<PAGE>
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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: JULY 20, 1998
(DATE OF EARLIEST EVENT REPORTED: JUNE 11, 1998)
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1-13565 76-0535259
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
8 GREENWAY PLAZA, SUITE 1500 HOUSTON, 77046
TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 12, 1998, Group Maintenance America Corp. (the "Company") completed
the acquisition of Atlantic Industrial Constructors, a Virginia corporation
("Atlantic Industrial") pursuant to a merger (the "Merger") of Atlantic
Industrial with and into Atlantic Industrial Acquisition Corp., a wholly-owned
subsidiary of the Company ("AIAC"). The Merger was effected in accordance with
the Agreement and Plan of Merger (the "Merger Agreement") dated as of June 11,
1998, among the Company, AIAC, Atlantic Industrial, and the shareholders of
Atlantic Industrial. 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. In the Merger, AIAC was the surviving corporation and changed its
name to "Atlantic Industrial Constructors, Inc." The purchase price paid or to
be paid by the Company for Atlantic Industrial consists of $15.0 million in
cash, notes in the amount of $2.9 million relating to distributions of
subchapter S corporation earnings and 1.1 million shares of the Company's
common stock, par value $.001 per share ("Common Stock"), and options to
purchase 73,000 shares of Common Stock.
Prior to the Merger, the stockholders of Atlantic Industrial were Giles C.
Upshur and T. Evan Williams. After the Merger, Messrs. Upshur and Williams
will be employed by the surviving corporation.
Atlantic Industrial fabricates and installs process pipe and structural
steel; provides engineered heavy lifting and transportation services; installs
mechanical equipment; and provides millwright, alignment, plant maintenance
and aircraft passenger boarding bridge services. Its revenues for fiscal 1997
were $37.0 million and income from operations was $6.5 million. The assets of
Atlantic Industrial consist primarily of cash, accounts receivable, inventory,
equipment, vehicles and goodwill. The Company expects that Atlantic Industrial
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.
ITEM 5. OTHER EVENTS.
On June 11 and 12, 1998, the Company acquired six companies, including
Atlantic Industrial (which is described in Item 2 of this Current Report on
Form 8-K). Also on June 12, 1998, the Company amended and restated its Credit
Agreement which, among other things, increased the amount of funding
available.
ACQUISITIONS
In addition to Atlantic Industrial, the Company recently acquired Colonial
Air Conditioning, Inc. of Hartford, Connecticut ("Colonial"); Laney's, Inc. of
Fargo, North Dakota ("Laney's"); Noron, Inc. of Toledo, Ohio ("Noron"); Air
Conditioning and Heating Service, Inc., of Longmont, Colorado ("A&H"); and
Team Mechanical, Inc. of Salt Lake City, Utah ("Team Mechanical").
Colonial provides heating, ventilation, and air conditioning services to
commercial and residential customers primarily in the Hartford, Connecticut,
area. Its revenues for fiscal 1997 were $6.8 million and its income from
operations was $181,000.
Laney's installs and services heating, ventilation, and air conditioning
systems primarily in the Fargo, North Dakota, area. Its revenues for fiscal
1997 were $7.6 million and its income from operations was $406,000.
Noron provides heating, ventilation, and air conditioning services to
commercial customers primarily in the Toledo, Ohio, area. Its revenues for
fiscal 1997 were $2.2 million and its income from operations was $48,000.
2
<PAGE>
A&H provides heating, ventilation and air conditioning services to
residential customers primarily in the Longmont, Colorado, area. Its revenues
for fiscal 1997 were $4.3 million and its income from operations was $37,000.
Team Mechanical provides heating, ventilation, and air conditioning
construction and maintenance, repair and replacement services for large
commercial and industrial customers primarily in the Salt Lake City area. Its
revenues for fiscal 1997 were $13.7 million and its income from operations was
$304,000.
CREDIT AGREEMENT
The Company amended and restated its credit agreement dated December 11,
1997 primarily to expand the amount available for borrowing from $75,000,000
to $125,000,000. Other changes made by the new credit agreement include (i)
permitting indebtedness in addition to indebtedness under the new credit
agreement, (ii) increasing the amount of letters of credit available for
issuance, (iii) increasing the amount of Common Stock that the Company may
purchase, (iv) increasing the size of businesses that the Company may acquire
without lender approval, and (vii) deleting the minimum tangible net worth
covenant. All of the banks that were parties to the earlier credit agreement
are parties to the new agreement and two new banks were included in the
lending syndicate.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of businesses acquired.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Atlantic Industrial Constructors, Inc.
We have audited the accompanying combined balance sheets of Atlantic
Industrial Constructors, Inc. and Affiliates (the Company) as of December 31,
1996 and 1997, and the related combined statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Atlantic
Industrial Constructors, Inc. and Affiliates as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 10, 1998
4
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC.
AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.............. $1,674,468 $ 2,900,923 $1,750,271
Accounts receivable--trade............. 2,472,581 6,149,318 3,446,982
Accounts receivable, Other............. 12,762 16,921 3,700
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 1,705,599 2,265,760 1,153,021
Prepaid expenses and other current
assets................................ 47,274 42,289 58,854
---------- ----------- ----------
Total current assets................. 5,912,684 11,375,211 6,412,828
PROPERTY AND EQUIPMENT, net.............. 995,903 1,065,535 1,004,783
CASH SURRENDER VALUE OF LIFE INSURANCE
POLICY.................................. 108,515 141,521 141,521
---------- ----------- ----------
Total assets......................... $7,017,102 $12,582,267 $7,559,132
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable....................... $1,042,348 $ 1,353,729 $ 706,921
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 7,125 1,136,398 178,077
Notes payable to shareholders.......... 75,000 205,000 205,000
Accrued expenses....................... 1,564,937 1,420,716 733,167
---------- ----------- ----------
Total current liabilities............ 2,689,410 4,115,843 1,823,165
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock........................... 2,400 2,400 2,400
Additional Paid in Capital............. 375,600 375,600 375,600
Retained earnings...................... 3,949,692 8,088,424 5,357,967
---------- ----------- ----------
Total shareholders' equity........... 4,327,692 8,466,424 5,735,967
---------- ----------- ----------
Total liabilities and shareholders'
equity.............................. $7,017,102 $12,582,267 $7,559,132
========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC.
AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $20,136,334 $26,319,707 $37,035,214 $8,318,502 $5,428,035
COST OF SERVICES........ 14,864,441 21,787,589 28,625,488 6,406,347 4,397,037
----------- ----------- ----------- ---------- ----------
Gross profit........ 5,271,893 4,532,118 8,409,726 1,912,155 1,030,998
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 1,602,825 1,955,892 1,936,122 372,986 403,255
----------- ----------- ----------- ---------- ----------
Income from
operations......... 3,669,068 2,576,226 6,473,604 1,539,169 627,743
OTHER INCOME (EXPENSE):
Interest income....... 120,037 127,713 90,971 8,751 30,934
Interest expense...... (12,403) (13,435) (23,690) (3,553) (4,064)
Other, net............ 64,236 62,592 27,479 (32,365) 12,924
----------- ----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAX
PROVISION.............. 3,840,938 2,753,096 6,568,364 1,512,002 667,537
Income Tax
Provision.......... 2,278 1,445 11,127 -- 7,992
----------- ----------- ----------- ---------- ----------
NET INCOME.............. $ 3,838,660 $ 2,751,651 $ 6,557,237 $1,512,002 $ 659,545
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND CONSOLIDATED AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994......... $2,000 $ 58,000 $ 2,840,620 $ 2,900,620
Contributed Capital--AILC........ 200 267,800 -- 268,000
Net income....................... -- -- 3,838,660 3,838,660
Distributions.................... -- -- (1,739,541) (1,739,541)
------ -------- ----------- -----------
Balance, December 31, 1995......... 2,200 325,800 4,939,739 5,267,739
Contributed Capital--AIM......... 200 49,800 -- 50,000
Net income....................... -- -- 2,751,651 2,751,651
Distributions.................... -- -- (3,741,698) (3,741,698)
------ -------- ----------- -----------
Balance, December 31, 1996......... 2,400 375,600 3,949,692 4,327,692
Net income....................... -- -- 6,557,237 6,557,237
Distributions.................... -- -- (2,418,505) (2,418,505)
------ -------- ----------- -----------
Balance, December 31, 1997......... $2,400 $375,600 $ 8,088,424 $ 8,466,424
====== ======== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC.
AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 3,838,660 $ 2,751,651 $ 6,557,237 $ 1,512,002 $ 659,545
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization....... 120,577 240,891 304,071 76,018 78,258
(Gain) Loss on sale
of property and
equipment.......... (10,142) 13,580 16,299 -- --
Increase in cash
surrender value of
life insurance
policy............. -- (108,515) (33,006) -- --
Change in operating
assets and
liabilities:
(Increase)
decrease in--
Accounts
receivable..... (1,045,498) 723,135 (3,680,896) (1,007,923) 2,715,557
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts...... (1,411,190) (263,485) 569,112 286,066 154,418
Prepaid expenses
and other
current assets. 19,726 (42,646) 4,985 (1,993) (16,565)
Increase
(decrease) in--
Accounts
payable........ 1,138,278 (409,566) 311,381 (528,785) (646,808)
Accrued
expenses....... 290,966 765,995 (144,221) (562,112) (687,549)
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities....... 2,941,377 3,671,040 3,904,962 (226,727) 2,256,856
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (434,713) (583,738) (390,002) (197,078) (17,506)
Proceeds from sale of
property and
equipment............ 10,500 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities....... (424,213) (583,738) (390,002) (197,078) (17,506)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Capital contributions. 268,000 50,000 -- -- --
Increase (decrease) in
notes payable to
shareholders......... (120,000) 75,000 130,000 240,000 --
Distributions to
shareholders......... (1,739,541) (3,741,698) (2,418,505) (606,201) (3,390,002)
----------- ----------- ----------- ----------- -----------
Net cash used in
financing
activities....... (1,591,541) (3,616,698) (2,288,505) (366,201) (3,390,002)
----------- ----------- ----------- ----------- -----------
NET CHANGE IN CASH AND
CASH EQUIVALENTS....... 925,623 (529,396) 1,226,455 (790,006) (1,150,652)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 1,278,241 2,203,864 1,674,468 1,674,468 2,900,923
