<PAGE>
RULES 424(B)(3) AND 424(C)
REGISTRATION NO. 333-60053
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED AUGUST 3, 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 August 3, 1998 covering 35,191,464 shares of the Company's
common stock, par value $.001 per share.
On August 24, 1998 the Company announced that its Board of Directors
authorized the repurchase of up to 3,100,000 shares of Consolidation Capital
common stock. The repurchases, which represent up to approximately 7% of the
Company's 42,958,536 currently outstanding shares of common stock, will be
made from time to time through open market or privately negotiated purchases
at the discretion of the Company and in accordance with the rules of the
Securities and Exchange Commission. The amount and timing of the repurchases
will depend on the price of the Company's common stock and market and business
conditions, including the amount and timing of acquisitions.
Set forth below are (i) the Company's unaudited pro forma financial
statements as of June 30, 1998 and for the year ended December 31, 1997 and
for the six months ended June 30, 1997 and 1998 and (ii) the Company's
consolidated financial statements as of December 31, 1997 and June 30, 1998
(unaudited) and for the three- and six-month periods ended June 30, 1997 and
1998 (unaudited).
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS AUGUST 25, 1998
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PRO FORMA FINANCIAL INFORMATION
Introduction....................................................... 2
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1998..... 3
Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1997........................................... 4
Unaudited Pro Forma Combined Statement of Operations for the six
months ended June 30,1997 ........................................ 5
Unaudited Pro Forma Combined Statement of Operations for the six
months ended June 30, 1998........................................ 6
Notes to Unaudited Pro Forma Combined Financial Statements......... 7
HISTORICAL FINANCIAL INFORMATION
Financial Statements (unaudited)
Consolidated Balance Sheet as of December 31, 1997 and June 30,
1998.............................................................. 11
Consolidated Statement of Operations for the three months ended
June 30, 1998 and 1997 and for the six months ended June 30, 1998
and 1997.......................................................... 12
Consolidated Statement of Stockholders' Equity for the six months
ended June 30, 1998............................................... 13
Consolidated Statement of Cash Flows for the six months ended June
30, 1998 and 1997................................................. 14
Notes to Consolidated Financial Statements......................... 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 20
</TABLE>
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The financial statements of Consolidation Capital Corporation (the
"Company") included in the following unaudited pro forma combined financial
statements of the Company represent the consolidated financial statements of
the Company, which are included elsewhere in this Prospectus Supplement or in
the Prospectus dated August 3, 1998. The consolidated financial statements
give retroactive effect, for all periods presented, to four acquisitions
consummated during the second quarter of 1998 accounted for under the pooling-
of-interests method. These four acquisitions were Perimeter Maintenance
Corporation and affiliates; Crest International, LLC; Spann Building
Maintenance Company and affiliate; and The Lewis Companies, Inc. and
affiliates (collectively, the "Pooled Companies").
The following unaudited pro forma combined balance sheet gives effect to the
recent acquisitions of Chambers Electronic Communications LLC ("Chambers") on
July 1, 1998 and McIntosh Mechanical, Inc. ("McIntosh") on August 3, 1998 (the
"Subsequent Acquisitions"), as if they had been consummated as of the
Company's most recent balance sheet date, June 30, 1998.
The unaudited pro forma combined statements of operations give effect to (i)
the 15 acquisitions completed during the six months ended June 30, 1998 ("1998
Acquisitions") which were business combinations accounted for under the
purchase method of accounting, and (ii) the Subsequent Acquisitions, as if all
such acquisitions had been consummated on January 1, 1997.
The pro forma combined statement of operations for the year ended December
31, 1997 includes (i) audited consolidated financial statements of the
Company, and (ii) financial statements of the 1998 Acquisitions and the
Subsequent Acquisitions.
The pro forma combined statement of operations for the six months ended June
30, 1997 and 1998 includes (i) the unaudited interim financial information for
the Company, and (ii) the unaudited interim financial information for the 1998
Acquisitions and the Subsequent Acquisitions.
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 does not purport to represent what the
Company's consolidated 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 consolidated
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 Supplement and in the Prospectus dated August 3,
1998.
2
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATION
CAPITAL SUBSEQUENT COMBINED PRO FORMA PRO FORMA
CORPORATION ACQUISITIONS TOTAL ADJUSTMENTS COMBINED
------------- ------------ -------- ----------- ---------
(SEE NOTE
2)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $333,317 $ 120 $333,437 $(10,733) $322,704
Accounts receivable,
net.................... 139,147 6,451 145,598 145,598
Cost and estimated
earnings in excess of
billings on uncompleted
contracts.............. 15,210 521 15,731 15,731
Prepaid expenses and
other current assets... 12,335 293 12,628 12,628
-------- ------ -------- -------- --------
Total current
assets............... 500,009 7,385 507,394 (10,733) 496,661
Property and equipment,
net..................... 25,183 1,247 26,430 26,430
Goodwill, net........... 347,195 -- 347,195 14,258 361,453
Other assets............ 6,633 -- 6,633 6,633
-------- ------ -------- -------- --------
Total assets......... $879,020 $8,632 $887,652 $ 3,525 $891,177
======== ====== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt........ $ 3,875 $ 764 $ 4,639 $ $ 4,639
Accounts payable....... 36,512 1,510 38,022 38,022
Billings in excess of
costs and estimated
earnings on uncompleted
contracts.............. 43,818 121 43,939 43,939
Accrued compensation... 18,242 246 18,488 18,488
Accrued liabilities --
other.................. 16,889 291 17,180 17,180
Income taxes payable... 8,452 -- 8,452 8,452
-------- ------ -------- -------- --------
Total current
liabilities.......... 127,788 2,932 130,720 130,720
Long-term debt.......... 4,014 164 4,178 4,178
Other................... 4,355 19 4,374 4,374
-------- ------ -------- -------- --------
Total liabilities.... 136,157 3,115 139,272 139,272
Stockholders' equity:
Common Stock........... 42 1 43 43
Convertible Non-Voting
common stock........... 1 -- 1 1
Additional paid-in
capital................ 712,441 115 712,556 8,926 721,482
Accumulated other
comprehensive income... 1,046 1,046 1,046
Retained earnings ..... 29,333 5,401 34,734 (5,401) 29,333
-------- ------ -------- -------- --------
Total stockholders'
equity .............. 742,863 5,517 748,380 3,525 751,905
-------- ------ -------- -------- --------
Total liabilities and
stockholders'
equity............... $879,020 $8,632 $887,652 $ 3,525 $891,177
======== ====== ======== ======== ========
</TABLE>
3
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 ACQUISITIONS
---------------------------------------------------------------------------------
SKC GARFIELD TOWN &
CONSOLIDATION SERVICE ELECTRIC AND RIVIERA TRI-CITY COUNTRY WILSON
CAPITAL MANAGEMENT & INDECON ELECTRIC ELECTRICAL ELECTRIC ELECTRIC
CORPORATION USA, INC. AFFILIATE COMBINED CONSTRUCTION CONTRACTORS CO. CO.
