<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 4, 1998
SCHUFF STEEL COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-22715 86-0318760
- - ---------------------------- ------------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
420 SOUTH 19TH AVENUE, PHOENIX, ARIZONA 85009
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 252-7787
Not Applicable
- - --------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective June 4, 1998, and pursuant to a Stock Purchase Agreement dated
as of May 12, 1998 (the "Purchase Agreement"), among Schuff Steel Company (the
"Company"), E.C. Addison and The Addison Structural Services, Inc. Leveraged
Employee Stock Ownership Plan (collectively, the "Sellers"), and Addison
Structural Services, Inc. ("Addison"), the Company purchased all of the issued
and outstanding capital stock of Addison from Sellers. As a result of such
purchase, the Company acquired indirect ownership of the assets of Addison's
operating subsidiaries, Addison Steel, Inc. and Quincy Joist Company. The
aggregate purchase price was $59.4 million, which is the price negotiated by the
parties to the Purchase Agreement based on Addison's net worth, cash on hand,
and other contractual variables at the date of closing.
Founded in 1960, Addison provides structural steel fabrication and
erection services and manufactures short- and long- span joists, trusses, and
girders. Addison maintains steel fabrication facilities in Lockhart, Florida and
in Albany, Georgia, and a joist manufacturing plant in Quincy, Florida. These
operations expand the Company's geographic, product, and customer base and will
be maintained on a going forward basis.
The Company obtained the funds for the purchase price through the
Company's private placement of its 10 1/2% Senior Notes due 2008 (See Item 5
below) and a promissory note secured by a letter of credit.
On June 4, 1998, the Company issued a press release relating to the
completion of the acquisition. A copy of the press release is filed herewith as
Exhibit 99.1 and is hereby incorporated herein by reference.
ITEM 5. OTHER EVENTS.
On June 4, 1998, the Company completed a private placement pursuant to
Rule 144A of the Securities Act of 1933 ("Securities Act") of an aggregate of
$100 million in principal amount of its 10 1/2% Senior Notes due 2008 (the
"Offering"). Net proceeds of the Offering will be used to repay certain
indebtedness of the Company and to pay the cash portion of the purchase price of
the Company's acquisition of Addison Structural Services, Inc. The balance of
the net proceeds will be used for working capital and general corporate
purposes, which may include additional acquisition opportunities.
The Notes were issued under an Indenture dated June 4, 1998, between the
Company and Harris Trust Company of California, as Trustee, a copy of which is
filed herewith. The Company also entered into a Registration Rights Agreement
with the holders of the Notes in which the Company agrees, among other things,
that, within 60 days of the Issue Date (as defined therein), it will file with
the Securities and Exchange Commission a registration statement under the
Securities Act that registers an exchange offer (the "Exchange Offer") by the
Company that covers all the outstanding Notes. The Exchange Offer will provide
that the Company exchange the Notes for senior subordinated notes with identical
terms that will have been registered under the Securities Act.
On June 4, 1998, the Company issued a press release relating to the
completion of the Offering. A copy of the press release is filed herewith as
Exhibit 99.2 and is hereby incorporated herein by reference.
On May 27, 1998, the Company executed a letter of commitment with Wells
Fargo Bank, N.A. ("Wells Fargo"), relating to a proposed credit facility which,
if entered into, would replace the Company's existing credit facilities.
Pursuant to the credit facility, Wells Fargo would provide, together with other
financial institutions, up to $25.0 million under a senior secured revolving
credit facility (the "Revolver"). The Revolver would have a term of three years,
would be secured by a first priority, perfected security interest in all assets
of the Company and its present and future subsidiaries, and would be available
for working capital and general corporate purposes. Interest payable on
borrowings outstanding under the Revolver initially would be equal to either the
Wells Fargo base rate plus 0.50% or LIBOR plus 2.50%, at the Company's option.
The Company would be eligible for reductions in the initial margins on the
Revolver if the Company achieves certain performance targets based upon its
ratio of certain debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA").
The Company would be able to prepay any Base Rate loan or any LIBOR loan
without penalty. The Revolver would also contain certain affirmative and
negative covenants, including a maximum leverage ratio, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio, a minimum EBITDA and
certain other customary restrictive covenants.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements.
The audited historical Financial Statements of Addison, the notes
related thereto, and the report of independent auditors of Addison
are set forth below on pages F1 - F12.
(b) Pro Forma Financial Information.
The Pro Forma financial information of the Company and Addison is
set forth below on pages F13 - F18.
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1* Purchase Agreement described in Item 2 above (1)
10.1* Purchase Agreement, dated June 1, 1998, by and among the Company,
Donaldson, Lufkin & Jenrette Securities Corporation, Jefferies &
Company, Inc., and Friedman, Billings, Ramsey & Co., Inc.
10.2* Indenture described in Item 5 above
10.3* Registration Rights Agreement, dated June 4, 1998, by and among the
Company, the Guarantors (as defined therein), Donaldson, Lufkin &
Jenrette Securities Corporation, Jefferies & Company, Inc., and
Friedman, Billings, Ramsey & Co., Inc.
23* Consent of Mauldin & Jenkins, LLC (regarding Form S-8 Registration
Statements)
99.1* Press Release dated June 4, 1998
99.2* Press Release dated June 4, 1998
</TABLE>
* To be filed by amendment.