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 2,203,864 $ 1,674,468 $22,900,923 $ 884,462 $ 1,750,271
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURE:
Cash paid for
interest............. $ 12,445 $ 13,336 $ 26,517 $ -- $ --
Cash paid for income
taxes................ 2,278 1,445 11,127 -- 7,992
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
The combined financial statements included herein provide the financial
position, results of operations and cash flows, after elimination of material
inter-company balances, for Atlantic Industrial Constructors, Inc. (AIC),
Atlantic Industrial Maintenance, Inc. (AIM) and Atlantic Industrial Leasing
Corporation (AILC), (collectively, the Company). Historically, AIC, AIM and
AILC have been under common ownership and management and AIM and AILC have
been operated essentially as subsidiaries of AIC. The Company provides
contract services including the process pipe fabrication, structural steel
fabrication and erection, engineered heavy lift and transportation, mechanical
heavy lift and transportation, jetway refurbishing and mechanical equipment
installation to large industrial customers primarily in the Virginia and North
Carolina areas. This work is performed under fixed price contracts subject to
modifications based on approved change orders or under time and material
contracts. The Company also engages in industrial plant maintenance through
its service division under time and material and fixed price contracts.
2. SUMMARY OF SIGNIFICANT POLICIES
Interim Financial Information
The interim financial statements for the three months ended March 31, 1997
and 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 time and
material contracts is accrued at the end of each month based on chargeable
costs incurred through month end.
Contract costs include all direct material, subcontract and labor costs and
a provision for indirect costs such as indirect labor, payroll taxes, tools,
equipment rental, permits, union welfare payments, truck expense and
depreciation. 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 may result in revisions to costs
and revenues and are recognized in the period in which the revisions are
determined.
9
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of percentages of total revenues for significant
customers for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
CUSTOMER 1995 1996 1997
-------- ------- ------- -------
<S> <C> <C> <C>
A........................................... 33% 33% 30%
B........................................... 14% 20% 11%
C........................................... 12% 21% 8%
</TABLE>
Cash and cash equivalents
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.
Accounts Receivable
Accounts receivable consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accounts receivable--billed........................ $2,192,920 $4,906,181
Unbilled retainage................................. 279,661 1,250,114
Allowance for doubtful accounts.................... -- (6,977)
---------- ----------
$2,472,581 $6,149,318
========== ==========
</TABLE>
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 5 to 7 years.
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.
Income Taxes
AIC and AIM have elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, AIC and AIM do not pay
corporate income taxes on their taxable income. Instead, the stockholders are
liable for individual income taxes on their respective shares of AIC's and
AIM's net operating income in their individual income tax returns. Therefore,
no income tax provision or liability appears on these financial statements
with respect to the earnings of AIC and AIM. AILC is taxed under the
provisions of Subchapter C of the Internal Revenue Code but due to the
relatively small size of this entity the related income taxes are not material
to the combined financial statements.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, accounts receivable
and costs and estimated earnings in excess of billings on uncompleted
contracts.
10
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company maintains its cash balances in one financial institution. The
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company generally has funds deposited in excess of $100,000.
Accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts result primarily from contracts with customers
principally in the Eastern United States. Credit is extended to customers
after an evaluation for credit worthiness; however, the Company does not
require collateral or other security from customers.
3. RETIREMENT PLANS
The Company has a profit-sharing retirement plan and a money purchase
pension plan. The plans cover substantially all full-time employees who have
completed at least one year of service and are not covered under separate
collective bargaining agreements. For the profit sharing plan, there is no
specific contribution formula, and the Board of Directors sets the Company's
contributions annually, subject to limitations imposed by the Internal Revenue
Code. For the money purchase plan, the Company contributes 5% of participants'
eligible compensation. For the years ended December 31, 1995, 1996 and 1997,
the Company's contributions aggregated $215,469, $287,147 and $349,701,
respectively.
The Company makes contributions to a union-administered benefit fund which
covers the majority of the Company's employees. For the years ended December
31, 1995, 1996 and 1997, the participant costs charged to operations were
approximately $0.8 million, $1.0 million and $1.7 million, respectively.
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 plans' unfunded vested
benefits, if any. The Company has not yet received information from the plans'
administrators to determine its share of any unfunded vested benefits. The
Company does not anticipate withdrawal from the plans, nor is the Company
aware of any expected plan terminations.
