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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 333-81139
AMERICAN PLUMBING & MECHANICAL, INC.
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0577626
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1950 LOUIS HENNA BLVD.
ROUND ROCK, TEXAS 78664
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Securities to be registered pursuant to Section(b) of the Act:
NONE
Securities to be registered pursuant to Section(g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 24, 2000, there were outstanding 12,609,059 shares of common
stock and 2,423,517 shares of Class B common stock of the Registrant. The
aggregate market value of voting stock held by non-affiliates of the Registrant
is not determinable as such shares were privately placed and there is no public
market for such shares.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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FORWARD-LOOKING STATEMENTS
The following report 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 American Plumbing & Mechanical, Inc.
("AMPAM" or the "Company") to maintain or improve its operating results. All
statements, other than statements of historical facts, included or incorporated
by reference in this annual report 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, 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.
PART I
ITEM 1. BUSINESS
American Plumbing & Mechanical, Inc., a Delaware corporation, is the
largest company in the United States focused primarily on the plumbing
contracting services industry. AMPAM also provides heating, ventilation and air
conditioning ("HVAC") and mechanical contracting services. On April 1, 1999,
AMPAM acquired ten U.S. companies (the "Founding Companies"), which,
individually, are leading regional providers of plumbing and mechanical
contracting services, and commenced operations as one company. AMPAM believes
that by combining these regional leaders into one organization, AMPAM has
created a national provider, and will be able to strengthen and broaden
relationships with its consolidating customer base, and enhance its operating
efficiency. The Founding Companies have been in business for an average of
approximately 31 years and, performed plumbing and mechanical contracting
services in 24 states in 1999. AMPAM subsequently acquired in 1999 all of the
outstanding stock of two companies and the assets of a third company (the
"Subsequent Acquisitions" and collectively with the "Founding Companies", the
"Acquired Companies").
AMPAM provides plumbing, HVAC and mechanical contracting services to single
family residential, multifamily residential and commercial/institutional
customers. The commercial/ institutional market includes retail establishments,
office buildings, hotels, assisted-living centers, waste water and water
purification plants, manufacturing plants and other industrial complexes, and
public and private institutional buildings including schools, hospitals,
dormitories, military and other governmental facilities, stadiums, arenas,
convention centers, airports and prisons. During 1999, AMPAM derived
approximately 54%, 19%, and 27% of its pro forma revenues from single family
residential, multifamily residential and commercial/institutional customers,
respectively.
AMPAM's strategy is to conduct its operations on a decentralized basis.
Senior management of the Acquired Companies has retained primary responsibility
for operations, profitability and growth of their respective business units.
AMPAM believes that a decentralized operating strategy, balanced by centralized
financial and accounting controls, retains the entrepreneurial approach of the
Acquired Companies and helps preserve strong customer relationships.
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INDUSTRY OVERVIEW
General. Virtually all construction and renovation in the United States
generates demand for plumbing and mechanical contracting services. Generally,
AMPAM estimates that the plumbing and mechanical contracting work it performs
accounts for approximately 8% to 12% of the total construction cost of
commercial/institutional projects, and 5% to 10% of the total construction cost
of residential projects.
The plumbing and mechanical contracting service industry is highly
fragmented, and AMPAM estimates it to include at least 40,000 companies.
Generally, these companies are small, owner-operated, independent contractors
who serve customers in a local market, and therefore have limited access to
capital for investment in infrastructure, technology and expansion. AMPAM
estimates approximately 150, or 0.4% of all industry participants, had annual
sales greater than $20 million, and no single company accounted for more than
1.0% of the estimated $28.0 billion in 1999 expenditures for plumbing and
mechanical contracting services in the United States.
AMPAM's customers include local, regional and national single family and
multifamily builders and developers, as well as, general contractors, commercial
developers, manufacturing and other industrial corporations, and governmental
agencies. Typical construction projects include the installation, maintenance
and repair of domestic water systems, sanitary waste and vent systems, fire
protection systems, natural gas piping systems, integrated systems that
transport hot and chilled water, steam, fuels, and other liquid and gaseous
substances, and the related equipment such as water heaters, plumbing fixtures,
boilers, chillers and pumps. In some areas of the country, the Company also
installs heating, ventilation and air conditioning systems. AMPAM believes that
these large customers generally select plumbing and mechanical contractors with
a large, trained workforce that are able to meet their location and scheduling
requirements, while also providing reliable high-quality service. A significant
portion of AMPAM's contracts are obtained on negotiated terms through existing
customer relationships instead of a competitive bid process. Because many
projects utilize repetitive floor plans, AMPAM is able to prefabricate some of
the material necessary to complete the project which ultimately increases
productivity and profitability by reducing construction time, labor costs and
skill requirements.
The level of construction activity depends on many factors including,
interest rates, tax considerations, demand for housing and general economic
conditions. AMPAM serves many of the more rapidly growing metropolitan areas,
including Orlando, Tampa, Jacksonville, Ft Meyers, Miami and Pensacola, Florida;
Atlanta, Georgia; Charlotte, North Carolina; Arlington, Virginia; Washington
D.C.; Austin, Houston, Dallas, and San Antonio, Texas; Cincinnati, and Columbus,
Ohio; Phoenix, Arizona; Las Vegas, Nevada; Riverside, Los Angeles, San Diego,
and the San Fernando Valley, California, among others. The Company also has the
ability to mobilize its workforce to other geographic markets based on the
demands of its customers. These metropolitan areas have experienced significant
new construction activity over the last several years and demographic trends
indicate continued growth in these areas.
OPERATING STRATEGY
AMPAM has and will continue to leverage the geographical presence and
competitive strengths of its subsidiaries with the objective of expanding
existing customer relationships beyond their historical geographic boundaries.
AMPAM has also begun to replicate various best practices used by some of its
subsidiaries throughout the remainder of its operations in an effort to increase
profitability. AMPAM has already achieved cost reductions through combined
purchasing of casualty, workers compensation and liability insurance, and is
pursuing agreements with various material manufacturers to reduce costs based on
the combined purchasing volume of the Company. The most significant constraint
on the growth of the Company is the lack of trained and qualified employees, and
AMPAM has developed a comprehensive benefits program, in order to attract and
retain the employees necessary for growth.
GROWTH STRATEGY
The Company believes that the highly fragmented nature of the plumbing and
mechanical contracting industry offers unique opportunities for it to pursue its
"best in class" acquisition strategy. We are focused on
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acquiring companies with leading market positions, stable operating histories,
prospects for growth, and strong management. AMPAM intends to pursue acquisition
candidates that serve geographic markets not currently served by its existing
subsidiaries. This allows the Company to expand its geographic coverage in order
to strengthen and support its relationships with its large regional and national
customers. AMPAM intends to acquire companies using a mix of common stock and
cash as consideration.
If AMPAM 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.
SERVICES
Plumbing. Plumbing services provided by AMPAM are primarily the
installation of systems that convey domestic water throughout a building,
systems that transport sanitary waste out of a building to a sewer connection,
and systems that transport natural gas to various equipment or appliances such
as heaters, boilers, ovens and stoves. A domestic water system typically
includes separate piping for hot and chilled water as well as a number of
fixtures such as sinks, bathtubs and showers.
For both residential and commercial/institutional customers, plumbing
contracting projects begin with project design and engineering in which the
locations, configuration and specifications for the plumbing systems to be
installed are determined. Whether the design is provided by the customer, or
produced by AMPAM, the type, size and design of piping, fittings, valves,
fixtures and other equipment is typically entered into AMPAM's computer systems
which handle estimation, materials ordering and job scheduling functions.
Substantially all of the equipment and component parts AMPAM installs are
purchased from third-party wholesale suppliers or directly from the
manufacturers and resold to the customer as part of the contracted installation.
Orders and deliveries are coordinated to match the project schedule. Whenever
possible, a significant portion of the plumbing and piping assembly is
prefabricated at AMPAM facilities in order to reduce on-site installation time,
increase quality control, and reduce material costs and service time.
Once the job moves onto the construction site, connections are made to the
municipal sewage system and supply, drainage piping is installed within the
construction "footings" along the building's perimeter, and risers are installed
to elevate the piping above the level of the foundation. These risers are
designed to either be contained within the walls for extension into upper
floors, or to connect with fixtures to be installed in specified locations on
ground level floors. After the foundation is poured and the framing for the
walls and floors of the upper levels of the building is constructed, piping
systems are extended to supply the fixtures and systems throughout the building
and venting systems are installed. Once the walls have been covered, and the
flooring, ceiling and roofing completed, fixtures (including sinks, hot water
heaters, toilets, baths, faucets and spigots) are installed and the system is
connected to the water main and gas supply. Typically, AMPAM assigns separate,
specialized plumbing crews to each specific required task (water and gas
connections and pressure testing, sewage connections, ground level piping, wall
and ceiling extensions and fixture installation). AMPAM believes that it
increases its efficiency and labor productivity by training crews to perform
specialized tasks. Municipal inspectors also generally tour a job site several
times during the construction process to assure compliance with the applicable
plumbing codes.
Mechanical. Mechanical contracting services provided by AMPAM consist
primarily of the installation of mechanical and process piping and tubing,
including systems which convey hot and chilled water, steam, medical gas, fuels
and other liquid and gaseous substances, as well as the installation of related
equipment and fixtures which store, pump, regulate and measure the distribution
of these substances. In some cases, these mechanical systems are critical to the
underlying business of the future tenant, as in the case of water treatment
plants, chemical plants, and medical laboratories. Mechanical contracting
services provided by AMPAM also include the installation of the piping portion
of HVAC systems, including the piping and tubing used to convey hot and chilled
water to the heating or cooling systems and the related boilers, chillers,
cooling towers, pumps, valves and control devices. See "-- HVAC" below.
Mechanical contracting projects begin with project design and engineering
which may be produced by AMPAM or specified by the customer. In response to
customer demand, AMPAM may develop some or all
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of the design parameters using its CAD programs or may "value engineer" customer
supplied specifications in order to suggest more efficient installation
configurations or lower cost components. Prefabrication at AMPAM facilities may
also be employed to pre-assemble various piping and mechanical configurations
prior to deployment at the construction site. Most mechanical projects begin
with the installation of distribution piping and duct systems within the walls
and between the floor and ceilings in accordance with technical design
specifications, after the foundation has been poured. Once the distribution and
main service lines have been installed, service branches to various equipment
are completed, and the equipment and controls are then balanced and
commissioned.
HVAC. In some regions, the Company also offers HVAC contracting services.
HVAC systems typically involve piping and air-handling components. The piping
component, as described above, is often classified as mechanical contracting
service. However, in contrast to mechanical services, the air handling component
of an HVAC system includes the ductwork and ventilation systems that carry air
rather than hot or chilled water or other liquids or gaseous substances.
Equipment and fixtures related to the air-handling component of an HVAC system
include heaters, compressors, air handlers, and air conditioning units.
Typically, HVAC installation projects begin with the customer providing the
architectural plans and mechanical drawings for the building to be constructed.
The process of on-site installation is similar to that required for mechanical
systems.
Maintenance and Repair. Maintenance and repair contracting services are
generally provided on a per visit basis and through short-term and long-term
maintenance contracts. Revenue from repair and maintenance contracting services
has historically fluctuated, representing a smaller portion of the overall
revenue of the Acquired Companies when existing manpower capacity is already
utilized on installation projects.
OPERATIONS
Contracting. Single family residential work is generally obtained through
relationships with existing customers and referrals, with pricing being
negotiated with the particular customer. Multifamily residential and
commercial/institutional work is typically awarded through a competitive bid
process, which is often limited to approved bidders who meet bonding and other
requirements. As a result, large projects attract fewer bidders because of the
bonding and manpower capacity requirements. Contracts may provide precise
specifications for the work to be completed, require the contractor to design
and build the plumbing system, or may permit the contractor to provide revised
specifications for the project. AMPAM's plumbing contracts are generally
structured on a fixed cost basis. Revenues for a typical multifamily residential
plumbing project for installation in a low-rise apartment complex range from
approximately $350,000 to $1,000,000. Single family residential projects vary
based upon the size of the development, and revenues for each home range from
approximately $4,000 to $9,000. Revenues from a single commercial or
institutional mechanical contracting project generally range from approximately
$500,000 to $10 million, depending upon the size of the building involved, the
nature of the plumbing and mechanical contracting services involved and the
specific equipment and fixtures to be installed.
Engineering and Design. AMPAM has engineering and design capabilities which
enables it to offer a higher level of service to its customers. These
capabilities may be offered "in-house" or obtained from third parties, as
appropriate. CAD systems may be used to "value engineer" the project by
providing cost saving alternatives to the specifications and designs provided by
the customer or to actually design and build the plumbing and mechanical systems
to be installed. CAD systems can be used to automate the production of
blueprints, specifications, produce a schedule of required assemblies, and to
assist in selecting the materials and equipment to be used. AMPAM is further
developing its "value engineering" and design-and-build capabilities to help
capture higher margins resulting form the cost savings passed on to the
customer.
Purchasing. AMPAM estimates that its cost of materials purchased represents
approximately 48% of AMPAM's costs of revenues. AMPAM purchases copper, steel,
cast iron, PVC and ABS pipe, valves, hangers, fire protection and sprinkler
systems, plumbing fixtures, drains, water heaters, boilers, chillers, air
handling units and pumps, and other materials from a number of manufacturers.
AMPAM purchases these materials directly from the manufacturer or through
wholesalers and other distributors.
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In some instances, AMPAM receives discounts from wholesalers in return for
prompt payment, and AMPAM negotiates with wholesalers to receive discounts
whenever possible. As a result of its size, AMPAM negotiates directly with many
national manufacturers to participate in rebate programs offered by those
manufacturers. Many of the rebate programs commenced in January 2000.
AMPAM also believes it has lowered its costs related to:
- the lease and maintenance of vehicles;
- bonding, casualty and liability insurance;
- health insurance and related benefits;
- retirement benefits administration; and
- a variety of accounting, information, financial management and legal
services.
Management Information Systems and Controls. AMPAM has centralized the
consolidated accounting and financial reporting activities at its corporate
headquarters while basic accounting activities are conducted at the operating
level. Several of the Acquired Companies, serving both the residential and
commercial/institutional markets, possess sophisticated (and in several cases,
proprietary) software systems which handle estimation, materials, ordering and
job scheduling functions.
Recruiting and Training. Recruiting and training primarily occur at the
local level for each operating unit of AMPAM, but are also supplemented by
national programs. To take advantage of successful human resource programs,
AMPAM shares best practices in recruiting, selection, training and
apprenticeship programs developed by some of the Acquired Companies. AMPAM
believes it is able to attract highly qualified candidates as a result of its
national size, potential for growth and advancement, as well as its health,
disability, and life insurance, and retirement packages and stock-based
compensation plans.
CUSTOMERS
AMPAM has a diverse customer base with no customer representing more than
10% of its annual revenues. As a result of an emphasis on quality and
reliability, the Acquired Companies have been responsible for developing and
maintaining successful relationships with key customers. And AMPAM intends to
continue its emphasis on superior quality and customer service in order to
maintain these relationships.
PROPERTY AND EQUIPMENT
AMPAM operates a fleet of approximately 1,300 owned and leased service
trucks, vans and support vehicles, as well as heavy machinery including cranes,
backhoes and high-lifts. The Company believes these vehicles are adequate for
AMPAM's current operations.
REGULATION
Operations and Licensing. AMPAM's business is subject to various federal,
state and local laws, regulations, ordinances and policies relating to, among
other things:
- the licensing and certification of plumbers and technicians;
- AMPAM's advertising, warranties, and disclosures to its customers;
- the bidding process required to obtain plumbing and mechanical contracts;
and
- the applicable plumbing, mechanical and building codes with which AMPAM
must comply.
Most states require that at least one of AMPAM's employees be a licensed
master plumber, and many jurisdictions regulate the number and level of license
holders who must be present on a construction site during installation of
plumbing and mechanical systems. Some jurisdictions require AMPAM to obtain a
building permit for each plumbing or mechanical project. In addition, AMPAM must
comply with labor laws
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and regulations, including those that relate to verification by employers of
legal immigration or work permit status of employees.
