<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13565
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GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0535259
(STATE OF INCORPORATION) (I.R.S. EMPLOYER-IDENTIFICATION NO.)
8 GREENWAY PLAZA, SUITE 1500
HOUSTON, TEXAS 77046
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $0.001 per share; 9,486,395 shares outstanding as of
October 31, 1997.
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GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARAIES
(FORMERLY AIRTRON, INC.)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
General Information................................................ 1
Consolidated Condensed Balance Sheets.............................. 2
Consolidated Condensed Statements of Operations.................... 3
Consolidated Condensed Statements of Cash Flows.................... 5
Notes to Unaudited Consolidated Condensed Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................... *
Item 2. Changes in Securities........................................... 11
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders Item........ 11
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 12
</TABLE>
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* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Group Maintenance America Corp. ("GroupMAC Parent") was incorporated as a
Texas corporation in October 1996 to build a national company providing
heating, ventilation and air conditioning ("HVAC"), plumbing and electrical
services. Effective April 30, 1997, GroupMAC Parent entered into an Agreement
and Plan of Exchange (the "Agreement") with Airtron, Inc. ("Airtron").
Pursuant to the Agreement, GroupMAC Parent exchanged cash, preferred stock and
common stock for all of the then outstanding shares of Airtron. For accounting
purposes, the Agreement was accounted for as a reverse acquisition, as if
Airtron acquired GroupMAC Parent, due to the fact that the former shareholders
of Airtron then owned a majority of GroupMAC Parent's common stock. The
consolidated financial statements for the periods prior to the acquisition
only include the accounts of Airtron. The cash paid to the Airtron
shareholders, net of existing liabilities to former shareholders, has been
treated as a distribution to the Airtron shareholders. The consolidated group
of companies are collectively referred to herein as the "Company".
Since the date of the Agreement and prior to November 13, 1997, the Company
acquired, in separate transactions, ten additional residential or commercial
service companies (together with Airtron, the "Pre-Offering Companies"),
through a combination of cash, common stock and preferred stock of the
Company. The acquisitions of the Pre-Offering Companies were accounted for as
purchase business combinations, with the results of operations included in the
Company's financial statements from the effective date of the acquisition.
On November 13, 1997, the Company acquired simultaneously with the closing
of the initial public offering (the "Offering") of its common stock, par value
$0.001 per share (the "Common Stock"), 13 companies (the "Offering Acquisition
Companies" and, together with the Pre-Offering Companies, the "Founding
Companies"). The unaudited pro forma combined statements of operations for the
three and nine months ended September 30, 1997 and 1996 utilize the Offering
Acquisition Companies' and the Pre-Offering Companies' actual financial
statements and certain assumptions that management deems reasonable and
appropriate. The following is a listing of the Founding Companies:
<TABLE>
<CAPTION>
HEADQUARTERS
PRE-OFFERING COMPANIES YEAR FOUNDED LOCATION
- ---------------------- ------------ --------------------
<S> <C> <C>
Airtron, Inc. 1970 Dayton, OH
K&N Plumbing, Heating, and Air Conditioning,
Inc. 1978 Arlington, TX
A-ABC Appliance, Inc./A-1 Appliance & Air
Conditioning, Inc. 1976 Dallas, TX
Sibley Services, Incorporated 1974 Memphis, TN
Hallmark Air Conditioning, Inc. 1951 Houston, TX
Charlie Crawford, Inc. (dba "Charlie's
Plumbing") 1979 Houston, TX
Costner Brothers, Inc. 1985 Rock Hill, SC
AA JARL, Inc. (dba "Jarrell Plumbing") 1957 Houston, TX
Way Residential 1977 Houston, TX
Callahan Roach & Associates 1989 Colorado Springs, CO
United Service Alliance, L.C. 1988 Lakewood, CO
<CAPTION>
OFFERING ACQUISITION COMPANIES
- ------------------------------
<S> <C> <C>
MacDonald-Miller Industries, Inc. 1965 Seattle, WA
Masters, Inc. 1986 Gaithersburg, MD
Linford Service Company 1960 Oakland, CA
Yale Incorporated 1939 Minneapolis, MN
Central Carolina Air Conditioning Company 1967 Greensboro, NC
Willis Refrigeration, Air Conditioning &
Heating, Inc. 1954 Cincinnati, OH
Paul E. Smith Co., Inc. 1967 Indianapolis, IN
Southeast Mechanical Service, Inc. 1979 Hollywood, FL
Van's Comfortemp Air Conditioning, Inc. 1965 Delray Beach, FL
Arkansas Mechanical Services, Inc. 1988 Little Rock, AR
Mechanical Services, Inc. 1993 Little Rock, AR
All Service Electric, Inc. 1990 Jacksonville, FL
Evans Services, Inc. 1901 Birmingham, AL
</TABLE>
1
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GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, FEBRUARY 28,
1997 1997 1997
------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 7,801 $ 15,325 $ 4,339
Accounts receivable................. 15,058 41,815 7,811
Inventories......................... 5,344 8,724 3,354
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... 119 3,229 13
Prepaid expenses and other current
assets............................. 859 2,458 359
