<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
_______________________
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: November 24, 1999
(Date of earliest event reported: November 3, 1999)
GROUP MAINTENANCE AMERICA CORP.
(Exact name of registrant as specified in its charter)
Texas 1-13565 76-0535259
(State or other (Commission (I.R.S. Employer
jurisdiction of incorporation) File Number) Identification No.)
8 Greenway Plaza, Suite 1500
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 860-0100
================================================================================
<PAGE>
Item 5. Other Events
Group Maintenance America Corp., a Texas corporation (the "Company"), announced
that it had entered into an Agreement and Plan of Merger, dated November 2, 1999
(the "Merger Agreement"), with Building One Services Corporation ("Building
One"). Under the terms of the Merger Agreement, Building One will be merged with
and into the Company (the "Merger").
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of businesses acquired.
The following financial statements of Building One are included herein:
1) Consolidated Financial Statements - December 31, 1998
Report of Independent Accountants
Independent Auditors' Report
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
2) Consolidated Financial Statements - September 30, 1999 (Unaudited)
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity and Comprehensive
Income
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro forma financial information.
The following pro forma financial statements of the Company,
reflecting the Merger with Building One are included herein:
1) Combined Company Pro Forma Financial Statements
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Balance Sheet
Unaudited Pro Forma Statement of Operations
Notes to Unaudited Pro Forma Financial Statements
2) Group Maintenance America Corporation Pro Forma Financial
Statements
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Balance Sheet
Unaudited Pro Forma Statement of Operations
Notes to Unaudited Pro Forma Financial Statements
3) Building One Services Corporation Pro Forma Financial Statements
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Balance Sheet
Unaudited Pro Forma Statement of Operations
Notes to Unaudited Pro Forma Financial Statements
(c) Exhibits.
The following exhibits are filed in connection with this report.
<PAGE>
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Fraizer & Deeter, LLC
23.3 Consent of Schenck & Associates SC
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Building One Services Corporation
In our opinion, based upon our audits and the reports of other auditors,
the accompanying consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Building One
Services Corporation and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of certain wholly-owned subsidiaries, which
statements reflect total assets of $4.0 million at December 31, 1997 and total
revenues of $28.5 million and $11.1 million for the years ended December 31,
1997 and 1996, respectively. Those statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for those wholly-owned
subsidiaries, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 12, 1999, except for
Note 3, which is as of
March 23, 1999
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Perimeter Maintenance Corporation
Atlanta, Georgia
We have audited the balance sheet of Perimeter Maintenance Corporation
(an S Corporation) as of December 31, 1997 (not presented separately herein),
and the related statements of operations, retained earnings, and cash flows
for the year ended December 31, 1997 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Perimeter
Maintenance Corporation as of December 31, 1997, and the results of its
operations and its cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Frazier & Deeter, LLC
---------------------
Frazier & Deeter, LLC
Atlanta, Georgia
February 19, 1998
5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Crest International, LLC
Green Bay, Wisconsin
We have audited the balance sheet of Crest International, LLC (a
Wisconsin limited liability company) as of December 31, 1997 (not presented
separately herein), and the related statements of income, accumulated deficit
and cash flows for the years ended December 31, 1997 and 1996 (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Crest
International, LLC as of December 31, 1997, and the results of its operations
and cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
/s/ Shinners, Hucovski and Company, S.C.
----------------------------------------
Shinners, Hucovski and Company, S.C.
Green Bay, Wisconsin
February 17, 1998
6
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 213,096 $528,972
Marketable securities.................................... 2,697 --
Accounts receivable, less allowance for doubtful accounts
of $1,991 and $104, respectively........................ 246,623 5,193
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 25,441 --
Prepaid expenses and other current assets................ 14,411 2,065
---------- --------
Total current assets.................................... 502,268 536,230
Property and equipment, net............................... 38,967 2,593
Intangible assets, net.................................... 496,381 152
Other assets.............................................. 6,306 184
---------- --------
Total assets............................................ $1,043,922 $539,159
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.......................................... $ 2,167 $ 1,553
Accounts payable......................................... 75,029 1,800
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 58,773 --
Accrued compensation..................................... 27,737 2,237
Income taxes payable..................................... 6,125 298
Accrued liabilities--other............................... 25,047 2,107
---------- --------
Total current liabilities............................... 194,878 7,995
Long-term debt............................................ 3,287 1,679
Other liabilities......................................... 8,220 5
---------- --------
Total liabilities....................................... 206,385 9,679
---------- --------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.001 par value, 250,000,000 shares
authorized, 45,258,946 and 31,440,724 shares
outstanding, respectively............................... 45 31
Convertible Non-Voting Common Stock, $.001 par, 500,000
shares authorized, issued and outstanding at December
31, 1997................................................ -- 1
Additional paid-in capital............................... 832,514 529,441
Treasury stock........................................... (41,832) --
Retained earnings........................................ 47,255 7
Accumulated other comprehensive income (loss)............ (445) --
---------- --------
Total stockholders' equity.............................. 837,537 529,480
---------- --------
Total liabilities and stockholders' equity.............. $1,043,922 $539,159
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December
31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Revenues..................................... $ 809,601 $ 70,101 $ 63,202
Cost of revenues............................. 636,225 58,857 53,664
---------- --------- ---------
Gross profit............................... 173,376 11,244 9,538
Selling, general and administrative
expenses.................................... 99,771 11,776 8,803
Goodwill amortization........................ 7,653 -- --
Non-recurring acquisition costs.............. 768 -- --
---------- --------- ---------
Operating income (loss).................... 65,184 (532) 735
Other (income) expense:
Interest income............................ (19,373) (2,056) --
Interest expense........................... 1,054 208 224
Other, net................................. (80) (221) 83
---------- --------- ---------
Income before taxes.......................... 83,583 1,537 428
Provision for income taxes................... 36,120 94 13
---------- --------- ---------
Net income................................... $ 47,463 $ 1,443 $ 415
========== ========= =========
Net income per share--Basic.................. $ 1.19 $ 0.25 $ 0.32
========== ========= =========
Net income per share--Diluted................ $ 1.16 $ 0.25 $ 0.30
========== ========= =========
Weighted average shares outstanding--Basic... 39,908,364 5,683,464 1,290,724
========== ========= =========
Weighted average shares outstanding--
Diluted..................................... 40,928,452 5,865,550 1,405,840
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-Voting Common
Common Stock Stock Accumulated
------------------- ------------------ Additional Other Total Total
Shares Shares Paid-in- Treasury Retained Comprehensive Stockholders' Comprehensive
Outstanding Amount Outstanding Amount Capital Stock Earnings Loss Equity Income
----------- ------ ----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... 1,238,444 $ 1 $ 1,199 $ $ $ $ 1,200
Transactions of
Pooled
Companies:
Distributions
paid........... (140) (140)
Common stock
issued......... 52,280 103 103
Net income....... 415 415 $ 415
-------
Total
comprehensive
income.......... $ 415
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1996......... 1,290,724 1 1,577 1,578
Transactions of
Pooled
Companies:
Distributions
paid........... (831) (831)
Capital
contribution.... 2,300,000 2 124 126
Common stock
issued.......... 27,850,000 28 500,000 1 527,135 527,164
Net income....... 1,436 7 1,443 $ 1,443
-------
Total
comprehensive
income.......... $ 1,443
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1997......... 31,440,724 31 500,000 1 529,441 7 529,480
Transactions of
Pooled
Companies:
Distributions
paid........... (628) (628)
Stock issued
upon exercise
of options..... 123,046 216 216
Issuance of
common stock for
acquisitions.... 16,144,711 16 302,855 302,871
Stock issued
under employee
stock purchase
plan............ 40,465 415 415
Purchase of
treasury stock.. (2,990,000) (3) (41,832) (41,835)
Unrealized loss
on marketable
securities --
net of tax...... (445) (445) $ (445)
Conversion of
non-voting
common stock.... 500,000 1 (500,000) (1)
Net income....... 215 47,248 47,463 47,463
-------
Total
comprehensive
income.......... $47,018
---------- --- -------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1998 ........ 45,258,946 $45 -- $-- $832,514 $(41,832) $47,255 $(445) $837,537
========== === ======== ==== ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 47,463 $ 1,443 $ 415
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization.......... 13,242 945 926
Gain (loss) on sale of equipment....... 37 (52) 1
Changes in operating assets and
liabilities:
Accounts receivable.................. (38,035) (36) (511)
Costs and estimated earnings in
excess of billings.................. 3,200 -- --
Prepaid expenses and other current
assets.............................. (2,721) (1,319) (27)
Billings in excess of costs and
estimated earnings.................. 2,049 -- --
Accounts payable..................... 1,193 (505) 486
Accrued liabilities.................. 7,044 2,254 69
Changes in other assets................ (1,398) 3 39
----------- ----------- --------
Net cash provided by operating
activities........................ 32,074 2,733 1,398
----------- ----------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash
acquired................................ (231,602) -- --
Purchases of property and equipment...... (11,289) (699) (703)
Proceeds on sale of equipment............ 790 387 18
Other.................................... (218) (7) (6)
----------- ----------- --------
Net cash used in investing
activities........................ (242,319) (319) (691)
----------- ----------- --------
Cash flows from financing activities:
Proceeds from initial public offering,
net..................................... -- 527,164 --
Proceeds from issuance of common stock... -- -- 103
Net proceeds (payments) on short-term
debt.................................... (38,783) 145 (140)
Payments on long-term debt............... (28,535) (349) (830)
Proceeds on long-term debt............... 3,519 -- 398
Payment of dividends..................... (628) (831) (140)
Purchase of treasury stock............... (41,835) -- --
Proceeds from issuance of stock options
exercised............................... 216 -- --
Proceeds from issuance of stock under
employee stock purchase plan............ 415 -- --
Contributions by founding stockholder.... -- 126 --
----------- ----------- --------
Net cash provided by (used in)
financing activities.............. (105,631) 526,255 (609)
----------- ----------- --------
Net increase in cash and cash equivalents.. (315,876) 528,669 98
Cash and cash equivalents, beginning of
period.................................... 528,972 303 205
----------- ----------- --------
Cash and cash equivalents, end of period... $ 213,096 $ 528,972 $ 303
=========== =========== ========
Supplemental cash flow information:
Cash paid for interest................... $ 882 $ 290 $ 357
Cash paid for income taxes............... 34,395 -- --
</TABLE>
10
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Dollars in thousands)
The Company issued common stock and cash in connection with certain
business combinations during the year ended December 31, 1998. The fair values
of the assets acquired and liabilities assumed at the dates of acquisition are
as follows:
<TABLE>
<S> <C>
Accounts receivable................................................... $202,515
Inventories........................................................... 2,626
Costs and earnings in excess of billings.............................. 31,085
Prepaid expenses and other current assets............................. 12,248
Property and equipment................................................ 33,080
Intangible assets..................................................... 502,470
Other assets.......................................................... 7,745
Short-term debt....................................................... (29,594)
Accounts payable...................................................... (72,805)
Accrued liabilities................................................... (49,020)
Billings in excess of costs and estimated earnings.................... (56,912)
Long-term debt........................................................ (41,287)
Other long-term liabilities........................................... (7,678)
--------
Net assets acquired............................................... $534,473
========
These acquisitions were funded as follows:
Common stock, 16,144,711 shares..................................... $302,871
Cash, net of cash acquired.......................................... 231,602
--------
$534,473
========
</TABLE>
The following notes are an integral part of these financial statements.
11
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation ("Building One" or the "Company") is
consolidating the facilities services industry with the intent to become a
national single-source provider of facilities services. Currently the Company
provides electrical installation and maintenance services, mechanical
installation and maintenance services and janitorial and maintenance
management services throughout the United States.
The Company was incorporated in September 1997 under the name of
Consolidation Capital Corporation and completed an initial public offering
("IPO") of its Common Stock in December 1997, selling 27,850,000 shares of
Common Stock and 500,000 shares of Convertible Non-Voting Common Stock and
raising net proceeds of approximately $527,000. During 1998, the Company
changed its name to Building One Services Corporation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Building One, and
the companies acquired in business combinations accounted for under the
purchase method (the "Purchased Companies") from their respective acquisition
dates and give retroactive effect to the results of the companies acquired in
business combinations accounted for under the pooling-of-interests method (the
"Pooled Companies") for all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the 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 the
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 Recognition
The Company utilizes the percentage-of-completion method of accounting
for the recognition of revenues and costs of all significant installation
contracts. Revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Contract costs include all direct material and
labor costs and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs and depreciation costs. Selling and
administrative expenses are expensed as incurred. Changes in job performance,
job conditions, estimated profitability and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Maintenance and other service revenues are recognized as the
services are performed.
Non-Recurring Acquisition Costs
Non-recurring acquisition costs consist of costs incurred in conjunction
with the business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, broker fees and other
costs directly attributable to the business combination.
12
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Cash and Cash Equivalents
The Company considers temporary cash investments with original maturities
of three months or less from the date of purchase to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade accounts receivable. The Company's temporary cash investments
consist of readily marketable, investment grade financial instruments of a
nature which should reduce risk of loss. Concentration of credit risk with
respect to trade receivables results from these amounts generally not being
collateralized. However, the Company is entitled to payment for work performed
and often has certain lien rights in that work. Additionally, management
continually monitors the financial condition of its customers to reduce risk
of loss.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and debt approximate fair value. The Company's
cash equivalents are comprised of readily marketable, interest-bearing,
investment grade securities.
Marketable Securities
Marketable securities consist of investments in equity securities and are
classified as available for sale. The unrealized gains and losses, net of
applicable income taxes, are reported as an increase or decrease to
stockholders' equity. Realized gains and losses are included in other income.
The cost of securities sold is based on the specific identification method.
Property and Equipment
Property and equipment are stated at cost and depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years for equipment, vehicles, and furniture and
fixtures and 30 years for buildings. Leasehold improvements and capital leases
are capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset.
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through December 31, 1998.
Intangible Assets
Intangible assets consist primarily of goodwill, which represents the
excess of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is being amortized on a
straight-line basis over 40 years which is the estimated period benefited. The
recoverability of the unamortized balance of goodwill is assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value. If at such time these assessments indicate that
the future undiscounted cash flows from operations are not sufficient to
recover the net book value, the goodwill balance is adjusted to its fair
value. No such adjustments have been recognized through December 31, 1998.
Income Taxes
Income taxes have been computed utilizing the asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the tax consequences of temporary differences by applying enacted
13
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Certain companies acquired in pooling-of-interests transactions
elected to be taxed as subchapter S corporations and, accordingly, no federal
income taxes were recorded by those companies for periods prior to their
acquisition by Building One.
Stock-Based Compensation
Building One measures compensation expense for its stock-based employee
compensation plans and warrants granted to employees using the intrinsic value
method and has provided in Note 14 the pro forma disclosures of the effect on
reported net income (loss) and net income (loss) per share as if the fair
value-based method had been applied in measuring compensation expense.
Net Income Per Share
Basic net income per share is determined by dividing net income by the
weighted average number of common shares outstanding during the periods.
Diluted net income per share reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock at the beginning of the period.
Segment Data
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual and
interim financial statements. Operating segments are determined consistent
with the way management organizes and evaluates financial information
internally for making decisions and assessing performance. It also requires
related disclosures about products, geographic areas, and major customers. The
Company adopted SFAS No. 131 for the year ended December 31, 1998.
Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. Building One's
other comprehensive income is attributed to adjustments related to marketable
securities available for sale. The amount included in 1998 other comprehensive
income represents an adjustment for unrealized losses on these marketable
securities totaling $742 ($445 after tax).
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE 3--TENDER OFFER PLAN
On February 7, 1999, the Company's Board of Directors approved a plan to
purchase 24,365,891 shares of its outstanding Common Stock at $25.00 per share
for cash. On March 23, 1999, the Company announced that it is modifying the
tender offer to repurchase 25,500,000 shares and reduce the price to $22.50
per share (the "Tender Offer"). The Tender Offer replaces the recapitalization
plan announced by the Company on December 23, 1998 (the "Recapitalization
Plan") under which the Company had intended to, among other things, repurchase
approximately 34.5 million shares of the Company's Common Stock. The Company
plans to finance the Tender Offer through the use of the Company's cash, the
planned issuance of $200,000 of senior
14
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
subordinated notes, the investment of $100,000 in exchange for convertible
subordinated notes by Boss Investment LLC, an affiliate of Apollo Management,
L.P. and borrowings under a new credit facility.
As a result of the announcement of the Recapitalization Plan and as
required by generally accepted accounting principles, the Company has restated
its consolidated financial statements for all periods to account for two
acquisitions originally accounted for under the pooling of interests method of
accounting to the purchase method of accounting. Additionally, the restatement
of these two business combinations as purchase transactions gave rise to
approximately $51,000 of goodwill.
One of the Company's directors is President and a principal stockholder
of Friedman, Billings, Ramsey Group, Inc. ("FBR"). In connection with the
aforementioned transactions, FBR acted as a financial advisor to the Company
and received a fee of $500. Additionally, FBR will receive a fee of up to
$2,100, contingent upon the completion of the Tender Offer.
NOTE 4--BUSINESS COMBINATIONS
Pooling-of-Interests Method
During 1998, the Company issued 1,405,840 shares of Common Stock to
acquire three companies in business combinations accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented.
The following presents the separate results, in each of the periods
presented, of Building One (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the
dates on which they were acquired:
<TABLE>
<CAPTION>
Building Pooled
One Companies Combined
-------- --------- --------
<S> <C> <C> <C>
For the year ended December 31, 1998
Revenues......................................... $782,878 $26,723 $809,601
Net income....................................... $ 47,248 $ 215 $ 47,463
For the year ended December 31, 1997
Revenues......................................... $ -- $70,101 $ 70,101
Net income....................................... $ 7 $ 1,436 $ 1,443
For the year ended December 31, 1996
Revenues......................................... $ -- $63,202 $ 63,202
Net income....................................... $ -- $ 415 $ 415
</TABLE>
Purchase Method
During the year ended December 31, 1998, the Company completed 26
business combinations that were accounted for under the purchase method of
accounting. The consolidated financial statements and related notes to
consolidated financial statements include the results of these acquired
entities from their respective dates of acquisition. The aggregate
consideration paid for these acquisitions consisted of 16,144,711 shares of
the Company's Common Stock, 403,389 options assumed at an exercise price below
fair market value, $259,021 in cash and the assumption of approximately
$33,847 in debt which was paid at closing. These amounts do not include
contingent consideration of up to approximately $135,945 in cash and in shares
of Common Stock of the Company based upon the performance of the various
acquisitions through 2001. The Company will record such contingent
consideration as additional purchase price when earned.
