<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
----------------
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23241
BUILDING ONE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-2054952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
110 Cheshire Lane, Suite 210
Minnetonka, MN 55305
(Address of principal executive offices) (Zip Code)
</TABLE>
(612) 249-4900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of November 15, 1999, there were 26,098,806 shares of common stock
outstanding.
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- -------------------------------------------------------------------------------
<PAGE>
BUILDING ONE SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1999 and December 31,
1998............................................................... 1
Consolidated Statement of Operations for the three and nine months
ended September 30, 1999 and 1998.................................. 2
Consolidated Statement of Stockholders' Equity and Comprehensive
Income for the nine months ended September 30, 1999................ 3
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999 and 1998........................................ 4
Notes to Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 23
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 24
Item 5. Other Events.................................................. 25
Item 6. Exhibits and Reports on Form 8-K.............................. 25
Signatures............................................................ 26
Exhibit Index......................................................... (i)
</TABLE>
(i)
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 14,522 $ 213,096
Accounts receivable, net.......................... 362,147 246,623
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 49,875 25,441
Prepaid expenses and other current assets......... 27,632 17,108
---------- ----------
Total current assets............................ 454,176 502,268
Property and equipment, net......................... 57,358 38,967
Intangible assets, net.............................. 694,501 496,381
Other assets........................................ 6,176 6,306
---------- ----------
Total assets.................................... $1,212,211 $1,043,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................... $ 4,401 $ 2,167
Accounts payable.................................. 92,036 75,029
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 81,109 58,773
Accrued compensation.............................. 41,669 27,737
Accrued liabilities............................... 50,492 31,172
---------- ----------
Total current liabilities....................... 269,707 194,878
Long-term debt...................................... 438,887 3,287
Convertible junior subordinated debentures.......... 101,895 --
Other liabilities................................... 4,706 8,220
---------- ----------
Total liabilities............................... 815,195 206,385
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 11,000,000 au-
thorized; none issued or
outstanding...................................... -- --
Common stock, $.001 par value; 250,000,000 shares
authorized; 26,080,188 and 45,258,946 shares is-
sued and outstanding, respectively .............. 26 45
Additional paid-in capital........................ 310,216 832,514
Treasury stock.................................... -- (41,832)
Retained earnings................................. 87,339 47,255
Accumulated other comprehensive income (loss)..... (565) (445)
---------- ----------
Total stockholders' equity...................... 397,016 837,537
---------- ----------
Total liabilities and stockholders' equity...... $1,212,211 $1,043,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................... $ 477,875 $ 252,324 $1,265,521 $ 478,595
Cost of revenues.............. 379,900 197,086 1,011,305 376,318
---------- ---------- ---------- ----------
Gross profit.............. 97,975 55,238 254,216 102,277
Selling, general and adminis-
trative expenses............. 53,375 30,106 145,863 60,554
Goodwill amortization......... 4,238 2,613 11,511 4,584
Restructuring and recapitali-
zation charges (Note 6)...... -- -- 8,020 --
---------- ---------- ---------- ----------
Operating income.......... 40,362 22,519 88,822 37,139
Other (income) expense:
Interest expense............ 13,062 239 21,279 565
Interest income............. (468) (4,280) (4,674) (16,043)
Other, net.................. 270 184 (128) (134)
---------- ---------- ---------- ----------
Income before provision for
income taxes................. 27,498 26,376 72,345 52,751
Provision for income taxes.... 12,110 11,212 32,261 22,460
---------- ---------- ---------- ----------
Net income.................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
========== ========== ========== ==========
Net income per Common Share--
Basic........................ $ 0.60 $ 0.35 $ 1.14 $ 0.79
========== ========== ========== ==========
Net income per Common Share--
Diluted...................... $ 0.54 $ 0.34 $ 1.08 $ 0.77
========== ========== ========== ==========
Weighted average shares out-
standing--Basic.............. 25,631,194 43,122,092 35,311,455 38,298,295
========== ========== ========== ==========
Weighted average shares out-
standing-- Diluted........... 30,853,857 44,255,655 38,899,637 39,368,321
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the nine months ended September 30, 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------
Accumulated
Additional Other Total Total
Shares Paid-in- Treasury Retained Comprehensive Stockholders' Comprehensive
Outstanding Amount Capital Stock Earnings Income (loss) Equity Income
----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998................... 45,258,946 $45 $832,514 $(41,832) $47,255 $(445) $837,537
Stock issued upon
exercise of options.... 29,185 142 142
Issuance of common stock
for acquisitions and
contingent
consideration
agreements............. 5,310,162 6 75,155 75,161
Stock issued under
employee stock purchase
plan................... 99,735 1,212 1,212
Contingently issuable
shares................. 3,375 3,375
Repurchase of shares in
Tender Offer (See Note
3)..................... (24,617,840) (25) (562,979) (563,004)
Compensation expense
related to options
exercised in Tender
Offer.................. 2,629 2,629
Cancellation of
treasury stock......... (41,832) 41,832
Unrealized loss on
marketable securities--
net of tax of $80...... (120) (120) $ (120)
Net income.............. 40,084 40,084 40,084
-------
Total comprehensive
income................. $39,964
----------- --- -------- -------- ------- ----- -------- =======
Balance, September 30,
1999................... 26,080,188 $26 $310,216 $ -- $87,339 $(565) $397,016
=========== === ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 40,084 $ 30,291
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 22,436 7,946
Compensation expense related to options exercised....... 2,629 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (70,729) (21,323)
Costs and estimated earnings in excess of billings..... (14,873) 3,190
Prepaid expenses and other current assets.............. (9,928) (2,237)
Billings in excess of costs and estimated earnings..... 12,828 9,787
Accounts payable and accrued liabilities............... 22,668 5,053
Change in other assets.................................. 981 957
--------- --------
Net cash provided by operating activities............. 6,096 33,664
--------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired......... (131,037) (195,155)
Purchases of property and equipment...................... (19,656) (6,677)
Proceeds on sale of equipment............................ 362 740
Other.................................................... (28) 24
--------- --------
Net cash used in investing activities................. (150,359) (201,068)
--------- --------
Cash flows from financing activities:
Net payments on short-term debt.......................... (3,544) (36,355)
Payments on long-term debt............................... (14,416) (28,690)
Proceeds from long-term debt............................. 549,875 2,239
Payment of debt issuance costs........................... (22,219) --
Repurchase of common stock including related expenses.... (564,407) --
Distribution of S-Corp earnings.......................... -- (628)
Proceeds (payments) on related party loans............... (112) 547
Distribution to minority shareholders.................... (842) --
Proceeds from stock options exercised.................... 142 217
Proceeds from issuance of stock under employee stock
purchase plan........................................... 1,212 174
Purchase of treasury stock............................... -- (27,050)
--------- --------
Net cash used in financing activities................. (54,311) (89,546)
--------- --------
Net decrease in cash and cash equivalents................. (198,574) (256,950)
Cash and cash equivalents, beginning of period............ 213,096 528,972
--------- --------
Cash and cash equivalents, end of period.................. $ 14,522 $272,022
========= ========
The Company issued shares of common stock and cash in connection with certain
business combinations during the nine months ended September 30, 1999 and
1998, respectively. The fair values of the assets acquired and liabilities
assumed at the dates of acquisition are as follows:
Accounts receivable....................................... $ 44,674 $178,497
Costs and earnings in excess of billings.................. 9,501 26,045
Prepaid expenses and other current assets................. 2,605 11,225
Property and equipment.................................... 8,843 27,530
Intangible assets......................................... 103,453 459,446
Other assets.............................................. 2,762 6,293
Short-term debt........................................... (4,335) (29,358)
Accounts payable.......................................... (17,954) (57,420)
Accrued liabilities....................................... (12,369) (45,280)
Billings in excess of costs and estimated earnings........ (9,123) (49,776)
Long-term debt............................................ (1,446) (40,848)
Other long-term liabilities............................... (242) (5,812)
--------- --------
Net assets acquired....................................... $ 126,369 $480,542
========= ========
These acquisitions were funded as follows:
Common stock, 2,959,661 and 14,443,040 shares,
respectively............................................. $ 39,076 $285,387
Cash, net of cash acquired................................ 87,293 195,155
--------- --------
$ 126,369 $480,542
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation, ("Building One" or the "Company") is a
leading provider of integrated facilities services in the United States.