------------- ---------- --------- --------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 115,309 $26,266 $23,482 $24,498 $37,049 $79,493 $48,726 $71,009
Cost of revenues.............. 94,382 19,856 16,971 19,587 31,607 63,551 39,701 59,036
--------- ------- ------- ------- ------- ------- ------- -------
Gross profit.............. 20,927 6,410 6,511 4,911 5,442 15,942 9,025 11,973
Selling, general and
administrative expenses...... 17,770 3,832 2,981 4,200 3,999 9,925 7,006 10,514
Goodwill amortization.........
--------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)... 3,157 2,578 2,311 1,930 1,443 6,017 2,019 1,459
Other (income) expense:
Interest expense.......... 1,672 53 102 229 53 75 110
Interest income........... (2,336) (168) (156)
Other, net................ (1,322) 6 (40) (16) (119) 26 (113) 77
--------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes............. 5,173 2,519 2,351 1,844 1,333 6,106 2,057 1,428
Provision for income taxes.... 1,487 52 1,150 771 462 894 625
--------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 3,686 $ 2,467 $ 1,201 $ 1,073 $ 1,333 $ 5,644 $ 1,163 $ 803
========= ======= ======= ======= ======= ======= ======= =======
Net income per share--Basic... $ 0.53
=========
Net income per share--Diluted. $ 0.50
=========
Weighted average shares
outstanding--Basic (Note 4).. 7,007,335
=========
Weighted average shares
outstanding--Diluted
(Note 4)..................... 7,383,315
=========
<CAPTION>
----------------------------------------------
WALKER
ENGINEERING TAYLOR REGENCY SUBSEQUENT COMBINED PRO FORMA PRO FORMA
INC. ELECTRIC ELECTRIC INSIGNIFICANT ACQUISITIONS TOTAL ADJUSTMENTS COMBINED
----------- -------- -------- ------------- ------------ -------- ------------- ---------
(SEE NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $127,672 $19,193 $60,283 $148,186 $27,530 $808,696 $ $ 808,696
Cost of revenues.............. 106,346 13,799 44,338 120,405 20,868 650,447 650,447
-------- ------- ------- -------- ------- -------- --------- -----------
Gross profit.............. 21,326 5,394 15,945 27,781 6,662 158,249 158,249
Selling, general and
administrative expenses...... 21,786 1,272 7,163 24,202 4,671 119,321 (24,144) (A) 94,446
2,560 (E)
(3,291) (F)
Goodwill amortization......... 9,046 (B) 9,046
-------- ------- ------- -------- ------- -------- --------- -----------
Operating income (loss)... (460) 4,122 8,782 3,579 1,991 38,928 15,829 54,757
Other (income) expense:
Interest expense.......... 36 580 74 2,984 2,984
Interest income........... (328) (113) (1,296) (359) (4,786) 900 (D) (3,886)
Other, net................ (43) (734) (183) (2,461) (2,461)
-------- ------- ------- -------- ------- -------- --------- -----------
Income (loss) before provision
for income taxes............. (168) 4,278 10,078 4,092 2,100 43,191 14,929 58,120
Provision for income taxes.... 873 6,314 20,192 (H) 26,506
-------- ------- ------- -------- ------- -------- --------- -----------
Net income (loss)............. $ (168) $ 4,278 $10,078 $ 3,219 $ 2,100 $ 36,877 $ (5,263) $ 31,614
======== ======= ======= ======== ======= ======== ========= ===========
Net income per share--Basic... $ 1.11
===========
Net income per share--Diluted. $ 1.09
===========
Weighted average shares
outstanding--Basic (Note 4).. 28,590,427
===========
Weighted average shares
outstanding--Diluted
(Note 4)..................... 28,966,407
===========
</TABLE>
4
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 ACQUISITIONS
-------------------------------------------------------------------------------------------------
SKC TOWN &
CONSOLIDATION SERVICE ELECTRIC GARFIELD RIVIERA TRI-CITY COUNTRY WILSON
CAPITAL MANAGEMENT & AND INDECON ELECTRIC ELECTRICAL ELECTRIC ELECTRIC
CORPORATION USA, INC. AFFILIATE COMBINED CONSTRUCTION CONTRACTORS CO. CO.
------------- ---------- --------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $ 59,456 $11,794 $9,407 $11,642 $16,017 $33,486 $21,594 $36,923
Cost of
revenues........ 49,180 9,289 6,562 8,329 13,761 26,400 17,253 30,704
--------- ---------- --------- ----------- ------------ ----------- --------- ---------
Gross profit.... 10,276 2,505 2,845 3,313 2,256 7,086 4,341 6,219
Selling, general
and
administrative
expenses........ 8,144 1,582 2,072 2,287 1,499 4,200 4,010 4,193
Goodwill
amortization....
