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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NO. 001-13037
SERVICE EXPERTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1639453
(state or other jurisdiction (I.R.S. Employer Identification NO.)
of incorporation or organization)
SIX CADILLAC DRIVE - SUITE 400, BRENTWOOD, TENNESSEE 37027
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (615) 371-9990
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 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 16, 1999
COMMON STOCK, $.01 PAR VALUE 17,661,166
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVICE EXPERTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1998 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 8,408 $ 12,773
Accounts receivable
Trade, net of allowance for doubtful accounts of $2,050 in 1998 ..... 50,211 70,967
and $3,297 in 1999
Related parties .................................................. 312 658
Employees ........................................................ 581 1,171
Other ............................................................ 6,351 5,010
--------- ---------
57,455 77,806
Refundable income taxes ................................................. 2,836 --
Inventories ............................................................. 29,715 32,857
Costs and estimated earnings in excess of billings ...................... 5,911 9,974
Prepaid expenses and other current assets ............................... 6,558 7,503
Current portion of note receivable - related party ...................... 14 14
Current portion of notes receivable - other ............................. 140 109
Deferred income taxes ................................................... 4,008 4,044
--------- ---------
Total current assets .................................... 115,045 145,080
Property, buildings and equipment:
Land .................................................................... 1,904 1,904
Buildings ............................................................... 5,001 5,471
Furniture and fixtures .................................................. 13,801 16,415
Machinery and equipment ................................................. 8,150 11,096
Vehicles ................................................................ 23,197 29,323
Leasehold improvements .................................................. 3,850 5,502
--------- ---------
55,903 69,711
Less accumulated depreciation and amortization .......................... (17,283) (23,179)
--------- ---------
38,620 46,532
Note receivable - related party, net of current portion ...................... 324 298
Notes receivable - other, net of current portion ............................. 508 396
Goodwill, net of accumulated amortization of $5,609 in 1998 and $7,851 in 1999 191,016 240,722
Unallocated purchase price ................................................... 8,738 --
Other assets ................................................................. 2,304 1,046
--------- ---------
Total Assets ................................................... $ 356,555 $ 434,074
========= =========
See accompanying notes.
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December 31, June 30,
1998 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term note payable .................................................. $ 2,418 $ --
Trade accounts payable and accrued liabilities ........................... 17,677 25,914
Accrued compensation ..................................................... 5,523 7,896
Accrued warranties ....................................................... 2,847 3,661
Billings in excess of costs and estimated earnings ....................... 1,268 2,196
Current portion of long-term debt and capital lease obligations .......... 2,275 4,784
--------- ---------
Total current liabilities ....................................... 32,008 44,451
Long-term debt and capital lease obligations, net of current portion .......... 104,479 155,979
Deferred revenue .............................................................. 9,883 13,647
Deferred income taxes ......................................................... 3,682 3,794
Commitments and contingencies (Note 8)
Minority interest ............................................................. 121 --
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized, 17,450,664
shares issued and outstanding at December 31, 1998 and 17,556,902
shares issued and outstanding at June 30, 1999 ............................ 175 176
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares
issued and outstanding .................................................... -- --
Additional paid-in-capital .................................................... 163,302 164,850
Deferred compensation ......................................................... (941) (745)
Retained earnings ............................................................. 43,865 51,922
Accumulated other comprehensive income (loss) ................................. (19) --
--------- ---------
Total stockholders' equity .................................................... 206,382 216,203
--------- ---------
Total liabilities and stockholders' equity .................................... $ 356,555 $ 434,074
========= =========
See accompanying notes.
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SERVICE EXPERTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net revenue ........................................... $ 102,894 $ 152,787 $ 173,556 $ 268,953
Cost of goods sold .................................... 65,104 105,105 111,249 180,809
--------- --------- --------- ---------
Gross margin .......................................... 37,790 47,682 62,307 88,144
Selling, general and administrative expenses .......... 25,131 38,427 44,278 71,394
--------- --------- --------- ---------
Income from operations ................................ 12,659 9,255 18,029 16,750
Other income (expense):
Interest expense ................................. (934) (2,198) (1,208) (3,991)
Interest income .................................. 191 62 291 106
Other income ..................................... 170 190 290 1,064
--------- --------- --------- ---------
(573) (1,946) (627) (2,821)
--------- --------- --------- ---------
Income before income taxes ............................ 12,086 7,309 17,402 13,929
Provision for income taxes:
Current .......................................... 4,528 3,084 6,702 5,675
Deferred ......................................... 160 139 267 197
--------- --------- --------- ---------
4,688 3,223 6,969 5,872
--------- --------- --------- ---------
Net income ............................................ $ 7,398 $ 4,086 $ 10,433 $ 8,057
========= ========= ========= =========
Net income per common share:
Basic ............................................ $ 0.44 $ 0.23 $ 0.63 $ 0.46
========= ========= ========= =========
Diluted .......................................... $ 0.44 $ 0.23 $ 0.63 $ 0.45
========= ========= ========= =========
Weighted average shares outstanding:
Basic ............................................ 16,739 17,479 16,472 17,474
--------- --------- --------- ---------
Diluted .......................................... 16,987 17,998 16,683 17,776
--------- --------- --------- ---------
Pro forma net income data, reflecting
pro forma tax provision on income of a pooled company
previously taxed as a Subchapter S corporation:
Historical net income applicable to Common Stock .... $ 7,398 $ 4,086 $ 10,433 $ 8,057
Pro forma adjustment to provision for income taxes .. (202) -- (180) --
--------- --------- --------- ---------
Pro forma net income applicable to Common Stock ....... $ 7,196 $ 4,086 $ 10,253 $ 8,057
--------- --------- --------- ---------
Pro forma net income per common share:
Basic ............................................ $ 0.43 $ 0.23 $ 0.62 $ 0.46
========= ========= ========= =========
Diluted .......................................... $ 0.42 $ 0.23 $ 0.61 $ 0.45
========= ========= ========= =========
See accompanying notes.
