<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 18, 2000
------------------------
SPECTRASITE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
------------------------
<TABLE>
<S> <C>
0-27217 56-2027322
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
100 REGENCY FOREST DRIVE
SUITE 400
CARY, NORTH CAROLINA 27511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
------------------------
(919) 468-0112
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
On September 2, 1999, SpectraSite Holdings, Inc. acquired Westower
Corporation in a merger transaction. This Form 8-K is being filed solely for the
purpose of providing historical financial statements of Westower Corporation and
certain predecessor entities and certain unaudited pro forma financial data for
the year ended December 31, 1999.
(a) Financial statements of businesses acquired.
Unaudited consolidated financial statements of Westower Corporation as
of September 30, 1998 and for the seven months then ended.
Consolidated financial statements of Westower Corporation as of
February 28, 1997 and February 28, 1998 and for the three years ended
February 28, 1998.
Financial statements of Cord Communications, Inc. as of June 30, 1998
and for the two years ended June 30, 1998.
Financial statements of Summit Communications, LLC as of December 31,
1997 and for the period from May 24, 1997 (inception) to December 31,
1997.
(b) Pro forma financial information.
Unaudited pro forma statement of operations data for the year ended
December 31, 1999 reflecting the Westower merger and certain other
transactions as if such transactions had occurred on January 1, 1999.
(c) Exhibits.
None
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WESTOWER CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at September 30, 1998
and June 30, 1999 (unaudited)............................. F-3
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended June 30, 1999 and
1998...................................................... F-4
Unaudited Condensed Consolidated Statements of Stockholders'
Equity for the nine months ended June 30, 1999............ F-5
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1999 and 1998.......... F-6
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-7
Report of Independent Accountants........................... F-14
Independent Auditors' Reports............................... F-15
Consolidated Balance Sheets as of February 28, 1997 and 1998
and September 30, 1998.................................... F-17
Consolidated Statements of Income for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-18
Consolidated Statements of Stockholders' Equity for the
years ended February 29, 1996, February 28, 1997 and 1998
and for the seven months ended September 30, 1998......... F-19
Consolidated Statements of Cash Flows for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-20
Notes to Consolidated Financial Statements.................. F-21
CORD COMMUNICATIONS, INC.
Report of Independent Auditors.............................. F-41
Balance Sheets as of June 30, 1998 and 1997................. F-42
Statements of Operations for the years ended June 30, 1998
and 1997.................................................. F-43
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended June 30, 1998 and 1997.................... F-44
Statements of Cash Flows for the years ended June 30, 1998
and 1997.................................................. F-45
Notes to Financial Statements............................... F-46
SUMMIT COMMUNICATIONS, LLC
Reports of Independent Accountants.......................... F-54
Balance Sheets as of December 31, 1997 and September 30,
1998...................................................... F-56
Statements of Income for the period from May 24, 1997
(Inception) to December 31, 1997 and for the nine months
ended September 30, 1998.................................. F-57
Statement of Members' Equity for the period from May 24,
1997 (Inception) to December 31, 1997 and for the nine
months ended September 30, 1998........................... F-58
Statements of Cash Flows for the period from May 24, 1997
(Inception) to December 31, 1997 and for the nine months
ended September 30, 1998.................................. F-59
Notes to Financial Statements............................... F-60
UNAUDITED PRO FORMA FINANCIAL DATA
Unaudited Pro Forma Financial Data.......................... P-1
Pre-Merger SpectraSite Holdings, Inc. ...................... P-3
</TABLE>
F-1
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Westower Corporation and Subsidiaries....................... P-5
Post-Merger SpectraSite Holdings, Inc. ..................... P-7
</TABLE>
F-2
<PAGE> 5
WESTOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30,1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 4,204,000 $ 9,331,000
Accounts receivable, net.................................. 20,506,000 13,289,000
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 6,758,000 5,078,000
Inventory................................................. 3,133,000 2,151,000
Related party advances and receivables.................... 419,000 956,000
Income tax receivable..................................... 220,000 220,000
Other current assets...................................... 1,744,000 1,203,000
------------ -----------
Total current assets................................... 36,984,000 32,228,000
PROPERTY AND EQUIPMENT, net................................. 50,217,000 7,574,000
INTANGIBLE ASSETS, net...................................... 26,992,000 19,721,000
OTHER ASSETS................................................ 6,139,000 2,771,000
------------ -----------
TOTAL ASSETS................................................ $120,332,000 $62,294,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................... $ 8,374,000 $ 7,053,000
Other current liabilities................................. 1,909,000 2,810,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,586,000 1,435,000
Income taxes payable...................................... 2,450,000 2,116,000
Deferred income taxes..................................... 395,000 428,000
Stockholder advances and notes payable to related
parties................................................ 154,000 228,000
Note payable.............................................. 68,000 1,089,000
Current portion of long-term debt and capital lease
obligations............................................ 1,576,000 2,419,000
------------ -----------
Total current liabilities......................... 16,512,000 17,578,000
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, excluding
current portion........................................... 57,059,000 14,991,000
DEFERRED INCOME TAXES....................................... 2,977,000 2,962,000
------------ -----------
Total liabilities................................. 76,548,000 35,531,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 25,000,000 and 10,000,000
shares authorized, 8,562,000 and 7,047,000 shares
issued and outstanding at June 30, 1999 and September
30, 1998, respectively)................................ 85,000 70,000
Additional paid-in-capital................................ 39,818,000 22,610,000
Accumulated other comprehensive loss...................... (237,000) (581,000)
Retained earnings......................................... 4,118,000 4,664,000
------------ -----------
Total stockholders' equity........................ 43,784,000 26,763,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $120,332,000 $62,294,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 6
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CONTRACT AND OTHER REVENUES
EARNED........................... $25,184,000 $12,637,000 $ 68,455,000 $35,995,000
COSTS OF REVENUES EARNED (exclusive
of depreciation shown below)..... 17,688,000 9,609,000 48,418,000 26,659,000
----------- ----------- ------------- -----------
Gross profit (exclusive of
depreciation)................. 7,496,000 3,028,000 20,037,000 9,336,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 5,128,000 1,640,000 13,385,000 4,827,000
DEPRECIATION AND AMORTIZATION...... 1,078,000 146,000 2,537,000 407,000
MERGER RELATED EXPENSES............ 1,519,000 250,000 1,596,000 250,000
----------- ----------- ------------- -----------
OPERATING INCOME (LOSS)............ (229,000) 992,000 2,519,000 3,852,000
OTHER INCOME (EXPENSE)
Other income (expense)........... (53,000) 41,000 220,000 157,000
Interest income.................. 21,000 75,000 152,000 187,000
Interest and financing expense... (928,000) (31,000) (2,051,000) (103,000)
----------- ----------- ------------- -----------
Total other income
(expense).............. (960,000) 85,000 (1,679,000) 241,000
----------- ----------- ------------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES..................... (1,189,000) 1,077,000 840,000 4,093,000
PROVISION FOR INCOME TAXES......... (503,000) (213,000) (1,386,000) (1,270,000)
----------- ----------- ------------- -----------
NET INCOME (LOSS).................. $(1,692,000) $ 864,000 $ (546,000) $ 2,823,000
=========== =========== ============= ===========
EARNINGS (LOSS) PER SHARE:
BASIC.............................. $ (0.20) $ 0.14 $ (0.07) $ 0.46
=========== =========== ============= ===========
DILUTED............................ $ (0.20) $ 0.13 $ (0.07) $ 0.39
=========== =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 7
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) INCOME (LOSS) TOTAL
--------- ------- ----------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30,
1998.................. 7,047,000 $70,000 $22,610,000 $4,664,000 $(581,000) $26,763,000
Net loss................ (546,000) $(546,000)
Foreign currency
translation
adjustment............ 344,000 344,000
---------
Total comprehensive
loss.............. $(202,000) (202,000)
=========
Proceeds from warrants
and options exercised,
net................... 1,112,000 11,000 8,868,000 8,879,000
Stock issuances for
business
acquisitions.......... 403,000 4,000 8,280,000 8,284,000
Stock compensation
expense............... 60,000 60,000
--------- ------- ----------- ---------- --------- -----------
