<PAGE>
As filed with the Securities and Exchange Commission on February 8, 1999
Registration No. 333-57013
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
NATIONWIDE ELECTRIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 1731 43-1807205
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402-3804
(612) 333-9569
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Gregory J. Orman
Chairman of the Board
2800 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402-3804
(612) 333-9569
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
John A. Granda Stephen A. Riddick
Stinson, Mag & Fizzell, P.C. Piper & Marbury L.L.P.
1201 Walnut Street 36 South Charles Street
Kansas City, Missouri 64106 Baltimore, Maryland 21201
(816) 842-8600 (410) 539-2530
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...... $64,400,000 $17,903 (2)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) The registrant previously paid $25,651.52 in registration fees for this
offering.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
February 8, 1999
4,000,000 Shares
NATIONWIDE ELECTRIC, INC.
Common Stock
---------
All of the 4,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being offered by Nationwide Electric, Inc.
("Nationwide"). It is currently estimated that the initial public offering
price will be between $ and $ per share. Prior to this Offering, there has
been no public market for the Common Stock. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Of the net proceeds from the sale of the Common Stock offered hereby,
approximately $6.1 million will be used to redeem Series A Redeemable Preferred
Stock owned by KLT Energy Services, Inc. ("KLT"), an affiliate of the Company.
See "Use of Proceeds." The Common Stock has been approved for listing on the
New York Stock Exchange ("NYSE") under the trading symbol "NEL."
---------
See "Risk Factors" beginning on page 9 for a discussion of certain matters
that should be considered by prospective purchasers of the securities offered
hereby.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price Underwriting Proceeds
to Discounts and to
Public Commissions Company (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total (2)........................ $ $ $
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting expenses of the Offering payable by the Company estimated
at $900,000.
(2) Nationwide has granted the Underwriters a 30-day option to purchase up to
an additional 600,000 shares of Common Stock solely to cover over-
allotments, if any. To the extent the option is exercised, the Underwriters
will offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, as stated
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made
at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1999.
BT Alex. Brown Piper Jaffray Inc.
The date of this Prospectus is , 1999.
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information and
share and per share data in this Prospectus (i) give effect to the conversion
upon consummation of this Offering of 1,089,999 shares of Class A Nonvoting
Common Stock owned by KLT into an equal number of shares of Common Stock, (ii)
give effect to the conversion upon consummation of this Offering of 1,000,000
shares of Class B Nonvoting Common Stock owned by KLT into an equal number of
shares of Common Stock (such number of shares shall be proportionately
increased in the event that the initial public offering price (net of
underwriting discounts and commissions) per share of Common Stock is less than
$12.00 per share), (iii) assume the Underwriters' over-allotment option is not
exercised and (iv) assume an initial public offering (the "Offering") price of
$13.00 per share. Unless otherwise indicated, references herein to "Nationwide"
or the "Company" mean Nationwide Electric, Inc. and its subsidiaries
collectively.
The Company
Nationwide is a leading provider of electrical contracting and maintenance
services to commercial, industrial and institutional customers. The Company
provides a wide array of electrical contracting services including the design
and installation of electrical systems for new facilities, the renovation and
retrofit of existing electrical systems, specialized and value-added services,
as well as long-term and on-call maintenance and repair services. The Company
believes that its focused operating strategy, emphasis on providing design-
build, specialized and value-added services, prominence within its markets and
the experience of its executive management team provides the Company with
significant competitive advantages as it pursues its growth strategy. See
"Business--General."
The Company emphasizes the marketing of its design-build expertise and
specialized and value-added services because it believes that its capabilities
and track record give it a sustainable competitive advantage and that such
services provide higher margins than general electrical contracting services.
The Company plans to capitalize on its long-standing customer relationships in
these and other service areas by leveraging its resources and technical
capabilities through sharing of expertise, staffing flexibility, improved job
selection processes, and Company-wide implementation of best practices.
Nationwide was founded in February 1998 to build a leading provider of
electrical contracting and maintenance services. The Company maintains offices
in Georgia, Kentucky, Minnesota and Ohio and performed work in 17 states, as
well as in the United Kingdom and Canada, in the fiscal year ended March 31,
1998. In addition, the Company is currently assessing potential acquisitions of
electrical contracting businesses in certain of those states and in several
other states. The Company believes that the highly fragmented nature of its
industry presents substantial consolidation and growth opportunities. According
to industry sources, there are approximately 60,000 electrical contracting
businesses in the U.S., consisting of a small number of regional or national
providers and a large number of relatively small, owner-operated businesses.
The Company believes that its disciplined acquisition strategy, financial
strength, experienced management team, decentralized operating philosophy,
performance incentive programs and opportunities for advancement within the
Company will enable it to attract and acquire electrical contractors with
leading reputations in their regional or local markets. See "Business--Industry
Overview."
Nationwide is one of the largest providers of electrical contracting and
maintenance services in the U.S. The Company generated pro forma consolidated
revenues of $134.4 million in the fiscal year ended March 31, 1998 ("fiscal
1998"), and $117.3 million for the nine months ended December 31, 1998. Of such
fiscal 1998 pro forma consolidated revenues, approximately 18% were derived
from "design-build" new construction projects, 29% were derived from "bid-to-
spec" new construction projects, 30% were derived from retrofit and renovation
projects, 13% were derived from maintenance and repair services,
3
<PAGE>
and 10% were derived from specialized and value-added services. The Company's
customers include general contractors, property managers, operators and owners
of commercial, industrial and institutional properties, real estate developers
and governmental entities. See "Business--Services" and "--Customers and
Marketing."
The Company estimates that the annual revenues generated by the electrical
contracting industry grew from approximately $39.3 billion in 1990 to
approximately $72.0 billion in 1998, and that such revenues will increase in
1999 to $76.5 billion. The Company believes that it will be well-positioned to
capitalize on significant trends currently affecting its industry. The Company
expects that these trends, which include increased levels of construction and
renovation, more stringent electrical codes, enhanced safety standards, demand
for uninterruptible power, increased complexity of systems, networking of local
area and wide area computer systems, increases in predictive and preventative
maintenance to minimize process downtime, more stringent national energy
standards, demand to build out and reconfigure lease spaces in office buildings
and increases in use of electrical power, will provide significant
opportunities for growth. See "Business--Industry Overview."
Nationwide was incorporated in Delaware on February 17, 1998. Its executive
offices are located at 2800 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, Minnesota 55402 and its telephone number at that address is (612)
333-9569.
Background
In February 1998, Nationwide acquired Parsons Electric Co. ("Parsons"), a
union contractor with over 400 employees, which was founded in 1927 and is
headquartered in Minneapolis, Minnesota. During the twelve months ended March
31, 1998, Parsons provided electrical contracting and maintenance services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons had revenues of approximately $58 million for the fiscal year ended
December 31, 1997 with approximately 85% derived from repeat customers.
Services offered include design and installation, new construction and
renovation and retrofit projects for commercial, industrial and institutional
customers. Parsons and the three other companies described below are referred
to collectively as the Acquired Companies, and the transactions in which
Parsons and those companies were acquired are referred to collectively as the
"Acquisitions." In connection with the acquisition of Parsons, KLT, an
unregulated subsidiary of Kansas City Power & Light Company ("KCPL"), invested
$6.65 million in the Company through the purchase of Common Stock, Class A
Nonvoting Common Stock (the "Class A Nonvoting Common") and Series A Redeemable
Preferred Stock (the "Series A Preferred").
Recent Developments
Allison-Smith Acquisition
On October 22, 1998, the Company acquired all of the stock of The Allison
Company and its wholly-owned subsidiary, the Allison-Smith Company ("Allison-
Smith") for cash and Common Stock. Allison-Smith, a union contractor with over
250 employees, was founded in 1943 and is headquartered in Atlanta, Georgia.
During the twelve months ended March 31, 1998, Allison-Smith provided
electrical contracting and maintenance services to customers primarily in
Georgia, as well as in Florida, Kansas, Texas, Canada and the United Kingdom.
Allison-Smith had revenues of approximately $31 million for the fiscal year
ended June 30, 1998 with approximately 80% derived from repeat customers.
Services offered include installation of wiring or cabling for computer,
telecommunication and security systems, as well as significant design-build
capability, particularly on a "fast track" basis.
4
<PAGE>
Henderson Electric Acquisition
On October 22, 1998, Henderson Electric Co. Inc. ("Henderson") was merged
into the Company, in exchange for cash and Common Stock, and its assets were
concurrently transferred to a wholly-owned subsidiary of the Company which was
renamed Henderson Electric Co., Inc. Henderson, a union contractor with over
400 employees, was founded in 1919, is headquartered in Louisville, Kentucky
and maintains an additional office in Lexington, Kentucky. During the twelve
months ended March 31, 1998, Henderson provided services to customers in
Indiana and Kentucky. Henderson had consolidated revenues of approximately $44
million for the fiscal year ended March 31, 1998 with approximately 75% derived
from repeat customers. Services offered include electrical contracting and
maintenance and installation of wiring or cabling for computer,
telecommunication and security systems, as well as significant design-build
capacity.
The Company also acquired Eagle Electric Systems, Inc. ("Eagle"), at the time
a wholly-owned subsidiary of Henderson, as part of the Henderson Acquisition.
Eagle is an open-shop contractor founded in 1986 with over 90 employees which
is headquartered in Cincinnati, Ohio. During the twelve months ended March 31,
1998, Eagle provided services to customers in Indiana, Kansas, Kentucky, Ohio,
and Wisconsin. Services offered include electrical contracting and maintenance
and installation of wiring or cabling for computer, telecommunication and
security systems.
Additional Investment by KLT Energy Services, Inc.
On October 22, 1998, in connection with the Company's acquisitions of
Allison-Smith, Henderson and Eagle, KLT invested $18 million in the Company
through the purchase of 1,000,000 shares of Class B Nonvoting Common Stock (the
"Class B Nonvoting Common") and 500,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred"), both at $12.00 per share. The
number of shares of Class B Nonvoting Common shall be increased proportionately
in the event that the initial public offering price per share of Common Stock
is less than $12.00 per share (net of underwriting discounts and commissions).
Additionally, the Class B Nonvoting Common and Series B Preferred are
convertible into the same number of shares of Common Stock of the Company
(subject to customary antidilution provisions).
New Credit Facility
The Company has obtained a $30 million credit facility maturing on December
1, 2001, with Norwest Bank of Minnesota, N.A., acting as agent (the "Agent"),
which is composed of a $15 million revolving credit facility and a $15 million
term facility. The term facility may be used exclusively to finance
acquisitions permitted under the credit agreement ("Permitted Acquisitions").
The revolving credit facility may be used for (i) working capital, (ii) general
corporate purposes, (iii) accounts receivable, inventory and cash which may be
acquired in Permitted Acquisitions, and (iv) to make advances to and equity
investments in the Company's subsidiaries. The Agent has indicated that the
borrowing limit under the credit agreement may be increased up to a total of
$100 million, subject to certain conditions including successful completion of
the Offering, addition of at least three more lenders, receipt of an
unqualified audit report on the Company's financial statements for its fiscal
year ended March 31, 1999, and the absence of any default or event of default
under the credit agreement. The borrowing base is limited to the sum of 80% of
eligible accounts receivable, 50% of eligible inventory, and 50% of the net
book value of eligible equipment.
Expansion of Management Team
Since its formation, the Company has expanded its senior management team and
operations support group through the addition of several officers and key
employees, including personnel with expertise in acquisitions, information
systems and centralized materials procurement. The Company plans to add persons
to its national accounts development and acquisitions groups.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered by the Company...................... 4,000,000 shares
Common Stock to be outstanding after the Offering........ 9,923,727 shares (1)
Use of Proceeds.......................................... To reduce existing
indebtedness, to redeem
shares of outstanding
Series A Preferred owned
by KLT and pay accrued
but unpaid dividends in
respect thereof, and for
working capital and
general corporate
purposes, including
future acquisitions.
NYSE symbol.............................................. NEL
</TABLE>
- --------
(1) Includes (i) 4,000,000 shares to be sold in the Offering, (ii) 1,089,999
shares of Common Stock resulting from the conversion, upon consummation of
this Offering, of 1,089,999 shares of Class A Nonvoting Common owned by
KLT, (iii) 1,000,000 shares of Common Stock resulting from the conversion,
upon consummation of the Offering, of 1,000,000 shares of Class B Nonvoting
Common owned by KLT (such number of shares shall be proportionately
increased in the event that the initial public offering price (net of
underwriting discounts and commissions) per share of Common Stock is less
than $12.00 per share), and (iv) 5,923,727 shares, including the 1,000,000
and the 1,089,000 shares noted in (ii) and (iii), issued to the existing
stockholders and certain management personnel of the Company. Excludes (i)
options to purchase 223,500 shares of Common Stock that have been granted
at an exercise price of $12.00 per share, and (ii) 500,000 shares of Series
B Preferred which is convertible, at the election of KLT prior to December
31, 1999, into 500,000 shares of Common Stock (subject to customary
antidilution adjustments). See "Management--1998 Stock Option Plans,"
"Certain Transactions--Organization of the Company" and "Description of
Capital Stock."
6
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Nine Months Ended
Inception Year Ended December 31, 1998
(September 23, March 31, 1998 ---------------------
1997) to Pro Forma Pro Forma as
March 31, 1998 as Adjusted Actual Adjusted (1)
-------------- -------------- ------- ------------ ---
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Contract revenue...... $4,305 $134,408 $65,224 $117,270
Cost of services,
excluding
depreciation shown
separately below..... 3,602 111,538 54,531 97,037
------ -------- ------- --------
Gross profit.......... 703 22,870 10,693 20,233
------ -------- ------- --------
Selling, general and
administrative
expenses (2)......... 927 14,349 7,296 12,453
Depreciation.......... 33 760 325 503
Goodwill amortization
(3).................. 8 557 250 409
------ -------- ------- --------
Income (loss) from
operations........... (265) 7,204 2,822 6,868
Interest and other
income (expense), net
(4).................. (81) 432 (1,375) (1,079)
------ -------- ------- --------
Income (loss) before
income taxes......... (346) 7,636 1,447 5,789
Income tax expense
(benefit) (5)........ (120) 3,277 611 2,483
------ -------- ------- --------
Income (loss) before a
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $ (226) $ 4,359 $ 836 $ 3,306
====== ======== ======= ========
Basic income (loss)
per share before a
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $(0.79) $ 0.35 $ 0.10 $ 0.27
====== ======== ======= ========
Shares used in
computing basic
income per share (6). 333 9,924 3,856 9,924
====== ======== ======= ========
Diluted income per
share before
nonrecurring, noncash
charge directly
attributable to the
transaction (2)...... $(0.79) $ 0.35 $ 0.10 $ 0.26
====== ======== ======= ========
Shares used in
computing diluted
income per share (7). 333 9,941 3,874 9,941
====== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------
Actual As Adjusted(8)
-------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital....................................... $ 24,165 $ 58,390
Total assets.......................................... 68,026 102,251
Long-term debt, net of current maturities............. 7,366 166
Series A Redeemable Preferred Stock................... 6,000 --
Total stockholders' equity............................ 29,117 76,617
</TABLE>
7
<PAGE>
- --------
(1) The summary unaudited pro forma consolidated financial data present certain
data for the Company, as adjusted for (i) the effects of the Acquisitions,
(ii) the effects of certain other pro forma adjustments to the historical
financial statements, and (iii) the sale of the Common Stock offered hereby
and the application of the net proceeds therefrom at an assumed initial
public offering price of $13.00 per share. The unaudited pro forma
consolidated statement of operations data assume that the Acquisitions and
related transactions were closed on April 1, 1997 and are not necessarily
indicative of the results that the Company would have obtained had these
events actually occurred at that time, or of the Company's future results.
The unaudited pro forma consolidated financial data should be read in
conjunction with the Unaudited Pro Forma Consolidated Financial Statements
and notes thereto and the historical financial statements of Nationwide and
the Acquired Companies and the notes thereto, all included elsewhere in
this Prospectus.
(2) The unaudited pro forma consolidated statement of operations data reflect
(i) an aggregate of approximately $849,000 for the year ended March 31,
1998 and $670,000 for the nine months ended December 31, 1998 in pro forma
reductions in salary, bonus and benefits of the owners of the Acquired
Companies to which they have agreed prospectively and (ii) adjustments to
expenses associated with certain non-operating assets that were transferred
from the Acquired Companies at the time of the Acquisitions and certain
other transactions, including the elimination of activities related to
assets not purchased from the shareholders of Parsons (see Note 2 of Notes
to Unaudited Pro Forma Consolidated Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 restricted shares of Common Stock to management, two outside
directors and one director nominee. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.6 million and related income
tax benefit of $1.4 million or a net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) in the first reportable quarter after the
consummation of the Offering, representing the difference between the amount
paid for the shares and the estimated fair value thereof (a fair value that
is discounted ten percent from the assumed initial public offering price).
This nonrecurring compensation charge is not included in the Unaudited Pro
Forma Consolidated Statements of Operations.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(4) Reflects the reduction for interest expense of approximately $578,000 for
the twelve months ended March 31, 1998 and $459,000 for the nine months
ended December 31, 1998 attributable to the repayment of approximately $7.2
and $7.2 million, respectively, of historical debt of Nationwide with
proceeds from this Offering. Additionally, reflects reductions in expenses
associated with certain non-operating assets that were transferred from the
Acquired Companies at the time of the Acquisitions, as well as activities
related to assets not purchased from the shareholders of Parsons.
(5) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to a statutory 40% tax rate.
(6) Includes (i) 5,923,727 shares of Common Stock issued to certain management
personnel and the existing stockholders, (ii) 1,089,999 shares of Common
Stock (included within the 5,923,727 shares of Common Stock listed in (i))
resulting from the conversion, upon consummation of this Offering, of
1,089,999 shares of Class A Nonvoting Common owned by KLT, (iii) 1,000,000
shares of Common Stock (included within the 5,923,727 shares of Common
Stock listed in (i)) resulting from the conversion, upon consummation of
this Offering, of 1,000,000 shares of Class B Nonvoting Common owned by KLT
(such number of shares shall be proportionately increased in the event that
the initial public offering price (net of underwriting discounts and
commissions) per share of Common Stock is less than $12.00 per share), and
(iv) 4,000,000 shares of Common Stock to be sold in this Offering. Excludes
(i) options to purchase 223,500 shares of Common Stock that have been
granted at an exercise price of $12.00 per share, and (ii) 500,000 shares
of Series B Preferred which is convertible, at the election of KLT, prior
to December 31, 1999, into the same number of shares of Common Stock
(subject to customary antidilution adjustments). See "Management--1998
Stock Option Plans," "Certain Transactions--Organization of the Company"
and "Description of Capital Stock."
(7) Adjusted to reflect the dilutive effect of stock option issuances and does
not assume the conversion of outstanding Series B Preferred into the
equivalent number of common shares at the date of issuance as the effect is
anti-dilutive.
(8) As adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share and the
application of the net proceeds therefrom. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein as a result of various
factors. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the following risk factors,
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus. The cautionary statements contained in this Prospectus should be
read as applying to all forward-looking statements wherever they appear in
this Prospectus.
Limited Operating History; Integration of Completed Acquisitions. Nationwide
was founded in February 1998 and commenced operations effective February 27,
1998. Accordingly, the Company has only a limited operating history upon which
to base an evaluation of its business and its prospects. The disclosures
regarding the Company contained in this Prospectus must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of development.
The Company's effective integration of the Acquired Companies and any
businesses to be acquired in the future is and will continue to be important
to the Company's growth and future financial performance. The Acquired
Companies have been operating and will continue to operate as separate
subsidiaries of the Company. There can be no assurance that the Company will
be able to successfully integrate the operations of the Acquired Companies or
any businesses to be acquired in the future or to institute the necessary
systems and procedures, including accounting and financial reporting systems,
to manage the combined enterprise on a profitable basis or to realize
significant cost savings and increased revenues from the combined operations.
In addition, there can be no assurance that the management group will be able
to successfully manage the combined entity and effectively implement the
Company's operating and growth strategies. The pro forma consolidated
financial results of the Acquired Companies cover certain periods during which
the Acquired Companies and Nationwide were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. The success of the Company will depend on
management's ability to integrate the Acquired Companies and other companies
acquired in the future into one organization in a profitable manner. The
inability of the Company to successfully integrate the Acquired Companies and
any businesses to be acquired in the future, and to coordinate and integrate
certain operational, administrative, banking, insurance and accounting
functions and computer systems, would have a material adverse effect on the
Company's financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful. See
"Business--Strategy" and "Management."
Exposure to Downturns in Construction. A substantial portion of the
Company's business involves installation of electrical systems in newly
constructed and renovated properties for commercial, industrial or
institutional customers. The extent to which the Company is able to maintain
or increase revenues from new installation services will depend on the levels
of new construction starts from time to time in the geographic markets in
which it operates and likely will reflect the cyclical nature of the
construction industry. The level of new installation services is affected by
fluctuations in the level of new construction of properties for commercial,
industrial and institutional customers in the markets in which the Company
operates, due to local economic conditions, changes in interest rates and
other related factors. Downturns in levels of construction starts could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality; Fluctuations of Quarterly
Results."
Risks Related to Acquisition Strategy. One of the Company's principal growth
strategies is to increase its revenues and the markets it serves through the
acquisition of additional electrical contracting and maintenance service
companies. While the Company has identified numerous acquisition candidates
9
<PAGE>
that it believes are suitable, there can be no assurance that the Company will
be able to negotiate their acquisition at prices or on terms and conditions
favorable to the Company. Additionally, the Company competes for acquisition
candidates with other entities, some of which have greater financial resources
than the Company. Such competition may limit the number of the Company's
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a
number of special risks, including failure of the acquired business to achieve
expected results, diversion of management's attention, failure to retain key
personnel of the acquired business and risks associated with unanticipated
events or liabilities, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on the reputation of the Company
generally. In addition, there can be no assurance that the Acquired Companies
or other businesses acquired in the future will achieve anticipated revenues
and earnings. See "Business--Strategy."
Risks Related to Acquisition Financing. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
readily predicted. The Company intends to use its Common Stock for all or a
portion of the consideration for future acquisitions. If the Common Stock does
not maintain a sufficient market value or potential acquisition candidates are
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to pursue its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through future debt or equity
financings. Using cash to complete acquisitions and finance internal growth
could substantially limit the Company's financial flexibility, using debt
could result in financial covenants that limit the Company's operations and
financial flexibility and using equity may result in dilution of the ownership
interests of the then-existing stockholders of the Company. Although the
Company has recently obtained a credit facility from a group of commercial
banks to be used for acquisitions, working capital and other general corporate
purposes, there can be no assurance that the Company will be able to obtain
sufficient financing if and when it is needed or that, if available, it will
be available on terms the Company deems acceptable. As a result, the Company
may be unable to pursue its acquisition strategy successfully. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Combined Liquidity and Capital Resources" and "Business--
Strategy."
The Company's credit facility requires the Company to obtain the consent of
the lenders for acquisitions exceeding a certain level of cash consideration
or if the total purchase price exceeds a specified multiple of cash flow. The
Company's inability to obtain such consent could prevent the Company from
completing certain acquisitions, which could inhibit the Company's ability to
execute its growth strategy. Furthermore, the Company's credit facility
requires compliance with certain financial covenants. If the Company is unable
to satisfy these financial covenants on a pro forma basis following completion
of an acquisition, it would be unable to complete the acquisition without a
waiver from its lending banks. Whether or not a waiver is needed, if the
results of the Company's future operations differ materially from those that
are anticipated, the Company may no longer be able to comply with the
covenants required by the credit facility. The Company's failure to comply
with such covenants may result in a default under the credit facility, which
could result in acceleration of the date for repayment of debt incurred under
the credit facility and would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Risks Related to Operating and Internal Growth Strategies. A key element of
the Company's strategy is to increase the profitability and revenues of the
Acquired Companies and any subsequently
10
<PAGE>
acquired businesses. There can be no assurance that the Company will be able
to do so. A key component of the Company's strategy is to operate the Acquired
Companies and subsequently acquired businesses on a decentralized basis, with
local management retaining responsibility for day-to-day operations,
profitability and the internal growth of the business. If proper overall
business controls are not implemented, this decentralized operating strategy
could result in inconsistent operating and financial practices at the Acquired
Companies and subsequently acquired businesses, and the Company's overall
profitability could be adversely affected. The Company's ability to generate
internal earnings growth will be affected by, among other factors, its ability
to expand the range of services offered to customers, expand its geographic
scope, attract new customers, increase the number of projects performed for
existing customers, hire and retain employees, open additional facilities and
reduce operating and overhead expenses. There can be no assurance that the
Company's strategies will be successful or that it will be able to generate
cash flow sufficient to fund its operations and to support internal growth.
The Company's inability to achieve internal earnings growth could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Strategy."
Management of Growth. The Company expects to grow both internally and
through acquisitions. Management expects to expend significant time and effort
in evaluating, completing and integrating acquisitions and opening new
facilities. There can be no assurance that the Company's systems, procedures
and controls will be adequate to support the Company's operations as they
expand. Any future growth also will impose significant additional
responsibilities on members of the senior management team, including the need
to identify, recruit and integrate new senior level managers and executives.
There can be no assurance that such additional management personnel will be
identified, hired and retained by the Company. To the extent that the Company
is unable to manage its growth efficiently and effectively, or is unable to
attract and retain additional qualified management, the Company's financial
condition and results of operations could be materially adversely affected.
See "Business--Strategy."
Availability of Qualified Employees. The Company's ability to provide high-
quality services on a timely basis requires an adequate supply of skilled
electricians, project estimators and project managers. Accordingly, the
Company's ability to increase its productivity and profitability will be
limited by its ability to employ, train and retain skilled personnel necessary
to meet the Company's requirements. Many companies in the electrical
contracting and maintenance services industry, including the Acquired
Companies, are currently experiencing or may experience shortages of qualified
personnel, and there can be no assurance that the Company will be able to
maintain an adequate skilled labor force necessary to operate efficiently,
that the Company's labor expenses will not increase as a result of a shortage
in the supply of skilled personnel or that the Company will not have to
curtail its planned internal growth as a result of labor shortages. See
"Business--Employees" and "--Training, Quality Assurance and Safety."
Unionized and Open-Shop Workforce. The Company has organized two separate
subsidiaries to serve as first-tier holding companies for its operating
subsidiaries, one of which will acquire businesses with unionized workforces
and operate them as second-tier subsidiaries of the Company functioning as
union contractors and the other of which will acquire businesses with open-
shop workforces and operate them as second-tier subsidiaries of the Company
functioning as open-shop contractors. Approximately 80% of the Company's
employees are covered by collective bargaining agreements. There can be no
assurance that these employees will not engage in strikes or work slowdowns or
stoppages. Such strikes or work slowdowns or stoppages and the resultant
adverse impact on the Company's relationship with its customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that relations with unions
representing Company employees will not be adversely affected by the Company's
ownership of open-shop subsidiaries, or by any operations of such subsidiaries
within the same geographic market in which the unionized subsidiaries operate.
In addition, the Company's acquisition strategy could be adversely affected
because of its union status for a variety of reasons, including without
limitation, incompatibility with an acquisition candidate's existing unions
and reluctance of open-shop targets to become affiliated with a union-based
company. See "Business--Employees."
11
<PAGE>
Competition. The electrical contracting and maintenance services industry is
highly competitive and is served by numerous small, owner-operated private
companies, public companies and several large regional companies. In addition,
there are relatively few, if any, barriers to entry into the market in which
the Company operates and, as a result, any organization that has adequate
financial resources and access to technical expertise may become a competitor
to the Company, including public utilities. Competition in the industry
depends on a number of factors, including price. Certain of the Company's
competitors may have lower overhead cost structures and may, therefore, be
able to provide their services at lower rates than the Company. In addition,
some of the Company's competitors are larger and have greater resources than
the Company. There can be no assurance that the Company's competitors do not
currently possess or will not develop the expertise, experience and resources
to provide services that are equal or superior in both price and quality to
the Company's services, or that the Company will be able to maintain or
enhance its competitive position. There can be no assurance that existing or
prospective customers of the Company will continue to outsource services in
the future. In addition, the Company may face competition for acquisition
targets from entities including, but not limited to, the small number of large
companies in the electrical contracting and maintenance services industry.
These competitors may have greater name recognition, greater financial
resources and equity securities with greater potential capital appreciation
than the Company with which to finance acquisition and development
opportunities and the ability to pay higher prices, which could limit the
Company's acquisition program. See "Business--Competition."
Risks Associated with Contracts. A significant portion of the Company's
revenues are, and will continue to be, generated under fixed price contracts.
The Company must estimate the costs of completing a particular project, and
the cost of labor and materials may vary from the costs originally estimated
by the Company. These variations and other risks inherent in performing fixed
price contracts may result in actual revenue and gross profits different from
those originally estimated, which could result in reduced profitability or
losses on projects. Depending upon the size of a particular project,
variations from estimated contract costs can have a significant impact on the
Company's operating results for any fiscal quarter or year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Introduction."
Certain of the Company's contracts are maintenance contracts pursuant to
which work is assigned on a project by project basis or maintenance services
are provided for a specific facility. There is generally no obligation on the
part of the Company's customers to assign work to the Company under these
agreements and there can be no assurance that customers will continue to
assign work to the Company. A significant decline in work assigned pursuant to
these contracts could have a material adverse effect on the results of
operations of the Company. In addition, contracts in the electrical
contracting industry may require performance bonds or other means of financial
assurance to secure contractual performance. If the Company is unable to
obtain surety bonds or letters of credit in sufficient amounts or at
acceptable rates, it may be precluded from entering into additional contracts
with certain of its customers.
Contract Receivables. A high percentage of the Company's current assets is
typically composed of contract receivables due to the project nature of its
business and the large size of many of those projects. As of December 31,
1998, the Company had $35.6 million of total contract receivables. The Company
intends to implement improved credit and collection policies to reduce the age
and amount of its contract receivables and to improve their collectibility.
However, there can be no assurance that such policies will be successfully
implemented, that the Company will not suffer one or more defaults on
outstanding contract receivables, or that its allowance for doubtful accounts
will be adequate to cover the amount of any such defaults.
Materiality of Goodwill. The Company's balance sheet immediately following
the Offering will include an amount designated as "goodwill" that represents
14.4% of total assets and 19.3% of stockholders' equity. Goodwill arises when
an acquiror pays more for a business than the fair value of the
12
<PAGE>
tangible and separately measurable intangible net assets. Generally accepted
accounting principles require that this and all other intangible assets be
amortized over the period benefited. Management has determined that the period
benefited by the goodwill will be no less than 40 years. To the extent that
the actual benefit periods for the goodwill arising from an acquisition were
shorter than the periods utilized by the Company, earnings reported in periods
immediately following the acquisition would correspondingly be overstated. In
later years, the Company would be burdened by a continuing charge against
earnings without the associated benefit to income valued by management in
arriving at the consideration paid for the businesses. Earnings in later years
also could be significantly affected if management determined then that the
remaining balance of goodwill was impaired. Management has reviewed all of the
factors and related future cash flows which it considered in arriving at the
amount incurred to acquire each of the Acquired Companies. Management
concluded that the anticipated future cash flows associated with intangible
assets recognized in the Acquisitions will continue indefinitely, and there is
no persuasive evidence that any material portion will dissipate over a period
shorter than 40 years.
Seasonality; Fluctuations of Quarterly Results. The electrical contracting
and maintenance services industry can be subject to seasonal variations.
Generally, during the winter months, demand for new projects and maintenance
services may be lower due to reduced construction activity during inclement
weather, while demand for electrical contracting and maintenance services may
be higher due to damage caused by such weather. Additionally, the industry can
be highly cyclical. As a result, the Company's volume of business may be
adversely affected by declines in new projects in various geographic regions
of the U.S. Quarterly results may also be materially affected by the timing of
acquisitions, variations in the profit margins of projects performed during
any particular quarter, the timing and magnitude of acquisition assimilation
costs and regional economic conditions. Accordingly, the Company's operating
results in any particular quarter may not be indicative of the results that
can be expected for any other quarter or for the entire year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality; Fluctuations of Quarterly Results."
Potential Exposure to Environmental Liabilities. The Company's operations
are subject to various environmental laws and regulations, including those
dealing with handling and disposal of waste products, polychlorinated
biphenyls, fuel storage and air quality. As a result of past and future
operations at its facilities, the Company may be required to incur remediation
costs and other expenses related thereto. There can be no assurance that the
Company will be able to identify or be indemnified for any or all potential
environmental liabilities relating to any acquired business.
Control by Existing Management and Stockholders. Following consummation of
the Offering, KLT and Reardon Capital, LLC (together the "Initial
Stockholders"), the Company's executive officers and directors, the former
stockholders of the Acquired Companies and entities affiliated with them will
own 5,923,727 shares of Common Stock, representing approximately 60% of the
aggregate outstanding shares of Common Stock. This collective ownership
includes (i) 1,089,999 shares to be acquired by KLT upon conversion of the
same number of shares of the Company's Class A Nonvoting Common, and (ii)
1,000,000 shares to be acquired by KLT upon the conversion of the same number
of shares of the Company's Class B Nonvoting Common, which number of shares is
subject to a proportionate increase if the initial public offering price is
less than $12.00 per share, net of underwriting discounts and commissions.
This ownership percentage will decline to 56% if the Underwriters'
overallotment option is exercised in full. If the Company's executive officers
and directors, the Initial Stockholders and the former stockholders of the
Acquired Companies act in concert, they will be able to control the Company's
affairs, elect all of the members of the Board of Directors and control the
outcome of any matter submitted to a vote of stockholders. See "Principal
Stockholders."
Dependence on Key Personnel. The Company's operations are dependent on the
continued efforts of its executive officers and on senior management of the
Acquired Companies. Furthermore, the Company will likely be dependent on the
senior management of companies that it acquires in the future.
13
<PAGE>
The loss of key personnel, or the inability to hire and retain qualified
employees could have an adverse effect on the Company's business, financial
condition and results of operations. The Company does not intend to carry key-
person life insurance on any of its employees. Certain members of the
executive management team and other key managers have employment agreements
with the Company, each of which contain noncompete agreements. See
"Management--Employment Agreements."
Payments to Affiliates. The Company has entered into leases of real property
and equipment with owners of certain of the Acquired Companies, or their
respective affiliates, and one of these owners will become a director of the
Company following the Offering. Because of these relationships between the
parties, these leases may not have been negotiated at arm's length. See
"Certain Transactions."
Shares Eligible for Future Sale. The sale of substantial amounts of the
Company's Common Stock in the public market following the Offering (including
shares issued on the exercise of outstanding stock options), or the perception
that such sales could occur, could adversely affect prevailing market prices
of the Company's Common Stock. All of the shares offered hereby will be freely
saleable in the public market after completion of the Offering, unless
acquired by affiliates of the Company.
The existing stockholders of the Company and certain members of management
own 5,923,727 shares of Common Stock (including (i) 1,089,999 shares to be
acquired by KLT upon conversion of the same number of shares of the Company's
Class A Nonvoting Common, and (ii) 1,000,000 shares that will be acquired by
KLT upon the conversion of the same number of shares of Class B Nonvoting
Common, subject to a proportionate increase in the event that the initial
public offering price (net of underwriting discounts and commissions) per
share of Common Stock is less than $12.00 per share). None of these shares was
or will be issued in a transaction registered under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, such shares may not
be sold except in transactions registered under the Securities Act or pursuant
to an exemption from registration, including the exemption contained in Rule
144 under the Securities Act. When these shares become eligible for sale, the
market price of the Common Stock could be adversely affected by the sale of
substantial amounts of the shares in the public market. The stockholders of
the Acquired Companies have certain registration rights with respect to the
shares that were received as part of the consideration for the purchase of
those companies, which rights may be exercised after the expiration of the
one-year lock-up period described below. If such stockholders, by exercising
such registration rights, cause a large number of shares to be registered and
sold in the public market, such sales may have an adverse effect on the market
price of the Common Stock.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period
of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except for the grant of employee stock
options (up to a maximum of 1,000,000 shares) under the 1998 Stock Option
Plans and for shares issued (i) in connection with acquisitions of businesses
and (ii) pursuant to the Nationwide Executive Stock Purchase Plan (up to a
maximum of 250,000 shares). Further, the Company's directors, executive
officers and certain stockholders who beneficially own 5,923,727 shares of
Common Stock (including (i) 1,089,999 shares to be acquired by KLT upon
conversion of the same number of shares of the Company's Class A Nonvoting
Common, and (ii) 1,000,000 shares that will be acquired by KLT upon the
conversion of the same number of shares of Class B Nonvoting Common, subject
to a proportionate increase in the event that the initial public offering
price (net of underwriting discounts and commissions) per share of Common
Stock is less than $12.00 per share) have agreed not to directly or indirectly
offer for sale, sell, sell short, transfer, hypothecate, pledge or otherwise
dispose of any Common Stock or other capital stock of the Company or any other
securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock owned by these persons, or as to
which such person has the right to direct the disposition, for a period of one
year after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. BT Alex Brown Incorporated has
14
<PAGE>
indicated that it does not currently foresee any circumstances under which it
would consent to the sale of Common Stock or options by the Company or
existing stockholders of the Company beyond the exceptions stated above in
this paragraph.
