MAURICE J. BATES, L.L.C.
ATTORNEY AT LAW
8214 WESTCHESTER SUITE, 500
DALLAS, TEXAS 75225
Telephone (214) 692-3566
Fax (214) 987-2091
October 15, 1998
Barbra Jacobs, Deputy Chief
Office of Small Business Policy
Securities and Exchange Commission
450 5th Street N. W.
Washington, DC. 20549
Re: Westower Corporation
File No. 333-32963
10-q SB
Dear Mrs. Jacobs:
We transmit herewith 10-q for the period ended August 31, 1998.
Very truly yours,
/s/ Maurice J. Bates
Maurice J. Bates
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from_____________________to_________________
COMMISSION FILE NUMBER 1-132963
WESTOWER CORPORATION
(Name of small business issuer in its charter)
WASHINGTON 1623 91-1825860
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number)Identification Number)
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
(360) 750-9355
(Address and telephone number of principal executive offices
and principal place of business)
Check whether the issuer:
(1) filed all reports required to be filed by Section 13 or 15 (d) of the
Exchange Act during the preceding 12 months ( or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days
YES /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes common
equity, as of the latest practicable date:
6,901,359 as of September 30, 1998
<PAGE>
WESTOWER COPORATION
INDEX
<TABLE>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1 - FINANCIAL STATMENTS
Consolidated Balance Sheets of Westower Corporation
at August 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Income of Westower Corporation for the three month
six month periods ended August 31, 1998 and 1997 ( unaudited ) 4
Consolidated Statements of Cash Flows of Westower Corporation for the six
month periods ended August 31, 1998 and 1997 (unaudited ) 5
Notes to the Consolidated Financial Statements of Westower Corporation
as of August 31, 1998 and 1997 ( unaudited ) 6
ITEM 2 - MANAGEMNET'S DISSCUSSIONS AND ANALYSIS
OR PLAN OF OPERATION 7
PART II - OTHER INFORMATION 8
</TABLE>
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES
ITEM 3 - DEFAULTS UPON SENIOR SECURITES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
WESTOWER CORPORATION
CONSOLIDATED BALANCE SHEETS
August 31, 1998 and 1997
( Unaudited )
<TABLE>
<CAPTION>
1998 1997
------------------ --------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 18,260,000 $ 2,418,000
Account receivable, net 11,328,000 7,084,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,640,000 2,887,000
Inventory (Note 2) 1,723,000 289,000
------------------ ---------------
Total Current Assets 34,951,000 12,678,000
PROPERTY AND EQUIPMENT, net 5,723,000 2,678,000
GOODWILL 12,179,000 -
DEFERRED FINANCE COSTS 2,528,000 -
OTHER ASSETS 2,096,000 384,000
------------------ ---------------
TOTAL ASSETS $ 57,477,000 $ 15,740,000
================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 5,904,000 $ 5,003,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,522,000 3,095,000
Other current liabilities 62,000 283,000
Income taxes payable 1,356,000 137,000
Deferred income taxes 534,000 569,000
Note payable to bank 1,027,000 -
Current portion of long-term debt 138,000 360,000
Acquisition payable 5,000,000 -
---------------------- ---------------
Total current liabilities 15,543,000 9,447,000
LONG-TERM DEBT, net of current portion 2,383,000 280,000
SUBORDINATED CONVERTIBLE NOTES 15,000,000
ADVANCES FROM RELATED PARTIES - 1,594,000
---------------------- ---------------
Total liabilities 32,926,000 11,321,000
---------------------- ---------------
REDEEMABLE PREFERRED STOCK - 450,000
---------------------- ---------------
STOCKHOLDERS' EQUITY
Common stock 18,310,000 1,043,000
Foreign currency translation adjustments (67,000) -
Retained earnings 6,308,000 2,926,000
------------- ---------------
Total stockholders' equity 24,551,000 3,969,000
-------------- ---------------
TOTAL LIABILITIES AND STOCK
HOLDERS' EQUITY $57,477,000 $15,740,000
=========== =============
</TABLE>
<PAGE>
WESTOWER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31 August 31
1998 1997 1998 1997
----
<S> <C> <C> <C> <C>
Revenues Earned $ 27,505,000 $ 10,285,000 $38,671,000 $ 18,714,000
Cost of Revenues Earned 20,937,000 7,570,000 29,536,000 13,558,000
------------ ----------------- ------------------- ----------------
Gross Profit 6,568,000 2,715,000 9,135,000 5,156,000
Selling, General and
Administrative
Expenses 4,154,000 1,132,000 5,511,000 2,310,000
------------ ----------------- ------------------ ---------------
Operating Income 2,414,000 1,583,000 3,624,000 2,846,000
Other Income(Expense)
Interest expense (246,000) (13,000) (263,000) (26,000)
Interest income 169,000 - 244,000 -
------------- ------------ ----------- -------
Income Before Income 2,337,000 1,570,000 3,605,000 2,820,000
Taxes
Income Taxes 818,0000 597,000 1,262,000 1,072,000
------------- ------------ ----------- -----------
Net Income $ 1,519,000 $ 973,000 $ 2,343,000 $ 1,748,000
============= =========== = ========= ========
Basic Earnings
per Share $ .23 $ .20 $ .38 $ .36
============= =============== ============ =========
Diluted Earnings
per Share $ .20 $ .20 $ .33 $ .36
============= =============== ============== ===========
Weighted Average
Common Shares 6,587,000 4,776,000 6,123,000 4,776,000
