<PAGE>
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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
February 18, 1999
------------------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
BUILDING ONE SERVICES CORPORATION
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(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
DELAWARE 000-23421 52-2054952
- ------------------------- ------------------------- -------------------------
(STATE OR JURISDICTION (COMMISSION FILE NO.) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
800 CONNECTICUT AVENUE, N.W., SUITE 1111, WASHINGTON, D.C. 20006
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(202) 261-6000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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<PAGE>
ITEM 5. OTHER EVENTS
Building One services Corporation (the "Company") is filing its restated
consolidated financial statements to reflect under the purchase method of
accounting certain acquisitions previously accounted for under the pooling-of-
interests method of accounting as a result of the Company's decision to
repurchase shares of its common stock. These financial statements are attached
hereto as Exhibit 99.1 and are incorporated by reference into this Item 5.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99.1 Building One Services Corporation Financial Statements.
<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: February 18, 1999 By: /s/ F. Traynor Beck
----------------------------------
F. Traynor Beck
Executive Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
99.1 Building One Services Corporation Financial Statements.
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Building One Services Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Building One
Services Corporation and its subsidiaries at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of certain wholly-owned subsidiaries, which
statements reflect total assets of $4.0 million and $3.5 million at December
31, 1997 and 1996, respectively, and total revenues of $28.5 million, $11.1
million and $9.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar
as it relates to the amounts included for those wholly-owned subsidiaries, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a reasonable basis for
the opinion expressed above.
As described in Note 3, as a result of the announcement of the
Recapitalization Plan, the Company has restated its financial statements to
account for certain business combinations as purchase transactions.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 27, 1998, except as
to Note 4, which is as of
June 26, 1998, the fourth
paragraph of Note 14, which
is as of November 25, 1998,
and Note 3, which is as of
February 7, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Perimeter Maintenance Corporation
Atlanta, Georgia
We have audited the balance sheets of Perimeter Maintenance Corporation (an
S Corporation) as of December 31, 1997 and 1996 (not presented seperately
herein), and the related statements of operations, retained earnings, and cash
flows for the year ended December 31, 1997 (not presented seperately herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perimeter Maintenance
Corporation as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Frazier & Deeter, LLC
-------------------------
Frazier & Deeter, LLC
Atlanta, Georgia
February 19, 1998
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Crest International, LLC
Green Bay, Wisconsin
We have audited the balance sheets of Crest International, LLC (a Wisconsin
limited liability company) as of December 31, 1997 and 1996 (not presented
seperately herein), and the related statements of income, accumulated deficit
and cash flows for the years ended December 31, 1997, 1996 and 1995 (not
presented seperately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crest International, LLC
as of December 31, 1997 and 1996, and the results of its operations and cash
flows for the years ended December 31, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.
/s/ Shinners, Hucovski & Company, S.C.
--------------------------------------
Shinners, Hucovski & Company, S.C.
Green Bay, Wisconsin
February 17, 1998
3
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1996 1997 1998
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 303 $528,972 $ 272,022
Accounts receivable, less allowance
for doubtful accounts of
$136, $104 and $1,651,
respectively........................ 5,157 5,193 205,502
Costs and estimated earnings in
excess of billings on
uncompleted contracts............... -- -- 20,410
Prepaid expenses and other current
assets.............................. 764 2,065 12,955
------ -------- ----------
Total current assets............... 6,224 536,230 510,889
Property and equipment, net............ 2,984 2,593 31,718
Intangible assets, net................. 234 152 454,862
Other assets........................... 187 184 4,643
------ -------- ----------
Total assets....................... $9,629 $539,159 $1,002,112
====== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................... $1,481 $ 1,553 $ 3,864
Accounts payable..................... 2,305 1,800 57,352
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... -- -- 59,361
Accrued compensation................. 834 2,237 31,796
Income taxes payable................. 7 298 7,304
Accrued liabilities.................. 1,530 2,107 17,597
------ -------- ----------
Total current liabilities.......... 6,157 7,995 177,274
Long-term debt......................... 1,890 1,679 3,094
Other liabilities...................... 4 5 4,497
------ -------- ----------
Total liabilities.................. 8,051 9,679 184,865
------ -------- ----------
Stockholders' equity:
Common stock, $.001 par value,
250,000,000 shares authorized,
1,290,724, 31,440,724 and 44,160,179
shares issued and outstanding,
respectively........................ 1 31 44
Convertible Non-Voting Common Stock,
$.001 par, 500,000 shares
authorized, issued and outstanding.. -- 1 1
Additional paid-in capital........... 1,577 529,441 814,791
Treasury stock....................... -- -- (27,048)
Retained earnings.................... 7 30,083
Accumulated other comprehensive