15
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The total purchase price was allocated to the fair value of the net
assets acquired resulting in goodwill of approximately $502,470. Allocation of
purchase price to the assets acquired and liabilities assumed has been
initially assigned and recorded based on preliminary estimates of fair value
and may be revised as additional information becomes available. However, the
Company does not expect any significant adjustments to the purchase price
allocations or amount of goodwill at December 31, 1998. For purposes of
computing the estimated purchase price for accounting purposes the value of
the shares on certain acquisitions was determined in consideration of
restrictions on the sale and transferability of the shares issued. The shares
generally will be subject to the following restrictions on resale: up to one-
third of the shares may be resold twelve months after their date of
acquisition, the first one-third and an additional one-third may be resold
beginning eighteen months after their date of acquisition and the first two-
thirds and the remaining one-third may be resold beginning twenty-four months
after their date of acquisition.
The following presents the unaudited pro forma results of operations of
the Company for the years ended December 31, 1998 and 1997, respectively, as
if all of the Purchased Companies had been acquired as of January 1, 1997. The
pro forma results of operations reflect certain pro forma adjustments
primarily related to goodwill amortization and compensation adjustments for
shareholders.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
Revenues............................................... $1,312,264 $1,144,457
Net income............................................. $ 64,396 $ 39,185
Net income per share-basic............................. $ 1.34 $ 1.09
Net income per share-diluted........................... $ 1.31 $ 1.08
</TABLE>
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the acquisitions occurred as of January 1, 1997 or the results that may occur
in the future.
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for
doubtful accounts:
<TABLE>
<CAPTION>
For the Year
Ended December
31,
------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Balance at beginning of period............................ $ 104 $136 $120
Allowance amounts of acquired companies................... 1,680 -- --
Additions to costs and expenses........................... 732 5 16
Write-offs................................................ (525) (37) --
------ ---- ----
Balance at end of period.................................. $1,991 $104 $136
====== ==== ====
</TABLE>
16
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 6--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Costs incurred on uncompleted contracts......................... $ 842,203
Estimated earnings.............................................. 156,546
----------
998,749
Less: Billings to date.......................................... (1,032,081)
----------
$ (33,332)
==========
Included in the accompanying balance sheet under the following captions:
<CAPTION>
December 31,
1998
------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.......................................... $ 25,441
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... (58,773)
----------
$ (33,332)
==========
</TABLE>
NOTE 7--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
-------- ------
<S> <C> <C>
Equipment................................................... $ 15,645 $3,160
Office furniture and equipment.............................. 10,146 1,029
Autos and trucks............................................ 10,464 593
Buildings and improvements.................................. 9,126 1,107
Land........................................................ 1,259 53
-------- ------
46,640 5,942
Less: Accumulated depreciation.............................. (7,673) (3,349)
-------- ------
$ 38,967 $2,593
======== ======
Depreciation expense for years 1998, 1997 and 1996 was $5,522, $1,284 and
$1,268, respectively.
NOTE 8--INTANGIBLE ASSETS
Intangible assets consist of the following:
<CAPTION>
December 31,
----------------
1998 1997
-------- ------
<S> <C> <C>
Goodwill.................................................... $502,470 $ 151
Non-compete agreements...................................... 1,046 835
Other....................................................... 585 64
-------- ------
504,101 1,050
Less: Accumulated amortization.............................. (7,720) (898)
-------- ------
Net intangible assets..................................... $496,381 $ 152
======== ======
</TABLE>
17
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Amortization expense for years 1998, 1997 and 1996 was $7,720, $141 and
$177, respectively.
NOTE 9--CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Credit facilities with banks, interest ranging from prime to
prime plus 1% (average rate of 8% at December 31, 1998)..... $ 61 $1,133
Payable to Pooled Company stockholder........................ -- 151
Current maturities of long-term debt......................... 2,106 269
------ ------
Total short-term debt...................................... $2,167 $1,553
====== ======
Long-Term Debt
Long-term debt consists of the following:
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Notes payable to banks with average interest rates ranging
from 7.0% - 9.5%............................................ $2,549 $1,112
Notes payable, interest rates ranging from 7.0% - 10.0%
secured by certain assets of the Company.................... 2,234 768
Capital lease obligations.................................... 552 46
Other........................................................ 58 22
------ ------
5,393 1,948
Less: Current portion........................................ (2,106) (269)
------ ------
Total long-term debt......................................... $3,287 $1,679
====== ======
</TABLE>
Maturities of Long-Term Debt
Maturities of long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1999............................................................... $2,106
2000............................................................... 1,800
2001............................................................... 888
2002............................................................... 357
2003............................................................... 131
Thereafter......................................................... 111
------
$5,393
======
</TABLE>
18
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 10--INCOME TAXES
The components of income tax expense are comprised as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
1998 1997 1996
-------- ------------
<S> <C> <C> <C>
Income taxes currently payable:
Federal................................................ $ 31,388 $ 83 $ 5
State.................................................. 5,144 11 2
-------- ----- ----
$ 36,532 $ 94 $ 7
-------- ----- ----
Deferred income taxes:
Federal................................................ (360) -- 4
State.................................................. (52) -- 2
-------- ----- ----
(412) -- 6
-------- ----- ----
Total tax expense....................................... $ 36,120 $ 94 $ 13
======== ===== ====
</TABLE>
The deferred tax assets and liabilities reflected on the balance sheet
relate primarily to the following:
<TABLE>
<CAPTION>
December
31,
------------
1998 1997
------ ----
<S> <C> <C>
Deferred tax assets (liabilities):
Reserves and accrued liabilities............................... $3,755 $219
Cash to accrual conversion..................................... (675)
Property and equipment......................................... (234)
Other.......................................................... (661)
Deferred gain on marketable securities......................... (945)
------ ----
Net deferred tax asset.......................................... $1,240 $219
====== ====
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
For the Year
Ended December
31,
------------------
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
U.S. federal statutory rate............................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit............ 3.6 0.6 1.0
Nondeductible goodwill amortization....................... 3.4
Subchapter S corporation income not subject to corporate
level taxation........................................... (.1) (30.8) (28.8)
Other..................................................... 1.3 2.3 (3.2)
---- ----- -----
Effective income tax rate................................. 43.2% 6.1% 3.0%
==== ===== =====
</TABLE>
Certain of the Pooled Companies were organized as subchapter S
corporations prior to being acquired by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the Pooled Companies provided no federal income tax
expense prior to these acquisitions by the Company. The following unaudited
pro forma income tax information is presented as if the Pooled Companies had
been subject to applicable federal and state income taxes for 1997 and 1996:
19
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the
Year Ended
December
31,
-----------
1997 1996
------ ----
<S> <C> <C>
Net income as reported............................................. $1,537 $428
Pro forma income tax provision..................................... 615 171
------ ----
Pro forma net income............................................... $ 922 $257
====== ====
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases various office facilities and equipment under
noncancelable lease agreements which expire at various dates. Future minimum
lease payments under noncancelable capital and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999....................................................... $353 $10,733
2000....................................................... 193 9,089
2001....................................................... 42 7,576
2002....................................................... 24 6,077
2003....................................................... 9 4,936
Thereafter................................................. -- 9,789
---- -------
Total minimum lease payments............................... 621 $48,200
==== =======
Less: Amounts representing interest........................ 69
----
Present value of net minimum lease payments................ $552
====
</TABLE>
Rent expense for all operating leases for 1998, 1997 and 1996 was $7,614,
$339 and $514, respectively. Certain of the above leases are for equipment or
facilities which are owned by stockholder-employees. Total rent expense paid
to these affiliates totaled $954 in 1998.
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this
litigation will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
NOTE 12--SEGMENT REPORTING
The Company has three reportable segments: electrical, mechanical and
janitorial. The electrical segment offers a single source for designing,
installing, maintaining and upgrading a facility's electrical systems. The
mechanical segment provides one source for all of a facility's mechanical,
HVAC and plumbing needs. The janitorial segment provides a wide variety of
facility cleaning and maintenance services nationwide.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on operating income and on Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA").
20
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The Company's reportable segments are strategic business units that offer
different products and services. Intersegment transactions are accounted for
as if they were to third parties, that is, at current market prices. All of
the Company's revenues are derived from domestic sources. Each of the acquired
companies were acquired as a unit, and the management at the time of the
acquisition was retained.
<TABLE>
<CAPTION>
Consolidating
Electrical Janitorial Mechanical Corporate Entries Consolidated
---------- ---------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 1998 $534,419 $159,912 $115,665 $ -- $(395)(1) $ 809,601
1997 -- 70,101 -- -- -- 70,101
1996 -- 63,202 -- -- -- 63,202
Operating income (loss) 1998 52,197 10,882 10,181 (8,076) -- 65,184
1997 -- (532) -- -- -- (532)
1996 -- 735 -- -- -- 735
EBITDA 1998 60,221 14,660 11,571 (8,026) -- 78,426
1997 -- 413 -- -- -- 413
1996 -- 1,661 -- -- -- 1,661
Total assets 1998 598,852 121,660 162,369 161,041 -- 1,043,922
1997 -- 10,094 -- 529,065 -- 539,159
1996 -- 9,629 -- -- -- 9,629
Working capital 1998 116,569 12,071 21,407 157,343 -- 307,390
1997 -- 958 -- 527,277 -- 528,235
1996 -- 67 -- -- -- 67
</TABLE>
- --------
(1) Elimination of Intersegment Revenues
A reconciliation of consolidated operating income to total consolidated
income before taxes, and of consolidated EBITDA to consolidated income before
taxes for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Operating income (loss):
Total segment operating income....................... $65,184 $ (532) $ 735
Interest income (expense), net....................... 18,399 2,069 (307)
------- ------ ------
Consolidated income before taxes................... $83,583 $1,537 $ 428
======= ====== ======
EBITDA:
Total segment EBITDA................................. $78,426 $ 413 $1,661
Depreciation and amortization........................ (13,242) (945) (926)
Interest income (expense), net....................... 18,399 2,069 (307)
------- ------ ------
Consolidated income before taxes................... $83,583 $1,537 $ 428
======= ====== ======
</TABLE>
21
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 13--STOCKHOLDERS' EQUITY
Common Stock
On November 25, 1997, the Company effected a one-for-1.918159 reverse
stock split of the Company's Common Stock. Accordingly, all share data
reflected in these financial statements have been retroactively restated.
Ledecky Brothers L.L.C. ("LLC"), a limited liability corporation formed
in February 1997, merged with and into the Company in September 1997 (the
"Merger") to facilitate the public offering of shares of common stock. The
sole member of LLC received 2,300,000 shares of Common Stock of the Company in
connection with the Merger in exchange for his 100% ownership interest in LLC.
The sole member made contributions to LLC from time to time to fund expenses
in the aggregate amount of $126. These contributions were included in common
stock and additional paid-in capital.
The Company completed its IPO in December 1997, selling 27,850,000 shares
of Common Stock and 500,000 shares of Convertible Non-Voting Common Stock at
$20.00 per share and raising net proceeds of approximately $527,000. Proceeds
from the IPO, net of underwriting fees and other stock issuance costs, were
included in common stock and additional paid-in capital.
During 1998, the Company repurchased 2,990,000 shares of its common stock
for $41,835. These shares were repurchased in accordance with a stock
repurchase program covering 3,100,000 shares which was determined based upon
the number of shares issued in connection with acquisitions accounted for
under the purchase method of accounting.
Convertible Non-Voting Common Stock
In connection with the IPO, the Company sold 500,000 shares of
Convertible Non-Voting Common Stock to FBR, the representative of the
underwriters in the Company's IPO, for $20 per share. On November 25, 1998
these 500,000 shares were converted to 500,000 shares of Common Stock.
Warrants
The Company has 1,130,000 shares of Common Stock reserved for issuance
upon exercise of warrants issued to FBR. The warrants have an exercise price
per share equal to the IPO price. These warrants become exercisable on the
first anniversary and will expire on the fifth anniversary of the IPO. FBR has
the right, as of November 25, 1998, to require the Company to register such
shares for sale.
Additionally, 1,950,000 shares of Common Stock have been reserved for
issuance upon the exercise of warrants issued to Jonathan Ledecky at the time
of the IPO. These warrants are exercisable for a period of ten years at an
exercise price equal to the IPO price. The Company has agreed that, at
Jonathan Ledecky's request, it will register the shares underlying his
warrants for a ten-year period following the IPO. In addition, the Company has
agreed to give Jonathan Ledecky the right to request that the Company include
the shares underlying his warrants on a registration statement filed by the
Company during a twelve-year period following the IPO.
22
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 14--STOCK PURCHASE AND AWARD PLANS
Long-Term Incentive Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved a 1997 Long-Term Incentive Plan and a 1998 Long-Term Incentive Plan
(collectively, the "Incentive Plans"). The terms of the option awards under
these Incentive Plans are established by the compensation committee of the
Company's Board of Directors. The maximum number of shares that may be issued
under the Incentive Plans is equal to 14% of the number of shares of Common
Stock outstanding from time to time.
Options under the Incentive Plans generally vest 25% each on the first
four anniversaries of the date of grant and expire on the tenth anniversary of
the grant date. In the event of a change in control of the Company prior to
normal vesting, all options not already exercisable will become fully vested
and exercisable.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which provides for the automatic grant to each non-employee director of an
option to purchase 20,000 shares on the date that such person commences
services as a director. Thereafter, each non-employee director will be
entitled to receive, on the day after each annual meeting of the Company's
stockholders, an option to purchase 5,000 shares of Common Stock. A maximum of
300,000 shares of Common Stock may be issued under the Directors' Plan.
Options granted under the Directors' Plan have an exercise price per share
equal to the fair market value of a share at the date of grant of the options
and expire at the earlier of 10 years from the date of grant or 90 days after
termination of service as a director. Options vest and become exercisable
ratably as to 50% of the shares underlying the option on the first and second
anniversaries of the date of grant, subject to acceleration by the Board. In
the event of a change in control of the Company prior to normal vesting, all
options not already exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company adopted, and the Company's stockholders approved, the 1997
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits
eligible employees of the Company and its subsidiaries (generally all full-
time employees who have completed one year of service) to purchase shares of
Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to
purchase stock at a price equal to 85% of the market price at the beginning of
the period or the end of the period, whichever is lower. Stock purchased under
the Purchase Plan will be subject to a one-year holding period. The Company
has reserved 1,000,000 shares of Common Stock for issuance under the Purchase
Plan.
23
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Accounting for Stock Based Compensation
A summary of option and warrant transactions follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------- ---------------------------
Options Options
and Weighted Average and Weighted Average
Warrants Exercise Price Warrants Exercise Price
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31,
1996................... -- -- -- --
Granted............... 3,510,000 $20.00 1,950,000 $20.00
--------- ------ --------- ------
Balance at December 31,
1997................... 3,510,000 $20.00 1,950,000 $20.00
Granted............... 2,544,846 17.91 863,389 13.07
Exercised............. (7,930) 4.84 (7,930) 4.84
Canceled.............. (25,613) 22.27 -- --
--------- ------ --------- ------
Balance at December 31,
1998................... 6,021,303 $19.12 2,805,459 $17.91
========= ====== ========= ======
</TABLE>
The following table summarizes information about stock options and
warrants outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------------------------------------------------------------------
Weighted Average
Range of Exercise Prices Options Remaining Weighted Average Options Weighted Average
----------------- and Warrants Contractual Life Exercise Price and Warrants Exercise Price
------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$4.84--$4.84 395,459 9.5 years $ 4.84 395,459 $ 4.84
$8.38--$8.38 15,278 9.8 $ 8.38 -- --
$12.75--$18.38 745,438 9.8 $15.22 -- --
$19.25--$25.25 4,865,128 9.1 $21.55 2,410,000 $20.29
-------------- --------- ---- ------ --------- ------
$ 4.84--$25.25 6,021,303 9.2 $19.12 2,805,459 $17.91
============== ========= ==== ====== ========= ======
</TABLE>
Had compensation expense for the Company's stock-based compensation plans
and warrants issued to employees been determined based on the fair value at
the grant dates, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Year
Ended December
31,
---------------
1998 1997
------- -------
<S> <C> <C>
Net income (loss):
As reported................................................. $47,463 $ 1,443
Pro forma................................................... $37,381 $(5,782)
Net income (loss) per share--Basic:
As reported................................................. $ 1.19 $ 0.25
Pro forma................................................... $ 0.94 $ (1.02)
Net income (loss) per share--Diluted:
As reported................................................. $ 1.16 $ 0.25
Pro forma................................................... $ 0.91 $ (1.02)
</TABLE>
24
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The weighted average fair value of options and warrants granted in 1998
and 1997 was $13.38 and $7.46, respectively. The fair value of options and
warrants granted (which is amortized to expense over the option vesting period
in determining the pro forma impact) is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997
------- -----------------
Options Options Warrants
------- ------- --------
<S> <C> <C> <C>
Expected life of option............................. 5 years 5 years 2 years
Risk-free interest rate............................. 5.3% 5.76% 5.69%
Expected volatility................................. 63.7% 45.0% 45.0%
</TABLE>
Other Employee Benefit Plans
Several of the Company's subsidiaries have defined contribution benefit
plans, such as 401(k) retirement plans, which allow eligible employees to make
contributions. Additionally, several of the subsidiaries also provide company
matching contributions up to specified levels. Company contribution expense to
these plans was $2,880 for the year ended December 31, 1998.
