<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: April 15, 1999
(Date of earliest event reported: February 11, 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. Acquisition or Disposition of Assets
On February 11, 1999, Group Maintenance America Corp. (the "Company")
completed the acquisition of Air Systems, Inc., a California corporation ("Air
Systems"). The Company acquired Air Systems pursuant to a merger (the "Merger")
of Air Systems with and into Pacific Rim Mechanical Contractors, Inc., a
wholly-owned subsidiary of the Company ("Pacific Rim"). The Merger was effected
in accordance with the Agreement and Plan of Merger (the "Merger Agreement")
dated as of February 10, 1999, among the Company, Pacific Rim, Air Systems and
the shareholders of Air Systems. Pacific Rim was the surviving corporation of
the Merger. The purchase price paid or to be paid by the Company for Air Systems
consists of approximately $22.3 million in cash and 1.7 million shares of the
Company's common stock, par value $.001 per share ("Common Stock").
Substantially all of the stockholders of Air Systems prior to the Merger
will be employed by the surviving corporation after the Merger. After the
Merger, Air Systems shall continue to lease a facility from a trust of which a
former shareholder of Air Systems is the trustee and whose family members are
the beneficiaries.
Air Systems is engaged in the business of providing heating, ventilation
and cooling, process piping, sheet metal, controls and electrical contracting
services primarily in the San Jose, California, metropolitan area. The assets of
Air Systems consist primarily of cash, accounts receivable, inventory,
equipment, vehicles and goodwill. The Company expects that Air Systems 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, certain
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,
and ABN AMRO Bank, N.V., as Documentation Agent, and the banks named therein
(the "Lenders"). Under the Credit Agreement, a syndicate of banks agreed to
provide up to $230 million of financing to the Company on a secured basis. A
list of the Lenders is set forth on Exhibit 99 which is incorporated herein by
reference.
2
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
The following financial statements of Air Systems are included herein:
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Cash Flows
Statements of Shareholders' Equity
Notes to Financial Statements
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Air Systems, Inc.
We have audited the accompanying balance sheets of Air Systems, Inc. (the
Company) as of February 28, 1998 and December 31, 1998, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the two-year period ended February 28, 1998 and the ten months ended
December 31, 1998. 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 Air Systems, Inc. as of
February 28, 1998 and December 31, 1998, and the results of its operations and
its cash flows for each of the years in the two-year period ended February 28,
1998 and the ten months ended December 31, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Houston, Texas
February 12, 1999
4
<PAGE>
AIR SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, December 31,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable-trade, net of allowance for doubtful accounts of $250,000 32,310,484 34,706,607
and $350,000, respectively
Accounts receivable - other 738,625 280,414
Inventories 873,520 676,866
Costs and estimated earnings in excess of billings on uncompleted contracts 3,123,937 4,385,824
Prepaid expenses and other current assets 393,993 303,508
Deferred tax asset 755,400 757,000
----------- -----------
Total current assets 38,195,959 41,110,219
PROPERTY AND EQUIPMENT, net 4,541,174 4,962,920
OTHER LONG-TERM ASSETS 32,160 9,152
----------- -----------
Total assets $42,769,293 $46,082,291
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 2,500,855 $ 437,210
Short-term borrowings and current maturities of long-term debt 7,987,032 13,078,833
Current portion of capital lease obligations 99,921 34,759
Accounts payable 8,310,049 5,285,298
Accrued expenses 4,449,900 4,808,371
Income taxes payable 154,246 1,147,483
Billings in excess of costs and estimated earnings on uncompleted contracts 11,289,530 8,154,764
----------- -----------
Total current liabilities 34,791,533 32,946,718
LONG-TERM DEBT, net of current maturities 2,028,742 2,740,946
CAPITAL LEASE OBLIGATIONS, net of current maturities 32,434 15,904
DEFERRED TAX LIABILITY 330,900 422,900
----------- -----------
Total liabilities 37,183,609 36,126,468
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value; 10,000,000 shares authorized and
1,175,000 shares issued and outstanding 31,450 31,450
Retained earnings 5,554,234 9,924,373
----------- -----------
Total shareholders' equity 5,585,684 9,955,823
----------- -----------
Total liabilities and shareholders' equity $42,769,293 $46,082,291
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AIR SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Ten months ended
February 28, December 31,
------------------------------ ------------
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 55,527,909 $ 90,969,184 $ 97,052,319
COST OF SERVICES 44,264,437 76,213,819 77,699,709
------------ ------------ ------------
Gross profit 11,263,472 14,755,365 19,352,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 8,087,094 11,254,189 9,991,505
------------ ------------ ------------
Income from operations 3,176,378 3,501,176 9,361,105
OTHER INCOME (EXPENSE):
Interest income 9,735 2,904 6,362
Interest expense (238,241) (639,555) (733,208)
Abandoned offering costs - - (1,127,097)
Other, net 36,159 79,479 (12,004)
------------ ------------ ------------
Income before income tax provision 2,984,031 2,944,004 7,495,158
INCOME TAX PROVISION 1,196,000 1,242,500 3,125,019
------------ ------------ ------------
NET INCOME $ 1,788,031 $ 1,701,504 $ 4,370,139
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AIR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Ten months ended
February 28, December 31,
------------------------------ ------------
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,788,031 $ 1,701,504 $ 4,370,139
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 368,971 822,168 1,065,282
Deferred income tax (benefit) expense (4,000) (351,500) 90,400
(Gain) loss on sale of property and equipment (14,300) - 6,831
Change in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable-trade (5,103,933) (18,103,134) (2,396,123)
Accounts receivable-other (90,629) (352,334) 458,211
Inventories (26,955) (472,021) 196,654
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,458,018 6,247,292 (4,396,653)
Prepaid expenses and other assets (73,678) (153,360) 113,493
Increase (decrease) in -
Accounts payable 88,560 4,588,051 (3,024,751)