4. LEASES
The Company leases its office and shop facility, on a month-to-month basis,
from Atlantic Leasing Associates, a partnership whose partners are the
Company's shareholders. Under provisions of the lease, the Company is
responsible for taxes, insurance and utilities. Rent expense under this lease
was $58,243, $106,292 and $186,323 for the years ended December 31, 1995, 1996
and 1997, respectively.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts as of December 31, 1996 and
1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Costs incurred................................. $4,366,201 $ 9,472,923
Estimated earnings recognized.................. 1,054,026 3,764,951
---------- -----------
5,420,227 13,237,874
Less billings on contracts..................... 3,721,753 12,108,512
---------- -----------
$1,698,474 $ 1,129,362
========== ===========
Costs and estimated earnings in excess of
billings...................................... 1,705,599 2,265,760
Billings in excess of costs and estimated
earnings...................................... (7,125) (1,136,398)
---------- -----------
$1,698,474 $ 1,129,362
========== ===========
</TABLE>
11
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT
The principal categories of property and equipment as of December 31, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Machinery and equipment......................... $ 766,742 $ 974,023
Vehicles........................................ 707,569 850,854
Office equipment and furniture.................. 15,265 15,265
Computer software costs......................... 35,417 35,417
--------- ----------
1,524,993 1,875,559
Less: Accumulated depreciation.................. 529,090 810,024
--------- ----------
Total Property and Equipment, net............. $ 995,903 $1,065,535
========= ==========
</TABLE>
7. NOTES PAYABLE
The notes incur interest at 5 3/5% with interest payable annually at
December 31. The notes are due based upon the Company's ability to pay.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
9. SHAREHOLDERS' EQUITY
Common stock par value and shares authorized, issued and outstanding for
AIC, AIM and AILC, respectively, are as follows:
<TABLE>
<CAPTION>
AIC AIM AILC
------ ----- -----
<S> <C> <C> <C>
Par Value ($ per share)............................... $10.00 $1.00 $1.00
Shares authorized..................................... 10,000 5,000 5,000
Shares issued and outstanding......................... 200 200 200
</TABLE>
By written agreement, AIC is obligated to purchase the common stock of any
shareholder upon his death or termination of employment with the Company. The
price is determined by formula in the agreement. The Company is a party to
life insurance contracts with combined death benefits of $3.0 million to fund
these obligations.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Methods and assumptions used to estimate the fair value of each class of
financial instruments are as follows:
(a) Cash and cash equivalents, trade accounts receivable, and payables--
The carrying amounts approximate fair value because of the short maturity
of these instruments.
(b) Notes payable to shareholders--The carrying amount approximates fair
value because the interest rate approximates the market rate.
12
<PAGE>
ATLANTIC INDUSTRIAL CONSTRUCTORS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(c) Cash surrender value of life insurance policy is stated at its cash
value as determined by the insurance carrier, which approximates fair
value.
11. SUBSEQUENT EVENT
On June 12, 1998, the Company entered into agreements whereby 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.
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-
Offering Companies"), (ii) 13 companies acquired in connection with the IPO
(the "Offering Acquisition Companies") and (iii) 15 companies in the first
quarter of 1998 (the "First Quarter Post-Offering Companies") and 12 companies
in the second quarter of 1998 and one probable future acquisition (the "Second
Quarter Post-Offering Companies", and together with the First Quarter Post-
Offering Companies, the "Post-Offering Companies", the Pre-Offering Companies
and the Offering Acquisition Companies, the "GroupMAC Companies"). The Post-
Offering 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
The Farfield Company.................................................. *
</TABLE>
- --------
*GroupMAC has identified this company as an acquisition probable of occurring.
14
<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 Second
Quarter Post-Offering Companies, as if such acquisitions had occurred
on March 31, 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 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 in GroupMAC's Transition
Report on Form 10-K for the ten month period ended December 31, 1997 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
15
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
2ND QUARTER
