<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
Commission File No. 333-81139
American Plumbing & Mechanical, Inc.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE 76-0577626
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1950 LOUIS HENNA BLVD. 78664
ROUND ROCK, TEXAS (ZIP Code)
(Address of Principal Executive Offices)
(512) 246-5260
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 of 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X|
As of August 11, 2000, there were outstanding 13,271,310 shares of
common stock and 331,116 shares of Class B common stock of the Registrant.
<PAGE> 2
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - Financial Information Page
----
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Item 3 - Quantitative and Qualitative Disclosures About Market Risks 11
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities and Use of Proceeds 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 15
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------------- --------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 393 $ 2,542
Accounts receivable, net 73,726 89,372
Inventories 8,356 9,411
Costs and estimated earnings in excess of billings on uncompleted contracts
13,919 15,967
Prepaid expenses and other current assets 2,135 3,200
-------------- --------------
Total current assets 98,529 120,492
PROPERTY AND EQUIPMENT, net 17,266 19,483
GOODWILL, net 146,050 163,655
OTHER NONCURRENT ASSETS 5,906 5,622
-------------- --------------
Total assets $ 267,751 $ 309,252
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 1,031 $ 960
Accounts payable and accrued expenses 42,871 55,931
Accounts payable, related parties, including acquisition consideration payable 12,160 9,079
Billings in excess of costs and estimated earnings on uncompleted contracts 16,721 19,217
-------------- --------------
Total current liabilities 72,783 85,187
LONG-TERM LIABILITIES:
Long-term debt 136, 623 152,690
Deferred income taxes 1,319 891
-------------- --------------
Total liabilities 210,725 238,768
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED STOCK, $.01 par value, 10,000,000 shares
authorized, 1,048,820 shares issued and outstanding 13,635 13,635
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized, 11,265,229
and 13,271,310 shares issued and outstanding, respectively 113 133
Class B common stock, $.01 par value, 5,000,000 shares authorized,
2,423,517 and 331,116 shares issued and outstanding, respectively 24 3
Additional paid-in capital 35,143 41,824
Retained earnings 8,111 14,889
-------------- --------------
Total stockholders' equity 43,391 56,849
-------------- --------------
Total liabilities and stockholders' equity $ 267,751 $ 309,252
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------ ----------------------------------------
1999 2000 1999 2000
-------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 94,315 $ 141,679 $ 111,139 $ 266,816
COST OF REVENUES
(including depreciation) 77,495 115,163 88,885 218,153
-------------- ------------- -------------- --------------
Gross profit 16,820 26,516 22,254 48,663
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 15,688 11,699 17,551 23,188
GOODWILL AMORTIZATION 951 1,446 951 2,746
-------------- ------------- -------------- --------------
Income from operations 181 13,371 3,752 22,729
OTHER INCOME (EXPENSE):
Interest and dividend income 58 47 69 80
Interest expense (3,240) (4,343) (3,267) (9,083)
Other 112 147 121 327
-------------- ------------- -------------- --------------
Other expense, net (3,070) (4,149) (3,077) (8,676)
-------------- ------------- -------------- --------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY LOSS (2,889) 9,222 675 14,053
PROVISION FOR INCOME TAXES 2,533 4,208 2,695 6,593
-------------- ------------- -------------- --------------
INCOME(LOSS)BEFORE
EXTRAORDINARY LOSS (5,422) 5,014 (2,020) 7,460
-------------- ------------- -------------- --------------
EXTRAORDINARY LOSS 455 - 455 -
NET INCOME (LOSS) (5,877) 5,014 (2,475) 7,460
-------------- ------------- -------------- --------------
PREFERRED DIVIDENDS 341 341 341 682
-------------- ------------- -------------- --------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (6,218) $ 4,673 $ (2,816) $ 6,778
============== ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 5
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1999 2000
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,475) $ 7,460
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 1,912 5,193
Non cash compensation charge related to issuance of stock to management 7,992 -
Amortization of deferred compensation expense 114 177
Extraordinary loss on early extinguishments of debt 769 -
Loss (gain) on disposal of property and equipment 5 (133)
Deferred income taxes (140) (1,190)
Increase (decrease) in cash flows from:
Accounts receivable, net (10,430) (9,127)
Inventories (1,307) (712)
Costs and estimated earnings in excess of billings on uncompleted contracts
