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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NO. 333-81139
AMERICAN PLUMBING & MECHANICAL, INC.
(Exact name of Registrant as Specified in Its Charter)
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<S> <C>
DELAWARE 76-0577626
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1950 LOUIS HENNA BLVD. 78664
ROUND ROCK, TEXAS (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
(512) 246-5260
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of March 31, 2000, there were outstanding 12,611,383 shares of common
stock and 2,423,517 shares of Class B common stock of the Registrant.
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AMERICAN PLUMBING & MECHANICAL, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
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PAGE
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Part I -- Financial Information............................. 1
Item 1 -- Financial Statements............................ 1
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations... 5
Item 3 -- Quantitative and Qualitative Disclosures About
Market Risks........................................... 10
Part II -- Other Information
Item 1 -- Legal Proceedings............................... 11
Item 2 -- Changes in Securities and Use of Proceeds....... 11
Item 3 -- Defaults Upon Senior Securities................. 11
Item 4 -- Submission of Matters to a Vote of Security
Holders................................................ 11
Item 5 -- Other Information............................... 11
Item 6 -- Exhibits and Reports on Form 8-K................ 12
Signatures.................................................. 13
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 393 $ 1,202
Accounts receivable, net.................................. 73,726 83,513
Inventories............................................... 8,356 10,138
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 13,919 15,724
Prepaid expenses and other current assets................. 2,135 1,998
-------- --------
Total current assets.............................. 98,529 112,575
PROPERTY AND EQUIPMENT, net................................. 17,266 19,611
GOODWILL, net............................................... 146,050 164,416
OTHER NONCURRENT ASSETS..................................... 5,906 5,824
-------- --------
Total assets...................................... $267,751 $302,426
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations........... $ 1,031 $ 1,011
Accounts payable and accrued expenses..................... 42,871 59,779
Accounts payable, related parties, including acquisition
consideration payable.................................. 12,160 10,985
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 16,721 15,800
-------- --------
Total current liabilities......................... 72,783 87,575
LONG-TERM LIABILITIES:
Long-term debt............................................ 136,623 140,845
Deferred income taxes..................................... 1,319 1,299
-------- --------
Total liabilities................................. 210,725 229,719
-------- --------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED STOCK, $.01 par value,
10,000,000 shares authorized, 1,048,820 shares issued and
outstanding............................................... 13,635 13,635
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 11,265,229 and 12,611,383 shares issued and
outstanding, respectively.............................. 113 126
Class B common stock, $.01 par value, 5,000,000 shares
authorized, 2,423,517 shares issued and outstanding.... 24 24
Additional paid-in capital................................ 35,143 48,705
Retained earnings......................................... 8,111 10,217
-------- --------
Total stockholders' equity........................ 43,391 59,072
-------- --------
Total liabilities and stockholders' equity........ $267,751 $302,426
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
( IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 2000
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $16,824 $125,137
COST OF REVENUES (including depreciation)................... 11,390 102,990
------- --------
Gross profit.............................................. 5,434 22,147
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 1,863 11,489
GOODWILL AMORTIZATION....................................... -- 1,300
------- --------
Income from operations.................................... 3,571 9,358
OTHER INCOME (EXPENSE):
Interest and dividend income.............................. 11 32
Interest expense.......................................... (27) (4,740)
Other..................................................... 9 182
------- --------
Other expense, net..................................... (7) (4,526)
------- --------
INCOME BEFORE INCOME TAXES.................................. 3,564 4,832
PROVISION FOR INCOME TAXES.................................. 162 2,385
------- --------
NET INCOME.................................................. 3,402 2,447
------- --------
PREFERRED DIVIDENDS......................................... -- 341
------- --------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS................. $ 3,402 $ 2,106
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 2000
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(UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $3,402 $ 2,447
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 136 2,463
