plan may be subject to vesting requirements and
exercisability restrictions as may be determined by the Board of Directors or
authorized committee thereof.
As of December 31, 1998 options to purchase up to 645,000 shares of Common
Stock (the "Initial Stock Options") were outstanding under the Option Plan.
The Initial Stock Options have an exercise price of $7.50 per share. This
exercise price exceeded the fair value of the stock at the date of grant,
therefore no compensation expense has been recorded under the provisions of
APB 25 (See Note 2). The Initial Stock Options are exercisable on the tenth
anniversary of the grant date, subject to the acceleration provisions
described below, and expire on the eleventh anniversary of such grant date.
The exercisability of the Initial Stock Options shall accelerate as follows:
(i) if, following the date that the Common Stock is first readily tradable on
a national securities exchange or other market system, the daily closing price
of the Common Stock is equal to or greater than a scale of prices ranging from
$10 to $30 for 80 out of 100 trading days, then a percentage of the Initial
Stock Options shall become exercisable based on such daily closing prices on a
sliding scale from January 24, 1998 to January 24, 2002, (ii) in the event of
a Change of Control (as defined in the Option Plan) prior to there being a
public trading market for the Common Stock, a percentage of the Initial Stock
Options shall become exercisable based upon a $10 to $30 price range of the
weighted average sale price of shares of Common Stock from the date of grant
to the date of the Change of Control, with the remainder (if any) to be
forfeited upon such Change of Control, and (iii) in the event of a Change of
Control after there is a public trading market for the Common Stock, the
Initial Stock Options shall be exercisable for a percentage equal to the
greater of (x) the then current exercisable percentage of such Initial Stock
Options as set forth in clause (i) above, or (y) the percentage that would
become exercisable upon the occurrence of a Change of Control as set forth in
clause (ii) above. Any shares issued upon exercise of options under the
Unitholder Plan will be distributed to the Company by a business trust, the
beneficiaries of which are the former stockholders of Loomis (the "Loomis
Stockholders Trust"). During 1998, options to purchase 90,000 shares expired
or were cancelled and options to purchase 90,000 additional shares were
issued.
Statement No. 123 of the Financial Accounting Standards Board requires the
presentation of pro forma information regarding net income (loss) as if the
Company had accounted for its employee stock options under the fair value
method of that statement. Because the exercise prices on these options were
considerably in excess of the fair value of the Company's common stock on the
respective dates of grant, the fair value of these options was immaterial.
37
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Note 11. Equity Transactions
The capital structure of the Company changed with the reorganization of
Loomis Holding Corporation into Loomis, Fargo & Co. and the acquisition of
certain assets and assumption of certain liabilities 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
$0.01 per share) were exchanged for 5,100,000 shares of Common Stock of
Loomis, Fargo & Co., which were concurrently transferred to the Loomis
Stockholders Trust (See Note 1). Under certain circumstances, shares held by
the Loomis Stockholders Trust may be contributed to the Company to satisfy the
exercise of certain stock options. The remaining 4,900,000 outstanding shares
of Common Stock of the Company were issued to a Borg-Warner subsidiary as part
of the purchase price consideration.
The Common Stock of the Company consists of one class and has a $0.01 par
value. Twenty million shares are authorized, ten million of which are issued
and outstanding as described in the preceding paragraph. Ten million shares of
$0.01 Preferred Stock are authorized, but none have been issued at December
31, 1998.
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 Holding Corporation's Class A Common Stock and 268,794 shares of Loomis
Holding Corporation's Class B Common Stock. On January 23, 1997, all warrant
holders exercised their warrants. The shares issued upon exercise of the
warrants were included in the January 24, 1997 exchange of Common Stock of
Loomis Holding Corporation for Common Stock of the Company.
Concurrent with the business combination on January 24, 1997, the non-
interest bearing NOL note described in Note 5, having a discounted value at
that date of approximately $5,342,000, and net cash consideration of
approximately $8,737,000 were distributed for the benefit of the shareholders
of Loomis Holding Corporation.
Note 12. Quarterly Data (unaudited, in thousands)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- --------------- ---------------- ----------------
1997 1998 1997 1998 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $79,251 $96,504 $93,763 $96,854 $96,541 $95,455 $96,575 $95,490
Operating Income........ (137) 2,731 4,486 3,670 2,443 3,912 1,343 5,430
Income before
extraordinary item..... (3,215) (1,413) 277 (257) (1,956) 59 (2,868) 1,892
Net income (loss)....... (3,339) (1,413) 277 (257) (1,956) 59 (2,868) 1,892
</TABLE>
Note 13. Subsequent Event
Pursuant to the terms of the business combination between Loomis Armored and
Wells Fargo Armored, the Company was indemnified by the former owners of the
two companies for environmental liabilities associated with existing storage
tanks and other known and identified environmental liabilities. The
indemnification obligations survived until December 31, 1998. To the extent
that there were remedial activities in process as of the date of termination
of such indemnification obligations, the Company provided the former owners,
as applicable, with written estimates in reasonable detail of the remaining
costs and expenses expected to be incurred by the Company, which would
otherwise have been covered by such indemnification.