(656) 1,736
Prepaid expenses and other current assets (670) (198)
Accounts payable and accrued expenses 727 4,655
Billings in excess of costs and estimated earnings on uncompleted contracts 4,037 1,651
Other 260 524
------------ -----------
Net cash provided by operating activities 138 10,036
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment (2,300) (3,132)
Proceeds from sale of property and equipment 33 347
Acquisition of companies, net of cash acquired (52,363) (12,031)
------------- ------------
Net cash used in investing activities (54,630) (14,816)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on subordinated loan 30,000 -
Payments on subordinated loan (30,000) -
Payments of long-term debt (9,432) (944)
Payments on notes to stockholders (5,766) -
Issuance of senior subordinated notes 118,668 -
Net borrowings on bank credit facility (1,025) 16,400
Distributions to stockholders (39,123) (878)
Buy back of Class B shares - (6,966)
Preferred dividends (341) (682)
------------- ------------
Net cash provided by financing activities 62,981 6,929
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,489 2,149
CASH AND CASH EQUIVALENTS, beginning of period 1,980 393
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 10,469 $ 2,542
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 2,912 $ 8,355
Income taxes 1,640 5,512
Capital lease additions 393 -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
AMERICAN PLUMBING & MECHANICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
American Plumbing and Mechanical, Inc. (the "Company"), was
organized in June 1998 and acquired ten U.S. businesses (the "Founding
Companies") on April 1, 1999. The acquisitions were accounted for using the
purchase method of accounting with Christianson Enterprises, Inc. and
affiliates ("Christianson") being reflected as the accounting acquiror for
accounting purposes. Subsequently, the Company acquired the outstanding stock
of three additional companies and the assets of a fourth company (the
"Subsequent Acquisitions", and collectively with the "Founding Companies", the
"Acquired Companies").
Prior to April 1, 1999, Christianson elected S Corporation status.
Under S Corporation status, as defined by the Internal Revenue Code,
Christianson itself was not subject to taxation for federal purposes; rather,
the stockholders reported their share of Christianson's taxable earnings or
losses in their personal tax returns. Certain states do not recognize S
Corporation status for purposes of state taxation. Consequently, the provision
for current and deferred income taxes for the six months ended June 30, 1999,
does not include federal income taxes for the first three months of this
period. Christianson terminated its S Corporation status concurrent with the
effective date of the merger discussed above.
These unaudited interim statements should be read in conjunction
with the Company's historical consolidated financial statements and related
notes included in the Annual Report on Form 10-K as filed with the Securities
and Exchange Commission for the year ended December 31, 1999.
These unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for reporting interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The Company believes all adjustments necessary for a fair
presentation of these interim statements have been included and are of a normal
and recurring nature. The results of operations for interim periods are not
necessarily indicative of the results for the fiscal year.
2. COMMITMENTS AND CONTINGENCIES:
As of January 1, 2000, the Company became self insured for health
care, workers' compensation, and general, property and auto liability up to
predetermined amounts above which third party insurance applies. The Company is
fully insured through third party insurance for all other types of exposures
including an umbrella policy. The Company has not incurred significant claims
or losses on any of these insurance policies.
3. STOCKHOLDERS' EQUITY:
At December 31, 1999, the Company had 11,265,229 shares of $.01 par
value common stock and 2,423,517 shares of $.01 par value Class B common stock
outstanding. Class B shares differ from common shares in voting rights and are
subordinate in liquidation to all other classes of stock.
In February 2000, the Company agreed to purchase approximately 1.5
million shares of Class B common stock from Sterling City Capital, LLC, the
original sponsor of the Company, at a price of $3.25 per share. On April 7,
2000, the Company completed the transaction with funding from the Company's
Credit Facility. A similar offer was made to the holders of the remaining 0.9
million shares of Class B
5
<PAGE> 7
common stock; however, the members of the Company's management that are holders
of the Class B common stock did not tender their shares (approximately 0.3
million shares). The purchase of the remaining shares closed in May 2000, and
was also funded from the Company's Credit Facility.
