<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13565
----------------
GROUP MAINTENANCE AMERICA CORP.
(Exact name of registrant as specified in its charter)
Texas 76-0535259
(State of Incorporation) (I.R.S. Employer Identification No.)
8 Greenway Plaza, Suite 1500
Houston, TX 77046
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (713) 860-0100
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $0.001 per share; 35,835,128 shares outstanding as
of April 30, 1999.
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<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements............................................ 1
General Information.................................................. 1
Consolidated Condensed Balance Sheets................................ 2
Consolidated Condensed Statements of Operations...................... 3
Consolidated Condensed Statements of Cash Flows...................... 4
Notes to Consolidated Condensed Financial Statements................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 17
Part II Other Information
Item 1. Legal Proceedings............................................... *
Item 2. Changes in Securities and Use of Proceeds....................... 18
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. *
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 18
</TABLE>
- --------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
i
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
General Information
Group Maintenance America Corp., a Texas corporation ("GroupMAC"), is one of
the largest diversified providers of mechanical and electrical services to
commercial/industrial and residential customers in the United States. As used
herein, the "Company" refers to GroupMAC and its consolidated subsidiaries.
During 1998, the Company acquired 39 mechanical and electrical contracting
companies with combined annual revenues of approximately $698 million. As a
result of the companies acquired in 1998, the portion of the Company's
revenues derived from maintenance, repair and replacement services shifted
from 45% of total revenues at December 31, 1997 to approximately 60% at
December 31, 1998. These acquisitions also resulted in an increase in the
portion of the Company's business derived from commercial/industrial customers
as the Company focused its acquisition program on contractors that could
further the implementation of the Company's national accounts and energy
service provider initiatives. The Company significantly expanded its
electrical and data cabling business with the acquisition of eight electrical
contractors.
During the three months ended March 31, 1999, the Company acquired three
additional platform companies (the "First Quarter 1999 Acquisitions")
representing approximately $165 million in incremental annual revenues. As of
March 31, 1999, the Company comprised 62 operating companies performing
services in 57 cities across 26 states and with $1.24 billion in pro forma
1998 revenues.
1
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 6,607 $ 2,371
Accounts receivable, net............................ 229,865 187,251
Inventories......................................... 18,644 17,843
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 32,195 26,533
Prepaid expenses and other current assets........... 9,624 6,134
Deferred tax assets................................. 8,660 7,579
Refundable income taxes............................. -- 3,341
-------- --------
Total current assets.............................. 305,595 251,052
PROPERTY AND EQUIPMENT, net........................... 45,178 40,795
GOODWILL, net......................................... 449,071 398,714
DEFERRED DEBT ISSUE COSTS............................. 12,652 9,260
OTHER LONG-TERM ASSETS................................ 1,245 1,260
-------- --------
Total assets...................................... $813,741 $701,081
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 885 $ 12,959
Accounts payable and accrued expenses............... 115,158 99,205
Due to related parties.............................. 9,522 14,961
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 38,507 27,830
Deferred service contract revenue................... 4,397 4,429
Income taxes payable................................ 3,612 2,028
Other current liabilities........................... 3,236 3,199
-------- --------
Total current liabilities......................... 175,317 164,611
REVOLVING CREDIT FACILITY............................. 156,000 195,000
SENIOR SUBORDINATED NOTES............................. 130,000 --
JUNIOR SUBORDINATED NOTES............................. 1,650 16,000
DEFERRED TAX LIABILITIES.............................. 795 733
OTHER LONG-TERM LIABILITIES........................... 1,508 8,808
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 50,000 shares
authorized; none issued and outstanding............ -- --
Common stock, $0.001 par value; 100,000 shares
authorized; 35,438 and 33,154 shares issued and
outstanding, respectively.......................... 35 33
Additional paid-in capital.......................... 349,339 322,478
Retained deficit.................................... (903) (6,582)
-------- --------
Total shareholders' equity........................ 348,471 315,929
-------- --------
Total liabilities and shareholders' equity........ $813,741 $701,081
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months
ended
March 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES.................................................... $302,765 $107,092
COST OF SERVICES............................................ 244,018 82,706
-------- --------
Gross profit.............................................. 58,747 24,386
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 39,707 18,994
AMORTIZATION OF GOODWILL.................................... 2,806 821
-------- --------
Income from operations.................................... 16,234 4,571
OTHER INCOME (EXPENSE):
Interest expense.......................................... (5,792) (413)
Interest income........................................... 78 184
Other..................................................... 155 (5)
-------- --------
Income before income tax provision...................... 10,675 4,337
INCOME TAX PROVISION........................................ 4,996 2,065
-------- --------
NET INCOME.................................................. $ 5,679 $ 2,272
======== ========
BASIC EARNINGS PER SHARE:
EARNINGS PER SHARE........................................ $ 0.16 $ 0.10
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING....................... 34,914 23,141
======== ========
DILUTED EARNINGS PER SHARE:
EARNINGS PER SHARE........................................ $ .16 $ 0.10
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING....................... 35,265 23,495
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 5,679 $ 2,272
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 5,860 2,045
Deferred income taxes.................................. -- (617)
Other.................................................. (24) (3)
Changes in operating assets and liabilities, net of
effect of acquisitions accounted for as purchases:
(Increase) decrease in--
Accounts receivable.................................. (3,424) 2,467