BALANCE, June 30,
1999.................. 8,562,000 $85,000 $39,818,000 $4,118,000 $(237,000) $43,784,000
========= ======= =========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 8
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (546,000) $ 2,823,000
Adjustments to reconcile net income(loss) to net cash from
operating activities
Depreciation and amortization............................. 2,537,000 407,000
Gain on sale of assets.................................... (125,000)
Non-cash interest and financing expense................... 361,000 142,000
Earnings from equity investment........................... (142,000)
Stock compensation expense................................ 60,000 55,000
Changes in operating assets and liabilities, net of effect
of acquisitions
Accounts receivable....................................... (3,609,000) (646,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. (1,680,000) (1,138,000)
Inventory and other current assets........................ (1,333,000) (867,000)
Other assets.............................................. 13,000
Trade accounts payable.................................... 647,000 109,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 151,000 141,000
Other current liabilities................................. (1,023,000) 19,000
Income taxes payable...................................... 334,000 1,280,000
Current and deferred income taxes......................... (18,000) (57,000)
------------ -----------
Net cash flows (used in) provided by operating
activities............................................. (4,261,000) 2,156,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired.......... (6,583,000) (1,474,000)
Increase in other assets.................................. (2,700,000)
Purchases of property and equipment....................... (37,422,000) (1,405,000)
Proceeds from sale of assets.............................. 302,000
------------ -----------
Net cash flows used in investing activities............... (46,705,000) (2,577,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances, net........................ 8,878,000 8,934,000
Redemption of preferred stock............................. (150,000)
Proceeds from long-term debt.............................. 1,207,000 15,884,000
Repayments to related parties............................. (2,080,000) (1,972,000)
Repayments from (advances to) related parties............. 696,000 (101,000)
Borrowings (repayments) on line of credit, net............ (1,871,000) (245,000)
Proceeds from credit facility............................. 41,600,000
Distributions to stockholders of acquired subsidiaries
prior to acquisition................................... (2,800,000)
Additions to financing costs.............................. (490,000) (349,000)
Repayments of long-term debt.............................. (2,140,000) (476,000)
------------ -----------
Net cash flow from financing activities................... 45,800,000 18,725,000
------------ -----------
EFFECT OF EXCHANGE RATES.................................... 39,000 28,000
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (5,127,000) 18,332,000
CASH AND CASH EQUIVALENTS, beginning of period.............. 9,331,000 1,748,000
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,204,000 $20,080,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 9
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
Westower Corporation (the "Company") designs, builds and maintains wireless
communications transmitting and receiving facilities for providers of wireless
communications services. The Company also owns and leases communications towers.
The Company operates throughout the U.S. and Canada.
The unaudited condensed consolidated financial statements and notes thereto
at June 30, 1999 and September 30, 1998 (audited), and for the three and nine
months ended June 30, 1999 and 1998, reflect the October 28, 1997 merger with
Western Telecom Construction Ltd., an Alberta corporation, the May 29, 1998
merger with MJA Communications Corp., a Florida corporation, and the August 31,
1998 merger with Standby Services, Inc., a Texas corporation. All companies
design, fabricate and construct wireless transmitting and receiving facilities
and shelters for communications providers. The Company issued 835,000 shares of
its common stock for all the common shares of Western Telecom Construction Ltd.,
397,000 shares of its common stock for all of the common shares of MJA
Communications Corp., and 544,000 shares of its common stock for all of the
common shares of Standby Services, Inc. All of these mergers were accounted for
as a pooling-of-interests.
On October 27, 1998, the Company changed its fiscal year-end from February
28 to September 30. All prior information has been restated to conform with a
September 30 year end.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements or those normally
reflected in the Company's Annual Report on Form 10-KSB. The financial
information included herein reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of results for interim periods. Results of interim periods are
not necessarily indicative of the results to be expected for a full year. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements for the seven-month
Transition Period ended September 30, 1998 and the notes thereto included in the
Company's Form 10-KSB.
CONSOLIDATION--The consolidated financial statements include the accounts
of the Company and its wholly owned domestic and Canadian subsidiaries.
Investments in subsidiaries in which the Company exercises significant influence
but which it does not control are accounted for using the equity method.
Investment in a 60% owned affiliated company is accounted for on the equity
method of accounting. The Company's equity (loss) earnings from this investment
during the three and nine months ended June 30, 1999 was $(83,000) and $142,000,
respectively, which has been included in other income. All material intercompany
accounts and transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION--All asset and liability accounts of Canadian
operations are translated into U.S. dollars at current exchange rates. Revenues
and expenses are translated using the average exchange rate during the period.
Foreign currency translation adjustments are reported as a component of
comprehensive income and stockholders' equity in the consolidated balance sheet.
Exchange gains and losses from foreign currency transactions are included in
income currently.
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 amounts reported in the unaudited
condensed consolidated financial statements. Examples of estimates subject to
possible revision based upon the outcome of future events include costs and
estimated earnings on uncompleted contracts, depreciation of property and
equipment, accrued income tax liabilities, and purchase price allocations for
acquisitions. Actual results could differ from those estimates.
F-7
<PAGE> 10
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECLASSIFICATION--Certain prior year amounts have been reclassified to
conform to the current year presentation and did not impact previously reported
stockholders' equity or cash flow.
NOTE 2--INVENTORY
Inventory is stated at the lower of cost and estimated net realizable value
using the first-in, first-out method. Inventory consists of materials purchased
for future construction not associated with specific jobs.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
<S> <C> <C>
Buildings....................................... $ 1,883,000 $ 1,795,000
Vehicles........................................ 4,016,000 2,540,000
Equipment....................................... 2,851,000 1,580,000
Communications towers........................... 37,479,000 1,401,000
Furniture and fixtures.......................... 1,840,000 943,000
Leasehold improvements.......................... 161,000 81,000
Construction in progress........................ 3,534,000
----------- -----------
51,764,000 8,340,000
Less accumulated depreciation and
amortization.................................. (2,878,000) (1,562,000)
----------- -----------
48,886,000 6,778,000
Land............................................ 1,331,000 796,000
----------- -----------
$50,217,000 $ 7,574,000
=========== ===========
</TABLE>
In February 1999, the Company completed the acquisition of certain
communications towers under contract in December 1998, at an aggregate cost of
approximately $17 million. In May 1999, the Company completed the acquisition of
certain communications towers under contract in October 1998, at an aggregate
cost of approximately $15.5 million.
NOTE 4--ACQUISITIONS
During the nine months ended June 30, 1999, the Company consummated the
following transactions which were accounted for under the purchase method of
accounting, and accordingly, the operating results of the acquired entities have
been included in the consolidated operating results since the date of
acquisition.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging approximately 188,000 shares of common stock valued at approximately
$3.8 million, based on the publicly traded price, $1.8 million in cash,
including distributions payable to former shareholders in the amount of
$800,000, and the assumption of certain liabilities, for all outstanding shares
of Teletronics. The acquisition was accounted for using the purchase method for
business combinations resulting in goodwill of approximately $5.0 million.
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The acquisition was
effected by exchanging approximately 200,000 shares of common stock valued at
approximately $4.1 million, based on the publicly traded price, $4.4 million in
cash, and the assumption of certain liabilities, for all membership interests in
Summit. The former members of Summit may also receive
F-8
<PAGE> 11
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an additional 100,000 shares of common stock, based on certain performance
criteria during the three years following the date of acquisition. The
acquisition was accounted for using the purchase method for business
combinations resulting in goodwill of approximately $8.0 million.
