<PAGE>
PROSPECTUS SUPPLEMENT RULE 424(B)(3)
(TO PROSPECTUS DATED JULY 23, 1998) REGISTRATION NO. 333-41947
7,000,000 SHARES
GROUP MAINTENANCE AMERICA CORP.
COMMON STOCK
----------------
RECENT ACQUISITIONS
On July 31, 1998, Group Maintenance America Corp. (the "Company") acquired
the business and operations of Phoenix Electric Company ("Phoenix"), which
provides full service electrical contracting services primarily for commercial
customers in the Portland, Oregon, and Southeast Washington areas. Phoenix's
revenues for fiscal 1997 were approximately $7.6 million and its income from
operations was approximately $114,000. Phoenix is headquartered in Tigard,
Oregon.
Also on July 31, 1998, the Company acquired the business and operations of
Merritt Island Air & Heat, Inc. ("Merritt Island"), which primarily provides
maintenance, repair and replacement services for heating and air conditioning
systems of residential and commercial customers in the Cocoa Beach, Florida,
area. Merritt Island's revenues for fiscal 1997 were approximately $5.4
million and its income from operations was approximately $408,000. Merritt
Island is headquartered in Merritt Island, Florida.
On August 12, 1998, the Company acquired the business and operations of The
Farfield Company ("Farfield"), which provides electrical, plumbing and process
piping, heating, ventilation, air conditioning and other contracting services
to commercial, industrial and institutional customers in the mid-Atlantic
region. Farfield's revenues for fiscal 1997 were approximately $45.6 million
and its income from operations was approximately $3.4 million. Farfield is
headquartered in Lititz, Pennsylvania.
On August 14, 1998, the Company acquired the business and operations of
Reliable Mechanical, Inc. ("Reliable"), which provides specialized mechanical
contracting services primarily to governmental, educational and utility
customers primarily in the Southeast United States. Reliable's revenues for
fiscal 1997 were approximately $36.8 million and its income from operations
was approximately $1.1 million. Reliable is headquartered in Louisville,
Kentucky.
Also on August 14, 1998, the Company acquired the business and operations of
Ferguson Electric Corporation ("Ferguson"), which provides electrical
contracting services to commercial customers primarily in the Colorado
Springs, Colorado, area. Ferguson's revenues for fiscal 1997 were
approximately $8.6 million and its income from operations was approximately
$421,000. Ferguson is headquartered in Colorado Springs, Colorado.
The aggregate consideration paid or to be paid by the Company in connection
with these acquisitions consisted of approximately $19.1 million in cash, 1.1
million shares of the Company's common stock, par value $.001 per share, and
options to purchase 0.2 million shares of the Company's common stock.
The Company also has three probable acquisitions located in two states which
are expected to close before the end of August. The aggregate revenues of
these companies for their most recent fiscal year were approximately $53.5
million and their aggregate operating income was approximately $4.4 million.
The consideration for these companies is estimated to be $23.8 million in
cash, $4.0 million in notes and 1.3 million shares of the Company's common
stock, par value $0.001 per share.
SECOND QUARTER RESULTS
On August 11, 1998, the Company reported that its net income for the quarter
ended June 30, 1998 was $6.1 million, or $0.24 per share, on both a basic and
diluted basis, exceeding the consensus street estimate of $.23 per share,
compared to pro forma net income of $3.2 million, or $0.15 per share, for the
same period last year. Its revenue increased 88% to $159.2 million for that
quarter from $84.5 million for the comparable pro forma period in 1997.
Financial statements of the Company and its consolidated subsidiaries for the
quarter ended June 30, 1998, are included in the Company's Quarterly Report on
Form 10-Q, a copy of which is attached hereto.
The date of this Prospectus Supplement is August 27, 1998.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13565
----------------
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0535259
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
8 GREENWAY PLAZA, SUITE 1500
HOUSTON, TX 77046
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $0.001 per share; 26,564,320 shares outstanding as
of July 31, 1998.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1.Financial Statements
General Information.................................................. 1
Consolidated Condensed Balance Sheets................................ 2
Consolidated Condensed Statements of Operations...................... 3
Consolidated Condensed Statements of Cash Flows...................... 4
Notes to Consolidated Condensed Financial Statements................. 5
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 8
Item 3.Quantitative and Qualitative Disclosures About Market Risk....... *
PART II OTHER INFORMATION
Item 1.Legal Proceedings................................................ *
Item 2.Changes in Securities............................................ 16
Item 3.Defaults Upon Senior Securities.................................. *
Item 4.Submission of Matters to a Vote of Security Holders.............. 16
Item 5.Other Information................................................ *
Item 6.Exhibits and Reports on Form 8-K................................. 17
</TABLE>
- --------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Group Maintenance America Corp., a Texas corporation ("GroupMAC"), is one of
the largest diversified providers of heating, ventilation and air conditioning
("HVAC"), plumbing and electrical services to commercial/industrial and
residential customers in the United States. As used herein, the "Company"
refers to Group Maintenance America Corp. and its consolidated subsidiaries.
GroupMAC was incorporated in 1997 as the successor to a corporation ("Old
GroupMAC") which developed a business plan to consolidate businesses engaged
in the HVAC, plumbing and electrical service industries. Prior to that time,
Old GroupMAC assembled a management team and support staff to implement its
business plan, obtained equity financing from a private investor, and obtained
a commitment from a bank to provide debt financing for its acquisition program
and for working capital.
The first and largest acquisition made by the Company was that of Airtron,
Inc. ("Airtron"). For accounting purposes, this transaction was accounted for
as a reverse acquisition, as if Airtron acquired GroupMAC, because the former
shareholders of Airtron owned a majority of GroupMAC's common stock upon
consummation of the transaction. As such, the consolidated condensed financial
statements for periods prior to the acquisition of Airtron only include the
accounts of Airtron.
During November and December 1997, the Company completed the initial public
offering (the "IPO") of its common stock, par value $0.001 per share (the
"Common Stock") involving the sale of 8.3 million shares of Common Stock at a
price to the public of $14.00 per share. The net proceeds from the IPO (after
deducting underwriting discounts and commissions and offering expenses) were
approximately $103.6 million.
