<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-K/A
--------
AMENDMENT NO. 1
TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: SEPTEMBER 21, 1998
(DATE OF EARLIEST EVENT REPORTED: AUGUST 31, 1998)
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1-13565 76-0535259
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
8 GREENWAY PLAZA, SUITE 1500
HOUSTON, TEXAS 77046
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
===============================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 31, 1998, Group Maintenance America Corp. (the "Company")
completed the acquisition of Romanoff Electric Corp., an Ohio corporation
("Romanoff"). The Company acquired Romanoff pursuant to a merger (the "Merger")
of Romanoff Electric Acquisition Corp.("REAC"), a wholly-owned subsidiary of
the Company, with and into Romanoff. The Merger was effected in accordance with
the Agreement and Plan of Merger (the "Merger Agreement") dated as of August 31,
1998, among the Company, REAC, Romanoff, and the shareholders of Romanoff. A
copy of the Merger Agreement has been filed as an exhibit to this Current Report
on Form 8-K and is incorporated herein by reference. Romanoff was the surviving
corporation of the Merger. The purchase price paid or to be paid by the Company
for Romanoff consists of $17.4 million in cash, $4.0 million in notes payable
and 0.8 million shares of the Company's common stock, par value $.001 per share
("Common Stock").
Substantially all of the stockholders of Romanoff prior to the Merger will
be employed by the surviving corporation after the Merger. After the Merger,
Romanoff shall continue to lease a facility from a partnership of which three
former shareholders of Romanoff (Matthew Romanoff, Cynthia Romanoff and Pamela
Romanoff) own partnership interests.
Romanoff is engaged in the business of providing electrical and
communication network installation, maintenance and repair services for large
commercial and industrial customers in the Toledo, Ohio marketplace. The assets
of Romanoff consist primarily of cash, accounts receivable, inventory,
equipment, vehicles and goodwill. The Company expects that Romanoff will
continue to conduct its business in substantially the same manner as conducted
before the Merger.
The cash portion of the consideration paid by the Company in connection
with the Merger was provided pursuant to loans made under a Credit Agreement
dated as of June 12, 1998 (the "Credit Agreement") among the Company, certain
subsidiaries of the Company, Chase Bank of Texas, National Association, as
Agent, Paribas and ABN AMRO Bank, N.V., as Co-Agents, and the banks named
therein (the "Lenders"). Under the Credit Agreement, a syndicate of banks
agreed to provide up to $125 million of financing to the Company on a secured
basis. A list of the Lenders is set forth on Exhibit 99 which is incorporated
herein by reference.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of businesses acquired.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Romanoff Electric Corp.:
We have audited the accompanying balance sheet of Romanoff Electric Corp. as
of December 31, 1997, and the related statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 out audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Romanoff Electric Corp. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
August 26, 1998
4
<PAGE>
ROMANOFF ELECTRIC CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 61,043 $ 242,807
Accounts receivable--trade, net of allowance for
doubtful accounts of $104,631 at December 31, 1997
and June 30, 1998.................................. 7,109,958 6,410,565
Accounts receivable, other.......................... 31,383 193,091
Inventories......................................... 228,950 203,760
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 1,260,337 1,942,862
Prepaid expenses and other current assets........... 2,953 234
----------- -----------
Total current assets.............................. 8,694,624 8,993,319
PROPERTY AND EQUIPMENT, NET........................... 1,783,677 1,851,589
CASH SURRENDER VALUE OF LIFE INSURANCE................ 1,244,950 1,290,550
OTHER LONG-TERM ASSETS................................ 11,500 11,500
----------- -----------
Total assets...................................... $11,734,751 $12,146,958
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................... $ 2,388,988 $ 1,682,106
Accrued expenses.................................... 2,010,168 2,427,815
Accrued income taxes payable........................ 11,631 34,338
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 1,154,329 824,370
Current maturities of long term debt................ 100,000 --
----------- -----------
Total current liabilities......................... 5,665,116 4,968,629
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A common stock--no par value; stated value
$200 per share; 1,095 and 1,120 shares issued and
outstanding, respectively.......................... 219,000 224,000
Class B common stock--no par value; stated value
$200 per share; 229 and 274 shares issued and out-
standing, respectively............................. 45,800 54,800
Paid-in capital..................................... 31,950 267,650
Retained earnings................................... 5,772,885 6,631,879
----------- -----------
Total shareholders' equity........................ 6,069,635 7,178,329
----------- -----------
Total liabilities and shareholders' equity........ $11,734,751 $12,146,958
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER ------------------------
31, 1997 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................ $33,008,426 $16,646,981 $18,799,888
COST OF SERVICES........................ 25,430,111 12,699,405 13,880,072
----------- ----------- -----------
Gross profit........................ 7,578,315 3,947,576 4,919,816
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................... 4,930,455 2,343,373 2,902,550
----------- ----------- -----------
Income from operations.............. 2,647,860 1,604,203 2,017,266
OTHER INCOME (EXPENSE):
Interest income....................... 29,470 14,735 8,622
Interest expense...................... (29,775) (5,456) (2,459)
Other, net............................ (3,490) (12,190) 41,577
----------- ----------- -----------
Income before income tax provision.. 2,644,065 1,601,292 2,065,006
INCOME TAX PROVISION.................... 25,600 15,503 50,000
----------- ----------- -----------
NET INCOME.............................. $ 2,618,465 $ 1,585,789 $ 2,015,006
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996. 1,314 $262,800 $ 3,950 $ 5,391,980 $ 5,658,730
Issuance of stock........ 10 2,000 28,000 -- 30,000
Net income............... -- -- -- 2,618,465 2,618,465
Distribution to
shareholders............ -- -- -- (2,237,560) (2,237,560)
----- -------- -------- ----------- -----------
Balance, December 31, 1997. 1,324 264,800 31,950 5,772,885 6,069,635
Issuance of stock
(unaudited)............. 70 14,000 235,700 -- 249,700
Net income (unaudited)... -- -- -- 2,015,006 2,015,006
Distributions to
shareholders
(unaudited)............. -- -- -- (1,156,012) (1,156,012)
----- -------- -------- ----------- -----------
Balance, June 30, 1998
(unaudited)............... 1,394 $278,800 $267,650 $ 6,631,879 $ 7,178,329
===== ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,618,465 $ 1,585,789 $ 2,015,006
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 435,609 181,676 231,660
Loss on sale of property and
equipment.......................... 3,490 -- --
Increase in cash surrender value of
life insurance..................... (100,949) (45,600) (45,600)
Change in operating assets and
liabilities:.......................
