<PAGE>
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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
----------------
AMENDMENT NO. 1
TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 14, 2000
(Date of earliest event reported: February 22, 2000)
----------------
ENCOMPASS SERVICES CORPORATION
(formerly named Group Maintenance America Corp.)
(Exact name of registrant as specified in its charter)
Texas 1-13565 76-0535259
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation)
3 Greenway Plaza, Suite 2000 77046
Houston, Texas (Zip Code)
(Address of principal executive
offices)
Registrant's Telephone Number, Including Area Code: (713) 860-0100
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<PAGE>
Item 2. Acquisition or Disposition of Assets.
On February 22, 2000, in accordance with the terms of the Agreement and Plan
of Merger, dated as of November 2, 1999, as amended (the "Merger Agreement"),
between Group Maintenance America Corp. ("GroupMAC" or the "Registrant") and
Building One Services Corporation ("Building One"), Building One was merged
with and into the Registrant. In connection with the merger, the Registrant
changed its name to Encompass Services Corporation ("Encompass"), and its
common stock continues to be listed on the New York Stock Exchange under the
symbol ESR.
Under the terms of the Merger Agreement, each share of common stock, $.001
par value, of Building One ("Building One Common Stock") outstanding at the
effective time of the merger was converted into 1.25 shares of common stock,
$.001 par value, of the Registrant (the "Registrant's Common Stock"). On
February 21, 2000, there were 28,125,023 shares of Building One Common Stock
outstanding, and thus upon the merger, the Building One stockholders received
an aggregate of 35,156,279 shares of the Registrant's Common Stock. No
fractional shares of the Registrant's Common Stock were issued. In lieu of the
issuance of any fractional shares of the Registrant's Common Stock, ChaseMellon
Shareholder Services, L.L.C., as Exchange Agent and agent for the holders of
Building One Common Stock, sold the aggregate amount of fractional shares at
then prevailing prices on the New York Stock Exchange in the manner provided
for in the Merger Agreement. The Exchange Agent then distributed such amounts
of cash, in lieu of any fractional share interest. The Registrant's Common
Stock issued pursuant to the Merger Agreement was registered under the
Securities Act of 1933, as amended, on Form S-4 (Registration No. 333-93649).
In connection with the merger, the Registrant also issued to affiliates of
Apollo Investment, L.P. 256,191 shares of the Registrant's 7.25% Convertible
Preferred Stock (the "Preferred Stock") in exchange for $150 million in cash
and all of the outstanding convertible junior subordinated debentures of
Building One. The Preferred Stock matures in 2012 and is convertible into the
Registrant's Common Stock at a conversion price of $14.00 per share, subject to
adjustment under certain circumstances. The cash was used to fund the right of
the Registrant's shareholders to elect to receive in the merger cash for up to
50% of their shares of the Registrant's Common Stock at $13.50 per share,
subject to proration. The cash election was over-subscribed, canceling
11,052,000 shares of the Registrant's Common Stock.
Building One was a provider of integrated facilities services in the United
States. A description of the assets and business of Building One is more fully
set forth in, or incorporated by reference into, the Registrant's joint proxy
statement/prospectus dated January 18, 2000 contained in Part I of the
Registrant's Registration Statement on Form S-4 (Registration No. 333-93649)
which is included as Exhibit 2 hereto. The Registrant intends to continue to
operate the business and assets of Building One in substantially the same
manner as they were operated prior to the merger.
1
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of Building One and other financial information of
Building One.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... 3
Independent Auditor's Report............................................... 4
Independent Auditor's Report............................................... 5
Consolidated Balance Sheet................................................. 6
Consolidated Statement of Operations....................................... 7
Consolidated Statement of Stockholders' Equity and Comprehensive Income.... 8
Consolidated Statement of Cash Flows....................................... 9
Notes to Consolidated Financial Statements................................. 11
</TABLE>
OTHER FINANCIAL INFORMATION
OF BUILDING ONE
<TABLE>
<S> <C>
Selected Financial Data..................................................... 31
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Building One Services Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of stockholders' equity and comprehensive income and of cash
flows present fairly, in all material respects, the financial position of
Building One Services Corporation and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain wholly-owned
subsidiaries, which statements reflect total revenues of $28.5 million for the
year ended December 31, 1997. Those statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for those wholly-owned
subsidiaries, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 12, 2000, except for Notes 1 and 19, which are as of February 22, 2000
3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Perimeter Maintenance Corporation
Atlanta, Georgia
We have audited the statements of operations, retained earnings, and cash flows
of Perimeter Maintenance Corporation (an S Corporation) for the year ended
December 31, 1997 (not presented separately herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Perimeter
Maintenance Corporation for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Frazier & Deeter, LLC
---------------------
Frazier & Deeter, LLC
Atlanta, Georgia
February 19, 1998
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Crest International, LLC
Green Bay, Wisconsin
We have audited the statements of income, accumulated deficit and cash flows of
Crest International, LLC (a Wisconsin limited liability company) for the year
ended December 31, 1997 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Crest
International, LLC for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Shinners, Hucovski & Company, S.C.
--------------------------------------
Shinners, Hucovski & Company, S.C.
Green Bay, Wisconsin
February 17, 1998
5
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 17,085 $ 213,096
Marketable securities................................. 2,275 2,697
Accounts receivable, less allowance for doubtful
accounts of $2,976 and $1,991, respectively.......... 400,326 246,623
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 59,418 25,441
Deferred tax assets................................... 4,168 1,474
Refundable income taxes............................... 1,757 --
Prepaid expenses and other current assets............. 23,584 12,937
---------- ----------
Total current assets................................. 508,613 502,268
Property and equipment, net............................ 63,288 38,967
Intangible assets, net................................. 733,757 496,381
Other assets........................................... 8,096 6,306
---------- ----------
Total assets......................................... $1,313,754 $1,043,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt....................................... $ 7,950 $ 2,167
Accounts payable...................................... 107,319 75,029
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 86,122 58,773
Accrued compensation.................................. 39,873 27,737
Income taxes payable.................................. -- 6,125
Accrued liabilities--other............................ 48,216 25,047
---------- ----------
Total current liabilities............................ 289,480 194,878
Long-term debt......................................... 590,930 3,287
Deferred tax liabilities............................... 2,085 234
Other liabilities...................................... 2,502 7,986
---------- ----------
Total liabilities.................................... 884,997 206,385
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 250,000,000 shares
authorized, 28,107,818 and 45,258,946 shares
outstanding, respectively............................ 28 45
Additional paid-in capital............................ 329,125 832,514
Treasury stock........................................ -- (41,832)
Retained earnings..................................... 100,317 47,255
Accumulated other comprehensive loss.................. (713) (445)
---------- ----------
Total stockholders' equity........................... 428,757 837,537
---------- ----------
Total liabilities and stockholders' equity........... $1,313,754 $1,043,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December
31,
---------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Revenues................................... $1,772,584 $ 809,601 $ 70,101
Cost of revenues........................... 1,419,117 636,225 58,857
---------- ---------- ---------
Gross profit............................. 353,467 173,376 11,244
Selling, general and administrative
expenses.................................. 204,728 100,539 11,776
Goodwill amortization...................... 16,004 7,653 --
Restructuring and recapitalization charges
(See Note 5).............................. 8,020 -- --
---------- ---------- ---------
Operating income (loss).................. 124,715 65,184 (532)
Other (income) expense:
Interest income.......................... (5,743) (19,373) (2,056)
Interest expense......................... 35,618 1,054 208
Other, net............................... (249) (80) (221)
---------- ---------- ---------
Income before taxes........................ 95,089 83,583 1,537
Provision for income taxes................. 42,027 36,120 94
---------- ---------- ---------
Net income................................. $ 53,062 $ 47,463 $ 1,443
========== ========== =========
Net income per share--Basic................ $ 1.60 $ 1.19 $ 0.25
========== ========== =========
Net income per share--Diluted.............. $ 1.52 $ 1.16 $ 0.25
========== ========== =========
Weighted average shares outstanding--
Basic..................................... 33,230,136 39,908,364 5,683,464
========== ========== =========
Weighted average shares outstanding--
Diluted................................... 37,124,959 40,928,452 5,865,550
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-Voting Common
Common Stock Stock
------------------- ------------------
Accumulated
Additional Other Total
Shares Shares Paid-in Treasury Retained Comprehensive Stockholders'
Outstanding Amount Outstanding Amount Capital Stock Earnings Loss Equity
----------- ------ ----------- ------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 1,290,724 $ 1 -- $ -- $ 1,577 $ -- $ -- $ -- $ 1,578
Transactions of
Pooled
Companies:
Distributions
paid........... (831) (831)
Capital
contribution.... 2,300,000 2 124 126
Common stock
issued.......... 27,850,000 28 500,000 1 527,135 527,164
Net income....... 1,436 7 1,443
Total
comprehensive
income..........
----------- --- -------- ------ -------- ------- -------- ----- --------
Balance, December
31, 1997......... 31,440,724 31 500,000 1 529,441 -- 7 -- 529,480
Transactions of
Pooled
Companies:
Distributions
paid........... (628) (628)
Stock issued
upon exercise
of options..... 123,046 216 216
Issuance of
common stock for
acquisitions.... 16,144,711 16 302,855 302,871
Stock issued
under employee
stock purchase
plan............ 40,465 415 415
Purchase of
treasury stock.. (2,990,000) (3) (41,832) (41,835)
Unrealized loss
on marketable
securities --
net of tax
of $297......... (445) (445)
Conversion of
non-voting
common stock.... 500,000 1 (500,000) (1)
Net income....... 215 47,248 47,463
Total
comprehensive
income..........
----------- --- -------- ------ -------- ------- -------- ----- --------
Balance, December
31, 1998 ........ 45,258,946 45 -- -- 832,514 (41,832) 47,255 (445) 837,537
Issuance of
common stock for
acquisitions and
contingent
consideration
agreements...... 7,281,155 7 96,982 96,989
Repurchase of
shares in Tender
Offer (See Note
3).............. (24,617,840) (25) (562,979) (563,004)
Cancellation of
treasury stock.. (41,832) 41,832
Compensation
expense related
to options
exercised in
Tender Offer.... 2,629 2,629
Stock issued upon
exercise of
options......... 29,185 142 142
Stock issued
under employee
stock purchase
plan............ 156,372 1 1,669 1,670
Unrealized loss
on marketable
securities-net
of tax of $179.. (268) (268)
Net income....... 53,062 53,062
Total
comprehensive
income..........
----------- --- -------- ------ -------- ------- -------- ----- --------
Balance, December
31, 1999......... 28,107,818 $28 -- $ -- $329,125 $ -- $100,317 $(713) $428,757
=========== === ======== ====== ======== ======= ======== ===== ========
<CAPTION>
Total
Comprehensive
Income
-------------
<S> <C>
Balance, December
31, 1996......... $ --
Transactions of
Pooled
Companies:
Distributions
paid...........
Capital
contribution....
Common stock
issued..........
Net income....... 1,443
-------------
Total
comprehensive
income.......... 1,443
=============
Balance, December
31, 1997.........
Transactions of
Pooled
Companies:
Distributions
paid...........
Stock issued
upon exercise
of options.....
Issuance of
common stock for
acquisitions....
Stock issued
under employee
stock purchase
plan............
Purchase of
treasury stock..
Unrealized loss
on marketable
securities --
net of tax
of $297......... (445)
Conversion of
non-voting
common stock....
Net income....... 47,463
-------------
Total
comprehensive
income.......... 47,018
=============
Balance, December
31, 1998 ........
Issuance of
common stock for
acquisitions and
contingent
consideration
agreements......
Repurchase of
shares in Tender
Offer (See Note
3)..............
Cancellation of
treasury stock..
Compensation
expense related
to options
exercised in
Tender Offer....
Stock issued upon
exercise of
options.........
Stock issued
under employee
stock purchase
plan............
Unrealized loss
on marketable
securities-net
of tax of $179.. (268)
Net income....... 53,062
-------------
Total
comprehensive
income.......... $52,794
=============
Balance, December
31, 1999.........
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 53,062 $ 47,463 $ 1,443
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization.......... 31,982 13,242 945
(Gain) loss on sale of equipment....... 349 37 (52)
Compensation expense related to options
exercised............................. 2,629 -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (87,306) (38,035) (36)
Costs and estimated earnings in
excess of billings.................. (22,504) 3,200 --
Prepaid expenses and other current
assets.............................. (11,567) (2,721) (1,319)
Billings in excess of costs and
estimated earnings.................. 15,336 2,049 --
Accounts payable..................... 6,086 1,193 (505)
Accrued liabilities.................. 10,583 7,044 2,254
Changes in other assets................ 809 (1,398) 3
---------- ---------- ----------
Net cash (used in) provided by
operating activities.............. (541) 32,074 2,733
---------- ---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions (net of cash
acquired) and contingent consideration.. (161,084) (231,602) --
Purchases of property and equipment...... (28,326) (11,289) (699)
Proceeds on sale of equipment............ 584 790 387
Other.................................... (258) (218) (7)
---------- ---------- ----------
Net cash used in investing
activities........................ (189,084) (242,319) (319)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from initial public offering,
net..................................... -- -- 527,164
Net proceeds (payments) on short-term
debt.................................... (4,907) (38,783) 145
Payments on long-term debt............... (46,016) (28,535) (349)
Proceeds on long-term debt............... 630,592 3,519 --
Payment of debt issuance costs........... (22,467) -- --
Repurchase of common stock including
related expenses........................ (564,407) -- --
Net payments on related party loans...... (151) -- --
Distribution to minority shareholders.... (842) -- --
Purchase of treasury stock............... -- (41,835) --
Proceeds from issuance of stock for
options exercised....................... 142 216 --
Proceeds from issuance of stock under
employee stock purchase plan............ 1,670 415 --
Payment of dividends..................... -- (628) (831)
Contributions by founding stockholder.... -- -- 126
---------- ---------- ----------
Net cash (used in) provided by
financing activities.............. (6,386) (105,631) 526,255
---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents............................... (196,011) (315,876) 528,669
Cash and cash equivalents, beginning of
period.................................... 213,096 528,972 303
---------- ---------- ----------
Cash and cash equivalents, end of period... $ 17,085 $ 213,096 $ 528,972
========== ========== ==========
Supplemental cash flow information:
Cash paid for interest................... $ 22,422 $ 882 $ 290
Cash paid for income taxes............... $ 53,673 $ 34,395 $ --
</TABLE>
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Dollars in thousands)
The Company issued common stock and cash in connection with certain business
combinations during the years ended December 31, 1999 and 1998. The fair values
of the assets acquired and liabilities assumed at the dates of acquisition are
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable........................................ $ 66,279 $202,515
Inventories................................................ 2,041 2,626
Costs and earnings in excess of billings................... 11,487 31,085
Prepaid expenses and other current assets.................. 2,208 12,248
Property and equipment..................................... 11,283 33,080
Intangible assets.......................................... 133,971 502,470
Other assets............................................... 3,404 7,745
Short-term debt............................................ (7,858) (29,594)
Accounts payable........................................... (24,831) (72,805)
Accrued liabilities........................................ (18,207) (49,020)
Billings in excess of costs and estimated earnings......... (11,546) (56,912)
Long-term debt............................................. (1,863) (41,287)
Other long-term liabilities................................ (246) (7,678)
-------- --------
Net assets acquired...................................... $166,122 $534,473
======== ========
These acquisitions were funded as follows:
Common stock, 4,172,565 and 16,144,711 shares,
respectively............................................ $ 52,281 $302,871
Cash, net of cash acquired............................... 113,841 231,602
-------- --------
$166,122 $534,473
======== ========
</TABLE>
The following notes are an integral part of these financial statements.
10
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation ("Building One" or the "Company") is a
leader in the facilities services industry and provides the many services
needed for the routine operation and maintenance of a building. Currently, the
Company provides electrical, mechanical, janitorial and maintenance services to
customers throughout the United States.