income (loss)....................... (624)
------ -------- ----------
Total stockholders' equity......... 1,578 529,480 817,247
------ -------- ----------
Total liabilities and stockholders'
equity............................ $9,629 $539,159 $1,002,112
====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
For the Years Ended December 31, September 30,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 57,287 $ 63,202 $ 70,101 $ 52,410 $ 478,595
Cost of revenues........ 48,783 53,664 58,857 44,112 376,318
---------- ---------- ---------- --------- ----------
Gross profit...... 8,504 9,538 11,244 8,298 102,277
Selling, general and
administrative
expenses............... 8,468 8,803 11,776 7,223 59,786
Goodwill amortization... -- -- -- -- 4,584
Non-recurring
acquisition costs...... -- -- -- -- 768
---------- ---------- ---------- --------- ----------
Operating income
(loss)........... 36 735 (532) 1,075 37,139
Other (income) expense:
Interest income....... -- -- (2,056) -- (16,043)
Interest expense...... 239 224 208 160 565
Other, net............ (8) 83 (221) (35) (134)
---------- ---------- ---------- --------- ----------
Income (loss) before
taxes.................. (195) 428 1,537 950 52,751
Provision (benefit) for
income taxes........... (5) 13 94 7 22,460
---------- ---------- ---------- --------- ----------
Net income (loss)....... $ (190) $ 415 $ 1,443 $ 943 $ 30,291
========== ========== ========== ========= ==========
Net income (loss) per
share--Basic........... $ (0.15) $ 0.32 $ 0.25 $ 0.30 $ 0.79
========== ========== ========== ========= ==========
Net income (loss) per
share--Diluted......... $ (0.15) $ 0.30 $ 0.25 $ 0.29 $ 0.77
========== ========== ========== ========= ==========
Weighted average shares
outstanding--Basic..... 1,238,444 1,290,724 5,683,464 3,102,079 38,298,295
========== ========== ========== ========= ==========
Weighted average shares
outstanding--Diluted... 1,238,444 1,405,840 5,865,550 3,217,195 39,368,321
========== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Convertible
Non-Voting Accumulated
Common Stock Common Stock Other
------------------- ------------------ Additional Comprehensive Total Total
Shares Shares Paid-in- Treasury Retained Income Stockholders' Comprehensive
Outstanding Amount Outstanding Amount Capital Stock Earnings (loss) Equity Income (Loss)
----------- ------ ----------- ------ ---------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1994......... 1,238,444 $ 1 $-- $ 1,382 $ $ $ $ 1,383 $ --
Transactions of
Pooled
Companies:
Distributions
paid........... (210) (210)
Common stock
Issued......... 217 217
Net loss......... (190) (190) (190)
-------
Total
comprehensive
loss............ $ (190)
---------- --- ------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1995......... 1,238,444 1 1,199 1,200
Transactions of
Pooled
Companies:
Distributions
paid........... (140) (140)
Common stock
issued......... 52,280 103 103
Net income....... 415 415 415
-------
Total
comprehensive
income.......... $ 415
---------- --- ------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1996......... 1,290,724 1 1,577 1,578
Transactions of
Pooled
Companies:
Distributions
paid........... (831) (831)
Capital
contribution.... 2,300,000 2 124 126
Common stock
issued.......... 27,850,000 28 500,000 1 527,134 527,163
Net income....... 1,436 7 1,443 1,443
-------
Total
comprehensive
income.......... $ 1,443
---------- --- ------- ---- -------- -------- ------- ----- -------- =======
Balance, December
31, 1997......... 31,440,724 31 500,000 1 529,441 7 529,480
Unaudited data:
Transactions of
Pooled
Companies:
Distributions
paid........... (628) (628)
Stock issued
upon exercise
of options..... 115,116 1 216 217
Issuance of
common stock for
acquisitions.... 14,443,040 14 285,373 285,387
Stock issued
under employee
stock purchase
plan............ 16,299 174 174
Stock
repurchase...... (1,855,000) (2) (27,048) (27,050)
Unrealized loss
on marketable
securities --
net of tax...... (624) (624) (624)
Net income....... 215 30,076 30,291 30,291
-------
Total
comprehensive
income.......... $29,667
---------- --- ------- ---- -------- -------- ------- ----- -------- =======
Balance, September
30, 1998
(unaudited)...... 44,160,179 $44 500,000 $ 1 $814,791 $(27,048) $30,083 $(624) $817,247
========== === ======= ==== ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended Nine Months Ended
December 31, September 30,
------------------------- -------------------
1995 1996 1997 1997 1998
------- ------ -------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ (190) $ 415 $ 1,443 $ 943 $ 30,291
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 849 926 945 626 7,946
Deferred income taxes........ (205)
Gain (loss) on sale of
equipment................... (60) 1 (52) (1) 27
Changes in operating assets
and liabilities:
Accounts receivable........ (131) (511) (36) (1,006) (21,323)
Costs and estimated
earnings in excess of
billings.................. 3,190
Prepaid expenses and other
current assets............ 127 (27) (1,319) (786) (2,237)
Billings in excess of costs
and estimated earnings.... (479) 9,787
Accounts payable........... 503 486 (505) 120 (2,485)
Accrued liabilities........ 390 69 2,254 990 7,538
Change in other assets....... (36) 39 3 40 1,135
------- ------ -------- ------- ----------
Net cash provided by
operating activities.... 1,452 1,398 2,733 447 33,664
------- ------ -------- ------- ----------
Cash flows from investing
activities:
Cash paid for acquisitions,
net of cash acquired........ (195,155)
Purchases of property and
equipment................... (589) (703) (699) (395) (6,677)
Proceeds on sale of
equipment................... 77 18 387 740
Other........................ (10) (6) (7) 24
------- ------ -------- ------- ----------
Net cash provided by
(used in) investing
activities.............. (522) (691) (319) (395) (201,068)
------- ------ -------- ------- ----------
Cash flows from financing
activities:
Proceeds from initial public
offering, net............... 527,164
Proceeds from issuance of
common stock................ 103
Net proceeds (payments) on
short-term debt............. 181 (140) 145 269 (36,355)
Payments on long-term debt... (1,050) (153) (253) (165) (28,690)