On March 1, 2000, the Company acquired the stock of Lindy Dennis
Industries and related affiliates ( collectively "LDI"). The consideration paid
by the Company for LDI consisted of 1,346,154 shares of the Company's common
stock and approximately $12 million in cash which was funded through borrowings
under the Company's existing $95 million Credit Facility.
In April 2000, pursuant to the terms of "Earn-Out" , provisions
contained in the original acquisition agreements, the Company also issued
659,927 shares of common stock to certain former stockholders of certain
Founding Companies. No future share issuance is required under the terms of any
of the acquisition agreements relating to any of the Acquired Companies.
4. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior-year financial
statements to conform to the current-year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q, THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES AND OTHER DETAILED INFORMATION REGARDING
THE COMPANY INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999, AND OTHER REPORTS FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which are intended to be covered by safe harbors created thereby. Readers
are cautioned that such information involves risks and uncertainties, including
those created by general market conditions, competition and the possibility
that events may occur which limit the ability of the Company to maintain or
improve its operating results. All statements, other than statements of
historical facts, included or incorporated by reference in this section that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement such strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans,
references to future success as well as other statements which include words
such as "anticipate," "believe," "plan," "estimate," "expect," and "intend" and
other similar expressions, constitute forward-looking statements. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate,
and the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
GENERAL
American Plumbing and Mechanical, Inc. (the "Company"), a Delaware
corporation, is the largest company in the United States focused primarily on
the plumbing contracting services industry. The Company provides plumbing,
heating, ventilation and air conditioning ("HVAC") and mechanical
6
<PAGE> 8
contracting services to single family residential, multifamily residential and
commercial/institutional customers.
The Company was organized in June 1998, and acquired ten U.S.
businesses (the "Founding Companies") on April 1, 1999. The acquisitions were
accounted for using the purchase method of accounting with Christianson
Enterprises, Inc. and affiliates ("Christianson") being reflected as the
accounting acquiror for accounting purposes. In September 1999, the Company
acquired the outstanding stock of two additional companies and the assets of a
third company. On March 1, 2000, the Company acquired the stock of Lindy Dennis
Industries and related affiliates (collectively "LDI"), headquartered in
Corona, California.
All of the above companies acquired subsequent to the acquisition
of the Founding Companies are herein referred to as the "Subsequent
Acquisitions", and collectively with the "Founding Companies", the "Acquired
Companies."
RESULTS OF OPERATIONS
Supplemental Pro Forma Combined
To facilitate a meaningful comparison, the following unaudited
supplemental pro forma combined discussion and analysis includes the results of
operations of the Founding Companies, as if they were combined on January 1,
1999, and the Subsequent Acquisitions as if combined from the dates of their
acquisition. The unaudited supplemental pro forma information does not reflect
the Subsequent Acquisitions as if they had occurred at the beginning of the
period. This data does not indicate the results that we would have obtained had
these events actually occurred on January 1 of the respective period presented,
or our future results. The unaudited pro forma financial data is based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate. Selling, general and administrative expenses for
the periods prior to the acquisitions have been decreased for reductions in
salaries, bonuses, benefits and lease payments to former owners of the Founding
Companies, agreed to in accordance with the terms of the employment agreements
and lease agreements executed as a part of the acquisitions. The data will not
be comparable to, and may not be indicative of, the Company's post-combination
results of operations because:
o the Founding Companies were not under common control or
management;
o the Company will incur incremental costs for its corporate
management; and,
o the combined data does not reflect the potential benefits and cost
savings the Company expects to realize by operating as a combined
entity.