--------- ---------- --------- ----------- ------------ ----------- --------- --------
Operating income
(loss)......... 2,132 923 773 1,026 757 2,886 331 2,026
Other (income)
expense:
Interest
expense........ 806 10 95 32 36 11
Interest
income......... (244) (13) (80)
Other, net...... (815) (69) (90) 25 (75) (90)
--------- ---------- --------- ----------- ------------ ----------- --------- ---------
Income (loss)
before provision
for income
taxes........... 2,385 913 773 1,108 752 2,909 370 2,105
Provision for
income taxes.... 646 427 1,141 427
--------- ---------- --------- ----------- ------------ ----------- --------- ---------
Net income
(loss).......... $ 1,739 $ 913 $ 773 $ 681 $ 752 $ 1,768 $ 370 $ 1,678
========= ========== ========= =========== ============ =========== ========= =========
Net income per
share--Basic.... 0.43
=========
Net income per
share--Diluted.. 0.40
=========
Weighted average
shares
outstanding--
Basic (Note 4).. 4,079,359
=========
Weighted average
shares
outstanding--
Diluted
(Note 4)........ 4,388,808
=========
<CAPTION>
1998 ACQUISITIONS
-------------------------------------------------------------------------------------------------
WALKER
ENGINEERING TAYLOR REGENCY SUBSEQUENT COMBINED PRO FORMA PRO FORMA
INC. ELECTRIC ELECTRIC INSIGNIFICANT ACQUISITIONS TOTAL ADJUSTMENTS COMBINED
----------- -------- --------- ------------- ------------ --------- ---------------- -----------
(SEE NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $66,579 $9,886 $26,395 $69,476 $14,974 $387,629 $ $ 387,629
Cost of
revenues........ 56,756 6,456 19,765 55,616 11,096 311,167 311,167
----------- -------- --------- ------------- ------------ --------- ---------------- -----------
Gross profit.... 9,823 3,430 6,630 13,860 3,878 76,462 76,462
Selling, general
and
administrative
expenses........ 3,552 565 2,073 13,091 2,608 49,876 (4,070)(A) 45,992
(1,094)(F)
1,280 (E)
Goodwill
amortization.... 4,526 (B) 4,526
----------- -------- --------- ------------- ------------ --------- ---------------- -----------
Operating income
(loss)......... 6,271 2,865 4,557 769 1,270 26,586 (642) 25,944
Other (income)
expense:
Interest
expense........ 107 587 226 1,910 1,910
Interest
income......... (123) (35) (100) (141) (736) (736)
Other, net...... (31) (11) 688 67 (113) (514) (514)
----------- -------- --------- ------------- ------------ --------- ---------------- -----------
Income (loss)
before provision
for income
taxes........... 6,318 2,911 3,382 617 1,383 25,926 (642) 25,284
Provision for
income taxes.... 357 2,998 8,746 (H) 11,744
----------- -------- --------- ------------- ------------ --------- ---------------- -----------
Net income
(loss).......... $ 6,318 $2,911 $ 3,382 $ 260 $ 1,383 $ 22,928 $(9,388) $ 13,540
=========== ======== ========= ============= ============ ========= ================ ===========
Net income per
share--Basic.... $ 0.49
===========
Net income per
share--Diluted.. $ 0.49
===========
Weighted average
shares
outstanding--
Basic (Note 4).. 27,412,154
===========
Weighted average
shares
outstanding--
Diluted
(Note 4)........ 27,721,603
==========
</TABLE>
5
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATION
CAPITAL 1998 SUBSEQUENT COMBINED PRO FORMA PRO FORMA
CORPORATION ACQUISITIONS ACQUISITIONS TOTAL ADJUSTMENTS COMBINED
------------- ------------ ------------ -------- ------------ ----------
(SEE NOTE 3)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 260,307 $165,925 $19,504 $445,736 $ $ 445,736
Cost of revenues........ 204,000 137,725 14,645 356,370 356,370
---------- -------- ------- -------- ------- ----------
Gross profit........... 56,307 28,200 4,859 89,366 89,366
Selling, general and
administrative
expenses............... 33,554 30,017 2,274 65,845 (12,982)(A) 52,863
Goodwill amortization... 1,971 234 2,205 2,321 (B) 4,526
Non-recurring
acquisition costs...... 1,147 1,147 (1,147)(G) --
---------- -------- ------- -------- ------- ----------
Operating income....... 19,635 (2,051) 2,585 20,169 11,808 31,977
Other (income) expense:
Interest expense....... 912 867 1,779 (675)(C) 1,104
Interest income........ (12,603) (364) (12,967) 3,609 (D) (9,358)
Other, net............. (1,118) (915) (76) (2,109) (2,109)
---------- -------- ------- -------- ------- ----------
Income (loss) before
provision for income
taxes.................. 32,444 (1,639) 2,661 33,466 8,874 42,340
Provision for income
taxes.................. 13,747 596 14,343 3,426 (H) 17,769
---------- -------- ------- -------- ------- ----------
Net income (loss)....... $ 18,697 $ (2,235) $ 2,661 $ 19,123 $ 5,448 $ 24,571
========== ======== ======= ======== ======= ==========
Net income per share--
Basic.................. $ 0.50 $ 0.57
========== ==========
Net income per share--
Diluted................ $ 0.48 $ 0.56
========== ==========
Weighted average shares
outstanding--Basic
(Note 4)............... 37,319,254 42,958,536
========== ==========
Weighted average shares
outstanding--Diluted
(Note 4)............... 38,560,722 44,265,048
========== ==========
</TABLE>
6
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--GENERAL
During the six months ended June 30, 1998, Consolidation Capital Corporation
(the "Company") acquired Service Management USA, Tri-City Electrical
Contractors, Inc., Garfield Electric Company, Indecon, Inc., Riviera Electric
Construction Co., SKC Electric, Inc. & Affiliate, Town & Country Electric,
Inc., Wilson Electric Company, Inc., Walker Engineering Inc., United Service
Solutions, Inc., G.S. Group, Inc., Taylor Electric, Inc., Regency Electric
Company, Inc., National Network Services, Inc. and Riviera Electric of
California, Inc. (the "1998 Acquisitions"), in business combinations accounted
for under the purchase method of accounting. Subsequent to June 30, 1998, the
Company has acquired the Subsequent Acquisitions, in business combinations to
be accounted for under the purchase method of accounting.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Subsequent Acquisitions as if they had been consummated on June 30, 1998.
The Unaudited Pro Forma Combined Statements of Operations give effect to the
1998 Acquisitions and the Subsequent Acquisitions as if they had been
consummated as of January 1, 1997.
NOTE 2--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The unaudited pro forma combined balance sheet reflects adjustments to give
effect to the purchase of the Subsequent Acquisitions for consideration of
approximately $10,733 in cash and 463,810 shares of common stock resulting in
excess purchase price over the fair value of net assets acquired of $14,258.
Such allocations are preliminary in nature, pending the outcome of a detailed
analysis being performed by the Company of the assets and liabilities
acquired. For purposes of computing the estimated purchase price for business
combinations accounted for under the purchase method of accounting, the value
of the shares was determined in consideration of restrictions on the
transferability of the shares issued. The shares generally will be subject to
the following restrictions on resale: up to one-third of 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.
7
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3--UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The unaudited pro forma combined statements of operations reflect the
following adjustments:
(A) Reflects the modifications in salaries, bonuses and benefits to owners of
the 1998 Acquisitions and the Subsequent Acquisitions to which they have
agreed prospectively.
(B) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the 1998 Acquisitions
and the Subsequent Acquisitions.
(C) Adjustment reflects reduction in interest expense associated with debt
paid in conjunction with the acquisition of one of the 1998 Acquisitions.
(D) Adjustment to eliminate interest income relating to the cash consideration
used in the acquisition of the 1998 Acquisitions and the Subsequent
Acquisitions.
(E) Reflects an increase in general and administrative expenses associated
with the Company's management and corporate activities.
(F) Adjustment to eliminate expense recorded in connection with certain of the
1998 Acquisitions' Employee Stock Ownership Plans for the year ended
December 31, 1997 and June 30, 1997. These plans were converted to profit
sharing plans as part of the acquisitions, and no further contributions
will be made.
(G) Adjustment to reflect the reduction in one-time nonrecurring acquisition
costs related to pooling-of-interests business combinations. These costs
consist of legal, accounting and broker fees.
(H) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state statutory rates
for all periods presented.