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SERVICE EXPERTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
1998 1999
-------- --------
(UNAUDITED)
(IN THOUSANDS)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ... $(12,535) $ 7,515
INVESTING ACTIVITIES
Payments (advance) on notes receivable ................ (8) 170
Purchase of property, buildings and equipment ......... (6,756) (6,995)
Proceeds from sale of property, buildings and equipment 109 242
Proceeds from sale of investment ...................... -- 1,594
Cash acquired through acquisitions .................... 2,365 3,078
Payment of cash for acquired companies ................ (32,402) (41,034)
(Increase) decrease in other assets ................... (451) 1,212
-------- --------
Net cash used in investing activities ............ (37,143) (41,733)
-------- --------
FINANCING ACTIVITIES
Decrease in short-term debt ........................... -- (2,418)
Issuance of stock pursuant to options exercised ....... -- 847
Net increase in line of credit ........................ 45,160 40,154
-------- --------
Net cash provided by financing activities ........ 45,160 38,583
-------- --------
Increase (decrease) in cash and cash equivalents ...... (4,518) 4,365
Cash and cash equivalents at beginning of year ........ 11,298 8,408
-------- --------
Cash and cash equivalents at end of period ............ $ 6,780 $ 12,773
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ......................................... $ 875 $ 2,077
======== ========
Income taxes paid ..................................... $ 7,976 $ 6,416
======== ========
See accompanying notes.
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SERVICE EXPERTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
1 - BASIS OF PRESENTATION
OVERVIEW
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries. All intercompany transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the effective date of SFAS No. 133 was
extended for one year; consequently, the statement will now be effective for
all fiscal quarters of fiscal years beginning after June 15, 2000, and earlier
application is encouraged. Management does not anticipate that the adoption of
SFAS No. 133 will have a significant effect on the financial position or
results of operations of the Company.
3 - MARKETABLE SECURITIES
At December 31, 1998, the Company's investments in marketable equity securities
totaled approximately $994,000. During the first quarter, the Company sold the
securities for a gain of approximately $619,000.
4 - ACQUISITIONS
From January 1, 1999 through June 30, 1999, the Company acquired 97 heating,
ventilating and air conditioning businesses. The following displays pertinent
information regarding acquisitions accounted for under the purchase method
during 1998 and 1999:
Service Total
Centers Companies Total Shares Total Cash Convertible Total
Acquired Acquired Issued Consideration Debt Consideration
-------- -------- ------ ------------- ---- -------------
(in thousands)
1998
First Quarter...... 10 19 389,000 $ 8,585 $ -- $ 19,243
Second Quarter..... 12 34 593,000 25,077 -- 43,504
Third Quarter...... 8 29 222,000 11,710 667 19,314
Fourth Quarter..... 12 23 232,000 11,681 5,497 22,034
1999
First Quarter...... 12 31 -- 20,620 7,304 27,924
Second Quarter....... 9 66 42,000 17,626 5,459 23,895
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OTHER INFORMATION REGARDING ACQUISITIONS
The allocation of the purchase price associated with the acquisitions has been
determined by the Company based upon available information and is subject to
further refinement. The operating results of the acquisitions have been included
in the accompanying consolidated statements of income from the respective dates
of acquisition. The following unaudited pro forma results of operations give
effect to the operations of these Service Centers as if the respective
transactions had occurred as of the beginning of the periods presented. The pro
forma results of operations have been adjusted for additional income tax
provisions for federal and state taxes as certain of the Service Centers
previously were taxed as subchapter S corporations. The pro forma results of
operations neither purport to represent what the Company's results of operations
would have been had such transactions in fact occurred at the beginning of the
periods presented nor purport to project the Company's results of operations in
any future period.
PRO FORMA RESULTS OF OPERATIONS
SIX MONTHS
ENDED JUNE 30,
-------------------------
1998 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenue ................ $251,156 $286,310
Net income ................. $ 14,097 $ 8,416
Net income per common share:
Basic ................. $ 0.80 $ 0.48
Diluted ............... $ 0.78 $ 0.47
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5 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1999 1998 1999
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income ........................................... $ 7,398 $ 4,086 $10,433 $ 8,057
------- ------- ------- -------
Numerator for basic income per share - Income
Available to common stockholders after assumed
conversations ........................................... 7,398 4,086 10,433 8,057
======= ======= ======= =======
Numerator for diluted income per share
Net income ........................................... 7,398 4,086 10,433 8,057
Add: interest on subordinated convertible securities,
net of tax ........................................... -- 38 -- 38
------- ------- ------- -------
Income available to common stockholders after assumed
conversions ............................................. $ 7,398 $ 4,124 $10,433 $ 8,095
======= ======= ======= =======
Denominator:
Denominator for basic income per share -
weighted average shares .............................. 16,739 17,479 16,472 17,474
Effect of dilutive securities:
Employee stock options ................................. 182 154 132 116
Warrants ............................................... 66 21 52 15
Contingent shares ...................................... -- 3 27 --
Convertible debt ....................................... -- 341 -- 171
------- ------- ------- -------
Dilutive potential common shares
Denominator for diluted income per share-
adjusted ............................................. 248 519 211 302
------- ------- ------- -------
Weighted-average shares and assumed
conversations ........................................ 16,987 17,998 16,683 17,776
======= ======= ======= =======
Basic net income per share ................................ $ 0.44 $ 0.23 $ 0.63 $ 0.46
======= ======= ======= =======
Diluted net income per share .............................. $ 0.44 $ 0.23 $ 0.63 $ 0.45
======= ======= ======= =======
6 - INCOME TAXES
The income tax provision recorded for the three and six months ended June 30,
1998 and 1999 differs from the expected income tax provision, by applying the
35% statutory rate, due primarily to goodwill amortization, a portion of which
is not deductible for federal income tax purposes, and the provision for state
income taxes.