Accrued expenses 933,469 1,080,269 358,471
Income taxes payable 535,038 (510,666) 993,237
------------ ------------ ------------
Net cash used in operating activities (141,408) (5,503,731) (2,164,809)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,146,000) (3,550,283) (1,530,868)
Proceeds from sale of property and equipment 4,590 - 37,009
------------ ------------ ------------
Net cash used in investing activities (1,141,410) (3,550,283) (1,493,859)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 626,035 1,930,419 (2,063,645)
Proceeds from short-term borrowings and long-term debt 808,650 7,673,978 6,382,378
Payments on short-term borrowings and long-term debt - (411,000) (578,373)
Repayment of capital lease obligations (151,867) (139,383) (81,692)
------------ ------------ ------------
Net cash provided by financing activities 1,282,818 9,054,014 3,658,668
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS - - -
CASH AND CASH EQUIVALENTS, beginning of period - - -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ - $ - $ -
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 230,241 $ 622,555 $ 726,398
Income taxes $ 660,962 $ 1,753,166 $ 2,041,382
Additions under capital lease $ - $ 25,000 $ -
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AIR SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Total
----------------------- Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, February 29, 1996 1,175,000 $ 31,450 $ 2,064,699 $ 2,096,149
Net income - - 1,788,031 1,788,031
--------- ----------- ----------- -----------
BALANCE, February 28, 1997 1,175,000 $ 31,450 3,852,730 3,884,180
Net income - - 1,701,504 1,701,504
--------- ----------- ----------- -----------
BALANCE, February 28, 1998 1,175,000 $ 31,450 5,554,234 5,585,684
Net income - - 4,370,139 4,370,139
--------- ----------- ----------- -----------
BALANCE, December 31, 1998 1,175,000 $ 31,450 $ 9,924,373 $ 9,955,823
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Air Systems, Inc., a California corporation, ("the Company") is a mechanical
contractor and HVAC service provider of commercial services in plumbing,
process piping and sheet metal construction with operations serving
principally northern California. The Company performs work under cost-plus-
fee contracts, fixed price contracts, and time and material contracts. The
length of individual contracts varies, but typically is less than one year.
2. SUMMARY OF SIGNIFICANT POLICIES
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
The Company recognizes revenue when services are performed except when the
work is being performed under a construction contract. Revenues from fixed
price construction contracts are recognized on the percentage of completion
method. The completed percentage is measured by the percentage of cost
incurred to date as compared to the estimated total cost for each contract,
including work for approved change orders. Revenue from cost-plus-fee
contracts are recognized on the basis of costs incurred during the period plus
the fee earned, measured by the cost-to-cost method.
Contract costs include all direct material, subcontract and labor costs and a
provision for indirect costs such as indirect labor and equipment costs.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and revenues and are recognized in the period in which the revisions are
determined.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating systems. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating systems. A
reserve for warranty costs is recorded as part of the cost to complete each
individual job.
Cash and Cash Equivalents
For purposes of the statements 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.
9
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts Receivable - Trade
Accounts receivable-trade consists of the following at February 28, 1998 and
December 31, 1998:
February 28, December 31,
1998 1998
----------- -----------
Accounts receivable - billed $27,767,017 $27,976,145
Retainage receivable 4,793,467 7,080,462
Allowance for doubtful accounts (250,000) (350,000)
----------- -----------
$32,310,484 $34,706,607
=========== ===========
Inventories
Inventories consist of parts and supplies for general use and items for
specific jobs. Inventories are stated at the lower of cost or market. Cost
is determined based upon specific identification.
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. Leasehold improvements and
equipment under capital leases are capitalized and amortized over the lesser
of the life of the lease or the estimated useful life of the asset. The
estimated useful lives of assets are as follows:
Years
Transportation equipment 5
Shop equipment 3-7
Furniture and office equipment 3-5
Leasehold improvements 3-5
Expenditures for repairs and maintenance are charged to expense when incurred.
Upon retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
Deferred taxes are provided using the asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash, accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts.
10
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
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 northern California. The Company
typically serves as a subcontractor working for a general contractor. The
Company's ultimate customers are primarily engaged in the high-technology
industry in northern California. Credit is extended to customers after an
evaluation for credit worthiness; however, the Company does not require
collateral or other security from customers.
The percentage contribution to total revenues from customers that represent
10% or more of total revenues in either the year ended February 28, 1997, the
year ended February 28, 1998 and the ten months ended December 31, 1998 are as
follows:
Ten months ended
Year ended February 28, December 31,
1997 1998 1998
------ ------ -------
Customer A 41% 50% 70%
Customer B 15% 16% 7%
3. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan covering substantially all employees not
covered by a collective bargaining agreement. Contributions are determined
annually at the discretion of the Board of Directors and may not exceed 15% of
eligible compensation. For the years ended February 28, 1997 and 1998 and for
the ten months ended December 31, 1998, the Company made no contributions.
The Company has a 401(k) plan which covers substantially all employees who are
not covered by a collective bargaining agreement. Employer contributions are
discretionary and determined annually by management. The contributions are
limited to the proportionate share of employee contributions, up to 15% of
eligible compensation. For the years ended February 28, 1997 and February 28,
1998 and the ten months ended December 31, 1998, the discretionary employer
contributions were approximately $82,000, $177,000 and $160,308, respectively.