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data of the
Company:
<TABLE>
<CAPTION>
1998 Quarters
--------------------------------------------
First Second Third Fourth Total
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ $54,610 $171,661 $252,324 $331,006 $809,601
Gross profit.................... $10,377 $ 36,662 $ 55,238 $ 71,099 $173,376
Operating income................ $ 2,135 $ 12,485 $ 22,519 $ 28,045 $ 65,184
Net income...................... $ 5,081 $ 10,046 $ 15,164 $ 17,172 $ 47,463
Net income per share--Basic..... $ 0.15 $ 0.26 $ 0.35 $ 0.38 $ 1.19
Net income per share--Diluted
(1)............................. $ 0.15 $ 0.25 $ 0.34 $ 0.38 $ 1.16
<CAPTION>
1997 Quarters
--------------------------------------------
First Second Third Fourth Total
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ $17,479 $ 17,393 $ 17,538 $ 17,691 $ 70,101
Gross profit.................... $ 2,807 $ 2,759 $ 2,732 $ 2,946 $ 11,244
Operating income (loss)......... $ 259 $ 426 $ 390 $ (1,607) $ (532)
Net income...................... $ 210 $ 434 $ 299 $ 500 $ 1,443
Net income per share--Basic
(1)............................ $ 0.10 $ 0.12 $ 0.08 $ 0.04 $ 0.25
Net income per share--Diluted
(1)............................ $ 0.09 $ 0.12 $ 0.08 $ 0.04 $ 0.25
</TABLE>
- --------
(1) The arithmetic total of the individual quarterly net income per share
amounts does not reconcile to the annual amount of net income per share
due to the timing of net income in relation to the issuance of common
shares during the course of the year.
NOTE 16--NET EARNINGS PER SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share," which became
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share ("EPS") and restatement of EPS data for all prior periods. Basic EPS
includes no dilution and is computed by dividing net income by the Company's
weighted average shares of Common Stock outstanding. Diluted EPS is computed
by dividing net income by the Company's weighted average shares of Common
Stock outstanding and dilutive Common Stock equivalents. The following table
reconciles the
25
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
numerators and denominators of the basic and diluted EPS computations for the
three years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per share:
Net income................................. $ 47,463 $ 1,443 $ 415
Weighted average shares outstanding--
Basic..................................... 39,908,364 5,683,464 1,290,724
----------- ---------- ----------
Net income per share--Basic................ $ 1.19 $ 0.25 $ 0.32
=========== ========== ==========
Diluted earnings per share:
Net income................................. $ 47,463 $ 1,443 $ 415
Weighted average shares outstanding--
Basic..................................... 39,908,364 5,683,464 1,290,724
Convertible Non-Voting Common Stock........ 373,973 49,315 --
Common Stock equivalents from stock options
and warrants.............................. 342,903 132,771 115,116
Contingently issuable shares............... 303,212 -- --
----------- ---------- ----------
Total weighted average shares outstanding--
Diluted................................... 40,928,452 5,865,550 1,405,840
----------- ---------- ----------
Net income per share--Diluted.............. $ 1.16 $ 0.25 $ 0.30
=========== ========== ==========
</TABLE>
Outstanding stock options to purchase 1,945,439 shares of Common Stock as
of December 31, 1998 were not included in the computation of diluted shares
per share because the options' exercise prices were greater than the average
market price of the Common Stock during the period.
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1998 and through March 29, 1999, the Company
completed two business combinations in the electrical installation and
maintenance services business and four business combinations in the mechanical
installation and maintenance services business for total consideration of
$37,567 in cash and 772,019 shares of Common Stock. Additionally, there is the
potential for the payment of up to an additional $10,200 in cash and shares of
Common Stock in connection with contingent consideration agreements. Unaudited
pro forma financial information related to these acquisitions is not included
as the impact of these acquisitions is not deemed to be significant.
As of March 29, 1999, the Company has also entered into definitive
agreements to acquire four companies and the remaining 50% of a currently 50%
owned business for total consideration of $29,710 in cash and shares of Common
Stock.
26
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 14,522 $ 213,096
Accounts receivable, net.......................... 362,147 246,623
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 49,875 25,441
Prepaid expenses and other current assets......... 27,632 17,108
---------- ----------
Total current assets............................ 454,176 502,268
Property and equipment, net......................... 57,358 38,967
Intangible assets, net.............................. 694,501 496,381
Other assets........................................ 6,176 6,306
---------- ----------
Total assets.................................... $1,212,211 $1,043,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................... $ 4,401 $ 2,167
Accounts payable.................................. 92,036 75,029
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 81,109 58,773
Accrued compensation.............................. 41,669 27,737
Accrued liabilities............................... 50,492 31,172
---------- ----------
Total current liabilities....................... 269,707 194,878
Long-term debt...................................... 438,887 3,287
Convertible junior subordinated debentures.......... 101,895 --
Other liabilities................................... 4,706 8,220
---------- ----------
Total liabilities............................... 815,195 206,385
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 11,000,000 au-
thorized; none issued or
outstanding...................................... -- --
Common stock, $.001 par value; 250,000,000 shares
authorized; 26,080,188 and 45,258,946 shares is-
sued and outstanding, respectively .............. 26 45
Additional paid-in capital........................ 310,216 832,514
Treasury stock.................................... -- (41,832)
Retained earnings................................. 87,339 47,255
Accumulated other comprehensive income (loss)..... (565) (445)
---------- ----------
Total stockholders' equity...................... 397,016 837,537
---------- ----------
Total liabilities and stockholders' equity...... $1,212,211 $1,043,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 477,875 $ 252,324 $1,265,521 $ 478,595
Cost of revenues.............. 379,900 197,086 1,011,305 376,318
---------- ---------- ---------- ----------
Gross profit.............. 97,975 55,238 254,216 102,277
Selling, general and adminis-
trative expenses............. 53,375 30,106 145,863 60,554
Goodwill amortization......... 4,238 2,613 11,511 4,584
Restructuring and recapitali-
zation charges (Note 6)...... -- -- 8,020 --
---------- ---------- ---------- ----------
Operating income.......... 40,362 22,519 88,822 37,139
Other (income) expense:
Interest expense............ 13,062 239 21,279 565
Interest income............. (468) (4,280) (4,674) (16,043)
Other, net.................. 270 184 (128) (134)
---------- ---------- ---------- ----------
Income before provision for
income taxes................. 27,498 26,376 72,345 52,751
Provision for income taxes.... 12,110 11,212 32,261 22,460
---------- ---------- ---------- ----------
Net income.................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
========== ========== ========== ==========
Net income per Common Share--
Basic........................ $ 0.60 $ 0.35 $ 1.14 $ 0.79
========== ========== ========== ==========
Net income per Common Share--
Diluted...................... $ 0.54 $ 0.34 $ 1.08 $ 0.77
========== ========== ========== ==========
Weighted average shares out-
standing--Basic.............. 25,631,194 43,122,092 35,311,455 38,298,295
========== ========== ========== ==========
Weighted average shares out-
standing-- Diluted........... 30,853,857 44,255,655 38,899,637 39,368,321
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the nine months ended September 30, 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------- Additional Other Total Total
Shares Paid-in- Treasury Retained Comprehensive Stockholders' Comprehensive
Outstanding Amount Capital Stock Earnings Income (loss) Equity Income
----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998................... 45,258,946 $45 $832,514 $(41,832) $47,255 $(445) $837,537
Stock issued upon
exercise of options.... 29,185 142 142
Issuance of common stock
for acquisitions and
contingent
consideration
agreements............. 5,310,162 6 75,155 75,161
Stock issued under
employee stock purchase
plan................... 99,735 1,212 1,212
Contingently issuable
shares................. 3,375 3,375
Repurchase of shares in
Tender Offer (See Note
3)..................... (24,617,840) (25) (562,979) (563,004)
Compensation expense
related to options
exercised in Tender
Offer.................. 2,629 2,629
Cancellation of
treasury stock......... (41,832) 41,832
Unrealized loss on
marketable securities--
net of tax of $80...... (120) (120) $ (120)
Net income.............. 40,084 40,084 40,084
-------
Total comprehensive
income................. $39,964
----------- --- -------- -------- ------- ----- -------- =======
Balance, September 30,
1999................... 26,080,188 $26 $310,216 $ -- $87,339 $(565) $397,016
=========== === ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 40,084 $ 30,291
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 22,436 7,946
Compensation expense related to options exercised....... 2,629 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (70,729) (21,323)
Costs and estimated earnings in excess of billings..... (14,873) 3,190
Prepaid expenses and other current assets.............. (9,928) (2,237)
Billings in excess of costs and estimated earnings..... 12,828 9,787
Accounts payable and accrued liabilities............... 22,668 5,053
Change in other assets.................................. 981 957
--------- --------
Net cash provided by operating activities............. 6,096 33,664
--------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired......... (131,037) (195,155)
Purchases of property and equipment...................... (19,656) (6,677)
Proceeds on sale of equipment............................ 362 740
Other.................................................... (28) 24
--------- --------
Net cash used in investing activities................. (150,359) (201,068)
--------- --------
Cash flows from financing activities:
Net payments on short-term debt.......................... (3,544) (36,355)
Payments on long-term debt............................... (14,416) (28,690)
Proceeds from long-term debt............................. 549,875 2,239
Payment of debt issuance costs........................... (22,219) --
Repurchase of common stock including related expenses.... (564,407) --
Distribution of S-Corp earnings.......................... -- (628)
Proceeds (payments) on related party loans............... (112) 547
Distribution to minority shareholders.................... (842) --
Proceeds from stock options exercised.................... 142 217
Proceeds from issuance of stock under employee stock
purchase plan........................................... 1,212 174
Purchase of treasury stock............................... -- (27,050)
--------- --------
Net cash used in financing activities................. (54,311) (89,546)
--------- --------
Net decrease in cash and cash equivalents................. (198,574) (256,950)
Cash and cash equivalents, beginning of period............ 213,096 528,972
--------- --------
Cash and cash equivalents, end of period.................. $ 14,522 $272,022
========= ========
The Company issued shares of common stock and cash in connection with certain
business combinations during the nine months ended September 30, 1999 and
1998, respectively. The fair values of the assets acquired and liabilities
assumed at the dates of acquisition are as follows:
Accounts receivable....................................... $ 44,674 $178,497
Costs and earnings in excess of billings.................. 9,501 26,045
Prepaid expenses and other current assets................. 2,605 11,225
Property and equipment.................................... 8,843 27,530
Intangible assets......................................... 103,453 459,446
Other assets.............................................. 2,762 6,293
Short-term debt........................................... (4,335) (29,358)
Accounts payable.......................................... (17,954) (57,420)
Accrued liabilities....................................... (12,369) (45,280)
Billings in excess of costs and estimated earnings........ (9,123) (49,776)
Long-term debt............................................ (1,446) (40,848)
Other long-term liabilities............................... (242) (5,812)
--------- --------
Net assets acquired....................................... $ 126,369 $480,542
========= ========
These acquisitions were funded as follows:
Common stock, 2,959,661 and 14,443,040 shares,
respectively............................................. $ 39,076 $285,387
Cash, net of cash acquired................................ 87,293 195,155
--------- --------
$ 126,369 $480,542
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation, ("Building One" or the "Company") is a
leading provider of integrated facilities services in the United States.
Currently, the Company provides mechanical and electrical installation and
maintenance services, and janitorial and maintenance management services. The
Company's goal is to become the preeminent single-source provider of
facilities services in the United States.
The interim financial data as of September 30, 1999 and for the three and
nine month periods ended September 30, 1999 and September 30, 1998 is
unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the results for the interim periods. Operating results
for interim periods are not necessarily indicative of results that may be
expected for the year as a whole. It is suggested that these consolidated
financial statements be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1998.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the
Company during the interim periods presented. For a description of these
policies, refer to Note 2 of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
NOTE 3--RECAPITALIZATION PLAN
On May 11, 1999, the Company completed its recapitalization plan which
included the repurchase of 24,617,840 shares of its common stock ("Common
Stock") at $22.50 per share for cash and 883,573 shares of the Company's
Common Stock underlying stock options at $22.50 per share less the exercise
price per share of the options in a tender offer (the "Tender Offer"). Funds
utilized for the repurchase totaled $560,084, which were obtained from the
Company's available cash, the net proceeds of $195,492 from the issuance of
$200,000 of 10 1/2% senior subordinated notes, $100,000 from the issuance of
7 1/2% convertible junior subordinated debentures to Boss Investment LLC, an
affiliate of Apollo Management, L.P. ("Apollo") and borrowings under a new
credit facility. See Note 5 for unaudited pro forma statement of operations
data for the three and nine month periods ended September 30, 1999 and
September 30, 1998 which assumes that the recapitalization plan was
consummated on January 1, 1998.
As a result of the Company allowing for the exercise of employee stock
options in the Tender Offer, compensation expense of $2,770 ($1,578 after the
associated tax benefit) was recognized and is included in the restructuring
and recapitalization charges recorded in the nine months ended September 30,
1999. Additionally, $4,323 of expenses were incurred in connection with the
Tender Offer which have been reflected as a reduction of stockholders' equity.
NOTE 4--BUSINESS COMBINATIONS
Purchase Acquisitions
During the nine months ended September 30, 1999, the Company completed
seventeen business combinations that were accounted for under the purchase
method of accounting. The consolidated financial statements include the
results of these acquired businesses from their respective dates of
acquisition. The aggregate consideration paid for these acquisitions consisted
of 2,959,661 shares of the Company's Common Stock and $96,843 in cash,
including $1,593 of debt assumed and applicable professional fees.
31
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
The total purchase price was allocated to the fair value of the net
assets acquired, resulting in goodwill of approximately $103,341. Such
allocations are preliminary in nature, pending the outcome of a detailed
analysis being performed by the Company of the assets and liabilities
acquired. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares on certain acquisitions was
determined in consideration of various restrictions on the sale and
transferability of the shares issued.
Contingent Consideration Agreements
In conjunction with acquisitions consummated in 1998 and 1999, the
Company has entered into certain contingent consideration agreements which
provide for the payment of cash and shares of Common Stock based on the
performance of such acquired companies.
During the nine months ended September 30, 1999, $89,812 of consideration
under these agreements had been earned, consisting of 2,644,698 shares of
Common Stock and $45,968 of cash, resulting in additional goodwill in the
amount of $86,178. As of September 30, 1999, $43,744 of this cash and
applicable professional fees was paid and 2,350,501 of these shares were
issued. The remaining cash amount payable of $3,500 has been reflected as a
liability as of September 30, 1999 and the additional paid-in capital
associated with the shares to be issued has been reflected as contingently
issuable shares in the Statement of Stockholders' Equity and Comprehensive
Income. These contingently issuable shares have been included in the weighted
average shares outstanding for purposes of computing basic and diluted
earnings per share for the three and nine month periods ended September 30,
1999. The Company currently estimates the unearned contingent consideration
under these remaining agreements to approximate $84,900 as of September 30,
1999.
32
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 5--UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma results of operations give effect to
the Company's recapitalization plan, including the Tender Offer, the financing
of the Tender Offer, acquisitions completed during the year ended December 31,
1998 and the nine months ended September 30, 1999 as if they had been
consummated on January 1, 1998, and the effects of certain other pro forma
adjustments to the historical financial statements. Additionally, net income
per common share is also presented excluding the restructuring and
recapitalization charges discussed in Note 6.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues....................... $ 487,000 $ 414,565 $1,363,487 $1,182,646
Cost of revenues............... 386,551 327,152 1,085,207 945,652
---------- ---------- ---------- ----------
Gross profit............... 100,449 87,413 278,280 236,994
Selling, general and
administrative expenses....... 55,281 47,096 157,331 130,571
Goodwill amortization.......... 4,373 4,335 13,259 13,005
Restructuring and
recapitalization charges...... 8,020
---------- ---------- ---------- ----------
Operating income........... 40,795 35,982 99,670 93,418
Other (income) expense:
Interest expense............. 12,861 12,789 38,297 38,226
Other, net................... 269 (460) (511) (3,438)
---------- ---------- ---------- ----------
Income before taxes............ 27,665 23,653 61,884 58,630
Provision for income taxes..... 12,248 11,025 28,744 28,134
---------- ---------- ---------- ----------
Net income..................... $ 15,417 $ 12,628 $ 33,140 $ 30,496
========== ========== ========== ==========
Net income per common share--
Basic......................... $ 0.59 $ 0.48 $ 1.26 $ 1.16
========== ========== ========== ==========
Net income per common share--
Diluted....................... $ 0.53 $ 0.44 $ 1.17 $ 1.09
========== ========== ========== ==========
Weighted average shares
outstanding--Basic............ 26,357,148 26,233,201 26,357,148 26,233,201
========== ========== ========== ==========
Weighted average shares
outstanding--Diluted.......... 31,470,274 31,346,327 31,538,444 31,414,497
========== ========== ========== ==========
Excluding restructuring and
recapitalization charges:
Net income per common share -
Basic......................... $ 1.44
==========
Net income per common share -
Diluted....................... $ 1.32
==========
</TABLE>
Net income per common share--Basic is calculated based upon the weighted
average shares outstanding assuming the repurchase of 24,617,840 shares in the
Tender Offer occurred as of January 1, 1998. Net income per common share--
Diluted is calculated based upon net income adjusted for a reduction in
interest expense assuming conversion of the convertible junior subordinated
debentures and weighted average shares outstanding adjusted for the conversion
of the convertible junior subordinated debentures into shares of common stock
at $22.50 plus the dilution attributable to options and warrants and
contingently issuable shares.
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the recapitalization plan, the Tender Offer and the acquisitions occurred as
of January 1, 1998 or the results that may occur in the future.
33
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 6--RESTRUCTURING AND RECAPITALIZATION CHARGES
Recapitalization charges
As discussed in Note 3, during the second quarter of 1999, the Company
completed its recapitalization plan involving the repurchase of 24,617,840
shares of its Common Stock and 883,573 shares of Common Stock underlying stock
options. In conjunction with the recapitalization, compensation expense of
$2,770 was recognized for stock options exercised and the underlying shares of
Common Stock repurchased by the Company.