During June and July 1997, the Company acquired, in separate transactions,
10 additional companies (the "Pre-Offering Companies") through a combination
of cash, preferred stock, Common Stock and warrants to purchase shares of
Common Stock of GroupMAC. During the fourth quarter of 1997, the Company
acquired, concurrently with the IPO, 13 additional companies (the "Offering
Acquisition Companies" and, together with Airtron and the Pre-Offering
Companies, the "Founding Companies") through a combination of cash and Common
Stock of the Company.
The Founding Companies had approximately $329.0 million in pro forma
revenues in 1997. During the first half of 1998, the Company acquired 27
platform companies (the "Post-Offering Companies" and, together with the
Founding Companies, the "GroupMAC Companies") representing approximately
$292.1 million in annual revenues. From June 30, 1998 through August 13, 1998,
the Company has acquired three additional platform companies with combined
annual revenues of $58.6 million. The Company currently operates in 54 cities
in 26 states.
1
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 5,434 $ 25,681
Accounts receivable, net............................ 99,111 45,516
Inventories......................................... 14,932 8,834
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 15,938 3,116
Prepaid expenses and other current assets........... 4,138 1,013
Deferred tax assets................................. 3,439 1,647
-------- --------
Total current assets.............................. 142,992 85,807
PROPERTY AND EQUIPMENT, net........................... 25,603 11,312
GOODWILL, net......................................... 215,024 84,533
DEFERRED TAX ASSETS................................... 4,822 4,739
REFUNDABLE INCOME TAXES............................... 3,478 4,529
OTHER LONG-TERM ASSETS................................ 2,880 1,767
-------- --------
Total assets...................................... $394,799 $192,687
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 3,934 $ 2,769
Accounts payable and accrued expenses............... 65,076 28,519
Due to related parties.............................. 5,601 3,358
Billings in excess of cost and estimated earnings on
uncompleted contracts.............................. 15,265 4,737
Deferred service contract revenue................... 3,756 3,305
Income taxes payable................................ 6,141 31
Other current liabilities........................... 5,110 2,610
-------- --------
Total current liabilities......................... 104,883 45,329
LONG-TERM DEBT, net of current maturities............. 64,853 169
DUE TO RELATED PARTIES................................ 8,577 9,745
OTHER LONG-TERM LIABILITIES........................... 1,050 791
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 50,000 shares
authorized; none issued and outstanding............ -- --
Common stock, $0.001 par value; 100,000 shares
authorized; 26,415 and 20,629 shares issued and
outstanding, respectively.......................... 26 21
Additional paid-in capital.......................... 239,553 169,143
Retained deficit.................................... (24,143) (32,511)
-------- --------
Total shareholders' equity........................ 215,436 136,653
-------- --------
Total liabilities and shareholders' equity........ $394,799 $192,687
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES................................. $159,185 $25,419 $266,277 $42,844
COST OF SERVICES......................... 119,838 18,536 202,544 30,921
-------- ------- -------- -------
Gross profit........................... 39,347 6,883 63,733 11,923
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 26,712 4,929 45,707 11,029
AMORTIZATION OF GOODWILL................. 1,183 31 2,004 31
COMPENSATION EXPENSE FROM REVERSE
ACQUISITION............................. -- 6,978 -- 6,978
-------- ------- -------- -------
Income (loss) from operations........ 11,452 (5,055) 16,022 (6,115)
OTHER INCOME (EXPENSE):
Interest expense....................... (841) (344) (1,314) (395)
Interest income........................ 44 82 229 154
Other.................................. 93 (2) 149 228
-------- ------- -------- -------
Income (loss) before income tax
provision........................... 10,748 (5,319) 15,086 (6,128)
INCOME TAX PROVISION..................... 4,653 679 6,718 354
-------- ------- -------- -------
NET INCOME (LOSS)........................ $ 6,095 $(5,998) $ 8,368 $(6,482)
======== ======= ======== =======
BASIC EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE.............. $ 0.24 $ (0.70) $ 0.35 $ (0.76)
======== ======= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING.... 25,229 8,565 24,198 8,492
======== ======= ======== =======
DILUTED EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE.............. $ 0.24 $ (0.70) $ 0.34 $ (0.76)
======== ======= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING.... 25,667 8,565 24,595 8,492
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 8,368 $ (6,482)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 4,875 231
Gain from sale of property and equipment........ (26) (219)
Deferred income taxes........................... (369) (1,711)
Non-cash compensation expense................... -- 6,978
Changes in operating assets and liabilities, net
of effect of acquisitions accounted for as
purchases:
(Increase) decrease in--
Accounts receivable........................... (8,372) (534)
Inventories................................... (1,048) (2,481)
Costs and estimated earnings in excess of
billings on uncompleted contracts............ (5,691) (1,939)
Prepaid expenses and other current assets..... (2,286) 8,594
Refundable income taxes....................... 1,043 431
Other long-term assets........................ 672 5
Increase (decrease) in--
Accounts payable.............................. 4,488 (6,695)
Accrued expenses.............................. 1,305 (2,963)
Due to related parties........................ (5,434) 148
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 3,891 (10)
Deferred service contract revenue............. (510) 311
Income taxes payable.......................... 4,633 496
Other current liabilities..................... 770 611
Compensation and benefits payable............. -- 3,967
Other long-term liabilities................... (74) 917
------------ ------------
Net cash provided by (used in) operating
activities................................ 6,235 (345)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired
of $8,567 and $2,011............................. (71,480) (5,343)
Deferred acquisition costs........................ (726) (546)
Purchase of property and equipment................ (4,574) (458)
Proceeds from sale of property and equipment...... 138 285
------------ ------------
Net cash used in investing activities...... (76,642) (6,062)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................................ 74,400 29,600
Payments of debt.................................. (24,240) (2,976)
Deferred offering costs........................... -- (32)
Exercise of stock options......................... -- 31
Proceeds from issuance of common stock............ -- 4,099
Distributions to shareholders prior to initial
public offering.................................. -- (20,367)
------------ ------------
Net cash provided by financing activities.. 50,160 10,355
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (20,247) 3,948
CASH AND CASH EQUIVALENTS, beginning of period..... 25,681 1,927
------------ ------------
CASH AND CASH EQUIVALENTS, end of period........... $ 5,434 $ 5,875
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 629 $ --
Income taxes paid................................. $ 1,361 $ 1,039
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated condensed financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the Company has made all adjustments necessary for a fair presentation of the
results of the interim periods, and such adjustments consist of only normal
recurring adjustments. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto of the Company and management's discussion and analysis of financial
condition and results of operations included in the Transition Report on Form
10-K for the ten-month period ended December 31, 1997.