(Increase) decrease in--
Accounts receivable--Trade........ (101,613) 612,963 699,393
Accounts receivable--Other........ 11,848 (28,781) (161,708)
Inventories....................... (16,167) (41,283) 25,190
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ 703,820 962,696 (1,012,484)
Prepaid expenses and other current
assets........................... (1,669) 1,050 2,719
Increase (decrease) in--
Accounts payable.................. 60,844 (902,532) (706,882)
Income taxes payable.............. (26,333) 20,696 22,706
Accrued expenses.................. (7,829) 36,857 417,648
----------- ----------- -----------
Net cash provided by operating
activities..................... 3,579,516 2,383,531 1,487,648
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (575,038) (188,978) (299,572)
Proceeds from sale of equipment....... 127 -- --
----------- ----------- -----------
Net cash used in investing
activities..................... (574,911) (188,978) (299,572)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.............. 50,000 -- --
Repayment of debt..................... (963,054) (847,372) (100,000)
Proceeds from issuance of stock....... 30,000 -- 249,700
Distributions to shareholders......... (2,237,560) (897,107) (1,156,012)
----------- ----------- -----------
Net cash used in financing
activities..................... (3,120,614) (1,744,479) (1,006,312)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS. (116,009) 450,074 181,764
CASH AND CASH EQUIVALENTS, beginning of
period................................. 177,052 177,052 61,043
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 61,043 $ 627,126 $ 242,807
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO THE INTERIM PERIODS ENDED JUNE 30, 1997 AND
1998 IS UNAUDITED)
1. BUSINESS AND ORGANIZATION
Romanoff Electric Corp. ("the Company") is a full-service unionized
electrical contractor serving principally northwest Ohio and southeast
Michigan. The Company performs work under cost-plus-fee contracts, fixed price
contracts, and time and material contracts. The length of individual contracts
varies, but typically is less than one year.
2. SUMMARY OF SIGNIFICANT POLICIES
Interim Financial Information
The interim financial statements for the six months ended June 30, 1997 and
1998 and as of June 30, 1998 are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and Cost Recognition
Revenues from fixed price contracts are recognized on the percentage of
completion method. The completed percentage is measured by the percentage of
cost incurred to date as compared to the estimated total cost for each
contract, including work for approved change orders. Revenue from cost-plus-
fee contracts are recognized on the basis of costs incurred during the period
plus the fee earned, measured by the cost-to-cost method. Revenue from time
and material contracts is accrued at the end of each month based on chargeable
costs incurred through month end. Time and material contracts are billed for
the number of man hours and costs incurred.
Contract costs include all direct material, subcontract and labor costs and
a provision for indirect costs such as indirect labor and equipment costs.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and revenues and are recognized in the period in which the revisions are
determined.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers
investments in money market accounts and certificates of deposits purchased
with an original maturity of three months or less to be cash equivalents. Cash
payments for interest were $29,774, $5,456 and $2,459 for the year ended
December 31, 1997 and the six months ended June 30, 1997 and 1998,
respectively. Cash payments for taxes were $47,955, $5,193 and $27,293 for the
year ended December 31, 1997 and six months ended June 30, 1997 and 1998,
respectively.
9
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounts Receivable
Accounts receivable consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Accounts receivable--billed................................... $6,243,975
Retainage receivable.......................................... 970,614
Allowance for doubtful accounts............................... (104,631)
----------
$7,109,958
==========
</TABLE>
Inventories
Inventories consist of parts and supplies for general use and items for
specific jobs. Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the useful lives of the assets. Expenditures for
major renewals and improvements, which extend the useful lives of existing
equipment, are capitalized and depreciated. The estimated useful lives of
assets are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Autos and trucks.................................................... 5
Machinery equipment................................................. 5-7
Furniture and fixtures.............................................. 5-7
Leasehold Improvements.............................................. 10
</TABLE>
Expenditures for repairs and maintenance are charged to expense when
incurred. Upon retirement or disposition of property and equipment, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the statements of operations.
Cash Surrender Value of Life Insurance
Cash surrender value of life insurance is recorded at cash value as stated
by the insurance carrier.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and
state tax purposes as an S Corporation whereby the shareholders' respective
equitable shares in the taxable income of the Company are reportable on their
individual tax returns. The Company has made distributions to the shareholders
each year at least in the amounts necessary to pay personal income taxes
payable on the Company's taxable income. The Company is subject to local
taxes. As of December 31, 1997, deferred income taxes are insignificant.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, accounts
receivable, cash surrender value of life insurance and costs and estimated
earnings in excess of billings on uncompleted contracts.
Accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts result primarily from contracts with customers
principally in the Company's service area in northwest Ohio and
10
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
southeast Michigan. Credit is extended to customers after an evaluation for
credit worthiness; however, the Company does not require collateral or other
security from customers.
The Company's three largest customers accounted for 9.8%, 7.7%, and 5.4%,
respectively, of total revenues for the year ended December 31, 1997.
3. EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing/defined contribution plan for the
benefit of its full-time employees who qualify under its terms and conditions.
Eligibility in the plan is limited to personnel over 20 1/2 years old, with 6
months or more of service, who are exempt employees not covered by any other
qualified plan. Total annual contributions to the plan range, at the
discretion of the Company, from 5% to 15% of annual compensation of covered
participants. Contributions for the year ended December 31, 1997 were
$224,068. The Company also offers a 401(k) plan under which eligible employees
contribute up to 10% of their salary.
The Company contributes to several union-administered pension plans covering
all of its union employees. Pension contributions charged to operations was
$1,129,149 for the year ended December 31, 1997. Governmental regulations
impose certain requirements relative to multi-employer plans. In the event of
a plan's termination or employer withdrawal, the Company may be liable for a
portion of the plan's unfunded vested benefits, if any. There were no unfunded
vested pension liabilities under these plans at December 31, 1997.
