<PAGE>
RULES 424(B)(3) AND 424(C)
REGISTRATION NO. 333-42317
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MARCH 5, 1998
CONSOLIDATION CAPITAL CORPORATION
Consolidation Capital Corporation (the "Company") has prepared this
Prospectus Supplement to update certain information included in the Company's
Prospectus dated March 5, 1998 covering 24,000,000 shares of the Company's
common stock, $.001 par value (the "Common Stock").
On March 10, 1998, the Company entered into a letter of intent to acquire
Crest International, LLC ("Crest"). Crest was founded in 1995 and specializes
in providing janitorial maintenance management services to retail, industrial
and commercial clients from its headquarters in Green Bay and from its offices
in Milwaukee, Appleton, Madison, Wausau, LaCrosse, Sheboygan and Marionette.
Crest had revenues of approximately $11.9 million for the year ended December
31, 1997. Crest has approximately 960 employees. Thomas Tess, Crest's founder
and president, will sign an employment contract to continue to serve as the
president of Crest. The consideration to be paid by the Company for Crest
consists of $3.5 million in shares of Common Stock. The acquisition of Crest
will be accounted for under the pooling-of-interests method.
On March 11, 1998, the Company completed the acquisitions of Garfield
Electric Company ("Garfield"), Indecon, Inc. ("Indecon"), Riviera Electric
Construction Co., ("Riviera"), SKC Electric, Inc. ("SKC"), Town & Country
Electric Inc. ("Town & Country"), Tri-City Electrical Contractors, Inc. ("Tri-
City") and Wilson Electric Company, Inc. ("Wilson," and together with the
foregoing acquisitions, the "Electrical Group"). The aggregate consideration
(including certain fees) paid by the Company for these acquisitions was $72.9
million in cash and 3,423,453 shares of Common Stock. In addition, there is
the potential for the payment of up to an additional $37.0 million in cash and
shares of Common Stock based upon the performance of the acquired businesses
as a group.
On March 25, 1998, the Company completed the acquisition of Walker
Engineering, Inc. ("Walker"). Walker was founded in 1981 and specializes in
providing electrical installation and maintenance services from its
headquarters in Dallas and from its offices in Fort Worth and Austin. Walker
had revenues of approximately $127.7 million for the year ended December 31,
1997, consisting of approximately 88% commercial, institutional and industrial
installation and approximately 12% electrical maintenance services. Walker has
approximately 1,100 employees. Charles Walker, Walker's founder and president,
signed an employment contract to continue to serve as the president of Walker.
The consideration paid by the Company for Walker consisted of $35 million in
cash and 1,521,739 shares of Common Stock. In addition, there is the potential
for the payment of up to an additional $30 million, consisting of 50% in cash
and 50% in shares of Common Stock, based upon the performance of Walker.
Set forth below are (i) the Company's unaudited pro forma financial
statements as of December 31, 1997 and for the year then ended, and (ii) the
consolidated financial statements of Walker as of December 31, 1997 and for
the year then ended.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 30, 1998.
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet gives effect to the
recent acquisitions of Service Management, the Electrical Group and Walker, as
if they had occurred as of the Company's most recent balance sheet date,
December 31, 1997.
The unaudited pro forma combined statement of operations give effect to the
recent acquisitions of Service Management, the Electrical Group and Walker as
if they had occurred on January 1, 1997.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position and results of operations would actually have
been if such transactions in fact had occurred on the assumed dates and are
not necessarily representative of the Company's financial position or results
of operations for any future period. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
F-2
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOWN &
CONSOLIDATION SERVICE SKC GARFIELD RIVIERA TRI-CITY COUNTRY WILSON WALKER
CAPITAL MANAGEMENT ELECTRIC INDECON ELECTRIC ELECTRIC ELECTRICAL ELECTRIC ELECTRIC ENGINEERING
CORPORATION USA, INC. & AFFILIATE INC. COMPANY CONSTRUCTION CONTRACTORS CO. CO. INC.