Proceeds on long-term debt... 100 398 2,239
Payment of dividends at
Pooled Companies............ (210) (140) (831) ( 100) (628)
Net proceeds (payments) on
related party loans......... (500) (194) 547
Payments under capital
lease....................... (55) (177)
Purchase of treasury stock... (27,050)
Proceeds from stock options
exercised................... 217
Proceeds from issuance of
stock under employee stock
purchase plan............... 174
Contributions of capital by
stockholders of Pooled
Companies................... 217
Contributions by founding
stockholder................. 126
Other cash flows from
financing activities........ (96)
------- ------ -------- ------- ----------
Net cash provided by
(used in)
financing activities.... (817) (609) 526,255 (190) (89,546)
------- ------ -------- ------- ----------
Net increase in cash and cash
equivalents................... 113 98 528,669 (138) (256,950)
Cash and cash equivalents,
beginning of period........... 92 205 303 243 528,972
------- ------ -------- ------- ----------
Cash and cash equivalents, end
of period..................... $ 205 $ 303 $528,972 $ 105 $ 272,022
======= ====== ======== ======= ==========
Supplemental cash flow
information:
Cash paid for interest....... $ 246 $ 357 $ 290
</TABLE>
<PAGE>
BUILDING ONE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Dollars in thousands)
The Company issued common stock and cash in connection with certain business
combinations during the nine months ended September 30, 1998. The fair values
of the assets acquired and liabilities assumed at the dates of acquisition are
as follows (unaudited):
<TABLE>
<S> <C>
Accounts receivable................................................... $178,497
Inventories........................................................... 2,117
Costs and earnings in excess of billings.............................. 26,045
Prepaid expenses and other current assets............................. 9,108
Property and equipment................................................ 27,530
Intangible assets..................................................... 459,446
Other assets.......................................................... 6,293
Short-term debt....................................................... (29,358)
Accounts payable...................................................... (57,420)
Accrued liabilities................................................... (45,280)
Billings in excess of costs and estimated earnings.................... (49,776)
Long-term debt........................................................ (40,848)
Other long-term liabilities........................................... (5,812)
--------
Net assets acquired................................................. $480,542
========
These acquisitions were funded as follows:
Common stock, 14,443,040 shares..................................... $285,387
Cash, net of cash acquired.......................................... 195,155
--------
$480,542
========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1--BUSINESS AND ORGANIZATION
Building One Services Corporation ("Building One" or the "Company"), a
Delaware corporation, was incorporated in September 1997. Ledecky Brothers
L.L.C., ("LLC"), a limited liability corporation formed in February 1997,
merged with and into the Company in September 1997 (the "Merger"). The sole
member of LLC received, in connection with the Merger, 2,300,000 shares of
Common Stock of the Company which represents all of its issued and outstanding
Common Stock, in exchange for 100% of his ownership interest in the LLC. The
Merger was implemented to facilitate a public offering of securities. Because
both of the organizations were under control of the one sole owner, the Merger
has been accounted for on a historical cost basis.
The Company completed an initial public offering of its Common Stock in
December 1997, selling 27,850,000 shares of Common Stock and 500,000 shares of
Convertible Non-Voting Common Stock and raising net proceeds of approximately
$527,000.
The Company is consolidating the facilities services industry with the
intent to become a national single-source provider of facilities services.
Currently, the Company provides electrical installation and maintenance
services, mechanical installation and maintenance services and janitorial
maintenance and management services throughout the United States.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Building One, and
the companies acquired in business combinations accounted for under the
purchase method (the "Purchased Companies") from their respective acquisition
dates and give retroactive effect to the results of the companies acquired in
business combinations accounted for under the pooling-of-interests method (the
"Pooled Companies") for all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company utilizes the percentage-of-completion method of accounting for
the recognition of revenues and costs of all significant installation
contracts. Revenues are recognized according to the ratio of costs incurred
9
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
to estimated total contract costs. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions
are determined. Maintenance and other service revenues are recognized as the
services are performed.
Non-Recurring Acquisition Costs
Non-recurring acquisition costs consist of costs incurred in conjunction
with the business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, broker fees and other
costs directly attributable to the business combination.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
"SFAS" No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for reporting information
about operating segments in annual and interim financial statements. Operating
segments are determined consistent with the way management organizes and
evaluates financial information internally for making decisions and assessing
performance. It also requires related disclosures about products, geographic
areas, and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131
for the year ending December 31, 1998. Implementation of this disclosure
standard will not affect the Company's financial position or results of
operations.