38
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The Company entered into a binding agreement on March 22, 1999 whereby Borg-
Warner agreed to pay the Company $1,450,000 to satisfy expenses which had been
incurred and unpaid totaling $450,000 as well as a reasonable estimate of any
future obligation for remediation on the sites originally located on the
properties owned or operated by and acquired from Wells Fargo Armored where
storage tanks had been removed. The Company recorded a receivable of
$1,450,000 for this payment as well as an accrual for approximately $1.0
million, which is management's best estimate for remedial expenses to be
incurred on these sites subsequent to December 31, 1998. No significant future
expenses are expected to be incurred on the Loomis Armored sites where storage
tanks have been removed. In most cases, the remediation expenses previously
discussed are expected to be incurred over a number of years. During this
period, the laws governing the remediation process may change and
technological advances may occur that will affect the cost of remediation.
Such developments will be periodically reviewed to determine if any
adjustments to the Company's accrual for remediation costs is warranted.
39
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is certain information with respect to those individuals who
serve as members of the Board of Directors and as executive officers of the
Company. Each of the persons named below holds the positions set forth
opposite his name with each of LFC Holding Corporation; Loomis, Fargo & Co. (a
Texas corporation); and Loomis, Fargo & Co. of Puerto Rico, except that
Messrs. Adorjan, Mattly and Hegi are the only directors constituting the board
of directors of Loomis, Fargo & Co. of Puerto Rico.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Joe Adorjan.......... 60 Chairman of the Board of Directors
James B. Mattly......... 57 Director, President and Chief Executive Officer
James T. Callier, Jr. .. 64 Director
Frederick B. Hegi,
Jr. ................... 55 Director
John D. O'Brien......... 56 Director
Jay I. Applebaum........ 36 Director
Timothy M. Wood......... 51 Director
Edward H. Hamlett....... 50 Executive Vice President--Sales and Marketing
Tommy E. Harden......... 54 Executive Vice President--Fleet Management
James K. Jennings,
Jr. ................... 57 Executive Vice President, Chief Financial Officer and Secretary
Bruce J. Magelky........ 50 Executive Vice President--Security and Operations
Thomas L. Roth.......... 59 Executive Vice President--Human Resources
Michael Tawney.......... 48 Executive Vice President--Risk Management
</TABLE>
There is no family relationship between any of the directors or executive
officers of the Company. Officers of the Company are elected by the Board of
Directors and hold office until their respective successors are duly elected
and qualified.
J. Joe Adorjan has served as a director of Borg-Warner since 1993, Chairman
of the Board of Borg-Warner since January 1996, Chief Executive Officer of
Borg-Warner from October 1995 to March 1999, and President of Borg-Warner from
April 1995 to March 1999, and was elected to the Board of Directors of the
Company in January 1997. Mr. Adorjan was President of Emerson Electric Co.
from 1992 to 1995. Mr. Adorjan also currently serves as a director of The
Earthgrains Company, ESCO Electronics Corporation, Hussmann Corporation,
Illinova Corporation and Goss Graphic Systems, Inc.
James B. Mattly served as a director and as President and Chief Executive
Officer of Loomis Armored from November 1991 to January 1997 and as a director
of LFC Holding Corporation (formerly Loomis Holding Corporation) from May 1991
to January 1997, and was elected to the Board of Directors of the Company in
January 1997. From 1979 to 1990, Mr. Mattly served as Regional Vice President
of Browning-Ferris Industries ("BFI") and as Chief Operating Officer of its
southwest region. Mr. Mattly has also served as Vice President--Operations for
Butler Aviation (1977-79) and Regional Vice President of Wells Fargo Armored
(1973-77).
James T. Callier, Jr. served as a director of LFC Holding Corporation
(formerly Loomis Holding Corporation) and Loomis Armored from May 1991 to
January 1997, and was elected to the Board of Directors of the Company in
January 1997. Mr. Callier is an indirect general partner of Wingate Partners
and a general partner of Wingate Affiliates, L.P., and has served as President
of Callier Consulting, Inc. since 1985. From 1995 to 1997, Mr. Callier served
as a director of United Stationers, Inc. and had served as a director of
Associated Stationers Inc., the predecessor to United Stationers, Inc., from
1992 to 1995. Mr. Callier also served as Chairman of the Board of Century
Products Company from 1988-1998.
40
<PAGE>
Frederick B. Hegi, Jr. served as Chairman of the Board of LFC Holding
Corporation (formerly Loomis Holding Corporation) and Loomis Armored from May
1991 to January 1997, and was elected to the Board of Directors of the Company
in August 1996. Mr. Hegi is an indirect general partner of Wingate Partners
and a general partner of Wingate Affiliates, L.P. Since May 1982, Mr. Hegi has
served as President of Valley View Capital Corporation. Mr. Hegi served as a
director of Associated Holdings, Inc. from January 1992 through March 1995, a
director of United Stationers Inc. since March 1995 and Chairman of the Board
since November 1996. Mr. Hegi also currently serves as Chairman of the Board
of Tahoka First Bancorp, Inc. and Cedar Creek Bancshares, Inc. He also serves
as a director of Lone Star Technologies, Inc., Cattle Resources, Inc., Texas
Capital Bancshares and ProParts Xpress, Inc. From 1995 to 1998, Mr. Hegi
served as Chairman of the Board of ITCO Holding Company, Inc.