Following the Offering, the Company intends to file a Registration Statement
on Form S-1 covering up to an additional 5,000,000 shares of Common Stock
under the Securities Act for its use in connection with future acquisitions.
Unless the Company contractually restricts their resale, these shares
generally will be freely tradeable after their issuance so long as the shares
are issued to persons not affiliated with the Company or the companies being
acquired. See "Shares Eligible for Future Sale."
No Prior Market; Possible Volatility of Stock Price; Determination of
Offering Price. Prior to the Offering, there has been no public market for the
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the representatives of
the Underwriters and may not be indicative of the price at which the Common
Stock will trade after the Offering. See "Underwriting" for a description of
the factors to be considered in determining the initial public offering price.
The securities markets have, from time to time, experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's stock. The Common Stock has been approved for listing on
the NYSE, although there can be no assurance that an active trading market for
the Common Stock will develop or, if developed, will continue after the
Offering. The market price of the Common Stock could be subject to significant
fluctuations in response to numerous factors, including the timing of
acquisitions by the Company, variations in financial results or announcements
of material events by the Company or its competitors. Regulatory changes,
developments in the Company's industry or changes in general conditions in the
economy or the financial markets could also adversely affect the market price
of the Common Stock.
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation, Amended and Restated
Bylaws, and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company or
limit the price that certain investors may be willing to pay in the future for
shares of the Common Stock. The Company's Board of Directors is divided into
three classes with each class consisting, as nearly as possible, of one-third
of the total number of directors and serving a staggered three-year term. The
Amended and Restated Certificate of Incorporation permits the Board of
Directors to determine the rights, preferences and restrictions of unissued
series of the Company's authorized Preferred Stock and to fix the number and
the designation of shares thereunder and to adopt amendments to the Amended
and Restated Bylaws. The Amended and Restated Bylaws contain restrictions
regarding the right of stockholders to nominate directors and to submit
proposals to be considered at stockholder meetings. Also, the Amended and
Restated Certificate of Incorporation restricts the right of stockholders to
call a special meeting of stockholders and to act by written consent. The
Company also is subject to Section 203 of the Delaware General Corporation Law
(the "DGCL"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business transactions
with an "interested stockholder" for a period of three years following the
time such stockholder became an interested stockholder. See "Description of
Capital Stock." In addition, the Amended and Restated Certificate of
Incorporation also requires super-majority voting requirements for certain
business combinations. The Board is also permitted by the Amended and Restated
Certificate of Incorporation to take into account the long-term interests of
stockholders and the interests of non-stockholder constituencies with respect
to business combinations.
Immediate and Substantial Dilution. Purchasers of shares of the Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their shares in the amount of $7.41 per share from the
initial public offering price. See "Dilution." In the event the Company issues
additional Common Stock in the future, including shares that may be issued in
connection with future
15
<PAGE>
acquisitions of businesses or other public or private financings, purchasers
of Common Stock in the Offering may experience further dilution in the net
tangible book value per share of the Common Stock.
Absence of Dividends. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends on its Common Stock
in the immediate future. In addition, the Company's credit facility prohibits
the payment of cash dividends by the Company on Common Stock without the
consent of the lenders. See "Dividend Policy."
Year 2000 Compliance. The Company is implementing a common management
information system for itself, the Acquired Companies and subsequently
acquired businesses, that is designed to address Year 2000 issues associated
with computer systems that use only two digits to identify a year in the date
field. The Company expects to complete the implementation of this new system
by November 1, 1999. The total cost of this new system and its implementation
is estimated to be approximately $1 million. An acquired business that already
has in place a management information system that is certified as being Year
2000 compliant, and is compatible with the Company's management information
system, may not be required to substitute the Company's system. There can be
no assurance that any business that the Company acquires in the future will
have computer systems that are Year 2000 compliant or that will be compatible
with the Company's new management information system. The Company is currently
preparing a formal questionnaire for all significant suppliers, customers and
service providers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate the Year 2000 problem. The
Company has received oral assurances of Year 2000 compliance from many of the
third parties with whom it has relationships. The Company will continue to
consider the likelihood of a material business interruption due to the Year
2000 issue, and, if necessary, implement appropriate contingency plans. The
terms of the Company's credit facility require the Company to implement
hardware and software modifications as may be necessary to be Year 2000
compliant by November 1, 1999, and, if the Company breaches this covenant, an
event of default will arise within 30 days after the lending banks have given
notice thereof and required the breach to be remedied. There can be no
assurance that the failure of the Company, any newly acquired businesses or
third parties with whom the Company does business to address adequately their
Year 2000 issues will not have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Forward-Looking Statements. There are a number of statements in this
Prospectus that address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such matters
as the Company's strategy for internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments as well as other factors
it believes are reasonable or appropriate. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and commissions and
estimated Offering expenses payable by the Company) will be approximately
$47.5 million ($54.7 million if the Underwriters' overallotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share.
The Company intends to use (i) $6 million to redeem the outstanding shares
of Series A Preferred owned by KLT, an affiliate of the Company (see
"Principal Stockholders"), (ii) approximately $7.2 million to reduce
outstanding indebtedness as of December 31, 1998 (amounts so reduced will be
available for future borrowing), and (iii) approximately $75,000 to pay
accrued but unpaid dividends on the outstanding shares of Series A Preferred.
The remaining net proceeds (approximately $34.2 million) will be used for
working capital and for general corporate purposes, which are expected to
include future acquisitions. Pending such uses, the Company intends to invest
the remaining net proceeds in short-term, investment grade, interest bearing
securities. While the Company is continuously considering possible acquisition
prospects as part of its growth strategy, the Company presently has no binding
agreements to effect any mergers or acquisitions.
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and,
accordingly, does not currently intend to declare or pay any cash dividends on
the Common Stock in the immediate future. The declaration, payment and amount
of future cash dividends, if any, will be made at the discretion of the
Company's Board of Directors after taking into account various factors,
including, among others, the Company's financial condition, results of
operations, cash flows from operations, current and anticipated capital
requirements and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the Company's credit facility
prohibits the payment of cash dividends by the Company on its Common Stock
without the consent of the lenders. The Series A and Series B Preferred
provide for cumulative dividends. The Company intends to pay the accumulated
dividends with respect to the Series A Preferred in cash with the proceeds of
this Offering.
17
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and the capitalization as of December 31, 1998 of the Company on
an historical basis and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom, as well as other related
transactions described in the notes hereto. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Pro Forma
Consolidated Financial Statements of the Company and the related notes
thereto, and the Company's Consolidated Financial Statements and the related
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1998
--------------------
As
Actual Adjusted(1)
------- -----------
(in thousands)
<S> <C> <C>
Current maturities of long-term obligations............... $ 137 $ 137
======= =======
Long-term debt, less current maturities................... $ 7,366 $ 166
------- -------
Series A Redeemable Preferred Stock: $.01 par value, 6,000
shares issued and outstanding, actual; and none issued
and outstanding, pro forma as adjusted (1)(2)............ 6,000 --
------- -------
Stockholders' equity:
Common Stock: $.01 par value, 30,000,000 shares
authorized; 3,833,728 shares issued and outstanding,
actual; and 9,923,727 shares issued and outstanding,
pro forma as adjusted (2)(3)........................... 38 99
Class A Nonvoting Common Stock: $.01 par value,
1,200,000 shares authorized; 1,089,999 issued and
outstanding, actual; and none issued and outstanding,
pro forma as adjusted (3).............................. 11 --
Class B Nonvoting Common Stock: $.01 par value,
1,250,000 shares authorized; 1,000,000 shares issued
and outstanding (3).................................... 10 --
Preferred Stock; par value $.01; 10,000,000 authorized:
Series B Convertible Preferred Stock; 500,000 shares
issued and outstanding (4)............................. 5 5
Additional paid-in capital.............................. 29,079 76,539
Shareholder notes....................................... (162) (162)
Retained earnings....................................... 136 136
------- -------
Total stockholders' equity............................ 29,117 76,617
------- -------
Total capitalization.................................. $42,483 $76,783
======= =======
</TABLE>
- --------
(1) Upon the consummation of the Offering, the Company will redeem all of the
issued and outstanding Series A Preferred from the net proceeds of the
Offering.
(2) Adjusted to reflect the sale of 4,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom at an
assumed initial public offering price of $13.00 per share. See "Use of
Proceeds" and "Description of Capital Stock." Excludes options to purchase
223,500 shares of Common Stock that have been granted at an exercise price
of $12.00 per share. See Management--1998 Stock Option Plans.
(3) Upon the consummation of the Offering, all of the issued and outstanding
shares of Class A Nonvoting Common shall automatically convert into
1,089,999 shares of Common Stock. There are currently 1,000,000 shares of
Class B Nonvoting Common issued and outstanding, all of which are held by
KLT and will be converted into shares of Common Stock upon consummation of
the Offering. Pursuant to the agreement relating to the purchase of stock
by KLT, the number of shares of the Class B Nonvoting Common issued to KLT
will be increased proportionately in the event that the initial public
offering price (net of underwriting discounts and commissions) is less
than $12.00 per share. Shares of Class B Nonvoting Common are convertible
into the same number of shares of Common Stock.
(4) Convertible, at the election of KLT prior to December 31, 1999, into
500,000 shares of Common Stock (subject to customary antidilution
adjustments).
18
<PAGE>
DILUTION
The net tangible book value (defined as total stockholders' equity less the
excess of purchase cost over net assets acquired, cost of non-compete
agreements, deferred financing costs, dividends on redeemable preferred stock
and the consideration paid for the Series B Preferred) of the Company at
December 31, 1998 was approximately $8.0 million, or $1.34 per share of Common
Stock. The consolidated net tangible book value per share is determined by
dividing the net tangible book value of the Company by the number of shares of
Common Stock and Class A and Class B Nonvoting Common to be outstanding
immediately prior to the Offering. After giving effect to the sale by the
Company of 4,000,000 shares of Common Stock offered hereby, and the conversion
of 1,089,999 shares of Class A Nonvoting Common and 1,000,000 shares of Class
B Nonvoting Common into an equal number of shares of Common Stock (the number
of shares of Class B Nonvoting Common shall be increased proportionately in
the event that the initial public offering price (net of underwriting
discounts and commissions) per share of Common Stock is less than $12.00), and
after deduction of the underwriting discounts and commissions and estimated
Offering expenses, the net tangible book value of the Company at December 31,
1998 would have been $55.5 million or $5.59 per share. This represents an
immediate increase in pro forma net tangible book value of $4.25 per share to
existing stockholders and an immediate dilution to new investors purchasing
Common Stock in the Offering of $7.41 per share. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $13.00
Consolidated net tangible book value per share prior
to the Offering............................................. $1.34
Increase in pro forma net tangible book value per share
attributable to
new investors............................................... 4.25
-----
Pro forma consolidated net tangible book value per share after the
Offering.......................................................... 5.59
------
Dilution in net tangible book value per share to new investors....... $ 7.41
======
</TABLE>
The following table sets forth, as of December 31, 1998, the number of
shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by (i) existing
stockholders and (ii) the new investors purchasing shares from the Company in
the Offering (before deducting underwriting discounts and commissions and
estimated Offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Average
----------------- Total Price
Number(3) Percent Consideration Per Share
--------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders where the
consideration was other than
cash(1)......................... 975,397 9.8% $ -- $ --
Other existing
stockholders(2)(4).............. 4,948,330 49.9% 13,144,500 2.66
New investors.................... 4,000,000 40.3% 52,000,000 13.00
--------- ------ -----------
Total........................ 9,923,727 100.0% $65,144,500
========= ====== ===========
</TABLE>
- --------
(1) Shares of Common Stock issued in connection with the acquisitions of
Allison and Henderson which were recorded for purchase accounting purposes
at a value of $10.20 per share to reflect a 15% marketability discount.
See "Certain Transactions."
(2) See "Certain Transactions" for a discussion of the issuance of Common
Stock to the existing stockholders and certain management of Nationwide.
(3) Excludes (i) options to purchase 223,500 shares of Common Stock that have
been granted at an exercise price of $12.00 per share, See "Management--
1998 Stock Option Plans", and (ii) 500,000 shares of Series B Preferred
issued for $12.00 per share and which are convertible into 500,000 shares
of Common Stock (subject to certain customary antidilution adjustments).
(4) As described under "Certain Transactions--Purchase of The Allison
Company", the amount of Acquisition consideration set forth above does not
reflect an opportunity for the former stockholders of Allison-Smith to
earn additional cash consideration based on the future financial
performance of Allison-Smith.
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(in thousands, except per share data)
The following selected historical financial data for Parsons (Predecessor)
as of December 31, 1993 through 1997 and for each of the five years in the
period ended December 31, 1997 and the period January 1 to February 27, 1998
have been derived from the audited financial statements of Parsons. The
following selected historical financial data of Nationwide (which includes
Parsons from date of acquisition effective February 27, 1998) as of March 31,
1998 and for the period September 23, 1997 to March 31, 1998 have been derived
from the audited consolidated financial statements of Nationwide. The selected
historical data of Nationwide as of December 31, 1998 and for the nine months
then ended have been derived from the consolidated financial statements of
Nationwide which management believes reflect all adjustments necessary for a
fair statement of the results of operations.
The selected unaudited pro forma consolidated financial data below present
certain data for the Company, adjusted for (i) the effects of certain pro
forma adjustments to the historical financial statements and (ii) the
consummation of the Offering and the application of the net proceeds
therefrom. The unaudited pro forma consolidated statement of operations data
assume that the Acquisitions, the Offering and related transactions were
closed on April 1, 1997, and are not necessarily indicative of the results the
Company would have obtained had these events actually then occurred or of the
Company's future results. The unaudited pro forma consolidated statement of
operations data should be read in conjunction with the other financial
information included elsewhere in this Prospectus. See Unaudited Pro Forma
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Predecessor Nationwide
-------------------------------------------------------- --------------------------
September 23,
Year Ended December 31, January 1 to 1997 to April 1 to
------------------------------------------ February 27, March 31, December 31,
1993 1994 1995 1996 1997 1998 1998 1998
------- ------- ------- ------- ------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Contract revenue........ $37,738 $42,128 $52,017 $58,563 $58,004 $9,700 $4,305 $65,224
Cost of services,
excluding depreciation
shown separately below. 32,132 36,401 43,662 49,162 47,347 7,830 3,602 54,531
------- ------- ------- ------- ------- ------ ------ -------
Gross profit............ 5,606 5,727 8,355 9,401 10,657 1,870 703 10,693
Selling, general and
administrative
expenses............... 4,741 4,874 5,776 6,234 6,985 1,310 927 7,296
Depreciation............ 272 400 395 435 447 63 33 325
Goodwill amortization... -- -- -- -- -- -- 8 250
------- ------- ------- ------- ------- ------ ------ -------
Income (loss) from
operations............. 593 453 2,184 2,732 3,225 497 (265) 2,822
Interest and other
income (expense), net.. 168 (135) (205) (121) (191) (17) (81) (1,375)
Income tax benefit
(expense).............. -- -- -- -- -- -- 120 (611)
------- ------- ------- ------- ------- ------ ------ -------
Net income (loss)....... 761 318 1,979 2,611 3,034 480 (226) 836
Pro forma provision for
income taxes(8)........ 319 134 831 1,097 1,274 192 -- --
------- ------- ------- ------- ------- ------ ------ -------
Pro forma net income
(loss)................. $ 442 $ 184 $ 1,148 $ 1,514 $ 1,760 $ 288 $ (226) $ 836
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended
March 31, Nine Months Ended
1998 December 31, 1998
---------- -----------------
<S> <C> <C>
Pro Forma Consolidated Statement of Operations
Data:
Contract revenue.................................. $134,408 $117,270
Cost of services, excluding depreciation shown
separately below................................. 111,538 97,037
-------- --------
Gross profit...................................... 22,870 20,233
-------- --------
Selling, general and administrative expenses(1)... 14,349 12,453
Depreciation...................................... 760 503
Goodwill amortization(2).......................... 557 409
-------- --------
Income from operations............................ 7,204 6,868
Interest and other income (expense), net(3)....... 432 (1,079)
-------- --------
Income before income taxes........................ 7,636 5,789
Income tax expense(4)............................. 3,277 2,483
-------- --------
Income before a nonrecurring, noncash charge
directly attributable to the transaction(1)...... $ 4,359 $ 3,306
======== ========
Basic income per share before a nonrecurring,
noncash charge directly attributable to the
transaction(1)................................... $ 0.35 $ 0.27
======== ========
Shares used in computing basic income per
share(5)......................................... 9,924 9,924
======== ========
Diluted income per share before nonrecurring,
noncash charge directly attributable to the
transaction(1)................................... $ 0.35 $ 0.26
======== ========
Shares used in computing diluted income per
share(6)......................................... 9,941 9,941
======== ========
</TABLE>
<TABLE>
<CAPTION>
Predecessor Nationwide
--------------------------------------- ----------------------------------
December 31, December 31, 1998
--------------------------------------- March 31, ------------------------
1993 1994 1995 1996 1997 1998 Actual(6) As Adjusted(7)
------- ------- ------- ------- ------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 2,637 $ 3,240 $ 4,618 $ 5,485 $ 5,399 $ 610 $24,165 $ 58,390
Total assets............ 13,104 12,373 18,017 16,096 20,959 23,368 68,026 102,251
Long-term debt, net of
current maturities..... -- 412 362 312 262 -- 7,366 166
Series A Redeemable
Preferred Stock........ -- -- -- -- -- 6,038 6,000 --
Total stockholders'
equity................. 4,663 4,676 6,108 6,959 6,500 837 29,117 76,617
</TABLE>
- --------
(1) The unaudited pro forma consolidated statement of operations data reflect
(i) an aggregate of approximately $849,000 for the year ended March 31,
1998 and $670,000 for the nine months ended December 31, 1998 in pro forma
reductions in salary, bonus and benefits of the owners of the Acquired
Companies to which they have agreed prospectively, and (ii) adjustments to
expenses associated with certain non-operating assets that were
transferred from the Acquired Companies at the time of the Acquisitions
and certain other transactions, including the elimination of activities
related to assets not purchased from the shareholders of Parsons (see Note
2 of Notes to Unaudited Pro Forma Consolidated Financial Statements).
Under certain restricted stock purchase agreements, the Company has sold
315,000 restricted shares of Common Stock to management, two outside
directors and one director nominee. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.6 million and related
benefit of $1.4 million or a net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) in the first reportable quarter
following consummation of the Offering, representing the difference between
the amount paid for the shares and the estimated fair value thereof (a fair
value that is discounted ten percent from the assumed initial public
offering price). This nonrecurring compensation charge is not included in
the Unaudited Pro Forma Consolidated Statements of Operations.
21
<PAGE>
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(3) Reflects the reduction for interest expense of approximately $578,000 for
the twelve months ended March 31, 1998 and $459,000 for the nine months
ended December 31, 1998 attributable to the repayment of approximately
$7.2 and $7.2 million, respectively, of historical debt of Nationwide with
proceeds from this Offering. Additionally, reflects reductions in expenses
associated with certain non-operating assets that were transferred to the
Acquired Companies at the time of the Acquisitions, as well as activities
related to assets not purchased from the shareholders of Parsons.
(4) Assumes all pretax income before non-deductible goodwill and other
permanent items is subject to a statutory 40% tax rate.
(5) Includes (i) 5,923,727 shares of Common Stock issued to certain management
personnel and the existing stockholders, (ii) 1,089,999 shares of Common
Stock (included within the 5,923,727 shares of Common Stock listed in (i))
resulting from the conversion, upon consummation of this Offering, of
1,089,999 shares of Class A Nonvoting Common owned by KLT, (iii) 1,000,000
shares of Common Stock (included within the 5,923,727 shares of Common
Stock listed in (i)) resulting from the conversion, upon consummation of
this Offering, of 1,000,000 shares of Class B Nonvoting Common owned by
KLT (such number of shares shall be proportionately increased in the event
that the initial public offering price (net of underwriting discounts and
commissions) per share of Common Stock is less than $12.00 per share), and
(iv) 4,000,000 shares of Common Stock to be sold in this Offering.
Excludes (i) options to purchase 223,500 shares of Common Stock that have
been granted at an exercise price of $12.00 per share, and (ii) 500,000
shares of Series B Preferred which is convertible, at the election of KLT,
prior to December 31, 1999, into the same number of shares of Common Stock
(subject to customary antidilution adjustments). See "Management--1998
Stock Option Plans," "Certain Transactions--Organization of the Company"
and "Description of Capital Stock."
(6) Adjusted to reflect the dilutive effect of stock option issuances and does
not assume the conversion of outstanding Series B Preferred into the
equivalent number of common shares at the date of issuance as the effect
is anti-dilutive.
(7) As adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share and the
application of the net proceeds therefrom. See "Use of Proceeds."
(8) Reflects the incremental provision for federal and state income taxes at
an appropriate 40% overall tax rate before nondeductible goodwill and
other permanent items, relating to other statements of operations
adjustments and for income taxes on S corporation income not provided for
in the historical financial statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the
actual events or results may differ materially from the results discussed in
the forward looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk
Factors," as well as those discussed elsewhere in this Prospectus. The
historical results set forth in this discussion and analysis are not
indicative of trends with respect to any actual or projected future financial
performance of the Company. This discussion and analysis should be read in
conjunction with the Company's Unaudited Pro Forma Combined Financial
Statements, and Parson's and the Acquired Companies' and Nationwide's
Financial Statements and the related notes thereto included elsewhere in this
Prospectus.
Introduction
The Company's revenues are derived primarily from electrical contracting and
maintenance services provided to commercial, industrial and institutional
markets. The Company's services include installation and design for new
construction, renovation and retrofit projects as well as long-term and per
call maintenance and repair services. In addition, the Company offers design-
build expertise and specialized services that typically provide higher margins
than general electrical contracting and maintenance services as well as
enhance the value received by its customer. Specialized services include
installation of wiring or cabling for the following: data cabling for computer
networks; fiber optic cable systems; telecommunications systems; energy
management systems which control the amount of power used in facilities; fire
alarm and security systems; building management systems that integrate
computer, energy management, security, safety, comfort and telecommunication
systems; lightning protection systems; computer rooms; back-up electrical
systems and uninterruptible power supplies; and high voltage distribution.
Following the Offering, the Company also plans to offer value added services
such as energy efficiency, quality power and preventive maintenance.
The Company's customers include general contractors and builders,
architects, managers, operators and owners of commercial, industrial and
institutional properties (including manufacturers and service providers),
retail store chains, real estate developers and governmental entities. The
Company had pro forma consolidated revenues of $134.4 million for the fiscal
year ended March 31, 1998 and $117.3 million for the nine months ended
December 31, 1998. Of such pro forma fiscal 1998 revenues, approximately 18%
were derived from "design-build" new construction projects, 29% were derived
from "bid-to-spec" new construction projects, 30% were derived from retrofit
and renovation projects, 13% were derived from maintenance and repair services
and 10% were derived from specialized and value-added services.
The Company believes that it can reduce total operating expenses of the
Acquired Companies by eliminating duplicative administrative functions in
future smaller acquisitions that may be integrated into the Company's
operations as well as by consolidating certain administrative functions
performed separately by each company prior to its acquisition. Additionally,
the Company believes that its scale should lead to reduced costs in many other
areas, without compromising quality, particularly in the areas of (i)
procurement best practices and volume discounts from negotiating national
agreements that reflect combined purchasing power, (ii) fleet management,
(iii) equipment maintenance, (iv) financing, (v) insurance and bonding and
(vi) employee benefits. It is possible that costs related to the Company's new
corporate management, its status as a public company and integrating the
Acquisitions could offset a portion of these savings. The Company has
preliminarily analyzed the savings that it expects to be realized by
consolidating certain administrative functions. The Company has not and cannot
quantify all of these savings due to the short period of time that has elapsed
since the Acquisitions occurred. It is anticipated that these savings will be
partially offset by the costs of being a publicly held company and the
23
<PAGE>
incremental increase in costs related to the Company's corporate management.
However, these costs, like the savings they offset, cannot be quantified
accurately. Neither the anticipated savings nor the anticipated costs have
been included in the pro forma financial information included herein.
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a non-recurring, non-
cash compensation charge of $3.6 million and related benefit of $1.4 million
or net charge of $2.2 million in the first reportable quarter following
consummation of the Offering, representing the difference between the amount
paid for the shares and the estimated fair value thereof (a fair value that is
discounted ten percent from the assumed initial public offering price). This
non-recurring compensation charge is not included in the Unaudited Pro Forma
Consolidated Statements of Operations. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999.
The Acquisitions were accounted for using the purchase method of accounting.
Accordingly, the excess of the fair value of the consideration paid for the
Acquisitions of $15.7 million over the fair value of the net assets acquired
by Nationwide from the Acquired Companies was recorded as "goodwill." Goodwill
will be amortized over its useful life of 40 years as a non-cash charge to
operating income. The pro forma effect of this amortization expense is
expected to be approximately $393,000 per year. For purposes of the
transactions discussed above, the Company utilized a $10.20 per share value
for the Common Stock. This valuation reflects a 15% discount from the
valuation placed on the stock for purposes of the stock portion of the
Acquisitions and the value used in the sale of Class B Nonvoting Common sold
to KLT. See "Certain Transactions." The difference between the discount used
and a nominal discount of 10% is immaterial. See "Certain Transactions--
Organization of the Company." In addition, $425,000 of payments made pursuant
to non-compete agreements with key managers at Parsons will be amortized over
lives ranging from 21-54 months as a non-cash charge to operating income, or
$164,000 per year.
A brief description of the accounting terms used to present the results of
operations of Parsons and the significant Acquired Companies is as follows:
Contract Revenues. The Company enters into contracts either on a negotiated
basis or based on competitive bids (the final terms and prices of which are
frequently negotiated with the customer). Although the terms of the contracts
undertaken by the Company vary considerably, the contracts are usually based
on either a lump sum or fixed fee. Most installation projects are completed
within one year, while maintenance and repair work is frequently provided
under open-ended service agreements which are renewable annually and are based
on an hourly labor rate and an agreed mark-up on materials. Revenues from lump
sum contracts are generally recorded on a percentage-of-completion basis,
using the cost-to-cost method based on the percentage of total costs incurred
to date in proportion to total estimated costs to complete the contract. The
Company recognizes revenue when services are performed except when work is
being performed under a fixed price or cost-plus-fee contract. Such contracts
generally provide that once the customer accepts completion of progress to
date, it is obligated to compensate the Company for services which have been
rendered, measured typically in terms of units installed, hours expended or
some other measure of progress. Certain of the Company's customers require the
Company to post performance and payment bonds upon execution of the contract,
depending upon the nature of the work to be performed. The Company's fixed
price contracts often include payment provisions pursuant to which the
customer withholds a 5% to 10% retainage from each progress payment and
forwards the retainage to the Company upon final completion and approval of
the work. Where a loss is forecast for a contract, the full amount of the
anticipated loss is recognized in the period in which it is determined that a
loss will occur, regardless of the stage of completion. Revenues from claims
are recorded only when the amounts have been received.
Cost of services. Cost of services consists primarily of salaries and
benefits to non-management employees, materials, parts and supplies, fuel and
other vehicle expenses, equipment rentals, and subcontracted services. The
Company's gross margin, which is gross profit expressed as a percentage of
24
<PAGE>
revenues, is typically higher on projects where labor, rather than materials,
constitutes a greater portion of the cost of services. Labor costs can be
calculated with relatively less accuracy than materials costs. Therefore, to
compensate for the potential variability of labor costs, the Company seeks to
maintain higher margins on its labor-intensive projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of compensation and related benefits
to management, administrative salaries and benefits, marketing, office rent
and utilities, depreciation, communications and professional fees.
The Acquired Companies have primarily operated throughout the periods
presented as independent, privately-owned entities, and their results of
operations reflect varying tax structures (Parsons was an S corporation and
the other Acquired Companies were C corporations) which have influenced the
historical level of owners' compensation. Gross profits and selling, general
and administrative expenses as a percentage of revenues may not be comparable
among the individual Acquired Companies. In connection with the Acquisitions,
certain owners of the Acquired Companies have agreed to reductions in their
compensation and related benefits. Such reductions have been reflected for the
pro forma nine months ended December 31, 1998 and the year ended March 31,
1998 totaling $670,000 and $849,000, respectively. Such reductions have been
reflected as a pro forma adjustment in the Pro Forma Consolidated Financial
Statements and in the terms of the employment agreements which such persons
have agreed to enter with the Company.
Regulatory Matters
The Company's operations are subject to the authority of various state and
municipal regulatory bodies concerned with the licensing of contractors. The
Company has experienced no material difficulty in complying with the
requirements imposed on it by such regulatory bodies. See "Business--
Regulation."
Seasonality; Fluctuations of Quarterly Results
The Company's results of operations can be subject to seasonal variations.
Historically, during the winter months, demand related to new projects and
maintenance services may be lower due to reduced construction activity during
inclement weather while demand for electrical contracting and maintenance
services may be higher due to damage caused by such weather. Additionally, the
industry can be highly cyclical. As a result, the Company's volume of business
may be adversely affected by declines in new projects in various geographic
regions in the U.S. The Company believes, however, that such seasonality will
be substantially mitigated by its emphasis on acquiring businesses in growing
markets as well as the geographic diversity and significant contracts of the
Acquired Companies in place. Quarterly results may also be materially affected
by the timing of acquisitions, variations in the profit margins of projects
performed during any particular quarter, the timing and magnitude of
acquisition assimilation costs and regional economic conditions. Accordingly,
the Company's operating results in any particular quarter may not be
indicative of the results that can be expected for any other quarter or for
the entire year.
Liquidity and Capital Resources
At December 31, 1998, Nationwide had consolidated cash and cash-equivalents
of approximately $1.1 million, working capital of $24.2 million and $7.4
million of long-term debt. Nationwide used $980,000 of net cash for operating
activities for the nine months ended December 31, 1998. Net cash used in
investing activities was $14.3 million, primarily for the acquisitions of
Allison-Smith and Henderson Electric. Net cash generated from financing
activities was $15.3 million, primarily from the issuance of equity
securities.
After applying the net proceeds of the Offering as discussed under "Use of
Proceeds," the Company will have $35.3 million of pro forma cash and cash
equivalents, $58.4 million of pro forma working capital and $166,000
outstanding indebtedness. It is anticipated that $7.2 million of Nationwide
indebtedness will be repaid from the proceeds of the Offering.
25
<PAGE>
The Company has obtained a $30 million credit facility maturing on December
1, 2001, with Norwest Bank of Minnesota, N.A., acting as agent, which is
composed of a $15 million revolving credit facility and a $15 million term
facility. The term facility may be used exclusively to finance acquisitions
permitted under the credit agreement ("Permitted Acquisitions"). A Permitted
Acquisition must satisfy the following conditions (i) the cash consideration
is not in excess of $7.5 million, (ii) the purchase price does not exceed a
specified multiple of adjusted EBIT (earnings before interest and taxes) of
the acquired company and (iii) the cash consideration does not exceed 60% of
the purchase price with respect to the acquisition in a market where the
Company does not have operations. The revolving credit facility may be used
for (i) working capital, (ii) general corporate purposes, (iii) accounts
receivable, inventory and cash which may be acquired in Permitted
Acquisitions, and (iv) to make advances to and equity investments in the
Company's subsidiaries. The Agent has indicated that the borrowing limit under
the credit agreement may be increased up to a total of $100 million, subject
to certain conditions, including successful completion of the Offering, the
addition of at least three more lenders, receipt of an unqualified audit
report on the Company's financial statements for its fiscal year ended March
31, 1999, and the absence of any default or event of default under the credit
agreement. The borrowing base is limited to the sum of 80% of eligible
accounts receivable, 50% of eligible inventory, and 50% of the net book value
of eligible equipment. It is anticipated that after the Offering the loan will
become unsecured and that certain covenants will be adjusted.
Amounts borrowed under the credit facility will bear interest at a rate
equal to the Prime Rate plus a margin ranging from 0 to 0.25% (based on the
Consolidated Cash Flow Leverage ratio, i.e., the ratio of (i) funded debt,
less subordinated debt, to (ii) EBITDA (as defined in the Credit Agreement))
or, alternatively, at the Company's option LIBOR plus a margin ranging from
1.40% to 1.90% based on the same ratio. Commitment fees of 0.25% to 0.35%
(based on the Consolidated Cash Flow Leverage ratio) are payable with respect
to amounts not borrowed on either facility. The facility is secured by all
assets of the Company, including the pledges of all stock of the Company's
subsidiaries. In addition, the Company's subsidiaries guarantee the repayment
of all amounts due under the facility and the facility restricts pledges of
all material assets.
As part of its growth strategy, the Company intends to pursue an acquisition
program. The timing, size or success of any acquisition effort and the
associated potential capital commitments cannot be predicted. The Company
expects to fund future acquisitions primarily with a portion of the net
proceeds of the Offering, working capital, issuances of additional equity,
borrowings, including any unborrowed portion of the credit facility, as well
as cash flow from operations. The Company anticipates that its cash flow from
operations and proceeds from the Offering will provide sufficient cash to
enable the Company to meet its working capital needs, debt service
requirements and planned capital expenditures for property and equipment
through at least calendar year 1999. On a pro forma consolidated basis, the
Company made capital expenditures of approximately $625,000 in fiscal 1998.
Year 2000 Compliance
The Company is implementing a common management information system for
itself, the Acquired Companies and subsequently acquired businesses, that is
designed to address Year 2000 issues associated with computer systems that use
only two digits to identify a year in the date field. The Company expects to
complete the implementation of this new system before November 1, 1999. The
total cost of this new system and its implementation is estimated to be
approximately $1 million which will be funded from working capital. An
acquired business that already has in place a management information system
that is certified as being Year 2000 compliant, and that is compatible with
the Company's management information system, may not be required to substitute
the Company's system. There can be no assurance that any business that the
Company acquires in the future will have computer systems that are Year 2000
compliant or that such computer system will be compatible with the Company's
new management information system. The Company is currently preparing a formal
questionnaire for all significant suppliers, customers and service providers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate the Year 2000 problem. The Company has received
oral
26
<PAGE>
assurances of Year 2000 compliance from many of the third parties with whom it
has relationships. The Company will continue to consider the likelihood of a
material business interruption due to the Year 2000 issue, and, if necessary,
implement appropriate contingency plans. The terms of the Company's credit
facility require the Company to implement hardware and software modifications
as may be necessary to be Year 2000 compliant by November 1, 1999, and, if the
Company breaches this covenant, an event of default will arise within 30 days
after the lending banks have given notice thereof and requiring it to be
remedied. There can be no assurance that the failure of the Company, any newly
acquired businesses or third parties with whom the Company does business to
address adequately their Year 2000 issues will not have a material adverse
effect on the Company's business, financial condition, cash flows and results
of operations.
Impact of Inflation
Due to relatively low levels of inflation experienced during the years ended
December 31, 1995, 1996 and 1997, inflation did not have a significant effect
on the consolidated results of the Acquired Companies in those periods. Due to
the relatively short-term nature of the Acquired Companies' contracts, the
Acquired Companies expect to be able to adjust contract bids to recover cost
increases and therefore negate the impact on gross margins.
Impact of Future Accounting Pronouncements
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management of the Company has not yet fully evaluated the potential
impact on the Company's financial statements of the adoption of SFAS No. 133.
Results of Operations--Nationwide and Predecessor
Nationwide was organized in February 1998 to undertake the Acquisitions and
the Offering. On February 27, 1998, the Company acquired Parsons, also
referred to herein as the Company's Predecessor, in a cash purchase
transaction.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended December 31, 1998
--------------------------------------------
Predecessor Nationwide
Nine Months Excluding
Ended Allison-Smith Allison-Smith
December 31, and Henderson and Henderson
1997 Acquisitions Acquisitions Consolidated
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Revenues....... $46,647 100.0% $47,006 100.0% $18,218 100.0% $65,224 100.0%
Costs of services....... 38,062 81.6% 38,922 82.8% 15,609 85.7% 54,531 83.6%
------- ------ ------- ------ ------- ------ ------- ------
Gross profit.......... 8,585 18.4% 8,084 17.2% 2,609 14.3% 10,693 16.4%
Selling, general and
administrative
expenses............... 5,714 12.2% 6,484 13.8% 1,387 7.6% 7,871 12.1%
------- ------ ------- ------ ------- ------ ------- ------
Income from Operations.. $ 2,871 6.2% $ 1,600 3.4% $ 1,222 6.7% $ 2,822 4.3%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
Nationwide results for the nine months ended December 31, 1998 compared to the
Predecessor results for the nine months ended December 31, 1997
The consolidated information set forth in the above tables includes
operating results from October 22, 1998 thru December 31, 1998 for Allison-
Smith and Henderson which were acquired on October 22, 1998. Allison-Smith and
Henderson operating results from October 22 through December 31, 1998 have
been excluded from the discussion set forth below of Nationwide information in
order to provide comparable information with respect to the Predecessor data
because comparable information for Allison-Smith and Henderson was not
available.