Amortization of deferred compensation expense.......... -- 113
Loss (gain) on disposal of property and equipment...... 1 (90)
Deferred income taxes.................................. (8) (574)
Increase (decrease) in cash flows from:
Accounts receivable, net............................. (479) (3,268)
Inventories.......................................... (732) (1,440)
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... -- 1,979
Prepaid expenses and other current assets............ 263 300
Accounts payable and accrued expenses................ 1,102 8,360
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... -- (1,766)
Other................................................ 11 276
------ --------
Net cash provided by operating activities......... 3,696 8,800
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment....................... (92) (1,709)
Proceeds from sale of property and equipment.............. -- 95
Acquisition of companies, net of cash acquired............ -- (10,106)
------ --------
Net cash used in investing activities............. (92) (11,720)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on bank credit facility.................... -- 4,400
Payments of long-term debt assumed and capital lease
obligations............................................ (145) (671)
------ --------
Net cash provided by (used in) financing
activities....................................... (145) 3,729
------ --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 3,459 809
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,980 393
------ --------
CASH AND CASH EQUIVALENTS, end of period.................... $5,439 $ 1,202
====== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 27 $ 281
Income taxes........................................... -- 733
Noncash Item --
Capital lease additions................................ 394 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
American Plumbing and Mechanical, Inc. (the "Company"), was organized in
June 1998 and acquired ten U.S. businesses (the "Founding Companies") on April
1, 1999. The acquisitions were accounted for using the purchase method of
accounting with Christianson Enterprises, Inc. and affiliates ("Christianson")
being reflected as the accounting acquiror for accounting purposes.
Subsequently, the Company acquired the outstanding stock of three additional
companies and the assets of a fourth company (the "Subsequent Acquisitions"),
and collectively with the "Founding Companies", the "Acquired Companies".
Prior to April 1, 1999, Christianson elected S Corporation status. Under S
Corporation status, as defined by the Internal Revenue Code, Christianson itself
was not subject to taxation for federal purposes; rather, the stockholders
reported their share of Christianson's taxable earnings or losses in their
personal tax returns. Certain states do not recognize S Corporation status for
purposes of state taxation. Consequently, the provision for current and deferred
income taxes for the three months ended March 31, 1999, consists of only state
income taxes. Christianson terminated its S Corporation status concurrent with
the effective date of the merger discussed above.
These unaudited interim statements should be read in conjunction with the
Company's historical consolidated financial statements and related notes
included in the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission for the year ended December 31, 1999.
These unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for reporting interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The Company believes all adjustments necessary for a fair
presentation of these interim statements have been included and are of a normal
and recurring nature. The results of operations for interim periods are not
necessarily indicative of the results for the fiscal year.
2. COMMITMENTS AND CONTINGENCIES:
As of January 1, 2000, the Company became self insured for health care,
workers' compensation, and general, property and auto liability up to
predetermined amounts above which third party insurance applies. The Company is
fully insured through third party insurance for all other types of exposures
including an umbrella policy. The Company has not incurred significant claims or
losses on any of these insurance policies.
3. STOCKHOLDERS' EQUITY:
At December 31, 1999, the Company had 11,265,229 shares of $.01 par value
common stock and 2,423,517 shares of $.01 par value Class B common stock
outstanding. Class B shares differ from common shares in voting rights and are
subordinate in liquidation to all other classes of stock. During the three
months ended March 31, 2000, the Company issued an additional 1,346,154 shares
of common stock in connection with an acquisition. The shares were valued at
$10.00 per share for a total increase in additional paid in capital of $13.5
million (See Note 4).
4. ACQUISITION:
On March 1, 2000, the Company acquired the stock of Lindy Dennis Industries
and related affiliates (collectively "LDI"), headquartered in Corona,
California. LDI operates primarily as a heating, ventilation and air
conditioning ("HVAC") contractor specializing in the multifamily residential
market. LDI had revenues of approximately $37 million in 1999. The consideration
paid by the Company for LDI consisted of 1,346,154 shares of the Company's
common stock and approximately $12 million in cash (See Note 3). The
4
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
cash portion of the consideration was funded through borrowings under the
Company's existing $95 million Credit Facility.