2. Basic earnings per share have been calculated by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted
earnings per share have been calculated by dividing net income by the weighted
average number of common shares outstanding plus potentially dilutive common
shares.
The following table summarizes weighted average shares outstanding for each
of the historical periods presented (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------
1998 1997 1998 1997
--------- ----------------- --------
<S> <C> <C> <C> <C>
Shares issued in the acquisition of
Airtron................................... 4,652 4,652 4,652 4,652
Shares issued, excluding acquisitions and
the IPO................................... 3,637 3,627 3,637 3,627
Shares issued for the acquisition of the
Pre-Offering Companies.................... 1,437 286 1,437 213
Shares issued for the acquisition of the
Offering Acquisition
Companies................................. 3,007 -- 3,002 --
Shares issued pursuant to the IPO.......... 8,340 -- 8,340 --
Shares issued for the acquisition of the
Post-Offering Companies................... 4,156 -- 3,130 --
--------- -------- -------- -------
Weighted average shares outstanding--Basic. 25,229 8,565 24,198 8,492
Incremental effect of options and warrants
outstanding............................... 438 -- 397 --
--------- -------- -------- -------
Weighted average shares outstanding--
Diluted................................... 25,667 8,565 24,595 8,492
========= ======== ======== =======
</TABLE>
Because the Company reported a net loss for the three and six month periods
ended June 30, 1997, the potentially dilutive common shares (including
warrants and stock options) had an anti-dilutive effect on earnings per share.
Accordingly, diluted earnings per share is the same as basic earnings per
share for these periods.
3. During the first half of 1998, the Company completed the acquisition of
the Post-Offering Companies for approximately $157.8 million, which includes
cash payments of $85.5 million, $0.8 million of subordinated convertible debt,
5.4 million shares of common stock and options to purchase 0.1 million shares
of Common Stock. Of the total consideration, approximately $5.4 million of
cash and 0.1 million shares of common stock is due to former shareholders at
June 30, 1998. All such acquisitions were accounted for as purchases. In
connection with these acquisitions, the Company assumed approximately $15.7
million of debt. The combined annual revenues of the Post-Offering Companies
were approximately $292.1 million.
5
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The unaudited pro forma data presented below consists of the combined income
statement data for GroupMAC, Airtron and the other GroupMAC Companies as if
the acquisitions were effective on the first day of the period being reported
(in thousands, except for per share amounts).
<TABLE>
<CAPTION>
PRO FORMA DATA
THREE MONTHS PRO FORMA DATA
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................................... $172,619 $157,782 $315,184 $293,788
Net income.................................. $ 6,245 $ 5,971 $ 8,898 $ 9,068
Net income per share:
Basic..................................... $ 0.24 $ 0.23 $ 0.34 $ 0.34
Diluted................................... $ 0.23 $ 0.22 $ 0.33 $ 0.34
</TABLE>
Pro forma adjustments included in the amounts above consist of compensation
differentials, elimination of a non-recurring, non-cash compensation charge of
$7.0 million in 1997 related to the reverse acquisition of Airtron, adjustment
for goodwill amortization over a period of 40 years, elimination of historical
interest expense on long-term debt which was repaid with the proceeds of the
IPO or otherwise retired, additional interest expense on funds borrowed for
acquisitions of certain Post-Offering Companies, and adjustment to the federal
and state income tax provisions based on pro forma operating results. Net
income per share assumes all shares issued for the acquisitions were
outstanding from the beginning of the periods presented. The pro forma amounts
above also include actual corporate overhead costs. These costs increased $1.4
million and $2.6 million during the three and six month periods ended June 30,
1998 compared to the three and six month periods ended June 30, 1997,
respectively due to the formation of the corporate management team and
infrastructure necessary to execute the Company's operating and acquisition
strategies. This increase amounts to approximately $0.03 and $0.06 per basic
and diluted share in the three and six month periods ended June 30, 1998,
respectively.
From June 30, 1998 through August 13, 1998, the Company acquired three
additional platform companies with combined annual revenues of $58.6 million.
Total consideration paid was approximately $19.6 million that included cash
payments of $9.7 million, 0.6 million shares of common stock and options to
purchase 0.2 million shares of common stock. These acquisitions will be
accounted for as purchases.
4. The acquisitions of the Post Offering Companies included in the
accompanying financial statements were accounted for under the purchase method
of accounting. Purchase price consideration is subject to final adjustment.
The allocation of purchase price to the assets acquired and liabilities
assumed has been initially assigned and recorded based on preliminary
estimates of fair values and may be revised as additional information becomes
available. However, the Company does not expect any significant adjustments to
the purchase price allocations or amount of goodwill at June 30, 1998.
5. The Company is involved in various legal actions. It is not possible to
predict the outcome of these matters; however, in the opinion of management,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Many computer software programs, as well as certain hardware and equipment
containing date sensitive data, were structured to utilize a two-digit date
field. Accordingly, these programs may not be able to properly recognize dates
in the year 2000 and later, which could result in significant system and
equipment failures. The Company recognizes that it must take action to ensure
that its products and operations will not be adversely impacted by Year 2000
software failures.
6
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
An initial systems survey of the GroupMAC Companies was completed in March
of 1998 and revealed that several of the Company's business applications
possess Year 2000 problems. The Company has engaged a consulting firm to
assist the Company in assessing exposure related to core business applications
software and developing an action plan to address these issues in a timely
manner. This project commenced in early July and is expected to be completed
in early September. The cost of this assessment is estimated at $80,000. The
major deliverables of the project are as follows:
. Confirming and tracking Year 2000 compliance with software vendors
currently utilized by the Company.
. Assessing risk and determining an estimated range of costs to remediate
those applications that are not Year 2000 compliant.
. Developing an action plan for correcting non-compliant applications
before January 1, 2000.
Once this project is complete, management will have better information
available to assess the impact of the Year 2000 problem and determine the
appropriate corrective actions and the costs thereof.