8
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--SHARES USED TO COMPUTE PRO FORMA EARNINGS PER SHARE
The weighted average shares outstanding used to calculate pro forma earnings
per share for the year ended December 31, 1997 and the six months ended June
30, 1997 and 1998 are as follows:
<TABLE>
<S> <C>
Year ended December 31, 1997:
Shares issued to the founding stockholder of the Company............ 2,300,000
Weighted average shares of the Company, including shares issued in
conjunction with the initial public offering....................... 4,015,101
Shares issued in conjunction with the acquisition of the 1998 Acqui-
sitions............................................................ 9,507,898
Shares issued in conjunction with the Subsequent Acquisitions....... 463,810
Shares sold in the initial public offering considered outstanding to
fund the cash consideration of the 1998 Acquisitions and the Subse-
quent Acquisitions................................................. 12,303,618
----------
Pro Forma weighted average shares outstanding--Basic................ 28,590,427
Dilution attributable to stock options and warrants................. 375,980
----------
Pro Forma weighted average shares outstanding--Diluted.............. 28,966,407
==========
Six months ended June 30, 1997:
Shares issued to the founding stockholder of the Company............ 2,300,000
Shares issued in acquisition of Pooled Companies.................... 2,836,828
Shares issued in conjunction with the acquisition of the 1998 Acqui-
sitions............................................................ 9,507,898
Shares issued in conjunction with the Subsequent Acquisitions....... 463,810
Shares sold in the initial public offering considered outstanding to
fund the cash consideration of the 1998 Acquisitions and the Subse-
quent Acquisitions................................................. 12,303,618
----------
Pro Forma weighted average shares outstanding--Basic................ 27,412,154
Dilution attributable to stock options and warrants................. 309,449
----------
Pro Forma weighted average shares outstanding--Diluted.............. 27,721,603
==========
Six months ended June 30, 1998:
Weighted average shares of the Company, prior to 1998 Acquisitions.. 32,986,828
Shares issued in conjunction with the 1998 Acquisitions............. 9,507,898
Shares issued in conjunction with the Subsequent Acquisitions....... 463,810
----------
Pro Forma weighted average shares outstanding--Basic................ 42,958,536
Dilution attributable to convertible common stock, stock options and
warrants........................................................... 1,306,512
----------
Pro Forma weighted average shares outstanding--Diluted.............. 44,265,048
==========
</TABLE>
9
<PAGE>
HISTORICAL FINANCIAL INFORMATION
FINANCIAL STATEMENTS
CONSOLIDATION CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $530,568 $333,317
Accounts receivable, net............................ 23,446 139,147
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 2,781 15,210
Prepaid expenses and other current assets........... 5,939 12,335
-------- --------
Total current assets.............................. 562,734 500,009
Property and equipment, net........................... 6,411 25,183
Goodwill, net......................................... 152 347,195
Other assets.......................................... 1,967 6,633
-------- --------
Total assets...................................... $571,264 $879,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt..................................... $ 3,967 $ 3,875
Accounts payable.................................... 6,541 36,512
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 1,225 43,818
Income taxes payable................................ 351 8,452
Accrued compensation................................ 2,237 18,242
Accrued liabilities--other.......................... 3,116 16,889
-------- --------
Total current liabilities......................... 17,437 127,788
Long-term debt........................................ 13,794 4,014
Other liabilities..................................... 1,486 4,355
-------- --------
Total liabilities................................. 32,717 136,157
-------- --------
Stockholders' equity:
Common stock, $.001 par value, 250,000,000 shares
authorized, 32,871,712 and 42,494,726 shares issued
and outstanding, respectively...................... 33 42
Convertible Non-Voting Common Stock, $.001 par
value, 500,000 shares authorized, issued and
outstanding........................................ 1 1
Additional paid-in capital.......................... 528,613 712,441
Accumulated other comprehensive income.............. 292 1,046
Retained earnings................................... 9,608 29,333
-------- --------
Total stockholders' equity........................ 538,547 742,863
-------- --------
Total liabilities and stockholders' equity........ $571,264 $879,020
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ 190,077 $ 28,742 $ 260,307 $ 59,456
Cost of revenues................ 147,841 23,544 204,000 49,180
---------- --------- ---------- ---------
Gross profit................ 42,236 5,198 56,307 10,276
Selling, general and
administrative expenses........ 22,992 3,859 33,554 8,144
Goodwill amortization........... 1,647 1,971
Non-recurring acquisition
costs.......................... 1,147 1,147
---------- --------- ---------- ---------
Operating income............ 16,450 1,339 19,635 2,132
Other (income) expense:
Interest expense.............. 455 236 912 806
Interest income............... (5,602) (113) (12,603) (244)
Other, net.................... 37 156 (1,118) (815)
---------- --------- ---------- ---------
Income before taxes............. 21,560 1,060 32,444 2,385
Provision for income taxes...... 9,239 224 13,747 646
---------- --------- ---------- ---------
Net income...................... $ 12,321 $ 836 $ 18,697 $ 1,739
========== ========= ========== =========
Net income per Common Share--
Basic.......................... $ 0.31 $ 0.16 $ 0.50 $ 0.43
========== ========= ========== =========
Net income per Common Share--
Diluted........................ $ 0.30 $ 0.15 $ 0.48 $ 0.40
========== ========= ========== =========
Weighted average shares
outstanding - Basic............ 40,105,135 5,216,581 37,319,254 4,079,359
========== ========= ========== =========
Weighted average shares
outstanding - Diluted.......... 41,300,982 5,526,030 38,560,722 4,388,808
========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
NON-VOTING
COMMON STOCK COMMON STOCK ACCUMULATED
------------------ ------------------ ADDITIONAL OTHER TOTAL TOTAL
SHARES SHARES PAID-IN- COMPREHENSIVE RETAINED STOCKHOLDERS' COMPREHENSIVE
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL INCOME EARNINGS EQUITY INCOME
----------- ------ ----------- ------ ---------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1997.......... 32,871,712 $ 33 500,000 $ 1 $528,613 $ 292 $ 9,608 $538,547
Transactions of
Pooled Companies:
Distributions
paid............. (446) (446)
Adjustment to
conform year end
of Pooled
Company.......... 76 1,242 1,318
Stock issued upon
exercise of
options.......... 115,116 217 217
Issuance of common
stock for acquisi-
tions............. 9,507,898 9 183,843 183,852
Unrealized gain on
marketable securi-
ties--net of tax.. 678 678 $ 678
Net income......... 214 18,483 18,697 18,697
-------
Total comprehensive
income............ $19,375
---------- ----- ------- ----- -------- ------ ------- -------- =======
Balance, June 30,
1998 (unaudited).. 42,494,726 $ 42 500,000 $ 1 $712,441 $1,046 $29,333 $742,863
========== ===== ======= ===== ======== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 18,697 $ 1,739
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 3,953 590
Proceeds from sales of marketable securities............ 1,543
(Gain) loss on disposal of equipment.................... 12 (1)
Net unrealized/realized gain on marketable securities... (2,039) (2,206)
Deferred income taxes................................... 1,193
Minority interest....................................... 1,450 465
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,788) (4,761)
Costs and estimated earnings in excess of billings..... 2,625 (605)
Prepaid expenses and other current assets.............. (2,191) (249)
Billings in excess of costs and estimated earnings..... 7,073 2,302
Accounts payable....................................... 4,554 (901)
Accrued liabilities.................................... 98 2,548
Change in other assets.................................. (325) 858
--------- --------
Net cash provided by operating activities............. 33,312 1,322
--------- --------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired......... (163,631)
Purchases of property and equipment...................... (3,789) (551)