Environmental Health and Safety. AMPAM is subject to safety standards
established and enforced by, among others, the Occupational Safety and Health
Administration. AMPAM is also subject to various environmental laws and
regulations relating to the use, storage, transportation and disposal of various
materials. To the extent that AMPAM performs work involving air conditioning and
refrigeration systems, it is subject to additional restrictions and regulations
governing the availability, handling and recycling of various refrigerants due
to the phase-out of ozone-depleting substances under the Montreal Protocol and
the Clean Air Act.
EMPLOYEES
At December 31, 1999, AMPAM had approximately 4,000 employees. Currently,
none of AMPAM's employees are members of unions or work under a collective
bargaining agreement. AMPAM believes that its relationship with its employees is
satisfactory.
ITEM 2. PROPERTIES
The Company's subsidiaries operate out of leased facilities in several
states. The warehouses, administrative offices and shops are generally covered
by operating leases ranging from five to ten years, and are on terms the Company
believes to be commercially reasonable. Certain of the facilities are leased
from related parties (See Item 13. -- Certain Relationships and Related Party
Transactions -- Other Transactions Involving Certain Officers, Directors and
Shareholders). AMPAM believes its facilities are generally adequate for its
present needs. Further, AMPAM believes that suitable additional or replacement
space will be available as required.
The Company leases its executive offices in Round Rock, Texas.
ITEM 3. LEGAL PROCEEDINGS
AMPAM has, from time to time, been a party to litigation arising in the
normal course of business. Most of the litigation involves claims for personal
injury or property damage incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 24, 2000, there were approximately 73 holders of the Company's
common stock and approximately 30 holders of the Company's Class B common stock,
neither of which has an established public trading market.
AMPAM does not anticipate paying cash dividends on its common stock in the
foreseeable future. AMPAM expects that it will retain all available earnings
generated by its operations for the development and growth of its business. Any
future determination as to the payment of dividends will be made at the
discretion of the Company's Board of Directors and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant. Our debt instruments include certain restrictions on the payment of
cash dividends on the common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data reflects the results and
financial position of Christianson Enterprises, the accounting acquiror, for the
periods prior to April 1, 1999. Results of operations for the year ended
December 31, 1999, represent Christianson's results for the three months ended
March 31, 1999, and the consolidated results of AMPAM for the balance of the
year.
<TABLE>
<CAPTION>
FOUR MONTHS
YEARS ENDED ENDED YEAR ENDED
AUGUST 31, DECEMBER 31 DECEMBER 31,
----------------- ----------------- ----------------------------
1995 1996 1995 1996 1997 1998 1999
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($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $39,449 $50,330 $14,619 $15,576 $50,909 $63,374 $334,002
Cost of revenue (including depreciation)...... 29,805 38,203 11,044 11,868 37,504 45,704 269,972
------- ------- ------- ------- ------- ------- --------
Gross profit.................................. 9,644 12,127 3,575 3,708 13,405 17,670 64,030
Selling, general and administrative
expenses.................................... 8,977 11,051 3,430 5,142 11,497 17,078 29,590
Non-cash stock compensation charge............ -- -- -- -- -- -- 7,992
Goodwill amortization......................... -- -- -- -- -- -- 3,303
------- ------- ------- ------- ------- ------- --------
Income (loss) from operations(a).............. 667 1,076 145 (1,434) 1,908 592 23,145
Interest and other income, net................ 171 267 225 32 59 56 (11,905)
------- ------- ------- ------- ------- ------- --------
Income (loss) before provision for income
taxes....................................... 838 1,343 370 (1,402) 1,967 648 11,240
Provision (benefit) for income taxes.......... 258 345 74 (56) 77 32 7,859
------- ------- ------- ------- ------- ------- --------
Income before extraordinary loss.............. 580 998 296 (1,346) 1,890 616 3,381
Extraordinary loss............................ -- -- -- -- -- -- 455
------- ------- ------- ------- ------- ------- --------
Net income (loss)(a).......................... $ 580 $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 2,926
======= ======= ======= ======= ======= ======= ========
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital............................... $ 3,343 $ 9,891 $ 6,113 $ 2,531 $ 4,279 $ 4,792 $ 25,746
Total assets.................................. 5,822 11,607 6,804 11,323 7,634 11,210 267,751
Long-term obligations, net of current
maturities.................................. 584 425 531 425 329 349 136,623
Total stockholders' equity.................... $ 4,140 $ 5,138 $ 6,415 $ 3,792 $ 5,685 $ 6,301 $ 43,391
</TABLE>
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(a) The loss from operations for 1996 and the level of net income in the other
periods prior to April 1, 1999 are primarily attributable to the level of
owner's compensation paid during those periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following section 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, 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.
AMPAM's revenues are derived primarily from plumbing and mechanical
contracting services provided to single and multifamily residential and
commercial and institutional customers. Revenues from construction contracts are
generally accounted for on a percentage-of-completion basis. Maintenance and
repair revenues are recognized as the services are performed. Costs and
estimated earnings in excess of billings on
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uncompleted contracts are recorded as an asset, and billings in excess of costs
and estimated earnings on uncompleted contracts are recorded as a liability.
Provisions for estimated losses on uncompleted contracts are made in the period
in which the losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income, and their effects are recognized in the period in which the
revisions are determined.
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, AMPAM 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.
Of AMPAM's 1999 pro forma combined revenues, approximately 54% were derived
from single family residential services, approximately 19% were derived from
multifamily residential services, and approximately 27% were derived from
commercial and institutional services. Costs of revenues consist primarily of
materials, and salaries and benefits of employees, which in 1999 represent
approximately 48% and 33% of pro forma cost of revenues, respectively.
Additional costs of revenues include subcontracted services, depreciation, fuel
and other vehicle expenses, equipment rentals, estimators, insurance and other
indirect costs. AMPAM's gross margin (which is gross profit expressed as a
percentage of revenues) depends on the relative proportions of costs related to
labor and materials. On projects in which a higher percentage of the cost of
revenues consist of labor costs, AMPAM typically achieves higher gross margins
than on projects in which materials represent more of the cost of revenues.
Selling, general and administrative expenses consist primarily of compensation
and related benefits for management and administrative personnel, insurance,
advertising, office rent and utilities, communications and professional fees.
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, 1998, 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 periods presented, or our
future results. The unaudited pro forma financial data is based on preliminary
estimates, available information, and some 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, AMPAM's post-combination results of
operations because:
- the Founding Companies were not under common control or management;
- AMPAM will incur incremental costs for its corporate management; and,
- the combined data does not reflect the potential benefits and cost
savings AMPAM expects to realize by operating as a combined entity.
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The following table sets forth unaudited supplemental pro forma combined
financial information of the Founding Companies and the actual results in 1999
of the Subsequent Acquisitions (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1999
-------------- --------------
<S> <C> <C> <C> <C>
Revenues.......................................... $326,414 100% $405,656 100%
Cost of revenues.................................. 258,454 79 325,760 80
-------- --- -------- ---
Gross Profit................................. 67,960 21 79,896 20
Selling, general and administrative expenses...... 31,410 10 36,726 9
Noncash stock compensation charge................. -- -- 7,992 2
Goodwill Amortization............................. 3,772 1 4,254 1
-------- --- -------- ---
Income from operations....................... $ 32,778 10% $ 30,924 8%
======== === ======== ===
</TABLE>
1999 COMPARED TO 1998
Pro forma combined revenues were $405.7 million for the year ended December
31, 1999, an increase of $79.3 million, or 24%, from $326.4 million for the year
ended December 31, 1998. The increase in combined revenues resulted from a $61.6
million increase in "same store" revenues at the Founding Companies combined
with $17.7 million generated by the Subsequent Acquisitions. While AMPAM
realized revenue increases in all markets, the largest increase was associated
with increased housing starts in the single family residential market,
especially the Southern California region. Revenues also increased due to modest
price increases at certain AMPAM subsidiaries.
Pro forma combined gross profit was $79.9 million for the year ended
December 31, 1999, an increase of $11.9 million, or 18%, from $68.0 million for
the year ended December 31, 1998. The increase in combined gross profit resulted
from a $8.9 million increase in "same store" gross profit for the Founding
Companies combined with $3.0 million generated by the Subsequent Acquisitions.
The increase was primarily generated in the single family market offset by a
decrease in the commercial/institutional market. The increase in the single
family market was due to increased volume, and improved margins. The decrease in
gross profit in the commercial/institutional market was due to lower margins on
commercial jobs, and increased costs associated with the merger of two
commercial subsidiaries. Gross margin decreased from 21% of revenue for the year
ended December 31, 1998, to 20% for the year ended December 31, 1999. The
overall decrease in gross margin resulted from decreased margins from the
commercial/institutional market offset by increased margins from the single
family residential market.
Pro forma combined selling, general and administrative expenses were $36.7
million for the year ended December 31, 1999, an increase of $5.3 million, or
17%, from $31.4 million for the year ended December 31, 1998. The increase is
the result of increased business activity.
The noncash stock compensation charge represents the value of shares issued
to management in connection with the formation of the business.
Pro forma goodwill amortization increased from $3.8 million for the year
ended December 31, 1998, to $4.3 million for the year ended December 31, 1999.
The increase in amortization is associated with the goodwill generated by 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
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.
9
<PAGE> 11
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $50,909 100% $63,374 100% $334,002 100%
Cost of revenues......................... 37,504 74 45,704 72 269,972 81
------- --- ------- --- -------- ---
Gross Profit............................. 13,405 26 17,670 28 64,030 19
Selling, general and administrative
expenses............................... 11,497 22 17,078 27 29,590 9
Noncash stock compensation charge........ -- -- -- -- 7,992 2
Goodwill amortization.................... -- -- -- -- 3,303 1
------- --- ------- --- -------- ---
Income from operations................... 1,908 4 592 1 23,145 7
Other, net............................... 59 -- 56 -- (11,905) (4)
------- --- ------- --- -------- ---
Income before taxes and extraordinary
loss................................... 1,967 4 648 1 11,240 3
Provision for income taxes............... 77 -- 32 -- 7,859 2
------- --- ------- --- -------- ---
Income before extraordinary loss......... 1,890 4 616 1 3,381 1
Extraordinary loss on early
extinguishments of debt................ -- -- -- -- 455 --
------- --- ------- --- -------- ---
Net income............................... $ 1,890 4% $ 616 1% $ 2,926 1%
======= === ======= === ======== ===
</TABLE>
1999 COMPARED TO 1998
Revenues increased $270.6 million, or 427%, from $63.4 million for the year
ended December 31, 1998, to $334.0 million for the year ended December 31, 1999.
The growth was primarily due to the acquisition of the Acquired Companies as
well as increased activity in the single family residential housing market.
Gross profit increased $46.3 million, or 262%, from $17.7 million for the
year ended December 31, 1998, to $64.0 million for the year ended December 31,
1999. The increase in gross profit was primarily due to the acquisition of the
Acquired Companies and the increased volume of work performed. The increase in
gross profit was partially offset by increases in certain materials costs. Gross
margin decreased from 28% for the year ended December 31, 1998, to 19% for the
year ended December 31, 1999. The decrease is attributable to the acquisition of
the Acquired Companies, particularly those in the commercial market, which have
historically generated lower margins than Christianson.
Selling, general and administrative expenses increased $12.5 million, or
73%, from $17.1 million for the year ended December 31, 1998, to $29.6 million
for the year ended December 31, 1999. The increase in selling, general and
administrative expenses was primarily due to the acquisition of the Acquired
Companies and the corporate general and administrative costs incurred after
April 1, 1999. Additionally, Christianson officers' compensation of $10.7
million was recorded for the year ended December 31, 1998, versus $0.4 million
for the quarter ended March 31, 1999.
The noncash stock compensation charge represents the value of shares issued
to management in connection with the formation of the business.
Income from operations increased $22.5 million from $0.6 million for the
year ended December 31, 1998, to $23.1 million for the year ended December 31,
1999. The increase in income from operations was primarily due to the
acquisition of the Acquired Companies and the reduction in Christianson's
officers compensation offset by the noncash stock compensation charge. Increases
in the volume of work performed also contributed to the increase in income from
operations.
Other, net, decreased by $12.0 million as a result of the interest on the
indebtedness incurred to fund the cash portion of the acquisition consideration.
10
<PAGE> 12
The increase in income tax expense results from the Company recording
federal income taxes for the period after April 1, 1999. Prior to this date,
Christianson elected S Corp status.
The extraordinary item that occurred in 1999, relates to the write off of
loan costs and unamortized discount associated with the $30.0 million
Subordinated Loan entered into on April 1, 1999, that was repaid with the
proceeds from the bond offering on May 19, 1999.
Net income increased $2.3 million, or 383%, from $0.6 million for the year
ended December 31, 1998, to $2.9 million for the year ended December 31, 1999.
The increase is due to the acquisition of the Acquired Companies, offset by the
one time charges resulting from the initial organization of the Company and the
interest expense on the indebtedness incurred to fund the cash portion of the
acquisition consideration.
1998 COMPARED TO 1997
Revenues increased $12.5 million, or 25%, from $50.9 million for the year
ended December 31, 1997, to $63.4 million for the year ended December 31, 1998,
primarily due to increased market share as a result of contracts with new
builder customers, small increases in contract pricing and increased
construction activity in the Austin and central Texas housing market.
Gross profit increased $4.3 million, or 32%, during the year ended December
31, 1998, to $17.7 million, and gross margin increased to 28% in 1998, from 26%
in 1997, as a result of small increases in contract pricing and increased
maintenance and service revenues.
Selling, general and administrative expenses increased $5.6 million, or
49%, from $11.5 million for the year ended December 31, 1997, to $17.1 million
for the year ended December 31, 1998. The increase was attributable to an
increase in officer compensation and increases in administrative costs due to
the increased volume of contracts. The total officer's compensation for the year
ended December 31, 1998, was $10.7 million versus $6.6 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, AMPAM had $25.7 million in working capital and
$137.7 million of outstanding indebtedness, including capital lease obligations
totaling $3.0 million.
For the year ended December 31, 1999, net cash provided by operating
activities was $9.7 million resulting primarily from operations offset by
increases in working capital. Cash used in investing activities was $82.9
million for the year ended December 31, 1999, resulting primarily from the
acquisition of the Acquired Companies. Cash provided by financing activities for
the year ended December 31, 1999, was $71.7 million and was primarily
attributable to the issuance of the Senior Subordinated Notes offset by payments
to the former stockholders of Christianson, the accounting acquiror, which were
treated as distributions.
On April 1, 1999, AMPAM entered into a bank credit facility (the "Credit
Facility"). The total commitment under the Credit Facility is $95 million, of
which $80 million was available at December 31, 1999.
As part of the acquisitions of the Founding Companies, AMPAM issued
1,048,820 shares of its Series A Redeemable Preferred Stock. The preferred stock
has a liquidation value of $13 per share. The holders of the preferred stock are
entitled to receive dividends at an annual rate of 10% based upon the
liquidation value, payable semi-annually. Each semi-annual interest payment is
approximately $682,000. This preferred stock may convert into common stock upon
the occurrence of certain events.
On May 19, 1999, AMPAM sold $125,000,000 aggregate principal amount of the
Senior Subordinated Notes to qualified institutional buyers in a private
placement. On December 30, 1999, the private notes were exchanged for new notes
with substantially identical terms. The Senior Subordinated Notes accrue
interest at the annual rate of 11 5/8%. AMPAM will make interest payments of
approximately $7.3 million semi-annually on these notes which are due in October
of 2008.
11
<PAGE> 13
The Company's capital expenditure budget for 2000, is approximately $5.7
million. These expenditures primarily relate to the purchase of vehicles and
equipment and will be funded from cash flows from operations. Capital
expenditures for the year ended December 31, 1999, were approximately $5.1
million.
AMPAM 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.
AMPAM 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. AMPAM expects to fund future acquisitions
primarily with working capital, cash flow from operations and borrowings
(including any unborrowed portion of the Credit Facility).
Due to the relatively low levels of inflation experienced in the 1997, 1998
and 1999 fiscal years, inflation did not have a significant effect on the
results of the combined Acquired Companies in those fiscal years, or on AMPAM
after the acquisition of the Acquired Companies.