Union employees are covered by multi-industry pension plans to which the
Company contributes monthly based on hours worked by each eligible employee.
For the years ended February 28, 1997 and February 28, 1998 and the ten months
ended December 31, 1998 the Company contributed approximately $2,127,000,
$3,404,000 and $4,468,632, respectively. Governmental regulations impose
certain requirements relative to multi-employer plans. In the event of a
plan's termination or employer withdrawal, the Company may be liable for a
portion of the plan's unfunded vested benefits, if any. As of December 31,
1998, there are no unfunded vested pension liabilities under these plans.
4. LEASES
The Company leases its primary office and warehouse space from the President
and controlling shareholder of the Company. The leases expire principally in
February 2000. The rental payment made under these related-party leases is
approximately $25,000 per month. The Company also leases other facilities and
storage space from unrelated parties under non-cancelable operating leases
which expire in February 2000. The rent paid under these leases is
approximately $11,000 per month.
11
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Future minimum lease payments under these non-cancelable operating leases are
as follows:
Year ending December 31,
------------------------
1999 $ 479,496
2000 54,458
---------
Total minimum lease payments $ 533,954
=========
Rent expenses under these leases totaled approximately $251,000, $359,000 and
$362,000 for the years ended February 28, 1997 and February 28, 1998 and the
ten months ended December 31, 1998, respectively.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts as of February 28, 1998 and
December 31, 1998 is as follows:
February 28, December 31,
1998 1998
------------ ------------
Cost incurred $ 54,725,034 $111,443,557
Estimated earnings recognized 10,614,055 24,153,853
------------ ------------
65,339,089 135,597,410
Less billings on contracts 73,504,682 139,366,350
------------ ------------
$ (8,165,593) $ (3,768,940)
============ ============
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
February 28, December 31,
1998 1998
------------ ------------
Costs and estimated earnings in
excess of billings on uncompleted
contracts $ 3,123,937 $ 4,385,824
Billings in excess of cost and
estimated earnings on uncompleted
contracts (11,289,530) (8,154,764)
------------ ------------
$ (8,165,593) $ (3,768,940)
============ ============
6. PROPERTY AND EQUIPMENT
The principal categories of property and equipment as of February 28, 1998 and
December 31, 1998 are as follows:
12
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
February 28, December 31,
1998 1998
------------ ------------
Transporation equipment $ 3,484,978 $ 3,990,984
Shop equipment 1,550,475 1,834,959
Furniture and office equipment 1,490,765 1,891,257
Leasehold improvements 969,402 1,246,225
------------ ------------
7,495,620 8,963,425
Less: accumulated depreciation 2,954,446 4,000,505
------------ ------------
$ 4,541,174 $ 4,962,920
============ ============
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
8. TRANSACTIONS WITH RELATED PARTIES
The Company leases its primary office and warehouse facility from the
President and controlling shareholder of the Company (See Note 4.)
The controlling shareholder of the Company is a 70% owner of another related
mechanical contractor located in Sacramento, California. The Company provides
administrative services to this related party which amounted to approximately
$4,000, $18,000 and $17,000 for the years ended February 28, 1997 and February
28, 1998 and the ten months ended December 31, 1998, respectively. In
addition, the Company had advanced certain amounts to this related party. The
Company had a receivable due from this related party in the amount of $520,000
at February 28, 1998 and $218,964 at December 31, 1998.
9. SHORT-TERM AND LONG-TERM DEBT
The Company has a $15,000,000 revolving line of credit with a bank. The line
of credit expires August 5, 1999 and bears interest at 0.625 percent above the
bank's lending rate (9.125% and 8.375% at February 28, 1998 and December 31,
1998, respectively). The line of credit is secured by substantially all of
the assets of the Company and guaranteed by the majority shareholder. There
was $12,261,092 drawn on this line as of December 31, 1998.
Additionally, the Company has a $1,000,000 bank line of credit for the
purchase of property and equipment with a bank ("equipment line of credit").
The equipment line of credit expires August 5, 1999 and bears interest at 1.25
percent above the bank's base lending rate. There were no outstanding
borrowings drawn on this line as of December 31, 1998.
These lines of credit have restrictive and various financial covenants with
which the Company was in compliance at December 31, 1998.
13
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
There are various other notes payable of the Company, which are summarized as
follows:
February 28, December 31,
1998 1998
------------ ------------
Commercial term loans payable to a bank,
payable in monthly principal and interest
installments, aggregating $44,278 with
interest ranging from 9.5% to 9.75%,
maturing from August 2000 to December 2002,
secured by transportation equipment. $ 1,802,697 $ 1,501,568
Commercial term loan payable to a bank,
payable in monthly principal installments
of $8,563 with interest at the bank's
prime rate plus 1.25% (9.0% at December 31,
1998), maturing August 5, 2001,
collateralized by various equipment. 360,150 282,584
Commercial term loan payable to a bank, payable
in monthly principal installments of $19,868
beginning September 1999 with interest at the
bank's prime rate plus 1.25% (9.0% at December
31, 1998), maturing August 5, 2003,
collateralized by various equipment. - 953,648
Note payable, payable in monthly installments of
principal and interest of $11,319 with interest
at 8.9%, maturing March 2003, collateralized by
various equipment. - 449,130
Note payble, payable in monthly installments of
principal and interest of $14,950 with interest
at 8.75%, maturing June 2001, collateralized by
various equipment. 457,356 352,223
Various other notes payable 30,571 19,534
------------ ------------
2,650,774 3,558,687
Less current maturities (622,032) (817,741)
------------ ------------
$ 2,028,742 $ 2,740,946
============ ============
The aggregate maturities of long-term debt as of December 31, 1998 are as
follows:
Year ending December 31,
------------------------
1999 $ 817,741
2000 1,002,774
2001 959,389
2002 619,842
2003 158,941
-----------
$ 3,558,687
===========
10. FINANCIAL INSTRUMENTS
The Company's significant financial instruments consist of borrowings under
bank lines of credit and long-term debt. The Company believes the carrying
values of these instruments on the accompanying balance sheets at February 28,
1998 and December 31, 1998 approximate their fair values.