Restructuring charges
In the second quarter of 1999, the Company's Board of Directors approved
and the Company announced a restructuring plan which included a relocation of
the Company's corporate headquarters and integration of the janitorial and
maintenance management operations. During the second quarter of 1999 and
continuing into the third quarter of 1999, the corporate headquarters was
relocated from Washington, D.C. to Minneapolis, Minnesota. In addition,
certain back office operations of the janitorial and maintenance management
service operations are being consolidated into two locations.
The restructuring costs include costs directly related to the Company's
restructuring in accordance with EITF No. 94-3 which provides specific
requirements as to the appropriate recognition of costs associated with
employee termination benefits and other exit costs.
As a result of these restructuring plans, the Company incurred severance
costs for certain employees, identified certain assets which are no longer of
service and incurred certain lease termination costs.
The following table sets forth a summary of these restructuring costs.
<TABLE>
<CAPTION>
Corporate Janitorial
Headquarters Operations Total
------------ ---------- ------
<S> <C> <C> <C>
Severance........................................ $3,530 $900 $4,430
Impaired assets.................................. 55 520 575
Lease costs...................................... 205 40 245
------ ------ ------
Total............................................ $3,790 $1,460 $5,250
====== ====== ======
</TABLE>
Included in the $5,250 restructuring charge incurred in the second
quarter of 1999 are $4,600 of cash costs and $650 in non-cash related costs.
The Company anticipates annual savings of approximately $2,800 as a result of
the restructuring.
34
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
The following table is a detailed reconciliation of the restructuring
reserve balance from June 30, 1999 to September 30, 1999. The reconciliation
reflects the accruals recorded and payments applied during the year.
<TABLE>
<CAPTION>
June 30, September 30,
1999 Payments 1999
Restructuring reserve: -------- -------- -------------
<S> <C> <C> <C>
Severance..................................... $1,396 $(685) $711
Lease costs................................... 268 (88) 180
------ ----- ----
Total........................................... $1,664 $(773) $891
------ ----- ----
</TABLE>
NOTE 7--LONG TERM DEBT
In connection with the repurchase of Common Stock under the
recapitalization plan, the Company issued $200,000 of 10 1/2% senior
subordinated notes, $100,000 of 7 1/2% convertible junior subordinated
debentures and entered into a new credit facility to fund the repurchase. The
following is a summary of these financing sources obtained in connection with
the recapitalization plan.
10 1/2% Senior Subordinated Notes
In April 1999, the Company completed a private placement offering of
$200,000 of 10 1/2% senior subordinated notes. The senior subordinated notes
are unsecured, guaranteed by our subsidiaries, require interest to be paid
semi-annually on May 1 and November 1 of each year and mature on May 1, 2009.
The senior subordinated notes were issued at 97.746%, or a discount of $4,508,
which is being amortized over the term of the notes. Additionally, debt
issuance costs of $8,255 incurred in connection with the offering, are
classified as intangible assets and are being amortized over the 10-year term
of the notes.
The Company may redeem the senior subordinated notes, in whole or in
part, at any time on or after May 1, 2002 at specified redemption prices, plus
accrued interest. At any time before May 1, 2002, the Company can redeem up to
35% of the outstanding senior subordinated notes with money raised in one or
more equity offerings under certain circumstances. Upon a change in control of
the Company (as defined in the indenture for the senior subordinated notes),
the holders of the senior subordinated notes will have the right to sell the
notes to the Company at 101% of the face amount plus accrued interest.
The indenture governing the senior subordinated notes contains certain
covenants relating to, among other things, the Company's ability to incur
indebtedness, pay dividends or repurchase capital stock, incur liens, sell or
otherwise dispose of a substantial portion of its assets or merge or
consolidate with another entity.
The senior subordinated notes are guaranteed by all but two of the
Company's wholly owned subsidiaries and a subsidiary that is 93%-owned. The
wholly owned guarantor subsidiaries and the 93%-owned guarantor subsidiary
have fully and unconditionally guaranteed the notes on a joint and several
basis. The aggregate assets, liabilities, earnings and equity of the wholly
owned guarantor subsidiaries and the 93%-owned guarantor subsidiary are
substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. The Company has not presented separate
financial statements and other disclosures concerning the wholly owned
guarantor subsidiaries and the 93%-owned guarantor subsidiary because
management has determined that such information is not material to investors.
The two non-guarantor subsidiaries, together with the 93%-owned guarantor
subsidiary, are inconsequential on an individual and combined basis (i.e., the
assets and pre-tax income of and the Company's net investment in the non-
guarantor subsidiaries and the 93%-owned subsidiary is less than three percent
on an individual and combined basis).
35
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
7 1/2% Convertible Junior Subordinated Debentures
The convertible junior subordinated debentures mature on May 1, 2012 and
provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's election,
for the first five years after their issuance, and in cash thereafter. The
holders of a majority of the outstanding principal amount of the convertible
junior subordinated debentures, however, will have the right to require the
payment of interest in cash after the third and through the fifth anniversary
of the issuance of the convertible junior subordinated debentures. In
addition, the provisions of the credit facility and the indenture for the
senior subordinated notes limit the Company's ability to pay cash interest
payments. Debt issuance costs of $4,634 incurred in connection with the
debentures are classified as intangible assets and are being amortized over
the 13-year term of the debentures.
The convertible junior subordinated debentures will be convertible into
shares of the Company's Common Stock at an initial conversion price of $22.50
per share plus all accrued and unpaid interest. If the convertible junior
subordinated debentures are converted prior to the fifth anniversary of their
issuance, the amount converted into shares will include additional interest
that would have accrued or been paid from the date of conversion through the
fifth anniversary of the issuance of the convertible junior subordinated
debentures. However, unless the conversion is in connection with a change of
control (as defined in the indenture for the convertible junior subordinated
debentures), the additional interest will not exceed a total of 30 months of
interest. The Company will adjust the conversion price under certain
circumstances, including the issuance of shares at a price below the
conversion price of the convertible junior subordinated debentures or below
the then fair market value of a share.
The indenture for the convertible junior subordinated debentures limits
the Company's ability to, among other things, incur additional indebtedness,
pay dividends, repurchase securities or repay certain other indebtedness. The
Company's amended and restated certificate of incorporation authorizes the
holders of the convertible junior subordinated debentures to vote together
with the holders of shares on all of the matters submitted to stockholders for
a vote and to elect as a class three of the Company's directors (or, if the
Board has more than ten directors, no less than 30% of the directors). The
holders of the convertible junior subordinated debentures will be entitled to
cast the number of votes that they would be entitled to cast if they had
converted the convertible junior subordinated debentures into shares of the
Company's Common Stock.
Credit Facility
The Company's credit facility, which is with a syndicate of banks led by
Bankers' Trust Company, consists of a $125,000 term loan and a $225,000
revolving credit facility and matures in April 2004. As of September 30, 1999
the Company had $240,875 of borrowings under this facility. The revolving
credit facility bears interest at various rates which are subject to change
based on certain levels of financial performance. The weighted average
interest rate on the borrowings outstanding under the credit facility was
8.14% as of September 30, 1999. Debt issuance costs of $9,445 incurred in
connection with this new credit facility are being amortized over the 5-year
term of the credit facility. The credit facility includes a number of
significant covenants including, among others, restrictions on the Company's
ability to incur additional indebtedness, restrictions on mergers,
acquisitions and the disposition of assets, sale and leaseback transactions
and capital lease payments, dividends and other distributions and voluntary
prepayments on indebtedness. Additionally, the Company is required to comply
with certain financial covenants with respect to minimum interest coverage and
maximum leverage ratios. As of September 30, 1999, the Company was in
compliance with all covenants.
The fair value of the senior subordinated notes as of September 30, 1999
approximated $189,000. The estimated fair value of the convertible junior
subordinated debentures and the credit facility approximate their carrying
values.
36
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 8--COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Costs incurred on uncompleted contracts...................... $1,242,195
Estimated earnings........................................... 223,416
----------
1,465,611
Less: Billings to date....................................... 1,496,845
----------
$ (31,234)
==========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 49,875
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (81,109)
--------
$(31,234)
========
</TABLE>
NOTE 9--SEGMENT DATA
The Company has two reportable segments: mechanical/electrical and
janitorial. The mechanical/electrical segment offers a single source for
designing, installing, maintaining and upgrading a facility's electrical
systems as well as providing a facility's mechanical, HVAC and plumbing needs.
The janitorial segment provides a wide variety of facility cleaning and
maintenance management services nationwide.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on income from operations of the respective business units
prior to unallocated corporate expenses.
The Company's reportable segments offer different products and services.
Intersegment transactions are accounted for as if they were to third parties,
that is, at current market prices. All of the Company's revenues are derived
from domestic sources.
37
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
Prior to January 1, 1999, the Company had three reportable segments:
mechanical, electrical and janitorial. Effective January 1, 1999, the Company
changed the structure of its internal organization and as a result the
mechanical and electrical segments have been combined into one reportable
segment.
Segment information for the three and nine month periods ended September
30, 1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Mechanical
and Electrical Janitorial Consolidated
-------------- ----------- ------------
<S> <C> <C> <C>
Three month period ended September
30, 1999:
Revenues............................. $ 412,458 $ 65,417 $ 477,875
Operating costs...................... 369,517 59,830 429,347
----------- ----------- -----------
Subtotal............................. 42,941 5,587 48,528
Goodwill amortization................ 3,648 590 4,238
----------- ----------- -----------
Segment operating income............. $ 39,293 $ 4,997 44,290
=========== =========== ===========
Unallocated corporate expenses....... (3,928)
-----------
Income from operations............... $ 40,362
===========
Three month period ended September
30, 1998:
Revenues............................. $ 206,065 $ 46,259 $ 252,324
Operating costs...................... 182,567 42,186 224,753
----------- ----------- -----------
Subtotal............................. 23,498 4,073 27,571
Goodwill amortization................ 2,115 498 2,613
----------- ----------- -----------
Segment operating income............. $ 21,383 $ 3,575 24,958
=========== =========== ===========
Unallocated corporate expenses....... (2,439)
-----------
Income from operations............... $ 22,519
===========
Nine month period ended September 30,
1999:
Revenues............................. $1,087,830 $177,691 $1,265,521
Operating costs...................... 983,082 165,153 1,148,235
----------- ----------- -----------
Subtotal............................. 104,748 12,538 117,286
Goodwill amortization................ 9,719 1,792 11,511
----------- ----------- -----------
Segment operating income............. $ 95,029 $ 10,746 105,775
=========== =========== ===========
Unallocated corporate expenses....... (16,953)
-----------
Income from operations............... $ 88,822
===========
</TABLE>
38
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mechanical
and Electrical Janitorial Consolidated
-------------- ---------- ------------
<S> <C> <C> <C> <C>
Nine month period ended
September 30, 1999
(before restructuring
and recapitalization
charges):
Revenues................. $1,087,830 $177,691 $1,265,521
Operating costs.......... 983,082 163,693 1,146,775
---------- ---------- -----------
Subtotal................. 104,748 13,998 118,746
Goodwill amortization.... 9,719 1,792 11,511
---------- ---------- -----------
Segment operating
income.................. $ 95,029 $ 12,206 107,235
========== ========== ===========
Unallocated corporate
expenses................ (10,393)
-----------
Income from operations... $ 96,842
===========
Nine month period ended
September 30, 1998:
Revenues................. $ 370,455 $ 108,140 $ 478,595
Operating costs.......... 331,332 100,542 431,874
---------- ---------- -----------
Subtotal................. 39,123 7,598 46,721
Goodwill amortization.... 3,723 861 4,584
---------- ---------- -----------
Segment operating
income.................. $ 35,400 $ 6,737 42,137
========== ========== ===========
Unallocated corporate
expenses................ (4,998)
-----------
Income from operations... $ 37,139
===========
<CAPTION>
Mechanical and
Electrical Janitorial Corporate Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total assets
September 30, 1999....... $1,030,433 $ 146,061 $ 35,717 $ 1,212,211
December 31, 1998........ 761,221 121,660 161,041 1,043,922
</TABLE>
39
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 10 -- EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share computations for the three and nine month
periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
----------- ----------- ----------- -----------
Net income per share--Basic.. $ 0.60 $ 0.35 $ 1.14 $ 0.79
=========== =========== =========== ===========
Diluted earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Plus: Interest expense on 7
1/2% convertible junior
subordinated debentures and
related amortization expense
on debt issue costs net of
applicable income taxes..... 1,218 2,003
----------- ----------- ----------- -----------
Net income on an as if
converted basis............. $ 16,606 $ 15,164 $ 42,087 $ 30,291
=========== =========== =========== ===========
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
Convertible non-voting common
stock....................... 500,000 500,000
Common stock equivalents from
stock options and warrants.. 84,295 192,711 152,466 389,347
Contingently issuable
shares...................... 638,081 440,852 942,335 180,679
Convertible junior
subordinated debentures, on
an as if converted basis 4,500,287 2,493,381
----------- ----------- ----------- -----------
Total weighted average shares
outstanding--Diluted........ 30,853,857 44,255,655 38,899,637 39,368,321
----------- ----------- ----------- -----------
Net income per share--
Diluted..................... $ 0.54 $ 0.34 $ 1.08 $ 0.77
=========== =========== =========== ===========
</TABLE>
40
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
Outstanding stock options and warrants to purchase 3,713,761 shares of
Common Stock as of September 30, 1999 were not included in the computation of
diluted earnings per share because the options' exercise prices were higher
than the average market price of the Common Stock during the period.
NOTE 11 - SUBSEQUENT EVENTS
On November 2, 1999, the Board of Directors of the Company unanimously
approved a merger with Group Maintenance America Corp. (GroupMAC). Under the
terms of the merger, each outstanding share of the Company's Common Stock will
be exchanged for 1.25 shares of GroupMAC common stock. As part of the merger,
GroupMAC shareholders may elect to receive cash for up to 50% of their shares
at $13.50 per share (up to $150 million in the aggregate), subject to pro-
ration. If this cash election is fully subscribed, approximately 11 million
GroupMAC shares (or approximately 29% of its shares currently outstanding)
will be cancelled in the merger. The transaction is expected to be tax-free to
the shareholders of both companies, except GroupMAC shareholders to the extent
of any cash they elect to receive, and will be accounted for under the
purchase method of accounting.
Concurrent with the closing of the merger, Apollo will exchange its
convertible junior subordinated debentures and $150 million of cash for
approximately $255 million of GroupMAC convertible preferred stock. The cash
proceeds from the investment will be used to fund the cash election option
described above. The preferred stock will bear a coupon rate of 7.25%, will be
payable on a quarterly basis, and will mature in 2012. The preferred stock
will be convertible into GroupMAC common stock at a conversion price of $14.00
per common share.
An underwritten commitment letter from Bank of America, N.A. and Chase
Bank of Texas, N.A. (as Co-Lead Arrangers and Co-Book Managers) to provide a
total of $800 million in financing has been received by GroupMAC. It is
anticipated that this financing will be used to satisfy all outstanding
obligations under the Company's and GroupMAC's credit facilities. It is also
expected that the Company's $200 million of senior subordinated debt will be
assumed by GroupMAC and remain outstanding, and that GroupMAC will refinance
its senior subordinated notes.
The merger is subject to the approval of both companies' shareholders,
concurrent completion of the Apollo investment, regulatory approval and other
customary closing conditions, and is expected to close in the first quarter of
2000.
41
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
On November 3, 1999, GroupMAC and Building One announced the signing of a
definitive agreement to merge the two companies. Under the terms of the merger,
each outstanding share of Building One common stock will be converted into the
right to receive 1.25 shares of GroupMAC common stock. As part of the merger,
GroupMAC shareholders may elect to receive cash for up to 50% of their shares at
$13.50 per share, subject to proration in the event that holders of more than
approximately 11 million shares elect to receive cash. If this cash election is
fully subscribed, up to approximately 11 million shares of GroupMAC common
stock, or approximately 29% of the shares currently outstanding, will be
cancelled in the merger.
Concurrent with the closing of the merger, affiliates of Apollo Management,
L.P. ("Apollo") will exchange $105 million of Building One convertible junior
subordinated debentures, the "Building One convertible debt", and $150 million
of cash for approximately $255 million of GroupMAC mandatorily redeemable
convertible preferred stock, the "preferred stock". The cash proceeds from the
investment will be used to fund the cash election right described above.
The preferred stock will mature in 2012 and will bear a dividend yield
coupon rate of 7.25% payable quarterly in cash. The Company can defer payment
of dividends during the first three years without penalty. The preferred stock
will be convertible into shares of GroupMAC common stock at a conversion price
of $14.00 per common share. See the description of the preferred stock
contained elsewhere herein.
The merger is subject to the approval of both companies' shareholders,
concurrent completion of the Apollo investment, regulatory approval and other
customary closing conditions, and is expected to close in the first quarter of
2000.
GroupMAC received an underwritten commitment letter from Bank of America,
N.A. and Chase Bank of Texas, N.A., as co-lead arrangers and co-book managers,
to provide a total of $800 million in financing. It is expected that Building
One's $200 million of senior subordinated debt will be assumed by GroupMAC and
remain outstanding, and that GroupMAC will refinance its senior subordinated
notes.
The name of the combined company will be announced on or before the closing.
For purposes of the discussions below, the combined entity is referred to as
"combined company".
GroupMAC will be the surviving legal entity in the merger. However, for
accounting purposes, Building One is deemed to be the acquiror and,
accordingly, Building One will account for the merger as a "reverse acquisition"
of GroupMAC under the purchase method of accounting. Under this method of
accounting, the combined company's historical results for periods prior to the
merger will be the same as Building One's historical results. On the date of the
merger, the assets and liabilities of GroupMAC will be recorded at their
estimated fair values.
