<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 3, 1999
----------------
Building One Services Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant specified in Charter)
Delaware 000-23421 52-2054952
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
110 Cheshire Lane, Suite 210, Minnetonka, MN 55305
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone, including area code: (612) 249-4900
<PAGE>
Item 5. Other Events.
On November 3, 1999, Building One Services Corporation ("Building One")
announced that it had entered into an Agreement and Plan of Merger, dated
November 2, 1999, with Group Maintenance America Corp. ("GroupMAC"). Attached
hereto are: (i) the audited financial statements of GroupMAC included in its
annual report on Form 10-K for the fiscal year ended December 31, 1998 and the
unaudited financial statements included in its interim report on Form 10-Q for
the interim period ended September 30, 1999; and (ii) the pro forma financial
statements reflecting the merger of GroupMAC and Building One as of December 31,
1998 and September 30, 1999 and for the year and nine months then ended,
respectively, and separate pro forma financials of GroupMAC and Building One
reflecting the acquisitions made by each company in 1998 and 1999 as of and for
the same periods as the combined company pro forma financial statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements
1. Audited consolidated balance sheet of GroupMAC as of December 31, 1998
and 1997, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1998, included in the
annual report on Form 10-K of GroupMAC for the fiscal year ended December 31,
1998 are hereby incorporated herein by reference. These financial statements
are attached hereto as Exhibit 99.01.
2. Unaudited consolidated balance sheet of GroupMAC as of September 30, 1999,
unaudited consolidated statements of income and retained earnings for the three
months ended September 30, 1999 and September 31, 1998 and for the nine months
ended September 30, 1999 and September 30, 1998 and unaudited consolidated
statements of cash flows for the nine months ended September 30, 1999 and
September 30, 1998, included in the interim report on Form 10-Q of GroupMAC for
the interim period ended September 30, 1999, are hereby incorporated herein by
reference. These financial statements are attached hereto as Exhibit 99.02.
(b) Pro Forma Financial Information -- The unaudited pro forma combined
balance sheets as of September 30, 1999 and the unaudited pro forma combined
statements of income for the year ended December 31, 1998 and the nine months
ended September 30, 1999 are as follows:
2
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
On November 3, 1999, GroupMAC and Building One announced the signing of a
definitive agreement to merge the two companies. Under the terms of the merger,
each outstanding share of Building One common stock will be converted into the
right to receive 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, subject to proration in the event that holders of more
than approximately 11 million shares elect to receive cash. If this cash
election is fully subscribed, up to approximately 11 million shares of GroupMAC
common stock, or approximately 29% of the shares currently outstanding, will be
cancelled in the merger.
Concurrent with the closing of the merger, affiliates of Apollo Management,
L.P. ("Apollo") will exchange $105 million of Building One convertible junior
subordinated debentures, the "Building One convertible debt", and $150 million
of cash for approximately $255 million of GroupMAC convertible preferred stock,
the "preferred stock". The cash proceeds from the investment will be used to
fund the cash election right described above.
The preferred stock will mature in 2012 and will bear a dividend yield coupon
rate of 7.25% payable quarterly in cash. The combined company can defer payment
of dividends during the first three years without penalty. The preferred stock
will be convertible into shares of combined company common stock at a conversion
price of $14.00 per common share.
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.
GroupMAC received 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. It is expected that Building
One'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 name of the combined company will be announced on or before the closing.
For purposes of the discussions below, the combined entity is referred to as
"combined company".
GroupMAC will be the surviving legal entity in the merger. However, for
accounting purposes, Building One is deemed to be the acquiror and,
accordingly, Building One will account for the merger as a "reverse
acquisition" of GroupMAC under the purchase method of accounting. Under this
method of accounting, the combined company's historical results for periods
prior to the merger will be the same as Building One's historical results. On
the date of the merger, the assets and liabilities of GroupMAC will be recorded
at their estimated fair values.
The following combined company unaudited pro forma financial statements
utilize the unaudited pro forma financial statements of GroupMAC and Building
One as of September 30, 1999 and for the nine months ended September 30, 1999
and for the year ended December 31, 1998, which give effect to the acquisitions
made by each company during 1998 and 1999 including amounts owed in connection
with those acquisitions. The combined company unaudited pro forma financial
statements give effect to the transactions highlighted above as if the
transactions had occurred on September 30, 1999 for purposes of the combined
company unaudited pro forma balance sheet, and on January 1, 1998 for purposes
of the combined company unaudited pro forma statements of operations. The
unaudited pro forma combined financial statements for GroupMAC and Building One
are derived from the separate pro forma financial statements of each company set
forth immediately following these combined company unaudited pro forma financial
statements.
3
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS--(Continued)
The pro forma adjustments are based on preliminary estimates and certain
assumptions that GroupMAC and Building One believe 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.
With respect to cost savings and synergies associated with the combined
organization, management cannot fully quantify such items at this time. It is
anticipated that any such savings will be partially offset by the cost of
additional corporate infrastructure to support the combined operation. These
savings and costs cannot be accurately quantified at this time and they have
not been included in the pro forma combined financial information of the
combined company.
The following combined company pro forma financial statements are based on
assumptions and include adjustments as explained in the notes thereto. The
combined company 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 combined company unaudited pro forma financial statements
should be read in conjunction with the notes thereto.
4
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Merger Transaction
------------------------
Apollo Investment
------------------------
Preferred Pref Stock/
Building Stock Conv Deb
GroupMAC One Investment Exchange
Pro Forma Pro Forma (a) (b)
ASSETS --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ -- $ -- $146,500 $ --
Accounts
receivable, net
of allowance...... 317,344 362,147 -- --
Inventories....... 20,635 8,213 -- --
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... 50,299 49,875 -- --
Prepaid expenses
and other current
assets............ 8,167 11,590 -- --
Deferred tax
asset............. 9,750 4,424 -- --
Refundable income
taxes............. -- 3,405 -- --
-------- ---------- ---------- -----------
Total current
assets.......... 406,195 439,654 146,500 --
-------- ---------- ---------- -----------
PROPERTY AND
EQUIPMENT, net..... 55,913 57,358 -- --
GOODWILL AND OTHER
INTANGIBLES, net... 518,003 673,238 -- --
DEFERRED DEBT ISSUE
COSTS, net......... 13,568 21,055
OTHER LONG-TERM -- (4,485)
ASSETS............. 1,744 6,384 -- --
-------- ---------- ---------- -----------
Total assets.... $995,423 $1,197,689 $146,500 $ (4,485)
======== ========== ========== ===========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ 92,510 $ 92,036 $ -- $ --
Accrued
compensation...... 42,981 41,669 -- --
Accrued
liabilities....... 27,934 46,409 -- --
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... 47,997 81,109 -- --
Deferred service
revenue........... 5,022 -- -- --
Income taxes
payable........... 8,844 -- -- (1,749)
Other current
liabilities....... 2,746 -- -- --
-------- ---------- ---------- -----------
Total current
liabilities..... 228,034 261,223 -- (1,749)
REVOLVING CREDIT
FACILITY........... 218,844 111,499 -- --
TERM CREDIT
FACILITY........... -- 124,375 -- --
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... 130,000 195,680 -- --
JUNIOR SUBORDINATED
NOTES.............. 4,150 -- -- --
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES......... -- 103,190 -- (103,190)
DEFERRED TAX
LIABILITY.......... 1,486 2,243 -- --
OTHER LONG-TERM
LIABILITIES........ 3,084 2,463 -- --
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... -- -- 146,500 103,190
SHAREHOLDERS'
EQUITY
Common stock...... 38 26 -- --
Additional paid-
in capital........ 382,949 310,216 -- --
Retained
earnings.......... 26,838 87,339 -- (2,736)
Accumulated other
comprehensive
loss.............. -- (565) -- --
-------- ---------- ---------- -----------
Total
shareholders'
equity.......... 409,825 397,016 -- (2,736)
-------- ---------- ---------- -----------
Total
liabilities and
shareholders'
equity.......... $995,423 $1,197,689 $146,500 $ (4,485)
======== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Merger Transaction
--------------------------------------------------------------------------------------------
Record Goodwill on Merger
--------------------------------------------------------------------------------------------
Put of Write-off Pro Forma
Cancellation Merger GroupMAC GroupMAC Eliminate Reverse Combined
of GroupMAC Costs Sr Sub Notes, credit line GroupMAC Acquisition Company
Common net of tax net of tax costs, net of tax Equity of GroupMAC Prior to
Stock (c) (d) (e) (f) (g) (h) Refinancing
ASSETS ------------ ---------- ------------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ (146,500) $ -- $ -- $ -- $ -- $ -- $ --
Accounts
receivable, net
of allowance...... -- -- -- -- -- -- 679,491
Inventories....... -- -- -- -- -- -- 28,848
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts......... -- -- -- -- -- -- 100,174
Prepaid expenses
and other current
assets............ -- -- -- -- -- -- 19,757
Deferred tax
asset............. -- -- -- -- -- -- 14,174
Refundable income
taxes............. -- -- 1,153 1,296 -- -- 5,854
------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total current
assets.......... (146,500) -- 1,153 1,296 -- -- 848,298
------------ ---------- ------------- ----------------- ----------- ----------- ------------
PROPERTY AND
EQUIPMENT, net..... -- -- -- -- -- -- 113,271
GOODWILL AND OTHER
INTANGIBLES, net... -- 16,328 7,043 2,027 (259,825) 274,869 1,231,683
DEFERRED DEBT ISSUE
COSTS, net......... -- -- (10,246) (3,323) -- -- 16,569
OTHER LONG-TERM
ASSETS............. -- -- -- -- -- -- 8,128
------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total assets.... $ (146,500) $16,328 $ (2,050) $ -- $ (259,825) $274,869 $2,217,949
============ ========== ============= ================= =========== =========== ============
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT
LIABILITIES:
Accounts
payable........... $ -- $ -- $ -- $ -- $ -- $ -- $ 184,546
Accrued
compensation...... -- -- -- -- -- -- 84,650
Accrued
liabilities....... -- -- -- -- -- -- 74,343
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts......... -- -- -- -- -- -- 129,106
Deferred service
revenue........... -- -- -- -- -- -- 5,022
Income taxes
payable........... -- (3,745) (3,350) -- -- -- --
Other current
liabilities....... -- -- -- -- -- -- 2,746
------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total current
liabilities..... -- (3,745) (3,350) -- -- -- 480,413
REVOLVING CREDIT
FACILITY........... 3,500 24,800 131,300 -- -- -- 489,943
TERM CREDIT
FACILITY........... -- -- -- -- -- -- 124,375
SENIOR SUBORDINATED
NOTES, net of
unamortized
discount........... -- -- (130,000) -- -- -- 195,680
JUNIOR SUBORDINATED
NOTES.............. -- -- -- -- -- -- 4,150
CONVERTIBLE JUNIOR
SUBORDINATED
DEBENTURES......... -- -- -- -- -- -- --
DEFERRED TAX
LIABILITY.......... -- -- -- -- -- -- 3,729
OTHER LONG-TERM
LIABILITIES........ -- -- -- -- -- -- 5,547
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK.... -- -- -- -- -- -- 249,690
SHAREHOLDERS'
EQUITY
Common stock...... (11) -- -- -- (27) 34 60
Additional paid-
in capital........ (149,989) -- -- -- (232,960) 274,835 585,051
Retained
earnings.......... -- (4,727) -- -- (26,838) -- 79,876
Accumulated other
comprehensive
loss.............. -- -- -- -- -- -- (565)
------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total
shareholders'
equity.......... (150,000) (4,727) -- -- (259,825) 274,869 664,422
------------ ---------- ------------- ----------------- ----------- ----------- ------------
Total
liabilities and
shareholders'
equity.......... $ (146,500) $16,328 $ (2,050) $-- $ (259,825) $274,869 $2,217,949
============ ========== ============= ================= =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
5
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA BALANCE SHEET (Continued)
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Refinancing
-----------------------------------------
Pro Forma Write-off
Combined Company Refinance existing Building One credit Pro Forma
Prior to revolver balances line costs, net of tax Combined
ASSETS Refinancing (i) (j) Company
------ ---------------- ------------------ ---------------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ -- $ -- $ -- $ --
Accounts receivable, net of allowance..... 679,491 -- -- 679,491
Inventories................................ 28,848 -- -- 28,848
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... 100,174 -- -- 100,174
Prepaid expenses and other current assets... 19,757 -- -- 19,757
Deferred tax asset......................... 14,174 -- -- 14,174
Refundable income taxes.................... 5,854 -- 3,377 9,231
---------- -------- ------- ----------
Total current assets..................... 848,298 -- 3,377 851,675
---------- -------- ------- ----------
PROPERTY AND EQUIPMENT, net................. 113,271 -- -- 113,271
GOODWILL AND OTHER INTANGIBLES, net......... 1,231,683 -- -- 1,231,683
DEFERRED DEBT ISSUE COSTS, net.............. 16,569 10,200 (8,658) 18,111
OTHER LONG-TERM ASSETS...................... 8,128 -- -- 8,128
---------- -------- ------- ----------
Total assets............................. $2,217,949 $ 10,200 $(5,281) $2,222,868
========== ======== ======= ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................... $ 184,546 $ -- $ -- $ 184,546
Accrued compensation....................... 84,650 -- -- 84,650
Accrued liabilities........................ 74,343 -- -- 74,343
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 129,106 -- -- 129,106
Deferred service revenue................... 5,022 -- -- 5,022
Income taxes payable....................... -- -- -- --
Other current liabilities.................. 2,746 -- -- 2,746
---------- -------- ------- ----------
Total current liabilities................ 480,413 -- -- 480,413
REVOLVING CREDIT FACILITY................... 489,943 (489,943) -- --
NEW CREDIT FACILITY--Revolver............... -- 324,518 -- 324,518
NEW CREDIT FACILITY--Delayed Draw Term A.... -- 130,000 -- 130,000
NEW CREDIT FACILITY--Term B................. -- 170,000 -- 170,000
TERM CREDIT FACILITY........................ 124,375 (124,375) -- --
SENIOR SUBORDINATED NOTES, net of
unamortized discount........................ 195,680 -- -- 195,680
JUNIOR SUBORDINATED NOTES................... 4,150 -- -- 4,150
CONVERTIBLE JUNIOR SUBORDINATED
DEBENTURES.................................. -- -- -- --
DEFERRED TAX LIABILITY...................... 3,729 -- -- 3,729
OTHER LONG-TERM LIABILITIES................. 5,547 -- -- 5,547
MANDATORILY REDEEMABLE,
CONVERTIBLE PREFERRED STOCK................. 249,690 -- -- 249,690
SHAREHOLDERS' EQUITY Common stock........... 60 -- -- 60
Additional paid-in capital................. 585,051 -- -- 585,051
Retained earnings.......................... 79,876 -- (5,281) 74,595
Accumulated other comprehensive loss....... (565) -- -- (565)
---------- -------- ------- ----------
Total shareholders' equity............... 664,422 -- (5,281) 659,141
---------- -------- ------- ----------
Total liabilities and
shareholders' equity..................... $2,217,949 $ 10,200 $(5,281) $2,222,868
========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
6
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Combined
Building Pro Forma Company Pro Forma Pro Forma
GroupMAC One Merger Prior to Refinancing Combined
Pro Forma Pro Forma Adjustments Refinancing Adjustments Company
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $1,441,473 $1,604,336 $ -- $3,045,809 $ -- $3,045,809
COST OF SERVICES........ 1,126,288 1,276,135 -- 2,402,423 -- 2,402,423
---------- ---------- -------- ---------- ------- ----------
Gross profit........... 315,185 328,201 -- 643,386 -- 643,386
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 190,990 182,983 -- 373,973 -- 373,973
AMORTIZATION OF
GOODWILL............... 13,346 17,679 552 (a) 31,577 -- 31,577
---------- ---------- -------- ---------- ------- ----------
Income from
operations.......... 110,849 127,539 (552) 237,836 -- 237,836
OTHER INCOME (EXPENSE):
Interest expense....... (31,633) (51,062) 10,770 (b) (71,925) (1,934)(g) (73,859)
Interest income........ -- -- -- -- -- --
Other.................. 1,415 3,777 -- 5,192 -- 5,192
---------- ---------- -------- ---------- ------- ----------
Income before income
tax provision....... 80,631 80,254 10,218 171,103 (1,934) 169,169
INCOME TAX PROVISION.... 35,213 38,771 4,233 (c) 78,217 (760)(h) 77,457
---------- ---------- -------- ---------- ------- ----------
NET INCOME.............. $ 45,418 $ 41,483 $ 5,985 $ 92,886 $(1,174) $ 91,712
Preferred dividends..... -- -- (18,356)(d) (18,356) -- (18,356)
Amortization of deferred
issue costs on
mandatorily redeemable,
convertible preferred
stock.................. -- -- (292)(e) (292) -- (292)
---------- ---------- -------- ---------- ------- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS.... $ 45,418 $ 41,483 $(12,663) $ 74,238 $(1,174) $ 73,064
========== ========== ======== ========== ======= ==========
NET INCOME PER SHARE--
BASIC.................. $ 1.18 $ 1.57 $ 1.23 (f) $ 1.21 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 38,412 26,357 60,247 (f) 60,247 (i)
========== ========== ========== ==========
NET INCOME PER SHARE--
DILUTED................ $ 1.17 $ 1.47 $ 1.17 (f) $ 1.15 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 38,968 31,538 79,632 (f) 79,632 (i)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
7
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Combined
Building Pro Forma Company Pro Forma Pro Forma
GroupMAC One Merger Prior to Refinancing Combined
Pro Forma Pro Forma Adjustments Refinancing Adjustments Company
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $1,214,543 $1,363,487 $ -- $2,578,030 $ -- $2,578,030
COST OF SERVICES........ 966,173 1,085,207 -- 2,051,380 -- 2,051,380
---------- ---------- ------- ---------- ------ ----------
Gross profit........... 248,370 278,280 -- 526,650 -- 526,650
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 152,942 157,331 -- 310,273 -- 310,273
RESTRUCTURING AND
RECAPITALIZATION
CHARGES................ -- 8,020 -- 8,020 -- 8,020
AMORTIZATION OF
GOODWILL............... 10,009 13,259 415 (a) 23,683 -- 23,683
---------- ---------- ------- ---------- ------ ----------
Income from
operations.......... 85,419 99,670 (415) 184,674 -- 184,674
OTHER INCOME (EXPENSE):
Interest expense....... (23,725) (38,297) 8,078 (b) (53,944) (1,450)(g) (55,394)
Interest income........ -- -- -- -- -- --
Other.................. 444 511 -- 955 -- 955
---------- ---------- ------- ---------- ------ ----------
Income before income
tax provision....... 62,138 61,884 7,663 131,685 (1,450) 130,235
INCOME TAX PROVISION.... 27,058 28,744 3,119 (c) 58,921 (560)(h) 58,361
---------- ---------- ------- ---------- ------ ----------
NET INCOME.............. $ 35,080 $ 33,140 $ 4,544 $ 72,764 $ (890) $ 71,874
Preferred dividends..... -- -- (13,767)(d) (13,767) -- (13,767)
Amortization of deferred
issue costs on
mandatorily redeemable,
convertible preferred
stock.................. -- -- (219)(e) (219) -- (219)
---------- ---------- ------- ---------- ------ ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS.... $ 35,080 $ 33,140 $(9,442) $ 58,778 $ (890) $ 57,888
========== ========== ======= ========== ====== ==========
NET INCOME PER SHARE--
BASIC.................. $ 0.91 $ 1.26 $ 0.98 (f) $ 0.96 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 38,412 26,357 60,247 (f) 60,247 (i)
========== ========== ========== ==========
NET INCOME PER SHARE--
DILUTED................ $ 0.91 $ 1.17 $ 0.92 (f) $ 0.91 (i)
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 38,737 31,538 79,401 (f) 79,401 (i)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
8
<PAGE>
COMBINED COMPANY
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 to be issued to Apollo in exchange
for $150,000 in cash, net of estimated issuance costs of approximately
$3,500.