27
<PAGE>
Contract Revenues. Revenues increased $359,000, or 0.8%, from $46.6 million
for the nine months ended December 31, 1997 to $47.0 million for the nine
months ended December 31, 1998. The nine months ended December 31, 1997
included revenues for welding distribution of $2.3 million. The welding
distribution business previously operated by Predecessor was not purchased by
the Company. Excluding welding distribution sales from the Predecessor results
for the nine months ended December 31, 1997, revenues would have increased
$2.7 million or 6.0%, in the 1998 period compared to the 1997 period.
Gross Profit. Gross profit decreased $501,000, or 5.8%, from $8.6 million
for the nine months ended December 31, 1997 to $8.1 million for the nine
months ended December 31, 1998. As a percentage of revenues, gross profit
decreased from 18.4% to 17.2%. The gross profit associated with welding
distribution sales for the nine months ended December 31, 1997 was $410,000.
Excluding the welding distribution gross profit from the 1997 period, gross
profit decreased $91,000 or 1.1%, in the 1998 period compared to the 1997
period. The decrease in gross profit and gross margin was primarily
attributable to a large "bid to spec" contract which had a number of approved
change orders which have not yet been priced, resulting in no margin to date.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $770,000, or 13.5%, from $5.7 million for
the nine months ended December 31, 1997 to $6.5 million for the nine months
ended December 31, 1998, primarily due to Nationwide organizational and
administrative expenses incurred for additional personnel to implement the
Company's growth strategies.
Other income (expense). The Company had other expense for the nine months
ended December 31, 1998 of $834,000, compared to $32,000 of other income for
the nine months ended December 31, 1997. In the nine months ended December 31,
1998, there was $878,000 of previously deferred Offering costs expensed due to
the delay of the Offering.
Income tax expense. The Company incurred income tax expense of $796,000 for
the nine months ended December 31, 1998. The Predecessor did not incur income
tax expense for the nine months ended December 31, 1997 because it had elected
Subchapter S Corporation tax status.
Net income. The change in net income for the nine month period is the result
of the other changes noted above.
Results of Operations--Parsons
Parsons was founded in 1927 and is headquartered in Minneapolis, Minnesota.
During the twelve months ended March 31, 1998, Parsons provided services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons is a union contractor with over 400 employees providing electrical
contracting and maintenance services, including design and installation, new
construction and retrofit/renovation for commercial, industrial and
institutional customers.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $52,017 100.0% $58,563 100.0% $58,004 100.0%
Cost of services.................. 43,662 83.9% 49,162 83.9% 47,347 81.6%
------- ----- ------- ----- ------- -----
Gross profit.................... 8,355 16.1% 9,401 16.1% 10,657 18.4%
Selling, general and
administrative expenses.......... 6,171 11.9% 6,669 11.4% 7,432 12.8%
------- ----- ------- ----- ------- -----
Operating income.................. $ 2,184 4.2% $ 2,732 4.7% $ 3,225 5.6%
======= ===== ======= ===== ======= =====
</TABLE>
28
<PAGE>
Parsons results for the year ended December 31, 1997 compared to the year
ended December 31, 1996
Revenues. Revenues decreased $559,000, or 1.0%, from $58.6 million for the
year ended December 31, 1996 to $58.0 million for the year ended December 31,
1997, primarily as a result of a decrease in demand for services associated
with a large "bid-to-spec" contract on the new Federal Reserve building in
Minneapolis in 1996, which decrease was partially offset by increased demand
for design-build services.
Gross profit. Gross profit increased $1.3 million, or 13.4%, from $9.4
million for the year ended December 31, 1996 to $10.7 million for the year
ended December 31, 1997. As a percentage of revenues, gross profit increased
from 16.1% to 18.4%. The increase in gross profit and gross margin is
primarily a result of Parsons replacing lower margin bid work with higher
margin design-build services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $763,000, or 11.4%, from $6.7 million for
the year ended December 31, 1996 to $7.4 million for the year ended December
31, 1997, primarily due to increases in administrative salaries and benefits.
As a percentage of revenues, selling, general and administrative expenses
increased from 11.4% to 12.8%.
Other income (expense). Other income in 1997 and 1996 consists principally
of employee vehicle reimbursement.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Parsons results for the year ended December 31, 1996 compared to the year
ended December 31, 1995.
Revenues. Revenues increased $6.6 million, or 12.6%, from $52.0 million for
the year ended December 31, 1995 to $58.6 million for the year ended December
31, 1996, primarily as a result of securing and executing a significant
portion of one large "bid-to-spec" contract for the Federal Reserve building
in Minneapolis.
Gross profit. Gross profit increased $1.0 million, or 12.5%, from $8.4
million for the year ended December 31, 1995 to $9.4 million for the year
ended December 31, 1996, primarily as a result of the increased demand for
services during the year. As a percentage of revenues, gross profit was
unchanged at 16.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $498,000, or 8.1%, from $6.2 million for the
year ended December 31, 1995 to $6.7 million for the year ended December 31,
1996, primarily due to increases in administrative salaries and benefits and
costs associated with the implementation of new information systems. As a
percentage of revenues, selling, general and administrative expenses decreased
from 11.9% to 11.4%.
Other income (expense). Other income in 1996 and 1995 consists principally
of employee vehicle reimbursement.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Results of Operations--Allison-Smith
Allison-Smith was founded in 1943 and is headquartered in Atlanta, Georgia.
Allison-Smith has provided services to customers in primarily in Georgia as
well as in Florida, Kansas, Texas, Canada and the United Kingdom during the
year ended June 30, 1998. Allison-Smith earned revenues of $31.4 million for
the fiscal year ended June 30, 1998 with approximately 80% derived from repeat
customers. Allison-Smith also has significant design-build capability,
particularly, an established capability to complete these projects on a "fast
track" basis.
29
<PAGE>
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1998
------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Contract revenues.................... $ 6,572 100.0% $ 7,574 100.0 %
Cost of services..................... 5,494 83.6% 6,323 83.5 %
--------- -------- --------- --------
Gross profit....................... 1,078 16.4% 1,251 16.5 %
Selling, general and administrative
expenses............................ 634 9.6% 1,258 16.6 %
--------- -------- --------- --------
Operating income (loss).............. $ 444 6.8% $ (7) (0.1)%
========= ======== ========= ========
</TABLE>
Allison-Smith results for the three months ended September 30, 1998 compared
to the three months ended September 30, 1997
Contract revenues. Revenues increased $1.0 million, or 15.3%, from $6.6
million for the three months ended September 30, 1997 to $7.6 million for the
three months ended September 30, 1998, primarily as a result of increased
demand for specialized and value added services.
Gross profit. Gross profit increased $173,000, or 16.0%, from $1.1 million
for the three months ended September 30, 1997 to $1.3 million for the three
months ended September 30, 1998. As a percentage of revenues, gross profit
increased from 16.4% to 16.5%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $624,000, or 98.4%, from $634,000 for the
three months ended September 30, 1997 to $1.3 million for the three months
ended September 30, 1998, due to additional owner compensation of $664,000
which will not be recurring in nature and which were partially offset by other
reductions in selling, general and administrative expenses. As a percentage of
revenues, selling, general and administrative expenses increased from 9.6% to
16.6%. The additional owner compensation for the three months ended September
30, 1998 was 8.8% of revenues.
Other income (expense). During the three months ended September 30, 1998,
$1.2 million was accrued to recognize a liability based on a settlement offer
made during mediation of litigation arising out of electrical work performed
by the Company as a sub-contractor more than nine years ago. The initial
complaint filed against the general contractor for the project alleges the
system installed by the Company was defective. The Company denies any
responsibility for the claims on the basis that, among other things,
installation was in accordance with the approved plans and specification of
the project. Under the Stock Purchase Agreement entered into which Nationwide,
former stockholders of Allison-Smith have agreed to indemnify Nationwide for
settlements reached in the above matter, accordingly, Nationwide recorded an
asset of $720,000 (which is net of associated tax benefit) to reflect such
indemnification.
Net Income. The change in net income for the three months is the result of
the other changes noted above.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract revenues................. $32,392 100.0% $28,000 100.0% $31,373 100.0%
Cost of services.................. 27,324 84.4% 22,801 81.4% 25,452 81.1%
------- ----- ------- ----- ------- -----
Gross profit.................. 5,068 15.6% 5,199 18.6% 5,921 18.9%
Selling, general and
administrative expenses.......... 2,502 7.7% 2,660 9.5% 3,302 10.5%
------- ----- ------- ----- ------- -----
Operating income.................. $ 2,566 7.9% $ 2,539 9.1% $ 2,619 8.4%
======= ===== ======= ===== ======= =====
</TABLE>
30
<PAGE>
Allison-Smith results for the year ended June 30, 1998 compared to the year
ended June 30, 1997
Contract revenues. Revenues increased $3.4 million, or 12.0%, from $28.0
million for the year ended June 30, 1997 to $31.4 million for the year ended
June 30, 1998, primarily due to increased demand for specialized and value-
added services, including fast-track design-build services for
telecommunications customers.
Gross profit. Gross profit increased $722,000, or 13.9%, from $5.2 million
for the year ended June 30, 1997 to $5.9 million for the year ended June 30,
1998. As a percentage of revenues, gross profit increased from 18.6% to 18.9%,
primarily due to the increased proportion of revenues attributable to
specialized and value-added services which have a higher margin than the
general contracting services provided by Allison-Smith.
Selling, general and administrative expense. Selling, general and
administrative expenses increased $642,000, or 24.1%, from $2.7 million for
the year ended June 30, 1997 to $3.3 million for the year ended June 30, 1998,
primarily due to an increase in owner's compensation for the year ended June
30, 1998. As a percentage of revenues, selling, general and administrative
expenses increased from 9.5% to 10.5%.
Other income (expense). Other income and expense was insignificant for each
of the years ended June 30, 1998 and June 30, 1997.
Net Income. The change in net income for the period is the result of the
other changes noted above.
Allison-Smith results for the year ended June 30, 1997 compared to the year
ended June 30, 1996
Contract revenues. Allison-Smith experienced an abnormally high demand for
general contracting services in the year ended June 30, 1996 due to the
building activity associated with the Olympics. Primarily due to the fact that
the unusual demand from the Olympics did not reoccur in 1997, revenues
decreased $4.4 million, or 13.6%, from $32.4 million for the year ended June
30, 1996 to $28.0 million for the year ended June 30, 1997.
Gross profit. Gross profit increased $131,000, or 2.6%, from $5.1 million
for the year ended June 30, 1996 to $5.2 million for the year ended June 30,
1997. As a percentage of revenues, gross profit increased from 15.6% to 18.6%,
primarily due to a shift in business toward the higher margin renovation and
retrofit projects which replaced some of the lower margin general contracting
services provided by Allison-Smith.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $158,000, or 6.3%, from $2.5 million for the
year ended June 30, 1996 to $2.7 million for the year ended June 30, 1997,
primarily due to increased personnel costs associated with the increased
revenues achieved in 1996 and increased administrative salaries and owner
compensation. As a percentage of revenues, selling, general and administrative
expenses increased from 7.7% to 9.5%.
Other income (expense). Other income (expense) was not significant for the
year ended June 30, 1997. Other expense for the year ended June 30, 1996
primarily consists of loss on disposals of fixed assets.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Results of Operations--Henderson
Henderson and Eagle have been reported on a consolidated basis.
Henderson was founded in 1919 as a union contractor, is headquartered in
Louisville, Kentucky and maintains an additional office in Lexington,
Kentucky. During the year ended March 31, 1998 Henderson has provided services
to customers in Kentucky and Indiana. In 1986 Henderson established Eagle as a
31
<PAGE>
wholly-owned open-shop subsidiary which is headquartered in Cincinnati, Ohio.
During the year ended March 31, 1998, Eagle provided services to customers in
Indiana, Kansas, Kentucky, Ohio and Wisconsin. Henderson provides electrical
contracting and maintenance services, as well as installation of wiring or
cabling for computer, telecommunications and security systems, and has
significant design-build capability.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
September 30, Six Months Ended
1997 September 30, 1998
-----------------------------------
<S> <C> <C> <C> <C>
Contract revenues.......................... $ 20,828 100.0% $ 26,657 100.0%
Cost of services........................... 18,546 89.0% 21,955 82.4%
-------- ------- --------- --------
Gross profit............................. 2,282 11.0% 4,702 17.6%
Selling, general and administrative
expenses.................................. 1,850 8.9% 2,257 8.5%
-------- ------- --------- --------
Operating income........................... $ 432 2.1% $ 2,445 9.1%
======== ======= ========= ========
</TABLE>
Henderson results for the six months ended September 30, 1998 compared to the
six months ended September 30, 1997
Contract revenues. Revenues increased $5.8 million, or 28.0%, from $20.8
million for the six months ended September 30, 1997 to $26.6 million for the
six months ended September 30, 1998, primarily as a result of increased demand
for "bid-to-spec" new construction services in the food processing and
distribution, automotive markets, and hospitality market.
Gross profit. Gross profit increased $2.4 million or 106%, from $2.3 million
for the six months ended September 30, 1997 to $4.7 million for the six months
ended September 30, 1998, primarily as a result of increased revenues and the
completion of some jobs at better than expected margins. As a percentage of
revenues, gross profit increased from 11.0% to 17.6%, primarily due to the
completion of some jobs at better than anticipated margins and to a more
favorable mix of jobs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $407,000, or 22.0%, from $1.9 million for
the six months ended September 30, 1997 to $2.3 million for the six months
ended September 30, 1998, primarily due to headcount additions resulting in
increased salaries and benefits and increased owner compensation. As a
percentage of revenues, selling, general and administrative expenses decreased
from 8.9% to 8.5%.
Other income (expense). During 1998, the Company received a workers
compensation insurance refund in the amount of $124,000.
Net Income. The change in net income for the six months is the result of the
other changes noted above.
The following table sets forth selected historical statement of operations
data and such data as a percentage of revenues for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract revenues................. $27,337 100.0% $36,409 100.0% $44,000 100.0%
Cost of services.................. 23,188 84.8% 31,025 85.2% 37,952 86.3%
------- ----- ------- ----- ------- -----
Gross profit.................. 4,149 15.2% 5,384 14.8% 6,048 13.7%
Selling, general and
administrative expenses.......... 3,230 11.8% 3,439 9.5% 4,376 9.9%
------- ----- ------- ----- ------- -----
Operating income.................. $ 919 3.4% $ 1,945 5.3% $ 1,672 3.8%
======= ===== ======= ===== ======= =====
</TABLE>
32
<PAGE>
Henderson results for the year ended March 31, 1998 compared to the year ended
March 31, 1997
Revenues. Revenues increased $7.6 million, or 20.8%, from $36.4 million for
the year ended March 31, 1997 to $44.0 million for the year ended March 31,
1998, primarily as a result of increased demand for "bid-to-spec" new
construction services in the food processing and distribution, and
institutional markets.
Gross profit. Gross profit increased $664,000, or 12.3%, from $5.4 million
for the year ended March 31, 1997 to $6.0 million, primarily as a result of
increased revenues. As a percentage of revenues, gross profit decreased from
14.8% to 13.7%, primarily due to the increased proportion of "bid-to-spec" new
construction services provided by Henderson which generally generate lower
gross margins than the "design-build" services provided by Henderson.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $937,000, or 27.2%, from $3.4 million for
the year ended March 31, 1997 to $4.3 million for the year ended March 31,
1998, primarily due to increases in administrative salaries and bonuses. As a
percentage of revenues, selling, general and administrative expenses increased
from 9.5% to 9.9%.
Other income (expense). Other income and expense primarily included joint
venture income during 1998 and 1997 of $202,233 and $139,909, respectively. In
addition, during 1997 the Company sold its interest in a partnership which
developed and leased property and recognized a gain on the sale of $120,417.
Net Income. The change in net income for the year is the result of the other
changes noted above.
Henderson results for the year ended March 31, 1997 compared to the year ended
March 31, 1996
Revenues. Revenues increased $9.1 million, or 33.2%, from $27.3 million for
the year ended March 31, 1996 to $36.4 million for the year ended March 31,
1997, primarily as a result of increased demand for "bid-to-spec" services
associated with the automotive market.
Gross profit. Gross profit increased $1.2 million, or 29.8%, from $4.2
million for the year ended March 31, 1996 to $5.4 million for the year ended
March 31, 1997, primarily as a result of the increase in revenues. As a
percentage of revenues, gross profit decreased 0.4%, from 15.2% for the year
ended March 31, 1996 to 14.8% for the year ended March 31, 1997. The decrease
in gross margin was primarily a result of an increased portion of "bid-to-
spec" new construction services during the year, which generally generate
lower gross margins than the "design-build" services provided by Henderson.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $209,000, or 6.5%, from $3.2 million for the
year ended March 31, 1996 to $3.4 million for the year ended March 31, 1997,
primarily due to increases in administrative salaries and benefits. As a
percentage of revenues, selling, general and administrative expenses decreased
from 11.8% to 9.5%.
Other income (expense). The Company recognized joint venture income during
1997 of $139,909 and there were no joint venture activities during 1996.
During 1997, the Company sold its interest in a partnership which developed
and leased property and recognized a gain on the sale of $120,417.
Net Income. The change in net income for the year is the result of the other
changes noted above.
33
<PAGE>
BUSINESS
General
Nationwide provides a wide array of electrical contracting services ranging
from the design and installation of electrical systems for new facilities, the
renovation and retrofit of existing electrical systems, specialized and value-
added services, as well as long-term and on-call maintenance and repair
services. The Company believes that its focused operating strategy, emphasis
on providing design-build, specialized and value-added services, prominence
within its markets and the experience of its executive management team will
provide the Company with significant competitive advantages as it pursues its
growth strategy.
Nationwide is one of the largest providers of electrical contracting and
maintenance services in the U.S. The Company generated pro forma consolidated
revenues of $134.4 million in the fiscal year ended March 31, 1998, and $117.3
million for the nine months ended December 31, 1998. Of such fiscal 1998 pro
forma consolidated revenues, approximately 18% were derived from "design-
build" new construction projects, 29% were derived from "bid-to-spec" new
construction projects, 30% were derived from retrofit and renovation projects,
13% were derived from maintenance and repair services and, 10% were derived
from specialized and value-added services. The Company's customers include
general contractors, property managers, operators and owners of commercial,
industrial and institutional properties, real estate developers and
governmental entities. See "Business--Services" and "--Customers and
Marketing."
Industry Overview
According to industry estimates, annual revenues generated by the electrical
contracting industry grew from approximately $39.3 billion in 1990 to
approximately $72.0 billion in 1998 and are expected to increase in 1999 to
$76.5 billion. Approximately 81% of the annual revenues in 1995 were derived
from non-residential customers.
Industry sources indicate that the overall industry revenue mix has shifted
over the past 30 years as modernization, or retrofit work, and the percentage
of services provided on a negotiated rather than bid basis have increased.
According to industry sources, during the period from 1967 through 1993, the
percentage of revenues from new construction projects generated by the largest
electrical contractors (those with annual sales in excess of $1,000,000 who
traditionally are most heavily involved in new construction projects) has
declined from 83% to 56%. On an industry-weighted basis, approximately 30% of
revenues in 1993 were attributable to electric modernization, or retrofit
work, and approximately 20% of revenues were derived from maintenance and
repair services. Thirty years ago, approximately 75% of electrical
contractors' work was obtained through the traditional competitive bid
process. It is estimated that 50% of such work currently is obtained through
competitive bidding with the remainder being obtained on a negotiated basis.
The Company believes that growth in the commercial, industrial and
institutional markets reflects a number of factors, including (i) increased
levels of construction and renovation activity; (ii) the effects of more
stringent electrical codes which establish minimum power and wiring
requirements; (iii) increases in use of electrical power due to new
technologies, creating needs for increased capacity and outlets, as well as
data cabling and fiber optics; (iv) requirements for enhanced safety systems
resulting in large part from enactment of the Americans with Disabilities Act;
(v) new demands for uninterruptible power in high-tech environments; (vi)
increased complexity of systems requiring specialized technical expertise;
(vii) networking of local area and wide area computer systems; (viii)
minimization of downtime through predictive and preventive maintenance; (ix)
revised national energy standards that dictate the use of more energy-
efficient lighting fixtures and other equipment; (x) continuing demand to
build out lease spaces in office buildings and to reconfigure space for new
tenants; and (xi) installation of electrical capacity in
34
<PAGE>
excess of minimum code requirements by building owners and developers to
improve the marketability of their properties.
In addition, the Company believes that the impending deregulation of the
electric utility industry will lead to new demands for the Company's services.
As suppliers of power are generating and supplying electricity to the power
distribution system and as customers choose suppliers other than their local
utility monopoly, the Company believes a market perception will result that
power will become less reliable. The Company believes further that, as a
result of this perception, customers will take more responsibility to ensure
the quality and reliability of their power. Such customers will increase
demand for a number of the Company's specialized services including:
uninterruptible power systems, surge suppression systems, and diesel and
battery back-up systems, among others.
The Company believes that the highly fragmented nature of this industry
presents substantial consolidation and growth opportunities. According to the
industry sources, there are approximately 60,000 electrical contracting
businesses in the U.S., consisting of a small number of regional or national
providers and a large number of relatively small, owner-operated businesses
that have limited access to capital and that offer a limited range of
services. The Company believes that its disciplined acquisition strategy,
financial strength, experienced management, decentralized operating
philosophy, performance incentive programs and opportunities for advancement
within the Company will enable it to attract and acquire electrical
contractors with leading reputations in their regional or local markets.
Strategy
The Company plans to enhance its position as a leading provider of
electrical contracting and maintenance services to commercial, industrial and
institutional customers by continuing to implement its operating strategy,
emphasizing continued internal growth and expanding through acquisitions.
Operating Strategy. The Company believes there are significant opportunities
to increase its revenues and profitability as well as those of subsequently
acquired businesses. The key elements of the Company's operating strategy are:
Operate on a Decentralized Basis. The Company manages the Acquired
Companies and intends to manage subsequently acquired businesses on a
decentralized basis, with local management retaining responsibility for the
day-to-day operations, profitability and internal growth of each local
business. Although the Company maintains strong central operating and
financial controls, its decentralized operating structure allows it to
capitalize on the considerable local and regional market knowledge,
specialized skills and customer relationships of the Acquired Companies and
future acquired businesses, as well as retain the entrepreneurial spirit
possessed by local management. The Company's corporate management is
responsible for corporate strategy and acquisitions, centralized vendor
relationships to take advantage of volume discounts, banking arrangements,
insurance, shareholder relations and employee benefit plans and also
provides support to local management in expanding services, operating and
purchasing expertise, marketing, recruiting and risk management. In
addition, the Company has implemented certain Company-wide standards
pertaining to safety, training and other matters designed to ensure
integration and uniformly high quality and reliability.
Achieve Operating Efficiencies. Certain administrative functions have
been centralized, and this process will continue following the Offering. In
addition, by eliminating redundant operations of the Acquired Companies and
subsequently acquired businesses, the Company expects to achieve more
efficient asset utilization and realize savings in overhead and other
expenses. The Company uses "best practices" procurement methods and
increased purchasing power in the process of negotiating national
purchasing agreements providing substantial volume discounts in areas such
as vehicles and equipment, electrical materials, marketing, bonding,
employee benefits and insurance. In addition, the Company seeks to realize
cost savings and increase efficiency and productivity through the
35
<PAGE>
implementation of "best practices" for operating management, pricing,
working capital management, bidding and other business practices and
through the sharing of licenses and systems. As used in this prospectus,
the term "best practices" means those business practices designed by the
Company that are intended to optimize the efficient use of capital and
human resources and reduce costs consistent with maintaining uniformly high
quality of service and materials, in each case to the greatest extent
reasonably practicable. The Company continues to develop further and expand
the use of management information systems to facilitate financial control,
project costing and asset utilization. At some locations, the larger
combined workforce provides additional staffing flexibility.
Focus on Commercial, Industrial and Institutional Customers and National
Accounts. The Company believes that commercial, industrial and
institutional customers and national accounts are attractive because of (i)
the potential for preferred relationships with such customers, particularly
those that are expanding nationally and regionally, (ii) the opportunity to
create recurring revenues through long-term service and maintenance
contracts, (iii) the increasing importance of such customers due to the
consolidation of real estate ownership by real estate investment trusts
("REITS") and other national real property owners, and (iv) the opportunity
to create greater profitability through more negotiated jobs, repeat
business and national pricing arrangements. The Company believes that its
geographic presence and technical capabilities position it to meet the
significant demands of such customers seeking to reduce the number of
vendors with which they do business.
Internal Growth. A principal component of the Company's strategy is to
continue its internal growth in revenues and profitability by improving job
selection and leveraging its technical expertise, increasing focus on
specialized and value-added services, increasing its market penetration and
geographic scope. The key elements of the Company's internal growth strategy
are:
Improve Job Selection and Sharing of Technical Expertise. The Company
believes that it can improve its job selection processes by strategically
pursuing opportunities presenting the most desirable combination of revenue
and profit potential. These processes will facilitate access to technical
expertise and referrals among the Company's operating subsidiaries in order
to leverage such expertise and existing resources.
Increase Focus on Specialized and Value-Added Services. The Company
expands upon the scope of the traditional services offered by electrical
contractors by providing specialized and value-added services. These
services include: design and engineering for, and installation of, wiring
and switching systems for computers and data transmission, uninterruptible
power and surge suppression systems; energy efficiency technologies; and
preventive and predictive maintenance programs. Such services, typically
sold on a negotiated bid basis directly to the customer, rather than
through a general contractor or other intermediary, can provide higher
margins than general electrical contracting services.
Increase Market Penetration and Geographic Scope. The Company also
intends to continue to expand its market share and the markets it serves by
(i) increasing the volume and scope of services provided to existing
customers, (ii) broadening its customer base, and (iii) expanding its
geographic service area. The Company believes it will be able to expand the
services it offers in its markets by leveraging the specialized strengths
of the Acquired Companies as well as strengthen its preferred provider
relationships with its national and regional customers.
Acquisitions. The Company is pursuing an aggressive but disciplined
acquisition strategy, in conjunction with its operating strategy, to increase
revenue growth, improve profitability, capitalize on procurement and operating
efficiencies, and improve its position to serve customers with national,
regional or local scope. The Company has significant opportunities to pursue
its acquisition strategy due to (i) the highly fragmented nature of the
electrical contracting industry, (ii) the desire of property managers, owners
and other existing and potential clients with locations in multiple markets to
limit the number of vendors that can serve their needs, (iii) the need for
economies of scale, access to capital to expand and operating expertise to
remain competitive, and (iv) the desire of business owners for liquidity.
36
<PAGE>
The Company believes that its financial strength, experienced management,
decentralized operating philosophy, performance incentive programs and
opportunities for advancement within the Company are attractive to acquisition
candidates. The key elements of the Company's acquisition strategy are:
Enter New Geographic Markets. The Company intends to expand into
geographic markets not currently served by the Acquired Companies. Based on
its analysis of growth rate, size and other demographic trends in regions
of the U.S., the Company has prioritized expansion in the Southeast,
Southwest and Midwest U.S. The Company may also pursue acquisitions as
opportunities arise in other regions where consistent with its financial
and strategic goals. The Company will target one or more electrical
contractors that are leaders in their respective regional markets or have
unique market positions, as well as possess the critical mass and committed
senior management necessary to operate on a decentralized basis and to
become a hub into which other, smaller operations in the geographic market,
can be consolidated. The Company also expects that increasing its
geographic diversity will (i) enable it to better serve the needs of large
national and regional customers, (ii) mitigate market-related risks such as
local and regional economic cycles as well as weather related or seasonal
variations in business, and (iii) enable it to flexibly pool and
effectively deploy its human and financial resources.
Expand Within Existing Markets. The Company is seeking acquisition
opportunities in the geographic markets it already serves as well as in
geographic markets served by businesses the Company may acquire in the
future. The Company believes that such acquisitions would enable it to
expand the Company's share in that market, broaden its range of service
offerings, add customers, and amortize over a broader base the fixed costs
associated with establishing a presence in that market. The Company also
will pursue "tuck-in" acquisitions of smaller electrical contractors whose
operations can be integrated effectively into existing operations in that
market and create additional leverage of existing resources and technical
expertise and provide additional capabilities, customers and project
managers.
Acquisition Program
The Company currently maintains five offices in four states and performs
work in several more states. The Company has developed a set of financial,
geographic and management criteria to establish a disciplined approach to
evaluating acquisition candidates. These criteria contain a variety of
factors, including, but not limited to: (i) reputation and market share of the
candidate in the local and regional market, (ii) historical and projected
financial performance, including growth of revenues, profits and cash flow,
(iii) internal rate of return and return on assets, (iv) valuation of assets,
balance sheet strength and quality and adequacy of equipment, facilities and
other infrastructure, (v) size, growth rate and other demographic trends of
the relevant local and regional market and whether that market will enhance
the Company's market area or ability to attract other candidates, (vi) size,
breadth, depth and quality of the candidate's customer base, (vii) whether the
candidate provides special skills or services or access to new customer
segments, (viii) quality of management team, (ix) potential synergies
obtainable from the acquisition, and (x) liabilities of the candidate,
contingent or otherwise.
The Company believes that it is regarded by acquisition candidates as an
attractive acquiror because of (i) its operating and growth strategies that
are intended to maintain and further its status as a national, comprehensive
and professionally managed provider of traditional, specialized and value
added electrical contracting services, (ii) its emphasis on development of
long-term customer relationships at the national, regional and local levels
using enhanced and proactive marketing programs that build brand identity and
loyalty in conjunction with maintaining existing business names and identities
to retain goodwill for marketing purposes, (iii) the opportunity to leverage
existing customer relationships by cross-selling the technical expertise and
niche capabilities of the Company's operating subsidiaries, (iv) the Company's
37
<PAGE>
decentralized operating philosophy that will capitalize on local and regional
market knowledge and retain entrepreneurial spirit and initiative, (v) the
potential for owners of the acquired businesses to participate in the
Company's growth through stock ownership, attractive performance-based
bonuses, stock options and other incentives, and advancement within the
Company, (vi) the Company's increased access to financial resources as a
public company to support internal growth and fund acquisitions, (vii) the
opportunity to realize liquidity through sales of Company stock, (viii) the
potential for a reduced and more competitive cost structure due to purchasing
economies and other economies of scale, the implementation of "best
practices," enhanced management information and other system capabilities, and
centralization of certain administrative functions, and (ix) the investment in
the Company by KCPL, a publicly traded electric utility which has an indirect
ownership interest in the Company through its wholly-owned subsidiary, KLT.
The principals of the Acquired Companies have substantial experience in the
commercial, institutional and industrial electrical contracting industry, are
active in industry associations and are personally acquainted with the owners
of numerous acquisition targets. Within the past several months, the Company
has contacted the owners of a number of acquisition candidates, several of
whom have expressed interest in having their businesses acquired by the
Company. The Company currently has no binding agreements to effect any
additional acquisitions.
As consideration for future acquisitions, the Company intends to use various
combinations of its Common Stock, cash and debt financing. The consideration
for each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the candidate, return on invested capital, asset
valuation, strength of management and the ability of the candidate to
complement or leverage the services already offered by the Company. The
Company has obtained a $30 million credit facility from Norwest Bank of
Minnesota, N.A., acting as Agent. The facility will be used to finance
acquisitions and for working capital and other general corporate purposes.
Following completion of this Offering, the Company intends to register up to
5,000,000 additional shares of Common Stock under the Securities Act for its
use in connection with future acquisitions. The Agent has indicated that the
borrowing limit under the credit agreement may be increased up to a total of
$100 million, subject to certain conditions including successful completion of
the Offering, the addition of at least three more lenders, receipt of an
unqualified audit record on the Company's financial statements for its fiscal
year ended March 31, 1999, and the absence of any default or event of default
under the credit agreement.
Recent Acquisition Developments
Effective February 27, 1998, the Company acquired Parsons, a union
contractor with over 400 employees, which was founded in 1927 and is
headquartered in Minneapolis, Minnesota. During the twelve months ended March
31, 1998, Parsons provided electrical contracting and maintenance services to
customers primarily in Minnesota, as well as in Alabama, Arkansas, Illinois,
Iowa, North Dakota, Oregon, South Dakota, Texas, Virginia and Wisconsin.
Parsons had revenues of approximately $58 million for the fiscal year ended
December 31, 1997 with approximately 85% derived from repeat customers.
On October 22, 1998, the Company acquired all of the stock of The Allison
Company and its wholly-owned subsidiary, Allison-Smith, a union contractor
with over 250 employees, which was founded in 1943 and is headquartered in
Atlanta, Georgia. During the twelve months ended March 31, 1998, Allison-Smith
provided electrical contracting and maintenance services to customers
primarily in Georgia as well as Florida, Kansas, Texas, Canada and the United
Kingdom. Allison-Smith had revenues of approximately $31 million for the
fiscal year ended June 30, 1998 with approximately 80% derived from repeat
customers.
Also on October 22, 1998, Henderson was merged into the Company and its
assets were concurrently transferred to a wholly-owned subsidiary of the
Company which was renamed Henderson Electric Co., Inc. Henderson, a union
contractor with over 400 employees, was founded in 1919, is headquartered in
Louisville, Kentucky and maintains an additional office in Lexington,
Kentucky. During the twelve months
38
<PAGE>
ended March 31, 1998, Henderson provided electrical contracting and
maintenance services to customers in Indiana and Kentucky. Henderson had
consolidated revenues of approximately $44 million for the fiscal year ended
March 31, 1998 with approximately 75% derived from repeat customers.
The Company also acquired Eagle, formerly a wholly-owned subsidiary of
Henderson, as part of the Henderson Acquisition. Eagle is an open-shop
contractor founded in 1986 with over 90 employees which is headquartered in
Cincinnati, Ohio. During the twelve months ended March 31, 1998, Eagle
provided electrical contracting and maintenance services to customers in
Indiana, Kansas, Kentucky, Ohio, and Wisconsin.
Services
The Company provides a wide array of electrical contracting services ranging
from the design and installation of electrical systems for new facilities, the
renovation and retrofit of existing electrical systems, specialized and value
added services, as well as long-term and on-call maintenance and repair
services.
Design, Installation, Renovation and Retrofit Services. The Company designs
and installs electrical systems for new construction as well as renovation and
retrofit projects. New construction projects, and renovation and retrofit
projects, for commercial, industrial and institutional customers begin with
either a design request or engineer's plans from the owner or general
contractor. Initial meetings with the parties allow the contractor to prepare
preliminary and then more detailed design specifications, engineering drawings
and cost estimates. Once a project is awarded, it is conducted in scheduled
phases, and progress billings are rendered to the owner for payment,
oftentimes less a retainage of 5% to 10% of the construction cost of the
project. Actual field work (ordering of equipment and materials, fabrication
or assembly of certain components, delivery of materials and components to the
job site, scheduling of work crews and inspection and quality control) is
coordinated during these phases. The Company generally provides the materials
to be installed as a part of these contracts, which vary significantly in size
from a few hundred dollars to in excess of $10 million and vary in duration
from less than a day to approximately two years.
Maintenance and Repair Services. The Company's maintenance services are
supplied on a long-term and on call basis. Such services generally provide
recurring revenues and high margins that are relatively independent of
construction activity levels. The Company's long-term maintenance services are
typically provided by Company personnel who remain on-site at the customer's
premises. The Company believes that such continuous on-site presence provides
it with a preferred position to obtain opportunities for renovation or
retrofit projects from such customers.
The Company's on call maintenance services are initiated when a customer
requests repair service or the Company calls the client to schedule periodic
maintenance work. Service technicians are scheduled for the call or routed to
the customer's business by the dispatcher. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools,
parts and supplies needed to complete the typical variety of jobs. The
technician assigned to a service call travels to the business, interviews the
customer, diagnoses the problem, prepares and discusses a price quotation,
performs the work and often collects payment from the customer. Most work is
warrantied for one year.
Specialized and Value Added Services. The Company also offers specialized
and value-added services that differentiate it from competitors and typically
provide higher margins than general electrical contracting and maintenance
services. Specialized services include design and engineering for, and
installation of, wiring or cabling for the following: data cabling and
switching systems for computer networks; fiber optic cable systems;
telecommunications systems; energy management systems; fire alarm and security
systems; building management systems; lightning protection systems; computer
rooms; and high voltage distribution. Value-added services include design and
engineering for, and installation of
39
<PAGE>
uninterruptible power and surge suppression systems, energy efficiency
technologies, and preventive and predictive maintenance programs.