4. LEASES
The Company leases its facilities from a related partnership, pursuant to
leases which expire in 2002 and which provide for payments of taxes,
maintenance, and insurance by the Company. Management intends and has the
ability to continue to renew its lease with related parties. Rental expense
recorded under these leases for the year ended December 31, 1997, was
$140,193. As of December 31, 1997, the total minimum rental commitments for
operating leases which are due in future years is as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998.................................. $ 140,193
Year ending December 31, 1999.................................. 145,800
Year ending December 31, 2000.................................. 151,632
Year ending December 31, 2001.................................. 157,680
Year ending December 31, 2002.................................. 163,980
---------
$ 759,285
=========
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts as of December 31, 1997 is
as follows:
<TABLE>
<S> <C>
Costs incurred............................................... $10,341,573
Estimated earnings recognized................................ 1,622,110
-----------
11,963,683
Less billings on contracts................................... 11,857,675
-----------
$ 106,008
===========
</TABLE>
11
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheet under the following captions:
<TABLE>
<S> <C>
Costs and earnings in excess of billings...................... 1,260,337
Billings in excess of costs and earnings...................... (1,154,329)
----------
$ 106,008
==========
</TABLE>
6. PROPERTY AND EQUIPMENT
The principal categories of property and equipment as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
Machinery and equipment....................................... $2,228,955
Furniture and Fixtures........................................ 1,287,812
Automobiles and Trucks........................................ 215,127
Leasehold Improvements........................................ 407,178
----------
4,139,072
Less: Accumulated depreciation................................ 2,355,395
----------
Total Property and Equipment, net........................... $1,783,677
==========
</TABLE>
7. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
8. TRANSACTIONS WITH RELATED PARTIES
The Company rents certain office equipment on a monthly basis from
Mishpocheh Leasing Company ("Mishpocheh") a related partnership. Rent expense
pursuant to this lease charged to operations for the year ended December 31,
1997, was $76,991. See also Note 4.
The Company provided certain administrative services to Romanoff
Electric/Columbus, Inc. ("REC"), a former division of the Company that was
spun off in 1995. Such amounts are included as a reduction of operating
expenses and totaled $60,000 for the year ended December 31, 1997. Subsequent
to year end, REC has been acquired by EMCOR, the agreement pursuant to which
such services has been provided was terminated effective June 30, 1998, and
the Company has received payment in full for all amounts receivable from REC.
Accounts receivable from affiliates, included in the caption "Accounts
Receivable, Other" in the accompanying balance sheets, consist of the
following at December 31, 1997:
<TABLE>
<S> <C>
REC............................................................... $28,783
Mishpocheh........................................................ 2,150
-------
$30,933
=======
</TABLE>
There were no accounts payable to related parties at December 31, 1997.
12
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. BORROWINGS UNDER BANK LINES OF CREDIT
The Company has a total of $5,000,000 in revolving credit agreements and
lines of credits with banks, as follows:
<TABLE>
<CAPTION>
AMOUNT DRAWN AT
DECEMBER 31, 1997
-----------------
<S> <C>
Fifth Third Bank of Toledo, N.A., $1,000,000 credit
agreement providing for revolving credit through June 2000,
unsecured, bearing interest at a rate of one-half percent
below the bank's prime rate (prime rate of 8.5% at December
31, 1997), commitment fee of 0.25% on average daily
unadvanced balance, paid quarterly......................... $100,000
Fifth Third Bank of Toledo, N.A., $1,000,000 line of credit
through June 2000, unsecured, bearing interest at a rate of
one-half percent below the bank's prime rate (prime rate of
8.5% at December 31, 1997)................................. --
Key Bank, $2,000,000 line of credit through June 2000,
unsecured, bearing interest at a rate of either the bank's
prime rate (8.5% at December 31, 1997), or LIBOR plus
2.25%, at the option of the Company........................ --
Capital Bank, $1,000,000 line of credit through June 2000,
unsecured, bearing interest at the bank's prime rate (8.5%
at December 31, 1997)...................................... --
--------
$100,000
========
</TABLE>
10. COMMON STOCK
Classes A and B common stock are identical in participation and ownership
rights. Different restrictions apply to the ability to transfer shares. Class
A shareholders are not required to be employees of the Company and may
transfer shares to other Class A shareholders or linear descendants. Class B
shareholders are required to be employees of the Company and may not transfer
or sell any shares without the consent of all shareholders. If employment of
the Class B shareholder is terminated for any reason, then the Company is
obligated to purchase the stock from the shareholder based upon its book
value. The total shares authorized for Class A and B are 3,000 shares.
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
cash surrender value of life insurance, and borrowings under bank lines of
credit. The Company believes the carrying value of these instruments on the
accompanying balance sheet at December 31, 1997 approximates their fair value.
12. EVENTS SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT--ACQUISITION OF COMPANY
(UNAUDITED)
Effective August 31, 1998, Group Maintenance America Corp. (GroupMAC)
acquired all of the outstanding shares of the Company for a combination of
cash and common stock of GroupMAC.
13
<PAGE>
(b) Pro forma financial information.