b) Records the shares of preferred stock to be issued to Apollo in exchange
for the Building One convertible debt in the amount of $103,190
(including in-kind accrued interest of $3,190 through September 30,
1999). It is anticipated that the Building One convertible debt will have
a balance of approximately $105 million as of the closing of the
transactions. Also records the write-off of $4,485 of unamortized
deferred debt issue costs associated with the Building One convertible
debt and the associated tax benefit of $1,749 at a 39% effective tax rate
directly to the combined company's retained earnings. This net of tax
charge of $2,736 will be reflected in the historical statement of
operations of the combined company upon consummation of the transactions.
See Note 3.
c) Records the maximum number of shares of GroupMAC common stock to be
canceled in the cash election merger with the cash proceeds of the
preferred stock issuance discussed in Note 1a above as follows:
<TABLE>
<S> <C>
Estimated net proceeds from the issuance of shares of preferred
stock........................................................... $146,500
Borrowings under the GroupMAC credit agreement to replenish
issuance costs deducted from the proceeds....................... 3,500
--------
Maximum cash available to cancel shares in the cash election
merger.......................................................... $150,000
Cash election price per share.................................... $ 13.50
--------
Maximum number of shares available for cancellation in the cash
election merger................................................. 11,111
========
</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........................... $ 8,765 $ 6,435
Estimated deductible severance costs................... 1,850 6,000
Estimated deductible office closing costs and other
exit activities costs................................. -- 1,750
------- -------
Total estimated merger costs........................... $10,615 $14,185
======= =======
Tax benefit on deductible costs at 39%................. $ 722 $ 3,023
======= =======
</TABLE>
In connection therewith, the net of tax amount of $4,727 related to
Building One severance and reserves for the closing of duplicate office
space has been recorded directly to combined company retained earnings.
This net of tax charge of $4,727 will be reflected in the historical
statement of operations of combined company upon consummation of the
transactions. See Note 3.
e) Records the anticipated refinancing of GroupMAC's $130,000 Senior
Subordinated Notes at 101% due to change of control provisions in the
associated indenture. Also records the call premium of $1,300, the
elimination of $10,246 in related deferred debt issue costs and the
associated tax benefits of $4,503 at a 39% effective tax rate.
f) Represents the elimination of GroupMAC's unamortized deferred debt issue
costs of $3,323 related to its existing revolving credit facility and the
associated tax benefit of $1,296 at a 39% effective tax rate.
g) Records the elimination of GroupMAC's pro forma shareholders' equity as
of September 30, 1999 after adjusting for the maximum number of shares of
GroupMAC common stock to be cancelled in the cash election merger
discussed in Note 1c above.
9
<PAGE>
COMBINED COMPANY
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 September 30, 1999...................... 38,411 4,916
Maximum shares available for cancellation in the cash
election merger........................................ (11,111) --
-------- --------
GroupMAC number of shares outstanding after the cash
election merger........................................ 27,300 4,916
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.......................... 21,840 3,933
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..... $247,338 $ 27,531
======== ========
Total value of shares, options and warrants on the
reverse acquisition.................................... $274,869
Estimated Building One merger costs..................... 6,435
--------
Total purchase consideration............................ $281,304
========
</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............................... $240,862
Other intangible assets........................................... 10,000
Goodwill.......................................................... 30,442
--------
$281,304
========
</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 pro forma financial information includes management's best estimate of
restructuring costs that could result from the merger. In addition, the
total consideration has been allocated to the assets and liabilities of
GroupMAC based on management's best estimates of fair value. The other
intangible assets primarily relate to workforce and customer lists. The
purchase price allocation is subject to change in the fair value of
GroupMAC's net assets on the effective date of the merger. These items
will not be known until 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 million of committed
financing from Bank of America, N.A. and Chase Bank of Texas, N.A. (as co-
lead arrangers and co-book managers). Also records estimated deferred debt
issue costs of $10,200 related to this refinancing.
j) Represents the elimination of Building One's unamortized deferred debt
issue costs of $8,658 related to its existing revolving and term credit
facility and the associated tax benefit of $3,377 at a 39% effective tax
rate directly to the combined company's retained earnings. This net of tax
charge of $5,281 will be reflected in the historical statement of
operations of the combined company upon consummation of the transactions.
See Note 3.
10
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The following summarizes the unaudited pro forma statements of operations
adjustments (in thousands except per share amounts):
a) 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.
b) 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 at 101% due
to change of control provisions in the associated indenture discussed in
Note 1e. A summary of the pro forma debt outstanding of the separate
companies and the combined company 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 5.
c) Reflects the incremental provision for federal and state income taxes
related to the reduction in interest expense discussed in Note 2b.
d) Represents the annual and nine-month dividend yield on the $253,190 face
amount of preferred stock issued discussed in Notes 1a and 1b above at a
7.25% coupon rate.
e) Represents the annual and nine-month amortization of the estimated
preferred stock issuance costs of $3,500 discussed in Note 1a over the
twelve-year term of the preferred stock.
11
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(Continued)
f) The calculation of the combined weighted average shares outstanding and
basic and diluted earnings per share before refinancing adjustments is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Weighted Average Shares Outstanding:
Basic:
Weighted average shares outstanding--GroupMAC.. 38,412 38,412
Weighted average shares outstanding--Building
One........................................... 26,357 26,357
------- --------
Weighted average shares outstanding--Combined.. 64,769 64,769
Maximum shares available for cancellation in
the cash election merger discussed in Note
1c............................................ (11,111) (11,111)
Incremental shares from conversion of Building
One shares to GroupMAC shares at a 1.25 to
1.00 ratio.................................... 6,589 6,589
------- --------
Weighted average shares outstanding--Basic..... 60,247 60,247
======= ========
Diluted:
Weighted average shares outstanding--GroupMAC.. 38,968 38,737
Weighted average shares outstanding--Building
One........................................... 31,538 31,538
------- --------
Weighted average shares outstanding--Combined.. 70,506 70,275
Maximum shares available for cancellation in
the cash election merger discussed in Note
1c............................................ (11,111) (11,111)
Incremental shares from conversion of Building
One shares to GroupMAC shares at a 1.25 to
1.00 ratio.................................... 6,589 6,589
Elimination of dilutive effect of $103,190 face
amount of Building One convertible debt
exchanged for preferred stock discussed
in Note 1b.................................... (4,586) (4,586)
Dilutive effect of $253,190 face amount of
preferred stock at a $14.00 conversion price
issued discussed in Note 1a and 1b............ 18,085 18,085
Incremental shares from conversion of Building
One contingently issuable shares, options and
warrants to GroupMAC shares at a 1.25 to 1.00
ratio......................................... 149 149
------- --------
Weighted average shares outstanding--Diluted... 79,632 79,401
======= ========
Earnings Per Share:
Basic Before Refinancing:
Net income available to common shareholders.... $74,238 $ 58,778
Basic weighted average shares outstanding...... 60,247 60,247
------- --------
Basic earnings per share....................... $ 1.23 $ 0.98
======= ========
Diluted Before Refinancing:
Net income available to common shareholders.... $74,238 $ 58,778
Plus preferred stock dividends................. 18,356 13,767
Plus amortization of deferred preferred stock
issuance costs................................ 292 219
------- --------
Net income on an if-converted basis............ $92,886 $ 72,764
Diluted weighted average shares outstanding.... 79,632 79,401
------- --------
Diluted earnings per share..................... $ 1.17 $ 0.92
======= ========
</TABLE>
12
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(Continued)
g) 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 $10,200 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 5. The impact of a 1/8% change on the
effective interest rate applicable to the debt of the combined company
which is subject to changes in interest rates would be $781 for the year
ended December 31, 1998 and $585 for the nine months ended September 30,
1999.
h) Represents the reduction of the provision for federal and state income
taxes related to the refinancing activities reflected discussed in Note
2g.
i) The calculation of the combined basic and diluted earnings per share after
refinancing adjustments is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Earnings Per Share:
Basic After Refinancing:
Net income available to common shareholders... $73,064 $57,888
Basic weighted average shares from Note 2f.... 60,247 60,247
------- -------
Basic earnings per share...................... $ 1.21 $ 0.96
======= =======
Diluted After Refinancing:
Net income available to common shareholders... $73,064 $57,888
Plus preferred stock dividends................ 18,356 13,767
Plus amortization of deferred preferred stock
issuance costs............................... 292 219
------- -------
Net income on an if-converted basis........... 91,712 71,874
Diluted weighted average shares from Note 2f.. 79,632 79,401
------- -------
Diluted earnings per share.................... $ 1.15 $ 0.91
======= =======
</TABLE>
3. SUMMARY OF NON RECURRING COSTS ASSOCIATED WITH THE TRANSACTIONS (in
thousands)
The accompanying unaudited pro forma statements of operations do not reflect
the following costs and expenses that the combined company will record at the
time of closing 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.
13
<PAGE>
COMBINED COMPANY
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 the combined company's
retained earnings. However, these costs and expenses will be reflected in the
historical statements of operations of the combined company upon consummation
of the transactions and will be classified as follows:
<TABLE>
<S> <C>
Selling, General and Administrative Expenses:
Severance costs................................................... $6,000
Office closing costs and other exit activities costs.............. 1,750
------
Total charge.................................................... 7,750
Tax benefit at 39%................................................ 3,023
------
Net of tax impact............................................... $4,727
======
Extraordinary Items:
Deferred debt issue costs on Building One convertible debt........ $4,485
Deferred debt issue costs on Building One existing revolving and
term credit facility............................................. 8,658
------
13,143
Tax benefit at 39%................................................ 5,126
------
Net of tax impact................................................. $8,017
======
</TABLE>
4. RANGE OF POTENTIAL RESULTS UNDER CASH ELECTION RIGHT (amounts in thousands,
except per share data)
The accompanying unaudited pro forma financial statements have been prepared
under the assumption that the GroupMAC shareholders will elect to receive the
maximum amount of cash in exchange for their shares. Under this scenario, 100%
of the $150 million of gross proceeds from the preferred stock issuance will be
used for the cash election right, resulting in the cancellation of 11,111
shares of GroupMAC stock as discussed in Note 1c above. However, it is possible
that less than 100% of these proceeds will be required to fund the cash
election right, in which case the remaining funds could be used to either
reduce outstanding borrowings under GroupMAC's credit agreement or repurchase
shares of GroupMAC common stock on the open market. Any repurchase of shares of
GroupMAC common stock on the open market is not expected to have a material
difference on the accompanying pro forma financial information. The following
summarizes the financial impact resulting from only 50%, or $75 million, of the
gross proceeds of the preferred stock issuance required to be used for the cash
election right, with the remaining funds used to reduce outstanding borrowings
under GroupMAC's credit agreement (in each case, after consideration of the
refinancing transactions discussed in Note 1i and 1j):
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Balance Sheet:
Proceeds used to cancel shares in cash election right.......... $ 75,000
Cash election price per share.................................. $ 13.50
----------
Shares to be canceled in cash election right................... 5,556
==========
Goodwill....................................................... $1,207,023
Total assets .................................................. 2,198,208
Long-term debt................................................. 749,348
Total shareholders' equity..................................... 709,481
</TABLE>
14
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
4. RANGE OF POTENTIAL RESULTS UNDER CASH ELECTION RIGHT (amounts in thousands,
except per share data)--(Continued)
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Statements of Operations:
Operating income................................ $238,461 $185,143
Interest expense................................ (68,609) (51,457)
Net income...................................... 95,523 74,760
Net income available to common shareholders..... 76,875 60,774
Net income per share--basic..................... $ 1.17 $ 0.92
Weighted average shares--basic.................. 65,803 65,803
Net income per share--diluted................... $ 1.12 $ 0.88
Weighted average shares--diluted................ 85,188 84,957
</TABLE>
15
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE--PRO FORMA COMBINED COMPANY PRIOR TO REFINANCING
(in thousands)
<TABLE>
<CAPTION>
Merger Adjustments
-------------------------------------------- Pro Forma
GroupMAC Preferred Put Combined
Pro Building One Stock Conv Pref GroupMAC Company
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
September 30,
1999 Existing
Credit
Agreements--
GroupMAC.......... $218,844 $ -- $3,500 $ -- $10,615 $ 131,300 $364,259 6.88%(i)
Pro Forma
September 30,
1999 Existing
Revolving Credit
Facility--
Building One...... -- 111,499 -- -- 14,185 -- 125,684 7.73%(ii)
Pro Forma
September 30,
1999 Existing
Term Credit
Facility--
Building One...... -- 124,375 -- -- -- -- 124,375 7.73%(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......... $218,844 $235,874 $3,500 $ -- $24,800 $ 131,300 $614,318 8.04%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Senior
Subordinated Debt:
Pro Forma
September 30,
1999 senior
subordinated
notes--GroupMAC... $130,000 $ -- $ -- $ -- $ -- $ (130,000) $ --
Pro Forma
September 30,
1999 senior
subordinated
notes--Building
One............... -- 200,000 -- -- -- -- 200,000 10.50%(vi)
Unamortized
balance of
discount on
Building One
senior
subordinated
notes............. -- (4,320) -- -- -- -- (4,320)
Amortization of
deferred debt
issue costs and
discount.......... -- -- -- -- -- -- --
-------- -------- ------ ---------- ------- ---------- --------
Total long-term
senior
subordinated
debt/interest
expense......... $130,000 $195,680 $ -- $ -- $ -- $ (130,000) $195,680 11.38%
======== ======== ====== ========== ======= ========== ======== ======
Long-Term Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. $ 1,650 $ -- $ -- $ -- $ -- $ -- $ 1,650 6.00%(viii)
Pro Forma
September 30,
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
September 30,
1999 long-term
convertible
junior
subordinated
debentures........ $ -- $103,190 $ -- $ (103,190) $ -- $ -- $ --
-------- -------- ------ ---------- ------- ---------- --------
$ -- $103,190 $ -- $ (103,190) $ -- $ -- $ --
======== ======== ====== ========== ======= ========== ========
Total debt/interest
expense............ $352,994 $534,744 $3,500 $ (103,190) $24,800 $ 1,300 $814,148 8.83%
======== ======== ====== ========== ======= ========== ======== ======
<CAPTION>
Pro Forma Combined Company
Prior to Refinancing
-------------------------------
Interest Expense
-------------------------------
Nine
Twelve Months Ended
Months Ended September 30,
December 31, 1998 1999
----------------- -------------
<S> <C> <C>
Long-Term Senior
Debt:
Pro Forma
September 30,
1999 Existing
Credit
Agreements--
GroupMAC.......... $25,059 $18,794
Pro Forma
September 30,
1999 Existing
Revolving Credit
Facility--
Building One...... 9,717 7,288
Pro Forma
September 30,
1999 Existing
Term Credit
Facility--
Building One...... 9,615 7,211
Commitment fees
under Credit
Facility
Agreements........ 1,330(iii) 998
Letter of Credit
fees under Credit
Facility
Agreements........ 48(iv) 36
Amortization of
deferred debt
issue costs under
Credit Facility
Agreements........ 3,593(v) 2,695
----------------- -------------
Total long-term
senior
debt/interest
expense......... $49,362 $37,022
================= =============
Long-Term Senior
Subordinated Debt:
Pro Forma
September 30,
1999 senior
subordinated
notes--GroupMAC... $ -- $ --
Pro Forma
September 30,
1999 senior
subordinated
notes--Building
One............... 21,000 15,750
Unamortized
balance of
discount on
Building One
senior
subordinated
notes.............
