<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 9, 1999
---------------
Building One Services Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant specified in Charter)
Delaware 000-23421 52-2054952
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Suite 210, 110 Cheshire Lane, Minnetonka, MN 55305
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone, including area code: 612/249-4900
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements -- Incorporated by reference herein are the financial
statements for Ivey Mechanical Company (a partnership) as of June 30, 1998,
1997 and 1996 and for the three year period ended June 30, 1998. These
financial statements are attached hereto as Exhibit 99.01.
(b) Pro Forma Financial Information -- (Not applicable).
(c) Exhibits.
23.01 Consent of Davenport, Holliday, and Spring.
99.01 Financial Statements for Ivey Mechanical Company (a partnership).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BUILDING ONE SERVICES CORPORATION
Dated: August 9, 1999 By: /s/ F. Traynor Beck
---------------------------------
F. Traynor Beck
Executive Vice President,
General Counsel and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
23.01 Consent of Davenport, Holliday, and Spring.
99.01 Financial Statements for Ivey Mechanical Company (a partnership).
<PAGE>
Exhibit 23.01
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-4 (Registration
Nos. 333-81737 and 333-60053) and to the incorporation by reference in the
Registration Statements on Form S-8 (Registration Nos. 333-43659 and 333-
59205) of Building One Services Corporation of our report dated July 24, 1998
relating to the financial statements of Ivey Mechanical Company, which appear
in the Current Report on Form 8-K dated August 9, 1999. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
Davenport, Holliday, and Spring
Ridgeland, Mississippi
August 6, 1999
<PAGE>
Exhibit 99.01
IVEY MECHANICAL COMPANY (a Partnership)
COMBINED FINANCIAL STATEMENTS
For the Years Ended June 30, 1998, 1997 and 1996
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-1
Financial Statements:
Combined Balance Sheets.................................................. F-2
Statements of Income and Partnership Equity.............................. F-3
Statements of Cash Flows................................................. F-4
Notes to Combined Financial Statements................................... F-5
</TABLE>
i
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Partners
Ivey Mechanical Company
Kosciusko, Mississippi
We have audited the accompanying balance sheets of Ivey Mechanical Company
(a partnership) as of June 30, 1998, 1997 and 1996, and the related statements
of income and partnership equity, and cash flows for the years 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 audits.
We conducted our audits 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 our audits provide 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 Ivey Mechanical Company (a
partnership) as of June 30, 1998, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted principles.
Davenport, Holliday, and Spring
Ridgeland, Mississippi
July 24, 1998
(except for Note Q, as to which the date is July 31, 1998)
F-1
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
COMBINED BALANCE SHEETS
June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash--Note O.......................... $ 4,818,133 $ 3,782,651 $ 2,935,962
Contracts receivable, including
retainage, Note C.................... 21,043,142 11,300,717 18,210,440
Accounts receivable, trade............ 1,456,523 658,856 414,903
Accounts receivable, other............ 319,362 33,559 41,423
Inventories........................... 115,843 81,049 119,424
Costs and estimated earnings in excess
of billings on uncompleted
contracts--Note D.................... 1,182,235 748,453 589,100
Prepaid expenses...................... 150,690 129,600 140,343
----------- ----------- -----------
TOTAL CURRENT ASSETS................ 29,085,928 16,734,885 22,451,595
AFFILIATES RECEIVABLE/PAYABLE........... -- 158,992 4,285
INVESTMENTS, AFFILIATES................. -- -- 700
FIXED ASSETS, at cost--Note G
Land and buildings.................... 128,584 32,337 31,436
Office furniture and fixtures......... 2,123,566 1,867,489 1,750,640
Machinery and equipment............... 2,903,812 1,762,325 1,725,653
----------- ----------- -----------
5,155,962 3,662,151 3,507,729
Less accumulated depreciation......... (3,344,209) (2,938,979) (2,746,423)
----------- ----------- -----------
1,811,753 723,172 761,306
----------- ----------- -----------
OTHER ASSETS
Goodwill.............................. 162,368 -- --
Other assets.......................... 433,333 -- --
----------- ----------- -----------
595,701 -- --
----------- ----------- -----------
$31,493,382 $17,617,049 $23,217,886
=========== =========== ===========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt--
Note G............................... $ 561,848 $ -- $ 154,518
Accounts payable--Note E.............. 8,750,082 5,058,000 9,168,816
Accrued expenses and withholdings..... 4,497,682 3,218,691 2,825,822
Billings in excess of costs and
estimated earnings on uncompleted