Currently, the Company provides mechanical and electrical installation and
maintenance services, and janitorial and maintenance management services. The
Company's goal is to become the preeminent single-source provider of
facilities services in the United States.
The interim financial data as of September 30, 1999 and for the three and
nine month periods ended September 30, 1999 and September 30, 1998 is
unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the results for the interim periods. Operating results
for interim periods are not necessarily indicative of results that may be
expected for the year as a whole. It is suggested that these consolidated
financial statements be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1998.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the interim periods presented. For a description of these policies,
refer to Note 2 of the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE 3--RECAPITALIZATION PLAN
On May 11, 1999, the Company completed its recapitalization plan which
included the repurchase of 24,617,840 shares of its common stock ("Common
Stock") at $22.50 per share for cash and 883,573 shares of the Company's
Common Stock underlying stock options at $22.50 per share less the exercise
price per share of the options in a tender offer (the "Tender Offer"). Funds
utilized for the repurchase totaled $560,084, which were obtained from the
Company's available cash, the net proceeds of $195,492 from the issuance of
$200,000 of 10 1/2% senior subordinated notes, $100,000 from the issuance of 7
1/2% convertible junior subordinated debentures to Boss Investment LLC, an
affiliate of Apollo Management, L.P. ("Apollo") and borrowings under a new
credit facility. See Note 5 for unaudited pro forma statement of operations
data for the three and nine month periods ended September 30, 1999 and
September 30, 1998 which assumes that the recapitalization plan was
consummated on January 1, 1998.
As a result of the Company allowing for the exercise of employee stock
options in the Tender Offer, compensation expense of $2,770 ($1,578 after the
associated tax benefit) was recognized and is included in the restructuring
and recapitalization charges recorded in the nine months ended September 30,
1999. Additionally, $4,323 of expenses were incurred in connection with the
Tender Offer which have been reflected as a reduction of stockholders' equity.
NOTE 4--BUSINESS COMBINATIONS
Purchase Acquisitions
During the nine months ended September 30, 1999, the Company completed
seventeen business combinations that were accounted for under the purchase
method of accounting. The consolidated financial statements include the
results of these acquired businesses from their respective dates of
acquisition. The aggregate consideration paid for these acquisitions consisted
of 2,959,661 shares of the Company's Common Stock and $96,843 in cash,
including $1,593 of debt assumed and applicable professional fees.
5
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
The total purchase price was allocated to the fair value of the net assets
acquired, resulting in goodwill of approximately $103,341. Such allocations
are preliminary in nature, pending the outcome of a detailed analysis being
performed by the Company of the assets and liabilities acquired. For purposes
of computing the estimated purchase price for accounting purposes, the value
of the shares on certain acquisitions was determined in consideration of
various restrictions on the sale and transferability of the shares issued.
Contingent Consideration Agreements
In conjunction with acquisitions consummated in 1998 and 1999, the Company
has entered into certain contingent consideration agreements which provide for
the payment of cash and shares of Common Stock based on the performance of
such acquired companies.
During the nine months ended September 30, 1999, $89,812 of consideration
under these agreements had been earned, consisting of 2,644,698 shares of
Common Stock and $45,968 of cash, resulting in additional goodwill in the
amount of $86,178. As of September 30, 1999, $43,744 of this cash and
applicable professional fees was paid and 2,350,501 of these shares were
issued. The remaining cash amount payable of $3,500 has been reflected as a
liability as of September 30, 1999 and the additional paid-in capital
associated with the shares to be issued has been reflected as contingently
issuable shares in the Statement of Stockholders' Equity and Comprehensive
Income. These contingently issuable shares have been included in the weighted
average shares outstanding for purposes of computing basic and diluted
earnings per share for the three and nine month periods ended September 30,
1999. The Company currently estimates the unearned contingent consideration
under these remaining agreements to approximate $84,900 as of September 30,
1999.
6
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 5--UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma results of operations give effect to the
Company's recapitalization plan, including the Tender Offer, the financing of
the Tender Offer, acquisitions completed during the year ended December 31,
1998 and the nine months ended September 30, 1999 as if they had been
consummated on January 1, 1998, and the effects of certain other pro forma
adjustments to the historical financial statements. Additionally, net income
per common share is also presented excluding the restructuring and
recapitalization charges discussed in Note 6.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues....................... $ 487,000 $ 414,565 $1,363,487 $1,182,646
Cost of revenues............... 386,551 327,152 1,085,207 945,652
---------- ---------- ---------- ----------
Gross profit............... 100,449 87,413 278,280 236,994
Selling, general and
administrative expenses....... 55,281 47,096 157,331 130,571
Goodwill amortization.......... 4,373 4,335 13,259 13,005
Restructuring and
recapitalization charges...... 8,020
---------- ---------- ---------- ----------
Operating income........... 40,795 35,982 99,670 93,418
Other (income) expense:
Interest expense............. 12,861 12,789 38,297 38,226
Other, net................... 269 (460) (511) (3,438)
---------- ---------- ---------- ----------
Income before taxes............ 27,665 23,653 61,884 58,630
Provision for income taxes..... 12,248 11,025 28,744 28,134
---------- ---------- ---------- ----------
Net income..................... $ 15,417 $ 12,628 $ 33,140 $ 30,496
========== ========== ========== ==========
Net income per common share--
Basic......................... $ 0.59 $ 0.48 $ 1.26 $ 1.16
========== ========== ========== ==========
Net income per common share--
Diluted....................... $ 0.53 $ 0.44 $ 1.17 $ 1.09
========== ========== ========== ==========
Weighted average shares
outstanding--Basic............ 26,357,148 26,233,201 26,357,148 26,233,201
========== ========== ========== ==========
Weighted average shares
outstanding--Diluted.......... 31,470,274 31,346,327 31,538,444 31,414,497
========== ========== ========== ==========
Excluding restructuring and
recapitalization charges:
Net income per common share -
Basic......................... $ 1.44
==========
Net income per common share -
Diluted....................... $ 1.32
==========
</TABLE>
Net income per common share--Basic is calculated based upon the weighted
average shares outstanding assuming the repurchase of 24,617,840 shares in the
Tender Offer occurred as of January 1, 1998. Net income per common share--
Diluted is calculated based upon net income adjusted for a reduction in
interest expense assuming conversion of the convertible junior subordinated
debentures and weighted average shares outstanding adjusted for the conversion
of the convertible junior subordinated debentures into shares of common stock
at $22.50 plus the dilution attributable to options and warrants and
contingently issuable shares.
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the recapitalization plan, the Tender Offer and the acquisitions occurred as
of January 1, 1998 or the results that may occur in the future.
7
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 6--RESTRUCTURING AND RECAPITALIZATION CHARGES
Recapitalization charges
As discussed in Note 3, during the second quarter of 1999, the Company
completed its recapitalization plan involving the repurchase of 24,617,840
shares of its Common Stock and 883,573 shares of Common Stock underlying stock
options. In conjunction with the recapitalization, compensation expense of
$2,770 was recognized for stock options exercised and the underlying shares of
Common Stock repurchased by the Company.
Restructuring charges
In the second quarter of 1999, the Company's Board of Directors approved and
the Company announced a restructuring plan which included a relocation of the
Company's corporate headquarters and integration of the janitorial and
maintenance management operations. During the second quarter of 1999 and
continuing into the third quarter of 1999, the corporate headquarters was
relocated from Washington, D.C. to Minneapolis, Minnesota. In addition,
certain back office operations of the janitorial and maintenance management
service operations are being consolidated into two locations.