The Company was incorporated in September 1997 under the name of
Consolidation Capital Corporation and completed an initial public offering of
its common stock in December 1997, selling 27,850,000 shares of common stock
and 500,000 shares of Convertible Non-Voting Common Stock and raising net
proceeds of approximately $527,164. During 1998, the Company changed its name
to Building One Services Corporation.
On February 22, 2000, the Company's shareholders and the shareholders of
Group Maintenance America Corp. ("GroupMAC") approved a merger of the two
companies whereby each outstanding share of the Company's common stock was
exchanged for 1.25 shares of GroupMAC common stock. The new combined entity
changed its name to Encompass Services Corporation ("Encompass"). See further
discussion in Note 19--Subsequent Events.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Building One, and the
companies acquired in business combinations accounted for under the purchase
method (the "Purchased Companies") from their respective acquisition dates and
give retroactive effect to the results of the companies acquired in business
combinations accounted for under the pooling-of-interests method (the "Pooled
Companies") for all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company utilizes the percentage-of-completion method of accounting for
the recognition of revenues and costs of all significant installation
contracts. Revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Contract costs include all direct material and
labor costs and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs and depreciation costs. Selling and
administrative expenses are expensed as incurred. Changes in job performance,
job conditions, estimated profitability and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Maintenance and other service revenues are recognized as the
services are performed.
Cash and Cash Equivalents
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
11
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade accounts receivable. The Company's temporary cash investments consist
of readily marketable, investment grade financial instruments of a nature which
should reduce risk of loss. Concentration of credit risk with respect to trade
receivables results from these amounts generally not being collateralized.
However, the Company is entitled to payment for work performed and often has
certain lien rights in that work. Additionally, management continually monitors
the financial condition of its customers to reduce risk of loss.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, marketable
securities, accounts receivable, accounts payable and debt approximate fair
value. The Company's cash equivalents are comprised of readily marketable,
interest-bearing, investment grade securities.
Marketable Securities
Marketable securities consist of investments in equity securities and are
classified as available for sale. The unrealized gains and losses, net of
applicable income taxes, are reported as a component of other comprehensive
income (loss) in stockholders' equity. Realized gains and losses are included
in other income. The cost of securities sold is based on the specific
identification method.
Property and Equipment
Property and equipment are stated at cost and depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years for equipment, vehicles, and furniture and fixtures
and 30 years for buildings. Leasehold improvements and capital leases are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset.
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment is recognized to the extent that the sum of
undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through December 31, 1999.
Intangible Assets
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is being amortized on a
straight-line basis over 40 years which is the estimated period benefited. The
recoverability of the unamortized balance of goodwill is assessed on an ongoing
basis by comparing anticipated undiscounted future cash flows from operations
to net book value. If at such time these assessments indicate that the future
undiscounted cash flows from operations are not sufficient to recover the net
book value, the goodwill balance is adjusted to its fair value. No such
adjustments have been recognized through December 31, 1999.
Income Taxes
Income taxes have been computed utilizing the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Certain
companies acquired in pooling-of-interests transactions elected to be taxed as
subchapter S corporations and, accordingly, no federal income taxes were
recorded by those companies for periods prior to their acquisition by Building
One.
12
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Stock-Based Compensation
Building One measures compensation expense for its stock-based employee
compensation plans and warrants granted to employees using the intrinsic value
method and has provided in Note 16 the pro forma disclosures of the effect on
reported net income (loss) and net income (loss) per share as if the fair
value-based method had been applied in measuring compensation expense.
Net Income Per Share
Basic net income per share is determined by dividing net income by the
weighted average number of common shares outstanding during the periods.
Diluted net income per share reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock at the beginning of the period or the date of
issuance.
Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. Building One's
other comprehensive income is attributed to adjustments related to marketable
securities available for sale. The amount included in 1999 and 1998 other
comprehensive income represents an adjustment for unrealized losses on these
marketable securities, net of tax.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
NOTE 3--RECAPITALIZATION PLAN
On May 11, 1999, the Company completed its recapitalization plan which
included the repurchase of 24,617,840 shares of its common stock at $22.50 per
share for cash and 883,573 shares of the Company's common stock underlying
stock options at $22.50 per share less the exercise price per share of the
options in a tender offer (the "Tender Offer"). Funds utilized for the
repurchase totaled $560,084, which were obtained from the Company's available
cash, the net proceeds of $195,492 from the issuance of $200,000 of 10 1/2%
senior subordinated notes, $100,000 from the issuance of 7 1/2% convertible
junior subordinated debentures to Boss Investment LLC, an affiliate of Apollo
Management, L.P. ("Apollo") and borrowings under a credit facility. See Note 4
for unaudited pro forma statement of operations data for the years ended
December 31, 1999 and 1998 which assumes that the recapitalization plan was
consummated on January 1, 1998.
As a result of the Company allowing the exercise of employee stock options
in the Tender Offer, compensation expense of $2,770 ($1,662 after the
associated tax benefit) was recognized and is included in the restructuring and
recapitalization charges recorded for the year ended December 31, 1999.
Additionally, $4,323 of expenses were incurred in connection with the Tender
Offer which have been reflected as a reduction of stockholders' equity.
NOTE 4--BUSINESS COMBINATIONS
Purchase Method
During the year ended December 31, 1998, the Company completed 26 business
combinations that were accounted for under the purchase method of accounting.
The consolidated financial statements include the results of these acquired
entities from their respective dates of acquisition. The aggregate
consideration paid for
13
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
these acquisitions consisted of 16,144,711 shares of the Company's common
stock, 403,389 options assumed at an exercise price below fair market value,
$259,021 in cash and the assumption of approximately $33,847 in debt which was
paid at closing. The total purchase price was allocated to the fair value of
the net assets acquired, resulting in goodwill of $502,470.
During the year ended December 31, 1999, the Company completed 23 business
combinations that were accounted for under the purchase method of accounting.
The consolidated financial statements include the results of these acquired
businesses from their respective dates of acquisition. The aggregate
consideration paid for these acquisitions consisted of 4,172,565 shares of the
Company's common stock, $123,380 in cash, including applicable professional
fees, and $2,410 of debt assumed.
The total purchase price for 1999 acquisitions was allocated to the fair
value of the net assets acquired, resulting in goodwill of approximately
$133,818. Such allocations are preliminary in nature, pending the outcome of a
detailed analysis being performed by the Company of the assets and liabilities
acquired.
For purposes of computing the purchase price for accounting purposes, the
value of the shares on certain acquisitions was determined in consideration of
various restrictions on the sale and transferability of the shares issued.
Contingent Consideration Agreements
In conjunction with acquisitions consummated in 1998 and 1999, the Company
has entered into certain contingent consideration agreements which provide for
the payment of cash and shares of common stock based on the performance of such
acquired companies.
During the year ended December 31, 1999, $103,862 of consideration under
these agreements had been earned, consisting of 3,125,827 shares of common
stock and $54,268 of cash, resulting in additional goodwill in the amount of
$98,753. As of December 31, 1999, $47,244 of this cash and applicable
professional fees was paid and 3,108,590 of these shares were issued. The
remaining cash amount payable of $8,450 has been reflected as a liability as of
December 31, 1999 and the additional paid-in capital associated with the shares
to be issued has been reflected as contingently issuable shares in the
Consolidated Statement of Stockholders' Equity and Comprehensive Income. These
contingently issuable shares have been included in the weighted average shares
outstanding for purposes of computing basic and diluted earnings per share for
the years ended December 31, 1999 and 1998. The Company currently estimates the
unearned contingent consideration under these remaining agreements to
approximate $79,607 as of December 31, 1999.
14
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The following unaudited pro forma results of operations give effect to the
Company's recapitalization plan, and acquisitions completed during the years
ended December 31, 1999 and 1998 as if they had been consummated on January 1,
1998, and the effects of certain other pro forma adjustments to the historical
financial statements.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues................................................ $1,953,350 $1,677,700
Cost of revenues........................................ 1,559,472 1,337,838
---------- ----------
Gross profit........................................ 393,878 339,862
Selling, general and administrative expenses............ 223,108 187,803
Goodwill amortization................................... 18,578 18,578
Restructuring and recapitalization charges.............. 8,020 --
---------- ----------
Operating income.................................... 144,172 133,481
Other (income) expense:
Interest expense.................................... 58,285 58,285
Other, net.......................................... (672) (4,052)
---------- ----------
Income before taxes..................................... 86,559 79,248
Provision for income taxes.............................. 41,004 38,153
---------- ----------
Net income.............................................. $ 45,555 $ 41,095
========== ==========
Net income per common share - Basic..................... $ 1.62 $ 1.46
========== ==========
Net income per common share - Diluted................... $ 1.53 $ 1.40
========== ==========
Weighted average shares outstanding-Basic............... 28,107,818 28,107,818
========== ==========
Weighted average shares outstanding-Diluted............. 33,009,096 33,009,096
========== ==========
</TABLE>
Pooling-of-Interests Method
During 1998, the Company issued 1,405,840 shares of common stock to acquire
three companies in business combinations accounted for under the pooling-of-
interests method. The Company's consolidated financial statements give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented.
The following presents the separate results, in each of the periods
presented, of Building One (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the
dates on which they were acquired:
<TABLE>
<CAPTION>
Building Pooled
One Companies Combined
-------- --------- --------
<S> <C> <C> <C>
For the year ended December 31, 1998
Revenues......................................... $782,878 $26,723 $809,601
Net income....................................... $ 47,248 $ 215 $ 47,463
For the year ended December 31, 1997
Revenues......................................... $ -- $70,101 $ 70,101
Net income....................................... $ 7 $ 1,436 $ 1,443
</TABLE>
15
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 5--RESTRUCTURING AND RECAPITALIZATION CHARGES
Recapitalization charges
As discussed in Note 3, during the second quarter of 1999, the Company
completed its recapitalization plan involving the repurchase of 24,617,840
shares of its common stock and 883,573 shares of common stock underlying stock
options. In conjunction with the recapitalization, compensation expense of
$2,770 was recognized for stock options exercised and the underlying shares of
common stock repurchased by the Company.
Restructuring charges
In the second quarter of 1999, the Company's Board of Directors approved and
the Company announced a restructuring plan which included a relocation of the
Company's corporate headquarters and integration of the janitorial and
maintenance management operations. During the second quarter of 1999 and
continuing into the third quarter of 1999, the corporate headquarters was
relocated from Washington, D.C. to Minneapolis, Minnesota. In addition, certain
back office operations of the janitorial and maintenance management service
operations are being consolidated into two locations.
The restructuring costs include costs directly related to the Company's
restructuring plan in accordance with EITF No. 94-3 which provides specific
requirements as to the appropriate recognition of costs associated with
employee termination benefits and other exit costs.
As a result of this restructuring plan, the Company incurred severance costs
for certain employees, identified certain assets which are no longer of service
and incurred certain lease termination costs. Severance costs covered 33
employees, of which 30 have been terminated as of December 31, 1999.
The following table sets forth a summary of these restructuring costs.
<TABLE>
<CAPTION>
Corporate Janitorial
Headquarters Operations Total
------------ ---------- ------
<S> <C> <C> <C>
Severance........................................ $3,530 $900 $4,430
Impaired assets.................................. 55 520 575
Lease costs...................................... 205 40 245
------ ------ ------
Total............................................ $3,790 $1,460 $5,250
====== ====== ======
</TABLE>
Included in the $5,250 restructuring charge incurred in the second quarter
of 1999 are $4,600 of cash costs and $650 in non-cash related costs. The
Company anticipates annual savings of approximately $2,800 as a result of the
restructuring.
The following table is a detailed reconciliation of the restructuring
reserve balance through December 31, 1999. The reconciliation reflects the
accruals recorded and payments applied during the year.
<TABLE>
<CAPTION>
Restructuring December 31,
Costs Payments 1999
Restructuring reserve: ------------- -------- ------------
<S> <C> <C> <C>
Severance................................. $4,430 $(4,173) $257
Lease costs............................... 245 (183) 62
------ ------- ----
Total....................................... $4,675 $(4,356) $319
====== ======= ====
</TABLE>
16
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 6--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1999 1998 1997
------ ------ ----
<S> <C> <C> <C>
Balance at beginning of period.......................... $1,991 $ 104 $136
Allowance amounts of acquired companies................. 564 1,680 --
Additions to costs and expenses......................... 766 732 5
Write-offs, net of recoveries........................... (345) (525) (37)
------ ------ ----
Balance at end of period................................ $2,976 $1,991 $104
====== ====== ====
</TABLE>
NOTE 7--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts............ $ 1,263,077 $ 842,203
Estimated earnings................................. 215,334 156,546
----------- -----------
1,478,411 998,749
Less: Billings to date............................. (1,505,115) (1,032,081)
----------- -----------
$ (26,704) $ (33,332)
=========== ===========
Included in the accompanying consolidated balance sheet under the following
captions:
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 59,418 $ 25,441
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... (86,122) (58,773)
----------- -----------
$ (26,704) $ (33,332)
=========== ===========
</TABLE>
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Equipment................................................... $29,990 $15,645
Office furniture and fixtures............................... 20,323 10,146
Vehicles.................................................... 20,312 10,464
Buildings and improvements.................................. 11,724 9,126
Land........................................................ 1,365 1,259
------- -------
83,714 46,640
Less: Accumulated depreciation.............................. (20,426) (7,673)
------- -------
Property and equipment, net............................... $63,288 $38,967
======= =======
</TABLE>
Depreciation expense for years 1999, 1998 and 1997 was $13,565, $5,522 and
$804, respectively.
17
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 9--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill.................................................. $735,548 $502,470
Deferred debt issue costs, net............................ 22,467 --
Non-compete agreements.................................... 1,046 1,046
Other..................................................... 376 585
-------- --------
759,437 504,101
Less: Accumulated amortization............................ (25,680) (7,720)
-------- --------
Intangible assets, net.................................. $733,757 $496,381
======== ========
</TABLE>
Amortization expense for years 1999, 1998 and 1997 was $18,417, $7,720 and
$141, respectively.
NOTE 10--CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
------ ------
<S> <C> <C>
Credit facilities with banks, interest ranging from prime to
prime plus 1% (average rate of 8.5% and 8.0% as of December
31, 1999 and 1998, respectively).............................. $2,450 $ 61
Current maturities of long-term debt........................... 5,500 2,106
------ ------
Total short-term debt........................................ $7,950 $2,167
====== ======
</TABLE>
Long-Term Debt
<TABLE>
Long-term debt consists of the following:
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
10 1/2% Senior Subordinated Notes......................... $195,793 $ --
7 1/2% Convertible Junior Subordinated Debentures......... 103,805 --
Credit Facility -- Term portion, interest rate of 9.2% at
December 31, 1999........................................ 124,063 --
-- Revolver, interest rate of 8.7% at December
31, 1999.................................................. 166,500 --
Notes payable to banks with average interest rates ranging
from 7.0% - 9.5%......................................... -- 2,549
Notes payable, weighted average interest rate of 8.0%,
secured by certain assets of the Company................. 5,215 2,234
Capital lease obligations................................. 824 552
Other..................................................... 230 58
-------- -------
596,430 5,393
Less: Current portion..................................... (5,500) (2,106)
-------- -------
Total long-term debt.................................... $590,930 $ 3,287
======== =======
</TABLE>
18
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
10 1/2% Senior Subordinated Notes
In April 1999, the Company completed a private placement offering of
$200,000 of 10 1/2% senior subordinated notes. The senior subordinated notes
are unsecured, guaranteed by our subsidiaries, require interest to be paid
semi-annually on May 1 and November 1 of each year and mature on May 1, 2009.
The senior subordinated notes were issued at 97.746%, or a discount of $4,508,
which is being amortized over the term of the notes. Additionally, debt
issuance costs of $8,388 incurred in connection with the offering, are
classified as intangible assets and are being amortized over the 10-year term
of the notes.