Additionally, the Company is developing data processing systems throughout
the organization for its overall information needs which will be free of any
Year 2000 limitations. The common data processing system will be implemented
first at GroupMAC Companies with identified Year 2000 constraints that are not
expected to be corrected by other means. The Company expects to commence user-
acceptance testing of the new data processing system before the second quarter
of 1999 with implementation to follow immediately thereafter. The Company
currently does not have an overall estimate of the cost associated with the
purchase and implementation of the new processing system.
The Year 2000 considerations may have an effect on some of the Company's
customers and suppliers, and thus indirectly on the Company. The Company has
not assessed the potential adverse effect on the Company with respect to
customers and suppliers with Year 2000 problems.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which are identified by the
use of forward-looking words and phrases, such as: "believes," "expects,"
"anticipates," and "intends." These statements are based on the Company's
current expectations and involve risks and uncertainties that could cause the
Company's actual results to differ materially from those set forth in the
statements. Among the factors that could cause results to differ materially
from current expectations are: (i) the general political, economic and
competitive conditions in markets where the Company operates; (ii) changes in
capital availability or costs; (iii) decreases in demand for the Company's
services and the resulting negative impact on the Company's revenues and
margins from such products; (iv) employee workforce factors; (v) the Company's
ability to integrate the operations of acquired businesses quickly and in a
cost-effective manner; and (vi) the timing and occurrence (or non-occurrence)
of transactions and events, which may be subject to circumstances beyond the
Company's control.
GENERAL
The Company's revenues are derived from providing new installation services
and maintenance, repair and replacement services for HVAC, plumbing,
electrical and other systems to commercial/industrial and residential
customers. Approximately 55% of the Founding Companies pro forma combined 1997
revenues of $329.0 million were derived from new installation services and 45%
were attributable to maintenance, repair and replacement services.
Maintenance, repair and replacement revenues are recognized as the services
are performed, except for service contract revenue, which is recognized
ratably over the life of the contract. Revenues from fixed price installation
and retro-fit contracts are generally accounted for on a percentage-of-
completion basis, using the cost-to-cost method.
The Company intends to make additional acquisitions across the three main
technical disciplines (HVAC, plumbing and electrical) within the
commercial/industrial and residential markets. The Company's long-term
objective is to develop maintenance, repair and replacement capabilities (both
residential and commercial/ industrial) in the top 100 markets within the
United States, while offering new installation services across a more limited
range of markets where new construction in the residential and/or
commercial/industrial sectors is expected to out-pace the national average
over the long term. Over time, this objective is expected to shift revenues of
the Company to an increased percentage of maintenance, repair and replacement
revenue. When considering the 27 Post-Offering Companies, the pro forma
combined 1997 revenues increased to approximately $620 million and the
business mix shifts to 48% new installation services and 52% maintenance,
repair and replacement services.
Cost of services consists primarily of components, parts and supplies
related to the Company's new installation and maintenance, repair and
replacement services, salaries and benefits of service and installation
technicians, subcontracted services, depreciation, fuel and other vehicle
expenses and equipment rentals. Selling, general and administrative expenses
consist primarily of administrative salaries and benefits, advertising, office
rent and utilities, communications and professional fees.
RESULTS OF OPERATIONS
Effective April 30, 1997, GroupMAC entered into an Agreement and Plan of
Exchange with Airtron, in which cash, shares of GroupMAC preferred stock and
shares of GroupMAC Common Stock were issued to shareholders of Airtron in
exchange for all of the then outstanding shares of Airtron. Although for legal
purposes Airtron was acquired by 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 outstanding GroupMAC Common Stock. The consolidated financial
statements presented elsewhere herein for the periods prior to the effective
date of the acquisition only include the accounts of Airtron.
8
<PAGE>
The historical results of operations presented below are derived from the
consolidated condensed financial statements contained elsewhere herein. The
combined results of operations presented below do not represent combined
results of operations presented in accordance with generally accepted
accounting principles, but are only a summation of the revenues and cost of
services of the individual GroupMAC Companies on a historical basis. The
combined results of operations assume that each of the GroupMAC Companies was
combined from the beginning of each period presented. The combined results may
not be indicative of the Company's post-combination results of operations
because (i) the GroupMAC Companies were not under common control or management
during the periods presented and (ii) the combined data does not reflect the
potential benefits and cost savings the Company expects to realize when
operating as a combined entity.
The following table sets forth certain financial data for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
HISTORICAL COMBINED
THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $159,185 100.0% $25,419 100.0% $172,619 100.0% $157,782 100.0%
Cost of Services........ 119,838 75.3 18,536 72.9 130,016 75.3 120,544 76.4
-------- ----- ------- ----- -------- ----- -------- -----
Gross Profit............ 39,347 24.7 6,883 27.1 $ 42,603 24.7% $ 37,238 23.6%
======== ===== ======== =====
Selling, General and
Administrative
Expenses............... 27,895 17.5 11,938 47.0
-------- ----- ------- -----
Income (Loss) from
Operations............. 11,452 7.2 (5,055) (19.9)
Interest Expense, Net... (797) (0.5) (262) (1.0)
Other................... 93 -- (2) --
-------- ----- ------- -----
Income (Loss) Before
Income Tax Provision... 10,748 6.7 (5,319) (20.9)
Income Tax Provision.... 4,653 2.9 679 2.7
-------- ----- ------- -----
Net Income (Loss)....... $ 6,095 3.8% $(5,998) (23.6)%
======== ===== ======= =====
</TABLE>
Historical Three Months Ended June 30, 1998 Compared to Historical Three
Months Ended June 30, 1997
Revenues. Revenues increased $133.8 million to $159.2 million for the three
months ended June 30, 1998 from $25.4 million for the three months ended June
30, 1997. Such increase in revenues included $130.2 million attributable to
the acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November 1997 and
the acquisitions of the Post-Offering Companies during the six months ended
June 30, 1998. Also contributing to the increase was a $3.6 million increase
in revenues at Airtron. The Airtron increase related to strong housing starts
throughout the country, particularly in the Midwestern and South Central
United States.