The Company accounted for the acquisition of LDI using the purchase method
of accounting. The results of operations of LDI are included in the accompanying
financial statements from the date of acquisition forward. The accompanying
consolidated balance sheet as of March 31, 2000, includes a preliminary
allocation of the purchase price to the assets acquired and liabilities assumed,
as well as an estimate of the amount of goodwill generated by the transaction.
The purchase accounting for the acquisition has been based on an estimate of
fair value and is subject to final adjustment.
The pro forma data presented below consists of the income statement data
presented in the accompanying consolidated financial statements plus pro forma
income statement data for the Acquired Companies as if the acquisitions and
related financing were effective on January 1, 1999 (in thousands):
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
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<S> <C> <C>
Revenues.................................................... $110,345 $133,967
Net income available to common stockholders................. 5,214 2,800
</TABLE>
5. SUBSEQUENT EVENTS:
In February 2000, the Company agreed to purchase approximately 1.5 million
shares of Class B common stock from Sterling City Capital, LLC, the original
sponsor of the Company, at a price of $3.25 per share. On April 7, 2000, the
Company completed the transaction with funding from the Company's Credit
Facility. A similar offer was made to the holders of the remaining 0.9 million
shares of Class B common stock. The purchase of the remaining shares is expected
to close in May 2000 and will also be funded by the Company's Credit Facility;
however, the members of the Company's management that are holders of the Class B
common stock do not intend to tender their shares (approximately 0.3 million
shares). If the Class B common stock has not previously been converted into
common stock before April 1, 2002, the Company will have the option to redeem
all outstanding shares of Class B common stock for $.01 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE
IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES AND OTHER DETAILED INFORMATION REGARDING THE COMPANY INCLUDED
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1999 AND OTHER REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act which are
intended to be covered by safe harbors created thereby. Readers are cautioned
that such information involves risks and uncertainties, including those created
by general market conditions, competition and the possibility that events may
occur which limit the ability of the Company to maintain or improve its
operating results. All statements, other than statements of historical facts,
included or incorporated by reference in this section that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as future capital expenditures (including
the amount and nature thereof), business strategy and measures to implement such
strategy, competitive strengths, goals, expansion and growth of the Company's
business and operations, plans,
5
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
references to future success as well as other statements which include words
such as "anticipate," "believe," "plan," "estimate," "expect," and "intend" and
other similar expressions, constitute forward-looking statements. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
the inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
GENERAL
American Plumbing and Mechanical, Inc. (the "Company"), a Delaware
corporation, is the largest company in the United States focused primarily on
the plumbing contracting services industry. The Company provides plumbing,
heating, ventilation and air conditioning ("HVAC") and mechanical contracting
services to single family residential, multifamily residential and
commercial/institutional customers.
The Company was organized in June 1998 and acquired ten U.S. businesses
(the "Founding Companies") on April 1, 1999. The acquisitions were accounted for
using the purchase method of accounting with Christianson Enterprises, Inc. and
affiliates ("Christianson") being reflected as the accounting acquiror for
accounting purposes. In September 1999, the Company acquired the outstanding
stock of two additional companies and the assets of a third company. On March 1,
2000, the Company acquired the stock of Lindy Dennis Industries and related
affiliates (collectively "LDI"), headquartered in Corona, California. LDI
operates primarily as an HVAC contractor specializing in the multifamily
residential market. LDI had revenues of approximately $37 million in 1999.
All of the above companies acquired subsequent to the acquisition of the
Founding Companies are herein referred to as the "Subsequent Acquisitions", and
collectively with the "Founding Companies", the "Acquired Companies".