------------- ---------- ----------- ------- -------- ------------ ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $528,392 $ 4 $1,686 $ $ 1 $ 295 $ 1,334 $ 198 $ 1,042 $ 5,074
Marketable
securities....... 128
Accounts
receivable,
net.............. 4,132 5,301 2,432 1,829 9,288 16,873 10,605 14,085 19,060
Inventories....... 161 39 54 380 295
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts........ 135 56 1,211 190 2,402 1,705 1,302 281
Prepaid expenses
and other
current assets... 653 303 150 788 58 31 1,491 730 233 315
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total current
assets......... 529,045 4,567 7,433 3,315 3,153 9,804 22,480 13,533 16,662 24,730
Property and
equipment, net.... 20 2,333 554 200 294 1,608 2,513 1,626 704 1,755
Other assets....... 27 381 1 161 246 838 99 136 181
Intangibles........ 202 172 11
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total assets.... $529,065 $7,129 $8,368 $3,516 $3,608 $11,658 $25,831 $15,430 $17,513 $26,666
======== ====== ====== ====== ====== ======= ======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short term debt... $ $1,623 $ 196 $ 728 $ 853 $ 1,524 $ 238 $ 320 $ 183 $ 4,126
Current
maturities,
capital leases...
Accounts
payable.......... 156 1,738 1,415 527 870 3,590 5,414 2,206 4,589 5,751
Accrued
liabilities and
other............ 1,612 556 2,021 611 415 1,554 3,070 3,104 3,879 4,292
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ 1,652 134 186 1,088 7,046 1,267 3,402 7,436
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total current
liabilities.... 1,768 3,917 5,284 2,000 2,324 7,756 15,768 6,897 12,053 21,605
Long-term debt..... 730 982 18 2,798 252 197 76
ESOP liability..... 1,822
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total
liabilities.... 1,768 4,647 8,088 2,000 2,342 10,554 16,020 7,094 12,053 21,681
======== ====== ====== ====== ====== ======= ======= ======= ======= =======
Stockholders'
equity:
Common Stock...... 30 180 11 3 503 1,351 10 2 10 12
Convertible Non-
Voting common
stock............ 1
Additional paid-
in capital....... 527,259 110 112 515 266 918
Retained
earnings......... 7 2,192 269 1,546 958 (247) 9,689 7,819 5,184 4055
Treasury stock.... (33) (195)
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total
stockholders'
equity......... 527,297 2,482 280 1,516 1,266 1,104 9,811 8,336 5,460 4,985
-------- ------ ------ ------ ------ ------- ------- ------- ------- -------
Total
liabilities and
stockholders'
equity......... $529,065 $7,129 $8,368 $3,516 $3,608 $11,658 $25,831 $15,430 $17,513 $26,666
======== ====== ====== ====== ====== ======= ======= ======= ======= =======
<CAPTION>
PRO
PRO FORMA FORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $(115,788) $422,238
Marketable
securities....... 128
Accounts
receivable,
net.............. 83,605
Inventories....... 929
Costs and
estimated
earnings in
excess of
billings on
uncompleted
contracts........ 7,282
Prepaid expenses
and other
current assets... 4,752
----------- --------
Total current
assets......... (115,788) 518,934
Property and
equipment, net.... 11,607
Other assets....... 2,070
Intangibles........ 173,182 173,567
----------- --------
Total assets.... $ 57,394 $706,178
=========== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short term debt... $ (196) $ 9,595
Current
maturities,
capital leases... --
Accounts
payable.......... 26,256
Accrued
liabilities and
other............ 300 21,114
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ 22,511
----------- --------
Total current
liabilities.... 104 79,476
Long-term debt..... (3,182) 1,871
ESOP liability..... (1,822) --
----------- --------
Total
liabilities.... (4,900) 81,347
=========== ========
Stockholders'
equity:
Common Stock...... (2,077) 35
Convertible Non-
Voting common
stock............ 1
Additional paid-
in capital....... 95,608 624,788
Retained
earnings......... (31,465) 7
Treasury stock.... 228 --
----------- --------
Total
stockholders'
equity......... 62,294 624,831
----------- --------
Total
liabilities and
stockholders'
equity......... $ 57,394 $706,178
=========== ========
</TABLE>
F-3
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SKC TOWN &
CONSOLIDATION SERVICE ELECTRIC GARFIELD RIVIERA TRI-CITY COUNTRY WILSON WALKER
CAPITAL MANAGEMENT & INDECON ELECTRIC ELECTRIC ELECTRICAL ELECTRIC ELECTRIC ENGINEERING
CORPORATION USA, INC. AFFILIATE INC. COMPANY CONSTRUCTION CONTRACTORS CO. CO. INC.