(1) Certain information in this exhibit will be omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under Rule 24b-2 of the Securities and Exchange Act of
1934, as amended.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCHUFF STEEL COMPANY
Date: June 16, 1998 By:\s\ Kenneth F. Zylstra
---------------------------------------------
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized
Officer)
4
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
Report of Mauldin & Jenkins, Independent Auditors............................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1997
and March 31, 1998 (unaudited)............................................F-3
Consolidated Statements of Income for the Years Ended
June 30, 1995, 1996 and 1997 and the Nine Months Ended
March 31, 1997 and 1998 (unaudited).......................................F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1995, 1996 and 1997 and the Nine
Months Ended March 31, 1998 (unaudited)...................................F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996 and 1997 and the Nine Months Ended
March 31, 1997 and 1998 (unaudited).......................................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE> 6
REPORT OF MAULDIN & JENKINS, INDEPENDENT AUDITORS
To the Board of Directors
Addison Structural Services, Inc.
and Subsidiaries
Albany, Georgia
We have the audited the accompanying consolidated balance sheets of Addison
Structural Services, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Addison
Structural Services, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ MAULDIN & JENKINS, LLC
Albany, Georgia
August 5, 1997, except for Note 10
as to which the date is March 18, 1998
F-2
<PAGE> 7
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,204,012 $ 8,541,708 $ 7,345,920
Contract receivables, including retentions
1997 -- $2,291,530; 1996 -- $1,846,983;
1998 -- $2,201,039...................................... 10,721,967 8,285,368 8,766,946
Cost and estimated earnings in excess of billings on
uncompleted contracts................................... 3,107,611 2,889,556 3,928,018
Current maturities of real estate mortgage receivable..... 37,417 40,427 80,661
Loans receivable, employees............................... 16,129 17,641 6,299
Inventories, at the lower of cost (first-in, first-out
method) or market....................................... 2,790,453 2,673,995 3,929,338
Income tax receivable..................................... 20,228 -- 276,018
Prepaids.................................................. -- -- 29,291
----------- ----------- -----------
Total current assets.................................... 20,897,817 22,448,695 24,362,491
Investments, long-term receivables and other assets:
Cash surrender value of life insurance.................... 454,357 530,714 530,714
Other investments, at cost................................ 25,000 25,000 25,000
Real estate mortgage receivable, less current
maturities.............................................. 124,859 113,047 661,776
Deposits.................................................. 13,648 13,848 13,848
----------- ----------- -----------
617,864 682,609 1,231,338
Property and equipment:
Land...................................................... 1,733,945 3,589,509 3,411,217
Buildings and improvements................................ 5,163,855 6,145,197 6,368,178
Machinery, equipment and vehicles......................... 7,174,874 7,593,156 7,347,001
Furniture and fixtures.................................... 642,846 625,691 735,693
Construction in progress.................................. 822,731 1,740,309 2,431,399
----------- ----------- -----------
15,538,251 19,693,862 20,293,488
Less accumulated depreciation............................. 7,707,733 8,286,349 8,179,444
----------- ----------- -----------
7,830,518 11,407,513 12,114,044
----------- ----------- -----------
$29,346,199 $34,538,817 $37,707,873
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 500,000 $ -- $ --
Current maturities on long-term debt...................... 10,809 12,058 --
Current maturities on long-term debt, ESOP stock note..... 110,175 110,175 110,175
Current maturities on long-term debt, ESOP................ 29,506 58,471 58,471
Accounts payable.......................................... 3,168,496 2,905,684 2,872,017
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 2,315,203 893,660 1,347,947
Accrued expenses.......................................... 2,248,029 2,773,576 1,831,416
Income taxes payable...................................... -- 396,911 --
----------- ----------- -----------
Total current liabilities............................... 8,382,218 7,150,535 6,220,026
Long-term liabilities:
Long-term debt, less current maturities................... 143,764 131,704 --
Long-term debt, ESOP stock note, less current
maturities.............................................. 936,488 826,312 743,681
Long-term debt, ESOP, less current maturities............. 59,898 138,155 138,155
----------- ----------- -----------
1,140,150 1,096,171 881,836
Deferred income taxes....................................... 230,762 636,328 636,328
Stockholders' equity:
Common stock, par value $5 per share; authorized 100,000
shares; issued 51,331 shares............................ 256,654 256,654 256,654
Additional paid in capital................................ 377,114 377,114 377,114
Retained earnings......................................... 20,095,368 26,155,128 30,386,397
----------- ----------- -----------
20,729,136 26,788,896 31,020,165
Less:
ESOP stock note......................................... 1,046,663 936,487 853,856
Deferred compensation related to ESOP guarantee......... 89,404 196,626 196,626
----------- ----------- -----------
19,593,069 25,655,783 29,969,683
----------- ----------- -----------
Total liabilities and stockholders' equity.............. $29,346,199 $34,538,817 $37,707,873
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 8