Cash and Cash Equivalents
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade accounts receivable. The Company's temporary cash investments
consist of readily marketable, investment grade financial instruments of a
nature which should reduce risk of loss. Additionally, concentration of credit
risk with respect to trade receivables results from these amounts not being
collateralized and, as a result, management continually monitors the financial
condition of its customers to reduce risk of loss.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and debt approximate fair value. The Company's
cash equivalents are comprised of readily marketable, interest-bearing,
investment grade securities.
Marketable Securities
The Company accounts for marketable securities in accordance with the
provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Marketable securities consist of investments in equity
securities and are classified as available for sale. The unrealized gains, net
of income taxes, are reported as an increase to stockholders' equity. Realized
gains and losses are included in other income. The cost of securities sold is
based on the specific identification method.
10
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Property and Equipment
Property and equipment are stated at cost and depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years for equipment, vehicles, and furniture and fixtures
and 40 years for buildings. Leasehold improvements and capital leases are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset.
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates the recoverability of long-lived assets not
held for sale by measuring the carrying value of the assets against the
estimated undiscounted future cash flows associated with them. At such time
evaluations indicate that the future undiscounted cash flows of certain long-
lived assets are not sufficient to recover the carrying value of such assets,
the assets are adjusted to their fair values. Based on these evaluations
there were no adjustments recognized through September 30, 1998.
Intangible Assets
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is being amortized on a
straight-line basis over 40 years which is the estimated period benefited. The
recoverability of the unamortized balance of goodwill is assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value. If at such time these assessments indicate that
the future undiscounted cash flows from operations are not sufficient to
recover the net book value, the goodwill balance is adjusted to its fair
value. No such adjustments have been recognized through September 30, 1998.
Income Taxes
Income taxes have been computed utilizing the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. Certain companies acquired in pooling-of-interests transactions
elected to be taxed as subchapter S corporations and, accordingly, no federal
income taxes were recorded by those companies for periods prior to their
acquisition by Building One.
Net Income Per Share
Basic net income per share is determined by dividing net income by the
weighted average number of common shares outstanding during the periods.
Diluted net income per share reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock at the beginning of the period.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company at September 30, 1998,
and the results of its operations and its cash flows for the nine months ended
September 30, 1998 and 1997, as presented in the accompanying unaudited
interim financial statements.
11
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 3--TENDER OFFER
On February 7, 1999, the Company's Board of Directors approved a plan to
repurchase 50% of its outstanding common stock at $25 per share and 50% of
employee stock options at $25 per share less the exercise price of the options
(the "Tender Offer"). The Tender Offer replaces the recapitalization plan
announced by the Company on December 23, 1998 (the "Recapitalization Plan"),
under which the Company had intended to, among other things, repurchase
approximately 34.5 million shares of the Company's common stock. The Company
plans to finance the Tender Offer through the use of the Company's cash, the
planned issuance of $300,000 of senior subordinated notes and a $100,000 term
facility. The Company expects the Tender Offer to be completed in the second
quarter of 1999.
Purchase Accounting Restatement
On August 3, 1998, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission which included audited
supplemental consolidated financial statements. These supplemental
consolidated financial statements gave retroactive effect to a business
combination with The Lewis Companies, Inc. consummated during the quarter
ended June 30, 1998 originally recorded under the pooling-of-interests method
of accounting. Additionally, on November 13, 1998, the Company filed its
Quarterly Report on Form 10-Q for the period ended September 30, 1998 with the
Securities and Exchange Commission which included financial statements that
gave retroactive effect to a business combination with Robinson Mechanical,
Inc. consummated during the quarter ended September 30, 1998 originally
accounted for under the pooling-of-interests method.
As a result of the announcement of the Recapitalization Plan and as required
by generally accepted accounting principles, the Company has restated its
consolidated financial statements for all periods to account for these
acquisitions under the purchase method of accounting. In relation to the
supplemental consolidated financial statements, this restatement resulted in a
reduction (increase) to the Company's reported total assets at December 31,
1997 and 1996 by $32,105 and $33,066, respectively, and reported net income
for fiscal 1995, 1996 and 1997 of $920, $(2,277) and $2,243, respectively.
Additionally, the restatement of the two business combinations as purchase
transactions gave rise to approximately $51 million of goodwill during the
nine months ended September 30, 1998.
NOTE 4--BUSINESS COMBINATIONS
Pooling-of-Interests Method
During 1998, the Company issued 1,405,840 shares of Common Stock to acquire
three companies in business combinations accounted for under the pooling-of-
interests method (the "Pooled Companies"). The Company's consolidated
financial statements give retroactive effect to the acquisitions of the Pooled
Companies for all periods presented.