On February 4, 1999 the Company completed the acquisition of Cypress Real
Estate Services, Inc. ("Cypress"), a Florida corporation. The acquisition was
effected by exchanging approximately 15,000 shares of common stock valued at
approximately $424,000, based on the publicly traded price, for all outstanding
shares of Cypress. The former shareholder of Cypress may also receive additional
shares of common stock, based on the number of towers, not to exceed 1,000
towers, acquired or constructed by the Company, subject to certain limitations
and restrictions.
The acquisition was accounted for using the purchase method for business
combinations with substantially all of the purchase price allocated to goodwill.
On February 26, 1999 the Company completed the acquisition of
Telecommunications R. David ("R. David"), a Quebec, Canada company which engages
in operations similar to those of the Company. The acquisition was effected by
exchanging approximately $330,000 in cash, and the assumption of certain
liabilities, for all outstanding shares of R. David. The acquisition was
accounted for using the purchase method for business combinations resulting in
goodwill of approximately $350,000.
The following is a summary of all consideration exchanged for acquisitions
that were accounted for as purchases:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30,
1999
-----------
<S> <C>
Shares issued......................................... 403,000
Value of shares....................................... $ 8,284,000
Cash.................................................. 6,583,000
-----------
Total purchase price........................ $14,867,000
===========
</TABLE>
The assets and liabilities of the acquired entities were recorded at their
estimated fair market values at the dates of acquisition. The initial
allocations of fair market values are preliminary and are subject to adjustments
during the first year following the acquisition. The initial allocations were as
follows:
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
Non-compete agreements.................................. $ 136,000
Tangible assets......................................... 5,084,000
Goodwill................................................ 13,825,000
Liabilities assumed and deferred tax liabilities........ (4,178,000)
-----------
Total purchase price.......................... $14,867,000
===========
</TABLE>
Included in the operating results for the three and nine months ended June
30, 1999 are revenues of $5,273,000 and $14,552,000, respectively, and operating
income of $668,000 and $2,028,000, respectively, from the dates of acquisition.
Goodwill is generally amortized over a 20 year period.
F-9
<PAGE> 12
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
<S> <C> <C>
Goodwill........................................ $27,864,000 $14,039,000
Communications tower purchase contract.......... -- 5,661,000
Non-compete agreements.......................... 355,000 219,000
----------- -----------
28,219,000 19,919,000
Less accumulated amortization................... (1,227,000) (198,000)
----------- -----------
$26,992,000 $19,721,000
=========== ===========
</TABLE>
NOTE 6--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
Deposits on tower purchase contracts............. $1,176,000 $ --
Equity investment in joint venture............... 1,189,000 217,000
Other noncurrent assets, net..................... 3,774,000 2,554,000
---------- ----------
$6,139,000 $2,771,000
========== ==========
</TABLE>
During the nine months ended June 30, 1999, the Company paid approximately
$1.2 million as deposits to acquire additional towers. Equity investment in
joint venture represents the Company's cash investment and the Company's equity
earnings from this investment
NOTE 7--LONG-TERM DEBT
During the nine months ended June 30, 1999, the Company borrowed an
aggregate $41.6 million under its credit facility with Bank Boston N.A. As of
June 30, 1999, the effective interest rate on borrowings under the facility was
approximately 7.75%. The Company borrowed an additional $8.0 million under the
facility subsequent to June 30, 1999. The facility is collateralized by
substantially all of the Company's assets. At June 30, 1999, the Company was in
compliance with all of its covenants with the exception of certain financial
ratio requirements related to cash flow. The Company has received a waiver from
the lenders waiving the right to demand repayment as a result of the violation.
NOTE 8--COMMON STOCK
On October 15, 1997, the Company issued 1,200,000 shares of common stock
and 1,380,000 warrants to purchase common stock in a public offering. The
Company received proceeds, net of costs, of $7,493,000 from its public offering.
During the nine months ended June 30, 1999, the Company received net proceeds of
$7,291,000 on the exercise of 819,000 warrants, at $9.00 per share of common
stock. In addition to the warrants noted above, during the nine months ended
June 30, 1999, the Company's underwriters exercised warrants, issued in
connection with the Company's initial public offering, resulting in the Company
receiving $1,123,000 on the exercise of warrants to purchase 162,000 shares of
common stock at $9 per share. At June 30, 1999, there were unexercised warrants
to purchase approximately 79,000 shares of common stock held by underwriters.
F-10
<PAGE> 13
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--EARNINGS (LOSS) PER SHARE
The numerators and denominators of basic and fully diluted earnings (loss)
per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Numerator--Net income(loss)
as reported............... $(1,692,000) $ 864,000 $ (546,000) $2,823,000
=========== ========== ========== ==========
Denominator--Weighted
average number of shares
outstanding:
Basic weighted average
number of shares....... 8,525,000 6,356,000 8,234,000 6,104,000
Effect of dilutive stock
options and warrants... 431,000 1,104,000
----------- ---------- ---------- ----------
Diluted weighted
average number of
shares............... 8,525,000 6,787,000 8,234,000 7,208,000
=========== ========== ========== ==========
</TABLE>
For the three and nine months ended June 30, 1999, all potential common
shares were excluded from the computation of diluted earnings (loss) per share
because inclusion would have had an anti-dilutive effect on earnings (loss) per
share. For the three months ended June 30, 1998, shares associated with
convertible debt were excluded from the computation of diluted earnings per
share because inclusion would have had an anti-dilutive effect on earnings per
share. All other potential common shares have been included in the diluted
earnings per share calculations for the three and nine months ended June 30,
1998.
NOTE 10--SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, as these entities and
its existing operations exhibit similar financial performance and have similar
economic characteristics, they have been aggregated as one segment.
The following table summarizes contract and other revenues and long-lived
assets related to the respective countries in which the Company operates.
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30,
---------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
1999
Contract and Other Revenues........... $68,455,000 $52,658,000 $15,797,000
Long-lived Assets..................... $50,217,000 $43,574,000 $ 6,643,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30,
---------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
1998
Contract and Other Revenues........... $35,995,000 $19,206,000 $16,789,000
Long-lived Assets..................... $ 4,854,000 $ 1,251,000 $ 3,603,000
</TABLE>
Long-lived assets are comprised of property and equipment and exclude
intangible assets.
F-11
<PAGE> 14
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--MERGER OF THE COMPANY
On May 15, 1999, the Company entered into a definitive agreement with
SpectraSite Holdings, Inc. (SpectraSite), under which Westower will merge with a
subsidiary of SpectraSite. The transaction was consummated on September 2, 1999
and under the terms of the agreement, Westower shareholders received 1.81 shares
of SpectraSite common stock for each Westower share. During the nine months
ended June 30, 1999, the Company incurred approximately $1.5 million in expenses
related to the merger, which included $750,000 paid to the Company's investment
advisors for services in connection with the merger. Under the terms of the
arrangement the Company paid an additional $2,250,000 to its investment advisors
at closing.
F-12
<PAGE> 15
(This page intentionally left blank)
F-13
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Westower Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Westower
Corporation and its subsidiaries at September 30, 1998, and the results of their
operations and their cash flows for the seven months ended September 30, 1998 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. The financial statements of Westower
Corporation for the three years in the period ended February 28, 1998 were
audited by other independent accountants whose report dated April 14, 1998,
except for the third paragraph in Note 3, as to which the date is May 31, 1998
and the fourth paragraph in Note 3, as to which the date is June 14, 1999,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
February 4, 1999,
except for the fourth
paragraph in Note 3,
as to which the date
is June 17, 1999
F-14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Westower Corporation
We have audited the accompanying consolidated balance sheets of Westower
Corporation and Subsidiaries as of February 28, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended February 28, 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 did not audit the financial statements of MJA Communications
Corporation, which are included in the financial statements of Westower
Corporation as discussed in Note 3 to the financial statements, and which
statements reflect total assets constituting 56% and 16% of consolidated total
assets as of February 28, 1997 and 1998 and total revenues constituting 22%, 57%
and 33% of consolidated total revenues for each of the three years in the period
ended February 28, 1998, respectively. Those statements were audited by other
auditors, whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for MJA Communications Corporation, is based
solely on the report of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Westower Corporation
and Subsidiaries as of February 28, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1998 in conformity with generally accepted accounting principles.