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7 - FINANCING ARRANGEMENTS
From January 1, 1999 through June 30, 1999, the Company issued convertible
subordinated notes ("Notes") totaling approximately $12,763,000 as consideration
in certain acquisitions. Principal is payable in four equal annual installments
beginning one year from the date of issuance. Interest at an average rate of
5.08% (ranging from 4.71% to 5.37%) is payable quarterly. The Notes are
convertible, at the option of the holder, into the Company's Common Stock at any
time, at an average conversion price of $26.04 per share (ranging from $14.93 to
$38.95), subject to adjustment in certain events. If the closing sales price of
a share of Common Stock exceeds the conversion price for periods ranging from
five to 20 consecutive trading days, the Company may elect to convert the Notes
into shares of Common Stock at the conversion price.
On June 11, 1999, the Company entered into an amended and restated $200.0
million unsecured revolving credit facility with a syndicate of banks available
through May 31, 2002 (the "Credit Facility"). Borrowings under the Credit
Facility bear interest at either (i) the higher of the agent's base lending rate
or the federal funds rate plus a variable margin of from 0 to .375 basis points
depending on the Company's net funded debt to EBITDA ratio determined on a
quarterly basis or (ii) a variable rate equal to the 30, 60, 90 or 180-day
LIBOR, as such rate changes from time to time, plus a variable margin of from
100.0 to 237.5 basis points depending on the Company's net funded debt to EBITDA
ratio determined on a quarterly basis, at the election of the Company. All of
the Company's subsidiaries have guaranteed the repayment of indebtedness under
the Credit Facility. The Credit Facility contains covenants customary for
financing of this type, including covenants with respect to (i) the maintenance
of certain financial ratios and specified net worth, (ii) the limitation of (A)
the aggregate outstanding principal balance of the senior notes (issued June 23,
1998) to $50.0 million and (B) the aggregate outstanding principal balance of
any debt issued by the Company directly to sellers of acquired HVAC businesses
to $100.0 million, (iii) the sale of substantial assets, consolidations or
mergers by the Company and (iv) the payment of dividends.
8 - COMMITMENTS AND CONTINGENCIES
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business. Management
continually evaluates contingencies based on the best available evidence and
believes that an adequate provision for losses has been provided to the extent
necessary.
9 - SUBSEQUENT EVENT
As of August 16, 1999, the Company has made certain personnel changes at the SEI
Management Company. These personnel changes will result in a severance charge of
approximately $1.4 million in the third quarter of 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
In 1998, the Company acquired 106 HVAC businesses (the "1998 Acquired
Companies"), of which 43 are Service Centers. The consideration paid by the
Company for the 1998 Acquired Companies was approximately $110.1 million,
consisting of approximately 1.8 million shares of Common Stock, $6.2 million in
notes convertible into shares of Common Stock, and approximately $56.3 million
in cash. One of the Acquired Companies was accounted for using the pooling of
interests method and the remainder were accounted for using the purchase method.
Approximately $85.5 million of the consideration paid by the Company was
allocated to intangible assets which are being amortized over a 40-year period.
From January 1, 1999 through March 31, 1999, the Company acquired 31 HVAC
businesses, of which 12 are Service Centers. The consideration paid by the
Company for these businesses was approximately $27.9 million, consisting of
approximately $7.3 million in notes convertible into shares of Common Stock and
approximately $20.6 million in cash. Approximately $19.5 million of the
consideration paid by the Company was allocated to intangible assets which are
being amortized over a 40-year period.
From April 1, 1999 through June 30, 1999, the Company acquired 66 HVAC
businesses (collectively, with the 31 HVAC businesses acquired in the first
quarter of 1999, the "1999 Acquired Companies"), of which 9 are Service Centers.
The consideration paid by the Company for these businesses was approximately
$23.9 million, consisting of approximately 42,000 shares of Common Stock,
approximately $5.5 million in notes convertible into shares of Common Stock and
approximately $16.2 million in cash. All of these acquisitions were accounted
for using the purchase method. Approximately
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$14.2 million of the consideration paid by the Company was allocated to
intangible assets which are amortized over a 40-year period.
The 1998 and 1999 Acquired Companies (collectively, the "Acquired Companies")
historically have been managed as independent private companies and, as such,
their results of operations reflect different tax structures which have
influenced, among other things, their historical levels of owner's compensation.
Owners and certain key employees of the Acquired Companies have agreed to
certain reductions in their compensation in connection with the acquisitions.
COMPONENTS OF INCOME
Net revenue has been derived primarily from the installation, service and
maintenance of central air conditioners, furnaces and heat pumps in existing
homes and commercial businesses. Net revenue and associated income from
operations are subject to seasonal fluctuations resulting from increased demand
for the Company's services during warmer weather in the summer months and during
colder weather in winter months, particularly in the beginning of each season.
Cost of goods sold primarily consists of purchased materials such as replacement
air conditioning units and heat pumps and the labor associated with both
installations and repair orders. The main components of selling, general and
administrative expenses include administrative salaries, legal and professional
fees, insurance expense and promotion and advertising expenses.