Gross Profit. Gross profit increased $32.5 million to $39.3 million for the
three months ended June 30, 1998 from $6.9 million for the three months ended
June 30, 1997. Such increase in gross profit included approximately $0.5
million in materials purchases savings and $31.0 million attributable to the
acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November 1997 and
the acquisitions of the Post-Offering Companies during the six months ended
June 30, 1998. Gross profit at Airtron increased by $1.5 million between
periods. This increase correlates favorably with the $3.6 million revenue
increase as Airtron is operating at full capacity to accommodate housing start
demand in its geographic markets and has deployed resources to further broaden
its service base. Gross profit margin decreased 2.4% to 24.7% for the three
months ended June 30, 1998 compared to 27.1% for the three months ended June
30, 1997 because certain of the GroupMAC Companies' gross profit margins were
considerably lower than those achieved at Airtron.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $16.0 million to $27.9 million for the three
months ended June 30, 1998 from $11.9 million for the three months ended June
30, 1997. Such increase included $20.0 million attributable to the
acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November
9
<PAGE>
1997 and the acquisitions of the Post-Offering Companies during the six months
ended June 30, 1998. Also contributing to the increase was a $1.8 million
increase in corporate expenses representing the formation of the corporate
management team and infrastructure necessary to execute the Company's
operating and acquisition strategies and $1.2 million of goodwill
amortization. Offsetting the increases was a $7.0 million reduction in
compensation expense recognized in the prior year from the reverse acquisition
of Airtron. As a percentage of revenues, selling, general and administrative
expenses, excluding corporate expenses, goodwill amortization, and
compensation expense decreased to 15.3% for the three months ended June 30,
1998 from 16.9% for the three months ended June 30, 1997, respectively, due
primarily to the prospective reductions in compensation to former owners of
Airtron. When including corporate expenses and goodwill amortization, but
excluding the non-recurring compensation expense of $7.0 million related to
the reverse acquisition, selling, general and administrative expenses as a
percentage of revenue decreased to 17.5% for the three months ended June 30,
1998 from 19.5% for the three months ended June 30, 1997.
Net Interest. Net interest increased $0.5 million during the three months
ended June 30, 1998 compared to the same period of the prior year. Such
increase was attributable to a higher level of borrowings under the Company's
credit facility. See "Liquidity and Capital Resources."
Income Tax Provision. The income tax provision increased $4.0 million to
$4.7 million for the three months ended June 30, 1998 from $0.7 million for
the three months ended June 30, 1997. This increase corresponds with the
pretax income increase of $9.1 million between periods after adding back the
$7.0 million of 1997 non-recurring compensation expense related to the reverse
acquisition of Airtron. The effective tax rate for the three months ended June
30, 1998 was 43.3% compared to 40.9% for the three months ended June 30, 1997
after adding back the $7.0 million of compensation expense related to the
reverse acquisition of Airtron. This increase results primarily from non-
deductible goodwill amortization of $1.2 million in the three months ended
June 30, 1998.
Combined Three Months Ended June 30, 1998 Compared to Combined Three Months
Ended June 30, 1997
Revenues. Combined revenues increased $14.8 million, or 9.4%, to $172.6
million for the three months ended June 30, 1998 from $157.8 million for the
three months ended June 30, 1997. The increase in combined revenues was
attributable to (i) the companies that primarily provide residential new
installation services which experienced an 18.3% increase in revenues due to
an increase in new home starts in the markets they serve, (ii) the companies
that primarily provide residential maintenance, repair and replacement
services which experienced an 18.8% increase due to favorable weather patterns
in the markets they serve and (iii) a slight increase of 3.3% from the
companies that primarily provide commercial services.
Gross Profit. Combined gross profit increased $5.4 million, or 14.5%, to
$42.6 million for the three months ended June 30, 1998 from $37.2 million for
the three months ended June 30, 1997. The increase in gross profit was
attributable to the increase in combined revenues described above. Gross
profit margin increased to 24.7% for the three months ended June 30, 1998
compared to 23.6% for the three months ended June 30, 1997. The increase in
gross profit margin was a result of (i) a greater mix of higher margin
maintenance, repair and replacement business in the residential sector,
replacing lower margin new installation business that prevailed in the prior
year and (ii) purchasing synergies experienced in the current year.
10
<PAGE>
The following table sets forth certain financial data for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
HISTORICAL COMBINED
SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $266,277 100.0% $42,844 100.0% $315,184 100.0% $293,788 100.0%
Cost of Services........ 202,544 76.1 30,921 72.2 240,437 76.3 226,224 77.0
-------- ----- ------- ----- -------- ----- -------- -----
Gross Profit............ 63,733 23.9 11,923 27.8 $ 74,747 23.7% $ 67,564 23.0%
======== ===== ======== =====
Selling, General and
Administrative
Expenses............... 47,711 17.9 18,038 42.1
-------- ----- ------- -----
Income (Loss) from
Operations............. 16,022 6.0 (6,115) (14.3)
Interest Expense, Net... (1,085) (0.4) (241) (0.6)
Other................... 149 0.1 228 0.6
-------- ----- ------- -----
Income (Loss) Before
Income Tax Provision... 15,086 5.7 (6,128) (14.3)
Income Tax Provision.... 6,718 2.5 354 0.8
-------- ----- ------- -----
Net Income (Loss)....... $ 8,368 3.2% $(6,482) (15.1)%
======== ===== ======= =====
</TABLE>
Historical Six Months Ended June 30, 1998 Compared to Historical Six Months
Ended June 30, 1997
Revenues. Revenues increased $223.5 million to $266.3 million for the six
months ended June 30, 1998 from $42.8 million for the six months ended June
30, 1997. Such increase in revenues included $216.7 million attributable to
the acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November 1997 and
the acquisitions of the Post-Offering Companies during the six months ended
June 30, 1998. Also contributing to the increase was a $6.7 million increase
in revenues at Airtron, which related to strong housing starts throughout the
country, particularly in the Midwestern and South Central United States.
Gross Profit. Gross profit increased $51.8 million to $63.7 million for the
six months ended June 30, 1998 from $11.9 million for the six months ended
June 30, 1997. Such increase in gross profit included approximately $0.9
million in materials purchases savings and $49.3 million attributable to the
acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November 1997 and
the acquisitions of the Post-Offering Companies during the six months ended
June 30, 1998. Gross profit at Airtron increased by $1.6 million between
periods, with virtually all of that increase occurring in the second quarter.