The following combined company unaudited pro forma financial statements
utilize the unaudited pro forma financial statements of GroupMAC and Building
One as of September 30, 1999 and for the nine months ended September 30, 1999
and for the year ended December 31, 1998, which give effect to the acquisitions
made by each company during 1998 and 1999 including amounts owed in connection
with those acquisitions. The combined company unaudited pro forma financial
statements give effect to the transactions highlighted above as if the
transactions had occurred on September 30, 1999 for purposes of the combined
company unaudited pro forma balance sheet, and on January 1, 1998 for purposes
of the combined company unaudited pro forma statements of operations. The
unaudited pro forma combined financial statements for GroupMAC and Building One
are derived from the separate pro forma financial statements of each company set
forth immediately following these combined company unaudited pro forma financial
statements.
The pro forma adjustments are based on preliminary estimates and certain
assumptions that GroupMAC and Building One believe are reasonable under the
circumstances. The preliminary allocation of the purchase price to assets and
liabilities of GroupMAC reflects the assumption that assets and liabilities
are carried at historical amounts which approximate fair market value. The
actual allocation of the purchase price may differ from that reflected in the
unaudited pro forma financial statements after a more extensive review of the
fair market values of the assets and liabilities has been completed.
With respect to cost savings and synergies associated with the combined
organization, management cannot fully quantify such items at this time. It is
anticipated that any such savings will be partially offset by the cost of
additional corporate infrastructure to support the combined operation. These
savings and costs cannot be accurately quantified at this time and they have
not been included in the pro forma combined financial information of the
combined company.
The following combined company pro forma financial statements are based on
assumptions and include adjustments as explained in the notes thereto. The
combined company unaudited pro forma financial statements are not necessarily
indicative of the actual financial results that would have occurred if the
transactions described above had been effective on and as of the dates
indicated and may not be indicative of operations in future periods or as of
future dates. The combined company unaudited pro forma financial statements
should be read in conjunction with the notes thereto.
42
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
<CAPTION>
Merger Transaction
------------------------------------------------------------------------------------------------------
Apollo Investment Record Goodwill on Merger
---------------------- -------------------------------------------------------------------------------
Building
GroupMAC One
Pro Forma Pro Forma
ASSETS --------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ -- $ --
Accounts
receivable, net
of allowance...... 317,344 362,147
Inventories....... 20,635 8,213
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... 50,299 49,875
Prepaid expenses
and other current
assets............ 8,167 11,590
Deferred tax
asset............. 9,750 4,424
Refundable income
taxes............. -- 3,405
-------- ----------
Total current
assets.......... 406,195 439,654
-------- ----------
PROPERTY AND
EQUIPMENT, net..... 55,913 57,358
GOODWILL AND OTHER
INTANGIBLES, net... 518,003 673,238
DEFERRED DEBT ISSUE
COSTS, net......... 13,568 21,055
OTHER LONG-TERM
ASSETS............. 1,744 6,384
-------- ----------
Total assets.... $995,423 $1,197,689
======== ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ 92,510 $ 92,036
Accrued
compensation...... 42,981 41,669
Accrued
liabilities....... 27,934 46,409
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... 47,997 81,109
Deferred service
revenue........... 5,022 --
Income taxes
payable........... 8,844 --
Other current
liabilities....... 2,746 --
-------- ----------
Total current
liabilities..... 228,034 261,223
REVOLVING CREDIT
FACILITY........... 218,844 111,499
TERM CREDIT
FACILITY........... -- 124,375
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... 130,000 195,680
JUNIOR SUBORDINATED
NOTES.............. 4,150 --
CONVERTIBLE JUNIOR
SUBORDINATED
NOTES.............. -- 103,190
DEFERRED TAX
LIABILITY.......... 1,486 2,243
OTHER LONG-TERM
LIABILITIES........ 3,084 2,463
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... -- --
SHAREHOLDERS'
EQUITY
Common stock...... 38 26
Additional paid-
in capital........ 382,949 310,216
Retained
earnings.......... 26,838 87,339
Accumulated other
comprehensive
loss.............. -- (565)
-------- ----------
Total
shareholders'
equity.......... 409,825 397,016
-------- ----------
Total
liabilities and
shareholders'
equity.......... $995,423 $1,197,689
======== ==========
Put of Write-off Pro Forma
Preferred Pref Stock/ Cancellation Merger GroupMAC GroupMAC Eliminate Reverse Combined
Stock Conv Deb of GroupMAC Costs Sr Sub Notes, credit line GroupMAC Acquisition Company
Investment Exchange Common net of tax net of tax costs, net of tax Equity of GroupMAC Prior to
(a) (b) Stock (c) (d) (e) (f) (g) (h) Refinancing
ASSETS ---------- ---------- ------------ ---------- ------------- ----------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents..... $146,500 $ -- $ (146,500) $ -- $ -- $ -- $ -- $ -- $ --
Accounts
receivable, net
of allowance.... -- -- -- -- -- -- -- -- 679,491
Inventories..... -- -- -- -- -- -- -- -- 28,848
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts....... -- -- -- -- -- -- -- -- 100,174
Prepaid expenses
and other current
assets.......... -- -- -- -- -- -- -- -- 19,757
Deferred tax
asset........... -- -- -- -- -- -- -- -- 14,174
Refundable income
taxes........... -- -- -- -- 1,153 1,296 -- -- 5,854
------- ----------- ------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total current
assets........ 146,500 -- (146,500) -- 1,153 1,296 -- -- 848,298
------- ----------- ------------ ---------- ------------- ----------------- ----------- ----------- ------------
PROPERTY AND
EQUIPMENT, net... -- -- -- -- -- -- -- -- 113,271
GOODWILL AND OTHER
INTANGIBLES, net.. -- -- -- 16,328 7,043 2,027 (259,825) 274,869 1,231,683
DEFERRED DEBT ISSUE
COSTS, net........ -- (4,485) -- -- (10,246) (3,323) -- -- 16,569
OTHER LONG-TERM
ASSETS............ -- -- -- -- -- -- -- -- 8,128
-------- -------- ---------- ------- -------- ----- ---------- -------- ----------
Total assets.. $146,500 $ (4,485) $ (146,500) $16,328 $ (2,050) $ -- $ (259,825) $274,869 $2,217,949
======== ======== ========== ======= ======== ===== ========== ======== ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 184,546
Accrued
compensation.... -- -- -- -- -- -- -- -- 84,650
Accrued
liabilities..... -- -- -- -- -- -- -- -- 74,343
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts....... -- -- -- -- -- -- -- -- 129,106
Deferred service
revenue......... -- -- -- -- -- -- -- -- 5,022
Income taxes
payable......... -- (1,749) -- (3,745) (3,350) -- -- -- --
Other current
liabilities..... -- -- -- -- -- -- -- -- 2,746
------- ----------- ------------ ---------- ------------- ----------------- ----------- ----------- -----------
Total current
liabilities.... -- (1,749) -- (3,745) (3,350) -- -- -- 480,413
REVOLVING CREDIT
FACILITY......... -- -- 3,500 24,800 131,300 -- -- -- 489,943
TERM CREDIT
FACILITY......... -- -- -- -- -- -- -- -- 124,375
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount......... -- -- -- -- (130,000) -- -- -- 195,680
JUNIOR SUBORDINATED
NOTES............ -- -- -- -- -- -- -- -- 4,150
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES............ -- (103,190) -- -- -- -- -- -- --
DEFERRED TAX
LIABILITY........ -- -- -- -- -- -- -- -- 3,729
OTHER LONG-TERM
LIABILITIES...... -- -- -- -- -- -- -- -- 5,547
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.. 146,500 103,190 -- -- -- -- -- -- 249,690
SHAREHOLDERS'
EQUITY
Common stock.... -- -- (11) -- -- -- (27) 34 60
Additional paid-
in capital...... -- -- (149,989) -- -- -- (232,960) 274,835 585,051
Retained
earnings........ -- (2,736) -- (4,727) -- -- (26,838) -- 79,876
Accumulated other
comprehensive
loss............ -- -- -- -- -- -- -- -- (565)
------- ----------- ------------ ---------- ------------- ----------------- ----------- ----------- -----------
Total
shareholders'
equity........ -- (2,736) (150,000) (4,727) -- -- (259,825) 274,869 664,422
------- ----------- ------------ ---------- ------------- ----------------- ----------- ----------- -----------
Total
liabilities and
shareholders'
equity........ $146,500 $ (4,485) $ (146,500) $16,328 $ (2,050) $ -- $ (259,825) $274,869 $2,217,949
======== ======== ========== ======= ======== ====== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
43
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA BALANCE SHEET (Continued)
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Refinancing
-----------------------------------------
Pro Forma Write-off
Combined Company Refinance existing Building One credit Pro Forma
Prior to revolver balances line costs, net of tax Combined
ASSETS Refinancing (i) (j) Company
------ ---------------- ------------------ ---------------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............ $ -- $ -- $ -- $ --
Accounts receivable,
net of allowance....... 679,491 -- -- 679,491
Inventories............ 28,848 -- -- 28,848
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts.............. 100,174 -- -- 100,174
Prepaid expenses and
other current assets... 19,757 -- -- 19,757
Deferred tax asset..... 14,174 -- -- 14,174
Refundable income
taxes.................. 5,854 -- 3,377 9,231
---------- -------- ------- ----------
Total current
assets............... 848,298 -- 3,377 851,675
---------- -------- ------- ----------
PROPERTY AND EQUIPMENT,
net..................... 113,271 -- -- 113,271
GOODWILL AND OTHER
INTANGIBLES, net........ 1,231,683 -- -- 1,231,683
DEFERRED DEBT ISSUE
COSTS, net.............. 16,569 10,200 (8,658) 18,111
OTHER LONG-TERM ASSETS.. 8,128 -- -- 8,128
---------- -------- ------- ----------
Total assets......... $2,217,949 $ 10,200 $(5,281) $2,222,868
========== ======== ======= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 184,546 $ -- $ -- $ 184,546
Accrued compensation... 84,650 -- -- 84,650
Accrued liabilities.... 74,343 -- -- 74,343
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts.............. 129,106 -- -- 129,106
Deferred service
revenue................ 5,022 -- -- 5,022
Income taxes payable... -- -- -- --
Other current
liabilities............ 2,746 -- -- 2,746
---------- -------- ------- ----------
Total current
liabilities.......... 480,413 -- -- 480,413
REVOLVING CREDIT
FACILITY................ 489,943 (489,943) -- --
NEW CREDIT FACILITY--
Revolver................ -- 324,518 -- 324,518
NEW CREDIT FACILITY--
Delayed Draw Term A..... -- 130,000 -- 130,000
NEW CREDIT FACILITY--
Term B.................. -- 170,000 -- 170,000
TERM CREDIT FACILITY.... 124,375 (124,375) -- --
SENIOR SUBORDINATED
NOTES, net of
unamortized discount.... 195,680 -- -- 195,680
JUNIOR SUBORDINATED
NOTES................... 4,150 -- -- 4,150
CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES...... -- -- -- --
DEFERRED TAX LIABILITY.. 3,729 -- -- 3,729
OTHER LONG-TERM
LIABILITIES............. 5,547 -- -- 5,547
MANDATORILY REDEEMABLE,
CONVERTIBLE PREFERRED
STOCK................... 249,690 -- -- 249,690
SHAREHOLDERS' EQUITY
Common stock........... 60 -- -- 60
Additional paid-in
capital................ 585,051 -- -- 585,051
Retained earnings...... 79,876 -- (5,281) 74,595
Accumulated other
comprehensive loss..... (565) -- -- (565)
---------- -------- ------- ----------
Total shareholders'
equity............... 664,422 -- (5,281) 659,141
---------- -------- ------- ----------
Total liabilities and
shareholders'
equity............... $2,217,949 $ 10,200 $(5,281) $2,222,868
========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
44
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Combined
Building Pro Forma Company Pro Forma Pro Forma
GroupMAC One Merger Prior to Refinancing Combined
Pro Forma Pro Forma Adjustments Refinancing Adjustments Company
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $1,441,473 $1,604,336 $ -- $3,045,809 $ -- $3,045,809
COST OF SERVICES........ 1,126,288 1,276,135 -- 2,402,423 -- 2,402,423
---------- ---------- -------- ---------- ------- ----------
Gross profit........... 315,185 328,201 -- 643,386 -- 643,386
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 190,990 182,983 -- 373,973 -- 373,973
AMORTIZATION OF
GOODWILL............... 13,346 17,679 552 (a) 31,577 -- 31,577
---------- ---------- -------- ---------- ------- ----------
Income from
operations.......... 110,849 127,539 (552) 237,836 -- 237,836
OTHER INCOME (EXPENSE):
Interest expense....... (31,633) (51,062) 10,770 (b) (71,925) (1,934)(g) (73,859)
Interest income........ -- -- -- -- -- --
Other.................. 1,415 3,777 -- 5,192 -- 5,192
---------- ---------- -------- ---------- ------- ----------
Income before income
tax provision....... 80,631 80,254 10,218 171,103 (1,934) 169,169
INCOME TAX PROVISION.... 35,213 38,771 4,233 (c) 78,217 (760)(h) 77,457
---------- ---------- -------- ---------- ------- ----------
NET INCOME.............. $ 45,418 $ 41,483 $ 5,985 $ 92,886 $(1,174) $ 91,712
Preferred dividends..... -- -- (18,356)(d) (18,356) -- (18,356)
Amortization of deferred
issue costs on
mandatorily redeemable,
convertible preferred
stock.................. -- -- (292)(e) (292) -- (292)
---------- ---------- -------- ---------- ------- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS.... $ 45,418 $ 41,483 $(12,663) $ 74,238 $(1,174) $ 73,064
========== ========== ======== ========== ======= ==========
NET INCOME PER SHARE--
BASIC.................. $ 1.18 $ 1.57 $ 1.23 (f) $ 1.21 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 38,412 26,357 60,247 (f) 60,247 (i)
========== ========== ========== ==========
NET INCOME PER SHARE--
DILUTED................ $ 1.17 $ 1.47 $ 1.17 (f) $ 1.15 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 38,968 31,538 79,632 (f) 79,632 (i)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
45
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Combined
Building Pro Forma Company Pro Forma Pro Forma
GroupMAC One Merger Prior to Refinancing Combined
Pro Forma Pro Forma Adjustments Refinancing Adjustments Company
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $1,214,543 $1,363,487 $ -- $2,578,030 $ -- $2,578,030
COST OF SERVICES........ 966,173 1,085,207 -- 2,051,380 -- 2,051,380
---------- ---------- ------- ---------- ------ ----------
Gross profit........... 248,370 278,280 -- 526,650 -- 526,650
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 152,942 157,331 -- 310,273 -- 310,273
RESTRUCTURING AND
RECAPITALIZATION
CHARGES................ -- 8,020 -- 8,020 -- 8,020
AMORTIZATION OF
GOODWILL............... 10,009 13,259 415 (a) 23,683 -- 23,683
---------- ---------- ------- ---------- ------ ----------
Income from
operations.......... 85,419 99,670 (415) 184,674 -- 184,674
OTHER INCOME (EXPENSE):
Interest expense....... (23,725) (38,297) 8,078 (b) (53,944) (1,450)(g) (55,394)
Interest income........ -- -- -- -- -- --
Other.................. 444 511 -- 955 -- 955
---------- ---------- ------- ---------- ------ ----------
Income before income
tax provision....... 62,138 61,884 7,663 131,685 (1,450) 130,235
INCOME TAX PROVISION.... 27,058 28,744 3,119 (c) 58,921 (560)(h) 58,361
---------- ---------- ------- ---------- ------ ----------
NET INCOME.............. $ 35,080 $ 33,140 $ 4,544 $ 72,764 $ (890) $ 71,874
Preferred dividends..... -- -- (13,767)(d) (13,767) -- (13,767)
Amortization of deferred
issue costs on
mandatorily redeemable,
convertible preferred
stock.................. -- -- (219)(e) (219) -- (219)
---------- ---------- ------- ---------- ------ ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS.... $ 35,080 $ 33,140 $(9,442) $ 58,778 $ (890) $ 57,888
========== ========== ======= ========== ====== ==========
NET INCOME PER SHARE--
BASIC.................. $ 0.91 $ 1.26 $ 0.98 (f) $ 0.96 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 38,412 26,357 60,247 (f) 60,247 (i)
========== ========== ========== ==========
NET INCOME PER SHARE--
DILUTED................ $ 0.91 $ 1.17 $ 0.92 (f) $ 0.91 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 38,737 31,538 79,401 (f) 79,401 (i)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
46
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes the unaudited pro forma balance sheet adjustments
(in thousands except per share amounts):
a) Records the shares of preferred stock to be issued to Apollo in exchange
for $150,000 in cash, net of estimated issuance costs of approximately
$3,500.
b) Records the shares of preferred stock to be issued to Apollo in exchange
for the Building One convertible debt in the amount of $103,190
(including in-kind accrued interest of $3,190 through September 30,
1999). It is anticipated that the Building One convertible debt will have
a balance of approximately $105 million as of the closing of the
transactions. Also records the write-off of $4,485 of unamortized
deferred debt issue costs associated with the Building One convertible
debt and the associated tax benefit of $1,749 at a 39% effective tax rate
directly to the combined company's retained earnings. This net of tax
charge of $2,736 will be reflected in the historical statement of
operations of the combined company upon consummation of the transactions.