The Company may redeem the senior subordinated notes, in whole or in part,
at any time on or after May 1, 2004 at specified redemption prices, plus
accrued interest. At any time before May 1, 2002, the Company can redeem up to
35% of the outstanding senior subordinated notes with money raised in one or
more equity offerings under certain circumstances. Upon a change in control of
the Company (as defined in the indenture for the senior subordinated notes),
the holders of the senior subordinated notes will have the right to sell the
notes to the Company at 101% of the face amount plus accrued interest.
The indenture governing the senior subordinated notes contains certain
covenants relating to, among other things, the Company's ability to incur
indebtedness, pay dividends or repurchase capital stock, incur liens, sell or
otherwise dispose of a substantial portion of its assets or merge or
consolidate with another entity.
As further discussed in Note 19--Subsequent Events, in conjunction with the
Company's merger with GroupMAC, the senior subordinated notes were assumed by
the new combined entity, Encompass.
7 1/2% Convertible Junior Subordinated Debentures
The convertible junior subordinated debentures mature on May 1, 2012 and
provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's election,
for the first five years after their issuance, and in cash thereafter. During
1999, $3,805 of interest was paid in additional convertible junior subordinated
debentures. The holders of a majority of the outstanding principal amount of
the convertible junior subordinated debentures, however, will have the right to
require the payment of interest in cash after the third and through the fifth
anniversary of the issuance of the convertible junior subordinated debentures.
In addition, the provisions of the credit facility and the indenture for the
senior subordinated notes limit the Company's ability to pay cash interest
payments. Debt issuance costs of $4,634 incurred in connection with the
debentures are classified as intangible assets and are being amortized over the
13-year term of the debentures.
The convertible junior subordinated debentures will be convertible into
shares of the Company's common stock at an initial conversion price of $22.50
per share plus all accrued and unpaid interest. If the convertible junior
subordinated debentures are converted prior to the fifth anniversary of their
issuance, the amount converted into shares will include additional interest
that would have accrued or been paid from the date of conversion through the
fifth anniversary of the issuance of the convertible junior subordinated
debentures. However, unless the conversion is in connection with a change of
control (as defined in the indenture for the convertible junior subordinated
debentures), the additional interest will not exceed a total of 30 months of
interest. The Company will adjust the conversion price under certain
circumstances, including the issuance of shares at a price below the conversion
price of the convertible junior subordinated debentures or below the then fair
market value of a share.
The indenture for the convertible junior subordinated debentures limits the
Company's ability to, among other things, incur additional indebtedness, pay
dividends, repurchase securities or repay certain other indebtedness. The
Company's amended and restated certificate of incorporation authorizes the
holders of the
19
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
convertible junior subordinated debentures to vote together with the holders of
shares on all of the matters submitted to stockholders for a vote and to elect
as a class three of the Company's directors (or, if the Board has more than ten
directors, no less than 30% of the directors). The holders of the convertible
junior subordinated debentures will be entitled to cast the number of votes
that they would be entitled to cast if they had converted the convertible
junior subordinated debentures into shares of the Company's common stock.
As further discussed in Note 19--Subsequent Events, in conjunction with the
Company's merger with GroupMAC, the convertible junior subordinated debentures
and $150,000 of cash was exchanged for approximately $256,000 of Encompass
convertible preferred stock.
Credit Facility
The Company's credit facility, which is with a syndicate of banks led by
Bankers' Trust Company, consists of a $125,000 term loan and a $225,000
revolving credit facility and matures in April 2004. The revolving credit
facility bears interest at various rates which are subject to change based on
certain levels of financial performance. The weighted average interest rate on
the borrowings outstanding under the credit facility was 8.9% as of December
31, 1999. Debt issuance costs of $9,445 incurred in connection with this new
credit facility are being amortized over the 5-year term of the credit
facility. The credit facility includes a number of significant covenants
including, among others, restrictions on the Company's ability to incur
additional indebtedness, restrictions on mergers, acquisitions and the
disposition of assets, sale and leaseback transactions and capital lease
payments, dividends and other distributions and voluntary prepayments on
indebtedness. Additionally, the Company is required to comply with certain
financial covenants with respect to minimum interest coverage and maximum
leverage ratios.
As of December 31, 1999 the Company was in violation of covenants
restricting the amount of cash on hand as of December 31, 1999 and capital
expenditures for the year ended December 31, 1999. See discussion in Note 19--
Subsequent Events regarding payoff of amounts outstanding under the Credit
Facility with a new credit facility obtained in connection with the Company's
merger with GroupMAC.
The fair value of the senior subordinated notes as of December 31, 1999
approximated $194,000. The estimated fair value of the convertible junior
subordinated debentures and the credit facility approximate their carrying
values.
Maturities of Long-Term Debt
Maturities of long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
2000............................................................. $ 5,500
2001............................................................. 2,331
2002............................................................. 1,663
2003............................................................. 1,458
2004............................................................. 285,642
Thereafter....................................................... 299,836
--------
$596,430
========
</TABLE>
20
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 11--INCOME TAXES
The components of income tax expense are comprised as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
1999 1998 1997
------- ------- ----
<S> <C> <C> <C>
Income taxes currently payable:
Federal.............................................. $37,960 $31,388 $ 83
State................................................ 4,910 5,144 11
------- ------- ----
42,870 36,532 94
------- ------- ----
Deferred income taxes:
Federal.............................................. (727) (360) --
State................................................ (116) (52) --
------- ------- ----
(843) (412) --
------- ------- ----
Total tax expense..................................... $42,027 $36,120 $ 94
======= ======= ====
</TABLE>
The deferred tax assets and liabilities reflected on the consolidated
balance sheet relate primarily to the following:
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts.............................. $1,161 $ 761
Accrued compensation......................................... 2,994 2,500
Accrued liabilities and reserves............................. 3,333 494
Cash to accrual conversion................................... (833) (675)
Property and equipment....................................... (1,283) (234)
Completed contract accounting for tax purposes .............. (1,772) (661)
Deferred gain on marketable securities....................... (715) (945)
Goodwill amortization........................................ (802) --
------ ------
Net deferred tax asset........................................ $2,083 $1,240
====== ======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
For the Year
Ended December
31,
-----------------
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
U.S. federal statutory rate................................ 35.0% 35.0% 34.0%
State income taxes, net of federal tax benefit............. 3.3 3.6 0.6
Nondeductible goodwill amortization........................ 5.5 3.4 --
Subchapter S corporation income not subject to corporate
level taxation............................................ -- (0.1) (30.8)
Other...................................................... 0.4 1.3 2.3
---- ---- -----
Effective income tax rate.................................. 44.2% 43.2% 6.1%
==== ==== =====
</TABLE>
Certain of the Pooled Companies were organized as subchapter S corporations
prior to being acquired by the Company and, as a result, the federal tax on
their income was the responsibility of their individual stockholders.
Accordingly, the Pooled Companies provided no federal income tax expense prior
to these
21
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
acquisitions by the Company. The following unaudited pro forma income tax
information is presented as if the Pooled Companies had been subject to
applicable federal and state income taxes for 1997:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997
------------------
<S> <C>
Income before income tax provision........................... $1,537
Pro forma income tax provision............................... 615
------
Pro forma net income......................................... $ 922
======
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases various office facilities and equipment under
noncancelable lease agreements which expire at various dates. Future minimum
lease payments under noncancelable capital and operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000....................................................... $ 666 $ 13,772
2001....................................................... 333 12,072
2002....................................................... 181 10,130
2003....................................................... 26 8,052
2004....................................................... -- 6,003
Thereafter................................................. -- 7,044
----- --------
Total minimum lease payments............................... 1,206 $ 57,073
========
Less: Amounts representing interest........................ (382)
-----
Present value of net minimum lease payments................ $ 824
=====
</TABLE>
Rent expense for all operating leases for 1999, 1998 and 1997 was $12,062,
$7,614, and $339, respectively. Certain of the above leases are for equipment
or facilities which are owned by stockholder-employees. Total rent expense paid
to these affiliates totalled $3,643 and $954 in 1999 and 1998, respectively.
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS
One of the Company's directors is President and a principal stockholder of
Friedman, Billings, Ramsey Group, Inc. ("FBR"). In connection with the
recapitalization, FBR acted as a financial advisor to the Company and received
a fee of $3,000.
Additionally, Apollo Management, L.P. received a fee of $2,500 in connection
with the issuance of the 7 1/2% convertible junior debentures.
NOTE 14--SEGMENT REPORTING
The Company has two reportable segments: electrical and mechanical and
janitorial. The electrical and mechanical segment offers a single source for
designing, installing, maintaining and upgrading a facility's
22
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
electrical, mechanical, HVAC and plumbing systems. The janitorial segment
provides a wide variety of facility cleaning and maintenance services
nationwide. Prior to January 1, 1999, the Company had three reportable
segments: mechanical, electrical and janitorial. Effective January 1, 1999, the
Company changed the structure of its internal organization and as a result the
mechanical and electrical segments have been combined into one reportable
segment.
Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. The Company evaluates performance based on income
from operations of the respective business units prior to unallocated corporate
expenses.
The Company's reportable segments are strategic business units that offer
different products and services. Intersegment transactions are accounted for as
if they were to third parties, that is, at current market prices. All of the
Company's revenues are derived from domestic sources. Each of the acquired
companies were acquired as a unit, and the management at the time of the
acquisition was generally retained.
<TABLE>
<CAPTION>
Electrical and
Mechanical Janitorial Consolidated
-------------- ---------- ------------
<S> <C> <C> <C>
Year ended December 31, 1999:
Revenues................................ $1,526,794 $245,790 $1,772,584
Operating costs......................... 1,383,162 228,579 1,611,741
---------- -------- ----------
Subtotal................................ 143,632 17,211 160,843
Goodwill amortization................... 13,602 2,402 16,004
---------- -------- ----------
Segment operating income................ $ 130,030 $ 14,809 144,839
========== ======== ==========
Unallocated corporate expenses.......... (20,124)
----------
Income from operations.................. $ 124,715
==========
Year ended December 31, 1998:
Revenues................................ $ 649,689 $159,912 $ 809,601
Operating costs......................... 581,064 147,624 728,688
---------- -------- ----------
Subtotal................................ 68,625 12,288 80,913
Goodwill amortization................... 6,247 1,406 7,653
---------- -------- ----------
Segment operating income................ $ 62,378 $ 10,882 73,260
========== ======== ==========
Unallocated corporate expenses.......... (8,076)
----------
Income from operations.................. $ 65,184
==========
Year ended December 31, 1997:
Revenues................................ $ -- $ 70,101 $ 70,101
Operating costs......................... -- 70,633 70,633
---------- -------- ----------
Subtotal................................ -- (532) (532)
Goodwill amortization................... -- -- --
---------- -------- ----------
Segment operating loss.................. $ -- $ (532) (532)
========== ======== ==========
Unallocated corporate expenses.......... --
----------
Loss from operations.................... $ (532)
==========
</TABLE>
<TABLE>
<CAPTION>
Electrical and
Mechanical Janitorial Corporate Consolidated
-------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Total assets
December 31, 1999............. $1,112,901 $152,614 $48,239 $1,313,754
December 31, 1998............. 761,221 121,660 161,041 1,043,922
</TABLE>
23
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 15--STOCKHOLDERS' EQUITY
Common Stock
In February 1997, a limited liability company was formed and merged with and
into the Company in September 1997 (the "Merger") to facilitate the public
offering of shares of common stock. The sole member of the limited liability
company received 2,300,000 shares of common stock of the Company in connection
with the Merger in exchange for his 100% ownership interest in the Company. The
sole member made contributions to the Company from time to time to fund
expenses in the aggregate amount of $126. These contributions were included in
common stock and additional paid-in capital.
The Company completed its initial public offering in December 1997, selling
27,850,000 shares of common stock and 500,000 shares of Convertible Non-Voting
Common Stock at $20.00 per share and raising net proceeds of approximately
$527,164.
During 1998, the Company repurchased 2,990,000 shares of its common stock
for $41,835.
As discussed in Note 3, in May 1999 the Company repurchased 24,617,840
shares of its common stock and 883,573 shares underlying stock options for
$560,084 under its recapitalization plan.
Convertible Non-Voting Common Stock
In connection with the initial public offering, the Company sold 500,000
shares of Convertible Non-Voting Common Stock to Friedman, Billings and Ramsey,
the representative of the underwriters in the Company's initial public
offering, for $20 per share. On November 25, 1998 these 500,000 shares were
converted to 500,000 shares of common stock.
Warrants
The Company has 3,080,000 shares of common stock reserved for issuance upon
exercise of warrants. The warrants have an exercise price of $20.00 per share.
These warrants are currently exercisable and 1,130,000 expire on November 25,
2002 and 1,950,000 expire on November 25, 2007. The warrants also contain
certain rights for registration. The Company's Chairman of the Board owns the
1,950,000 warrants.
NOTE 16--STOCK PURCHASE AND AWARD PLANS
Long-Term Incentive Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved a 1997 Long-Term Incentive Plan, a 1998 Long-Term Incentive Plan and a
1999 Long-Term Incentive Plan (collectively, the "Incentive Plans"). The terms
of the option awards under these Incentive Plans are established by the
compensation committee of the Company's Board of Directors. The maximum number
of shares that may be issued under the 1997 and 1998 Incentive Plans is equal
to 14% of the number of shares of common stock outstanding. The maximum number
of shares that may be issued under the 1999 Incentive Plan is 1,500,000 shares.
Options under the Incentive Plans generally vest 25% each on the first four
anniversaries of the date of grant and expire on the tenth anniversary of the
grant date. In the event of a change in control of the Company prior to normal
vesting, all options not already exercisable will become fully vested and
exercisable subject to the approval of the compensation committee of the Board
of Directors.
24
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors adopted, and the Company's stockholders
approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which provides for the automatic grant to each non-employee director of an
option to purchase 20,000 shares on the date that such person commences
services as a director. Thereafter, each non-employee director will be entitled
to receive, on the day after each annual meeting of the Company's stockholders,
an option to purchase 5,000 shares of common stock. A maximum of 300,000 shares
of common stock may be issued under the Directors' Plan. Options granted under
the Directors' Plan have an exercise price per share equal to the fair market
value of a share at the date of grant of the options and expire at the earlier
of 10 years from the date of grant or 90 days after termination of service as a
director. Options vest and become exercisable ratably as to 50% of the shares
underlying the option on the first and second anniversaries of the date of
grant, subject to acceleration by the Board. In the event of a change in
control of the Company prior to normal vesting, all options not already
exercisable will become fully vested and exercisable.
1997 Employee Stock Purchase Plan
The Company adopted, and the Company's stockholders approved, the 1997
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits
eligible employees of the Company and its subsidiaries (generally all full-time
employees who have completed one year of service) to purchase shares of common
stock at a discount. Employees who elect to participate will have amounts
withheld through payroll deduction during purchase periods. At the end of each
purchase period, accumulated payroll deductions will be used to purchase stock
at a price equal to 85% of the market price at the beginning of the period or
the end of the period, whichever is lower. Stock purchased under the Purchase
Plan will be subject to a one-year holding period. The Company has reserved
1,000,000 shares of common stock for issuance under the Purchase Plan.