Customers and Marketing
The Company markets its services by building long-term relationships with
its customers by seeking to provide high quality, responsive services, and
customer satisfaction as well as developing rapport at a personal level with
the decision-makers and influencers within the customer's organization who are
involved in the selection of electrical contractors for their work. The
Company plans to capitalize on these long-standing relationships by engaging
in a proactive sales and marketing program that is focused on increasing
penetration of its design-build, specialized and value-added services. This
program will emphasize the Company's distinctive knowledge, technical
capabilities, track record, staffing flexibility, resources, geographic reach,
and implementation of best practices. These strengths will also be promoted in
marketing materials and personal visits targeted to national and regional
customers to seek to become a preferred vendor in a broader geographic service
area. In addition, the Company will attend national and regional conventions,
including those sponsored by trade associations such as the Building Owners
and Managers Association ("BOMA") and the Institute of Real Estate Managers.
The Company has a diverse customer base, including general contractors,
property managers, owners and operators of commercial, industrial and
institutional properties, real estate developers and governmental entities.
The Company's long-standing relationships with leading general contractors in
each of the regions in which it does business are particularly important
because general contractors frequently select the electrical contractor for
projects. The Company's commercial customers include managers and owners of
office buildings, apartments, condominiums, theaters, race tracks, casinos,
hotels, retail stores, shopping centers, and banks. Industrial customers
served by the Company include manufacturing plants, processing facilities and
warehouses. The Company's institutional customers include hospitals, schools,
universities, churches, airports, arenas, convention centers, governmental
agencies at the national, state and local levels, and military facilities. No
single customer accounted for more than 10% of the Company's pro forma
combined revenues for the fiscal year ended March 31, 1998.
The Company has developed and maintained successful long-term relationships
with key customers by emphasizing customer satisfaction and high quality
service which will be a continuing priority. The Company relies heavily on
repeat customers and uses both the written and oral referrals of its satisfied
customers to help generate new business. Many of the Company's customers or
prospective customers have a qualification procedure for becoming an approved
bidder or vendor based upon the satisfaction of particular performance and
safety standards set by the customer. Such customers often maintain a list of
vendors meeting such standards and award contracts for individual jobs only to
such vendors. The Company strives to maintain its status as a preferred or
qualified vendor to such customers as well as to national and regional
accounts.
Employees
As of December 31, 1998, the Company had approximately 137 salaried
employees, including executive officers, project managers, engineers, job
superintendents, staff and clerical personnel, and approximately 1,160 hourly
rated employees, the number of which fluctuates depending upon the number and
size of the projects undertaken by the Company at any particular time. The
Company does not anticipate any overall reductions in staff as a result of the
integration of the Acquired Companies, although there may be some job
realignments and new assignments in an effort to eliminate overlapping and
redundant positions.
The Company has organized two separate subsidiaries to serve as first-tier
holding companies for its operating subsidiaries, one of which will acquire
businesses with unionized workforces and operate them as second-tier
subsidiaries of the Company functioning as union contractors and the other of
which will
40
<PAGE>
acquire businesses with open-shop workforces and operate them as second-tier
subsidiaries of the Company and functioning as open-shop contractors. The
Acquired Companies that are union contractors are owned by the former and the
Acquired Company that is an open-shop contractor is owned by the latter. While
there are no legal restrictions on the Company's ability to operate in the
same geographic market on both a union and open-shop basis, the Company does
not currently intend to operate on a dual basis in any particular geographic
market.
The second-tier subsidiaries that function as union contractors are
signatories to master collective bargaining agreements with the International
Brotherhood of Electrical Workers (the "IBEW") as well as local agreements
with the Laborers International Union and the Operating Engineers Union. Under
these agreements, these second-tier subsidiaries agree to pay specified wages
to their union employees, observe certain workplace rules and make employee
benefit payments to multi-employer pension plans and employee benefit trusts
rather than administering the funds on behalf of their employees. IBEW covered
employees are represented by numerous local unions under various agreements
with varying terms and expiration dates. Such local agreements are entered
into by and between the IBEW local and the National Electrical Contractors
Association ("NECA"), of which the Company's union operating subsidiaries are
members. The majority of the collective bargaining agreements contain
provisions that prohibit work stoppages, slow-downs or strikes, even during
specified negotiation periods relating to agreement renewal, and provide for
binding arbitration dispute resolution in the event of prolonged disagreement;
however, there can be no assurance that work stoppages, slow-downs or strikes
will not occur at any given time.
The electrical contracting industry is currently experiencing a shortage of
skilled craftsmen. In response to the shortage, the Company seeks to take
advantage of various IBEW and NECA referral programs and hire graduates of the
joint IBEW/NECA apprenticeship program for training qualified electricians for
its union operating subsidiaries.
None of the Acquired Companies has experienced any strikes, work stoppages
or slow-downs in the past five years. The Company believes its relationships
with its employees and union representatives is satisfactory.
Training, Quality Assurance and Safety
The Company is committed to providing the highest level of customer service
through the development of a highly trained workforce. Management is
continually establishing Company-wide training and educational programs, as
well as comprehensive safety policies and regulations, and to share "best
practices" throughout its operations. These programs and practices will
supplement the training for union technicians through joint IBEW/NECA
apprenticeship programs and for its non-union technicians through the Bureau
of Apprenticeship and Training of the Department of Labor and similar state
agencies.
Employees are encouraged through compensation increases, course funding, and
opportunities for advancement to complete a progressive training program to
advance their technical competencies and to ensure that they understand and
follow the applicable codes, the Company's safety practices and other internal
policies. More highly trained employees serve as foremen, estimators and
project managers. The Company's master electricians are licensed in one or
more cities or states in order to obtain the permits required in the Company's
business, and certain master electricians have also obtained specialized
licenses in areas such as security systems and fire alarm installation. In
some areas, licensing boards have set continuing education requirements for
maintenance of licenses. Because of the lengthy and difficult training and
licensing process for electricians, the Company believes that the number,
skills and licenses of its employees constitute a competitive strength in the
industry.
The Company screens applicants for its technical positions and is
establishing programs to recruit apprentice technicians for its non-union
subsidiary directly from high schools and vocational-technical schools. Prior
to employment, the Company makes an assessment of the technical competence
level of all potential new employees, confirms background references, conducts
random drug testing and checks criminal and driving records.
41
<PAGE>
Although the Company is committed to a policy of operating safely and
prudently, the Company has been and is subject to claims by employees,
customers and third parties for property damage and personal injuries
resulting from performance of the Company's services.
Equipment and Facilities
The Company operates a fleet of approximately 230 owned and leased service
trucks, vans and support vehicles. The Company believes that these vehicles
generally are well-maintained and adequate for its present operations. The
Company's corporate headquarters are located in Minneapolis, Minnesota. The
Company operates five sites in Minneapolis, Minnesota; Atlanta, Georgia;
Louisville, Kentucky; Lexington, Kentucky; and Cincinnati, Ohio. These sites
are used for offices, warehousing, storage and vehicle shops. The Company
leases all of the facilities it currently occupies. The Company believes that
its facilities are sufficient for its current needs. See "Certain
Transactions."
Procurement
As a result of economies of scale derived through the Acquisitions and
implementation of procurement best practices, the Company believes it is able
to purchase electrical materials, equipment, parts and supplies at substantial
volume discounts to historical levels. Because materials, parts and supplies
generally constitute approximately 40% of revenues, the Company believes that
these procurement savings have the potential to significantly enhance its
profitability. In addition, the Company believes its size will also lower its
costs for (i) the purchase or lease and maintenance of vehicles; (ii) bonding,
casualty and liability insurance; (iii) health insurance and related benefits;
(iv) retirement benefits administration; (v) office and computer equipment;
(vi) marketing and advertising; (vii) long distance services and (viii) a
variety of accounting, financial management and legal services.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
Regulation
The Company's operations are subject to various federal, state and local
laws and regulations including (i) licensing requirements applicable to
electricians and engineers, (ii) building and electrical codes, (iii)
permitting and inspection requirements applicable to construction projects,
(iv) regulations relating to worker safety and environmental protection and
(v) special bidding and procurement requirements on government projects.
Licenses in certain states cover operations throughout the state while laws in
other states and cities require separate licenses in each jurisdiction. The
Company plans to share licenses among its operations wherever possible to
reduce expense and increase its responsiveness to market opportunities.
The Company believes that it has all the required licenses to conduct its
current operations and is in substantial compliance with applicable regulatory
requirements. Failure of the Company to comply with applicable regulations
could result in substantial fines and/or revocation of the Company's operating
licenses. Many state and local regulations governing electrical construction
require permits and licenses to be held by individuals who typically have
passed an examination or met other requirements. The Company intends to
implement a policy to ensure that, where possible, any such permits or
licenses that may be material to the Company's operations are held by at least
two Company employees.
Competition
The electrical contracting industry is highly fragmented and competitive.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area.
42
<PAGE>
There are few public companies focused on providing electrical contracting
services. In the future, competition may be encountered from new entrants,
such as public utilities and other companies attempting to consolidate
electrical contracting service companies. Competitive factors in the
electrical contracting industry include (i) the availability of qualified and
licensed electricians, (ii) safety record, (iii) cost structure, (iv)
relationships with customers, (v) geographic diversity, (vi) ability to reduce
project costs, (vii) access to technology, (viii) experience in specialized
markets and (ix) ability to obtain bonding.
There are relatively few, if any, barriers to entry into the markets in
which the Company operates and, as a result, any organization that has
adequate financial resources and access to technical expertise may become a
competitor to the Company. There can be no assurance that the Company's
competitors will not develop the expertise, experience and resources to
provide services that are equal or superior in both price and quality to the
Company's services, or that the Company will be able to maintain or enhance
its competitive position. The Company may also face competition from the in-
house service organizations of its existing or prospective customers, which
employ personnel who perform some of the same types of services as those
provided by the Company. Although a significant portion of these services is
currently outsourced, there can be no assurance that existing or prospective
customers of the Company will continue to outsource services in the future.
The Company may face competition for acquisition targets from entities
including, but not limited to, the small number of large companies in the
electrical contracting and maintenance services industry. These competitors
may have greater name recognition, greater financial resources and equity
securities with greater potential capital appreciation than the Company with
which to finance acquisition and development opportunities and the ability to
pay higher prices, which could limit the Company's acquisition program.
Risk Management, Insurance and Performance Bonds
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company maintains automobile and
general liability insurance for third party bodily injury and property damage
and workers' compensation coverage which it considers sufficient to insure
against these risks, subject to self-insured amounts. The Company has
consolidated the purchase of insurance, which management believes will result
in savings from the amounts paid by the companies it acquires.
Contracts in the electrical contracting industry may require performance
bonds or other means of financial assurance to secure contractual performance.
If the Company is unable to obtain surety bonds or letters of credit in
sufficient amounts or at acceptable rates, it may be precluded from entering
into additional contracts with certain of its customers.
Legal Proceedings
The Company is, from time to time, a party to litigation or administrative
proceedings that arise in the normal course of its business. The Company
believes it does not have pending any litigation that, separately or in the
aggregate, if adversely determined, would have a material adverse effect on
the Company's results of operations, financial condition or cash flows.
43
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information concerning each of the
Company's current executive officers, directors and key employees.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gregory J. Orman........ 30 Chairman of the Board and Director
Frederick C. Green, IV*. 42 President, Chief Executive Officer and Director Nominee
Frank R. Clark.......... 54 Vice President, Chief Financial Officer,
Secretary and Treasurer
David W. Smith.......... 40 Vice President, Operations
Robert B. Allison*...... 55 President, Allison-Smith and Director Nominee
Bruce M. Henderson...... 48 President, Henderson
Rodney J. Henderson..... 52 Chief Executive Officer, Henderson
Stephen L. Howell....... 42 President, Eagle
Joel T. Moryn........... 35 President, Parsons
Bernard J. Beaudoin..... 58 Director
Robert H. Hoffman....... 54 Director
Andrew V. Johnson....... 42 Director
Wade C. Lau*............ 38 Director Nominee
Ronald G. Wasson........ 54 Director
</TABLE>
- --------
*To be elected as a director of the Company, effective upon consummation of
the Offering.
Gregory J. Orman, Founder of the Company, also serves as its Chairman of the
Board. Mr. Orman also holds the following positions: President and Director of
KLT, an unregulated subsidiary of KCPL (since November 1996), Chief Executive
Officer and President of Custom Energy, LLC, a national energy services
provider (since January 1997), Chairman of ELC Electric, Inc., a licensed
electrical contractor (since January 1994), and Chairman of Energy Financing
Corp., a captive leasing company (since January 1994). Previously, Mr. Orman
was Chairman and Chief Executive Officer of Environmental Lighting Concepts
(ELC), a company he co-founded in 1992 and a majority of the stock of which
was subsequently sold to KLT Energy Services, Inc. From September 1991 to
December 1994, Mr. Orman was an Associate at McKinsey & Company, Inc., an
international management consulting firm. Mr. Orman holds a Bachelor's Degree
in Economics from Princeton University.
Frederick C. Green, IV, President and Chief Executive Officer, joined the
Company in April 1998. From 1996 to 1998, Mr. Green served as President and
Chief Executive Officer of Product Safety Resources, Inc., ("PROSAR") a
venture capital funded start-up company focused on electronic product safety
information consolidation and distribution. Prior to joining PROSAR, he served
as President and Chief Operating Officer of Plum Building Systems, Inc., a
wholly-owned subsidiary of Great Plains Companies, Inc. From 1988 to 1996, Mr.
Green also filled several executive roles with the Fisher-Rosemount Group of
Emerson Electric. He has also served as an Engagement Manager with McKinsey &
Company, Inc., an international management consulting company, and as a design
engineer for General Motors. Mr. Green holds a Master's of Management from the
J.L. Kellogg Graduate School of Management at Northwestern University and a
Bachelor's of Science Degree in Mechanical Engineering from Stanford
University.
Frank R. Clark, Vice President, Chief Financial Officer, Secretary and
Treasurer, joined the Company at the time of its formation. From 1994 until
1997, Mr. Clark served as Executive Vice President, Chief Financial Officer
and Treasurer of Performance Contracting, Inc., a multi-location specialty
contractor. From 1985 to 1994, Mr. Clark served as Chief Financial Officer and
Treasurer of Layne Christensen
44
<PAGE>
Company, a publicly traded company. Mr. Clark is a CPA and holds a Bachelor's
Degree in Accounting from Drake University.
David W. Smith, Vice President of Operations, joined the Company at the time
of its formation. From 1994 to 1997, Mr. Smith served Great Plains Companies,
Inc. ("Great Plains") in the capacities of Executive Vice President and Chief
Financial Officer, and as President of Plum Building Systems, Inc. From 1989
to 1994, Mr. Smith was President of Griffin Real Estate Company. Mr. Smith
holds a Master's Degree in Business Administration from the Harvard Business
School, and a Bachelor's Degree in Economics from Macalester College.
Robert B. Allison, Director nominee, has been President and Chief Executive
Officer of Allison-Smith since 1990. Mr. Allison has been employed by Allison-
Smith for 30 years, including in prior positions as Project Manager (from 1968
to 1980), and Vice President and Treasurer (from 1980 to 1990). Mr. Allison
holds a Bachelor's Degree from Presbyterian College.
Bruce M. Henderson has been President of Henderson since 1989. Mr. Henderson
has been employed by Henderson for 23 years. Mr. Henderson holds a Master's
degree in Electrical Engineering from the University of Louisville. Mr.
Henderson is the brother of Rodney J. Henderson.
Rodney J. Henderson has been Chief Executive Officer of Henderson since
1989. Mr. Henderson has been employed by Henderson for 31 years. Mr. Henderson
holds a Bachelor's of Science in Commerce from the University of Louisville.
Mr. Henderson is the brother of Bruce M. Henderson.
Stephen L. Howell is President of Eagle. He has been employed by Eagle for
12 years, beginning as Purchasing Agent, subsequently appointed Vice President
before becoming President.
Joel T. Moryn was named President of Parsons in 1998. He joined Parsons in
1981, and has held several positions during his tenure, including Vice
President and General Manager; Vice President, Operations; Project Manager;
and Estimator. Mr. Moryn holds a Bachelor's of Science degree in Electrical
Engineering from the University of Minnesota, and a Master's Degree in
Business Administration from the University of St. Thomas.
Bernard J. Beaudoin, Director, has served since January 1999 as President of
KCPL. He has served in several other management positions with KCPL since
joining it in 1980, including Senior Vice President (1991-1994), Senior Vice
President--Finance and Business Development (1994-1995), Executive Vice
President and Chief Financial Officer (1996-1998), and President of KLT Inc.,
a wholly-owned subsidiary of KCPL (1995-1996). Mr. Beaudoin holds a Bachelor's
of Arts Degree from Bowdoin College and a Bachelor's Degree in Electrical
Engineering and a Master's Degree in Industrial Management from Massachusetts
Institute of Technology ("MIT").
Robert H. Hoffman, Director, is Group Vice President (since 1988) of Taylor
Corporation, a privately held national printing company. Mr. Hoffman is
responsible for overseeing the Commercial Printing Division of Taylor
Corporation and has had operational responsibility for completion of 15
acquisitions in the past ten years. Mr. Hoffman holds Bachelor's and Master's
Degrees in Science from Mankato State University and a Doctorate in Management
from Utah State University.
Andrew V. Johnson, Director, is Senior Vice President of Market Development
at Fingerhut Companies Inc., a publicly-traded direct marketing company
("Fingerhut") and President of Andy's Garage Sale, a wholly-owned subsidiary
of Fingerhut. He joined Fingerhut in 1978 and has held various roles, most
recently as the Senior Vice President of Marketing. Mr. Johnson holds a degree
in Business Administration from the University of Minnesota.
45
<PAGE>
Wade C. Lau, Director nominee, is Executive Managing Director (since May
1998) of CB Richard Ellis, a publicly-traded international commercial real
estate services firm, where he oversees property and asset management services
for the Central Division. From July 1997 to May 1998, Mr. Lau served as
Executive Vice President and Central Division Manager for CB Commercial/Koll
Management Services, from October 1996 to July 1997, as Regional President (of
the Minnesota Region) of Koll Management Services, Inc., and from 1993 to 1996
as Executive Vice President of Shelard, Inc. Mr. Lau holds a Bachelor's Degree
in Economics from Harvard College and a Master's Degree in Business
Administration from the Harvard Business School.
Ronald G. Wasson, Director, has served as President and Director of KLT
Inc., a wholly-owned subsidiary of KCPL since 1996. He has served in several
management positions with KCPL and its subsidiaries since joining KCPL in
1966, including Vice President of Purchasing of KCPL (1983-1986), Vice
President of Administrative Services of KCPL (1986-1991), Senior Vice
President of Administrative and Technical Services of KCPL (1991-1995) and
Executive Vice President of KLT, Inc. (1995-1996). Mr. Wasson holds Bachelor's
and Master's Degrees in Electrical Engineering from the University of Missouri
at Columbia. He also holds a Master's Degree in Business Administration from
Central Missouri State University.
Staggered Board of Directors
Following the Offering the Company's Board of Directors will consist of
eight directors and will be divided into three classes. The initial term of
the first class expires at the annual meeting of stockholders to be held in
2000, the initial term of the second class expires in 2001, and the initial
term of the third class expires in 2002. Messrs. Wasson and Allison will be
included in the first class, Messrs. Lau, Hoffman and Beaudoin will be
included in the second class, and Messrs. Orman, Green and Johnson will be
included in the third class. At each annual meeting of stockholders beginning
in 2000, the stockholders will elect directors for the class whose term
expires in that year to a term of three years who will serve until his or her
successor is elected and qualified or until earlier resignation, removal,
retirement, disqualification or death.
Committees of the Board of Directors
The Company's Amended and Restated Bylaws establish an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit Committee will
examine and consider matters relating to the financial affairs of the Company,
including reviewing the Company's annual financial statements, the scope of
the independent annual audit and internal audits and the independent auditor's
letter to management concerning the effectiveness of the Company's internal
financial and accounting controls. Messrs. Lau and Hoffman will serve on the
Company's Audit Committee. The Compensation Committee will consider and make
recommendations to the Company's Board of Directors with respect to
compensation matters and policies and employee benefit and incentive plans,
exercise authority granted to it to administer such plans, and administer the
Company's stock option and equity based plans and grant stock options and
other rights under such plans. Messrs. Orman, Johnson and Wasson will serve on
the Compensation Committee. The Executive Committee will manage the business
and property of the Corporation between regular meetings of the Board of
Directors. Messrs. Orman, Green, Johnson and Wasson shall constitute the
members of the Executive Committee immediately following the Offering.
Directors' Compensation
Directors who also are employees of the Company or any of its subsidiaries
or affiliates will not receive additional compensation for serving as
directors. Robert Hoffman, Wade Lau and Andrew Johnson, who are or will be
non-employee directors of the Company, have each purchased 5,000 shares of
Common Stock from the Company at $0.30 per share. In view of the incentive
created by those stock
46
<PAGE>
purchases, it is currently anticipated that Messrs. Hoffman, Lau and Johnson
will not receive compensation in the future for their services as directors.
Directors of the Company will be reimbursed for reasonable out-of-pocket
expenses incurred in attending meetings of the Board of Directors or the
committees thereof, and for other expenses reasonably incurred in their
capacity as directors of the Company.
Executive Compensation
The Company was incorporated in February 1998 and until it began operations,
effective February 27, 1998, its activities were solely those related to the
Acquisitions and the Offering. During 1998, the annualized base salaries of
its most highly compensated executive officers were $168,000 for Mr. Green and
$140,000 for each of Messrs. Clark and Smith. The base salaries of these
executive officers is subject to adjustment on a yearly basis by the Board of
Directors. As part of Mr. Green's employment arrangement with the Company, he
(i) purchased 100,000 shares of Common Stock at $0.30 per share under an
Employee Restricted Stock Purchase Agreement between him and the Company (ii)
received an option to purchase 100,000 shares of Common Stock at an exercise
price of $12.00 per share, and (iii) received a non-interest bearing loan for
$150,000, one-third of which will be forgiven by the Company on April 1, 1999
and the remainder of which will be forgiven on April 1, 2000, provided that
Mr. Green does not terminate his employment without "good reason" and is not
terminated for "cause", as those terms are defined in the employment
agreement, by those respective dates. As part of Mr. Clark's employment
arrangement with the Company, he purchased 60,000 shares of Common Stock at
$0.30 per share under an Employee Restricted Stock Purchase Agreement between
him and the Company. As part of Mr. Smith's employment arrangement with the
Company, he purchased 40,000 shares of Common Stock at $0.30 per share under
an Employee Restricted Stock Purchase Agreement between him and the Company
and received an option to purchase 10,000 shares of Common Stock at an
exercise price of $12.00 per share.
Employment Agreements
The Company has entered into an employment agreement with each executive
officer of the Company that prohibits such individual from disclosing the
Company's confidential information and trade secrets and generally restricts
such individual from competing with the Company for a period of three years
after the expiration or termination of the individual's employment agreement.
Each agreement has an initial term of approximately three years, provides for
an automatic annual extension at the end of its initial term and is terminable
by the Company for "cause" immediately upon written notice by the Company and
without "cause" by either party upon 90 days' written notice. In addition, Mr.
Green's employment agreement provides that if he terminates his employment for
"good reason" (including due to a change of control of the Company), or if the
Company terminates his employment without "cause," then the Company is
obligated to pay him all compensation due through the remaining term of the
agreement and all of his options to purchase Common Stock will become fully
vested. All employment agreements provide that in the event of termination
(with or without cause), the noncompete and confidentiality agreements will
survive termination of employment.
1998 Stock Option Plans
The Board of Directors of the Company has adopted, and the stockholders of
the Company have approved, an Incentive Stock Option Plan ("ISO Plan") and a
Non-Qualified Stock Option Plan ("NQSO Plan"; collectively, the "Option
Plans"). Options granted under the ISO Plan are intended to qualify as
incentive stock options pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). The purpose of the Option Plans is to
encourage the key employees of the Company and its subsidiaries to participate
in the ownership of the Company, and to provide additional incentive for such
employees to promote the success of its business through sharing in the future
growth of such business. An amount of 500,000 shares of Common Stock
(1,000,000 shares in the aggregate) may be granted under
47
<PAGE>
options pursuant to each of the ISO Plan and the NQSO Plan (subject to certain
extraordinary changes in capitalization).
The Option Plans are administered by the Board of Directors or by the
Compensation Committee of the Board of Directors (collectively, the
"Compensation Committee"). The Compensation Committee has, subject to the
terms of the respective Option Plans, the sole authority to grant and set the
terms of the options, to construe and interpret the Option Plans and to make
all other determinations for the administration of the Option Plans.
Only key employees of the Company or its subsidiaries, as the term
"subsidiary" is defined in Section 424(f) of the Code, are eligible to receive
options under the Option Plans. The key employees eligible to receive options
under the Option Plans will be selected by the Compensation Committee from
time to time based on performance of those employees. Options shall not be
granted to key employees under the ISO Plan who, immediately prior to grant of
the option, own (either directly or indirectly under the rules of Section
424(d) of the Code) stock possessing more than five percent of the total
combined voting power of all classes of stock of the Company or any
subsidiary.
The Company has outstanding options to purchase 223,500 shares of Common
Stock at an exercise price of $12.00 per share, of which 71,500 were granted
under the Nonqualified Stock Option Plan and 152,000 were granted under the
Incentive Stock Option Plan. In the discretion of the Compensation Committee,
option agreements may provide that options will become immediately exercisable
in the event of certain extraordinary events or upon a Change of Control (as
defined in the Option Plans) of the Company. Options under the ISO Plan may
not be exercised (i) after the expiration of the later of 30 days following
termination of employment by the Company or its subsidiaries or 90 days after
the employee's death (but in any event no later than the expiration date of
such option), (ii) to the extent that the aggregate fair market value of the
stock (at the time of grant of options) with respect to which options are
exercisable by an individual for the first time during any calendar year under
the ISO Plan exceeds $100,000 or (iii) if seven years have elapsed since the
date of grant of the option. Options under the NQSO Plan may not be exercised
(i) after the expiration of the later of three months following termination of
employment and one year after the employee's death (but in any event no later
than the expiration date of such option) or (ii) if ten years have elapsed
since the date of grant of the option.
Stock Purchase Plans
The Board of Directors of the Company has adopted the Nationwide Electric,
Inc. Executive Stock Purchase Plan (the "Executive Stock Plan") to provide an
incentive for key executives of the Company and its subsidiaries and the
Nationwide Electric, Inc. Employee Stock Purchase Plan (the "Employee Stock
Plan") in order to allow eligible employees of the Company to commence or
increase their ownership of shares of the Company's Common Stock.
Under the Executive Stock Plan, selected officers and other key employees
will be given the opportunity to purchase up to a total of 250,000 shares of
the Company's Common Stock at a price equal to the then current market value
of the shares sold to such officers and employees less a 15% discount to
reflect the lack of marketability of the shares. Company financing will be
available for up to 85 percent of the stock purchase price. Company loans will
be granted on a full recourse basis with an interest rate equal to the then
Prime Rate. All shares of the Company's Common Stock purchased under the
Executive Stock Plan will be restricted stock for a period of one year
following the date of sale. An officer or key employee who purchases shares of
the Company's Common Stock under the Executive Stock Plan will be immediately
vested as to one-third of the Common Stock purchased. So long as such officer
or key employee remains employed by the Company, an additional one-third of
the Common Stock will vest on the first anniversary of the date of purchase
and the remaining one-third will vest on the second anniversary of such
purchase. Upon termination of such officer's or key employee's employment for
any
48
<PAGE>
reason, all shares of Common Stock which have not been vested must be offered
for sale to the Company at the original price paid for such Common Stock. No
shares purchased under the Executive Stock Plan may be conveyed, transferred,
encumbered or otherwise disposed of (any such disposition being referred to as
a "transfer") by the holder thereof unless all shares covered by such plan
owned by the holder first have been offered to the Company at the original
purchase price if the proposed transfer occurs within one year of the date of
purchase of such shares.
Under the Employee Stock Plan, all employees will be given the opportunity
to purchase shares of the Company's Common Stock in the market at a price
equal to the then fair market value without having to pay any brokerage
commissions. Shares of the Company's Common Stock sold under the Employee
Stock Plan will not be restricted.
CERTAIN TRANSACTIONS
Organization of the Company
Nationwide was founded in February 1998 by KLT and Gregory J. Orman (through
Reardon Capital, LLC). Each party purchased 116,665.5 shares of Common Stock,
KLT purchased 99,999 shares of Class A Nonvoting Common Stock (adjusted for
the 333.33-for-1 stock split on March 24, 1998) for nominal consideration,
Galt Financial, Inc. ("Galt Inc.") purchased 665,000 shares of Common Stock
and 285,000 shares of Class A Nonvoting Common (both as adjusted for the stock
split described above). With the merger of Galt Inc. into Nationwide, the
shares purchased by Galt Inc. were cancelled and, along with compensation for
the other assets acquired, Nationwide issued 2,310,000 shares of Common Stock
and 990,000 shares of Class A Nonvoting Common to the shareholders of Galt
Inc. Frederick C. Green IV, Frank R. Clark, John B. Wood and David W. Smith
also acted as co-founders of the Company and paid nominal cash consideration
for a total of 300,000 shares of Common Stock. In addition Robert Hoffman and
Andrew Johnson, each of whom are outside directors, and Wade Lau, director
nominee, paid nominal cash consideration for a total of 15,000 shares of
Common Stock.
Parsons was acquired on February 27, 1998 by Galt Inc. for cash in the
amount of $11.0 million. Galt Inc. was owned by Reardon Capital, LLC and KLT;
50% of the voting stock interests were held by each, and KLT held 100% of the
non-voting stock interests. Galt Inc. merged with Galt Financial, LLC ("Galt
LLC") on March 4, 1998. Reardon Capital, LLC owned 100% of Galt LLC. On June
4, 1998, Galt Inc. was merged into Nationwide in exchange for 2,310,000 shares
of Common Stock, 990,000 shares of Class A Nonvoting Common Stock and 6,000
shares of Series A Preferred.
On October 22, 1998, KLT purchased from the Company 1,000,000 shares of
Class B Nonvoting Common and 500,000 shares of Series B Preferred each at
$12.00 per share, for an aggregate purchase price of $18,000,000 (the "KLT
Private Placement"). Pursuant to the Stock Purchase Agreement relating to this
purchase of stock, the Company has agreed that if the price per share received
by the Company in the next round of financing following such purchase is less
than $12.00 per share of Common Stock (net of any underwriting discounts and
commissions) (the "Net Price"), then an additional number of shares of Class B
Nonvoting Common will be issued to KLT in an amount determined by (i) dividing
$12,000,000 by the Net Price and (ii) subtracting therefrom the 1,000,000
shares of Class B Nonvoting Common issued to KLT at the closing of the
transaction. KLT has indicated that it will convert all of the Class B
Nonvoting Common upon consummation of the Offering.
Purchase of The Allison Company
On October 22, 1998, the Company purchased all of the outstanding stock of
The Allison Company from Robert Allison, David Cartwright, Lanny Thomas and
The Allison-Smith Company Profit Sharing Plan, the sole shareholders of The
Allison Company. For their shares of common stock of Allison, the
49
<PAGE>
shareholders received $10,130,244 in cash and 454,563 shares of the Company's
Common Stock. Mr. Allison, who will be elected a director of Nationwide upon
consummation of the Offering and who has been retained by the Company as
President of Allison-Smith (a second-tier subsidiary of the Company operating
the business acquired from The Allison Company), received the following
consideration in connection with the acquisition of his interest in The
Allison Company: (i) $7,091,160 cash and (ii) 318,195 shares of Common Stock.
An additional earn-out payment, which will be accounted for as a bonus, will
be made to the Messrs. Cartwright and Thomas in an amount equal to 25 percent
of the amount by which its earnings before interest and taxes for each of the
fiscal years ending March 31, 1999 and 2000 exceeds $2,500,000. The number of
shares of Common Stock issued to the shareholders of The Allison Company was
determined based upon a value of $12.00 per share. If the price per share of
Common Stock in the Company's first round of financing after the KLT Private
Placement is less than $12.00 per share, then an additional number of shares
of Common Stock will be issued to The Allison-Smith Company Profit Sharing
Plan so that such Plan will have received an aggregate number of shares equal
to the amount that would have been issued had the lower price been used in
making the computation of the number of shares to be issued in such
acquisition.
Purchase of Henderson and Eagle
On October 22, 1998, Henderson was merged into Nationwide in exchange for
$5,585,018 in cash and 520,834 shares of Common Stock. As part of this
acquisition, the Company also acquired Eagle, formerly a wholly-owned
subsidiary of Henderson. Bruce M. Henderson and Rodney J. Henderson each owned
50 percent of the shares of common stock of Henderson and each received 50
percent of the cash and stock consideration. Bruce M. Henderson and Rodney J.
Henderson have been engaged by the Company as President and Chief Executive
Officer, respectively, of Henderson. The number of shares of Common Stock
issued to the Hendersons was determined based upon a value of $12.00 per
share. If the price per share of Common Stock in the Company's first round of
financing after the KLT Private Placement is less than $12.00 per share, then
an additional number of shares of Common Stock will be issued to the
Hendersons so that the Hendersons will have received an aggregate number of
shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition.
Transactions Involving Certain Officers, Directors and Stockholders
Certain stockholders of the Acquired Companies who have become, or will
become upon consummation of the Offering, directors, executive officers or key
employees of the Company guaranteed indebtedness, performance bonds and other
obligations of each of their respective Acquired Companies. In particular, the
following guarantees of indebtedness of the respective Acquired Companies were
terminated after the acquisitions due to the repayment of the underlying
indebtedness: Robert Allison (Allison-Smith)--$1,090,000; Rodney Henderson and
Bruce Henderson (Henderson)--$1,024,000.
The Company leases from an affiliate of Robert Allison, the administrative
office and warehouse facilities of Allison-Smith located in Atlanta, for a
ten-year term that will terminate in the year 2008, with an option to renew
the lease for an additional five-year term. The lease covers 16,000 square
feet of office space and 17,000 square feet of warehouse facilities, at a
monthly rental rate of $5,000, to increase by 8% each year.
The Company leases from an affiliate of Bruce Henderson and Rodney
Henderson, the two separate office/warehouse facilities of Henderson located
in Louisville and Lexington, Kentucky, and the office/warehouse facilities of
Eagle located in Cincinnati, Ohio, covering approximately 38,500 square feet
in the aggregate. The lease provides for a seven year term with an option to
renew the lease for an additional five year term, at a monthly rental rate of
$15,000.
Company Policy
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved by a majority of the Board of Directors, including a majority of
disinterested members of the Board of Directors.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance
of shares of Common Stock in connection with the acquisitions of the Acquired
Companies and after giving effect to the Offering, by (i) all persons known to
the Company to be the beneficial owner of 5% or more thereof, (ii) each
director and nominee for director, (iii) each executive officer and (iv) all
executive officers, directors and director nominees as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
-----------------------
Shares Prior to After
Name Beneficially Owned Offering Offering
- ---- ------------------ ---------- ----------
<S> <C> <C> <C>
KLT Energy Services, Inc. (1)....... 2,771,666 52.0% 37.0%
Reardon Capital, LLC................ 1,271,666 33.2% 12.8%
Gregory J. Orman (1)(2)............. 1,271,666 33.2% 12.8%
Frederick C. Green, IV (3).......... 100,000 2.6% 1.0%
Frank R. Clark...................... 60,000 1.6% 0.6%
David W. Smith...................... 40,000 1.0% 0.4%
Wade C. Lau......................... 5,000 0.1% --
Robert H. Hoffman................... 5,000 0.1% --
Andrew V. Johnson................... 5,000 0.1% --
Ronald G. Wasson (1)................ -- -- --
Bernard J. Beaudoin (1)............. -- -- --
Robert B. Allison................... 318,195 8.3% 3.2%
Rodney Henderson.................... 260,417 6.8% 2.6%
Bruce Henderson..................... 260,417 6.8% 2.6%
All executive officers, directors
and director nominees as a group
(11 persons) (1)................... 1,804,861 38.8% 18.2%
</TABLE>
- --------
(1) Includes 1,000,000 shares of Class B Nonvoting Common and 500,000 shares
of Series B Preferred of the Company owned by KLT, which are presently
convertible into Common Stock. Does not include 1,089,999 shares of Class
A Nonvoting Common of the Company owned by KLT which will be converted
into Common Stock concurrently with the Offering. Accordingly, KLT's
percentage ownership of outstanding Common Stock will be 37.0% after the
Offering. Messrs. Orman, Wasson and Beaudoin are directors of, and Mr.
Orman is president of, KLT but disclaim beneficial ownership of the shares
of Common Stock owned by KLT.
(2) Reflects shares owned by Reardon because Mr. Orman owns all of the voting
membership interests of Reardon. Mr. Orman owns approximately 54% of the
economic interest in Reardon.