14
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Although for legal purposes Airtron, Inc. ("Airtron") was acquired by Group
Maintenance America Corp. ("GroupMAC"), for accounting purposes, the
transaction was accounted for as a reverse acquisition, as if Airtron acquired
GroupMAC, due to the fact that the former shareholders of Airtron then owned a
majority of the GroupMAC common stock. The following unaudited pro forma
combined financial statements give effect to the acquisition of Airtron and
(i) 10 companies acquired prior to the IPO (together with Airtron, the "Pre-
IPO Companies"), (ii) 13 companies acquired in connection with the IPO (the
"IPO Companies") and (iii) 15 companies in the first quarter of 1998 (the
"First Quarter Post-IPO Companies"), 12 companies in the second quarter of
1998 (the "Second Quarter Post-IPO Companies") and eight companies in the
third quarter of 1998 (the "Third Quarter Post-IPO Companies", and together
with the First Quarter Post-IPO Companies and the Second Quarter Post-IPO
Companies, the "Post-IPO Companies", and together with the Pre-IPO Companies
and the IPO Companies, the "GroupMAC Companies"). The Post-IPO Companies are
as follows:
<TABLE>
<CAPTION>
DATE
COMPANY ACQUIRED
------- --------
<S> <C>
Sterling Air Conditioning, Inc........................................ 1/6/98
A-1 Mechanical of Lansing, Inc........................................ 1/15/98
Air Conditioning Engineers, Inc....................................... 1/15/98
Air Conditioning, Plumbing & Heating Service Co., Inc................. 1/15/98
Hungerford Mechanical Corporation..................................... 1/15/98
Mechanical Interiors, Inc............................................. 1/15/98
Valley Wide Plumbing & Heating, Inc................................... 1/15/98
Weigold & Sons, Inc................................................... 1/15/98
AA Advance Air, Inc................................................... 2/12/98
DIVCO, Inc............................................................ 2/12/98
J. D. Steward Air Conditioning, Inc................................... 2/13/98
New Construction Air Conditioning, Inc................................ 2/13/98
Aircon Energy, Incorporated........................................... 3/13/98
Ray & Claude Goodwin, Inc. (d/b/a "Ray's Plumbing, Inc.")............. 3/13/98
Sun Plumbing, Inc..................................................... 3/13/98
Barr Electric Corp.................................................... 5/8/98
Premex, Inc. and Subsidiary (d/b/a "Commercial Air, Power & Cable,
Inc.")............................................................... 5/8/98
Vantage Mechanical Contractors, Inc................................... 5/12/98
Wade's Heating and Cooling............................................ 5/15/98
Gilbert Mechanical Contractors, Inc................................... 5/15/98
HPS Plumbing Services, Inc............................................ 5/15/98
Atlantic Industrial Constructors, Inc. ............................... 6/12/98
Colonial Air Conditioning, Inc........................................ 6/12/98
Laney's, Inc. ........................................................ 6/12/98
Noron, Inc. .......................................................... 6/12/98
Team Mechanical, Inc. ................................................ 6/12/98
Air Conditioning and Heating Service, Inc............................. 6/14/98
Phoenix Electric Company.............................................. 7/31/98
Merritt Island Air & Heat, Inc........................................ 7/31/98
The Farfield Company.................................................. 8/12/98
Reliable Mechanical, Inc.............................................. 8/14/98
Ferguson Electric Corporation......................................... 8/14/98
Clark Converse Electric Service, Inc.................................. 8/28/98
Romanoff Electric Corp................................................ 8/31/98
Central Air Conditioning Contractors, Inc............................. 8/31/98
</TABLE>
15
<PAGE>
All of the acquisitions were or will be accounted for under the purchase
method of accounting. These unaudited pro forma combined financial statements
are based on the historical financial statements of the acquired companies and
estimates and assumptions set forth below and in the notes to the unaudited
pro forma combined financial statements.
The unaudited pro forma combined balance sheet combines the historical
consolidated balance sheet of the Company and the balance sheets of the Third
Quarter Post-IPO Companies, as if such acquisitions had occurred on June 30,
1998. The accompanying unaudited pro forma statements of operations of the
Company combines the historical statements of operations of the Company and
the statements of operations of the acquired entities as if such acquisitions
had occurred on January 1, 1997.
GroupMAC has analyzed the savings that it expects to realize from reductions
in salaries and certain benefits to the owners. To the extent the owners of
the GroupMAC Companies have agreed prospectively to reductions in salary,
bonuses and benefits, these reductions have been reflected in the unaudited
pro forma combined statements of operations. With respect to other potential
cost savings, GroupMAC cannot fully quantify these savings at this time. It is
anticipated that these savings will be partially offset by costs related to
GroupMAC's corporate management and by the costs associated with being a
public company. However, because these savings and costs cannot be accurately
quantified at this time, they have not been included in the pro forma combined
financial information of GroupMAC.
The pro forma adjustments are based on available information and certain
assumptions that management deems appropriate and may be revised as additional
information becomes available. Certain acquisitions are subject to final
equity adjustments, of which an estimate is reflected in the pro forma
adjustments. The pro forma combined financial data do not purport to represent
what GroupMAC'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 GroupMAC's financial position or results of
operations for any future period. Since the 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 combined financial statements should be read in conjunction with
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Risk Factors" included elsewhere herein.
16
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
THIRD QUARTER