7
<PAGE> 9
The following table sets forth supplemental pro forma combined
financial information of the Founding Companies in 1999 and the actual results
of the Acquired Companies in 2000:
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------------------------------
1999 2000
------------------------- --------------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 182,794 100% $ 266,816 100%
Cost of revenues 144,673 79 218,153 81
------------ ----- ------------ -----
Gross Profit 38,121 21 48,663 19
Selling, general and administrative expenses 24,688 13 23,188 8
Goodwill Amortization 1,901 1 2,746 1
------------ ----- ------------ -----
Income from operations $ 11,532 7% $ 22,729 10%
============ ====== ============ ======
</TABLE>
Six months ended June 30, 1999 compared to six months ended June 30, 2000
Pro forma combined revenues were $266.8 million for the six months
ended June 30, 2000, an increase of $84.0 million, or 46%, from $182.8 million
for the six months ended June 30, 1999. The increase in combined revenues
resulted from a $33.9 million increase in "same store" revenues for the
Founding Companies, combined with $50.1 million generated by the Subsequent
Acquisitions. The largest increase in "same store" revenues was associated with
the single family and commercial/institutional subsidiaries. Revenues also
increased due to modest price increases at most of the companies in response to
rising material costs.
Pro forma combined gross profit was $48.7 million for the six months
ended June 30, 2000, an increase of $10.6 million, or 28%, from $38.1 million
for the six months ended June 30, 1999. The increase in combined gross profit
resulted from an $1.9 million increase in "same store" gross profit for the
Founding Companies, combined with $8.7 million generated by the Subsequent
Acquisitions.
Pro forma combined selling, general and administrative expenses were
$23.2 million for the six months ended June 30, 2000, an increase of $6.5
million, from $16.7 million for the six months ended June 30, 1999 (excluding a
non-cash compensation charge of $8.0 million relating to the issuance of shares
to management on April 1, 1999). Selling, general and administrative expenses
generated by the Subsequent Acquisitions were $4.1 million with the remaining
$2.4 million increase associated with "same store" volume.
Pro forma goodwill amortization increased to $2.7 million for the
six months ended June 30, 2000, from $1.9 million for the six months ended June
30, 1999. The increase in amortization is associated with the goodwill
generated by the Subsequent Acquisitions and amortization of the goodwill
generated by payments to certain stockholders of the Founding Companies under
"Earn-Out" provisions contained in the acquisition agreements. The Company
amortizes goodwill on a straight-line basis over a 30 year period.
8
<PAGE> 10
Historical Financial Information
The following historical consolidated financial information
represents the operations of Christianson, the accounting acquiror, prior to
April 1, 1999, and the remaining Acquired Companies from their respective dates
of acquisition. Historical selling, general and administrative expenses for the
periods prior to April 1, 1999, reflect salaries, bonuses, benefits, and lease
payments to the former stockholders of Christianson. These amounts have been
prospectively reduced in accordance with the terms of the acquisition
agreement. 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>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- ---------------------------------------------
1999 2000 1999 2000
------------------- --------------------- ---------------------- ---------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 94,315 100% $ 141,679 100% $ 111,139 100% $ 266,816 100%
Cost of revenues 77,495 82 115,163 81 88,885 80 218,153 82
----------- ----- ------------ ----- ------------ ----- ------------ -----
Gross Profit 16,820 18 26,516 19 22,254 20 48,663 18
Selling, general and administrative
expenses 15,688 17 11,699 8 17,551 16 23,188 9
Goodwill amortization 951 1 1,446 1 951 1 2,746 1
----------- ----- ------------ ----- ------------ ----- ------------ -----
Income from operations 181 - 13,371 10 3,752 3 22,729 8
Interest expense (3,240) (3) (4,343) (3) (3,267) (3) (9,083) (3)
Other, net 170 - 194 - 190 - 407 -
----------- ----- ------------ ----- ------------ ----- ------------ -----
Income (loss) before taxes and
extraordinary loss (2,889) (3) 9,222 7 675 - 14,053 5
Provision for income taxes 2,533 3 4,208 3 2,695 2 6,593 2
----------- ----- ------------ ----- ------------ ----- ------------ -----
Income (loss) before extraordinary
loss (5,422) (6) 5,014 4 (2,020) (2) 7,460 3
----------- ----- ------------ ----- ------------ ------- ------------ -----
Extraordinary loss 455 - - - 455 - - -
Net income (loss) (5,877) (6) 5,014 4 (2,475) (2) 7,460 3
----------- ----- ------------ ----- ------------ ------- ------------ -----
Preferred dividends 341 - 341 - 341 - 682 -
----------- ----- ------------ ----- ------------ ----- ------------ -----
Net income (loss) available to
common shareholders
$ (6,218) (6)% $ 4,673 4% $ (2,816) (2)% $ 6,778 3%
=========== ===== ============ ===== ============ ====== ============ =====
</TABLE>
9
<PAGE> 11
Three months ended June 30, 1999 compared to three months ended June 30, 2000
Revenues increased $47.4 million, from $94.3 million for the three
months ended June 30, 1999, to $141.7 million for the three months ended June
30, 2000. The increase in revenues resulted from a $16.9 million increase in
"same store" revenues for the Founding Companies, combined with $30.5 million
generated by the Subsequent Acquisitions.