GROUPMAC AND COMMERCIAL BARR ATLANTIC ACQUISITION PRO FORMA
SUBSIDIARIES AIR ELECTRIC INDUSTRIAL COMPANIES ADJUSTMENTS PRO FORMA
ASSETS ------------ ---------- -------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equiva-
lents.................. $ 5,715 $ 18 $1,127 $1,750 $ 2,014 $(10,624) $ --
Accounts receivable
Trade, net of allow-
ance................. 67,745 3,560 432 3,447 21,737 -- 96,921
Other................ -- -- 12 4 46 -- 62
Due from related par-
ties................... -- 66 -- -- 336 (403) (1)
Inventories............ 12,227 475 105 -- 1,938 -- 14,745
Costs and estimated
earnings in excess of
billings on uncom-
pleted contracts....... 8,047 452 24 1,153 4,500 -- 14,176
Deferred tax asset..... 2,734 158 -- -- 12 (1,028) 1,876
Prepaid expenses and
other current assets... 1,912 34 20 59 914 -- 2,939
-------- ------ ------ ------ ------- -------- --------
Total current as-
sets................ 98,380 4,763 1,720 6,413 31,497 (12,055) 130,718
PROPERTY AND EQUIPMENT,
net..................... 18,806 1,271 122 1,005 7,633 -- 28,837
GOODWILL, net........... 139,789 -- -- -- -- 82,709 222,498
DEFERRED TAX ASSETS..... 4,804 334 -- -- 42 (240) 4,940
REFUNDABLE INCOME TAXES. 3,478 -- -- -- -- -- 3,478
OTHER NONCURRENT ASSETS. 1,886 279 226 142 175 (114) 2,594
-------- ------ ------ ------ ------- -------- --------
Total assets........ $267,143 $6,647 $2,068 $7,560 $39,347 $ 70,300 $393,065
======== ====== ====== ====== ======= ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and
accrued expenses....... $ 41,334 $2,186 $ 160 $1,440 $ 9,090 $ -- $ 54,210
Short-term debt, in-
cluding current matu-
rities................. 1,466 649 -- -- 4,090 (1,837) 4,368
Billings in excess of
costs and estimated
earnings on uncom-
pleted contracts....... 10,482 457 -- 178 4,188 -- 15,305
Liability for warranty
costs.................. -- -- -- -- 109 -- 109
Deferred service reve-
nue.................... 3,127 83 -- -- 42 -- 3,252
Income taxes payable... 1,722 102 -- -- 706 -- 2,530
Deferred tax liabili-
ties................... -- -- -- -- 961 (961) --
Other current liabili-
ties................... 5,375 -- -- -- -- -- 5,375
Due to related par-
ties................... 2,151 96 -- 205 -- (301) 2,151
-------- ------ ------ ------ ------- -------- --------
Total current lia-
bilities............ 65,657 3,573 160 1,823 19,186 (3,099) 87,300
LONG-TERM DEBT, net of
current maturities...... 21,313 580 -- -- 2,498 52,381 76,772
SUBORDINATED DEBT....... 820 -- -- -- -- -- 820
LEASE OBLIGATIONS....... -- 402 -- -- 107 (509) --
DEFERRED TAX LIABILI-
TIES.................... -- -- -- -- 240 (240) --
DEFERRED COMPENSATION... -- 678 -- -- -- (678) --
DUE TO RELATED PARTIES.. 9,745 -- -- -- 616 (616) 9,745
OTHER LONG-TERM LIABILI-
TIES.................... 1,048 -- -- -- -- -- 1,048
SHAREHOLDERS' EQUITY:
Common stock........... 23 1 50 2 873 (922) 27
Additional paid-in
capital................ 198,776 1 -- 376 3,055 45,384 247,592
Retained earnings
(deficit).............. (30,239) 1,412 2,107 5,359 12,982 (21,860) (30,239)
Treasury stock......... -- -- (249) -- (210) 459 --
-------- ------ ------ ------ ------- -------- --------
Total shareholders'
equity.............. 168,560 1,414 1,908 5,737 16,700 23,061 217,380
-------- ------ ------ ------ ------- -------- --------
Total liabilities
and shareholders'
equity.............. $267,143 $6,647 $2,068 $7,560 $39,347 $ 70,300 $393,065
======== ====== ====== ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
16
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER
POST-
GROUPMAC AND COMMERCIAL BARR ATLANTIC OFFERING PRO FORMA
SUBSIDIARIES AIR ELECTRIC INDUSTRIAL COMPANIES ADJUSTMENTS PRO FORMA
------------ ---------- -------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $107,092 $5,003 $950 $5,428 $34,336 $ -- $152,809
COST OF SERVICES........ 82,706 3,921 712 4,397 27,279 -- 119,015
-------- ------ ---- ------ ------- ------- --------
Gross profit.......... 24,386 1,082 238 1,031 7,057 -- 33,794
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. 18,994 918 206 403 5,451 (117)(a) 25,855
GOODWILL AMORTIZATION... 821 -- -- -- -- 570 (b) 1,391
-------- ------ ---- ------ ------- ------- --------
Income from
operations............ 4,571 164 32 628 1,606 (453) 6,548
OTHER INCOME (EXPENSE):
Interest expense...... (413) (41) -- (4) (186) (722)(c) (1,366)
Interest income....... 184 -- 10 31 24 (249)(d) --
Other................. (5) 25 -- 13 10 -- 43
-------- ------ ---- ------ ------- ------- --------
INCOME BEFORE INCOME
TAX PROVISION........ 4,337 148 42 668 1,454 (1,424) 5,225
INCOME TAX PROVISION.... 2,065 394 -- 8 36 145 (e) 2,648
-------- ------ ---- ------ ------- ------- --------
NET INCOME.............. $ 2,272 $ (246) $ 42 $ 660 $ 1,418 $(1,569) $ 2,577
======== ====== ==== ====== ======= ======= ========
BASIC EARNINGS PER
SHARE:
EARNINGS PER SHARE.... $ 0.10 $ 0.10
======== ========
WEIGHTED AVERAGE
SHARES................ 23,141 26,892 (f)
======== ========