GROUPMAC AND POST-IPO PRO FORMA PRO FORMA
SUBSIDIARIES ROMANOFF COMPANIES ADJUSTMENTS COMBINED
ASSETS ------------ -------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equiva-
lents.................. $ 5,434 $ 243 $ 3,673 $ (9,350) $ --
Accounts receivable:
Trade, net of allow-
ance................. 99,111 6,410 23,877 -- 129,398
Other................ -- 193 429 -- 622
Due from related par-
ties................... -- -- 619 (619) --
Inventories............ 14,932 204 1,196 -- 16,332
Costs and estimated
earnings in excess of
billings on uncom-
pleted contracts....... 15,938 1,943 7,401 -- 25,282
Deferred tax asset..... 3,439 -- -- 132 3,571
Prepaid expenses and
other current assets... 4,138 -- 525 -- 4,663
-------- ------- ------- -------- --------
Total current as-
sets................ 142,992 8,993 37,720 (9,837) 179,868
PROPERTY AND EQUIPMENT,
net..................... 25,603 1,852 5,132 -- 32,587
GOODWILL, net........... 215,024 -- 23 57,989 273,036
DEFERRED TAX ASSETS..... 4,822 -- -- (214) 4,608
DEFERRED FINANCING
COSTS................... 798 -- -- -- 798
REFUNDABLE INCOME TAXES. 3,478 -- -- -- 3,478
OTHER LONG-TERM ASSETS.. 2,082 1,302 838 (617) 3,605
-------- ------- ------- -------- --------
Total assets........ $394,799 $12,147 $43,713 $ 47,321 $497,980
======== ======= ======= ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and
accrued expenses....... $ 65,076 $ 4,110 $14,295 $ -- $ 83,481
Short-term debt, in-
cluding current matu-
rities................. 3,934 -- 1,594 2,805 8,333
Billings in excess of
costs and estimated
earnings on uncom-
pleted contracts....... 15,265 824 6,835 -- 22,924
Liability for warranty
costs.................. -- -- 4 -- 4
Deferred service reve-
nue.................... 3,756 -- 434 -- 4,190
Income taxes payable... 6,141 34 113 -- 6,288
Deferred tax liabili-
ties................... -- -- 69 (69) --
Other current liabili-
ties................... 5,110 -- 12 -- 5,122
Due to related par-
ties................... 5,601 -- 86 (86) 5,601
-------- ------- ------- -------- --------
Total current lia-
bilities............ 104,883 4,968 23,442 2,650 135,943
SENIOR DEBT, net of cur-
rent maturities......... 64,033 -- 1,372 36,041 101,446
SUBORDINATED DEBT....... 820 -- -- -- 820
LEASE OBLIGATIONS....... -- -- -- -- --
DEFERRED TAX LIABILI-
TIES.................... -- -- -- -- --
DEFERRED COMPENSATION... -- -- 296 (296) --
DUE TO RELATED PARTIES.. 8,577 -- -- -- 8,577
OTHER LONG-TERM LIABILI-
TIES.................... 1,050 -- 1,254 (1,252) 1,052
SHAREHOLDERS' EQUITY:
Common stock........... 26 279 1,079 (1,355) 29
Additional paid-in
capital................ 239,553 268 2,589 31,846 274,256
Retained earnings
(deficit).............. (24,143) 6,632 14,933 (21,565) (24,143)
Common stock, subject
to put................. -- -- (1,252) 1,252 --
-------- ------- ------- -------- --------
Total shareholders'
equity.............. 215,436 7,179 17,349 10,178 250,142
-------- ------- ------- -------- --------
Total liabilities
and shareholders'
equity.............. $394,799 $12,147 $43,713 $ 47,321 $497,980
======== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
17
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTAL
GROUPMAC AND COMMERCIAL BARR ATLANTIC PRO FORMA SUPPLEMENTAL
SUBSIDIARIES HUNGERFORD MIINC AIR ELECTRIC INDUSTRIAL ROMANOFF ADJUSTMENTS PRO FORMA
------------ ---------- ------- ---------- -------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES........... $138,479 $32,850 $42,283 $20,750 $7,717 $37,035 $33,008 $ -- $312,122
COST OF SERVICES... 101,762 24,602 35,909 13,855 5,148 28,625 25,430 -- 235,331
-------- ------- ------- ------- ------ ------- ------- ------- --------
Gross profit...... 36,717 8,248 6,374 6,895 2,569 8,410 7,578 -- 76,791
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES........... 35,862 5,591 5,360 5,649 1,496 1,936 4,930 (3,265)(a) 57,559
GOODWILL
AMORTIZATION....... 633 -- -- -- -- -- -- 2,270 (b) 2,903
-------- ------- ------- ------- ------ ------- ------- ------- --------
Income from
operations........ 222 2,657 1,014 1,246 1,073 6,474 2,648 995 16,329
OTHER INCOME
(EXPENSE):
Interest expense.. (1,542) (121) (73) (152) -- (24) (30) (2,411)(c) (4,353)
Interest income... 398 89 21 10 42 91 29 -- 680
Other............. 112 42 -- 69 (4) 27 (3) -- 243
-------- ------- ------- ------- ------ ------- ------- ------- --------
INCOME (LOSS)
BEFORE INCOME
TAX PROVISION... (810) 2,667 962 1,173 1,111 6,568 2,644 (1,416) 12,899
INCOME TAX
PROVISION.......... 2,832 -- 409 493 -- 11 26 5,453 (e) 9,224
-------- ------- ------- ------- ------ ------- ------- ------- --------
NET INCOME (LOSS).. $ (3,642) $ 2,667 $ 553 $ 680 $1,111 $ 6,557 $ 2,618 $(6,869) $ 3,675
======== ======= ======= ======= ====== ======= ======= ======= ========
BASIC EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ (0.34)
========
WEIGHTED AVERAGE
SHARES............ 10,800
========
DILUTED EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ (0.34)
========
WEIGHTED AVERAGE
SHARES............ 10,800
========
<CAPTION>
OTHER
PRE-IPO,
IPO AND COMBINED
POST-IPO PRO FORMA PRO FORMA
COMPANIES ADJUSTMENTS COMBINED
---------- ------------- ------------
<S> <C> <C> <C>
REVENUES........... $470,066 $ -- $782,188
COST OF SERVICES... 366,608 -- 601,939
---------- ------------- ------------
Gross profit...... 103,458 -- 180,249
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES........... 92,403 (27,618)(a) 122,344
GOODWILL
AMORTIZATION....... -- 3,923 (b) 6,826
---------- ------------- ------------
Income from
operations........ 11,055 23,695 51,079
OTHER INCOME
(EXPENSE):
Interest expense.. (2,231) (1,297)(c) (7,881)
Interest income... 678 (1,358)(d) --
Other............. 757 -- 1,000
---------- ------------- ------------
INCOME (LOSS)
BEFORE INCOME
TAX PROVISION... 10,259 21,040 44,198
INCOME TAX
PROVISION.......... 2,276 8,910 (e) 20,410
---------- ------------- ------------
NET INCOME (LOSS).. $ 7,983 $12,130 $ 23,788
========== ============= ============
BASIC EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.82
============
WEIGHTED AVERAGE
SHARES............ 28,868(f)
============
DILUTED EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.82
============
WEIGHTED AVERAGE
SHARES............ 29,093(f)
============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
18
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER
PRE-IPO,
IPO AND
GROUPMAC AND COMMERCIAL BARR ATLANTIC POST-IPO PRO FORMA
SUBSIDIARIES HUNGERFORD MIINC AIR ELECTRIC INDUSTRIAL ROMANOFF COMPANIES ADJUSTMENTS