14
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
11. INCOME TAXES
The components of the income tax provision for the years ended February 28,
1997 and February 28, 1998 and the ten months ended December 31, 1998 are as
follows:
Ten months ended
Year ended February 28, December 31,
1997 1998 1998
----------- --------- ---------
Current Expense:
Federal $ 933,000 $1,211,000 $2,391,833
State 267,000 383,000 642,786
----------- --------- ---------
1,200,000 1,594,000 3,034,619
Deferred Expense (Benefit):
Federal $ (4,000) $ (277,500) $ 71,200
State - (74,000) 19,200
----------- --------- ---------
(4,000) (351,500) 90,400
----------- --------- ---------
$ 1,196,000 $1,242,500 $3,125,019
=========== ========= =========
The income tax expense differs from the amount computed by applying the U.S.
federal statutory income tax rate of 34% to income before income tax provision
as a result of the following:
Ten months ended
Year ended February 28, December 31,
1997 1998 1998
----------- --------- ----------
Tax provision at statutory rate $ 1,014,571 $1,030,402 $ 2,548,354
Increase resulting from:
State income taxes, net of
federal benefit 176,220 203,940 436,911
Other 5,209 8,158 139,754
----------- --------- ----------
$ 1,196,000 $1,242,500 $ 3,125,019
=========== ========= ==========
The components of the deferred income tax assets and liabilities are as follows:
February 28, December 31,
1998 1998
----------- -----------
Deferred income tax assets:
Allowance for doubtful accounts $ 108,000 $ 150,000
Warranty reserve 127,000 127,000
Accured vacation compensation 40,000 54,000
State taxes 115,000 212,000
Losses on contracts 365,400 --
Contract reserves -- 214,000
----------- -----------
$ 755,400 $ 757,000
=========== ===========
Deferred income tax liabilities:
Depreciation $ 330,900 $ 422,900
=========== ===========
These deferred tax assets and liabilities are included in the accompanying
balance sheets under the following captions:
15
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
February 28, December 31,
1998 1998
----------- -----------
Deferred tax asset - current $ 755,400 $ 757,000
Deferred tax liability - noncurrent (330,900) (422,900)
----------- -----------
$ 424,500 $ 334,100
=========== ===========
12. ABANDONED OFFERING COSTS
On July 22, 1998 the Company and its shareholders entered into a definitive
agreement with Enfinity Corporation ("Enfinity"), pursuant to which all the
outstanding shares of the Company's common stock would have been exchanged for
cash and shares of Enfinity common stock concurrently with the consummation of
the initial public offering (the "Offering") of the common stock of Enfinity.
Subsequent to the date of the agreement, the Offering was not completed and
the agreement was terminated. In connection with this transaction, the
Company incurred expenses that have no continuing value to the Company. For
the ten months ended December 31, 1998, the Company reported the write-off of
these expenses in the amount of $1,127,097.
13. SUBSEQUENT EVENT
Effective February 11,1999, Group Maintenance America Corp. (GroupMAC)
acquired all of the outstanding shares of the Company for a combination of
cash and common stock of GroupMAC.
16
<PAGE>
(b) Pro forma financial information.
The following pro forma financial statements of the Company, reflecting
the acquisition of Air Systems (which does not qualify as an individually
significant transaction under Regulation S-X, Rule 3-05) and other acquisitions
made by the Company since January 1, 1998, as more fully described in the pro
forma financial statements, are included herein:
Introduction to Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Combined Statement of Operations
Notes to Unaudited Pro Forma Combined Financial Statements
17
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements utilize the
historical audited financial statements of Group Maintenance America Corp. and
Subsidiaries ("GroupMAC" or "the Company") as of 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) five companies acquired during 1999 (the "1999
Acquisition Companies"). The 1999 Acquisition Companies are as follows:
<TABLE>
<CAPTION>
Date
Company Acquired
------- --------
<S> <C>
Pacific Rim Mechanical Contractors, Inc............................. 01/09/99
Air Systems, Inc.................................................... 02/11/99
Statewide Heating & Air Conditioning, Inc........................... 02/12/99
Klassic Air Conditioning, Inc....................................... 04/08/99
Tower Electric Company.............................................. 04/14/99
</TABLE>
All of the acquisitions were or will be accounted for under the purchase
method of accounting. These unaudited pro forma combined financial statements
are based on the historical financial statements of the acquired companies and
estimates and assumptions set forth below and in the notes to the unaudited pro
forma combined financial statements.
The unaudited pro forma combined balance sheet combines the historical
consolidated balance sheet of the Company and the balance sheets of the 1999
Acquisition Companies, as if such acquisitions had occurred on December 31,
1998. The accompanying unaudited pro forma statement of operations of the
Company combines the historical statement of operations of the Company 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. Certain acquisitions are subject to final equity
adjustments, of which an estimate is reflected in the pro forma adjustments.