Inventories.......................................... (159) (431)
Costs and estimated earnings in excess of billings
on uncompleted
contracts........................................... (124) (1,916)
Prepaid expenses and other current assets............ (2,806) (454)
Refundable income taxes.............................. 3,341 1,051
Other long-term assets............................... 477 493
Increase (decrease) in--
Accounts payable and accrued expenses................ 38 (4,369)
Due to related parties............................... (103) (139)
Billings in excess of costs and estimated earnings
on uncompleted
contracts........................................... 1,466 443
Deferred service contract revenue.................... (32) (1,020)
Income taxes payable................................. 499 985
Other current liabilities............................ 12 1,687
Other long-term liabilities.......................... (411) (76)
--------- --------
Net cash provided by operating activities.......... 10,289 2,418
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired of
$1,118 and $3,265...................................... (38,683) (35,553)
Deferred acquisition costs.............................. (539) (308)
Purchase of property and equipment...................... (2,681) (2,241)
Proceeds from sale of property and equipment............ 253 108
--------- --------
Net cash used in investing activities.............. (41,650) (37,994)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated debt offering, net of
offering costs......................................... 119,280 --
Proceeds from other long-term debt...................... 102,700 21,300
Payments of long-term debt.............................. (186,476) (5,690)
Exercise of stock options............................... 93 --
--------- --------
Net cash provided by financing activities.......... 35,597 15,610
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 4,236 (19,966)
CASH AND CASH EQUIVALENTS, beginning of period............ 2,371 25,681
--------- --------
CASH AND CASH EQUIVALENTS, end of period.................. $ 6,607 $ 5,715
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid........................................... $ 3,635 $ 346
Income taxes paid....................................... $ 4,497 $ 84
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying unaudited consolidated condensed financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the Company has made all adjustments necessary for a fair presentation of the
results of the interim periods, and such adjustments consist of only normal
recurring adjustments. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto of the Company and management's discussion and analysis of financial
condition and results of operations included in the Annual Report on Form 10-
K/A for the year ended December 31, 1998.
Certain amounts recorded in the three months ended March 31, 1998 and at
December 31, 1998 have been reclassified to conform with the current period
presentation.
2. Earnings Per Share
Basic earnings per share have been calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
share have been calculated by dividing net income by the weighted average
number of common shares outstanding plus potentially dilutive common shares.
The following table summarizes weighted average shares outstanding for each
of the historical periods presented (in thousands):
<TABLE>
<CAPTION>
Three months
ended
March 31,
-------------
1999 1998
------ ------
<S> <C> <C>
Shares issued through December 31, 1997, excluding
acquisitions............................................ 16,629 16,629
Shares issued for 1997 acquisitions...................... 4,733 4,419
Shares issued for 1998 acquisitions...................... 12,079 2,093
Shares issued for 1999 acquisitions...................... 1,473 --
------ ------
Weighted average shares outstanding--Basic............... 34,914 23,141
Incremental effect of options and warrants outstanding... 351 354
------ ------
Weighted average shares outstanding--Diluted............. 35,265 23,495
====== ======
</TABLE>
As of March 31, 1999, options to purchase 2.7 million shares of common stock
and warrants to purchase 0.6 million shares of common stock were not included
in the calculation of diluted earnings per share because the exercise price of
such options and warrants was greater than the average market price of the
common shares.
3. Business Combinations
During the three months ended March 31, 1999, the Company completed the
acquisition of the First Quarter 1999 Acquisitions for approximately $63.6
million, which includes cash payments of $35.2 million, $1.6 million in junior
subordinated notes, 2.1 million shares of common stock and warrants to
purchase approximately 80,000 shares of common stock. Of the total
consideration, approximately $2.3 million of cash was due to former owners as
of March 31, 1999. All such acquisitions were accounted for as purchases. In
connection with these acquisitions, the Company assumed approximately $16.7
million of debt. The combined annual 1998 revenues
5
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
of the First Quarter 1999 Acquisitions were approximately $165 million.
Certain former owners of businesses acquired as part of the First Quarter 1999
Acquisitions have the ability to receive additional amounts of purchase price,
payable in cash and common stock upon the occurrence of future events.
Also during the three months ended March 31, 1999, the Company paid
approximately $6.9 million of cash and 0.2 million shares of common stock
related to previously recorded amounts due to former shareholders of companies
acquired prior to December 31, 1998. In addition, the Company reduced amounts
due to former shareholders by approximately $0.9 million related to final
purchase price settlements.
The unaudited pro forma data presented below consists of the combined income
statement data for GroupMAC and its subsidiaries as if all of the 1998
acquisitions and the First Quarter 1999 Acquisitions were effective on the
first day of the period being reported (in thousands, except for per share
amounts).
<TABLE>
<CAPTION>
Pro forma data
Three months
ended
March 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Revenues............................................... $312,299 $268,025
Net income............................................. $ 5,746 $ 4,592
Net income per share:
Basic................................................ $ 0.16 $ 0.13
Diluted.............................................. $ 0.16 $ 0.13
</TABLE>
Pro forma adjustments included in the amounts above consist of (i)
compensation differentials, (ii) adjustment for goodwill amortization over a
period of 40 years, (iii) adjustment for interest expense as if borrowings
outstanding as of March 31, 1999 had been outstanding for both the three
months ended March 31, 1999 and 1998 at interest rates in effect on March 31,
1999, and (iv) adjustment to the federal and state income tax provisions based
on pro forma operating results. Net income per share assumes all shares issued
for the acquisitions were outstanding from the beginning of the periods
presented.
The First Quarter 1999 Acquisitions included in the accompanying financial
statements were accounted for under the purchase method of accounting.