============= ============ ========= ===========
Weighted Average
Common Shares plus
Dilutive potential 7,648,000 4,776,000 7,117,000 4,776,000
============= ============ ========= =============
</TABLE>
<PAGE>
WESTOWER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended August 31, 1998 and 1997
( Unaudited )
<TABLE>
<CAPTION>
1998 1997
------ ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,343,000 $1,748,000
Depreciation and amortization 104,000 92,000
Net change in non-cash operating
assets and liabilities (6,795,000) (353,000)
--------------------------------------
Net cash flows from
operating activities (4,348,000) 1,487,000
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES
Advances to related parties (1,700,000) 922,000
Purchase of property and
equipment (1,475,000) (231,000)
--------------------------------------
Net cash flows from
investing activities (3,175,000) 691,000
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITES
Principal payments on long-term debt (335,000) (268,000)
Net proceeds on exercise of warrants 4,996,000 -
Net proceeds on sale of convertible
subordinated notes 14,850,000 -
-------------------------------------
Net cash flows from
financing activities 19,511,000 (268,000)
--------------------------------------
NET INCREASE IN CASH 11,988,000 1,910,000
CASH - Beginning of Period 6,272,000 508,000
------------------------------------------
CASH - End of Period $18,260,000 $2,418,000
======================================
SUPPLEMENTAL DISCLOSURE
Interest Paid $ 253,000 $ 26,000
Taxes Paid $ 904,000 $ 263,000
</TABLE>
<PAGE>
WESTOWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1998 and 1997
( Unaudited )
Note 1 - Basis of Presentation
The consolidated financial statements and notes thereto at August 31, 1998 and
1997, and for the three and six month periods ended August 31, 1998 and 1997,
reflect the acquisition of Western Telecom Construction Ltd., an Alberta
corporation, the acquisition of MJA Communications Corp., a Florida corporation
and the acquisition of Standby Services, Inc., a Texas corporation. All
companies design, fabricate and construct wireless transmitting and receiving
facilities and shelters for communications equipment. The Company issued 835,000
shares of its common stock for all the common shares of Western Telecom
Construction Ltd., 397,023 shares of its common stock for all of the common
shares of MJA Communications Corp., and 543,590 shares of its common stock for
all of the common shares of Standby Services, Inc. All of these acquisitions
were structured as mergers and accounted for as pooling of interests.
Accordingly, the consolidated financial statements and notes thereto at August
31, 1998 and 1997, and for three and six month periods ended August 31, 1998 and
1997, are presented as if the acquisitions of Western Telecom Construction Ltd.
, MJA Communications Corp., and Standby Services, Inc., had occurred at the
beginning of all periods presented.
The notes to the consolidated financial statements do not present all
disclosures required under generally accepted accounting principles, but
instead, as permitted by the Securities and Exchange Commission regulations,
presume that users of the interim financial statements have read or have access
to the February 28, 1998 audited consolidated financial statements and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The
results of operations for the three and six month periods ended August 31, 1998
and 1997 respectively are not necessarily indicative of the results to be
expected for the full year.
Note 2 - Inventory
Inventory is stated at the lower of cost and estimated net realizable value
using the first-in, first-out method. Inventory consists of materials purchased
for future construction not associated with specific jobs.
Note 3 - Common Stock
On October 15, 1997, the Company issued 1,200,000 shares of common stock and
1,380,000 warrants to purchase common stock in a public offering. The Company
received proceeds, net of costs, of $7,524,585. During the six month ended
August 31, 1998 , the Company received proceeds of $4,996,449 on the exercise of
555,161 warrants.
Note 4 - Business Acquisition
On August 31, 1998 the Company completed the acquisition of CORD Communications
Incorporated ("CORD") whereby the Company acquired all of the shares of CORD in
exchange for $5,000,000 and 217,387 shares of Westower common stock. The
acquisition was structured as a merger and was accounted for as a purchase,
resulting in approximately $10,000,000 of goodwill.
<PAGE>
WESTOWER CORPORATION
ITEM 2- MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
Results for the three month periods ended August 31, 1998 and 1997, include the
results for Western Telecom Construction Ltd., MJA Communications Corp., and
Standby Services, Inc., acquisitions accounted for using the
pooling-of-interests method.
Revenues for the second quarter increased $17,220,000 or 167% compared to the
second quarter in the previous year. Approximately 40% of the increase is
attributable to strong demand for the Company's services in some geographic
areas offset by weaker demand in other areas. Acquisitions accounted for by the
purchase method, completed in late fiscal 1998, contributed to approximately 60%
of the increase.