The pro forma combined financial data do not purport to represent what
GroupMAC's financial position or results of operations would actually have been
if such transactions had in fact occurred on those dates and are not
necessarily representative of GroupMAC's financial position or results of
operations for any future period. Since the acquisitions have not historically
been under common control or management, historical pro forma combined results
may not be indicative of or comparable to future performance. The unaudited pro
forma combined financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1998.
18
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
1999
GroupMAC and Acquisition Pro Forma Pro Forma Offering Pro Forma
Subsidiaries Companies Adjustments Combined Adjustments As Adjusted
ASSETS ------------ ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............ $ 2,371 $ 2,065 $ (4,436) $ -- $ -- $ --
Accounts receivable,
net of allowance....... 187,251 43,189 (291) 230,149 -- 230,149
Due from related
parties................ -- 63 (63) -- -- --
Inventories............ 17,843 1,260 -- 19,103 -- 19,103
Costs and estimated
earnings in excess of
billings on
uncompleted contracts.. 26,533 5,296 -- 31,829 -- 31,829
Prepaid expenses and
other current assets... 6,134 511 -- 6,645 -- 6,645
Deferred tax asset..... 7,579 757 -- 8,336 -- 8,336
Refundable income
taxes.................. 3,341 95 -- 3,436 -- 3,436
-------- ------- -------- -------- -------- --------
Total current assets. 251,052 53,236 (4,790) 299,498 -- 299,498
-------- ------- -------- -------- -------- --------
PROPERTY AND EQUIPMENT,
net 39,192 6,186 -- 45,378 -- 45,378
GOODWILL, net........... 398,714 -- 58,352 457,066 -- 457,066
DEFERRED FINANCING
COSTS................... 6,890 -- -- 6,890 4,000 10,890
OTHER LONG-TERM ASSETS.. 5,233 17 -- 5,250 -- 5,250
-------- ------- -------- -------- -------- --------
Total assets......... $701,081 $59,439 $ 53,562 $814,082 $ 4,000 $818,082
======== ======= ======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Short-term borrowings
and current maturities
of long-term debt...... $ 12,959 $15,455 $(27,854) $ 560 $ - $ 560
Accounts payable and
accrued expenses....... 99,205 15,297 -- 114,502 -- 114,502
Due to related
parties................ 14,961 400 (400) 14,961 -- 14,961
Billings in excess of
costs and estimated
earnings on
uncompleted contracts.. 27,830 9,755 -- 37,585 -- 37,585
Deferred service
contract revenue....... 4,429 -- -- 4,429 -- 4,429
Income taxes payable... 2,028 1,104 -- 3,132 -- 3,132
Other current
liabilities............ 3,199 175 -- 3,374 -- 3,374
-------- ------- -------- -------- -------- --------
Total current
liabilities.......... 164,611 42,186 (28,254) 178,543 -- 178,543
REVOLVING CREDIT
FACILITY 195,000 -- 67,019 262,019 (103,110) 158,909
SENIOR SUBORDINATED
NOTES................... -- -- -- -- 130,000 130,000
JUNIOR SUBORDINATED
NOTES................... 16,000 -- 1,613 17,613 (16,000) 1,613
DEBT OF ACQUIRED
COMPANY................. -- 2,757 (2,757) -- -- --
DEFERRED TAX LIABILITY.. 733 439 (13) 1,159 -- 1,159
DUE TO RELATED PARTIES.. -- 1,205 (1,205) -- -- --
OTHER LONG-TERM
LIABILITIES............. 8,808 -- -- 8,808 (6,890) 1,918
SHAREHOLDERS' EQUITY
Common stock........... 33 1,839 (1,837) 35 -- 35
Additional paid-in
capital................ 322,478 59 29,950 352,487 -- 352,487
Retained earnings
(deficit).............. (6,582) 11,014 (11,014) (6,582) -- (6,582)
Treasury stock......... -- (60) 60 -- -- --
-------- ------- -------- -------- -------- --------
Total shareholders'
equity............... 315,929 12,852 17,159 345,940 -- 345,940
-------- ------- -------- -------- -------- --------
Total liabilities and
shareholders'
equity............... $701,081 $59,439 $ 53,562 $814,082 $ 4,000 $818,082
======== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
19
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
GroupMAC and Acquisition Acquisition Pro Forma Pro Forma Offering Pro Forma
Subsidiaries Companies Companies Adjustments Combined Adjustments Combined
------------ ----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................... $761,541 $314,878 $183,587 $ -- $1,260,006 $ -- $1,260,006
COST OF SERVICES........... 585,396 248,518 146,279 -- 980,193 -- 980,193
-------- -------- -------- -------- ---------- ------- ----------
Gross profit.............. 176,145 66,360 37,308 -- 279,813 -- 279,813
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.... 118,119 43,935 22,811 (9,141)(a) 175,724 -- 175,724
AMORTIZATION OF GOODWILL... 5,960 -- -- 5,631 (b) 11,591 -- 11,591
-------- -------- -------- -------- ---------- ------- ----------
Income from operations.. 52,066 22,425 14,497 3,510 92,498 -- 92,498
OTHER INCOME (EXPENSE):
Interest expense.......... (6,595) (749) (1,207) (11,412)(c) (19,963) (5,380)(g) (25,343)
Interest income........... 407 271 90 (768)(d) -- -- --
Other..................... 377 495 35 -- 907 -- 907
-------- -------- -------- -------- ---------- ------- ----------
Income before income tax
provision............... 46,255 22,442 13,415 (8,670) 73,442 (5,380) 68,062
INCOME TAX PROVISION....... 20,326 1,124 4,326 7,387 (e) 33,163 (2,098) 31,065
-------- -------- -------- -------- ---------- ------- ----------
NET INCOME................. $ 25,929 $ 21,318 $ 9,089 $(16,057) $ 40,279 $(3,282) $ 36,997
======== ======== ======== ======== ========== ======= ==========
NET INCOME PER SHARE--
BASIC...................... $ 0.94 $ 1.12 $ 1.03
======== ========== ==========
WEIGHTED AVERAGE SHARES--
BASIC...................... 27,544 35,852 (f) 35,852 (f)
======== ========== ==========
NET INCOME PER SHARE--
DILUTED.................... $ 0.93 $ 1.11 $ 1.02
======== ========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED.................... 27,948 36,256 (f) 36,256 (f)
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
20
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
The respective results of operations for the 1998 Acquisition Companies from
January 1, 1998 to the dates of the acquisitions were combined with the Company
and the 1999 Acquisition Companies actual results of operations for the twelve
months ended December 31, 1998 to determine the pro forma results of operations
for the twelve months ended December 31, 1998.