Accounting for Stock Based Compensation
A summary of option and warrant transactions is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------- ---------------------------
Options Options
and Weighted Average and Weighted Average
Warrants Exercise Price Warrants Exercise Price
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31,
1996................... -- -- -- --
Granted............... 3,510,000 $20.00 1,950,000 $20.00
--------- ------ --------- ------
Balance at December 31,
1997................... 3,510,000 20.00 1,950,000 20.00
Granted............... 2,544,846 17.91 863,389 13.07
Exercised............. (7,930) 4.84 (7,930) 4.84
Canceled.............. (25,613) 22.27 -- --
--------- ------ --------- ------
Balance at December 31,
1998................... 6,021,303 19.12 2,805,459 17.91
Granted............... 1,772,890 15.46 1,471,532 20.00
Exercised............. (916,357) 15.18 (916,357) 15.18
Canceled.............. (330,318) 20.13 -- --
--------- ------ --------- ------
Balance at December 31,
1999................... 6,547,518 $18.63 3,360,634 $19.57
========= ====== ========= ======
</TABLE>
25
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------------------------ -----------------------------
Weighted Weighted Weighted
Options Average Remaining Average Exercise Options Average Exercise
Range of Exercise Prices and Warrants Contractual Life Price and Warrants Price
------------------------ ------------ ----------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.84--$ 4.84 162,902 8.5 years $ 4.84 162,902 $ 4.84
$ 8.38--$12.56 74,801 9.8 $ 9.76 896 $ 9.50
$12.75--$18.81 2,235,121 9.3 $15.56 252,343 $15.98
$19.25--$25.25 4,074,694 8.0 $21.03 2,944,493 $20.70
-------------- --------- --- ------ --------- ------
$ 4.84--$25.25 6,547,518 8.5 $18.63 3,360,634 $19.57
============== ========= === ====== ========= ======
</TABLE>
Had compensation expense for the Company's stock-based compensation plans
and warrants issued to employees been determined based on the fair value at the
grant dates, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income (loss):
As reported................................... $53,062 $47,463 $ 1,443
Pro forma..................................... $45,449 $37,381 $(5,782)
Net income (loss) per share--Basic:
As reported................................... $ 1.60 $ 1.19 $ 0.25
Pro forma..................................... $ 1.37 $ 0.94 $ (1.02)
Net income (loss) per share--Diluted:
As reported................................... $ 1.52 $ 1.16 $ 0.25
Pro forma..................................... $ 1.31 $ 0.91 $ (1.02)
</TABLE>
The weighted average fair value of options and warrants granted in 1999,
1998 and 1997 was $8.51, $13.38 and $7.46, respectively. The fair value of
options and warrants granted (which is amortized to expense over the option
vesting period in determining the pro forma impact) is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -----------------
Options Options Options Warrants
------- ------- ------- --------
<S> <C> <C> <C> <C>
Expected life of option.................... 5 years 5 years 5 years 2 years
Risk-free interest rate.................... 5.57% 5.3% 5.76% 5.69%
Expected volatility........................ 58.2% 63.7% 45.0% 45.0%
</TABLE>
Other Employee Benefit Plans
Several of the Company's subsidiaries have defined contribution benefit
plans, such as 401(k) retirement plans, which allow eligible employees to make
contributions. Additionally, several of the subsidiaries also provide company
matching contributions up to specified levels. Company contribution expense to
these plans was $5,555 and $2,880 for the years ended December 31, 1999 and
1998.
26
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data of the
Company:
<TABLE>
<CAPTION>
1999 Quarters
-----------------------------------------------
First Second(2) Third Fourth Total(2)
-------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................... $350,842 $436,804 $477,875 $507,063 $1,772,584
Gross profit.................. $ 70,150 $ 86,091 $ 97,975 $ 99,251 $ 353,467
Operating income.............. $ 23,967 $ 24,492 $ 40,362 $ 35,894 $ 124,715
Net income.................... $ 14,733 $ 9,963 $ 15,388 $ 12,978 $ 53,062
Net income per share--basic
(1).......................... $ 0.32 $ 0.29 $ 0.60 $ 0.48 $ 1.60
Net income per share--diluted
(1).......................... $ 0.31 $ 0.28 $ 0.54 $ 0.45 $ 1.52
<CAPTION>
1998 Quarters
-----------------------------------------------
First Second Third Fourth Total
-------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 54,610 $171,661 $252,324 $331,006 $ 809,601
Gross profit.................. $ 10,377 $ 36,662 $ 55,238 $ 71,099 $ 173,376
Operating income.............. $ 2,135 $ 12,485 $ 22,519 $ 28,045 $ 65,184
Net income.................... $ 5,081 $ 10,046 $ 15,164 $ 17,172 $ 47,463
Net income per share--basic
(1).......................... $ 0.15 $ 0.26 $ 0.35 $ 0.38 $ 1.19
Net income per share--diluted
(1).......................... $ 0.15 $ 0.25 $ 0.34 $ 0.38 $ 1.16
</TABLE>
- --------
(1) The arithmetic total of the individual quarterly net income per share
amounts does not reconcile to the annual amount of net income per share
due to the timing of net income in relation to the issuance of common
shares during the course of the year.
(2) Excluding the restructuring and recapitalization charges discussed in Note
5, net income, net income per share--basic and net income per share--
diluted would have been $14,775, $0.43 and $0.41 for the second quarter
and $57,874, $1.74 and $1.65 for the year, respectively.
27
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 18--NET EARNINGS PER SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share," which became
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share ("EPS") and restatement of EPS data for all prior periods. Basic EPS
includes no dilution and is computed by dividing net income by the Company's
weighted average shares of common stock outstanding. Diluted EPS is computed
by dividing net income by the Company's weighted average shares of common
stock outstanding and dilutive common stock equivalents. The following table
reconciles the numerators and denominators of the basic and diluted EPS
computations for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Basic earnings per share:
Net income................................. $ 53,062 $ 47,463 $ 1,443
Weighted average shares outstanding--
Basic..................................... 33,230,136 39,908,364 5,683,464
---------- ----------- ----------
Net income per share--Basic................ $ 1.60 $ 1.19 $ 0.25
========== =========== ==========
Diluted earnings per share:
Net income................................. $ 53,062 $ 47,463 $ 1,443
Plus: Interest expense on 7 1/2%
convertible junior subordinated debentures
and related amortization expense on debt
issue costs net of applicable income
taxes..................................... 3,205 -- --
---------- ----------- ----------
Net income on an as if converted basis..... $ 56,267 $ 47,463 $ 1,443
========== =========== ==========
Weighted average shares outstanding--
Basic..................................... 33,230,136 39,908,364 5,683,464
Convertible Non-Voting common stock........ -- 373,973 49,315
Common stock equivalents from stock options
and warrants.............................. 128,572 342,903 132,771
Contingently issuable shares............... 745,679 303,212 --
Convertible junior subordinated debentures,
on an as if converted basis............... 3,020,572 -- --
---------- ----------- ----------
Total weighted average shares outstanding--
Diluted................................... 37,124,959 40,928,452 5,865,550
---------- ----------- ----------
Net income per share--Diluted.............. $ 1.52 $ 1.16 $ 0.25
========== =========== ==========
</TABLE>
Outstanding stock options and warrants to purchase 7,175,860 shares of
common stock as of December 31, 1999 were not included in the computation of
diluted shares per share because the options' and warrants' exercise prices
were greater than the average market price of the common stock during the
period.
NOTE 19--SUBSEQUENT EVENTS
On February 22, 2000 the shareholders of both Building One and GroupMAC
approved a merger of the two companies. Under the terms of the merger, each
outstanding share of Building One's common stock was exchanged for 1.25 shares
of GroupMAC common stock. As part of the merger, GroupMAC shareholders could
elect to receive cash for up to 50% of their shares at $13.50 per share. As a
result of this option, 11,052,000 shares of GroupMAC common stock were
cancelled in the merger. In connection with the closing of the merger,
GroupMAC amended its articles of incorporation to change the Company's name to
Encompass Services Corporation ("Encompass").
Concurrent with the closing of the merger, Apollo Management, L.P.
exchanged its convertible junior subordinated debentures of $106,000 and
$150,000 of cash for approximately $256,000 of Encompass
28
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
convertible preferred stock. The cash proceeds from the investment were used to
fund the cash election option described above. The preferred stock bears a
coupon rate of 7.25%, is payable on a quarterly basis, and will mature in 2012.
The preferred stock is convertible into Encompass common stock at a conversion
price of $14.00 per common share.
Encompass entered into a new credit agreement with Bank of America, N.A. and
Chase Bank of Texas, N.A. to provide a total of $800,000 in financing. This
financing was used to satisfy all outstanding obligations under Building One's
and GroupMAC's credit facilities. The Company's $200,000 of senior subordinated
debt was assumed by Encompass and will remain outstanding.
GroupMAC was the surviving legal entity in the merger. However, for
accounting purposes, Building One is deemed to be the acquiror and,
accordingly, the merger will be accounted for as a "reverse acquisition." Under
this method of accounting, Encompass' historical results for periods prior to
the merger will be the same as Building One's historical results.
The following unaudited pro forma financial information gives effect to the
merger with GroupMAC, the related financing, and acquisitions completed during
the year ended December 31, 1999 as if they had been consummated on January 1,
1999 for purposes of the unaudited pro forma statement of operations data and
as of December 31, 1999 for purposes of the unaudited pro forma balance sheet
data.
Statement of Operations Data
<TABLE>
<CAPTION>
(Dollars and shares in thousands) Year Ended
December 31,
------------
1999
------------
<S> <C>
Revenues......................................................... $3,624,493
Cost of revenues................................................. 2,888,107
----------
Gross profit................................................. 736,386
Selling, general and administrative expenses..................... 434,439
Goodwill amortization............................................ 33,351
Merger and related charges....................................... 1,500
Restructuring and recapitalization charges....................... 8,020
----------
Operating income............................................. 259,076
Other (income) expense:
Interest expense............................................... 83,867
Other, net..................................................... (1,978)
----------
Income before taxes.............................................. 177,187
Provision for income taxes....................................... 81,033
----------
Net income....................................................... $ 96,154
Preferred dividends.............................................. (18,495)
Amortization of deferred issue costs on mandatorily redeemable,
convertible preferred stock..................................... (313)
----------
Net income available to common shareholders...................... $ 77,346
==========
Net income per common share--Basic............................... $ 1.23
==========
Net income per common share--Diluted............................. $ 1.18
==========
Weighted average shares outstanding--Basic....................... 62,856
==========
Weighted average shares outstanding--Diluted..................... 81,647
==========
</TABLE>
29
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Balance Sheet Data
<TABLE>
<CAPTION>
As of
December 31,
1999
------------
<S> <C>
Current assets..................................................... $ 947,275
Goodwill and other intangibles, net................................ 1,286,414
Other long-term assets............................................. 149,562
----------
Total assets................................................... $2,383,251
==========
Current liabilities................................................ $ 500,006
Long-term debt..................................................... 924,284
Other long-term liabilities........................................ 12,209
Mandatorily redeemable, convertible preferred stock................ 251,353
Shareholders' equity............................................... 695,399
----------
Total liabilities and shareholders' equity..................... $2,383,251
==========
</TABLE>
30
<PAGE>
BUILDING ONE SERVICES CORPORATION
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The Selected Financial Data for the years ended December 31, 1997, 1998 and
1999 and as of December 31, 1998 and 1999 have been derived from Building One's
audited consolidated financial statements which are included elsewhere in this
Form 8-K/A. The Selected Financial Data for the year ended December 31, 1995
and as of December 31, 1995 and 1996 have been derived from our unaudited
financial statements and the data as of December 31, 1997 and for the year
ended December 31, 1996 have been derived from our audited financial statements
all of which are not included in this Form 8-K/A. Our consolidated financial
statements give retroactive effect to the three business combinations accounted
for under the pooling-of-interests method during the year ended December 31,
1998 and include the results of the businesses acquired in business
combinations accounted for under the purchase method from their respective
acquisition dates. The consolidated financial statements for periods prior to
the fiscal year ended December 31, 1998 reflect only the operating results of
the three business combinations accounted for under the pooling-of-interests
method of accounting.
<TABLE>
<CAPTION>
As of or For the Year Ended
December 31,
------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 57,287 $ 63,202 $ 70,101 $ 809,601 $1,772,584
Cost of revenues........ 48,783 53,664 58,857 636,225 1,419,117
--------- --------- --------- ---------- ----------
Gross profit............ 8,504 9,538 11,244 173,376 353,467
Selling, general and
administrative
expenses............... 8,468 8,803 11,776 100,539 204,728
Goodwill amortization... -- -- -- 7,653 16,004
Restructuring and
recapitalization
charges................ -- -- -- -- 8,020
--------- --------- --------- ---------- ----------
Operating income
(loss)................. 36 735 (532) 65,184 124,715
Other (income) expense
Interest income....... -- -- (2,056) (19,373) (5,743)
Interest expense...... 239 224 208 1,054 35,618
Other, net............ (8) 83 (221) (80) (249)
--------- --------- --------- ---------- ----------
Income (loss) before
income taxes........... (195) 428 1,537 83,583 95,089
Provision (benefit) for
income taxes........... (5) 13 94 36,120 42,027
--------- --------- --------- ---------- ----------
Net income (loss)....... $ (190) $ 415 $ 1,443 $ 47,463 $ 53,062
========= ========= ========= ========== ==========
Net income (loss) per
share--Basic........... $ (0.15) $ 0.32 $ 0.25 $ 1.19 $ 1.60
========= ========= ========= ========== ==========
Net income (loss) per
share--Diluted......... $ (0.15) $ 0.30 $ 0.25 $ 1.16 $ 1.52
========= ========= ========= ========== ==========
Weighted average number
of common shares
outstanding--Basic..... 1,238,444 1,290,724 5,683,464 39,908,364 33,230,136
Weighted average number
of common shares
outstanding--Diluted... 1,238,444 1,405,840 5,865,550 40,928,452 37,124,959
<CAPTION>
1995 1996 1997 1998 1999
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit).............. $ (30) $ 67 $ 528,235 $ 307,390 $ 219,133
Total assets............ 8,132 9,629 539,159 1,043,922 1,313,754
Long-term debt, net of
current maturities..... 1,589 1,890 1,679 3,287 590,930
Stockholders' equity.... 1,299 1,578 529,480 837,537 428,757
</TABLE>
31
<PAGE>
(b) Pro forma financial information.
ENCOMPASS SERVICES CORPORATION
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
On February 22, 2000, the shareholders of both Group Maintenance America
Corp. ("GroupMAC") and Building One Services Corporation ("Building One")
approved a merger of the two companies (the "Merger"). Under the terms of the
Merger, each outstanding share of Building One common stock was converted into
1.25 shares of GroupMAC common stock. In addition, approximately 11,052,000
shares of GroupMAC common stock were converted into cash at a rate of $13.50
per share pursuant to a cash election right available to GroupMAC shareholders.
In connection with the closing of the Merger, GroupMAC amended its articles of
incorporation to change the Company's name to Encompass Services Corporation
("Encompass").
Concurrent with the closing of the Merger, an affiliate of Apollo
Management, L.P. exchanged $106 million of Building One convertible junior
subordinated debentures and $150 million of cash for approximately $256 million
of Encompass convertible preferred stock. The preferred stock will mature in
2012, will bear a dividend yield coupon rate of 7.25% and will be convertible
into shares of Encompass common stock at a conversion price of $14 per common
share. The proceeds from the issuance of the convertible preferred stock were
used to fund the cash election feature of the Merger.
On February 22, 2000, Encompass entered into a new credit agreement to
provide a total of $800 million in financing. The proceeds of this new credit
agreement were used to refinance the existing revolving credit facilities of
GroupMAC and Building One, as well as GroupMAC's senior subordinated notes. In
addition, Encompass assumed the 10 1/2% Senior Subordinated Notes due 2009 of
Building One.
GroupMAC was the surviving legal entity in the Merger. However, for
accounting purposes, Building One is deemed to be the acquiror and,
accordingly, the Merger is accounted for as a "reverse acquisition". Under this
method of accounting, Encompass' historical results for periods prior to the
Merger are the same as Building One's historical results. As of the date of the
Merger, the assets and liabilities of GroupMAC are recorded at their estimated
fair values.
The following Encompass unaudited pro forma financial statements utilize the
unaudited pro forma financial statements of GroupMAC and Building One as of
December 31, 1999 and for the year ended December 31, 1999, which give effect
to the acquisitions made by each company during 1999 including amounts owed in
connection with those acquisitions. The Encompass unaudited pro forma financial
statements give effect to the transactions highlighted above as if the
transactions had occurred on December 31, 1999 for purposes of the Encompass
unaudited pro forma balance sheet, and on January 1, 1999 for purposes of the
Encompass unaudited pro forma statement of operations. The unaudited pro forma
financial statements for Encompass are derived from the separate pro forma
financial statements of GroupMAC and Building One set forth immediately
following these Encompass unaudited pro forma financial statements.