RESULTS OF OPERATIONS
Supplemental Pro Forma Combined
To facilitate a meaningful comparison, the following unaudited supplemental
pro forma combined discussion and analysis includes the results of operations of
the Founding Companies, as if they were combined on January 1, 1999, and the
Subsequent Acquisitions as if combined from the dates of their acquisition. The
unaudited supplemental pro forma information does not reflect the Subsequent
Acquisitions as if they had occurred at the beginning of the period. This data
does not indicate the results that we would have obtained had these events
actually occurred on January 1 of the respective period presented, or our future
results. The unaudited pro forma financial data is based on preliminary
estimates, available information, and certain assumptions that management deems
appropriate. Selling, general and administrative expenses for the periods prior
to the acquisitions have been decreased for reductions in salaries, bonuses,
benefits and lease payments to former owners of the Founding Companies, agreed
to in accordance with the terms of the employment agreements and lease
agreements executed as a part of the acquisitions. The data will not be
comparable to, and may not be indicative of, the Company's post-combination
results of operations because:
- the Founding Companies were not under common control or management;
- the Company will incur incremental costs for its corporate management;
and,
- the combined data does not reflect the potential benefits and cost
savings the Company expects to realize by operating as a combined entity.
6
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following table sets forth supplemental pro forma combined financial
information of the Founding Companies in 1999 and the actual results in 2000 of
the Acquired Companies:
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 2000
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................. $88,479 100% $125,137 100%
Cost of revenues..................................... 67,178 76 102,990 80
------- --- -------- ---
Gross Profit....................................... 21,301 24 22,147 20
Selling, general and administrative expenses......... 9,000 10 11,489 9
Goodwill Amortization................................ 950 1 1,300 1
------- --- -------- ---
Income from operations............................. $11,351 13% $ 9,358 8%
======= === ======== ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
Pro forma combined revenues were $125.1 million for the three months ended
March 31, 2000, an increase of $36.6 million, or 41%, from $88.5 million for the
three months ended March 31, 1999. The increase in combined revenues resulted
from a $15.4 million increase in "same store" revenues at the Founding Companies
combined with $21.2 million generated by the Subsequent Acquisitions. The
largest increase in "same store" revenues was associated with the single family
and commercial/institutional subsidiaries. Revenues also increased due to modest
price increases at most of the companies in response to rising material costs.
Pro forma combined gross profit was $22.1 million for the three months
ended March 31, 2000, an increase of $.8 million, or 4%, from $21.3 million for
the three months ended March 31, 1999. The increase in combined gross profit
resulted from $3.5 million generated by the Subsequent Acquisitions offset by a
$2.7 million decrease in "same store" gross profit for the Founding Companies.
Pro forma combined selling, general and administrative expenses were $11.5
million for the three months ended March 31, 2000, an increase of $2.5 million,
or 19%, from $9.0 million for the three months ended March 31, 1999. Selling,
general and administrative expenses generated by the Subsequent Acquisitions
were $1.8 million. As a percentage of revenue, selling, general and
administrative expenses decreased from 28% for the three months ended March 31,
1999 to 9% for the three months ended March 31, 2000, reflecting the leverage
gained from increased volume.
Pro forma goodwill amortization increased from $1.0 million for the three
months ended March 31, 1999, to $1.3 million for the three months ended March
31, 2000. The increase in amortization is associated with the goodwill generated
by the acquisition of the Subsequent Acquisitions and amortization on the
goodwill generated by payments to certain Founding Company stockholders under
"earn out" provisions in the purchase agreements. The Company amortizes goodwill
on a straight-line basis over a 30 year period.
Historical Financial Information
The following historical consolidated financial information represents the
operations of Christianson, the accounting acquiror, prior to April 1, 1999, and
the remaining Acquired Companies from their respective dates of acquisition.
Historical selling, general and administrative expenses for the periods prior to
April 1, 1999, reflect salaries, bonuses, benefits, and lease payments to the
former stockholders of Christianson. These amounts have been prospectively
reduced in accordance with the terms of the purchase agreement.