Amortization of
deferred debt
issue costs and
discount.......... 1,276(vii) 957
----------------- -------------
Total long-term
senior
subordinated
debt/interest
expense......... $22,276 $16,707
================= =============
Long-Term Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. $ 99 $ 74
Pro Forma
September 30,
1999 long-term
junior
subordinated
note.............. 188 141
----------------- -------------
$ 287 $ 215
================= =============
Long-Term
Convertible Junior
Subordinated Debt:
Pro Forma
September 30,
1999 long-term
convertible
junior
subordinated
debentures........ $ -- $ --
----------------- -------------
$ -- $ --
================= =============
Total debt/interest
expense............ $71,925 $53,944
================= =============
</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.
16
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE--PRO FORMA COMBINED COMPANY (in thousands)
<TABLE>
<CAPTION>
Refinancing
Adjustments Pro Forma Combined Company
------------------- --------------------------------
Interest Expense
--------------------------------
Pro Forma
Combined Refinance New Nine
Company Existing Facility Pro Forma Twelve Months Months Ended
Prior to Revolver Fees & Combined Interest Ended September 30,
Refinancing Balances Costs Company Rate December 31, 1998 1999
----------- --------- -------- --------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term Senior Debt:
Pro Forma September
30, 1999 Existing
Credit Agreements--
GroupMAC............... $364,259 $(364,259) $ -- $ -- $ -- $ --
Pro Forma September
30, 1999 Existing
Revolving Credit
Facility--Building
One.................... 125,684 (125,684) -- -- -- --
Pro Forma September
30, 1999 Existing Term
Credit Facility--
Building One........... 124,375 (124,375) -- -- -- --
Refinance with New
Facility--Revolver..... -- 314,318 10,200 324,518 7.50%(i) 24,339 18,254
Refinance with New
Facility--Delayed Draw
Term Loan A............ -- 130,000 -- 130,000 8.00%(ii) 10,400 7,800
Refinance with New
Facility--Term Loan
B...................... -- 170,000 -- 170,000 8.00%(iii) 13,600 10,200
Commitment fees under
Credit Facility
Agreements............. -- -- -- -- 877(iv) 658
Letter of Credit fees
under Credit Facility
Agreements............. -- -- -- -- 64(v) 48
Amortization of
deferred debt issue
costs under Credit
Facility Agreements.... -- -- -- -- 2,016(vi) 1,512
-------- --------- ------- -------- ------- -------
Total long-term
senior debt/interest
expense.............. $614,318 $ -- $10,200 $624,518 8.21% $51,296 $38,472
======== ========= ======= ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Pro Forma September
30, 1999 senior
subordinated notes--
Building One........... $200,000 $ -- $ -- $200,000 10.50%(vii) $21,000 $15,750
Unamortized balance of
discount on Building
One senior
subordinated notes..... (4,320) -- -- (4,320)
Amortization of
deferred debt issue
costs and discount..... -- -- -- -- 1,276(viii) 957
-------- --------- ------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense.............. $195,680 $ -- $ -- $195,680 11.38% $22,276 $16,707
======== ========= ======= ======== ====== ======= =======
Long-Term Junior
Subordinated Debt:
Pro Forma September
30, 1999 long-term
junior subordinated
note................... $ 1,650 $ -- $ -- $ 1,650 6.00%(ix) $ 99 $ 74
Pro Forma September
30, 1999 long-term
junior subordinated
note................... 2,500 -- 2,500 7.50%(ix) 188 141
-------- --------- ------- -------- ------- -------
$ 4,150 $ -- $ -- $ 4,150 6.92% $ 287 $ 215
======== ========= ======= ======== ====== ======= =======
Total debt/interest
expense................. $814,148 $ -- $10,200 $824,348 8.96% $73,859 $55,394
======== ========= ======= ======== ====== ======= =======
</TABLE>
- ----
(i) Represents interest rate on the new revolving credit facility calculated
as base rate of 5.5% 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 5.5% plus applicable margin of 2.5%.
(iii) Represents interest rate on the new term loan B credit facility
calculated as base rate of 5.5% 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.
17
<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 September 30, 1999 and for
the nine months ended September 30, 1999, and for the year ended December 31,
1998 and give effect to (i) the pre-acquisition financial information of 39
companies acquired during 1998 (the "1998 Acquisition Companies") and (ii) the
pre-acquisition financial information of 13 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 September 30,
1999. The accompanying unaudited pro forma statements of operations of GroupMAC
combine the historical statements of operations of GroupMAC and the statements
of operations of the acquired entities as if such acquisitions had occurred on
January 1, 1998.
GroupMAC has analyzed the savings that it expects to realize from reductions
in salaries and certain benefits to the owners of the acquired companies. To
the extent the owners of the acquired entities have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been
reflected in the unaudited pro forma combined statements of operations.
The pro forma adjustments are based on available information and certain
assumptions that management deems appropriate and may be revised as additional
information becomes available. 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/A for the fiscal year ended December 31,
1998 and the unaudited consolidated condensed financial statements and notes
thereto included in GroupMAC's quarterly report on Form 10-Q for the quarter
ended September 30, 1999.
18
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
GroupMAC Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 6,496 $(6,496)(a) $ --
Accounts receivable, net of allowance.... 317,344 -- 317,344
Inventories.............................. 20,635 -- 20,635
Costs and estimated earnings in excess of
billings on uncompleted contracts....... 50,299 -- 50,299
Prepaid expenses and other current
assets.................................. 8,167 -- 8,167
Deferred tax asset....................... 9,750 -- 9,750
---------- ------- --------
Total current assets.................... 412,691 (6,496) 406,195
PROPERTY AND EQUIPMENT, net............... 55,913 -- 55,913
GOODWILL, net............................. 518,003 -- 518,003
DEFERRED DEBT ISSUE COSTS................. 13,568 -- 13,568
OTHER LONG-TERM ASSETS.................... 1,744 -- 1,744
---------- ------- --------
Total assets............................ $1,001,919 $(6,496) $995,423
========== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt............ $ 1,408 $(1,408)(b) $ --
Accounts payable......................... 92,510 -- 92,510
Accrued compensation..................... 42,981 -- 42,981
Accrued liabilities...................... 27,934 -- 27,934
Due to related parties................... 5,432 (5,432)(c) --
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 47,997 -- 47,997
Deferred service revenue................. 5,022 -- 5,022
Income taxes payable..................... 8,844 -- 8,844
Other current liabilities................ 2,746 -- 2,746
---------- ------- --------
Total current liabilities............... 234,874 (6,840) 228,034
REVOLVING CREDIT FACILITY................. 218,500 344 (a-c) 218,844
SENIOR SUBORDINATED NOTES................. 130,000 -- 130,000
JUNIOR SUBORDINATED NOTES................. 4,150 -- 4,150
DEFERRED TAX LIABILITY.................... 1,486 -- 1,486
OTHER LONG-TERM LIABILITIES............... 3,084 -- 3,084
SHAREHOLDERS' EQUITY
Common stock............................. 38 -- 38
Additional paid-in capital............... 382,949 -- 382,949
Retained earnings........................ 26,838 -- 26,838
---------- ------- --------
Total shareholders' equity.............. 409,825 -- 409,825
---------- ------- --------
Total liabilities and shareholders'
equity................................. $1,001,919 $(6,496) $995,423
========== ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
19
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
Acquisition Acquisition Pro Forma
GroupMAC Companies Companies Adjustments Pro Forma
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES................ $761,541 $314,878 $365,054 $ -- $1,441,473
COST OF SERVICES........ 585,396 248,518 292,374 -- 1,126,288
-------- -------- -------- -------- ----------
Gross profit.......... 176,145 66,360 72,680 -- 315,185
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 118,119 43,934 40,155 (11,218)(a) 190,990
AMORTIZATION OF
GOODWILL............... 5,960 -- -- 7,386(b) 13,346
-------- -------- -------- -------- ----------
Income from
operations........... 52,066 22,426 32,525 3,832 110,849
OTHER INCOME (EXPENSE):
Interest expense...... (6,595) (749) (1,583) (22,706)(c) (31,633)
Interest income....... 407 271 299 (977)(d) --
Other................. 377 496 542 -- 1,415
-------- -------- -------- -------- ----------
Income before income
tax provision........ 46,255 22,444 31,783 (19,851) 80,631
INCOME TAX PROVISION.... 20,326 1,124 5,099 8,664(e) 35,213
-------- -------- -------- -------- ----------
NET INCOME.............. $ 25,929 $ 21,320 $ 26,684 $(28,515) $ 45,418
======== ======== ======== ======== ==========
NET INCOME PER SHARE--
BASIC.................. $ 0.94 $ 1.18
======== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 27,544 38,412(f)
======== ==========
NET INCOME PER SHARE--
DILUTED................ $ 0.93 $ 1.17
======== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 27,948 38,968(f)
======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
20
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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................. $1,121,471 $93,072 $ -- $1,214,543
COST OF SERVICES......... 890,287 75,886 -- 966,173
---------- ------- ------- ----------
Gross profit........... 231,184 17,186 -- 248,370
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 142,829 10,823 (710)(a) 152,942
AMORTIZATION OF
GOODWILL................ 9,234 -- 775 (b) 10,009
---------- ------- ------- ----------
Income from
operations............ 79,121 6,363 (65) 85,419
OTHER INCOME (EXPENSE):
Interest expense....... (20,777) (152) (2,796)(c) (23,725)
Interest income........ 314 106 (420)(d) --
Other.................. 529 (85) -- 444
---------- ------- ------- ----------
Income before income
tax provision........ 59,187 6,232 (3,281) 62,138
INCOME TAX PROVISION..... 25,767 615 676 (e) 27,058
---------- ------- ------- ----------
NET INCOME............... $ 33,420 $ 5,617 $(3,957) $ 35,080
========== ======= ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 0.91 $ 0.91
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 36,646 38,412 (f)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 0.90 $ 0.91
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED................. 36,980 38,737 (f)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
21
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1998 Acquisition Companies from
January 1, 1998 to the dates of the acquisitions were combined with the actual
results of operations of the Company and the 1999 Acquisition Companies for the
twelve months ended December 31, 1998 to determine the pro forma results of
operations for the twelve months ended December 31, 1998.
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 the Company for the nine months ended September 30,
1999 to determine the pro forma results of operations for the nine months ended
September 30, 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 September 30, 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 1999
through 2001, 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 $6.0 million in cash and shares of common stock as of
September 30, 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 September 30, 1999 to reduce
borrowings in connection with acquisitions under the Credit Agreement.
b) Records the refinancing of debt assumed and outstanding at September 30,
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 September 30,
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.
22
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
c) Represents the adjustment necessary to reflect interest expense related
to borrowings under the Credit Agreement to fund the cash portion of the
purchase price and the assumption of debt related to the 1998 and 1999
Acquisition Companies, 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 expense (including amounts recognized in the historical
financial statements) assuming the acquisitions occurred on January 1,
1998, 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 1998 and 1999 Acquisition Companies.
e) Reflects the incremental provision for federal and state income taxes
relating to the compensation differential and other pro forma
adjustments discussed in this Note 4 as well as income taxes on
S Corporation earnings.
f) Weighted average shares outstanding include the following (in
thousands):
<TABLE>
<CAPTION>
Nine Months
Twelve Months Ended
Ended September 30,
December 31, -------------
1998 1999
------------- -------------
<S> <C> <C>
Shares issued and outstanding at September 30,
1999.......................................... 38,344 38,344
Shares to be issued for companies acquired
prior to September 30, 1999................... 68 68
------ ------
Weighted average shares outstanding--basic..... 38,412 38,412
Incremental effect of options and warrants on
shares outstanding............................ 556 325
------ ------
Weighted average shares outstanding--diluted... 38,968 38,737
====== ======
</TABLE>
23
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. PRO FORMA INTEREST EXPENSE (in thousands)
<TABLE>
<CAPTION>
Interest Expense
------------------------------
September 30, Twelve Months Nine Months
1999 Ended Ended
September 30, Pro Forma Pro Forma Interest December 31, September 30,
1999 Balances Adjustments Balances Rate 1998 1999
------------- ----------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Senior Debt:
Historical September
30, 1999 short-term
debt.................. $ 1,408 $(1,408) $ -- $ -- $ --
-------- ------- -------- ------- -------
Total short-term
senior debt/interest
expense............. $ 1,408 $(1,408) $ --(i) $ -- $ --
======== ======= ======== ======= =======
Long-Term Senior Debt:
Historical September
30, 1999 Credit
Agreement............. $218,500 $(1,064) $217,436 6.88%(iii) $14,959 $11,219
Refinance short-term
debt.................. -- 1,408 1,408 6.88%(iii) 97 73
Letter of Credit Fees
under the Credit
Agreement............. -- -- -- 48 36
Commitment Fees under
the Credit
Agreement............. -- -- -- 762(vi) 572
Amortization of
related deferred debt
issue costs........... -- -- -- 1,704(vii) 1,278
-------- ------- -------- ------- -------
Total long-term
senior debt/interest
expense............. $218,500 $ 344 $218,844(i),(ii) 8.03% $17,570 $13,178
======== ======= ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Historical September
30, 1999 Senior
Subordinated Notes.... $130,000 $ -- $130,000 9.75%(iv) $12,675 $ 9,506
Amortization of
related deferred debt
issue costs........... -- -- -- 1,101(viii) 826
-------- ------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense............. $130,000 $ -- $130,000 10.60% $13,776 $10,332
======== ======= ======== ====== ======= =======
Long-Term Junior
Subordinated Debt:
Historical September
30, 1999 long-term
debt.................. $ 1,650 $ -- $ 1,650 6.00%(v) $ 99 $ 74
Historical September
30, 1999 long-term
debt.................. 2,500 -- 2,500 7.50%(v) 188 141
-------- ------- -------- ------- -------
Total long-term
junior subordinated
debt/interest
expense............. $ 4,150 $ -- $ 4,150 6.92% $ 287 $ 215
======== ======= ======== ====== ======= =======
Total debt/interest
expense................ $354,058 $(1,064) $352,994 8.96% $31,633 $23,725
======== ======= ======== ====== ======= =======
</TABLE>
- --------
(i) Represents total senior indebtedness.