John D. O'Brien has served as Senior Vice President of Borg-Warner since
1993 and was Vice President of Borg-Warner from 1987 to 1993, and was elected
to the Board of Directors of the Company in January 1997.
Timothy M. Wood has served as Vice President, Finance of Borg-Warner since
1994 and was Vice President and Controller of Borg-Warner from 1987 to 1994,
and was elected to the Board of Directors of the Company in January 1997.
Jay I. Applebaum served as Secretary for LFC Holding Corporation (formerly
Loomis Holding Corporation) and Loomis Armored from May 1991 to January 1997
and was elected to the board of directors of the Company in February 1997.
Since June 1989, Mr. Applebaum has been associated with Wingate Partners. Mr.
Applebaum is also the Chairman of the Board for ProParts Xpress, Inc.
Edward H. Hamlett served as a director of LFC Holding Corporation (formerly
Loomis Holding Corporation) from February 1992 to January 1997 and as Vice
President of Sales and Marketing from February 1996 to January 1997, and was
elected to the office of Executive Vice President of the Company in January
1997. From May 1979 to May 1995, Mr. Hamlett served as Vice President, Sales
and Marketing of BFI. Prior to joining BFI, Mr. Hamlett held regional sales
and branch management positions with Wells Fargo Armored from 1973 to 1977.
Tommy E. Harden served as Vice President of Fleet Management of Loomis
Armored from May 1992 to January 1997, and was elected to the office of
Executive Vice President--Fleet Management of the Company in January 1997.
From January 1990 to May 1992, Mr. Harden served as Vice President and
Director of the Truck Division of Loomis Armored.
James K. Jennings, Jr. served as Chief Financial Officer of LFC Holding
Corporation (formerly Loomis Holding Corporation) and Loomis Armored from
March 1994 to January 1997, and was elected to the offices of Executive Vice
President, Chief Financial Officer and Secretary of the Company in January
1997. Prior to joining Loomis, Mr. Jennings held various management positions
at HWC Distribution Corporation (a distributor of electrical and electronic
wire and cable), including as President and as a director from February 1990
to September 1993 and as Executive Vice President and Chief Financial Officer
from 1980 to February 1990.
Bruce J. Magelky served as Vice President of Security and Operations of
Loomis Armored from December, 1992 to January 1997, and was elected to the
office of Executive Vice President--Security and Operations of the Company in
January 1997. From July 1991 to December 1992, Mr. Magelky served as Director
of Security of Loomis Armored.
Thomas L. Roth served as Vice President of Human Resources of Wells Fargo
Armored from April 1996 to January 1997, and was elected to the office of
Executive Vice President--Human Resources of the Company in January 1997. From
July 1983 to April 1996, Mr. Roth served as Vice President of Human Resources
of Pony Express Courier Corporation.
Michael Tawney served as Vice President of Risk Management and Loss Control
of Loomis Armored from March 1992 to January 1997, and was elected to the
office of Executive Vice President--Risk Management of the Company in January
1997. From September 1990 to March 1992, Mr. Tawney served as Vice President
of BFI Mexico.
41
<PAGE>
Item 11. Executive Compensation
Directors who are officers, employees or otherwise an affiliate of the
Company do not presently receive compensation for their services as directors.
Directors of the Company are entitled to reimbursement of their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the board of directors or committees thereof. No determination has
yet been made whether annual fees or board attendance fees, if any, will be
paid to future directors who are not also officers, employees, or otherwise an
affiliate of the Company.
Compensation Committee Interlocks and Insider Participation
John D. O'Brien and James T. Callier, Jr. comprise the compensation
committee of the Board of Directors of the Company. Mr. O'Brien is a director
and executive officer of Borg-Warner, which received certain benefits from the
transactions described in Item 13. Mr. Callier is an indirect general partner
of Wingate Partners and a general partner of Wingate Affiliates, L.P. Wingate
Partners received certain benefits from the transactions described in Item 13.
Benefit Plans
Before the business combination in January 1997, certain key employees of
Loomis were compensated under a Management Equity Growth and Appreciation Plan
(the "MEGA Plan"), under which Loomis 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 business combination, the MEGA Plan was terminated and all of its
units canceled. The Loomis, Fargo & Co. Unitholder Option Plan (the
"Unitholder 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 Unitholder 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 Unitholder 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 Wingate Partners 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. Any shares issued upon exercise of options
under the Unitholder Plan will be distributed to the Company by a business
trust, the beneficiaries of which are the former stockholders of LFC Holding
Corporation (formerly Loomis Holding Corporation) (the "Loomis Stockholders
Trust").
As of March 22, 1999, there are 585,061 options outstanding under the
Unitholder Plan, 521,720 of which are vested. There are 10,978 additional
options outstanding to an employee that are currently exercisable. The
exercise price on both the Unitholder Plan and the additional options will be
approximately $1.96 per share, adjusted for contributions or distributions
to/from the Loomis Stockholders Trust.