Deferred tax assets................. 1,575 1,575 765
Refundable income taxes............. -- 88 3,236
------- -------- -------
Total current assets............... 30,756 73,214 19,877
PROPERTY AND EQUIPMENT, net........... 5,658 11,155 1,289
GOODWILL, net......................... 27,992 79,638 --
DEFERRED TAX ASSET.................... 10,095 10,291 3,195
OTHER NONCURRENT ASSETS............... 6,655 3,021 2,792
------- -------- -------
Total assets....................... $81,156 $177,319 $27,153
======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt....... $ 3,561 $ 3,178 $ 149
Accounts payable and accrued
expenses........................... 15,032 30,618 10,647
Due to related parties.............. 1,687 -- --
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... 1,757 4,469 1,469
Deferred service contract revenue... 1,779 3,150 739
Income taxes payable................ 1,580 1,926 536
Other current liabilities........... 2,026 1,091 --
------- -------- -------
Total current liabilities.......... 27,422 44,432 13,540
LONG-TERM DEBT, net of current
maturities........................... 28,482 -- 1,141
COMPENSATION AND BENEFITS PAYABLE..... -- -- 5,831
DUE TO SHAREHOLDERS................... 9,745 9,745 --
OTHER LONG-TERM LIABILITIES........... 916 1,033 650
COMMITMENTS AND CONTINGENCIES......... -- -- --
REDEEMABLE PREFERRED STOCK AND RELATED
WARRANTS............................. 19,271 -- --
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value;
100,000 shares authorized; 9,486,
19,963, and 4,652 shares issued and
outstanding, respectively.......... 9 20 5
Additional paid-in capital.......... 28,980 155,757 2,646
Retained earnings (deficit)......... (33,669) (33,668) 3,340
------- -------- -------
Total shareholders' equity
(deficit)......................... (4,680) 122,109 5,991
------- -------- -------
Total liabilities and shareholders'
equity............................ $81,156 $177,319 $27,153
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
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GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER
30,
---------------------------------
HISTORICAL PRO FORMA
---------------- ---------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES .................................... $39,382 $22,869 $86,380 $81,299
COST OF SERVICES ............................ 28,290 16,466 65,681 61,719
------- ------- ------- -------
Gross profit .............................. 11,092 6,403 20,699 19,580
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
............................................ 8,481 4,542 14,640 12,866
AMORTIZATION OF GOODWILL..................... 173 -- 473 473
------- ------- ------- -------
Income from operations .................. 2,438 1,861 5,586 6,241
OTHER INCOME (EXPENSE):
Interest expense .......................... (740) (2) -- --
Interest income ........................... 91 38 113 68
Other ..................................... 38 (2) 100 29
------- ------- ------- -------
Income before income tax provision....... 1,827 1,895 5,799 6,338
INCOME TAX PROVISION ........................ 802 762 2,510 2,718
------- ------- ------- -------
NET INCOME................................... $ 1,025 $ 1,133 $ 3,289 $ 3,620
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING........ (9,576) 5,172 20,163 20,163
======= ======= ======= =======
NET INCOME PER COMMON SHARE................ $ (.11) $ 0.22 $ 0.16 $ 0.18
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED SEPTEMBER NINE MONTHS ENDED
30, SEPTEMBER 30,
---------------- ------------------
HISTORICAL PRO FORMA
---------------- ------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES ................................ $70,468 $48,826 $244,321 $232,695
COST OF SERVICES ........................ 50,977 35,392 187,040 179,636
------- ------- -------- --------
Gross profit .......................... 19,491 13,434 57,281 53,059
SELLING, GENERAL AND ADMINISTRATIVE EX-
PENSES ................................. 14,639 10,003 41,618 36,934
AMORTIZATION OF GOODWILL................. 204 -- 1,419 1,419
COMPENSATION EXPENSE FROM REVERSE ACQUI-
SITION.................................. 6,978 -- -- --
------- ------- -------- --------
Income (loss) from operations ....... (2,330) 3,431 14,244 14,706
OTHER INCOME (EXPENSE):
Interest expense ...................... (1,093) (40) (63) (62)
Interest income ....................... 184 58 357 169
Other ................................. 41 22 608 269
------- ------- -------- --------
Income before income tax provision... (3,198) 3,471 15,146 15,082
INCOME TAX PROVISION .................... 1,602 1,396 6,627 6,594
------- ------- -------- --------
NET INCOME (LOSS)........................ $(4,800) $ 2,075 $ 8,519 $ 8,488
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING...... (9,086) 5,172 20,163 20,163
======= ======= ======== ========
NET INCOME PER COMMON SHARE.............. $ (.53) $ 0.40 $ 0.42 $ 0.42
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED SEPTEMBER 30,
-------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (4,800) $ 2,075
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 724 60
Deferred income taxes................................. 64 --
Non-cash compensation expense from reverse
acquisition.......................................... 6,978 --
Changes in operating assets and liabilities, net of
effect of acquisitions accounted for as purchases:
(Increase) decrease in -
Accounts receivable................................. (905) (3,073)
Inventories......................................... (207) 1,184
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... (51) 36