(3) Does not include 49,545 shares attributable to non-voting membership
interests in Reardon.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of (i) 30,000,000
shares of Common Stock, par value $.01 per share, (ii) 1,200,000 shares of
Class A Nonvoting Common, par value $.01 per share, (iii) 1,250,000 shares of
Class B Nonvoting Common, par value $.01 per share, and (iv) 10,000,000 shares
of Preferred Stock, par value $.01 per share ("Preferred Stock"). The
authorized but unissued shares of Preferred Stock are issuable in one or more
series, with such designations, preferences and relative participating,
optional or other special rights, if any, and the qualifications, limitations
or restrictions thereof as may be fixed and determined by resolution of the
Company's Board of Directors.
51
<PAGE>
The following summaries of the terms of the Common Stock and the Preferred
Stock do not purport to be complete and are qualified in their entirety by
reference to the terms set forth in the Amended and Restated Certificate of
Incorporation of the Company. The Company's outstanding capital stock is fully
paid and nonassessable and none of the authorized capital stock is entitled to
preemptive rights or subscription rights. Prior to the Offering, there has
been no public market for the Common Stock. The Common Stock has been approved
for listing on the NYSE.
Common Stock
Following the Offering, there will be 9,923,727 shares of Common Stock
outstanding (10,523,727 if the Underwriters' over-allotment option is
exercised in full). Subject to certain dividend restrictions of the Company's
credit facility and to the preferential rights of the Preferred Stock, if
outstanding, holders of Common Stock are entitled to dividends as declared
thereon by the Company's Board only out of net income or earned surplus. Upon
issuance of one or more series of Preferred Stock, the Company's Board may
provide for dividend restrictions on the Common Stock as to such series. In
the event of liquidation, holders of Common Stock will be entitled to share
ratably in any assets remaining after the satisfaction in full of the prior
rights of creditors, including lenders under the Company's credit facility and
the aggregate liquidation preference of any Preferred Stock then outstanding.
Except with respect to the Class A Nonvoting Common (which will
automatically convert into Common Stock upon consummation of the Offering) and
the Class B Nonvoting Common, holders of Common Stock exclusively possess
voting power for all purposes and are entitled at each stockholders' meeting
of the Company, as to each matter to be voted upon, to cast one vote, in
person or by proxy, for each share held of record on the books of the Company.
The Company has issued 1,000,000 shares of Class B Nonvoting Common, each
share of which is convertible into one share of Common Stock at the option of
the holder thereof (which number of shares shall be increased proportionately
in the event that the initial public offering price (net of underwriting
discounts and commissions) is less than $12.00 per share). The Company's Board
is divided into three classes, with each class consisting, as nearly as
possible, of one-third of the total number of directors and serving a
staggered three-year term. Only one class is elected each year, and it is
elected for a three-year term. The Company's stockholders are not entitled to
cumulative voting rights in the election of directors. The number of directors
will be fixed and a director may only be removed by the stockholders for
cause, by the holders of a majority of the shares of the capital stock then
outstanding and entitled to vote in the election of directors ("Voting
Stock").
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock without further stockholder approval, except as may be required by
applicable stock exchange regulations. The Company's Board will be authorized
to determine, without any further action by the holders of the Common Stock,
the dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences and sinking fund terms of any
series of Preferred Stock, the number of shares constituting any such series
and the designation thereof. Should the Board of Directors elect to exercise
its authority, the rights, preferences and privileges of holders of Common
Stock would be subject to the rights, preferences and privileges of the
Preferred Stock.
The Company has issued (i) 6,000 shares of Series A Preferred, which will be
redeemed on the closing of the Offering and (ii) 500,000 shares of Series B
Preferred. The Company intends to pay any accumulated dividends with respect
to the Series B Preferred in cash prior to its conversion into Common Stock.
Each share of Series B Preferred is entitled to a quarterly cash dividend of
$0.225 per share and its convertible into one share of Common Stock (subject
to customary antidilution adjustments), at the election of the holder thereof
prior to December 31, 1999. The Series B Preferred (i) is redeemable at the
option of the
52
<PAGE>
Company, in whole or in part, after October 1, 2001, and (ii) must be redeemed
by the Company if a majority of the Company's assets are sold or otherwise
disposed of, for a redemption price per share equal to $12.00 plus all accrued
unpaid dividends.
Statutory Business Combination Provision
The Company is subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless (i) prior to such time the Board of Directors of the
corporation approved either the business combination or the transaction in
which the person became an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding shares owned by directors who are also officers of the corporation
and by certain employee stock plans, or (iii) at or after such time the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting
stock of the corporation that is not owned by the interested stockholder. A
"business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who owns 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and,
together with his or her affiliates and associates, has owned 15% or more of
the corporation's voting stock within the three year period immediately prior
to the date on which it is sought to be determined whether such person is an
interested stockholder.
Other Matters
The Amended and Restated Certificate of Incorporation provides that the
number of directors shall be as determined by the Board of Directors from time
to time, but shall be at least three and not more than twelve. It also
provides that directors may be removed only for cause, and then only by the
affirmative vote of the holders of at least a majority of all outstanding
shares of stock entitled to vote in an election of directors. This provision,
in conjunction with the provision of the Amended and Restated Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.
The Amended and Restated Certification of Incorporation provides that
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent unless such consent is unanimous. The Amended
and Restated Certificate of Incorporation provides that special meetings of
the stockholders can be called only by the Chairman of the Board, the
President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors.
The approval by the affirmative vote of the holders of 66 2/3% of the
Company's outstanding voting stock, and 66 2/3% of the Company's outstanding
voting stock owned by disinterested stockholders, is required to approve
certain business combinations. Further, the affirmative vote of the holders of
80% of the Company's outstanding voting stock is required to approve certain
specified business combinations with "interested stockholders" (i.e.
beneficial owners of 10% or more of the combined voting power of the
outstanding shares) or their affiliates, if either (i) the business
combination is not approved by a majority of the disinterested directors at a
meeting of directors at which at least 80% of the disinterested directors then
in office are present, or (ii) conditions as to the forms of consideration,
minimum price and procedures used are not met.
The Amended and Restated Certificate of Incorporation authorizes the Board
of Directors to take into account (in addition to any other considerations
which the Board of Directors may lawfully take into
53
<PAGE>
account) in determining whether to take or to refrain from taking corporate
action on any possible acquisition proposals, including proposing any related
matter to the stockholders of the Company, the long-term as well as short-term
interests of the Company and its stockholders (including the possibility that
these may be best served by the continued independence of the Company),
customers, employees and other constituencies of the Company and any
subsidiaries, as well as the effect upon communities in which the Company and
any subsidiaries do business. In considering the foregoing and other pertinent
factors, the Board of Directors is not required, in considering the best
interests of the Company, to regard any particular corporate interest or the
interest of any particular group affected by such action as a controlling
interest.
Stockholder Proposals
The Company's Amended and Restated Bylaws contain provisions (i) requiring
that advance notice be delivered to the Company of any business to be brought
by a stockholder before any meeting of stockholders and (ii) establishing
certain procedures to be followed by stockholders in nominating persons for
election to the Board of Directors. Generally, such advance notice provisions
provide that written notice must be given to the Secretary of the Company by a
stockholder, with respect to director nominations or stockholder proposals,
not less than 50 nor more than 75 days prior to the meeting (except that if
less than 65 days notice or prior public disclosure of the date of the meeting
is given or made to stockholders, then notice by the stockholder, to be
timely, must be received within 15 days of the date on which notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs). Such notice must set forth specific information regarding such
stockholder and such business or director nominee, as described in the
Company's Amended and Restated Bylaws. The foregoing summary is qualified in
its entirety by reference to the Company's Amended and Restated Bylaws, which
are included as an exhibit to the Registration Statement of which this
Prospectus is a part.
Limitations on Director/Officer Liability
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable for monetary damages for conduct constituting
gross negligence in the exercise of their duty of care. Delaware law enables
corporations to limit available relief to equitable remedies such as
injunction or rescission. The Amended and Restated Certificate of
Incorporation limits the liability of directors of the Company to the Company
or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty as a director, except for liability for breach of the duty of
loyalty, for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for unlawful payments of dividends
or unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or for any transaction in which a director
has derived an improper personal benefit.
The Company's Amended and Restated Bylaws require the Company to indemnify
to the fullest extent permitted by Delaware law any person who is a party or
is threatened to be made a party to any action, suit or proceeding by reason
of the fact that such person is or was a director, officer, employee or agent
of the Company, or is serving as a director, officer, employee or agent of
another enterprise at the Company's request. Indemnification is not, however,
permitted under the Amended and Restated Bylaws unless the person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the Company's best interests and, with respect to any criminal
action or proceeding, that such person had no reasonable cause to believe such
person's conduct was unlawful. The Company's Amended
54
<PAGE>
and Restated Bylaws further provide that the Company shall not indemnify any
person for any liabilities or expenses incurred by such person in connection
with an action, suit or proceeding by or in the right of the Company in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company, unless and only to the extent that the
court in which the action, suit or proceeding is brought determines that the
person is entitled to indemnity for such expenses. The indemnification
provided by the Amended and Restated Bylaws is not exclusive of any other
rights to which those seeking indemnification may be otherwise entitled.
The Company has entered into indemnification agreements (the "Agreements")
with each of the Company's directors and officers. The Agreements provide that
the Company will indemnify the directors and officers against all liabilities
and expenses actually and reasonably incurred in connection with any action,
suit or proceeding (including an action by or in the right of the Company) to
which any of them is, was or at any time becomes a party, or is threatened to
be made a party, by reason of their status as a director or officer of the
Company, or by reason of their serving or having served at the request or on
behalf of the Company as a director, officer, trustee or in any other
comparable position of any other enterprise to the fullest extent allowed by
law. No indemnity is provided under the Agreements for any amounts for which
indemnity is provided by any other indemnification obligation or insurance
maintained by the Company or another enterprise or otherwise. Nor is indemnity
provided to any director or officer on account of conduct which is finally
adjudged by a court to have been knowingly fraudulent, deliberately dishonest
or willful misconduct. In addition, no indemnification is provided if a final
court adjudication shall determine that such indemnification is not lawful, or
in respect to any suit in which judgment is rendered against any director or
officer for an accounting of profits made from a purchase or sale of
securities of the Company in violation of Section 16(b) of the Securities
Exchange Act of 1934 or of any similar law, or on account of any remuneration
paid to any director or officer which is adjudicated to have been paid in
violation of law.
The Company has obtained director's and officer's liability insurance.
The foregoing limitations on liability and indemnification obligations may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefitted the Company and
its stockholders.
Transfer Agent and Registrar
Norwest Bank of Minnesota, N.A. is the Transfer Agent and Registrar for the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and completion of this Offering, the
Company will have outstanding 9,923,727 shares of Common Stock (10,523,727 if
the Underwriters' over-allotment option is exercised in full) of which the
4,000,000 shares sold in the Offering (4,600,000 if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act, except for those
held by "affiliates" (as defined in the Securities Act) of the Company, which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 5,923,727 shares of Common Stock are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from any affiliate of the issuer the
55
<PAGE>
acquiror or subsequent holder would be entitled to sell within any three-month
period a number of those shares that does not exceed the greater of one
percent of the number of shares of such class of stock then outstanding or the
average weekly trading volume of the shares of such class of stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain requirements pertaining
to the manner of such sales, notices of such sales and the availability of
current public information concerning the issuer. In addition, if a period of
at least two years has elapsed since the later of the date of acquisition of
restricted securities from the issuer or from any affiliate of the issuer, and
the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of the issuer of such restricted securities at any time during the
90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the requirement
described above. Rule 144 does not require the same person to have held the
securities for the applicable periods. The foregoing summary of Rule 144 is
not intended to be a complete description thereof. The Securities and Exchange
Commission (the "Commission") has proposed certain amendments to Rule 144 that
would, among other things, eliminate the manner of sale requirements and
revise the notice provisions of that rule. The Commission has also solicited
comments on other possible changes to Rule 144, including possible revisions
to the one- and two-year holding periods and the volume limitations referred
to above.
The Company has agreed that it will not offer, sell, sell short, transfer,
hypothecate, pledge or otherwise dispose of any shares of Common Stock or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock (or agreement for such) for a
period of 180 days after the date of this Prospectus directly or indirectly
without the prior written consent of BT Alex. Brown Incorporated, except for
the grant of employee stock options (up to a maximum of 1,000,000 shares)
under the 1998 Stock Option Plans and for shares issued (i) in connection with
acquisitions of businesses and (ii) pursuant to the Nationwide Executive Stock
Purchase Plan (up to a maximum of 250,000 shares). Further, the Company's
directors, officers and certain stockholders who will beneficially own
5,923,727 shares in the aggregate after the Offering have agreed not to
directly or indirectly offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of for sale or otherwise dispose of any Common Stock or
other capital stock of the Company or any other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock owned by these persons (or as to which such person has the right
to disposition) for a period of one year after the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated. BT Alex.
Brown Incorporated has indicated that it does not currently foresee any
circumstances under which it would consent to the sale of Common Stock or
options by the Company or existing stockholders of the Company beyond the
exceptions stated above in this paragraph.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made as to the effect, if any, that the
sale of shares under Rule 144, or otherwise, or the availability of shares for
sale will have on the market price for the Common Stock prevailing from time
to time after the Offering. The Company is unable to estimate the number of
shares that may be sold in the public market under Rule 144, or otherwise,
because such amount will depend on the trading volume in, and market price
for, the Common Stock of the Company and the Company's future ability to raise
equity capital and complete any additional acquisitions for Common Stock. See
"Underwriting."
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated and Piper Jaffray Inc. (together, the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.....................................
Piper Jaffray Inc...............................................
---------
Total....................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After commencement
of the initial public offering, the offering price and other selling terms may
be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it in the above table bears to 4,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the Common Stock offered hereby. If purchased,
the Underwriters will offer such additional shares on the same terms as those
on which the 4,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering, the Underwriters may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Specifically, the Underwriters may over-allot shares of the Common Stock in
connection with the Offering, thereby creating a short position in the
Underwriters' syndicate account. Additionally, to cover such over-allotments
or to stabilize the market
57
<PAGE>
price of the Common Stock, the Underwriters may bid for, and purchase, shares
of the Common Stock in the open market. Any of these activities may maintain
the market price of the Common Stock at a level above that which might
otherwise prevail in the open market. The Underwriters are not required to
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The Representatives, on behalf of the Underwriters,
also may reclaim selling concessions allowed to an Underwriter or dealer, if
the syndicate repurchases shares distributed by that Underwriter or dealer.
The Company has agreed that it will not offer, sell, sell short, transfer,
hypothecate, pledge or otherwise dispose of any shares of Common Stock or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivatives of Common Stock (or agreement for such) for a
period of 180 days after the date of this Prospectus directly or indirectly
without the prior written consent of BT Alex. Brown Incorporated, except for
the grant of employee stock options (up to a maximum of 1,000,000 shares)
under the 1998 Stock Option Plans and for shares issued (i) in connection with
acquisitions of businesses and (ii) pursuant to the Nationwide Executive Stock
Purchase Plan (up to a maximum of 250,000 shares). Further, the Company's
directors, officers and certain stockholders who will beneficially own
5,923,727 shares in the aggregate after the Offering have agreed not to
directly or indirectly offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of for sale or otherwise dispose of any Common Stock or
other capital stock of the Company or any other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock owned by these persons (or as to which such person has the right
to disposition) for a period of one year after the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated. BT Alex.
Brown Incorporated has indicated that it does not currently foresee any
circumstances under which it would consent to the sale of Common Stock or
options by the Company or existing stockholders of the Company beyond the
exceptions stated above in this paragraph.
Prior to the Offering, there has been no public market for the Common Stock.
No prediction can be made as to the effect, if any, that the sale of shares
under Rule 144, or otherwise, or the availability of shares for sale will have
on the market price for the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may
be sold in the public market under Rule 144, or otherwise, because such amount
will depend on the trading volume in, and market price for, the Common Stock
of the Company and the Company's future ability to raise equity capital and
complete any additional acquisitions for Common Stock. See "Underwriting."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of Parsons and the
Acquired Companies in recent periods, the market capitalization and stages of
development of other companies which the Company and the Representatives
believed to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant by the Company and the Representatives.
The Common Stock issued in connection with the Acquisitions may not be sold
to the public and the holder of those shares are restricted from selling those
shares to the public for a period of at least one year after the consummation
of the Acquisitions.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Stinson, Mag & Fizzell, P.C., Kansas City, Missouri. Certain legal
matters in connection with the sale of the Common
58
<PAGE>
Stock offered hereby will be passed upon for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Nationwide as of December 31, 1998
and March 31, 1998 and for the nine month period ended December 31, 1998 and
for the period from September 23, 1997 through March 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of Parsons as of February 27, 1998 and December 31,
1997 and 1996 and for the two-month period ended February 27, 1998 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been audited by McGladrey & Pullen LLP, independent
accountants, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of The Allison Company and subsidiary
as of June 30, 1998 and 1997 and for each of the three years in the period
ended June 30, 1998 included in this prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Henderson and subsidiary as of
March 31, 1998 and 1997 and for each of the three years in the period ended
March 31, 1998 included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain all the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement accurately
describes the material provisions of such document and are qualified in their
entirety by reference to such exhibits for complete statements of their
provisions. All of these documents may be inspected without charge at the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a web site that contains reports,
proxy and information statements regarding registrants that file
electronically with the Commission. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
upon payment of the prescribed fees.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement, the Company will
59
<PAGE>
become subject to the informational and periodic reporting requirements of the
Exchange Act, and in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities and other regional offices referred
to above. The Company intends to register the securities offered by the
Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and to furnish its stockholders
with annual reports containing audited financial statements and such other
reports as may be required from time to time by law or the NYSE.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation.................................................. F-2
Unaudited Pro Forma Consolidated Statement of Operations............... F-3
Notes to Unaudited Pro Forma Consolidated Financial Statements......... F-5
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................... F-9
Consolidated Balance Sheets............................................ F-10
Consolidated Statements of Operations.................................. F-11
Consolidated Statement of Stockholders' Equity......................... F-12
Consolidated Statement of Cash Flows................................... F-13
Notes to Consolidated Financial Statements............................. F-14
PARSONS ELECTRIC CO.
Independent Auditors' Report........................................... F-29
Balance Sheets......................................................... F-30
Statements of Income................................................... F-31
Statements of Retained Earnings........................................ F-32
Statements of Cash Flows............................................... F-33
Notes to Financial Statements.......................................... F-34
THE ALLISON COMPANY
Independent Auditors' Report........................................... F-39
Consolidated Balance Sheets............................................ F-40
Consolidated Statements of Operations and Retained Earnings............ F-41
Consolidated Statements of Cash Flows.................................. F-42
Notes to Consolidated Financial Statements............................. F-43
HENDERSON ELECTRIC CO. INC. AND SUBSIDIARIES
Independent Auditors' Report........................................... F-49
Consolidated Balance Sheets............................................ F-50
Consolidated Statements of Operations and Retained Earnings............ F-51
Consolidated Statements of Cash Flows.................................. F-52
Notes to Consolidated Financial Statements............................. F-53
</TABLE>
F-1
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give
effect to (i) the acquisitions (the "Acquisitions") by Nationwide Electric,
Inc. ("Nationwide") of Parsons Electric Co. ("Parsons"), Henderson Electric
Co., Inc. ("Henderson") and The Allison Company ("Allison-Smith") (together,
the "Acquired Companies"), and (ii) Nationwide's initial public offering (the
"Offering"). The Acquisitions have been accounted for using the purchase
method of accounting.
The unaudited pro forma consolidated statements of operations give effect to
the Acquisitions and the Offering as if they had occurred on April 1, 1997 but
do not reflect a nonrecurring, noncash compensation charge, net of tax,
directly attributable to the Offering.
Nationwide has preliminarily analyzed the savings that are expected to be
realized from reductions in salaries, bonuses and certain benefits to the
owners. To the extent the owners of the Acquired Companies and Parsons have
contractually agreed to prospective reductions in salary, bonuses, benefits
and lease payments, these reductions have been reflected in the unaudited pro
forma combined statements of operations. Corporate management costs and costs
associated with being a public company should be more than offset by the
synergies created through the acquisition of Parsons and the Acquired
Companies and implementation of the strategies described under "Business--
Strategy." The Company has not and cannot quantify all of these savings due to
the short period of time that has elapsed since the Acquisitions occurred. It
is anticipated that these savings will be partially offset by the costs of
being a publicly held company and the incremental increase in costs related to
the Company's corporate management. However, these costs, like the savings
they offset, cannot be quantified accurately. Neither the anticipated savings
nor the anticipated costs have been included in the pro forma financial
information included herein except that compensation and benefit expenses for
additional management personnel of Nationwide are reflected in the nine months
ended December 31, 1998.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what Nationwide's financial
position or results of operations would actually have been if such
transactions in fact had occurred on those dates and are not necessarily
representative of Nationwide's financial position or results of operations for
any future period. Since the Acquired Companies were not under common control
or management, historical combined results may not be comparable to, or
indicative of, future performance. The unaudited pro forma consolidated
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See also
"Risk Factors" included elsewhere herein.
F-2
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended March 31,1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Allison- Adjustments Pro Forma
Nationwide Smith Henderson (Note 2) Total
---------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue.................. $60,651 $32,072 $44,000 $(2,315) $134,408
Cost of services,
excluding depreciation
shown separately below.. 49,493 25,998 37,952 (1,905) 111,538
------- ------- ------- ------- --------
Gross profit......... 11,158 6,074 6,048 (410) 22,870
Operating expenses:
Selling, general and
administrative
expenses.............. 7,613 3,789 4,104 (1,157) 14,349
Depreciation........... 443 97 272 (52) 760
Goodwill amortization.. -- -- -- 557 557
------- ------- ------- ------- --------
Operating expenses....... 8,056 3,886 4,376 (652) 15,666
------- ------- ------- ------- --------
Operating income..... 3,102 2,188 1,672 242 7,204
Interest and other income
(expense):
Interest expense....... (323) (140) (115) 578 --
Other income (expense),
net................... 59 1 386 (14) 432
------- ------- ------- ------- --------
Income before tax.... 2,838 2,049 1,943 806 7,636
Income tax expense
(benefit)............... (121) 799 776 1,823 3,277
------- ------- ------- ------- --------
Income before a
nonrecurring,
noncash charge
directly
attributable to the
transaction(2)...... $ 2,959 $ 1,250 $ 1,167 $(1,017) $ 4,359
======= ======= ======= ======= ========
Basic pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)....... $ 0.35
========
Shares used in computing
basic pro forma income
per share(1)............ 9,924
========
Diluted pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)....... $ 0.35
========
Shares used in computing
diluted pro forma income
per share(4)............ 9,941
========
</TABLE>
- --------
(1) Includes (a) 5,923,727 shares of common stock issued to certain management
personnel and the existing stockholders of Nationwide, and (b) 4,000,000
shares sold in the Offering.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.6 million and
related income tax benefits of $1.4 or a net charge of $2.2 million--Note
1 or $0.22 per share basic and $0.21 per share diluted.
(3) Preferred dividends of $900,000 have been deducted in calculating basic
and diluted income per share.
(4) Adjusted to reflect the exercise of all outstanding stock options and does
not assume the conversion of Convertible Preferred Stock as the effect is
anti-dilutive.
F-3
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
Allison- Adjustments
Nationwide Smith Henderson (Note 2) Total
---------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue.................... $65,224 $19,633 $32,413 $ -- $117,270
Cost of services, excluding
depreciation shown
separately below.......... 54,531 15,566 26,940 -- 97,037
------- ------- ------- ------- --------
Gross profit........... 10,693 4,067 5,473 -- 20,233
Operating expenses:
Selling, general and
administrative expenses. 7,296 3,200 2,656 (699) 12,453
Depreciation............. 325 50 157 (29) 503
Goodwill amortization.... 250 -- -- 159 409
------- ------- ------- ------- --------
Operating expenses......... 7,871 3,250 2,813 (569) 13,365
------- ------- ------- ------- --------
Operating income....... 2,822 817 2,660 569 6,868
Interest and other income
(expense):
Interest expense......... (550) (35) (35) 459 (161)
Other income (expense),
net..................... (825) (1,208) 237 878 (918)
------- ------- ------- ------- --------
Income before tax...... 1,447 (426) 2,862 1,906 5,789
Income tax expense
(benefit)................. 611 (166) 1,145 893 2,483
------- ------- ------- ------- --------
Income before a
nonrecurring, noncash
charge directly
attributable to the
transaction(2)........ $ 836 $ (260) $ 1,717 $ 1,013 $ 3,306
======= ======= ======= ======= ========
Basic pro forma income per
share before nonrecurring,
noncash charge directly
attributable to the
transaction(2)(3)......... $ 0.27
========
Shares used in computing
basic pro forma income per
share(1).................. 9,924
========
Diluted pro forma income
per share before
nonrecurring, noncash
charge directly
attributable to the
transaction(2)(3)......... $ 0.26
========
Shares used in computing
diluted pro forma income
per share(4).............. 9,941
========
</TABLE>
- --------
(1) Includes (a) 5,923,727 shares of common stock issued to certain management
personnel and the initial stockholders of Nationwide, and (b) 4,000,000
shares sold in the Offering.
(2) Income before a nonrecurring charge attributable to the transaction
excludes a nonrecurring, noncash compensation charge of $3.6 million and
related income tax benefits of $1.4 or a net charge of $2.2 million--Note
1 or $0.22 per share basic and $0.21 per share diluted.
(3) Preferred dividends of $675,000 have been deducted in calculating basic
and dilutive income per share.
(4) Adjusted to reflect the exercise of all outstanding stock options and does
not assume the conversion of Convertible Preferred Stock as the effect is
anti-dilutive.
F-4
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. General:
Nationwide Electric, Inc. ("Nationwide") was founded to create a leading
provider of electrical contracting and maintenance services to commercial,
industrial and institutional customers. Nationwide purchased Parsons Electric
Co. effective February 27, 1998 and conducted no operations prior to that
acquisition. Subsequent to March 31, 1998, Nationwide merged with a related
company that had common ownership and became the designated "accounting
acquiror" in the Acquisitions. Nationwide acquired The Allison Company and
Henderson Electric Co. Inc. and Subsidiaries on October 22, 1998 in purchase
transactions. The purchased companies are referred to as the "Acquired
Companies."
Under certain restricted stock purchase agreements, the Company has sold
315,000 shares of Common Stock to management, two outside directors and one
director nominee. As a result, the Company will record a nonrecurring, noncash
compensation charge of $3.6 million and related tax benefit of $1.4 million or
a net charge of $2.2 million ($0.22 per share basic and $0.21 per share
diluted) in the first reportable quarter following consummation of the
Offering, representing the difference between the amount paid for the shares
and the estimated fair value thereof (a fair value that is discounted ten
percent from the assumed initial public offering price). This nonrecurring
compensation charge is not included in the Unaudited Pro Forma Combined
Financial Statements.
The historical financial statements include the results of operations of the
Acquired Companies from dates of purchase. These unaudited pro forma
consolidated financial statements include the operations of the individual
Acquired Companies as if they were purchased on April 1, 1997. The audited
historical financial statements included elsewhere herein have been included
in accordance with Securities and Exchange Commission Rule 3.05 of Regulation
S-X.
F-5
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Unaudited Pro Forma Combined Statement of Operations Adjustments:
Year Ended March 31, 1998
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) Total
(In thousands) ----- ------- ----- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ -- $(2,315) $ -- $-- $ -- $(2,315)
Cost of services................. -- (1,905) -- -- -- (1,905)
----- ------- ----- ---- ------- -------
Gross profit................. -- (410) -- -- -- (410)
Operating expenses:
Selling, general and
administrative expenses....... (689) (468) -- -- -- (1,157)
Depreciation................... (52) -- -- -- -- (52)
Goodwill amortization.......... -- -- 557 -- -- 557
----- ------- ----- ---- ------- -------
Operating expenses............... (741) (468) 557 -- -- (652)
----- ------- ----- ---- ------- -------
Operating income............. 741 58 (557) -- -- 242
Interest and other income
(expense):
Interest expense............... -- 9 -- 569 -- 578
Other income, net.............. (10) (4) -- -- -- (14)
----- ------- ----- ---- ------- -------
Income before tax............ 731 63 (557) 569 -- 806
Income taxes..................... -- -- -- -- 1,823 1,823
----- ------- ----- ---- ------- -------
Net income (loss)............ $ 731 $ 63 $(557) $569 $(1,823) $(1,017)
===== ======= ===== ==== ======= =======
</TABLE>
- --------
(a) Reflects the $849,000 reduction in salaries, bonuses and benefits to the
officers/owners of the Acquired Companies. These reductions in salaries,
bonuses and benefits have been disclosed solely to reflect the terms of
signed employment agreements as managers of the respective divisions. The
duties of these managers will not change and all costs associated with the
execution of such duties have been included in the unaudited pro forma
consolidated financial statements. The compensation adjustment has been
included because of the pro formas' effect on the resulting consolidated
operations.
Following are the compensation amounts for each Acquired Company and the
title of the positions of the officers of such companies, included in the
unaudited pro forma consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
---------------------
Historical Pro forma
---------- ----------
<S> <C> <C>
Parsons(1)......................................... $ 226,000 $ --
Allison(2)......................................... 1,479,000 1,096,000
Henderson(3)....................................... 838,000 598,000
---------- ----------
$2,543,000 $1,694,000
========== ==========
Pro Forma Compensation Adjustment.................. $ 849,000
==========
</TABLE>
--------
(1) President. The primary responsibility for management of Parsons had
been turned over to the President's successor prior to its sale whose
compensation is reflected in the pro forma historical statements.
(2) President and two vice presidents.
(3) President and the Chief Executive Officer.
F-6
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Such employment agreements are primarily for three years, contain
restrictions related to competition and provide severance for termination
of employment in certain circumstances. Additionally, reflects adjustments
to expenses associated with certain non-operating assets that will be
transferred from the Acquired Companies prior to the Acquisitions and
certain other transactions (additional rent expense of $180,000, $52,000
reduced depreciation, $10,000 reduced related-company income and $20,000
reduced owner expense).
(b) Reflects the elimination of activities related to assets not purchased
from the shareholder of Parsons. Such assets include inventory and fixed
assets of Parson's welding supplies distribution operations.
(c) Reflects the amortization of goodwill recorded as a result of these
Acquisitions over a 40-year life, as well as amortization to be recorded
as a result of non-compete agreements with key managers at Parsons over
lives ranging from 21-54 months.
(d) Reflects elimination of interest expense of $7.2 million of debt to be
repaid using proceeds from the Offering.
(e) Reflects the incremental provision for federal and state income taxes at
an approximate 40.0% overall tax rate before non-deductible goodwill and
other permanent items, relating to the other statements of operations
adjustments and for income taxes on S corporation income not provided for
in the historical financial statements.
Nine Months Ended December 31, 1998
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) Total
(In thousands) ----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $ -- $ -- $ -- $ -- $ -- $ --
Cost of services.................... -- -- -- -- -- --
----- ----- ------ ----- ----- ------
Gross profit.................... -- -- -- -- -- --
Operating expenses:
Selling, general and
administrative expenses.......... (560) -- (139) -- (699)
Depreciation...................... (29) -- -- -- -- (29)
Goodwill amortization............. -- 159 -- -- -- 159
----- ----- ------ ----- ----- ------
Operating expenses.................. (589) 159 (139) -- -- (569)
----- ----- ------ ----- ----- ------
Operating income................ 589 (159) 139 -- -- 569
Interest and other income (expense):
Interest expense.................. -- -- -- 459 459
Other income, net................. -- -- 878 -- 878
----- ----- ------ ----- ----- ------
Income before Tax............... 589 (159) 1,017 459 1,906
----- ----- ------ ----- ----- ------
Income taxes........................ -- -- -- -- 893 893
----- ----- ------ ----- ----- ------
Net income (loss)............... $ 589 $(159) $1,017 $459 $(893) $1,013
===== ===== ====== ===== ===== ======
</TABLE>
- --------
(a) Reflects the $670,000 reduction in salaries, bonuses and benefits to the
officers/owners of the Acquired Companies. These reductions in salaries,
bonuses and benefits have been disclosed solely to reflect the terms of
signed employment agreements as managers of the respective divisions. The
duties of these managers will not change and all costs associated with the
execution of such duties have been included in the unaudited pro forma
consolidated financial statements. The compensation adjustment has been
included because of the pro formas' effect on the resulting consolidated
operations.
F-7
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following are the compensation amounts for each Acquired Company and the
title of the positions of the officers of such companies, included in the
unaudited pro forma consolidated statements of operations.
<TABLE>
<CAPTION>
Nine Months Ended
December 31, 1998
---------------------
Historical Pro forma
---------- ----------
<S> <C> <C>
Parsons............................................ $ -- $ --
Allison(1)......................................... 1,620,000 903,000
Henderson(2)....................................... 619,000 666,000
---------- ----------
$2,239,000 $1,569,000
========== ==========
Pro Forma Compensation Adjustment.................. $ 670,000
==========
</TABLE>
--------
(1) President and two vice presidents.
(2) President and Chief Executive Officer.
Such employment agreements are primarily for three years, contain
restrictions related to competition and provide severance for termination
of employment in certain circumstances. Additionally, reflects adjustments
to expenses associated with certain non-operating assets that were
transferred from the Acquired Companies at the time of the Acquisitions
(additional rent expense of $110,000 and $29,000 reduced depreciation).
(b) Reflects the amortization of goodwill recorded as a result of these
Acquisitions over a 40-year life, as well as amortization to be recorded
as a result of non-compete agreements with key managers at Parsons over
lives ranging from 21 to 54 months.
(c) Reflects the elimination of expenses associated with costs incurred as a
result of a postponed initial public offering and certain due diligence
costs relating thereto.
(d) Reflects elimination of interest expense of $7.2 million of debt to be
repaid using proceeds from the Offering.