------------ ---------- ------- ---------- -------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES........... $42,844 $15,162 $19,549 $9,296 $3,607 $18,806 $16,647 $245,337 $ --
COST OF SERVICES... 30,921 11,280 16,042 7,554 2,494 14,544 12,700 190,436 --
------- ------- ------- ------ ------ ------- ------- -------- -------
Gross profit...... 11,923 3,882 3,507 1,742 1,113 4,262 3,947 54,901 --
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES........... 18,007 2,625 2,690 1,516 566 765 2,343 44,246 (15,526)(a)
GOODWILL AMORTIZA-
TION............... 31 -- -- -- -- -- -- -- 3,382 (b)
------- ------- ------- ------ ------ ------- ------- -------- -------
Income (Loss)
from operations... (6,115) 1,257 817 226 547 3,497 1,604 10,655 12,144
OTHER INCOME (EX-
PENSE):
Interest expense.. (395) (47) (10) (37) -- (7) (5) (1,194) (2,245)(c)
Interest income... 154 49 11 -- 15 29 15 296 (569)(d)
Other............. 228 33 -- 46 (4) 14 (12) 325 --
------- ------- ------- ------ ------ ------- ------- -------- -------
INCOME (LOSS)
BEFORE INCOME
TAX
PROVISION (BENE-
FIT)............ (6,128) 1,292 818 235 558 3,533 1,602 10,082 9,330
INCOME TAX PROVI-
SION (BENEFIT)..... 354 -- 556 (380) -- 82 16 1,788 7,478 (e)
------- ------- ------- ------ ------ ------- ------- -------- -------
NET INCOME (LOSS).. $(6,482) $ 1,292 $ 262 $ 615 $ 558 $ 3,451 $ 1,586 $ 8,294 $ 1,852
======= ======= ======= ====== ====== ======= ======= ======== =======
BASIC EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ (0.76)
=======
WEIGHTED AVERAGE
SHARES............ 8,492
=======
DILUTED EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ (0.76)
=======
WEIGHTED AVERAGE
SHARES............ 8,492
=======
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
REVENUES........... $371,248
COST OF SERVICES... 285,971
------------
Gross profit...... 85,277
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES........... 57,232
GOODWILL AMORTIZA-
TION............... 3,413
------------
Income (Loss)
from operations... 24,632
OTHER INCOME (EX-
PENSE):
Interest expense.. (3,940)
Interest income... --
Other............. 630
------------
INCOME (LOSS)
BEFORE INCOME
TAX
PROVISION (BENE-
FIT)............ 21,322
INCOME TAX PROVI-
SION (BENEFIT)..... 9,894
------------
NET INCOME (LOSS).. $ 11,428
============
BASIC EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.40
============
WEIGHTED AVERAGE
SHARES............ 28,868(f)
============
DILUTED EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.39
============
WEIGHTED AVERAGE
SHARES............ 29,093(f)
============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
19
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER
GROUPMAC AND COMMERCIAL BARR ATLANTIC POST-IPO PRO FORMA PRO FORMA
SUBSIDIARIES AIR ELECTRIC INDUSTRIAL ROMANOFF COMPANIES ADJUSTMENTS COMBINED
------------ ---------- -------- ---------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $266,277 $5,003 $950 $8,853 $18,800 $95,945 $ -- $395,828
COST OF SERVICES........ 202,544 3,921 712 6,918 13,880 76,040 -- 304,015
-------- ------ ---- ------ ------- ------- ------- --------
Gross profit.......... 63,733 1,082 238 1,935 4,920 19,905 -- 91,813
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. 45,707 918 206 576 2,903 13,417 (1,273)(a) 62,454
GOODWILL AMORTIZATION... 2,004 -- -- -- -- -- 1,409 (b) 3,413
-------- ------ ---- ------ ------- ------- ------- --------
Income (Loss) from
operations............ 16,022 164 32 1,359 2,017 6,488 (136) 25,946
OTHER INCOME (EXPENSE):
Interest expense...... (1,314) (41) -- (4) (2) (326) (2,253)(c) (3,940)
Interest income....... 229 -- 10 67 9 66 (381)(d) --
Other................. 149 25 -- 18 42 (2) -- 232
-------- ------ ---- ------ ------- ------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION. 15,086 148 42 1,440 2,066 6,226 (2,770) 22,238
INCOME TAX PROVISION.... 6,718 394 -- 13 50 64 3,022 (e) 10,261
-------- ------ ---- ------ ------- ------- ------- --------
NET INCOME (LOSS)....... $ 8,368 $ (246) $ 42 $1,427 $ 2,016 $ 6,162 $(5,792) $ 11,977
======== ====== ==== ====== ======= ======= ======= ========
BASIC EARNINGS PER
SHARE:
EARNINGS PER SHARE.... $ 0.35 $ 0.41
======== ========
WEIGHTED AVERAGE
SHARES................ 24,198 28,868 (f)
======== ========
DILUTED EARNINGS PER
SHARE:
EARNINGS PER SHARE.... $ 0.34 $ 0.41
======== ========
WEIGHTED AVERAGE
SHARES................ 24,595 29,289 (f)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
20
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
The respective results of operations for the Pre-IPO and IPO Companies from
January 1, 1997 to the dates of the acquisitions were combined with the
Company and the Post-IPO Companies, excluding Premex, Inc. ("Commercial Air"),
actual results of operations for the twelve months ended December 31, 1997 and
Commercial Air for the twelve months ended March 31, 1998 to determine the pro
forma results of operations for the twelve months ended December 31, 1997.
The respective results of operations for the Pre-IPO Companies, IPO
Companies and the Post-IPO Companies from January 1, 1997 to the dates of the
acquisitions, or June 30, 1997 for acquisitions consummated subsequent to June
30, 1997, were combined with actual results of the Company for the six months
ended June 30, 1997 to determine the pro forma results of operations for the
six months ended June 30, 1997. The respective results of operations for the
Post-IPO Companies from January 1, 1998 to the dates of the acquisitions, or
June 30, 1998 for acquisitions consummated subsequent to June 30, 1998, were
combined with actual results of the Company for the six months ended June 30,
1998 to determine the pro forma results of operations for the six months ended
June 30, 1998.
2. ACQUISITIONS:
The acquisitions of the Pre-IPO Companies were financed by borrowings under
a credit agreement dated May 2, 1997 (the "Original Credit Agreement"). The
Original Credit Agreement provided secured facilities consisting of (a) an 18-
month revolving credit facility providing up to $3 million in revolving loans
(the "Revolving Credit Facility"), (b) a six-year term loan of $20 million to
help fund the acquisition of Airtron (the "Airtron Term Loan"), and (c) a term
loan facility available until October 31, 1998, providing for up to $12
million in term loans having a final maturity six years after the date of the
Original Credit Agreement (the "Acquisition Credit Facility"). Borrowings
under this facility were repaid with proceeds from the IPO.