RESULTS OF OPERATIONS
Because of the significant effect and timing of acquisitions on the Company's
results of operations, the Company's historical results of operations and
period-to-period comparisons will not be indicative of future results and may
not be meaningful. The Company plans to continue acquiring HVAC businesses in
the future. The integration of acquired HVAC businesses and the addition of
management personnel to support existing and future acquisitions may positively
or negatively affect the Company's results of operations during the period
immediately following acquisition.
THREE MONTHS
ENDED JUNE 30,
1998 1999
---- ----
(dollar amounts in millions)
Revenue .................................... $102.9 100.0% $152.8 100.0%
Cost of goods sold ......................... 65.1 63.3 105.1 68.8
------ ------ ------ ------
Gross profit ............................... 37.8 36.7 47.7 31.2
Selling, general and administrative expenses 25.1 24.4 38.4 25.1
------ ------ ------ ------
Operating income ........................... 12.7 12.3 9.3 6.1
Other income (expense) ..................... (.6) (.6) (2.0) (1.3)
------ ------ ------ ------
Income before taxes ........................ 12.1 11.7 7.3 4.8
Provision for income taxes ................. 4.7 4.5 3.2 2.1
------ ------ ------ ------
Net income ................................. $ 7.4 7.2% $ 4.1 2.7%
====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $49.9 million, or 48.5%, from $102.9 million
for the three months ended June 30, 1998 to $152.8 million for the three months
ended June 30, 1999. Approximately $7.5 million of the increase is attributable
to reported revenue from Service Centers owned and operated by the Company
during both periods and spoke acquisitions acquired during these periods,
approximately $8.9 million of the increase is attributable to Service Centers
acquired in 1998 reporting results for a full three months in 1999 and
approximately $33.5 million of the increase is attributable to the acquisition
of new Service Centers between July 1, 1998 and June 30, 1999.
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Cost of Goods Sold. Cost of goods sold increased $40.0 million, or
61.4%, from $65.1 million for the three months ended June 30, 1998 to $105.1
million for the three months ended June 30, 1999. Approximately $21.9 million of
this increase is attributable to the acquisition of new Service Centers between
July 1, 1998 and June 30, 1999 and the remaining $18.1 million is attributable
to existing Service Centers operated in both 1998 and 1999. As a percentage of
net revenue, cost of goods sold increased 5.5% from 63.3% for the three months
ended June 30, 1998 to 68.8% for the three months ended June 30, 1999. The 5.5%
increase in cost of goods sold as a percentage of net revenue is comprised of
increases in parts and equipment of 0.6%, labor of 3.6% and other cost of goods
sold expenses of 1.3%.
Gross Margin. Gross margin increased $9.9 million, or 26.2%, from $37.8
million for the three months ended June 30, 1998 to $47.7 million for the three
months ended June 30, 1999. The change is comprised of an $11.6 million increase
attributable to the acquisition of new Service Centers between July 1, 1998 and
June 30, 1999, net of a $1.7 million decrease attributable to existing Service
Centers operated in both 1998 and 1999. As a percentage of net revenue, gross
margin decreased 5.5% from 36.7% for the three months ended June 30, 1998 to
31.2% for the three months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $13.3 million, or 53.0%, from $25.1 million
for the three months ended June 30, 1998 to $38.4 million for the three months
ended June 30, 1999. As a percentage of net revenue, selling, general and
administrative expenses increased from 24.4% for the three months ended June 30,
1998 to 25.1% for the three months ended June 30, 1999. This increase is
primarily attributable to increased volume associated with acquired Service
Centers, an increase of approximately $503,000 of goodwill amortization and an
increase of approximately $2.6 million of administrative overhead.
Income from Operations. Income from operations decreased $3.4 million,
or 26.8%, from $12.7 million for the three months ended June 30, 1998 to $9.3
million for the three months ended June 30, 1999. Income from operations as a
percentage of net revenue decreased 6.2% from 12.3% for the three months ended
June 30, 1998 to 6.1% for the three months ended June 30, 1999. The decrease in
income from operations is the result of increased cost of goods sold (discussed
above) and includes a $2.5 million decrease in income from operations at seven
Service Centers with a high content of light commercial revenue and a $1.2
million decrease in income from operations of certain Service Centers which were
merged into three separate locations.
Other Income (Expense). Other expense increased $1.4 million, or
233.3%, from ($0.6) million for the three months ended June 30, 1998 to ($2.0)
million for the three months ended June 30, 1999. Other expense as a percentage
of net revenue increased from (0.6%) for the three months ended June 30, 1998 to
(1.3%) for the three months ended June 30, 1999. This increase is primarily a
result of approximately $1.3 million of increased interest costs incurred on
debt used to fund acquisitions.
Provision for Income Taxes. The Company's effective tax rate of 44.1%
for the three months ended June 30, 1999 differed from the federal statutory
rate of 35.0% primarily as a result of goodwill amortization, portions of which
are not deductible for federal income tax purposes, and state income taxes. The
effective tax rate of 38.8% for the three months ended June 30, 1998 differed
from the federal statutory rate of 35.0% primarily as a result of goodwill
amortization, portions of which are not deductible for federal income tax
purposes, and state income taxes, and offset by income of a Subchapter S
corporation accounted for using the pooling of interests method which is not
subject to federal income tax.