DILUTED EARNINGS PER
SHARE:
EARNINGS PER SHARE.... $ 0.10 $ 0.09
======== ========
WEIGHTED AVERAGE
SHARES................ 23,495 27,283 (f)
======== ========
</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>
OTHER PRE-
OFFERING,
GROUPMAC AND OFFERING
SUBS ACQUISITION
YEAR ENDED SUPPLEMENTAL AND POST-
DECEMBER 31, COMMERCIAL BARR ATLANTIC PRO FORMA SUPPLEMENTAL OFFERING
1997 HUNGERFORD MIINC AIR ELECTRIC INDUSTRIAL ADJUSTMENTS PRO FORMA COMPANIES
------------ ---------- ------- ---------- -------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES........... $138,479 $32,850 $42,283 $20,750 $7,717 $37,035 $ -- $279,114 $390,798
COST OF SERVICES... 101,762 24,602 35,909 13,855 5,148 28,625 -- 209,901 303,785
-------- ------- ------- ------- ------ ------- ------- -------- --------
Gross profit...... 36,717 8,248 6,374 6,895 2,569 8,410 -- 69,213 87,013
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES........... 35,862 5,591 5,360 5,649 1,496 1,936 (1,844)(a) 54,050 79,485
GOODWILL
AMORTIZATION....... 633 -- -- -- -- -- 1,641 (b) 2,274 --
-------- ------- ------- ------- ------ ------- ------- -------- --------
Income from
operations........ 222 2,657 1,014 1,246 1,073 6,474 203 12,889 7,528
OTHER INCOME
(EXPENSE):
Interest expense.. (1,542) (121) (73) (152) -- (24) (850)(c) (2,762) (2,018)
Interest income... 398 89 21 10 42 91 -- 651 437
Other............. 112 42 -- 69 (4) 27 -- 246 387
-------- ------- ------- ------- ------ ------- ------- -------- --------
INCOME (LOSS)
BEFORE INCOME
TAX PROVISION... (810) 2,667 962 1,173 1,111 6,568 (647) 11,024 6,334
INCOME TAX
PROVISION.......... 2,832 -- 409 493 -- 11 4,477 (e) 8,222 2,578
-------- ------- ------- ------- ------ ------- ------- -------- --------
NET INCOME (LOSS).. $ (3,642) $ 2,667 $ 553 $ 680 $1,111 $ 6,557 $(5,124) $ 2,802 $ 3,756
======== ======= ======= ======= ====== ======= ======= ======== ========
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>
COMBINED
PRO FORMA
ADJUSTMENTS PRO FORMA
------------- -------------
<S> <C> <C>
REVENUES........... $ -- $669,912
COST OF SERVICES... -- 513,686
------------- -------------
Gross profit...... -- 156,226
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES........... (26,614)(a) 106,921
GOODWILL
AMORTIZATION....... 3,288 (b) 5,562
------------- -------------
Income from
operations........ 23,326 43,743
OTHER INCOME
(EXPENSE):
Interest expense.. (685)(c) (5,465)
Interest income... (1,088)(d) --
Other............. -- 633
------------- -------------
INCOME (LOSS)
BEFORE INCOME
TAX PROVISION... 21,553 38,911
INCOME TAX
PROVISION.......... 6,989 (e) 17,789
------------- -------------
NET INCOME (LOSS).. $14,564 $ 21,122
============= =============
BASIC EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.79
=============
WEIGHTED AVERAGE
SHARES............ 26,892 (f)
=============
DILUTED EARNINGS
(LOSS) PER SHARE:
EARNINGS (LOSS)
PER SHARE......... $ 0.77
=============
WEIGHTED AVERAGE
SHARES............ 27,283 (f)
=============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
18
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
The respective results of operations for the Pre-Offering and Offering
Acquisition Companies from January 1, 1997 to the dates of the acquisitions
were combined with the Company and the Post-Offering 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
Post-Offering Companies from January 1, 1998 to the dates of the acquisitions,
or March 31, 1998 for acquisitions consummated subsequent to March 31, 1998,
were combined with actual results of the Company for the three months ended
March 31, 1998 to determine the pro forma results of operations for the three
months ended March 31, 1998.
2. ACQUISITIONS:
The acquisitions of the Pre-Offering 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 Company's initial
public offering of its Common Stock (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 March 31, 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
Offering Acquisition Companies and the Post-Offering Companies was provided by
proceeds from the IPO and borrowings under a credit agreement dated December
11, 1997 (the "Credit Agreement"). The Credit Agreement is more fully
described in Note 7 to the GroupMAC and subsidiaries consolidated financial
statements and notes thereto included in GroupMAC's Transition Report on Form
10-K for the ten month period ended December 31, 1997.
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-Offering Companies and (d)
shares of Common Stock to the shareholders of the Pre-Offering, Offering
Acquisition and Post-Offering 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 Second Quarter Post-Offering Companies, the value of the
Common Stock is determined using an estimated weighted average fair value of
$13.79 per share, which represents a discount rate of 19% from the weighted
average stock price of $17.08 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.