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $50,462,695 $57,638,044 $63,700,151 $46,194,902 $48,880,096
Cost of revenues........................... 38,974,570 43,414,287 47,774,377 34,880,775 37,701,434
----------- ----------- ----------- ----------- -----------
Gross profit............................... 11,488,125 14,223,757 15,925,774 11,314,127 11,178,662
General and administrative expenses........ 5,582,433 6,000,956 6,531,854 4,642,536 5,171,633
----------- ----------- ----------- ----------- -----------
Operating income........................... 5,905,692 8,222,801 9,393,920 6,671,591 6,007,029
Nonoperating income (expense):
Interest and dividend income............. 35,448 128,275 349,085 264,064 356,331
Interest expense......................... (236,274) (152,781) (38,181) (30,088) (12,336)
Gain on sale of assets................... 2,594 107,394 21,771 16,793 429,966
Miscellaneous other income (expense)..... 157,405 185,630 366,461 160,963 (10,961)
----------- ----------- ----------- ----------- -----------
(40,827) 268,518 699,136 411,732 763,000
----------- ----------- ----------- ----------- -----------
Income before income taxes................. 5,864,865 8,491,319 10,093,056 7,083,323 6,770,029
Provision for income taxes................. 2,177,989 3,186,471 4,033,296 2,714,610 2,538,760
----------- ----------- ----------- ----------- -----------
Net income................................. $ 3,686,876 $ 5,304,848 $ 6,059,760 $ 4,368,713 $ 4,231,269
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 9
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL ESOP DEFERRED TOTAL
COMMON PAID IN RETAINED TREASURY STOCK COMPENSATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK NOTE ESOP EQUITY
--------- ---------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994........ $ 389,148 $ 571,795 $12,253,451 $(1,456,710) $ -- $ (166,203) $11,591,481
Net decrease in deferred
compensation related to
ESOP...................... -- -- -- -- -- 86,390 86,390
Net income.................. -- -- 3,686,876 -- -- -- 3,686,876
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995........ 389,148 571,795 15,940,327 (1,456,710) -- (79,813) 15,364,747
Purchase of treasury
shares.................... -- -- -- (20,272) -- -- (20,272)
Retirement of treasury
stock..................... (132,494) (194,681) (1,149,807) 1,476,982 -- -- --
Net increase in deferred
compensation related to
ESOP...................... -- -- -- -- -- (9,591) (9,591)
Net increase in ESOP stock
note...................... -- -- -- -- (1,046,663) -- (1,046,663)
Net income.................. -- -- 5,304,848 -- -- -- 5,304,848
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996........ 256,654 377,114 20,095,368 -- (1,046,663) (89,404) 19,593,069
Net increase in deferred
compensation related to
ESOP...................... -- -- -- -- -- (107,222) (107,222)
Net decrease to ESOP stock
note...................... -- -- -- -- 110,176 -- 110,176
Net income.................. -- -- 6,059,760 -- -- -- 6,059,760
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997........ 256,654 377,114 26,155,128 -- (936,487) (196,626) 25,655,783
Net decrease to ESOP stock
note (unaudited).......... -- -- -- -- 82,631 -- 82,631
Net income (unaudited)...... -- -- 4,231,269 -- -- -- 4,231,269
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998
(unaudited)................. $ 256,654 $ 377,114 $30,386,397 $ -- $ (853,856) $ (196,626) $29,969,683
========= ========= =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 10
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 3,686,876 $ 5,304,848 $ 6,059,760 $ 4,368,713 $ 4,231,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 891,261 921,866 978,373 731,953 737,470
Amortization of prepaid loan costs.................. 2,153 2,905 -- -- --
Gain on sale of property and equipment.............. (15,730) (107,394) (21,771) (16,793) (429,966)
Loss on sale of real estate held for sale........... 13,136 -- -- -- --
Changes in assets and liabilities:
(Increase) decrease in contract receivables....... (1,507,123) (2,692,332) 2,436,599 2,200,103 (481,578)
(Increase) decrease in other receivables.......... (15,988) 19,085 (1,512) (3,650) 11,342
(Increase) decrease in costs in excess of billings
or uncompleted contracts........................ (1,429,136) 787,248 218,055 (1,174,862) (1,038,462)
(Increase) decrease in inventories................ (1,063,985) 337,772 116,458 (685,307) (1,255,343)
Increase in prepaids.............................. -- -- -- (59,163) (29,290)
(Increase) decrease in deposits................... 14,600 -- (200) -- --
(Increase) decrease in income taxes receivable.... -- -- -- 20,228 (276,019)
Increase (decrease) in accounts payable........... 34,609 142,320 (262,812) (4,269) (33,667)
Increase (decrease) in billings in excess of costs
on uncompleted contracts........................ 285,989 916,870 (1,421,543) -- 454,287
Increase (decrease) in accrued expenses........... 722,106 595,445 525,547 (519,389) (942,160)
Increase (decrease) in deferred income taxes...... (184,030) 138,545 405,566 -- --
Increase (decrease) in income taxes payable....... 259,009 (536,549) 417,139 64,295 (396,911)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... 1,693,747 5,830,629 9,449,659 4,921,859 550,972
INVESTING ACTIVITIES
Proceeds from sale of property and equipment.......... 42,054 225,474 86,574 46,655 118,446
Purchase of property and equipment.................... (690,178) (2,665,204) (4,620,171) (1,579,818) (1,132,481)
Proceeds from sale of real estate held for sale....... 109,000 -- -- -- --
Increase in cash surrender value of life insurance.... (66,024) (48,050) (76,357) -- --
(Increase) decrease received on real estate mortgage
receivable.......................................... 7,467 8,115 8,802 6,528 (588,963)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (597,681) (2,479,665) (4,601,152) (1,526,635) (1,602,998)
FINANCING ACTIVITIES