The pro forma adjustments are based on preliminary estimates and certain
assumptions that Encompass believes are reasonable under the circumstances. The
preliminary allocation of the purchase price to assets and liabilities of
GroupMAC reflects the assumption that assets and liabilities are carried at
historical amounts which approximate fair market value. The actual allocation
of the purchase price may differ from that reflected in the unaudited pro forma
financial statements after a more extensive review of the fair market values of
the assets and liabilities has been completed.
Management cannot fully quantify the cost savings and synergies associated
with the combined company. It is anticipated that any such savings will be
partially offset by the cost of additional corporate infrastructure to
32
<PAGE>
support the combined operation. Accordingly, no pro forma adjustments related
to these cost savings and synergies have been included in the unaudited pro
forma financial information of Encompass.
The following Encompass unaudited pro forma financial statements are based
on assumptions and include adjustments as explained in the notes thereto. The
Encompass unaudited pro forma financial statements are not necessarily
indicative of the actual financial results that would have occurred if the
transactions described above had been effective on and as of the dates
indicated and may not be indicative of operations in future periods or as of
future dates. The Encompass unaudited pro forma financial statements should be
read in conjunction with the notes thereto and the following documents included
or incorporated by reference herein:
. the historical audited consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of GroupMAC on Form 10-K and the historical
audited consolidated financial statements and notes thereto of Building
One included in this Form 8-K/A as of December 31, 1999 and for the year
then ended;
. the separate company unaudited pro forma financial statements and notes
thereto of GroupMAC and Building One set forth immediately following the
Encompass unaudited pro forma financial statements.
33
<PAGE>
ENCOMPASS SERVICES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Building
GroupMAC One
Pro Forma Pro Forma
ASSETS ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ -- $ --
Accounts
receivable, net
of allowance...... 338,137 400,326
Inventories....... 22,551 10,323
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... 59,334 59,418
Prepaid expenses
and other current
assets............ 11,733 15,536
Deferred tax
asset............. 10,537 4,168
Refundable income
taxes............. -- 1,757
---------- ----------
Total current
assets.......... 442,292 491,528
---------- ----------
PROPERTY AND
EQUIPMENT, net..... 59,051 63,288
GOODWILL AND OTHER
INTANGIBLES, net... 541,776 712,960
DEFERRED DEBT ISSUE
COSTS, net......... 12,917 20,411
OTHER LONG-TERM
ASSETS............. 2,045 8,482
---------- ----------
Total assets.... $1,058,081 $1,296,669
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ 102,115 $ 107,319
Accrued
compensation...... 44,016 39,873
Accrued
liabilities....... 20,161 38,468
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... 55,144 86,122
Income taxes
payable........... 2,740 --
Other current
liabilities....... 8,475 --
---------- ----------
Total current
liabilities..... 232,651 271,782
REVOLVING CREDIT
FACILITY........... 257,688 166,584
TERM CREDIT
FACILITY........... -- 124,063
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... 130,000 195,793
JUNIOR SUBORDINATED
NOTES.............. 4,150 --
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES......... -- 105,103
DEFERRED TAX
LIABILITY.......... 6,138 2,085
OTHER LONG-TERM
LIABILITIES........ 1,484 2,502
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... -- --
SHAREHOLDERS'
EQUITY
Common stock...... 39 28
Additional paid-
in capital........ 390,957 329,125
Retained
earnings.......... 34,974 100,317
Accumulated other
comprehensive
loss.............. -- (713)
---------- ----------
Total
shareholders'
equity.......... 425,970 428,757
---------- ----------
Total
liabilities and
shareholders'
equity.......... $1,058,081 $1,296,669
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Merger Transaction
-----------------------------------------------------------------------------------------------------
Apollo Investment Record Goodwill on Merger
---------------------- ------------------------------------------------------------------------------
Put of Write-off
Preferred Pref Stock/ Cancellation Merger GroupMAC GroupMAC Eliminate Reverse
Stock Conv Deb of GroupMAC Costs, Sr Sub Notes, credit line GroupMAC Acquisition
Investment Exchange Common net of tax net of tax costs, net of tax Equity of GroupMAC
(a) (b) Stock (c) (d) (e) (f) (g) (h)
ASSETS ---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $146,250 $ -- $(146,250) $ -- $ -- $ -- $ -- $ --
Accounts
receivable, net
of allowance...... -- -- -- -- -- -- -- --
Inventories....... -- -- -- -- -- -- -- --
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... -- -- -- -- -- -- -- --
Prepaid expenses
and other current
assets............ -- -- -- -- -- -- -- --
Deferred tax
asset............. -- -- -- -- -- -- -- --
Refundable income
taxes............. -- -- -- 3,187 5,925 1,150 -- --
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
Total current
assets.......... 146,250 -- (146,250) 3,187 5,925 1,150 -- --
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
PROPERTY AND
EQUIPMENT, net..... -- -- -- -- -- -- -- --
GOODWILL AND OTHER
INTANGIBLES, net... -- -- -- 17,383 9,268 1,800 (275,970) 279,197
DEFERRED DEBT ISSUE
COSTS, net......... -- (4,397) -- -- (9,968) (2,950) -- --
OTHER LONG-TERM
ASSETS............. -- -- -- (1,881) -- -- -- --
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
Total assets.... $146,250 $ (4,397) $(146,250) $18,689 $ 5,225 $ -- $(275,970) $279,197
========== =========== ============ ========== ============= ================= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Encompass
Prior to
Refinancing
ASSETS ------------
<S> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ --
Accounts
receivable, net
of allowance...... 738,463
Inventories....... 32,874
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... 118,752
Prepaid expenses
and other current
assets............ 27,269
Deferred tax
asset............. 14,705
Refundable income
taxes............. 12,019
------------
Total current
assets.......... 944,082
------------
PROPERTY AND
EQUIPMENT, net..... 122,339
GOODWILL AND OTHER
INTANGIBLES, net... 1,286,414
DEFERRED DEBT ISSUE
COSTS, net......... 16,013
OTHER LONG-TERM
ASSETS............. 8,646
------------
Total assets.... $2,377,494
============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Accrued
compensation...... -- -- -- -- -- -- -- --
Accrued
liabilities....... -- -- -- (1,687) -- -- -- --
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... -- -- -- -- -- -- -- --
Income taxes
payable........... -- (1,715) -- (1,025) -- -- -- --
Other current
liabilities....... -- -- -- -- -- -- -- --
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
Total current
liabilities..... -- (1,715) -- (2,712) -- -- -- --
REVOLVING CREDIT
FACILITY........... -- -- 3,750 26,281 135,225 -- -- --
TERM CREDIT
FACILITY........... -- -- -- -- -- -- -- --
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... -- -- -- -- (130,000) -- -- --
JUNIOR SUBORDINATED
NOTES.............. -- -- -- -- -- -- -- --
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES......... -- (105,103) -- -- -- -- -- --
DEFERRED TAX
LIABILITY.......... -- -- -- -- -- -- -- --
OTHER LONG-TERM
LIABILITIES........ -- -- -- -- -- -- -- --
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... 146,250 105,103 -- -- -- -- -- --
SHAREHOLDERS'
EQUITY
Common stock...... -- -- (11) -- -- -- (28) 35
Additional paid-
in capital........ -- -- (149,989) -- -- -- (240,968) 279,162
Retained
earnings.......... -- (2,682) -- (4,880) -- -- (34,974) --
Accumulated other
comprehensive
loss.............. -- -- -- -- -- -- -- --
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
Total
shareholders'
equity.......... -- (2,682) (150,000) (4,880) -- -- (275,970) 279,197
---------- ----------- ------------ ---------- ------------- ----------------- ---------- -----------
Total
liabilities and
shareholders'
equity.......... $146,250 $ (4,397) $(146,250) $18,689 $ 5,225 $ -- $(275,970) $279,197
========== =========== ============ ========== ============= ================= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ 209,434
Accrued
compensation...... 83,889
Accrued
liabilities....... 56,942
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... 141,266
Income taxes
payable........... --
Other current
liabilities....... 8,475
------------
Total current
liabilities..... 500,006
REVOLVING CREDIT
FACILITY........... 589,528
TERM CREDIT
FACILITY........... 124,063
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... 195,793
JUNIOR SUBORDINATED
NOTES.............. 4,150
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES......... --
DEFERRED TAX
LIABILITY.......... 8,223
OTHER LONG-TERM
LIABILITIES........ 3,986
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... 251,353
SHAREHOLDERS'
EQUITY
Common stock...... 63
Additional paid-
in capital........ 608,287
Retained
earnings.......... 92,755
Accumulated other
comprehensive
loss.............. (713)
------------
Total
shareholders'
equity.......... 700,392
------------
Total
liabilities and
shareholders'
equity.......... $2,377,494
============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
34
<PAGE>
ENCOMPASS SERVICES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET (Continued)
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Refinancing
-----------------------------------------
Write-off
Refinance existing Building One credit
Pro Forma Encompass revolver balances line costs, net of tax Pro Forma
ASSETS Prior to Refinancing (i) (j) Encompass
------ -------------------- ------------------ ---------------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............ $ -- $ -- $ -- $ --
Accounts receivable,
net of allowance....... 738,463 -- -- 738,463
Inventories............ 32,874 -- -- 32,874
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts.............. 118,752 -- -- 118,752
Prepaid expenses and
other current assets... 27,269 -- -- 27,269
Deferred tax asset..... 14,705 -- -- 14,705
Refundable income
taxes.................. 12,019 -- 3,193 15,212
---------- -------- ------- ----------
Total current
assets............... 944,082 -- 3,193 947,275
---------- -------- ------- ----------
PROPERTY AND EQUIPMENT,
net..................... 122,339 -- -- 122,339
GOODWILL AND OTHER
INTANGIBLES, net........ 1,286,414 -- -- 1,286,414
DEFERRED DEBT ISSUE
COSTS, net.............. 16,013 10,750 (8,186) 18,577
OTHER LONG-TERM ASSETS.. 8,646 -- -- 8,646
---------- -------- ------- ----------
Total assets......... $2,377,494 $ 10,750 $(4,993) $2,383,251
========== ======== ======= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 209,434 $ -- $ -- $ 209,434
Accrued compensation... 83,889 -- -- 83,889
Accrued liabilities.... 56,942 -- -- 56,942
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts.............. 141,266 -- -- 141,266
Income taxes payable... -- -- -- --
Other current
liabilities............ 8,475 -- -- 8,475
---------- -------- ------- ----------
Total current
liabilities.......... 500,006 -- -- 500,006
REVOLVING CREDIT
FACILITY................ 589,528 (589,528) -- --
NEW CREDIT FACILITY--
Revolver................ -- 424,341 -- 424,341
NEW CREDIT FACILITY--
Delayed Draw Term A..... -- 130,000 -- 130,000
NEW CREDIT FACILITY--
Term B.................. -- 170,000 -- 170,000
TERM CREDIT FACILITY.... 124,063 (124,063) -- --
SENIOR SUBORDINATED
NOTES, net of
unamortized discount.... 195,793 -- -- 195,793
JUNIOR SUBORDINATED
NOTES................... 4,150 -- -- 4,150
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES.............. -- -- -- --
DEFERRED TAX LIABILITY.. 8,223 -- -- 8,223
OTHER LONG-TERM
LIABILITIES............. 3,986 -- -- 3,986
MANDATORILY REDEEMABLE,
CONVERTIBLE PREFERRED
STOCK................... 251,353 -- -- 251,353
SHAREHOLDERS' EQUITY
Common stock........... 63 -- -- 63
Additional paid-in
capital................ 608,287 -- -- 608,287
Retained earnings...... 92,755 -- (4,993) 87,762
Accumulated other
comprehensive loss..... (713) -- -- (713)
---------- -------- ------- ----------
Total shareholders'
equity............... 700,392 -- (4,993) 695,399
---------- -------- ------- ----------
Total liabilities and
shareholders'
equity............... $2,377,494 $ 10,750 $(4,993) $2,383,251
========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
35
<PAGE>
ENCOMPASS SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Building Pro Forma Encompass Pro Forma
GroupMAC One Merger Prior to Refinancing Pro Forma
Pro Forma Pro Forma Adjustments Refinancing Adjustments Encompass
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $1,671,143 $1,953,350 $ -- $3,624,493 $ -- $3,624,493
COST OF SERVICES........ 1,328,635 1,559,472 -- 2,888,107 -- 2,888,107
---------- ---------- -------- ---------- ----- ----------
Gross profit........... 342,508 393,878 -- 736,386 -- 736,386
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 211,331 223,108 -- 434,439 -- 434,439
MERGER AND RELATED
CHARGES................ 3,725 -- (2,225)(a) 1,500 -- 1,500
RESTRUCTURING AND
RECAPITALIZATION
CHARGES................ -- 8,020 -- 8,020 -- 8,020
AMORTIZATION OF
GOODWILL............... 14,024 18,578 749 (b) 33,351 -- 33,351
---------- ---------- -------- ---------- ----- ----------
Income from
operations.......... 113,428 144,172 1,476 259,076 -- 259,076
OTHER INCOME (EXPENSE):
Interest expense....... (35,294) (58,285) 9,735 (c) (83,844) (23) (h) (83,867)
Interest income........ -- -- -- -- -- --
Other.................. 1,306 672 -- 1,978 -- 1,978
---------- ---------- -------- ---------- ----- ----------
Income before income
tax provision....... 79,440 86,559 11,211 177,210 (23) 177,187
INCOME TAX PROVISION.... 36,241 41,004 3,797 (d) 81,042 (9) (i) 81,033
---------- ---------- -------- ---------- ----- ----------
NET INCOME.............. $ 43,199 $ 45,555 $ 7,414 $ 96,168 $(14) $ 96,154
Preferred dividends..... -- -- (18,495)(e) (18,495) -- (18,495)
Amortization of deferred
issue costs on
mandatorily redeemable,
convertible preferred
stock.................. -- -- (313)(f) (313) -- (313)
---------- ---------- -------- ---------- ----- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS.... $ 43,199 $ 45,555 $(11,394) $ 77,360 $(14) $ 77,346
========== ========== ======== ========== ===== ==========
NET INCOME PER SHARE--
BASIC.................. $ 1.11 $ 1.62 $ 1.23 (g) $ 1.23 (j)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 38,773 28,108 62,856 (g) 62,856 (j)
========== ========== ========== ==========
NET INCOME PER SHARE--
DILUTED................ $ 1.11 $ 1.53 $ 1.18 (g) $ 1.18 (j)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 39,090 33,009 81,647 (g) 81,647 (j)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
36
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes the unaudited pro forma balance sheet adjustments
(in thousands except per share amounts):
a) Records the shares of preferred stock issued to Apollo in exchange for
$150,000 in cash, net of estimated issuance costs of approximately
$3,750.
b) Records the shares of preferred stock issued to Apollo in exchange for
the Building One convertible debt in the amount of $105,103 (including
in-kind accrued interest of $5,103 through December 31, 1999). The
Building One convertible debt had a balance of approximately $106,000 as
of the closing of the transactions. Also records the write-off of $4,397
of unamortized deferred debt issue costs associated with the Building One
convertible debt and the associated tax benefit of $1,715 at a 39%
effective tax rate directly to Encompass' retained earnings. This net of
tax charge of $2,682 will be reflected in the historical statement of
operations of Encompass during the quarter ended March 31, 2000. See Note
3.
c) Records the number of shares of and options on GroupMAC common stock
cancelled in the cash election right with the cash proceeds of the
preferred stock issuance discussed in Note 1a above as follows:
<TABLE>
<S> <C>
Cash available to cancel shares and options in the cash election
right.......................................................... $150,000
Cash election price per share/option............................ $ 13.50
--------
Number of shares and options cancelled in the cash election
right.......................................................... 11,111
Option share reduction amount................................... 59
--------
Number of shares cancelled in the cash election right........... 11,052
========
</TABLE>
d) Records the estimated cash merger costs of GroupMAC and Building One
along with the related tax benefit as follows:
<TABLE>
<CAPTION>
Building
GroupMAC One
-------- --------
<S> <C> <C>
Estimated nondeductible brokerage, legal, accounting
and other professional fees........................... $10,212 $ 7,688
Estimated deductible severance costs................... 2,800 6,500
Estimated deductible office closing costs and other
exit activities costs................................. -- 1,500
------- -------
Total estimated merger costs........................... $13,012 $15,688
======= =======
Tax benefit on deductible costs at 39%................. $ 1,092 $ 3,120
======= =======
</TABLE>
In connection therewith, the net of tax amount of $4,880 related to
Building One severance and reserves for the closing of duplicate office
space has been recorded directly to Encompass retained earnings. This net
of tax charge of $4,880 will be reflected in the historical statement of
operations of Encompass during the quarter ended March 31, 2000. See Note
3.
e) Records the refinancing of GroupMAC's $130,000 Senior Subordinated Notes
at 103%, resulting in a premium of $3,900 plus $1,325 in related
expenses, the elimination of $9,968 in related deferred debt issue costs
and the associated tax benefits of $5,925 at a 39% effective tax rate.
f) Represents the elimination of GroupMAC's unamortized deferred debt issue
costs of $2,950 related to its existing revolving credit facility and the
associated tax benefit of $1,150 at a 39% effective tax rate.
g) Records the elimination of GroupMAC's pro forma shareholders' equity as
of December 31, 1999 after adjusting for the number of shares of GroupMAC
common stock cancelled in the cash election merger discussed in Note 1c
above.