Purchase price consideration is subject to final adjustment. The allocation of
purchase price to the assets acquired and liabilities assumed has been
initially assigned and recorded based on preliminary estimates of fair values
and may be revised as additional information becomes available. Such
additional information includes appraisals on property, contingent liabilities
of the acquired business, and working capital settlements related to the
acquisition consideration and the net assets acquired. However, the Company
does not expect any significant adjustments to the purchase price allocations
or amount of goodwill at March 31, 1999.
4. Commitments and Contingencies
The Company is involved in various legal actions. It is not possible to
predict the outcome of these matters; however, in the opinion of management,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
6
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
5. Borrowing Activity
The Company has a committed credit facility providing for $230 million of
borrowing capacity (the "Credit Agreement") and, at March 31, 1999, had
outstanding $156.0 million of borrowings under this facility. This facility,
which is with a syndicate of banks led by Chase Bank of Texas, National
Association, will mature in October 2001. Debt under the Credit Agreement
bears interest at variable rates. Under the Credit Agreement, GroupMAC is
required to maintain (1) a minimum Fixed Charge Coverage Ratio; (2) a maximum
ratio of total indebtedness for borrowed money to capitalization (as defined
in the Credit Agreement); (3) a maximum ratio of senior debt to pro forma
earnings before interest, taxes, depreciation and amortization; (4) a maximum
amount of total indebtedness to EBITDA; (5) a minimum amount of Consolidated
Net Worth (as defined in the Credit Agreement) and (6) a maximum amount of
Capital Expenditures in relation to Consolidated Net Worth. At March 31, 1999,
GroupMAC was in compliance with those covenants.
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.
Under a registration rights agreement executed as part of the Offering, on
April 21, 1999 the Company filed a registration statement enabling holders of
the Notes to exchange the privately placed Notes for publicly registered notes
with identical terms. The Company is required to use all reasonable efforts to
cause the registration statement to become effective by June 21, 1999 and to
consummate the exchange offer by July 21, 1999. If the Company cannot effect
an exchange offer by this date and in other certain circumstances, management
will use all reasonable efforts to file a shelf registration statement for the
resale of the Notes. If the Company is unable to comply with these obligations
under the registration rights agreement, the interest rate on the Notes will
increase under certain circumstances.
The Notes are guaranteed by all of the Company's current and future U.S.
subsidiaries other than "Unrestricted Subsidiaries" (as defined in the
indenture governing the Notes). As of May 14, 1999, there were no
"Unrestricted Subsidiaries." These guarantees are full, unconditional and
joint and several.
The Notes pay interest semi-annually commencing July 15, 1999 and are
redeemable at the option of the Company at any time on or after January 15,
2004. Additionally, the Notes' indenture has restrictive covenants or
limitations on the payment of dividends, the distribution or redemption of
capital stock as well as limitations on the incurrence of debt and on the sale
of assets.
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 Futures Contracts, this agreement qualifies as a hedge
and was recognized as deferred debt issue costs.
In addition, the Company paid various arrangement fees and closing costs
associated with the Offering. The unamortized portion of these expenses, along
with the cost of the hedge discussed in the preceding paragraph, is included
as deferred debt issue costs in the accompanying consolidated condensed
balance sheets and amounted to approximately $10.5 million and $6.9 million at
March 31, 1999 and December 31, 1998, respectively.
In February 1999, the Company redeemed approximately $16.0 million of junior
subordinated notes that had been issued in connection with an acquisition
completed in November 1998. The holders of those notes had
7
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
the right to require redemption upon the issuance of the Notes. The Company
used a portion of the proceeds of the Notes to pay the redemption price.
6. Operating Segments
The Company's reportable segments are strategic business units that offer
products and services to two distinct customer groups. They are managed
separately because each business requires different operating and marketing
strategies.
The Company has two reportable segments: commercial/industrial and
residential markets. The commercial/industrial segment provides maintenance,
repair and replacement services and new installation services in manufacturing
and processing facilities, power generation facilities, hospitals and other
critical care facilities, colleges and universities, hotels, commercial office
buildings and complexes, retail stores and restaurants, supermarkets and
convenience stores. The residential segment provides maintenance, repair and
replacement services and new installation services in single family and low-
rise multifamily housing units.
The Company evaluates performance based on income from operations of the
respective business units prior to unallocated corporate expenses.
Other activities include financial data of two operating subsidiaries that
provide products and services outside of those performed by the Company's two
primary operating segments. Unallocated corporate expenses primarily include
(1) corporate overhead, (2) corporate and operating company management
bonuses, (3) employee benefit plan expenses and (4) savings from national
purchase agreements relating to materials and property/casualty insurance.
Assets for the corporate function are included in the "Other" column in the
presentation below.