Gross profit increased $9.7 million, from $16.8 million for the
three months ended June 30, 1999, to $26.5 million for the three months ended
June 30, 2000. The increase in gross profit resulted from a $4.0 million
increase in "same store" gross profit generated by the Founding Companies,
combined with $5.7 million generated by the Subsequent Acquisitions.
Selling, general and administrative expenses increased $4.0 million,
from $7.7 million for the three months ended June 30, 1999, (excluding a
non-cash compensation charge of $8.0 million relating to the issuance of shares
to management on April 1, 1999), to $11.7 million for the three months ended
June 30, 2000. The increase in selling, general and administrative expenses was
primarily due to the Subsequent Acquisitions.
Net income increased $2.9 million, from $2.1 million for the three
months ended June 30, 1999, (excluding a non-cash compensation charge of $8.0
million relating to the issuance of shares to management on April 1, 1999), to
$5.0 million for the three months ended June 30, 2000. The increase is due
primarily to the results of the Subsequent Acquisitions.
Six months ended June 30, 1999 compared to six months ended June 30, 2000
Revenues increased $155.7 million from $111.1 million for the six
months ended June 30, 1999, to $266.8 million for the six months ended June 30,
2000. The growth was primarily due to the acquisition of the remaining Acquired
Companies and an increase in activity.
Gross profit increased $26.4 million, from $22.3 million for the six
months ended June 30, 1999, to $48.7 million for the six months ended June 30,
2000. The increase in gross profit was primarily due to the acquisition of the
remaining Acquired Companies and an increase in activity.
Selling, general and administrative expenses increased $13.6
million, from $9.6 million for the six months ended June 30, 1999, (excluding a
non-cash compensation charge of $8.0 million relating to the issuance of shares
to management on April 1, 1999), to $23.2 million for the six months ended June
30, 2000. The increase in selling, general and administrative expenses was
primarily due to the acquisition of the remaining Acquired Companies, and the
corporate general and administrative costs incurred after April 1, 1999.
Goodwill amortization increased $1.7 million for the six months
ended June 30, 2000, as compared to the same period in 1999. The increase in
amortization is associated with the goodwill generated by the acquisition of
the remaining Acquired Companies and amortization of the goodwill generated by
payments to certain Founding Company stockholders under "earn out" provisions
in the purchase agreements. The Company amortizes goodwill on a straight-line
basis over a 30 year period.
Interest expense increased $5.8 million for the six months ended
June 30, 2000 as compared to the same period in 1999. This is a result of the
interest on the Senior Subordinated Notes, issued May 19, 1999, and the Credit
Facility.
The increase in the provision for income taxes of $3.9 million
results from the Company recording federal income taxes for the period after
April 1, 1999. Prior to this date, Christianson elected S Corp status.
10
<PAGE> 12
Net income increased $2.0 million, from $5.5 million for the six
months ended June 30, 1999, (excluding a non-cash compensation charge of $8.0
million relating to the issuance of shares to management on April 1, 1999), to
$7.5 million for the six months ended June 30, 2000. The increase is primarily
due to an increase in activity offset by the interest expense on the
indebtedness incurred to fund the cash portion of the acquisition consideration
and the income tax expense resulting from the Company recording federal taxes
for the period after April 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $35.3 million in working
capital and $152.7 million of outstanding long-term indebtedness, including
capital lease obligations totaling $1.5 million.
For the six months ended June 30, 2000, net cash provided by
operating activities was $10.0 million resulting primarily from operations and
decreases in working capital. Cash used in investing activities was $14.8
million which primarily relates to the acquisition of LDI. Cash provided by
financing activities for the six months ended June 30, 2000, was $ 6.9 million
and was primarily provided by net borrowings on the Company's Credit Facility
offset by amounts used in the buy back of Class B shares (See Item 1 above).