contracts--Note D.................... 8,610,661 3,607,828 5,750,155
----------- ----------- -----------
TOTAL CURRENT LIABILITIES........... 22,420,273 11,884,519 17,899,311
LONG-TERM DEBT, net of current portion--
Note G................................. 2,130,695 -- 387,165
MINORITY INTEREST IN JOINT VENTURE--
Note K 4,299 4,253 6,602
OWNERS' EQUITY
Partnership equity.................... 6,938,115 5,728,277 4,924,808
----------- ----------- -----------
$31,493,382 $17,617,049 $23,217,886
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
STATEMENTS OF INCOME AND PARTNERSHIP EQUITY
Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
CONTRACT REVENUES EARNED.............. $ 99,301,414 $80,096,871 $72,975,666
OTHER REVENUES........................ 6,550,382 4,250,457 4,273,376
------------ ----------- -----------
105,851,796 84,347,328 77,249,042
------------ ----------- -----------
COST OF CONTRACT REVENUES............. 86,275,033 71,294,006 65,676,981
COST OF OTHER REVENUES................ 4,902,200 2,871,802 2,782,908
------------ ----------- -----------
91,177,233 74,165,808 68,459,889
------------ ----------- -----------
GROSS MARGIN...................... 14,674,563 10,181,520 8,789,153
APPLIED OVERHEAD...................... 5,606,229 5,339,929 4,805,506
------------ ----------- -----------
GROSS PROFIT...................... 9,068,334 4,841,591 3,983,647
TOTAL GENERAL AND ADMINISTRATIVE
EXPENSES............................. 9,363,983 6,379,448 5,675,174
LESS APPLIED OVERHEAD................. (5,606,229) (5,339,929) (4,805,506)
------------ ----------- -----------
GENERAL, SELLING AND ADMINISTRATIVE
EXPENSES, net of applied overhead--
Schedule I........................... 3,757,754 1,039,519 869,668
------------ ----------- -----------
NET INCOME FROM OPERATIONS........ 5,310,580 3,802,072 3,113,979
OTHER INCOME (EXPENSE)--Schedule II... (598,706) (425,263) (367,497)
------------ ----------- -----------
NET INCOME BEFORE MINORITY
INTERESTS........................ 4,711,874 3,376,809 2,746,482
EARNINGS (LOSS) FROM MINORITY
INTEREST--
Notes K and P........................ (46) (2,413) 1,956
------------ ----------- -----------
NET INCOME........................ 4,711,828 3,374,396 2,748,438
PARTNERSHIP EQUITY, BEGINNING OF
YEAR................................. 5,728,277 4,924,808 4,262,124
DISTRIBUTIONS......................... (3,501,990) (2,570,927) (2,085,754)
------------ ----------- -----------
PARTNERSHIP EQUITY, END OF YEAR... $ 6,938,115 $ 5,728,277 $ 4,924,808
============ =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
STATEMENTS OF CASH FLOWS
Year Ended June 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $4,711,828 $ 3,374,396 $ 2,748,438
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 591,241 231,741 243,317
(Gain) loss on sale of assets.......... (4,805) (7,528) (3,991)
(Increase) decrease in:
Contracts receivable................... (9,742,425) 6,909,723 (5,084,587)
Affiliate receivable/payable........... 158,992 (154,707) (102,200)
Accounts receivable, other............. (285,803) 7,864 148,964
Accounts receivable, trade............. (797,667) (243,953) (414,903)
Inventories............................ (34,794) 38,375 (14,397)
Prepaid expenses....................... (21,090) 10,743 (15,314)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................. (433,782) (159,353) (83,441)
Other Assets........................... (240,392)
Increase (decrease) in:
Accounts payable....................... 3,692,082 (4,110,816) 3,224,171
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 5,002,833 (2,142,327) 1,669,868
Accrued expenses and payroll taxes..... 1,278,991 392,869 1,033,554
---------- ----------- -----------
Net cash provided by operating
activities.......................... 3,875,209 4,147,027 3,349,479
Cash flows from investing activities:
Purchase of property, plant and
equipment............................. (709,691) (270,589) (394,710)
Proceeds from sale of property, plant
and equipment......................... 21,283 84,510 7,900
Investment in affiliate................ -- 700 --
Increase (decrease) in minority
interest.............................. 46 (2,349) (71,674)
---------- ----------- -----------
Net cash used by investing
activities.......................... (688,362) (187,728) (458,484)
Cash flows from financing activities:
Payment on debt obligations............ (299,375) (541,683) (139,335)
Proceeds from issuance of long-term
debt.................................. 1,650,000 -- --
Partner distributions paid............. (3,501,990) (2,570,927) (2,085,754)
---------- ----------- -----------
Net cash provided (used) by financing
activities.......................... (2,151,365) (3,112,610) (2,225,089)
Net increase (decrease) in cash........ 1,035,482 846,689 665,906
Cash--beginning of year................. 3,782,651 2,935,962 2,270,056
---------- ----------- -----------
Cash--end of year....................... $4,818,133 $ 3,782,651 $ 2,935,962
========== =========== ===========
Cash paid during the year for:
Interest............................... $ 243,129 $ 42,248 $ 85,863
Noncash investing and financing
transactions:
Acquisition of certain net assets of
Lexington Mechanical Company, Inc.