------------- ---------- --------- ------- -------- ------------ ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $ $26,266 $23,482 $13,672 $10,826 $37,049 $79,493 $48,726 $71,009 $127,672
Cost of revenues. 19,856 16,971 11,301 8,286 31,607 63,551 39,701 59,036 106,346
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit..... 6,410 6,511 2,371 2,540 5,442 15,942 9,025 11,973 21,326
Selling, general
& administrative
expenses......... 1,985 3,832 4,200 1,376 1,605 3,999 9,925 7,006 10,514 21,786
Goodwill
amortization.....
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Operating
income.......... (1,985) 2,578 2,311 995 935 1,443 6,017 2,019 1,459 (460)
Other (income)
expense:
Interest
expense......... 53 33 69 229 53 75 110 36
Interest income. (2,056) (168) (156) (328)
Other, net...... 6 (40) (41) 24 (119) 26 (113) 77
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Income before
provision
for income taxes. 71 2,519 2,351 1,003 842 1,333 6,106 2,057 1,428 (168)
Provision for
income
taxes............ 64 52 1,150 452 319 462 894 625
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net income....... $ 7 $ 2,467 $ 1,201 $ 551 $ 523 $ 1,333 $ 5,644 $ 1,163 $ 803 $ (168)
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
Net income per
share--Basic.....
Net income per
share--Diluted...
Weighted average
number of common
shares
outstanding (Note
3)...............
Weighted average
number of common
and potentially
dilutive shares
outstanding
(Note 4).........
<CAPTION>
COMBINED PRO FORMA PRO FORMA
TOTAL ADJUSTMENTS COMBINED
--------- ----------- -----------
<S> <C> <C> <C>
Revenues......... $438,195 $ $ 438,195
Cost of revenues. 356,655 356,655
--------- ----------- -----------
Gross profit..... 81,540 81,540
Selling, general
& administrative
expenses......... 66,228 (18,302) 47,926
Goodwill
amortization..... 4,329 4,329
--------- ----------- -----------
Operating
income.......... 15,312 13,973 29,285
Other (income)
expense:
Interest
expense......... 658 658
Interest income. (2,708) 451 (2,257)
Other, net...... (180) (180)
--------- ----------- -----------
Income before
provision
for income taxes. 17,542 13,522 31,064
Provision for
income
taxes............ 4,018 10,048 14,066
--------- ----------- -----------
Net income....... $ 13,524 $ 3,474 $ 16,998
========= =========== ===========
Net income per
share--Basic..... $ 1.10
===========
Net income per
share--Diluted... $ 1.10
===========
Weighted average
number of common
shares
outstanding (Note
3)............... 15,390,471
===========
Weighted average
number of common
and potentially
dilutive shares
outstanding
(Note 4)......... 15,457,001
===========
</TABLE>
F-4
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The unaudited pro forma combined balance sheet reflects the following
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) ADJUSTMENTS
--------- ---- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................... $(115,788) $ $(115,788)
Marketable securities.............................
Accounts receivable, net..........................
Prepaid and other current assets..................
--------- ---- ---------
Total current assets............................ (115,788) (115,788)
Property and equipment, net.........................