SUBSEQUENT EVENTS
On March 1, 2000, AMPAM acquired the stock of Lindy Dennis Industries and
related affiliates (collectively "LDI"), headquartered in Corona, California.
LDI operates primarily as a 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
common stock of the Company and approximately $12 million in cash. The cash
portion of the consideration was funded through borrowings under the Company's
existing $95 million Credit Facility.
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 AMPAM, at a price of $3.25 per share, subject to certain
contingencies. Subject to similar contingencies, a similar offer will be made to
the holders of the remaining 0.9 million Class B common stock. Assuming all
contingencies are met, the transaction is expected to close in April 2000, and
will be funded by the Company's Credit Facility.
YEAR 2000
The Year 2000 issue referred to the potential inability of computer
software applications and equipment to differentiate between dates in the year
1900 and dates in the year 2000. This issue produced the potential for error or
failure in the systems or information. AMPAM's business is not heavily dependent
upon the use of computer technology and its systems are primarily based on
personal computers or local area networks.
The Company did not experience any issues related to this potential
problem. Additionally, none of the Company's suppliers or customers developed
problems related to the Year 2000 issue, that adversely impacted the Company.
The costs incurred by AMPAM to assess the Company's readiness for the event were
minimal and did not exceed the normal cost of upgrading, maintaining and
monitoring the Company's computer infrastructure.
12
<PAGE> 14
ITEM 7-A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
AMPAM is exposed to various market risks primarily related to potential
adverse changes in interest rates as discussed below. In the normal course of
business, the Company employs established policies and procedures to manage this
risk. AMPAM 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. The following table presents principal amounts
(in thousands) and related average interest rates by year of maturity for the
Company's debt obligations and their fair market value at December 31, 1999 ($
in thousands).
<TABLE>
<CAPTION>
FAIR
2000 2001 2002 2003 2004 THEREAFTER VALUE
------ ----- ------- ----- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities -- Long-Term Debt:
Variable Rate Debt...... $ -- $ -- $12,000 $ -- $ -- $ -- $ 12,000
Average Interest Rate... --% --% 8.9% --% --% --% 8.9%
Fixed Rate Debt......... $1,031 $ 800 $ 276 $ 146 $ 83 $123,318 $125,654
Average Interest Rate... 10.5% 10.5% 10.5% 10.5% 10.5% 11.625% 11.625%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
13
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Plumbing & Mechanical, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of American
Plumbing & Mechanical, Inc., and Subsidiaries (a Delaware corporation) as of
December 31, 1998 and 1999, and the related consolidated statements of income,
cash flows and stockholders' equity for each of the three years in the period
ended December 31, 1999. These consolidated 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the American
Plumbing & Mechanical, Inc., and Subsidiaries as of December 31, 1998 and 1999,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Austin, Texas
February 11, 1999
14
<PAGE> 16
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,980 $ 393
Accounts receivable, net.................................. 6,397 73,726
Inventories............................................... 450 8,356
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 273 13,919
Prepaid expenses and other current assets................. 233 2,135
------- --------
Total current assets.............................. 9,333 98,529
PROPERTY AND EQUIPMENT, net................................. 1,699 17,266
GOODWILL, net............................................... -- 146,050
OTHER NONCURRENT ASSETS..................................... 178 5,906
------- --------
Total assets...................................... $11,210 $267,751
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations........... $ 480 $ 1,031
Accounts payable and accrued expenses..................... 3,413 42,871
Accounts payable, related parties, including acquisition
consideration payable.................................. 37 12,160
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 611 16,721
------- --------
Total current liabilities......................... 4,541 72,783
LONG-TERM LIABILITIES:
Long-term debt............................................ 349 136,623
Deferred income taxes..................................... 19 1,319
------- --------
Total liabilities................................. 4,909 210,725
------- --------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED STOCK, $.01 par value,
10,000,000 shares authorized, none and 1,048,820 shares
issued and outstanding, respectively...................... -- 13,635
STOCKHOLDERS' EQUITY:
Common stock, $1.00 and $.01 par value, respectively
3,000,000 shares authorized through December 31, 1998
and 100,000,000 shares authorized at December 31, 1999,
82,200 and 11,265,229 shares issued and outstanding,
respectively........................................... 82 113
Class B common stock, $.01 par value, 5,000,000 shares
authorized, none and 2,423,517 shares issued and
outstanding, respectively.............................. -- 24
Additional paid-in capital................................ 11 35,143
Retained earnings......................................... 6,208 8,111
------- --------
Total stockholders' equity........................ 6,301 43,391
------- --------
Total liabilities and stockholders' equity........ $11,210 $267,751
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 17
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
REVENUES.................................................... $50,909 $63,374 $334,002
COST OF REVENUES (including depreciation)................... 37,504 45,704 269,972
------- ------- --------
Gross profit...................................... 13,405 17,670 64,030
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 11,497 17,078 29,590
NONCASH STOCK COMPENSATION EXPENSE.......................... -- -- 7,992
GOODWILL AMORTIZATION....................................... -- -- 3,303
------- ------- --------
Income from operations............................ 1,908 592 23,145
OTHER INCOME (EXPENSE):
Interest and dividend income.............................. 126 102 172
Interest expense.......................................... (102) (116) (12,137)
Other..................................................... 35 70 60
------- ------- --------
Other income (expense), net....................... 59 56 (11,905)
------- ------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES and EXTRAORDINARY
LOSS...................................................... 1,967 648 11,240
PROVISION FOR INCOME TAXES.................................. 77 32 7,859
------- ------- --------
INCOME BEFORE EXTRAORDINARY LOSS............................ 1,890 616 3,381
------- ------- --------
EXTRAORDINARY LOSS ON DEBT EXTINGUISHMENT, net of tax
benefit................................................... -- -- 455
------- ------- --------
NET INCOME.................................................. 1,890 616 2,926
------- ------- --------
PREFERRED DIVIDENDS......................................... -- -- 1,023
------- ------- --------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS................. $ 1,890 $ 616 $ 1,903
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 18
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,890 $ 616 $ 2,926
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization........................... 595 673 6,535
Non cash compensation charge related to issuance of
stock to management.................................. -- -- 7,992
Amortization of deferred compensation expense........... -- -- 343
Extraordinary loss on early extinguishments of debt..... -- -- 769
Loss on disposal of property and equipment.............. 1 -- 183
Deferred income taxes................................... 49 (35) 1,529
Increase (decrease) in cash flows from:
Accounts receivable, net............................. (648) (1,363) (10,324)
Inventories.......................................... 411 (75) (1,697)
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. -- -- (2,775)
Prepaid expenses and other current assets............ (16) (153) 1,546
Accounts payable and accrued expenses................ (5,631) 2,290 (1,683)
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. -- -- 6,230
Other................................................ 14 540 (1,883)
------- ------- --------
Net cash provided by (used in) operating activities....... (3,335) 2,493 9,691
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment....................... (166) (167) (5,077)
Proceeds from sale of property and equipment.............. -- -- 101
Acquisition of companies, net of cash acquired............ -- -- (77,955)
------- ------- --------
Net cash used in investing activities..................... (166) (167) (82,931)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on subordinated loan........................... -- -- 30,000
Payments on subordinated loan............................. -- -- (30,000)
Net borrowings on bank credit facility.................... -- -- 10,975
Distributions to stockholders............................. -- -- (40,643)
Payments of long-term debt assumed and capital lease
obligations............................................. (425) (511) (10,628)
Payments on notes to stockholders......................... -- -- (5,766)
Issuance of senior subordinated notes..................... -- -- 118,668
Preferred dividends....................................... -- -- (1,023)
Proceeds from sale of common stock........................ -- -- 70
------- ------- --------
Net cash provided by (used in) financing activities....... (425) (511) 71,653
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,926) 1,815 (1,587)
CASH AND CASH EQUIVALENTS, beginning of year................ 4,091 165 1,980
------- ------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 165 $ 1,980 $ 393
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest................................................ $ 102 $ 116 $ 11,174
Income taxes............................................ 28 29 8,400
Noncash item --
Capital lease additions................................. 460 615 534
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 19
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
------------------- ------------------ STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL EARNINGS EQUITY
---------- ------ --------- ------ -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996...................... 79,200 $ 79 -- $-- $ -- $ 11 $ 3,702 $ 3,792
Formation of
Christianson............
Service Company........... 3,000 3 -- -- -- -- -- 3
Net income................ -- -- -- -- -- -- 1,890 1,890
---------- ---- --------- --- ----- -------- ------- --------
BALANCE, December 31,
1997...................... 82,200 82 -- -- -- 11 5,592 5,685
Net income................ -- -- -- -- -- -- 616 616
---------- ---- --------- --- ----- -------- ------- --------
BALANCE, December 31,
1998...................... 82,200 82 -- -- -- 11 6,208 6,301
Exchange of accounting
acquiror stock.......... (82,200) (82) -- -- -- 82 -- --
Issuance of stock to
accounting acquiror..... 926,772 9 -- -- -- (9) -- --
Issuance of stock to
stockholders of founding
companies and
promoter................ 8,012,918 80 2,146,587 21 -- 76,869 -- 76,970
Distribution to accounting
acquiror................ -- -- -- -- -- (60,159) -- (60,159)
Issuance of shares to
management.............. 844,000 9 276,930 3 -- 7,980 -- 7,992
Stock issuance costs...... -- -- -- -- -- (3,573) -- (3,573)
Amortization of deferred
compensation expense.... -- -- -- -- -- 343 -- 343
Issuance of common stock
warrants................ -- -- -- -- 300 -- -- 300
Expiration of common stock
warrants................ -- -- -- -- (300) 300 -- --
Sale of common stock...... 10,000 -- -- -- -- 70 -- 70
Issuance of stock to
stockholders of
subsequent
acquisitions............ 1,471,539 15 -- -- -- 13,229 -- 13,244
Preferred dividends....... -- -- -- -- -- -- (1,023) (1,023)
Net income................ -- -- -- -- -- -- 2,926 2,926
---------- ---- --------- --- ----- -------- ------- --------
BALANCE, December 31,
1999...................... 11,265,229 $113 2,423,517 $24 $ -- $ 35,143 $ 8,111 $ 43,391
========== ==== ========= === ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 20
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
American Plumbing & Mechanical, Inc., a Delaware corporation ("AMPAM" or
the "Company"), was organized in June 1998, to be the leading provider of
plumbing and mechanical contracting services in the United States, focusing,
primarily on the residential and commercial/institutional markets. On April 1,
1999, AMPAM acquired ten U.S. businesses (the "Founding Companies") (see Note
11) and completed the initial financings (see Note 5). Subsequently, the Company
acquired the outstanding stock of two additional companies and the assets of a
third company (the "Subsequent Acquisitions" and collectively with the Founding
Companies the "Acquired Companies") (see Note 11), effective September 30, 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. As the accounting acquiror, for accounting purposes
under SEC SAB No. 97, Christianson is treated as (a) having acquired all of the
other companies (even though AMPAM legally made such acquisitions), (b) having
merged with AMPAM (with purchase accounting reflected for AMPAM's non-management
stock ownership), and (c) representing the financial history of AMPAM prior to
April 1, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying financial statements prior to April 1, 1999, present
Christianson Enterprises, Inc., consolidated with its affiliates, as the
accounting acquiror. These financial statements consolidate Christianson with
the consolidated results of AMPAM since April 1, 1999. All significant
intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of income.
Revenue Recognition
The Company recognizes revenue from construction contracts on the
percentage-of-completion method measured by the percentage of cost incurred to
total estimated costs for each contract. Contract costs include all direct
material and labor costs and those indirect costs related to contract
performance, such as indirect labor and depreciation costs. Provisions for the
total estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and their effects are
19
<PAGE> 21
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the period in which the revisions are determined. Revenues from
services are recognized when services are performed.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for one year after
completion of a plumbing or air conditioning installation. The Company generally
warrants labor for 90 days after plumbing and air conditioner repairs. A reserve
for warranty costs is recorded based upon the historical level of warranty
claims and management's estimate of future costs.
Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectible accounts.
Preacquisition Officers' Compensation of the Accounting Acquiror
Total officers' compensation of the accounting acquiror for the years ended
December 31, 1997, and 1998, and for the three months ended March 31, 1999, was
$6,643,000, $10,701,000, and $400,000, respectively. Such amounts are included
within selling, general, and administrative expenses in the accompanying
statements of income.
Income Taxes
For 1997, and 1998, and the three months ended March 31, 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 years
ended December 31, 1997 and 1998, and 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 in Notes 1 and
11.
AMPAM follows the liability method of accounting for income taxes. Under
this method, deferred assets and liabilities are recorded for future tax
consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities, and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets or liabilities are
recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this note for discussion of significant
estimates reflected in the Company's financial statements.
20
<PAGE> 22
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Realization of Long-Lived Assets
In the event that facts and circumstances indicate that property and
equipment or other assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset are compared to the asset's carrying amount
to determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value.
Goodwill
The Company records as goodwill the excess of the purchase price paid for
business acquisitions over the fair value of the net assets acquired. Goodwill
is amortized to income on a straight-line basis over a 30 year period. AMPAM
periodically evaluates the recoverability of the remaining balance of goodwill
recorded from acquisitions. The Company uses an estimate of future income from
operations and cash flows, as well as other economic and business factors as a
measure of recoverability of these assets.
Debt Issuance Costs
Issuance costs of approximately $5.7 million related to AMPAM's Senior
Subordinated Notes and the Bank Credit Facility (see Note 5) are included in
Other Noncurrent Assets and are amortized to interest expense over the scheduled
maturity of the debt. For the year ended December 31, 1999, $0.7 million was
charged to interest expense.
Fair Value of Financial Instruments
The carrying amounts reflected in the accompanying balance sheet for cash,
accounts receivable, costs and estimated earnings in excess of billings on
uncompleted contracts, accounts payable and accrued expenses, accounts
payable-related parties, billings in excess of costs and estimated earnings on
uncompleted contracts and the bank credit facility approximate fair value due to
the short term nature of the instruments. The Company believes the Senior
Subordinated Notes are stated at fair value.
Reclassifications
Certain reclassifications have been made to the prior-year financial
statements to conform to the current-year presentation.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") was
issued. SFAS 133 establishes accounting and reporting standards requiring that
every derivative instrument be measured at its fair value, recorded on the
balance sheet as either an asset or liability and that changes in the
derivative's fair value be recognized currently in earnings. SFAS 133, as
amended, is effective for fiscal quarters of fiscal years beginning after June
15, 2000. The Company has not yet quantified the impacts of adopting SFAS 133 on
its financial statements. The Company did not early adopt SFAS 133, therefore,
it will be adopted in 2001.
21
<PAGE> 23
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ -------
<S> <C> <C>
Contract receivables........................................ $6,402 $73,585
Other accounts receivable................................... 96 1,259
Allowance for uncollectible accounts........................ (101) (1,118)
------ -------
$6,397 $73,726
====== =======
</TABLE>
Installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- ---------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 1,848 $ 239,991
Estimated earnings on contracts in progress................. 4,259 63,197
------- ---------
6,107 303,188
Less -- Billings to date.................................... (6,445) (305,990)
------- ---------
$ (338) $ (2,802)
======= =========
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 273 $ 13,919
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (611) (16,721)
------- ---------
$ (338) $ (2,802)
======= =========
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ -------
<S> <C> <C>
Accounts payable, trade..................................... $2,101 $24,085
Accrued warranty............................................ 410 1,280
Accrued income taxes payable................................ 169 1,537
Deferred taxes.............................................. 31 2,492
Accrued payroll............................................. 132 2,726
Accrued bonuses............................................. 173 1,636
Accrued vacation............................................ 205 1,286
Accrued interest............................................ -- 3,242
Accrued insurance........................................... 115 1,670
Other accrued expenses...................................... 77 2,917
------ -------
$3,413 $42,871
====== =======
</TABLE>
22
<PAGE> 24
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
IN YEARS 1998 1999
------------ ------- -------
<S> <C> <C> <C>
Vehicles and equipment................................ 5 $ 5,180 $19,557
Office equipment...................................... 5-7 378 3,034
------- -------
5,558 22,591
Less -- Accumulated depreciation and amortization..... (3,859) (5,325)
------- -------
$ 1,699 $17,266
======= =======
</TABLE>
Capital leases of approximately $1,529,000 and $4,992,000 as of December
31, 1998, and 1999, are included in vehicles and equipment. The accompanying
consolidated statements of income reflect depreciation expense of $595,000,
$673,000, and $3,232,000 for the years ending December 31, 1997, 1998, and 1999,
respectively.
5. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
----- --------
<S> <C> <C>
Senior Subordinated Notes................................... $ -- $122,643
Bank Credit Facility........................................ -- 12,000
Capital Lease Obligations................................... 829 3,011
----- --------
137,654
Less: Current Maturities.................................... (480) (1,031)
----- --------
$ 349 $136,623
===== ========
</TABLE>
At December 31, 1999, future principal payments of long-term debt are as
follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31 --
2000...................................................... $ 1,031
2001...................................................... 800
2002...................................................... 12,276
2003...................................................... 146
2004...................................................... 83
Thereafter................................................ 123,318
--------
$137,654
========
</TABLE>
Following is a discussion of the Company's long-term obligations:
Senior Subordinated Notes
On May 19, 1999, the Company completed an offering of $125.0 million of
11 5/8% senior subordinated notes due in 2008 (the "Senior Subordinated Notes").
The Senior Subordinated Notes are subordinated to all existing and future senior
indebtedness of the Company and are guaranteed by each of the Company's current
and future subsidiaries. The Company has the option to redeem the Senior
Subordinated Notes at any time on
23
<PAGE> 25
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or after 2004, at specified redemption prices. Before 2002, the Company also has
the option, under certain circumstances, to redeem up to 35% of the aggregate
principal amount of the Senior Subordinated Notes at specified redemption
prices. Additionally, the Company is required under certain circumstances to
offer to repurchase the Senior Subordinated Notes at specified redemption prices
in the event of a change in control.
The terms of the Senior Subordinated Notes limit the ability of the Company
to, among other things, incur additional indebtedness, dispose of assets, make
acquisitions, make other investments, pay dividends, and to make various other
payments.
The Senior Subordinated Notes are reflected in the accompanying balance
sheet net of an original issuance discount of approximately $2.4 million which
is being amortized to interest expense over the term of the bonds. The net
proceeds from the offering of approximately $117.7 million (net of offering
expenses), were used to (1) repay the outstanding indebtedness ($70.3 million)
under the $95.0 million Bank Credit Facility; (2) repay the $30.0 million
Subordinated Loan; (3) repay the Seller Notes and the Sponsor Note ($8.9 million
as of April 1, 1999); and (4) for general corporate purposes.
The Bank Credit Facility
The bank credit facility (the "Credit Facility") is a senior secured
revolving commitment in an aggregate principal amount of $95 million. Amounts
initially borrowed under the Credit Facility were used to fund a part of the
cash portion of the consideration for the Founding Company acquisitions. The
initial borrowings were repaid with the proceeds from the Senior Subordinated
Notes. The Credit Facility will be used to fund future acquisitions and to
provide financing of general corporate purposes. 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. The applicable
margin fluctuates based on the Company's ratio of funded debt to EBITDA and is
between 1.50% and 2.50% above LIBOR or 0.00% and 1.00% above the agent bank's
base rate. Interest on base rate loans is payable quarterly in arrears and
interest on LIBOR loans is payable at the end of each borrowing period. The term
of the Credit Facility is three years from the date of closing of the Founding
Company acquisitions and all principal amounts borrowed will be payable in full
at maturity. The Credit Facility is secured by (1) the accounts receivable,
inventory, equipment and other personal property of the Company, and (2) all of
the capital stock owned by AMPAM of its existing or later-formed domestic
subsidiaries. The Company is required to make prepayments or commitment
reductions on the Credit Facility under certain circumstances.
The Credit Facility requires the Company to maintain compliance with
certain specified financial covenants including maximum ratios of funded debt to
EBITDA, a minimum fixed charge coverage ratio, a minimum net worth, and other
restrictive covenants. Additionally, the terms of the Credit Facility limit the
ability of the Company to incur additional indebtedness, dispose of assets, make
acquisitions or other investments, and to make various other payments. The
Company is in compliance with the covenants of the Credit Facility.
At December 31, 1999 $12.0 million was outstanding on the Credit Facility.
The proceeds from the Credit Facility were used to fund a portion of the cash
consideration of the Subsequent Acquisitions.
The Subordinated Loan
The Subordinated Loan was a senior subordinated loan in an aggregate
principal amount of $30.0 million and was subordinated to all other of the
Company's senior debt (including the Credit Facility), and senior to all other
subordinated debt of the Company (including the Seller Notes). Amounts borrowed
under the Subordinated Loan were used to fund a portion of the cash
consideration of the Founding Companies. The Subordinated Loan bore interest at
an annual rate equal to three month LIBOR plus 350 basis points. Interest was
payable quarterly in arrears.
24
<PAGE> 26
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concurrent with entering into the Subordinated Loan, AMPAM deposited
warrants to purchase common stock into escrow, for the benefit of the lenders.
The warrants terminated when the Subordinated Loan was repaid, upon closing of
the Senior Subordinated Note offering discussed above. The Company recorded
estimated fair value of the warrants (approximately $0.3 million) as an increase
to stockholder's equity and a corresponding discount to the Subordinated Loan
recorded value. The discount was amortized as additional interest expense.
The Company repaid the $30.0 million outstanding under this loan with the
proceeds from the Senior Subordinated Notes discussed above. Upon repayment, the
Company wrote off deferred loan issuance costs of $0.5 million and the discount
of approximately $0.3 million. The expense is reflected as an extraordinary item
net of the tax benefit of $0.3 million.
The Seller Notes
On April 1, 1999, the Company issued $5.8 million principal amount of
Seller Notes due on April 1, 2002. The Seller Notes bore interest at the rate of
10% per annum. Interest on the Seller Notes was payable quarterly, commencing 90
days from the date of issuance. The Seller Notes were unsecured obligations of
the Company, subordinated in the right of payment to any and all existing and
future senior indebtedness of the Company (including the Credit Facility and the
Subordinated Loan). The Seller Notes were repaid upon completion of the Senior
Subordinated Notes discussed above.
The Sponsor Note
On April 1, 1999, the Company issued a subordinated note payable to
Sterling City Capital, LLC in settlement of the amounts due to them of $3.1
million ($2.0 million at December 31, 1998). The Sponsor Note was due on April
1, 2002 and bore interest payable quarterly at the annual rate of 10%. The
Sponsor Note was repaid by the Company upon completion of the Senior
Subordinated Note offering discussed above.
6. OPERATING LEASES:
The Company leases various facilities under noncancelable operating leases
from related parties and believes such leases to be commercially reasonable. The
Company also leases certain facilities, vehicles and equipment under operating
leases from third parties. Lease expiration dates vary, and future minimum lease
payments are as follows (in thousands):
<TABLE>
<CAPTION>
RELATED THIRD
PARTIES PARTIES
------- -------
<S> <C> <C>
Year ended December 31 --
2000................................................ $2,154 $1,303
2001................................................ 2,199 708
2002................................................ 1,651 433
2003................................................ 1,530 279
2004................................................ 809 152
Thereafter.......................................... 765 --
------ ------
$9,108 $2,875
====== ======
</TABLE>
Total rent payments to related parties were $0.5 million, $0.5 million, and
$2.4 million for the years ended December 31, 1997, 1998, and 1999,
respectively.
25
<PAGE> 27
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
Federal --
Current................................................... $ -- $ -- $4,986
Deferred.................................................. (16) -- 1,180
State
Current................................................... 28 67 1,344
Deferred.................................................. 65 (35) 349
---- ---- ------
$ 77 $ 32 $7,859
==== ==== ======
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
Provision at the statutory rate............................ $ 688 $ 227 $ 3,934
Increase (decrease) resulting from --
Earnings of Christianson taxed as an S Corporation....... (688) (227) (1,247)
Permanent differences, primarily goodwill amortization
and stock compensation expense........................ 5 -- 4,014
State income tax, net of benefit for federal deduction... 88 32 1,158
Other.................................................... (16) -- --
----- ----- -------
$ 77 $ 32 $ 7,859
===== ===== =======
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- -------
<S> <C> <C>
Deferred income tax assets --
Reserves and accrued expenses............................. $ 62 $ 1,531
Deferred income tax liabilities --
Property and equipment.................................... (15) (1,319)
Revenue recognition....................................... (23) (2,492)
Other..................................................... (12) --
---- -------
Total deferred income tax liabilities............. (50) (3,811)
---- -------
Net deferred income tax assets (liabilities)...... $ 12 $(2,280)
==== =======
</TABLE>
26
<PAGE> 28
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- -------
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 56 $ 1,531
Long-term................................................. 6 --
---- -------
Total deferred income tax assets.................. 62 1,531
Deferred tax liabilities --
Current................................................... (31) (2,492)
Long-term................................................. (19) (1,319)
---- -------
Total deferred income tax liabilities............. (50) (3,811)
---- -------
Net deferred income tax assets (liabilities)...... $ 12 $(2,280)
==== =======
</TABLE>
8. STOCKHOLDERS' EQUITY:
Common Stock
In connection with the organization and initial capitalization of AMPAM,
the Company issued 2,092,401 shares of Class B common stock at $.01 par value
(Class B common stock). AMPAM has subsequently issued 1,325,116 additional
shares of Class B common stock and common stock to certain management of AMPAM
and other individuals. The shares of Class B common stock have rights similar to
shares of common stock, except the Class B shares are entitled to elect one
member of the board of directors and are entitled to one-fourth of one vote for
each share held on all other matters, and are subordinate in liquidation to all
other classes of stock.
Each share of Class B common stock will automatically convert to common
stock (as adjusted proportionately to give effect to any stock dividends,
combinations, splits or other similar events with respect to the common stock)
on a share-for-share basis in the event AMPAM consummates any of the following
events: (i) an initial public offering of common stock; (ii) any sale of all or
substantially all of our assets in one transaction or a series of related
transactions; (iii) any merger or consolidation that involves AMPAM in which
AMPAM is not the surviving entity; or, (iv) any transaction after which the
common stock held by persons other than the holders of common stock as of April
1, 1999 constitutes 50% or more of the common stock outstanding as of the date
of the consummation of such transaction. Furthermore, if the Class B common
stock has not previously been converted into common stock before April 1, 2002,
AMPAM will have the option to redeem all outstanding shares of Class B common
stock for $.01 a share.
On April 1, 1999, the Company recorded a nonrecurring non-cash compensation
charge related to all shares issued to management of approximately $8.0 million
which represented the difference between the estimated fair value ($7.50 a share
for common stock and $6.00 a share for Class B common stock) of such shares and
their recorded values. Compensation expense was recognized for shares issued to
management of the Company who: (1) were formerly management of the accounting
acquiror; and, (2) who did not participate in negotiating the acquisitions of
the founding companies.
On April 1, 1999, the Company reflected the shares previously issued to
Sterling City Capital, LLC, certain consultants, and, certain non-Christianson
members of management as acquisition costs (i.e. goodwill valued at $7.50 a
share for common stock and $6.00 a share for Class B common stock) in connection
with the acquisitions. These shares were issued in contemplation of the
acquisitions, and no further stock issuances of this nature are anticipated.
27
<PAGE> 29
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series A Redeemable Preferred Stock
An aggregate of 1,048,820 shares of preferred stock was issued to certain
stockholders of Christianson on April 1, 1999. Such Christianson stockholders
received their acquisition consideration solely in the form of cash and shares
of preferred stock. The preferred stock is cumulative, redeemable and
convertible and was recorded at its estimated fair value of $13 per share.
The holders of the preferred stock are entitled to receive dividends at an
annual rate of 10% based on the liquidation value (as defined below). The
dividends are payable in cash semiannually in arrears. The dividend payment
dates are June 30 and December 31, beginning on June 30, 1999. The holders of
the preferred stock are also entitled to receive additional dividends on an
equal share-for-share basis with the common stock to the extent that the Company
has paid cumulative dividends on a base amount of $13.00 per share of common
stock, as proportionately adjusted for any stock dividends, combinations, splits
or other similar events with respect to such shares, a common stock base amount.
However, the right of the holders of the preferred stock to receive this
preferential dividend will extinguish 40 days after the 25th day following the
date of the final prospectus related to an initial public offering of the
Company's common stock. After, such time, the holders will be entitled to share
equally, on a per share basis, in any dividends of the Company with the holders
of common stock.
The preferred stock is senior to all other classes of the Company's capital
stock (including the common stock) in right of liquidation, dividends and
distributions.
The liquidation value of the preferred stock is $13.00 per share, plus
accrued and unpaid dividends, as adjusted proportionately for any stock
dividends, combinations, splits, or other similar events with respect to such
shares, at liquidation value. In addition, the preferred stock shares equally,
on a per-share basis, with the common stock after each share is paid the common
stock base amount, plus a cumulative amount of dividends equal to 10% from the
later to occur of the date of issuance of the preferred stock or the date of the
issuance of such share of common stock.
Except under certain circumstances, the preferred stock is not entitled to
vote as a separate class, but votes together with the holders of shares of all
other classes of common stock of the Company as one class on all matters
submitted to a vote of the Company's stockholders. Each holder of shares of
preferred stock is entitled to the number of votes equal to the largest number
of full shares of common stock into which all shares of preferred stock held by
such holder could be converted at the record date for the determination of the
stockholders entitled to vote on such matters. In all cases where the holders of
shares of preferred stock are required by law to vote separately as a class,
such holders are entitled to one vote for each such share.
The preferred stock is redeemable at the Company's option, in whole or in
part, prior to an initial public offering of AMPAM common stock for the greater
of (i) the fair market value of the preferred stock, or (ii) $13.00 per share of
preferred stock, plus, in each case, accrued and unpaid dividends thereon. After
an IPO, the Company has the right to redeem, in whole or in part, the preferred
stock at any time and from time to time, at a price equal to the trading price
of the common stock at the time of redemption but in no event for less than
$13.00 per share of preferred stock, plus accrued and unpaid dividends. After
April 1, 2002, the holders of the preferred stock may require the Company to
redeem the preferred stock (in whole or in part). In each such case, the
redemption price per share will be equal to the liquidation value plus accrued
and unpaid dividends through the date of redemption.
Prior to the filing of a registration statement by the Company with the
Securities and Exchange Commission with respect to an IPO, the holders of
preferred stock may convert the preferred stock into common stock on a
share-for-share basis. Not later than the twenty-fifth day after the date of the
final prospectus relating to such IPO, the Company will give notice to each
holder of preferred stock to the effect that the preferred stock will
automatically convert into shares of common stock on the 40th day thereafter
unless such holder gives the Company written notice on or before such date that
such holder elects such
28
<PAGE> 30
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conversion not occur with respect to such holder's shares of preferred stock. In
the event the Company does not receive such notice on or before such date, the
preferred stock shall be converted into common stock at a conversion ratio equal
to the liquidation value (without inclusion of accrued but unpaid dividends)
divided by the price per share to the public in the IPO, effective as of such
date.
The Company may convert the preferred stock following the consummation of
an IPO on a share-for-share basis, unless such conversion would result in the
holder of preferred stock receiving common stock having a value of less than
$13.00 per share, in which case the conversion would be made at a conversion
ratio equal to the liquidation value (without inclusion of accrued but unpaid
dividends) divided by the price per share to the public in the IPO.
9. STOCK-BASED COMPENSATION:
In February 1999, the Company's board of directors and stockholders
approved the Company's 1999 Stock Plan, or the "stock plan", which provides for
the granting or awarding of incentive or nonqualified stock options, stock
appreciation rights, restricted or phantom stock, and other incentive awards to
directors, officers, key employees and consultants of the Company. The number of
shares authorized and reserved for issuance under the stock plan is the greater
of 3.7 million shares or 15% of the aggregate number of shares of common stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of the Company's Board of Directors. The Company granted
nonqualified stock options to purchase a total of approximately 2.0 million
shares of common stock at a prices of $7.00 and $9.00 per share to key employees
of the Company at the consummation of the acquisitions. These options vest at
the rate of 20 percent per year, commencing on the first anniversary of the
grant date and will expire at the earliest of ten years from the date of grant,
three months following termination of employment other than due to death or
disability, or one year following termination of employment due to death or
disability.