Prepaid expenses and other current assets........... 367 25
Refundable income taxes............................. 3,324 --
Other noncurrent assets............................. (2,228) 12
Increase (decrease) in -
Accounts payable.................................... 907 429
Accrued expenses.................................... (1,906) 975
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 215 427
Deferred service contract revenue................... 124 27
Income tax payable.................................. 850 (1,000)
Other current liabilities........................... 1,628 35
Compensation and benefits payable................... (9) (1,082)
Other long-term liabilities......................... 120 --
---------- --------
Net cash provided by operating activities........... 5,195 130
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired of
$1,787................................................. (8,852) --
Deferred acquisition costs.............................. (261) --
Purchases of property and equipment..................... (1,536) (34)
---------- --------
Net cash used in investing activities............... (10,649) (34)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................ 32,500 --
Payments of long-term debt.............................. (5,155) --
Deferred offering costs................................. (4,248) --
Proceeds from issuance of stock......................... 6,186 --
Distributions to shareholders........................... (20,367) --
---------- --------
Net cash provided by financing activities........... 8,916 --
---------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 3,462 96
CASH AND CASH EQUIVALENTS, beginning of period........... 4,339 1,774
---------- --------
CASH AND CASH EQUIVALENTS, end of period................. $ 7,801 $ 1,870
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
(FORMERLY AIRTRON, INC.)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. Those
adjustments, which include only normal recurring adjustments, that are, in the
opinion of management, necessary for a fair presentation of the results of the
interim periods have been made. The results of operations for such interim
periods are not necessarily indicative of results of operations for a full
year. The unaudited consolidated condensed financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto of the Company and management's discussion and analysis of financial
condition and results of operations included in the Company's Registration
Statement on Form S-1 as amended (Registration No. 333-34067), filed with the
Securities and Exchange Commission in connection with the Offering (the
"Registration Statement").
2. Net income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents. Stock options are regarded as common stock equivalents and are
therefore considered in net income per share calculations, if dilutive. Common
stock equivalents are computed using the treasury stock method. Primary and
fully diluted shares are the same.
The following table summarizes weighted average shares outstanding for each
of the historical periods presented (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SEVEN MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares issued in the acquisition of Airtron........ 4,652 5,172 4,652 5,172
Group Maintenance America Corp. shares outstanding,
excluding acquisitions............................ 3,563 -- 3,126 --
Shares issued for the acquisition of the Pre-
Offering Companies................................ 1,193 -- 1,142 --
Stock options, net of assumed repurchase of common
shares as treasury stock.......................... 168 -- 166 --
------ ------ ------ ------
9,576 5,172 9,086 5,172
====== ====== ====== ======
</TABLE>
The following table summarizes weighted average shares estimated to be
outstanding for each of the pro forma periods presented (in thousands):
<TABLE>
<S> <C>
Shares issued in the Offering............................................ 7,500
Shares issued under a subscription agreement dated October 24, 1996...... 2,600
Shares issued to the Pre-Offering Companies.............................. 6,066
Shares to be issued to the Offering Acquisition Companies................ 2,769
Shares issued to the Founding Management and Directors................... 1,028
Incremental effect of options and warrants on shares outstanding......... 200
------
20,163
======
</TABLE>
3. On November 13, 1997, the Company completed the Offering, which involved
the sale of 7,500,000 shares of Common Stock at a price to the public of
$14.00 per share. The net proceeds from the Offering (after deducting
underwriting discounts and commissions and offering expenses) were
approximately $92.2 million. Of this amount, $31.6 million has or will be used
to pay the cash portion of the purchase prices relating to the acquisitions of
the GroupMAC Companies, $41.0 to repay corporate indebtedness and debt assumed
in
6
<PAGE>
connection with the acquisition of the Offering Acquisition Companies and
$19.3 million to retire all of the then outstanding preferred stock. As of the
date of this Quarterly Report, the underwriters have not exercised their
overallotment option for 1,125,000 shares of Common Stock at $14.00 per share
(which would represent net proceeds to the Company of $14.6 million after
underwriting discounts and commissions).
4. On August 16, 1997, the Company's Board of Directors approved a 1-for-2.5
reverse stock split on the Company's common stock. All share and per share
data included in this Form 10-Q have been restated to reflect the stock split.