37
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS--(Continued)
h) Records the effects of the reverse acquisition of GroupMAC by Building
One, including the entries to adjust the par value of common stock of
Building One to reflect the capital structure of GroupMAC, the legal
surviving corporation in the Merger, as follows:
<TABLE>
<CAPTION>
Common Options/
Stock Warrants
-------- --------
<S> <C> <C>
GroupMAC number of shares, options and warrants
outstanding at
December 31, 1999.................................... 38,773 5,067
Shares cancelled in the cash election right............ (11,052) (59)
-------- --------
GroupMAC number of shares outstanding after the cash
election right........................................ 27,721 5,008
Reciprocal of the exchange ratio utilized to convert
Building One shares to GroupMAC shares (1.00/1.25).... 0.80 0.80
-------- --------
Building One equivalent shares......................... 22,177 4,006
Building One five day share price average with 11/03/99
as the midpoint/Black-Scholes option valuation........ $ 11.325 $ 7.00
-------- --------
Fair value of GroupMAC shares, options and warrants.... $251,152 $ 28,045
======== ========
Total value of shares, options and warrants on the
reverse acquisition................................... $279,197
Estimated Building One merger costs.................... 7,688
--------
Total purchase consideration........................... $286,885
========
</TABLE>
The preliminary adjustments to revalue the assets and liabilities of
GroupMAC to fair value and allocate the excess purchase consideration
over the fair value of net assets are as follows:
<TABLE>
<S> <C>
Book value of GroupMAC's net assets............................... $255,207
Other intangible assets........................................... 10,000
Goodwill.......................................................... 21,678
--------
$286,885
========
</TABLE>
The book value of GroupMAC's net assets has been adjusted for the
cancellation of shares of GroupMAC common stock in the cash election
right, the elimination of deferred financing costs, and the accrual of
merger costs and severance costs resulting from the merger.
The total consideration has been allocated to the assets and liabilities
of GroupMAC based on the assumption that assets and liabilities are
carried at historical amounts which approximate fair market value. The
other intangible assets primarily relate to workforce and customer lists.
The purchase price allocation is subject to change based on the final
determination of the fair value of GroupMAC's net assets on the effective
date of the merger. Management does not believe the final purchase price
allocation will differ materially from the preliminary purchase price
allocation.
i) Represents the refinancing of the GroupMAC and Building One existing
revolving and term credit facilities with the $800,000 of financing from
Bank of America, N.A. and Chase Bank of Texas, N.A. (as co-lead arrangers
and co-book managers) and other financial institutions. Also records
estimated deferred debt issue costs of $10,750 related to this
refinancing.
j) Represents the elimination of Building One's unamortized deferred debt
issue costs of $8,186 related to its existing revolving and term credit
facility and the associated tax benefit of $3,193 at a 39% effective tax
rate directly to Encompass' retained earnings. This net of tax charge of
$4,993 will be reflected in the historical statement of operations of
Encompass during the quarter ended March 31, 2000. See Note 3.
38
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The following summarizes the unaudited pro forma statement of operations
adjustments (in thousands except per share amounts):
a) Represents the elimination of brokerage, legal, accounting and other
professional fees directly attributable to the Merger incurred by GroupMAC
for the period ended December 31, 1999.
b) Reflects the adjustment necessary to reflect the amortization of goodwill
and other intangible assets generated from the balance sheet adjustments
discussed in Note 1 above. The goodwill is amortized over a 40-year
estimated life and the other intangible assets are amortized over a
weighted average estimated life of 15 years.
c) Represents the adjustment necessary to reflect the net decrease in
interest expense related to exchanging Building One convertible debt for
preferred stock discussed in Note 1b, the financing of issuance costs for
the cancellation of shares of GroupMAC common stock discussed in Note 1c,
the financing of each company's merger costs discussed in Note 1d and the
refinancing of GroupMAC's $130,000 Senior Subordinated Notes discussed in
Note 1e. A summary of the pro forma debt outstanding of the separate
companies and Encompass and a summary of the pro forma interest expense
(including amounts recognized in the historical financial statements and
the separate company unaudited pro forma financial statements) are set
forth in Note 4.
d) Reflects the incremental provision for federal and state income taxes
related to the reduction in interest expense discussed in Note 2c.
e) Represents the annual dividend yield on the $255,103 face amount of the
preferred stock discussed in Notes 1a and 1b above at a 7.25% coupon rate.
f) Represents the annual amortization of the estimated preferred stock
issuance costs of $3,750 discussed in Note 1a over the twelve-year term of
the preferred stock.
39
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS--(Continued)
g) The calculation of the combined weighted average shares outstanding and
basic and diluted earnings per share before refinancing adjustments is as
follows:
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
1999
-------------
<S> <C>
Weighted Average Shares Outstanding:
Basic:
Weighted average shares outstanding--GroupMAC............... 38,773
Weighted average shares outstanding--Building One........... 28,108
-------
Weighted average shares outstanding--Encompass.............. 66,881
Shares cancelled in the cash election right discussed in
Note 1c.................................................... (11,052)
Incremental shares from conversion of Building One shares to
GroupMAC shares at a 1.25 to 1.00 ratio.................... 7,027
-------
Weighted average shares outstanding--Basic.................. 62,856
=======
Diluted:
Weighted average shares outstanding--GroupMAC............... 39,090
Weighted average shares outstanding--Building One........... 33,009
-------
Weighted average shares outstanding--Encompass.............. 72,099
Shares cancelled in the cash election right discussed in
Note 1c.................................................... (11,087)
Incremental shares from conversion of Building One shares to
GroupMAC shares at a 1.25 to 1.00 ratio.................... 7,027
Elimination of dilutive effect of $105,103 face amount of
Building One convertible debt exchanged for preferred stock
discussed in Note 1b....................................... (4,671)
Dilutive effect of $255,103 face amount of preferred stock
at a $14.00 conversion price discussed in Note 1a and 1b... 18,222
Incremental shares from conversion of Building One
contingently issuable shares, options and warrants to
GroupMAC shares at a 1.25 to 1.00 ratio.................... 57
-------
Weighted average shares outstanding--Diluted................ 81,647
=======
Earnings Per Share:
Basic Before Refinancing:
Net income available to common shareholders................. $77,360
Basic weighted average shares outstanding................... 62,856
-------
Basic earnings per share.................................... $ 1.23
=======
Diluted Before Refinancing:
Net income available to common shareholders................. $77,360
Plus preferred stock dividends.............................. 18,495
Plus amortization of deferred preferred stock issuance
costs...................................................... 313
-------
Net income on an if-converted basis......................... $96,168
Diluted weighted average shares outstanding................. 81,647
-------
Diluted earnings per share.................................. $ 1.18
=======
</TABLE>
40
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(Continued)
h) Represents the adjustment necessary to reflect the net increase in
interest expense related to the refinancing of the GroupMAC and Building
One existing revolving and term credit facilities along with the financing
of the estimated deferred debt issue costs of $10,750 related to this
refinancing. A summary of the pro forma debt outstanding before and after
the refinancing and a summary of the pro forma interest expense after the
refinancing (including amounts recognized in the historical financial
statements and the separate company unaudited pro forma financial
statements) are set forth in Note 4. The impact of a 1/8% change on the
effective interest rate applicable to the debt of Encompass which is
subject to changes in interest rates would be $905 for the year ended
December 31, 1999.
i) Represents the reduction of the provision for federal and state income
taxes related to the refinancing activities discussed in Note 2h.
j) The calculation of the combined basic and diluted earnings per share after
refinancing adjustments is as follows:
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
1999
-------------
<S> <C>
Earnings Per Share:
Basic After Refinancing:
Net income available to common shareholders................. $77,346
Basic weighted average shares from Note 2g.................. 62,856
-------
Basic earnings per share.................................... $ 1.23
=======
Diluted After Refinancing:
Net income available to common shareholders................. $77,346
Plus preferred stock dividends.............................. 18,495
Plus amortization of deferred preferred stock issuance
costs...................................................... 313
-------
Net income on an if-converted basis......................... $96,154
Diluted weighted average shares from Note 2g................ 81,647
-------
Diluted earnings per share.................................. $ 1.18
=======
</TABLE>
3. SUMMARY OF NON-RECURRING COSTS ASSOCIATED WITH THE TRANSACTIONS (in
thousands)
The accompanying unaudited pro forma statement of operations do not reflect
the following costs and expenses that Encompass will record in the quarter
ended March 31, 2000 related to: (i) existing Building One financing
arrangements to be extinguished; and (ii) severance and office closing costs
and other exit activities costs, as a part of the transactions highlighted in
Note 1.
41
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
3. SUMMARY OF NON-RECURRING COSTS ASSOCIATED WITH THE TRANSACTIONS (in
thousands)--(Continued)
For pro forma financial statement purposes, these costs and expenses, net of
tax effect, have been shown as a direct reduction to Encompass' retained
earnings. However, these costs and expenses will be reflected in the historical
statements of operations of Encompass during the quarter ended March 31, 2000
and will be classified as follows:
<TABLE>
<S> <C>
Selling, General and Administrative Expenses:
Severance costs.................................................. $ 6,500
Office closing costs and other exit activities costs............. 1,500
-------
Total charge................................................... 8,000
Tax benefit at 39%............................................... 3,120
-------
Net of tax impact.............................................. $ 4,880
=======
Extraordinary Items:
Deferred debt issue costs on Building One convertible debt....... $ 4,397
Deferred debt issue costs on Building One existing revolving and
term credit facility............................................ 8,186
-------
12,583
Tax benefit at 39%............................................... 4,908
-------
Net of tax impact................................................ $ 7,675
=======
</TABLE>
42
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
4. PRO FORMA INTEREST EXPENSE FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999--
PRO FORMA ENCOMPASS PRIOR TO REFINANCING (in thousands)
<TABLE>
<CAPTION>
Merger Adjustments
--------------------------------------------
GroupMAC Preferred Put Pro Forma
Pro Building One Stock Conv Pref GroupMAC Encompass
Forma Pro Forma Issuance Stock/Debenture Merger Sr Sub Prior to Interest
Balances Balances Costs Exchange Costs Notes Refinancing Rate
-------- ------------ --------- --------------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Senior
Debt:
Pro Forma
December 31, 1999
Existing Credit
Agreements--
GroupMAC.......... $257,688 $ -- $3,750 $ -- $11,062 $ 135,225 $407,725 7.30%(i)
Pro Forma
December 31, 1999
Existing
Revolving Credit
Facility--
Building One...... -- 166,584 -- -- 15,219 -- 181,803 8.71%(ii)
Pro Forma
December 31, 1999
Existing Term
Credit Facility--
Building One...... -- 124,063 -- -- -- -- 124,063 8.71%(ii)
Commitment fees
under Credit
Facility
Agreements........ -- -- -- -- -- -- --
Letter of Credit
fees under Credit
Facility
Agreements........ -- -- -- -- -- -- --
Amortization of
deferred debt
issue costs under
Credit Facility
Agreements........ -- -- -- -- -- -- --
-------- -------- ------ ---------- ------- ---------- --------
Total long-term
senior
debt/interest
expense......... $257,688 $290,647 $3,750 $ -- $26,281 $ 135,225 $713,591 8.59%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Senior
Subordinated Debt:
Pro Forma
December 31, 1999
senior
subordinated
notes--GroupMAC... $130,000 $ -- $ -- $ -- $ -- $ (130,000) $ --
Pro Forma
December 31, 1999
senior
subordinated
notes--
Building One...... -- 200,000 -- -- -- -- 200,000 10.50%(vi)
Unamortized
balance of
discount on
Building One
senior
subordinated
notes............. -- (4,207) -- -- -- -- (4,207)
Amortization of
deferred debt
issue costs and
discount.......... -- -- -- -- -- -- --
-------- -------- ------ ---------- ------- ---------- --------
Total long-term
senior
subordinated
debt/interest
expense......... $130,000 $195,793 $ -- $ -- $ -- $ (130,000) $195,793 11.38%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Junior
Subordinated Debt:
Pro Forma
December 31, 1999
long-term junior
subordinated
note.............. $ 1,650 $ -- $ -- $ -- $ -- $ -- $ 1,650 6.00%(viii)
Pro Forma
December 31, 1999
long-term junior
subordinated
note.............. $ 2,500 -- -- -- -- 2,500 7.50%(viii)
-------- -------- ------ ---------- ------- ---------- --------
$ 4,150 $ -- $ -- $ -- $ -- $ -- $ 4,150 6.92%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term
Convertible Junior
Subordinated Debt:
Pro Forma
December 31, 1999
long-term
convertible
junior
subordinated
debentures........ $ -- $105,103 $ -- $ (105,103) $ -- $ -- $ --
-------- -------- ------ ---------- ------- ---------- --------
$ -- $105,103 $ -- $ (105,103) $ -- $ -- $ --
======== ======== ====== ========== ======= ========== ========
Total debt/interest
expense............ $391,838 $591,543 $3,750 $ (105,103) $26,281 $ 5,225 $913,534 9.18%
======== ======== ====== ========== ======= ========== ======== ======
<CAPTION>
Pro Forma
Encompass Prior
to Refinancing
-----------------
Interest Expense
-----------------
<S> <C> <C>
Long-Term Senior
Debt:
Pro Forma
December 31, 1999
Existing Credit
Agreements--
GroupMAC.......... $29,766
Pro Forma
December 31, 1999
Existing
Revolving Credit
Facility--
Building One...... 15,841
Pro Forma
December 31, 1999
Existing Term
Credit Facility--
Building One...... 10,810
Commitment fees
under Credit
Facility
Agreements........ 1,189(iii)
Letter of Credit
fees under Credit
Facility
Agreements........ 48(iv)
Amortization of
deferred debt
issue costs under
Credit Facility
Agreements........ 3,613(v)
-----------------
Total long-term
senior
debt/interest
expense......... $61,267
=================
Long-Term Senior
Subordinated Debt:
Pro Forma
December 31, 1999
senior
subordinated
notes--GroupMAC... $ --
Pro Forma
December 31, 1999
senior
subordinated
notes--
Building One...... 21,000
Unamortized
balance of
discount on
Building One
senior
subordinated
notes.............
Amortization of
deferred debt
issue costs and
discount.......... 1,290(vii)
-----------------
Total long-term
senior
subordinated
debt/interest
expense......... $22,290
=================
Long-Term Junior
Subordinated Debt:
Pro Forma
December 31, 1999
long-term junior
subordinated
note.............. $ 99
Pro Forma
December 31, 1999
long-term junior
subordinated
note.............. 188
-----------------
$ 287
=================
Long-Term
Convertible Junior
Subordinated Debt:
Pro Forma
December 31, 1999
long-term
convertible
junior
subordinated
debentures........ $ --
-----------------
$ --
=================
Total debt/interest
expense............ $83,844
=================
</TABLE>
- ----
(i) Represents the interest rate on the existing GroupMAC credit facility as
reported in Note 5 to the separate company pro forma financial
statements.