Segment information for the three months ended March 31, 1999 and 1998 was
as follows (in thousands):
<TABLE>
<CAPTION>
Commercial/
Industrial Residential Other Total
----------- ----------- ------- --------
<S> <C> <C> <C> <C>
Three month period ended March 31,
1999:
Revenues............................ $232,580 $ 69,632 $ 553 $302,765
Operating costs..................... 216,221 64,646 430 281,297
-------- -------- ------- --------
Subtotal............................ 16,359 4,986 123 21,468
Goodwill amortization............... 2,287 473 46 2,806
-------- -------- ------- --------
Segment operating earnings.......... $ 14,072 $ 4,513 $ 77 18,662
======== ======== =======
Unallocated corporate expenses...... (2,428)
--------
Income from operations.............. $ 16,234
========
Assets.............................. $647,067 $125,396 $41,278 $813,741
Three month period ended March 31,
1998:
Revenues............................ $ 51,934 $ 54,497 $ 661 $107,092
Operating costs..................... 48,915 50,696 603 100,214
-------- -------- ------- --------
Subtotal............................ 3,019 3,801 58 6,878
Goodwill amortization............... 405 373 43 821
-------- -------- ------- --------
Segment operating earnings.......... $ 2,614 $ 3,428 $ 15 6,057
======== ======== =======
Unallocated corporate expenses...... (1,486)
--------
Income from operations.............. $ 4,571
========
</TABLE>
Maintenance, repair and replacement services represented 59% and 43% and new
installation services represented 41% and 57% of total revenues for the three
months ended March 31, 1999 and 1998, respectively.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which are identified by the
use of forward-looking words and phrases, such as: "believes," "expects,"
"anticipates," and "intends." These statements are based on the Company's
current expectations and involve risks and uncertainties that could cause the
Company's actual results to differ materially from those set forth in the
statements. Among the factors that could cause results to differ materially
from current expectations are: (i) the general political, economic and
competitive conditions in markets where the Company operates; (ii) changes in
capital availability or costs; (iii) decreases in demand for the Company's
services and the resulting negative impact on the Company's revenues and
margins from such products; (iv) employee workforce factors; (v) the Company's
ability to integrate the operations of acquired businesses quickly and in a
cost-effective manner; and (vi) the timing and occurrence (or non-occurrence)
of transactions and events, which may be subject to circumstances beyond the
Company's control.
General
The Company's revenues are derived from providing maintenance, repair and
replacement services and new installation services for mechanical, electrical
and other systems to commercial/industrial and residential customers.
Approximately 59% of the Company's revenues for the three months ended March
31, 1999 were derived from maintenance, repair and replacement services and
41% were attributable to new installation services. Maintenance, repair and
replacement revenues are recognized as the services are performed, except for
service contract revenue, which is recognized ratably over the life of the
contract. Revenues from fixed price installation and retro-fit contracts are
generally accounted for on a percentage-of-completion basis, using the cost-
to-cost method.
The Company intends to make additional acquisitions across the two main
technical disciplines (mechanical and electrical) within the
commercial/industrial and residential markets. The Company's long-term
objective is to develop maintenance, repair and replacement capabilities (both
commercial/industrial and residential) in the top 100 markets within the
United States, while offering new installation services across a more limited
range of markets where new construction in the commercial/industrial and/or
residential sectors is expected to out-pace the national average over the long
term. Over time, this objective is expected to continue to shift revenues of
the Company to an increased percentage of maintenance, repair and replacement
revenue.
Cost of services consists primarily of components, parts and supplies
related to the Company's new installation and maintenance, repair and
replacement services, salaries and benefits of service and installation
technicians, subcontracted services, depreciation, fuel and other vehicle
expenses and equipment rentals. Selling, general and administrative expenses
consist primarily of administrative salaries and benefits, advertising, office
rent and utilities, communications and professional fees.
Results of Operations
The historical results of operations presented below are derived from the
consolidated condensed financial statements contained elsewhere herein.
9
<PAGE>
The following table sets forth certain financial data for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended March 31
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C> <C> <C>
Revenues.................................... $302,765 100.0% $107,092 100.0%
Cost of Services............................ 244,018 80.6 82,706 77.2
-------- ----- -------- -----
Gross Profit................................ 58,747 19.4 24,386 22.8
Selling, General and Administrative
Expenses................................... 42,513 14.0 19,815 18.5
-------- ----- -------- -----
Income from Operations...................... 16,234 5.4 4,571 4.3
Interest Expense, Net....................... (5,714) (1.9) (229) (0.2)
Other....................................... 155 0.1 (5) 0.0
-------- ----- -------- -----
Income Before Income Tax Provision.......... 10,675 3.5 4,337 4.0
Income Tax Provision........................ 4,996 1.7 2,065 1.9
-------- ----- -------- -----
Net Income.................................. $ 5,679 1.9% $ 2,272 2.1%
======== ===== ======== =====
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
Revenues. Revenues increased $195.7 million, or 182.7%, to $302.8 million
for the three months ended March 31, 1999 from $107.1 million for the three
months ended March 31, 1998. The increase in revenues is attributable to the
following:
. $163.2 million relates to the incremental months of revenue contributed
in the three months ended March 31, 1999 by commercial/industrial
companies acquired during or subsequent to the three months ended March
31, 1998,
. $4.9 million relates to the incremental months of revenue contributed in
the three months ended March 31, 1999 by residential companies acquired
during or subsequent to the three months ended March 31, 1998,
. $17.4 million relates to the same store growth in the
commercial/industrial group. Of this increase, $8.8 million relates to
volume increases in the Seattle/Portland market, with the balance of the
increase generated primarily from the Dallas, Fort Lauderdale,
Minneapolis, Little Rock and Vail, Colorado markets, and
. $10.2 million relates to the same store growth in the residential group.
Of this increase, $7.6 million relates to companies that primarily
provide new installation services due to an increase in new home starts
in the markets they serve and $2.6 million relates to companies that
primarily provide maintenance, repair and replacement services.
Gross Profit. Gross profit increased $34.3 million, or 141.0%, to $58.7
million for the three months ended March 31, 1999 from $24.4 million for the
three months ended March 31, 1998. The increase in gross profit is
attributable to the following:
. $27.1 million relates to the incremental months of gross profit
contributed in the three months ended March 31, 1999 by
commercial/industrial companies acquired during or subsequent to the
three months ended March 31, 1998,
. $1.1 million relates to the incremental months of gross profit
contributed in the three months ended March 31, 1999 by residential
companies acquired during or subsequent to the three months ended March
31, 1998,
. $3.1 million relates to the same store growth in the
commercial/industrial group. Of this increase, $1.7 million relates to
volume increases in the Seattle/Portland market, with the balance of the
increase generated primarily from the Vail, Colorado market,
10
<PAGE>
. $2.5 million relates to the same store growth in the residential group.