(e) Reflects the incremental provision for federal and state income taxes at
an approximate 40.0% overall tax rate before non-deductible goodwill and
other permanent items, relating to the other statements of operations
adjustments and for income taxes on S Corporation income not provided for
in the historical financial statements.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Nationwide Electric, Inc.:
We have audited the accompanying consolidated balance sheets of Nationwide
Electric, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
March 31, 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the nine month period ended December
31, 1998 and for the period September 23, 1997 to March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Nationwide Electric, Inc. and
subsidiaries as of December 31, 1998 and March 31, 1998 and the results of
their operations and their cash flows for the nine month period ended December
31, 1998 and for the period September 23, 1997 to March 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
February 5, 1999
F-9
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1998 1998
------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 1,099,112 $ 1,046,253
Resticted cash...................................... 672,051 --
Contract receivables, net of an allowance for
doubtful accounts of $729,000 and $40,000,
respectively....................................... 35,332,953 12,088,891
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 9,383,073 3,320,678
Inventories......................................... 558,170 479,396
Prepaid expenses.................................... 273,616 45,833
Deferred income taxes............................... 1,088,037 122,000
----------- -----------
Total current assets............................. 48,407,012 17,103,051
----------- -----------
Property and equipment, net.......................... 3,238,128 1,597,687
Deferred income taxes................................ 499,486 --
Goodwill, net........................................ 14,822,792 4,254,090
Other assets, net.................................... 1,058,718 413,278
----------- -----------
Total............................................ $68,026,136 $23,368,106
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................... $9,374,559 $ 3,236,631
Payable to shareholders............................. 647,553 479,523
Accrued expenses and other current liabilities...... 8,506,258 2,250,800
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 5,576,707 1,925,651
Current portion of long-term debt................... 137,367 --
Line of credit...................................... -- 8,600,000
----------- -----------
Total current liabilities........................ 24,242,444 16,492,605
Commitments and contingencies (Note 10 and 17)
Long-term debt....................................... 7,366,343 --
Deferred income taxes................................ -- 1,500
Other long-term liabilities.......................... 1,300,000 --
Redeemable preferred stock; Series A nonvoting
convertible; par value $.01; 6,000 shares issued and
outstanding......................................... 6,000,000 6,037,500
STOCKHOLDERS' EQUITY:
Nationwide Electric, Inc.:
Common stock; par value $.01:
Voting, 30,000,000 shares authorized; 3,833,728
and 233,331 shares issued and outstanding,
respectively.................................... 38,337 2,333
Class A nonvoting, 1,200,000 shares authorized;
1,089,999 and 99,999 shares issued and
outstanding, respectively....................... 10,900 1,000
Class B nonvoting, 1,250,000 shares authorized;
1,000,000 shares issued and outstanding......... 10,000 --
Preferred stock; par value $.01; 10,000,000
authorized:
Series B convertible; 500,000 shares issued and
outstanding..................................... 5,000 --
Galt Financial, Inc.:
Common stock; par value $1.00:
Voting, 1,000 shares authorized; 700 shares
issued and outstanding.......................... -- 700
Class A nonvoting, 1,000 shares authorized; 300
shares issued and outstanding................... -- 300
Additional paid-in capital......................... 29,079,313 1,095,667
Loans to management shareholders................... (162,500) --
Retained earnings (deficit)........................ 136,299 (263,499)
----------- -----------
Total stockholders' equity....................... 29,117,349 836,501
----------- -----------
Total............................................ $68,026,136 $23,368,106
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Inception
Ended (September 23,
December 31, 1997) to March
1998 31, 1998
------------ --------------
<S> <C> <C>
Contract revenues.................................. $65,223,804 $4,304,818
Costs of services.................................. 54,531,318 3,601,651
----------- ----------
Gross profit...................................... 10,692,486 703,167
Selling, general and administrative expenses....... 7,870,940 968,208
----------- ----------
Income (loss) from operations...................... 2,821,546 (265,041)
Interest and other income (expense):
Interest expense.................................. (550,088) (124,448)
Other income (expense), net....................... (824,640) 42,990
----------- ----------
(1,374,728) (81,458)
----------- ----------
Income (loss) before income taxes.................. 1,446,818 (346,499)
Income tax expense (benefit)....................... 610,770 (120,500)
----------- ----------
Net income (loss).................................. $ 836,048 $ (225,999)
----------- ----------
Less preferred dividends........................... 436,250 37,500
----------- ----------
Net income (loss) available to common shareholders. $ 399,798 $ (263,499)
=========== ==========
Basic net income (loss) per share.................. $ 0.10 $ (0.79)
=========== ==========
Shares used in computing basic net income (loss)
per share......................................... 3,856,377 333,330
=========== ==========
Diluted net income per share....................... $ 0.10 $ (0.79)
=========== ==========
Shares used in computing diluted net income per
share............................................. 3,873,569 333,330
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------
Series B
Voting Class A Nonvoting Class B Nonvoting Preferred Additional Loans to Retained
------------------ ------------------ ----------------- -------------- Paid-in Management Earnings
Shares Amount Shares Amount Shares Amount Shares Amount Capital Shareholders (Deficit)
--------- ------- --------- ------- --------- ------- ------- ------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 23,
1997............ -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of
Nationwide
common stock.... 233,331 2,333 99,999 1,000 -- -- -- -- 996,667 -- --
Issuance of
Galt, Inc.
common stock.... 700 700 300 300 -- -- -- -- 99,000 -- --
Dividends on
preferred stock. -- -- -- -- -- -- -- -- -- -- (37,500)
Net loss........ -- -- -- -- -- -- -- -- -- -- (225,999)
--------- ------- --------- ------- --------- ------- ------- ------ ----------- --------- --------
Balance, March
31, 1998........ 234,031 3,033 100,299 1,300 -- -- -- -- 1,095,667 -- (263,499)
Acquisition of
Galt, Inc....... (700) (700) (300) (300) -- -- -- -- 1,000 -- --
Nationwide
common stock
sold to Galt,
Inc............. 665,000 6,665 285,000 2,850 -- -- -- -- 275,485 -- --
Nationwide
merged with
Galt, Inc. Galt,
Inc. shares
cancelled....... (665,000) (6,665) (285,000) (2,850) -- -- -- -- (275,485) -- --
Issuance of
Nationwide
common stock to
Galt, Inc.
shareholders.... 2,310,000 23,100 990,000 9,900 -- -- -- -- (33,000) -- --
Issuance of
Nationwide
common stock to
officers........ 300,000 3,000 -- -- -- -- -- -- 87,000 (50,000) --
Issuance of
Nationwide
common stock to
directors....... 15,000 150 -- -- -- -- -- -- 4,350 -- --
Issuance of
Nationwide
common stock to
KLT............. -- -- -- -- 1,000,000 10,000 -- -- 11,990,000 -- --
Issuance of
Nationwide
preferred stock
to KLT.......... -- -- -- -- -- -- 500,000 5,000 5,995,000 -- --
Issuance of
Nationwide
common stock to
Allison
shareholders.... 454,563 4,546 -- -- -- -- -- -- 4,631,997 -- --
Issuance of
Nationwide
common stock to
Henderson
shareholder..... 520,834 5,208 -- -- -- -- -- -- 5,307,299 -- --
Dividends on
preferred stock. -- -- -- -- -- -- -- -- -- -- (436,250)
Loans to
management...... -- -- -- -- -- -- -- -- -- (112,500) --
Net income...... -- -- -- -- -- -- -- -- -- -- 836,048
--------- ------- --------- ------- --------- ------- ------- ------ ----------- --------- --------
Balance,
December 31,
1998............ 3,833,728 $38,337 1,089,999 $10,900 1,000,000 $10,000 500,000 $5,000 $29,079,313 $(162,500) $136,299
========= ======= ========= ======= ========= ======= ======= ====== =========== ========= ========
<CAPTION>
Total
------------
<S> <C>
Balance,
September 23,
1997............ $ --
Issuance of
Nationwide
common stock.... 1,000,000
Issuance of
Galt, Inc.
common stock.... 100,000
Dividends on
preferred stock. (37,500)
Net loss........ (225,999)
------------
Balance, March
31, 1998........ 836,501
Acquisition of
Galt, Inc....... --
Nationwide
common stock
sold to Galt,
Inc............. 285,000
Nationwide
merged with
Galt, Inc. Galt,
Inc. shares
cancelled....... (285,000)
Issuance of
Nationwide
common stock to
Galt, Inc.
shareholders.... --
Issuance of
Nationwide
common stock to
officers........ 40,000
Issuance of
Nationwide
common stock to
directors....... 4,500
Issuance of
Nationwide
common stock to
KLT............. 12,000,000
Issuance of
Nationwide
preferred stock
to KLT.......... 6,000,000
Issuance of
Nationwide
common stock to
Allison
shareholders.... 4,636,543
Issuance of
Nationwide
common stock to
Henderson
shareholder..... 5,312,507
Dividends on
preferred stock. (436,250)
Loans to
management...... (112,500)
Net income...... 836,048
------------
Balance,
December 31,
1998............ $29,117,349
============
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
Nine Months Ended (September 23, 1997)
December 31, 1998 to March 31, 1998
----------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 836,048 $ (225,999)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation.......................... 324,764 32,532
Amortization of intangible assets..... 250,390 21,729
Provision for deferred income taxes... (698,519) (120,500)
Changes in operating assets and
liabilities, excluding assets
acquired and liabilities assumed in
acquisitions:
Contract receivables................. (2,630,002) 1,453,415
Costs and estimated earnings in
excess of billings.................. (1,515,414) (462,079)
Inventory............................ 83,002 (26,943)
Prepaid expenses..................... (165,339) 154,667
Other assets, net.................... (8,093) --
Loans to management shareholders,
net................................. (82,754) --
Accounts payable..................... 212,714 132,283
Accrued expenses and other current
liabilities......................... 1,895,545 (998,340)
Billings in excess of costs and
estimated earnings.................. 517,770 (276,531)
------------ ------------
Net cash used in operating
activities......................... (979,888) (315,766)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (558,374) (29,663)
Purchase of Allison and Henderson, net
of cash acquired...................... (13,703,131) --
Purchase of Parsons Electric Co........ -- (11,000,000)
Purchase of employee non-compete
agreements............................ -- (200,000)
------------ ------------
Net cash used in investing
activities......................... (14,261,505) (11,229,663)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred
stock................................. 6,000,000 6,000,000
Proceeds from the issuance of common
stock................................. 12,044,500 1,000,000
Net borrowings (payments) under short-
term line-of-credit................... (8,600,000) 5,800,000
Borrowings under long-term line of
credit................................ 8,800,000 --
Payments under long-term line of
credit................................ (1,600,000) --
Capital contributions.................. -- 100,000
Note payable to shareholders........... 647,553 --
Payments on long term-debt............. (1,997,801) (308,318)
------------ ------------
Net cash provided by financing
activities......................... 15,294,252 12,591,682
------------ ------------
Net increase in cash and cash
equivalents............................ 52,859 1,046,253
Cash and cash equivalents, beginning of
period................................. 1,046,253 --
------------ ------------
Cash and cash equivalents, end of
period................................. $ 1,099,112 $ 1,046,253
============ ============
CASH PAYMENTS FOR:
Interest............................... $ 605,175 $ 65,552
============ ============
Income taxes........................... $ 362,480 $ --
============ ============
NON-CASH FINANCING TRANSACTION--
Dividends on preferred stock........... $ 436,250 $ 37,500
============ ============
Purchase of businesses, net of cash
acquired:
Working capital, other than cash....... $(13,448,647) $ (5,398,838)
Property, plant and equipment.......... (1,406,831) (1,363,643)
Cost in excess of net assets of
companies acquired.................... (10,701,965) (4,266,107)
Other non-current assets............... (1,289,904) (233,560)
Long-term debt......................... 1,867,466 262,148
Noncurrent liabilities................. 1,327,700 --
------------ ------------
Subtotal............................ (23,652,181) (11,000,000)
Less common stock issued for assets
acquired.............................. 9,949,050 --
------------ ------------
Net cash used to acquire businesses. $(13,703,131) $(11,000,000)
============ ============
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The consolidated financial statements presented herein include the
accounts of Nationwide Electric, Inc. ("Nationwide" or the "Company") and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The financial statements as of March 31, 1998 presented herein represent the
consolidated balance sheets of Nationwide and Galt Financial, Inc. ("Galt,
Inc."). The consolidated statements of operations, stockholders' equity and
cash flows for the period from September 23, 1997 through March 31, 1998
include Galt Financial, LLC ("Galt LLC") from date of organization on
September 23, 1997, "Galt, Inc." from date of organization on February 25,
1998, and Nationwide from date of organization on February 17, 1998. Galt LLC
was merged into Galt, Inc. on March 4, 1998. Such companies were under common
control and management. On June 4, 1998, Galt, Inc. was merged into Nationwide
in exchange for 3,300,000 shares of Common Stock (including 990,000 shares
Class A Non-voting) (adjusted for the stock split as described in Note 11) and
6,000 shares of Redeemable Preferred Stock and as of that date Nationwide is
the sole surviving entity. Parsons Electric Co. ("Parsons") was acquired on
February 27, 1998 by Galt, Inc. for cash in the amount of $11,000,000 (see
Note 2). Galt, Inc.'s operating results include the operations of Parsons from
the date of acquisition through March 31, 1998. (Operating results for
Nationwide, Galt, Inc. and Galt LLC prior to January 1, 1998 were not
significant.) The Allison Company ("Allison") and Henderson Electric Company,
Inc. ("Henderson") were both acquired on October 22, 1998 for a combination of
cash and Common Stock of Nationwide valued at $14,766,787 and $11,545,078,
respectively. Nationwide's operating results include the operations of Allison
and Henderson from the date of acquisition through December 31, 1998.
Nationwide is majority owned by KLT Energy Services, Inc. ("KLT"), a
deregulated subsidiary of Kansas City Power & Light Company ("KCPL") and
Reardon Capital, LLC ("Reardon"). Galt, Inc. and Galt LLC were also owned by
KLT and Reardon.
Nature of Operations--The Company's primary operations are commercial and
industrial electrical contracting with corporate and operating offices in
Minneapolis, Minnesota and operating offices in Minneapolis; Atlanta, Georgia;
Louisville and Lexington, Kentucky and Cincinnati, Ohio. The work is generally
performed under fixed-price contracts. The length of the Company's contracts
varies, but generally are less than one year. The Company's operations are
primarily conducted within the states in which the operating offices are
located. The Company's fiscal year ends on March 31.
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
disclosure of contingent assets and liabilities at the date of the balance
sheet and the reported amount of reserves and expenses during the period.
Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly-liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Restricted Cash--The Company has withheld payment of $668,876 to the former
shareholders of acquired companies related to the terms of purchase
agreements. The Company anticipates paying these restricted cash accounts to
such former shareholders on the first anniversary of the acquisitions. The
restricted cash plus accrued interest is included in accrued expenses and
other liabilities.
F-14
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
well known local companies whose reputation is known to the Company. Advance
payments and progress payments are generally required for significant
projects. Credit checks are performed for significant new customers that are
not known to the Company. The Company generally has the ability to file liens
against the property if it is not paid on a timely basis.
Collective Bargaining Agreements--The Company is a party to various
collective bargaining agreements with certain of its employees. These
agreements require the Company to pay specified wages and provide certain
benefits to its union employees. These agreements will expire at various times
through April 2000.
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded using
straight-line methods over the estimated useful lives of the related assets
which are as follows:
<TABLE>
<S> <C>
Leasehold improvements....................................... 10 years
Field equipment and tools.................................... 5 to 7 years
Field vehicles and trailers.................................. 5 years
Office furniture and equipment............................... 5 to 7 years
</TABLE>
Goodwill--Goodwill is being amortized over 40 years and is generally not
deductible for tax purposes. Total accumulated amortization at December 31 and
March 31, 1998 was $145,280 and $8,880, respectively.
Other assets--Other assets at December 31, 1998 consist primarily of both
receivables from the former shareholders of Allison related to indemnification
of liabilities, as well as non-compete agreements with two key employees that
are being amortized over 21 to 54 months. Total accumulated amortization
related to the non-compete agreements at December 31, 1998 was $136,910.
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs for each contract.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies, and tools. Selling, general, and administrative costs are charged to
expense as incurred. Costs for materials incurred at the inception of a
project which are not reflective of effort are excluded from costs incurred
for purposes of determining revenue recognition and profits.
F-15
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, including those changes arising from
contract penalty provisions and final contract settlements, may result in
revisions to costs and income which are recognized in the period in which the
revisions are determined. An amount equal to contract costs attributable to
claims is included in revenues when realization is probable and the amount can
be reliably estimated. Revenues from claims are recorded only when the amounts
have been received.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income from time and materials and maintenance-type contracts is recognized
when billed.
Income Taxes--The Company uses the liability method to account for income
taxes. Under this method, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred taxes are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company files a consolidated federal tax return.
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through December 31, 1998.
Goodwill--Goodwill represents costs in excess of the fair value of net
assets acquired and is amortized using the straight-line method over 40 years.
The Company periodically assesses the recoverability of intangibles based on
its expectations of future profitability and undiscounted cash flow of the
related operations. These factors, along with management's plans with respect
to the operations are considered in assessing the recoverability of goodwill
and other purchased intangibles. If the Company determines, based on such
measures, that the carrying amount is impaired, the goodwill will be written
down to its recoverable value with a corresponding charge to earnings.
Recoverable value is calculated as the amount of estimated future cash flows
for the remaining amortization period. During the periods presented, no such
impairment was incurred.
Per Share Information--The Company presents per share information in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share. This Statement requires the presentation of basic and
diluted earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock, unless they are anti-
dilutive. A reconciliation between basic and diluted weighted average shares
outstanding and the related earnings per share calculation is presented below:
F-16
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Inception
Nine Months Ended (September 23, 1997
December 31, 1998 to March 31, 1998)
----------------- -------------------
<S> <C> <C>
Net income (loss)........................ $ 836,048 $(225,999)
Dividends on redeemable preferred stock.. (337,500) (37,500)
Dividends on convertible preferred stock. (98,750) --
--------- ---------
Income available to common shareholders.. $ 399,798 $(263,499)
========= =========
Basic weighted average shares
outstanding............................. 3,856,377 333,330
Dilutive effect of stock options......... 17,192 --
--------- ---------
Diluted weighted average shares
outstanding............................. 3,873,569 333,330
========= =========
Basic net income (loss) per common share. $ 0.10 $ (0.79)
Diluted net income (loss) per common
share................................... $ 0.10 $ (0.79)
</TABLE>
Stock-Based Compensation--The Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. Under this method,
compensation cost is recorded for the excess, if any, of the market price or
fair value of the stock at the grant date over the amount an employee must pay
to acquire the stock.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. Adoption of SFAS Nos. 130 and
131 did not have any significant effect on the Company's financial statements.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. SFAS No. 133 established accounting and
reporting standards for derivative instruments embedded in other contracts,
and for hedging activities. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management of the Company has
not yet fully evaluated the potential impact on the Company's financial
statements of the adoption of SFAS No. 133.
2. ACQUISITIONS
On February 27, 1998, the Company acquired for cash all of the issued and
outstanding stock of Parsons Electric Co. The total purchase price was
$11,000,000, of which $4,600,000 was financed by additional borrowings under
Parson's line of credit (Note 6). Total assets acquired and liabilities
assumed were approximately $18,400,000 and $11,900,000, respectively.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their respective fair values
resulting in goodwill of approximately $4,300,000, which is being amortized to
expense over 40 years using the straight-line method.
In addition, the Company entered into non-compete agreements with two key
employees of Parsons Electric Co. Payments of $425,000 are being made under
those agreements and are being amortized on a straight-line basis over 21 to
36 months.
F-17
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying consolidated statements of operations reflect the results
of operations of Parsons from the date of acquisition through December 31,
1998.
On October 22, 1998, the Company acquired for cash and shares of the
Company's Common Stock all the issued and outstanding common stock of The
Allison Company ("Allison"). The total purchase price was $15,585,000, however
the common stock portion was discounted 15% to reflect an appropriate fair
value as a result of lack of marketability and other provisions of the
purchase agreement as it relates to the common stock issued. The resulting
purchase price was $14,766,787 of which $10,130,244 was paid in cash and the
remainder was paid for with 454,563 shares of Nationwide Common Stock. The
number of shares of Nationwide Common Stock issued to the shareholders of
Allison was determined based upon a value of $12.00 per share; however the
acquisition was recorded at $10.20 per share due to the discount noted above.
If the price per share of Nationwide Common Stock in the Company's first round
of financing after October 22, 1998, is less than $12.00 per share, then an
additional number of shares of Nationwide Common Stock will be issued to such
shareholders so that such shareholders will have received an aggregate number
of shares equal to the amount that would have been issued had the lower price
been used in making the computation of the number of shares to be issued in
such acquisition. Total assets acquired and liabilities assumed were
approximately $11,970,000 and $5,319,000, respectively. The acquisition has
been accounted for using the purchase method of accounting. Accordingly, the
purchase price has been allocated to the assets acquired and liabilities
assumed based on their respective fair values resulting in goodwill of
approximately $7,505,000 which is being amortized to expense over 40 years
using the straight-line method. An additional earn-out payment, which if
earned will be accounted for as a bonus, will be made to the former officers-
shareholders of Allison in an amount equal to 25% of the amount by which the
earnings of the subsidiary before interest and income taxes for each of the
fiscal years ending March 31, 1999 and 2000 exceeds $2,500,000.
The accompanying consolidated statements of operations reflects the results
of operations of Allison from the date of the acquisition through December 31,
1998.
On October 22, 1998, the Company acquired for cash and shares of the
Company's common stock all the issued and outstanding common stock of
Henderson Electric Company, Inc. ("Henderson"). The total purchase price was
$11,835,000, however the common stock portion was discounted 15% to reflect an
appropriate fair value as a result of lack of marketability and other
provisions of the purchase agreement as it relates to the common stock issued.
The resulting purchase price was $11,545,078 of which $6,232,571 was paid in
cash and the remainder was paid for with 520,834 shares of Nationwide Common
Stock. The number of shares of Nationwide Common Stock issued to the
shareholders of Henderson was determined based upon a value of $10.20 per
share. If the price per share of Nationwide Common Stock in the Company's
first round of financing after October 22, 1998, is less than $12.00 per
share, then an additional number of shares of Nationwide Common Stock will be
issued to such shareholders so that such shareholders will have received an
aggregate number of shares equal to the amount that would have been issued had
the lower price been used in making the computation of the number of shares to
be issued in such acquisition. Total assets acquired and liabilities assumed
were approximately $18,431,000 and $10,083,000, respectively. The acquisition
has been accounted for using the purchase method of accounting. Accordingly,
the purchase price has been allocated to the assets acquired and liabilities
assumed based on their respective fair values resulting in goodwill of
approximately $3,197,000, which is being amortized to expense over 40 years
using the straight-line method.
The accompanying consolidated statements of operations reflects the results
of operations of Henderson from the date of the acquisition through December
31, 1998.
F-18
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma results of operations for the nine months ended
December 31, 1998 and year ended March 31, 1998, as if the above acquisitions
occurred on April 1, 1997 are as follows:
<TABLE>
<CAPTION>
1998
-------------------------
December 31 March 31
------------ ------------
<S> <C> <C>
Revenues....................................... $117,270,000 $134,408,000
============ ============
Net income..................................... $ 3,306,000 $ 4,359,000
============ ============
Earnings per share--basic...................... $ 0.27 $ 0.35
============ ============
Earnings per share--diluted.................... $ 0.26 $ 0.35
============ ============
</TABLE>
3. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
1998
-----------------------
December 31 March 31
----------- -----------
<S> <C> <C>
Current accounts................................. $32,276,084 $10,623,725
Retention........................................ 3,785,869 1,505,166
----------- -----------
Subtotal......................................... 36,061,953 12,128,891
Less allowance for doubtful accounts............. 729,000 40,000
----------- -----------
Contract receivables, net........................ $35,332,953 $12,088,891
=========== ===========
</TABLE>
4. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<CAPTION>
1998
------------------------
December 31 March 31
------------ -----------
<S> <C> <C>
Costs incurred on uncompleted contracts......... $113,801,161 $45,317,999
Estimated earnings.............................. 16,705,745 5,405,927
------------ -----------
Total........................................... 130,506,906 50,723,926
Less billings to date........................... 126,700,540 49,328,899
------------ -----------
Net under billings.............................. $ 3,806,366 $ 1,395,027
============ ===========
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
1998
------------------------
December 31 March 31
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 9,383,073 $ 3,320,678
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (5,576,707) (1,925,651)
----------- -----------
Total......................................... $ 3,806,366 $ 1,395,027
=========== ===========
</TABLE>
F-19
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998
----------------------
December 31 March 31
----------- ----------
<S> <C> <C>
Leasehold improvements............................ $1,420,694 $ 785,560
Field equipment and tools......................... 768,007 509,989
Field vehicles and trailers....................... 602,319 --
Office furniture and equipment.................... 793,992 334,670
---------- ----------
Subtotal.......................................... 3,585,012 1,630,219
Less accumulated depreciation..................... 346,884 32,532
---------- ----------
Property and equipment, net....................... $3,238,128 $1,597,687
========== ==========
</TABLE>
6. JOINT VENTURES AND PARTNERSHIPS
At December 31, 1998, Henderson has a minority interest (33%) in a limited
liability company joint venture, which is accounted for under the equity
method, formed to provide certain construction contracting services to a large
industrial customer. All of the members participate in construction. Net
assets and net earnings of the joint venture are not material in 1998.
Contract revenues earned and gross profit recognized by Henderson related to
services on contracts of the joint venture were $365,705 and $25,600,
respectively, in 1998. There were no receivables due from this joint venture
at December 31, 1998.
At December 31, 1998, Henderson had a 50% interest in two joint ventures,
which are accounted for under the equity method, formed to provide electrical
contracting to two large industrial customers. Contract revenues earned by
Henderson related to services on contracts of the joint ventures were $657,410
in 1998. Such services were provided at cost. Receivables due from the joint
ventures at December 31, 1998 were $537,430. The agreements call for sharing
of earnings on each contract at its completion based on percentage interest in
the joint ventures. Net assets and net earnings of the joint ventures are not
material for the period ended December 31, 1998.
7 . CREDIT FACILITY
The Company has obtained a $30 million credit facility with a bank maturing
on December 1, 2001 which is composed of a $15 million revolving credit
facility and a $15 million term facility. The term facility may be used
exclusively to finance acquisitions permitted under the credit agreement. The
revolving credit facility may be used for (i) working capital, (ii) general
corporate purposes, (iii) accounts receivable, inventory and cash which may be
acquired in acquisitions, and (iv) to make advances to and equity investments
in the Company's subsidiaries. The Agent for the credit facility has indicated
that the borrowing limit under the credit agreement may be increased up to a
total of $100 million, subject to certain conditions including successful
completion of an initial public offering, addition of at least three more
lenders, receipt of an unqualified audit report on the Company's financial
statements for its fiscal year ended March 31, 1999, and the absence of any
default or event of default under the credit agreement. The borrowing base for
the term loan is limited to the sum of 80% of eligible accounts receivable,
50% of eligible inventory, and 50% of the net book value of eligible
equipment.
Amounts borrowed under the credit facility will bear interest at a rate
equal to the Prime Rate plus a margin of up to 0.25% or, alternatively, at the
Company's option, LIBOR plus a margin ranging from 1.40% to 1.90%. Commitment
fees of 0.25% to 0.35% are payable with respect to amounts not borrowed on
either facility. The facility is secured by all assets of the Company,
including the pledges of all stock of the Company's subsidiaries. In addition,
the Company's subsidiaries guarantee the repayment of all amounts
F-20
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
due under the facility and the facility restricts pledges of all material
assets. The credit facility requires compliance with usual and customary
covenants for a credit facility of this nature including a limitation on the
payment of dividends on Common Stock and the consent of the lenders for
acquisitions that do not satisfy specified criteria and financial covenants
(i.e., maximum total funded debt to EBITDA, maximum fixed charge coverage and
minimum consolidated net worth).
At December 31, 1998, $7.2 million has been borrowed under the revolving
credit facility and bears interest at the prime rate of 7.75%. There are no
borrowings under the term facility.
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1998
----------------------
December 31 March 31
----------- ----------
<S> <C> <C>
Accrued expenses and other current liabilities
consist of the following:
Accrued payroll and related expenses.......... $3,537,018 $1,215,404
Accrued union dues and benefits............... 795,586 525,959
Accrued income tax payable.................... 2,052,624 --
Non-compete agreements payable................ 225,000 225,000
Severance and bonuses payable................. 384,864 210,842
Escrow liability.............................. 672,051 --
Dividends payable............................. 473,750 --
Other......................................... 365,365 73,595
---------- ----------
$8,506,258 $2,250,800
========== ==========
</TABLE>
In connection with the acquisition of Parsons, the Company entered into non-
compete agreements with two employees for $425,000, of which $225,000 remained
payable at December 31, 1998.
9. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1998
----------------------
December 31, March 31,
------------ ---------
<S> <C> <C>
Credit facility (see Note 7)......................... $7,200,000 $ --
Installment notes payable: principal and interest
from $216 to $1,041; payable over 36 to 48 months;
interest rate 9.25% to 10.0% secured by vehicles.... 303,710 --
---------- ----
7,503,710 --
Less current portion................................. (137,367) --
---------- ----
Total............................................ $7,366,343 $ --
========== ====
</TABLE>
The installment notes payable require the Company to maintain depository
accounts with the bank of at least 15% of the outstanding balance.
Aggregate annual maturities of long-term debt during the following periods
are:
<TABLE>
<S> <C>
Three months ending March 31, 1999............................ $ 38,158
Year ending March 31, 2000.................................... 159,697
Year ending March 31, 2001.................................... 85,664
Year ending March 31, 2002.................................... 7,220,191
----------
Total..................................................... $7,503,710
==========
</TABLE>
F-21
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. OPERATING LEASES
The Company leases offices, warehouse facilities and field vehicles which
are classified as operating leases.
Annual minimum lease payments under these noncancellable operating leases
during the following periods are:
<TABLE>
<S> <C>
Three months ending March 31, 1999............................ $ 141,490
Year ending March 31, 2000.................................... 528,149
Year ending March 31, 2001.................................... 472,618
Year ending March 31, 2002.................................... 415,312
Year ending March 31, 2003.................................... 457,263
Year ending March 31, 2004.................................... 472,424
Thereafter.................................................... 1,399,413
</TABLE>
Rent expense under these leases was $466,367 for the nine months ended
December 31, 1998 and $47,000 for the period September 23, 1997 to March 31,
1998.
11. INCOME TAXES
The Company's income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended September 23, 1997
December 31, 1998 to March 31, 1998
----------------- ------------------
<S> <C> <C>
Current:
Federal............................ $1,096,788 $ --
State.............................. 212,501 --
---------- ---------
Total Current.................... 1,309,289 --
Deferred:
Federal............................ (593,741) $(102,500)
State.............................. (104,778) (18,000)
---------- ---------
Total Deferred................... (698,519) (120,500)
---------- ---------
$ 610,770 $(120,500)
========== =========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 23, 1997
December 31, 1998 to March 31, 1998
-------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal rate income
(loss)...................... $491,918 34% $ (117,810) (34)%
State tax, net of federal
benefit..................... 86,800 6 (20,790) (6)
Permanent differences........ 54,560 4 14,760 4
Other........................ (22,508) (2) 3,340 1
----------- ------ ------------ ------
$610,770 42% $ (120,500) (35)%
=========== ====== ============ ======
</TABLE>
F-22
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998
---------------------
December 31 March 31
----------- --------
<S> <C> <C>
Current:
Accruals not currently deductible................ $ 965,000 $ --
Allowance for doubtful accounts.................. 75,000 --
Net operating loss carryforwards................. 48,000 122,000
Prepaid expenses deducted for income tax
purposes........................................ (3,000) --
Other, net....................................... 3,037 --
---------- --------
$1,088,037 $122,000
========== ========
Noncurrent:
Accruals not currently deductible................ $ 480,000 $ --
Excess of book over tax depreciation............. 39,000 --
Excess of tax over book amortization............. (17,000) (1,500)
Other, net....................................... (2,514) --
---------- --------
$ 499,486 $ (1,500)
========== ========
</TABLE>
For income tax purposes, the Company has a net operating loss carryforward
of $120,000 which, if not utilized, expires in 2014.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and debt. The carrying value
of cash and cash equivalents, accounts and notes receivable and accounts
payable approximates fair value because of their short duration. The carrying
value of debt approximates fair value based on current rates for borrowings of
similar quality and terms.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the markets in which
it has operations. The Company believes this concentration of credit risk is
mitigated by the diversity of industries represented by the Company's customer
base.
13. STOCKHOLDERS' EQUITY
Common Stock--The Company's common stock is comprised of Voting Common Stock
and Class A and Class B Nonvoting Common Stock.
Class A Nonvoting Common Stock has all of the powers, preferences and rights
of the Common Stock, except for voting rights. Each share of Class A Nonvoting
Common Stock converts into Common Stock upon the sale of shares of Common
Stock or debt securities in a public offering or in the case of any
consolidation or merger of the Company with or into another corporation or the
sale of all or substantially all of the assets of the Company. The Class A
Nonvoting Common Stock contains anti-dilution provisions. Certain events
require the approval of two-thirds of the outstanding Class A Nonvoting Common
Stock. Common share data has been restated to reflect a 333.33 to 1 common
stock split on March 23, 1998.
On April 14, 1998, Nationwide sold 300,000 shares of common stock to
management of Nationwide which were paid for with a combination of $40,000
cash and $50,000 of shareholder notes. These shares may, at the Company's
option, be repurchased at the price they were sold if the Offering is not
consummated by April 1, 1999.
F-23
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On May 31, 1998, the Company sold an aggregate of 15,000 shares of Common
Stock to two outside directors and an outside director nominee for $4,500
cash. These shares may, at the Company's option, be purchased at the price
they were sold if the Offering is not consummated by April 1, 1999.
Under certain restricted stock purchase agreements noted above, the Company
has sold 315,000 shares of Common Stock to executive officers, two independent
directors and one director nominee. As a result, the Company will record a
nonrecurring, noncash compensation charge of $3.6 million and related income
tax benefit of $1.4 million or net charge of $2.2 million ($0.22 per share
basic and $0.21 per share diluted) in the first reported quarter following
consummation of the Offering, representing the difference between the amount
paid for the shares and the estimated fair value thereof (a fair value that is
discounted ten percent from the initial public offering price). This
nonrecurring compensation charge is not included in these financial
statements.
Class B Nonvoting Common Stock has all the powers, preferences and rights of
the Common Stock, except for voting rights. Each share of Class B Nonvoting is
convertible into Common Stock at the option of the holder. In the event of any
consolidation or merger of the Company with or into another corporation or the
sale of all or substantially all of the assets of the Company to another
corporation, each share of Class B Nonvoting Common Stock shall automatically
convert into Common Stock. The Class B Nonvoting Common Stock contains anti-
dilution provisions. Certain events require the approval of two-thirds of the
outstanding Class B Nonvoting Common Stock.
Series A Redeemable Preferred Stock--At December 31, 1998, the Company has
outstanding 6,000 shares of Series A Redeemable Preferred Stock ("Series A
Preferred Stock") which is nonvoting and mandatorily redeemable over thirty
six months commencing August 1999 together with any accrued but unpaid
dividends. The Series A Preferred Stock is also mandatorily redeemable upon
the sale of Common Stock or debt securities in a public offering or upon the
sale or disposition of a majority of the Company's assets.
Annual dividends at $75 per share are cumulative and payable in arrears on
the last day of each month commencing October 1998.
Commencing August 1, 1999, the Series A Preferred Stock may be converted
into common stock. The number of shares of common stock is determined by
dividing the redemption price by $1,000 and multiplying such amount by 3,000.
The Series A Preferred Stock has a liquidation preference as to its
subscription price plus accrued but unpaid dividends and contains restrictive
provisions on the payment of dividends or merging or consolidating or selling
all or substantially all of the Company's assets.
Series B Convertible Preferred Stock--At December 31, 1998, the Company has
outstanding 500,000 shares of Series B Convertible Preferred Stock ("Series B
Preferred Stock") which is nonvoting. After October 1, 2001, the Company shall
have the right to redeem the Series B Preferred Stock outstanding together
with any accrued but unpaid dividends. The Company shall redeem all
outstanding shares of Series B Preferred Stock upon the sale or other
disposition of the majority of the Company's assets.
Each holder of Series B Preferred Stock shall have an option to convert
shares of Series B Preferred Stock into Common Stock at any time during the
period from October 23, 1998 and ending on the later of December 31, 1999 or
on the first date upon which a registration statement filed by the Company
with the U.S. Securities and Exchange Commission ("SEC") in connection with a
public offering is declared effective.
Annual dividends at $0.90 per share are cumulative and payable in arrears
ratably each calendar quarter. The Series B Preferred Stock has liquidation
preferences as to its subscription price plus accrued but unpaid dividends.
F-24
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. STOCK OPTION AND PURCHASE PLANS
1998 Stock Option Plan--The Board of Directors of the Company has adopted,
and the stockholders of the Company have approved, an Incentive Stock Option
Plan ("ISO Plan") and a Non-Qualified Stock Option Plan ("NQSO Plan") (the
"Option Plans"). The purpose of the Option Plans is to encourage the key
employees of the Company and its subsidiaries to participate in the ownership
of the Company, and to provide additional incentive for such employees to
promote the success of its business through sharing in the future growth of
such business. An aggregate amount of 500,000 shares of Common Stock
(1,000,000 shares in the aggregate) may be granted under options pursuant to
each of the ISO Plan and the NQSO Plan (subject to certain extraordinary
changes in capitalization).
At December 31, 1998, the Company had outstanding options to purchase
223,500 shares of common stock at an exercise price of $12 per share, of which
71,500 were granted under the NQSO Plan and 152,000 were granted under the ISO
Plan. The options vest ratably over four years from the date of grant. In the
discretion of the Compensation Committee, option agreements may provide that
options will become immediately exercisable in the event of certain
extraordinary events or upon a Change of Control (as defined in the Option
Plans) of the Company. Options under the ISO Plan may not be exercised (i)
after the expiration of the later of 30 days following termination of
employment by the Company or its subsidiaries or 90 days after the employee's
death (but in any event no later than the expiration date of such option),
(ii) to the extent that the aggregate fair market value of the stock (at the
time of grant of options) with respect to which options are exercisable by an
individual for the first time during any calendar year under the ISO Plan
exceeds $100,000 or (iii) if seven years have elapsed since the date of grant
of the option. Options under the NQSO Plan may not be exercised (i) after the
expiration of the later of three months following termination of employment
and one year after the employee's death (but in any event no later than the
expiration date of such option) or (ii) if ten years have elapsed since the
date of grant of the option.
The Company accounts for the Option Plans in accordance with APB Opinion No.
25 which requires compensation cost to be recognized based on the excess, if
any, between the quoted market price of the stock at the date of grant and the
amount an employee must pay to acquire the stock. Under this method, no
compensation cost has been recognized for stock option awards.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value as prescribed by SFAS No. 123, the
Company's net earnings and net earnings per common share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Nine Months
Ended
December 31,
1998
------------
<S> <C>
Net earnings, as reported.......................................... $836,048
========
Net earnings, pro forma............................................ $817,277
========
Basic net earnings per common share, as reported................... $ 0.10
========
Basic net earnings per common share, pro forma..................... $ 0.10
========
Diluted net earnings per common share, as reported................. $ 0.10
========
Diluted net earnings per common share, pro forma................... $ 0.10
========
</TABLE>
The weighted average fair value at date of grant for options granted during
1998 was $2.90 per share, which, for the purposes of this disclosure, is
assumed to be amortized over the respective vesting period of the grants. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 5.1%, and expected lives of 5.5 years.
F-25
<PAGE>
NATIONWIDE ELECTRIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions relative to both plans are as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding at
March 31, 1998........................................ --
Granted.............................................. 223,500 $12.00
Exercised............................................ --
-------
Options outstanding at December 31, 1998............... 223,500 $12.00
======= ======
Options exercisable at December 31, 1998............... --
=======
Options available at December 31, 1998................. 776,500
=======
</TABLE>
The weighted average remaining contractual life of the outstanding options
at December 31, 1998 is 6.8 years.