7
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Additionally, Christianson operated as an S Corp prior to April 1, 1999. Under S
Corporation status, Christianson itself was not subject to taxation for federal
purposes.
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 2000
------------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................................... $16,824 100% $125,137 100%
Cost of revenues............................................ 11,390 68 102,990 82
------- --- -------- ---
Gross Profit................................................ 5,434 32 22,147 18
Selling, general and administrative expenses................ 1,863 11 11,489 9
Goodwill amortization....................................... -- -- 1,300 1
------- --- -------- ---
Income from operations...................................... 3,571 21 9,358 8
Interest expense............................................ (27) -- (4,740) (4)
Other, net.................................................. 20 -- 214 --
------- --- -------- ---
Income before taxes......................................... 3,564 21 4,832 4
Provision for income taxes.................................. 162 -- 2,385 2
------- --- -------- ---
Net Income.................................................. 3,402 21 2,447 2
Preferred dividends......................................... -- -- 341 --
------- --- -------- ---
Net income available to common shareholders................. $ 3,402 21% $ 2,106 2%
======= === ======== ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
Revenues increased $108.3 million, from $16.8 million for the three months
ended March 31, 1999, to $125.1 million for the three months ended March 31,
2000. The growth was primarily due to the acquisition of the remaining Acquired
Companies.
Gross profit increased $16.7 million, from $5.4 million for the three
months ended March 31, 1999, to $22.1 million for the three months ended March
31, 2000. The increase in gross profit was primarily due to the acquisition of
the remaining Acquired Companies.
Selling, general and administrative expenses increased $9.6 million, from
$1.9 million for the three months ended March 31, 1999, to $11.5 million for the
three months ended March 31, 2000. The increase in selling, general and
administrative expenses was primarily due to the acquisition of the remaining
Acquired Companies and the corporate general and administrative costs incurred
after April 1, 1999.
Goodwill amortization increased by $1.3 million. The increase in
amortization is associated with the goodwill generated by the acquisition of the
Acquired Companies and amortization on the goodwill generated by payments to
certain Founding Company stockholders under "earn out" provisions in the
purchase agreements. The Company amortizes goodwill on a straight-line basis
over a 30 year period.
Interest expense increased by $4.7 million as a result of the interest on
the Senior Subordinated Notes and the Credit Facility.
The increase in the provision for income taxes of $2.4 million results from
the Company recording federal income taxes for the period after April 1, 1999.
Prior to this date, Christianson elected S Corp status.
Preferred dividends increased by $0.3 million. The increase is attributable
to the preferred stock issued as part of the stock portion of acquisition
consideration.
Net income decreased $1.3 million, from $3.4 million for the three months
ended March 31, 1999, to $2.1 million for the three months ended March 31, 2000.
The decrease is due primarily to the interest expense
8
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AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
on the indebtedness incurred to fund the cash portion of the acquisition
consideration and the income tax expense resulting from the Company recording
federal taxes for the period after April 1, 1999. The amortization of goodwill
and preferred dividends also contributed to the decrease in net income.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had $25.0 million in working capital and
$140.8 million of outstanding long-term indebtedness, including capital lease
obligations totaling $1.7 million.
For the three months ended March 31, 2000, net cash provided by operating
activities was $8.8 million resulting primarily from operations and decreases in
working capital. Cash used in investing activities was $11.7 which primarily
relates to the acquisition of LDI. Cash provided by financing activities for the
three months ended March 31, 2000, was $3.7 million and was primarily
attributable to net borrowings on the Company's Credit Facility.
On April 1, 1999, the Company entered into the Credit Facility with a total
commitment of $95 million. The Credit Facility bears interest, at the option of
the Company, at the base rate of the arranging bank plus an applicable margin or
at LIBOR, plus an applicable margin and has a three year term. At March 31,
2000, $74.8 million was available under the Credit Facility.