Principal payments on long-term borrowings............ (1,322,018) (972,908) (10,811) (7,994) (143,762)
Purchase of treasury stock............................ -- (20,272) -- -- --
Increase (decrease) in short-term notes payable....... 190,001 (191,002) (500,000) (500,000) --
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities................. (1,132,017) (1,184,182) (510,811) (507,994) (143,762)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents......................................... (35,951) 2,166,782 4,337,696 2,887,230 (1,195,788)
Cash and cash equivalents at beginning of period...... 2,073,181 2,037,230 4,204,012 4,204,012 8,541,708
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 2,037,230 $ 4,204,012 $ 8,541,708 $ 7,091,242 $ 7,345,920
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................ $ 227,333 $ 141,279 $ 47,180 $ 55,088 $ 12,336
=========== =========== =========== =========== ===========
Income taxes........................................ $ 2,103,010 $ 3,584,475 $ 3,210,591 $ 2,630,087 $ 3,211,690
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 11
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in Equity Structure
Effective July 1, 1995, but not completed until October 6, 1995, the
stockholders of Addison Steel, Inc. elected to retire all shares of treasury
stock outstanding, exchange their shares of common stock for shares of common
stock of Addison Structural Services, Inc., a newly formed corporation, and
approve a dividend of its equity interest in Quincy Joist Company, a wholly
owned subsidiary, to Addison Structural Services, Inc. The purpose of creating
Addison Structural Services, Inc. is to facilitate the administrative functions
of the two subsidiaries. The combination has been accounted for as a
reorganization with a pooling of interests.
Nature of Business
Addison Structural Services, Inc. (the Company) is a holding company whose
business is presently conducted by its wholly owned subsidiaries, Addison Steel,
Inc. in Albany, Georgia and Orlando, Florida and Quincy Joist Company in Quincy,
Florida. The subsidiaries are principally engaged in the steel fabrication and
erection business throughout the Southeastern United States, but primarily in
Georgia and Florida. Work is normally performed under fixed-price contracts
typically lasting less than one year. Therefore, assets and liabilities relating
to these contracts are all classified as current in the balance sheets.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within their industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
Interim Financial Information
The consolidated financial statements for the nine months ended March 31,
1997 and 1998 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) that the Company considers necessary for a fair
presentation of financial position and results of operations. Operating results
for the nine months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any future period.
Operating Cycle
Balance sheet items expected to be paid or received within one year are
classified as current assets and liabilities relating to long-term construction
contracts are included in current assets and liabilities in the accompanying
balance sheet, since they will be realized or liquidated in the normal course of
contract completion, although completion may require more than one year.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and in banks as well as highly liquid investments and repurchase
agreements, which are convertible to a known amount of cash and carry an
insignificant risk of change in value.
F-7
<PAGE> 12
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The Company maintains deposits in banks which, at times, may exceed FDIC
insured limits. The Company has not experienced any losses in such accounts.
Revenue and Cost Recognition
Revenue from fixed-price contracts, except for the steel portion of the
contract, is reflected in the financial statements on the
percentage-of-completion method. The Company's percentage of completion is
measured by the percentage of labor hours incurred to date to estimated total
labor hours for each contract. This method is used because management considers
expended labor hours to be the best available measure of progress on these
contracts. The revenue and cost recognition related to the steel portion of the
contract is based on actual pounds of steel pulled from inventory.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is accrued.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Depreciation and
amortization are provided principally on the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and improvements.................................. 15 - 31.5
Machinery, equipment and vehicles........................... 3 - 5
Furniture and fixtures...................................... 5 - 10
</TABLE>
Amortization of Deferred Debt Expense
Deferred debt expense is being amortized by the straight-line method over
the loan period.
Income Taxes
The Company and its subsidiaries file a consolidated income tax return. The
subsidiaries provide for income taxes based on their contribution to income
taxes (benefits) of the consolidated group.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance within, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws on the date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
Carrying amounts approximated fair values for the following instruments:
<TABLE>
<S> <C>
Cash and cash equivalents Notes payable
Contracts receivable Cash surrender value of life insurance
Estimated earnings and billings on Accounts payable
uncompleted contracts Accrued interest payable
</TABLE>
F-8
<PAGE> 13
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
For other financial instruments, the determination of a fair value was not
practical for disclosures as they do not represent a significant value to the
Company and any differences from the carrying value of these instruments would
also not be significant.