On August 15, 1997, the Board of Directors and stockholders of the Company
adopted the Loomis, Fargo & Co. 1997 Stock Option Plan (the "Plan"), pursuant
to which the Board of Directors (or authorized committee thereof) is
authorized to grant options (the "Options") to purchase up to 1,000,000 shares
of the Company's common stock, $0.01 par value ("Common Stock"), subject to
adjustment upon stock splits, stock dividends, reclassifications and similar
changes to the capital structure of the Company. Options granted under the
Plan may be subject to vesting requirements and exercisability restrictions as
may be determined by the Board of Directors or authorized committee thereof.
As of March 22, 1999, options had been granted to purchase up to 665,000
shares of Common Stock (the "Initial Stock Options"), of which 645,000 remain
outstanding. The Initial Stock Options have an exercise price
42
<PAGE>
of $7.50 per share. The Initial Stock Options are exercisable on the tenth
anniversary of the grant date, subject to the acceleration provisions
described below, and expire on the eleventh anniversary of such grant date.
The exercisability of the Initial Stock Options shall accelerate as follows:
(i) if, following the date that the Common Stock is first readily tradable on
a national securities exchange or other market system, the daily closing price
of the Common Stock is equal to or greater than a scale of prices ranging from
$10 to $30 for 80 out of 100 trading days, then a percentage of the Initial
Stock Options shall become exercisable based on such daily closing prices on a
sliding scale from January 24, 1998 to January 24, 2002, (ii) in the event of
a Change of Control (as defined in the Plan) prior to there being a public
trading market for the Common Stock, a percentage of the Initial Stock Options
shall become exercisable based upon a $10 to $30 price range of the weighted
average sale price of shares of Common Stock from the date of grant to the
date of the Change of Control, with the remainder (if any) to be forfeited
upon such Change of Control, and (iii) in the event of a Change of Control,
after there is a public trading market for the Common Stock, the Initial Stock
Options shall be exercisable for a percentage equal to the greater of (x) the
then current exercisable percentage of such Initial Stock Options as set forth
in clause (i) above, or (y) the percentage that would become exercisable upon
the occurrence of a Change of Control as set forth in clause (ii) above.
43
<PAGE>
Summary of Compensation
The following table sets forth the compensation awarded to or earned by the
Chief Executive Officer of the Company and the other most highly compensated
executive officers (the "Named Executive Officers") of the Company. The
compensation was paid to such Named Executive Officers by Loomis Armored in
the year ended June 30, 1996, the six months ended December 31, 1996 and the
first twenty-three days of January 1997. The compensation was paid by the
Company for the remainder of 1997 and for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------- All Other Awards
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)(6) (Securities)
- --------------------------- ---- ---------- --------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
James B. Mattly......... 1996(1) 362,500 138 -- 49,963(7)
Director, President and 1996(2) 175,000 200 -- 16,950
Chief Executive Officer 1997(3) 443,974 250 -- 167,874
1998(3) 450,000 75,000 -- --
Edward H. Hamlett....... 1996(1) 66,667(4) -- 2,860 16,950
Executive Vice
President-- 1996(2) 80,000 -- 3,432 5,085
Sales and Marketing 1997(3) 196,987 250 7,462 50,743
1998(3) 200,000 50,000 7,500 --
Tommy E. Harden......... 1996(1) 100,000 2,938 6,864 --
Executive Vice
President-- 1996(2) 50,000 200 3,432 5,085
Fleet Management 1997(3) 146,987 250 7,462 30,924
1998(3) 150,000 37,500 7,500 --
James K. Jennings,
Jr. ................... 1996(1) 150,000 2,938 6,864 --
Executive Vice
President, 1996(2) 75,000 200 3,432 5,085
Chief Financial Officer
and 1997(3) 196,987 250 7,462 50,924
Secretary 1998(3) 200,000 50,000 7,500 --
Bruce J. Magelky........ 1996(1) 100,000 2,938 6,864 --
Executive Vice
President-- 1996(2) 50,000 200 3,432 5,085
Security and Operations 1997(3) 146,987 250 7,462 40,924
1998(3) 150,000 37,500 7,500 --
Thomas L. Roth.......... 1997(3) 139,850(5) -- 22,190 30,000
Executive Vice
President-- 1998(3) 150,000 37,500 7,500 --
Human Resources
Michael Tawney.......... 1996(1) 100,000 2,938 6,864 --
Executive Vice
President-- 1996(2) 50,000 200 3,432 5,085
Risk Management 1997(3) 146,987 250 7,462 30,924
1998(3) 150,000 37,500 7,500 --
</TABLE>
- --------
(1) Compensation paid by Loomis Armored for the year ended June 30, 1996.
(2) Compensation paid by Loomis Armored for the six months ended December 31,
1996.
(3) Compensation paid by the Company for the years ended December 31, 1997 and
1998.
(4) Represents compensation for the period of February 2, 1996, when Mr.
Hamlett became employed by the Company, to June 30, 1996.
(5) Represents compensation for the period of January 24, 1997, when Mr. Roth
became employed by the Company, to December 31, 1997.
(6) Reflects automobile allowances paid to the executive vice presidents, and
a $20,003 moving allowance paid to Mr. Roth in 1997.