Stock Purchase Plans--The Board of Directors of the Company has adopted the
Nationwide Electric, Inc. Executive Stock Purchase Plan (the "Executive Stock
Plan") to provide an incentive for key executives of the Company and its
subsidiaries and the Nationwide Electric, Inc. Employee Stock Purchase Plan
(the "Employee Stock Plan") in order to allow eligible employees of the
Company to commence or increase their ownership of shares of the Company's
Common Stock.
Under the Executive Stock Plan, selected officers and other key employees
will be given the opportunity to purchase up to a total of 250,000 shares of
the Company's Common Stock at a price equal to the then current market value
of the shares sold to such officers and employees less a discount of 15
percent to reflect the lack of marketability of the shares. Company financing
will be available for up to 85 percent of the stock purchase price. Company
loans will be granted on a full recourse basis with an interest rate equal to
the then Prime Rate. All shares of the Company's Common Stock purchased under
the Executive Stock Plan will be restricted stock for a period of one year
following the date of purchase. An officer or key employee who purchases
shares of the Company's Common Stock under the Executive Stock Plan will be
immediately vested as to one-third of the Common Stock purchased. So long as
such officer or key employee remains employed by the Company, an additional
one-third of the Common Stock will vest on the first anniversary of the date
of purchase and the remaining one-third will vest on the second anniversary of
such purchase. Upon termination of such officer's or key employee's employment
for any reason, all shares of Common Stock which have not been vested must be
offered for sale to the Company at the original price paid for such Common
Stock.
Under the Employee Stock Plan, all employees will be given the opportunity
to purchase shares of the Company's Common Stock in the market at a price
equal to the then fair market value without having to pay any brokerage
commissions. Shares of the Company's Common Stock sold under the Employee
Stock Plan will not be restricted.
At December 31, 1998, no shares have been issued under these plans.
15. MAJOR CUSTOMERS AND CONCENTRATION OF RISK
For the period ended December 31, 1998, no single customer accounted for 10%
or greater of consolidated revenues or contract receivables.
F-26
<PAGE>
The Company grants credit, generally without collateral, to its customers,
which are usually general contractors. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
16. EMPLOYEE BENEFIT PLANS
Parsons has a defined contribution pension plan and a contributory profit
sharing plan covering substantially all of its nonunion employees. An employee
becomes eligible for these plans after one year of service and must be 21
years of age. Employer contributions required for the defined contribution
pension plan are 3% of eligible wages. Annual contributions to the
contributory profit sharing plan are at the discretion of the Board of
Directors.
Parsons also contributes to union-sponsored, multi-employer defined benefit
pension plans in accordance with negotiated labor contracts. The passage of
the Multi-Employer Pension Plan Amendments Act of 1980 (the Act) may, under
certain circumstances, cause Parsons to become subject to liabilities in
excess of contributions made under collective bargaining agreements.
Generally, liabilities are contingent upon the termination, withdrawal, or
partial withdrawal from the plans. As of March 31, 1998, Parsons has not
undertaken to terminate, withdraw, or partially withdraw from any of these
plans. Under the Act, liabilities would be based upon Parsons proportionate
share of each plan's unfunded vested benefits. Parsons has not received
information from the plans' administrators to determine its share of unfunded
vested benefits, if any. Parsons contributed $200,319 to these multi-employer
union pension plans during the period from the date of acquisition to March
31, 1998 and $2,105,838 during the nine months ended December 31, 1998.
Allison has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation up to a maximum of $10,000. Discretionary matching amounts may be
contributed at Allison's option, but to date no contributions have been made.
Allison also sponsors a profit sharing plan for all employees providing for
benefits upon retirement. Contributions to the plan during the period from
October 22, 1998 (acquisition by Nationwide) to December 31, 1998 were
$42,081. Allison's contributions to the plan are made at the discretion of
Nationwide's Board of Directors.
Allison's union employees are covered by a retirement plan and a health and
welfare plan (collectively, the "Plans") determined through collective
bargaining and administered by the union. Contributions made by Allison the
Plans were approximately $642,000, during the period from October 22, 1998
(acquisition by Nationwide) to December 31, 1998.
Qualified executives, office employees, and qualifying non-union
electricians of the Henderson are included in a modified defined contribution
plan. Henderson's contributions under the plan are determined annually by
Nationwide's Board of Directors with the minimum allowable contribution being
the greater of 3% of gross eligible wages or 25 cents per active hour of
service. Union employees are covered by a retirement plan determined through
collective bargaining and administered by the union. Contributions made by
Henderson to the plans during the period from October 22, 1998 (acquisition by
Nationwide) to December 31, 1998 were $15,000 and $350,793, respectively.
17. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome
cannot presently be determined with certainty, the Company believes, based in
part upon advice from its legal counsel, that the ultimate liability
associated with such claims, if any, will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
F-27
<PAGE>
In October 1997, Allison was named as a defendant in a lawsuit arising out
of electrical work performed by Allison as a sub-contractor. The initial
complaint filed against the general contractor for the project alleges the
system installed by Allison is defective. Allison denies any responsibility
for the claims on the basis that, among other things, installation was in
accordance with the approved plans and specifications of the project. Prior to
its acquisition by Nationwide, Allison entered into mediation in an effort to
settle the lawsuit. Based on a settlement offer made during mediation of such
lawsuit, Allison recorded a $1,200,000 liability in September 1998 in
accordance with the requirements of SFAS No. 5, Accounting for Contingencies.
Under the Stock Purchase Agreement entered into with Nationwide, former
stockholders of Allison have agreed to indemnify Nationwide for settlements
reached in the above matter; accordingly, Nationwide recorded an asset of
$720,000 (which is net of associated tax benefit) to reflect such
indemnification.
See Note 13 for information regarding a nonrecurring, noncash compensation
charge to be reported in the first quarter following consummation of the
Offering.
* * * * * *
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Parsons Electric Co.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Parsons Electric Co. as
of February 27, 1998, and December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for the period from
January 1, 1998, to February 27, 1998, and for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit incudes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also incudes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parsons Electric Co. as of
February 27, 1998, and December 31, 1997 and 1996, and the results of its
operations and its cash flows for the period from January 1, 1998, to February
27, 1998, and for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
June 10, 1998
F-29
<PAGE>
PARSONS ELECTRIC CO.
BALANCE SHEETS
February 27, 1998 and December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
------ ----------- ----------- -----------
<S> <C> <C> <C>
Current Assets (Note 4)
Cash.......................................... $ 191,818 $ 45,947 $ 455,138
Contract receivables, including retainages of
$1,435,204, $1,552,875, and $1,729,820 in
1998, 1997, and 1996, respectively, less
allowance for doubtful accounts of $40,000
(Note 2)..................................... 13,240,229 16,596,180 10,924,870
Related-party receivable (Note 7)............. 302,578 236,565 --
Inventories (Note 7).......................... 452,412 423,078 1,027,404
Costs and earnings in excess of billings on
uncompleted contracts (Note 3)............... 2,858,599 2,293,122 1,902,418
----------- ----------- -----------
Total current assets...................... 17,045,636 19,594,892 14,309,830
Cash Value of Life Insurance, net of policy
loans.......................................... -- -- 212,226
----------- ----------- -----------
Property and Equipment, at cost
Leasehold improvements........................ 1,356,638 1,356,638 1,354,758
Construction and motor shop equipment......... 1,154,266 1,156,859 1,120,543
Office furniture and equipment................ 934,596 920,242 986,812
Trucks and autos.............................. 248,402 268,892 295,996
----------- ----------- -----------
3,693,902 3,702,631 3,758,109
Less accumulated depreciation................. 2,330,921 2,338,988 2,183,997
----------- ----------- -----------
1,362,981 1,363,643 1,574,112
----------- ----------- -----------
Total..................................... $18,408,617 $20,958,535 $16,096,168
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities
Note payable to bank (Note 4)................. $ 2,800,000 $ 4,100,000 $ 1,300,000
Current maturities of long-term debt.......... 50,004 50,004 50,004
Accounts payable.............................. 2,969,982 4,675,114 2,812,452
Distributions payable......................... 479,523 450,000 --
Accrued expenses:
Compensation................................ 1,592,733 1,217,298 802,960
Pension and profit sharing.................. 541,670 467,344 445,110
Union benefits and dues..................... 560,506 541,581 396,860
Other....................................... 453,721 270,036 468,339
Billings in excess of costs and earnings on
uncompleted contracts (Note 3)............... 2,202,164 2,424,677 2,548,849
----------- ----------- -----------
Total current liabilities................. 11,650,303 14,196,054 8,824,574
----------- ----------- -----------
Long-Term Debt, less current maturities (Note
4)............................................. 258,314 262,481 312,485
----------- ----------- -----------
Commitments and Contingencies (Notes 5 and 6)
Stockholder's Equity (Note 8)
Common stock, $100 par value per share;
150,000 shares authorized; 40 shares issued.. 4,000 4,000 4,000
Retained earnings............................. 6,496,000 6,496,000 6,955,109
----------- ----------- -----------
Total stockholders' equity................ 6,500,000 6,500,000 6,959,109
----------- ----------- -----------
Total..................................... $18,408,617 $20,958,535 $16,096,168
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF INCOME
Period From January 1, 1998 to February 27, 1998 and Years Ended
December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue (Notes 2 and 7).... $9,699,550 $58,004,548 $58,563,050 $52,016,734
Cost of revenue............ 7,829,501 47,347,252 49,161,606 43,661,999
---------- ----------- ----------- -----------
Gross profit........... 1,870,049 10,657,296 9,401,444 8,354,735
Operating expenses......... 1,373,417 7,432,251 6,668,838 6,170,596
---------- ----------- ----------- -----------
Operating income....... 496,632 3,225,045 2,732,606 2,184,139
Nonoperating income
(expense):
Interest expense......... (38,159) (249,398) (167,896) (238,007)
Other income, net........ 21,050 58,043 46,395 32,592
---------- ----------- ----------- -----------
Net income............. $ 479,523 $ 3,033,690 $ 2,611,105 $ 1,978,724
========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF RETAINED EARNINGS
Period From January 1, 1998 to February 27, 1998 and Years Ended
December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, beginning........... $6,496,000 $ 6,955,109 $ 6,104,004 $4,672,280
Distributions to
shareholder............... (479,523) (3,492,799) (1,760,000) (547,000)
Net income................. 479,523 3,033,690 2,611,105 1,978,724
---------- ----------- ----------- ----------
Balance, ending.............. $6,496,000 $ 6,496,000 $ 6,955,109 $6,104,004
========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
F-32
<PAGE>
PARSONS ELECTRIC CO.
STATEMENTS OF CASH FLOWS
Period From January 1, 1998 to February 27, 1998 and Years Ended
December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating
Activities
Net income............... $ 479,523 $ 3,033,690 $ 2,611,105 $ 1,978,724
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation........... 63,400 446,929 434,601 395,009
(Gain) loss on
disposition of
property and
equipment............. (15,555) 7,931 (4,235) 21
Changes in assets and
liabilities:
(Increase) decrease
in contract
receivables......... 3,355,951 (5,671,310) 2,569,691 (5,187,640)
(Increase) decrease
in inventories...... (29,334) (89,138) 52,008 9,122
Increase in costs and
earnings in excess
of billings on
uncompleted
contracts........... (565,477) (390,704) (318,324) (505,960)
Increase (decrease)
in accounts payable
and accrued
expenses............ (1,052,761) 2,245,652 (954,145) 1,899,949
Decrease in billings
in excess of costs
and earnings on
uncompleted
contracts........... (222,513) (124,172) (213,351) 1,358,306
----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities........ 2,013,234 (541,122) 4,177,350 (52,469)
----------- ----------- ----------- -----------
Cash Flows From Investing
Activities
Proceeds from sales of
equipment............... 20,000 2,000 4,947 1,500
Purchases of property and
equipment............... (67,183) (246,391) (334,638) (369,534)
Increase in cash value of
life insurance.......... -- (37,914) (34,172) (31,293)
Increase in related-party
receivable.............. (66,013) (145,760) -- --
----------- ----------- ----------- -----------
Net cash used in
investing
activities........ (113,196) (428,065) (363,863) (399,327)
----------- ----------- ----------- -----------
Cash Flows From Financing
Activities
Net borrowings (payments)
under line-of-credit
agreement............... (1,300,000) 2,800,000 (1,550,000) 1,000,000
Principal payments on
long-term borrowings.... (4,167) (50,004) (54,171) (45,837)
Cash distributions to
shareholder............. (450,000) (2,190,000) (1,760,000) (547,000)
----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities........ (1,754,167) 559,996 (3,364,171) 407,163
----------- ----------- ----------- -----------
Increase (decrease)
in cash........... 145,871 (409,191) 449,316 (44,633)
Cash
Beginning................ 45,947 455,138 5,822 50,455
----------- ----------- ----------- -----------
Ending................... $ 191,818 $ 45,947 $ 455,138 $ 5,822
=========== =========== =========== ===========
Supplemental Disclosures of
Cash Flow Information
Cash payments for
interest................ $ 21,263 $ 249,398 $ 185,260 $ 220,643
=========== =========== =========== ===========
Supplemental Schedule of
Noncash Investing and
Financing Activities
Accrued distributions
payable................. $ 479,523 $ 450,000 $ -- $ --
Inventory distributed to
stockholder (Note 7).... -- 693,464 -- --
Related-party receivable
distributed to
stockholder............. -- 159,335 -- --
Related-party receivable
accepted for cash value
of life insurance....... -- 250,140 -- --
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-33
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Parsons Electric Co. (the "Company") is a commercial and
industrial electrical contractor doing business primarily in Minnesota. The
Company establishes credit terms on an individual customer basis. The Company
conducts significant business with several key contractors. Due to the nature
of the business, these major customers may vary from year to year.
Cash balances: The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
Fair value of financial instruments: The Company's financial instruments
consist of cash and short-term trade receivables and payables for which
current carrying amounts approximate fair market value because of their short-
term nature. Other financial instruments consist of notes payable and long-
term debt, both for which the carrying value is based on current rates for
borrowings of similar quality and terms.
Revenue and cost recognition:
Construction contracts: The financial statements are prepared using the
percentage-of-completion method of accounting which recognizes income during
the periods when the related work is performed. Income is measured by the
percentage of costs incurred to date to estimated total costs for each
contract.
Contract costs include all direct material and labor costs, and those
indirect costs related to contract performance such as indirect labor,
supplies, tools, insurance, subsistence, and payroll-related benefits and
expenses. Operating expenses are charged to expense as incurred. 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, including those changes arising from contract penalty
provisions and final contract settlements, may result in revisions to costs
and income which are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reliably estimated.
The asset, "costs and earnings in excess of billings on uncompleted
contracts," represents revenue recognized in excess of amounts billed. The
liability, "billings in excess of costs and earnings on uncompleted
contracts," represents billings in excess of revenue recognized.
Time and materials contracts: Income from time and materials and
maintenance-type contracts is recognized when billed.
Accounts receivable: In accordance with industry practice, accounts
receivable include retentions, a portion of which may not be realized within
one year.
Inventories: The Company's materials inventories are valued at the lower of
cost (first-in, first-out basis) or market.
Property and equipment: Depreciation, including amortization of leasehold
improvements, is provided using straight-line and accelerated methods over the
following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements.............................................. 10
Construction and motor shop equipment............................... 3-7
Office furniture and equipment...................................... 5-7
Trucks and autos.................................................... 5
</TABLE>
F-34
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income taxes: The Company has elected to be taxed as a Subchapter S
Corporation under sections of the federal and state income tax laws which
provide that, in lieu of corporate income taxes, the shareholder separately
accounts for the Company's items of income, deductions, losses and credits.
Therefore, the statements of income do not include any provision for corporate
income taxes.
Distributions: Periodic cash distributions are made to the Company's
shareholder for income taxes or for other purposes.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure 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. See
revenue and cost recognition for estimates on contracts.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that
adoption of SFAS Nos. 130 and 131 will not have any significant effect on its
financial statements.
Note 2. Major Customers and Large Trade Receivables
Revenue for the two months ended February 27, 1998, and the years ended
December 31, 1997, 1996, and 1995, includes revenue to the following major
customers, together with the receivables due from those customers:
<TABLE>
<CAPTION>
Revenue
--------------------------------------------
Customer 1998 1997 1996 1995
-------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
A............................ $1,953,061 $11,967,264 $8,063,064 $8,859,593
B............................ * 6,275,666 9,116,009 *
C............................ * * * 5,577,293
========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accounts Receivable
--------------------------------
Customer 1998 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C>
A........................................ $2,880,881 $3,610,245 $1,466,813
B........................................ * 601,044 1,371,410
========== ========== ==========
</TABLE>
Because of the nature of the Company's business, the major customers may
vary between years.
- --------
*Customer was not considered to be a major customer in this year.
In addition to the receivables related to the major customers above, the
Company has a receivable of $1,399,687 as of February 27, 1998, from a
customer who is not listed as a major customer.
F-35
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 3. Uncompleted Contracts
Information regarding uncompleted contracts as of February 27, 1998, and
December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total amount of contracts in
process......................... $82,152,554 $80,298,641 $59,491,467
=========== =========== ===========
Costs incurred on uncompleted
contracts....................... $49,369,222 $49,132,943 $33,887,394
Estimated earnings............... 5,044,368 5,687,641 4,155,264
----------- ----------- -----------
54,413,590 54,820,584 38,042,658
Less billings to date............ 53,757,155 54,952,139 38,689,089
----------- ----------- -----------
$ 656,435 $ (131,555) $ (646,431)
=========== =========== ===========
Included in the accompanying
balance sheets under the
following captions:
Costs and earnings in excess of
billings on uncompleted
contracts..................... $ 2,858,599 $ 2,293,122 $ 1,902,418
Billings in excess of costs and
earnings on uncompleted
contracts..................... (2,202,164) (2,424,677) (2,548,849)
----------- ----------- -----------
$ 656,435 $ (131,555) $ (646,431)
=========== =========== ===========
</TABLE>
Note 4. Notes Payable and Long-Term Debt
Notes payable: The Company has a $5,000,000 line of credit with a bank which
bears interest at the prime rate plus 0.5 percent (9.0 percent at February 27,
1998) and is secured by receivables and inventories. All borrowings on this
line of credit are personally guaranteed by the Company's shareholder. The
balance outstanding on the line of credit at February 27, 1998, was $2,800,000
(a).
Long-term debt: At February 27, 1998, and December 31, 1997 and 1996, long-
term debt was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
8% bank note payable, due in monthly
installments of $4,167, plus interest,
through March 1999, when the remaining
balance is due, secured by receivables and
inventories (a).............................. $308,318 $312,485 $362,489
Less current maturities....................... 50,004 50,004 50,004
-------- -------- --------
$258,314 $262,481 $312,485
======== ======== ========
</TABLE>
- --------
(a) Subsequent to the close of business on February 27, 1998, the Company
entered into a new revolving line-of-credit agreement and used the new
line of credit to pay off the existing line of credit and bank term note.
Under the new agreement, the Company may borrow up to $10,000,000, based
upon a percent of eligible receivables plus $2,000,000. Amounts
outstanding under the new revolving credit agreement will bear interest at
the bank's base rate, payable monthly. Borrowings under the agreement are
secured by all assets of the Company. The line of credit expires March 1,
1999, if not renewed. Under the new revolving line, the Company must
maintain certain minimum net worth and financial ratio requirements.
F-36
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 5. Operating Leases
The Company leases its office and warehouse facilities from its shareholder.
The Company is paying $12,364 monthly, plus all maintenance, insurance, and
taxes on the building. The total rent and related taxes for 1998, 1997, 1996,
and 1995 approximated $34,000, $217,000, $190,000, and $185,000, respectively.
Minimum annual rental commitments at February 27, 1998, are:
<TABLE>
<S> <C>
Years ending February 27:
1999........................................................ $ 148,368
2000........................................................ 148,368
2001........................................................ 148,368
2002........................................................ 148,368
2003........................................................ 148,368
Later Years................................................... 556,380
----------
$1,298,220
==========
</TABLE>
In addition, the Company leases automobiles under agreements classified as
operating leases the majority of which are cancelable upon 30 day notice. The
total lease expense for 1998, 1997, 1996, and 1995 was approximately $77,000,
$338,000, $315,000, and $284,000, respectively.
Note 6. Employee Benefit Plans
The Company has a defined contribution pension plan covering substantially
all of its nonunion employees. The total pension expense for 1998, 1997, 1996,
and 1995 was $10,000, $58,163, $59,512, and $52,308, respectively. The Company
also has a contributory profit sharing plan covering substantially all of its
nonunion employees. Contributions to this plan are at the discretion of the
Board of Directors. The total profit sharing expense for 1998, 1997, 1996, and
1995 was $64,326, $409,181, $385,598, and $344,557, respectively.
The Company also contributes to union-sponsored, multi-employer pension
plans. Contributions are made in accordance with negotiated labor contracts.
The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the
Act) may, under certain circumstances, cause the Company to become subject to
liabilities in excess of contributions made under collective bargaining
agreements. Generally, liabilities are contingent upon the termination,
withdrawal, or partial withdrawal from the plans. As of February 27, 1998, the
Company has not undertaken to terminate, withdraw, or partially withdraw from
any of these plans. Under the Act, liabilities would be based upon the
Company's proportionate share of each plan's unfunded vested benefits. The
Company has not received information from the plans' administrators to
determine its share of unfunded vested benefits, if any. The Company, during
1998, 1997, 1996, and 1995 contributed $427,042, $2,174,235, $2,320,866, and
$1,878,553, respectively, to these multi-employer union pension plans.
Note 7. Related Party Transactions
During 1997, the Company distributed $693,464 of welding equipment and
supply inventory to the Company's sole stockholder. The Company, subsequent to
December 31, 1997, no longer sells welding equipment and supplies. Revenue
related to the sales of welding equipment and supplies for 1997, 1996, and
1995 was approximately $2,862,000, $2,803,000, and $3,168,000 respectively.
The related-party receivable is with a company related through common
ownership and was collected subsequent to February 27, 1998.
F-37
<PAGE>
PARSONS ELECTRIC CO.
NOTES TO FINANCIAL STATEMENTS--(Concluded)
Note 8. Sale of Common Stock
Subsequent to the close of business on February 27, 1998, the Company's sole
stockholder entered into a stock purchase agreement whereby an unrelated third
party purchased all of the Company's outstanding common stock for cash of
$11,000,000. In connection with the sale and new revolving line-of-credit
agreement (Note 4), the Company made a loan to the purchaser of $4,600,000
from proceeds advanced on the new line of credit.
Related to the sale of common stock, the Company terminated its S
Corporation election and will be taxed as a C Corporation effective February
28, 1998.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Allison Company:
We have audited the accompanying consolidated balance sheets of The Allison
Company and subsidiary (the "Company") as of June 30, 1998 and 1997, and the
related consolidated statements of operations and retained earnings and of
cash flows for each of the three years in the period ended June 30, 1998.
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 that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of The Allison
Company and subsidiary as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
August 21, 1998
F-39
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------
ASSETS 1998 1998 1997
------ ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 28,527 $ 2,441,518 $ 206,153
Contract receivables, net.............. 8,538,065 8,813,174 8,780,172
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 943,073 605,101 727,129
Advances to stockholder................ 38,914 60,265 30,714
Inventories............................ 20,001 31,073 28,122
Prepaid expenses and other current
assets................................ 76,025 101,461 76,125
Income taxes receivable................ 77,822 14,094 --
----------- ----------- -----------
Total current assets................. 9,722,427 12,066,686 9,848,415
Property and equipment, net.............. 622,260 645,862 667,080
Deferred income taxes.................... 468,000 -- --
----------- ----------- -----------
Total................................ $10,812,687 $12,712,548 $10,515,495
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt...... $ 118,114 $ 115,210 $ 104,290
Accounts payable....................... 55,000 1,697,791 1,525,857
Accrued expenses and other current
liabilities........................... 515,368 1,153,118 853,068
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 1,628,950 1,667,055 322,015
Notes payable.......................... -- -- 1,000,000
Income taxes payable................... -- -- 52,984
----------- ----------- -----------
Total current liabilities............ 2,317,432 4,633,174 3,858,214
Long-term debt, net of current portion... 981,515 1,012,155 1,127,348
Other long-term liabilities.............. 1,200,000 -- --
----------- ----------- -----------
Total liabilities.................... 4,498,947 5,645,329 4,985,562
----------- ----------- -----------
Commitments and contingencies (Notes 7
and 12)
STOCKHOLDERS' EQUITY:
Common stock; $10 par value; 100,000
shares authorized; 40,624 shares
issued and outstanding................ 406,240 406,240 406,240
Retained earnings...................... 5,907,500 6,660,979 5,123,693
----------- ----------- -----------
Total stockholders' equity........... 6,313,740 7,067,219 5,529,933
----------- ----------- -----------
Total................................ $10,812,687 $12,712,548 $10,515,495
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------------ -------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 7,573,723 $ 6,571,815 $31,372,725 $27,999,871 $32,391,898
Costs of services....... 6,323,199 5,493,921 25,451,568 22,800,750 27,323,521
----------- ----------- ----------- ----------- -----------
Gross profit.......... 1,250,524 1,077,894 5,921,157 5,199,121 5,068,377
Selling, general and
administrative
expenses............... 1,257,422 633,602 3,302,175 2,660,126 2,501,818
----------- ----------- ----------- ----------- -----------
Operating income (loss). (6,898) 444,292 2,618,982 2,538,995 2,566,559
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense...... (19,267) (37,987) (115,136) (168,127) (157,400)
Other income
(expense), net....... (1,209,042) (15) -- 1,507 (32,858)
----------- ----------- ----------- ----------- -----------
(1,228,309) (38,002) (115,136) (166,620) (190,258)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (1,235,207) 406,290 2,503,846 2,372,375 2,376,301
Income tax expense
(benefit).............. (481,728) 158,453 966,560 903,573 907,844
----------- ----------- ----------- ----------- -----------
Net income (loss)....... (753,479) 247,837 1,537,286 1,468,802 1,468,457
Retained earnings,
beginning of period.... 6,660,979 5,123,693 5,123,693 3,654,891 2,186,434
----------- ----------- ----------- ----------- -----------
Retained earnings, end
of period.............. $ 5,907,500 $ 5,371,530 $ 6,660,979 $ 5,123,693 $ 3,654,891
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE>
THE ALLISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------------ ------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ (753,479) $ 247,837 $ 1,537,286 $1,468,802 $ 1,468,457
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization......... 27,973 27,731 111,799 113,171 82,126
Loss (gain) on
disposal of assets... (1,000) -- (137) (617) 37,297
Provision for deferred
taxes................ (468,000) -- -- -- --
Changes in operating
assets and
liabilities:
Contract receivables,
net................. 275,109 2,677,887 (33,002) (754,885) (3,681,313)
Costs and estimated
earnings in excess
billings............ (337,972) (784,989) 122,028 296,408 (789,618)
Due from related
parties............. 21,351 (41,287) (29,551) (29,447) (1,267)
Inventories.......... 11,072 3,122 (2,951) 7,092 6,046
Prepaid expenses and
other current
assets.............. 25,436 (37,374) (25,336) 1,289 (19,264)
Accounts payable and
accrued expenses.... (2,280,541) (1,085,997) 471,984 (561,767) 1,625,268
Billings in excess of
costs and estimated
earnings............ (38,105) 359,842 1,345,040 75,597 (42,569)
Other long-term
liabilities......... 1,200,000 -- -- -- --
Income taxes......... (63,728) 102,501 (67,078) (473,768) 438,295
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities......... (2,381,884) 1,469,273 3,430,082 141,875 (876,542)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (4,371) (9,585) (93,739) (153,561) (569,312)
Proceeds from sale of
property and
equipment............ 1,000 -- 3,295 750 3,250
Other................. -- -- -- 632 15,367
----------- ----------- ----------- ---------- -----------
Net cash used in
investing
activities......... (3,371) (9,585) (90,444) (152,179) (550,695)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of debt..... 1,500,000 1,500,000 -- -- 1,000,000
Payments of long-term
debt and notes
payable.............. (1,527,736) (2,525,093) (1,104,273) (94,404) (91,332)
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
financing
activities......... (27,736) (1,025,093) (1,104,273) (94,404) 908,668
----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents........... (2,412,991) 434,595 2,235,365 (104,708) (518,569)
Cash and cash
equivalents, beginning
of period............. 2,441,518 206,153 206,153 310,861 829,430
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents, end of
period................ $ 28,527 $ 640,748 $ 2,441,518 $ 206,153 $ 310,861
=========== =========== =========== ========== ===========
CASH PAYMENTS FOR:
Interest.............. $ 27,954 $ 42,543 $ 131,240 $ 167,237 $ 169,739
Income taxes.......... $ 50,000 $ 55,952 $ 1,033,638 $1,377,852 $ 537,107
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The Allison Company and its subsidiary, the Allison-Smith Company,
(collectively, the "Company") is a commercial and industrial electrical
contractor with offices in Atlanta, Georgia. Additionally the Company is a
general contractor for certain customers, primarily in the telecommunications
industry. The work is generally performed under fixed-price contracts. The
length of the Company's contracts varies, but generally is less than one year.
Projects to date are primarily within the state of Georgia, however,
occasional work will be performed on out of state contracts.
Principles of Consolidation--The consolidated financial statements include
all of the accounts of the Company. All significant intercompany balances and
transactions have been eliminated in consolidation. The accompanying unaudited
consolidated financial statements have been prepared according to generally
accepted accounting principles for interim financial information and include
all adjustments, consisting of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Results of operations
for interim periods are not necessarily indicative of results to be expected
for a full year.
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
disclosure 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.
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers and well known local companies
whose reputation is known to the Company. Advance payments and progress
payments are generally required for significant projects. Credit checks may be
performed for significant new customers that are not known to the Company. The
Company generally has the ability to file liens against the property if it is
not paid on a timely basis.
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded using
accelerated and straight-line methods over the estimated useful lives of the
related assets. Depreciation and amortization is provided over the following
estimated useful lives:
<TABLE>
<S> <C>
Construction equipment........................................... 7 years
Vehicles......................................................... 5 years
Leasehold improvements........................................... 39 years
Office furniture and fixtures.................................... 7 years
</TABLE>
F-43
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense was $111,799, $113,171 and $82,126 for
the years ended June 30, 1998, 1997 and 1996, respectively.
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies, and tools. Selling, general, and administrative costs are charged to
expense as incurred. Costs for materials incurred at the inception of a
project which are not reflective of effort are excluded from costs incurred
for purposes of determining revenue recognition and profits.
Estimates made with respect to uncompleted projects are subject to change as
the project progresses and better estimates of project costs become available.
Revisions in cost and profit estimates during the course of the work are
reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion. Revenues from claims are
recorded only when the amounts have been received.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income Taxes--The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred tax assets are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company does not have significant deferred tax
assets or liabilities. The Company files a consolidated Federal tax return
with its subsidiary.
At September 30, 1998, a deferred tax asset has been recorded representing
future tax benefits associated with the settlement of litigation reserves.
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. At June 30, 1998, no impairment has
been recognized.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS Nos. 130
and 131 did not have any significant effect on its financial statements.
F-44
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Contracts:
Current accounts................................ $8,734,766 $8,774,537
Retention....................................... 278,408 205,635
---------- ----------
Subtotal.......................................... 9,013,174 8,980,172
Less allowance for doubtful accounts.............. (200,000) (200,000)
---------- ----------
Contract receivables, net......................... $8,813,174 $8,780,172
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts.......... $12,682,223 $7,002,896
Estimated earnings............................... 2,191,118 614,932
----------- ----------
Total............................................ 14,873,341 7,617,828
Less billings to date............................ 15,935,295 7,212,714
----------- ----------
Net (over) under billings........................ $(1,061,954) $ 405,114
=========== ==========
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. $ 605,101 $ 727,129
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. (1,667,055) (322,015)
----------- ---------
Total....................................... $(1,061,954) $ 405,114
=========== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Vehicles......................................... $ 217,391 $ 159,606
Leasehold improvements........................... 439,024 439,024
Construction equipment........................... 96,398 82,941
Computer equipment, office furniture and
fixtures........................................ 339,680 327,261
---------- ----------
Subtotal......................................... 1,092,493 1,008,832
Less accumulated depreciation.................... (446,631) (341,752)
---------- ----------
Property and equipment, net...................... $ 645,862 $ 667,080
========== ==========
</TABLE>
F-45
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
A summary of accrued expenses and other liabilities is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- --------
<S> <C> <C>
Accrued payroll, bonuses and related expenses........ $ 897,977 $615,467
Accrued profit sharing............................... 173,974 164,677
Other................................................ 81,167 72,924
---------- --------
$1,153,118 $853,068
========== ========
</TABLE>
6. LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Note payable to Luise S. Allison, due on June 30,
2005, bearing interest at 10%. Note is payable in
monthly installments of $12,907 of principal and
interest. Collateralized by common stock of
Allison-Smith Company............................ $ 783,833 $ 856,327
Note payable to Residual Trust of Robert W.
Allison, due on June 30, 2005, bearing interest
at 10%. Note is payable in monthly installments
of $5,657 of principal and interest.
Collateralized by common stock of Allison-Smith
Company.......................................... 343,532 375,311
---------- ----------
Total............................................. 1,127,365 1,231,638
Less current portion.............................. 115,210 104,290
---------- ----------
Total......................................... $1,012,155 $1,127,348
========== ==========
</TABLE>
Aggregate maturities of long-term debt for years ending June 30 are as
follows:
<TABLE>
<S> <C>
1999........................................................... $ 115,210
2000........................................................... 127,274
2001........................................................... 140,601
2002........................................................... 155,323
2003........................................................... 171,588
Thereafter..................................................... 417,369
----------
Total...................................................... $1,127,365
==========
</TABLE>
Notes payable at June 30, 1997 consists of a $1,000,000 bank note bearing
interest at 8.75% which was paid in fiscal 1998. The note was collateralized
by property of the Company.
7. OPERATING LEASES
The Company leases a building on a month-to-month basis, owned by Harmony
Hill, a related party. The lease is classified as an operating lease. The rent
paid under this lease for the years ended June 30, 1998, 1997 and 1996, was
$60,000, $105,000, and $64,000, respectively. The Company also rents certain
office equipment, autos and trucks under operating leases which vary in length
and terms. Rent expense
F-46
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
under these leases for the years ended June 30, 1998, 1997 and 1996, was
$152,064, $89,139, and $150,942, respectively.
Future minimum lease payments under these noncancelable operating leases as
of June 30, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $102,550
2000............................................................. 38,581
2001............................................................. 19,893
--------
$161,024
========
</TABLE>
8. INCOME TAXES
The Company's provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $816,330 $768,037 $771,717
State........................................ 150,230 135,536 136,127
-------- -------- --------
$966,560 $903,573 $907,844
======== ======== ========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal tax rate........................ 34.0% 34.0% 34.0%
State tax, net of federal benefit................. 4.0 3.8 3.8
Other............................................. 0.6 0.3 0.4
------ ------ ------
Effective rate.................................... 38.6% 38.1% 38.2%
====== ====== ======
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value because of their short duration. The carrying value of long-term
debt approximates the fair value based on current rates for borrowings of
similar quality and terms.
10. MAJOR CUSTOMERS AND CONCENTRATION OF RISK
At June 30, 1998, 14% of total contract receivables was due from one
customer of the Company and at June 30, 1997, 17% and 11% of total contract
receivables were due from two customers. For the year ended June 30, 1998, 18%
of total sales were made to one customer of the Company. For the year ended
June 30, 1996, 15% and 13% of total sales were made to two customers of the
Company.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the Georgia market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
F-47
<PAGE>
THE ALLISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation up to a maximum of $10,000. Discretionary matching amounts may be
contributed at the Company's option, but to date no contributions have been
made.
The Company sponsors a profit sharing plan for all employees providing for
benefits upon retirement. Contributions to the plan were $174,000, $165,000
and $150,000, respectively, for the years ended June 30, 1998, 1997 and 1996.
The Company's contributions to the plan are made at the discretion of the
Board of Directors.
Union employees are covered by a retirement plan and a health and welfare
plan (collectively, the "Plans") determined through collective bargaining and
administered by the union. Contributions made by the Company to the Plans were
approximately $1,652,000, $1,742,000 and $2,048,000 for the years ended June
30, 1998, 1997 and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome
cannot presently be determined with certainty, the Company believes, with
advice from its legal counsel, that the ultimate liability associated with
such claims, if any, will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
In October 1997, the Company was named as a defendant in a lawsuit arising
out of electrical work performed by the Company as a sub-contractor. The
initial complaint filed against the general contractor for the project alleges
the system installed by the Company is defective. The Company denies any
responsibility for the claims on the basis that, among other things,
installation was in accordance with the approved plans and specifications of
the project. Prior to its acquisition by Nationwide, the Company entered into
mediation in an effort to settle the lawsuit. Based on a settlement offer made
during mediation of such lawsuit, the Company recorded a $1,200,000 liability
in September 1998 in accordance with the requirements of SFAS No. 5,
Accounting for Contingencies.