Proceeds on sale of equipment............................ 3,323
Other.................................................... 181
--------- --------
Net cash used in investing activities................. (163,916) (551)
--------- --------
Cash flows from financing activities:
Net payments on short-term debt.......................... (29,182) (415)
Payments on long-term debt............................... (40,813) (220)
Proceeds on long-term debt............................... 1,844 1,425
Dividends paid........................................... (446) (100)
Proceeds from related party loans........................ 666 221
Adjustments to conform year ends of pooled companies..... 1,242
Proceeds from issuance of stock on options exercised..... 217
Distributions to minority partners....................... (175) (353)
--------- --------
Net cash provided by (used in) financing activities... (66,647) 558
--------- --------
Net (decrease) increase in cash and cash equivalents...... (197,251) 1,329
Cash and cash equivalents, beginning of period............ 530,568 1,139
--------- --------
Cash and cash equivalents, end of period.................. $ 333,317 $ 2,468
========= ========
The Company issued shares of common stock and cash in connection with certain
business combinations during the six months ended
June 30, 1998. The fair values of the assets acquired and liabilities
assumed at the dates of acquisition are as follows:
Accounts receivable....................................... $109,961
Inventories............................................... 1,317
Costs and earnings in excess of billings.................. 17,913
Prepaid expenses and other current assets................. 4,791
Property and equipment.................................... 18,408
Intangible assets......................................... 347,730
Other assets.............................................. 6,839
Short-term debt........................................... (23,103)
Accounts payable.......................................... (28,041)
Accrued liabilities....................................... (30,882)
Billings in excess of costs and estimated earnings........ (36,875)
Long-term debt............................................ (37,774)
Other long-term liabilities............................... (2,801)
--------
Net assets acquired....................................... $347,483
========
These acquisitions were funded as follows:
Common stock, 9,507,898 shares............................ $183,852
Cash, net of cash acquired................................ 163,631
--------
$347,483
========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--BASIS OF PRESENTATION
Consolidation Capital Corporation, a Delaware corporation (the "Company"),
was incorporated in September 1997. Ledecky Brothers L.L.C., ("LLC"), a
limited liability corporation formed in February 1997, merged with and into
the Company in September 1997 (the "Merger"). The sole member of LLC received,
in connection with the Merger, 2,300,000 shares of Common Stock of the Company
which represented all of the issued and outstanding shares of Common Stock, in
exchange for 100% of his ownership interest in the LLC. The Merger was
implemented to facilitate a public offering of securities. Because both of the
organizations were under control of the sole owner, the Merger was accounted
for on a historical cost basis.
The Company is consolidating the facilities services industry with the
intent to become a national single-source provider of facilities services.
Through December 31, 1997, the Company's operations consisted of
organizational activities, research and analysis with respect to industry
consolidations and acquisition opportunities, efforts to refine the Company's
business strategy and meetings and negotiations with potential acquisition
candidates. The Company completed an initial public offering of its Common
Stock in December 1997, selling 27,850,000 shares of Common Stock and 500,000
shares of Convertible Non-Voting Common Stock and raising net proceeds of
approximately $527,000.
During the six months ended June 30, 1998, the Company acquired all of the
outstanding stock of Service Management USA, Inc., Garfield Electric Company,
Indecon, Inc., Riviera Electric Construction Co., Inc., SKC Electric, Inc.,
Town & Country Electric, Inc., Tri-City Electrical Contractors, Inc., Walker
Engineering, Inc., Wilson Electric Company, Inc., United Service Solutions,
Inc., G.S. Group, Inc., Taylor Electric, Inc., Regency Electric Company, Inc.,
National Network Services, Inc. and Riviera Electric of California, Inc. (the
"Purchased Companies") in business combinations accounted for under the
purchase method of accounting. The accompanying consolidated financial
statements include the accounts of the Purchased Companies from their
respective acquisition dates.
Additionally, during the three months ended June 30, 1998, the Company
acquired all of the outstanding common stock of Perimeter Maintenance
Corporation, Crest International LLC, Spann Building Maintenance Company and
The Lewis Companies, Inc. (collectively, the "Pooled Companies") in business
combinations accounted for under the pooling-of-interests method of
accounting. Accordingly, the accompanying consolidated financial statements
give retroactive effect to these pooling-of-interests business combinations
for all periods presented.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim period
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. It is
suggested that these consolidated financial statements be read in conjunction
with the Company's audited consolidated financial statements for the fiscal
year ended December 31, 1997, and the Company's audited supplemental
consolidated financial statements included in the Company's Registration
Statement on Form S-4, as filed with the Securities and Exchange Commission on
August 3, 1998.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Company utilizes the percentage-of-completion method of accounting for
the recognition of revenues and costs of all significant installation
contracts. Revenues are recognized according to the ratio of costs incurred to
estimated total contract costs. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions
are determined. Maintenance and other service revenues are recognized as the
services are performed.
14
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Leasehold improvements are capitalized and
amortized over the lesser of the life of the lease or the estimated useful
life of the asset. Buildings are amortized over a period of 40 years.
Goodwill
Goodwill, which represents the excess of cost over the fair value of assets
acquired in business combinations accounted for under the purchase method, is
being amortized on a straight-line basis over 40 years which is the estimated
period benefitted. The recoverability of the unamortized balance of goodwill
is assessed on an ongoing basis by comparing anticipated undiscounted future
cash flows from operations to net book value.
Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards "SFAS" No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. SFAS
No. 130 requires that all items required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company adopted SFAS No. 130 during the first quarter of 1998.
Prior periods have been reclassified for comparative purposes.
The Company's other comprehensive income consists of unrealized gains on
marketable securities, net of applicable taxes.
Non-Recurring Acquisition Costs
Non-recurring acquisition costs consist of costs incurred in conjunction
with the business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, broker fees and other
costs directly attributable to the business combination.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way
management organizes and evaluates financial information internally for making
decisions and assessing performance. It also requires related disclosures
about products, geographic areas, and major customers. SFAS 131 is effective
for fiscal years beginning after December 15, 1997. The Company intends to
adopt SFAS No. 131 for the year ending December 31, 1998. Implementation of
this disclosure standard will not affect the Company's financial position or
results of operations.
NOTE 3--BUSINESS COMBINATIONS
Purchase Method
As discussed in Note 1, during the six months ended June 30, 1998, the
Company completed fifteen business combinations, that were accounted for under
the purchase method of accounting. The consolidated financial statements
include the results of these acquired entities from their respective dates of
acquisition. The aggregate consideration paid for these acquisitions consisted
of 9,507,898 shares of Common Stock, $187,022 in cash, including applicable
professional fees, and the assumption of approximately $33,847 in debt, which
was paid at closing.