The restructuring costs include costs directly related to the Company's
restructuring in accordance with EITF No. 94-3 which provides specific
requirements as to the appropriate recognition of costs associated with
employee termination benefits and other exit costs.
As a result of these restructuring plans, the Company incurred severance
costs for certain employees, identified certain assets which are no longer of
service and incurred certain lease termination costs.
The following table sets forth a summary of these restructuring costs.
<TABLE>
<CAPTION>
Corporate Janitorial
Headquarters Operations Total
------------ ---------- ------
<S> <C> <C> <C>
Severance........................................ $3,530 $900 $4,430
Impaired assets.................................. 55 520 575
Lease costs...................................... 205 40 245
------ ------ ------
Total............................................ $3,790 $1,460 $5,250
====== ====== ======
</TABLE>
Included in the $5,250 restructuring charge incurred in the second quarter
of 1999 are $4,600 of cash costs and $650 in non-cash related costs. The
Company anticipates annual savings of approximately $2,800 as a result of the
restructuring.
8
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
The following table is a detailed reconciliation of the restructuring
reserve balance from June 30, 1999 to September 30, 1999. The reconciliation
reflects the accruals recorded and payments applied during the year.
<TABLE>
<CAPTION>
June 30, September 30,
1999 Payments 1999
Restructuring reserve: -------- -------- -------------
<S> <C> <C> <C>
Severance..................................... $1,396 $(685) $711
Lease costs................................... 268 (88) 180
------ ----- ----
Total........................................... $1,664 $(773) $891
------ ----- ----
</TABLE>
NOTE 7--LONG TERM DEBT
In connection with the repurchase of Common Stock under the recapitalization
plan, the Company issued $200,000 of 10 1/2% senior subordinated notes,
$100,000 of 7 1/2% convertible junior subordinated debentures and entered into
a new credit facility to fund the repurchase. The following is a summary of
these financing sources obtained in connection with the recapitalization plan.
10 1/2% Senior Subordinated Notes
In April 1999, the Company completed a private placement offering of
$200,000 of 10 1/2% senior subordinated notes. The senior subordinated notes
are unsecured, guaranteed by our subsidiaries, require interest to be paid
semi-annually on May 1 and November 1 of each year and mature on May 1, 2009.
The senior subordinated notes were issued at 97.746%, or a discount of $4,508,
which is being amortized over the term of the notes. Additionally, debt
issuance costs of $8,255 incurred in connection with the offering, are
classified as intangible assets and are being amortized over the 10-year term
of the notes.
The Company may redeem the senior subordinated notes, in whole or in part,
at any time on or after May 1, 2002 at specified redemption prices, plus
accrued interest. At any time before May 1, 2002, the Company can redeem up to
35% of the outstanding senior subordinated notes with money raised in one or
more equity offerings under certain circumstances. Upon a change in control of
the Company (as defined in the indenture for the senior subordinated notes),
the holders of the senior subordinated notes will have the right to sell the
notes to the Company at 101% of the face amount plus accrued interest.
The indenture governing the senior subordinated notes contains certain
covenants relating to, among other things, the Company's ability to incur
indebtedness, pay dividends or repurchase capital stock, incur liens, sell or
otherwise dispose of a substantial portion of its assets or merge or
consolidate with another entity.
The senior subordinated notes are guaranteed by all but two of the Company's
wholly owned subsidiaries and a subsidiary that is 93%-owned. The wholly owned
guarantor subsidiaries and the 93%-owned guarantor subsidiary have fully and
unconditionally guaranteed the notes on a joint and several basis. The
aggregate assets, liabilities, earnings and equity of the wholly owned
guarantor subsidiaries and the 93%-owned guarantor subsidiary are
substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. The Company has not presented separate
financial statements and other disclosures concerning the wholly owned
guarantor subsidiaries and the 93%-owned guarantor subsidiary because
management has determined that such information is not material to investors.
The two non-guarantor subsidiaries, together with the 93%-owned guarantor
subsidiary, are inconsequential on an individual and combined basis (i.e., the
assets and pre-tax income of and the Company's net investment in the non-
guarantor subsidiaries and the 93%-owned subsidiary is less than three percent
on an individual and combined basis).
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
7 1/2% Convertible Junior Subordinated Debentures
The convertible junior subordinated debentures mature on May 1, 2012 and
provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's election,
for the first five years after their issuance, and in cash thereafter. The
holders of a majority of the outstanding principal amount of the convertible
junior subordinated debentures, however, will have the right to require the
payment of interest in cash after the third and through the fifth anniversary
of the issuance of the convertible junior subordinated debentures. In
addition, the provisions of the credit facility and the indenture for the
senior subordinated notes limit the Company's ability to pay cash interest
payments. Debt issuance costs of $4,634 incurred in connection with the
debentures are classified as intangible assets and are being amortized over
the 13-year term of the debentures.
The convertible junior subordinated debentures will be convertible into
shares of the Company's Common Stock at an initial conversion price of $22.50
per share plus all accrued and unpaid interest. If the convertible junior
subordinated debentures are converted prior to the fifth anniversary of their
issuance, the amount converted into shares will include additional interest
that would have accrued or been paid from the date of conversion through the
fifth anniversary of the issuance of the convertible junior subordinated
debentures. However, unless the conversion is in connection with a change of
control (as defined in the indenture for the convertible junior subordinated
debentures), the additional interest will not exceed a total of 30 months of
interest. The Company will adjust the conversion price under certain
circumstances, including the issuance of shares at a price below the
conversion price of the convertible junior subordinated debentures or below
the then fair market value of a share.
The indenture for the convertible junior subordinated debentures limits the
Company's ability to, among other things, incur additional indebtedness, pay
dividends, repurchase securities or repay certain other indebtedness. The
Company's amended and restated certificate of incorporation authorizes the
holders of the convertible junior subordinated debentures to vote together
with the holders of shares on all of the matters submitted to stockholders for
a vote and to elect as a class three of the Company's directors (or, if the
Board has more than ten directors, no less than 30% of the directors). The
holders of the convertible junior subordinated debentures will be entitled to
cast the number of votes that they would be entitled to cast if they had
converted the convertible junior subordinated debentures into shares of the
Company's Common Stock.
Credit Facility
The Company's credit facility, which is with a syndicate of banks led by
Bankers' Trust Company, consists of a $125,000 term loan and a $225,000
revolving credit facility and matures in April 2004. As of September 30, 1999
the Company had $240,875 of borrowings under this facility. The revolving
credit facility bears interest at various rates which are subject to change
based on certain levels of financial performance. The weighted average
interest rate on the borrowings outstanding under the credit facility was
8.14% as of September 30, 1999. Debt issuance costs of $9,445 incurred in
connection with this new credit facility are being amortized over the 5-year
term of the credit facility. The credit facility includes a number of
significant covenants including, among others, restrictions on the Company's
ability to incur additional indebtedness, restrictions on mergers,
acquisitions and the disposition of assets, sale and leaseback transactions
and capital lease payments, dividends and other distributions and voluntary
prepayments on indebtedness. Additionally, the Company is required to comply
with certain financial covenants with respect to minimum interest coverage and
maximum leverage ratios. As of September 30, 1999, the Company was in
compliance with all covenants.
The fair value of the senior subordinated notes as of September 30, 1999
approximated $189,000. The estimated fair value of the convertible junior
subordinated debentures and the credit facility approximate their carrying
values.
10
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 8--COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Costs incurred on uncompleted contracts...................... $1,242,195
Estimated earnings........................................... 223,416
----------
1,465,611
Less: Billings to date....................................... 1,496,845
----------
$ (31,234)
==========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 49,875
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (81,109)
--------
$(31,234)
========
</TABLE>
NOTE 9--SEGMENT DATA
The Company has two reportable segments: mechanical/electrical and
janitorial. The mechanical/electrical segment offers a single source for
designing, installing, maintaining and upgrading a facility's electrical
systems as well as providing a facility's mechanical, HVAC and plumbing needs.