Compensation expense is being recognized for the excess of the fair market
value of the stock over the grant price (approximately $0.3 million for the nine
months ended December 31, 1999). Approximately $0.7 million of unamortized
deferred compensation expense existed at December 31, 1999.
The Company measures compensation expense attributable to stock options to
employees to the extent that the fair market value of the related stock is in
excess of the option's exercise price at date of grant. The Company has
computed, for pro forma disclosure purposes, the value of all options for shares
of the Company's stock granted to employees using the Black-Scholes pricing
method using the following assumptions:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Risk-free interest rate.................................. 5.3%-6.6%
Expected dividend yield.................................. -- %
Expected lives........................................... 5 Years
Volatility............................................... -- %
</TABLE>
The weighted average fair value of the options granted in 1999 was $2.21.
29
<PAGE> 31
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for these plans by recording expense based on
their fair value at the grant date, the Company's net income for 1999, would be
as follows:
<TABLE>
<CAPTION>
1999
--------------
(IN THOUSANDS)
<S> <C>
Net income:
As reported......................................... $2,926
Pro forma........................................... 2,815
Net income available to common stockholders:
As reported......................................... $1,903
Pro forma........................................... 1,792
</TABLE>
The following table summarizes activity under the Company's stock option
plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance, December 31, 1998................................ -- --
Granted (range of exercise prices, $7.00 to $9.00)...... 2,012,402 $7.16
Forfeited (range of exercise prices, $7.00 to $9.00).... (98,643) $7.25
---------
Balance, December 31, 1999................................ 1,913,759 $7.16
=========
Exercisable, December 31, 1999............................ -- $ --
</TABLE>
10. EMPLOYEE BENEFIT PLANS:
The Acquired Companies in some cases had 401(k) and defined contribution
profit-sharing plans in place. These plans have varied contribution rates and
vesting schedules. AMPAM is currently in the process of combining the assets of
the various plans into a unified AMPAM 401(k) plan. The terms of the AMPAM
401(k) plan are expected to be finalized prior to December 31, 2000.
Contributions to the Acquired Companies' plans for 1999 were $819,000.
11. ACQUISITIONS:
The Company accounts for all acquisitions using the purchase method of
accounting. The results of operations of the Acquired Companies are included in
the accompanying financial statements from the date of acquisition forward.
Founding Companies
On April 1, 1999 AMPAM acquired the ten Founding Companies
contemporaneously with the related initial financings. The acquisition
consideration delivered upon the closing of the acquisitions consisted of:
(i) $99.9 million in cash,
(ii) $5.8 million of seller notes,
(iii) 8,898,618 shares of common stock ($7.50 per share, or $66.7
million), and,
(iv) 1,048,820 shares of preferred stock ($13.00 per share, or $13.6
million).
Additionally, approximately 2.1 million shares of Class B common stock
issued to Sterling City Capital, LLC and certain consultants was reflected as
part of the purchase price (i.e., goodwill).
Included in the $99.9 million cash acquisition consideration was an
estimated amount based on the level of working capital of each Founding Company
as of the closing date. The cash portion of the acquisition
30
<PAGE> 32
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consideration attributable to the level of working capital was increased by
approximately $12.0 million based on the actual working capital as of the
closing date.
The stockholders of each Founding Company were also entitled to
distributions of certain non-operating assets of such Founding Company (subject
to assumption of related liabilities), retained earnings of such Founding
Company (if a C corporation), or the positive amount of the accumulated
adjustment account (if an S corporation). In addition to the acquisition
consideration and other payments and distributions described above, the
stockholders of certain Founding Companies (including certain former
stockholders of Christianson) will receive additional consideration because
their Founding Company generated actual adjusted net income for the year ended
December 31, 1999, in excess of a designated target level of net income for that
period. Additional consideration of $9.8 million will be issued to the former
stockholders of four of the non-Christianson entities and is reflected as
goodwill in the financial statements of the Company. The cash portion of the
consideration ($5.8 million) was included in Accounts Payable -- Related Parties
in the accompanying financial statements, while the stock portion of the
additional consideration ($4.0 million; 443,759 shares valued at $9 per share)
resulted in an increase in Additional Paid In Capital. Additionally, the cash
portion of the Christianson consideration ($4.3 million) was included in
Accounts Payable -- Related Parties and was charged to Additional Paid In
Capital. The stockholders entitled to additional consideration will receive
their stock in April 2000, and the cash will be paid out as allowed by the terms
of the Senior Subordinated Notes. No other earnouts are owed.
Subsequent Acquisitions
On September 30, 1999 AMPAM acquired all of the outstanding stock of two
entities and the assets of a third entity. The acquisition consideration
delivered upon closing of the Subsequent Acquisitions consisted of:
(i) $16.4 million in cash; and
(ii) 1,471,539 shares of common stock ($9.00 per share or $13.2
million).
The accompanying balance sheet as of December 31, 1999, include allocations
of the respective purchase prices to the assets acquired and liabilities assumed
as well as an estimate of the amount of goodwill generated by the transactions.
The purchase accounting for all acquisitions has been based on the preliminary
estimates of fair value and is subject to final adjustment.
The unaudited pro forma data presented below consist of the income
statement data presented in the accompanying consolidated financial statements
plus income statement data for all Acquired Companies as if the acquisitions and
related financings were effective on January 1, 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $372,996 $451,004
Noncash stock compensation charge........................... -- 7,992
-------- --------
Net income before extraordinary loss........................ 8,032 5,506
-------- --------
Net income.................................................. 8,032 5,051
======== ========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
31
<PAGE> 33
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation and an umbrella policy.
The Company has not incurred significant claims or losses on any of these
insurance policies.
13. MAJOR CUSTOMERS AND RISK CONCENTRATION:
Christianson had sales of approximately 23 percent of total revenues to one
major customer during the years ended December 31, 1997, and 1998. For the year
ended December 31, 1999, no customer exceeded 10 percent of total revenues.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is typically, by law, granted a lien
interest on the work until paid. The Company is exposed to potential credit risk
related to changes in business and economic factors. However, management
believes that its contract acceptance, billing, and collection policies are
adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas in which it operates.
14. QUARTERLY INFORMATION: (UNAUDITED)
Quarterly financial information for the year ended December 31, 1999 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED,
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue.................................. $16,824 $94,315 $102,071 $120,792
Gross profit............................. 5,434 16,820 19,961 21,815
Net income (loss)........................ 3,402 (5,878) 3,406 1,996
</TABLE>
15. SUBSEQUENT EVENTS: (UNAUDITED)
On March 1, 2000, AMPAM 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 common stock of the Company and
approximately $12 million in cash. The cash portion of the consideration was
funded through borrowings under the Company's existing $95 million Credit
Facility.
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 AMPAM, at a price of $3.25 per share subject to a number of
contingencies being met. Subject to similar contingencies, a similar offer will
be made to the holders of the remaining 0.9 million Class B common stock.
Assuming all contingencies are met, the transaction is expected to close in
April 2000 and will be funded by the Company's Credit Facility.
32
<PAGE> 34
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of December 31, 1999,
concerning AMPAM's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
C. Byron Snyder(1).................... 51 Chairman of the Board of Directors
Robert A. Christianson................ 54 President, Chief Executive Officer and
Director
Robert C. Richey...................... 48 Senior Vice President, Chief Operating
Officer and Director
David C. Baggett(2)................... 38 Senior Vice President, Chief Financial
Officer, Secretary and Director
David A. Croson(3).................... 45 Director
James A. Croson(3).................... 68 Director
Joseph E. Miller(3)................... 47 Director
Albert W. Niemi, Jr. ................. 57 Director
Susan O. Rheney....................... 40 Director
Robert W. Sherwood.................... 49 Director
Sam B. Sherwood(3).................... 44 Director
Scott W. Teepe, Sr. .................. 42 Director
</TABLE>
- ---------------
(1) Resigned as chairman effective February 17, 2000
(2) Resigned as Secretary effective February 17, 2000.
(3) Resigned as director effective February 17, 2000.
The following individuals were elected to the Board of Directors or named
as executive officers at the February 2000, stockholders' meeting:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard M. Pollard...................................... 64 Director
Stephen F. Turner....................................... 43 Director
Lloyd C. Smith.......................................... 56 Director
Michael E. Workman...................................... 56 Director
Carl T. Wimberley....................................... 33 Vice President, General
Counsel and Secretary
</TABLE>
All officers serve at the discretion of the Board of Directors and have
entered into employment agreements with AMPAM.
C. Byron Snyder. Mr. Snyder was Chairman of the Board of AMPAM from its
inception. Effective February 17, 2000, Mr. Snyder resigned his position as
Chairman of the Board of Directors. Mr. Snyder is the President of Sterling City
Capital, LLC, the promoter of AMPAM.
Robert A. Christianson. Mr. Christianson became Chief Executive Officer and
a director of AMPAM concurrent with the Founding Company acquisitions. Upon the
resignation of Mr. Snyder, Mr. Christianson was elected Chairman of the Board of
AMPAM. Mr. Christianson was Chief Executive Officer of Christianson Enterprises,
Inc., since it was founded in 1980. He also served in management positions with
its
33
<PAGE> 35
predecessor company. He has over 35 years experience in the plumbing and
mechanical contracting services industry. He is a past president of the
Plumbing, Heating and Cooling Contractors Association of Texas.
Robert C. Richey. Mr. Richey became Chief Operating Officer and a director
of AMPAM concurrent with the Founding Company acquisitions. Mr. Richey was Chief
Executive Officer of R.C.R. Plumbing, Inc., since its was founded in 1977. He
has over 30 years experience in the plumbing and mechanical contracting services
industry.
David C. Baggett. Mr. Baggett has been the Senior Vice President and Chief
Financial Officer of AMPAM since August 1998, and became a director of AMPAM
concurrent with the Founding Company acquisitions. Prior to that he served as
the Senior Vice President and Chief Financial Officer of Kelley Oil & Gas
Corporation from March 1997 until August 1998. Before joining Kelley Oil & Gas
Corporation, Mr. Baggett was the partner in charge of energy and corporate
finance for the Houston office of the accounting and consulting firm of Deloitte
& Touche LLP. Mr. Baggett resigned his position as Secretary of AMPAM as of
February 17, 2000.
David A. Croson. Mr. David Croson became a director of AMPAM following the
Founding Company acquisitions. Mr. David Croson has been President and Chief
Executive officer of J.A. Croson from 1986 until the Founding Company
acquisitions and serves as Chief Executive Officer of Croson-Teepe Mechanical.
Mr. David Croson is the son of Mr. James Croson.
James A. Croson. Mr. James Croson became a director of AMPAM following the
Founding Company acquisitions. Mr. James Croson was President of J.A. Croson
Company of Florida from 1989 until 1997, and Chief Executive Officer from 1998
to present. Mr. James Croson is the father of Mr. David Croson.
Joseph E. Miller. Mr. Miller became a director of AMPAM concurrent with the
Founding Company acquisitions. Mr. Miller was Vice President and Chief Operating
Officer of Miller Mechanical Contractors, Inc. since the company was formed in
1977. Mr. Miller is currently the Chief Executive Officer of Miller Mechanical
Contractors. He is a past-President of the Georgia Association of Plumbing,
Heating and Cooling Contractors.
Albert W. Niemi, Jr. Dr. Niemi has been a director of AMPAM since April,
1999. He is the John and Debbie Tolleson Dean of the Edwin L. Cox School of
Business at Southern Methodist University where his areas of expertise include
economic growth, economic forecasting and American business history. Before Dr.
Niemi's arrival at Southern Methodist University, he served as dean of the Terry
College of Business from 1982 through 1996. He also served as dean of the School
of Business at the University of Alabama at Birmingham for the 1996-1997
academic year.
Susan O. Rheney. Ms. Rheney has been a director of AMPAM since April, 1999.
Ms. Rheney has been principal of The Sterling Group, L.P., a private financial
organization engaged in the acquisition and ownership of operating businesses,
since 1992. Ms. Rheney is also a director of Texas Petrochemical Holdings, Inc.
and AXIA Group, Inc.
Robert W. Sherwood. Mr. Robert Sherwood became a director of AMPAM
following the Founding Company acquisitions. Mr. Robert Sherwood has been
President and Chief Executive Officer of Sherwood Mechanical, Inc. since he
founded that company in 1976. Mr. Robert Sherwood is the current President of
the San Diego chapter of Associated Builders and Contractors and is the current
Chairman of the Plumbing Industry Committee of the California Contractors
Alliance. Robert Sherwood and Sam Sherwood are not related to each other.
Sam B. Sherwood. Mr. Sam Sherwood became a director of AMPAM concurrent
with the Founding Company acquisitions. Mr. Sam Sherwood has been Vice President
of Keith Riggs Plumbing, Inc. since 1989. Robert Sherwood and Sam Sherwood are
not related to each other.
Scott W. Teepe, Sr. Mr. Teepe became a director of AMPAM concurrent with
the Founding Company acquisitions. Mr. Teepe was Vice President of Teepe's River
City Mechanical, Inc., from 1984 until 1998 and President from 1998 until the
Founding Company acquisitions. Mr. Teepe is the Chief Operating Officer of
Croson-Teepe Mechanical, Cincinnati.
34
<PAGE> 36
Richard M. Pollard. Mr. Pollard has worked as an independent financial
consultant since 1997. From 1956 to 1996 Mr. Pollard was with Deloitte & Touche
LLP, most recently as a senior partner.
Lloyd C. Smith. Mr. Smith is the Chief Executive Officer of LDI. He has
been with LDI since 1967 and has been its president since 1986.
Stephen F. Turner. Mr. Turner is the Chief Executive Officer of Atlas
Plumbing & Mechanical, Inc. which he founded in 1981.
Michael E. Workman. Dr. Workman is a consultant specializing in the
distribution and contracting industry. He is Professor Emeritus from Texas A&M
University where he was on the faculty for almost twenty years.
Carl T. Wimberley. Mr. Wimberley has been Vice President and General
Counsel of AMPAM since January 1, 2000, and was elected Secretary of AMPAM on
February 17, 2000. From 1992 until he joined AMPAM, Mr. Wimberley was with the
law firm of Winstead Sechrest & Minick PC, most recently as a shareholder of the
firm.
The Board of Directors is divided into three classes of directors with
staggered terms, expiring at the annual meeting of stockholders. At each annual
meeting of stockholders, one class of directors is elected for a full three-year
term to succeed the class of departing directors. The Board of Directors is
classified as follows: Messrs. J. Croson, S. Sherwood, Snyder and Miller were
Class I directors. Messrs. Pollard, Turner and Smith were elected to three year
terms to replace the Class I Directors. Messrs. R. Sherwood, D. Croson,
Christianson and Niemi are Class II directors. Mr. D. Croson resigned his
position as a director of AMPAM and Mr. Workman was elected to the open
position. Messrs. Teepe, Baggett, Richey and Ms. Rheney are Class III directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors established an Audit Committee and a Compensation
Committee. The audit committee recommends the appointment of auditors and
oversees the accounting and audit functions of AMPAM. The Compensation Committee
determines the salaries and bonuses of executive officers and administers the
1999 Stock Plan. Messrs. J. Croson, Miller and Niemi served as members of the
Audit Committee for 1999. At the February 2000, Board of Directors Meeting,
Messrs. Pollard and Niemi and Ms. Rheney were selected to serve on the Audit
Committee for 2000. The 1999 Compensation Committee was comprised of Ms. Rheney,
and Messrs. Christianson and R. Sherwood. The members of the Compensation
Committee for 2000 are Ms. Rheney and Messrs. R. Sherwood, Richey and Workman.
