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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 19, 1999
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 1-13565 76-0535259
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
8 GREENWAY PLAZA, SUITE 1500
HOUSTON, TEXAS 77046
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
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ITEM 5. OTHER EVENTS
On October 15, 1998, Group Maintenance America Corp. (the "Company")
completed the acquisition of Stephen C. Pomeroy, Inc. ("Pomeroy"). The Company
acquired Pomeroy pursuant to a merger (the "Merger") of Pomeroy with and into
Pomeroy Acquisition Corp. ("PAC"), a wholly-owned subsidiary of the Company. The
Merger was effected in accordance with the Agreement and Plan of Merger (the
"Merger Agreement") dated as of October 15, 1998, among the Company, PEC,
Pomeroy and the stockholders of Pomeroy. PEC was the surviving corporation of
the Merger. The purchase price paid or to be paid by the Company for Pomeroy
consists of $7.9 million in cash and 0.6 million shares of the Company's common
stock, par value $.001 per share ("Common Stock").
Stephen C. Pomeroy, Ronald L. Pomeroy and Matthew A. DiGennaro,
stockholders of Pomeroy prior to the Merger, will be employed by the surviving
corporation after the Merger. After the Merger, Pomeroy will continue to lease a
facility from Pomeroy Properties, L.C., an entity controlled by Stephen C.
Pomeroy.
Pomeroy is engaged in the business of providing electrical and
communication installation, maintenance and repair services for commercial
customers in the Southeast Florida, marketplace. The assets of Pomeroy consist
primarily of cash, accounts receivable, inventory, equipment, vehicles and
goodwill. The Company expects that Pomeroy will continue to conduct its business
in substantially the same manner as conducted before the Merger.
The cash portion of the consideration paid by the Company in connection
with the Merger was provided pursuant to loans made under a Credit Agreement
dated as of October 15, 1998 (the "Credit Agreement") among the Company, the
subsidiaries of the Company, Chase Bank of Texas, National Association, as
Agent, Bank of America Texas, N.A., as Co-Agent, Paribas, as Syndication Agent,
ABN AMRO Bank, N.V., as Documentation Agent, and the banks named therein. Under
the Credit Agreement, a syndicate of banks agreed to provide up to $230 million
of financing to the Company on a secured basis.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of businesses acquired.
3
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Steven C. Pomeroy, Inc.
We have audited the accompanying balance sheet of Steven C. Pomeroy,
Inc., as of September 30, 1998 and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that 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 Steven C. Pomeroy,
Inc. as of September 30, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
December 18, 1998
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STEPHEN C. POMEROY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1998
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ASSETS
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CURRENT ASSETS:
<S> <C>
Cash and cash equivalents..................................................... $ 1,513,788
Accounts receivable-trade, net of allowance of $28,965........................ 3,503,296
Accounts receivable-other..................................................... 45,739
Costs and estimated earnings in excess of billings on uncompleted contracts... 310,701
Prepaid expenses and other current assets..................................... 271,517
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Total current assets....................................................... 5,645,041
PROPERTY AND EQUIPMENT, NET..................................................... 179,055
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Total assets............................................................... $ 5,824,096
============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 978,792
Accrued expenses.............................................................. 801,836
Notes payable................................................................. 1,001,000
Billings in excess of costs and estimated earnings on uncompleted contracts... 257,959
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Total current liabilities.................................................. 3,039,587
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock - $5 par value; 100 shares authorized, issued
and outstanding............................................................ 500
Additional paid-in Capital.................................................... 1,514
Retained earnings............................................................. 2,782,495
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Total shareholder's equity................................................. 2,784,509
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Total liabilities and shareholder's equity.................................... $ 5,824,096
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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STEPHEN C. POMEROY, INC.
STATEMENT OF OPERATIONS
Year ended
September 30,
1998
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REVENUES................................................. $20,200,220
COST OF SERVICES......................................... 15,034,890
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Gross profit........................................... 5,165,330
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................ 3,840,569
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Income from operations................................. 1,324,761
OTHER INCOME (EXPENSE):
Interest income......................................... 70,194
Other, net.............................................. 700
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NET INCOME............................................... $ 1,395,655
==========
The accompanying notes are an integral part of these financial statements.