through long-term financing
arrangements:
Fixed assets........................... $ 885,233
Goodwill............................... 168,368
Other assets........................... 288,317
----------
$1,341,918
==========
</TABLE>
See notes to financial statements
F-4
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Ivey Mechanical Company (the Company) is a partnership organized as a
Mississippi general partnership on October 1, 1990, upon execution of the
Agreement of Partnership of Ivey Mechanical Company (the Partnership
Agreement) by and between Ivey's, Inc., a Mississippi corporation and Ivey
Mechanical Corporation, a Mississippi corporation (collectively, the General
Partners). The combined financial statements include the accounts of the
Company, Barnes-Ivey Mechanical Company, LLC (formerly J. J. Barnes Mechanical
Company, LLC) (99% ownership), Lexington/Ivey Mechanical Company, LLC (99%
ownership), and Ivey Mechanical Services, LLC (100% ownership). All
significant intracompany accounts have been eliminated except for those
transactions involving the fabrication division of Ivey Mechanical Company
disclosed in Note N.
Business Activity
The Company enters into contracts for all types of mechanical construction
and operates out of divisional offices located in Mississippi, Georgia,
Tennessee, North Carolina, Kentucky and Texas. The Company's projects include
healthcare, correctional, manufacturing and industrial facilities, among
others.
Revenue and Cost Recognition
Revenues from construction contracts are recognized on the percentage-of-
completion method in the ratio that costs incurred bears to estimated cost at
completion. Contract costs include all direct costs and those indirect costs
related to contract performance such as indirect labor, supplies, tools and
payroll taxes. A portion of general and administrative expense is allocated to
contracts in process and included in cost of sales at the time of revenue
recognition. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability may result in revisions to costs
and income and are recognized in the period in which the revisions are
determined. Estimated earnings are included in revenues when their realization
is reasonably assured. The asset, "Costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues recognized in excess
of amounts billed. The liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenue
recognized.
Receivables
Receivables are stated at estimated net realizable values. Anticipated bad
debts are considered by management to be negligible and, accordingly, no
provision for bad debts has been included in the accompanying statements. The
Company extends credit to its customers in the normal course of business and
does not require collateral on its outstanding receivables.
Other Assets
Other long-term assets include certain employment agreements associated with
the acquisition of certain assets from Lexington Mechanical Company, Inc. The
Company is amortizing these assets over the terms of these agreements (60
months) using the straight-line method.
Goodwill
Goodwill resulting from the purchase of Lexington Mechanical Company, Inc.
is amortized by the Company over fifteen years using the straight-line method.
F-5
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
Inventories
Inventories of material not allocable to job costs are valued at the lower
of cost or net realizable value as determined on the first-in, first-out
method.
Property, Plant, and Equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets. Expenditures for repairs and maintenance
are charged to expense as incurred. Expenditures for major renewals and
betterments which significantly extend the useful lives of existing property,
plant and equipment, are capitalized and depreciated. Upon retirement or
disposition of property, plant and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in income.