(ii) Represents the interest rate on the existing Building One credit
facility as reported in Note 5 to the separate company pro forma
financial statements.
(iii) Represents the combined pro forma amounts of the commitment fees under
both the Building One and GroupMAC credit facilities based on the
borrowing levels of each company as reported in Note 5 of their
respective separate company pro forma financial statements.
(iv) Represents fees related to letter of credit commitments under the
existing GroupMAC credit facility as reported in Note 5 to the separate
company pro forma financial statements.
(v) Represents the combined pro forma amortization of deferred debt issue
costs related to the establishment of the existing credit facilities of
both GroupMAC and Building One over the existing lives of these
facilities as reported in Note 5 of their respective pro forma financial
statements.
(vi) Represents the coupon rate of interest on the Building One senior
subordinated notes as reported in the separate company pro forma
interest calculation.
(vii) Represents the pro forma amortization of the deferred debt issue costs
and the discount recorded at issuance of the existing Building One
senior subordinated notes over the ten-year life of this debt.
(viii) Represents the contractual rates on the existing issuances of junior
subordinated debt of GroupMAC as reported in Note 5 to the separate
company pro forma financial statements.
43
<PAGE>
ENCOMPASS SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
4. PRO FORMA INTEREST EXPENSE FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999--
PRO FORMA ENCOMPASS(in thousands)
<TABLE>
<CAPTION>
Refinancing Pro Forma
Adjustments Encompass
------------------- ---------
Pro Forma Refinance New
Encompass Existing Facility
Prior to Revolver Fees & Pro Forma Interest Interest
Refinancing Balances Costs Encompass Rate Expense
----------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Senior Debt:
Pro Forma December 31,
1999 Existing Credit
Agreements--GroupMAC... $407,725 $(407,725) $ -- $ -- $ --
Pro Forma December 31,
1999 Existing
Revolving Credit
Facility--Building
One.................... 181,803 (181,803) -- -- --
Pro Forma December 31,
1999 Existing Term
Credit Facility--
Building One........... 124,063 (124,063) -- -- --
Refinance with New
Facility--Revolver..... -- 413,591 10,750 424,341 7.90%(i) 33,523
Refinance with New
Facility--Delayed Draw
Term Loan A............ -- 130,000 -- 130,000 8.40%(ii) 10,920
Refinance with New
Facility--Term Loan
B...................... -- 170,000 -- 170,000 8.40%(iii) 14,280
Commitment fees under
Credit Facility
Agreements............. -- -- -- -- 378(iv)
Letter of Credit fees
under Credit Facility
Agreements............. -- -- -- -- 64(v)
Amortization of
deferred debt issue
costs under Credit
Facility Agreements.... -- -- -- -- 2,125(vi)
-------- --------- ------- -------- -------
Total long-term
senior debt/interest
expense.............. $713,591 $ -- $10,750 $724,341 8.46% $61,290
======== ========= ======= ======== ====== =======
Long-Term Senior
Subordinated Debt:
Pro Forma December 31,
1999 senior
subordinated notes--
Building One........... $200,000 $ -- $ -- $200,000 10.50%(vii) $21,000
Unamortized balance of
discount on Building
One senior
subordinated notes..... (4,207) -- -- (4,207)
Amortization of
deferred debt issue
costs and discount..... -- -- -- -- 1,290(viii)
-------- --------- ------- -------- -------
Total long-term
senior subordinated
debt/interest
expense.............. $195,793 $ -- $ -- $195,793 11.38% $22,290
======== ========= ======= ======== ====== =======
Long-Term Junior
Subordinated Debt:
Pro Forma December 31,
1999 long-term junior
subordinated note...... $ 1,650 $ -- $ -- $ 1,650 6.00%(ix) $ 99
Pro Forma December 31,
1999 long-term junior
subordinated note...... 2,500 -- 2,500 7.50%(ix) 188
-------- --------- ------- -------- -------
$ 4,150 $ -- $ -- $ 4,150 6.92% $ 287
======== ========= ======= ======== ====== =======
Total debt/interest
expense................. $913,534 $ -- $10,750 $924,284 9.07% $83,867
======== ========= ======= ======== ====== =======
</TABLE>
- ----
(i) Represents interest rate on the new revolving credit facility calculated
as base rate of 5.9% plus applicable margin of 2.0%.
(ii) Represents interest rate on the new delayed draw term loan A credit
facility calculated as base rate of 5.9% plus applicable margin of 2.5%.
(iii) Represents interest rate on the new term loan B credit facility
calculated as base rate of 5.9% plus applicable margin of 2.5%.
(iv) Represents commitment fees under the new credit facilities based on a
rate of 0.5% on the amount available under the new credit facilities
after reflecting pro forma borrowings.
(v) Represents letter of credit fees on pro forma borrowings of $3,190 under
letter of credit agreements at an annual rate of 2.0%.
(vi) Represents amortization over the terms of the respective credit
facilities of deferred debt issuance costs relating to establish of these
new credit facilities.
(vii) Represents the coupon rate of interest on the Building One senior
subordinated notes as reported in Note 5 to the separate company pro
forma financial statements.
(viii) Represents the pro forma amortization of the deferred debt issue costs
and the discount recorded at issuance of the existing Building One
senior subordinated notes over the ten-year life of this debt.
(ix) Represents the contractual rates on the existing issuances of junior
subordinated debt of GroupMAC as reported in Note 5 to the separate
company pro forma financial statements.
44
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements utilize the
historical financial statements of GroupMAC as of December 31, 1999 and for the
year ended December 31, 1999 and give effect to the pre-acquisition financial
information of 14 companies acquired during 1999 (the "1999 Acquisition
Companies").
All of the acquisitions were accounted for under the purchase method of
accounting. These unaudited pro forma combined financial statements are based
on the historical financial statements of the acquired companies and estimates
and assumptions set forth below and in the notes to the unaudited pro forma
financial statements.
The unaudited pro forma balance sheet represents the historical consolidated
balance sheet of GroupMAC as adjusted for the refinancing transactions
highlighted in Note 3 below as if such transactions occurred on December 31,
1999. The accompanying unaudited pro forma statement of operations of GroupMAC
combines the historical statement of operations of GroupMAC and the statements
of operations of the acquired entities as if such acquisitions had occurred on
January 1, 1999.
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 statement of operations.
The pro forma adjustments are based on available information and certain
assumptions that management deems appropriate and may be revised as additional
information becomes available. The pro forma financial data do not purport to
represent what GroupMAC's financial position or results of operations would
actually have been if such transactions had in fact occurred on those dates and
are not necessarily representative of GroupMAC's financial position or results
of operations for any future period. Since the acquisitions have not
historically been under common control or management, historical pro forma
results may not be indicative of or comparable to future performance. The
unaudited pro forma financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in
GroupMAC's annual report on Form 10-K for the fiscal year ended December 31,
1999.
45
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
GroupMAC Adjustments Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 3,452 $(3,452)(a) $ --
Accounts receivable, net of allowance... 338,137 -- 338,137
Inventories............................. 22,551 -- 22,551
Costs and estimated earnings in excess
of billings on uncompleted contracts... 59,334 -- 59,334
Prepaid expenses and other current
assets................................. 11,733 -- 11,733
Deferred tax asset...................... 10,537 -- 10,537
---------- ------- ----------
Total current assets................... 445,744 (3,452) 442,292
PROPERTY AND EQUIPMENT, net.............. 59,051 -- 59,051
GOODWILL, net............................ 541,776 -- 541,776
DEFERRED DEBT ISSUE COSTS................ 12,917 -- 12,917
OTHER LONG-TERM ASSETS................... 2,045 -- 2,045
---------- ------- ----------
Total assets........................... $1,061,533 $(3,452) $1,058,081
========== ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt........... $ 1,098 $(1,098)(b) $ --
Accounts payable........................ 102,115 -- 102,115
Accrued compensation.................... 44,016 -- 44,016
Accrued liabilities..................... 20,161 -- 20,161
Due to related parties.................. 10,642 (10,642)(c) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. 55,144 -- 55,144
Income taxes payable.................... 2,740 -- 2,740
Other current liabilities............... 8,475 -- 8,475
---------- ------- ----------
Total current liabilities.............. 244,391 (11,740) 232,651
REVOLVING CREDIT FACILITY................ 249,400 8,288 (a-c) 257,688
SENIOR SUBORDINATED NOTES................ 130,000 -- 130,000
JUNIOR SUBORDINATED NOTES................ 4,150 -- 4,150
DEFERRED TAX LIABILITY................... 6,138 -- 6,138
OTHER LONG-TERM LIABILITIES.............. 1,484 -- 1,484
SHAREHOLDERS' EQUITY
Common stock............................ 39 -- 39
Additional paid-in capital.............. 390,957 -- 390,957
Retained earnings....................... 34,974 -- 34,974
---------- ------- ----------
Total shareholders' equity............. 425,970 -- 425,970
---------- ------- ----------
Total liabilities and shareholders'
equity................................ $1,061,533 $(3,452) $1,058,081
========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
46
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999
GroupMAC and Acquisition Pro Forma
Subsidiaries Companies Adjustments Pro Forma
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES................. $1,547,791 $123,352 $ -- $1,671,143
COST OF SERVICES......... 1,229,063 99,572 -- 1,328,635
---------- -------- ------- ----------
Gross profit........... 318,728 23,780 -- 342,508
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 198,417 15,905 (2,991)(a) 211,331
MERGER AND RELATED
CHARGES................. 3,725 -- -- 3,725
AMORTIZATION OF
GOODWILL................ 12,602 -- 1,422 (b) 14,024
---------- -------- ------- ----------
Income from
operations............ 103,984 7,875 1,569 113,428
OTHER INCOME (EXPENSE):
Interest expense....... (29,133) (249) (5,912)(c) (35,294)
Interest income........ 406 213 (619)(d) --
Other.................. 782 524 -- 1,306
---------- -------- ------- ----------
Income before income
tax provision........ 76,039 8,363 (4,962) 79,440
INCOME TAX PROVISION..... 34,483 615 1,143 (e) 36,241
---------- -------- ------- ----------
NET INCOME............... $ 41,556 $ 7,748 $(6,105) $ 43,199
========== ======== ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 1.12 $ 1.11
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 37,176 38,773 (f)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 1.11 $ 1.11
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED................. 37,496 39,090 (f)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
47
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1999 Acquisition Companies from
January 1, 1999 to the dates of acquisition were combined with the actual
results of operations of GroupMAC for the twelve months ended December 31, 1999
to determine the pro forma results of operations for the twelve months ended
December 31, 1999.
2. ACQUISITIONS
The results of operations of the acquired businesses are included in the
actual results of operations of GroupMAC from the date of acquisition, and the
historical balance sheet at December 31, 1999 includes all acquisitions
completed by GroupMAC to date. All of the acquisitions are accounted for as
purchases. The cash consideration associated with the acquisition of the 1999
Acquisition Companies was provided by borrowings under an amended and restated
credit agreement (the "Credit Agreement").
Several former owners of the acquired companies have the ability to receive
additional amounts of purchase price, payable in cash and common stock in 2000
through 2002, contingent upon the occurrence of future events. GroupMAC will
record such contingent consideration as additional purchase price when earned.
GroupMAC currently estimates the unearned contingent consideration under these
agreements to approximate $4.0 million in cash and 0.1 million shares of common
stock as of December 31, 1999.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes unaudited pro forma combined balance sheet
adjustments:
a) Records the utilization of cash on hand at December 31, 1999 to reduce
borrowings in connection with acquisitions under the Credit Agreement.
b) Records the refinancing of debt assumed and outstanding at December 31,
1999 in connection with acquisitions completed prior to that date
through borrowings under the Credit Agreement.
c) Records the funding of amounts due to related parties at December 31,
1999 in connection with acquisitions completed prior to that date
through borrowings under the Credit Agreement.
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The following summarizes unaudited pro forma combined statement of
operations adjustments:
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of the acquired companies to which they have agreed. These
reductions in salaries, bonuses and benefits are in accordance with the
terms of the employment agreements. Such employment agreements are
primarily for three years, contain restrictions related to competition
and provide severance for termination of employment in certain
circumstances.
b) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions over a 40-year estimated life.
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 1999
Acquisition Companies, interest related to Senior Subordinated Notes
used to retire amounts outstanding under the Credit Agreement, and
interest related to the junior subordinated debt. A summary of the
historical and pro forma debt outstanding and a summary of the pro forma
interest
48
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
expense (including amounts recognized in the historical financial
statements) assuming the acquisitions occurred on January 1, 1999,
follows in Note 5.
d) Reflects the reduction to historical interest income related to existing
and acquired cash, all of which is assumed to be used for the
acquisition of the 1999 Acquisition Companies.
e) Reflects the incremental provision for federal and state income taxes
relating to the compensation differential and other pro forma
adjustments discussed in this Note 4 as well as income taxes on
S Corporation earnings.
f) Weighted average shares outstanding include the following (in
thousands):
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
1999
-------------
<S> <C>
Shares issued and outstanding at December 31, 1999........... 38,621
Shares to be issued for companies acquired prior to December
31, 1999.................................................... 152
------
Weighted average shares outstanding--basic................... 38,773
Incremental effect of options and warrants on shares
outstanding................................................. 317
------
Weighted average shares outstanding--diluted................. 39,090
======
</TABLE>
49
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 (in
thousands)
<TABLE>
<CAPTION>
December 31,
December 31, 1999
1999 Pro Forma Pro Forma Interest Interest
Balances Adjustments Balances Rate Expense
------------ ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Short-Term Senior Debt:
Historical December
31, 1999 short-term
debt.................. $ 1,098 $(1,098) $ -- $ --
-------- ------- -------- -------
Total short-term
senior debt/interest
expense............. $ 1,098 $(1,098) $ -- $ --
======== ======= ======== =======
Long-Term Senior Debt:
Historical December
31, 1999 Credit
Agreement............. $249,400 $ 7,190 $256,590 7.30%(iii) $18,732
Refinance short-term
debt.................. -- 1,098 1,098 7.30%(iii) 80
Letter of Credit Fees
under the Credit
Agreement............. -- -- -- 48
Commitment Fees under
the Credit
Agreement............. -- -- -- 647(vi)
Amortization of
related deferred debt
issue costs........... -- -- -- 1,724(vii)
-------- ------- -------- -------
Total long-term
senior debt/interest
expense............. $249,400 $ 8,288 $257,688(i),(ii) 8.24% $21,231
======== ======= ======== ====== =======
Long-Term Senior
Subordinated Debt:
Historical December
31, 1999 Senior
Subordinated Notes.... $130,000 $ -- $130,000 9.75%(iv) $12,675
Amortization of
related deferred debt
issue costs........... -- -- -- 1,101(viii)
-------- ------- -------- -------
Total long-term
senior subordinated
debt/interest
expense............. $130,000 $ -- $130,000 10.60% $13,776
======== ======= ======== ====== =======
Long-Term Junior
Subordinated Debt:
Historical December
31, 1999 long-term
debt.................. $ 1,650 $ -- $ 1,650 6.00%(v) $ 99
Historical December
31, 1999 long-term
debt.................. 2,500 -- 2,500 7.50%(v) 188
-------- ------- -------- -------
Total long-term
junior subordinated
debt/interest
expense............. $ 4,150 $ -- $ 4,150 6.92% $ 287
======== ======= ======== ====== =======
Total debt/interest
expense................ $384,648 $ 7,190 $391,838 9.01% $35,294
======== ======= ======== ====== =======
</TABLE>
- --------
(i) Represents total senior indebtedness.
(ii) Represents total guarantor senior indebtedness.
(iii) Represents the December 31, 1999 borrowing rates under the Credit
Agreement.