15
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
The aggregate purchase price does not include contingent consideration of up
to $98,552 in cash and in shares of Common Stock based upon the performance of
the businesses acquired.
The total purchase price was allocated to the fair value of the net assets
acquired, resulting in goodwill of approximately $348,000. Such allocations
are preliminary in nature, pending the outcome of a detailed analysis being
performed by the Company of the assets and liabilities acquired. 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 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.
The following presents the unaudited pro forma results of operations of the
Company for the three and six month periods ended June 30, 1998 and 1997,
respectively, as if all of the acquisitions of the Purchased Companies had
been consummated as of January 1, 1997. The pro forma results of operations
reflect certain pro forma adjustments.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
----------------- ------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $222,386 $194,759 $426,232 $ 372,557
Net income $ 14,574 $ 7,690 $ 24,142 $ 12,776
Net income per share--Basic $ 0.34 $ 0.29 $ 0.57 $ 0.48
Net income per share--Diluted $ 0.33 $ 0.29 $ 0.55 $ 0.48
</TABLE>
The pro forma results of operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had
the acquisitions occurred as of January 1, 1997 or the results that may occur
in the future.
Pooling-of-Interests Method
During the three months ended June 30, 1998, the Company issued 2,836,828
shares of Common Stock to acquire four companies in business combinations
accounted for under the pooling-of-interests method. Additionally, one of the
Pooled Companies had previously existing vested stock options which were
converted into stock options for 403,389 shares of the Company's Common Stock
(the "Replacement Options"). The Replacement Options are fully vested and have
an exercise price of $4.84 per share.
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. The Lewis
Companies, Inc. ("Lewis") previously reported on a fiscal year ending June 30.
As such, financial information for the three- and six-month fiscal periods
ended December 31, 1996 of Lewis were combined with Consolidation Capital
Corporation's financial information for the three- and six-month periods ended
June 30, 1997, respectively, for purposes of the related statements of
operations, of stockholders' equity and of cash flows. The net income of Lewis
for the six months July 1, 1997 to December 31, 1997 are reflected as an
adjustment to the Company's retained earnings during the three-month period
ended March 31, 1998. This net adjustment of $1,242 is comprised of $30,774 of
revenues, partially offset by $29,532 of costs and expenses. Commencing on
January 1, 1998, the year end of Lewis was changed to December 31.
16
<PAGE>
CONSOLIDATION CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998
The following presents the separate results, in each of the periods
presented, of Consolidation Capital Corporation (excluding the results of
Pooled Companies prior to the dates on which they were acquired), and the
Pooled Companies up to the dates on which they were acquired:
<TABLE>
<CAPTION>
CONSOLIDATION POOLED
CAPITAL COMPANIES COMBINED
------------- --------- --------
<S> <C> <C> <C>
For the three months ended June 30, 1997
Revenues.................................... $ -- $28,742 $ 28,742
Net income.................................. -- 836 836
For the three months ended June 30, 1998
Revenues.................................... $162,053 $28,024 $190,077
Net income.................................. 8,946 3,375 12,321
For the six months ended June 30, 1997
Revenues.................................... $ -- $59,456 $ 59,456
Net income.................................. -- 1,739 1,739
For the six months ended June 30, 1998
Revenues.................................... $199,550 $60,757 $260,307
Net income.................................. 14,209 4,488 18,697
</TABLE>
NOTE 4--COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Costs incurred on uncompleted contracts....... $30,606 $479,051
Estimated earnings............................ 6,474 131,611
------- --------
37,080 610,662
Less: Billings to date........................ 35,524 639,270
------- --------
$ 1,556 $(28,608)
======= ========
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 2,781 $ 15,210
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 1,225 43,818
------- --------
$ 1,556 $(28,608)
======= ========
</TABLE>
NOTE 5--STOCK PURCHASE AND AWARD PLANS
In addition to the Replacement Options (see Note 3, "Business
Combinations"), in connection with business combinations consummated during
the period from January 1, 1998 through June 30, 1998, the Company has granted
options for approximately 765,846 shares of the Company's Common Stock, and is
expected to issue options for an additional 987,635 shares of the Company's
Common Stock, under the Company's Long-Term Incentive Plan. All options vest
over a four year period from date of grant. These options have been, or will
be, granted with an exercise price equal to the market price of the Company's
Common Stock at the date of grant.
NOTE 6--NET EARNINGS PER SHARE
The Company has adopted SFAS No. 128 "Earnings Per Share" which became
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share ("EPS") and restatement of EPS data for all prior periods. Basic EPS
includes no dilution and is computed by dividing net income by the Company's
weighted average shares of Common Stock
17
<PAGE>
outstanding. Diluted EPS is computed by dividing net income by the Company's
weighted average shares of Common Stock outstanding and dilutive Common Stock
equivalents. The following table reconciles the numerators and denominators of
the basic and diluted EPS computations for the three and six month periods
ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income...................... $ 12,321 $ 836 $ 18,697 $ 1,739
Weighted average shares
outstanding--Basic............. 40,105,135 5,216,581 37,319,254 4,079,359
----------- ---------- ----------- ----------
Net income per share--Basic..... $ 0.31 $ 0.16 $ 0.50 $ 0.43
=========== ========== =========== ==========
Diluted earnings per share:
Net income...................... $ 12,321 $ 836 $ 18,697 $ 1,739
Weighted average shares
outstanding--Basic............. 40,105,135 5,216,581 37,319,254 4,079,359
Convertible Non-Voting Common
Stock.......................... 500,000 -- 500,000 --
Common stock equivalents from
stock options and warrants..... 599,506 309,449 693,297 309,449
Contingently issuable shares.... 96,341 -- 48,171 --
----------- ---------- ----------- ----------
Total weighted average shares
outstanding--Diluted........... 41,300,982 5,526,030 38,560,722 4,388,808
----------- ---------- ----------- ----------
Net income per share--Diluted... $ 0.30 $ 0.15 $ 0.48 $ 0.40
=========== ========== =========== ==========
</TABLE>
Outstanding stock options to purchase 634,468 shares of Common Stock as of
June 30, 1998 were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average
market price of the Common Stock during the period.
NOTE 7--CONTINGENCY RESOLUTION
During 1996, Lewis entered into a contract to provide electrical design,
engineering and installation services for a power plant in Argentina (the
"Argentina Project"). A dispute developed as to the amount to be paid to Lewis
in connection with certain project scope changes. The disputed matters were
submitted to a binding arbitration process. Because of the uncertainty
surrounding the outcome of the litigation, Lewis wrote off a substantial
amount of the receivables related to this project in 1996. In May 1998, Lewis
was awarded $12,400 by the arbitration panel and this amount was received in
June 1998. Lewis recognized an after tax gain of approximately $1,300 during
the second quarter of 1998 in connection with this matter.