Income Taxes
The accompanying combined financial statements do not contain a provision
for income taxes for Ivey Mechanical Company (a partnership), Barnes-Ivey
Mechanical Company, LLC, Lexington/Ivey Mechanical Company, LLC or Ivey
Mechanical Services, LLC. Pursuant to the legal form of operation of these
entities, under current Internal Revenue Service (IRS) regulations, the
profits of these entities are recognized by the individual partners or members
in their respective income tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE B--TRANSACTIONS WITH RELATED PARTIES
The Company rents offices, warehouse buildings and land from J. Marlin Ivey,
a shareholder of a corporation with common ownership, on a monthly basis for
$16,750 per month.
A shareholder of a corporation with common ownership is on the board of
directors of a bank at which the Company has material cash deposits. However,
the Company does not have any outstanding loans at the aforementioned bank.
The Company has related party transactions with other entities in which it
has a financial interest. These relationships are as follows:
Ivey National Corporation
This corporation is the 100% owner (parent) of Ivey's, Inc. Ivey's, Inc. is
a general partner in Ivey Mechanical Company. The primary activity between
Ivey's, Inc., and Ivey National Corporation is the payment of dividends by
Ivey's, Inc. to its parent.
F-6
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
NOTE C--CONTRACTS RECEIVABLE
Contracts receivable consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Contracts completed, including
retainage.......................... $ 4,011,227 $ 2,394,453 $ 2,115,162
Contracts in progress............... 12,540,246 7,110,642 13,340,261
Retainage on contracts in progress.. 4,491,669 1,795,622 2,755,017
------------ ------------ ------------
$ 21,043,142 $ 11,300,717 $ 18,210,440
============ ============ ============
NOTE D--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts.......................... $ 75,208,504 $ 48,817,952 $ 56,846,174
Estimated earnings.................. 3,616,501 1,186,116 682,459
------------ ------------ ------------
78,825,005 50,004,068 57,528,633
Less billings to date............... (86,253,431) (52,863,443) (62,689,688)
------------ ------------ ------------
$ (7,428,426) $ (2,859,375) $ (5,161,055)
============ ============ ============
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 1,182,235 $ 748,453 $ 589,100
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (8,610,661) (3,607,828) (5,750,155)
------------ ------------ ------------
$ (7,428,426) $ (2,859,375) $ (5,161,055)
============ ============ ============
</TABLE>
NOTE E--ACCOUNTS PAYABLE AND AMOUNTS DUE SUBCONTRACTORS
Accounts payable include amounts due to subcontractors totaling $843,969,
$263,424 and $457,548, for 1998, 1997 and 1996, respectively, which have been
retained pending completion and customer acceptance of jobs.
NOTE F--NOTE PAYABLE, LINE OF CREDIT
Ivey Mechanical Company has obtained from Trustmark National Bank an
unsecured working capital line of credit for $4,000,000, which expires October
31, 1998. There were no borrowings outstanding on this line of credit at June
30, 1998.
Ivey Mechanical Company has also obtained from Trustmark National Bank, an
acquisition line of credit for $3,000,000, which expires November 30, 1998.
Borrowings of $1,000,000 are to be repaid at 7.75% interest over 60 monthly
payments. This $1,000,000 term note is collateralized by machinery and
equipment. See Note G.
F-7
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
NOTE G--LONG-TERM DEBT
Long-term debt at June 30, 1998, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----- ---------
<S> <C> <C> <C>
8.25% note payable to bank in monthly installments
of $10,019, due July 10, 1997, secured by
equipment........................................ $ -- $ -- $ 339,087
8.25% note payable to bank in monthly installments
of $6,083, due July 10, 1997, secured by
equipment........................................ -- -- 202,596
7.25% secured note payable to bank, due July 10,
1997............................................. -- -- --
6.70% secured note payable to bank, due October 7,
1996............................................. -- -- --
7.75% note payable to bank in monthly installments
of $20,144, due December 2002, secured by
machinery and equipment.......................... 916,064 -- --
8.25% note payable to bank in monthly installments
of $13,258, due September 2002, secured by
furniture and equipment.......................... 568,753 -- --
8.0% note payable to individual in 10 semi-annual
installments of $134,191 principal, plus
interest, due July 2002 secured by membership
interest in Lexington Ivey Mechanical LLC........ 1,207,726 -- --
---------- ----- ---------
2,692,543 -- 541,683
Less Current Portion............................ (561,848) -- (154,518)
---------- ----- ---------
Long-Term Debt................................ $2,130,695 $ -- $ 387,165
========== ===== =========
</TABLE>
The following is a schedule of maturities of long-term debt as of June 30,
1998:
<TABLE>
<S> <C>
1999............................................................... $ 561,848
2000............................................................... 586,045
2001............................................................... 612,238
2002............................................................... 640,593
2003............................................................... 291,819
---------
2,692,543
=========
</TABLE>
Interest expense totaled $243,129, $42,248 and $85,863 for the years ended
June 30, 1998, 1997 and 1996, respectively.