On April 1, 1999, the Company entered into the Credit Facility with
a total commitment of $95 million. At the option of the Company, the Credit
Facility bears interest at the base rate of the arranging bank plus an
applicable margin or at LIBOR, plus an applicable margin and has a three year
term. At June 30, 2000, $62.8 million was available under the Credit Facility.
The Company's capital expenditures, for the six months ended June
30, 2000, primarily relate to the purchase of equipment and leasehold
improvements that were funded from cash flow from operations. During the six
months ended June 30, 2000, capital expenditures were $3.1 million.
The Company anticipates that its cash flow from operations will
provide sufficient cash to enable the Company to meet its working capital
needs, debt service requirements, and planned capital expenditures for property
and equipment through the foreseeable future.
While the Company continues to pursue acquisitions of leading
companies, it has identified several markets where there are no suitable
acquisition candidates. AMPAM intends to enter these markets through "start
ups" which will initially focus on serving existing customers in the new
markets. From this base, the Company will work to develop relationships with
new customers. The Company intends to fund start up costs with working capital,
cash flow from operations and borrowings from the Credit Facility.
SEASONALITY
The plumbing and mechanical contracting services industry is
influenced by seasonal factors, which generally result in lower activity during
winter months than in other periods. As a result, the Company expects that its
revenues and profits will generally be lower in the first and fourth quarters
of each fiscal year, and higher in the second and third quarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks primarily related to
potential adverse changes in interest rates. In the normal course of business,
the Company employs established policies and procedures to manage this risk.
The Company is not exposed to any other significant market risks including
foreign currency exchange risk, or interest rate risks from the use of
derivative financial instruments. The Company does not use derivative financial
11
<PAGE> 13
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. The Company's debt with variable
interest rates consists primarily of the Credit Facility. There were no
significant changes in market risks during the three months ended June 30,
2000.
12
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
From time to time, the Company is involved in litigation relating to
claims arising out of operations in the normal course of business. The Company
maintains insurance coverage against potential claims in an amount which
management believes to be adequate. Currently, the Company is not aware of any
legal proceedings or pending claims that management believes will have a
material adverse effect on the Company's consolidated financial position or
consolidated results of operations.
ITEM 2. - Changes in Securities and Use of Proceeds
In April 2000, pursuant to the terms of "Earn-Out" provisions
combined in the original acquisition agreements, the Company also issued
659,927 shares of common stock to certain of the former stockholders of certain
Founding Companies. The issuance of such common stock was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 as a
transaction by the issuer not involving a public offering.
ITEM 3. - Defaults Upon Senior Securities
None
ITEM 4. - Submission of Matters to a Vote of Security Holders
None
ITEM 5. - Other Information
None
ITEM 6. - Exhibits and Reports on Form 8-K
(a) The exhibits to this report are listed below
*3.1 Amended and Restated Certificate of Incorporation (American
Plumbing& Mechanical, Inc. Registration Statement on
Form S-4 (File No. 333-81139), Exhibit 3.1).
*3.2 Amended and Restated Bylaws (American Plumbing & Mechanical,
Inc. Registration Statement on Form S-4 (File No.
333-81139), Exhibit 3.2).
*3.3 Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A (American
Plumbing & Mechanical, Inc. Registration Statement on
Form S-4 (File No. 333-81139), Exhibit 3.3).
*4.1 Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc., State Street Bank and Trust
Company and the other parties named therein with respect
to $125,000,000 11 5/8% Senior Subordinated Notes due 2008
(American Plumbing & Mechanical, Inc. Registration
Statement on Form S-4 (File No. 333-81139), Exhibit 4.1).
27.1 Financial data schedule
*Incorporated by reference
13
<PAGE> 15
(b) The registrant filed a report dated May 15, 2000, on Form
8-K/A during the period covered by this quarterly report
on Form 10-Q.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PLUMBING AND MECHANICAL, INC.
Date: August 11, 2000 By: /s/ David C. Baggett
--------------------
David C. Baggett
Senior Vice President
and Chief Financial Officer