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SIX MONTHS
ENDED JUNE 30,
1998 1999
---- ----
(dollar amounts in millions)
Revenue .................................... $173.6 100.0% $269.0 100.0%
Cost of goods sold ......................... 111.3 64.1 180.8 67.2
------ ------ ------ ------
Gross profit ............................... 62.3 35.9 88.2 32.8
Selling, general and administrative expenses 44.3 25.5 71.4 26.5
------ ------ ------ ------
Operating income ........................... 18.0 10.4 16.8 6.3
Other income (expense) ..................... (.6) (.4) (2.8) (1.1)
------ ------ ------ ------
Income before taxes ........................ 17.4 10.0 14.0 5.2
Provision for income taxes ................. 7.0 4.0 5.9 2.2
------ ------ ------ ------
Net income ................................. $ 10.4 6.0% $ 8.1 3.0%
====== ====== ====== ======
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $95.4 million, or 55.0%, from $173.6
million for the six months ended June 30, 1998 to $269.0 million for the six
months ended June 30, 1999. Approximately $20.3 million of the increase is
attributable to reported revenue from Service Centers owned and operated by the
Company during both periods and spoke acquisitions acquired during these
periods, approximately $11.2 million of the increase is attributable to Service
Centers acquired in 1998 reporting results for a full six months in 1999 and
approximately $63.9 million of the increase is attributable to the acquisition
of new Service Centers between July 1, 1998 and June 30, 1999.
Cost of Goods Sold. Cost of goods sold increased $69.5 million, or
62.4%, from $111.3 million for the six months ended June 30, 1998 to $180.8
million for the six months ended June 30, 1999. Approximately $42.3 million of
this increase is attributable to the acquisition of new Service Centers between
July 1, 1998 and June 30, 1999 and the remaining $27.2 million is attributable
to existing Service Centers operated in both 1998 and 1999. As a percentage of
net revenue, cost of goods sold increased 3.1% from 64.1% for the six months
ended June 30, 1998 to 67.2% for the six months ended June 30, 1999. The 3.1%
increase in cost of goods sold is comprised of increases in parts and equipment
of 0.5%, labor of 1.7% and other cost of goods sold expenses of 0.9%.
Gross Margin. Gross margin increased $25.9 million, or 41.6%, from
$62.3 million for the six months ended June 30, 1998 to $88.2 million for the
six months ended June 30, 1999. Approximately $21.6 million of this increase is
attributable to the acquisition of new Service Centers between July 1, 1998 and
June 30, 1999 and the remaining $4.3 million is attributable to existing Service
Centers operated in both 1998 and 1999. As a percentage of net revenue, gross
margin decreased 3.1% from 35.9% for the six months ended June 30, 1998 to 32.8%
for the six months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $27.1 million, or 61.2%, from $44.3 million
for the six months ended June 30, 1998 to $71.4 million for the six months ended
June 30, 1999. As a percentage of net revenue, selling, general and
administrative expenses increased from 25.5% for the six months ended June 30,
1998 to 26.5% for the six months ended June 30, 1999. This increase is primarily
attributable to increased volume associated with acquired Service Centers, an
increase of approximately $1.1 million of goodwill amortization and an increase
of approximately $4.6 million of administrative overhead.
Income from Operations. Income from operations decreased $1.2 million,
or 6.7%, from $18.0 million for the six months ended June 30, 1998 to $16.8
million for the six months ended June 30, 1999. Income from operations as a
percentage of net revenue decreased 4.1% from 10.4% for the six months ended
June 30, 1998 to 6.3% for the six months ended June 30, 1999. The 4.1% decrease
in income from operations is comprised of cost of goods sold increases discussed
above, selling, general and administrative increases of 1.0% and includes a $1.5
million decrease in income from operations at seven Service Centers with a high
content of light commercial revenue and a $1.3 million decrease in income from
operations of certain Service Centers which were merged into three separate
locations.
Other Income (Expense). Other expense increased $2.2 million, or
366.7%, from ($0.6) million for the six months ended June 30, 1998 to ($2.8)
million for the six months ended June 30, 1999. Other expense as a percentage of
net revenue increased from (0.4%) for the six months ended June 30, 1998 to
(1.1%) for the six months ended June 30, 1999. This increase is primarily a
result of approximately $2.8 million of increased interest
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costs incurred on debt used to fund acquisitions, offset by a $619,000 gain
realized on the sale of marketable equity securities.
Provision for Income Taxes. The Company's effective tax rate of 42.2%
for the six months ended June 30, 1999 differed from the federal statutory rate
of 35.0% primarily as a result of goodwill amortization, portions of which are
not deductible for federal income tax purposes, and state income taxes. The
effective tax rate of 40.1% for the six months ended June 30, 1998 differed from
the federal statutory rate of 35.0% primarily as a result of goodwill
amortization, portions of which are not deductible for federal income tax
purposes, and state income taxes, and offset by income of a Subchapter S
corporation accounted for using the pooling of interests method which is not
subject to federal income tax.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had working capital of $100.6 million, including
cash and cash equivalents of $12.8 million. The ratio of current assets to
current liabilities was 3.3 to 1.0 at June 30, 1999 and 3.6 to 1.0 at December
31, 1998.
The Company's principal capital needs arise from the acquisition of new HVAC
businesses and the costs associated with such expansion. Cash used in investing
activities was primarily attributable to the acquisition of HVAC businesses and
capital expenditures.
The Company's ability to acquire new HVAC businesses will depend on a number of
factors, including the ability of management of the Company to identify
favorable target businesses and to negotiate favorable acquisition terms, the
availability of adequate financing and other factors, many of which are beyond
the control of the Company. In addition, there can be no assurance that the
Company will be successful in identifying and acquiring HVAC businesses, that
the Company can integrate such new HVAC businesses into the Company's operations
or that the Company's new HVAC businesses will generate sales revenue or profit
margins consistent with those of the Company's existing HVAC businesses.