The Group Maintenance America Corp. 1997 Stock Awards Plan (the "Stock Awards
Plan") was adopted by the Company's Board of Directors to further promote and
align the interests of Directors, Key Employees and other persons providing
services to the Company with those of its shareholders. Pursuant to this plan
and a stock option plan for non-management employees, the Company intends to
grant options to purchase up to 1,899,581 shares of Common Stock at an
exercise price equal to the initial public offering price of $14.00 per share.
5. The acquisition of the Group MAC Companies included in the accompanying
financial statements are accounted for under the purchase method. Purchase
price consideration is subject to final adjustment. The allocation of purchase
price to the assets acquired and liabilities assumed has been initially
assigned and recorded based on preliminary estimates of fair value and may be
revised as additional information becomes available.
6--1
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which are identified by the
use of the following forward-looking words and phrases, such as: "believes,"
"expects," "anticipates," and "intends." These statements are based on the
Company's current expectations and involve risks and uncertainties that could
cause the Company's actual results to differ materially from those set forth
on the statements. Among the factors that could cause results to differ
materially from current expectations are: (i) the general political, economic
and competitive conditions in markets where the Company and its subsidiaries
operate; (ii) changes in capital availability or costs; (iii) decreases in
demand for the Company's services and the resulting negative impact on the
Company's revenues and margins from such products; (iv) employee workforce
factors; (v) the Company's ability to integrate the operations of acquired
businesses quickly and in a cost-effective manner; and (vi) the timing and
occurrence (or non-occurrence) of transactions and events, which may be
subject to circumstances beyond the Company's control.
GENERAL
The Company's revenues are derived from providing new installation services
and maintenance, repair and replacement services for HVAC, plumbing,
electrical and other systems to residential and commercial customers.
Approximately 54% of the Company's pro forma combined 1996 revenues of $307.5
million were derived from new installation services and 46% were attributable
to maintenance, repair and replacement services. Maintenance, repair and
replacement revenues are recognized as the services are performed, except for
service contract revenue which is recognized ratably over the life of the
contract. Revenues from fixed price installation and retro-fit contracts are
generally accounted for on a percentage-of-completion basis, using the cost-
to-cost method.
Cost of services consists primarily of components, parts and supplies
related to the Company's new installation and maintenance, repair and
replacement services, salaries and benefits of service and installation
technicians, subcontracted services, depreciation, fuel and other vehicle
expenses and equipment rentals. Selling, general and administrative expenses
consist primarily of compensation and related benefits for owners,
administrative salaries and benefits, advertising, office rent and utilities,
communications and professional fees. Certain owners and certain key employees
of the Founding Companies have agreed to reductions totaling $7.3 million and
$6.6 million during the nine months ended September 30, 1997 and 1996,
respectively, in their compensation and related benefits in connection with
their acquisition by the Company, which have been reflected as a pro forma
adjustment in the unaudited pro forma consolidated condensed statements of
operations. Such reductions in salaries, bonuses and benefits are in
accordance with the terms of employment agreements.
The Company's diversified business mix is reflected to varying degrees in
its gross margins. The Company's businesses performing primarily maintenance,
repair and replacement services in the residential markets tend to have higher
gross margins, averaging 37.4% for fiscal 1996. The combined gross margin for
the Founding Companies providing primarily maintenance, repair and replacement
services in the commercial markets during fiscal 1996 was 27.2%. On the
average, the Founding Companies primarily engaged in residential new
installation services have lower gross margins. Such companies' combined gross
margin for fiscal 1996 was 21.2%. The company primarily providing HVAC
services in the residential new installation market had a gross margin of
28.5%, which was somewhat offset by the companies providing primarily plumbing
service to this market at gross margins ranging from 10.0% to 14.7%. Future
consolidated gross margins may vary depending on, among other things, shifts
in the business mix within the Founding Companies as well as the impact of
future acquisitions on the business mix.
The Company believes that it will, and in certain cases has already begun
to, realize savings from (i) greater volume discounts from suppliers of
components, parts and supplies; (ii) consolidation of insurance and bonding
7
<PAGE>
programs; (iii) other general and administrative expenses such as training and
advertising; and (iv) the Company's ability to borrow at lower interest rates
than most, if not all, of the GroupMAC Companies. Offsetting these savings
will be costs related to the Company's new corporate management, costs
associated with being a public company and integration costs.
The pro forma financial information and the following discussion for the
three and nine months ended September 30, 1997 and 1996 include the results of
Airton combined with the results of the other Founding Companies. The pro
forma combined financial data discussed below include the effects of (i) the
acquisition of the Founding Companies (ii) the Offering, (iii) certain
reductions in salaries and benefits to the former owners of the Founding
Companies to which they have agreed prospectively and (iv) the amortization of
goodwill resulting from the acquisition of the Founding Companies.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and may
be revised as additional information becomes available. The acquisitions of
the Founding Companies are subject to certain working capital and long-term
debt adjustments, of which an estimate is reflected in the pro forma
adjustments. The pro forma combined financial data do not purport to represent
what the Company's financial position or results of operations would actually
have been if such transactions had in fact occurred on those dates and are not
necessarily representative of the Company's financial position or results of
operations for any future period. Since the pending and completed acquisitions
have not historically been under common control or management, historical pro
forma combined results may not be indicative of or comparable to future
performance. The unaudited pro forma consolidated condensed financial
statements should be read in conjunction with other financial statements and
notes thereto included in the Registration Statement.