2. ACQUISITIONS:
The results of operations of the acquired businesses are included in the
actual results of operations of the Company from the date of acquisition and
the historical balance sheet at December 31, 1998 includes the acquisitions
completed as of that date. All of the acquisitions are accounted for as
purchases. The cash consideration associated with the acquisition of the 1999
Acquisition Companies was provided by borrowings under an amended and restated
credit agreement dated October 15, 1998 (the "Credit Agreement").
The table below sets forth the consideration paid or to be paid in (a) cash,
(b) junior subordinated notes, (c) warrants to purchase Common Stock, and (d)
shares of Common Stock to the shareholders of the 1999 Acquisition Companies.
For purposes of computing the estimated purchase price for accounting
purposes for the 1999 Acquisition Companies, the value of the Common Stock is
determined using an estimated weighted average fair value of $12.27 per share,
which represents a discount rate of 10.0% from the weighted average stock price
of $13.63 at the respective dates of acquisition due primarily to restrictions
on the sale and transferability of such shares. The restrictions are created by
a contractual restriction imposed on the shares issued in connection with the
acquisition of the acquired businesses. This contractual provision prohibits
the shareholders from selling, transferring or otherwise disposing of any
shares for one year following the date of acquisition of such shares and
limiting dispositions for one additional year to no more than 36% of their
holdings.
21
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
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. The Company will
record such contingent consideration as additional purchase price when earned.
The estimated purchase price and related allocations of the excess purchase
price for the 1999 Acquisition Companies are based upon preliminary estimates
and are subject to certain purchase price adjustments at and following closing.
Based upon management's preliminary analysis, it is anticipated that the
historical carrying value of the assets and liabilities of the 1999 Acquisition
Companies (representing $13.8 million) will approximate fair value. This
results in an allocation to goodwill of approximately $58.4 million. Management
has not identified any other material tangible or identifiable intangible
assets to which a portion of the purchase price could reasonably be allocated.
Consideration paid for the 1999 Acquisition Companies is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Shares Dollars
------ -------
<S> <C> <C>
Cash............................................................ -- $40,573
Junior Subordinated Notes....................................... -- 1,613
Warrants to Purchase Common Stock............................... 80 440
Common Stock.................................................... 2,411 29,571
-------
Total Consideration........................................... $72,197
=======
</TABLE>
3. FINANCING TRANSACTIONS SUBSEQUENT TO YEAR END
In January 1999, the Company completed a private placement offering (the
"Offering") of $130 million of unsecured senior subordinated notes (the "Notes")
bearing interest at 9.75% and maturing in January 2009. The net proceeds of the
offering were used to repay indebtedness incurred under the Credit Agreement.
The Company entered into an agreement to lock in the ten year U.S. Treasury
rate used to price the offering of the Notes. The Company locked in $100
million at 5.5212%, which management believes is an attractive long-term base
rate. This agreement expired on January 31, 1999, and was settled on that date
based upon the ten year Treasury yield of 4.648%, resulting in an additional
pre-tax financing cost of approximately $6.9 million. In accordance with SFAS
No. 80, Accounting for Future Contracts, this agreement qualifies as a hedge
and was recognized as deferred financing costs at December 31, 1998.
In connection with the acquisition of a 1998 Acquisition Company, the
Company paid cash and issued $16.0 million of Junior Subordinated Notes, common
stock and warrants to purchase common stock. Unless prepaid in whole or part at
any time by the Company, the balance of the Junior Subordinated Notes was due in
November 2003. Holders of the Junior Subordinated Notes had a one-time option to
require the Company to repurchase the Junior Subordinated Notes (the "Put
Option") in the event the Company issues $50,000,000 or more in principal amount
of debt that is either (1) registered under the Securities Act and sold to the
public or (2) sold to qualified institutional buyers. Subsequent to December 31,
1998 and in connection with the Offering discussed above, the Put Option was
exercised by substantially all of the holders of the Junior Subordinated Notes,
such notes were repaid by the Company and the related warrants were surrendered.
The pro forma impact of the Offering and the Put Option are reflected in
Notes 4f, 4g, 4h and 4i below with respect to the unaudited pro forma combined
balance sheet and Note 5g with respect to the unaudited pro forma combined
statement of operations. For further discussion of the Offering transaction, see
Note 7 to Notes to Consolidated Financial Statements in Item 8 in the Company's
Form 10-K for the fiscal year ended December 31, 1998.