2. INVENTORIES
Inventories were composed of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Albany:
Steel................................................ $ 607,409 $ 643,675 $ 900,344
Accessories and supplies............................. 23,455 30,676 26,478
---------- ---------- ----------
630,864 674,351 926,822
Lockhart (Orlando):
Steel................................................ 649,267 738,451 1,171,845
Accessories and supplies............................. 37,142 35,194 34,461
---------- ---------- ----------
686,409 773,645 1,206,306
Quincy:
Steel................................................ 1,351,780 1,078,023 1,532,079
Accessories and supplies............................. 121,400 147,976 240,269
---------- ---------- ----------
1,473,180 1,225,999 1,772,348
Pinewood Plantation:
Accessories and supplies............................. -- -- 23,862
---------- ---------- ----------
$2,790,453 $2,673,995 $3,929,338
========== ========== ==========
</TABLE>
3. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Cost and estimated earnings on uncompleted contracts consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cost incurred on uncompleted contracts.............. $27,911,919 $31,060,324 $31,820,446
Estimated earnings.................................. 6,866,556 8,839,253 8,873,494
----------- ----------- -----------
34,778,475 39,899,577 40,693,940
Less billings to date............................... 33,986,067 37,903,681 38,113,869
----------- ----------- -----------
$ 792,408 $ 1,995,896 $ 2,580,071
=========== =========== ===========
</TABLE>
Included in the accompanying consolidated balance sheets under the
following captions:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Cost and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 3,107,611 $2,889,556 $ 3,928,018
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. (2,315,203) (893,660) (1,347,947)
----------- ---------- -----------
$ 792,408 $1,995,896 $ 2,580,071
=========== ========== ===========
</TABLE>
F-9
<PAGE> 14
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Note payable, E.C. Addison, a related party, due in monthly
installments of $2,273, including interest at 11.0
percent, collateralized by real estate................... $154,573 $143,762 $ --
Less current portion....................................... 10,809 12,058 --
-------- -------- --------
$143,764 $131,704 $ --
======== ======== ========
</TABLE>
Aggregate maturities required on long-term debt at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 12,058
1999........................................................ 13,456
2000........................................................ 15,013
2001........................................................ 16,750
2002........................................................ 18,689
Later years................................................. 67,796
--------
$143,762
========
</TABLE>
All interest incurred during the years ended June 30, 1995, 1996, and 1997,
and the nine months ended March 31, 1997 and 1998, was expensed.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current...................... $2,362,019 $3,047,926 $3,627,730 $2,714,610 $2,538,760
Deferred..................... (184,030) 138,545 405,566 -- --
---------- ---------- ---------- ---------- ----------
Provision for income taxes... $2,177,989 $3,186,471 $4,033,296 $2,714,610 $2,538,760
========== ========== ========== ========== ==========
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment................................... $230,762 $636,328 $636,328
-------- -------- --------
Net deferred tax liability................................. $230,762 $636,328 $636,328
======== ======== ========
</TABLE>
F-10
<PAGE> 15
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The reconciliation of income tax computed at the U.S. federal statutory
rates to provision for income taxes follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Tax at U.S. federal
statutory rates........... $1,994,000 $ 2,887,000 $3,432,000 $2,408,000 $2,302,000
State income taxes, net of
federal tax benefit....... 322,000 389,000 512,000 401,000 383,000
Other....................... (138,000) (90,000) 89,000 (94,000) (146,000)
---------- ----------- ---------- ---------- ----------
$2,178,000 $43,186,000 $4,033,000 $2,715,000 $2,539,000
========== =========== ========== ========== ==========
</TABLE>
6. EMPLOYEE STOCK OWNERSHIP PLAN
In 1981, the Company established an Employee Stock Ownership Plan (ESOP).
The primary purpose of the plan is to provide retirement benefits to
substantially all employees. Through June 30, 1997, 23,836.22 shares of the
Company's common stock were held by the Employee Stock Ownership Trust, which
was established to administer the ESOP. Contributions to the ESOP are tax
deductible and are accounted for by the Company in the same manner as all of its
other employee fringe benefit expenses. Contributions under the plan amounted to
$175,861, $214,877, and $306,627 for the years ended 1995, 1996, and 1997,
respectively, and $180,899 and $385,625 for the nine months ended March 31, 1997
and 1998, respectively.
The Plan authorizes its Trustee to distribute vested benefits either at
termination of employment or at the normal retirement age of sixty-five (65). An
account becomes fully vested only after a participant has completed seven years
of service with the Company, has retired at normal retirement age or has become
disabled. The distribution can be made in the form of stock, or a cash
settlement evidenced by a promissory note. The promissory note would be payable
in four (4) equal installments plus accrued interest at prime plus one percent.
If the participant elects a stock distribution, he may offer the stock to the
company for purchase. If so offered, the company is required to purchase the
stock at fair market value. The Company pays twenty percent of the total
purchase price at closing, and the balance of the purchase price is evidenced by
a promissory note bearing interest at one percent above prime. The note is paid
in four equal annual installments plus interest beginning one year after the
closing. The Company may grant the Trust an option to assume the Company rights
and obligations at the time a participant exercises this option. Repayment of
the debt is, however, guaranteed by the Company.
Aggregate future principal payments of the notes payable referred to in the
preceding paragraph are due as follows:
<TABLE>
<S> <C>
Year ending June 30,
1998........................................................ $ 58,471
1999........................................................ 54,604
2000........................................................ 49,369
2001........................................................ 34,182
--------
$196,626
========
</TABLE>
This debt was recorded in the accompanying consolidated balance sheets with
a corresponding deduction from stockholders' equity. The debt and the deduction
from stockholders' equity are reduced as the Trust makes principal payments to
the participants.