(7) Units shown were issuable to Mr. Mattly only upon the occurrence of
certain contingencies on or prior to December 31, 1999.
44
<PAGE>
Mattly Employment Agreement. Mr. Mattly is a party to an employment
agreement with the Company pursuant to which he serves as President and Chief
Executive Officer. Mr. Mattly's employment agreement is subject to automatic
successive one-year renewal terms. Mr. Mattly's current base salary is
$450,000, subject to increase from time to time at the sole discretion of the
board of directors of the Company. In addition, Mr. Mattly may receive a bonus
generally recognizable following the end of the Company's fiscal year in an
amount up to 100% of his then current base salary at the sole discretion of
the board of directors of the Company. The employment agreement also provides
for participation by Mr. Mattly in the Company's general life, health and
disability plans generally applicable to senior executives of the Company, as
well as reimbursement of reasonable business expenses. Mr. Mattly's employment
agreement includes certain noncompetition and confidentiality provisions.
In May 1996 and January 1997, the provisions of Mr. Mattly's employment
agreement were amended to provide for the issuance under the Unitholder Plan
of 166,543 options and the contingent issuance of 49,963 options which are
issuable upon the occurrence of certain contingencies on or prior to December
31, 1999.
There were no option grants to the Chief Executive Officer of the Company or
the Named Executive Officers in the fiscal year ended 1998.
The following table provides information on the value of unexercised options
held at December 31, 1998 by the Chief Executive Officer of the Company and
the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year End (#) Fiscal Year End ($)(2)
---------------------------- ----------------------------
Name Exercisable/Unexercisable(1) Exercisable/Unexercisable(1)
---- ---------------------------- ----------------------------
<S> <C> <C>
James B. Mattly......... -/401,331 -/-
Edward H. Hamlett....... 10,978/ 72,779 4,172/-
Tommy E. Harden......... -/ 58,317 -/-
James K. Jennings,
Jr. ................... -/ 78,317 -/-
Bruce J. Magelky........ -/ 68,317 -/-
Thomas L. Roth.......... -/ 30,000 -/-
Michael Tawney.......... -/ 58,317 -/-
</TABLE>
- --------
(1) No options under either the Unitholder Option Plan or the 1997 Stock
Option Plan are exercisable at December 31, 1998.
(2) Unexercised options are out-of-the-money at December 31, 1998. Because the
Company's stock is not publicly traded, these values are based on
management's estimate of the fair value of the Company's Common stock at
December 31, 1998.
45
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of Common Stock as
of December 31, 1998 by (i) each person known to the Company to beneficially
own more than 5% of the Common Stock, (ii) each of the directors of the
Company, (iii) each of the Named Executive Officers, and (iv) all directors
and Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
Common Stock
------------------
Number Percent
Name and Address of Beneficial Owner of Shares of Class
------------------------------------ --------- --------
<S> <C> <C>
Loomis Stockholders Trust............................... 5,100,000 51.0%
c/o Wingate Partners, L.P.
750 N. St. Paul Street, Suite 1200
Dallas, Texas 75201
Wingate Partners, L.P.(1)(2)............................ 4,344,572 43.4%
750 N. St. Paul Street, Suite 1200
Dallas, Texas 75201
Key Capital Corporation(1).............................. 516,774 5.2%
127 Public Square, Fourth Floor
Cleveland, Ohio 44114
Wells Fargo Armored Service Corporation................. 4,900,000 49.0%
200 South Michigan Avenue
Chicago, Illinois 60604
Borg-Warner Security Corporation(3)..................... 4,900,000 49.0%
200 South Michigan Avenue
Chicago, Illinois 60604
J. Joe Adorjan(4)....................................... -- *
James B. Mattly(1)...................................... 136,358 1.4%
James T. Callier, Jr.(5)................................ -- *
Frederick B. Hegi, Jr.(5)(6)............................ -- *
John D. O'Brien(4)...................................... -- *
Jay I. Applebaum(1)..................................... 26,737 *
Timothy M. Wood(4)...................................... -- *
Edward H. Hamlett(7).................................... 10,978 *
Tommy E. Harden......................................... -- *
James K. Jennings, Jr. ................................. -- *
Bruce J. Magelky........................................ -- *
Thomas L. Roth.......................................... -- *
All directors and executive officers as a group (13
persons)(8)............................................ 173,722 1.7%
</TABLE>
- --------
*Represents less than 1%
(1) Reflects such holder's beneficial ownership of Common Stock in accordance
with its percentage interest of trust units in the Loomis Stockholders
Trust. All of such shares of Common Stock are held of record by the Loomis
Stockholders Trust pursuant to the Loomis Stockholders Trust Agreement
and, therefore, the number of shares and percentage of beneficial
ownership of the Company attributable to such holder is subject to change
upon the acquisition or disposition of shares of Common Stock held of
record by the Loomis Stockholders Trust.
(2) Includes the beneficial ownership of 4,262,794 shares by Wingate Partners
and 81,778 shares by Wingate Affiliates, L.P.