(ii) Represents total guarantor senior indebtedness.
(iii) Represents the current 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.
24
<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 September 30, 1999 and
for the nine months ended September 30, 1999, and for the year ended December
31, 1998 and give effect to (i) the tender offer that occurred in February
1999, including the financing of the tender offer, (ii) the pre-acquisition
financial information of 26 companies acquired during 1998 which were accounted
for under the purchase method of accounting (the "1998 Acquisition Companies"),
and (iii) the pre-acquisition financial information of 17 companies acquired
during 1999 which were accounted for under the purchase method of accounting
(the "1999 Acquisition Companies").
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 Building One as adjusted for the refinancing transactions
highlighted in Note 3 below as if such transactions occurred on September 30,
1999. The accompanying unaudited pro forma statements of operations give effect
to the tender offer that occurred in February 1999, including the refinancing
of the tender offer, and combines the historical statements of operations of
Building One and the statements of operations of the acquired entities as if
all such transactions had occurred on January 1, 1998.
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 statements of
operations.
The pro forma adjustments are based on available information and certain
assumptions that management deems appropriate and may be revised as additional
information becomes available. 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 on Form 10-K for the fiscal year ended December
31, 1998 and the unaudited consolidated condensed financial statements and
notes thereto included in Building One's quarterly report on Form 10-Q for the
quarter ended September 30, 1999.
25
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Building Pro Forma
ASSETS One Adjustments Pro Forma
------ ---------- ----------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 14,522 $(14,522)(a) $ --
Accounts receivable, net of
allowance........................... 362,147 -- 362,147
Inventories.......................... 8,213 -- 8,213
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... 49,875 -- 49,875
Prepaid expenses and other current
assets.............................. 11,590 -- 11,590
Deferred tax asset................... 4,424 -- 4,424
Refundable income taxes.............. 3,405 -- 3,405
---------- -------- ----------
Total current assets............... 454,176 (14,522) 439,654
---------- -------- ----------
PROPERTY AND EQUIPMENT, net............ 57,358 -- 57,358
GOODWILL, net.......................... 673,238 -- 673,238
DEFERRED DEBT ISSUE COSTS, net......... 21,055 -- 21,055
OTHER LONG-TERM ASSETS................. 6,384 -- 6,384
---------- -------- ----------
Total assets....................... $1,212,211 $(14,522) $1,197,689
========== ======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt........ $ 3,106 $ (3,106)(b) $ --
Accounts payable..................... 92,036 -- 92,036
Accrued compensation................. 41,669 -- 41,669
Accrued liabilities.................. 46,409 -- 46,409
Due to related parties............... 4,083 (4,083)(c) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 81,109 -- 81,109
Other current liabilities............ -- -- --
---------- -------- ----------
Total current liabilities.......... 268,412 (7,189) 261,223
REVOLVING CREDIT FACILITY.............. 116,500 (5,001)(a-c) 111,499
TERM CREDIT FACILITY................... 124,375 -- 124,375
SENIOR SUBORDINATED NOTES, net of
unamortized discount.................. 195,680 -- 195,680
CONVERTIBLE JUNIOR SUBORDINATED
DEBENTURES............................ 103,190 -- 103,190
LONG TERM DEBT......................... 2,332 (2,332)(b) --
DEFERRED TAX LIABILITY................. 2,243 -- 2,243
OTHER LONG-TERM LIABILITIES............ 2,463 -- 2,463
STOCKHOLDERS' EQUITY
Common stock......................... 26 -- 26
Additional paid-in capital........... 310,216 -- 310,216
Retained earnings.................... 87,339 -- 87,339
Accumulated other comprehensive
loss................................ (565) -- (565)
---------- -------- ----------
Total stockholders' equity......... 397,016 -- 397,016
---------- -------- ----------
Total liabilities and stockholders'
equity............................ $1,212,211 $(14,522) $1,197,689
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
26
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(in thousands, except per share data )
<TABLE>
<CAPTION>
1998 1999
Building Acquisition Acquisition Pro Forma
One Companies Companies Adjustments Pro Forma
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES................ $809,601 $502,663 $292,072 $ -- $1,604,336
COST OF SERVICES........ 636,225 411,042 228,868 -- 1,276,135
-------- -------- -------- -------- ----------
Gross profit.......... 173,376 91,621 63,204 -- 328,201
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 100,539 71,137 50,853 (39,546)(a) 182,983
AMORTIZATION OF GOODWILL
....................... 7,653 234 -- 9,792 (b) 17,679
-------- -------- -------- -------- ----------
Income from
operations........... 65,184 20,250 12,351 29,754 127,539
OTHER INCOME (EXPENSE):
Interest expense...... (1,054) (1,835) (942) (47,231)(c) (51,062)
Interest income....... 19,373 1,852 480 (21,705)(d) --
Other................. 80 1,455 292 1,950 (e) 3,777
-------- -------- -------- -------- ----------
Income before income
tax provision...... 83,583 21,722 12,181 (37,232) 80,254
INCOME TAX PROVISION.... 36,120 6,550 1,547 (5,446)(f) 38,771
-------- -------- -------- -------- ----------
NET INCOME.............. $ 47,463 $ 15,172 $ 10,634 $(31,786) $ 41,483
======== ======== ======== ======== ==========
NET INCOME PER SHARE--
BASIC.................. $ 1.19 $ 1.57 (g)
======== ==========
WEIGHTED AVERAGE
SHARES--BASIC.......... 39,908 26,357 (g)
======== ==========
NET INCOME PER SHARE--
DILUTED................ $ 1.16 $ 1.47 (g)
======== ==========
WEIGHTED AVERAGE
SHARES--DILUTED........ 40,928 31,538 (g)
======== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
27
<PAGE>
BUILDING ONE SERVICES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 ................ $1,265,521 $97,966 $ -- $1,363,487
COST OF SERVICES ........ 1,011,305 73,902 -- 1,085,207
---------- ------- ------- ----------
Gross profit .......... 254,216 24,064 -- 278,280
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 145,863 22,147 (10,679)(a) 157,331
RESTRUCTURING &
RECAPITALIZATION
CHARGES................. 8,020 -- -- 8,020
AMORTIZATION OF
GOODWILL................ 11,511 -- 1,748 (b) 13,259
---------- ------- ------- ----------
Income from
operations............ 88,822 1,917 8,931 99,670
OTHER INCOME (EXPENSE):
Interest expense....... (21,279) (183) (16,835)(c) (38,297)
Interest income........ 4,674 213 (4,887)(d) --
Other.................. 128 252 131 (e) 511
---------- ------- ------- ----------
Income before income
tax provision....... 72,345 2,199 (12,660) 61,884
INCOME TAX PROVISION..... 32,261 1,378 (4,895)(f) 28,744
---------- ------- ------- ----------
NET INCOME .............. $ 40,084 $ 821 $(7,765) $ 33,140
========== ======= ======= ==========
NET INCOME PER SHARE--
BASIC................... $ 1.14 $ 1.26 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
BASIC................... 35,311 26,357 (g)
========== ==========
NET INCOME PER SHARE--
DILUTED................. $ 1.08 $ 1.17 (g)
========== ==========
WEIGHTED AVERAGE SHARES--
DILUTED.................. 38,900 31,538 (g)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
28
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
The respective results of operations for the 1998 Acquisition Companies from
January 1, 1998 to the dates of the acquisitions were combined with the actual
results of operations of the Company and the 1999 Acquisition Companies for the
twelve months ended December 31, 1998 and the nine months ended September 30,
1999 to determine the pro forma results of operations for the twelve months
ended December 31, 1998.
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 nine months ended September 30,
1999 to determine the pro forma results of operations for the nine months ended
September 30, 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 September 30, 1999 includes the acquisitions
completed by Building One to date. With the exception of the 3 companies
acquired during 1998 which were accounted for under the pooling-of-interests
method of accounting (the "1998 Pooled Companies"), all 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 1999
through 2001, contingent upon the occurrence of future events. Building One
will record such contingent consideration as additional purchase price when
earned. Building One currently estimates the unearned contingent consideration
under these agreements to approximate $85.0 million in cash and shares of
common stock as of September 30, 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 September 30, 1999 to
reduce borrowings in connection with acquisitions under the revolving
credit facility.
b) Records the refinancing of debt assumed and outstanding at September
30, 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 at September
30, 1999 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 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.
Also reflects the reduction in one-time non-recurring acquisition costs
related to the 1998 Pooled Companies. These costs consist of legal,
accounting and broker fees.
b) Reflects the amortization of goodwill to be recorded as a result of
the acquisitions over a 40-year estimated life.
29
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
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, 1998, 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 1998 and 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.
30
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
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 Nine Months
Ended Ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Weighted Average Shares Outstanding:
Weighted average shares outstanding--basic.. 26,357 26,357
Incremental effect of conversion of
Convertible Junior Subordinated
Debentures................................. 4,586 4,586
Incremental effect of contingently issuable
shares..................................... 443 443
Incremental effect of options and warrants
on shares outstanding...................... 152 152
-------- --------
Weighted average shares outstanding--
diluted.................................... 31,538 31,538
======== ========
Net of Tax Interest Effect for Convertible
Junior Subordinated Debentures:
Principal of Convertible Junior Subordinated
Debentures................................. $103,190 $103,190
Annual interest at 7.5%..................... 7,739 7,739
Percentage of year.......................... 100% 75%
-------- --------
Interest at coupon rate..................... 7,739 5,804
Amortization of deferred issue costs........ 356 267
-------- --------
Interest on Convertible Junior Subordinated
Debentures................................. 8,095 6,071
One minus tax rate.......................... 61% 61%
-------- --------
Net of tax interest cost.................... $ 4,938 $ 3,703
======== ========
Basic Earnings Per Share:
Net income.................................. $ 41,483 $ 33,140
Basic weighted average shares outstanding... 26,357 26,357
-------- --------
Basic earnings per share.................... $ 1.57 $ 1.26
======== ========
Diluted Earnings Per Share:
Net Income.................................. $ 41,483 $ 33,140
Interest expense on Convertible Junior
Subordinated Debentures, net of tax........ 4,938 3,703
-------- --------
Net income on an if-converted basis......... $ 46,421 $ 36,843
Diluted weighted average shares
outstanding................................ 31,538 31,538
-------- --------
Diluted earnings per share.................. $ 1.47 $ 1.17
======== ========
</TABLE>
31
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
5. UNAUDITED PRO FORMA INTEREST EXPENSE (in thousands)
<TABLE>
<CAPTION>
Interest Expense
-------------------------------
September 30, Twelve Months Nine Months
1999 Pro Ended Ended
September 30, Pro Forma Forma Interest December 31, September 30,
1999 Balances Adjustments Balances Rate 1998 1999
------------- ----------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Short -Term Senior Debt:
Historical September
30, 1999 short-term
debt.................. $ 3,106 $ (3,106) $ -- $ -- $ --
-------- -------- -------- ------- -------
Total short-term
senior debt/interest
expense............. $ 3,106 $ (3,106) $ -- $ -- $ --
======== ======== ======== ======= =======
Long-Term Senior Debt:
Historical September
30, 1999 Revolving
Credit Facility....... $116,500 $ (8,107) $108,393 7.73%(i) $ 8,379 $ 6,284
Historical September
30, 1999 Term Credit
Facility.............. 124,375 -- 124,375 7.73%(i) 9,614 7,211
Historical September
30, 1999 other long-
term debt............. 2,332 (2,332) -- -- --
Refinance short-term
debt.................. -- 3,106 3,106 7.73%(i) 240 180
Commitment Fees........ -- -- -- 568 (iv) 426
Amortization of
deferred debt issue
costs................. -- -- -- 1,889 (v) 1,417
-------- -------- -------- ------- -------
Total long-term
senior debt/interest
expense............. $243,207 $ (7,333) $235,874 8.77% $20,690 $15,518
======== ======== ======== ====== ======= =======
Long-Term Senior
Subordinated Debt:
Historical September
30, 1999 Senior
Subordinated Notes.... $200,000 $ -- $200,000 10.50%(ii) $21,000 $15,750
Discount/amortization
on issuance of Senior
Subordinated Notes.... (4,320) -- (4,320) 451 (vi) 338
Amortization of
related deferred debt
issue costs........... -- -- -- 825 (vii) 619
-------- -------- -------- ------- -------
Total long-term
senior subordinated
debt/interest
expense............. $195,680 $ -- $195,680 11.38% $22,276 $16,707
======== ======== ======== ====== ======= =======
Long-Term Convertible
Junior Subordinated
Debt:
Historical September
30, 1999 Convertible
Junior Subordinated
Debentures............ $103,190 $ -- $103,190 7.50%(iii) $ 7,739 $ 5,804
Amortization of
related deferred debt
issue costs........... -- -- -- 357 (viii) 268
-------- -------- -------- ------- -------
Total long-term
convertible junior
subordinated
debt/interest
expense............. $103,190 $ -- $103,190 7.85% $ 8,096 $ 6,072
======== ======== ======== ====== ======= =======
Total debt/interest
expense................ $545,183 $(10,439) $534,744 9.55% $51,062 $38,297
======== ======== ======== ====== ======= =======
</TABLE>
- --------
(i) Represents the current borrowing rates under the BOSC 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 BOSC Credit Facility
at an annual rate of 0.5%.
(v) Represents amortization of deferred debt issue costs over the remaining
life of the BOSC 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.
32
<PAGE>
(c) Exhibits.
23.01 Consent of KPMG LLP.
99.01 Audited consolidated balance sheet of GroupMAC as of December 31, 1998
and 1997, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31,
1998.
99.02 Unaudited consolidated balance sheet of GroupMAC as of September 30,
1999, unaudited consolidated statements of income and retained
earnings for the three months ended September 30, 1999 and September
30, 1998 and for the nine months ended September 30, 1999 and
September 30, 1998 and unaudited consolidated statements of cash flows
for the nine months ended September 30, 1999 and September 30, 1998.
33
<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.
BUILDING ONE SERVICES CORPORATION
Dated: November 24, 1999 By: /s/ F. Traynor Beck
----------------------------------------
F. Traynor Beck
Executive Vice President,
General Counsel and Secretary
34
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
23.01 Consent of KPMG LLP.
99.01 Audited consolidated balance sheet of GroupMAC as of December 31, 1998
and 1997, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31, 1998.
99.02 Unaudited consolidated balance sheet of GroupMAC as of September 30,
1999, unaudited consolidated statements of income and retained earnings
for the three months ended September 30, 1999 and September 30, 1998 and
for the nine months ended September 30, 1999 and September 30, 1998 and
unaudited consolidated statements of cash flows for the nine months ended
September 30, 1999 and September 30, 1998.
<PAGE>
Exhibit 23.01
Independent Auditors' Consent
-----------------------------
The Board of Directors
Group Maintenance America Corp.:
We consent to the incorporation by reference in the registration statements
(No. 333-43659 and 333-59205) on Form S-8 and (No. 333-60053) on Form S-4 of
Building One Services Corporation of our report dated February 23, 1999, with
respect to the consolidated balance sheets of Group Maintenance America Corp.
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1998, the ten months ended December 31, 1997 and the year ended
February 28, 1997, which report appears in the Form 8-K of Building One Services
Corporation dated November 23, 1999.