The Company currently has a $200.0 million unsecured revolving credit facility
with a syndicate of banks available through May 31, 2002 (the "Credit
Facility"), of which $89.8 million was outstanding at June 30, 1999. At June 30,
1999, $110.2 million was available under the Credit Facility. Borrowings under
the Credit Facility bear interest at either (i) the higher of the agent's base
lending rate or the federal funds rate plus a variable margin of 0 to .375 basis
points depending on the Company's net funded debt to EBITDA ratio determined on
a quarterly basis or (ii) a variable rate equal to the 30, 60, 90 or 180-day
LIBOR, as such rates change from time to time, plus a variable margin of from
100.0 to 237.5 basis points depending on the Company's net funded debt to EBITDA
ratio determined on a quarterly basis, at the election of the Company. All of
the Company's subsidiaries have guaranteed the repayment of indebtedness under
the Credit Facility. The Credit Facility contains covenants customary for
financing of this type including covenants with respect to (i) the maintenance
of certain financial ratios and specified net worth, (ii) the limitation of (A)
the aggregate outstanding principal balance of the Senior Notes (as defined
below) to $50.0 million and (B) the aggregate outstanding principal balance of
any debt issued by the Company directly to sellers of acquired HVAC businesses
to $100.0 million, (iii) the sale of substantial assets, consolidations or
mergers by the Company and (iv) the payment of dividends.
On June 23, 1998, the Company issued $32.5 million of 6.97% senior unsecured
notes, due June 15, 2003, and $17.5 million of 7.13% senior unsecured notes, due
June 15, 2005 (collectively, the "Senior Notes"), in a private placement to a
group of institutional investors. The Senior Notes provide for interest to be
paid on December 15 and June 15 of each year, with principal due at maturity.
All of the Company's subsidiaries have guaranteed the repayment of the Senior
Notes. The Note Purchase Agreement, pursuant to which the Senior Notes were
issued, contains covenants with respect to maintaining certain financial ratios
and specified net worth and limiting the incurrence of additional indebtedness
and the sale of substantial assets, consolidations or mergers by the Company.
During 1998, the Company issued convertible subordinated notes ("Notes")
totaling approximately $6,164,000 as consideration in certain acquisitions.
Principal is payable in four equal annual installments beginning one year from
the date of issuance. Interest, at an average rate of 4.85% (ranging from 4.51%
to 5.54%), is payable quarterly. The Notes are convertible, at the option of the
holder, into the Company's Common Stock at any time, at an average
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conversion price of $36.70 per share (ranging from $31.56 to $42.09), subject to
adjustment in certain events. If the closing sales price of a share of Common
Stock exceeds the conversion price for five consecutive trading days, the
Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
From January 1, 1999 through March 31, 1999, the Company issued Notes totaling
approximately $7,304,000 as consideration in certain acquisitions. Principal is
payable in four equal annual installments beginning one year from the date of
issuance. Interest at an average rate of 4.85% (ranging from 4.71% to 5.12%), is
payable quarterly. The Notes are convertible, at the option of the holder, into
the Company's Common Stock at any time, at an average conversion price of $18.85
per share (ranging from $14.93 to $32.15), subject to adjustment in certain
events. If the closing sales price of a share of Common Stock exceeds the
conversion price for periods ranging from five to ten consecutive trading days,
the Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
From April 1, 1999 through June 30, 1999, the Company issued Notes totaling
approximately $5,459,000 as consideration in certain acquisitions. Principal is
payable in four equal annual installments beginning one year from the date of
issuance. Interest at an average rate of 5.33% (ranging from 5.22% to 5.37%), is
payable quarterly. The Notes are convertible, at the option of the holder, into
the Company's Common Stock at any time, at an average conversion price of $34.06
per share (ranging from $26.81 to $38.95), subject to adjustment in certain
events. If the closing sales price of a share of Common Stock exceeds the
conversion price for periods ranging from five to 20 consecutive trading days,
the Company may elect to convert the Notes into shares of Common Stock at the
conversion price.
The conversion of all Notes issued through June 30, 1999 into shares of the
Company's Common Stock would result in the issuance of approximately 728,000
shares of Common Stock. Subsequent to June 30, 1999, the trading price of the
Company's Common Stock has resulted in the Company having the option to convert
$5.6 million of these Notes into 341,000 shares of Common Stock. As of August
16, 1999, the Company has not elected to exercise the option to convert any of
the Notes.
For the six months ended June 30, 1999, net cash provided by operations was $7.5
million compared to cash used in operations of $12.5 million during the six
month period ended June 30, 1998.
For the six months ended June 30, 1999, net cash used in investing activities
totaled $41.7 million as compared to $37.1 million for the six month period
ended June 30, 1998. Cash used by investing activities during the six month
period ended June 30, 1999 is primarily attributable to the approximately $41.0
million of cash used to purchase HVAC businesses.
For the six months ended June 30, 1999, net cash provided by financing
activities was $38.6 million as compared to $45.2 million for the six month
period ended June 30, 1998. Cash provided by financing activities during the six
month period ended June 30, 1999 is primarily attributable to borrowing against
the Credit Facility.
The Company currently has on file with the Securities and Exchange Commission a
shelf registration statement on Form S-4 (Registration No. 333-12319) (the
"Shelf Registration Statement") covering securities with a collective aggregate
offering price of $50.0 million for use in future acquisitions of HVAC
businesses. Under the Shelf Registration Statement, the Company may issue shares
of Common Stock, warrants to purchase Common Stock and debt securities
convertible into shares of Common Stock in connection with acquisitions.
Management believes that the Company's existing cash balances, cash generated
from operations and additional borrowings will be sufficient to fund the
Company's operating needs, planned capital expenditures and debt service
requirements for the next 12 months. Management continually evaluates potential
strategic acquisitions as part of the Company's growth strategy. Prior to
September 1998, such acquisitions were predominantly funded by issuing shares of
Common Stock and cash. Since September 1998, the Company predominantly has used
convertible subordinated notes and cash to fund its acquisitions. Future
acquisitions could be effected using Common Stock, warrants, debt securities or
cash. Although the Company believes that its financial resources will enable it
to consider potential acquisitions, should the Company's actual results of
operations fall short of, or its rate of expansion significantly
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exceed, its plans, or should its costs or capital expenditures exceed
expectations, the Company may need to seek additional financing in the future.