Other assets........................................
Goodwill, net....................................... 172,882 300 173,182
--------- ---- ---------
Total assets.................................... $ 57,094 $300 $ 57,394
========= ==== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities, long-term debt................ $ (196) $ $ (196)
Current maturities, capital leases................
Accounts payable..................................
Accrued liabilities and other..................... 300 300
--------- ---- ---------
Total current liabilities....................... (196) 300 104
Subordinated debt to stockholders...................
Long-term debt, less current maturities............. (3,182) (3,182)
Other long-term liabilities.........................
ESOP liability...................................... (1,822) (1,822)
--------- ---- ---------
Total liabilities............................... (5,200) 300 (4,900)
--------- ---- ---------
Stockholders' equity:
Common Stock...................................... (2,077) (2,077)
Non-Voting Common Stock...........................
Additional paid-in capital........................ 95,608 95,608
Treasury Stock.................................... 228 228
Retained earnings................................. (31,465) (31,465)
--------- ---- ---------
Total stockholders' equity...................... 62,294 62,294
--------- ---- ---------
Total liabilities and stockholders' equity...... $ 57,094 $300 $ 57,394
========= ==== =========
</TABLE>
- --------
(A) Reflects the recent acquisitions of Service Management, the Electrical
Group and Walker for consideration consisting of $115,788 in cash and
5,088,049 shares of common stock valued at $97,534, for a total estimated
purchase price of $213,322 resulting in excess purchase price over the fair
value of net assets acquired of $172,882. For purposes of computing the
estimated purchase price for accounting purposes, the value of the shares
was determined in consideration of restrictions on the sale and
transferability of the shares issued. The shares generally will be subject
to the following restrictions on resale: up to one-third of
F-5
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
the shares may be resold beginning twelve months after their date of
acquisition, the first one-third and an additional one-third may be resold
beginning eighteen months after their date of acquisition and the first two-
thirds and the remaining one-third may be resold beginning twenty-four
months after their date of acquisition. Also reflects the repayment of the
employee stock ownership plan (ESOP) debt and the related elimination of
unearned ESOP shares at one of the Electrical Group companies, and the
forgiveness of a $2,200 note payable to a shareholder of one of the the
Electrical Group companies.
(B) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax basis of
assets and liabilities of Service Management.
NOTE 2--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The unaudited pro forma combined statements of operations reflect the
following adjustments:
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
TOTAL PRO
FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
-------- ------- ------- ----- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ $ $ $ $ $
Cost of revenues........
Gross profit..........
Selling, general and
administrative
expenses............... (15,011) (3,291) (18,302)
Goodwill amortization... 4,329 4,329
-------- ------- ------- ----- -------- --------
Operating income
(loss)............... 15,011 (4,329) 3,291 13,973
Other (income) expense:
Interest expense........
Interest income....... 451 451
Other, net............
Income (loss) before
provision for income
taxes.................. 15,011 (4,329) 3,291 (451) 13,522
-------- ------- ------- ----- -------- --------
Provision for income
taxes.................. 10,048 10,048
-------- ------- ------- ----- -------- --------
Net income (loss)....... $ 15,011 $(4,329) $ 3,291 $(451) $(10,048) $ 3,474
======== ======= ======= ===== ======== ========
</TABLE>
- --------
(A) Reflects the modifications in salaries, bonuses and benefits to the owners
of Service Management, the Electrical Group and Walker to which they have
agreed prospectively.
(B) Reflects the amortization of goodwill to be recorded as a result of the
acquisitions of Service Management, the Electrical Group and Walker over a
40 year estimated life.
(C) Adjustment to eliminate expense recorded in connection with the Electrical
Group ESOPs. These plans will be converted to profit sharing plans as part
of the acquisitions, and no future contributions will be made.
(D) Adjustment to eliminate interest income relating to the cash consideration
of $115,788 used in the acquisition of Service Management, the Electrical
Group and Walker.