/s/ KPMG LLP
KPMG LLP
Houston, Texas
November 24, 1999
<PAGE>
Exhibit 99.01
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Group Maintenance America Corp.:
We have audited the accompanying consolidated balance sheets of Group
Maintenance America Corp. and Subsidiaries as of December 31, 1998 and 1997
and the related consolidated statements of operations, shareholders' equity
and cash flows for the year ended December 31, 1998, the ten months ended
December 31, 1997 and the year ended February 28, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Group
Maintenance America Corp. and Subsidiaries as of December 31, 1998 and 1997
and the results of their operations and their cash flows for the year ended
December 31, 1998, the ten months ended December 31, 1997 and the year ended
February 28, 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
February 23, 1999
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
December 31,
ASSETS ------------------
1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................ $ 2,371 $ 25,681
Accounts receivable, net of allowance for doubtful
accounts of $5,355 and $1,825, respectively............. 187,251 45,516
Inventories.............................................. 17,843 8,834
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 26,533 3,116
Prepaid expenses and other current assets................ 6,134 1,013
Deferred tax assets...................................... 7,579 1,647
Refundable income taxes.................................. 3,341 --
-------- --------
Total current assets................................... 251,052 85,807
Property and Equipment, net................................ 39,192 11,312
Goodwill, net of accumulated amortization of $6,593 and
$633, respectively........................................ 398,714 84,533
Deferred Tax Assets........................................ -- 4,739
Refundable Income Taxes.................................... -- 4,529
Other Long-Term Assets..................................... 12,123 1,767
-------- --------
Total assets........................................... $701,081 $192,687
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current maturities of long-term
debt.................................................... $ 12,959 $ 2,769
Accounts payable and accrued expenses.................... 99,205 28,519
Due to related parties................................... 14,961 3,358
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 27,830 4,737
Deferred service contract revenue........................ 4,429 3,305
Income taxes payable..................................... 2,028 31
Other current liabilities................................ 3,199 2,610
-------- --------
Total current liabilities.............................. 164,611 45,329
Revolving Credit Facility.................................. 195,000 169
Junior Subordinated Notes.................................. 16,000 --
Deferred Tax Liabilities................................... 733 --
Due to Related Parties..................................... -- 9,745
Other Long-Term Liabilities................................ 8,808 791
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $1.00 par value; 50,000 shares
authorized; none issued and outstanding................. -- --
Common stock, $0.001 par value; 100,000 shares
authorized; 33,154 and 20,629 shares issued and
outstanding, respectively............................... 33 21
Additional paid-in capital............................... 322,478 169,143
Retained deficit......................................... (6,582) (32,511)
-------- --------
Total shareholders' equity............................. 315,929 136,653
-------- --------
Total liabilities and shareholders' equity............. $701,081 $192,687
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Ten months
Year ended ended Year ended
December 31, December 31, February 28,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................ $761,541 $138,479 $81,880
Cost of Services........................ 585,396 101,762 58,506
-------- -------- -------
Gross Profit.......................... 176,145 36,717 23,374
Selling, General and Administrative
Expenses............................... 117,951 28,643 19,811
Amortization of Goodwill................ 5,960 633 --
Compensation Expense From Reverse
Acquisition and Issuance of Management
Shares and Stock Options............... 168 7,219 --
-------- -------- -------
Income from operations................ 52,066 222 3,563
Other Income (Expense):
Interest expense...................... (6,595) (1,542) (82)
Interest income....................... 407 398 171
Other................................. 377 112 256
-------- -------- -------
Income (loss) before income tax
provision.......................... 46,255 (810) 3,908
Income Tax Provision.................... 20,326 2,832 1,572
-------- -------- -------
Net Income (Loss)....................... $ 25,929 $ (3,642) $ 2,336
======== ======== =======
Basic Earnings (Loss) Per Share:
Earnings (Loss) Per Share............. $ 0.94 $ (0.34) $ 0.45
======== ======== =======
Weighted Average Shares Outstanding... 27,544 10,800 5,172
======== ======== =======
Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share............. $ 0.93 $ (0.34) $ 0.45
======== ======== =======
Weighted Average Shares Outstanding... 27,948 10,800 5,172
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
-------------- Paid-In Earnings Treasury Subscriptions Shareholders'
Shares Amount Capital (Deficit) Stock Receivable Equity
------ ------ ---------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, February 29,
1996................... 5,692 $ 6 $ 2,701 $ 3,667 $ -- $ -- $ 6,374
Purchases of stock..... -- -- -- -- (2,112) -- (2,112)
Repurchase of
warrants.............. -- -- -- (600) -- -- (600)
Cancellation of
treasury stock........ (1,040) (1) (55) (2,056) 2,112 -- --
Distributions to
shareholders.......... -- -- -- (7) -- -- (7)
Net income............. -- -- -- 2,336 -- -- 2,336
------ --- -------- ------- ------ ------ --------
BALANCE, February 28,
1997................... 4,652 5 2,646 3,340 -- -- 5,991
Purchases of acquired
companies............. 5,612 6 58,781 -- -- (6,153) 52,634
Public offering, net of
offering costs........ 8,340 8 103,543 -- -- -- 103,551
Compensation expense
from issuance of
management shares and
stock options......... 5 -- 241 -- -- -- 241
Preferred stock issued
to Airtron
shareholders in
reverse acquisition... -- -- -- (14,873) -- -- (14,873)
Distribution to Airtron
shareholders in
reverse acquisition... -- -- -- (17,336) -- -- (17,336)
Shares issued under
subscription
agreement............. 2,000 2 -- -- -- 6,153 6,155
Exercise of stock
options............... 20 -- 61 -- -- -- 61
Common stock to be
issued in
acquisitions.......... -- -- 3,871 -- -- -- 3,871
Net loss............... -- -- -- (3,642) -- -- (3,642)
------ --- -------- ------- ------ ------ --------
BALANCE, December 31,
1997................... 20,629 21 169,143 (32,511) -- -- 136,653
Purchases of acquired
companies............. 12,455 12 148,762 -- -- -- 148,774
Debenture conversion... 68 -- 820 -- -- -- 820
Compensation expense
from issuance of
management shares and
stock options......... 168 168
Exercise of stock
options............... 2 -- 10 -- -- -- 10
Common stock to be
issued in
acquisitions.......... -- -- 3,575 -- -- -- 3,575
Net income............. -- -- -- 25,929 -- -- 25,929
------ --- -------- ------- ------ ------ --------
BALANCE, December 31,
1998................... 33,154 $33 $322,478 $(6,582) $ -- $ -- $315,929
====== === ======== ======= ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Ten months
Year ended ended Year ended
December 31, December 31, February 28,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)...................... $ 25,929 $ (3,642) $ 2,336
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.......... 13,863 1,413 208
Gain from sale of property and
equipment............................. (26) (32) (224)
Deferred income taxes.................. 3,499 2,482 2,336
Non-cash compensation expense.......... 168 7,219 --
Changes in operating assets and
liabilities, net of effect of
acquisitions accounted for as
purchases:
(Increase) decrease in --
Accounts receivable.................. (27,316) (2,849) (402)
Inventories.......................... (1,718) (656) 332
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... (6,950) 503 23
Prepaid expenses and other current
assets.............................. (3,404) 46 (8)
Refundable income taxes.............. 1,319 1,665 (3,235)
Other long-term assets............... (780) (299) --
Increase (decrease) in --
Accounts payable..................... 3,614 (918) (77)
Accrued expenses..................... (2,918) (4,598) 2,534
Due to related parties............... (5,469) (732) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 3,885 1,572 (86)
Deferred service contract revenue.... (502) 94 6
Income taxes payable................. 519 1,586 (296)
Other current liabilities............ (2,282) 1,442 --
Compensation and benefits payable.... -- (8) 255
Other long-term liabilities.......... (580) 120 --
--------- -------- -------
Net cash provided by operating
activities......................... 851 4,408 3,702
--------- -------- -------
Cash Flows From Investing Activities:
Cash paid for acquisitions, net of cash
acquired of $13,176 and $5,263,
respectively.......................... (178,542) (35,767) --
Deferred acquisition costs............. (1,573) (246) --
Purchases of property and equipment.... (9,292) (2,017) (182)
Proceeds from sale of property and
equipment............................. 199 83 296
Proceeds from note receivable.......... -- -- 156
--------- -------- -------
Net cash provided by (used in)
investing activities............... (189,208) (37,947) 270
--------- -------- -------
Cash Flows From Financing Activities:
Purchase of common stock............... -- -- (787)
Retirement of preferred stock.......... -- (19,277) --
Repurchase of warrants................. -- -- (539)
Proceeds from long-term debt........... 884,515 32,500 --
Payments of long-term debt............. (719,478) (47,742) (35)
Payments of other long-term
obligations........................... -- -- (39)
Issuance of common stock............... -- 109,706 --
Exercise of stock options.............. 10 61 --
Distributions to shareholders prior to
initial public offering............... -- (20,367) (7)
--------- -------- -------
Net cash provided by (used in)
financing activities............... 165,047 54,881 (1,407)
--------- -------- -------
Net Increase (Decrease) In Cash and Cash
Equivalents............................ (23,310) 21,342 2,565
Cash and Cash Equivalents, beginning of
period................................. 25,681 4,339 1,774
--------- -------- -------
Cash and Cash Equivalents, end of
period................................. $ 2,371 $ 25,681 $ 4,339
========= ======== =======
Supplemental Disclosures of Cash Flow
Information:
Interest Paid.......................... $ 5,163 $ 1,470 $ --
Income Taxes Paid...................... $ 16,869 $ -- $ 2,586
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Organization
Group Maintenance America Corp. ("GroupMAC") was incorporated as a Texas
corporation to build a national company providing mechanical and electrical
services in the commercial, industrial and residential markets.
Effective April 30, 1997, GroupMAC entered into an Agreement and Plan of
Exchange (the "Airtron Agreement") with Airtron, Inc. ("Airtron") and certain
of its shareholders, pursuant to which $20.4 million in cash, 14.9 million
shares of GroupMAC preferred stock and 4.7 million shares of GroupMAC common
stock were issued to shareholders of Airtron in exchange for all of the then
outstanding shares of Airtron. Although for legal purposes Airtron was
acquired by GroupMAC, for accounting purposes the transaction was accounted
for as a reverse acquisition, as if Airtron acquired GroupMAC, due to the fact
that the former shareholders of Airtron then owned a majority of GroupMAC
common stock. In connection with the purchase of GroupMAC, the consideration
paid to the shareholders of GroupMAC was recorded as non-recurring
compensation expense of $7.0 million in the accompanying consolidated
statements of operations for the ten months ended December 31, 1997. The
consolidated financial statements presented herein for the periods prior to
the effective date of the acquisition only include the accounts of Airtron.
The consolidated statements of shareholders' equity have been converted from
Airtron's capital structure to GroupMAC's capital structure to reflect the
exchange of shares pursuant to the Airtron Agreement. The cash and redeemable
preferred stock paid to the Airtron shareholders, net of existing liabilities
to former shareholders, have been treated as a distribution to the Airtron
shareholders. The consolidated group of companies are collectively referred to
herein as GroupMAC and Subsidiaries or the "Company." All significant
intercompany balances have been eliminated. Concurrent with the initial public
offering of GroupMAC's common stock (the "IPO"), the Company changed its
fiscal year end from February 28 to December 31.
Airtron was incorporated in 1970 as a Delaware corporation. Airtron installs
and services brand name heating and air conditioning equipment for residential
and commercial customers located in Ohio, Indiana, Kansas, Kentucky, Florida
and Texas.
In June and July 1997, the Company acquired, in separate transactions, 10
additional companies through a combination of cash, preferred stock, common
stock and warrants to purchase shares of common stock. During the fourth
quarter of 1997, the Company acquired, concurrently with the IPO, 13
additional companies through a combination of cash and common stock. During
1998, the Company acquired, in separate transactions, 39 additional businesses
through a combination of cash, notes payable, junior subordinated debt, common
stock, options to purchase common stock and warrants to purchase common stock.
The Company accounted for these acquisitions as purchase business
combinations, with the results of operations included in the Company's
consolidated financial statements from the effective date of acquisition.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
from service and maintenance contracts are recognized over the life of
contracts. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on
6
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Inventories
Inventories consist primarily of purchased materials and supplies. The
inventory is valued at the lower of cost or market, with cost determined on a
first-in, first-out ("FIFO") basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the useful lives of the
assets. Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the consolidated statements of operations.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows compared to
the carrying value of goodwill. The Company will reassess the recoverability
of goodwill if estimated future operating cash flows are not achieved.
Deferred Financing Costs
Deferred financing costs related to the Company's revolving credit agreement
and senior subordinated note offering completed subsequent to December 31,
1998 (see Note 7) are included in other noncurrent assets and amortized to
interest expense over the scheduled maturity of the debt.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, encourages but does not require companies to record
compensation expense for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Accordingly, compensation expense for
7
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock options is measured as the excess, if any, of the quoted market price of
GroupMAC's common stock at the date of the grant over the amount an employee
must pay to acquire the common stock.
Warranty Costs
The Company generally warrants all of its work for a period of one year from
the date of installation. A provision for estimated warranty costs is made at
the time a product is sold or service is rendered.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Earnings Per Share
Weighted average shares outstanding for each of the periods presented were
as follows (in thousands):
<TABLE>
<CAPTION>
Ten months
Year ended ended Year ended
December 31, December 31, February 28,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Shares issued in the acquisition of
Airtron............................ 4,652 4,652 5,172
Shares issued, excluding
acquisitions and the IPO........... 3,637 3,628 --
Shares issued for 1997
acquisitions....................... 4,733 1,259 --
Shares issued for 1998
acquisitions....................... 6,182 -- --
Shares issued in the IPO............ 8,340 1,261 --
------ ------ -----
Weighted average shares
outstanding--Basic .............. 27,544 10,800 5,172
------ ------ -----
Incremental effect of options and
warrants outstanding .............. 404 -- --
------ ------ -----
Weighted average shares
outstanding--Diluted............. 27,948 10,800 5,172
====== ====== =====
</TABLE>
Basic earnings per share have been calculated by dividing net income (loss)
by the weighted average number of common shares outstanding. Diluted earnings
per share are computed by dividing net income by the weighted average number
of common shares outstanding plus potentially dilutive common shares.
Because the Company reported a net loss for the ten months ended December
31, 1997, the potentially dilutive common shares (including warrants and stock
options discussed in Note 9) had an anti-dilutive effect on earnings per
share. As of December 31, 1998, options to purchase 0.4 million shares of
common stock and warrants to purchase 1.3 million shares of common stock were
not included in the calculation of diluted earnings per share because the
options' or warrants' exercise price was greater than the average market price
of the common shares.
Reclassifications
Certain amounts recorded in the year ended February 28, 1997 and the ten
months ended December 31, 1997 have been reclassified to conform with the
current year presentation.
8
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Business Combinations
During 1997, the Company acquired 23 companies for approximately $44.2
million in cash, 4.5 million shares of common stock, 4.4 million shares of
redeemable preferred stock (which were retired in connection with the IPO),
options to acquire 0.1 million shares of common stock and warrants to purchase
0.5 million shares of common stock. Of the total recorded consideration,
approximately $3.2 million of cash and 0.5 million shares of common stock were
due to former owners at December 31, 1997. During 1998, a reduction of
approximately $1.0 million in cash and 0.1 million shares of common stock was
recorded to reflect final settlements on certain 1997 acquisitions. In
addition, payments of approximately $1.9 million in cash and 0.4 million
shares of common stock were made to former shareholders on certain 1997
acquisitions.
During 1998, the Company completed the acquisition of 39 platform and five
tuck-in companies for approximately $194.8 million in cash, $4.0 million of
notes payable, $16.0 million of junior subordinated debt, 12.1 million shares
of common stock, options to purchase 0.3 million shares of common stock and
warrants to purchase 0.8 million shares of common stock. Of the total
consideration, approximately $7.2 million of cash was due to former owners at
December 31, 1998.
In conjunction with the above mentioned acquisitions, the Company assumed
$26.2 million and $16.1 million of debt for acquisitions completed in 1998 and
1997, respectively.
For the above mentioned acquisitions, the common stock, options and warrants
were valued at estimated fair value at the time of the respective acquisition
and the preferred stock was valued at its redemption value of $1 per share.
For certain 1998 acquisitions, allocation of purchase price to the assets
acquired and liabilities assumed has been initially assigned and recorded
based on preliminary estimates of fair value and may be revised as additional
information becomes available. Such additional information includes appraisals
on property, contingent liabilities of the acquired business, and working
capital settlements related to the acquisition consideration and the net
assets acquired. However, the Company does not expect any significant
adjustments to the purchase price allocations or amount of goodwill at
December 31, 1998.