In negotiating such financing, there can be no assurance that the Company will
be able to raise additional capital on terms satisfactory to the Company.
Failure to obtain additional financing on reasonable terms could have a negative
effect on the Company's plans to acquire additional HVAC businesses.
IMPACT OF YEAR 2000
The following disclosure is designated as Year 2000 readiness disclosure for
purposes of the Year 2000 Information and Readiness Disclosure Act.
Many computer systems in use today were designed and developed using two digits,
rather than four, to specify the year. As a result, such systems will recognize
the Year 2000 as "00" and may assume that the year is 1900 rather than 2000.
This could cause many computer applications to fail completely or to create
erroneous results unless corrective measures are taken. The Company recognizes
the need to minimize the risk that its operations will be adversely affected by
Year 2000 software failures and is in the process of preparing for the Year
2000.
The Company has evaluated its Year 2000 risk in three separate categories:
information technology systems ("IT"), non-IT systems ("Non-IT") and material
third party relationships. The Company has developed a plan in which the risks
in each of these categories are being reviewed and addressed by the appropriate
level of management as follows:
IT. The Company is actively engaged in developing and installing new financial,
information and operational systems which are expected to be completed and
installed in all Service Centers. The Company's new financial, information and
operational systems have been installed at the SEI Management Company support
center and at 51 locations. Two modules of the Company's new financial system
currently being installed are not Year 2000 compliant. Modifications to make
these two modules Year 2000 compliant have been completed and testing is in
progress on these modules. Management expects that they will be in production by
September 1999. The Company is prioritizing the installation of its new systems
at Service Centers which are not Year 2000 compliant to minimize its IT risk. In
connection with this implementation, system programs have been designed so that
the Year 2000 will be recognized as a valid date and will not affect the
processing of date-sensitive information. Current systems in place at various
Service Centers that have not installed the Company's new financial, information
and operational systems are being evaluated for Year 2000 compliance, and the
assessment efforts are 99% complete. In certain situations, current systems may
need to be upgraded to Year 2000 compliant versions or replaced with the new
financial, information and operational systems. Management believes that all
upgrades and replacements necessary to ensure Year 2000 readiness of IT systems
for currently owned Service Centers will be completed by December 1999.
Non-IT. Non-IT systems involve embedded technologies, such as microcontrollers
or microprocessors. Examples of Non-IT systems include telephones, time clocks
and security systems. Management believes the Company's Non-IT risks are
minimal. The Company is in the process of performing an inventory and assessment
of the embedded systems at the Service Centers and SEI Management Company
support center. The assessment effort is 70% complete and the project is
scheduled to be completed by September 1999. The Company expects to complete any
required upgrade or replacement of Non-IT systems by October 1999. This actual
completion date may be affected by the number of non-Year 2000 ready embedded
systems identified during the assessment. The Company estimates the costs to be
incurred for the review and modification of the Company's Non-IT systems will
not exceed $100,000.
The Company plans to acquire additional HVAC businesses during the remainder of
1999. Each new HVAC business will be assessed for Year 2000 readiness, and the
Company expects that any required IT or Non-IT systems upgrades or replacements
will be made before January 1, 2000.
Third Party Risk. The Company's review of its third party risk includes detailed
review of material relationships with vendors and certain business partners. To
operate its business, the Company relies upon government agencies, utility
companies, providers of telecommunication services, suppliers and other third
party service providers ("Material Relationships"), over which it can assert
little control. The Company's ability to conduct its core business is
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dependent upon the ability of these Material Relationships to fix their Year
2000 issues to the extent they affect the Company. The Company is monitoring and
assessing the progress of its Material Relationships to determine whether they
will be able to successfully interact with the Company in the Year 2000. The
Company has contacted and received oral or written responses from approximately
80% of its Material Relationships and is currently awaiting responses from the
remainder of its Material Relationships. The vast majority of the responses
received indicate that the vendors are Year 2000 compliant. The Company expects
to complete its Year 2000 readiness assessment of its Material Relationships by
August 1999.
If the steps taken by the Company and its Material Relationships to be Year 2000
compliant are not successful, the Company would likely experience various
operational difficulties resulting in a material adverse effect upon the
Company's financial condition and results of operations. These could include,
among other things, processing transactions to an incorrect accounting period,
difficulties in posting general ledger entries, inability to service customers
and lapses of service by vendors. If the Company's plan to install new systems
which effectively address the Year 2000 issue is not successfully or timely
implemented, the Company may need to devote more resources to the process, and
additional costs may be incurred. Management believes that the Year 2000 issue
is being appropriately addressed through the implementation of these new systems
and software development or the upgrade of current systems in place and by its
Material Relationships. Management does not expect the Year 2000 issue to have a
material adverse effect on the financial position, results of operations or cash
flows of the Company in future periods. The Company's forward-looking statements
regarding Year 2000 issues are dependent on many factors, including the ability
of the Company's vendors to achieve Year 2000 compliance, the proper functioning
of the new IT and Non-IT systems installed by the Company, the integration of
such systems and the development of software, some of which are beyond the
Company's control.
Through June 30, 1999, the Company has incurred approximately $475,000 of
systems and related costs that address Year 2000 compliance plans. The Company
expects to spend an additional $765,000 to complete its Year 2000 compliance
plans. The Company expenses costs associated with Year 2000 system changes as
the costs are incurred.