The janitorial segment provides a wide variety of facility cleaning and
maintenance management services nationwide.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on income from operations of the respective business units
prior to unallocated corporate expenses.
The Company's reportable segments offer different products and services.
Intersegment transactions are accounted for as if they were to third parties,
that is, at current market prices. All of the Company's revenues are derived
from domestic sources.
11
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
Prior to January 1, 1999, the Company had three reportable segments:
mechanical, electrical and janitorial. Effective January 1, 1999, the Company
changed the structure of its internal organization and as a result the
mechanical and electrical segments have been combined into one reportable
segment.
Segment information for the three and nine month periods ended September 30,
1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Mechanical
and Electrical Janitorial Consolidated
-------------- ----------- ------------
<S> <C> <C> <C>
Three month period ended Setpember
30, 1999:
Revenues............................. $ 412,458 $ 65,417 $ 477,875
Operating costs...................... 369,517 59,830 429,347
----------- ----------- -----------
Subtotal............................. 42,941 5,587 48,528
Goodwill amortization................ 3,648 590 4,238
----------- ----------- -----------
Segment operating income............. $ 39,293 $ 4,997 44,290
=========== =========== ===========
Unallocated corporate expenses....... (3,928)
-----------
Income from operations............... $ 40,362
===========
Three month period ended September
30, 1998:
Revenues............................. $ 206,065 $ 46,259 $ 252,324
Operating costs...................... 182,567 42,186 224,753
----------- ----------- -----------
Subtotal............................. 23,498 4,073 27,571
Goodwill amortization................ 2,115 498 2,613
----------- ----------- -----------
Segment operating income............. $ 21,383 $ 3,575 24,958
=========== =========== ===========
Unallocated corporate expenses....... (2,439)
-----------
Income from operations............... $ 22,519
===========
Nine month period ended September 30,
1999:
Revenues............................. $1,087,830 $177,691 $1,265,521
Operating costs...................... 983,082 165,153 1,148,235
----------- ----------- -----------
Subtotal............................. 104,748 12,538 117,286
Goodwill amortization................ 9,719 1,792 11,511
----------- ----------- -----------
Segment operating income............. $ 95,029 $ 10,746 105,775
=========== =========== ===========
Unallocated corporate expenses....... (16,953)
-----------
Income from operations............... $ 88,822
===========
</TABLE>
12
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mechanical
and Electrical Janitorial Consolidated
-------------- ---------- ------------
<S> <C> <C> <C> <C>
Nine month period ended
September 30, 1999
(before restructuring
and recapitalization
charges):
Revenues................. $1,087,830 $177,691 $1,265,521
Operating costs.......... 983,082 163,693 1,146,775
---------- ---------- -----------
Subtotal................. 104,748 13,998 118,746
Goodwill amortization.... 9,719 1,792 11,511
---------- ---------- -----------
Segment operating
income.................. $ 95,029 $ 12,206 107,235
========== ========== ===========
Unallocated corporate
expenses................ (10,393)
-----------
Income from operations... $ 96,842
===========
Nine month period ended
September 30, 1998:
Revenues................. $ 370,455 $ 108,140 $ 478,595
Operating costs.......... 331,332 100,542 431,874
---------- ---------- -----------
Subtotal................. 39,123 7,598 46,721
Goodwill amortization.... 3,723 861 4,584
---------- ---------- -----------
Segment operating
income.................. $ 35,400 $ 6,737 42,137
========== ========== ===========
Unallocated corporate
expenses................ (4,998)
-----------
Income from operations... $ 37,139
===========
<CAPTION>
Mechanical and
Electrical Janitorial Corporate Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total assets
September 30, 1999....... $1,030,433 $ 146,061 $ 35,717 $ 1,212,211
December 31, 1998........ 761,221 121,660 161,041 1,043,922
</TABLE>
13
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
NOTE 10 -- EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share computations for the three and nine month
periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
----------- ----------- ----------- -----------
Net income per share--Basic.. $ 0.60 $ 0.35 $ 1.14 $ 0.79
=========== =========== =========== ===========
Diluted earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Plus: Interest expense on 7
1/2% convertible junior
subordinated debentures and
related amortization expense
on debt issue costs net of
applicable income taxes..... 1,218 2,003
----------- ----------- ----------- -----------
Net income on an as if
converted basis............. $ 16,606 $ 15,164 $ 42,087 $ 30,291
=========== =========== =========== ===========
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
Convertible non-voting common
stock....................... 500,000 500,000
Common stock equivalents from
stock options and warrants.. 84,295 192,711 152,466 389,347
Contingently issuable
shares...................... 638,081 440,852 942,335 180,679
Convertible junior
subordinated debentures, on
an as if converted basis 4,500,287 2,493,381
----------- ----------- ----------- -----------
Total weighted average shares
outstanding--Diluted........ 30,853,857 44,255,655 38,899,637 39,368,321
----------- ----------- ----------- -----------
Net income per share--
Diluted..................... $ 0.54 $ 0.34 $ 1.08 $ 0.77
=========== =========== =========== ===========
</TABLE>
14
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
(Dollars in thousands, except per share amounts)
Outstanding stock options and warrants to purchase 3,713,761 shares of
Common Stock as of September 30, 1999 were not included in the computation of
diluted earnings per share because the options' exercise prices were higher
than the average market price of the Common Stock during the period.
NOTE 11 - SUBSEQUENT EVENTS
On November 2, 1999, the Board of Directors of the Company unanimously
approved a merger with Group Maintenance America Corp. (GroupMAC). Under the
terms of the merger, each outstanding share of the Company's Common Stock will
be exchanged for 1.25 shares of GroupMAC common stock. As part of the merger,
GroupMAC shareholders may elect to receive cash for up to 50% of their shares
at $13.50 per share (up to $150 million in the aggregate), subject to pro-
ration. If this cash election is fully subscribed, approximately 11 million
GroupMAC shares (or approximately 29% of its shares currently outstanding)
will be cancelled in the merger. The transaction is expected to be tax-free to
the shareholders of both companies, except GroupMAC shareholders to the extent
of any cash they elect to receive, and will be accounted for under the
purchase method of accounting.
Concurrent with the closing of the merger, Apollo will exchange its
convertible junior subordinated debentures and $150 million of cash for
approximately $255 million of GroupMAC convertible preferred stock. The cash
proceeds from the investment will be used to fund the cash election option
described above. The preferred stock will bear a coupon rate of 7.25%, will be
payable on a quarterly basis, and will mature in 2012. The preferred stock
will be convertible into GroupMAC common stock at a conversion price of $14.00
per common share.
An underwritten commitment letter from Bank of America, N.A. and Chase Bank
of Texas, N.A. (as Co-Lead Arrangers and Co-Book Managers) to provide a total
of $800 million in financing has been received by GroupMAC. It is anticipated
that this financing will be used to satisfy all outstanding obligations under
the Company's and GroupMAC's credit facilities. It is also expected that the
Company's $200 million of senior subordinated debt will be assumed by GroupMAC
and remain outstanding, and that GroupMAC will refinance its senior
subordinated notes.
The merger is subject to the approval of both companies' shareholders,
concurrent completion of the Apollo investment, regulatory approval and other
customary closing conditions, and is expected to close in the first quarter of
2000.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto,
appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the
Company's audited consolidated financial statements for the year ended
December 31, 1998 as filed on Form 10-K with the Securities and Exchange
Commission on March 29, 1999.
Founded in February 1997, Building One Services Corporation is a leading
provider of facilities services in the United States. The Company completed
its initial public offering ("IPO") in December 1997 raising net proceeds of
approximately $527 million. The proceeds have been used by the Company
primarily in its acquisition program and to finance the Company's repurchase
of shares of Common Stock in its Tender Offer further discussed below.