F-11
<PAGE> 16
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. ESOP STOCK NOTE
In October 1995, the Trustees of the ESOP authorized $1,101,750 of
borrowings from SunTrust Bank of South Georgia, for the purchase of 5,000 shares
of the Company's common stock previously owned by another stockholder. The note,
payable in 40 quarterly installments of $27,543.75 plus interest at prime, is
collateralized by the 5,000 shares of stock.
Future principal payments of the note payable are due as follows:
<TABLE>
<S> <C>
Year ending June 30,
1998........................................................ $110,175
1999........................................................ 110,175
2000........................................................ 110,175
2001........................................................ 110,175
2002........................................................ 110,175
Later....................................................... 385,612
--------
$936,487
========
</TABLE>
This debt was recorded in the accompanying consolidated balance sheets with
a corresponding deduction from stockholders' equity. The debt and the deduction
from stockholders' equity are reduced as the Trust makes principal payments.
8. STOCK OPTION AGREEMENT
On November 15, 1994, the Company's wholly owned subsidiary, Quincy Joist
Company, entered into a stock option agreement with one of its officers. The
agreement provides that the officer will be granted ten stock options over a
ten-year period to purchase eleven shares each year of its common stock for a
total of 110 shares which will be 10 percent of the Company's shares after the
tenth option is exercised. The exercise price of each share of common stock
subject to this option agreement shall be $1,704 per share. The options, as
granted, will be exercisable at any time before December 31, 2003 subject to the
terms and conditions of the agreement. If the options are exercised, the stock
will be subject to a buy-sell agreement between the Company and the officer.
No options have been exercised as of March 31, 1998, and June 30, 1997, and
no compensation has been recognized for the options.
9. RELATED PARTY TRANSACTIONS
The Company purchases a portion of its steel requirements from Chris-Mar,
Inc., a related party through common control. The Company purchased 8.04
percent, 7.54 percent and 9.10 percent of its steel requirements amounting to
$1,373,669, $1,344,771 and $1,614,944 for the years ended June 30, 1995, 1996
and 1997, respectively.
10. SUBSEQUENT EVENTS
On March 18, 1998, the stockholders of the Company announced that they had
executed a letter of intent to sell all of the outstanding shares of stock of
the Company to Schuff Steel Company (Schuff). Schuff is in the process of
performing its due diligence with respect to the transaction and is attempting
to obtain financing to complete the acquisition. However, there is no assurance
that the transaction will ultimately be completed.
F-12
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statement of income data and
supplemental information gives effect to (i) the acquisition by Schuff Steel
Company ("Schuff") of Addison Structural Services, Inc. ("Addison") (the
"Acquisition") and (ii) the offering and sale of $100 million in principal
amount of Schuff's 10 1/2% Senior Notes due 2008 (the "Notes") ("the Offering")
and the application of the net proceeds therefrom, as if they had occurred on
January 1, 1997 for the year ended December 31, 1997, April 1, 1997 for the last
twelve months ended March 31, 1998 and January 1, 1998 for the three months
ended March 31, 1998. The unaudited pro forma condensed combined balance sheet
as of March 31, 1998 gives effect to (i) the Acquisition and (ii) the Offering
and the application of the net proceeds therefrom, as if they had occurred on
March 31, 1998. The unaudited pro forma condensed combined statements of income
are derived from the historical and calendarized financial statements of Schuff
and Addison for the periods indicated. Addison's 1997 fiscal year end was June
30, 1997 and Schuff's 1997 year end was December 31, 1997. Accordingly, for the
statement of income for the period ended December 31, 1997, the unaudited six
month period ended December 31, 1997 has been added to Addison's statement of
income for the fiscal year ended June 30, 1997 and the unaudited results for the
six month period ended December 31, 1996 have been deducted. For the statement
of income for the twelve month period ended March 31, 1998, (i) the unaudited
three month period ended March 31, 1998 has been added to Schuff's statement of
income for the year ended December 31, 1997 and the unaudited results for the
three month ended March 31, 1997 have been deducted and (ii) the unaudited nine
month period ended March 31, 1998 has been added to Addison's statement of
income for the fiscal year ended June 30, 1997 and the unaudited results for the
nine month period ended March 31, 1997 have been deducted.
The pro forma adjustments which give effect to the various events described
above are based upon currently available information and upon certain
assumptions and adjustments that management of Schuff and Addison believes are
reasonable and that meet the factually supportable criteria of the Commission
for pro forma financial information. The Acquisition will be accounted for by
Schuff under the purchase method and the resulting assets acquired and
liabilities assumed will be recorded at their estimated fair market values at
the date of acquisition. No interest income was assumed to have been earned on
the portion of the proceeds of the Offering that are not expected to be used to
fund the cash portion of the purchase price of the Acquisition or to pay other
existing indebtedness of Schuff, although such funds will be available to Schuff
for investment purposes. The adjustments included in the unaudited pro forma
condensed combined financial statements reflect Schuff and Addison's preliminary
assumptions and estimates based upon available information. There can be no
assurance that the actual adjustments will not vary significantly from the
estimated adjustments reflected in the unaudited pro forma condensed combined
financial statements.