/s/ MOSS ADAMS LLP
Bellingham, Washington
April 14, 1998, except for the third paragraph
in Note 3, as to which the date is
May 31, 1998, and the fourth paragraph in
Note 3, as to which the date is
June 14, 1999
F-15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
MJA Communications Corp.
Palm Beach Gardens, Florida
We have audited the balance sheet of MJA Communications Corp. as of
December 31, 1996 and 1997, and the related statements of income and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1997 (not separately presented herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our 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, the financial statements referred to above present fairly,
in all material respects, the financial position of MJA Communications Corp. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ LAMN, KRIELOW, DYTRYCH &
DARLING
--------------------------------------
LAMN, KRIELOW, DYTRYCH & DARLING
Certified Public Accountants
February 11, 1998, except for Note 4, as to which the date is August 12, 1998
F-16
<PAGE> 19
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND 1998 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 7,131,000 $ 7,206,000 $ 9,331,000
Accounts receivable, net............................... 4,905,000 7,112,000 13,289,000
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 938,000 2,143,000 5,078,000
Inventory.............................................. 201,000 1,140,000 2,151,000
Related party advances and receivables................. -- 831,000 956,000
Income tax receivable.................................. -- -- 220,000
Other current assets................................... 63,000 125,000 1,203,000
----------- ----------- -----------
Total current assets................................. 13,238,000 18,557,000 32,228,000
Property and equipment, net.............................. 2,707,000 4,321,000 7,574,000
Intangible assets, net................................... -- 2,088,000 19,721,000
Other assets............................................. 58,000 91,000 2,771,000
----------- ----------- -----------
Total assets............................................. $16,003,000 $25,057,000 $62,294,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................. $ 4,980,000 $ 4,445,000 $ 7,053,000
Other current liabilities.............................. 275,000 929,000 2,810,000
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 3,850,000 1,745,000 1,435,000
Income taxes payable................................... 155,000 1,652,000 2,116,000
Deferred income taxes.................................. 580,000 534,000 428,000
Stockholder advances and notes payable to related
parties.............................................. 672,000 2,044,000 228,000
Note payable........................................... 208,000 147,000 1,089,000
Current portion of long-term debt and capital lease
obligations.......................................... 610,000 502,000 2,419,000
----------- ----------- -----------
Total current liabilities....................... 11,330,000 11,998,000 17,578,000
Long-term debt and capital lease obligations, excluding
current portion........................................ 212,000 292,000 14,991,000
Deferred income taxes.................................... 27,000 48,000 2,962,000
----------- ----------- -----------
Total liabilities............................... 11,569,000 12,338,000 35,531,000
Commitments and contingencies
Minority interest........................................ 40,000 -- --
----------- ----------- -----------
Redeemable preferred stock............................... 450,000 -- --
----------- ----------- -----------
Stockholders' equity
Common stock ($.01 par value, 10,000,000 shares
authorized, 4,776,000, 6,117,000 and 7,047,000 shares
issued and outstanding at February 28, 1997 and 1998,
and September 30, 1998, respectively)................ 48,000 61,000 70,000
Additional paid-in-capital............................. (48,000) 8,672,000 22,610,00
Accumulated other comprehensive income (loss).......... 27,000 (67,000) (581,000)
Retained earnings...................................... 3,917,000 4,053,000 4,664,000
----------- ----------- -----------
Total stockholders' equity...................... 3,944,000 12,719,000 26,763,000
----------- ----------- -----------
Total liabilities and stockholders' equity............... $16,003,000 $25,057,000 $62,294,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 20
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND 1998
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract and other revenues earned......... $14,775,000 $46,091,000 $41,662,000 $22,869,000 $31,944,000
Costs of revenues earned (exclusive of
depreciation and amortization shown
below)................................... 10,755,000 33,936,000 29,508,000 16,778,000 23,858,000
----------- ----------- ----------- ----------- -----------
Gross profit............................. 4,020,000 12,155,000 12,154,000 6,091,000 8,086,000
Selling, general and administrative
expenses................................. 2,944,000 7,832,000 7,236,000 2,720,000 4,958,000
Depreciation and amortization.............. 196,000 268,000 473,000 187,000 578,000
Merger related expenses.................... -- -- -- -- 327,000
----------- ----------- ----------- ----------- -----------
Operating income........................... 880,000 4,055,000 4,445,000 3,184,000 2,223,000
Other income (expense)
Other income (expense)................... (24,000) 32,000 126,000 -- (2,000)
Interest income.......................... -- 70,000 127,000 41,000 130,000
Interest and financing expense........... (110,000) (72,000) (129,000) (32,000) (771,000)
----------- ----------- ----------- ----------- -----------
Total other income (expense)...... (134,000) 30,000 124,000 9,000 (643,000)
----------- ----------- ----------- ----------- -----------
Income before income taxes and minority
interest................................. 746,000 4,085,000 4,569,000 3,193,000 1,580,000
Minority interest.......................... (6,000) (19,000) -- -- --
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes... 740,000 4,066,000 4,569,000 3,193,000 1,580,000
Provision for income taxes................. 193,000 636,000 1,633,000 1,141,000 351,000
----------- ----------- ----------- ----------- -----------
Net income................................. $ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
=========== =========== =========== =========== ===========
Earnings per share:
Basic...................................... $ 0.11 $ 0.72 $ 0.56 $ 0.43 $ 0.19
=========== =========== =========== =========== ===========
Diluted.................................... $ 0.11 $ 0.72 $ 0.52 $ 0.43 $ 0.16
=========== =========== =========== =========== ===========
Pro forma earnings per share:
Basic...................................... $ 0.11 $ 0.53 $ 0.53 $ 0.37 $ 0.12
=========== =========== =========== =========== ===========
Diluted.................................... $ 0.11 $ 0.53 $ 0.50 $ 0.37 $ 0.10
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 21
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------- ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME(LOSS) INCOME TOTAL
--------- ------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1995........ 4,776,000 $48,000 $ (48,000) $ 362,000 $ 29,000 $ 391,000
Net income........................ 547,000 7 $ 547,000
Foreign currency translation
adjustment...................... -- -- -- -- -- --
----------
Total comprehensive
income.................. $ 547,000 547,000
==========
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition..................... -- -- -- (39,000) -- (39,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, FEBRUARY 29, 1996........ 4,776,000 48,000 (48,000) 870,000 29,000 899,000
Net income........................ -- -- -- 3,430,000 -- $3,430,000
Foreign currency translation
adjustment...................... -- -- -- -- (2,000) (2,000)
----------
Total comprehensive
income.................. $3,428,000 3,428,000
==========
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition..................... -- -- -- (383,000) -- (383,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, FEBRUARY 28, 1997........ 4,776,000 48,000 (48,000) 3,917,000 27,000 3,944,000
Net income........................ -- -- -- 2,936,000 -- $2,936,000
Foreign currency translation
adjustment...................... -- -- -- -- (94,000) (94,000)
----------
Total comprehensive
income.................. $2,842,000 2,842,000
==========
Stock issuances................... 1,341,000 13,000 8,699,000 -- -- 8,712,000
Stock compensation expense........ -- -- 21,000 -- -- 21,000
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition..................... -- -- -- (2,800,000) -- (2,800,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, FEBRUARY 28, 1998........ 6,117,000 61,000 8,672,000 4,053,000 (67,000) $12,719,000
Net income........................ -- -- -- 1,229,000 -- $1,229,000
Foreign currency translation
adjustment...................... -- -- -- -- (514,000) (514,000)
----------
Total comprehensive
income.................. $ 715,000 715,000
==========
Adjustment to conform fiscal year
ends of acquired subsidiaries... -- -- -- 438,000 -- 438,000
Proceeds from warrants
exercised....................... 559,000 6,000 4,782,000 -- -- 4,788,000