(E) Reflects the incremental provision for federal and state income taxes
assuming (i) the acquisitions were subject to federal and state income
tax; (ii) the other statements of operations' adjustments; and (iii) the
amortization of goodwill is not tax deductible, with the exception of the
goodwill associated with the acquisition of Service Management.
F-6
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3--CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Includes (i) 1,777,851 shares representing the weighted average common
shares outstanding as a result of the Company's intial public offering
completed in December 1997 (the "IPO"), excluding those shares referred to in
(iv) below, (ii) 2,300,000 shares issued to founding stockholder of the
Company, (iii) 5,088,049 shares issued to the owners of Service Management,
the Electrical Group and Walker, and (iv) 6,224,571 shares of the 27,850,000
shares issued in the Company's IPO to fund the cash portion of the
consideration payable to the owners of Service Management, the Electrical
Group and Walker.
NOTE 4--CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIALLY
DILUTIVE SHARES OUTSTANDING
Includes (i) 1,777,851 shares representing the weighted average common
shares outstanding as a result of the Company's IPO, excluding those shares
referred to in (iv) below, (ii) 2,300,000 shares issued to the founding
stockholder of the Company, (iii) 5,088,049 shares issued to the owners of
Service Management, the Electrical Group and Walker, (iv) 6,224,571 shares of
the 27,850,000 shares issued in the Company's IPO to fund the cash portion of
the consideration payable to the owners of Service Management the Electrical
Group and Walker, (v) 17,215 weighted average shares, calculated using the
treasury stock method, to reflect the potential dilutive effects of the
assumed exercise at date of grant of certain warrants issued to Jonathan
Ledecky and the representatives of the underwriters in the Company's IPO and
all outstanding options, and (vi) 49,315 weighted average shares attributable
to the 500,000 convertible non-voting common shares issued concurrent with the
Company's IPO.
F-7
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................... F-9
FINANCIAL STATEMENTS
Balance Sheet............................................................ F-10
Statement of Income and Changes in Retained Earnings..................... F-11
Statement of Cash Flows.................................................. F-12
Notes to Financial Statements............................................ F-13
</TABLE>
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Walker Engineering, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of Walker Engineering, Inc.,
(an S Corporation) as of December 31, 1997, and the related statement of
income and changes in retained earnings and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Walker Engineering, Inc.,
as of December 31, 1997, and the results of its operations and changes in
retained earnings, and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
Hutton, Patterson & Company
February 27, 1998
Dallas, Texas
F-9
<PAGE>
WALKER ENGINEERING, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash............................................................. $ 5,074,179
Contracts receivable............................................. 19,059,634
Notes receivable, employees...................................... 31,202
Investment in life insurance contracts........................... 284,188
Unbilled revenues................................................ 281,404
-----------
TOTAL CURRENT ASSETS........................................... 24,730,607
-----------
PROPERTY AND EQUIPMENT
Automotive equipment............................................. 1,459,259
Operating equipment.............................................. 1,134,603
Office furniture and equipment................................... 423,321
Computer and software............................................ 459,209
Leasehold improvements........................................... 69,211
-----------
3,545,603
Less accumulated depreciation and amortization................... 1,790,274
-----------
NET PROPERTY AND EQUIPMENT..................................... 1,755,329
-----------
OTHER ASSETS................................................... 180,530
-----------
$26,666,466
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................. $ 5,751,485
Accrued expenses................................................. 4,291,921
Excess billings.................................................. 7,435,796
Capital leases payable, current portion.......................... 126,332
Notes payable, shareholder....................................... 4,000,000
-----------
TOTAL CURRENT LIABILITIES...................................... 21,605,534
-----------
LONG-TERM LIABILITIES
Capital leases payable, net of current portion................... 76,334
-----------
TOTAL LIABILITIES.............................................. 21,681,868
-----------
SHAREHOLDERS' EQUITY
Common stock (no par value; 1,000,000 shares authorized; 116,452
shares issued and outstanding).................................. 11,645
Paid-in capital.................................................. 917,869
Retained earnings................................................ 4,055,084
-----------
TOTAL SHAREHOLDERS' EQUITY..................................... 4,984,598
-----------
$26,666,466
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
WALKER ENGINEERING, INC.