The unaudited pro forma condensed combined financial statements do not
purport to be indicative of the results of operations that would have occurred
or that may be obtained in the future if the transactions described above had
occurred as presented in such statements. In addition, future results may vary
significantly from the results reflected in such statements due to general
economic conditions, labor and materials costs, competition, Schuff's ability to
successfully integrate the operations of Addison with its current business and
several other factors, many of which are beyond Schuff's control. See Schuff's
filings with the Securities and Exchange Commission for a description of factors
that may affect Schuff's operations and financial results.
F-13
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 303 $ 7,346 $ 39,887(1) $ 47,536
Receivables................................... 21,904 8,767 -- 30,671
Restricted funds on deposit................... 2,662 -- -- 2,662
Costs and recognized earnings in excess of
billings on uncompleted contracts.......... 6,129 3,928 -- 10,057
Inventories................................... 2,463 3,929 -- 6,392
Other current assets.......................... 827 393 -- 1,220
------- ------- -------- --------
Total current assets.................. 34,288 24,363 39,887 98,538
Property and equipment, net..................... 7,583 12,114 (2,657)(2) 17,040
Goodwill........................................ -- -- 27,633(3) 27,633
Other assets.................................... 100 1,231 4,000(4) 5,331
------- ------- -------- --------
Total assets.......................... $41,971 $37,708 $ 68,863 $148,542
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 2,796 $ 2,872 $ -- $ 5,668
Billings in excess of costs and recognized
earnings on uncompleted contracts.......... 4,290 1,348 -- 5,638
Accrued expenses.............................. 4,142 1,831 -- 5,973
Notes payable and current portion of long-term
debt....................................... 304 169 (312)(5) 161
------- ------- -------- --------
Total current liabilities............. 11,532 6,220 (312) 17,440
Other liabilities............................... 496 636 -- 1,132
Bank indebtedness............................... 3,665 882 (4,069)(5) 478
Holdback Notes payable.......................... -- -- 3,214(6) 3,214
Senior Notes.................................... -- -- 100,000(7) 100,000
------- ------- -------- --------
Total long-term debt.................. 3,665 882 99,145 103,692
------- ------- -------- --------
Stockholders' equity............................ 26,278 29,970 (29,970)(8) 26,278
------- ------- -------- --------
Total liabilities and stockholders'
equity.............................. $41,971 $37,708 $ 68,863 $148,542
======= ======= ======== ========
</TABLE>
- - ------------------------------
(1) Represents $96,000 of net proceeds from the issuance of Notes less
repayments of existing indebtedness of Schuff of $3,330, net cash paid in
connection with the Acquisition of $51,683 (cash portion of Acquisition
based on March 31, 1998 financial information, less $2,750 of proceeds from
sale of certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition), and $1,100 cash paid
for the Company's estimate of direct acquisition costs.
(2) Represents the net book value of certain assets of Addison sold to
Addison's majority stockholder contemporaneously with the closing of the
Acquisition.
(3) Schuff has not completed its assessment of the fair value of the net assets
being acquired for purposes of allocating the purchase price. Accordingly,
the excess of the purchase price over the historic net asset value of the
acquired companies has been allocated entirely to goodwill which will be
amortized over a
(footnotes continued on following page)
F-14
<PAGE> 19
25-year period. The estimated purchase price allocation based upon balances as
of March 31, 1998 is as follows:
<TABLE>
<S> <C>
Cash consideration.......................................... $54,433
Holdback Note............................................... 3,214
Direct acquisition costs.................................... 1,100
-------
Total purchase price........................................ 58,747
Net book value of net assets acquired....................... 31,114
-------
Goodwill.................................................... $27,633
=======
</TABLE>
The net book value of net assets acquired entities represents the historic
net book value of Addison increased by the elimination of the $1,051 ESOP
debt guarantee reflected historically as a reduction of equity and the $93
excess of the sales price of the assets not being acquired over the related
net book value.
(4) Represents debt issuance costs related to the Notes.
(5) Represents elimination of ESOP debt guaranteed by Addison of $1,051 and the
repayment of $3,330 of other existing indebtedness.
(6) Represents the Holdback Note delivered to Addison's majority stockholder as
part of the purchase price of the Acquisition.
(7) Represents face value of the Notes.
(8) Represents elimination of net book value of acquired entities.
F-15
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................................... $138,218 $67,285 $ (283)(1) $205,220
Cost of revenues.............................. 117,955 51,314 (117)(1) 169,152
-------- ------- -------- --------
Gross profit................................ 20,263 15,971 (166) 36,068
General and administrative expenses......... 8,880 7,002 (1,607)(2) 14,275
Goodwill amortization....................... -- -- 1,105(3) 1,105
-------- ------- -------- --------
Operating income......................... 11,383 8,969 336 20,688
Interest expense.............................. (348) (15) (10,976)(4) (11,339)
Other income.................................. 520 1,011 -- 1,531
-------- ------- -------- --------
Income before income taxes.................. 11,555 9,965 (10,640) 10,880
Provision for income taxes.................... 2,823 3,836 (3,814)(5) 2,845
-------- ------- -------- --------
Net income.................................. 8,732 6,129 (6,826) 8,035
Pro forma income taxes........................ 1,513 -- -- 1,513
-------- ------- -------- --------
Pro forma net income........................ $ 7,219 $ 6,129 $ (6,826) $ 6,522
======== ======= ======== ========
SUPPLEMENTAL INFORMATION:
EBITDA........................................ $ 12,903 $ 9,949 $ 1,441 $ 24,293
Depreciation and amortization................. 1,520 980 1,105 3,605
Cash interest expense......................... 348 15 10,576 10,939
EBITDA/cash interest expense.................. 2.2x
Backlog....................................... $ 56,793 $23,781 $ -- $ 80,574
</TABLE>
- - ---------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $850 for chief executive officer salary in
excess of future consulting contract costs, $300 for costs related to the
ESOP of Addison that is being terminated and $457 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Notes at an interest rate of 10.5% per
annum, the Holdback Note and the amortization of the related debt issuance
costs over a ten-year period offset by the elimination of interest on
existing indebtedness of Schuff repaid from the proceeds of the Offering.