(3) Borg-Warner is the sole stockholder of Wells Fargo Armored and, therefore,
may be deemed to beneficially own all shares of Common Stock owned of
record by Wells Fargo Armored.
46
<PAGE>
(4) Does not include 4,900,000 shares of Common Stock held of record by Wells
Fargo Armored, a wholly-owned subsidiary of Borg-Warner. Mr. Adorjan is a
director and each of Messrs. Adorjan, O'Brien and Wood are executive
officers of Borg-Warner and, therefore, may be deemed to be a beneficial
owner of some or all of such shares. Each of Messrs. Adorjan, O'Brien and
Wood disclaims beneficial ownership of all shares of Common Stock not held
of record by him.
(5) Does not include an aggregate of 4,344,572 shares of Common Stock
beneficially owned by Wingate Partners and Wingate Affiliates, L.P. Each
of Messrs. Callier and Hegi are indirect general partners of Wingate
Partners and general partners of Wingate Affiliates, L.P. and, therefore,
may be deemed to beneficially own some or all of the shares of Common
Stock owned by such entities. Each of Messrs. Callier and Hegi disclaims
beneficial ownership of all shares of Common Stock not held of record by
him.
(6) Does not include 5,100,000 shares of Common Stock held by the Loomis
Stockholders Trust. Mr. Hegi is the manager of the Loomis Stockholders
Trust and, therefore, may be deemed to beneficially own the shares of
Common Stock held by the Loomis Stockholders Trust. Mr. Hegi disclaims
beneficial ownership of all shares of Common Stock not held of record by
him.
(7) Includes options exercisable within 60 days to purchase up to 10,978 shares
of Common Stock.
(8) Includes (i) 10,978 shares of Common Stock issuable to Mr. Hamlett
pursuant to an option exercisable within 60 days and (ii) 136,064 and
26,680 shares of Common Stock beneficially owned by Mr. Mattly and Mr.
Applebaum, respectively, through the Loomis Stockholders Trust following
the delivery to the Company of 10,978 shares of Common Stock by the Loomis
Stockholders Trust pursuant to a stock contribution agreement upon the
exercise of Mr. Hamlett's stock option.
Item 13. Certain Relationships and Related Transactions
The Business Combination
On November 28, 1996, Borg-Warner, Wells Fargo Armored, the Company, Loomis,
Loomis Armored and the Loomis Stockholders Trust entered into a Contribution
Agreement (the "Contribution Agreement"), pursuant to which, on January 24,
1997, the Loomis Stockholders Trust contributed all of the issued and
outstanding Common Stock of Loomis and Wells Fargo Armored contributed
substantially all of its assets and certain liabilities to the Company in
exchange for 51% and 49%, respectively, of the Common Stock of the Company.
Payments to Affiliates
In the ordinary course of business, the Company purchases services from
various other subsidiaries of Borg-Warner. During 1997 and 1998, the Company
paid approximately $1.7 million and $0.5 million, respectively, for such
services, including electronic security installation, maintenance and
monitoring, physical security, courier services and certain shared lease
expenses.
47
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of Loomis, Fargo & Co.: See Item 8 of
this report.
(2) Financial Statement Schedules: Valuation and Qualifying Accounts--See
Schedule II to this report.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<C> <S>
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 --Restated Bylaws of Loomis, Fargo Texas.*
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.*
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 --[Intentionally Omitted.]
4.3 --Form of 10% Senior Subordinated 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.*
</TABLE>
48
<PAGE>
<TABLE>
<C> <S>
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 NationsBanc Capital Markets, Inc., as syndication
agents, LCPI as documentation agent, and NationsBank as administrative
agent.*
10.1-A --First Amendment and Waiver, dated as of March 16, 1998, to the Credit
Agreement dated as of January 24, 1997, among the Company as borrower,
the several lenders parties thereto, LCPI and NationsBank as
arrangers, LCPI and NationsBank 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.*
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 --Unitholder Option Plan and Agreement, dated as of January 24, 1997,
among the Company and the Unitholder 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, as amended,
between LFC Holding Corporation (formerly known as Loomis Holding
Corporation) and James B. Mattly.*!
10.13 --Loomis, Fargo & Co. 1997 Stock Option Plan.@!
10.14 --Settlement Agreement, dated as of March 22, 1999, between Borg-Warner
Security Corporation and the Company.***
21.1 --Subsidiaries of the Company.***
27.1 --Financial Data Schedule for Loomis, Fargo & Co.***
</TABLE>
- --------
* 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.
@ Incorporated by reference to the Quarterly Report on Form 10-Q of Loomis,
Fargo & Co. filed with the Securities and Exchange Commission on November
14, 1997.
** Previously filed with the Annual Report on Form 10-K/A of Loomis, Fargo &
Co. filed with the Securities and Exchange Commission on April 13, 1998.
*** Filed herewith
! Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the most recent
quarter for which this report was filed.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Co-Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 22nd day of March, 1999.
LOOMIS, FARGO & CO., a Delaware
corporation
/s/ James K. Jennings, Jr.
BY:__________________________________
James K. Jennings, Jr.