NOTE 8--SUBSEQUENT EVENTS
Subsequent to June 30, 1998, the Company completed two business combinations
to be accounted for under the purchase method for an aggregate consideration
of 463,810 shares of Common Stock and approximately $10,310 in cash.
Additionally, there is the potential for the payment of up to an additional
$3,825 in cash and shares of Common Stock in connection with contingent
consideration arrangements. The Company has also announced that it has signed
letters of intent to acquire three janitorial maintenance management services
businesses and two electrical and mechanical installation and maintenance
services businesses. Total consideration which may be issued in connection
with these pending acquisitions is $139,418 in cash and shares of Common
Stock.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto,
appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the
Company's audited consolidated financial statements for the year ended
December 31, 1997 as filed on Form 10-K, and the Company's audited
supplemental consolidated financial statements as filed in the Company's
Registration Statement on Form S-4 (File No. 333-60053) filed on August 3,
1998.
Founded in February 1997, Consolidation Capital Corporation is consolidating
the facilities services industry with the intent to become a national single-
source provider of facilities services. The Company completed its IPO in
December 1997 raising net proceeds of approximately $527,000,000. The proceeds
are being used by the Company primarily in its acquisition program, although
some are being used to fund operations of the Company.
During the six months ended June 30, 1998, the Company acquired all of the
outstanding stock of Service Management USA, Inc., Garfield Electric Company,
Indecon, Inc., Riviera Electric Construction Co., Inc., SKC Electric, Inc.,
Town & Country Electric, Inc., Tri-City Electrical Contractors, Inc., Walker
Engineering, Inc., Wilson Electric Company, Inc., United Service Solutions,
Inc., G.S. Group, Inc., Taylor Electric, Inc., Regency Electric Company, Inc.,
National Network Services, Inc. and Riviera Electric of California, Inc. (the
"Purchased Companies") in business combinations accounted for under the
purchase method of accounting. The following discussion includes the results
of the Purchased Companies from their respective acquisition dates.
Additionally, during the three months ended June 30, 1998, the Company
acquired all of the outstanding stock of Perimeter Maintenance Corporation,
Crest International LLC, Spann Building Maintenance Company and The Lewis
Companies, Inc. (collectively, the "Pooled Companies") in business
combinations accounted for under the pooling-of-interests method of
accounting. Accordingly, the following discussion includes the results of the
Pooled Companies for all periods presented.
Subsequent to June 30, 1998 and through August 13, 1998, the Company
completed two business combinations for an aggregate consideration of 463,810
shares of Common Stock and approximately $10.3 million in cash. Additionally,
there is the potential for the payment of up to an additional $3.8 million in
cash and shares of Common Stock in connection with contingent consideration
agreements.
The Company has also announced that it has signed letters of intent to
acquire three janitorial maintenance management services businesses and two
electrical and mechanical installation and maintenance services business.
Total consideration which may be issued in connection with these pending
acquisitions is $139.4 million in cash and shares of Common Stock.
Due to the Company's growth through acquisitions, comparisons of the
historical results of the Company's operations have been and will continue to
be affected primarily by the addition of acquired companies. In most
instances, increases in the various revenues and expense components of the
Company's results are due primarily to growth from acquisitions. Neither the
magnitude nor the source of such changes is necessarily indicative of changes
that will occur in the future.
The Company's revenues are derived primarily from the providing of
janitorial maintenance management services, electrical installation and
maintenance services and mechanical installation and maintenance services. For
the three and six months ended June 30, 1998, approximately 20.6%, 72.8% and
6.6% and 23.8%, 71.4% and 4.8% of the Company's revenues were derived from
janitorial maintenance management services, electrical installation and
maintenance services and mechanical installation and maintenance services,
respectively.
The Company's revenues are recognized as services are performed for
maintenance and service contracts. Additionally, the Company utilizes the
percentage-of-completion method of accounting for installation contracts.
19
<PAGE>
Under this method, revenues are recognized according to the ratio of costs
incurred to estimated total contract costs. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result
in revisions to costs and income and are recognized in the period in which the
revisions are determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way
management organizes and evaluates financial information internally for making
decisions and assessing performance. It also requires related disclosures
about products, geographic areas, and major customers. SFAS 131 is effective
for fiscal years beginning after December 15, 1997. The Company intends to
adopt SFAS No. 131 for the year ending December 31, 1998. Implementation of
this disclosure standard will not affect the Company's financial position or
results of operations.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
Revenues. Consolidated revenues for the three months ended June 30, 1998
increased $161.3 million, or 561.3%, to $190.1 million from $28.7 million for
the three months ended June 30, 1997. This increase was primarily as a result
of the acquisition of the Purchased Companies during the six months ended June
30, 1998, which have been included since their respective dates of
acquisition, and, to a lesser extent, an increase in the revenues of the
Pooled Companies.
Gross profit. Gross profit for the three months ended June 30, 1998
increased $37.0 million, or 712.5%, to $42.2 million from $5.2 million for the
three months ended June 30, 1997. This increase is primarily as a result of
the acquisition of the Purchased Companies. Gross profit as a percentage of
revenues ("gross margin") increased to 22.2% for the three months ended June
30, 1998 from 18.1% for the three months ended June 30, 1997. This increase in
the gross margin is primarily attributable to the higher gross margins of the
Purchased Companies and, to a lesser extent, an increase in the gross margin
as a result of the Argentina settlement at The Lewis Companies, Inc. as
discussed in Note 7 to the accompanying financial statements.
Selling, general and administrative. Selling, general and administrative
expenses for the three months ended June 30, 1998 increased $21.9 million, or
568.2%, to $25.8 million from $3.9 million for the three months ended June 30,
1997. This increase is primarily attributable to the selling, general and
administrative expenses of the Purchased Companies, the goodwill amortization
associated with the Purchased Companies and the general and administrative
costs of the Company's corporate activities. Selling, general and
administrative expenses as a percentage of revenues increased to 13.6% for the
three months ended June 30, 1998 from 13.4% for the three months ended June
30, 1997.
Goodwill amortization. Goodwill amortization increased to $1.6 million for
the three months ended June 30, 1998 as a result of the goodwill recorded in
conjunction with the Purchased Companies.
Non-recurring acquisition costs. Non-recurring acquisition costs consist of
costs incurred in conjunction with the business combinations accounted for
under the pooling-of-interests method. These costs include legal and
accounting fees, broker fees and other costs directly attributable to the
business combination.
Other income, net. Other income, net for the three months ended June 30,
1998 increased $5.4 million, or 1931.5%, to $5.1 million from other expense of
$.3 million for the three months ended June 30, 1997. This increase is
primarily attributable to the interest income of $4.9 million generated from
the investment of the proceeds raised in the Company's initial public offering
in December 1997.