RESULTS OF OPERATIONS
Pro Forma Three Months Ended September 30, 1997 Compared to Pro Forma Three
Months Ended September 30, 1996
Revenues. Pro forma revenues increased $5.1 million, or 6.3%, to $86.4
million for the three months ended September 30, 1997 from $81.3 million for
the three months ended September 30, 1996. The increase in pro forma revenues
was primarily volume driven and was attributable to incremental business from
existing residential new installation customers in the Washington, D.C. area,
obtaining a new supermarket chain as a client and attaining increased pricing
in the California commercial markets and incremental construction business
from existing customers and further market penetration in the commercial
service sector in Minnesota.
Gross Profit. Pro forma gross profit increased $1.1 million, or 5.6%, to
$20.7 million for the three months ended September 30, 1997 from $19.6 million
for the three months ended September 30, 1996. Pro forma gross profit margin
remained constant at approximately 24% for the three month periods ended
September 30, 1997 and 1996. The increase in pro forma gross profit was
primarily attributable to the overall revenue increase coupled with an
increase in higher margin special project and tenant improvement commercial
work in the Pacific Northwest, a higher mix of fire sprinkler installations in
Washington, D.C. that typically produce higher margins and the overall pricing
increases experienced in the California market.
Income from Operations. Pro forma operating income decreased $0.6 million,
or 9.7%, to $5.6 million for the three months ended September 30, 1997 from
$6.2 million for the three months ended September 30, 1996. This decrease was
attributable to $1.3 million in corporate expenses representing the formation
of the corporate management team and infrastructure necessary to execute the
Company's operating and acquisition strategies. As the Company was formed in
October 1996, no such expenses were incurred during the corresponding period
of the prior year. Pro forma operating income margin, excluding these
corporate expenses, increased to 8.0% for the three months ended September 30,
1997 from 7.7% from the three month period ended September 30, 1996.
8
<PAGE>
Pro Forma Nine Months Ended September 30, 1997 Compared to Pro Forma Nine
Months Ended September 30, 1996
Revenues. Pro forma revenues increased $11.6 million, or 5.0%, to $244.3
million for the nine months ended September 30, 1997 from $232.7 million for
the nine months ended September 30, 1996. The increase in pro forma revenues
was primarily volume driven and was attributable to continuing strength in the
Seattle and Portland commercial markets including a $20.0 million contract
with a large software company to be completed during 1997, increased market
penetration at Airtron's Columbus, Dayton, Austin, and Northern Kentucky
locations, obtaining a new supermarket chain as a client and attaining
increased pricing in the California commercial markets, incremental
construction business from existing customers and further market penetration
in the commercial service sector in Minnesota and incremental residential new
installation business from existing customers in the Washington, D.C. area.
Gross Profit. Pro forma gross profit increased $4.2 million, or 7.9%, to
$57.3 million for the nine months ended September 30, 1997 from $53.1 million
for the nine months ended September 30, 1996. Pro forma gross profit margin
increased to 23.4% for the nine month period ended September 30, 1997 from
22.8% for the nine months ended September 30, 1996. The increase in pro forma
gross profit was primarily attributable to the overall revenue increase
coupled with lower material costs at Airtron, an increase in higher margin
special project and tenant improvement commercial work in the Pacific
Northwest, a higher mix of fire sprinkler installations in the Washington,
D.C. market that typically produce higher margins and overall pricing
increases experienced in California.
Income from Operations. Pro forma operating income decreased $0.5 million,
or 3.4%, to $14.2 million for the nine months ended September 30, 1997 from
$14.7 million for the nine months ended September 30, 1996. This decrease was
attributable to $2.8 million in corporate expenses representing the formation
of the corporate management team and infrastructure necessary to execute the
Company's operating and acquisition strategies. As the Company was formed in
October 1996, no such expenses were incurred during the corresponding period
of the prior year. Pro forma operating income margin, excluding corporate
expenses, increased to 7.0% for the nine months ended September 30, 1997 from
6.3% from the nine month period ended September 30, 1996.
SEASONALITY
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installations is generally lower during the winter months due
to reduced construction activities during inclement weather and less use of
air conditioning during the colder months. Demand for HVAC services is
generally higher in the second and third quarters. Accordingly, the Company
expects its revenues and operating results generally will be lower in the
first and fourth quarters. Historically, the construction industry has been
highly cyclical. As a result, the Company's volume of business may be
adversely affected by declines in new installation projects in various
geographic regions of the United States.