COMPENSATION COMMITTEE REPORT
The Compensation Committee, consisting of Ms. Rheney, Mr. Christianson and
Mr. R. Sherwood, reviewed the compensation of the executive officers of the
Company and determined it to be consistent with guidelines established by the
Board of Directors. Mr. Christianson is the Chief Executive Officer of the
Company. Mr. R. Sherwood is a founding stockholder and Chief Executive Officer
of an AMPAM subsidiary. Ms. Rheney is not an employee of AMPAM. The Committee
reviews and approves executive compensation, makes grants of long-term
incentives, and determines the compensation to be paid to the Chief Executive
Officer and each of the other officers of the Company. The goal of the executive
compensation program is to reward executives for their performance and
enhancement of stockholder value. At the beginning of each fiscal year, the
Committee reviews and establishes the annual salary of each officer, including
the Chief Executive Officer. In addition, in an effort to properly align the
long-term interests of the Company's management and stockholders, the Committee
considers the appropriateness of awards under the Company's stock option plan.
The compensation of the Chief Executive Officer was consistent with the terms of
his employment agreement which was entered into in connection with the initial
acquisitions. Mr. Christianson received no bonus in his capacity as Chief
Executive Officer for the 1999 fiscal year. No adjustment to the amounts set
forth in that agreement were recommended by the Compensation Committee or
adopted by the Board of Directors. The
35
<PAGE> 37
Compensation Committee and the Board of Directors will continue to evaluate the
appropriateness of the total compensation package of the Chief Executive
Officer.
Respectfully submitted,
Ms. Susan Rheney
Mr. Robert Christianson
Mr. Robert Sherwood
DIRECTOR COMPENSATION
Directors who are an employee of AMPAM or a subsidiary do not receive
additional compensation for serving as directors. Each director who is not an
employee of AMPAM or a subsidiary will receive $2,000 for attendance at each
Board of Directors meeting or committee meeting (unless held on the same day as
a Board of Directors meeting). If the Board of Directors meeting or committee
meeting is held telephonically, the outside directors receive $1,000. Directors
of AMPAM will be reimbursed for reasonable out-of-pocket expenses incurred in
their capacity as directors of AMPAM. Each non-employee director receives stock
options to purchase 5,000 shares of common stock upon initial election to the
Board of Directors and thereafter an annual grant of 5,000 options at each
annual meeting on which the non-employee director continues to serve.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is information regarding compensation arrangements and
benefits paid or made available to our Chief Executive Officer and other highly
compensated officers of AMPAM in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL -----------------------
COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS OPTIONS
- --------------------------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Robert Christianson
Chairman of the Board of Directors, President
and Chief Executive Officer(1).............. $165,000 -- $2,900,232 --
Robert C. Richey
Chief Operating Officer........................ 165,000 -- 1,450,116 --
David C. Baggett
Chief Financial Officer........................ 150,000 $200,000 2,900,232 200,000
Guy Hoffman
Vice President -- Corporate Developments....... 93,750 125,000 1,450,116 100,000
Steven M. Smith
Treasurer...................................... 82,500 40,836 183,000 25,000
</TABLE>
- ---------------
(1) Prior to April 1, 1999, Mr. Christianson received $50,000 in 1999 salary as
Chief Executive Officer of Christianson.
The annualized salary of AMPAM's executive officers as provided in their
employment agreement are as follows: Robert A. Christianson -- $220,000; Robert
C. Richey -- $220,000; and, David C. Baggett -- $200,000.
36
<PAGE> 38
OPTION GRANTS IN THE LAST FISCAL YEAR.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
GRANTED TO OPTION TERM
SECURITIES EMPLOYEES EXERCISE -----------------------
UNDERLYING IN FISCAL PRICE PER EXPIRATION (IN THOUSANDS)
NAME AND PRINCIPAL POSITION OPTIONS YEAR SHARE DATE 5% 10%
- --------------------------- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert Christianson....... -- -- -- -- -- --
Robert C. Richey.......... -- -- -- -- -- --
David C. Baggett.......... 200,000 10.0% $7.00 April 2009 $1,043 $2,491
Guy Hoffman............... 100,000 5.0% $7.00 April 2009 522 1,245
Steven M. Smith........... 25,000 1.2% $7.00 April 2009 130 311
</TABLE>
EMPLOYMENT AGREEMENTS
AMPAM entered into an employment agreement with each of the executive
officers named above on substantially the same terms and conditions as described
in this and the following paragraphs. These agreements prohibit the officer from
disclosing AMPAM's confidential information and trade secrets and generally
restricts these individuals from competing with AMPAM for a period of two years
after the date of the termination of employment with AMPAM. However, many
states' courts have a presumption against non-competition agreements due to
public policy concerns and some state courts may decide not to enforce or only
partially enforce these noncompetition clauses. Each of the agreements have an
initial term of five years and provide for an annual extension at the end of its
initial term, unless either party timely notifies the other that the term will
not be extended, and is terminable by AMPAM or by the officer upon thirty days'
written notice. The employment agreements provide that AMPAM will pay each
officer the annual salary set forth above, which may be increased by the Board
of Directors. Such agreements also provide that each officer will be reimbursed
for out-of-pocket business expenses and will be eligible to participate in all
benefit plans and programs as are maintained from time to time by AMPAM. All
employment agreements provide that if the officer's employment is terminated by
AMPAM without "cause" or is terminated by the officer for "good reason," the
officer will be entitled to receive a lump sum severance payment at the
effective time of termination equal to the base salary (at the rate then in
effect) for some period of time. In this type of an event, the time period
during which the officer is restricted from competing with AMPAM will be
shortened.
The employment agreements contain provisions concerning a change-in-control
of AMPAM, including the following:
- in the event the officer's employment is terminated within two years
following the change in control by AMPAM other than for "cause" or by the
officer for "good reason," or the officer is terminated by AMPAM within
three months prior to the change in control at the request of the
acquiror in anticipation of the change in control, the officer will be
entitled to receive a lump sum severance amount equal to the greater of
(a) three years' base salary (at the rate then in effect) or (b) the base
salary for whatever period is then remaining on the initial term, and the
provisions which restrict competition with AMPAM will not apply;
- in any change-of-control situation, the officer may elect to terminate
his employment by giving five business days' written notice prior to the
closing of the transaction giving rise to the change-in-control, which
will be considered to be a termination of employment by the officer for
"good reason," and the provisions of the employment agreement governing
the same will apply, except that the severance amount otherwise payable
will be doubled (but not to exceed six times the officer's base pay) (if
the successor does not give written notice of its acceptance of AMPAM's
obligations under the employment agreement at least ten business days
prior to the anticipated closing date, the severance amount will be
tripled, but not to exceed nine times base salary), and the provisions
which restrict competition with AMPAM will not apply; and
37
<PAGE> 39
- if any payment to the officer is subject to the 20% excise tax on excess
parachute payments, the officer will be made "whole" on a net after-tax
basis.
A change in control is generally defined to occur upon:
- the acquisition by any person of 20% or more of the total voting power of
the outstanding securities of AMPAM;
- the first purchase pursuant to a tender or exchange offer for common
stock;
- the approval of some types of mergers, sale of substantially all the
assets, or dissolution of AMPAM; or
- a change in a majority of the members of AMPAM's Board of Directors.
In general, a "parachute payment" is any "payment" made by AMPAM in the
nature of compensation that is contingent on a change in control of AMPAM and
includes the present value of the accelerations of vesting and the payment of
options and other deferred compensation amounts upon a change in control. If the
aggregate, present value of the parachute payments to individuals, including
officers, equals or exceeds three times that individual's "base amount"
(generally, the individual's average annual compensation from AMPAM for the five
calendar years ending before the date of the change in control), then all
parachute amounts in excess of the base amount are "excess" parachute payments.
An individual will be subject to a 20% excise tax on excess parachute amounts
and AMPAM will not be entitled to a tax deduction for these payments.
1999 STOCK PLAN
The Board of Directors of AMPAM adopted the 1999 Stock Plan. The purpose of
the 1999 Stock Plan is to provide officers, employees, directors and consultants
with additional incentives by increasing their ownership interests in AMPAM.
Individual awards under the Plan may take the form of one or more of:
- non-qualified stock options ("NQSOs");
- stock appreciation rights ("SARs");
- restricted stock;
- phantom stock;
- performance awards;
- bonus stock awards;
- other stock-based awards, i.e., awards not otherwise provided for, the
value of which are based in whole or in part upon the value of the
common stock; and
- cash awards that may or may not be based on the achievement of
performance goals (collectively, "Awards").
The performance goals for Awards, until changed, include target levels of
net income, cash flows, return on equity, profit margins, sales, stock price,
reductions in cost of goods sold and earnings per share.
The Compensation Committee or AMPAM's Chief Executive Officer, to the
extent duties are delegated to the Chief Executive by the Compensation
Committee, administers the 1999 Stock Plan and selects the individuals who will
receive awards and establish the terms and conditions of those awards. The
maximum number of shares of common stock that may be subject to outstanding
awards, determined immediately prior to the grant of any award, may not exceed
the greater of 3,700,000 shares of common stock or 15% of the aggregate number
of shares of common stock then outstanding. Shares of common stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The maximum number of shares of common stock with respect to which any person
may receive options and SARs in any calendar year is 200,000 shares. With
respect to other forms of awards, the maximum award that may be granted to any
individual in any calendar year cannot
38
<PAGE> 40
exceed $5.0 million (determined as of the date of the grant of the award).
Options and SARs may have exercise prices as the Compensation Committee, in its
discretion, determines.
The 1999 Stock Plan will remain in effect for 10 years, unless earlier
terminated by the Board of Directors. The 1999 Stock Plan may be amended by the
Board of Directors or the Compensation Committee without the consent of the
stockholders of AMPAM, except that any amendment will be subject to stockholder
approval if required by any federal or state law or regulation or by the rules
of any stock exchange or automated quotation system on which the common stock
may then be listed or quoted.
NQSOs to purchase 200,000 shares of common stock have been granted to David
C. Baggett, Chief Financial Officer and NQSOs to purchase approximately 1.8
million shares of common stock have been granted to other members of management
of AMPAM, employees of the founding companies and holders of the preferred
stock. The foregoing options have an exercise prices of $7.00 and $9.00. These
options will vest at the rate of 20% per year, commencing on the first
anniversary of grant and will expire at the earliest of:
- ten years from the date of grant;
- three months following termination of employment or service, other
than due to death or disability; or
- one year following a termination of employment or service due to death
or disability.
CORPORATE BONUS PLAN FOR 1999
The Board of Directors approved the Corporate Bonus Plan for 1999. All
members of the AMPAM corporate staff participated with the exception of the
Chief Executive Officer and the Chief Operating Officer. Those officers will
participated in the additional consideration provisions from the sale of their
former companies to AMPAM. In the year 2000, they will be considered in the
Corporate Plan, along with the Presidents of each of the operating companies.
The criteria for earning a bonus will be based fifty percent on
pre-determined goals for each employee and fifty percent upon over-all earning
per share goals for the year. The amount approved by the Board of Directors for
1999 is equal to approximately $505,000.
The Chief Executive Officer based upon the recommendation of the management
committee will administer the plan. The approved salary guidelines will be based
upon the 75th percentile of compensation for the industry.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of AMPAM's common stock and Class B common stock, by (a) all persons
known to AMPAM to be the beneficial owner of 5% or more of the common stock, (b)
each director and nominee for director, (c) each executive officer and (d) all
executive officers and directors as a group as of December 31, 1999.
The holders of Class B common stock, voting together as a single class, are
entitled to elect one member of AMPAM's Board of Directors and to one-fourth of
one vote on any other matters on which they are entitled to vote. Each share of
Class B common stock, will automatically convert to common stock (as adjusted
proportionately to give effect to any stock dividends, combinations, splits or
other similar events with respect to the common stock) on a share-for-share
basis in the event AMPAM consummates any of the following events: (a) an initial
public offering of common stock, (b) any sale of all or substantially all of our
assets in one transaction or a series of related transactions, (c) any merger or
consolidation that involves AMPAM in which AMPAM in which AMPAM is not the
surviving entity or (d) any transaction after which the common stock held by
persons other than the holders of common stock as of April 1, 1999 constitutes
50% or more of the common stock outstanding as of the date of the consummation
of such transaction. Furthermore, if the Class B common stock has not previously
been converted into common stock before April 1, 2002, AMPAM will have the
option to redeem all outstanding shares of Class B common stock for $0.01 a
share.
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<PAGE> 41
The address of each person is c/o American Plumbing & Mechanical, Inc.,
1950 Louis Henna Blvd., Round Rock, Texas 78664. All persons listed have sole
voting and investment power with respect to their shares unless otherwise
indicated.
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
BENEFICIAL OWNERSHIP(1) BENEFICIAL OWNERSHIP
----------------------- ---------------------
SHARES PERCENT SHARES PERCENT
---------- -------- --------- -------
<S> <C> <C> <C> <C>
C. Byron Snyder................................... -- -- 1,598,901(2) 66.0
Robert A. Christianson............................ 965,166 7.8 108,372 4.5
Robert C. Richey.................................. 1,562,230(3) 12.7 54,186 2.2
David C. Baggett.................................. 300,000 2.4 108,372 4.5
David A. Croson................................... 720,334(4) 5.9 -- --
James A. Croson................................... 463,225 3.8 -- --
Joseph E. Miller.................................. 300,461(5) 2.4 -- --
Albert W. Niemi, Jr. ............................. -- -- -- --
Richard M. Pollard(11)............................ -- -- -- --
Susan O. Rheney(6)................................ 10,000 0.1 -- --
Lloyd C. Smith(7)(11)............................. -- -- -- --
Robert W. Sherwood................................ 294,120 2.4 -- --
Sam B. Sherwood................................... 169,451(8) 1.4 -- --
Scott W. Teepe, Sr. .............................. 532,760(9) 4.3 -- --
Stephen F. Turner(11)............................. 563,453(10) 4.6 -- --
Michael E. Workman(11)............................ -- -- -- --
--------- ---- --------- ----
All executive officers and directors as a group
(16 persons).................................... 5,881,200 47.8 1,869,831 77.2
</TABLE>
- ---------------
(1) Assumes conversion of the 1,048,820 shares of preferred stock into the same
number of shares of common stock.
(2) Represents 1,598,901 shares of Class B common stock owned by Sterling City
Capital, LLC. Mr. Snyder is the only natural person who shares beneficial
ownership over these shares.
(3) Of these shares, 1,412,230 are held by the Robert C. Richey Trust and
150,000 shares are held by Robert C. Richey.
(4) Excludes 76,928 shares of common stock that AMPAM has agreed to contribute
to deferred compensation plans for the benefit of some of the employees of
Croson Ohio.
(5) Excludes 5,880 shares of 12,000 shares of common stock that AMPAM has
agreed to contribute to a deferred compensation plan for the benefit of
some of the employees of Miller.
(6) All of these shares are owned by the Rheney Living Trust, of which Ms.
Rheney is a trustee.
(7) Mr. Smith's company, LDI, was acquired on March 1, 2000. He received
1,343,830 shares of common stock in conjunction with the acquisition.
(8) All of these shares are held by the Sam B. Sherwood and Vicki S. Sherwood
Trust.
(9) Excludes 10,000 of the 20,000 shares of common stock that AMPAM has agreed
to contribute to a deferred compensation plan for the benefit of some of
the employees of Teepe's.
(10) Includes 180,303 shares owned by Carol Turner, his wife.
(11) Elected to the Board of Directors at the February 2000, meeting of
stockholders.
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<PAGE> 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION OF AMPAM
AMPAM (1) issued 3,417,517 shares of common stock and Class B common stock,
to Sterling City Capital, LLC, the management of AMPAM and other individuals and
(2) granted options to purchase approximately 2.0 million shares of common stock
to various officers and employees of AMPAM, holders of preferred stock and other
persons. The following executive officers and directors of AMPAM have been
issued the following number of shares of common stock and Class B common stock,
respectively: Mr. Snyder -- 0 and 1,598,901 (these shares are held in the name
of Sterling City Capital, LLC), Mr. Christianson -- 300,000 and 108,372,
respectively, Mr. Richey -- 150,000 and 54,186 respectively, Mr.