Of this increase, $2.0 million relates to companies that primarily
provide new installation services due to an increase in new home starts
in the markets they serve and $0.5 million relates to companies that
primarily provide maintenance, repair and replacement services in the
markets they serve, and
. $0.5 million relates to additional materials purchases savings in the
current period.
Gross profit margin decreased 3.4% for the three months ended March 31, 1999
compared to the three months ended March 31, 1998 because of GroupMAC's
acquisition emphasis during 1998 and the first quarter of 1999 on
commercial/industrial businesses, which support the Company's national
accounts initiatives although they typically have lower gross margins than
residential businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including goodwill amortization, increased $22.7
million, or 114.5%, to $42.5 million for the three months ended March 31, 1999
from $19.8 million for the three months ended March 31, 1998. The increase in
these expenses is attributable to the following:
. $15.4 million relates to the incremental months of selling, general and
administrative expenses incurred in the three months ended March 31, 1999
by commercial/industrial companies acquired during or subsequent to the
three months ended March 31, 1998,
. $0.9 million relates to the incremental months of selling, general and
administrative expenses incurred in the three months ended March 31, 1999
by residential companies acquired during or subsequent to the three
months ended March 31, 1998,
. $1.6 million relates to the same store growth in the
commercial/industrial group, with $0.5 million of the increase coming
from the Company's Seattle/Portland operations,
. $1.5 million relates to the same store growth in the residential group,
. $2.6 million relates to incremental corporate expenses representing
expansion of the corporate management team, expenses of employee benefit
programs and infrastructure necessary to execute our operating and
acquisition strategies,
. $2.0 million relates to an increase in goodwill amortization associated
with the above described acquisitions, and
. $0.4 million relates to field bonuses.
Partially offsetting the above increases is approximately $1.7 million of
savings related to our property and casualty insurance programs.
As a percentage of revenues, selling, general and administrative expenses,
excluding corporate expenses and goodwill amortization, decreased to 12.9% for
the three months ended March 31, 1999 from 16.1% for the three months ended
March 31, 1998, respectively, due primarily to achieving lower selling and
administrative expense margins on a same store basis and acquiring a higher
mix of commercial companies which tend to have lower selling, general and
administrative expense structures relative to revenues earned. When including
corporate expenses and goodwill amortization, selling, general and
administrative expenses as a percentage of revenues decreased to 14.0% for the
three months ended March 31, 1999 from 18.5% for the three months ended
March 31, 1998.
Net Interest. Net interest increased $5.5 million during the three months
ended March 31, 1999 compared to the same period of the prior year. Such
increase was attributable to a higher level of borrowings under the Company's
credit facility and the issuance of the $130 million of unsecured senior
subordinated notes (the "Notes") in January 1999 to finance the Company's
aggressive acquisition program during 1998 and the first quarter of 1999. See
"Liquidity and Capital Resources."
11
<PAGE>
Income Tax Provision. The income tax provision increased $2.9 million to
$5.0 million for the three months ended March 31, 1999 from $2.1 million for
the three months ended March 31, 1998. This increase corresponds with the pre-
tax income increase of $6.3 million between periods. The effective tax rate
for the three months ended March 31, 1999 was 46.8% compared to 47.6% for the
three months ended March 31, 1998. The effective tax rate exceeds the
Company's statutory federal and state tax rate due primarily to non-deductible
goodwill amortization of $2.1 million and $0.8 million in the three months
ended March 31, 1999 and 1998, respectively. The overall decrease in the
effective tax rate results primarily from income tax planning strategies
implemented during 1998, as well as three of the Company's acquisitions being
structured as taxable transactions, resulting in the deductibility of goodwill
for these entities.
Seasonality and Cyclicality
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installations is generally lower during the winter months due
to reduced construction activities during inclement weather. Demand for HVAC
services is generally higher in the second and third quarters. Accordingly,
the Company expects its revenues and operating results generally will be lower
in the first and, to a lesser degree, fourth quarters. Historically, the
construction industry has been highly cyclical. As a result, the Company's
volume of business may be adversely affected by declines in new installation
projects in various geographic regions of the United States.
A substantial portion of the Company's business involves installation of
mechanical and electrical systems in newly constructed residences and
commercial/industrial facilities. Revenues from new installation services in
the residential market is dependent upon the level of housing starts in the
areas in which the Company operates. The housing industry is cyclical, and the
Company's revenues from residential new installation will be affected by the
factors that affect the housing industry. These factors include changes in
employment and income levels, the availability and cost of financing for new
home buyers and general economic conditions. The level of new
commercial/industrial installation services is also affected by changes in
economic conditions and interest rates. General downturns in housing starts or
new commercial/industrial construction in the areas in which the Company
operates could have a material adverse effect on the Company's business,
including its financial condition and results of operations.
Inflation
Inflation did not have a significant effect on the results of operations of
the Company for the three month periods ended March 31, 1999 and 1998.
Year 2000
Background. The Year 2000 issue refers to the inability of certain date
sensitive computer chips, software and systems to recognize a two-digit date
field as belonging to the 21st century. Many computer software programs, as
well as certain hardware and equipment containing date sensitive data, were
structured to utilize a two-digit date field. Accordingly, these programs may
not be able to properly recognize dates in the year 2000 and later, which
could result in significant system and equipment failures. This is a
significant issue for most if not all companies, with far reaching
implications, some of which cannot be anticipated or predicted with any degree
of certainty. GroupMAC recognizes that it must take action to ensure that its
operations will not be adversely impacted by Year 2000 software failures.