NOTE H--COMMITMENTS AND CONTINGENCIES
Litigation
The Company is engaged in various lawsuits arising in the ordinary course of
business. In the opinion of management, based upon advice of counsel, the
ultimate outcome of these lawsuits should not have a material impact on the
Company's combined financial statements.
F-8
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
Self-Insured Medical Benefit Plan
The Company maintains a self-insured program for that portion of health care
costs not covered by insurance. The Company is liable for claims up to $35,000
per employee annually or net claims paid in any year which exceed the
aggregate attachment point. The aggregate attachment point is defined as the
total number of employees covered on the first day of each plan month during
the year multiplied by $165.08. The Company is liable for claims up to
$2,000,000 per employee in a lifetime. Self-insurance costs are based upon the
Company's claims experience.
Self-Insured Workers' Compensation Plan
The Company is self-insured for workers' compensation benefits. This plan is
administered by the Argonaut for claims incurred after July 1, 1996. Claims
incurred prior to July 1, 1996, are administered by Zurich Insurance Company,
the former administrator. The amounts charged to expense for workers'
compensation were based on actual and estimated claims incurred. As of June
30, 1998, 1997 and 1996, the Company has recorded liabilities of $331,541,
$361,763 and $550,000, respectively, for actual reserved claims and $559,116,
$647,992 and $0, respectively, for claims incurred but not reported (IBNR).
These amounts are included in other accrued expenses in the accompanying
balance sheets.
NOTE I--BACKLOG
The following schedule shows a reconciliation of backlog representing signed
contracts in existence at June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year............ $ 70,258,677 $ 62,574,682 $ 45,075,572
New contracts and adjustments......... 100,965,867 87,684,288 90,486,817
------------ ------------ ------------
171,224,544 150,258,970 135,562,389
Less contract revenue earned.......... (99,301,414) (80,000,293) (72,987,707)
------------ ------------ ------------
Balance, end of year.................. $ 71,923,130 $ 70,258,677 $ 62,574,682
============ ============ ============
</TABLE>
NOTE J--PROFIT DISTRIBUTION
The General partners of the Company, Ivey Mechanical Corporation and Ivey's,
Inc., are participants in an agreement that allows for the profits of the
Partnership to be divided as follows:
1. From inception to June 30, 1991, Ivey Mechanical Corporation received
60% and Ivey's, Inc., received 40% of divisible profits.
2. After June 30, 1991, Ivey Mechanical Corporation receives 75% and
Ivey's, Inc., receives 25% of divisible profits.
3. If any party contributes additional capital to the joint venture it will
receive a 12% annual return on its investments.
4. Ivey's, Inc., may receive its share of the profits annually in cash.
Under the agreement, it is to receive a minimum of $150,000, or its
share, whichever is less.
F-9
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
NOTE K--ADVANCES TO AND EQUITY IN JOINT VENTURE
In July, 1992, Ivey Mechanical Company and Hess Mechanical Corporation (an
unrelated company) completed the formation of a partnership, Ivey-Hess Joint
Venture (Ivey-Hess) for the purpose of securing a contract and performing
mechanical construction on the Francis Scott Key Medical Center--Phase II
Redevelopment--Acute Patient Tower in Baltimore, Maryland. The partnership is
owned 55% by Ivey Mechanical Company, and 45% by Hess Mechanical Corporation.
In June, 1995, Ivey Mechanical Company and R. T. Contractors, Inc. (an
unrelated company) completed the formation of a partnership, Ivey/R. T., A
Joint Venture (Ivey/R.T.) for the purpose of securing a contract with Fluor
Daniel, Inc. and performing mechanical construction on the Mercedes Automobile
Manufacturing Facility in Tuscaloosa, Alabama. The partnership is owned 75% by
Ivey Mechanical Company and 25% by R. T. Contractors, Inc.