22
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a) Records the deferred income tax liabilities on certain 1999 Acquisition
Companies associated with converting all acquired companies taxed under
Subchapter S of the Internal Revenue Code (the Code) to corporations taxed
under Subchapter C of the Code.
b) Records the settlement of all shareholder receivables and payables with
cash at closing.
c) Records the elimination of the historical equity accounts of the 1999
Acquisition Companies.
d) Records the purchase of the 1999 Acquisition Companies, including the
cash, issuance of junior subordinated notes, warrants to purchase Common Stock
and Common Stock consideration due to these companies.
e) Records the refinancing of debt assumed in connection with the acquisition
of the 1999 Acquistion Companies and certain other indebtedness with the Credit
Agreement. See entry (f) below related to the Offering, which repaid $126.0
million under the Credit Agreement, thereby increasing the amount available
under this facility for use in acquisitions.
f) Records the net proceeds of the Offering of approximately $126.0 million
after deducting the sales discounts and estimated expenses.
g) Records the estimated financing costs associated with settling the
Company's interest rate hedging contract.
h) Records the repayment of amounts outstanding under the Credit Agreement
with proceeds from the Offering.
i) Records the repayment of Junior Subordinated Notes issued in connection
with the acquisition of a 1998 Acquisition Company pursuant to the exercise of
the Put Option held by the holders of the notes.
The following tables summarize unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
Pro Forma
(a) (b) (c) (d) (e) Adjustments
---- ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ -- $(1,078) $ -- $ -- $ (3,358) $ (4,436)
Accounts receivable..... -- (291) -- -- -- (291)
Due from related
parties................ -- 1,271 -- (1,334) -- (63)
Goodwill................ (13) -- (13,832) 72,197 -- 58,352
Short-term borrowings
and current maturities
of long-term debt...... -- -- -- -- 27,854 27,854
Due to related parties.. -- 400 -- -- -- 400
Revolving credit
facility............... -- -- -- (39,766) (27,253) (67,019)
Junior subordinated
notes.................. -- -- -- (1,613) -- (1,613)
Debt of acquired
company................ -- -- -- -- 2,757 2,757
Deferred tax liabilities
(noncurrent)........... 13 -- -- -- -- 13
Due to related parties
(noncurrent)........... -- 678 -- 527 -- 1,205
Common stock............ -- (980) 2,819 (2) -- 1,837
Additional paid-in
capital................ -- -- 59 (30,009) -- (29,950)
Retained earnings....... -- -- 11,014 -- -- 11,014
Treasury stock.......... -- -- (60) -- -- (60)
---- ------- -------- -------- -------- --------
Total................. $ -- $ -- $ -- $ -- $ -- $ --
==== ======= ======== ======== ======== ========
</TABLE>
23
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Offering
(f) (g) (h) (i) Adjustments
--------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.. $ 126,000 $ -- $(126,000) $ -- $ --
Deferred financing costs... 4,000 -- -- -- 4,000
Revolving credit facility.. -- (6,890) 126,000 (16,000) 103,110
Senior subordinated notes.. (130,000) -- -- -- (130,000)
Junior subordinated notes.. -- -- -- 16,000 16,000
Other long term
liabilities............... -- 6,890 -- -- 6,890
--------- ------- --------- -------- ---------
Total.................... $ -- $ -- $ -- $ -- $ --
========= ======= ========= ======== =========
</TABLE>
5. 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.
The salaries, bonuses, benefits and other compensation items recorded in the
individual financial statements amounted to $13.5 million for the year ended
December 31, 1998. The contractually agreed upon compensation and benefits for
these same businesses, on a going forward basis, amount to $4.4 million for the
year ended December 31, 1998. The difference between these amounts equates to
$9.1 million, and is reflected as a pro forma adjustment.
b) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions over a 40-year estimated life.
24
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
c) Represents the adjustment necessary to reflect interest expense related
to borrowings under the Credit Agreement to fund the cash portion of the
purchase price and the assumption of debt related to the 1998 and 1999
Acquisition Companies, and interest related to the subordinated debt and notes
issued to fund the S Corporation distributions. 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, is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, Interest Expense
December 31, Pro Forma 1998 Pro Forma 1998 Year Ended
1998 Acquisition Pro Forma Refinancing Pro Forma Interest December 31,
Balances Adjustments Balances Adjustments Combined Rate 1998
------------ ----------- ------------ ----------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Senior Debt:
Historical December
31, 1998 short-term
debt................... $ 12,560 $ -- $ 12,560 $(12,000)(i) $ 560 7.20%(ii) $ 40
Historical December
31, 1998 S Corporation
notes.................. 399 -- 399 (399)(i) -- -- --
-------- ------- -------- -------- -------- -------
Total short-term
senior debt/interest
expense.............. $ 12,959 $ -- $ 12,959 $(12,399) $ 560 $ 40
======== ======= ======== ======== ======== =======
Long-Term Senior Debt:
Historical December
31, 1998 Credit
Agreement.............. $195,000 $(2,371) $192,629 $ 12,399 (i) $205,028 7.20%(ii) $14,763
1999 Acquisition
Companies assumed debt
refinanced............. -- 18,736 18,736 -- 18,736 7.20%(ii) 1,349
1999 Acquisition
Companies borrowings
to fund cash portion
of purchase price, net
of cash acquired....... -- 38,255 38,255 -- 38,255 7.20%(ii) 2,754
-------- ------- -------- -------- -------- -------
Total long-term
senior debt/interest
expense.............. $195,000 $54,620 $249,620 $ 12,399 $262,019 $18,866
======== ======= ======== ======== ======== =======
Long-Term Junior
Subordinated Debt:
Historical December
31, 1998 long-term
debt................... $ 16,000 $ -- $ 16,000 $ -- $ 16,000 6.00%(iii) $ 960
1999 Acquisition
Companies subordinated
debt................... -- 1,613 1,613 -- 1,613 6.00%(iii) 97
-------- ------- -------- -------- -------- -------
Total long-term
junior subordinated
debt/interest
expense.............. $ 16,000 $ 1,613 $ 17,613 $ -- $ 17,613 $ 1,057
======== ======= ======== ======== ======== =======
Total debt/interest
expense................. $223,959 $56,233 $280,192 $ -- $280,192 $19,963
======== ======= ======== ======== ======== =======
</TABLE>
- ----
(i)These notes contractually matured in January 1999 and were repaid with
proceeds from the Credit Agreement.