Recapitalization Plan
On May 11, 1999, the Company completed the repurchase of 24,617,840 shares
of its Common Stock at $22.50 per share for cash and 883,573 shares of Common
Stock underlying stock options at $22.50 per share less the exercise price of
the options. Total funds utilized for the repurchase excluding associated fees
totaled $560.1 million, which were obtained from the Company's available cash,
the net proceeds of $195.5 million from the issuance of $200 million of 10
1/2% senior subordinated notes, $100 million from the issuance of 7 1/2%
convertible junior subordinated debentures to Boss Investment, LLC, an
affiliate of the private investment firm of Apollo Management, L.P. and
borrowings under a new revolving credit facility (the "Credit Facility").
Proposed Merger with GroupMAC
On November 2, 1999, the Board of Directors of the Company unanimously
approved a merger with Group Maintenance America Corp. ("GroupMAC"). Under the
terms of the merger, each outstanding share of the Company's Common Stock will
be exchanged for 1.25 shares of GroupMAC common stock. As part of the merger,
GroupMAC shareholders may elect to receive cash for up to 50% of their shares
at $13.50 per share (up to $150 million in the aggregate), subject to pro-
ration. If this cash election is fully subscribed, approximately 11 million
GroupMAC shares (or approximately 29% of its shares currently outstanding)
will be cancelled in the merger. The transaction is expected to be tax-free to
the shareholders of both companies, except GroupMAC shareholders to the extent
of any cash they elect to receive, and will be accounted for under the
purchase method of accounting.
Concurrent with the closing of the merger, Apollo will exchange its
convertible junior subordinated debentures and $150 million of cash for
approximately $255 million of GroupMAC convertible preferred stock. The cash
proceeds from the investment will be used to fund the cash election option
described above. The preferred stock will bear a coupon rate of 7.25%, will be
payable on a quarterly basis, and will mature in 2012. The preferred stock
will be convertible into GroupMAC common stock at a conversion price of $14.00
per common share.
An underwritten commitment letter from Bank of America, N.A. and Chase Bank
of Texas, N.A. (as Co-Lead Arrangers and Co-Book Managers) to provide a total
of $800 million in financing has been received by GroupMAC. It is anticipated
that this financing will be used to satisfy all outstanding obligations under
the Company's and GroupMAC's credit facilities. It is also expected that the
Company's $200 million of senior subordinated debt will be assumed by GroupMAC
and remain outstanding, and that GroupMAC will refinance its senior
subordinated notes.
The merger is subject to the approval of both companies' shareholders,
concurrent completion of the Apollo investment, regulatory approval and other
customary closing conditions, and is expected to close in the first quarter of
2000.
16
<PAGE>
Impact of Acquisitions
As a result of the Company's acquisition program, its financial condition
and results of operations have changed dramatically from its inception and IPO
in December 1997 to September 30, 1999. The Company has completed 46 business
combinations since its inception. Forty-three of these business combinations
have been accounted for under the purchase method of accounting (the
"Purchased Companies") and three of these business combinations consummated
during the second quarter of fiscal 1998 have been accounted for under the
pooling-of-interests method of accounting (the "Pooled Companies"). The
Company's consolidated financial statements give retroactive effect to the
three business combinations accounted for under the pooling-of-interests
method and include the results of the companies acquired in business
combinations accounted for under the purchase method from their respective
acquisition dates. Due to the Company's growth through acquisitions,
comparisons of the historical results of the Company's operations have been
and will continue to be affected by the addition of acquired companies.
Increases in the various revenues and expense components of the Company's
results are, to a large degree, due to growth from acquisitions. Neither the
magnitude nor the source of such changes is necessarily indicative of changes
that will occur in the future.
CONSOLIDATED RESULTS OF OPERATIONS
The Company's revenues are recognized as services are performed for
maintenance and service contracts. Additionally, the Company utilizes the
percentage-of-completion method of accounting for installation contracts.
Under this method, revenues are recognized according to the ratio of costs
incurred to estimated total contract
costs. Changes in job performance, job conditions, estimated profitability,
anticipated contract losses and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.
The Company believes that it has and will continue to realize savings from
the consolidation of insurance and bonding programs, consolidation of certain
back office functions for some of its operations and volume purchase discounts
from vendors of commodity services and materials and service vehicles. These
savings may be partially offset by costs associated with our corporate
operations and costs of integrating acquired businesses.
Three months ended September 30, 1999 compared to the three months ended
September 30, 1998
Revenues. Consolidated revenues for the three months ended September 30,
1999 increased $225.6 million, or 89.4%, to $477.9 million from $252.3 million
for the three months ended September 30, 1998. Of this increase, $206.2
million pertains to the mechanical and electrical operations and $19.4 million
to the janitorial operations. Approximately $150.3 million of the increase in
mechanical and electrical revenues and $4.4 million of the increase in
janitorial revenues relates to incremental revenue contributed in the three
months ended September 30, 1999 by companies acquired during or subsequent to
September 30, 1998. The remaining $55.9 million in increased mechanical and
electrical revenues and $15.0 million in janitorial revenues relates to
organic growth.
Gross profit. Gross profit for the three months ended September 30, 1999
increased $42.7 million, or 77.4%, to $98.0 million from $55.3 million for the
three months ended September 30, 1998. Of this increase, $38.1 million relates
to the mechanical and electrical operations and $4.6 million to the janitorial
operations.
Gross profit as a percentage of revenues ("gross margin") decreased to 20.5%
for the three months ended September 30, 1999 from 21.9% for the three months
ended September 30, 1998 primarily as a result of the mechanical companies
acquired subsequent to September 30, 1998 which traditionally have lower gross
margins than electrical companies.
Selling, general and administrative. Selling, general and administrative
expenses for the three months ended September 30, 1999 increased $23.3
million, or 77.3%, to $53.4 million from $30.1 million for the three months
ended September 30, 1998. Of this increase, $18.6 million relates to an
increase in the mechanical and electrical operations, $3.2 million in the
janitorial operations and $1.5 million to corporate general and administrative
expenses.
17
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.2% for the three months ended September 30, 1999 from 11.9%
for the three months ended September 30, 1998. This decrease is due primarily
to the leverage of corporate expenses and our acquired companies' selling,
general and administrative expenses over the increase in revenues.
Goodwill amortization. Goodwill amortization for the three months ended
September 30, 1999 increased $1.6 million, or 62.2%, to $4.2 million from $2.6
million for the three months ended September 30, 1998. This increase was a
result of the increase in acquired companies.
Other income/expense, net. Other expense, net for the three months ended
September 30, 1999 changed $16.8 million, to $12.9 million of other expense
from other income of $3.9 million for the three months ended September 30,
1998. The increase in other expense is primarily attributable to the increase
in net interest expense as a result of the use of the Company's cash funds and
the incurrence of borrowings to provide the necessary funds for the repurchase
of Common Stock in the Tender Offer.
Provision for income taxes. The provision for income taxes for the three
months ended September 30, 1999 increased to $12.1 million from $11.2 million
for the three months ended September 30, 1998, reflecting an effective tax
rate of 44.0% and 42.5%, respectively. The increase in the effective rate was
primarily attributable to the increase in non-deductible goodwill amortization
associated with certain acquisitions.
Nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998
Revenues. Consolidated revenues for the nine months ended September 30, 1999
increased $786.9 million, or 164.4%, to $1,265.5 million from $478.6 million
for the nine months ended September 30, 1998. Of this increase, $717.1 million
pertains to the mechanical and electrical operations and $69.8 million to the
janitorial operations. Approximately $623.7 million of the increase in
mechanical and electrical revenues and $33.7 million of the increase in
janitorial revenues relates to incremental revenue contributed in the nine
months ended September 30, 1999 by companies acquired during or subsequent to
the nine months ended September 30, 1998. The remaining $93.4 million of the
increase in mechanical and electrical revenues and $36.1 million of the
increase in janitorial revenues relates to organic growth.