12
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The following presents the separate results, in each of the periods
presented, of Building One (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the
dates on which they were acquired:
<TABLE>
<CAPTION>
Building Pooled
One Companies Combined
-------- --------- --------
<S> <C> <C> <C>
For the year ended December 31, 1995
Revenues....................................... $ -- $57,287 $ 57,287
Net loss....................................... -- (190) (190)
For the year ended December 31, 1996
Revenues....................................... $ -- $63,202 $ 63,202
Net income..................................... -- 415 415
For the year ended December 31, 1997
Revenues....................................... $ -- $70,101 $ 70,101
Net income..................................... 7 1,436 1,443
For the nine months ended September 30, 1997
(unaudited)
Revenues....................................... $ -- $52,410 $ 52,410
Net income..................................... -- 943 943
For the nine months ended September 30, 1998
(unaudited)
Revenues....................................... $451,873 $26,722 $478,595
Net income..................................... 30,076 215 30,291
</TABLE>
Purchase Method (Unaudited)
During the period January 1, 1998 through September 30, 1998, the Company
completed 21 business combinations that were accounted for under the purchase
method of accounting. The consolidated financial statements and related notes
to consolidated financial statements include the results of these acquired
entities from their respective dates of acquisition. The aggregate
consideration paid for these acquisitions consisted of 14,443,040 shares of
the Company's Common Stock, 403,389 options assumed in one acquisition at an
exercise price below fair market value, $228,715 in cash, including applicable
fees, and the assumption of approximately $33,847 in debt which was paid at
closing. These amounts do not include the potential payment of contingent
consideration of up to approximately $122,845 in cash and in shares of Common
Stock of the Company based upon the performance of the businesses acquired.
The total purchase price was allocated to the fair value of the net assets
acquired resulting in goodwill of approximately $458,518. Such allocations are
preliminary in nature, pending the outcome of a detailed analysis being
performed by the Company of the assets and liabilities acquired. For purposes
of computing the estimated purchase price for accounting purposes the value of
the shares on certain acquisitions was determined in consideration of
restrictions on the sale and transferability of the shares issued. The shares
generally will be subject to the following restrictions on resale: up to one-
third of the shares may be resold twelve months after their date of
acquisition, the first one-third and an additional one-third may be resold
beginning eighteen months after their date of acquisition and the first two-
thirds and the remaining one-third may be resold beginning twenty-four months
after their date of acquisition.
13
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1997 and the nine month periods ended
September 30, 1997 and 1998, respectively, as if all of the Purchased
Companies had been consummated as of January 1, 1997. The pro forma results of
operations reflect certain pro forma adjustments primarily related to goodwill
amortization and compensation adjustments for shareholders.
<TABLE>
<CAPTION>
For the Nine Months Ended
Year Ended September 30,
December 31, -------------------
1997 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
Revenues................................... $1,003,740 $ 733,380 $ 857,884
Net income................................. $ 35,591 $ 25,774 $ 44,920
Net income per share-basic................. $ 1.01 $ 0.75 $ 0.95
Net income per share-diluted............... $ .99 $ 0.74 $ 0.93
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the acquisitions occurred as of January 1, 1997 or the results that may occur
in the future.
NOTE 5--DETAIL OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a rollforward of activity within the allowance for doubtful
accounts:
<CAPTION>
December 31,
--------------------------------
1995 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............. $ 113 $ 120 $ 136
Additions to costs and expenses............ 7 16 5
Write-offs................................. (37)
---------- --------- ---------
Balance at end of period................... $ 120 $ 136 $ 104
========== ========= =========
</TABLE>
NOTE 6--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
September 30, 1998
------------------
(unaudited)
<S> <C>
Costs incurred on uncompleted contracts............... $740,367
Estimated earnings.................................... 161,223
--------
901,590
Less: Billings to date................................ 940,541
--------
$(38,951)
========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
September 30, 1998
------------------
(unaudited)
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $ 20,410
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 59,361
--------
$(38,951)
========
</TABLE>
14
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 7--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Equipment............................................... $ 3,092 $ 3,160
Office furniture and equipment.......................... 915 1,029
Autos and trucks........................................ 630 593
Buildings and improvements.............................. 1,247 1,107
Land.................................................... 69 53
------- -------
5,953 5,942
Less: Accumulated depreciation.......................... (2,969) (3,349)
------- -------
$ 2,984 $ 2,593
======= =======
</TABLE>
Depreciation expense for years 1995, 1996 and 1997 was $1,138, $1,268 and
$1,284, respectively.
NOTE 8--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Goodwill........................................ $ 92 $ 151 $458,492
Non-compete agreements.......................... 835 1,060
Other........................................... 64 18 521
------ ----- --------
991 169 461,962
Less: Accumulated amortization.................. (757) (17) (4,684)
------ ----- --------
Net intangible assets........................ $ 234 $ 152 $455,389
====== ===== ========
</TABLE>
Amortization expense for years 1995, 1996 and 1997 was $183, $177 and $141,
respectively, and $4,584 for the nine months ended September 30, 1998
(unaudited).