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Joe Adorjan Chairman of the Board, and March 22, 1999
- ------------------------------------ Director of the Co-
J. Joe Adorjan Registrant listed above
/s/ James B. Mattly President, Chief Executive March 22, 1999
- ------------------------------------ Officer and Director of the
James B. Mattly Co-Registrant listed above
(Principal Executive
Officer)
/s/ James K. Jennings, Jr. Executive Vice President and March 22, 1999
- ------------------------------------ Chief Financial Officer of
James K. Jennings, Jr. the Co-Registrant listed
above (Principal Financial
and Accounting Officer)
/s/ Frederick B. Hegi, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Frederick B. Hegi, Jr.
/s/ Timothy M. Wood Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Timothy M. Wood
/s/ Jay L. Applebaum Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Jay I. Applebaum
/s/ John D. O'Brien Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
John D. O'Brien
/s/ James T. Callier, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
James T. Callier, Jr.
</TABLE>
50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Co-Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 22nd day of March, 1999.
LFC HOLDING CORPORATION
/s/ James K. Jennings, Jr.
BY:__________________________________
James K. Jennings, Jr.
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Joe Adorjan Chairman of the Board, and March 22, 1999
- ------------------------------------ Director of the Co-
J. Joe Adorjan Registrant listed above
/s/ James B. Mattly President, Chief Executive March 22, 1999
- ------------------------------------ Officer and Director of the
James B. Mattly Co-Registrant listed above
(Principal Executive
Officer)
/s/ James K. Jennings, Jr. Executive Vice President and March 22, 1999
- ------------------------------------ Chief Financial Officer of
James K. Jennings, Jr. the Co-Registrant listed
above (Principal Financial
and Accounting Officer)
/s/ Frederick B. Hegi, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Frederick B. Hegi, Jr.
/s/ Timothy M. Wood Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Timothy M. Wood
/s/ Jay I. Applebaum Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Jay I. Applebaum
/s/ John D. O'Brien Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
John D. O'Brien
/s/ James T. Callier, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
James T. Callier, Jr.
</TABLE>
51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Co-Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 22nd day of March, 1999.
LOOMIS, FARGO & CO., a Texas
corporation
/s/ James K. Jennings, Jr.
BY:__________________________________
James K. Jennings, Jr.
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Joe Adorjan Chairman of the Board, and March 22, 1999
- ------------------------------------ Director of the Co-
J. Joe Adorjan Registrant listed above
/s/ James B. Mattly President, Chief Executive March 22, 1999
- ------------------------------------ Officer and Director of the
James B. Mattly Co-Registrant listed above
(Principal Executive
Officer)
/s/ James K. Jennings, Jr. Executive Vice President and March 22, 1999
- ------------------------------------ Chief Financial Officer of
James K. Jennings, Jr. the Co-Registrant listed
above (Principal Financial
and Accounting Officer)
/s/ Frederick B. Hegi, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Frederick B. Hegi, Jr.
/s/ Timothy M. Wood Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Timothy M. Wood
/s/ Jay I. Applebaum Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Jay I. Applebaum
/s/ John D. O'Brien Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
John D. O'Brien
/s/ James T. Callier, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
James T. Callier, Jr.
</TABLE>
52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Co-Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 22nd day of March, 1999.
LOOMIS, FARGO & CO. OF PUERTO RICO
/s/ James K. Jennings, Jr.
BY:__________________________________
James K. Jennings, Jr.
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Joe Adorjan Chairman of the Board, and March 22, 1999
- ------------------------------------ Director of the Co-
J. Joe Adorjan Registrant listed above
/s/ James B. Mattly President, Chief Executive March 22, 1999
- ------------------------------------ Officer and Director of the
James B. Mattly Co-Registrant listed above
(Principal Executive
Officer)
/s/ James K. Jennings, Jr. Executive Vice President and March 22, 1999
- ------------------------------------ Chief Financial Officer of
James K. Jennings, Jr. the Co-Registrant listed
above (Principal Financial
and Accounting Officer)
/s/ Frederick B. Hegi, Jr. Director of the Co- March 22, 1999
- ------------------------------------ Registrant listed Above
Frederick B. Hegi, Jr.
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE SECURITIES ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT.
No annual report or proxy material has been or will be sent to security
holders of the registrants.
53
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
-----------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other Deductions at End
of Period Expenses Accounts (1) of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Deducted from asset account--
allowance for doubtful
accounts:
Year ended June 30, 1996... $221 $ 14 $(12) $ 247
Six months ended December
31, 1996.................. 247 68 7 308
Year ended December 31,
1997...................... 308 708 516 500
Year ended December 31,
1998...................... 500 2,229 505 2,224
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
54
<PAGE>
EXHIBIT 10.14
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into as of the 22nd day of March, 1999
by and between Borg-Warner Security Corporation ("BWSC") and Loomis, Fargo &
Co. ("LFC"). Collectively or individually, BWSC and LFC may be referred to as
the "Parties" or the "Party." Capitalized terms in this Agreement which are
not herein defined shall have the same meaning as they have 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 ("Contribution Agreement") whereby 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 environmental losses and liabilities related
to the operations of Wells Fargo Armored Service Corporation and its
subsidiaries ("WFASC");
WHEREAS, prior to December 31, 1998, LFC had submitted claims for
indemnification related to the WFASC environmental losses and liabilities in
an amount in excess of $1,200,000;
WHEREAS, by letter dated December 21, 1998, LFC submitted an estimate of
future WFASC environmental losses and liabilities ranging from $1,428,000 to
$9,981,000 ("Environmental Letter");
WHEREAS, BWSC objected to certain claims for indemnification made by LFC
related to WFASC environmental losses and liabilities;
WHEREAS, the Parties desire to resolve and settle all actual or potential
environmental claims, liabilities and obligations that LFC has or may have in
the future against BWSC and its subsidiaries.