Gross profit. Gross profit for the nine months ended September 30, 1999
increased $151.9 million, or 148.5%, to $254.2 million from $102.3 million for
the nine months ended September 30, 1998. Of this increase, $135.9 million
relates to the mechanical and electrical operations and $16.0 million to the
janitorial operations.
Gross profit as a percentage of revenues ("gross margin") decreased to 20.1%
for the nine months ended September 30, 1999 from 21.4% for the nine months
ended September 30, 1998 primarily as a result of the mechanical companies
acquired subsequent to September 30, 1998 which traditionally have lower gross
margins than electrical companies.
Selling, general and administrative. Selling, general and administrative
expenses for the nine months ended September 30, 1999 increased $85.3 million,
or 140.9%, to $145.9 million from $60.6 million for the nine months ended
September 30, 1998. Of this increase, $70.8 million relates to an increase in
the mechanical and electrical operations and $9.7 million to the janitorial
operations. $4.8 million relates to corporate general and administrative
expenses including corporate management and infrastructure costs to support
the Company's operations.
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.5% for the nine months ended September 30, 1999 from 12.7% for
the nine months ended September 30, 1998. This decrease is due primarily to
the leverage of corporate's selling, general and administrative expenses and
the Company's acquired companies' selling, general and administrative expenses
over an increase in revenues.
Goodwill amortization. Goodwill amortization for the nine months ended
September 30, 1999 increased $6.9 million, or 151% to $11.5 million from
$4.6 million for the nine months ended September 30, 1998. This increase was a
result of the increase in acquired companies.
18
<PAGE>
Restructuring and recapitalization charges. Restructuring and
recapitalization charges were $8.0 million for the nine months ended September
30, 1999. These charges, as discussed in Note 6 to the financial statements,
included $2.8 million relating to compensation expense for stock options
exercised and the underlying shares of Common Stock repurchased in the
Company's recapitalization plan, and $5.2 million of restructuring charges
pertaining to the relocation of the Company's corporate headquarters and
integration of the janitorial and maintenance management operations.
Other income, net. Other expense, net for the nine months ended
September 30, 1999 changed $32.1 million, to $16.5 million of other expense
from other income of $15.6 million for the nine months ended September 30,
1998. The increase in other expense is primarily attributable to the increase
in net interest expense as a result of the use of the Company's cash funds and
the incurrence of borrowings to provide the necessary funds for the repurchase
of Common Stock under the Tender Offer.
Provision for income taxes. The provision for income taxes for the nine
months ended September 30, 1999 increased to $32.3 million from $22.5 million
for the nine months ended September 30, 1998, reflecting an effective tax rate
of 44.6% and 42.6%, respectively. The increase in the effective rate was
primarily attributable to the increase in income generated from entities which
were subject to C corporation taxes, versus companies acquired under the
pooling-of-interests method which had elected to be treated as subchapter S
corporations for tax purposes prior to their being acquired by the Company and
an increase in non-deductible goodwill amortization associated with certain
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, net cash provided by
operating activities was approximately $6.1 million. Net cash used in
investing activities for the nine months ended was $150.4 million, which
primarily consisted of $131.0 million used for acquisitions and $19.7 million
used for purchases of property and equipment. Net cash used in financing
activities for the nine months ended September 30, 1999 was $54.3 million,
which consisted primarily of $560.1 million used to repurchase the Company's
stock in the Tender Offer net of proceeds from long-term debt of $506.7
million, including the issuance of the senior subordinated notes, the
convertible junior subordinated debentures and the borrowings under the Credit
Facility.
The Company acquired seventeen businesses during the nine months ended
September 30, 1999. Aggregate consideration for these acquisitions consisted
of 2,959,661 shares of Common Stock and $96.8 million in cash. In conjunction
with the acquisitions consummated during the nine months ended September 30,
1999 and during the year ended 1998, the Company has entered into contingent
consideration agreements which provide for the payment of cash and issuance of
shares of Common Stock based upon the performance of certain of the businesses
acquired. As of September 30, 1999, $43,744 of cash and applicable
professional fees was paid and 2,350,501 shares were issued under these
agreements. The Company expects that approximately $15 million of additional
contingent consideration will become payable in 1999, of which approximately
$7.5 million will be payable in cash.
As previously discussed, on May 11, 1999, the Company completed the
repurchase of 24,617,840 shares of its Common Stock at $22.50 per share for
cash and 883,573 shares of Common Stock underlying stock options at $22.50 per
share less the exercise price per share of the options. Total funds utilized
for the repurchase totaled $560.1 million, which were obtained from the
Company's available cash, the net proceeds of $195.5 million from the issuance
of $200 million of 10 1/2% senior subordinated notes, $100 million from the
issuance of 7 1/2% convertible junior subordinated debentures to Apollo and
borrowings under the Credit Facility.
19
<PAGE>
Interest on the senior subordinated notes is paid semi-annually on May 1 and
November 1 of each year and the notes will mature on May 1, 2009. The senior
subordinated notes are unsecured and guaranteed by our domestic subsidiaries
and rank junior to the Credit Facility.
The Company may redeem the senior subordinated notes, in whole or in part,
at any time on or after May 1, 2002 at specified redemption prices, plus
accrued interest. At any time (which may be more than once) 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 of 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.
Additionally, the indenture governing the senior subordinated notes contains
certain covenants relating to, among other things, the Company's ability to
incur indebtedness, pay dividends on, or repurchase capital stock, incur
liens, sell or otherwise dispose of a substantial portion of its assets or
merge or consolidate with another entity.
The convertible junior subordinated debentures will mature on May 1, 2012
and provide for interest payments at a rate of 7 1/2% to be paid in additional
convertible junior subordinated debentures or cash, at the Company's election,
for the first five years after their issuance, and in cash thereafter. The
holders of a majority of the outstanding principal amount of the convertible
junior subordinated debentures, however, will have the right to require the
payment of interest in cash after the third and through the fifth anniversary
of the issuance of the convertible junior subordinated debentures. In
addition, the provisions of the Credit Facility and the indenture for the
senior subordinated notes limit our ability to pay cash interest payments.
The convertible junior subordinated debentures are 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. Assuming conversion of the
principal amount of the convertible junior subordinated debentures and
considering the first and second interest payments were paid in additional
convertible debentures, Apollo will have the right to acquire upon conversion
4,613,556 shares of Common Stock or 15% of the shares outstanding as of
November 12, 1999. 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
of the Company's Common Stock.
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 Credit Facility consists of a $125.0 million term loan and a $225.0
million revolving credit facility, in each case maturing five years after the
date of the borrowing. The Credit Facility provides for certain mandatory
repayments of the outstanding indebtedness. As of November 12, 1999, the
Company had $87.0 million of availability under its Credit Facility.
The Credit Facility bears interest at the sum of the (i) applicable margin
and (ii) at the option of the Company, either the "base rate" or the
"eurodollar rate" (as defined in the credit facility). The base rate will be
the higher of (i) the rate that Bankers Trust Company announces from time to
time as its prime lending rate, as in effect from time to time, and (ii) 1/2
of 1% in excess of the overnight federal funds rate. The applicable margin
will be a percentage per annum equal to (i) in the case of term loans
maintained as (x) base rate loans, 2.00%, and (y) eurodollar rate loans,
3.00%, and (ii) in the case of revolving loans maintained as (x) base rate
loans, 1.50%, and (y) eurodollar rate loans, 2.50%, in each case subject to
step-downs to be determined based on
20
<PAGE>
certain levels of financial performance. The Company must also pay a
commitment fee in the amount of 0.50% per year on the daily average unused
portion of the Credit Facility, subject to step-downs based upon financial
performance. In addition, the commitment fee percentage will be increased by
0.25% at all times that the total unutilized commitments under the revolving
Credit Facility exceed 75% of the sum of (x) the total revolving commitment
then in effect plus (y) the aggregate outstanding principal amount of the term
loan. The Credit Facility provides for certain mandatory repayments of the
outstanding indebtedness.