NOTE 9--CREDIT FACILITIES
Short-Term Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Credit facilities with banks, interest ranging from prime
to prime plus 1 3/4% (average rate of 9.25% at December
31, 1997)................................................. $ 987 $1,133
Payable to Pooled Company stockholder...................... 151 151
Current maturities of long-term debt....................... 343 269
------ ------
Total short-term debt.................................... $1,481 $1,553
====== ======
</TABLE>
15
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Notes payable to banks with average interest rates
ranging from 9.75%-11%.................................. $1,217 $1,112
Notes payable, interest rates ranging from 11.32% -
15.86% due in monthly installments of $19 through
September, 2002 secured by certain assets of the Company
........................................................ 868 768
Capital lease obligations................................ 26 46
Other.................................................... 122 22
------ ------
2,233 1,948
Less: Current portion.................................... (343) (269)
------ ------
Total long-term debt.................................. $1,890 $1,679
====== ======
</TABLE>
Maturities of Long-Term Debt
Maturities of long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 269
1999............................................................... 225
2000............................................................... 253
2001............................................................... 286
2002............................................................... 284
Thereafter......................................................... 631
------
$1,948
======
</TABLE>
NOTE 10--INCOME TAXES
The components of income tax expense (benefit) are comprised as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income taxes currently payable:
Federal............................................ $ (3) $ 5 $ 83
State.............................................. 2 11
------ ----- -----
(3) 7 94
------ ----- -----
Deferred income taxes:
Federal............................................ (1) 4
State.............................................. (1) 2
------ ----- -----
(2) 6
------ ----- -----
Total tax expense (benefit).......................... $(5) $13 $ 94
====== ===== =====
</TABLE>
16
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
U.S. federal statutory rate...... (34.0)% 34.0 % 34.0 %
State income taxes, net of
federal tax benefit............. (.3) 1.0 .6
Subchapter S corporation income
not subject to corporate level
taxation........................ 42.0 (28.8) (30.8)
Other............................ (10.3) (3.2) 2.3
---------- ---------- ----------
Effective income tax rate........ (2.6)% 3.0 % 6.1 %
========== ========== ==========
</TABLE>
Certain of the Pooled Companies were organized as subchapter S corporations
prior to being acquired by the Company and, as a result, the federal tax on
their income was the responsibility of their individual stockholders.
Accordingly, the Pooled Companies provided no federal income tax expense prior
to these acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS No. 109 as if the Pooled Companies had been subject to
applicable federal and state income taxes for all periods presented:
<TABLE>
<CAPTION>
December 31
------------------
1995 1996 1997
----- ---- ------
<S> <C> <C> <C>
Income (loss) before taxes per income statement.............. $(195) $428 $1,537
Pro forma income tax provision............................... (78) 171 615
----- ---- ------
Pro forma net income (loss).................................. $(117) $257 $922
===== ==== ======
</TABLE>
NOTE 11--LEASE COMMITMENTS
The Company leases various types of office facilities, equipment, and
furnitures and fixtures under noncancelable lease agreements which expire at
various dates. Future minimum lease payments under noncancelable capital and
operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1998.................................................... $31 $ 692
1999.................................................... 12 463
2000.................................................... 4 277
2001.................................................... 132
2002.................................................... 46
Thereafter.............................................. 70
--- ------
Total minimum lease payments............................ 47 $1,680
======
Less: Amounts representing interest..................... (1)
---
Present value of net minimum lease payments............. $46
===
</TABLE>
Rent expense for all operating leases for 1995, 1996 and 1997 was $670, $514
and $339, respectively.
17
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 12--COMMITMENTS AND CONTINGENCIES
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this
litigation will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS FOR POOLED COMPANIES
The Company paid management fees to affiliates of $298, $466, and $954 for
the years ended December 31, 1995, 1996, and 1997, respectively.
The Company has an unsecured demand note payable to a stockholder for $151,
dated January 1, 1994, bearing interest at 12% with interest paid monthly.
NOTE 14--STOCKHOLDERS' EQUITY
Common Stock
On November 25, 1997, the Company effected a one-for-1.918159 reverse stock
split of the Company's Common Stock. Accordingly, all share data reflected in
these financial statements have been retroactively restated.
On September 19, 1997, the sole member of LLC received 2,300,000 shares of
Common Stock of the Company in connection with the Merger in exchange for his
100% ownership interest in LLC. The sole member made contributions to LLC from
time to time to fund expenses in the aggregate amount of $126. These
contributions were included in common stock and additional paid-in capital.
The Company completed its initial public offering ("IPO") in December 1997,
selling 27,850,000 shares of Common Stock and 500,000 shares of Convertible
Non-Voting Common Stock at $20.00 per share and raising net proceeds of
approximately $527,000. Proceeds from the IPO, net of underwriting fees and
other stock issuance costs, were included in common stock and additional paid-
in capital.
Convertible Non-Voting Common Stock
In connection with the IPO, the Company sold 500,000 shares of Convertible
Non-Voting Common Stock to Friedman, Billings, Ramsey & Co., Inc. ("FBR"), the
representative of the underwriters in the Company's IPO, for $20 per share.
After one year, the shares on Convertible Non-Voting Common Stock
automatically convert into an equivalent number of shares of Common Stock.
Accordingly, on November 25, 1998 these 500,000 shares were converted to
500,000 shares of Common Stock.
The Company has 1,130,000 shares of Common Stock reserved for issuance upon
exercise of warrants issued to FBR. The warrants have an exercise price per
share equal to the IPO price. These warrants are exercisable on or after the
first anniversary and will expire on the fifth anniversary of the IPO. FBR has
the right, beginning November 25, 1998, to require the Company to register
such shares for sale.