19
<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-Offering 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 Second Quarter
Post-Offering Companies (representing $22.4 million) will approximate fair
value. This results in an allocation to goodwill of approximately $82.7
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 SHARES OF SHARES OF TOTAL
CASH DEBT PREFERRED STOCK(1) COMMON STOCK(3) CONSIDERATION(2)
-------- ------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Airtron................. $ 20,849 $ -- 14,873 4,652 $ 58,192
-------- ---- ------ ------ --------
Pre-Offering Companies
(excluding Airtron).... 12,504 -- 4,405 1,437 32,033
Offering Acquisition
Companies.............. 30,585 -- -- 3,007 64,851
First Quarter Post-
Offering Companies..... 36,666 820 -- 2,506 68,228
Second Quarter Post-
Offering Companies..... 56,243 -- -- 3,313 105,063
-------- ---- ------ ------ --------
Total Acquisitions.... 135,998 820 4,405 10,263 270,175
-------- ---- ------ ------ --------
Totals................ $156,847 $820 19,278 14,915 $328,367
======== ==== ====== ====== ========
</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 $8.1 million representing substantially all of the previously
taxed undistributed earnings of such acquired companies from the acquired
companies that are S corporations.
(3) Excludes 0.2 million of options to purchase common stock.
20
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a) Records the S Corporation distributions of $4.3 million on one of the
Second Quarter Post-Offering 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 Second
Quarter Post-Offering Companies that are specifically excluded as part of the
purchase transaction.
d) Records the elimination of the historical equity accounts of the Second
Quarter Post-Offering Companies.
e) Records the purchase of the Second Quarter Post-Offering Companies,
including the cash, 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 Second Quarter Post-Offering 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............ $(1,400) $ (514) $ -- $ -- $ (8,710) $ -- $(10,624)
Due from related
parties................ -- (403) -- -- -- -- (403)
Deferred tax assets..... (1,028) -- -- -- -- -- (1,028)
Goodwill................ 67 -- (564) (21,457) 104,663 -- 82,709
Deferred tax assets
(noncurrent)........... (240) -- -- -- -- -- (240)
Other noncurrent assets. -- -- (114) -- -- -- (114)
Short-term debt,
including current
maturities............. (2,902) -- -- -- -- 4,739 1,837
Deferred tax
liabilities............ 961 -- -- -- -- -- 961
Due to related parties.. -- 301 -- -- -- -- 301
Long-term debt, net of
current maturities..... -- -- -- -- (47,133) (5,248) (52,381)
Lease obligations....... -- -- -- -- -- 509 509
Deferred tax liabilities
(noncurrent)........... 240 -- -- -- -- -- 240
Deferred compensation... -- -- 678 -- -- -- 678
Due to related parties.. -- 616 -- -- -- -- 616
Common stock............ -- -- -- 925 (3) -- 922
Additional paid-in
capital................ -- -- -- 3,433 (48,817) -- (45,384)
Retained earnings....... 4,302 -- -- 17,558 -- -- 21,860
Treasury stock.......... -- -- -- (459) -- -- (459)
------- ------ ---- ------- -------- ------ --------
Total................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ====== ==== ======= ======== ====== ========
</TABLE>
21
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
MARCH 31, 1998
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of the Post-Offering 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 of each of the Post-Offering Companies
amounted to $903,000 for the periods presented. The contractually agreed upon
compensation and benefits for these same businesses, on a going forward basis,
amount to $786,000 for the periods presented. The difference between these
amounts equates to $117,000 and is reflected as a pro forma adjustment.
b) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions over a 40-year estimated life.
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-Offering
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 assuming the acquisitions occurred on January 1, 1997, is as
follows (in thousands):
<TABLE>
<CAPTION>
INTEREST QUARTERLY
BALANCE RATE INTEREST
------- -------- ---------
<S> <C> <C> <C>
Short-Term Debt:
Historical March 31, 1998 short-term debt. $ 531 6.6875%(i) $ 9
Historical March 31, 1998 S Corporation
Notes.................................... 935 6.0000%(ii) 14
------- ------
1,466 23
Second Quarter Post-Offering Companies S
Corporation Notes........................ 2,902 6.0000%(ii) 44
------- ------
Total pro forma short-term debt/interest
expense................................ $ 4,368 $ 67
======= ======
Long-Term Debt:
Historical March 31, 1998 long-term debt.. $21,313 6.6875%(i) $ 356
Historical March 31, 1998 subordinated
debt..................................... 820 8.0000%(iii) 16
------- ------
22,133 372
Second Quarter Post-Offering Companies
assumed debt refinanced.................. 8,326 6.6875%(i) 139
Second Quarter Post-Offering Companies
borrowings to fund cash portion of
purchase prices.......................... 47,133 6.6875%(i) 788
------- ------
Total pro forma long-term debt/interest
expense................................ $77,592 $1,299
======= ======
Total pro forma debt/interest expense... $81,960 $1,366
======= ======
</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 March 31, 1998.