(iv) Represents the coupon interest rate for the Senior Subordinated Notes.
(v) Represents the respective contractual interest rates for these issues of
junior subordinated debt.
(vi) Represents commitment fees on unused capacity on the Credit Agreement
at an annual rate of 0.375%.
(vii) Represents amortization of deferred debt issue costs over the
remaining life of the Credit Agreement.
(viii) Represents amortization of deferred debt issue costs over the ten-
year life of the related Senior Subordinated Notes.
50
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The following unaudited pro forma financial statements utilize the
historical financial statements of Building One as of December 31, 1999 and for
the twelve months ended December 31, 1999 and give effect to (i) the tender
offer that occurred in May 1999, including the financing of the tender offer
and (ii) the pre-acquisition financial information of 23 companies acquired
during 1999 which were accounted for under the purchase method of accounting
(the "1999 Acquisition Companies").
These unaudited pro forma financial statements are based on the historical
financial statements of the acquired companies and estimates and assumptions
set forth below and in the notes to the unaudited pro forma financial
statements.
The unaudited pro forma balance sheet represents the historical consolidated
balance sheet of Building One as adjusted for the refinancing transactions
highlighted in Note 3 below as if such transactions occurred on December 31,
1999. The accompanying unaudited pro forma statement of operations gives effect
to the tender offer that occurred in May 1999, including the refinancing of the
tender offer, and combines the historical statement of operations of Building
One and the statements of operations of the acquired entities as if all such
transactions had occurred on January 1, 1999.
Building One has analyzed the savings that it expects to realize from
reductions in salaries and certain benefits to the owners of the acquired
companies. To the extent the owners of the acquired entities have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statement of
operations.
The pro forma adjustments are based on available information and certain
assumptions that management deems appropriate and may be revised as additional
information becomes available. The pro forma financial data do not purport to
represent what Building One's financial position or results of operations would
actually have been if such transactions had in fact occurred on those dates and
are not necessarily representative of Building One's financial position or
results of operations for any future period. Since the acquisitions have not
historically been under common control or management, historical pro forma
results may not be indicative of or comparable to future performance. The
unaudited pro forma financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in
Building One's annual report filed with this Form 8-K/A for the fiscal year
ended December 31, 1999.
51
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Building Pro Forma
ASSETS One Adjustments Pro Forma
------ ---------- ----------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 17,085 $(17,085)(a) $ --
Accounts receivable, net of
allowance............................ 400,326 -- 400,326
Inventories........................... 10,323 -- 10,323
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ 59,418 -- 59,418
Deferred tax asset.................... 4,168 -- 4,168
Refundable income taxes............... 1,757 -- 1,757
Prepaid expenses and other current
assets............................... 15,536 -- 15,536
---------- -------- ----------
Total current assets................ 508,613 (17,085) 491,528
---------- -------- ----------
PROPERTY AND EQUIPMENT, net............. 63,288 -- 63,288
GOODWILL, net........................... 712,960 -- 712,960
DEFERRED DEBT ISSUE COSTS, net.......... 20,411 -- 20,411
OTHER LONG-TERM ASSETS.................. 8,482 -- 8,482
---------- -------- ----------
Total assets........................ $1,313,754 $(17,085) $1,296,669
========== ======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt......... $ 7,950 $ (7,950)(b) $ --
Accounts payable...................... 107,319 -- 107,319
Accrued compensation.................. 39,873 -- 39,873
Accrued liabilities................... 38,468 -- 38,468
Due to related parties................ 8,450 (8,450)(c) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ 86,122 -- 86,122
---------- -------- ----------
Total current liabilities........... 288,182 (16,400) 271,782
REVOLVING CREDIT FACILITY............... 166,500 84(a-c) 166,584
TERM CREDIT FACILITY.................... 122,813 1,250 124,063
SENIOR SUBORDINATED NOTES, net of
unamortized discount................... 195,793 -- 195,793
CONVERTIBLE JUNIOR SUBORDINATED
DEBENTURES............................. 105,103 -- 105,103
LONG TERM DEBT.......................... 2,019 (2,019)(b) --
DEFERRED TAX LIABILITY.................. 2,085 -- 2,085
OTHER LONG-TERM LIABILITIES............. 2,502 -- 2,502
STOCKHOLDERS' EQUITY
Common stock.......................... 28 -- 28
Additional paid-in capital............ 329,125 -- 329,125
Retained earnings..................... 100,317 -- 100,317
Accumulated other comprehensive loss.. (713) -- (713)
---------- -------- ----------
Total stockholders' equity.......... 428,757 -- 428,757
---------- -------- ----------
Total liabilities and stockholders'
equity............................. $1,313,754 $(17,085) $1,296,669
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
52
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999
Building Acquisition Pro Forma
One Companies Adjustments Pro Forma
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES ................ $1,772,584 $180,766 $ -- $1,953,350
COST OF SERVICES ........ 1,419,117 140,355 -- 1,559,472
---------- -------- ------- ----------
Gross profit .......... 353,467 40,411 -- 393,878
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 204,728 34,947 (16,567)(a) 223,108
RESTRUCTURING AND
RECAPITALIZATION
CHARGES................. 8,020 -- -- 8,020
AMORTIZATION OF
GOODWILL................ 16,004 -- 2,574 (b) 18,578
---------- -------- ------- ----------
Income from
operations............ 124,715 5,464 13,993 144,172
OTHER INCOME (EXPENSE):
Interest expense....... (35,618) (440) (22,227)(c) (58,285)
Interest income........ 5,743 423 (6,166)(d) --
Other.................. 249 292 131 (e) 672
---------- -------- ------- ----------
Income before income
tax provision....... 95,089 5,739 (14,269) 86,559
INCOME TAX PROVISION..... 42,027 3,395 (4,418)(f) 41,004
---------- -------- ------- ----------
NET INCOME .............. $ 53,062 $ 2,344 $(9,851) $ 45,555
========== ======== ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 1.60 $ 1.62 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 33,230 28,108 (g)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 1.52 $ 1.53 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED.................. 37,125 33,009 (g)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
53
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1999 Acquisition Companies from
January 1, 1999 to the dates of acquisition were combined with the actual
results of operations of Building One for the twelve months ended December 31,
1999 to determine the unaudited pro forma results of operations for the twelve
months ended December 31, 1999.
2. ACQUISITIONS
The results of operations of the acquired businesses are included in the
actual results of operations of Building One from the date of acquisition, and
the historical balance sheet at December 31, 1999 includes the acquisitions
completed by Building One to date. All of the acquisitions are accounted for as
purchases. The cash consideration associated with the acquisition of the 1999
Acquisition Companies was provided by borrowings under a revolving credit
facility.
Several former owners of the acquired companies have the ability to receive
additional amounts of purchase price, payable in cash and common stock in 2000
through 2001, contingent upon the occurrence of future events. Such contingent
consideration will be recorded as additional purchase price when earned. The
unearned contingent consideration under these agreements is currently estimated
to approximate $79.6 million in cash and shares of common stock as of December
31, 1999.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The following summarizes unaudited pro forma balance sheet adjustments:
a) Records the utilization of cash on hand at December 31, 1999 to
reduce borrowings in connection with acquisitions under the revolving
credit facility.
b) Records the refinancing of debt assumed and outstanding at December
31, 1999 in connection with acquisitions completed prior to that date
through borrowings under the revolving credit facility.
c) Records the funding of amounts due to related parties as of December
31, 1999 under contingent consideration agreements arising in connection
with acquisitions completed prior to that date through borrowings under the
revolving credit facility.
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The following summarizes unaudited pro forma statement of operations
adjustments:
a) Reflects the prospective reduction in salaries, bonuses and benefits
to the owners of the acquired companies to which they have agreed. These
reductions in salaries, bonuses and benefits are in accordance with the
terms of the employment agreements. Such employment agreements are
primarily for three years, contain restrictions related to competition and
provide severance for termination of employment in certain circumstances.
b) Reflects the amortization of goodwill to be recorded as a result of
the acquisitions over a 40-year estimated life.
c) Represents the adjustment necessary to reflect interest expense
related to borrowings under the revolving and term credit facility, senior
subordinated notes and convertible junior subordinated debentures to
finance the tender offer and to fund the cash portion of the purchase price
and the assumption of debt related to the 1999 Acquisition Companies. A
summary of the historical and pro forma debt outstanding and a summary of
the pro forma interest expense (including amounts recognized in the
historical financial statements) assuming the acquisitions occurred on
January 1, 1999, follows in Note 5.
54
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
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 1999 Acquisition Companies.
e) Reflects the elimination of minority interest associated with the
acquisition of the remaining 50% interest of a company that was originally
50% owned by Building One.
f) Reflects the incremental provision for federal and state income taxes
relating to the compensation differential and other pro forma adjustments
discussed in this Note 4 as well as income taxes on S Corporation earnings.
g) The calculation of the weighted average shares outstanding and the
basic and diluted earnings per share include the following (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
1999
-------------
<S> <C>
Weighted Average Shares Outstanding:
Weighted average shares outstanding--basic................ 28,108
Incremental effect of conversion of convertible junior
subordinated debentures.................................. 4,671
Incremental effect of options and warrants on shares
outstanding.............................................. 230
--------
Weighted average shares outstanding--diluted.............. 33,009
========
Net of Tax Interest Effect for Convertible Junior
Subordinated Debentures:
Principal of convertible junior subordinated debentures... $105,103
Interest rate............................................. 7.5%
--------
Annual interest at 7.5%................................... 7,883
Amortization of deferred issue costs...................... 357
--------
Interest on convertible junior subordinated debentures.... $ 8,240
One minus tax rate........................................ 61%
--------
Net of tax interest cost.................................. $ 5,026
========
Basic Earnings Per Share:
Net income................................................ $ 45,555
Basic weighted average shares outstanding................. 28,108
--------
Basic earnings per share.................................. $ 1.62
========
Diluted Earnings Per Share:
Net Income................................................ $ 45,555
Interest expense on convertible junior subordinated
debentures, net of tax................................... 5,026
--------
Net income on an if-converted basis....................... $ 50,581
Diluted weighted average shares outstanding............... 33,009
--------
Diluted earnings per share................................ $ 1.53
========
</TABLE>
55
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. UNAUDITED PRO FORMA INTEREST EXPENSE FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1999 (in thousands)
<TABLE>
<CAPTION>
December 31,
December 31, 1999 Pro
1999 Pro Forma Forma Interest Interest
Balances Adjustments Balances Rate Expense
------------ ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Short -Term Senior Debt:
Historical December
31, 1999 short-term
debt.................. $ 6,700 $(6,700) $ -- $ --
-------- ------- -------- -------
Total short-term
senior debt/interest
expense............. $ 6,700 $(6,700) $ -- $ --
======== ======= ======== =======
Long-Term Senior Debt:
Historical December
31, 1999 revolving
credit facility....... $166,500 $(6,616) $159,884 8.71%(i) $13,926
Historical December
31, 1999 term credit
facility.............. 124,063 -- 124,063 8.71%(i) 10,806
Historical December
31, 1999 other long-
term debt............. 2,019 (2,019) -- --
Refinance short-term
debt.................. -- 6,700 6,700 8.71%(i) 584
Commitment fees........ -- -- -- 542 (iv)
Amortization of
deferred debt issue
costs................. -- -- -- 1,889 (v)
-------- ------- -------- -------
Total long-term
senior debt/interest
expense............. $292,582 $(1,935) $290,647 9.55% $27,747
======== ======= ======== ====== =======
Long-Term Senior
Subordinated Debt:
Historical December
31, 1999 senior
subordinated notes.... $200,000 $ -- $200,000 10.50%(ii) $21,000
Discount/amortization
on issuance of senior
subordinated notes.... (4,207) -- (4,207) 451 (vi)
Amortization of
related deferred debt
issue costs........... -- -- -- 847 (vii)
-------- ------- -------- -------
Total long-term
senior subordinated
debt/interest
expense............. $195,793 $ -- $195,793 11.38% $22,298
======== ======= ======== ====== =======
Long-Term Convertible
Junior Subordinated
Debt:
Historical December
31, 1999 convertible
junior subordinated
debentures............ $105,103 $ -- $105,103 7.50%(iii) $ 7,883
Amortization of
related deferred debt
issue costs........... -- -- -- 357 (viii)
-------- ------- -------- -------
Total long-term
convertible junior
subordinated
debt/interest
expense............. $105,103 $ -- $105,103 7.84% $ 8,240
======== ======= ======== ====== =======
Total debt/interest
expense................ $600,178 $(8,635) $591,543 9.85% $58,285
======== ======= ======== ====== =======
</TABLE>
- --------
(i) Represents the December 31, 1999 borrowing rates under the Building One
credit facility.
(ii) Represents the coupon interest rate for the senior subordinated notes.
(iii) Represents the coupon interest rate for the convertible junior
subordinated debentures.
(iv) Represents commitment fees on unused capacity on the Building One credit
facility at an annual rate of 0.5%.
(v) Represents amortization of deferred debt issue costs over the remaining
life of the Building One credit facility.
(vi) The senior subordinated notes were issued at 97.746%, or a discount of
$4,508, which is being amortized to interest expense over the ten-year
life of these notes.
(vii) Represents amortization of deferred debt issue costs over the ten-year
life of these senior subordinated notes.
(viii) Represents amortization of deferred debt issue costs over the thirteen-
year life of these convertible junior subordinated debentures.
56
<PAGE>
(c) Exhibits.
2*--Prospectus dated January 18, 2000 contained in Part I of the
Registrant's Registration Statement on Form S-4 (Registration No.
333-93649).
23.1--Consent of PricewaterhouseCoopers LLP.
23.2--Consent of Frazier & Deeter, LLC
23.3--Consent of Schenck & Associates, SC
- --------
* Incorporated by reference to a prior filing.
57
<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.
ENCOMPASS SERVICES CORPORATION
(formerly named Group Maintenance America
Corp.)
/s/ Daniel W. Kipp
By: ______________________________________
Daniel W. Kipp
Vice President, Treasurer and Chief
Information Officer
Date: April 17, 2000
58
<PAGE>
INDEX OF EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by
an asterisk; all exhibits not so designated are incorporated to a prior filing
as indicated.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
2 Prospectus dated January 18, 2000 contained in Part I of the
Registrant's Registration Statement on Form S-4 (Registration No. 333-
93649).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Frazier & Deeter, LLC
23.3 Consent of Schenck & Associates, SC
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-93665), Form S-4 (Nos. 333-69533, 333-81201 and
333-93649) and Form S-8 (Nos. 333-41749, 333-41751, 333-58651, 333-60537, 333-
69421 and 333-78311) of Encompass Services Corporation of our report dated
February 12, 2000, except for Notes 1 and 19, which are as of February 22,
2000, relating to the financial statements of Building One Services
Corporation, which appears in this Current Report on Form 8-K/A of Encompass
Services Corporation.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 17, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-93665), Form S-4 (Nos. 333-69533, 333-81201 and
333-93649) and Form S-8 (Nos. 333-41749, 333-41751, 333-58651, 333-60537, 333-
69421 and 333-78311) of Encompass Services Corporation of our report dated
February 19, 1998, relating to the financial statements of Perimeter
Maintenance Corporation, which appears in this Current Report on Form 8-K/A of
Encompass Services Corporation.
/s/ Frazier & Deeter, LLC
Frazier & Deeter, LLC
Atlanta, Georgia
April 17, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-93665), Form S-4 (Nos. 333-69533, 333-81201 and
333-93649) and Form S-8 (Nos. 333-41749, 333-41751, 333-58651, 333-60537, 333-
69421 and 333-78311) of Encompass Services Corporation of our report dated
February 17, 1998, relating to the financial statements of Crest International,
LLC, which appears in this Current Report on Form 8-K/A of Encompass Services
Corporation. Effective July 1, 1999, Shinners, Hucovski & Company, S.C. merged
with Schenck & Associates, SC.
/s/ Schenck & Associates, SC
Schenck & Associates, SC
Green Bay, Wisconsin
April 17, 2000