See Note 3.
c) Records the maximum number of shares of GroupMAC common stock to be
canceled in the cash election merger with the cash proceeds of the
preferred stock issuance discussed in Note 1a above as follows:
<TABLE>
<S> <C>
Estimated net proceeds from the issuance of shares of preferred
stock........................................................... $146,500
Borrowings under the GroupMAC credit agreement to replenish
issuance costs deducted from the proceeds....................... 3,500
--------
Maximum cash available to cancel shares in the cash election
merger.......................................................... $150,000
Cash election price per share.................................... $ 13.50
--------
Maximum number of shares available for cancellation in the cash
election merger................................................. 11,111
========
</TABLE>
d) Records the estimated cash merger costs of GroupMAC and Building One
along with the related tax benefit as follows:
<TABLE>
<CAPTION>
Building
GroupMAC One
-------- --------
<S> <C> <C>
Estimated nondeductible brokerage, legal, accounting
and other professional fees........................... $ 8,765 $ 6,435
Estimated deductible severance costs................... 1,850 6,000
Estimated deductible office closing costs and other
exit activities costs................................. -- 1,750
------- -------
Total estimated merger costs........................... $10,615 $14,185
======= =======
Tax benefit on deductible costs at 39%................. $ 722 $ 3,023
======= =======
</TABLE>
In connection therewith, the net of tax amount of $4,727 related to
Building One severance and reserves for the closing of duplicate office
space has been recorded directly to combined company retained earnings.
This net of tax charge of $4,727 will be reflected in the historical
statement of operations of combined company upon consummation of the
transactions. See Note 3.
e) Records the anticipated refinancing of GroupMAC's $130,000 Senior
Subordinated Notes at 101% due to change of control provisions in the
associated indenture. Also records the call premium of $1,300, the
elimination of $10,246 in related deferred debt issue costs and the
associated tax benefits of $4,503 at a 39% effective tax rate.
f) Represents the elimination of GroupMAC's unamortized deferred debt issue
costs of $3,323 related to its existing revolving credit facility and the
associated tax benefit of $1,296 at a 39% effective tax rate.
g) Records the elimination of GroupMAC's pro forma shareholders' equity as
of September 30, 1999 after adjusting for the maximum number of shares of
GroupMAC common stock to be cancelled in the cash election merger
discussed in Note 1c above.
47
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS--(Continued)
h) Records the effects of the reverse acquisition of GroupMAC by Building
One, including the entries to adjust the par value of common stock of
Building One to reflect the capital structure of GroupMAC, the legal
surviving corporation in the merger, as follows:
<TABLE>
<CAPTION>
Common Options/
Stock Warrants
-------- --------
<S> <C> <C>
GroupMAC number of shares, options and warrants
outstanding at September 30, 1999...................... 38,411 4,916
Maximum shares available for cancellation in the cash
election merger........................................ (11,111) --
-------- --------
GroupMAC number of shares outstanding after the cash
election merger........................................ 27,300 4,916
Reciprocal of the exchange ratio utilized to convert
Building One shares to GroupMAC shares (1.00/1.25)..... 0.80 0.80
-------- --------
Building One equivalent shares.......................... 21,840 3,933
Building One five day share price average with 11/03/99
as the midpoint/Black-Scholes option valuation......... $ 11.325 $ 7.00
-------- --------
Fair value of GroupMAC shares, options and warrants..... $247,338 $ 27,531
======== ========
Total value of shares, options and warrants on the
reverse acquisition.................................... $274,869
Estimated Building One merger costs..................... 6,435
--------
Total purchase consideration............................ $281,304
========
</TABLE>
The preliminary adjustments to revalue the assets and liabilities of
GroupMAC to fair value and allocate the excess purchase consideration
over the fair value of net assets are as follows:
<TABLE>
<S> <C>
Book value of GroupMAC's net assets............................... $240,862
Other intangible assets........................................... 10,000
Goodwill.......................................................... 30,442
--------
$281,304
========
</TABLE>
The book value of GroupMAC's net assets has been adjusted for the
cancellation of shares of GroupMAC common stock in the cash election
right, the elimination of deferred financing costs, and the accrual of
merger costs and severance costs resulting from the merger.
The pro forma financial information includes management's best estimate of
restructuring costs that could result from the merger. In addition, the
total consideration has been allocated to the assets and liabilities of
GroupMAC based on management's best estimates of fair value. The other
intangible assets primarily relate to workforce and customer lists. The
purchase price allocation is subject to change in the fair value of
GroupMAC's net assets on the effective date of the merger. These items
will not be known until the effective date of the merger. Management does
not believe the final purchase price allocation will differ materially
from the preliminary purchase price allocation.
i) Represents the refinancing of the GroupMAC and Building One existing
revolving and term credit facilities with the $800 million of committed
financing from Bank of America, N.A. and Chase Bank of Texas, N.A. (as co-
lead arrangers and co-book managers). Also records estimated deferred debt
issue costs of $10,200 related to this refinancing.
j) Represents the elimination of Building One's unamortized deferred debt
issue costs of $8,658 related to its existing revolving and term credit
facility and the associated tax benefit of $3,377 at a 39% effective tax
rate directly to the combined company's retained earnings. This net of tax
charge of $5,281 will be reflected in the historical statement of
operations of the combined company upon consummation of the transactions.
See Note 3.
48
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The following summarizes the unaudited pro forma statements of operations
adjustments (in thousands except per share amounts):
a) Reflects the adjustment necessary to reflect the amortization of goodwill
and other intangible assets generated from the balance sheet adjustments
discussed in Note 1 above. The goodwill is amortized over a 40-year
estimated life and the other intangible assets are amortized over a
weighted average estimated life of 15 years.
b) Represents the adjustment necessary to reflect the net decrease in
interest expense related to exchanging Building One convertible debt for
preferred stock discussed in Note 1b, the financing of issuance costs for
the cancellation of shares of GroupMAC common stock discussed in Note 1c,
the financing of each company's merger costs discussed in Note 1d and the
refinancing of GroupMAC's $130,000 Senior Subordinated Notes at 101% due
to change in control provisions in the associated indenture discussed in
Note 1e. A summary of the pro forma debt outstanding of the separate
companies and the combined company and a summary of the pro forma interest
expense (including amounts recognized in the historical financial
statements and the separate company unaudited pro forma financial
statements) are set forth in Note 5.
c) Reflects the incremental provision for federal and state income taxes
related to the reduction in interest expense discussed in Note 2b.
d) Represents the annual and nine-month dividend yield on the $253,190 face
amount of preferred stock issued discussed in Notes 1a and 1b above at a
7.25% coupon rate.
e) Represents the annual and nine-month amortization of the estimated
preferred stock issuance costs of $3,500 discussed in Note 1a over the
twelve-year term of the preferred stock.
49
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(Continued)
f) The calculation of the combined weighted average shares outstanding and
basic and diluted earnings per share before refinancing adjustments is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Weighted Average Shares Outstanding:
Basic:
Weighted average shares outstanding--GroupMAC.. 38,412 38,412
Weighted average shares outstanding--Building
One........................................... 26,357 26,357
------- --------
Weighted average shares outstanding--Combined.. 64,769 64,769
Maximum shares available for cancellation in
the cash election merger discussed in Note
1c............................................ (11,111) (11,111)
Incremental shares from conversion of Building
One shares to GroupMAC shares at a 1.25 to
1.00 ratio.................................... 6,589 6,589
------- --------
Weighted average shares outstanding--Basic..... 60,247 60,247
======= ========
Diluted:
Weighted average shares outstanding--GroupMAC.. 38,968 38,737
Weighted average shares outstanding--Building
One........................................... 31,538 31,538
------- --------
Weighted average shares outstanding--Combined.. 70,506 70,275
Maximum shares available for cancellation in
the cash election merger discussed in Note
1c............................................ (11,111) (11,111)
Incremental shares from conversion of Building
One shares to GroupMAC shares at a 1.25 to
1.00 ratio.................................... 6,589 6,589
Elimination of dilutive effect of $103,190 face
amount of Building One convertible debt
exchanged for preferred stock discussed
in Note 1b.................................... (4,586) (4,586)
Dilutive effect of $253,190 face amount of
preferred stock at a $14.00 conversion price
issued discussed in Note 1a and 1b............ 18,085 18,085
Incremental shares from conversion of Building
One contingently issuable shares, options and
warrants to GroupMAC shares at a 1.25 to 1.00
ratio......................................... 149 149
------- --------
Weighted average shares outstanding--Diluted... 79,632 79,401
======= ========
Earnings Per Share:
Basic Before Refinancing:
Net income available to common shareholders.... $74,238 $ 58,778
Basic weighted average shares outstanding...... 60,247 60,247
------- --------
Basic earnings per share....................... $ 1.23 $ 0.98
======= ========
Diluted Before Refinancing:
Net income available to common shareholders.... $74,238 $ 58,778
Plus preferred stock dividends................. 18,356 13,767
Plus amortization of deferred preferred stock
issuance costs................................ 292 219
------- --------
Net income on an if-converted basis............ $92,886 $ 72,764
Diluted weighted average shares outstanding.... 79,632 79,401
------- --------
Diluted earnings per share..................... $ 1.17 $ 0.92
======= ========
</TABLE>
50
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(Continued)
g) Represents the adjustment necessary to reflect the net increase in
interest expense related to the refinancing of the GroupMAC and Building
One existing revolving and term credit facilities along with the
financing of the estimated deferred debt issue costs of $10,200 related
to this refinancing. A summary of the pro forma debt outstanding before
and after the refinancing and a summary of the pro forma interest expense
after the refinancing (including amounts recognized in the historical
financial statements and the separate company unaudited pro forma
financial statements) are set forth in Note 5. The impact of a 1/8%
change on the effective interest rate applicable to the debt of the
combined company which is subject to changes in interest rates would be
$781 for the year ended December 31, 1998 and $585 for the nine months
ended September 30, 1999.
h) Represents the reduction of the provision for federal and state income
taxes related to the refinancing activities reflected discussed in Note
2g.
i) The calculation of the combined basic and diluted earnings per share
after refinancing adjustments is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Earnings Per Share:
Basic After Refinancing:
Net income available to common shareholders... $73,064 $57,888
Basic weighted average shares from Note 2f.... 60,247 60,247
------- -------
Basic earnings per share...................... $ 1.21 $ 0.96
======= =======
Diluted After Refinancing:
Net income available to common shareholders... $73,064 $57,888
Plus preferred stock dividends................ 18,356 13,767
Plus amortization of deferred preferred stock
issuance costs............................... 292 219
------- -------
Net income on an if-converted basis........... 91,712 71,874
Diluted weighted average shares from Note 2f.. 79,632 79,401
------- -------
Diluted earnings per share.................... $ 1.15 $ 0.91
======= =======
</TABLE>
3. SUMMARY OF NON RECURRING COSTS ASSOCIATED WITH THE TRANSACTIONS (in
thousands)
The accompanying unaudited pro forma statements of operations do not
reflect the following costs and expenses that the combined company will record
at the time of closing related to: (i) existing Building One financing
arrangements to be extinguished; and (ii) severance and office closing costs
and other exit activities costs, as a part of the transactions highlighted in
Note 1.
51
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
3. SUMMARY OF NON RECURRING COSTS ASSOCIATED WITH THE TRANSACTIONS (in
thousands)--(Continued)
For pro forma financial statement purposes, these costs and expenses, net
of tax effect, have been shown as a direct reduction to the combined company's
retained earnings. However, these costs and expenses will be reflected in the
historical statements of operations of the combined company upon consummation
of the transactions and will be classified as follows:
<TABLE>
<S> <C>
Selling, General and Administrative Expenses:
Severance costs................................................... $6,000
Office closing costs and other exit activities costs.............. 1,750
------
Total charge.................................................... 7,750
Tax benefit at 39%................................................ 3,023
------
Net of tax impact............................................... $4,727
======
Extraordinary Items:
Deferred debt issue costs on Building One convertible debt........ $4,485
Deferred debt issue costs on Building One existing revolving and
term credit facility............................................. 8,658
------
13,143
Tax benefit at 39%................................................ 5,126
------
Net of tax impact................................................. $8,017
======
</TABLE>
4. RANGE OF POTENTIAL RESULTS UNDER CASH ELECTION RIGHT (amounts in thousands,
except per share data)
The accompanying unaudited pro forma financial statements have been prepared
under the assumption that the GroupMAC shareholders will elect to receive the
maximum amount of cash in exchange for their shares. Under this scenario, 100%
of the $150 million of gross proceeds from the preferred stock issuance will be
used for the cash election right, resulting in the cancellation of 11,111 shares
of GroupMAC stock as discussed in Note 1c above. However, it is possible that
less than 100% of these proceeds will be required to fund the cash election
right, in which case the remaining funds could be used to either reduce
outstanding borrowings under GroupMAC's credit agreement or repurchase shares of
GroupMAC common stock on the open market. Any repurchase of shares of GroupMAC
common stock on the open market is not expected to have a material difference
on the accompanying pro forma financial information. The following summarizes
the financial impact resulting from only 50%, or $75 million, of the gross
proceeds of the preferred stock issuance required to be used for the cash
election right, with the remaining funds used to reduce outstanding borrowings
under GroupMAC's credit agreement (in each case, after consideration of the
refinancing transactions discussed in Note 1i and 1j):
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Balance Sheet:
Proceeds used to cancel shares in cash election right.......... $ 75,000
Cash election price per share.................................. $ 13.50
----------
Shares to be canceled in cash election right................... 5,556
==========
Goodwill....................................................... $1,207,023
Total assets .................................................. 2,198,208
Long-term debt................................................. 749,348
Total shareholders' equity..................................... 709,481
</TABLE>
52
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
4. RANGE OF POTENTIAL RESULTS UNDER CASH ELECTION RIGHT (amounts in thousands,
except per share data)--(Continued)
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Statements of Operations:
Operating income................................ $238,461 $185,143
Interest expense................................ (68,609) (51,457)
Net income...................................... 95,523 74,760
Net income available to common shareholders..... 76,875 60,774
Net income per share--basic..................... $ 1.17 $ 0.92
Weighted average shares--basic.................. 65,803 65,803
Net income per share--diluted................... $ 1.12 $ 0.88
Weighted average shares--diluted................ 85,188 84,957
</TABLE>
53
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE--PRO FORMA COMBINED COMPANY PRIOR TO REFINANCING
(in thousands)
<TABLE>
<CAPTION>
Merger Adjustments
-------------------------------------------- Pro Forma
GroupMAC Preferred Put Combined
Pro Building One Stock Conv Pref GroupMAC Company
Forma Pro Forma Issuance Stock/Debenture Merger Sr Sub Prior to Interest
Balances Balances Costs Exchange Costs Notes Refinancing Rate
-------- ------------ --------- --------------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Senior
Debt:
Pro Forma
September 30,
1999 Existing
Credit
Agreements--
GroupMAC.......... $218,844 $ -- $3,500 $ -- $10,615 $ 131,300 $364,259 6.88%(i)
Pro Forma
September 30,
1999 Existing
Revolving Credit
Facility--
Building One...... -- 111,499 -- -- 14,185 -- 125,684 7.73%(ii)
Pro Forma
September 30,
1999 Existing
Term Credit
Facility--
Building One...... -- 124,375 -- -- -- -- 124,375 7.73%(ii)
Commitment fees
under Credit
Facility
Agreements........ -- -- -- -- -- -- --
Letter of Credit
fees under Credit
Facility
Agreements........ -- -- -- -- -- -- --
Amortization of
deferred debt
issue costs under
Credit Facility
Agreements........ -- -- -- -- -- -- --
-------- -------- ------ ---------- ------- ---------- --------
Total long-term
senior
debt/interest
expense......... $218,844 $235,874 $3,500 $ -- $24,800 $ 131,300 $614,318 8.04%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Senior
Subordinated Debt:
Pro Forma
September 30,
1999 senior
subordinated
notes--GroupMAC.... $130,000 $ -- $ -- $ -- $ -- $ (130,000) $ --
Pro Forma
September 30,
1999 senior
subordinated
notes--Building
One............... -- 200,000 -- -- -- -- 200,000 10.50%(vi)
Unamortized
balance of
discount on
Building One
senior
subordinated
notes.............. -- (4,320) -- -- -- -- (4,320)
Amortization of
deferred debt
issue costs and
discount.......... -- -- -- -- -- -- --
-------- -------- ------ ---------- ------- ---------- --------
Total long-term
senior
subordinated
debt/interest
expense......... $130,000 $195,680 $ -- $ -- $ -- $ (130,000) $195,680 11.38%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
junior
subordinated
debentures........ $ 1,650 $ -- $ -- $ -- $ -- $ -- $ 1,650 6.00%(viii)
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. $ 2,500 -- -- -- -- 2,500 7.50%(viii)
-------- -------- ------ ---------- ------- ---------- --------
$ 4,150 $ -- $ -- $ -- $ -- $ -- $ 4,150 6.92%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term
Convertible Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
convertible
junior
subordinated
debt.............. $ -- $103,190 $ -- $ (103,190) $ -- $ -- $ --
-------- -------- ------ ---------- ------- ---------- --------
$ -- $103,190 $ -- $ (103,190) $ -- $ -- $ --
======== ======== ====== ========== ======= ========== ========
Total debt/interest
expense............ $352,994 $534,744 $3,500 $ (103,190) $24,800 $ 1,300 $814,148 8.83%
======== ======== ====== ========== ======= ========== ======== ======
<CAPTION>
Pro Forma Combined Company
Prior to Refinancing
-------------------------------
Interest Expense
-------------------------------
Nine
Twelve Months Ended
Months Ended September 30,
December 31, 1998 1999
----------------- -------------
<S> <C> <C> <C>
Long-Term Senior
Debt:
Pro Forma
September 30,
1999 Existing
Credit
Agreements--
GroupMAC.......... $25,059 $18,794
Pro Forma
September 30,
1999 Existing
Revolving Credit
Facility--
Building One...... 9,717 7,288
Pro Forma
September 30,
1999 Existing
Term Credit
Facility--
Building One...... 9,615 7,211
Commitment fees
under Credit
Facility
Agreements........ 1,330(iii) 998
Letter of Credit
fees under Credit
Facility
Agreements........ 48(iv) 36
Amortization of
deferred debt
issue costs under
Credit Facility
Agreements........ 3,593(v) 2,695
----------------- -------------
Total long-term
senior
debt/interest
expense......... $49,362 $37,022
================= =============
Long-Term Senior
Subordinated Debt:
Pro Forma
September 30,
1999 senior
subordinated
debt--GroupMAC.... $ -- $ --
Pro Forma
September 30,
1999 senior
subordinated
debt--Building
One............... 21,000 15,750
Unamortized
balance of
discount on
Building One
senior
subordinated
debt..............