STATEMENT OF INCOME AND CHANGES IN RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES EARNED................................................... $127,672,430
COSTS OF REVENUES EARNED.......................................... 106,346,712
------------
GROSS PROFIT...................................................... 21,325,718
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...................... 21,785,658
------------
LOSS FROM OPERATIONS.............................................. (459,940)
------------
OTHER INCOME (LOSS)
Interest income................................................. 327,992
Loss on sale of assets.......................................... (35,720)
------------
292,272
------------
NET LOSS.......................................................... (167,668)
RETAINED EARNINGS, beginning...................................... 4,222,752
------------
RETAINED EARNINGS, ending......................................... $ 4,055,084
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
WALKER ENGINEERING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................................... $ (167,668)
Adjustments to reconcile net loss to net cash flows used in
operating activities
Loss on sale of assets....................................... 35,720
Depreciation and amortization................................ 391,468
Changes in assets and liabilities
Increase in contracts receivable........................... (1,891,690)
Decrease in unbilled revenues.............................. 31,061
Increase in accounts payable............................... 213,798
Increase in accrued expenses............................... 2,429,709
Decrease in excess billings................................ (470,531)
-----------
Net cash flows provided by operating activities................ 571,867
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment............................. (1,314,417)
Proceeds from sale of property and equipment................... 34,439
Increase in investment in life insurance contracts............. (23,356)
Employee loans advanced........................................ (5,082)
Payments received on employee loans............................ 31,724
Other asset additions.......................................... (96,175)
-----------
Net cash flows used in investing activities.................. (1,372,867)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on lease obligations.................................. (126,296)
Proceeds from shareholder loan................................. 5,000,000
Payments on shareholder loan................................... (3,000,000)
-----------
Net cash flows provided by financing activities.............. 1,873,704
-----------
NET INCREASE IN CASH............................................. 1,072,704
CASH, beginning.................................................. 4,001,475
-----------
CASH, ending..................................................... $ 5,074,179
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for Interest......................................... $ 230,598
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--HISTORY AND BUSINESS
Walker Engineering, Inc. (the Company) was incorporated in Texas on June 1,
1981. The principal business activity of the Company is electrical engineering
in the commercial/ industrial field and the specialized area of airport
lighting contracts. Large contracts typically require ten to twenty-four
months to complete. The Company conducts these activities primarily within the
state of Texas.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Federal Income Taxes
Effective July 1, 1996, the Company, with the consent of its shareholders,
elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the shareholders are
liable for individual federal income tax on the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been
included in the financial statements. The adoption of Subchapter S status
necessitated changing from a fiscal year ending June 30 to a calendar year
ending December 31.
Revenue and Cost Recognition
Earned revenues are recognized on the percentage-of-completion method
measured on the basis of labor costs incurred to date to total estimated labor
costs for airport contracts and total costs incurred to date to total
estimated costs for all other contracts. Management considers total costs to
be the best available measure of progress on the majority of the Company's
contracts. However, management considers labor to be a more accurate measure
of progress on airport contracts since FAA regulations require the purchase of
all materials prior to commencement of the work and the inclusion of prepaid
material costs would accelerate the recognition of income beyond actual
progress. Adjustments to cost estimates are made periodically.
Contract costs include all direct labor and material costs. Indirect costs
related to contract performance, such as insurance, supplies, repairs and
depreciation costs are charged to cost of sales during the period in which
they are incurred. Selling, general and administrative costs are charged to
expense as incurred. Provision for estimated losses on uncompleted contracts
is made in the period in which such losses are determined.
The asset "Unbilled revenues" represents revenues recognized on contracts
for which billings have not been rendered. The liability "Excess billings"
represents billings in excess of revenues recognized.