The Company's capital expenditures, for the quarter ended March 31, 2000,
primarily relate to the purchase of equipment and leasehold improvements and
were funded from cash flows from operations. During the three months ended March
31, 2000 capital expenditures were $1.7 million.
The Company anticipates that its cash flow from operations will provide
sufficient cash to enable the Company to meet its working capital needs, debt
service requirements, and planned capital expenditures for property and
equipment through the foreseeable future.
The Company intends to continue pursuing attractive acquisition
opportunities by using a mix of common stock and cash as consideration. The
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted. The Company expects to fund future
acquisitions primarily with working capital, cash flow from operations and
borrowings (including any unborrowed portion of the Credit Facility). If the
Company is unable to identify suitable acquisition candidates in desirable
markets, the Company intends to enter these markets through "start ups" which
will initially be focused on serving existing customers in the new markets. From
this base, the Company will work to develop relationships with new customers.
The Company intends to fund any start up costs with working capital, cash flow
from operations and borrowings from the Credit Facility.
SEASONALITY
The plumbing and mechanical contracting services industry is influenced by
seasonal factors, which generally result in lower activity during winter months
than in other periods. As a result, the Company expects that its revenues and
profits will generally be lower in the first and fourth quarters of each fiscal
year, and higher in the second and third quarters.
SUBSEQUENT EVENTS
In February 2000, the Company agreed to purchase approximately 1.5 million
shares of Class B common stock from Sterling City Capital, LLC, the original
sponsor of the Company, at a price of $3.25 per share. On April 7, 2000, the
Company completed the transaction with funding from the Company's Credit
Facility. A similar offer was made to the holders of the remaining 0.9 million
Class B common stock. The purchase of remaining shares is expected to close in
May 2000 and will also be funded by the Company's Credit Facility; however, the
members of the Company's management that are holders of the Class B common stock
do not
9
<PAGE> 12
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
intend to tender their shares (approximately 0.3 million shares). If the Class B
common stock has not previously been converted into common stock before April 1,
2002, the Company will have the option to redeem all outstanding shares of Class
B common stock for $.01 per share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks primarily related to
potential adverse changes in interest rates. In the normal course of business,
the Company employs established policies and procedures to manage this risk. The
Company is not exposed to any other significant market risks including foreign
currency exchange risk, or interest rate risks from the use of derivative
financial instruments. The Company does not use derivative financial instruments
for trading or to speculate on changes in interest rates or commodity prices.
The Company's exposure to changes in interest rates primarily results from its
short-term and long-term debt with both fixed and floating interest rates. The
Company's debt with fixed interest rates consists of Senior Subordinated Notes
and capital leases. Our debt with variable interest rates consists primarily of
the Credit Facility. There were no significant changes in market risks during
the three months ended March 31, 2000.
10
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1. -- LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of operations in the normal course of business. The Company
maintains insurance coverage against potential claims in an amount which
management believes to be adequate. Currently, the Company is not aware of any
legal proceedings or pending claims that management believes will have a
material adverse effect on the Company's consolidated financial position or
consolidated results of operations.
ITEM 2. -- CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2000, the Company issued 1,346,154
shares of common stock valued at approximately $13.5 million in connection with
the acquisition of LDI. The issuance of such common stock was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 as a
transaction by the issuer not involving a public offering.
ITEM 3. -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 17, 2000, the Company held a Special Meeting of Stockholders.