Amortization of
deferred debt
issue costs and
discount.......... 1,276(vii) 957
----------------- -------------
Total long-term
senior
subordinated
debt/interest
expense......... $22,276 $16,707
================= =============
Long-Term Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. $ 99 $ 74
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. 188 141
----------------- -------------
$ 287 $ 215
================= =============
Long-Term
Convertible Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
convertible
junior
subordinated
debt.............. $ -- $ --
----------------- -------------
$ -- $ --
================= =============
Total debt/interest
expense............ $71,925 $53,944
================= =============
</TABLE>
- ----
(i) Represents the interest rate on the existing GroupMAC credit facility as
reported in Note 5 to the separate company pro forma financial statements.
(ii) Represents the interest rate on the existing Building One credit facility
as reported in Note 5 to the separate company pro forma financial
statements.
(iii) Represents the combined pro forma amounts of the commitment fees under
both the Building One and GroupMAC credit facilities based on the
borrowing levels of each company as reported in Note 5 of their
respective separate company pro forma financial statements.
(iv) Represents fees related to letter of credit commitments under the
existing GroupMAC credit facility as reported in Note 5 to the separate
company pro forma financial statements.
(v) Represents the combined pro forma amortization of deferred debt issue
costs related to the establishment of the existing credit facilities of
both GroupMAC and Building One over the existing lives of these facilities
as reported in Note 5 of their respective pro forma financial statements.
(vi) Represents the coupon rate of interest on the Building One senior
subordinated notes as reported in the separate company pro forma interest
calculation.
(vii) Represents the pro forma amortization of the deferred debt issue costs
and the discount recorded at issuance of the existing Building One
senior subordinated notes over the ten-year life of this debt.
(viii) Represents the contractual rates on the existing issuances of junior
subordinated debt of GroupMAC as reported in Note 5 to the separate
company pro forma financial statements.
54
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
5. PRO FORMA INTEREST EXPENSE--PRO FORMA COMBINED COMPANY (in thousands)
<TABLE>
<CAPTION>
Refinancing Pro Forma Combined Company
Adjustments Interest Expense
Pro Forma ------------------ ---------------------------------
Combined Refinance New Nine
Company Existing Facility Pro Forma Twelve Months Months Ended
Prior to Revolver Fees & Combined Interest Ended September 30,
Refinancing Balances Costs Company Rate December 31, 1998 1999
----------- --------- -------- --------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term Senior Debt:
Pro Forma September
30, 1999 Existing
Credit Agreements--
GroupMAC............... $364,259 $(364,259) $ -- $ -- $ -- $ --
Pro Forma September
30, 1999 Existing
Revolving Credit
Facility--Building
One.................... 125,684 (125,684) -- -- -- --
Pro Forma September
30, 1999 Existing Term
Credit Facility--
Building One........... 124,375 (124,375) -- -- -- --
Refinance with New
Facility--Revolver..... -- 314,318 10,200 324,518 7.50%(i) 24,339 18,254
Refinance with New
Facility--Delayed Draw
Term Loan A............ -- 130,000 -- 130,000 8.00%(ii) 10,400 7,800
Refinance with New
Facility--Term Loan
B...................... -- 170,000 -- 170,000 8.00%(iii) 13,600 10,200
Commitment fees under
Credit Facility
Agreements............. -- -- -- -- 877(iv) 658
Letter of Credit fees
under Credit Facility
Agreements............. -- -- -- -- 64(v) 48
Amortization of
deferred debt issue
costs under Credit
Facility Agreements.... -- -- -- -- 2,016(vi) 1,512
-------- --------- ------- -------- ------- -------
Total long-term
senior debt/interest
expense.............. $614,318 $ -- $10,200 $624,518 8.21% $51,296 $38,472
======== ========= ======= ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Pro Forma September
30, 1999 senior
subordinated notes--
Building One........... $200,000 $ -- $ -- $200,000 10.50%(vii) $21,000 $15,750
Unamortized balance of
discount on Building
One senior
subordinated notes...... (4,320) -- -- (4,320)
Amortization of
deferred debt issue
costs and discount..... -- -- -- -- 1,276(viii) 957
-------- --------- ------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense.............. $195,680 $ -- $ -- $195,680 11.38% $22,276 $16,707
======== ========= ======= ======== ====== ======= =======
Long-Term Junior
Subordinated Debt:
Pro Forma September
30, 1999 long-term
junior subordinated
note................... $ 1,650 $ -- $ -- $ 1,650 6.00%(ix) $ 99 $ 74
Pro Forma September
30, 1999 long-term
junior subordinated
note................... 2,500 -- 2,500 7.50%(ix) 188 141
-------- --------- ------- -------- ------- -------
$ 4,150 $ -- $ -- $ 4,150 6.92% $ 287 $ 215
======== ========= ======= ======== ====== ======= =======
Total debt/interest
expense................. $814,148 $ -- $10,200 $824,348 8.96% $73,859 $55,394
======== ========= ======= ======== ====== ======= =======
</TABLE>
- ----
(i) Represents interest rate on the new revolving credit facility calculated
as base rate of 5.5% plus applicable margin of 2.0%.
(ii) Represents interest rate on the new delayed draw term loan A credit
facility calculated as base rate of 5.5% plus applicable margin of 2.5%.
(iii) Represents interest rate on the new term loan B credit facility
calculated as base rate of 5.5% plus applicable margin of 2.5%.
(iv) Represents commitment fees under the new credit facilities based on a
rate of 0.5% on the amount available under the new credit facilities
after reflecting pro forma borrowings.
(v) Represents letter of credit fees on pro forma borrowings of $3,190 under
letter of credit agreements at an annual rate of 2.0%.
(vi) Represents amortization over the terms of the respective credit
facilities of deferred debt issuance costs relating to establish of these
new credit facilities.
(vii) Represents the coupon rate of interest on the Building One senior
subordinated notes as reported in Note 5 to the separate company pro
forma financial statements.
(viii) Represents the pro forma amortization of the deferred debt issue costs
and the discount recorded at issuance of the existing Building One
senior subordinated notes over the ten-year life of this debt.
(ix) Represents the contractual rates on the existing issuances of junior
subordinated debt of GroupMAC as reported in Note 5 to the separate
company pro forma financial statements.
55
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements utilize the
historical financial statements of GroupMAC as of September 30, 1999 and for
the nine months ended September 30, 1999, and for the year ended December 31,
1998 and give effect to (i) the pre-acquisition financial information of 39
companies acquired during 1998 (the "1998 Acquisition Companies") and (ii) the
pre-acquisition financial information of 13 companies acquired during 1999
(the "1999 Acquisition Companies").
All of the acquisitions were 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
financial statements.
The unaudited pro forma balance sheet represents the historical
consolidated balance sheet of GroupMAC as adjusted for the refinancing
transactions highlighted in Note 3 below as if such transactions occurred on
September 30, 1999. The accompanying unaudited pro forma statements of
operations of GroupMAC combine the historical statements of operations of
GroupMAC and the statements of operations of the acquired entities as if such
acquisitions had occurred on January 1, 1998.
GroupMAC has analyzed the savings that it expects to realize from
reductions in salaries and certain benefits to the owners of the acquired
companies. To the extent the owners of the acquired entities have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statements of
operations.
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. The pro forma 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
results may not be indicative of or comparable to future performance. The
unaudited pro forma financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
GroupMAC's annual report on Form 10-K/A for the fiscal year ended December 31,
1998 and the unaudited consolidated condensed financial statements and notes
thereto included in GroupMAC's quarterly report on Form 10-Q for the quarter
ended September 30, 1999.
56
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
GroupMAC Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 6,496 $(6,496)(a) $ --
Accounts receivable, net of allowance.... 317,344 -- 317,344
Inventories.............................. 20,635 -- 20,635
Costs and estimated earnings in excess of
billings on uncompleted contracts....... 50,299 -- 50,299
Prepaid expenses and other current
assets.................................. 8,167 -- 8,167
Deferred tax asset....................... 9,750 -- 9,750
---------- ------- --------
Total current assets.................... 412,691 (6,496) 406,195
PROPERTY AND EQUIPMENT, net............... 55,913 -- 55,913
GOODWILL, net............................. 518,003 -- 518,003
DEFERRED DEBT ISSUE COSTS................. 13,568 -- 13,568
OTHER LONG-TERM ASSETS.................... 1,744 -- 1,744
---------- ------- --------
Total assets............................ $1,001,919 $(6,496) $995,423
========== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt............ $ 1,408 $(1,408)(b) $ --
Accounts payable......................... 92,510 -- 92,510
Accrued compensation..................... 42,981 -- 42,981
Accrued liabilities...................... 27,934 -- 27,934
Due to related parties................... 5,432 (5,432)(c) --
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 47,997 -- 47,997
Deferred service revenue................. 5,022 -- 5,022
Income taxes payable..................... 8,844 -- 8,844
Other current liabilities................ 2,746 -- 2,746
---------- ------- --------
Total current liabilities............... 234,874 (6,840) 228,034
REVOLVING CREDIT FACILITY................. 218,500 344 (a-c) 218,844
SENIOR SUBORDINATED NOTES................. 130,000 -- 130,000
JUNIOR SUBORDINATED NOTES................. 4,150 -- 4,150
DEFERRED TAX LIABILITY.................... 1,486 -- 1,486
OTHER LONG-TERM LIABILITIES............... 3,084 -- 3,084
SHAREHOLDERS' EQUITY
Common stock............................. 38 -- 38
Additional paid-in capital............... 382,949 -- 382,949
Retained earnings........................ 26,838 -- 26,838
---------- ------- --------
Total shareholders' equity.............. 409,825 -- 409,825
---------- ------- --------
Total liabilities and shareholders'
equity................................. $1,001,919 $(6,496) $995,423
========== ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
57
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
Acquisition Acquisition Pro Forma
GroupMAC Companies Companies Adjustments Pro Forma
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES................ $761,541 $314,878 $365,054 $ -- $1,441,473
COST OF SERVICES........ 585,396 248,518 292,374 -- 1,126,288
-------- -------- -------- -------- ----------
Gross profit.......... 176,145 66,360 72,680 -- 315,185
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 118,119 43,934 40,155 (11,218)(a) 190,990
AMORTIZATION OF
GOODWILL............... 5,960 -- -- 7,386(b) 13,346
-------- -------- -------- -------- ----------
Income from
operations........... 52,066 22,426 32,525 3,832 110,849
OTHER INCOME (EXPENSE):
Interest expense...... (6,595) (749) (1,583) (22,706)(c) (31,633)
Interest income....... 407 271 299 (977)(d) --
Other................. 377 496 542 -- 1,415
-------- -------- -------- -------- ----------
Income before income
tax provision........ 46,255 22,444 31,783 (19,851) 80,631
INCOME TAX PROVISION.... 20,326 1,124 5,099 8,664(e) 35,213
-------- -------- -------- -------- ----------
NET INCOME.............. $ 25,929 $ 21,320 $ 26,684 $(28,515) $ 45,418
======== ======== ======== ======== ==========
NET INCOME PER SHARE--
BASIC.................. $ 0.94 $ 1.18
======== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 27,544 38,412(f)
======== ==========
NET INCOME PER SHARE--
DILUTED................ $ 0.93 $ 1.17
======== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 27,948 38,968(f)
======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
58
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999
GroupMAC and Acquisition Pro Forma
Subsidiaries Companies Adjustments Pro Forma
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES................. $1,121,471 $93,072 $ -- $1,214,543
COST OF SERVICES......... 890,287 75,886 -- 966,173
---------- ------- ------- ----------
Gross profit........... 231,184 17,186 -- 248,370
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 142,829 10,823 (710)(a) 152,942
AMORTIZATION OF
GOODWILL................ 9,234 -- 775 (b) 10,009
---------- ------- ------- ----------
Income from
operations............ 79,121 6,363 (65) 85,419
OTHER INCOME (EXPENSE):
Interest expense....... (20,777) (152) (2,796)(c) (23,725)
Interest income........ 314 106 (420)(d) --
Other.................. 529 (85) -- 444
---------- ------- ------- ----------
Income before income
tax provision........ 59,187 6,232 (3,281) 62,138
INCOME TAX PROVISION..... 25,767 615 676 (e) 27,058
---------- ------- ------- ----------
NET INCOME............... $ 33,420 $ 5,617 $(3,957) $ 35,080
========== ======= ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 0.91 $ 0.91
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 36,646 38,412 (f)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 0.90 $ 0.91
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED................. 36,980 38,737 (f)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
59
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1998 Acquisition Companies
from January 1, 1998 to the dates of the acquisitions were combined with the
actual results of operations of the Company and the 1999 Acquisition Companies
for the twelve months ended December 31, 1998 to determine the pro forma
results of operations for the twelve months ended December 31, 1998.
The respective results of operations for the 1999 Acquisition Companies
from January 1, 1999 to the dates of acquisition were combined with the actual
results of operations of the Company for the nine months ended September 30,
1999 to determine the pro forma results of operations for the nine months
ended September 30, 1999.
2. ACQUISITIONS
The results of operations of the acquired businesses are included in the
actual results of operations of GroupMAC from the date of acquisition, and the
historical balance sheet at September 30, 1999 includes all acquisitions
completed by GroupMAC to date. All of the acquisitions are accounted for as
purchases. The cash consideration associated with the acquisition of the 1999
Acquisition Companies was provided by borrowings under an amended and restated
credit agreement (the "Credit Agreement").
Several former owners of the acquired companies have the ability to receive
additional amounts of purchase price, payable in cash and common stock in 1999
through 2001, contingent upon the occurrence of future events. GroupMAC will
record such contingent consideration as additional purchase price when earned.
GroupMAC currently estimates the unearned contingent consideration under these
agreements to approximate $6.0 million in cash and shares of common stock as
of September 30, 1999.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes unaudited pro forma combined balance sheet
adjustments:
a) Records the utilization of cash on hand at September 30, 1999 to reduce
borrowings in connection with acquisitions under the Credit Agreement.
b) Records the refinancing of debt assumed and outstanding at September 30,
1999 in connection with acquisitions completed prior to that date
through borrowings under the Credit Agreement.
c) Records the funding of amounts due to related parties at September 30,
1999 in connection with acquisitions completed prior to that date
through borrowings under the Credit Agreement.
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The following summarizes unaudited pro forma combined statement of
operations adjustments:
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of the acquired 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.
b) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions over a 40-year estimated life.
60
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
c) Represents the adjustment necessary to reflect interest expense related
to borrowings under the Credit Agreement to fund the cash portion of the
purchase price and the assumption of debt related to the 1998 and 1999
Acquisition Companies, interest related to Senior Subordinated Notes
used to retire amounts outstanding under the Credit Agreement, and
interest related to the junior subordinated debt. A summary of the
historical and pro forma debt outstanding and a summary of the pro forma
interest expense (including amounts recognized in the historical
financial statements) assuming the acquisitions occurred on January 1,
1998, follows in Note 5.
d) Reflects the reduction to historical interest income related to existing
and acquired cash, all of which is assumed to be used for the
acquisition of the 1998 and 1999 Acquisition 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>
<CAPTION>
Nine Months
Twelve Months Ended
Ended September 30,
December 31, -------------
1998 1999
------------- -------------
<S> <C> <C>
Shares issued and outstanding at September 30,
1999.......................................... 38,344 38,344
Shares to be issued for companies acquired
prior to September 30, 1999................... 68 68
------ ------
Weighted average shares outstanding--basic..... 38,412 38,412
Incremental effect of options and warrants on
shares outstanding............................ 556 325
------ ------
Weighted average shares outstanding--diluted... 38,968 38,737
====== ======
</TABLE>
61
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE (in thousands)
<TABLE>
<CAPTION>
Interest Expense
------------------------------
September 30, Twelve Months Nine Months
1999 Ended Ended
September 30, Pro Forma Pro Forma Interest December 31, September 30,
1999 Balances Adjustments Balances Rate 1998 1999
------------- ----------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Senior Debt:
Historical September
30, 1999 short-term
debt.................. $ 1,408 $(1,408) $ -- $ -- $ --
-------- ------- -------- ------- -------
Total short-term
senior debt/interest
expense............. $ 1,408 $(1,408) $ --(i) $ -- $ --
======== ======= ======== ======= =======
Long-Term Senior Debt:
Historical September
30, 1999 Credit
Agreement............. $218,500 $(1,064) $217,436 6.88%(iii) $14,959 $11,219
Refinance short-term
debt.................. -- 1,408 1,408 6.88%(iii) 97 73
Letter of Credit Fees
under the Credit
Agreement............. -- -- -- 48 36
Commitment Fees under
the Credit
Agreement............. -- -- -- 762(vi) 572
Amortization of
related deferred debt
issue costs........... -- -- -- 1,704(vii) 1,278
-------- ------- -------- ------- -------
Total long-term
senior debt/interest
expense............. $218,500 $ 344 $218,844(i),(ii) 8.03% $17,570 $13,178
======== ======= ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Historical September
30, 1999 Senior
Subordinated Notes.... $130,000 $ -- $130,000 9.75%(iv) $12,675 $ 9,506
Amortization of
related deferred debt
issue costs........... -- -- -- 1,101(viii) 826
-------- ------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense............. $130,000 $ -- $130,000 10.60% $13,776 $10,332
======== ======= ======== ====== ======= =======
Long-Term Junior
Subordinated Debt:
Historical September
30, 1999 long-term
debt.................. $ 1,650 $ -- $ 1,650 6.00%(v) $ 99 $ 74
Historical September
30, 1999 long-term
debt.................. 2,500 -- 2,500 7.50%(v) 188 141
-------- ------- -------- ------- -------
Total long-term
junior subordinated
debt/interest
expense............. $ 4,150 $ -- $ 4,150 6.92% $ 287 $ 215
======== ======= ======== ====== ======= =======
Total debt/interest
expense................ $354,058 $(1,064) $352,994 8.96% $31,633 $23,725
======== ======= ======== ====== ======= =======
</TABLE>
- --------
(i) Represents total senior indebtedness.