(ii)Represents the current borrowing rates under the Credit Agreement.
(iii)Represents the contractual interest rates for these junior subordinated
notes payable.
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 5 as well as income taxes on S Corporation earnings.
25
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
f) Weighted average shares outstanding include the following (in thousands):
<TABLE>
<S> <C>
Shares issued and outstanding at December 31, 1998.............. 33,154
Shares issued or to be issued subsequent to December 31, 1998
for 1998 Acquisition Companies................................. 287
Shares issued for 1999 Acquisition Companies.................... 2,411
------
Weighted average shares outstanding--basic...................... 35,852
Incremental effect of options and warrants on shares
outstanding.................................................... 404
------
Weighted average shares outstanding--diluted.................... 36,256
======
</TABLE>
26
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
Offering Adjustments:
g) Reflects the incremental interest expense resulting from the amortization
of the deferred financing costs discussed in Notes 4f and 4g over the ten year
life of the Notes, the incremental interest cost associated with the
repayment of amounts outstanding under the Credit Agreement with the proceeds
from the Offering discussed in Note 4h and the incremental interest cost
associated with the repayment of Junior Subordinated Notes discussed in Note 4i.
A summary of the pro forma debt and interest expense (including amounts in the
historical financial statements) assuming the Offering occurred on January 1,
1998, is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, Interest Expense
1998 1998 Year Ended
Pro Forma Offering Pro Forma Interest December 31,
Combined Adjustments As Adjusted Rate 1998
------------ ----------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C>
Short-Term Senior Debt:
Balances per Note 5c
above................. $ 560 $ -- $ 560 (ii) 7.20% (iv) $ 40
======== ========= ======== =======
Long-Term Senior Debt:
Balances per Note 5c
above................. $262,019 $ -- $262,019 7.20% (iv) $18,866
Repayment of Senior
debt with the proceeds
of the Offering....... -- (126,000) (126,000) 7.20% (iv) (9,072)
Repayment of Junior
Subordinated debt..... -- 16,000 (i) 16,000 7.20% (iv) 1,152
Settlement of hedging
transactions
agreement............. -- 6,890 6,890 7.20% (iv) 496
-------- --------- -------- -------
Total long-term senior
debt/interest expense. $262,019 $(103,110) $158,909 (ii),(iii) $11,442
======== ========= ======== =======
Long-Term Subordinated
Debt:
Junior subordinated
balances per Note 5c
above................. $ 17,613 $ (16,000) (i) $ 1,613 6.00% (v) $ 97
Debt service on Senior
Subordinated Notes
from the Offering used
to refinance Senior
debt.................. -- 130,000 130,000 9.75% (vi) 12,675
Amortization of
deferred financing
costs of the Offering. -- -- -- -- 1,089 (vii)
-------- --------- -------- -------
Total long-term
subordinated
debt/interest
expense.............. $ 17,613 $ 114,000 $131,613 $13,861
======== ========= ======== =======
Total debt/interest
expense.............. $280,192 $ 10,890 $291,082 $25,343
======== ========= ======== =======
</TABLE>
- --------
(i) Subsequent to the completion of the Offering, $16 million of Junior
Subordinated Notes were repaid pursuant to the exercise of the Put
Option held by the holders of the notes.
(ii) Represents total senior indebtedness after the Offering.
(iii) Represents total guarantor senior indebtedness after the Offering.
(iv) Represents current borrowing rates under the Credit Agreement.
(v) Represents contractual interest rate on the junior subordinated notes.
(vi) Represents coupon interest rate on these Senior Subordinated Notes from
the Offering.
(vii) Represents amortization of deferred financing costs of the Offering over
the ten-year life of the related Senior Subordinated Notes payable.
27
<PAGE>
(c) Exhibits.
The following exhibits are filed with this report:
99 List of Lenders under the Credit Agreement.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Randolph W. Bryant
-------------------------------
Randolph W. Bryant
Senior Vice President
and General Counsel
Date: April 15, 1999
29
<PAGE>
INDEX OF EXHIBITS
99 List of Lenders under the Credit Agreement.
30
<PAGE>
EXHIBIT 99
LIST OF LENDERS
ABN AMRO Bank, N.V.
Bank of America Texas, N.A.
Bank of Montreal
BankBoston, N.A.
The Bank of Nova Scotia
Chase Bank of Texas, National Association
Credit Lyonnais, New York Branch
Key Corporate Capital, Inc.
National City Bank, Kentucky
Paribas
Union Bank of California
31