Provision for income taxes. The provision for income taxes for the three
months ended June 30, 1998 increased $9.0 million, to $9.2 million from $.2
million for the three months ended June 30, 1997, reflecting an effective tax
rate of 42.9% and 21.1%, respectively. The increase in the effective rate is
primarily attributable to the increase in income generated from entities which
were subject to C corporation taxes, versus certain of the Pooled Companies
which had elected to be treated as subchapter S corporations for tax purposes
prior to their being acquired by the Company and the non-deductibility of
certain acquisition costs and certain goodwill amortization.
20
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1997
Revenues. Consolidated revenues for the six months ended June 30, 1998
increased $200.8 million, or 337.8%, to $260.3 million from $59.5 million for
the six months ended June 30, 1997. This increase was primarily as a result of
the acquisition of the Purchased Companies during the six months ended June
30, 1998, which have been included since their respective dates of
acquisition, and, to a lesser extent, an increase in the revenues of the
Pooled Companies.
Gross profit. Gross profit for the six months ended June 30, 1998 increased
$46.0 million, or 447.9%, to $56.3 million from $10.3 million for the six
months ended June 30, 1997. This increase is primarily as a result of the
acquisition of the Purchased Companies. Gross margin increased to 21.6% for
the six months ended June 30, 1998, from 17.3% for the six months ended June
30, 1997. This increase in the gross margin is primarily attributable to the
higher gross margins of the Purchased Companies, and, to a lesser extent, an
increase in the gross margin at The Lewis Companies, Inc. as discussed in Note
7 to the accompanying financial statements.
Selling, general and administrative. Selling, general and administrative
expenses for the six months ended June 30, 1998 increased $28.5 million, or
350.3%, to $36.7 million from $8.1 million for the six months ended June 30,
1997. Selling, general and administrative expenses as a percentage of revenues
increased to 14.1% for the six months ended June 30, 1998 from 13.7% for the
six months ended June 30, 1997. These increases are primarily attributable to
the higher selling, general and administrative expenses of the Purchased
Companies, the goodwill amortization associated with the Purchased Companies
and the general and administrative costs of the Company's corporate
activities.
Goodwill amortization. Goodwill amortization increased to $2.0 million for
the six months ended June 30, 1998 as a result of the goodwill recorded in
conjunction with the Purchased Companies.
Non-recurring acquisition costs. Non-recurring acquisition costs consist of
costs incurred in conjunction with the business combinations accounted for
under the pooling-of-interests method. These costs include legal and
accounting fees, broker fees and other costs directly attributable to the
business combination.
Other income, net. Other income, net for the six months ended June 30, 1998
increased $12.6 million, or 4962.8% to $12.8 million from $.3 million for the
six months ended June 30, 1997. This increase is primarily attributable to the
interest income of $11.6 million generated from the investment of the proceeds
raised in the Company's initial public offering in December 1997 and
approximately a $1.9 million gain on the sale of marketable securities.
Provision for income taxes. The provision for income taxes for the six
months ended June 30, 1998 increased $13.1 million, to $13.7 million from $.6
million for the six months ended June 30, 1997, reflecting an effective tax
rate of 42.4% and 27.1% respectively. The increase in the effective rate is
primarily attributable to the increase in income generated from entities which
were subject to C corporation taxes, versus certain of the Pooled Companies
which had elected to be treated as subchapter S corporations for tax purposes
prior to their being acquired by the Company, and the non-deductibility of
certain acquisition costs and certain goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of $333.3
million and working capital of $372.2 million. Additionally, BT Alex. Brown
Incorporated has provided the Company with a letter, dated May 12, 1998, in
which BT confirms that, upon the Company's request, BT commits to use its best
efforts to arrange and syndicate a $100 million senior secured revolving bank
credit facility to be used by the Company for future acquisitions or other
capital requirements. This bank credit facility may, under certain conditions
to be mutually agreed upon, be increased up to a $500 million facility. The
terms and conditions of any BT debt facility, including the fee arrangements,
are subject to mutual agreement. Use of any such facility would likely be
subject to conditions customary to facilities of this type, including
restrictions on other indebtedness, mergers, acquisitions, dispositions and
similar transactions. The Company may not succeed in obtaining a facility of
any size or in negotiating terms satisfactory to the Company. Except for this
proposed bank credit facility, the Company currently has no plan or intention
to obtain additional capital through debt or equity financing in the next 12
months. If and when the Company requires additional financing for its
acquisition program or for other capital requirements, the Company may be
unable to obtain any such financing on terms that the Company deems
acceptable.
21
<PAGE>
The Company also expects to utilize its Common Stock as a source of capital
to provide a portion of the consideration paid to acquire certain companies.
The Company believes that its cash and cash equivalents, cash flow from
operations and its available authorized but unissued and unreserved shares of
Common Stock that may be issued in acquisitions, will be sufficient to fund
its operations and acquisition program through the end of 1998.
During the six months ended June 30, 1998, net cash provided by operating
activities was $33.3 million. Net cash used in investing activities was $163.9
million, which primarily consisted of $163.6 million used for acquisitions.
The acquisitions completed during the six months ended June 30, 1998 of the
Purchased Companies also provide for the potential payment of approximately
$99 million in cash and shares of the Company's Common Stock based upon the
performance of the Purchased Companies.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Quarterly results may be materially affected by the timing of acquisitions,
the timing and magnitude of costs related to such acquisitions, variations in
services provided by the Company and the timing of these services, general
economic conditions, and the retroactive restatement in accordance with
generally accepted accounting principles of the Company's consolidated
financial statements for acquisitions accounted for under the pooling-of-
interests method. Moreover, the operating margins of companies acquired by the
Company may differ substantially from those of the Company, which could
contribute to the further fluctuation in its quarterly operations. Therefore,
results for any quarter are not necessarily indicative of the results that the
Company may achieve for any subsequent fiscal quarter or for a full fiscal
year.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during the three or six months ended June 30, 1998.
YEAR 2000 ISSUE
The Company has begun to assess whether its business systems, products and
services could be affected by the year 2000 issue. The year 2000 issue refers
to a number of date-related problems that may affect information technology
("IT") and non-IT systems, including codes imbedded in chips and other
hardware devices. These problems include systems that identify a year by two
digits and not four so that a date using "00" would be recognized as the year
"1900" rather than the year "2000."
The Company plans to complete the assessment of the impact of the year 2000,
formalize its plan to resolve the issues and begin to implement the plan by
December 1998. In assessing the impact of the year 2000, the Company will also
take into account the impact of the year 2000 on its vendors, suppliers, major
customers and other third parties with which the Company has material
relationships. At this time, the Company cannot assess the extent to which it
will be dependent upon third parties to identify or address such issues and
does not have an estimate of the cost of compliance. Any failure by the
Company to ensure that its systems or the systems of vendors, suppliers or
other third parties with which the Company has material relationships are year
2000 compliant could have a material adverse effect on the Company's
operations. Any failure of the Company's business systems, products or
services to perform could result in claims against the Company.
22