The results of operations of the acquired businesses are included in the
actual results of operations of the Company from the date of acquisition and
the historical balance sheet at June 30, 1998 includes the acquisitions
completed as of that date. All of the acquisitions are accounted for as
purchases. The cash consideration associated with the acquisition of the IPO
Companies and the Post-IPO Companies was provided by proceeds from the IPO and
borrowings under a credit agreement dated June 12, 1998 (the "Credit
Agreement") and an earlier agreement dated December 11, 1997. The Credit
Agreement is more fully described in the section "Description of Credit
Agreement" on page 53.
The following table sets forth the consideration paid or to be paid in (a)
cash, (b) subordinated debt, (c) shares of non-convertible, non-voting
Preferred Stock to the shareholders of the Pre-IPO Companies and (d) shares of
Common Stock to the shareholders of the Pre-IPO, IPO and Post-IPO Companies.
The Preferred Stock was redeemable at any time after the initial issuance, in
whole or in part, at the option of the Company, at an amount equal to the
liquidation value of $1.00 per share plus any accrued but unpaid dividends.
Redemption of all outstanding Preferred Stock occurred in connection with the
IPO.
For purposes of computing the estimated purchase price for accounting
purposes for the Third Quarter Post-IPO Companies, the value of the Common
Stock is determined using an estimated weighted average fair value of $13.84
per share, which represents a discount rate of 19.6% from the weighted average
stock price of $17.23 at the respective dates of acquisition due primarily to
restrictions on the sale and transferability of such shares. The restrictions
are created by a contractual restriction imposed on the shares issued in
connection with the acquisition of the acquired businesses. This contractual
provision prohibits the shareholders from selling, transferring or otherwise
disposing of any shares for one year following the date of acquisition of such
shares and limiting dispositions for one additional year to no more than 36%
of their holdings.
21
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The estimated purchase price and related allocations of the excess purchase
price for the Post-IPO Companies are based upon preliminary estimates and are
subject to certain purchase price adjustments at and following closing. Based
upon management's preliminary analysis, it is anticipated that the historical
carrying value of the assets and liabilities of the Third Quarter Post-IPO
Companies (representing $23.5 million) will approximate fair value. This
results in an allocation to goodwill of approximately $58.0 million.
Management has not identified any other material tangible or identifiable
intangible assets to which a portion of the purchase price could reasonably be
allocated. Amounts in thousands.
<TABLE>
<CAPTION>
SUBORDINATED
DEBT AND
NOTES SHARES OF SHARES OF TOTAL
CASH PAYABLE PREFERRED STOCK(1) COMMON STOCK(3) CONSIDERATION(2)
-------- ------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Airtron................. $ 20,849 $ -- 14,873 4,652 $ 58,192
-------- ------ ------ ------ --------
Pre-IPO Companies
(excluding Airtron).... 12,504 -- 4,405 1,437 32,033
IPO Companies........... 30,585 -- -- 3,007 64,851
First Quarter Post-IPO
Companies.............. 36,666 820 -- 2,506 68,228
Second Quarter Post-IPO
Companies.............. 48,811 -- -- 2,906 89,549
Third Quarter Post-IPO
Companies.............. 42,761 4,000 -- 2,383 81,467
-------- ------ ------ ------ --------
Total Acquisitions.... 171,327 4,820 4,405 12,239 336,128
-------- ------ ------ ------ --------
Totals................ $192,176 $4,820 19,278 16,891 $394,320
======== ====== ====== ====== ========
</TABLE>
- --------
(1) The preferred stock is valued at $1 per share. This stock was redeemed for
$1 per share in connection with the IPO.
(2) The total consideration specified above has been reduced by distributions
totaling $10.7 million representing substantially all of the previously
taxed undistributed earnings of such acquired companies from the acquired
companies that are S corporations.
(3) Excludes 0.3 million of options and 0.5 million of warrants to purchase
common stock.
22
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a) Records S Corporation distributions of $2.6 million on certain Third
Quarter Post-IPO Companies to be satisfied with cash and notes to the selling
shareholders. Also, records the deferred income tax liabilities associated
with converting all acquired companies taxed under Subchapter S of the
Internal Revenue Code (the Code) to corporations taxed under Subchapter C of
the Code.
b) Records the settlement of all shareholder receivables and payables with
cash at closing.
c) Records the elimination of all assets and liabilities of the Third
Quarter Post-IPO Companies that are specifically excluded as part of the
purchase transaction.
d) Records the elimination of the historical equity accounts of the Third
Quarter Post-IPO Companies.
e) Records the purchase of the Third Quarter Post-IPO Companies, including
the cash, issuance of notes payable, options to purchase Common Stock and
Common Stock consideration due to these companies.
f) Records the refinancing of debt assumed in connection with the
acquisition of the Third Quarter Post-IPO Companies with the Credit Agreement.
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
------- ---- ---- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $(1,568) $533 $-- $-- $(8,315) $ -- $(9,350)
Due from related
parties................ -- (619) -- -- -- -- (619)
Deferred tax assets..... 132 -- -- -- -- -- 132
Goodwill................ 13 -- (296) (23,195) 81,467 -- 57,989
Deferred tax assets
(noncurrent)........... (214) -- -- -- -- -- (214)
Other noncurrent assets. (617) -- -- -- -- -- (617)
Short-term debt,
including current
maturities............. (399) -- -- -- (4,000) 1,594 (2,805)
Deferred tax
liabilities............ 69 -- -- -- -- -- 69
Due to related parties.. -- 86 -- -- -- -- 86
Senior debt, net of
current maturities..... -- -- -- -- (34,447) (1,594) (36,041)
Deferred compensation... -- -- 296 -- -- -- 296
Other long-term
liabilities............ -- -- -- 1,252 -- -- 1,252
Common stock............ -- -- -- 1,357 (2) -- 1,355
Additional paid-in
capital................ -- -- -- 2,857 (34,703) -- (31,846)
Retained earnings....... 2,584 -- -- 18,981 -- -- 21,565
Common stock, subject to
put.................... -- -- -- (1,252) -- -- (1,252)
------- ---- ---- ------- ------- ------ -------
Total................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ==== ==== ======= ======= ====== =======
</TABLE>
23
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of the GroupMAC Companies to which they have agreed. These
reductions in salaries, bonuses and benefits are in accordance with the terms
of the employment agreements. Such employment agreements are primarily for
three years, contain restrictions related to competition and provide severance
for termination of employment in certain circumstances.