INFLATION
Inflation did not have a significant effect on the results of operations of
the GroupMAC Companies for the three and nine month periods ended September
30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the operations and growth of the Founding Companies have been
financed through internally generated working capital and borrowings from
commercial banks or other lenders. These borrowings were generally secured by
substantially all of the assets of the respective Founding Companies, as well
as personal guarantees of the respective owners. With respect to the Pre-
Offering Companies, a substantial portion of their existing indebtedness was
repaid and refinanced through the Company's borrowing facility immediately
9
<PAGE>
following the closing of each of the transactions. With respect to the
Offering Acquisition Companies, the Company used $12.5 million of the net
proceeds of the Offering to repay debt assumed and certain obligations
resulting from the respective acquisitions. The Company may also utilize
proceeds of the Offering to pay additional amounts, if any, due to the former
owners of the Offering Acquisition Companies under working capital adjustments
to the purchase prices.
In May 1997, the Company entered into a $35 million credit agreement (as
modified to date, the "Original Credit Agreement") with a group of banks
providing for secured facilities consisting of an 18 month revolving credit
line of $3 million, a six-year term loan of $20 million used in connection
with the acquisition of Airtron, and a $12 million term loan facility, having
a final maturity six years after the date of the Original Credit Agreement,
which was used to acquire the Pre-Offering Companies. All of the Company's
loan obligations bear interest at the prime rate. The Original Credit
Agreement contains covenants which, among other matters, restrict or limit the
ability of the Company to pay dividends, incur indebtedness, make capital
expenditures and repurchase capital stock. The Company must also maintain (i)
a minimum level of net worth (ii) a ratio of indebtedness to earnings before
interest, taxes, depreciation and amortization, (iii) a ratio of indebtedness
to net worth and (iv) a fixed charge coverage ratio. As of the date hereof,
the Company is in compliance with these requirements. As of November 13, 1997,
available borrowing capacity under the Original Credit Agreement was $3.0
million.
The Company has received a commitment from Texas Commerce Bank National
Association, as Agent Bank, and two other banks to provide a new credit
facility with an initial borrowing capacity of up to $75 million and is
currently negotiating the definitive documentation for such facility (the "New
Credit Facility"). Under the New Credit Facility, the Company will be required
to maintain (i) a minimum level of net worth, (ii) a certain ratio of
indebtedness to earnings before interest, taxes, depreciation and
amortization, (iii) a certain ratio of indebtedness to capitalization, (iv) a
fixed charge coverage ratio and (v) a positive tangible net worth. If such
financial covenants were in place on the date hereof, the Company would be in
compliance with those covenants.
Prior to the closing of the Offering, certain of the Offering Acquisition
Companies that are S corporations distributed cash and certain non-operating
assets to their shareholders in an amount not in excess of the balances of
their respective accumulated adjustment accounts. In addition, several former
owners of the GroupMAC Companies have the ability to receive additional
amounts of purchase price, payable in cash and Common Stock in 1998,
contingent upon the occurrence of future events. The Company's best estimate
of this amount is approximately $5 million, payable in a combination of cash
and shares of Common Stock.
The Company's primary requirements for capital (other than those related to
acquisitions) consist of purchasing vehicles, inventory and supplies used in
the operation of the business. During the nine months ended September 30,
1997, capital expenditures aggregated $1.5 million. The Company anticipates
that its cash flow from operations will provide cash in excess of the
Company's normal working capital needs, debt service requirements and planned
capital expenditures for property and equipment.
The Company intends to aggressively pursue acquisition opportunities and to
fund future acquisitions through a combination of operating cash flow,
borrowings under the New Credit Facility and the issuance of Common Stock.
During the fourth quarter of 1997, the Company intends to register 7,000,000
shares of Common Stock under the Securities Act of 1933, as amended, for its
use in connection with future acquisitions. After their issuance, those
registered shares generally will be freely tradable by persons not affiliated
with the Company unless the Company contractually restricts the resale.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(1) On September 25, 1997, Group Maintenance America Corp. (the "Company")
filed an amendment to its Articles of Incorporation which effected a 1-for-2.5
reverse stock split of the Company's common stock, par value $0.001 per share
("Common Stock"). As a result of the reverse stock split, each share of Common
Stock outstanding immediately prior to such amendment was converted into four-
tenths of a share of Common Stock. In lieu of any fractional share interest,
each holder of Common Stock who would otherwise be entitled to receive a
fractional share of Common Stock after the reverse stock split will be paid
cash upon the surrender of certificates representing Common Stock held by such
holder in an amount equal to the product of such fraction multiplied by
$16.00. The number of authorized shares of Common Stock will remain at
100,000,000, and the par value will remain $0.001 per share.