The Credit Facility includes a number of significant covenants that impose
restrictions on the Company and its subsidiaries. These covenants include,
among others, restrictions on the Company's ability to incur additional
indebtedness and pay the interest on Apollo's convertible junior subordinated
debentures in cash, and restrictions on mergers, acquisitions and the
disposition of assets, sale and leaseback transactions and capital lease
payments, dividends and other distributions and voluntary prepayments of
indebtedness. In addition, the Company is required to comply with financial
covenants with respect to minimum interest coverage and maximum leverage
ratios.
The Company needs funds for general corporate purposes, including to pay
interest on the senior subordinated notes, the convertible junior subordinated
debentures and the Credit Facility, to pay contingent consideration required
by the terms of certain acquisition agreements and to make future acquisitions
and capital expenditures. The Company anticipates that its cash flow from
operations and borrowings available under the Credit Facility will be
sufficient to meet these liquidity requirements over the next twelve months.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Quarterly results may be materially affected by the timing of acquisitions,
the timing and magnitude of costs related to such acquisitions, variations in
services provided by the Company and the timing of these services, and general
economic conditions. Moreover, the operating margins of companies acquired by
the Company may differ substantially from those of the Company, which could
contribute to further fluctuation in the Company's quarterly operations.
Therefore, results for any quarter are not necessarily indicative of the
results that the Company may achieve for any subsequent fiscal quarter or for
a full fiscal year.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during the nine months ended September 30, 1999.
YEAR 2000 ISSUE
The Year 2000 issue refers to a number of date-related problems that may
affect information technology and non-information technology systems,
including codes embedded in chips and other hardware devices. These problems
include systems that identify a year by two digits and not four so that a date
using "00" would be recognized as the year "1900" rather than "2000." This
could result in system failures, miscalculations or errors causing disruptions
of operations or other business problems, including, among others, a temporary
inability to process transactions, send invoices or engage in normal business
activities. The Year 2000 issue is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty.
State of Readiness. Since its IPO in December 1997, the Company has acquired
46 companies offering mechanical, electrical and janitorial services. The due
diligence relating to the Year 2000 issue that was performed on these
companies did not reveal any significant internal operating systems issues. In
addition, such due diligence revealed that most of the acquired companies have
addressed the Year 2000 issue, but are in different phases of assessment and
remediation. During the third quarter the Company completed a
21
<PAGE>
comprehensive survey of the Company's operating subsidiaries to ensure that
the Company's operating subsidiaries are adequately addressing, or have
adequately addressed, the Year 2000 issue.
The survey mentioned above covered the following areas: (i) the Company's
information technology and operating systems, including job-costing, billing,
payroll and accounting systems; (ii) the Company's non-information technology
systems, such as buildings, plant, equipment and other infrastructure systems
that may contain embedded microcontroller technology; (iii) the systems of its
major vendors, insofar as they relate to the Company's business; and (iv) the
systems of its major customers for which the Company has performed
installation and maintenance services. Such surveys revealed that the
Company's subsidiaries have performed an inventory of hardware and software
and conducted research to determine the Year 2000 compliance status of the
products. Substantially all of the Company's internal operating systems have
been remediated, upgraded or replaced to date and any additional upgrading and
testing is scheduled to be completed by December 31, 1999.
In addition, during the third quarter, the Company retained the services of
a consultant to conduct a review of the Year 2000 readiness efforts of the
Company and its subsidiaries. This review focused on the core business
applications, computers, phone and voicemail systems of the Company, which are
used to conduct daily operations. The primary method used by the consultant to
determine Year 2000 readiness was interviews with the Company's employees and
inspection of the surveys mentioned above. The consultant also performed Year
2000 product research and assessment. Overall, the consultant concluded that
the Company's Year 2000 preparedness efforts were adequate.
The Company continues to evaluate the effect of the Year 2000 problem on its
most significant customers and suppliers, and thus indirectly on the Company.
This evaluation includes an ongoing process of contacting customers and
suppliers whose systems have, or may have, an effect on the way the Company
conducts business. We expect to complete the analysis of our customers' and
suppliers' systems by December 1999. The Company does not have control of
these suppliers and customers. While we will work diligently to coordinate
with our suppliers and customers, there can be no assurance they will complete
their efforts prior to January 1, 2000. There are no individual customers who
will have a material impact on our revenues should they fail to complete their
Year 2000 efforts. Additionally, the Company has alternative vendors that can
be relied on should a current vendor fail in its Year 2000 preparations.
Costs Related to the Year 2000 Issue. As part of the survey mentioned above,
the Company requested an estimate from each operating subsidiary of the
material historical and estimated costs of assessment and remediation. Such
costs, include, among other things, the costs of assessment, software upgrade
fees, hardware changes and general implementation of a Year 2000 action plan.
Approximately $800,000 has been expended to date and the Company currently
estimates that up to an additional $500,000 may be incurred to fully comply.
Contingency Plan. The Company has not implemented a corporate-wide Year 2000
contingency plan. The Company has been in the process of identifying and
resolving Year 2000 problems and will develop contingency plans as deemed
necessary.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the issue cannot
be known until the Year 2000. Due to the fact that the Company's operations
are primarily service oriented and are not heavily dependent on complex
information systems, the Company believes that non-information technology
systems (i.e. embedded technology such as microcontrollers) do not represent a
significant area of risk relative to Year 2000 readiness. In addition, the
Company's operations do not include capital intensive equipment with embedded
microcontrollers.
However, failure by the Company or its major vendors and customers to
adequately address their respective Year 2000 issues generally in a timely
manner (insofar as they relate to the Company's business) could result in,
among other things, the Company's inability to obtain equipment that it is
obligated to install in a timely manner, reductions in the quality of
materials used in the Company's business, reductions, delays or cancellations
of customer projects, delays in payments by customers for services performed,
or a general inability to record, track and consummate business transactions.
Any or all of these events could have a material adverse effect on the
Company's business, results of operations and financial condition.
22
<PAGE>
FACTORS AFFECTING THE COMPANY'S BUSINESS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to the Company or its management are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed under
the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and in other public filings. The Company does not
undertake any obligation to revise these forward-looking statements to reflect
any future events or circumstances. In addition to the factors set forth in
the Annual Report on Form 10-K, the ability of the Company to complete its
proposed merger with GroupMAC will have an impact on the Company's actual
results, performance or achievements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changes in interest rates. All items
described are non-trading and are stated in U.S. dollars (in thousands).
<TABLE>
<CAPTION>
Fair Value
At September 30,
1999 2000 2001 2002 2003 Thereafter Total 1999
------ ------ ------ ------ ------ ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Term Loan Facility $312 $1,250 $1,250 $1,250 $1,250 $119,063 $124,375 $124,375
Average Rate.......... (a)
Revolving Credit
Facility............... -- -- -- -- -- $116,500 $116,500 $116,500
Average Rate.......... (a)
Senior Subordinated
Notes.................. -- -- -- -- -- $200,000 $200,000 $189,000
Average Rate.......... (b)
Convertible Junior
Subordinated
Debentures............. -- -- -- -- $101,895 $101,895 $101,895
Average Rate.......... 7.5%
Other Secured Debt...... $1,401 $2,785 $1,722 $ 491 $ 156 $ 178 $ 6,733 $ 6,733
Average Rate.......... 8.25%
</TABLE>
- --------
(a) The Credit Facility bears interest at the sum of the (i) applicable margin
and (ii) at the option of the company, either the "base rate" or the
"eurodollar rate" (as defined in the Credit Facility). The base rate will
be the higher of (i) the rate that Bankers Trust Company announces from
time to time as its prime lending rate, as in effect from time to time,
and (ii) 1/2 of 1% in excess of the overnight federal funds rate. The
applicable margin will be a percentage per annum equal to (i) in the case
of term loans maintained as (x) base rate loans, 2.00%, and (y) eurodollar
rate loans, 3.00%, and (ii) in the case of revolving loans maintained as
(x) base rate loans, 1.50%, and (y) eurodollar rate loans, 2.50%, in each
case subject to step-downs to be determined based on certain levels of
financial performance. At September 30, 1999, the weighted average
interest rate in effect for the Credit Facility borrowings, including
amortization of related debt issue costs of $9,445 was 8.92%.