Baggett -- 300,000 and 108,372, respectively.
Sterling City Capital, LLC advanced funds to AMPAM to pay for the expenses
related to the acquisitions. The advances totaled approximately $3.1 million
through the closing of the acquisitions and were repaid concurrent with closing
the acquisitions in the form of a sponsor note. This note was repaid with the
proceeds of the original issuance of the Senior Subordinated Notes.
ACQUISITION OF FOUNDING COMPANIES
At the closing of the acquisitions, AMPAM purchased all the issued and
outstanding capital stock of the Founding Companies, at which time each Founding
Company became a wholly-owned subsidiary of AMPAM. The acquisition consideration
was negotiated by the parties and was based primarily upon the pro forma
adjusted net income of each Founding Company for prior historical periods, the
amounts of indebtedness and working capital of each of the Founding Companies as
well as the future prospects of the businesses of each of the Founding
Companies. The acquisition consideration delivered upon the closing of the
acquisition consisted of:
- $99.9 million in cash (which represented a portion of the $106.3 million
total cash consideration, subject to adjustment as discussed below, to be
paid to the stockholders of the founding companies);
- $5.8 million of seller notes (which were repaid with the proceeds of the
issuance of the Senior Subordinated Notes);
- 8,898,618 shares of common stock; and
- 1,048,820 shares of preferred stock. Only some of the stockholders of
Christianson received shares of preferred stock, and these stockholders
did not receive any seller notes or shares of common stock.
Included in the $99.9 million cash acquisition consideration paid upon
closing was a portion of the cash payments to be made to the stockholders of the
Founding Companies based upon the level of working capital of the Founding
Company as of the closing date. The cash portion of the acquisition
consideration attributable to the level of working capital was increased by
approximately $12.0 million based on the actual working capital as of the
closing date.
The stockholders of each Founding Company were also entitled to
distributions of non-operating assets of the Founding Company (subject to
assumption of related liabilities), retained earnings of the Founding Company
(if a C corporation) or the positive amount of the accumulated adjustment
account (if an S corporation). Distributions of excess working capital and
non-operating assets ("owner amounts") amounted to: $6.1 million for
Christianson, $4.1 million for RCR; $5.1 million for Teepe's; $2.6 million for
Riggs; $3.8 million for Croson Ohio; $5.2 million for Croson Florida; $2.3
million for Power; $0.3 million for Nelson; $1.4 million for Sherwood; and $1.5
million for Miller. In addition to the acquisition consideration and other
payments and distributions described above, the stockholders of certain Founding
Companies (including certain former stockholders of Christianson) will receive
additional consideration because their Founding Company generated actual
adjusted net income for the year ended December 31, 1999, in excess of a
designated target level of net income for that period. Additional consideration
of $9.8 million will be issued to the former stockholders of four of the
non-Christianson entities ($5.8 million in cash and 443,759 shares of
41
<PAGE> 43
common stock valued at $9 per share). Additionally, certain former shareholders
of Christianson will receive $4.4 million in cash and 216,169 shares of common
stock. The shares will be issued to the former stockholders of the Founding
Companies on April 1, 2000, and the cash will be paid out as allowed by the
terms of the Senior Subordinated Notes.
ACQUISITION CONSIDERATION
In addition to the $99.9 million in cash consideration and 8,898,618 shares
of common stock issued to stockholders of the companies, AMPAM issued
approximately $5.8 million in seller notes and 1,048,820 shares of preferred
stock. The principal features of the seller notes and preferred stock are set
forth below.
Seller Notes
Principal Amount and Interest Rate. Concurrent with the closing of the
acquisitions, AMPAM issued $5.8 million principal amount of Seller Notes due
three years from the date of issuance. The Seller Notes bore interest at the
rate of 10% per annum, and any overdue payments also bore interest at a rate of
10%. These Seller Notes were repaid with the proceeds from the issuance of the
Senior Subordinated Notes.
Interest Payment Dates. Interest on the Seller Notes was payable quarterly,
commencing 90 days from the date of issuance.
Ranking. The Seller Notes were unsecured obligations of AMPAM, subordinated
in right of payment to any and all existing and future senior indebtedness of
AMPAM, including the Credit Facility.
Redemption at the Option of AMPAM. The Seller Notes were redeemable at any
time, at the option of AMPAM, in whole or from time to time in part, at a price
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of redemption.
Redemption at the Option of Holders. In the event AMPAM completed a
qualified financing each of the holders of the Seller Notes would have had a
one-time "put right," but not an obligation, to require AMPAM to repurchase the
Seller Notes held by any holder, together with any accrued and unpaid interest,
if any, to the date of redemption, subject to some limitations. A "qualified
financing" meant the completion by AMPAM of (i) an initial public offering of
common stock or (ii) a private placement or public offering of unsecured, senior
subordinated or subordinated notes from which AMPAM would have received at least
$75 million in gross proceeds. The consummation of the original issuance of the
Senior Subordinated Notes was a "qualified financing" and all of the Seller
Notes have been repaid in full.
Series A Redeemable Preferred Stock
Shares and Liquidation Value. An aggregate of 1,048,820 shares of preferred
stock were issued to members of the Christianson family at the closing of the
acquisitions. These Christianson stockholders received the acquisition
consideration solely in the form of cash and shares of preferred stock and did
not receive any common stock. The issuance of the preferred stock was the result
of arms' length negotiation between AMPAM and the stockholders of Christianson
and was a necessary component of the consideration required for the sale of
their company. The preferred stock is cumulative, redeemable and convertible.
The aggregate liquidation value of the preferred stock is $13,634,660, plus
accrued and unpaid dividends, as adjusted proportionately for any stock
dividends, combinations, splits or other similar events with respect to those
shares.
Dividends. The holders of the preferred stock are entitled to receive
dividends at an annual rate of 10% based on the "liquidation value" of the
preferred stock. The dividends are payable in cash semiannually in arrears. The
dividend payment dates are June 30 and December 31, beginning on June 30, 1999.
Ranking. The preferred stock ranks senior to all other classes of AMPAM's
capital stock, including the common stock, in right of liquidation, dividends
and distributions.
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<PAGE> 44
Voting Rights. Except as set forth below, the preferred stock is not
entitled to vote as a separate class, but votes together with the holders of
shares of all other classes of capital stock of AMPAM as one class on all
matters submitted to a vote of AMPAM's stockholders. Each holder of shares of
preferred stock is entitled to the number of votes equal to the largest number
of full shares of common stock into which all shares of preferred stock held by
a holder could be converted at the record date of the determination of the
stockholders entitled to vote on those matters. In all cases where the holders
of shares of preferred stock are required by law to vote separately as a class,
the holders are entitled to one vote for each share.
Without the affirmative vote of the holders of not less than a majority of
the shares of preferred stock, voting together as a single class, AMPAM may not
issue preferred stock having equal or superior rights to the preferred stock,
repurchase common stock or amend its charter documents in a manner which is
adverse to the holders of preferred stock.
Additionally, at any time and for so long as either (i) AMPAM has failed to
punctually pay when due any redemption payment or (ii) dividends payable on the
preferred stock have been in arrears and unpaid for a period of forty days.
AMPAM shall not , without the affirmative vote of the holders of not less than a
majority of the shares of preferred stock, voting together as a single class:
- incur any additional indebtedness for borrowed money other than borrowing
under any credit facility which AMPAM is a party at that time and as then
in effect;
- effect any (a) sale, lease, assignment, transfer or other conveyance of
the assets of AMPAM or its subsidiaries which individually or in the
aggregate would constitute a significant subsidiary, (b) consolidation or
merger involving AMPAM or any of its subsidiaries, or (c) dissolution,
liquidation or winding-up of AMPAM or any of its subsidiaries;
- make (or permit any subsidiary to make) any loan or advance to, or own
any stock or other securities of, any subsidiary or other corporation,
partnership, or other entity unless it is wholly owned by AMPAM and
except of any loans and advances which do not in the aggregate exceed
$250,000;
- make up any loan or advance to any person, including, without limitation,
any employee or director of AMPAM or any subsidiary, except advances and
similar expenditures in the ordinary course of business; or
- acquire, by purchase, exchange, merger or otherwise, all or substantially
all of the properties or assets of any other corporation or entity.
Redemption. The preferred stock is redeemable at AMPAM's option, at any
time and from time to time, in whole or in part, prior to an initial public
offering of common stock for the greater of (i) the fair market value of the
preferred stock and (ii) $13.00 per share of preferred stock, plus, in each case
accrued and unpaid dividends thereon. After an initial public offering of common
stock, AMPAM has the right to redeem the preferred stock at any time from time
to time, in whole or in part, at a price equal to the trading price of the
common stock at the time of redemption but in no event for less than $13.00 per
share of preferred stock, plus accrued and unpaid dividends. After the third
anniversary of the date of issuance, the holders of the preferred stock may
require AMPAM to redeem the preferred stock. In each case, the redemption price
per share will be equal to the liquidation value plus accrued and unpaid
dividends through the date of redemption.
Convertibility. Prior to the filing of a registration statement by AMPAM
with the Securities and Exchange Commission with respect to an initial public
offering of common stock, the holders of preferred stock may convert the
preferred stock to common stock on a share-for-share basis.
AMPAM may convert the preferred stock following the completion of an
initial public offering of common stock on a share-for-share basis, unless the
conversion would result in the holder of preferred stock receiving common stock
having a value of less that $13.00 per share, in which case the conversion would
be made at a conversion ratio equal to the liquidation value (without inclusion
of accrued but unpaid dividends) divided by the price per share to the public in
the initial public offering of common stock.
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<PAGE> 45
COVENANT NOT TO COMPETE
Pursuant to the agreements relating to the acquisitions, all of the former
stockholders of each of the Acquired Companies have agreed not to compete with
AMPAM in the plumbing and mechanical contracting services business for a period
of two years after the closing of the acquisitions. However, many states' courts
have a presumption against non-competition agreements due to public policy
concerns and some state courts may decide not to enforce or only partially
enforce the provisions of these non-competition clauses. In addition, some of
the management personnel of each of the Acquired Companies will enter into
employment agreements through which these persons will agree not to compete with
AMPAM in the plumbing and mechanical contracting services business for a period
of two years after the termination of their affiliation with AMPAM. In
connection with the acquisitions, AMPAM and the owners of the Acquired Companies
have agreed to indemnify each other for breaches of representations and
warranties and other matters, subject to limitations.
COMMON STOCK REDEMPTION RIGHTS
Redemption Trigger. In the event that within three years of the closing of
the acquisitions, (1) AMPAM has not consummated an initial public offering of
common stock and (2) any stockholder of any Acquired Company has not received
cash (including the proceeds from the public or private sale of common stock and
the receipt of principal payments, if any, on the Sellers Notes held by the
stockholder) equal to or exceeding 50% of the aggregate value of the acquisition
consideration received by each stockholder through his or her respective
acquisition agreement, each stockholder will have a "put right," to require
AMPAM to purchase a number of shares of common stock representing 10% of the
total number of shares of common stock then owned by that stockholder, subject
to the limitations described below. The purchase price for this redemption will
be $13.00 per share of common stock.
Minimum Redemption; Limitations. If the events specified in clauses (1) and
(2) above, have not occurred within the time specified, AMPAM will be obligated
to purchase annually from each eligible stockholder no less than 10% of the
common stock held by that stockholder provided, however, that an eligible
stockholder will not be entitled to exercise his or her put right if and to the
extent that the stockholder's Acquired Company has not achieved the target net
income for that Acquired Company for the year preceding the year the stockholder
seeks to exercise his put right. AMPAM's obligation to effect these redemptions
will be subject to the covenants, limitations and restrictions contained in
AMPAM's outstanding private or public debt and equity instruments then in
existence.
Additional Redemptions. In the event an initial public offering of common
stock has not been consummated, to the extent the stockholders who have received
greater than 50% of their acquisition consideration in cash wish to tender
common stock to AMPAM for purchase, AMPAM will use its commercially reasonable
efforts to continue to repurchase annually up to 10% of the common stock held by
those stockholders. AMPAM's obligation to make any additional redemptions will
also be subject to any covenants, limitations or restrictions contained in
AMPAM's outstanding private or public debt and equity instruments then in
existence.
Termination of Redemption Obligation. The put rights with respect to any
individual stockholder will terminate upon receipt by a stockholder of 50% of
his acquisition consideration in cash. This termination will not, however, limit
the stockholder's ability to participate in the additional redemptions described
above. Notwithstanding the foregoing, all of AMPAM's redemption obligations
under the acquisition agreements will terminate on the earlier to occur of (1)
an initial public offering of common stock, (2) any sale of all or substantially
all of AMPAM's assets in one transaction or series of transactions, (3) any
merger or consolidation which involves AMPAM and in which AMPAM is not the
surviving entity or (4) any transaction after which the shares of common stock,
if any, which are then held by persons other than the holders of common stock as
of the closing date of the acquisitions constitute 50% or more of the shares of
common stock outstanding as of the date of the closing of the transaction.
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<PAGE> 46
ACQUISITION CONSIDERATION PAID TO OFFICERS AND DIRECTORS
Individuals who are executive officers or directors of AMPAM received the
following portions of the acquisition consideration for their interests in the
Founding Companies. Mr. Teepe's share number excludes 10,000 of the 20,000
shares of common stock that AMPAM has agreed to contribute to a deferred
compensation plan for the benefit of some of the employees of Teepe's. Mr. David
Croson's share number excludes 76,928 shares of common stock that AMPAM has
agreed to contribute to deferred compensation plans for the benefit of some of
the employees of Croson Ohio. Mr. Miller's share number excludes 5,880 shares of
the 12,000 shares of common stock that AMPAM has agreed to contribute to a
deferred compensation plan for the benefit of some of the employees of Miller.
<TABLE>
<CAPTION>
SHARES OF
SELLER COMMON OWNER
OFFICER/ DIRECTOR CASH(1) NOTES(1) STOCK(1) AMOUNTS(1)
- ----------------- ------- -------- --------- ----------
(DOLLARS, IN THOUSANDS)
<S> <C> <C> <C> <C>
Robert A. Christianson........................... $ 3,706 -- 665,166 $ 35
Robert C. Richey (2)............................. 8,473 $1,412 1,412,230 193
Scott W. Teepe, Sr. ............................. 2,052 990 532,760 159
Sam B. Sherwood (3).............................. 921 -- 169,451 12
James A. Croson.................................. 1,906 -- 463,225 92
David A. Croson.................................. 4,066 -- 720,334 648
Robert W. Sherwood............................... 1,765 294 294,120 450
Joseph E. Miller................................. 1,838 306 300,461 47
Stephen F. Turner................................ 5,631 -- 563,453 --
------- ------ --------- ------
Total.................................... $30,358 $3,002 5,121,200 $1,636
======= ====== ========= ======
</TABLE>
- ---------------
(1) Does not include any additional consideration due to the stockholders of the
Founding Companies. Owner amounts are estimates and assume the transactions
were consummated on December 31, 1998. Owner amounts consist of
non-operating assets, S corporation accumulated adjustment amounts and
excess working capital of the Founding Companies.
(2) The acquisition consideration was paid to the Robert C. Richey Family Trust.
(3) The acquisition consideration was paid to the Sam B. Sherwood and Vicki S.
Sherwood Trust.
OTHER TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND SHAREHOLDERS
C. Byron Snyder is the principal of Sterling City Capital, LLC. In
connection with the organization of AMPAM, Sterling City Capital, LLC advanced
AMPAM funds to pay legal, accounting and other expenses. Sterling City Capital,
LLC was reimbursed for these expenses in the form of a note which has since been
paid off.
Christianson leases its office and warehouse space in Round Rock and San
Antonio, Texas from the Glen T. Christianson Family Trusts, W. George
Christianson, Jr. Family Trusts, Robert A. Christianson Family Trusts, and
Wilburn G. Christianson Family Trusts. Amounts paid through these leases were
$526,000 for the 1999 fiscal year. Future minimum lease payments under these
non-cancelable operating leases are $592,000 for 2000, $598,000 for 2001,
$115,000 for 2002 and $70,000 for 2003. AMPAM believes that these rents are not
in excess of the fair rental value for these facilities. Glen Christianson and
George Christianson are brothers of Robert Christianson who is the Chief
Executive Office and a director of AMPAM.