Several former owners of businesses acquired by the Company have the ability
to receive additional amounts of purchase price, payable in cash and common
stock contingent upon the occurrence of future events. The Company records
such contingent consideration as additional purchase price when earned. During
1997, approximately $0.3 million in cash and 22,500 shares of common stock
were earned and due to former owners related to these contingent payments.
These amounts were paid in 1998. During 1998, approximately $5.2 million of
cash and 0.3 million shares of common stock were earned related to these
contingent payments, of which approximately $3.3 million of cash and 0.3
million shares of common stock were due to former owners as of December 31,
1998. Additional cash and common stock may become payable in 1999 through 2001
contingent upon future events.
The unaudited pro forma data presented below consists of the combined income
statement data for GroupMAC and its subsidiaries as if the acquisitions were
effective on the first day of the period being reported (in thousands, except
for per share amounts).
<TABLE>
<CAPTION>
Pro forma data
(unaudited)
-------------------
Twelve months ended
December 31,
-------------------
1998 1997
---------- --------
<S> <C> <C>
Revenues.............................................. $1,076,419 $978,480
Net income............................................ $ 33,201 $ 27,372
Net income per share:
Basic............................................... $ 0.99 $ 0.82
Diluted............................................. $ 0.98 $ 0.81
</TABLE>
9
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma adjustments reflected in the amounts above include compensation
differentials, adjustment for goodwill amortization over a period of 40 years,
elimination of historical interest income and historical interest expense on
long-term debt which was repaid with the proceeds of the IPO or otherwise
retired, additional interest expense on funds borrowed for certain 1998
acquisitions, and adjustment to the federal and state income tax provisions
based on pro forma operating results. Net income per share assumes all shares
issued for the acquisitions were outstanding for the periods presented.
4. Detail of Accounts Payable and Accrued Expenses (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
<S> <C> <C>
Accounts payable, trade.................................. $59,067 $13,804
Accrued payroll costs and benefits....................... 29,736 11,167
Warranties............................................... 2,502 1,297
Other accrued expenses................................... 7,900 2,251
------- -------
$99,205 $28,519
======= =======
</TABLE>
5. Costs and Estimated Earnings on Uncompleted Contracts
The summary of the status of uncompleted contracts is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Costs incurred....................................... $618,547 $ 85,101
Estimated earnings recognized........................ 129,912 27,268
-------- --------
748,459 112,369
Less billings on contracts........................... (749,756) (113,990)
-------- --------
$ (1,297) $ (1,621)
======== ========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying consolidated balance sheets under the following captions (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $26,533 $ 3,116
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (27,830) (4,737)
------- -------
$(1,297) $(1,621)
======= =======
</TABLE>
10
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property and Equipment
The principal categories and estimated useful lives of property and
equipment were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
Estimated useful
lives 1998 1997
---------------- ------- -------
<S> <C> <C> <C>
Land.................................... -- $ 1,144 $ 218
Buildings and improvements.............. 20-30 years 6,128 677
Service and other vehicles.............. 4-7 years 17,643 5,385
Machinery and equipment................. 5-10 years 9,491 2,873
Office equipment, furniture and
fixtures............................... 5-10 years 10,842 3,761
Leasehold improvements.................. -- 4,334 1,220
------- -------
49,582 14,134
Less accumulated depreciation........... (10,390) (2,822)
------- -------
$39,192 $11,312
======= =======
</TABLE>
7. Short- and Long-Term Debt
Short- and long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
-------- -----------
<S> <C> <C> <C>
Bank revolving credit agreement (7.1% at December 31,
1998)............................................... $195,000 $ --
Junior subordinated notes payable to former
shareholders of an acquired business at 6%, due
November 2003....................................... 16,000 --
Notes payable to former shareholders of acquired
businesses at 6%, due January 1999 and May 1998,
respectively........................................ 4,399 2,466
Note payable to a bank at 8%, due January 1999....... 8,000 --
Equipment installment loans payable to banks and
other lenders, interest varying from 2.9% to 10%,
secured by certain equipment, due in monthly and
quarterly installments.............................. 495 228
Other notes payable to former shareholders at
interest rates ranging from 4.8% to 8.25%, due in
monthly installments................................ 65 244
-------- ------
Total short- and long-term debt...................... 223,959 2,938
Less short-term borrowings and current maturities.... (12,959) (2,769)
-------- ------
$211,000 $ 169
======== ======
</TABLE>
On May 2, 1997, the Company entered into a credit agreement (the "Original
Credit Agreement") with a total commitment of $35 million. The Original Credit
Agreement consisted of three portions: (i) a revolving credit agreement
providing up to $3 million for use as working capital, (ii) a $12 million
advancing acquisition line of credit to finance acquisitions, and (iii) a $20
million term loan to finance the acquisition of Airtron. Borrowings under the
Original Credit Agreement totaled $32.5 million to fund the cash portion of
the purchase prices related to Airtron and the businesses acquired in June and
July 1997. The Original Credit Agreement was repaid from the proceeds of the
IPO and terminated in December 1997.
On December 11, 1997, the Company entered into a three-year revolving credit
agreement with an initial borrowing capacity of $75 million. On June 12, 1998,
the Company amended and restated this facility (the "Credit Agreement") to
increase its borrowing capacity from $75 million to $125 million. On October
15, 1998, the Company amended and restated the Credit Agreement to increase
its borrowing capacity from $125 million to $230 million. Borrowings under the
Credit Agreement are guaranteed by the Company's domestic
11
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsidiaries, including future domestic subsidiaries. The obligations of the
Company under the Credit Agreement and the obligations under the guarantees
are secured by a first priority lien on the accounts receivable and inventory
of the domestic subsidiaries, and by a pledge of stock of its domestic
subsidiaries.
Borrowings under the Credit Agreement bear interest at a rate per annum, at
the Company's option, of either (1) the Alternate Base Rate or (2) the
Eurodollar Rate. The Alternate Base Rate is equal to the greater of the
Federal Funds Effective Rate plus 0.5% or the Prime Rate plus a Margin
depending on the ratio of indebtedness for borrowed money to EBITDA (with all
capitalized terms as defined in the Credit Agreement). The Eurodollar Rate is
the rate defined in the Credit Agreement plus a Margin depending on the ratio
of indebtedness for borrowed money to EBITDA. The Company is subject to
commitment fees payable quarterly in arrears and administration fees payable
annually to the Agent until such time as the Credit Agreement is terminated.
The commitment fees range from 0.25% to 0.375% per annum with respect to the
unused commitments under the Credit Agreement depending on the ratio of
indebtedness for borrowed money to EBITDA. In addition, the Company paid
various underwriting and arrangement fees and closing costs associated with
the origination and syndication of the Credit Agreement. The unamortized
portion of these expenses is included as deferred financing costs in the
accompanying consolidated balance sheets and amounted to approximately $2.4
million and $0.7 million at December 31, 1998 and 1997, respectively.
Under the Credit Agreement, the Company is required to maintain certain
financial covenants and tests, including: (1) a minimum Fixed Charge Coverage
Ratio; (2) a maximum ratio of total indebtedness for borrowed money to
capitalization (as defined in the Credit Agreement); (3) a maximum ratio of
senior debt to pro forma earnings before interest, taxes, depreciation and
amortization; (4) a maximum ratio of total indebtedness to EBITDA; (5) a
minimum amount of Consolidated Net Worth (as defined in the Credit Agreement)
and (6) a maximum amount of Capital Expenditures in relation to Consolidated
Net Worth. The Credit Agreement places limitations upon the amount of letters
of credit which may be drawn, investments which may be permitted, and liens
which may be granted to secure other debt. The Company may not pay any
dividends or redeem, retire or guarantee the value of shares of any class of
stock in the Company without prior approval from the lending banks, other than
the purchase of outstanding shares of the Company's stock within defined
limits. At December 31, 1998, the Company was in compliance with these
covenants. The Credit Agreement matures on October 13, 2001.
In connection with the acquisition of Trinity Contractors, Inc. ("Trinity"),
the Company paid cash and issued $16.0 million of subordinated notes (the
"Trinity Notes"), common stock and warrants to purchase common stock (the
"Trinity Warrants"). Unless prepaid in whole or part at any time by the
Company, the balance of the Trinity Notes was due in November 2003. Holders of
the Trinity Notes have a one-time option to require the Company to repurchase
the Trinity Notes (the "Put Option") in the event the Company issues
$50,000,000 or more in principal amount of debt that is either (1) registered
under the Securities Act and sold to the public or (2) sold to qualified
institutional buyers. Subsequent to December 31, 1998 and in connection with
the private placement offering discussed below, the Put Option was exercised
by substantially all the holders of the Trinity Notes, such notes were repaid
by the Company and the related Trinity Warrants were surrendered.
The aggregate maturities of debt as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C> <C>
1999.. $ 12,959
2000.. --
2001.. 195,000
2002.. --
2003.. 16,000
--------
$223,959
========
</TABLE>
12
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 1999, the Company completed a private placement offering (the
"Offering") of $130 million of unsecured senior subordinated notes (the
"Notes") bearing interest at 9.75% and maturing in January 2009. The net
proceeds of the offering were used to repay indebtedness incurred under the
Credit Agreement.
Under a registration rights agreement executed as part of the Offering, the
Company will file a registration statement within 90 days after the issue date
of the Notes enabling holders of the Notes to exchange the privately placed
Notes for publicly registered notes with identical terms. The Company is
required to use all reasonable efforts to cause the registration statement to
become effective within 150 days after the issue date of the Notes and to
consummate the exchange offer within 180 days after the issue date of the
Notes. If the Company cannot effect an exchange offer within the time periods
listed above and in other certain circumstances, management will use all
reasonable efforts to file a shelf registration statement for the resale of
the Notes. If the Company is unable to comply with these obligations under the
registration rights agreement, the interest rate on the Notes will increase
under certain circumstances.
The Notes are guaranteed by all of the Company's current and future U.S.
subsidiaries other than "Unrestricted Subsidiaries" (as defined in the
indenture governing the Notes). As of the closing of the Offering, there were
no "Unrestricted Subsidiaries." These guarantees are full, unconditional and
joint and several. Accordingly, no separate financial statements of the
guarantor subsidiaries are presented because management believes this
information is not material to users of its financial statements.
The Notes pay interest semi-annually commencing July 15, 1999 and are
redeemable at the option of the Company at any time on or after January 15,
2004. Additionally, the Notes' indenture has restrictive covenants or
limitations on the payment of dividends, the distribution or redemption of
capital stock as well as limitations on the incurrence of debt and on the sale
of assets.
The Company entered into an agreement to lock in the ten year U.S. Treasury
rate used to price the offering of the Notes. The Company locked in $100
million at 5.5212%, which management believes is an attractive long-term base
rate. This agreement expired on January 31, 1999, and was settled on that date
based upon the ten year Treasury yield of 4.648%, resulting in an additional
pre-tax financing cost of approximately $6.9 million. In accordance with SFAS
No. 80, Accounting for Futures Contracts, this agreement qualifies as a hedge
and was recognized as deferred financing costs.
8. Due To Related Parties
Under the Airtron Agreement, part of the cash purchase price payable to
former shareholders of Airtron relates to the tax benefits which have been or
will be received by the Company related to the exercise of previously
outstanding warrants and distributions under deferred compensation
arrangements. The Company recognized liabilities of $9.7 million at the date
of acquisition as an estimate of these amounts. This amount is paid to the
former shareholders of Airtron as the tax benefit is realized by the Company
either through receipt of net operating loss carryback claims or utilization
of current deductions and net operating loss carryforwards to reduce estimated
tax payments. The $9.7 million liability and the related refundable income
taxes and deferred tax assets were reflected as long-term in the December 31,
1997 balance sheet as such tax benefits were not expected to be realized
during 1998. During 1998, the Company was able to realize certain tax benefits
under the Airtron Agreement and correspondingly paid $5.3 million of the
original liability to the former shareholders. As of December 31, 1998, the
$4.4 million remaining liability and the related refundable income taxes and
deferred tax assets are reflected as current assets and liabilities in the
December 31, 1998 consolidated balance sheet as all remaining tax benefits are
expected to be realized during 1999.
13
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stock-Based Plans
GroupMAC has implemented the following stock-based programs for its
employees and others:
Stock Awards Plan--In August 1997, GroupMAC adopted the Group Maintenance
America Corp. 1997 Stock Awards Plan which provides GroupMAC the latitude to
grant a variety of awards, such as stock options, stock appreciation rights
("SARs"), restricted stock, performance awards and phantom stock awards, to
officers, directors, key employees and other persons working for GroupMAC and
its subsidiaries. The plan requires that options and SARs be granted at not
less than the fair market value of a share of common stock on the grant date.
The plan also requires that no stock option granted shall vest in less than
six months after the grant date. GroupMAC may issue not more than 9% of the
number of total shares outstanding (determined on a quarterly basis) under the
plan, which will terminate on June 30, 2007. At December 31, 1998, options to
purchase 3.0 million shares at an average exercise price of $12.86 were
outstanding under this plan.
Stock Option Plan--In August 1997, GroupMAC adopted the Group Maintenance
America Corp. 1997 Stock Option Plan under which GroupMAC may grant options to
employees who are not eligible for awards under the Stock Awards Plan. The
plan requires that options be granted at not less than fair market value of a
share of common stock on the grant date. The plan also requires that no stock
option granted shall vest in less than six months after the grant date.
GroupMAC may issue not more that 3% of the number of shares outstanding
(determined on a quarterly basis) under this plan, which will terminate on
June 30, 2007. At December 31, 1998, options to purchase 0.7 million shares at
an average exercise price of $13.98 were outstanding under this plan.
Founder Options--Between October 1996 and August 1997, the Company granted
to directors, senior management and other employees options to purchase an
aggregate of 388,800 shares of common stock at an exercise price of $3.08.
These options vest and expire over various periods.
During 1998, the Company issued options to purchase approximately 1.6
million shares of common stock at a weighted average exercise price of $14.32.
These options vest at a rate of 25% per year and expire at various dates
during 2003.
Additionally, the Company issued options to purchase 0.3 million and 0.1
million shares of common stock in connection with acquisitions at a weighted
average exercise price of $4.09 and $11.89 in 1998 and 1997, respectively.
These options were valued at $3.4 million and $1.2 million in 1998 and 1997,
respectively, and are included in the purchase price of the acquired company.
Substantially all of these options are immediately exercisable.
As consideration for a company acquired in November 1998, the Company issued
829,000 warrants to purchase shares of common stock at $19.30 per share. As
indicated in Note 7, substantially all of these warrants were surrendered
subsequent to year end and accordingly no value was included for these
warrants in the purchase price of the acquired company. In connection with the
purchase of one company in July 1997, the Company issued warrants to purchase
514,000 shares of common stock at $17.50 per share. These warrants were valued
at $1.0 million and are included in the purchase price of the acquired
company.
14
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of stock option and warrant activity (in
thousands, except for exercise price):
<TABLE>
<CAPTION>
Weighted
average Number of
exercise options and
price warrants
-------- -----------
<S> <C> <C>
Granted............................................ $3.08 292
Balance at December 31, 1996....................... 3.08 292
Granted............................................ 3.08 69
-----
Balance at April 30, 1997, date of Airtron
Agreement......................................... 3.08 361
Granted............................................ 14.33 2,611
Exercised.......................................... 3.08 (20)
Surrendered........................................ 3.08 (25)
-----
Balance at December 31, 1997....................... 13.07 2,927
Granted............................................ 14.56 2,701
Exercised.......................................... 5.77 (2)
Surrendered........................................ 14.54 (165)
-----
Balance at December 31, 1998....................... 13.77 5,461
=====
</TABLE>
A summary of outstanding and exercisable options and warrants as of December
31, 1998 follows:
<TABLE>
<CAPTION>
Weighted
Weighted average
average Number of Weighted exercise Number of
Range of option outstanding average price of exercisable
option and and options and remaining exercisable options and
warrant warrant warrants contractual options and warrants
prices prices (thousands) life (years) warrants (thousands)
---------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 3.08 to $
5.00 $ 3.57 713 5.8 $ 3.69 576
$ 5.01 to
$10.00 $ 6.54 38 2.8 $ 6.39 25
$10.01 to
$15.00 $13.60 2,890 4.2 $14.00 456
$15.01 to
$19.30 $18.14 1,820 6.2 $18.61 1,343
----- -----
5,461 2,400
===== =====
</TABLE>
The Company applies Accounting Principle Board Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for its stock options (other than
options issued in connection with acquisitions). Accordingly, compensation
cost has been recognized only for the options that have an exercise price less
than the fair market value of the underlying stock at the date of grant. A
compensation charge of approximately $0.2 million is reflected in the
consolidated statements of operations and shareholders' equity for the fiscal
year ended December 31, 1998 and the ten months ended December 31, 1997
related to the issuance of management shares and stock options at prices below
the fair market value at the date of issue or grant.