NOTE L--EMPLOYEE BENEFIT PLAN
Ivey's, Inc. established the Ivey's, Inc. Salary Reduction Plan (the Plan)
on May 1, 1975. The Plan as amended allows participants to make contributions
to a related trust. Employees of Ivey Mechanical Company, Barnes-Ivey
Mechanical Company, LLC, Lexington/Ivey Mechanical Company, LLC and Ivey
Mechanical Corporation who meet eligibility requirements defined in the plan
documents, as amended, are eligible to participate in the Plan. For every
dollar an employee contributes (up to 4% of one's income on a pretax basis),
the Company will make a 50% matching contribution. In 1998, 1997 and 1996 the
charges to operations for matching contributions were $178,027, $109,036 and
$96,382, respectively.
Although it has not expressed any intention to do so, the Company has the
right to terminate the Plan at any time. In the event the Plan terminates,
100% of the participant's account balance becomes vested, but no more Company
contributions will be made. However, in the event a participant terminates
service with the Company, or the participant is terminated, he will receive
only his vested benefits as determined by the vesting provisions of the Plan.
NOTE M--OPERATING LEASE COMMITMENTS
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred.
The following is a schedule by year of future minimum lease payments under
operating leases as of June 30, 1998, that have initial or remaining lease
terms in excess of one year.
<TABLE>
<S> <C>
1999................................................................ $421,187
2000................................................................ 291,695
2001................................................................ 135,576
2002 and Thereafter................................................. 65,175
--------
$913,633
========
</TABLE>
Total rental expense for the years ended June 30, 1998, 1997 and 1996, for
all operating leases was $437,083, $490,397 and $429,834, respectively.
F-10
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
NOTE N--INTRA-COMPANY TRANSACTIONS
The Company had the following intra-company transactions between the
construction and fabrication divisions of Ivey Mechanical Company for the
years ending June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Fabrication Division Sales to the
Construction Division....................... $3,941,375 $2,929,652 $3,442,509
========== ========== ==========
</TABLE>
Management has included these sales as Other Revenues and Cost of Contract
Revenues in the accompanying Statement of Income for consistency purposes.
NOTE O--CONCENTRATION OF CREDIT RISK
During the years ended June 30, 1998, 1997 and 1996, the Company had funds
on deposit with a federally insured bank in excess of federal deposit
insurance coverage limits.
NOTE P--BUSINESS ACQUISITIONS
On August 31, 1997, the Company acquired certain assets and assumed certain
liabilities of Lexington Mechanical Company, Inc. The acquisition was recorded
as a purchase and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair value at the
purchase date. The Company paid cash of $1,347,125 and issued a note payable
to the former shareholder for the remaining balance of $1,341,918 for the net
assets acquired.
The original purchase price allocation follows:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable............................................... $ 3,151,236
Contract underbillings............................................ 113,131
Other accounts receivable......................................... 4,650
Inventories....................................................... 34,383
Other fixed assets................................................ 885,233
Goodwill.......................................................... 120,000
-----------
Total Assets Acquired......................................... $ 4,308,633
-----------
Liabilities assumed:
Accounts Payable................................................ $(1,337,629)
Contract overbillings........................................... (217,641)
Other accrued liabilities....................................... (64,320)
-----------
Total Liabilities Assumed..................................... $(1,619,590)
-----------
NET ASSETS ACQUIRED........................................... $ 2,689,043
===========
</TABLE>
The following is a summary of the unaudited results of operations of
Lexington Mechanical Company for the period beginning November 1, 1996 through
August 31, 1997 (date of acquisition):
<TABLE>
<S> <C>
Revenues......................... $14,666,849
===========
Net Income....................... $ 799,887
===========
</TABLE>
F-11
<PAGE>
IVEY MECHANICAL COMPANY (a partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
June 30, 1998, 1997 and 1996
In September 1997, the Company purchased certain assets from T.W.W.
Enterprises, Inc. d/b/a A/C service Specialties, in Texas (a residential
service company) and began operations as Ivey Mechanical Services, LLC. The
purchase price is immaterial to the accompanying financial statements.
Results of the operations of the acquired entities have been included in the
accompanying statement of income from the dates of acquisition forward.
NOTE Q--SUBSEQUENT EVENT
On July 31, 1998, the General Partners executed a letter of intent to sell
the stock of these companies to Consolidation Capital Corporation for an
amount in excess of book value.
F-12