GroupMAC's State of Readiness. The Company has completed an initial systems
survey of each business acquired. That survey revealed that several of its
core business applications possess Year 2000 problems. However, none of these
problems are expected to be material to individual operating companies or, in
the aggregate, to the Company because the 62 operating companies acquired by
GroupMAC utilize approximately 34 different operating and accounting systems.
As further discussed herein, GroupMAC has not migrated its operating companies
to a common system platform. Accordingly, even if its Year 2000 evaluation
fails to detect
12
<PAGE>
or correct an issue at one or more of the operating companies, it would not
have a material impact on the other companies in the consolidated group.
GroupMAC's Year 2000 plan includes the following phases:
Evaluation
GroupMAC retained an outside consulting firm to evaluate more thoroughly the
extent of the problem and to assist it with cost estimates and in preparing an
action plan to address the issues in a timely manner. This phase began in
early July 1998 and included all companies from the initial system survey and
those acquired through the first quarter of 1999. The evaluation phase has
been completed at a cost of approximately $115,000. Additionally, GroupMAC has
engaged an outside consulting firm to evaluate and estimate the impact of Year
2000 problems on potential future acquisitions as part of the due diligence
process. These evaluations have been performed for all acquisitions to date
and are included in the above cost estimates.
Upgrading and Testing
During the evaluation phase, we determined that most systems in use by
GroupMAC could be upgraded to eliminate Year 2000 problems. The Company
estimates that the cost of bringing the evaluated systems into compliance is
between $200,000 and $250,000. The estimate includes between $125,000 and
$170,000 for software upgrades and between $75,000 and $80,000 for
implementation and testing. These costs are expected to be incurred during the
first three quarters of 1999. GroupMAC will expense substantially all of these
costs and will fund them through cash flow from operations.
Management has implemented tracking mechanisms to ensure upgrades are
completed in a timely manner. Since each individual company has different
systems in use today, the implementation schedule varies for each company and
the Year 2000 plan will be modified as events warrant. All upgrading and
testing is scheduled to be completed by September 1999. It is not anticipated
that management involvement or the use of capital resources in solving Year
2000 problems will have a substantial impact on other information technology
projects.
Independent of its Year 2000 activities discussed in the previous
paragraphs, GroupMAC continues to develop a common information system
throughout the organization for its overall information needs that will be
free of any Year 2000 limitations. While GroupMAC as a whole is not dependent
on the implementation of the common system to remedy its Year 2000 problem,
one of the acquired businesses requires a completely new system to solve its
Year 2000 issues. This company (with annual revenues of approximately $8.0
million) will be converted to a new system before December 31, 1999.
Regarding the common information system, GroupMAC's board of directors has
approved the prototype and pilot phase of an enterprise resource planning
system ("ERP"). This phase is expected to take approximately ten months to
complete and is expected to commence in the third quarter of this year and be
concluded by the end of the second quarter of the Year 2000. If the prototype
and pilot phase achieve acceptable results, the Company expects to implement
the ERP system at most of its existing companies over a period of
approximately three years.
The Company is evaluating the effect of the Year 2000 problem on its most
significant customers and suppliers, and thus indirectly on GroupMAC. This
evaluation includes an ongoing process of contacting customers and suppliers
whose systems have, or may have, an effect on the way GroupMAC conducts
business. We are attempting to inventory and assess the Year 2000 readiness
and compatibility of our material customers and suppliers through the
completion of survey questionnaires. GroupMAC is currently reviewing survey
questionnaires received to date and we expect to complete the analysis of our
customers' and suppliers' systems by September 1999. GroupMAC does not have
control of these suppliers and customers. While we will work diligently to
coordinate with our suppliers and customers, there can be no assurance they
will complete their efforts prior to January 1, 2000. There are no individual
customers who will have a material impact on our
13
<PAGE>
revenues should they fail to complete their Year 2000 efforts. Additionally,
GroupMAC has alternative vendors that can be relied on should a current vendor
fail in its Year 2000 preparations.
Embedded Technology. The Company has focused its assessments to date on its
information technology systems. These assessments indicate that, due to the
nature of its operations, the non-information technology systems (i.e.
embedded technology such as microcontrollers) do not represent a significant
area of risk relative to Year 2000 readiness. GroupMAC's operations do not
include capital intensive equipment with embedded microcontrollers.
Risks. While GroupMAC does not anticipate any difficulties achieving the
upgrading and testing schedule described above, there is a risk that one or
more of our companies will not meet the current schedule. If this occurs, the
affected company may have to install a system similar to that being utilized
at one of the other operating companies until the problem is remedied.
Management believes that, if necessary, this could be accomplished without
meaningful business interruption and/or significant cost to GroupMAC. Also,
there is an unlikely scenario where any larger national supplier would have
Year 2000 related constraints causing GroupMAC to shift product orders to
other readily available suppliers.
Contingency Plan. GroupMAC has not implemented a Year 2000 contingency plan.
As explained above, we have initiated action to identify and resolve Year 2000
problems. GroupMAC intends to develop and implement a contingency plan in the
event that our present course of action to solve the Year 2000 problem should
fall behind schedule.
Summary. The following table summarizes the status and historical/estimated
completion dates of the various stages of GroupMAC's Year 2000 plan:
<TABLE>
<CAPTION>
Historical or
Estimated
Phase of Project Status Completion Date
---------------- ------ ---------------
<S> <C> <C>
Initial System Survey........................ Complete February 1999
Evaluation................................... Complete February 1999
Upgrade and Testing.......................... In Process September 1999
Customer/Supplier Evaluation................. In Process September 1999
Contingency Plan............................. If Necessary November 1999
</TABLE>
Liquidity and Capital Resources
Historically, GroupMAC has financed its operations and growth with
internally generated working capital and borrowings from commercial banks or
other lenders. These borrowings are generally secured by the accounts
receivable and inventory of the Company.