15
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following pro forma data is calculated as if compensation expense for
the Company's stock option plans were determined based on the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, Accounting for Stock-Based Compensation (in
thousands, except per share data):
<TABLE>
<CAPTION>
Year ended Ten months ended
December 31, December 31,
1998 1997
---------------- -----------------
As Pro As Pro
reported Forma reported Forma
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss)..................... $25,929 $23,173 $(3,642) $(3,983)
Net income (loss) per share:
Basic............................... $ 0.94 $ 0.84 $ (0.34) $ (0.37)
Diluted............................. $ 0.93 $ 0.83 $ (0.34) $ (0.37)
</TABLE>
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and
additional awards may be made each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Ten months ended
December 31, 1997
-------------------------
Year ended Subsequent to Prior to
December 31, the Airtron the Airtron
1998 Agreement Agreement
------------ ------------- -----------
<S> <C> <C> <C>
Dividend yield.................... -- -- --
Expected volatility............... 48.0% 33.0% 0%
Risk-free interest rate........... 4.70% 5.83% 6.26%
Expected lives 5.0 years 6.6 years 10 years
Fair value of options at grant
date............................. $ 7.445 $ 5.425 $ 1.425
</TABLE>
The Company had outstanding 60,000 warrants to purchase common stock for
$1.00 per share at February 29, 1996. In August 1996, 15,000 of these warrants
were purchased from a former shareholder for $0.5 million, resulting in a
reduction in retained earnings for the original recorded value of the warrants
of $0.6 million with the offset recorded as other income. At February 28,
1997, 45,000 warrants were outstanding. In connection with the Airtron
Agreement these warrants were exchanged for cash and preferred and common
shares of GroupMAC.
Airtron had deferred compensation arrangements for certain members of its
management and its board of directors. The Company reflected the assets and
liabilities associated with these arrangements as distributions in the
accompanying consolidated financial statements.
10. Shareholders' Equity
On October 24, 1996, the Company entered into a stock subscription agreement
with an individual providing for the sale of up to 2.6 million shares of
common stock at a purchase price of $3.08 per share. At December 31, 1997, the
Company had sold all of the 2.6 million shares.
During November and December 1997, the Company completed the IPO involving
the sale of 8.3 million shares of common stock at a price to the public of
$14.00 per share. The net proceeds from the IPO (after deducting underwriting
discounts and commissions and offering expenses) were approximately $103.6
million. Of this amount, $29.8 million was used to pay the cash portion of the
closing consideration relating to certain
16
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquired businesses, $42.6 million to repay corporate indebtedness and debt
assumed in connection with the acquisition of businesses, $19.3 million to
retire all of the then outstanding preferred stock and $11.9 million for
general corporate purposes including working capital, final consideration
settlements related to acquired businesses and future acquisitions. In March
1998, the Company issued $0.8 million of subordinated convertible debentures
to fund a portion of the consideration of one acquisition. These debentures
were converted to 68,000 shares of common stock during 1998.
11. Income Taxes
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ten months Year
ended ended ended
December 31, December 31, February 28,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal.......................... $13,553 -- $(1,020)
State............................ 3,274 489 385
------- ------ -------
Deferred: 16,827 489 (635)
Federal and state................ 3,499 2,343 2,207
------- ------ -------
$20,326 $2,832 $ 1,572
======= ====== =======
</TABLE>
Total income tax expense differs from the amounts computed by applying the
U.S. federal statutory income tax rate to income (loss) before income tax
provision as a result of the following (in thousands):
<TABLE>
<CAPTION>
Year Ten months Year
ended ended ended
December 31, December 31, February 28,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss) before income tax
provision......................... $46,255 $ (810) $3,908
Applicable U.S. federal statutory
rate.............................. 35.0% 34.0% 34.0%
------- ------ ------
Tax provision (benefit) at
statutory rate.................... 16,189 (275) 1,329
Increase (decrease) resulting from: 2,128 323 254
State income taxes, net of
federal benefit................. 59 2,455 --
Compensation expense from reverse
acquisition and issuance of
management shares and stock
options......................... 1,975 199 --
Non-deductible goodwill
amortization.................... (25) 130 (11)
------- ------ ------
Other............................ $20,326 $2,832 $1,572
======= ====== ======
</TABLE>
17
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................ $ 2,088 $ 713
Inventories............................................ 300 279
Accrued expenses....................................... 5,101 2,489
Deferred revenue....................................... 1,510 348
Compensation and benefits.............................. 280 3,736
Net operating loss carryforward........................ 497 1,231
Other.................................................. 259 183
------- -------
Total deferred income tax assets..................... 10,035 8,979
------- -------
Deferred income tax liabilities:
Depreciation........................................... (951) (585)
Completed contract accounting for tax purposes......... (1,899) (1,836)
Other.................................................. (339) (172)
------- -------
Total deferred income tax liabilities................ (3,189) (2,593)
------- -------
Net deferred income tax assets........................... $ 6,846 $ 6,386
======= =======
</TABLE>
These deferred income tax assets and liabilities are included in the
accompanying consolidated balance sheets under the following captions (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Deferred tax assets--current............................. $7,579 $1,647
Deferred tax assets--long-term........................... -- 4,739
Deferred tax liabilities--long-term...................... (733) --
------ ------
$6,846 $6,386
====== ======
</TABLE>
Management believes it is more likely than not that the Company will realize
the benefits of the net deferred tax assets. Accordingly, no valuation
allowance has been recorded as of December 31, 1998 or December 31, 1997.
12. Leases
Operating leases for certain facilities and transportation equipment expire
at various dates through 2011. Certain leases contain renewal options.
Approximate minimum future rental payments as of December 31, 1998 are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................... $11,172
2000........................................... 10,059
2001........................................... 8,901
2002........................................... 7,843
2003........................................... 4,358
Thereafter..................................... 19,685
-------
$62,018
=======
</TABLE>
Total rental expense for the year ended December 31, 1998, the ten months
ended December 31, 1997 and the year ended February 28, 1997 was approximately
$13.5 million, $2.3 million and $1.7 million, respectively (including $4.3
million, $1.2 million and $0.6 million, respectively, to related parties).
18
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Employee Benefit Plans
Several of GroupMAC's subsidiaries maintain defined contribution employee
retirement plans, which are open to certain employees after various lengths of
service. Employee contributions and employer matching contributions occur at
different rates and the matched portions of the funds vest over a period of
years. Company contributions to these plans totaled approximately $4.8
million, $0.4 million and $0.2 million for the year ended December 31, 1998,
the ten months ended December 31, 1997 and the year ended February 28, 1997,
respectively.
Certain of GroupMAC's subsidiaries make contributions to union-administered
benefit funds that cover the majority of these companies' union employees. For
the year ended December 31, 1998 and the ten months ended December 31, 1997,
the participant costs charged to operations were approximately $8.8 million
and $0.6 million, respectively. Governmental regulations require that, in the
event of plan termination or employer withdrawal, an employer may be liable
for a portion of the plan's unfunded vested benefits, if any. The Company is
not aware of any liabilities resulting from unfunded vested benefits related
to union administered benefit plans. The Company does not anticipate
withdrawal from the plans, nor is the Company aware of any expected plan
terminations.
14. Commitments and Contingencies
The Company is involved in various legal actions. It is not possible to
predict the outcome of these matters; however, in the opinion of management,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
15. Financial Instruments
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying values of
these instruments on the accompanying consolidated balance sheets approximate
their fair value.
16. Operating Segments
The Company's reportable segments are strategic business units that offer
products and services to two distinct customer groups. They are managed
separately because each business requires different operating and marketing
strategies.
The Company has two reportable segments: commercial/industrial and
residential markets. The commercial/industrial segment provides maintenance,
repair and replacement services and new installation services in manufacturing
and processing facilities, power generation facilities, hospitals and other
critical care facilities, colleges and universities, hotels, commercial office
buildings and complexes, retail stores and restaurants, supermarkets and
convenience stores. The residential segment provides maintenance, repair and
replacement services and new installation services in single family and low-
rise multifamily housing units.
The 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.
Other activities include financial data of two operating subsidiaries that
provide products and services outside of those performed by the Company's two
primary operating segments. Unallocated corporate expenses primarily include
(1) corporate overhead, (2) corporate and operating company management
bonuses, and (3)
19
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
savings from national purchase agreements relating to materials and
property/casualty insurance. Assets, capital expenditures and depreciation
expense for the corporate function are included in the "Other" column in the
presentation below.
Segment information for the year ended December 31, 1998, the ten months
ended December 31, 1997 and the year ended February 28, 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
Commercial/
Industrial Residential Other Total
----------- ----------- ------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Revenues............................. $472,451 $286,737 $ 2,353 $761,541
Operating costs...................... 434,431 257,917 2,077 694,425
-------- -------- ------- --------
Subtotal............................. 38,020 28,820 276 67,116
Goodwill amortization................ 4,130 1,652 178 5,960
-------- -------- ------- --------
Segment operating earnings........... $ 33,890 $ 27,168 $ 98 61,156
======== ======== ======= ========
Unallocated corporate expenses....... (9,090)
--------
Income from operations............... $ 52,066
========
Assets............................... $542,998 $123,775 $34,308 $701,081
Capital expenditures................. 6,157 2,376 759 9,292
Depreciation expense................. 4,847 2,745 311 7,903
Ten months ended December 31, 1997:
Revenues............................. $ 23,305 $113,927 $ 1,247 $138,479
Operating costs...................... 22,023 103,017 1,068 126,108
-------- -------- ------- --------
Subtotal............................. 1,282 10,910 179 12,371
Goodwill amortization................ 174 351 108 633
-------- -------- ------- --------
Segment operating earnings........... $ 1,108 $ 10,559 $ 71 11,738
======== ======== ======= ========
Unallocated corporate expenses....... (11,516)
--------
Income from operations............... $ 222
========
Assets............................... $ 65,566 $ 96,237 $30,884 $192,687
Capital expenditures................. 355 1,376 286 2,017
Depreciation expense................. 147 575 58 780
Year ended February 28, 1997:
Revenues............................. $ -- $ 81,880 $ -- $ 81,880
Operating costs...................... -- 78,317 -- 78,317
-------- -------- ------- --------
Subtotal............................. -- 3,563 -- 3,563
Goodwill amortization................ -- -- -- --
-------- -------- ------- --------
Segment operating earnings........... $ -- $ 3,563 $ -- 3,563
======== ======== ======= ========
Unallocated corporate expenses....... --
--------
Income from operations............... $ 3,563
========
Assets............................... $ -- $ 27,153 $ -- $ 27,153
Capital expenditures................. -- 182 -- 182
Depreciation expense................. -- 208 -- 208
</TABLE>
20
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maintenance, repair and replacement services represented 53%, 35% and 19%
and new installation services represented 47%, 65% and 81% of total revenues
for the year ended December 31, 1998, the ten months ended December 31, 1997
and the year ended February 28, 1997, respectively. The heavy emphasis on new
installation services in the earlier two fiscal periods is a result of the
operations of Airtron, which represent a significant portion of revenues
during the ten months ended December 31, 1997 and all of the revenues during
the year ended February 28, 1997.
17. Quarterly Financial Summary (unaudited)(in thousands, except per share
data)
<TABLE>
<CAPTION>
Fourth Third Second First
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
Revenues.................................. $283,597 $211,667 $159,185 $107,092
Operating income.......................... 19,746 16,297 11,452 4,571
Net income................................ 9,193 8,369 6,095 2,272
Earnings per share:
Basic................................... $ 0.28 $ 0.30 $ 0.24 $ 0.10
Diluted................................. $ 0.28 $ 0.30 $ 0.24 $ 0.10
1997(a)
Revenues.................................. $ 68,011 $ 39,382 $ 25,419 $ 17,425
Operating income.......................... 2,552 2,438 (5,055) (1,060)
Net income................................ 1,158 1,025 (5,998) (484)
Earnings per share(b):
Basic................................... $ 0.08 $ 0.11 $ (0.70) $ (0.10)
Diluted................................. $ 0.07 $ 0.11 $ (0.70) $ (0.10)
</TABLE>
- --------
(a) Concurrent with the IPO, the Company changed its fiscal year end from
February 28 to December 31 (see Note 1). The accompanying consolidated
statements of operations contain results for the ten month period ended
December 31, 1997; however, the quarterly financial summary above contains
four calendar quarters of information for 1997, as reported on Forms 10-Q.
(b) Because the Company reported a net loss in the first two quarters of 1997,
the potentially dilutive common shares (including warrants and stock
options discussed in Note 9) had an anti-dilutive effect on earnings per
share. Accordingly, diluted earnings per share is the same as basic
earnings per share for each of these periods.
18. Subsequent Events (unaudited)
During the first quarter of 1999, the Company completed the acquisition of
three platform companies. The combined annual revenues of the companies were
approximately $165.5 million. Total consideration paid included cash payments
of $35.6 million, $1.6 million of junior subordinated notes, 2.1 million
shares of common stock and total debt assumed of $13.8 million. The Company
will account for these acquisitions using the purchase method of accounting.