Gross profit for the quarter ended August 31, 1998 increased $3,853,000 or 142%
from the comparable quarter. The increase is attributable to the 167% increase
in sales partially offset by a decline in gross profit margins from 26.4% in
1997 to 23.9% in 1998. The decline in gross profit margin is attributable to
increased price competition in the Northwestern region of the U.S.
and Ontario, Canada.
Selling, general and administrative expenses for the quarter ended August 31,
1998 were approximately 267% higher than in the comparable quarter. As a
percentage of sales, these expenses were 11 % in 1997 and 15% in 1998. The
increase reflects increased staffing to manage growth and to enable the Company
to own communications towers and lease space on these towers to third parties,
and substantially higher depreciation and amortization expense.
Operating income improved $831,000 or 53% in the quarter ended August 31,1998
compared to the quarter ended August 31, 1997. The increase is attributable to
the increase in revenues offset by the increase in selling general and
administrative expenses.
Net income increased 56% in the quarter ended August 31, 1998, to $1,519,000
from the comparable period. The increase is attributable to the increase in
sales, offset by increased selling, general and administrative expenses, and a
reduced gross profit margin.
During the three months ended August 31, 1998, the Company owned twenty-two (22)
communications towers that are leased to a telephone company. Revenue and
expenses associated with this activity have been included in contract revenues
and costs.
<PAGE>
WESTOWER CORPORATION
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED AUGUST 31, 1998 AND 1997
Results for the six month periods ended August 31, 1998 and 1997, include the
results for Western Telecom Construction Ltd., MJA Communications Corp., and
Standby Services, Inc., acquisitions accounted for using the
pooling-of-interests method.
Revenues for the first six months increased $19,957,000 or 107% compared to the
six months in the previous year. Approximately 40% of the increase is
attributable to strong demand for the Company's services in some geographic
areas offset by weaker demand in other areas. Acquisitions accounted for by the
purchase method, completed in late fiscal 1998, contributed to approximately 60%
of the increase.
Gross profit for the six months ended August 31, 1998 increased $3,979,000 or
77% from the comparable six months. The increase is attributable to the 107%
increase in sales partially offset by a decline in gross profit margins from
27.6% in 1997 to 23.6% in 1998. The decline in gross profit margin is
attributable to increased price competition in the Northwestern region of the
U.S. and Ontario, Canada.
Selling, general and administrative expenses for the six months ended August 31,
1998 were approximately 139% higher than in the comparable six months. As a
percentage of sales, these expenses were 12.3 % in 1997 and 14.3% in 1998. The
increase reflects increased staffing to manage growth and to enable the Company
to own communications towers and lease space on these towers to third parties,
and substantially higher depreciation and amortization expense.
Operating income improved $778,000 or 27% in the six months ended August 31,1998
compared to the six months ended August 31, 1997. The increase is attributable
to the increase in revenues offset somewhat by the decrease in gross profit
margins, and further offset by the increase in selling general and
administrative expenses.
Net income increased 34% in the six months ended August 31, 1998, to $2,343,000
from the comparable period. The increase is attributable to the increase in
sales, offset by increased selling, general and administrative expenses, and a
reduced gross profit margin.
During the six months ended August 31, 1998, the Company owned twenty-two (22)
communications towers that are leased to a telephone company. Revenue and
expenses associated with this activity have been included in contract revenues
and costs.
<PAGE>
WESTOWER CORPORATION
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITES
None
ITEM 4 - SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits None
Reports on Form 8-K
During the six months ended August 31, 1998, the Company filed
Forms 8-K, which described the acquisitions of MJA
Communications Corporation, and of WTC Holding Inc., the
parent of Western Telecom Construction Ltd.
Signature: _________________________________________________________
Signature: _________________________________________________________
Signature: _________________________________________________________
Westower Corporation
Registrant
Date: __________________________________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 001043274
<NAME> Westower Corporation
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> JUN-1-1998
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1
<CASH> 18,260,000
<SECURITIES> 0
<RECEIVABLES> 11,328,000
<ALLOWANCES> 0
<INVENTORY> 5,363,000
<CURRENT-ASSETS> 34,951,000
<PP&E> 6,941,000
<DEPRECIATION> 1,218,000
<TOTAL-ASSETS> 57,477,000
<CURRENT-LIABILITIES> 9,915,000
<BONDS> 17,521,000
0
0
<COMMON> 18,310,000
<OTHER-SE> 6,241,000
<TOTAL-LIABILITY-AND-EQUITY> 87,477,000
<SALES> 2,567,000
<TOTAL-REVENUES> 38,671,000
<CGS> 29,536,000
<TOTAL-COSTS> 5,511,000
<OTHER-EXPENSES> 263,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,605,000
<INCOME-TAX> 1,262,000
<INCOME-CONTINUING> 2,343,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,343,000
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.33
</TABLE>