The costs of Year 2000 compliance and the date on which the Company believes it
will complete the project are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area,
supplier compliance and contingency actions and similar uncertainties. The
Company's total Year 2000 project costs do not include the estimated costs and
time associated with anticipated third party Year 2000 issues based on presently
available information.
The Company's Year 2000 contingency plan, although still in development,
addresses recovery solutions for Year 2000 related issues which may be
encountered by the Company. The contingency plan will mitigate the effects
arising from the most likely Year 2000 scenarios, based on current information
available to the Company. These scenarios could include the Company's failure to
complete all of its remediation plans in a timely manner or any third parties'
failure to deliver goods and services essential to the Company's business.
Management expects development of the contingency plan to conclude during the
third quarter.
INFLATION
The HVAC industry is labor intensive. Wages and other expenses increase during
periods of inflation and when shortages in marketplaces occur. In addition,
suppliers pass along rising costs to the Company in the form of higher prices.
The Company has generally been able to offset increases in operating costs by
increasing charges, expanding services and implementing cost control measures to
curb such increases. The Company cannot predict its ability to offset or control
future cost increases.
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SUBSEQUENT EVENT
As of August 16, 1999, the Company has made certain personnel changes at the SEI
Management Company. These personnel changes will result in a severance charge of
approximately $1.4 million in the third quarter of 1999.
FORWARD LOOKING STATEMENTS
This discussion contains certain forward-looking statements, including those
relating to the acquisition of additional HVAC service and replacement
businesses, each of which is accompanied by specific, cautionary language that
could cause different results than expected by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There were no other material changes to the quantitative and qualitative
disclosures about market risks presented in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 or the Company's Quarterly Report
on Form 10-Q for the three months ended March 31, 1999.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of the Company was held on Friday,
May 7, 1999. At this meeting, the following matters were voted upon by the
Company's stockholders:
(a) APPROVAL OF AGREEMENT AND PLAN OF MERGER.
The Company's stockholders approved the Agreement and Plan of Merger
providing for the merger of the Company with and into a wholly-owned Tennessee
subsidiary of the Company for the purposes of changing the state of
incorporation of the Company from Delaware to Tennessee by the following vote:
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
9,622,458 1,608,604 13,292
(b) ELECTION OF CLASS III DIRECTORS
Alan R. Sielbeck and Timothy G. Wallace were elected to serve as Class
III directors of the Company. The vote was as follows:
VOTES CAST IN FAVOR VOTES CAST AGAINST OR
WITHHELD
Alan R. Sielbeck 13,565,578 413,798
Timothy G. Wallace 13,656,083 323,293
(c) SELECTION OF AUDITORS
The stockholders of the Company ratified the appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ended
December 31, 1999, by the following vote:
VOTES CAST IN FAVOR VOTES CAST AGAINST ABSTENTIONS
13,844,136 55,321 79,919
ITEM 5. OTHER INFORMATION
The deadline for delivering to the Company notice of stockholder
proposals, other than proposals to be included in the proxy statement, for the
2000 Annual Meeting of Stockholders will be February 26, 2000, pursuant to
Rule 14a-4 of the Securities Exchange Act of 1934. The persons named as proxies
in the proxy statement may exercise discretionary authority to vote on any
proposals received after such date.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1 -- Restated Certificate of Incorporation of the Registrant (a)
3.2 -- Bylaws of the Registrant (a)
4 -- Form of Common Stock Certificate (b)
10.1 -- Form of Agreement and Plan of Merger among certain of the Registrant's subsidiaries,
a wholly-owned subsidiary of the Registrant and the Registrant (c)
10.2 -- Form of Stock Purchase Agreement between the former stockholders of certain of the
Registrant's subsidiaries and the Registrant (d)
10.3 -- Third Amended and Restated Credit Agreement, dated as of June 11, 1999, by and among
the Registrant, SunTrust Bank, Nashville, N.A., Nations Bank, N.A., and The first
National Bank of Chicago, as agents
27.1 -- Restated Financial Data Schedule for the Six Months Ended June 30, 1998 (for SEC
use only)
27.2 -- Financial Data Schedule for the Six Months Ended June 30, 1999 (for SEC use only)
(a) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-07037.
(b) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 001-13037.
(c) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-4, File No.
333-12319.
(d) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 001-13037.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the
three months ended June 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SERVICE EXPERTS, INC.
By: /s/ Anthony M. Schofield
-----------------------------------
Anthony M. Schofield
Chief Financial Officer
Date: August 16, 1999
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1 -- Restated Certificate of Incorporation of the Registrant (a)
3.2 -- Bylaws of the Registrant (a)
4 -- Form of Common Stock Certificate (b)
10.1 -- Form of Agreement and Plan of Merger among certain of the Registrant's subsidiaries,
a wholly-owned subsidiary of the Registrant and the Registrant (c)
10.2 -- Form of Stock Purchase Agreement between the former stockholders of certain of the
Registrant's subsidiaries and the Registrant (d)
10.3 -- Third Amended and Restated Credit Agreement, dated as of June 11, 1999, by and among
the Registrant, SunTrust Bank, Nashville, N.A., NationsBank, N.A., and The First
National Bank of Chicago, as agents
27.1 -- Restated Financial Data Schedule for the Six Months Ended June 30, 1998 (for SEC
use only)
27.2 -- Financial Data Schedule for the Six Months Ended June 30, 1999 (for SEC use only)
(a) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-07037.
(b) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 001-13037.
(c) Incorporated by reference to the exhibits filed with the
Registrant's Registration Statement on Form S-4, File No.
333-12319.
(d) Incorporated by reference to the exhibits filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 001-13037.
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