This increase did not correlate as favorably with Airtron's $6.7 million
increase in revenues as a higher mix of lower margin new installation work
occurred in the first quarter as a result of a reduction in maintenance,
repair and replacement sales due to adverse weather patterns, particularly in
the Midwestern United States. Gross profit margin decreased 3.9% to 23.9% for
the six months ended June 30, 1998 compared to 27.8% for the six months ended
June 30, 1997 because certain of the GroupMAC Companies' gross profit margins
were considerably lower than those achieved at Airtron.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $29.7 million to $47.7 million for the six
months ended June 30, 1998 from $18.0 million for the six months ended June
30, 1997. Such increase included $31.2 million attributable to the
acquisitions of the Pre-Offering Companies in June and July of 1997, the
acquisitions of the Offering Acquisition Companies during November 1997 and
the acquisitions of the Post-Offering Companies during the six months ended
June 30, 1998. Also contributing to the increase was a $3.5 million increase
in corporate expenses representing the formation of the corporate management
team and infrastructure necessary to execute the Company's operating and
acquisition strategies and $2.0 million of goodwill amortization. Offsetting
the increases was a $7.0 million reduction in compensation expense recognized
in the prior year from the reverse acquisition of Airtron. As a percentage of
revenues, selling, general and administrative expenses, excluding corporate
expenses, goodwill amortization and 1997 non-recurring compensation expense,
decreased to 15.6% for the six months ended June 30, 1998 from 24.3% for the
six months ended June 30, 1997, respectively, due primarily to the prospective
reductions in compensation to former owners of Airtron. When including
corporate expenses and goodwill amortization, but excluding the non-recurring
compensation expense of $7.0 million related to the reverse acquisition,
selling, general and administrative expenses as a percentage of revenue
decreased to 17.9% for the six months ended June 30, 1998 from 25.8% for the
six months ended June 30, 1997.
11
<PAGE>
Net Interest. Net interest increased $0.8 million during the six months
ended June 30, 1998 compared to the same period of the prior year. Such
increase was attributable to a higher level of borrowings under the Company's
credit facility. See "Liquidity and Capital Resources."
Income Tax Provision. The income tax provision increased $6.3 million to
$6.7 million for the six months ended June 30, 1998 from $0.4 million for the
six months ended June 30, 1997. This increase corresponds with the pretax
income increase of $14.2 million between periods after adding back the $7.0
million of compensation expense related to the reverse acquisition of Airtron.
The effective tax rate for the six months ended June 30, 1998 was 44.5%
compared to 41.6% for the six months ended June 30, 1997 after adding back the
$7.0 million of compensation expense related to the reverse acquisition of
Airtron. This increase results primarily from the non-deductible goodwill
amortization of $2.0 million in the six months ended June 30, 1998.
Combined Six Months Ended June 30, 1998 Compared to Combined Six Months Ended
June 30, 1997
Revenues. Combined revenues increased $21.4 million, or 7.3%, to $315.2
million for the six months ended June 30, 1998 from $293.8 million for the six
months ended June 30, 1997. The increase in combined revenues was attributable
to (i) the companies that primarily provide residential new installation
services which experienced a 17.3% increase in revenues due to an increase in
new home starts in the markets they serve, (ii) companies that primarily
provide residential maintenance, repair and replacement services which
experienced a 15.3% increase due to favorable weather patterns in the markets
they serve and (iii) a slight increase of 1.3% from the companies that provide
commercial services. The small commercial increase was primarily due to the
completion during 1997 of a $20.0 million contract with a large software
company in the Northwest region of the United States.
Gross Profit. Combined gross profit increased $7.1 million, or 10.5%, to
$74.7 million for the six months ended June 30, 1998 from $67.6 million for
the six months ended June 30, 1997. The increase in gross profit was primarily
attributable to the increase in combined revenues described above. Gross
profit margin increased to 23.7% for the six months ended June 30, 1998
compared to 23.0% for the six months ended June 30, 1997. The increase in
gross profit margin was a result of (i) a greater mix of higher margin
maintenance, repair and replacement business in the residential sector during
the second quarter, replacing lower margin new installation business that
prevailed in the prior year and (ii) purchasing synergies experienced in the
current year.
SEASONALITY AND CYCLICALITY
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installations is generally lower during the winter months due
to reduced construction activities during inclement weather and less use of
air conditioning during the colder months. Demand for HVAC services is
generally higher in the second and third quarters. Accordingly, the Company
expects its revenues and operating results generally will be lower in the
first and fourth quarters. Historically, the construction industry has been
highly cyclical. As a result, the Company's volume of business may be
adversely affected by declines in new installation projects in various
geographic regions of the United States.
INFLATION
Inflation did not have a significant effect on the results of operations of
the GroupMAC Companies for the three and six month periods ended June 30, 1998
and June 30, 1997.
YEAR 2000
Many computer software programs, as well as certain hardware and equipment
containing date sensitive data, were structured to utilize a two-digit date
field. Accordingly, these programs may not be able to properly recognize dates
in the year 2000 and later, which could result in significant system and
equipment failures. The Company recognizes that it must take action to ensure
that its products and operations will not be adversely impacted by Year 2000
software failures.
12
<PAGE>
An initial systems survey of the GroupMAC Companies was completed in March
of 1998 and revealed that several of the Company's business applications
possess Year 2000 problems. The Company has engaged a consulting firm to
assist the Company in assessing exposure related to core business applications
software and developing an action plan to address these issues in a timely
manner. This project commenced in early July and is expected to be completed
in early September. The cost of this assessment is estimated at $80,000. The
major deliverables of the project are as follows:
. Confirming and tracking Year 2000 compliance with software vendors
currently utilized by the Company.
. Assessing risk and determining an estimated range of costs to remediate
those applications that are not Year 2000 compliant.
. Developing an action plan for correcting non-compliant applications
before January 1, 2000.
Once this project is complete, management will have better information
available to assess the impact of the Year 2000 problem and determine the
appropriate corrective actions and the costs thereof.
Additionally, the Company is developing data processing systems throughout
the organization for its overall information needs which will be free of any
Year 2000 limitations. The common data processing system will be implemented
first at GroupMAC Companies with identified Year 2000 constraints that are not
expected to be corrected by other means. The Company expects to commence user-
acceptance testing of the new data processing system before the second quarter
of 1999 with implementation to follow immediately thereafter. The Company
currently does not have an overall estimate of the cost associated with the
purchase and implementation of the new processing system.