Revenue and expense on time and material jobs are recognized when the job is
billed. Unbilled time and material costs are included in prepaid expenses;
however, at December 31, 1997, all costs associated with time and material
jobs had been billed.
Property and Equipment
Property, equipment and leasehold improvements are stated at cost.
Expenditures for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the lives of the assets are
capitalized at cost.
F-13
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The cost of assets sold, retired, or otherwise disposed of and the related
allowance for depreciation are eliminated from the accounts, and any resulting
gain or loss is included in operations for the period in which the disposal
occurred.
Property and equipment are depreciated over the estimated useful lives of
the assets using principally accelerated methods for both federal income tax
and financial reporting purposes.
Leasehold improvements are amortized over the life of the related lease. The
rates used to depreciate property and equipment are based on the following
estimated useful lives:
<TABLE>
<S> <C>
Automotive equipment........................................... 15 years
Operating equipment............................................ 5-7 years
Office furniture and equipment................................. 5-7 years
Computer and software.......................................... 3-5 years
Leasehold improvements......................................... 39 years
</TABLE>
Total depreciation and amortization expense for the year ended December 31,
1997, amounted to $391,468.
Investment in Life Insurance Contracts
The Company's investment in life insurance contracts is stated at cash
surrender value as of the balance sheet date.
The Company maintains two insurance policies on the life of a key officer in
the face amounts of approximately $445,000 and $325,000, respectively. The
Company is the sole beneficiary of the $445,000 policy. The Company may borrow
on the cash surrender value of the policies at any time; therefore, management
classifies the investments as current assets.
Allowance for Doubtful Accounts
The Company's policy is to expense accounts receivable which are considered
to be uncollectible; therefore, no allowance is provided.
Concentration of Credit
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments in government
securities. Concentrations of credit risk with respect to trade receivables
are limited due to the industry practice of requiring performance bonds on
long-term contracts. The Company's customer base consists of general
construction contractors concentrated in Dallas-Fort Worth and surrounding
areas.
The Company maintains operating cash accounts and interest bearing accounts
with various financial institutions. The total amount of these accounts at
December 31, 1997, in excess of the federally insured limits was $126,579. At
any point in time, the current balance exceeding the federally insured limits
would be at risk in the event the institution is unable to continue business.
F-14
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--CONTRACTS RECEIVABLE
The Company's contracts receivable were as follows at December 31, 1997:
<TABLE>
<S> <C>
Completed contracts............................................ $ 624,545
Contracts in progress.......................................... 11,746,133
Time and material jobs......................................... 3,554,357
Retention...................................................... 3,134,599
-----------
$19,059,634
===========
</TABLE>
NOTE D--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts (including job costs
prepaid (payable) on airport contracts).................... $75,932,591
Gross profit from inception................................. 13,086,972
-----------
89,019,563
Less billed to date......................................... 96,173,955
-----------
$(7,154,392)
===========
</TABLE>
These amounts are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C>
Unbilled revenues............................................. $ 281,404
Excess billings............................................... (7,435,796)
-----------
$(7,154,392)
===========
</TABLE>
NOTE E--OTHER ASSETS
Other assets consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Deposits......................................................... $ 2,780
Country club membership deposit.................................. 3,675
Country club initiation deposit.................................. 138,775
Dallas Cowboys bonds and options................................. 20,100
Texas Rangers bonds and options.................................. 15,200
--------
$180,530
========
</TABLE>
F-15
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--COMMITMENTS AND CONTINGENCIES
Operating Leases
In November 1997, the Company entered into a 60 month lease on a building
owned by the president (NOTE G). Monthly rental payments are $16,000. The
Company also maintains various lease agreements for the rental of additional
office space and pickup trucks for use in the Company's operations. The
Company expects to renew these leases in the ordinary course of business.