The salaries, bonuses, benefits and other compensation items recorded in the
individual financial statements amounted to $33.4 million, $11.8 million and
$3.1 million for the year ended December 31, 1997 and the six month periods
ended June 30, 1997 and 1998, respectively. The contractually agreed upon
compensation and benefits for these same businesses, on a going forward basis,
amount to $9.5 million, $3.3 million and $1.8 million for the year ended
December 31, 1997 and the six month periods ended June 30, 1997 and 1998,
respectively. The difference between these respective amounts equates to $23.9
million, $8.5 million and $1.3 million and are reflected as pro forma
adjustments.
Also reflects the reduction in compensation expense related to the non-
recurring, non-cash compensation charge of $7.0 million recorded by the
Company in the second quarter of 1997 related to the reverse acquisition of
GroupMAC.
b) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions over a 40-year estimated life.
24
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
c) Represents the adjustment necessary to reflect interest expense related
to borrowings under the Credit Agreement to fund the cash portion of the
purchase price and the assumption of debt related to the Post-IPO Companies,
and interest related to the subordinated debt and notes issued to fund the S
Corporation distributions discussed in Note 3a. A summary of the historical
and pro forma debt outstanding and a summary of the pro forma interest expense
(including amounts recognized in the historical financial statements) assuming
the acquisitions occurred on January 1, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 AND 1998
------------------------------- -------------------------------
SIX
INTEREST ANNUAL INTEREST MONTH
BALANCE RATE INTEREST BALANCE RATE INTEREST
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Debt:
Historical June 30,
1998 short-term
debt................ $ 332 7.1875%(i) $ 24 $ 332 7.1875%(i) $ 12
Historical June 30,
1998 S Corporation
Notes............... 3,602 6.0000%(ii) 216 3,602 6.0000%(ii) 108
-------- ------ -------- ------
3,934 240 3,934 120
Third Quarter Post-
IPO Companies S
Corporation Notes... 399 6.0000%(ii) 24 399 6.0000%(ii) 12
Third Quarter Post-
IPO Companies note
payable............. 4,000 6.5000%(iv) 260 4,000 6.5000%(iv) 130
-------- ------ -------- ------
Total pro forma
short-term
debt/interest
expense........... $ 8,333 $ 524 $ 8,333 $ 262
======== ====== ======== ======
Long-Term Debt:
Historical June 30,
1998 long-term debt. $ 64,033 7.1875%(i) $4,602 $ 64,033 7.1875%(i) $2,301
Historical June 30,
1998 subordinated
debt................ 820 8.0000%(iii) 66 820 8.0000%(iii) 33
-------- ------ -------- ------
64,853 4,668 64,853 2,334
Third Quarter Post-
IPO Companies
assumed debt
refinanced.......... 2,966 7.1875%(i) 213 2,966 7.1875%(i) 106
Third Quarter Post-
IPO Companies
borrowings to fund
cash portion of
purchase prices..... 34,447 7.1875%(i) 2,476 34,447 7.1875%(i) 1,238
-------- ------ -------- ------
Total pro forma
long-term
debt/interest
expense........... $102,266 $7,357 $102,266 $3,678
======== ====== ======== ======
Total pro forma
debt/interest
expense........... $110,599 $7,881 $110,599 $3,940
======== ====== ======== ======
</TABLE>
- --------
(i) Represents current borrowing rates under the Credit Agreement.
(ii) Represents the contractual interest rate for the S Corporation Notes
discussed in Note 3a.
(iii) Represents the contractual interest rates for the subordinated debt
outstanding on the Company's historical balance sheet at June 30, 1998.
(iv) Represents the contractual interest rate for this note payable.
d) Reflects the reduction to historical interest income earned on acquired
cash and the remaining IPO proceeds, all of which is assumed to be used for
the acquisition of the GroupMAC Companies.
e) Reflects the incremental provision for federal and state income taxes
relating to the compensation differential and other pro forma adjustments
discussed in this Note 4 as well as income taxes on S Corporation earnings.
25
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
f) Weighted average shares outstanding include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ -------- --------
<S> <C> <C> <C>
Shares issued in Initial Public Offering........ 8,340 8,340 8,340
Shares issued under Subscription Agreement dated
October 24, 1996............................... 2,600 2,600 2,600
Shares issued to Pre-IPO Companies.............. 6,089 6,089 6,089
Shares issued to IPO Companies.................. 3,007 3,007 3,007
Shares issued to First Quarter Post-IPO
Companies...................................... 2,506 2,506 2,506
Shares issued to Second Quarter Post-IPO
Companies...................................... 2,906 2,906 2,906
Shares issued to Third Quarter Post-IPO
Companies...................................... 2,383 2,383 2,383
Shares issued to Founding Management and
Directors...................................... 1,037 1,037 1,037
------ ------ ------
Weighted average shares outstanding--basic...... 28,868 28,868 28,868
Incremental effect of options and warrants on
shares outstanding............................. 225 225 421
------ ------ ------
Weighted average shares outstanding--diluted.... 29,093 29,093 29,289
====== ====== ======
</TABLE>
26
<PAGE>
(c) Exhibits.
The following exhibits are filed with this report:
2.1* Agreement and Plan of Merger dated as of August 31, 1998 among the
Company, Romanoff Electric Acquisition Corp., Romanoff Electric Corp.
and the shareholders of Romanoff Electric Corp.
23 Consent of KPMG Peat Marwick, LLP.
99* List of Lenders under the Credit Agreement.
- ---------
* Incorporated by reference to the Company's Form 8-K dated September 15, 1998.
27
<PAGE>
SIGNATURES
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 hereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Randolph W. Bryant
______________________________
Randolph W. Bryant
Senior Vice President
and General Counsel
Date: September 21, 1998
28
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Group Maintenance America Corp.
We consent to incorporation by reference in the registration statements (No.
333-41749, No. 333-41751, No. 333-58651, and 333-60537) on Form S-8 of Group
Maintenance America Corp. of our report dated August 26, 1998, relating to the
balance sheet of Romanoff Electic Corp. as of December 31, 1997, and the related
statement of operations, shareholders' equity and cash flows for the year ended
December 31, 1997, which report appears in the current report on Form 8-K/A of
Group Maintenance America Corp. dated September 21, 1998.
KPMG PEAT MARWICK LLP
Houston, Texas
September 21, 1998