The Year 2000 considerations may have an effect on some of the Company's
customers and suppliers, and thus indirectly on the Company. The Company has
not assessed the potential adverse effect on the Company with respect to
customers and suppliers with Year 2000 problems.
LIQUIDITY AND CAPITAL RESOURCES
During November and December 1997, the Company completed the IPO involving
the sale of 8.3 million shares of Common Stock at a price to the public of
$14.00 per share. The net proceeds from the IPO (after deducting underwriting
discounts and commissions and offering expenses) were approximately $103.6
million. Of this amount, $29.8 million was used to pay the cash portion of the
closing consideration relating to the acquisitions of one Pre-Offering Company
and the Offering Acquisition Companies, $42.6 million to repay corporate
indebtedness and debt assumed in connection with the acquisition of the
Founding Companies, $19.3 million to retire all of the then outstanding
preferred stock and $11.9 million for general corporate purposes including
working capital and final consideration settlements related to the GroupMAC
Companies.
Historically, the operations and growth of the Company have been financed
through internally generated working capital and borrowings from commercial
banks or other lenders. These borrowings were generally secured by
substantially all of the assets of the Company, as well as personal guarantees
of the respective owners.
On June 12, 1998, the Company amended and restated its revolving credit
facility (the "Credit Agreement") to increase its borrowing capacity from
$75.0 million to $125.0 million. Under this Credit Agreement, the Company is
required to maintain (i) a minimum fixed charge coverage ratio; (ii) a maximum
ratio of total indebtedness for borrowed money to capitalization (as defined
in the Credit Agreement); (iii) a maximum ratio of debt to historical earnings
before interest, taxes, depreciation and amortization; (iv) a maximum amount
of other indebtedness in relation to consolidated shareholders' equity and (v)
a minimum amount of consolidated net worth. The Company is presently in
compliance with those covenants. The Credit Agreement matures on December 11,
2000.
13
<PAGE>
The Company's primary requirements for capital (other than those related to
acquisitions) consist of purchasing vehicles, inventory and supplies used in
the operation of its business. During the six months ended June 30, 1998,
capital expenditures aggregated $4.6 million. The Company anticipates that its
cash flow from operations for the remainder of 1998 will provide cash in
excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment.
For the six months ended June 30, 1998 and June 30, 1997, the Company
generated $6.2 million and utilized $0.3 million in cash from operating
activities, respectively. For the six months ended June 30, 1998, net income,
depreciation, amortization and deferred taxes generated $12.8 million and
changes in asset and liability accounts utilized a net $6.6 million. For the
six months ended June 30, 1997, net loss, depreciation, amortization, deferred
taxes and non-cash compensation expense utilized $1.2 million, and changes in
asset and liability accounts generated a net $0.9 million.
For the six months ended June 30, 1998, the Company utilized $76.6 million
in cash from investing activities. The cash expended during the six months
ended June 30, 1998 consisted of $71.5 million for acquisitions, $4.4 million
for net capital expenditures and $0.7 million for deferred acquisition costs.
For the six months ended June 30, 1997, the Company utilized $6.1 million in
cash from investing activities. The cash expended during the six months ended
June 30, 1997 consisted of $5.3 million for acquisitions, $0.2 million for net
capital expenditures and $0.6 million for deferred acquisition costs.
For the six months ended June 30, 1998, the Company generated $50.2 million
in cash from financing activities. These activities consisted of proceeds from
the Credit Agreement of $74.4 million less payments of debt of $24.2 million.
For the six months ended June 30, 1997, the Company generated $10.4 million in
cash from financing activities. These activities consisted of proceeds from
debt of $29.6 million and proceeds from the issuance of Common Stock of $4.1
million less payments of debt of $3.0 million and distributions to
shareholders of $20.4 million.
During the fourth quarter of 1997, the Company registered seven million
shares of Common Stock under the Securities Act of 1933, as amended, for its
use in connection with future acquisitions. After their issuance, those
registered shares generally are freely tradable by persons not affiliated with
the Company unless the Company contractually restricts the resale.
Substantially all of the shares of common stock issued in connection with the
acquisition of the Founding Companies were not registered under the Securities
Act and were also subject to contractual restrictions on transfer. However,
the holders of these shares will be permitted to transfer a limited amount of
these shares during 1998.
During the first half of 1998, the Company completed the acquisition of the
Post-Offering Companies, which were accounted for as purchases, for
approximately $157.8 million, which includes cash payments of $85.5 million,
$0.8 million of subordinated convertible debt, 5.4 million shares of Common
Stock and options to purchase 0.1 million shares of Common Stock. Of the total
consideration, approximately $5.4 million of cash and 0.1 million shares of
common stock is due to former shareholders at June 30, 1998. The Company
financed the cash portion of the purchase price using (i) remaining funds from
the IPO, (ii) cash borrowed under the Credit Agreement and (iii) internally
generated funds. The combined 1997 annual revenues of these companies were
$292.1 million.
From June 30, 1998 through August 13, 1998, the Company acquired three
additional platform companies with combined annual revenues of 58.6 million.
Total consideration paid was approximately $19.6 million consisting of cash
payments of $9.7 million, 0.6 million shares of Common Stock and options to
purchase 0.2 million shares of Common Stock. These acquisitions will be
accounted for as purchases. The Company financed the cash portion of the
purchase price with borrowings under the Credit Agreement. As of August 13,
1998, the funds available under the Credit Agreement totaled $52.8 million,
subject to the maintenance of financial ratios and covenants. The Company
expects to borrow a substantial portion of the available funds during the
third quarter of 1998. Accordingly, the Company is in the process of obtaining
additional financing in order to continue its acquisition program. Management
believes that it has a variety of financing options available for the
14
<PAGE>
Company and that such additional financing will be secured on a timely basis.
However, the failure of the Company to obtain such additional financing would
have a material adverse effect on the Company's ability to continue to acquire
new businesses.
The Company intends to aggressively pursue acquisition opportunities.