The following items were submitted to a vote of stockholders through the
solicitation of proxies:
ELECTION OF DIRECTORS:
The following person was elected to serve on the Board of Directors until
the 2001 Annual Meeting of Stockholders or until a successor has been duly
elected and qualified. The director received the votes set forth opposite his
name:
<TABLE>
<CAPTION>
NAME FOR AGAINST ABSTENTIONS
- ---- --------- ------- -----------
<S> <C> <C> <C>
Michael E. Workman.................................... 9,132,322 15,341 0
</TABLE>
The following persons were elected to serve on the Board of Directors until
the 2003 Annual Meeting of Stockholders or until their successors have been duly
elected and qualified. The directors received the votes set forth opposite their
names:
<TABLE>
<CAPTION>
NAME FOR AGAINST ABSTENTIONS
- ---- --------- ------- -----------
<S> <C> <C> <C>
Richard M. Pollard................................... 9,058,862 89,551 0
Lloyd C. Smith....................................... 8,910,853 237,560 0
Stephen F. Turner.................................... 8,677,922 470,491 0
</TABLE>
PURCHASE OF CLASS B COMMON STOCK AT A PRICE OF $3.25 PER SHARE:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
--- ------- -----------
<S> <C> <C>
8,895,512 312,149 0
</TABLE>
ITEM 5. -- OTHER INFORMATION
None
11
<PAGE> 14
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits to this report are listed below
<TABLE>
<C> <S>
*3.1 -- Amended and Restated Certificate of Incorporation
(American Plumbing & Mechanical, Inc. Registration
Statement on Form S-4 (File No. 333-81139), Exhibit 3.1).
*3.2 -- Amended and Restated Bylaws (American Plumbing &
Mechanical, Inc. Registration Statement on Form S-4 (File
No. 333-81139), Exhibit 3.2).
*3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A (American Plumbing
& Mechanical, Inc. Registration Statement on Form S-4
(File No. 333-81139), Exhibit 3.3).
*4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc., State Street Bank and Trust
Company and the other parties named therein with respect
to $125,000,000 11 5/8% Senior Subordinated Notes due
2008 (American Plumbing & Mechanical, Inc. Registration
Statement on Form S-4 (File No. 333-81139), Exhibit 4.1).
27.1 -- Financial data schedule
</TABLE>
- ---------------
* Incorporated by reference
(b) The registrant filed a report dated March 16, 2000 on Form 8-K during
the period covered by this quarterly report on Form 10-Q.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PLUMBING AND
MECHANICAL, INC.
By: /s/ DAVID C. BAGGETT
----------------------------------
David C. Baggett
Senior Vice President
and Chief Financial Officer
Date: May 15, 2000
13
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*3.1 -- Amended and Restated Certificate of Incorporation
(American Plumbing & Mechanical, Inc. Registration
Statement on Form S-4 (File No. 333-81139), Exhibit 3.1).
*3.2 -- Amended and Restated Bylaws (American Plumbing &
Mechanical, Inc. Registration Statement on Form S-4 (File
No. 333-81139), Exhibit 3.2).
*3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A (American Plumbing
& Mechanical, Inc. Registration Statement on Form S-4
(File No. 333-81139), Exhibit 3.3).
*4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc., State Street Bank and Trust
Company and the other parties named therein with respect
to $125,000,000 11 5/8% Senior Subordinated Notes due
2008 (American Plumbing & Mechanical, Inc. Registration
Statement on Form S-4 (File No. 333-81139), Exhibit 4.1).
27.1 -- Financial data schedule
</TABLE>
- ---------------
* Incorporated by reference
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,202
<SECURITIES> 0
<RECEIVABLES> 84,717
<ALLOWANCES> 1,204
<INVENTORY> 10,138
<CURRENT-ASSETS> 112,575
<PP&E> 40,852
<DEPRECIATION> (21,241)
<TOTAL-ASSETS> 302,426
<CURRENT-LIABILITIES> 87,575
<BONDS> 122,654
13,635
0
<COMMON> 150
<OTHER-SE> 58,922
<TOTAL-LIABILITY-AND-EQUITY> 302,426
<SALES> 125,137
<TOTAL-REVENUES> 125,137
<CGS> 102,990
<TOTAL-COSTS> 102,990
<OTHER-EXPENSES> 11,489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,740
<INCOME-PRETAX> 4,832
<INCOME-TAX> 2,385
<INCOME-CONTINUING> 2,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,447
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