18
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Additionally, 1,950,000 shares of Common Stock have been reserved for
issuance upon the exercise of warrants issued to Jonathan Ledecky at the time
of the IPO. These warrants are exercisable for a period of ten years at an
exercise price equal to the IPO price. The Company has agreed that during the
ten-year period following the IPO, Jonathan Ledecky may request the company
register the shares underlying his warrants. In addition, the Company has
agreed to give Jonathan Ledecky the right to request that the Company include
the shares underlying his warrants on a registration statement filed by the
Company during a twelve-year period following the IPO.
NOTE 15--STOCK PURCHASE AND AWARD PLANS
Long-Term Incentive Plan
The Company adopted, a 1997 Long-Term Incentive Plan and in September 1998
adopted the 1998 Long-Term Incentive Plan, ("Incentive Plans"). The terms of
the option awards under these Incentive Plans are established by the
compensation committee of the Company's Board of Directors. The maximum number
of shares that may be issued under the 1997 Long-Term Incentive Plan and the
1998 Long-Term Incentive Plan is equal to 9% and 14%, respectively of the number
of shares of Common Stock outstanding from time to time.
Options to purchase 1,500,000 shares of Common Stock under the 1997 Long-
Term Incentive Plan were granted at the time of the IPO at an exercise price
equal to the IPO price. These options will vest 25% each on the first four
anniversaries of the date of grant and will expire on the tenth anniversary of
the grant date. In the event of a change in control of the Company prior to
normal vesting, all options not already exercisable will become fully vested
and exercisable.
Additionally, in connection with business combinations consummated during
the period from January 1, 1998 through September 30, 1998, the Company has
granted options for approximately 1,520,844 shares (unaudited) of the
Company's Common Stock, and is expected to issue options for an additional
107,764 shares (unaudited) of the Company's Common Stock, under these Long-
Term Incentive Plans. All options vest over a four year period from date of
grant. These options have been, or will be, granted with an exercise price
equal to the fair value share price of the Company's Common Stock at the date
of grant.
1997 Non-Employee Directors' Stock Plan
The Company's Board of Directors has adopted, and the Company's stockholder
have approved, the 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which provides for the automatic grant to each non-employee director
of an option to purchase 20,000 shares on the later of the effective date of
the registration statement for the initial public offering of the Company's
Common Stock or the date that such person commences services as a director.
Thereafter, each non-employee director will be entitled to receive, on the day
after each annual meeting of the Company's stockholders, an option to purchase
5,000 shares of Common Stock. A maximum of 300,000 shares of Common Stock may
be issued under the Directors' Plan. Options to purchase 60,000 shares of
Common Stock under the Directors' Plan were granted at the time of the IPO at
an exercise price equal to the IPO price. Additionally, during the period from
January 1, 1998 through September 30, 1998 an additional 35,000 options
(unaudited) were granted at an exercise price equal to fair market value at
the grant date.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant options
and will expire at the earlier of 10 years from the date of grant or 90
19
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
days after termination of service as a director. Options will vest and become
exercisable ratably as to 50% of the shares underlying the option on the six
month and one year anniversaries of the date of grant, subject to acceleration
by the Board. In the event of a change in control of the Company prior to
normal vesting, all options not already exercisable will become fully vested
and exercisable.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan")
permits eligible employees of the Company and its subsidiaries (generally all
full-time employees who have completed one year of service) to purchase shares
of Common Stock at a discount. Employees who elect to participate will have
amounts withheld through payroll deduction during purchase periods. At the end
of each purchase period, accumulated payroll deductions will be used to
purchase stock at a price equal to 85% of the market price at the beginning of
the period or the end of the period, whichever is lower. Stock purchased under
the Purchase Plan will be subject to a one-year holding period. The Company
has reserved 1,000,000 shares of Common Stock for issuance under the Purchase
Plan.
As of September 30, 1998, the Company issued 16,299 shares (unaudited) of
common stock to employees under the Company's Employee Stock Purchase Plan.
Accounting for Stock Based Compensation
In 1997, the Company adopted the SFAS No. 123 "Accounting for Stock-Based
Compensation," which encourages, but does not require, companies to recognize
compensation cost for stock-based compensation plans over the vesting period
based upon the fair value of awards on the date of the grant. However, the
statement allows the alternative of the continued use of the intrinsic value
method as prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees." Therefore, as permitted, the
Company has applied APB No. 25, and related interpretations, in accounting for
its stock based compensation plans. Accordingly, no compensation expense has
been recognized by the Company for warrants granted in connection with the IPO
or for options granted under the Incentive Plan and the Directors' Plan.
Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS No. 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net income (loss):
As reported................................................ $ 1,443
Pro forma.................................................. $(5,782)
Net income (loss) per share--basic and diluted:
As reported................................................ $ 0.25
Pro forma.................................................. $ (1.02)
</TABLE>
20
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The weighted average fair value per option and warrant at the date of grant
for options granted in 1997 and 1996 was $7.46 and $2.21, respectively. The
fair value of options and warrants granted (which is amortized to expense over
the option vesting period in determining the pro forma impact) is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 1997:
<TABLE>
<CAPTION>
1997
-----------------
Options Warrants
------- --------
<S> <C> <C>
Expected life of option................................ 5 years 2 years
Risk-free interest rate................................ 5.76% 5.69%
Expected volatility factor............................. 45.0% 45.0%
</TABLE>
NOTE 16--NET EARNINGS PER SHARE
The Company has adopted SFAS No. 128 "Earnings Per Share" which became
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share ("EPS") and restatement of EPS data for all prior periods. Basic EPS
includes no dilution and is computed by dividing net income by the Company's
weighted average shares of Common Stock outstanding. Duluted EPS is computed
by dividing net income by the Company's weighted average shares of Common
Stock outstanding and dilutive Common Stock equivalents. The following table
reconciles the numerators and denominators of the basic and diluted EPS
computations for the three years ended December 31, 1997 and the nine months
periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic earnings per
share:
Net income (loss)...... $ (190) $ 415 $ 1,443 $ 943 $ 30,291
Weighted average shares
outstanding--Basic.... 1,238,444 1,290,724 5,683,464 3,102,079 38,298,295
---------- ---------- ---------- ---------- -----------
Net income per share--
Basic $ (0.15) $ 0.32 $ 0.25 $ 0.30 $ 0.79
========== ========== ========== ========== ===========
Diluted earnings per
share
Net income (loss)...... $ (190) $ 415 $ 1,443 $ 943 $ 30,291
========== ========== ========== ========== ===========
Weighted average shares
outstanding--Basic.... 1,238,444 1,290,724 5,683,464 3,102,079 38,298,295
Convertible Non-Voting
Common Stock.......... -- -- 49,315 -- 500,000
Common stock
equivalents from stock
options and warrants.. -- 115,116 132,771 115,116 389,347
Contingently issuable
shares................ -- -- -- 180,679
---------- ---------- ---------- ---------- -----------
Total weighted average
shares outstanding--
Diluted................ 1,238,444 1,405,840 5,865,550 3,217,195 39,368,321
---------- ---------- ---------- ---------- -----------
Net income per share--
Diluted............... $ (0.15) $ 0.30 $ 0.25 $ 0.29 $ 0.77
========== ========== ========== ========== ===========
</TABLE>
Outstanding stock options and warrants to purchase 6,255,774 shares
(unaudited) of Common Stock as of September 30, 1998 were not included in the
computation of diluted earnings per share because the options exercise prices
were higher than the average market price of the Common Stock during the
period.
21
<PAGE>
BUILDING ONE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data of the
Company:
<TABLE>
<CAPTION>
1996 Quarters
----------------------------------------------
First Second Third Fourth Total
------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues................... $15,305 $ 15,664 $ 15,784 $ 16,449 $63,202
Gross profit............... $ 2,228 $ 2,415 $ 2,520 $ 2,375 $ 9,538
Operating income (loss).... $ 91 $ 120 $ 249 $ 275 $ 735
Net income (loss).......... $ (10) $ 42 $ 208 $ 175 $ 415
Net income (loss) per
share--Basic.............. $ (0.01) $ 0.03 $ 0.16 $ 0.14 $ 0.32
Net income (loss) per
share--Diluted (1)........ $ (0.01) $ 0.03 $ 0.15 $ 0.12 $ 0.30
<CAPTION>
1997 Quarters
----------------------------------------------
First Second Third Fourth Total
------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues................... $17,479 $ 17,393 $ 17,538 $ 17,691 $70,101
Gross profit............... $ 2,807 $ 2,759 $ 2,732 $ 2,946 $11,244
Operating income (loss).... $ 259 $ 426 $ 390 $ (1,607) $ (532)
Net income................. $ 210 $ 434 $ 299 $ 500 $ 1,443
Net income per share--Basic
(1)....................... $ 0.10 $ 0.12 $ 0.08 $ 0.04 $ 0.25
Net income per share--
Diluted (1)............... $ 0.09 $ 0.12 $ 0.08 $ 0.04 $ 0.25
<CAPTION>
1998 Quarters
--------------------------------------
First Second Third Nine Months
------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues................... $54,610 $171,661 $252,324 $478,595
Gross profit............... $10,377 $ 36,662 $ 55,238 $102,277
Operating income (loss).... $ 2,135 $ 12,485 $ 22,519 $ 37,139
Net income................. $ 5,081 $ 10,046 $ 15,164 $ 30,291
Net income per share--Basic
(1)....................... $ 0.15 $ 0.26 $ 0.35 $ 0.79
Net income per share--
Diluted (1)............... $ 0.15 $ 0.25 $ 0.34 $ 0.77
</TABLE>
- --------
(1) The arithmetic total of the individual quarterly net income per share
amounts does not reconcile to the annual amount of net income per share
due to the timing of net income (loss) in relation to the issuance of
common shares during the course of the year.
NOTE 18--SUBSEQUENT EVENTS (UNAUDITED)
In addition to those business combinations consummated during the period
from January 1, 1998 through September 30, 1998, subsequent to September 30,
1998 the Company completed five business combinations, two in the electrical
installation and maintenance services business, one in the mechanical
installation and maintenance services business and two in the janitorial and
maintenance management services business, for total consideration of $65,537
in cash and shares of Common Stock. Additionally, there is the potential for
the payment of up to an additional $14,500 in cash and shares of Common Stock
in connection with contingent consideration agreements.
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