Proceeds from stock options
exercised and related tax
benefit......................... 35,000 -- 556,000 -- -- 556,000
Stock issuances for business
acquisitions.................... 336,000 3,000 8,097,000 -- -- 8,100,000
Value ascribed to conversion
feature and warrants of
convertible debt, net of
deferred taxes.................. -- -- 468,000 -- -- 468,000
Stock compensation expense........ -- -- 35,000 -- -- 35,000
Distributions of earnings and for
taxes to stockholders of
acquired subsidiaries prior to
acquisition..................... -- -- -- (1,056,000) -- (1,056,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, SEPTEMBER 30, 1998....... 7,047,000 $70,000 $22,610,000 $ 4,664,000 $(581,000) $26,763,000
========= ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 22
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND 1998
<TABLE>
<CAPTION>
SEVEN
SEVEN MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization...................... 196,000 268,000 473,000 187,000 578,000
Provision for bad debt............................. -- -- -- -- 221,000
Deferred income taxes.............................. 96,000 433,000 (41,000) (209,000) 367,000
Non-cash interest and financing expense............ -- -- -- -- 264,000
Gain on sale of assets............................. -- -- (125,000) -- --
Stock-based compensation........................... -- -- 56,000 -- 35,000
Earnings from equity investment.................... -- -- -- -- (46,000)
Minority interest.................................. 6,000 19,000 -- (40,000) --
Changes in operating assets and liabilities, net of
effect of acquisitions
Accounts receivable................................ (2,570,000) (1,402,000) (1,484,000) (1,962,000) (1,603,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... (284,000) (545,000) (1,200,000) (238,000) (1,350,000)
Inventory and other current assets............... (69,000) (143,000) (938,000) -- (990,000)
Other assets....................................... (32,000) (93,000) (5,000) (597,000) 135,000
Trade accounts payable............................. 1,163,000 3,387,000 (933,000) (810,000) (2,265,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 1,464,000 2,380,000 (2,105,000) (3,156,000) (963,000)
Other current liabilities........................ 56,000 79,000 648,000 (198,000) 6,000
Income taxes payable............................... (44,000) 147,000 1,354,000 (155,000) 244,000
----------- ----------- ----------- ----------- -----------
Net cash flows (used) provided by operating
activities..................................... 529,000 7,960,000 (1,364,000) (5,126,000) (4,138,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired... -- -- (1,467,000) -- (6,348,000)
Sales of property and equipment.................... 155,000 -- 444,000 -- --
Purchases of property and equipment................ (301,000) (1,245,000) (1,692,000) (455,000) (1,657,000)
----------- ----------- ----------- ----------- -----------
Net cash flows used by investing activities...... (146,000) (1,245,000) (2,715,000) (455,000) (8,005,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances, net................. -- -- 7,493,000 -- --
Proceeds from stock warrant and option exercises,
net.............................................. -- -- -- -- 5,002,000
Redemption of preferred stock...................... -- -- (450,000) (300,000) --
Principal payments on long-term debt............... (583,000) (389,000) (326,000) (227,000) (392,000)
Distributions to stockholders...................... (39,000) (383,000) (2,800,000) -- (1,056,000)
Advances to related parties........................ -- -- (196,000) (384,000) (65,000)
Advances from related parties...................... 481,000 -- 457,000 1,117,000 34,000
Repayments to related parties...................... (17,000) (480,000) -- -- (1,816,000)
Borrowing (repayments) on line of credit, net...... -- 207,000 (57,000) (85,000) (88,000)
Additions to financing costs....................... -- -- -- -- (2,368,000)
Proceeds from debt incurred........................ 159,000 555,000 104,000 104,000 15,256,000
----------- ----------- ----------- ----------- -----------
Net cash flows provided (used) by financing
activities..................................... 1,000 (490,000) 4,225,000 225,000 14,507,000
----------- ----------- ----------- ----------- -----------
EFFECT OF CHANGES IN EXCHANGE RATES.................. -- -- (71,000) (27,000) (239,000)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH...................... 384,000 6,225,000 75,000 (5,383,000) 2,125,000
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 522,000 906,000 7,131,000 7,131,000 7,206,000
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 906,000 $ 7,131,000 $ 7,206,000 $ 1,748,000 $ 9,331,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 23
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Westower Corporation (the "Company") was incorporated in Washington state
in June 1997 for the purpose of acquiring Westower Holdings Ltd. and its
wholly-owned subsidiaries, Westower Communications Ltd. and Westower
Communications, Inc. In connection with an initial public offering on October
15, 1997, the Company raised approximately $7.5 million in net cash proceeds.
Proceeds have been used in part to acquire the assets and operations of other
businesses.
The Company is successor to operations begun in 1990 by Westower
Communication Ltd. It designs, builds and maintains wireless communication
transmitting and receiving facilities for providers of wireless communication
services. The Company also owns and leases wireless communication towers to
wireless communication providers. Principal operations are located in the
Pacific Northwest, including the Canadian provinces of British Columbia and
Alberta, and the Southeastern and Southwestern United States. Other operations
extend throughout the Western United States and into Eastern Canada.
On October 27, 1998, the Company changed its fiscal year-end from February
28 to September 30 resulting in a seven month reporting period from March 1,
1998 to September 30, 1998 (the "Transition Period").
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation--The consolidated financial statements include the
accounts of Westower Corporation and its wholly owned domestic and Canadian
subsidiaries.
Investments in subsidiaries in which the Company exercises significant
influence but which it does not control are accounted for using the equity
method. At September 30, 1998, the Company has an equity investment in a joint
venture which engages in operations in Brazil that are similar to those of the
Company, in which it has an economic ownership interest of 60 percent. Revenues
and associated expenses are transacted in Canadian dollars. As of September 30,
1998, the Company's investment totaled $217,000, which has been included in
other assets, and the Company's equity earnings from this investment during the
Transition Period totaled $46,000, which has been included in contract and other
revenues earned.
All material intercompany accounts and transactions have been eliminated in
consolidation.
(b) 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 amounts reported in the consolidated
financial statements. Examples of estimates subject to possible revision based
upon the outcome of future events include costs and estimated earnings on
uncompleted contracts, depreciation of property and equipment, accrued income
tax liabilities, and purchase price allocations for acquisitions. Actual results
could differ from those estimates.
(c) Contract and Other Revenue and Cost Recognition--Revenue from
fixed-price construction contracts is recognized using the
percentage-of-completion method based on cost incurred to total estimated cost.
Revenue from contracts based upon time and materials is recognized based upon
hours worked and materials consumed. Most of the Company's contracts are
short-term and are completed in two to three months. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues earned.
F-21
<PAGE> 24
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company owns wireless communication towers which it leases to third
parties. Revenues are recognized on a monthly basis over the term of the leasing
agreement. Revenues and cost of services of approximately $170,000 and $25,000,
respectively, have been included in contract and other revenues earned and cost
of revenues earned, respectively, in the Transition Period.
(d) Cash and Cash Equivalents--Cash and cash equivalents consist of cash in
banks and money market investments on deposit with major Canadian and U.S.
financial institutions. Investments with maturities of three months or less when
purchased are considered cash equivalents.
(e) Inventory--Inventory consists of construction parts and supplies and is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
(f) Property and Equipment--Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives by major asset category are
as follows: buildings--10-25 years; furniture, fixtures and equipment--3 to 10
years; wireless communication towers--20 years; vehicles--5 years. Gains or
losses on the dispositions of assets are recorded at the time of disposition.
The costs of normal repairs and maintenance are charged to expense as incurred.
(g) Capitalized Software--Purchased software is capitalized at cost and
amortized over its estimated useful life of 3 years.