The Company has a committed credit facility providing for $230 million of
borrowing capacity (the "Credit Agreement") and, at March 31, 1999, had
outstanding $156.0 million of borrowings under this facility. This facility,
which is with a syndicate of banks led by Chase Bank of Texas, National
Association, will mature in October 2001. Debt under the Credit Agreement
bears interest at variable rates. Under the Credit Agreement, GroupMAC is
required to maintain (1) a minimum Fixed Charge Coverage Ratio; (2) a maximum
ratio of total indebtedness for borrowed money to capitalization (as defined
in the Credit Agreement); (3) a maximum ratio of senior debt to pro forma
earnings before interest, taxes, depreciation and amortization; (4) a maximum
amount of total indebtedness to EBITDA; (5) a minimum amount of Consolidated
Net Worth (as defined in the Credit Agreement) and (6) a maximum amount of
Capital Expenditures in relation to Consolidated Net Worth. At March 31, 1999,
GroupMAC was in compliance with those covenants. To date, neither the terms of
the Credit Agreement and the indenture pursuant to which the Notes referred to
below were issued, nor the debt represented thereby, have materially
restricted the Company's ability to finance future operations or capital needs
or to respond to changes in the Company's business or competitive activity.
14
<PAGE>
In January 1999, GroupMAC completed a private placement offering (the
"Offering") of $130 million of 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. 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 Statement of
Financial Accounting Standards ("SFAS") No. 80, Accounting for Futures
Contracts, this agreement qualifies as a hedge and was recognized as deferred
financing costs.
The Company's largest need for capital in the past has been to fund
acquisitions. Historically, the Company has generally paid for its
acquisitions with cash and common stock in approximately equal amounts. The
Company intends to continue to use its common stock as a significant component
of the consideration that it pays for businesses to be acquired. When the
Company's common stock price declines, the Company generally reduces the price
it is willing to pay for acquisitions and in some cases may increase the cash
component of the purchase price. If the price of the Company's common stock
declines, then the Company believes that the number of companies willing to be
acquired at an accretive price may be reduced, which could adversely impact
the growth of the Company. Furthermore, if the Company pays a greater
proportion of the consideration of future acquisitions in cash, then it will
exhaust its available credit faster than would otherwise be the case and would
increase its ratio of debt to total capitalization.
GroupMAC's primary requirements for capital (other than those related to
acquisitions) consist of purchasing vehicles, inventory and supplies used in
the operation of the business. During the three months ended March 31, 1999
and 1998, capital expenditures aggregated $2.7 million and $2.2 million,
respectively. GroupMAC anticipates that its cash flow from operations and
existing credit facilities will provide cash in excess of its normal working
capital needs, debt service requirements and planned capital expenditures for
property and equipment.
For the three months ended March 31, 1999 and 1998, the Company generated
$10.3 million and $2.4 million in cash from operating activities,
respectively. For the three months ended March 31, 1999, net income,
depreciation and amortization generated $11.5 million and changes in asset and
liability accounts utilized a net $1.2 million. For the three months ended
March 31, 1998, net income, depreciation, amortization and deferred taxes
generated $3.7 million and changes in asset and liability accounts utilized a
net $1.3 million.
For the three months ended March 31, 1999, GroupMAC used $41.7 million in
cash in investing activities. These activities principally consisted of $38.7
million for acquisitions and $2.7 million for capital expenditures. For three
months ended March 31, 1998, we used $38.0 million in cash in investing
activities. These activities principally consisted of $35.6 million for
acquisitions and $2.2 million for capital expenditures.
For the three months ended March 31, 1999, GroupMAC generated $35.6 million
in cash from its financing activities. These activities principally consisted
of proceeds from long-term debt, net of offering costs, of $222.0 million and
$186.5 million in payments of long-term debt. For the three months ended
March 31, 1998, GroupMAC generated $15.6 million in cash from its financing
activities. These activities consisted of proceeds from long-term debt of
$21.3 million and $5.7 million in payments of long-term debt.
GroupMAC has registered under the Securities Act of 1933, as amended, and
has available for issuance in connection with future acquisitions
approximately 1.8 million shares of common stock. After their issuance, those
registered shares generally are freely tradeable by persons not affiliated
with GroupMAC unless it contractually restricts the resale, which it generally
does.
15
<PAGE>
During the three months ended March 31, 1999, GroupMAC completed the
acquisition of three commercial/industrial platform companies accounted for as
purchases. The combined annual revenues of these acquired companies were
approximately $165 million. Total consideration paid included cash payments of
$35.2 million, $1.6 million of junior subordinated notes, 2.1 million shares
of common stock, warrants to purchase approximately 80,000 shares of common
stock and total debt assumed of $16.7 million. Additionally, during the three
months ended March 31, 1999, the Company paid approximately $6.9 million of
cash and 0.2 million shares of common stock related to previously recorded
amounts due to former shareholders of the companies acquired prior to December
31, 1998. GroupMAC financed the cash portion of the purchase price using: (1)
cash borrowed under the Credit Agreement and (2) internally generated funds.
GroupMAC intends to aggressively pursue acquisition opportunities.