Effective January 1, 1999, Christianson entered into a 7 year operating
agreement with Contractor Resources, a company which is wholly-owned by Robert
Christianson, to lease some furniture for an annual lease payment of $63,000.
RCR leases some facilities from Mr. Richey. Lease expense related to these
buildings totaled approximately $436,000 for the 1999 fiscal year. Future
minimum lease payments under this lease are
45
<PAGE> 47
approximately $581,000 for 2000, $598,000 for 2001, $522,000 for 2002, $488,000
for 2003, and $103,000 for 2004. AMPAM believes that this rent is not in excess
of the fair rental value for this property.
In July 1998, Teepe's sold some property to an entity controlled by Scott
W. Teepe, Sr. Concurrent with the sale, Teepe's entered into a lease with the
entity for the same property. The lease calls for monthly lease payments of
approximately $12,000. Total rent paid under this lease was $132,000 in 1999.
Future minimum lease payments under this lease are approximately $143,000 for
2000, $146,000 for 2001, $150,000 for 2002, $150,000 for 2003, and $153,000 for
2004. AMPAM believes that this rent is not in excess of the fair rental value
for this property. Scott W. Teepe, Sr. is a director of AMPAM.
On March 1, 1995, Croson Ohio sold some facilities to David Croson for
$500,000. Croson Ohio now leases these facilities from David Croson. In 1999,
Croson Ohio made yearly lease obligation payments to David Croson in the amount
of $110,000. Future minimum lease payments are $125,000 for 2000, $125,000 for
2001, $125,000 for 2002, and $115,000 for 2003. David Croson and his father,
James Croson, are both directors of AMPAM.
Riggs leases some facilities from Mary Riggs, the Riggs Group LLP and Riggs
Land LLC Lease expense related to these buildings totaled approximately $104,000
for the 1999 fiscal year. Future minimum lease payments under this lease are
approximately $170,000 for 2000, $176,000 for 2001, $181,000 for 2002, $187,000
for 2003, and $192,000 for 2004. AMPAM believes that this rent is not in excess
of the fair rental value for this property.
Poway Land Associates, LLC, , which is 90% owned by Mr. R. Sherwood leases
some facilities to Sherwood. Amounts paid through this lease were $95,000 for
the 1999 fiscal year. Future minimum lease payments under the lease, which
expire in May 2003 are $129,000 for 2000, $133,000 for 2001, $137,000 for 2002,
and $129,000 for 2003. AMPAM believes that the leases are not in excess of fair
rental value for these facilities.
Miller purchased various materials and supplies from North Georgia Supply
and Appliance Company, a company in which Joseph H. Miller is a part owner.
Miller purchased approximately $1.3 million of material and supplies from North
Georgia Supply and Appliance Company in 1999. AMPAM believes the purchase price
paid for such materials is not in excess of market value.
Miller leases some facilities from Joseph H. Miller under a lease agreement
that expires on September 30, 2005. Rent expense for the 1999 fiscal year was
$68,000. Future yearly lease payments for fiscal years 2000 through 2005 are
$90,000. AMPAM believes that this rent is not in excess of the fair rental value
for this property. Joseph E. Miller, a director of AMPAM, is the son of Joseph
H. Miller.
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<PAGE> 48
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Supplementary Data, Financial Statement
Schedules and Exhibits.
See Index to Financial Statements under Item 8 of this report.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
3.2 -- Amended and Restated Bylaws. (Incorporated by reference
to Exhibit 3.2 to the Registration Statement on Form S-4
(File No. 333-81139) of the Company)
3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A. (Incorporated by
reference to Exhibit 3.3 to the Registration Statement on
Form S-4 (File No. 333-81139) of the Company)
4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc. and the subsidiaries named
therein and State Street Bank and Trust Company covering
to $125,000,000 11 5/8% Senior Subordinated Notes due
2008. (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
4.2 -- Registration Rights Agreement dated May 19, 1999 by and
among American Plumbing & Mechanical, Inc., Fleet
Securities, Inc., Merrill Lynch & Co., Banc One Capital
Markets, Inc. and Credit Lyonnais Securities (USA) Inc.
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8%
Senior Subordinated Note due 2008. (Incorporated by
reference to Exhibit 4.3 to the Registration Statement on
Form S-4 (File No. 333-81139) of the Company)
10.1 -- Form of Officer and Director Indemnification Agreement.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan.
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.3 -- $95 million Senior Secured Credit Agreement dated March
31, 1999 among American Plumbing & Mechanical, Inc.,
First National Bank of Chicago and the other lenders
party thereto. (Incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.4 -- Transfer Restriction and Expense Reimbursement Agreement.
(Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.5 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc.,
Christianson Enterprises, Inc., Christianson Service
Company, G.G.R. Leasing Corporation and their
stockholders. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.6 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., J.A. Croson
Company and Franklin Fire Sprinkler Company and their
stockholders. (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.7 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., J.A. Croson
Company Florida and its stockholders. (Incorporated by
reference to Exhibit 10.7 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.8 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Nelson
Mechanical Contractors, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.9 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Miller
Mechanical Contractors, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.10 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., R.C.R.
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.10 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.11 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Teepe's
River City Mechanical, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.12 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Keith Riggs
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.12 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.13 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Power
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.13 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.14 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Sherwood
Mechanical, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.14 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.15 -- Employment Agreement between the Company and Robert
Christianson. (Incorporated by reference to Exhibit 10.15
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.16 -- Employment Agreement between the Company and Robert
Richey. (Incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.17 -- Employment Agreement between the Company and David
Baggett. (Incorporated by reference to Exhibit 10.17 to
the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.18 -- Employment Agreement between the Company, Croson Ohio and
David Croson. (Incorporated by reference to Exhibit 10.18
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.19 -- Employment Agreement between the Company, Croson Florida
and James Croson. (Incorporated by reference to Exhibit
10.19 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.20 -- Employment Agreement between the Company, Miller and
Joseph B. Miller. (Incorporated by reference to Exhibit
10.20 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.21 -- Employment Agreement between the Company, Sherwood and
Robert Sherwood. (Incorporated by reference to Exhibit
10.21 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.22 -- Employment Agreement between the Company, Keith Riggs and
Sam Sherwood. (Incorporated by reference to Exhibit 10.22
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.23 -- Employment Agreement between the Company, Teepe's and
Scott Teepe. (Incorporated by reference to Exhibit 10.23
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.24 -- First Supplemental Indenture between the Company, Parks
Mechanical Construction Corporation, a Delaware
corporation, Atlantic Plumbing & Mechanical, LLC, a
Delaware limited liability company and State Street Bank
and Trust Company, as Trustee, dated October 14, 1999.
(Incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
*21.1 -- List of Subsidiaries.
*24.1 -- Power of Attorney.
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
49
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN PLUMBING & MECHANICAL, INC.
Date: March 29, 2000 By: /s/ ROBERT C. CHRISTIANSON*
-------------------------------------
Robert C. Christianson,
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on March 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT C. CHRISTIANSON* Chairman of the Board of Directors, President
- ----------------------------------------------------- and Chief Executive Officer
Robert C. Christianson
/s/ ROBERT C. RICHEY* Senior Vice President, Chief Operating Officer
- ----------------------------------------------------- and Director
Robert C. Richey
/s/ DAVID C. BAGGETT Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director (Principal Financial and
David C. Baggett Accounting Officer)
/s/ ALBERT W. NIEMI, JR.* Director
- -----------------------------------------------------
Albert W. Niemi, Jr.
/s/ RICHARD M. POLLARD* Director
- -----------------------------------------------------
Richard M. Pollard
/s/ SUSAN O. RHENEY* Director
- -----------------------------------------------------
Susan O. Rheney
/s/ ROBERT W. SHERWOOD* Director
- -----------------------------------------------------
Robert W. Sherwood
/s/ LLOYD C. SMITH* Director
- -----------------------------------------------------
Lloyd C. Smith
/s/ C. BYRON SNYDER* Director
- -----------------------------------------------------
C. Byron Snyder
/s/ SCOTT W. TEEPE, SR.* Director
- -----------------------------------------------------
Scott W. Teepe, Sr.
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN F. TURNER* Director
- -----------------------------------------------------
Stephen F. Turner
/s/ MICHAEL E. WORKMAN* Director
- -----------------------------------------------------
Michael E. Workman
</TABLE>
* By: /s/ DAVID C. BAGGETT
-------------------------------
David C. Baggett
Pursuant to a power-of-attorney
filed with this Form 10-K on
March 23, 2000
51
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
3.2 -- Amended and Restated Bylaws. (Incorporated by reference
to Exhibit 3.2 to the Registration Statement on Form S-4
(File No. 333-81139) of the Company)
3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A. (Incorporated by
reference to Exhibit 3.3 to the Registration Statement on
Form S-4 (File No. 333-81139) of the Company)
4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc. and the subsidiaries named
therein and State Street Bank and Trust Company covering
to $125,000,000 11 5/8% Senior Subordinated Notes due
2008. (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
4.2 -- Registration Rights Agreement dated May 19, 1999 by and
among American Plumbing & Mechanical, Inc., Fleet
Securities, Inc., Merrill Lynch & Co., Banc One Capital
Markets, Inc. and Credit Lyonnais Securities (USA) Inc.
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8%
Senior Subordinated Note due 2008. (Incorporated by
reference to Exhibit 4.3 to the Registration Statement on
Form S-4 (File No. 333-81139) of the Company)
10.1 -- Form of Officer and Director Indemnification Agreement.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan.
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.3 -- $95 million Senior Secured Credit Agreement dated March
31, 1999 among American Plumbing & Mechanical, Inc.,
First National Bank of Chicago and the other lenders
party thereto. (Incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.4 -- Transfer Restriction and Expense Reimbursement Agreement.
(Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.5 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc.,
Christianson Enterprises, Inc., Christianson Service
Company, G.G.R. Leasing Corporation and their
stockholders. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.6 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., J.A. Croson
Company and Franklin Fire Sprinkler Company and their
stockholders. (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.7 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., J.A. Croson
Company Florida and its stockholders. (Incorporated by
reference to Exhibit 10.7 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.8 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Nelson
Mechanical Contractors, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.9 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Miller
Mechanical Contractors, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.10 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., R.C.R.
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.10 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.11 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Teepe's
River City Mechanical, Inc. and its stockholders.
(Incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
10.12 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Keith Riggs
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.12 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.13 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Power
Plumbing, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.13 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.14 -- Acquisition Agreement dated February 11, 1999 by and
between American Plumbing & Mechanical, Inc., Sherwood
Mechanical, Inc. and its stockholders. (Incorporated by
reference to Exhibit 10.14 to the Registration Statement
on Form S-4 (File No. 333-81139) of the Company)
10.15 -- Employment Agreement between the Company and Robert
Christianson. (Incorporated by reference to Exhibit 10.15
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.16 -- Employment Agreement between the Company and Robert
Richey. (Incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.17 -- Employment Agreement between the Company and David
Baggett. (Incorporated by reference to Exhibit 10.17 to
the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.18 -- Employment Agreement between the Company, Croson Ohio and
David Croson. (Incorporated by reference to Exhibit 10.18
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.19 -- Employment Agreement between the Company, Croson Florida
and James Croson. (Incorporated by reference to Exhibit
10.19 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.20 -- Employment Agreement between the Company, Miller and
Joseph B. Miller. (Incorporated by reference to Exhibit
10.20 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.21 -- Employment Agreement between the Company, Sherwood and
Robert Sherwood. (Incorporated by reference to Exhibit
10.21 to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.22 -- Employment Agreement between the Company, Keith Riggs and
Sam Sherwood. (Incorporated by reference to Exhibit 10.22
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.23 -- Employment Agreement between the Company, Teepe's and
Scott Teepe. (Incorporated by reference to Exhibit 10.23
to the Registration Statement on Form S-4 (File No.
333-81139) of the Company)
10.24 -- First Supplemental Indenture between the Company, Parks
Mechanical Construction Corporation, a Delaware
corporation, Atlantic Plumbing & Mechanical, LLC, a
Delaware limited liability company and State Street Bank
and Trust Company, as Trustee, dated October 14, 1999.
(Incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form S-4 (File No. 333-81139)
of the Company)
*21.1 -- List of Subsidiaries.
*24.1 -- Power of Attorney.
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME FORMATION
- ---- ---------
<S> <C>
Atlas Plumbing & Mechanical, LLC............................ Delaware
AMPAM Corporate Services, LP................................ Delaware
AMPAM Holdings, LLC......................................... Delaware
AMPAM Management Company, Inc. ............................. Delaware
AMPAM Partners, LLC......................................... Delaware
AMPAM Services, Inc. ....................................... Delaware
Christianson Enterprises, LP................................ Delaware
Franklin Fire Sprinkler Company............................. Ohio
J.A. Croson Company......................................... Ohio
J.A. Croson Company of Florida.............................. Florida
Keith Riggs Plumbing, Inc. ................................. Arizona
Miller Mechanical Contractors, Inc. ........................ Georgia
Nelson Mechanical Contractors, Inc. ........................ Florida
Parks Mechanical Construction Corporation................... Delaware
Power Plumbing, LP.......................................... Delaware
R.C.R. Plumbing, Inc. ...................................... California
Sherwood Mechanical, Inc. .................................. California
Teepe's River City Mechanical, Inc. ........................ Ohio
</TABLE>
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the undersigned, a director of American Plumbing & Mechanical, Inc.
(the "Company"), does hereby constitute and appoint David C. Baggett, as his/her
true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for him and in his place and stead, to sign the Company's Form
10-K Annual Report, and all amendments thereto that such attorney-in-fact may
deem necessary or appropriate, pursuant to Section 13 of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities Exchange Commission, granting unto such attorney-in-fact full power
and authority to sign such documents on behalf of the undersigned and to make
such filing, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 23, 2000
AMERICAN PLUMBING & MECHANICAL, INC.
<TABLE>
<S> <C>
/s/ ROBERT A. CHRISTIANSON /s/ ROBERT W. SHERWOOD
- ----------------------------------------------------- ----------------------------------------------
Robert A. Christianson, Director Robert W. Sherwood, Director
/s/ ALBERT W. NIEMI /s/ LLOYD C. SMITH
- ----------------------------------------------------- ----------------------------------------------
Albert W. Niemi, Director Lloyd C. Smith, Director
/s/ RICHARD M. POLLARD /s/ C. BYRON SNYDER
- ----------------------------------------------------- ----------------------------------------------
Richard M. Pollard, Director C. Byron Snyder, Director
/s/ SUSAN O. RHENEY /s/ SCOTT W. TEEPE
- ----------------------------------------------------- ----------------------------------------------
Susan O. Rheney, Director Scott W. Teepe, Sr., Director
/s/ ROBERT C. RICHEY /s/ STEPHEN F. TURNER
- ----------------------------------------------------- ----------------------------------------------
Robert C. Richey, Director Stephen F. Turner, Director
/s/ MICHAEL E. WORKMAN
----------------------------------------------
Michael E. Workman, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 393
<SECURITIES> 0
<RECEIVABLES> 74,844
<ALLOWANCES> 1,118
<INVENTORY> 8,356
<CURRENT-ASSETS> 98,529
<PP&E> 22,591
<DEPRECIATION> (5,325)
<TOTAL-ASSETS> 267,751
<CURRENT-LIABILITIES> 72,783
<BONDS> 122,643
13,635
0
<COMMON> 137
<OTHER-SE> 43,254
<TOTAL-LIABILITY-AND-EQUITY> 267,751
<SALES> 334,002
<TOTAL-REVENUES> 334,002
<CGS> 269,972
<TOTAL-COSTS> 269,972
<OTHER-EXPENSES> 40,682
<LOSS-PROVISION> 203
<INTEREST-EXPENSE> 12,137
<INCOME-PRETAX> 11,240
<INCOME-TAX> 7,859
<INCOME-CONTINUING> 3,381
<DISCONTINUED> 0
<EXTRAORDINARY> 455
<CHANGES> 0
<NET-INCOME> 2,926
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