21
<PAGE>
EXHIBIT 99.02
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 6,496 $ 2,371
Accounts receivable, net........................... 317,344 187,251
Inventories........................................ 20,635 17,843
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... 50,299 26,533
Prepaid expenses and other current assets.......... 8,167 6,134
Deferred tax assets................................ 9,750 7,579
Refundable income taxes............................ -- 3,341
---------- --------
Total current assets.............................. 412,691 251,052
PROPERTY AND EQUIPMENT, net......................... 55,913 40,795
GOODWILL, net....................................... 518,003 398,714
DEFERRED DEBT ISSUE COSTS........................... 13,568 9,260
OTHER LONG-TERM ASSETS.............................. 1,744 1,260
---------- --------
Total assets...................................... $1,001,919 $701,081
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt.................................... $ 1,408 $ 12,959
Accounts payable and accrued expenses.............. 163,425 99,205
Due to related parties............................. 5,432 14,961
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 47,997 27,830
Deferred service contract revenue.................. 5,022 4,429
Income taxes payable............................... 8,844 2,028
Other current liabilities.......................... 2,746 3,199
---------- --------
Total current liabilities......................... 234,874 164,611
REVOLVING CREDIT FACILITY........................... 218,500 195,000
SENIOR SUBORDINATED NOTES........................... 130,000 --
JUNIOR SUBORDINATED NOTES........................... 4,150 16,000
DEFERRED TAX LIABILITIES............................ 1,486 733
OTHER LONG-TERM LIABILITIES......................... 3,084 8,808
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 50,000 shares
authorized; none issued and outstanding........... -- --
Common stock, $0.001 par value; 100,000 shares
authorized; 38,344 and 33,154 shares issued and
outstanding, respectively......................... 38 33
Additional paid-in capital......................... 382,949 322,478
Retained earnings (deficit)........................ 26,838 (6,582)
---------- --------
Total shareholders' equity........................ 409,825 315,929
---------- --------
Total liabilities and shareholders' equity........ $1,001,919 $701,081
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months
ended September Nine months ended
30, September 30,
------------------ --------------------
1999 1998 1999 1998
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUES............................ $436,852 $211,667 $1,121,471 $477,944
COST OF SERVICES.................... 346,456 161,681 890,287 364,225
-------- -------- ---------- --------
Gross profit...................... 90,396 49,986 231,184 113,719
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 53,440 32,107 142,829 77,814
AMORTIZATION OF GOODWILL............ 3,311 1,582 9,234 3,586
-------- -------- ---------- --------
Income from operations............ 33,645 16,297 79,121 32,319
OTHER INCOME (EXPENSE):
Interest expense.................. (8,139) (1,699) (20,777) (3,013)
Interest income................... 140 99 314 328
Other............................. 190 197 529 346
-------- -------- ---------- --------
Income before income tax
provision........................ 25,836 14,894 59,187 29,980
INCOME TAX PROVISION................ 11,016 6,525 25,767 13,243
-------- -------- ---------- --------
NET INCOME.......................... $ 14,820 $ 8,369 $ 33,420 $ 16,737
======== ======== ========== ========
BASIC EARNINGS PER SHARE:
EARNINGS PER SHARE................ $ 0.39 $ 0.30 $ 0.91 $ 0.66
======== ======== ========== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING...................... 38,116 27,649 36,646 25,361
======== ======== ========== ========
DILUTED EARNINGS PER SHARE:
EARNINGS PER SHARE................ $ 0.39 $ 0.30 $ 0.90 $ 0.65
======== ======== ========== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING...................... 38,435 28,157 36,980 25,781
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 33,420 $ 16,737
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 19,837 8,653
Other.................................................... (58) (684)
Changes in operating assets and liabilities, net of
effect of acquisitions accounted for as purchases:
(Increase) decrease in--
Accounts receivable..................................... (54,644) (17,958)
Inventories............................................. (113) (181)
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. (1,835) (10,605)
Prepaid expenses and other current assets............... (1,055) (2,699)
Refundable income taxes................................. 3,341 1,051
Other long-term assets.................................. 2,435 2,072
Increase (decrease) in--
Accounts payable and accrued expenses................... 20,614 2,801
Due to related parties.................................. (214) (5,385)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 7,493 6,332
Deferred service contract revenue....................... (499) 188
Income taxes payable.................................... 7,341 7,771
Other current liabilities............................... (718) 494
Other long-term liabilities............................. (457) (214)
-------- --------
Net cash provided by operating activities.............. 34,888 8,373
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired of $5,417
and $8,610............................................... (98,689) (111,095)
Deferred acquisition costs................................ (2,200) (1,197)
Purchase of property and equipment........................ (13,673) (6,602)
Proceeds from sale of property and equipment.............. 733 200
-------- --------
Net cash used in investing activities.................. (113,829) (118,694)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated debt offering, net of
offering costs........................................... 118,984 --
Proceeds from other long-term debt........................ 202,590 142,100
Payments of long-term debt................................ (236,898) (55,271)
Deferred financing costs on other long-term debt.......... (1,868) --
Exercise of stock options................................. 258 --
-------- --------
Net cash provided by financing activities.............. 83,066 86,829
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 4,125 (23,492)
CASH AND CASH EQUIVALENTS, beginning of period............. 2,371 25,681
-------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 6,496 $ 2,189
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 16,981 $ 2,365
Income taxes paid......................................... $ 18,515 $ 5,707
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying unaudited consolidated condensed financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
Company has made all adjustments necessary for a fair presentation of the
results of the interim periods, and such adjustments consist of only normal
recurring adjustments. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto of the Company and management's discussion and analysis of financial
condition and results of operations included in the Annual Report on Form 10-
K/A for the year ended December 31, 1998.
Certain amounts recorded in the three and nine month periods ended September
30, 1998 and at December 31, 1998 have been reclassified to conform with the
current period presentation.
2. Earnings Per Share
Basic earnings per share have been calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
share have been calculated by dividing net income by the weighted average
number of common shares outstanding plus potentially dilutive common shares.
The following table summarizes weighted average shares outstanding for each
of the historical periods presented (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Shares issued through December 31, 1997
excluding acquisitions................. 16,629 16,629 16,629 16,629
Shares issued for 1997 acquisitions..... 4,733 4,444 4,733 4,439
Shares issued for 1998 acquisitions..... 12,095 6,576 12,089 4,293
Shares issued for 1999 acquisitions..... 4,609 -- 3,163 --
Exercise of stock options............... 50 -- 32 --
--------- --------- -------- --------
Weighted average shares outstanding--
Basic.................................. 38,116 27,649 36,646 25,361
Incremental effect of options and
warrants outstanding................... 319 508 334 420
--------- --------- -------- --------
Weighted average shares outstanding--
Diluted................................ 38,435 28,157 36,980 25,781
========= ========= ======== ========
</TABLE>
As of September 30, 1999, options to purchase 3.4 million and 2.9 million
shares of common stock and warrants to purchase 0.6 million and 0.6 million
shares of common stock were not included in the calculation of diluted earnings
per share for the three and nine month periods ended September 30, 1999,
respectively, because the exercise price of such options and warrants was
greater than the average market price of the common shares.
5
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
3. Business Combinations
During the nine months ended September 30, 1999, the Company completed the
acquisition of the 1999 Acquisitions for approximately $159.7 million, which
includes cash payments of $95.6 million, $4.1 million in junior subordinated
notes, 4.9 million shares of common stock and warrants to purchase
approximately 80,000 shares of common stock. Of the total consideration,
approximately $5.2 million of cash was due to former owners at September 30,
1999. In connection with these acquisitions, the Company assumed approximately
$30.3 million of debt.
The combined annual 1998 revenues of the 1999 Acquisitions were
approximately $365 million. Certain former owners of businesses acquired as
part of the 1999 Acquisitions have the ability to receive additional amounts of
purchase price, payable in cash and common stock, upon the occurrence of future
events.
Also during the nine months ended September 30, 1999, the Company paid
approximately $13.7 million of cash and 0.3 million shares of common stock
related to previously recorded amounts due to former shareholders of companies
acquired prior to December 31, 1998. Included in these amounts are payments of
contingent consideration related to acquisitions prior to December 31, 1998 of
approximately $3.0 million in cash and 0.3 million shares of common stock. In
addition, the Company reduced amounts due to former shareholders by
approximately $1.1 million related to final purchase price settlements.
The unaudited pro forma data presented below consists of the combined income
statement data for GroupMAC and its subsidiaries as if all of the 1998
acquisitions and the 1999 Acquisitions were effective on the first day of the
period being reported (in thousands, except for per share amounts).
<TABLE>
<CAPTION>
Pro Forma Data
Three months Pro Forma Data
Ended September Nine months Ended
30, September 30,
----------------- ---------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues................................ $442,255 $376,425 $1,214,543 $1,060,501
Net income.............................. $ 14,754 $ 12,771 $ 35,080 $ 33,884
Net income per share:
Basic................................. $ 0.38 $ 0.33 $ 0.91 $ 0.88
Diluted............................... $ 0.38 $ 0.33 $ 0.91 $ 0.87
</TABLE>
Pro forma adjustments included in the amounts above consist of (i)
compensation differentials, (ii) adjustment for goodwill amortization over a
period of 40 years, (iii) adjustment for interest expense as if borrowings
outstanding as of September 30, 1999 had been outstanding for both the three
and nine month periods ended September 30, 1999 and 1998 at interest rates in
effect on September 30, 1999, and (iv) adjustment to the federal and state
income tax provisions based on pro forma operating results. Net income per
share assumes all shares issued for the acquisitions were outstanding from the
beginning of the periods presented.
The 1999 Acquisitions included in the accompanying financial statements were
accounted for under the purchase method of accounting. Purchase price
consideration is subject to final adjustment. The allocation of purchase price
to the assets acquired and liabilities assumed has been initially assigned and
recorded based on preliminary estimates of fair values and may be revised as
additional information becomes available. Such additional information may
include appraisals on property, contingent liabilities of the acquired
business, and final settlements related to the acquisition consideration and
the net assets acquired. However, the Company does not expect the receipt of
this additional information to cause any significant adjustments to the
purchase price allocations or amount of goodwill at September 30, 1999.
6
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
4. Commitments and Contingencies
The Company is involved in various legal actions. It is not possible to
predict the outcome of these matters; however, in the opinion of management,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
5. Borrowing Activity
Revolving Credit Facility
The Company has a committed credit facility providing for $425 million of
borrowing capacity (the "Credit Agreement") and, at September 30, 1999, had
outstanding $218.5 million of borrowings under this facility. The Credit
Agreement was expanded from $230 million to $425 million during the second
quarter of 1999. This facility, which is with a syndicate of banks led by Chase
Bank of Texas, National Association, will mature in October 2001. Debt under
the Credit Agreement bears interest at variable rates. Under the Credit
Agreement, the Company is required to maintain: (1) a minimum Fixed Charge
Coverage Ratio; (2) a maximum ratio of total indebtedness for borrowed money to
capitalization (as defined in the Credit Agreement); (3) a maximum ratio of
senior debt to pro forma earnings before interest, taxes, depreciation and
amortization ("EBITDA"); (4) a maximum amount of total indebtedness to EBITDA;
(5) a minimum amount of Consolidated Net Worth (as defined in the Credit
Agreement); and (6) a maximum amount of capital expenditures in relation to
Consolidated Net Worth. At September 30, 1999, the Company was in compliance
with those covenants.
The Company has paid various underwriting and arrangement fees and closing
costs associated with the origination, syndication and expansion of the Credit
Agreement. The unamortized portion of these expenses is included as deferred
debt issue costs in the accompanying consolidated condensed balance sheets and
amounted to approximately $3.3 million and $2.4 million at September 30, 1999
and December 31, 1998, respectively.
Senior Subordinated Notes
In January 1999, the Company completed an offering (the "Offering") of $130
million of unsecured senior subordinated notes (the "Notes") bearing interest
at 9.75% and maturing in January 2009. The net proceeds of the Offering were
used to repay indebtedness incurred under the Credit Agreement. The Notes are
guaranteed by all of the Company's current and future U.S. subsidiaries other
than "Unrestricted Subsidiaries" (as defined in the indenture governing the
Notes). As of November 15, 1999, there were no "Unrestricted Subsidiaries."
These guarantees are full, unconditional and joint and several.
The Notes pay interest semi-annually commencing July 15, 1999 and are
redeemable at the option of the Company at any time on or after January 15,
2004. Additionally, the Notes' indenture has restrictive covenants or
limitations on the payment of dividends, the distribution or redemption of
capital stock, the incurrence of debt and the sale of assets.
The Company entered into an agreement to lock in the ten year U.S. Treasury
rate used to price the Offering of the Notes. The Company locked in $100
million at 5.5212%, which management believes is an attractive long-term base
rate. This agreement expired on January 31, 1999, and was settled on that date
based upon the ten year Treasury yield of 4.648%, resulting in an additional
pre-tax financing cost of approximately $6.9 million. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 80, Accounting for
Futures Contracts, this agreement qualifies as a hedge and was recognized as
deferred debt issue costs.
7
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
In addition, the Company paid various arrangement fees and closing costs
associated with the Offering. The unamortized portion of these expenses, along
with the cost of the hedge discussed in the preceding paragraph, is included as
deferred debt issue costs in the accompanying consolidated condensed balance
sheets and amounted to approximately $10.2 million and $6.9 million at
September 30, 1999 and December 31, 1998, respectively.
Junior Subordinated Notes
In February 1999, the Company redeemed approximately $16.0 million of junior
subordinated notes that had been issued in connection with an acquisition
completed in November 1998. The holders of those notes had the right to require
redemption upon the issuance of the Notes. The Company paid the redemption
price with borrowings under the Credit Agreement. During 1999, the Company
issued $4.1 million in junior subordinated notes in connection with the closing
of two of the 1999 Acquisitions.
6. Subsequent Event
On November 3, 1999, the Company and Building One Services Corporation
("BOSC") announced the signing of a definitive agreement to merge the two
companies. Under the terms of the merger, each outstanding share of BOSC 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 less
amounts paid to purchase certain options previously issued by the Company),
subject to pro-ration. If this cash election is fully subscribed, up to
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 the cash they receive.
Concurrent with the closing of the merger, an affiliate of Apollo Management
IV, L.P. ("Apollo"), a private investment firm, will exchange $105 million of
BOSC convertible debt and $150 million of cash for approximately $255 million
of GroupMAC convertible redeemable preferred stock. The cash proceeds from the
investment will be used to fund the cash election option described above. The
Company can defer payment of dividends during the first three years without
penalty. The preferred stock will bear a coupon rate of 7.25%, 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.
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.
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 expected that
BOSC's $200 million of senior subordinated debt will be assumed by GroupMAC and
remain outstanding, and that GroupMAC will refinance its senior subordinated
notes.
7. Operating Segments
The Company's reportable segments are strategic business units that offer
products and services to two distinct customer groups. They are managed
separately because each business requires different operating and marketing
strategies.
8
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
The Company has two reportable segments: commercial/industrial and
residential markets. The commercial/industrial segment provides maintenance,
repair and replacement services and new installation services in manufacturing
and processing facilities, power generation facilities, hospitals and other
critical care facilities, colleges and universities, hotels, commercial office
buildings and complexes, retail stores and restaurants, supermarkets and
convenience stores. The residential segment provides maintenance, repair and
replacement services and new installation services in single family and low-
rise multifamily housing units.
The Company evaluates performance based on income from operations of the
respective business units prior to unallocated corporate expenses.
Other activities include financial data of two operating subsidiaries that
provide products and services outside of those performed by the Company's two
primary operating segments. Unallocated corporate expenses primarily include
(1) corporate overhead, (2) corporate and operating company management bonuses,
(3) employee benefit plan expenses, and (4) savings from national purchase
agreements relating to materials and property/casualty insurance. Assets for
the corporate function are included in the "Other" column in the presentation
below.
Segment information for the three and nine month periods ended September 30,
1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Commercial/Industrial Residential Other Total
--------------------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Three month period ended
September 30, 1999:
Revenues................ $344,185 $ 92,267 $ 400 $ 436,852
Operating costs......... 313,572 82,838 360 396,770
-------- -------- ------- ----------
Subtotal................ 30,613 9,429 40 40,082
Goodwill amortization... 2,795 470 46 3,311
-------- -------- ------- ----------
Segment operating
earnings............... $ 27,818 $ 8,959 $ (6) 36,771
======== ======== =======
Unallocated corporate
expenses............... (3,126)
----------
Income from operations.. $ 33,645
==========
Assets.................. $826,392 $134,516 $41,011 $1,001,919
Three month period ended
September 30, 1998:
Revenues................ $130,279 $ 80,866 $ 522 $ 211,667
Operating costs......... 119,338 71,527 476 191,341
-------- -------- ------- ----------
Subtotal................ 10,941 9,339 46 20,326
Goodwill amortization... 1,108 429 45 1,582
-------- -------- ------- ----------
Segment operating
earnings............... $ 9,833 $ 8,910 $ 1 18,744
======== ======== =======
Unallocated corporate
expenses............... (2,447)
----------
Income from operations.. $ 16,297
==========
</TABLE>
Maintenance, repair and replacement services represented 59% and 52%, and
new installation services represented 41% and 48%, of total revenues for the
three months ended September 30, 1999 and 1998, respectively.
9
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
<TABLE>
<CAPTION>
Commercial/Industrial Residential Other Total
--------------------- ----------- ------ ----------
<S> <C> <C> <C> <C>
Nine month period ended
September 30, 1999:
Revenues................. $870,854 $249,164 $1,453 $1,121,471
Operating costs.......... 799,659 225,508 1,164 1,026,331
-------- -------- ------ ----------
Subtotal................. 71,195 23,656 289 95,140
Goodwill amortization.... 7,662 1,435 137 9,234
-------- -------- ------ ----------
Segment operating
earnings................ $ 63,533 $ 22,221 $ 152 85,906
======== ======== ======
Unallocated corporate
expenses................ (6,785)
----------
Income from operations... $ 79,121
==========
Nine month period ended
September 30, 1998:
Revenues................. $266,641 $209,512 $1,791 $ 477,944
Operating costs.......... 246,324 187,899 1,641 435,864
-------- -------- ------ ----------
Subtotal................. 20,317 21,613 150 42,080
Goodwill amortization.... 2,249 1,203 134 3,586
-------- -------- ------ ----------
Segment operating
earnings................ $ 18,068 $ 20,410 $ 16 38,494
======== ======== ======
Unallocated corporate
expenses................ (6,175)
----------
Income from operations... $ 32,319
==========
</TABLE>
Maintenance, repair and replacement services represented 59% and 49%, and
new installation services represented 41% and 51%, of total revenues for the
nine months ended September 30, 1999 and 1998, respectively.
10