(b) The senior subordinated notes are unsecured, mature May 2009 and bear
interest at 10.5% payable semi-annually. These senior subordinated notes
were issued at a discount of 97.746% or $4,508 which is being amortized to
interest expense along with approximately $8,255 in related debt issuance
costs over the ten year life of the Notes, increasing the effective
interest rate to 11.13%.
23
<PAGE>
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the Company's stockholders was held on July 8, 1999.
All nominees for Director were elected pursuant to the following votes:
<TABLE>
<CAPTION>
AUTHORITY
NOMINEE FOR WITHHELD
------- ---------- ---------
<S> <C> <C>
Andrew Africk........................................... 20,841,743 66,213
Mary K. Bush............................................ 20,841,702 66,254
Vincent W. Eades........................................ 20,841,743 66,213
Michael Gross........................................... 20,841,743 66,213
Joseph M. Ivey.......................................... 20,841,743 66,213
Jonathan J. Ledecky..................................... 20,833,002 74,950
William P. Love, Jr..................................... 20,841,743 66,213
Brooks Newmark.......................................... 20,841,743 66,213
M. Jude Reyes........................................... 20,841,743 66,213
</TABLE>
The stockholders approved the amendment to, and restatement of, the
Company's Restated Certificate of Incorporation to reflect the rights of the
convertible junior subordinated debenture holders and the elimination of the
provisions related to the shares of convertible non-voting common stock.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
---------- --------- -------
14,365,454 63,403 18,269
The stockholders approved the amendment to, and restatement of, the
Company's Restated Certificate of Incorporation to provide for stockholder
action by unanimous written consent.
FOR AGAINST ABSTAIN
---------- --------- -------
11,326,484 3,101,785 18,497
The stockholders approved the amendment to, and restatement of, the
Company's Restated Certificate of Incorporation to authorize 11,000,000 shares
of series preferred stock, par value $0.001 per share.
FOR AGAINST ABSTAIN
---------- --------- -------
11,552,075 2,876,394 18,297
The stockholders approved the adoption of the Company's 1999 Long-Term
Incentive Plan in the form included in the Proxy Statement sent to all of the
stockholders of record as of the record date.
FOR AGAINST ABSTAIN
---------- --------- -------
11,236,198 3,170,905 39,663
The stockholders adopted the Company's 1999 Stock Performance Incentive Plan
in the form included in the Proxy Statement sent to all of the stockholders of
record as of the record date.
FOR AGAINST ABSTAIN
---------- --------- -------
13,906,486 501,012 39,268
The stockholders ratified the Board of Directors' selection of
PricewaterhouseCoopers LLP as the Company's independent accountants to audit
the Company's consolidated financial statements for the fiscal year ending
December 31, 1999.
FOR AGAINST ABSTAIN
---------- --------- -------
20,855,353 14,713 37,890
</TABLE>
24
<PAGE>
Item 5. Other Events
In August of 1999, the Company completed its offer to exchange all its
outstanding 10 1/2% senior subordinated notes due 2009, which have been
registered under the Securities Exchange Act of 1933, in exchange for all
outstanding 10 1/2% senior subordinated notes due 2009 which were issued in a
private placement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement regarding computation of net income per share
27 Financial Data Schedule
(b) Reports on Form 8-K. During the period covered by this report, the
Company filed the following Current Reports on Form 8-K:
i Form 8-K filed with the Commission on July 15, 1999 reporting
information under Items 5 and 7. The Company filed the financial
statements for Welcon Management Company as of March 31, 1996 and for
the year ended March 31, 1996.
ii Form 8-K filed with the Commission on August 9, 1999 reporting
information under Item 7. The Company filed the financial statements for
Ivey Mechanical Company (a partnership) as of June 30, 1998, 1997 and
1996 and for the three year period ended June 30, 1998.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUILDING ONE SERVICES CORPORATION
Joseph M. Ivey
Date: November 15, 1999 By:__________________________________
Joseph M. Ivey
Chief Executive Officer
Date: November 15, 1999 Timothy C. Clayton
By:__________________________________
Timothy C. Clayton
Chief Financial Officer
26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit Page
--- ------- ----
<C> <S> <C>
11.1 Statement regarding computation of net income per share.............
27 Financial Data Schedule.............................................
</TABLE>
<PAGE>
EXHIBIT 11.1
BUILDING ONE SERVICES CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
----------- ----------- ----------- -----------
Net income per share--Basic.. $ 0.60 $ 0.35 $ 1.14 $ 0.79
----------- ----------- ----------- -----------
Diluted earnings per share:
Net income................... $ 15,388 $ 15,164 $ 40,084 $ 30,291
Plus: Interest expense on 7
1/2% convertible junior
subordinated debentures and
related amortization expense
on debt issue costs net of
applicable income taxes..... 1,218 2,003
----------- ----------- ----------- -----------
Net income on an as if
converted basis............. $ 16,606 $ 15,164 $ 42,087 $ 30,291
=========== =========== =========== ===========
Weighted average shares
outstanding--Basic.......... 25,631,194 43,122,092 35,311,455 38,298,295
Convertible Non-Voting Common
Stock....................... 500,000 500,000
Common stock equivalents from
stock options and warrants.. 84,295 192,711 152,466 389,347
Contingently issuable
shares...................... 638,081 440,852 942,335 180,679
Convertible junior
subordinated debentures, on
an as if converted basis.... 4,500,287 2,493,381
----------- ----------- ----------- -----------
Total weighted average
shares outstanding--
Diluted................... 30,853,857 44,255,655 38,899,637 39,368,321
----------- ----------- ----------- -----------
Net income per share--
Diluted................... $ 0.54 $ 0.34 $ 1.08 $ 0.77
=========== =========== =========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 3,713,761 shares of common
stock as of September 30, 1999 were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares during the period.
<PAGE>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements included in the Company's Quarterly
Report on Form 10-Q and is qualified in its entirety by reference to such
financial statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 14,522 14,522
<SECURITIES> 0 0
<RECEIVABLES> 364,626 364,626
<ALLOWANCES> 2,479 2,479
<INVENTORY> 0 0
<CURRENT-ASSETS> 454,176 454,176
<PP&E> 75,000 75,000
<DEPRECIATION> 17,642 17,642
<TOTAL-ASSETS> 1,212,211 1,212,211
<CURRENT-LIABILITIES> 269,707 269,707
<BONDS> 0 0
0 0
0 0
<COMMON> 26 26
<OTHER-SE> 396,990 396,990
<TOTAL-LIABILITY-AND-EQUITY> 1,212,211 1,212,211
<SALES> 477,875 1,265,521
<TOTAL-REVENUES> 477,875 1,265,521
<CGS> 379,900 1,011,305
<TOTAL-COSTS> 379,900 1,011,305
<OTHER-EXPENSES> 57,883 165,266
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,594 16,605
<INCOME-PRETAX> 27,498 72,345
<INCOME-TAX> 12,110 32,261
<INCOME-CONTINUING> 15,388 40,084
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,388 40,084
<EPS-BASIC> 0.60 1.14
<EPS-DILUTED> 0.54 1.08
</TABLE>