The Company is insured with respect to workers' compensation claims for all
employees; however, a deductible of $2,500 per employee, per year applies to
the coverage. The Company is partially self-insured with respect to health
insurance claims for administrative and office personnel, supplemented by
insurance coverage which limits the liability to $10,000 per employee, per
year.
13. STOCKHOLDERS' AGREEMENT
The Company has a right of first refusal on any stock voluntarily offered
for sale by a stockholder subject to certain terms and conditions. The
redemption price is determined based on the book value of common stock. Such
redemption price is payable in not more than 60 equal installments. As of June
30, 1998, the redemption price is approximately $174 per share.
Upon the death of any shareholder, the Company shall redeem the stock held
by such stockholder provided that the redemption is requested in writing by
the personal representative of the deceased. The redemption price is the same
as that described above. Such redemption price may be paid in full at the
closing or in installments.
F-48
<PAGE>
INDEPENDENT AUDITORS' REPORT
Henderson Electric Co., Inc.:
We have audited the accompanying consolidated balance sheets of Henderson
Electric Co., Inc. and subsidiaries (formerly HB Holding Company and
subsidiaries) (the "Company"), as of March 31, 1998 and 1997 and the related
consolidated statements of operations and retained earnings, and of cash flows
for each of the three years in the period ended March 31, 1998. 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 that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Henderson Electric Co., Inc.
and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 12, 1998
F-49
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
September 30, ------------------------
1998 1998 1997
------------- ----------- -----------
(unaudited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 367,845 $ 427,724 $ 661,684
Contract receivables, net............ 10,490,048 9,634,517 8,177,591
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... 3,148,929 1,366,891 1,662,353
Advances to stockholder.............. 597,653 1,956,200 9,014
Inventories.......................... 155,365 147,200 112,707
Deferred income taxes................ 263,900 322,400 125,133
Other current assets................. 116 1,050 1,050
----------- ----------- -----------
Total current assets............... 15,023,856 13,855,982 10,749,532
Property and equipment, net............ 1,969,711 1,955,916 1,806,651
Equity in contractor joint ventures.... -- 5,000 47,428
Due from related parties............... 1,422,512 -- 1,813,219
Cash surrender value of life insurance. 152,440 146,440 134,347
Deferred income taxes.................. 5,500 -- --
Other assets........................... 100,073 94,025 95,153
----------- ----------- -----------
Total................................ $18,674,092 $16,057,363 $14,646,330
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Line-of-credit....................... $ 900,000 $ 400,000 $ 800,000
Accounts payable..................... 4,037,527 4,009,326 3,655,303
Accrued expenses and other current
liabilities......................... 2,221,447 1,657,933 1,433,982
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 1,357,229 1,292,997 1,281,912
Current portion of long-term debt.... 219,477 278,490 253,748
----------- ----------- -----------
Total current liabilities.......... 8,735,680 7,638,746 7,424,945
Long-term debt, net of current portion. 336,202 368,632 513,623
Deferred income taxes.................. -- 53,000 27,881
Other long-term liabilities............ 150,000 150,000 --
----------- ----------- -----------
Total liabilities.................. 9,221,882 8,210,378 7,966,449
----------- ----------- -----------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY:
Common stock; $10 par value; 5,000
shares authorized; 2,734 shares
issued.............................. 27,340 27,340 27,340
Retained earnings.................... 9,652,870 8,047,645 6,880,541
Less treasury stock at cost, 456
shares.............................. (228,000) (228,000) (228,000)
----------- ----------- -----------
Total stockholders' equity......... 9,452,210 7,846,985 6,679,881
----------- ----------- -----------
Total.............................. $18,674,092 $16,057,363 $14,646,330
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-50
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Six Months
Ended September 30, March 31
------------------------ -------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenues....... $26,657,071 $20,828,110 $44,000,125 $36,408,787 $27,336,986
Costs of services....... 21,954,768 18,545,946 37,951,930 31,024,498 23,187,577
----------- ----------- ----------- ----------- -----------
Gross profit.......... 4,702,303 2,282,164 6,048,195 5,384,289 4,149,409
Selling, general and
administrative
expenses............... 2,256,990 1,849,826 4,375,844 3,439,467 3,230,624
----------- ----------- ----------- ----------- -----------
Operating income........ 2,445,313 432,338 1,672,351 1,944,822 918,785
----------- ----------- ----------- ----------- -----------
Interest and other
income (expense):
Interest income....... 44,317 37,986 165,883 109,114 85,824
Interest expense...... (33,341) (74,946) (114,907) (146,126) (145,141)
Income from joint
ventures............. 64,625 101,716 202,233 139,909 --
Gain on disposal of
partnership interest. -- -- -- 120,417 --
Other income, net..... 154,884 11,282 17,575 57,148 22,462
----------- ----------- ----------- ----------- -----------
230,485 76,038 270,784 280,462 (36,855)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 2,675,798 508,376 1,943,135 2,225,284 881,930
Income taxes............ 1,070,573 200,908 776,031 901,550 408,521
----------- ----------- ----------- ----------- -----------
Net income.............. 1,605,225 307,468 1,167,104 1,323,734 473,409
Retained earnings,
beginning of year...... 8,047,645 6,880,541 6,880,541 5,556,807 5,083,398
----------- ----------- ----------- ----------- -----------
Retained earnings, end
of year................ $ 9,652,870 $ 7,188,009 $ 8,047,645 $ 6,880,541 $ 5,556,807
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ended September 30, March 31
----------------------- -----------------------------------
1998 1997 1998 1997 1996
----------- ---------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 1,605,225 $ 307,468 $ 1,167,104 $ 1,323,734 $ 473,409
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation.......... 139,122 134,837 272,493 250,116 238,440
Loss (gain) on
disposal of assets... -- -- 3,216 10,185 (2,264)
Earnings from
partnerships......... -- -- -- (17,340) (28,986)
Gain on sale of
partnership
interests............ -- -- -- (120,417) --
Provision for deferred
income taxes......... -- -- (172,148) (2,565) (23,823)
Changes in operating
assets and
liabilities:
Contract receivables,
net................. (855,531) 973,204 (1,456,926) (3,294,492) 6,099
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (1,782,038) (816,181) 295,462 (665,172) (52,008)
Inventories.......... (8,165) (26,107) (34,493) 89,118 6,773
Equity in contractor
joint venture....... -- 37,757 42,428 (47,428) --
Accounts payable..... 28,201 (292,700) 354,023 1,373,800 (49,386)
Accrued expenses and
other current
liabilities......... 563,514 (825,300) 223,951 655,922 23,896
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 64,232 1,605,913 11,085 882,897 (89,961)
Other assets......... -- (2,941) 1,128 4,560 4,651
Other long-term
liabilities......... -- -- 150,000 -- --
----------- ---------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities......... (245,440) 1,095,950 857,323 442,918 506,840
----------- ---------- ----------- ----------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Due from related
parties, net.......... (64,081) (265,751) (133,967) (99,203) (262,432)
Purchases of property
and equipment......... (154,116) (215,186) (424,974) (419,943) (262,192)
Proceeds from sale of
property and
equipment............. 1,200 -- -- 1,000 14,900
Distributions from
partnerships.......... -- -- -- 22,060 96,051
Proceeds from sale of
partnerships.......... -- -- -- 273,505 --
Increase in cash
surrender value of
life insurance........ (6,000) (6,000) (12,093) (11,104) (8,231)
----------- ---------- ----------- ----------- ---------
Net cash used in
investing
activities......... (222,997) (486,937) (571,034) (233,685) (421,904)
----------- ---------- ----------- ----------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of long-term
debt.................. 50,124 139,728 170,289 225,044 122,842
Payments of long-term
debt.................. (141,566) (153,209) (290,538) (298,931) (236,205)
Net (payments)
borrowings on line-of-
credit................ 500,000 (400,000) (400,000) 100,000 (100,000)
----------- ---------- ----------- ----------- ---------
Net cash (used in)
provided by
financing
activities......... 408,558 (413,481) (520,249) 26,113 (213,363)
----------- ---------- ----------- ----------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (59,879) 195,532 (233,960) 235,346 (128,427)
Cash and cash
equivalents, beginning
of year................ 427,724 661,684 661,684 426,338 554,765
----------- ---------- ----------- ----------- ---------
Cash and cash
equivalents, end of
year................... $ 367,845 $ 857,216 $ 427,724 $ 661,684 $ 426,338
=========== ========== =========== =========== =========
CASH PAYMENTS FOR:
Interest............... $ 33,341 $ 74,946 $ 114,907 $ 146,126 $ 145,041
Income taxes........... $ 362,478 $ 978,200 $ 1,402,000 $ 448,000 $ 490,000
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--The accompanying consolidated
financial statements include the accounts of Henderson Electric Co., Inc.
("Henderson"), its wholly-owned subsidiary, Eagle Electrical Systems, Inc.
("Eagle") and its wholly-owned subsidiary, Henderson Property, Inc.
("Property"--see Note 15) (collectively referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated. The
accompanying unaudited consolidated financial statements have been prepared
according to generally accepted accounting principles for interim financial
information and include all adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash flows.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Results of operations for interim periods are not necessarily indicative of
results to be expected for a full year.
Effective December 31, 1997, HB Holding Company ("HB") was merged with
Henderson. Prior to the merger, Henderson, Eagle and Property were wholly-
owned subsidiaries of HB. This merger between parent and subsidiary has been
accounted for similar to a pooling-of-interests and accordingly, the
consolidated financial statements for all years presented have been restated
to reflect the merger.
The Company is a commercial and industrial electrical contractor with
offices in Louisville and Lexington, Kentucky and Cincinnati, Ohio. The
Company grants credit to most of their customers. The work is generally
performed under fixed-price contracts. The length of the Company's contracts
varies, but generally are less than one year.
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
disclosure 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.
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables--The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides
allowances for contract receivables it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of contract receivables that become
uncollectible could differ from those estimated.
Credit Policy--In the normal course of business, the Company provides credit
to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
local companies whose reputation is known to the Company. Advance payments and
progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if amounts owed are not paid on a timely basis.
Inventories--Inventories consist primarily of materials and supplies and are
valued at the lower of cost or market using the first-in, first-out method.
F-53
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Depreciation is recorded under the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Land improvements.......................................... 10 to 12 years
Buildings and improvements................................. 10 to 40 years
Furniture, fixtures and office equipment................... 3 to 10 years
Machinery and equipment.................................... 5 to 10 years
Service vehicles and trailers.............................. 3 to 10 years
</TABLE>
Depreciation expense was $272,493, $250,116 and $238,440 for the years ended
March 31, 1998, 1997 and 1996, respectively.
Revenue and Cost Recognition--Revenue from contracts is recognized under the
percentage of completion method measured by the ratio of direct costs and
overhead incurred to management's estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
engineering, supplies, tools, repairs and depreciation costs. Selling,
general, and administrative costs are charged to expense as incurred. Costs
for materials incurred at the inception of a project which are not reflective
of effort are excluded from costs incurred for purposes of determining revenue
recognition and profits.
Estimates made with respect to uncompleted projects are subject to change as
the project progresses and better estimates of project costs become available.
Revisions in cost and profit estimates during the course of the work are
reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion. Revenues from claims are
recorded only when the amounts have been received.
In 1998, a final contract settlement on a large contract resulted in
revisions to costs and revenue estimates. The revisions resulted in a loss of
$428,000 recognized in 1998 on this contract.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income Taxes--The Company reports income taxes pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences. Deferred tax assets are also recognized for
operating losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is provided if it
is more likely than not that some portion or all of the deferred tax assets
will not be realized.
The Company files consolidated Federal and Kentucky income tax returns with
its subsidiary Companies.
F-54
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets--The Company reviews long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum
of undiscounted estimated future cash flows expected to result from use of the
assets is less than the carrying value. No impairment has been recognized
through March 31, 1998.
New Accounting Pronouncements--In June 1997, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about
the Company's operating segments. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS Nos. 130
and 131 did not have any significant effect on its financial statements.
Reclassification--Certain amounts in the 1996 and 1997 financial statements
have been reclassified to conform to the 1998 presentation.
2. CONTRACT RECEIVABLES, net
Contract receivables consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Current accounts.................................... $8,243,177 $7,187,962
Retention........................................... 1,594,840 1,099,129
---------- ----------
Subtotal............................................ 9,838,017 8,287,091
Less allowance for doubtful accounts................ 203,500 109,500
---------- ----------
Contract receivables, net........................... $9,634,517 $8,177,591
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as net
balances in process as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts....... $ 23,677,317 $ 19,676,682
Estimated earnings............................ 1,795,679 3,280,286
------------ ------------
Total......................................... 25,472,996 22,956,968
Less billings to date......................... (25,399,102) (22,576,527)
------------ ------------
Net under billings............................ $ 73,894 $ 380,441
============ ============
</TABLE>
The net balances in process are classified on the balance sheet as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 1,366,891 $ 1,662,353
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (1,292,997) (1,281,912)
----------- -----------
Total..................................... $ 73,894 $ 380,441
=========== ===========
</TABLE>
F-55
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land and improvements........................... $ 244,601 $ 244,601
Buildings and improvements...................... 1,531,676 1,531,676
Furniture, fixtures and office equipment........ 656,801 821,583
Machinery and equipment......................... 1,121,835 1,060,745
Service vehicles and trailers................... 1,695,458 1,456,434
----------- -----------
Subtotal........................................ 5,250,371 5,115,039
Less accumulated depreciation................... (3,294,455) (3,308,388)
----------- -----------
Property and equipment, net..................... $ 1,955,916 $ 1,806,651
=========== ===========
</TABLE>
5. JOINT VENTURES AND PARTNERSHIPS
At March 31, 1998 and 1997, the Company has a minority interest (33%) in a
limited liability company joint venture formed to provide certain construction
contracting services to a large industrial customer. All of the members
participate in construction. Net assets and net earnings of the joint venture
are not material in 1998 or 1997. Contract revenues earned and gross profit
recognized by the Company related to services on contracts of the joint
venture were $1,640,000 and $111,700, respectively, in 1998 and $1,856,000 and
$168,550, respectively, in 1997. Receivables due from the joint venture at
March 31, 1998 and 1997 are $120,000 and $84,000, respectively.
At March 31, 1997, the Company had a 50% interest in a joint venture formed
to provide electrical contracting to a large industrial customer on a
contract. Contract revenues earned by the Company related to services on
contracts of the joint venture were $1,299,615 in 1997. Such services were
provided at cost. During 1998, the contract was completed and the joint
venture liquidated. The Company recognized earnings in the joint venture of
$202,233 and $139,909 in 1998 and 1997, respectively. Receivables due from the
joint venture at March 31, 1997 are $15,000.
During 1997 and 1996, Property held certain partnership interests in
companies which developed and leased commercial and residential property in
Louisville, Kentucky. During 1997 Property sold its interest in these
partnerships. Property recognized a gain on sale of partnership's interests of
$120,417 in 1997 and recognized earnings from partnership interests of $17,340
and $28,986 in 1997 and 1996, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
A summary of accrued expenses and other current liabilities is as follows:
<TABLE>
<CAPTION>
March 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Accrued payroll and related expenses............... $1,181,571 $ 742,822
Accrued income tax payable......................... 148,331 602,539
Other current liabilities.......................... 328,031 88,621
---------- ----------
Total.......................................... $1,657,933 $1,433,982
========== ==========
</TABLE>
F-56
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable--line-of-credit
Revolving line-of-credit; variable interest rate based on
prime rate (8.5% as of March 31, 1998 and 1997) plus .75%;
interest payable monthly; collateralized by contract
receivables, inventories and equipment...................... $400,000 $800,000
======== ========
Long-term debt
Installment notes payable; principal and interest from $216
to $1,041; payable over 36 to 48 months; interest rate 9.25%
to 10.0% as of March 31, 1998 and 1997; secured by vehicles. $286,207 $281,355
Mortgage note payable; interest and principal of $3,405
payable monthly; interest rate adjusts annually based on
average yield of 1-year U.S. Treasury Securities (5.25% and
5.5% as of March 31, 1998 and 1997, respectively) plus 3%;
collateralized by real estate in Cincinnati, Ohio; due April
2005........................................................ 216,915 238,416
Mortgage note payable; repaid in fiscal 1998................. -- 7,600
Mortgage note payable; principal of $8,000 payable monthly,
plus accrued interest; interest rate variable based on prime
rate (8.5% as of March 31, 1998 and 1997) plus 1.0%;
collateralized by real estate in Louisville, Kentucky; due
September 1999.............................................. 144,000 240,000
-------- --------
Total........................................................ 647,122 767,371
Less current portion......................................... 278,490 253,748
-------- --------
Total.................................................... $368,632 $513,623
======== ========
</TABLE>
The borrowing limit under the revolving line-of-credit agreement is
$1,500,000 as of March 31, 1998. The agreement expires on August 31, 1998. The
installment notes payable require the Company to maintain depository accounts
with the bank of at least 15% of the outstanding balance.
Aggregate annual maturities of long-term debt at March 31, 1998 are:
<TABLE>
<S> <C>
1999............................................................. $278,490
2000............................................................. 175,972
2001............................................................. 51,754
2002............................................................. 32,162
2003............................................................. 33,141
Thereafter....................................................... 75,603
--------
Total........................................................ $647,122
========
</TABLE>
8. INCOME TAXES
The Company's provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................. $ 805,950 $768,500 $367,500
State.................................... 142,229 135,615 64,844
--------- -------- --------
948,179 904,115 432,344
--------- -------- --------
Deferred................................... (172,148) (2,565) (23,823)
--------- -------- --------
Total.................................. $ 776,031 $901,550 $408,521
========= ======== ========
</TABLE>
F-57
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate.............................. 34.0% 34.0% 34.0%
State tax, net of federal benefit....................... 5.3 4.0 5.7
Prior year's taxes...................................... -- -- 5.4
Other................................................... 0.8 2.5 1.2
---- ---- ----
Effective rate.......................................... 40.1% 40.5% 46.3%
==== ==== ====
</TABLE>
Components of the Company's deferred income tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current deferred income tax assets:
Allowance for doubtful accounts.................... $ 79,400 $ 42,705
Vacation accrual................................... 67,800 60,708
Workers compensation............................... 97,200 21,720
Contributions...................................... 78,000 --
-------- --------
Total............................................ 322,400 125,133
-------- --------
Long-term deferred income tax liabilities--
Depreciation........................................ (53,000) (27,881)
-------- --------
Net deferred income tax asset........................ $269,400 $ 97,252
======== ========
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
notes receivable from related parties, notes payable, and current and long-
term debt. The carrying value of cash and cash equivalents approximates fair
value because of their short duration. The carrying value of debt approximates
their fair value based on current rates for borrowings of similar quality and
terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Kentucky and Ohio
markets. The Company believes this concentration of credit risk is mitigated
by the diversity of industries represented by the Company's customer base.
10. CONCENTRATION OF RISK
The Company grants credit, generally without collateral, to its customers,
which are usually general contractors located in the Louisville and Lexington,
Kentucky and Cincinnati, Ohio areas. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors
within these areas. However, management believes that its contract acceptance,
billing and collection policies are adequate to minimize the potential credit
risk.
11. EMPLOYEE RETIREMENT PLAN
Qualified executives, office employees, and qualifying non-union
electricians of the Company are included in a modified defined contribution
plan. Company contributions under the plan are determined annually by the
Board of Directors with the minimum allowable contribution being the greater
of 3% of
F-58
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
gross eligible wages or 25 cents per active hour of service. Contributions of
$259,000, $144,682 and $132,376 were made for the years ended March 31, 1998,
1997 and 1996, respectively. Union employees are covered by a retirement plan
determined through collective bargaining and administered by the union.
Contributions made by the Company were $1,640,500, $1,258,066 and $750,652 in
1998, 1997 and 1996, respectively.
12. RELATED PARTY TRANSACTIONS
Amounts due from related parties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Notes receivable and advances to shareholders... $ 1,926,465 $1,786,671
Notes receivable and advances to employees...... 29,735 35,562
----------- ----------
Total due from related parties.................. 1,956,200 1,822,233
Less current portion............................ (1,956,200) (9,014)
----------- ----------
Total....................................... $ -- $1,813,219
=========== ==========
</TABLE>
The notes and advances to shareholders consist of amounts due from the two
shareholders of the Company and amounts due from entities which they own. The
advances are unsecured and bear interest, generally at 5.85% and 5.77% in 1998
and 1997, respectively. These advances are payable on demand.
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in a claim related to a fire loss incurred to a
building for which the Company performed electrical contract services. The
plaintiffs are seeking damages of approximately $2.4 million. The Company
maintains general liability and umbrella policy coverage in excess of the
claim. The Company believes the policies are sufficient to cover all damages
alleged. The Company and their insurance carrier are vigorously defending this
claim. Management does not believe the ultimate resolution of this claim will
have a material adverse effect to the Company's financial position or results
of operations.
The Company is party to various other litigation matters involving routine
claims incidental to the business of the Company. Although the ultimate
outcome cannot presently be determined with certainty, the Company believes,
with advice from its legal counsel, that the ultimate liability associated
with such claims, if any, will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.
The Company is self-insured with respect to workers' compensation claims for
all Kentucky employees, supplemented by insurance coverage which limits the
Company's liability per occurrence. The excess insurance provides coverage in
excess of the limit of the Company's liability per occurrence, which is
$275,000. The financial statements include an accrual for the estimated amount
of unsettled worker's compensation claims. This estimate is based, in part, on
an evaluation of information provided by the Company's third-party
administrator, and represents management's best estimate of the Company's
future liability. As of March 31, 1998, the Company has an outstanding letter
of credit in the amount of $732,000 provided to the State of Kentucky Workers'
Compensation Board related to the self-insured workers' compensation plan.
During fiscal year 1998, the Company has pledged $250,000 to the University
of Louisville to establish a scholarship endowment. This amount is included in
the statement of operations, and is payable in annual installments of $50,000.
The first installment was made during fiscal year 1998. As of March 31, 1998,
$150,000 is included as other long-term liabilities and the remaining $50,000
is included in accrued expenses and other current liabilities.
F-59
<PAGE>
HENDERSON ELECTRIC CO., INC. AND SUBSIDIARIES
(formerly HB Holding Company and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
14. STOCKHOLDER'S AGREEMENT
The Company has a right of first refusal on any stock voluntarily offered for
sale by a stockholder subject to certain terms and conditions. The redemption
price shall be as determined either through agreement of the parties, or by a
formula defined in the stockholder's agreement. Upon the death of any
stockholder, the Company shall redeem the stock held by such stockholder
provided that the redemption is requested in writing by the personal
representative of the deceased. The redemption price pursuant to the agreement
is the same as described above.
* * * * * *
F-60
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus in connection with the offer made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any of the
Underwriters. Neither the delivery of this prospectus nor any sale made here-
under shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the dates as of which in-
formation is given in this Prospectus. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which such offer or so-
licitation is not authorized or in which the person making such offer or so-
licitation is not qualified to do so or to any person to whom it is unlawful
to make such solicitation.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Historical and Pro Forma Financial Data.......................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 34
Management................................................................ 44
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 51
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 57
Legal Matters............................................................. 58
Experts................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>
------------
Until , 1999 (25 days after the date of this Prospectus), all deal-
ers effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 Shares
[logo]
NATIONWIDE ELECTRIC, INC.
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
Piper Jaffray Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the Company in connection with the issuance
and distribution of the Common Stock being registered:
<TABLE>
<CAPTION>
Item Amount
---- -------
<S> <C>
Securities and Exchange Commission Registration Fee.............. $22,652
NASD Filing fee.................................................. *
NYSE Listing Fee................................................. *
Printing Costs................................................... *
Legal Fees and Expenses.......................................... *
Accounting fees and Expenses..................................... *
Transfer Agent and Registrar Fees and Expenses................... *
Miscellaneous.................................................... *
-------
Total........................................................ *
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
II-1
<PAGE>
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because the person has met the applicable
standard of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person against
such liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
II-2
<PAGE>
Amended and Restated Certificate of Incorporation and Bylaws, and
Indemnification Agreements
The Amended and Restated Certificate of Incorporation limits the liability
of directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. Specifically, directors of the Company will
not be personally liable to the Company or its stockholders for monetary
damages for breach of a director's fiduciary duty as a director, except for
liability for breach of the duty of loyalty, for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL or for any transaction in
which a director has derived an improper personal benefit.
The Company's Amended and Restated Bylaws require the Company to indemnify
any person who is a party or is threatened to be made a party to any action,
suit or proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the Company, or is serving as a
director, officer, employee or agent of another enterprise at the Company's
request. Indemnification is not, however, permitted under the Amended and
Restated Bylaws unless the person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the Company's best
interests and, with respect to any criminal action or proceeding, that such
person had no reasonable cause to believe such person's conduct was unlawful.
The Company's Amended and Restated Bylaws further provide that the Company
shall not indemnify any person for any liabilities or expenses incurred by
such person in connection with an action, suit or proceeding by or in the
right of the Company in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Company, unless and only
to the extent that the court in which the action, suit or proceeding is
brought determines that the person is entitled to indemnity for such expenses.
The indemnification provided by the Amended and Restated Bylaws is not
exclusive of any other rights to which those seeking indemnification may be
otherwise entitled.
The Company has entered into indemnification agreements (the "Agreements")
with each of the Company's directors and officers. The Agreements provide that
the Company will indemnify the directors and officers against all liabilities
and expenses actually and reasonably incurred in connection with any action,
suit or proceeding (including an action by or in the right of the Company) to
which any of them is, was or at any time becomes a party, or is threatened to
be made a party, by reason of their status as a director or officer of the
Company, or by reason of their serving or having served at the request or on
behalf of the Company as a director, officer, trustee or in any other
comparable position of any other enterprise to the fullest extent allowed by
law. No indemnity is provided under the Agreements for any amounts for which
indemnity is provided by any other indemnification obligation or insurance
maintained by the Company or another enterprise or otherwise. Nor is indemnity
provided to any director or officer on account of conduct which is finally
adjudged by a court to have been knowingly fraudulent, deliberately dishonest
or a knowing violation of law. In addition, no indemnification is provided if
a final court adjudication shall determine that such indemnification is not
lawful, or in respect to any suit in which judgment is rendered against any
director or officer for an accounting of profits made from a purchase or sale
of securities of the Company in violation of Section 16(b) of the Securities
Exchange Act of 1934 or of any similar law, or on account of any remuneration
paid to any director or officer which is adjudicated to have been paid in
violation of law.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company has obtained liability insurance for the benefit of its
directors and officers.
II-3
<PAGE>
Item 15. Recent Sales of Unregistered Securities
The following information relates to securities issued or sold by the
Company since its inception:
On March 17, 1998, Nationwide issued and sold 350 shares of Common Stock to
KLT Energy Services, Inc. for consideration of $35,000. This sale was exempt
from registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On March 17, 1998, Nationwide issued and sold 300 shares of Class A
Nonvoting Common Stock to KLT Energy Services, Inc. for consideration of
$30,000. This sale was exempt from registration under Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder, no public offering
being involved.
On March 17, 1998, Nationwide issued and sold 350 shares of Common Stock to
Reardon Capital, LLC for consideration of $35,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
Effective March 24, 1998, Nationwide effected a 333.33-to-1 stock split of
the shares of Common Stock outstanding as of March 24, 1998.
Effective March 24, 1998, Nationwide effected 333.33-to-1 stock split of the
shares of Class A Nonvoting Common Stock outstanding as of March 24, 1998.
On April 6, Nationwide sold 950,000 shares of Common Stock to Galt
Financial, Inc. for consideration of $285,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 100,000 shares of Common Stock to
Frederick C. Green IV for consideration of $30,000. This sale was exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 60,000 shares of Common Stock to Frank R.
Clark for consideration of $18,000. This sale was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder, no public offering being involved.
On April 14, 1998, Nationwide sold 40,000 shares of Common Stock to David
Smith for consideration of $12,000. This sale was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder, no public offering being involved.
On April 14, Nationwide sold 100,000 shares of Common Stock to John Wood for
consideration of $30,000. This sale was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no public
offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Andrew V. Johnson
for consideration of $1,500. This sale was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no
public offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Robert H. Hoffman
for consideration of $1,500. This sales was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no
public offering being involved.
On May 31, Nationwide sold 5,000 shares of Common Stock to Wade C. Lau for
consideration of $1,500. This sale was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder, no public
offering being involved.
II-4
<PAGE>
Nationwide issued 2,310,000 shares of Common Stock to KLT Energy Services,
Inc and Reardon Capital, LLC, and 990,000 shares of Class A Nonvoting Common
Stock and 6,000 shares of Redeemable Preferred Stock to KLT Energy Services,
Inc., pursuant to that certain Agreement and Plan of Merger among the Company,
Galt Financial, Inc., KLT Energy Services, Inc. and Reardon Capital, LLC dated
May 23, 1998. This issue was exempt from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder, no public offering
being involved. Nationwide also cancelled 950,000 shares of Class A Nonvoting
Common Stock previously sold to Galt Financial, Inc. in connection with the
foregoing stock issuances.
On October 22, 1998, the Company issued 975,397 shares of its Common Stock
in connection with the Acquisitions based on a price of $12.00 per share. Such
number of shares shall be adjusted proportionately if the initial public
offering price is below $12.00 per share. Each of these transactions were
exempt from registration under the Securities Act under Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder, no public offering
being involved.
On October 22, 1998, Nationwide issued 1,000,000 shares of Class B Nonvoting
Common Stock and 500,000 shares of Series B Convertible Preferred Stock to KLT
Energy Services, Inc. for consideration of $18 million. The shares of Class B
Nonvoting Common Stock issued to KLT are convertible into an equal number of
shares of Common Stock, except that each number of shares shall be increased
proportionately if the initial public offering price (net of underwriting
discounts and commissions) is less than $12.00 per share. This issue was
exempt from registration under Section 4(2) of the Securities Act of Rule 506
of Regulation D thereunder, no public offering being involved.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1* Agreement and Plan of Merger dated as of June 12, 1998 between
Nationwide Electric, Inc. and Henderson Electric Company, Inc. and
its Shareholders
2.2* Stock Purchase Agreement dated as of June 12, 1998 between
Nationwide Electric, Inc. and The Allison Company and its
Shareholders and Allison-Smith Electric Company, Inc.
2.3* First Amendment to Agreement and Plan of Merger
2.4* First Amendment to Stock Purchase Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
3.3* Certificate of Designation, Preferences and Rights of Series A
Nonvoting Convertible Preferred Stock
3.4* Certificate of Amendment of Amended and Restated Certificate of
Incorporation
3.5* Certificate of Correction of Amended and Restated Certificate of
Incorporation
3.6* Certificate of Amendment of Certificate of Designation,
Preferences and Rights of Series A Nonvoting Convertible Preferred
Stock
3.7* Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock
4.1* Form of Common Stock Certificate
4.2* Shareholder Agreement dated as of April 14, 1998 by and among
Nationwide Electric, Inc. and KLT Energy Services Inc., Frederick
C. Green IV, Frank R. Clark, David Smith, John Wood and Reardon
Capital LLC
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------------------------------------------------------------
<C> <S>
5.1 Form of Opinion of Stinson, Mag & Fizzell, P.C.
10.1* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and Frederick C. Green IV
10.2* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and David Smith
10.3* Employment Agreement dated as of April 1, 1998 between Nationwide
Electric, Inc. and Frank R. Clark
10.4* Non-Qualified Stock Option Plan
10.5* Incentive Stock Option Plan
10.6* Executive Stock Purchase Plan
10.7* Form of Indemnification Agreement (and list of parties to such
agreement)
10.8* Restricted Stock Purchase Agreement dated as of April 7, 1998
between Nationwide Electric, Inc. and Frederick C. Green IV
10.9* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and David Smith
10.10* Restricted Stock Purchase Agreement dated as of April 1, 1998
between Nationwide Electric, Inc. and Frank R. Clark
10.11* Credit Agreement among Nationwide Electric, Inc., as Borrower,
Various Financial Institutions and Norwest Bank, Minnesota, N.A.
10.12* Security Agreement (Nationwide Electric, Inc.)
10.13* Security Agreement (The Allison Company)
10.14* Security Agreement (Allison-Smith Company)
10.15* Security Agreement (Henderson Electric Co., Inc.)
10.16* Security Agreement (Eagle Electric Holdings, Inc.)
10.17* Security Agreement (Eagle Electric Holdings, Inc.)
10.18* Security Agreement (Eagle Electrical Systems, Inc.)
10.19* Security Agreement (Parsons Electric Co.)
10.20* Security Agreement (Parsons Electric Holdings, Inc.)
10.21* Guaranty by Corporation (The Allison Company)
10.22* Guaranty by Corporation (Allison-Smith Company)
10.23* Guaranty by Corporation (Henderson Electric Co., Inc.)
10.24* Guaranty by Corporation (Eagle Electric Holdings, Inc.)
10.25* Guaranty by Corporation (Eagle Electric Holdings, Inc.)
10.26* Guaranty by Corporation (Eagle Electrical Systems, Inc.)
10.27* Guaranty by Corporation (Parsons Electric Co.)
10.28* Guaranty by Corporation (Parsons Electric Holdings, Inc.)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------------------------------------------------
<C> <S>
10.29* Collateral Pledge Agreement (The Allison Company)
10.30* Collateral Pledge Agreement (Eagle Electric Holdings, Inc.)
10.31* Collateral Pledge Agreement (Parsons Electric Holdings, Inc.)
10.32* First Amendment to Credit Agreement
21.1* Subsidiaries
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of McGladrey & Pullen, LLP, independent auditors
23.3 Consent of Stinson, Mag & Fizzell, P.C. (contained in Exhibit 5.1)
23.4* Consent of Frederick C. Green IV
23.5* Consent of Wade C. Lau
23.6* Consent of Robert B. Allison
24.1* Power of Attorney (included on page II-8)
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes
thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by the director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Nationwide Electric, Inc.
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Kansas City, State of Missouri, on February 8, 1999.
Nationwide Electric, Inc.
/s/ Gregory J. Orman
By: _________________________________
Gregory J. Orman
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1993, as amended, this
Amendment No. 4 to Registration Statement has been signed by the following
persons in the capacities indicated on February 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman of the Board and Director
___________________________________________
Gregory J. Orman
* President, Chief Executive Officer and
___________________________________________ Director Nominee
Frederick C. Green, IV
* Vice President, Chief Financial Officer,
___________________________________________ Secretary and Treasurer
Frank R. Clark
* Director
___________________________________________
Andrew V. Johnson
* Director
___________________________________________
Robert H. Hoffman
* Director
___________________________________________
Bernard J. Beaudoin
* Director
___________________________________________
Ronald G. Wasson
</TABLE>
/s/ Gregory J. Orman
*By__________________________________
Gregory J. Orman
Attorney-in-fact
II-8
<PAGE>
Exhibit 5.1
[LOGO OF STINSON, MAG & FIZZELL]
February 8, 1999
Nationwide Electric, Inc.
1201 Walnut Street
Suite 1300
Kansas City, Missouri 64106
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 of Nationwide Electric,
Inc., a Delaware corporation (the "Company"), filed with the Securities and
Exchange Commission (File No. 333-57013) (the "Registration Statement") for the
purposes of registering under the Securities Act of 1933, as amended, up to
4,000,000 shares (and up to an additional 600,000 shares to cover Underwriters'
overallotments) of the Company's Common Stock, par vale $.01 per share (the
"Shares") to be offered by the Company in an initial public offering (the
"Offering").
We have examined the Amended and Restated Certificate of Incorporation, the
Amended and Restated Bylaws of the Company, as currently in effect, minutes of
the applicable meetings of the board of directors and stockholders of the
Company, together with such other corporate records, certificates of public
officials and other documents as we have deemed relevant to this opinion.
Based solely upon the foregoing, it is our opinion that the Shares to be
issued in the Offering will, when sold, be legally issued, fully paid and
nonassessable.
<PAGE>
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus which constitutes a part of such Registration
Statement. We also consent to the inclusion of this opinion in the Registration
Statement as an exhibit thereto.
Very truly yours,
STINSON, MAG & FIZZELL, P.C.
By /s/ John Granda
--------------------------
John A. Granda
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-57013 of Nationwide Electric, Inc. of our report dated February 5, 1999
related to the consolidated financial statements of Nationwide Electric, Inc.
and subsidiaries, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-57013 of Nationwide Electric, Inc. of our report dated August 21, 1998
related to the consolidated financial statements of The Allison Company and
subsidiary, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
We consent to the use in this Amendment No. 4 to Registration Statement No. 333-
57013 of Nationwide Electric, Inc. of our report dated June 12, 1998 related to
the consolidated financial statements of Henderson Electric Co., Inc. and
subsidiaries, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
February 8, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
Amendment #4 of our report dated June 10, 1998, related to the financial
statements of Parsons Electric Co. We also consent to the reference to our Firm
under the caption "Experts" in the Prospectus.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 8, 1999