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STEPHEN C. POMEROY, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Shareholder's
Stock Capital Earnings Equity
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, September 30, 1997.... $ 500 $ 1,514 $ 2,423,602 $ 2,425,616
Net income..................... - - 1,395,655 1,395,655
Shareholder Distributions...... - - (1,036,762) (1,036,762)
--------- --------- ---------- ------------
Balance, September 30, 1998.... $ 500 $ 1,514 $ 2,782,495 $ 2,784,509
========= ========= ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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STEPHEN C. POMEROY, INC.
STATEMENT OF CASH FLOWS
Year ended
September 30,
1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,395,655
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................................. 92,129
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable-trade.............................. (1,271,514)
Accounts receivable-other.............................. (8,954)
Costs and estimated earnings in excess of billings
on uncompleted contracts.............................. 215,916
Prepaid expenses and other current assets.............. 9,521
Increase (decrease) in -
Accounts payable....................................... 110,089
Accrued expenses....................................... 227,584
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Net cash provided by operating activities.. 770,426
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (54,244)
Proceeds from sale of property and equipment.............. 51,025
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Net cash used in investing activities...... (3,219)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders............................. (1,036,762)
Proceeds from notes payable............................... 1,000,000
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Net cash used in financing activities...... (36,762)
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NET INCREASE IN CASH AND CASH EQUIVALENTS................. 730,445
CASH AND CASH EQUIVALENTS, beginning of year............... 783,343
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CASH AND CASH EQUIVALENTS, end of year..................... $ 1,513,788
==========
The accompanying notes are an integral part of these financial statements.
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STEVEN C. POMEROY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BUSINESS AND ORGANIZATION
Steven C. Pomeroy, Inc. (the "Company") performs electrical contracting
service work in the South Florida area, primarily for general contractors and
developers. This work is performed under fixed price contracts subject to
modification based on approved change orders and under time and material
contracts.
2. SUMMARY OF SIGNIFICANT POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue and Cost Recognition
Revenues from fixed price contracts are recognized on the percentage of
completion method. The completed percentage is measured by the percentage of
cost incurred to date as compared to the estimated total cost for each
contract, including work for approved change orders. Revenue from time and
material contracts is accrued at the end of each month based on chargeable
costs incurred through month end. Time and material contracts are billed for
the number of man hours and costs incurred.
Contract costs include all direct material, labor costs and a provision for
indirect costs such as indirect labor and equipment costs. Selling, general
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and
estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs
and revenues and are recognized in the period in which the revisions are
determined.
The Company's three largest customers accounted for 12%, 10% and 7%,
respectively, of total revenues for the year ended September 30, 1998.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers investments
in money market accounts and certificates of deposits purchased with an
original maturity of three months or less to be cash equivalents. Cash paid
for interest was $91 during fiscal 1998.
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STEVEN C. POMEROY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Accounts Receivable
Accounts receivable consists of the following at September 30, 1998:
Accounts receivable - billed............. $3,251,931
Retainage receivable..................... 280,330
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3,532,261
Allowance for doubtful accounts.......... (28,965)
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$3,503,296
==========
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Expenditures for
major renewals and improvements, which extend the useful lives of existing
equipment, are capitalized and depreciated. The estimated useful lives of
assets are as follows:
Years
Vehicles....................................... 5-7
Machinery and equipment........................ 5-7
Furniture and fixtures......................... 5-7
Expenditures for repairs and maintenance are charged to expense when incurred.
Upon retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Income Taxes
The shareholders of the Company have elected to be taxed as an S Corporation
under the Internal Revenue Code wherein the income is taxable to the
shareholders and not to the Company. Accordingly, no provision for income
taxes is recognized by the Company. The Company has made distributions to the
shareholders each year at least in the amounts necessary to pay personal
income taxes payable on the Company's taxable income.
Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash, accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts.
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STEVEN C. POMEROY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts result primarily from contracts with customers
principally in the Company's service area in south Florida. Credit is
extended to customers after an evaluation for credit worthiness; however, the
Company does not require collateral or other security from customers.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts as of September 30, 1998 is
as follows:
Costs incurred...................................... $4,295,759
Estimated earnings recognized....................... 1,280,700
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5,576,459
Less billings on contracts.......................... 5,523,717
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$ 52,742
==========
These costs and estimated earnings on uncompleted contracts are included in the
accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... 310,701
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... (257,959)
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$ 52,742
=========
4. PROPERTY AND EQUIPMENT
The principal categories of property and equipment as of September 30, 1998
are as follows:
Vehicles.......................................... $ 743,722
Machinery and equipment........................... 131,066
Furniture and fixtures............................ 129,725
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1,004,513
Less accumulated depreciation..................... 825,458
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$ 179,055
==========
5. NOTES PAYABLE
The Company maintained a $400,000 line of credit with its principal bank for
working capital needs. The note is payable on demand and has an interest rate
equal to the bank's prime rate plus .5%, which was 8.75% at September 30,
1998. The Company had no advances against the line during fiscal 1998 and
maintained a $1,000 minimum balance as required by the bank to maintain the
credit line.
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STEVEN C. POMEROY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
In September, 1998, the Company established a new line of credit with its
principal bank and drew down the entire available amount of $1,000,000. The
note matures December 31, 1998 and has an interest rate equal to the LIBOR
index rate plus 2%, which was 7.41% at September 30, 1998. The loan was
subsequently repaid in October 1998 from funds provided by Group Maintenance
America Corp. in the transaction described in Note 9.
6. EMPLOYEE BENEFIT PLANS
The Company adopted on October 1, 1997 a dual defined contribution profit
sharing and a 401(k) pension plan covering all employees with more than six
months of service. Contributions are allocated to the participants' accounts
based on annual salary, and vesting of balances begins immediately. The
Company accrued a $100,000 contribution to its profit sharing plan for the
year ended September 30, 1998 and contributed an additional $31,009 to the
401(k).
7. LEASES
The Company leases its building space from the shareholders at $3,710 per
month. The Company pays all property taxes, insurance and maintenance. Rent
expense for the lease of building space during the year ended September 30,
1998 was $46,020. Effective October 15, 1998, the Company entered into a new
lease agreement with the shareholders for a term of five years, subject to an
option to renew the lease for up to five successive one-year terms. The new
base rate effective October 15, 1998, is $5,876 per month. The base rent for
any extension period would be adjusted to reflect the increase in the consumer
price index. Future minimum lease payments under the new non-cancelable
operating lease are as follows:
Year ending September 30,
1999................ $ 69,429
2000................ 70,512
2001................ 70,512
2002................ 70,512
2003................ 70,512
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$351,477
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8. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
9. SUBSEQUENT EVENT
Effective October 15, 1998, Group Maintenance America Corp. ("GroupMAC")
acquired all of the outstanding shares of the Company for a combination of
cash and common stock of GroupMAC.
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(c) Exhibits
The following exhibits are filed with this report:
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23.1 Consent of KPMG LLP
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Randolph W. Bryant
--------------------------------
Randolph W. Bryant
Senior Vice President
and General Counsel
Date: January 19, 1999
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Group Maintenance America Corp.
We consent to incorporation by reference in the registration statements (No.
333-41749, No. 333-41751, No. 333-58651, No. 333-60537 and No. 333-69421) on
Form S-8 and (333-69533) on Form S-4 of Group Maintenance America Corp. of our
report dated December 18, 1998, relating to the balance sheet of Steven C.
Pomeroy, Inc. as of September 30, 1998, and the related statement of operations,
owners' equity and cash flows for the year ended September 30, 1998, which
report appears in the current report on Form 8-K of Group Maintenance America
Corp. dated January 19, 1999.
KPMG LLP
Houston, Texas
January 19, 1999
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