(h) Intangible Assets--Business acquisition costs are allocated to the
tangible and identifiable intangible assets that are acquired. Business
acquisition costs allocated to contracts to purchase wireless communication
towers are amortized over a 20 year period upon acquisition of the wireless
communication towers, and costs allocated to non-compete agreements are
amortized over the term of the agreements, which are generally 5 years. The
excess of the aggregate purchase price over the fair value of the net assets
acquired and identifiable intangible assets acquired is recorded as goodwill.
Goodwill is amortized over a 20 year period. The Company amortizes its
intangible assets using the straight line method.
(i) Financing Costs--Direct costs associated with obtaining debt financing
are deferred and are amortized over the term of the debt using the effective
interest method. Direct costs of obtaining commitments for financing are
deferred and charged to expense over the term of the commitments. Direct costs
associated with obtaining equity financing are charged to additional paid-in
capital as the related funds are raised. Deferred financing costs totaled $2.4
million at September 30, 1998, which has been included in other assets.
Accumulated amortization of deferred financing costs totaled $113,000 at
September 30, 1998.
(j) Valuation of Long-Lived Assets--The Company periodically reviews its
long-lived assets and certain identifiable intangible assets, including
goodwill, whenever events or changes in circumstance indicate that the carrying
amount of an asset may be impaired and not recoverable. Adjustments are made if
the sum of the expected future undiscounted operating cash flows is less than
the carrying value of the asset.
(k) Income Taxes--The Company accounts for income taxes under the liability
method. Deferred taxes are recognized for temporary differences between the
basis of assets and liabilities for financial statement and income tax purposes
at the enacted tax rates. The significant differences relate primarily to the
timing and recognition of depreciation and amortization of long-lived assets,
profit on uncompleted contracts, amortization of financing costs and bad debt
expense. Deferred tax amounts represent the future tax consequences of those
differences, which will either be deductible or taxable when the assets and
liabilities are recovered or settled. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts expected to be realized.
The Company files a consolidated federal income tax return in the United States.
The Company files separate tax returns for each of its Canadian subsidiaries in
Canada. Additionally, certain of the Company's operations are subject to
Provincial income taxes in Canada and state income taxes in the United States.
F-22
<PAGE> 25
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Foreign Currency Translation--All asset and liability accounts of
Canadian operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the average exchange rate during the
period. Foreign currency translation adjustments are reported as a component of
comprehensive income and stockholders' equity in the consolidated balance sheet.
Gains and losses resulting from foreign currency transactions are included in
income currently.
(m) Earnings Per Share and Change in Accounting Policy--During fiscal year
ended February 28, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. The new standard supersedes
Accounting Principles Board (APB) No. 15, Earnings Per Share and establishes
standards for computing and presenting earnings per share. Prior years have been
restated to conform with the new requirements.
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the period after giving retroactive effect
to stock dividends and stock splits. Diluted earnings per share amounts are
computed by determining the number of additional shares that are deemed
outstanding from stock options and warrants, using the treasury stock method,
and convertible debentures.
(n) Segment Information--In the Transition Period, the Company adopted SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 supersedes SFAS 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not significantly affect the disclosure of
segment information previously reported (see "Segment Information" note).
(o) New Accounting Standards--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Among other provisions, SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Gains and losses
resulting from changes in the fair values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This Statement becomes effective beginning June 15, 2000,
for the Company. The Company is currently assessing the impact, if any, to its
financial position or results of operations.
(p) Interim Financial Data (Unaudited)--As discussed in Note 1, on October
27, 1998 the Company changed its fiscal year end to September 30 from February
28. The information presented for the seven months ended September 30, 1997 is
unaudited. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim period have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the seven months
ended September 30, 1997 are not necessarily indicative of the results that were
reported for the entire fiscal year ending February 28, 1998.
NOTE 3--MERGERS AND ACQUISITIONS
MERGERS
Westower Holdings Ltd. Concurrent with its incorporation in June 1997, the
Company completed a merger with Westower Holdings Ltd. by issuing 3,000,000
shares of common stock in exchange for all outstanding common stock of Westower
Holdings Ltd. Westower Holdings Ltd. is a Wyoming corporation
F-23
<PAGE> 26
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that owns all outstanding common stock of Westower Communications Ltd. and
Westower Communications, Inc. The merger qualified as a tax-free exchange and is
accounted for similar to a pooling-of-interests.
WTC Holdings, Inc. and Western Telecom Construction Ltd. Effective October
28, 1997, the Company completed a merger with WTC Holdings, Inc. (formerly
411677 Alberta Ltd.) and its wholly owned subsidiary, Western Telecom
Construction Ltd., (collectively, "Western Telecom"). WTC Holdings, Inc. was
wholly-owned by a relative of a significant stockholder and a director of
Westower Corporation. WTC Holdings, Inc. is a Wyoming corporation, and Western
Telecom Construction Ltd. is a Canadian corporation. Western Telecom engages in
operations similar to those of the Company. The merger was effected by
exchanging 835,000 shares of common stock for all outstanding common stock of
Western Telecom. The merger qualified as a tax-free exchange and has been
accounted for using the pooling-of-interests method for business combinations.
Accordingly, the consolidated financial statements for the fiscal years ended
February 29, 1996 and February 28, 1997 and 1998 and the Transition Period have
been restated to include the combined financial position, results of operations,
and cash flows of Western Telecom.
MJA Communications Corporation. Effective May 31, 1998, the Company
completed a merger with MJA Communications Corporation ("MJA"). MJA is a Florida
corporation which engages in operations similar to those of the Company. In
connection with the merger, MJA's tax status was changed from an S corporation
to a C corporation. The merger was effected by exchanging 397,000 shares of
common stock for all outstanding common stock of MJA. The merger qualified as a
tax-free exchange and has been accounted for using the pooling-of-interests
method for business combinations. Accordingly, the consolidated financial
statements for the fiscal years ended February 29, 1996 and February 28, 1997
and 1998 and the Transition Period have been restated to include the combined
financial position, results of operations, and cash flows of MJA.
Standby Services, Inc. Effective August 31, 1998, the Company completed a
merger with Standby Services, Inc. ("Standby"). Standby is a Texas corporation
which engages in operations similar to those of the Company. In connection with
the merger, Standby's tax status was changed from an S corporation to a C
corporation. The merger was effected by exchanging 544,000 shares of common
stock for all outstanding common stock of Standby. The merger qualified as a
tax-free exchange and has been accounted for using the pooling-of-interests
method for business combinations. Accordingly, the consolidated financial
statements for the fiscal years ended February 29, 1996 and February 28, 1997
and 1998 and the Transition Period have been restated to include the combined
financial position, results of operations, and cash flows of Standby.
Prior to the respective mergers, Western Telecom had a fiscal year-end of
January 31 and MJA and Standby had a fiscal year end of December 31. In
recording the business combinations, the fiscal years ended 1998 and 1997
financial statements have not been restated to conform with Westower
Corporation's previous fiscal year end of February 28, as the effect on the
consolidated financial statements is not material. As a result of Western
Telecom, MJA and Standby having a different fiscal year end and the change in
the Company's fiscal year end, Western Telecom and MJA and Standby's results of
operations for the respective one and two-month periods ended February 28, 1998
have been excluded from the reported results of operations in the Transition
Period and, therefore, have been presented as an adjustment to the Company's
consolidated statement of stockholders' equity for the Transition Period.
Aggregate revenues, expenses, income before extraordinary items and net income,
attributable to these mergers, which have been excluded from the Company's
reported results of operations in the Transition Period, were $3,302,000,
$2,864,000, $438,000 and $438,000, respectively, for the period from January 1,
1998 to February 28, 1998.