(ii) Represents total guarantor senior indebtedness.
(iii) Represents the current borrowing rates under the Credit Agreement.
(iv) Represents the coupon interest rate for the Senior Subordinated Notes.
(v) Represents the respective contractual interest rates for these issues of
junior subordinated debt.
(vi) Represents commitment fees on unused capacity on the Credit Agreement at
an annual rate of 0.375%.
(vii) Represents amortization of deferred debt issue costs over the remaining
life of the Credit Agreement.
(viii) Represents amortization of deferred debt issue costs over the ten-year
life of the related Senior Subordinated Notes.
62
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The following unaudited pro forma financial statements utilize the
historical financial statements of Building One as of September 30, 1999 and
for the nine months ended September 30, 1999, and for the year ended December
31, 1998 and give effect to (i) the tender offer that occurred in February
1999, including the financing of the tender offer, (ii) the pre-acquisition
financial information of 26 companies acquired during 1998 which were
accounted for under the purchase method of accounting (the "1998 Acquisition
Companies"), and (iii) the pre-acquisition financial information of 17
companies acquired during 1999 which were accounted for under the purchase
method of accounting (the "1999 Acquisition Companies").
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
financial statements.
The unaudited pro forma balance sheet represents the historical
consolidated balance sheet of Building One as adjusted for the refinancing
transactions highlighted in Note 3 below as if such transactions occurred on
September 30, 1999. The accompanying unaudited pro forma statements of
operations give effect to the tender offer that occurred in February 1999,
including the refinancing of the tender offer, and combines the historical
statements of operations of Building One and the statements of operations of
the acquired entities as if all such transactions had occurred on January 1,
1998.
Building One has analyzed the savings that it expects to realize from
reductions in salaries and certain benefits to the owners of the acquired
companies. To the extent the owners of the acquired entities have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statements of
operations.
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. The pro forma financial data do not purport to
represent what Building One'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 Building One'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 results may not be indicative of or comparable to future
performance. The unaudited pro forma financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in Building One's annual report on Form 10-K for the fiscal
year ended December 31, 1998 and the unaudited consolidated condensed
financial statements and notes thereto included in Building One's quarterly
report on Form 10-Q for the quarter ended September 30, 1999.
63
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Building Pro Forma
ASSETS One Adjustments Pro Forma
------ ---------- ----------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 14,522 $(14,522)(a) $ --
Accounts receivable, net of
allowance........................... 362,147 -- 362,147
Inventories.......................... 8,213 -- 8,213
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... 49,875 -- 49,875
Prepaid expenses and other current
assets.............................. 11,590 -- 11,590
Deferred tax asset................... 4,424 -- 4,424
Refundable income taxes.............. 3,405 -- 3,405
---------- -------- ----------
Total current assets............... 454,176 (14,522) 439,654
---------- -------- ----------
PROPERTY AND EQUIPMENT, net............ 57,358 -- 57,358
GOODWILL, net.......................... 673,238 -- 673,238
DEFERRED DEBT ISSUE COSTS, net......... 21,055 -- 21,055
OTHER LONG-TERM ASSETS................. 6,384 -- 6,384
---------- -------- ----------
Total assets....................... $1,212,211 $(14,522) $1,197,689
========== ======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt........ $ 3,106 $ (3,106)(b) $ --
Accounts payable..................... 92,036 -- 92,036
Accrued compensation................. 41,669 -- 41,669
Accrued liabilities.................. 46,409 -- 46,409
Due to related parties............... 4,083 (4,083)(c) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 81,109 -- 81,109
Other current liabilities............ -- -- --
---------- -------- ----------
Total current liabilities.......... 268,412 (7,189) 261,223
REVOLVING CREDIT FACILITY.............. 116,500 (5,001)(a-c) 111,499
TERM CREDIT FACILITY................... 124,375 -- 124,375
SENIOR SUBORDINATED NOTES, net of
unamortized discount.................. 195,680 -- 195,680
CONVERTIBLE JUNIOR SUBORDINATED
DEBENTURES............................ 103,190 -- 103,190
LONG TERM DEBT......................... 2,332 (2,332)(b) --
DEFERRED TAX LIABILITY................. 2,243 -- 2,243
OTHER LONG-TERM LIABILITIES............ 2,463 -- 2,463
STOCKHOLDERS' EQUITY
Common stock......................... 26 -- 26
Additional paid-in capital........... 310,216 -- 310,216
Retained earnings.................... 87,339 -- 87,339
Accumulated other comprehensive
loss................................ (565) -- (565)
---------- -------- ----------
Total stockholders' equity......... 397,016 -- 397,016
---------- -------- ----------
Total liabilities and stockholders'
equity............................ $1,212,211 $(14,522) $1,197,689
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
64
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data )
<TABLE>
<CAPTION>
1998 1999
Building Acquisition Acquisition Pro Forma
One Companies Companies Adjustments Pro Forma
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES................ $809,601 $502,663 $292,072 $ -- $1,604,336
COST OF SERVICES........ 636,225 411,042 228,868 -- 1,276,135
-------- -------- -------- -------- ----------
Gross profit.......... 173,376 91,621 63,204 -- 328,201
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 100,539 71,137 50,853 (39,546)(a) 182,983
AMORTIZATION OF GOODWILL
....................... 7,653 234 -- 9,792 (b) 17,679
-------- -------- -------- -------- ----------
Income from
operations........... 65,184 20,250 12,351 29,754 127,539
OTHER INCOME (EXPENSE):
Interest expense...... (1,054) (1,835) (942) (47,231)(c) (51,062)
Interest income....... 19,373 1,852 480 (21,705)(d) --
Other................. 80 1,455 292 1,950 (e) 3,777
-------- -------- -------- -------- ----------
Income before income
tax provision...... 83,583 21,722 12,181 (37,232) 80,254
INCOME TAX PROVISION.... 36,120 6,550 1,547 (5,446)(f) 38,771
-------- -------- -------- -------- ----------
NET INCOME.............. $ 47,463 $ 15,172 $ 10,634 $(31,786) $ 41,483
======== ======== ======== ======== ==========
NET INCOME PER SHARE--
BASIC.................. $ 1.19 $ 1.57 (g)
======== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 39,908 26,357 (g)
======== ==========
NET INCOME PER SHARE--
DILUTED................ $ 1.16 $ 1.47 (g)
======== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 40,928 31,538 (g)
======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
65
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999
Building Acquisition Pro Forma
One Companies Adjustments Pro Forma
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES ................ $1,265,521 $97,966 $ -- $1,363,487
COST OF SERVICES ........ 1,011,305 73,902 -- 1,085,207
---------- ------- ------- ----------
Gross profit .......... 254,216 24,064 -- 278,280
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 145,863 22,147 (10,679)(a) 157,331
RESTRUCTURING &
RECAPITALIZATION
CHARGES................. 8,020 -- -- 8,020
AMORTIZATION OF
GOODWILL................ 11,511 -- 1,748 (b) 13,259
---------- ------- ------- ----------
Income from
operations............ 88,822 1,917 8,931 99,670
OTHER INCOME (EXPENSE):
Interest expense....... (21,279) (183) (16,835)(c) (38,297)
Interest income........ 4,674 213 (4,887)(d) --
Other.................. 128 252 131 (e) 511
---------- ------- ------- ----------
Income before income
tax provision....... 72,345 2,199 (12,660) 61,884
INCOME TAX PROVISION..... 32,261 1,378 (4,895)(f) 28,744
---------- ------- ------- ----------
NET INCOME .............. $ 40,084 $ 821 $(7,765) $ 33,140
========== ======= ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 1.14 $ 1.26 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 35,311 26,357 (g)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 1.08 $ 1.17 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED.................. 38,900 31,538 (g)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
66
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1998 Acquisition Companies
from January 1, 1998 to the dates of the acquisitions were combined with the
actual results of operations of the Company and the 1999 Acquisition Companies
for the twelve months ended December 31, 1998 and the nine months ended
September 30, 1999 to determine the pro forma results of operations for the
twelve months ended December 31, 1998.
The respective results of operations for the 1999 Acquisition Companies
from January 1, 1999 to the dates of acquisition were combined with the actual
results of operations of Building One for the nine months ended September 30,
1999 to determine the pro forma results of operations for the nine months
ended September 30, 1999.
2. ACQUISITIONS
The results of operations of the acquired businesses are included in the
actual results of operations of Building One from the date of acquisition, and
the historical balance sheet at September 30, 1999 includes the acquisitions
completed by Building One to date. With the exception of the 3 companies
acquired during 1998 which were accounted for under the pooling-of-interests
method of accounting (the "1998 Pooled Companies"), all acquisitions are
accounted for as purchases. The cash consideration associated with the
acquisition of the 1999 Acquisition Companies was provided by borrowings under
a revolving credit facility.
Several former owners of the acquired companies have the ability to receive
additional amounts of purchase price, payable in cash and common stock in 1999
through 2001, contingent upon the occurrence of future events. Building One
will record such contingent consideration as additional purchase price when
earned. Building One currently estimates the unearned contingent consideration
under these agreements to approximate $85.0 million in cash and shares of
common stock as of September 30, 1999.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes unaudited pro forma combined balance sheet
adjustments:
a) Records the utilization of cash on hand at September 30, 1999 to
reduce borrowings in connection with acquisitions under the revolving
credit facility.
b) Records the refinancing of debt assumed and outstanding at September
30, 1999 in connection with acquisitions completed prior to that date
through borrowings under the revolving credit facility.
c) Records the funding of amounts due to related parties at September
30, 1999 in connection with acquisitions completed prior to that date
through borrowings under the revolving credit facility.
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The following summarizes unaudited pro forma combined statement of
operations adjustments:
a) Reflects the prospective reduction in salaries, bonuses and benefits
to the owners of the acquired 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.
Also reflects the reduction in one-time non-recurring acquisition costs
related to the 1998 Pooled Companies. These costs consist of legal,
accounting and broker fees.
b) Reflects the amortization of goodwill to be recorded as a result of
the acquisitions over a 40-year estimated life.
67
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
c) Represents the adjustment necessary to reflect interest expense
related to borrowings under the Revolving and Term Credit Facility, Senior
Subordinated Notes and Convertible Junior Subordinated Notes to finance the
tender offer and to fund the cash portion of the purchase price and the
assumption of debt related to the 1999 Acquisition Companies. A summary of
the historical and pro forma debt outstanding and a summary of the pro
forma interest expense (including amounts recognized in the historical
financial statements) assuming the acquisitions occurred on January 1,
1998, follows in Note 5.
d) Reflects the reduction to historical interest income related to
existing and acquired cash, all of which is assumed to be used for the
acquisition of the 1998 and 1999 Acquisition Companies.
e) Reflects the elimination of minority interest associated with the
acquisition of the remaining 50% interest of a company that was originally
50% owned by Building One.
f) 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.
68
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
g) The calculation of the weighted average shares outstanding and the
basic and diluted earnings per share include the following (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Twelve Months Ended
Ended September 30,
December 31, 1999
1998 -------------
<S> ------------- <C>
Weighted Average Shares Outstanding:
Weighted average shares outstanding--
basic.................................. 26,357 26,357
Incremental effect of conversion of
Convertible Junior Subordinated
Debentures............................. 4,586 4,586
Incremental effect of contingently
issuable shares........................ 443 443
Incremental effect of options and
warrants on shares outstanding......... 152 152
-------- --------
Weighted average shares outstanding--
diluted................................ 31,538 31,538
======== ========
Net of Tax Interest Effect for
Convertible Junior Subordinated Debentures:
Principal of Convertible Junior
Subordinated Debentures................ $103,190 $103,190
Annual interest at 7.5%................. 7,739 7,739
Percentage of year...................... 100% 75%
-------- --------
Interest at coupon rate................. 7,739 5,804
Amortization of deferred issue costs.... 356 267
-------- --------
Interest on Convertible Junior
Subordinated Debentures................ 8,095 6,071
One minus tax rate...................... 61% 61%
-------- --------
Net of tax interest cost................ $ 4,938 $ 3,703
======== ========
Basic Earnings Per Share:
Net income.............................. $ 41,483 $ 33,140
Basic weighted average shares
outstanding............................ 26,357 26,357
-------- --------
Basic earnings per share................ $ 1.57 $ 1.26
======== ========
Diluted Earnings Per Share:
Net Income.............................. $ 41,483 $ 33,140
Interest expense on Convertible Junior
Subordinated Debentures, net of tax.... 4,938 3,703
-------- --------
Net income on an if-converted basis..... $ 46,421 $ 36,843
Diluted weighted average shares
outstanding............................ 31,538 31,538
-------- --------
Diluted earnings per share.............. $ 1.47 $ 1.17
======== ========
</TABLE>
69
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. UNAUDITED PRO FORMA INTEREST EXPENSE (in thousands)
<TABLE>
<CAPTION>
Interest Expense
-------------------------------
September 30, Twelve Months Nine Months
1999 Pro Ended Ended
September 30, Pro Forma Forma Interest December 31, September 30,
1999 Balances Adjustments Balances Rate 1998 1999
------------- ----------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Short -Term Senior Debt:
Historical September
30, 1999 short-term
debt.................. $ 3,106 $ (3,106) $ -- $ -- $ --
-------- -------- -------- ------- -------
Total short-term
senior debt/interest
expense............. $ 3,106 $ (3,106) $ -- $ -- $ --
======== ======== ======== ======= =======
Long-Term Senior Debt:
Historical September
30, 1999 Revolving
Credit Facility....... $116,500 $ (8,107) $108,393 7.73%(i) $ 8,379 $ 6,284
Historical September
30, 1999 Term Credit
Facility.............. 124,375 -- 124,375 7.73%(i) 9,614 7,211
Historical September
30, 1999 other long-
term debt............. 2,332 (2,332) -- -- --
Refinance short-term
debt.................. -- 3,106 3,106 7.73%(i) 240 180
Commitment Fees........ -- -- -- 568 (iv) 426
Amortization of
deferred debt issue
costs................. -- -- -- 1,889 (v) 1,417
-------- -------- -------- ------- -------
Total long-term
senior debt/interest
expense............. $243,207 $ (7,333) $235,874 8.77% $20,690 $15,518
======== ======== ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Historical September
30, 1999 Senior
Subordinated Notes.... $200,000 $ -- $200,000 10.50%(ii) $21,000 $15,750
Discount/amortization
on issuance of Senior
Subordinated Notes.... (4,320) -- (4,320) 451 (vi) 338
Amortization of
related deferred debt
issue costs........... -- -- -- 825 (vii) 619
-------- -------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense............. $195,680 $ -- $195,680 11.38% $22,276 $16,707
======== ======== ======== ====== ======= =======
Long-Term Convertible
Junior Subordinated
Debt:
Historical September
30, 1999 Convertible
Junior Subordinated
Debentures............. $103,190 $ -- $103,190 7.50%(iii) $ 7,739 $ 5,804
Amortization of
related deferred debt
issue costs........... -- -- -- 357 (viii) 268
-------- -------- -------- ------- -------
Total long-term
convertible junior
subordinated
debt/interest
expense............. $103,190 $ -- $103,190 7.85% $ 8,096 $ 6,072
======== ======== ======== ====== ======= =======
Total debt/interest
expense................ $545,183 $(10,439) $534,744 9.55% $51,062 $38,297
======== ======== ======== ====== ======= =======
</TABLE>
- --------
(i) Represents the current borrowing rates under the BOSC Credit Facility.
(ii) Represents the coupon interest rate for the Senior Subordinated
Debentures.
(iii) Represents the coupon interest rate for the Convertible Junior
Subordinated Debentures.
(iv) Represents commitment fees on unused capacity on the BOSC Credit Facility
at an annual rate of 0.5%.
(v) Represents amortization of deferred debt issue costs over the remaining
life of the BOSC Credit Facility.
(vi) The Senior Subordinated Notes were issued at 97.746%, or a discount of
$4,508, which is being amortized to interest expense over the ten-year
life of these notes.
(vii) Represents amortization of deferred debt issue costs over the ten-year
life of these Senior Subordinated Notes.
(viii) Represents amortization of deferred debt issue costs over the thirteen-
year life of these Convertible Junior Subordinated Debentures.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Daniel W. Kipp
-------------------------------
Daniel W. Kipp
Senior Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
Date: November 24, 1999
<PAGE>
INDEX OF EXHIBITS
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Fraizer & Deeter, LLC
23.3 Consent of Schenck & Associates SC
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-4 (No. 333-69533) and Form S-8 (Nos. 333-41749, 333-41751,
333-58651, 333-60537, 333-69421 and 333-78311) of Group Maintenance America
Corp. of our report dated February 12, 1999, except for Note 3, which is as of
March 23, 1999 relating to the financial statements of Building One Services
Corporation, which appears in the Current Report on Form 8-K of Group
Maintenance America Corp dated November 22, 1999.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 22, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-4 (No. 333-69533) and Form S-8 (Nos. 333-41749, 333-41751,
333-58651, 333-60537, 333-69421 and 333-78311) of Group Maintenance America
Corp. of our report dated February 19, 1998 relating to the financial statements
of Perimeter Maintenance Corporation, which appears in the Current Report on
Form 8-K of Group Maintenance America Corp dated November 22, 1999.
Fraizer & Deeter, LLC
Atlanta, Georgia
November 22, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-4 (No. 333-69533) and Form S-8 (Nos. 333-41749, 333-41751,
333-58651, 333-60537, 333-69421 and 333-78311) of Group Maintenance America
Corp. of the report of Shinners, Hucovski and Company, S.C. dated February 17,
1998, relating to the financial statements of Crest International, LLC, which
appears in the Current Report on Form 8-K of Group Maintenance America Corp
dated November 22, 1999. Effective July 1, 1999, Shinners, Hucovski and Company,
S.C. merged with Schenck & Associates SC.
Schenck & Associates SC
Green Bay, Wisconsin
November 22, 1999