(2) During the quarter ended September 30, 1997, the Company issued
securities that were not registered pursuant to the Securities Act of 1933, as
amended, as follows:
(i) On July 15, 1997, the Company issued 62,000 shares of Common Stock
and 664,691 shares of Series F Preferred Stock to two shareholders of
Sibley Services, Incorporated for all of the issued and outstanding capital
stock of Sibley Services, Incorporated;
(ii) On July 17, 1997, the Company issued 500,000 shares of Series H
Preferred Stock to Callahan Roach & Associates for substantially all of the
assets of Callahan Roach & Associates; and
(iii) On July 31, 1997, the Company issued 49,803 shares of Common Stock
and 435,771 shares of Series I Preferred Stock to United Service Alliance,
L.C. for substantially all of the assets of United Service Alliance, L.C.
Such sales were completed without registration under the Securities Act of
1933, as amended (the "Securities Act"), in reliance upon the exemption
provided by Section 4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held a special meeting of shareholders on September 24, 1997
(the "Special Meeting") for the purpose of (1) amending the Company's Articles
of Incorporation to provide for a classified Board of Directors, (2) amending
the Articles of Incorporation to effect a 1-for-2.5 reverse stock split, (3)
approving the Company's 1997 Stock Awards Plan and (4) electing six directors.
The following summarizes the shareholder voting results:
CLASSIFIED BOARD OF DIRECTORS
At the Special Meeting, the shareholders of the Company approved an
amendment to the Company's Articles of Incorporation providing for a Board of
Directors divided into three classes of directors serving staggered terms. Of
the shares present at the Special Meeting, 16,254,181 shares voted in favor of
the proposed amendment, no shares voted against the proposed amendment and no
shares abstained.
REVERSE STOCK SPLIT
The proposal to amend the Articles of Incorporation to effect a 1-for-2.5
reverse stock split was approved. Of the shares present at the Special
Meeting, 15,946,838 shares voted in favor of the proposed amendment, 307,343
shares voted against the proposed amendment and no shares abstained.
APPROVAL OF 1997 STOCK AWARDS PLAN
The proposal to approve the Group Maintenance America Corp. 1997 Stock
Awards Plan (the "Plan") was approved. Of the shares present at the Special
Meeting, 16,254,181 shares voted in favor of the Plan, no shares were voted
against the proposal and no shares abstained.
11
<PAGE>
ELECTION OF DIRECTORS
At the Special Meeting, Messrs. Bryant and McDade were elected as Class I
directors, Messrs. Henninger and Morrison were elected as Class II directors
and Messrs. Kelly and Sigmund were elected as Class III directors. The term of
each such director commenced upon consummation of the Company's initial public
offering of Common Stock (which occurred on November 13, 1997). The term of the
Class I directors will terminate at the 1998 annual meeting of shareholders;
the term of the Class II directors will terminate at the 1999 annual meeting of
shareholders; and the term of the Class III directors will terminate at the
2000 annual meeting of shareholders. The vote tabulation for each individual
director was as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Ronald D. Bryant...................................... 16,254,181 0
Thomas B. McDade...................................... 16,254,181 0
David L. Henninger.................................... 16,254,181 0
Lucian M. Morrison.................................... 16,254,181 0
Andrew Jeff Kelly..................................... 16,254,181 0
Fredric J. Sigmund.................................... 16,254,181 0
</TABLE>
Directors continuing in office are as follows: Class I directors -- Chester
J. Jachimiec, Richard S. Rouse and James D. Weaver; Class II directors --James
D. Jennings, Donald L. Luke and J. Patrick Millinor, Jr.; and Class III
directors --Timothy Johnston, James P. Norris and John M. Sullivan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(1) Exhibits.
<TABLE>
<C> <S>
3.1 --Articles of Incorporation of the Company, as amended (Exhibit 3.1 to
Registration Statement No. 333-34067).
3.2 --Bylaws of the Company, as amended (Exhibit 3.2 to Registration
Statement No. 333-34067).
4 --Amendment to Articles of Incorporation effecting a 1-for-2.5 reverse
stock split (included in Exhibit 3.1)
10.1 --Agreement and Plan of Exchange dated July 3, 1997 by and among the
Company and the Holders of the Outstanding Capital Stock of A-ABC
Appliance, Inc. and A-1 Appliance, Inc. (Exhibit 10.10 to
Registration Statement No. 333-34067). (Confidential information has
been omitted from this document and has been filed separately with
the Securities and Exchange Commission).
10.2 --Agreement and Plan of Exchange dated July 15, 1997 by and among the
Company and the Holders of the Outstanding Capital Stock of Sibley
Services, Incorporated (Exhibit 10.11 to Registration Statement No.
333-34067). (Confidential information has been omitted from this
document and has been filed separately with the Securities and
Exchange Commission).
10.3 --Agreement and Plan of Merger dated July 16, 1997 by and among the
Company, CRP Acquisition Corp., Callahan Roach Products &
Publications, Inc. and the shareholders of Callahan Roach Products &
Publications, Inc. (Exhibit 10.12 to Registration Statement No. 333-
34067).
10.4 --Agreement and Plan of Merger dated July 16, 1997 by and among the
Company, CRP Acquisition Corp., Callahan Roach & Associates and the
partners of Callahan Roach & Associates (Exhibit 10.13 to
Registration Statement No. 333-34067).