F-24
<PAGE> 27
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized results of operations for the separate companies and combined
amounts included in the consolidated financial statements, net of intercompany
transactions, are as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract and other
revenues earned
Westower Corporation
and Subsidiaries,
including entities
acquired............ $ 5,664,000 $10,415,000 $16,156,000 $ 8,652,000 $11,450,000
MJA.................... 3,305,000 26,164,000 13,929,000 8,418,000 10,824,000
Western Telecom........ 1,777,000 5,001,000 7,027,000 3,035,000 5,341,000
Standby................ 4,029,000 4,511,000 4,550,000 2,764,000 4,329,000
----------- ----------- ----------- ----------- -----------
$14,775,000 $46,091,000 $41,662,000 $22,869,000 $31,944,000
=========== =========== =========== =========== ===========
Net income (loss)
Westower Corporation
and Subsidiaries,
including entities
acquired............ $ 460,000 $ 815,000 $ 975,000 $ 784,000 $ (816,000)
MJA.................... (3,000) 2,617,000 527,000 195,000 513,000
Western Telecom........ (5,000) 364,000 1,475,000 442,000 387,000
Standby................ 95,000 (366,000) (41,000) 631,000 1,145,000
----------- ----------- ----------- ----------- -----------
$ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
=========== =========== =========== =========== ===========
</TABLE>
The following pro forma net income and basic diluted earnings per share are
presented as if the Company had been required to provide for income taxes that
were previously taxable to the former shareholders of the merged entities that
were previously S corporations.
F-25
<PAGE> 28
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income as reported... $547,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
Dividends on preferred
shares.............. (39,000) -- -- -- --
Pro forma adjustment
for income taxes of
acquired entities
previously filing as
S corporations...... 1,000 (890,000) (165,000) (281,000) (454,000)
-------- ---------- ---------- ---------- ----------
Pro forma net income..... $509,000 $2,540,000 $2,771,000 $1,771,000 $ 775,000
======== ========== ========== ========== ==========
Pro forma basic earnings
per share.............. $ 0.11 $ 0.53 $ 0.53 $ 0.37 $ 0.12
======== ========== ========== ========== ==========
Pro forma diluted
earnings per share..... $ 0.11 $ 0.53 $ 0.50 $ 0.37 $ 0.10
======== ========== ========== ========== ==========
</TABLE>
ACQUISITIONS
The following acquisitions have been accounted for using the purchase
method of accounting for business combinations and, accordingly, the operating
results of the acquired companies have been included in the Company's
consolidated financial statements from the date of acquisition.
Acquisitions from November 1, 1997 to February 28, 1998. On dates ranging
between November 1, 1997 and January 17, 1998, the Company acquired all
outstanding shares of common stock of National Tower Service Ltd., 501053 B.C.
Ltd., and the minority interest in WTC Leasing Ltd. which are Canadian
corporations with operations similar to those of the Company. Additionally, on
January 17, 1998 the Company acquired the assets, principally communication
towers, of Ralph's Radio, Inc. and 344813 Alberta Ltd. The aggregate purchase
price of these transactions totaled approximately $2.7 million which consisted
of $1.5 million in cash and the issuance of 134,000 shares of common stock
valued at approximately $1.2 million, based on the publicly traded price.
Jovin Communications, Inc. and Acier Filteau, Inc. On June 12, 1998 the
Company completed the acquisitions of Jovin Communications, Inc. ("Jovin") and
Acier Filteau, Inc. ("Acier"), both Montreal, Quebec (Canada) corporations which
engage in operations similar to those of the Company. The acquisitions were
effected by exchanging shares of common stock of the Company and shares of a
separate class of common stock of an acquisition subsidiary, with rights
identical to those of the Company's common stock, aggregating 118,000 shares in
total and valued at approximately $2.8 million, based on the publicly traded
price, and the assumption of certain obligations of Jovin and Acier, for all
outstanding common shares of Jovin and Acier.
Cord Communications, Incorporated. On August 31, 1998 the Company
completed the acquisition of Cord Communications Incorporated ("Cord"), a
California corporation which engages in operations similar to those of the
Company. The acquisition was effected by exchanging 218,000 shares of common
stock valued at approximately $5.2 million, based on the publicly traded price,
$5 million in cash and the assumption of certain obligations of Cord for all
outstanding common shares of Cord. The former stockholders of Cord may also
receive an additional 348,000 shares of common stock, based on the attainment of
certain performance measures of Cord during the twelve month period following
the date of acquisition. Additional shares of common stock will be recorded as
an adjustment of the purchase price and will increase recorded goodwill.
F-26
<PAGE> 29
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CNG Communications, Inc. On September 28, 1998, the Company completed the
acquisition of CNG Communications, Inc. ("CNG") for approximately $1.7 million
in cash and the assumption of certain obligations of CNG. The former shareholder
of CNG may also receive up to an additional $3 million in cash pending the
successful acquisition of certain wireless communication towers under an
existing contract held by CNG. As part of the acquisition, the Company assumed
certain liabilities of CNG, including convertible debentures, outstanding
warrants and the termination costs relating to a financing agreement with a
third party investment banker. The Company entered into a settlement agreement
with the above parties that resulted in an aggregate payment of $3.25 million to
the convertible debenture holders, which included principal and interest, and
the third party investment banker. On October 22, 1998, the Company exercised
its right to acquire the wireless communication towers under contract at an
exercise price of $9.2 million. The consummation of the acquisition is subject
to regulatory approval.
The following is a summary of all consideration exchanged for acquisitions
that were accounted for as purchases:
<TABLE>
<CAPTION>
SEVEN
MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Shares issued.................................. 134,000 336,000
Value of shares................................ $1,184,000 $ 8,100,000
Cash........................................... 1,467,000 6,672,000
---------- -----------
Total purchase price........................... $2,651,000 $14,772,000
========== ===========
</TABLE>
The assets and liabilities of the acquired entities were recorded at their
estimated fair market values at the dates of acquisition. The initial
allocations of fair market values are preliminary subject to adjustments during
the first year following the acquisition. The initial allocations were as
follows:
<TABLE>
<CAPTION>
SEVEN
MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Non-compete agreements......................... $ -- $ 219,000
Tangible assets................................ 1,437,000 11,034,000
Communication tower purchase contracts......... -- 5,661,000
Goodwill....................................... 2,104,000 12,507,000
Liabilities assumed and deferred tax
liabilities.................................. (890,000) (14,649,000)
---------- ------------
Total purchase price........................... $2,651,000 $ 14,772,000
========== ============
</TABLE>
The results of operations of these businesses have been included in the
Company's consolidated financial statements from their respective acquisition
dates. The following summarizes the unaudited pro forma results of operations,
on a combined basis, as if the acquisitions had been consummated as of the
beginning of each of
F-27
<PAGE> 30
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the periods presented, after including the impact of certain adjustments such as
amortization of intangible assets and income tax effects:
<TABLE>
<CAPTION>
SEVEN
MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Contract and other revenues earned............. $72,720,000 $43,273,000
Pro forma net income........................... $ 4,323,000 $ 140,000
Pro forma basic earnings per share............. $ 0.82 $ 0.02
Pro forma diluted earnings per share........... $ 0.77 $ 0.02
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisitions had been completed prior to the beginning of the periods presented.
In addition, they are not intended to be indicative of future results.
NOTE 4--UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts............................. $ 15,356,000 $ 12,111,000 $ 15,461,000
Estimated earnings...................... 3,516,000 5,084,000 3,212,000
Less billings to date................... (21,784,000) (16,797,000) (15,030,000)
------------ ------------ ------------
Total................................... $ (2,912,000) $ 398,000 $ 3,643,000
============ ============ ============
Presentation in the accompanying balance
sheet:
Costs and estimated earnings in excess
of billings on uncompleted
contracts.......................... $ 938,000 $ 2,143,000 $ 5,078,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (3,850,000) (1,745,000) (1,435,000)
------------ ------------ ------------
Total................................... $ (2,912,000) $ 398,000 $ 3,643,000
============ ============ ============
</TABLE>
F-28
<PAGE> 31
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Buildings............................... $ 550,000 $ 1,507,000 $ 1,795,000
Vehicles................................ 737,000 1,497,000 2,540,000
Equipment............................... 381,000 743,000 1,580,000
Communication towers.................... 387,000 620,000 1,401,000
Furniture and fixtures.................. 380,000 634,000 943,000
Leasehold improvements.................. 27,000 73,000 81,000
---------- ----------- -----------
2,462,000 5,074,000 8,340,000
Less accumulated depreciation........... (688,000) (1,458,000) (1,562,000)
---------- ----------- -----------
1,774,000 3,616,000 6,778,000
Land.................................... 933,000 705,000 796,000
---------- ----------- -----------
$2,707,000 $ 4,321,000 $ 7,574,000
========== =========== ===========
</TABLE>
Depreciation expense on property and equipment in the fiscal years ended
February 29, 1996 and February 28, 1997 and 1998 and the Transition Period was
$196,000, $262,000, $457,000 and $396,000, respectively.