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
F-16
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE LAST TWELVE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................................... $140,137 $ 66,385 $ (447)(1) $206,075
Cost of revenues.............................. 118,734 50,595 (207)(1) 169,122
-------- -------- -------- --------
Gross profit................................ 21,403 15,790 (240) 36,953
General and administrative expenses......... 9,193 7,061 (1,790)(2) 14,464
Goodwill amortization....................... -- -- 1,105(3) 1,105
-------- -------- -------- --------
Operating income......................... 12,210 8,729 445 21,384
Interest expense.............................. (351) (20) (10,932)(4) (11,303)
Other income.................................. 665 1,071 -- 1,736
-------- -------- -------- --------
Income before income taxes.................. 12,524 9,780 (10,487) 11,817
Provision for income taxes.................... 3,969 3,858 (3,752)(5) 4,075
-------- -------- -------- --------
Net income.................................. 8,555 5,922 (6,735) 7,742
Pro forma income taxes........................ 803 -- -- 803
-------- -------- -------- --------
Pro forma net income........................ $ 7,752 $ 5,922 $ (6,735) $ 6,939
======== ======== ======== ========
SUPPLEMENTAL INFORMATION:
EBITDA........................................ $ 13,792 $ 9,712 $ 1,550 $ 25,054
Depreciation and amortization................. 1,582 983 1,105 3,670
Cash interest expense......................... 351 20 10,532 10,903
EBITDA/cash interest expense.................. 2.3x
Backlog....................................... $ 66,539 $ 30,869 $ -- $ 97,408
</TABLE>
- - ---------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $850 for chief executive officer salary in
excess of future consulting contract costs, $300 for costs related to the
ESOP of Addison that is being terminated and $640 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Notes at a rate of 10.5% per annum, the
Holdback Note and the amortization of the related debt issuance costs over a
ten-year period offset by the elimination of interest on existing
indebtedness of Schuff repaid from the proceeds of the Offering.
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
F-17
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................................... $27,426 $14,141 $ (162)(1) $41,405
Cost of revenues.............................. 22,434 11,100 (91)(1) 33,443
------- ------- ------- -------
Gross profit................................ 4,992 3,041 (71) 7,962
General and administrative expenses......... 2,394 1,679 (474)(2) 3,599
Goodwill amortization....................... -- -- 277(3) 277
------- ------- ------- -------
Operating income......................... 2,598 1,362 126 4,086
Interest expense.............................. (98) (5) (2,703)(4) (2,806)
Other income.................................. 241 132 -- 373
------- ------- ------- -------
Income before income taxes.................. 2,741 1,489 (2,577) 1,653
Provision for income taxes.................... 1,146 559 (920)(5) 785
------- ------- ------- -------
Net income.................................. $ 1,595 $ 930 $(1,657) $ 868
======= ======= ======= =======
SUPPLEMENTAL INFORMATION:
EBITDA........................................ $ 3,021 $ 1,607 $ 403 $ 5,031
Depreciation and amortization................. 423 245 277 945
Cash interest expense......................... 98 5 2,603 2,706
EBITDA/cash interest expense.................. 1.9x
Backlog....................................... $66,539 $30,869 $ -- $97,408
</TABLE>
- - ------------------------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $213 for chief executive officer salary in
excess of future consulting contract costs, $75 for costs related to the
ESOP of Addison that is being terminated and $186 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Notes at a rate of 10.5% per annum, the
Holdback Note and the amortization of the related debt issuance costs over a
ten-year period offset by the elimination of interest on existing
indebtedness of Schuff repaid from the proceeds of the Offering.
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
F-18
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1* Purchase Agreement described in Item 2 above (1)
10.1* Purchase Agreement, dated June 1, 1998, by and among the Company,
Donaldson, Lufkin & Jenrette Securities Corporation, Jefferies &
Company, Inc., and Friedman, Billings, Ramsey & Co., Inc.
10.2* Indenture described in Item 5 above
10.3* Registration Rights Agreement, dated June 4, 1998, by and among the
Company, the Guarantors (as defined therein), Donaldson, Lufkin &
Jenrette Securities Corporation, Jefferies & Company, Inc., and
Friedman, Billings, Ramsey & Co., Inc.
23* Consent of Mauldin & Jenkins, LLC (regarding Form S-8 Registration
Statements)
99.1* Press Release dated June 4, 1998
99.2* Press Release dated June 4, 1998
* To be filed by amendment.
</TABLE>
(1) Certain information in this exhibit will be omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under Rule 24b-2 of the Securities and Exchange Act of
1934, as amended.