10.5 --Asset Purchase Agreement dated July 31, 1997 among United
Acquisition Corp., the Company, United Service Alliance, L.C. and the
Members of United Service Alliance, L.C. (Exhibit 10.14 to
Registration Statement No. 333-34067). (Confidential information has
been omitted from this document and has been filed separately with
the Securities and Exchange Commission).
10.6 --Agreement and Plan of Merger dated as of August 18, 1997 by and
among the Company, All Service Acquisition Corp., All Service
Electric, Inc. and the shareholder of All Service Electric, Inc.
(Exhibit 10.15 to Registration Statement No. 333-34067).
10.7 --Agreement and Plan of Merger dated as of August 18, 1997 by and
among the Company, AMS Acquisition Corp., Arkansas Mechanical
Services, Inc. and the shareholders of Arkansas Mechanical Services,
Inc. (Exhibit 10.16 to Registration Statement No. 333-34067).
</TABLE>
12
<PAGE>
<TABLE>
<C> <S>
10.8 --Agreement and Plan of Merger dated as of August 18, 1997 by and
among the Company, Central Carolina Acquisition Corp., Central
Carolina Air Conditioning Company and the shareholders of Central
Carolina Air Conditioning Company (Exhibit 10.17 to Registration
Statement No. 333-34067).
10.9 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, Evans Acquisition Corp., Evans Services, Inc. and the
shareholders of Evans Services, Inc. (Exhibit 10.18 to Registration
Statement No. 333-34067).
10.10 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, LSC Acquisition Corp., Linford Service Company and the
shareholders of Linford Service Company (Exhibit 10.19 to
Registration Statement No. 333-34067).
10.11 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, MacDonald-Miller Acquisition Corp., MacDonald-Miller
Industries, Inc., the Trustee of the MacDonald-Miller Industries,
Inc. Employee Stock Ownership Plan and Trust and the principal
shareholders of MacDonald-Miller Industries, Inc. (Exhibit 10.20 to
Registration Statement No. 333-34067).
10.12 --Agreement and Plan of Merger dated as of August 18, 1997 by and
among the Company, Masters Acquisition Corp., Masters, Inc. and the
holder of all of the capital stock of Masters Inc. (Exhibit 10.21 to
Registration Statement No. 333-34067).
10.13 --Agreement and Plan of Merger dated as of August 18, 1997 by and
among the Company, AMS Acquisition Corp., Mechanical Services, Inc.
and the shareholders of Mechanical Services, Inc. (Exhibit 10.22 to
Registration Statement No. 333-34067).
10.14 --Agreement and Plan of Exchange August 18, 1997 by and among the
Company, Paul E. Smith Co., Inc. and the shareholders of Paul E.
Smith Co., Inc. (Exhibit10.23 to Registration Statement No. 333-
34067).
10.15 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, SEMS Acquisition Corp., Southeast Mechanical Service, Inc.
and the shareholders of Southeast Mechanical Service, Inc. (Exhibit
10.24 to Registration Statement No. 333-34067).
10.16 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, Van's Acquisition Corp., Van's Comfortemp Air Conditioning,
Inc. and the shareholders of Van's Comfortemp Air Conditioning, Inc.
(Exhibit 10.25 to Registration Statement No. 333-34067).
10.17 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, Willis Acquisition Corp., Willis Refrigeration, Air
Conditioning & Heating, Inc. and the shareholders of Willis
Refrigeration, Air Conditioning & Heating, Inc. (Exhibit 10.26 to
Registration Statement No. 333-34067).
10.18 --Agreement and Plan of Merger August 18, 1997 by and among the
Company, Yale Acquisition Corp., Yale Incorporated ("Yale") and the
shareholders of Yale Incorporated (Exhibit 10.27 to Registration
Statement No. 333-34067).
27 --Financial Data Schedule.
</TABLE>
(2) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1997.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
/s/ DARREN B. MILLER
By: _________________________________
Darren B. Miller
Senior Vice President and Chief
Financial Officer
(principal financial and
accounting officer)
Date: November 14, 1997
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REPORT ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,801
<SECURITIES> 0
<RECEIVABLES> 15,058
<ALLOWANCES> 0
<INVENTORY> 5,344
<CURRENT-ASSETS> 30,756
<PP&E> 5,658
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,156
<CURRENT-LIABILITIES> 27,422
<BONDS> 0
0
19,278
<COMMON> 9
<OTHER-SE> (4,689)
<TOTAL-LIABILITY-AND-EQUITY> 81,156
<SALES> 0
<TOTAL-REVENUES> 70,468
<CGS> 0
<TOTAL-COSTS> 50,977
<OTHER-EXPENSES> 22,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,093)
<INCOME-PRETAX> (3,198)
<INCOME-TAX> 1,602
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,800)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> 0
</TABLE>