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
four hundred fifty thousand dollars and no cents ($1,450,000.00).
2) Releases and Indemnification. LFC, on behalf of itself and its current
and former officers, directors, employees, agents, shareholders (other than
BWSC), attorneys, subsidiaries, predecessors, successors and assigns, or
any one 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 environmental claim, environmental liability or
environmental obligation arising out of or related to the operations of
WFASC, including, without limitation, all environmental claims,
environmental liabilities or environmental obligations arising out of or in
any way relating to the Contribution Agreement (including, without
limitation, Sections 4.20 and 12.1 and Schedule 4.20(a), including
Attachment A) and the Environmental Letter, 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 ("Released Claims"). Furthermore, LFC
agrees to defend and indemnify BWSC and all of the aforementioned privies,
for any of the Released Claims made by a third
<PAGE>
party. 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 the aforementioned
privies under this section, LFC has the right to control the defense or
settlement of such third party claims; provided, however, LFC will not
agree to settle any such third party claim in a manner that 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 nor shall be construed to release
the Parties' obligations under this Settlement Agreement.
3) Other Indemnification Obligations. Expect for matters addressed
herein, this Settlement Agreement shall have no effect on any other
indemnification obligations under the Contribution Agreement, and each
Party hereby specifically reserves any claims or defenses thereto that such
Party may have with respect to such other indemnification claims,
including, without limitation, indemnification claims for cargo losses and
taxes.
4) Representation and Warranties. LFC represents and warrants the
following:
a) Prior to December 31, 1998, LFC paid or agreed to pay invoices to
third parties related to environmental matters listed on Schedule
4.20(a), including Attachment A, of the Contribution Agreement in an
amount in excess of one million two hundred thousand dollars
($1,200,000).
b) As of the date hereof, LFC's best estimate of environmental costs
associated environmental matters listed on Schedule 4.20(a) of the
Contribution Agreement incurred or to be incurred subsequent to
December 31, 1998 is an amount in excess of one million five hundred
thousand dollars ($1,500,000).
5) Covenants. LFC covenants the following:
a) LFC will continue to provide BWSC copies of all invoices paid and
such other information that BWSC may reasonably request related to the
Released Claims.
b) LFC will continue its efforts to collect monies on behalf of BWSC,
as provided in Section 12.1(c) of the Contribution Agreement, from any
state UST funds related to the environmental matters listed on Schedule
4.20(a) of the Contribution Agreement and pay such monies as collected
to BWSC.
6) 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 respective current and former parties,
subsidiaries and affiliates, and their respective predecessors,
successors and assigns, and their former and current officers,
directors, employees, agents, attorneys, and stockholders of all such
parties and LFC, its respective current and former parents,
subsidiaries and affiliates, and their respective predecessors,
successors and assigns, and their 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
representations (other than as provided herein) made by the other party
to this Settlement Agreement.
2
<PAGE>
e) 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 alone fully and completely expresses their agreement.
This 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.
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
Its: President and Chief Executive Officer
LOOMIS, FARGO & CO.
By: /s/ James K. Jennings, Jr.
Its: Chief Financial Officer
3
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF LOOMIS, FARGO & CO.
LFC Holding Corporation, a Delaware corporation
Loomis, Fargo & Co., a Texas corporation
Loomis, Fargo & Co. of Puerto Rico, a Tennessee corporation
SUBSIDIARIES OF LFC HOLDING CORPORATION
Loomis, Fargo & Co., a Texas corporation
Loomis, Fargo & Co. of Puerto Rico, a Tennessee corporation
SUBSIDIARIES OF LOOMIS, FARGO & CO. (TEXAS)
Loomis, Fargo & Co. of Puerto Rico, a Tennessee corporation
Loomis, Fargo & Co. of Puerto Rico does not have any subsidiaries.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001037120
<NAME> LOOMIS, FARGO & CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,548
<SECURITIES> 0
<RECEIVABLES> 29,749
<ALLOWANCES> 2,224
<INVENTORY> 998
<CURRENT-ASSETS> 36,774
<PP&E> 40,736
<DEPRECIATION> 47,248
<TOTAL-ASSETS> 191,036
<CURRENT-LIABILITIES> 54,004
<BONDS> 133,406
0
0
<COMMON> 100
<OTHER-SE> (7,087)
<TOTAL-LIABILITY-AND-EQUITY> 191,036
<SALES> 384,303
<TOTAL-REVENUES> 384,303
<CGS> 0
<TOTAL-COSTS> 368,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,282
<INCOME-PRETAX> 461
<INCOME-TAX> 180
<INCOME-CONTINUING> 281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