Future minimum rental payments under these operating leases are as follows:
<TABLE>
<S> <C>
1998.............................................................. $346,904
1999.............................................................. $216,886
2000.............................................................. $192,000
2001.............................................................. $192,000
2002.............................................................. $160,000
</TABLE>
Total rent charged to selling, general and administrative expense for the
year ended December 31, 1997, totaled $240,951.
Line of Credit
At December 31, 1997, the Company had an unused line of credit of $1,000,000
available to be drawn upon as needed at 1% above the bank prime rate.
Capital Leases
During the current year, the Company acquired automotive equipment totaling
$237,537 under capital leases. Additionally, the Company has operating
equipment totaling $192,604 which was acquired under capital leases in prior
years. Future minimum rental payments under these capital leases are as
follows for the years ended December 31:
<TABLE>
<S> <C>
1998............................................................ $ 47,958
1999............................................................ 72,026
---------
Total minimum lease payments.................................... 219,984
Amount representing interest.................................... (17,318)
---------
Present value of future lease payments.......................... 202,666
Less current portion............................................ (126,332)
---------
$ 76,334
=========
</TABLE>
During the year ended December 31, 1997, the Company recorded $83,549 in
amortization expense related to leased operating equipment. Accumulated
amortization on leased operating equipment totaled $124,774 at December 31,
1997.
Retirement Plan
Substantially all employees of the Company are covered under the Company's
retirement plan which was adopted during the year ended June 30, 1982.
F-16
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective July 1, 1995, the Company amended its retirement plan and adopted
an arrangement pursuant to Section 401(k) of the Internal Revenue Code. The
Company has agreed to match fifty percent of employees contributions to the
plan up to six percent of employee gross wages. At the discretion of the Board
of Directors, the Company may also authorize additional contributions to the
plan. During the year ended December 31, 1997, the Company recorded matching
contributions to the plan totaling $407,989. No discretionary contributions
were made during the period then ended.
NOTE G--RELATED PARTY TRANSACTIONS
The Company conducts its operations from a building owned by the president
(NOTE F). During the year ended December 31, 1997, the Company paid rent of
$152,000 to the president.
In addition, during the year ended December 31, 1997, the president loaned
the Company $5,000,000. The Company repaid the outstanding loan balance of
$2,000,000 from December 31, 1996, and $1,000,000 of the current year loans,
including interest at 10% per annum, prior to December 31, 1997. The remaining
note payable of $4,000,000 bears interest at 10% per annum and is due on
demand or December 17, 1999. Total interest expense paid to the president
during the year ended December 31, 1997 was $210,525.
NOTE H--ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Accrued salaries............................................... $ 395,303
Payroll taxes withheld and accrued............................. 2,189,093
Workers compensation insurance................................. 933,209
Other insurance premiums....................................... 212,969
Accrued vacation............................................... 311,908
Sales tax withheld............................................. 249,439
----------
$4,291,921
==========
</TABLE>
NOTE I--BACKLOG
The following schedule shows a reconciliation of backlog representing signed
contracts in existence at December 31, 1997:
<TABLE>
<S> <C>
Balance, December 31, 1996................................... $ 64,334,473
Contract adjustments......................................... 27,509,457
New contracts signed......................................... 75,645,770
------------
167,489,700
Less contract revenue earned in current period............... 113,188,860
------------
Balance, December 31, 1997................................... $ 54,300,840
============
</TABLE>
Subsequent to December 31, 1997, the Company executed new contracts and
received signed letters of intent totaling $22,343,000.
F-17
<PAGE>
WALKER ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--MAJOR CUSTOMERS
The Company derived 57% of its revenue for the year ended December 31, 1997,
from two general contractors (multiple contracts) and one major customer. The
total revenue from these contracts was approximately $64.5 million. Amounts
owed the Company by these entities at December 31, 1997, were $5,865,763.
NOTE K--SUBSEQUENT EVENT
Subsequent to year end, the Company entered into a letter of intent whereby
Consolidation Capital Corporation would acquire Walker Engineering, Inc.
F-18