Management believes the Company has several viable financing alternatives to
meet the Company's anticipated requirements for acquisitions. Estimates as to
working capital needs and other expenditures may be materially affected if the
foregoing sources are not available or do not otherwise provide sufficient
funds to meet the Company's obligations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which the Company is required to adopt for
annual periods beginning after December 15, 1997 and interim periods beginning
in fiscal year 1999. SFAS No. 131 establishes standards for the way that
public companies report information about operating segments in annual
financial statements and requires that those companies report information
about segments in interim financial reports issued to shareholders. The
Company has not yet completed its analysis of this statement and the impact on
its financial statements.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended June 30, 1998, Group Maintenance America Corp. (the
"Company") issued securities that were not registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), as follows:
(a) On April 20, 1998, the Company issued 22,528 shares of Common Stock
to the former shareholder of All Service Electric, Inc. ("All Service") as
part of the post-closing adjustment of the purchase price for the
acquisition of All Service;
(b) On April 20, 1998, the Company issued 38,482 shares of Common Stock
to the former shareholders of Willis Refrigeration, Air Conditioning &
Heating, Inc. ("Willis") as part of the post-closing adjustment of the
purchase price for the acquisition of Willis;
(c) On April 20, 1998, the Company issued 21,555 shares of Common Stock
to the former shareholders of Paul E. Smith Co., Inc. ("PES") as part of
the post-closing adjustment of the purchase price for the acquisition of
PES;
(d) On April 20, 1998, the Company issued 1,422 shares of Common Stock to
the former shareholders of Mechanical Services, Inc. ("MSI") as part of the
post-closing adjustment of the purchase price for the acquisition of MSI;
(e) On April 20, 1998, the Company issued 12,959 shares of Common Stock
to the former shareholders of Arkansas Mechanical Services, Inc. ("AMS") as
part of the post-closing adjustment of the purchase price for the
acquisition of AMS;
(f) On April 20, 1998, the Company issued 75,512 shares of Common Stock
to the former shareholders of MacDonald-Miller Industries, Inc.
("MacDonald-Miller") as part of the post-closing adjustment of the purchase
price for the acquisition of MacDonald-Miller;
(g) On April 20, 1998, the Company issued 3,822 shares of Common Stock to
the former shareholders of Southeast Mechanical Service, Inc. ("Southeast
Mechanical") as part of the post-closing adjustment of the purchase price
for the acquisition of Southeast Mechanical;
(h) On April 29, 1998, the Company issued 726 shares of Common Stock to
the former shareholders of Central Carolina Air Conditioning Company
("Central Carolina") as part of the post-closing adjustment of the purchase
price for the acquisition of Central Carolina;
(i) On April 29, 1998, the Company issued 22,149 shares of Common Stock
to the former shareholders of Yale Incorporated ("Yale") as part of the
post-closing adjustment of the purchase price for the acquisition of Yale;
and
(j) On May 11, 1998, and June 12, 1998, the Company issued 24,460 shares
and 13,108 shares, respectively, of Common Stock to the former shareholders
of Costner Brothers, Inc. ("Costner") as part of the post-closing
adjustment of the purchase price for the acquisition of Costner.
Such sales were completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on May 13, 1998 (the
"Annual Meeting") for the purpose of electing four directors and approving the
appointment of independent public accountants for the year 1998. The following
summarizes the shareholder voting results:
16
<PAGE>
(a) Election of directors for a term to expire at the year 2001 Annual
Meeting of Shareholders:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Ronald D. Bryant...................................... 16,571,179 49,530
Chester J. Jachimiec.................................. 16,571,179 49,530
Thomas B. McDade...................................... 16,577,654 43,055
James D. Weaver....................................... 16,584,829 35,880
</TABLE>
(b) Approval of the appointment of KPMG Peat Marwick, LLP as independent
public accountants for the Company for the year 1998:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED BROKER NON-VOTE
--- ------- --------- ---------------
<S> <C> <C> <C>
16,584,839 34,960 910 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits.
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger dated as of March 27, 1998 among the
Company, Barr Acquisition Corp., Barr Electric Corp. and the
shareholders of Barr Electric Corp. (incorporated by reference
to Exhibit 2.1 to the Company's Form 8-K dated May 22, 1998,
File No. 1-13565).
2.2 --Agreement and Plan of Merger dated as of March 31, 1998 among the
Company, Premex Acquisition Corp., Premex, Inc. and the
shareholders of Premex, Inc. (incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K dated May 22, 1998, File
No. 1-13565).
2.3 --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. (incorporated by reference to
Exhibit 2.1 to Form 8-K dated June 26, 1998, File No. 1-13565).
3.1 --Articles of Incorporation of the Company, as amended (Exhibit 3.1
to Registration Statement No. 333-34067).
3.2 --Bylaws of the Company, as amended (Exhibit 3.2 to Registration
Statement No. 333-34067).
4 --None
10 --None
11 --None
15 --None
18 --None
19 --None
22 --None
23 --None
24 --None
27 --Financial Data Schedule
99 --None
</TABLE>
(2) Reports on Form 8-K.
On May 22, 1998, the Company filed a Current Report on Form 8-K which
disclosed, under Item 2 thereof, the Company's acquisition of Premex, Inc. and
Barr Electric Corp. Such report was amended on July 20, 1998 to include the
audited financial statements of Premex, Inc. and Barr Electric Corp., as well
as the pro forma financial statements for the Company reflecting the
acquisition of these entities.
On June 26, 1998, the Company filed a Current Report on Form 8-K which
disclosed, under Item 2 thereof, the Company's acquisition of Atlantic
Industrial Constructors, Inc. ("Atlantic"). In that same report under Item 5,
the Company disclosed (a) the acquisition of five other platform companies
with annual revenues aggregating $34.6 million and (b) the expansion of the
Company's credit line from $75 million to $125 million. Such report was
amended on July 20, 1998 to include audited financial statements of Atlantic
and pro forma financial statements for the Company reflecting the acquisition
of Atlantic.
17
<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 thereunto duly authorized.
Group Maintenance America Corp.
August 14, 1998 /s/ Darren B. Miller
(Date) ----------------------------------
DARREN B. MILLER
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
August 14, 1998 /s/ Daniel W. Kipp
(Date) ----------------------------------
DANIEL W. KIPP
SENIOR VICE PRESIDENT AND
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
18