22
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 Post-Offering 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.
f) Weighted average shares outstanding include the following (in thousands):
<TABLE>
<S> <C>
Shares issued in Initial Public Offering.............................. 8,340
Shares issued under Subscription Agreement dated October 24, 1996..... 2,600
Shares issued to Pre-Offering Companies............................... 6,089
Shares issued to Offering Acquisition Companies....................... 3,007
Shares issued to First Quarter Post-Offering Companies................ 2,506
Shares issued to Second Quarter Post-Offering Companies............... 3,313
Shares issued to Founding Management and Directors.................... 1,037
------
Weighted average shares outstanding--basic............................ 26,892
Incremental effect of options and warrants on shares outstanding...... 391
------
Weighted average shares outstanding--diluted.......................... 27,283
======
</TABLE>
DECEMBER 31, 1997
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of Hungerford, MIINC, Commercial Air, Barr Electric and Atlantic
Industrial (the "Supplemental Companies") under the Supplemental Pro Forma
Adjustments and all other companies (the "Combined Companies") in the Combined
Pro Forma Adjustments 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 $3.2 million and $26.6 million for
the Supplemental Companies and the Combined Companies respectively, for the
periods presented. The contractually agreed upon compensation and benefits for
these same businesses, on a going forward basis, amount to $1.4 million and
$7.0 million, respectively. The difference between these respective amounts
equates to $1.8 million and $19.6 million and is reflected as a pro forma
adjustment in the Supplemental Pro Forma Adjustments and the Combined Pro
Forma Adjustments, respectively.
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.
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-Offering
Companies, and interest related to the subordinated debt and notes issued to
fund the S Corporation distributions
23
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
discussed in Note 3a. A summary of the historical and pro forma debt
outstanding and a summary of the pro forma interest expense assuming the
acquisitions occurred on January 1, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
INTEREST ANNUAL
BALANCE RATE INTEREST
------- -------- --------
<S> <C> <C> <C>
Short-Term Debt:
Historical March 31, 1998 short-term debt. $ 531 6.6875%(i) $ 35
Historical March 31, 1998 S Corporation
Notes.................................... 935 6.0000%(ii) 56
------- ------
1,466 91
Second Quarter Post-Offering Companies S
Corporation Notes........................ 2,902 6.0000%(ii) 174
------- ------
Total pro forma short-term debt/interest
expense................................ $ 4,368 $ 265
======= ======
Long-Term Debt:
Historical March 31, 1998 long-term debt.. $21,313 6.6875%(i) $1,425
Historical March 31, 1998 subordinated
debt..................................... 820 8.0000%(iii) 66
------- ------
22,133 1,491
Second Quarter Post-Offering Companies
assumed debt refinanced.................. 8,326 6.6875%(i) 557
Second Quarter Post-Offering Companies
borrowings to fund cash portion of
purchase prices.......................... 47,133 6.6875%(i) 3,152
------- ------
Total pro forma long-term debt/interest
expense................................ $77,592 $5,200
======= ======
Total pro forma debt/interest expense... $81,960 $5,465
======= ======
</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 March 31, 1998.
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 Pro Forma Combined 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.
f) Weighted average shares outstanding include the following (in thousands):
<TABLE>
<S> <C>
Shares issued in Initial Public Offering.............................. 8,340
Shares issued under Subscription Agreement dated October 24, 1996..... 2,600
Shares issued to Pre-Offering Companies............................... 6,089
Shares issued to Offering Acquisition Companies....................... 3,007
Shares issued to First Quarter Post-Offering Companies................ 2,506
Shares issued to Second Quarter Post-Offering Companies............... 3,313
Shares issued to Founding Management and Directors.................... 1,037
------
Weighted average shares outstanding--basic............................ 26,892
Incremental effect of options and warrants on shares outstanding...... 391
------
Weighted average shares outstanding--diluted.......................... 27,283
======
</TABLE>
24
<PAGE>
(c) Exhibits.
2.1*
Agreement and Plan of Merger dated as of June 11, 1998 among the Company,
Atlantic Industrial Acquisition Corp., Atlantic Industrial Constructors,
Inc. and the shareholders of Atlantic Industrial Constructors, Inc.
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 June 26, 1998.
25
<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.
/s/ Randolph W. Bryant
By: _________________________________
Randolph W. Bryant
Senior Vice President
and General Counsel
Date: July 20, 1998
26
<PAGE>
INDEX TO EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by
an asterisk; all exhibits not so designated are incorporated to a prior filing
as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger dated as of June 11, 1998 among the
Company, Atlantic Industrial Acquisition Corp., Atlantic Industrial
Constructors, Inc. and the shareholders of Atlantic Industrial
Constructors, Inc. (Exhibit 2.1 to Group Maintenance America Corp.'s
Form 8-K dated June 26, 1998, File No. 1-13565).
23* Consent of KPMG Peat Marwick, LLP
99 List of Lenders under the Credit Agreement (Exhibit 99 to Group
Maintenance America Corp.'s Form 8-K dated May 22, 1998, File No. 1-
13565).
</TABLE>
27
<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 and No. 333-58651) on Form S-8 of Group Maintenance
America Corp. of our report dated July 10, 1998, relating to the combined
balance sheets of Atlantic Industrial Constructors, Inc. and Affiliates as of
December 31, 1996 and 1997, and the related combined statements of operations,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1997, which report appears in the current report on
Form 8-K/A of Group Maintenance America Corp. dated July 20, 1998.
KPMG PEAT MARWICK LLP
Houston, Texas
July 17, 1998