Management believes that funds provided by operations, together with funds
available under the Credit Agreement and other sources, will be
adequate to meet our anticipated requirements for acquisitions. Estimates as
to working capital needs and other expenditures may be materially affected if
the foregoing sources are not available or do not otherwise provide sufficient
funds to meet our obligations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes new accounting and reporting standards requiring that
all derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. This statement is effective for all fiscal years beginning
after June 15, 1999. Under present operations, this statement will have no
impact on the Company's financial position or results of operations.
16
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The table below provides information about GroupMAC's market sensitive
financial instruments and constitutes a "forward-looking statement." Our major
market risk exposure is changing interest rates. All items described are non-
trading and are stated in U.S. dollars (in thousands).
<TABLE>
<CAPTION>
Fair Value
At March 31,
1999 2000 2001 2002 2003 Thereafter Total 1999
---- ---- ------- ---- ---- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Line of
Credit................. -- -- 156,000 -- -- -- 156,000 156,000
Average Rate.......... (a)
Senior Subordinated
Debt................... -- -- -- -- -- 130,000 130,000 130,000
Average Rate.......... 10.6%(b)
Junior Subordinated
Debt................... -- -- -- -- 37 1,613 1,650 1,650
Average Rate.......... 6.0% 6.0%
Fixed Rate Debt......... 885 -- -- -- -- -- 885 885
Average Rate.......... 6.1%
</TABLE>
- --------
(a) The Credit Agreement borrowings bear interest at a rate per annum, at the
Company's option, of either (1) the Alternate Base Rate or (2) the
Eurodollar Rate. The Alternate Base Rate is equal to the greater of the
Federal Funds Effective Rate plus 0.5% or the Prime Rate plus a Margin
depending on the ratio of indebtedness for borrowed money to EBITDA (with
all capitalized terms as defined in the Credit Agreement). The Eurodollar
Rate is the rate defined in the Credit Agreement plus a Margin depending
on the ratio of indebtedness for borrowed money to EBITDA. At March 31,
1999, the weighted average interest rate in effect for the Credit
Agreement borrowings, including amortization of related debt issuance
costs, was 7.2%.
(b) The Senior Subordinated Debt is unsecured, matures January 2009 and bears
interest at 9.75% payable semi-annually. In addition, there are
approximately $10.7 million in related debt issuance costs which are being
amortized to interest expense over the ten year life of the Notes,
increasing the effective interest rate to 10.6%.
17
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
During the quarter ended March 31, 1999, the Company issued securities that
were not registered pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), as follows: On January 14, 1999, the Company issued 272,146
shares of Common Stock, warrants to purchase 79,956 shares of Common Stock,
and $1.6 million aggregate principal amount of junior subordinated notes in
connection with the acquisition of the outstanding capital stock of Pacific
Rim Mechanical Contractors, Inc. The issuance of such securities was completed
without registration under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act, no public offering being
involved.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits.
<TABLE>
<C> <C> <S>
2 -- None
3.1 -- Articles of Incorporation of the Company, as amended (Exhibit
3.1 to Registration Statement No. 333-34067).
3.2 -- Bylaws of the Company, as amended (Exhibit 3.2 to the Company's
Form 10-K for the fiscal year ended December 31, 1998, File No.
1-13565).
4.1 -- Indenture dated January 22, 1999 among the Company, the
Guarantors named therein
and State Street Bank and Trust Company, as Trustee (Exhibit
4.1 to Registration
No. 333-76713).
10 -- None
11 -- None
15 -- None
18 -- None
19 -- None
22 -- None
23 -- None
24 -- None
27 -- Financial Data Schedule
99 -- None
</TABLE>
(2) Reports on Form 8-K.
On January 5, 1999, the Company filed a Current Report on Form 8-K which
disclosed, under Item 5 thereof, the issuance by the Company of two press
releases announcing that (i) it had plans to sell $130.0 million aggregate
principal amount of Senior Subordinated Notes due 2009 in a private offering
to institutional buyers and (ii) it had signed three letters of intent to
acquire companies with combined annual revenues of approximately $150 million.
On January 19, 1999, the Company filed an amendment to the Current Report on
Form 8-K that it filed on September 15, 1998 (as amended on September 21,
1998), with respect to the acquisition of Romanoff Electric Corp.
("Romanoff"), which was reported under Item 2 of the original Form 8-K. The
amendment included audited financial statements of Romanoff.
On January 19, 1999, the Company filed a Current Report on Form 8-K which
disclosed, under Item 5 thereof, the acquisition by the Company of Stephen C.
Pomeroy, Inc. ("Pomeroy"). The report included audited financial statements of
Pomeroy.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Group Maintenance America Corp.
May 17, 1999 /s/ Darren B. Miller
----------------------------------------
Darren B. Miller
Executive Vice President and Chief
Financial Officer
(principal financial officer)
May 17, 1999 /s/ Daniel W. Kipp
----------------------------------------
Daniel W. Kipp
Senior Vice President and Corporate
Controller
(principal accounting officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,607
<SECURITIES> 0
<RECEIVABLES> 236,498
<ALLOWANCES> 6,633
<INVENTORY> 18,644
<CURRENT-ASSETS> 305,595
<PP&E> 58,466
<DEPRECIATION> 13,288
<TOTAL-ASSETS> 813,741
<CURRENT-LIABILITIES> 175,317
<BONDS> 287,650
0
0
<COMMON> 35
<OTHER-SE> 348,436
<TOTAL-LIABILITY-AND-EQUITY> 813,741
<SALES> 302,765
<TOTAL-REVENUES> 302,765
<CGS> 244,018
<TOTAL-COSTS> 244,018
<OTHER-EXPENSES> 42,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,714
<INCOME-PRETAX> 10,675
<INCOME-TAX> 4,996
<INCOME-CONTINUING> 5,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,679
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