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Goodwill....................................... $2,104,000 $14,039,000
Communication tower purchase contracts......... -- 5,661,000
Non-compete agreements......................... -- 219,000
---------- -----------
2,104,000 19,919,000
Less accumulated amortization.................. (16,000) (198,000)
---------- -----------
$2,088,000 $19,721,000
========== ===========
</TABLE>
Amortization expense on intangible assets in the fiscal years ended
February 29, 1996, February 28, 1997 and 1998 and the Transition Period was
$0.00, $8,000, $16,000 and $182,000, respectively.
NOTE 7--NOTES PAYABLE
NOTE PAYABLE TO FINANCE COMPANY
At September 30, 1998, through one of its acquired subsidiaries, the
Company had a $2.5 million line of credit facility with a finance company,
secured by accounts receivable, inventory, property and equipment, cash and cash
equivalents. At September 30, 1998 the outstanding balance was $1.09 million,
which was repaid in October 1998, and the line of credit was cancelled.
F-29
<PAGE> 32
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES PAYABLE TO BANK
At February 28, 1998 the Company had a line of credit facility with a
Canadian bank that allowed for borrowings at the bank's prime rate plus .75%.
The line was collateralized by essentially all assets of Western Telecom
Construction Ltd. and was cancelled in May 1998.
NOTE 8--LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Convertible note, interest at 7%, due
April 30, 2007, quarterly interest
payments through April 2005, quarterly
reductions thereafter, see further
description below..................... $ -- $ -- $14,154,000
Convertible notes of acquired
subsidiary, interest at rates ranging
from 12% to 14%, repaid in December
1998 (see Note 3)..................... -- -- 1,882,000
Notes payable to various Canadian banks
repaid in full during the Transition
Period and 1998, due on demand or in
aggregate monthly installments of
$8,200 including interest,
collateralized by assets and an
assignment of lease revenue........... 480,000 263,000 --
Notes payable to various U.S. and
Canadian Banks, repaid in full during
the transition period, due in
aggregate monthly installments of
$7,800, including interest at rates
ranging from 7.5% to 11.25% through
June 2002, collateralized by property,
plant and equipment................... 222,000 129,000 --
Vehicle purchase contracts and other
notes payable with U.S. and Canadian
finance corporations, aggregate
monthly installments of $30,000,
including interest at rates up to
11.15%, payments due through December
2001, collateralized by vehicles and
real property......................... 86,000 192,000 781,000
Capital lease obligations to U.S. and
Canadian lessors, due in aggregate
monthly installments of $19,000
through August 2003, collateralized by
leased equipment...................... 34,000 210,000 593,000
--------- --------- -----------
Total debt.............................. 822,000 794,000 17,410,000
Less current portion.................... (610,000) (502,000) (2,419,000)
--------- --------- -----------
Long-term portion....................... $ 212,000 $ 292,000 $14,991,000
========= ========= ===========
</TABLE>
F-30
<PAGE> 33
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt and capital lease obligations matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1999............................................... $ 2,419,000
2000............................................... 452,000
2001............................................... 225,000
2002............................................... 98,000
2003............................................... 62,000
Thereafter......................................... 14,154,000
-----------
$17,410,000
===========
</TABLE>
CONVERTIBLE NOTE
In June 1998, the Company issued a private placement of $15.0 million of 7%
convertible senior subordinated note (the "Convertible Debt") and warrant to
purchase 40,000 shares of common stock in exchange for $14.85 million net cash
proceeds. The Convertible Debt was immediately convertible at a ratio of $25.03
per share of common stock and the warrant provides for purchase of shares at
$23.00 per share of common stock at the holder's option. The purchase agreement
provides for an adjustment of the conversion amount for the subordinated debt
and warrant exercise price for any stock dividends, splits and other changes as
defined in the respective agreements, so as to preserve the Convertible Debt
holder's relative rights. The conversion ratio and warrant exercise price per
common share were less than the fair value of the Company's common stock at the
date of issuance. The value of the conversion features was approximately
$124,000 and was immediately charged to interest expense and an increase in
additional paid-in capital. The value ascribed to the warrant of approximately
$723,000, was reflected as both a debt discount and an increase in additional
paid-in capital. The debt discount is accounted for as a component of interest
expense using the effective interest rate method.
The Convertible Debt requires quarterly interest payments through April 30,
2005, when the Company will be required to make principal payments of $3 million
each April 30 and October 31 thereafter through the final maturity date, April
30, 2007. The Company may begin making optional prepayments of the Convertible
Debt beginning May 30, 2000 subject to a certain minimum trading price of the
Company's common stock commencing on or after April 30, 2000. The Company is
subject to various affirmative and negative covenants contained in the
agreement, including minimum net worth and earnings requirements, and
limitations on additional indebtedness, asset disposals and asset additions. The
agreement required the holder of the Convertible Debt to consent to
subordination of the obligation to senior bank indebtedness discussed below. On
September 30, 1998, the Company was in compliance with all covenants with the
exception of the certain indebtedness covenant, which was cured subsequent to
year end. The Company has received a waiver from the note holder waiving the
right to demand repayment of the note as a result of the violation.
CREDIT FACILITY
Under terms of a revolving credit facility, dated June 9, 1998 and expiring
April 25, 2005, with a consortium of U.S. and non-U.S. banks, the Company may
borrow up to $75.0 million. The credit facility provides for interest only
payments through August 30, 2000, with escalating principal reductions each
three months from that date through maturity. Borrowings under the credit
facility bear interest at optional rates as specified in the agreement, subject
to the Company's election at the borrowing date. The Company is also required to
pay quarterly commitment fees of .5% on the average undrawn balance of the
credit facility, which is included as a component of interest expense. There
were no borrowings under the credit facility at September 30, 1998. Subsequent
to year end, the Company has drawn approximately $24.0 million on the
F-31
<PAGE> 34
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit facility to finance business acquisitions, including the repayment of
acquired subsidiary debt, and to fund operations. Covenants of the credit
facility require the Company to maintain certain debt-to-earnings and interest
coverage ratios. Other provisions limit capital expenditures, subsidiary
indebtedness and require certain minimum levels of earnings and net worth. On
September 30, 1998, the Company was in compliance with all covenants with the
exception of the certain indebtedness covenant, which was cured subsequent to
September 30, 1998. The Company has received a waiver from the lenders waiving
their right to demand repayment of the credit facility as a result of this
violation.
NOTE 9--INCOME TAXES
The provision for income taxes is comprised by the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Current
U.S. federal and
state............... $ 38,000 $133,000 $ 272,000 $ 98,000
Canadian federal and
provincial.......... 59,000 70,000 1,402,000 767,000
-------- -------- ---------- ---------
97,000 203,000 1,674,000 865,000
-------- -------- ---------- ---------
Deferred
U.S. federal and
state............... $ -- $ (2,000) $ -- $ (20,000)
Canadian federal and
provincial.......... 96,000 435,000 (41,000) (494,000)
-------- -------- ---------- ---------
96,000 433,000 (41,000) (514,000)
-------- -------- ---------- ---------
Total.......... $193,000 $636,000 $1,633,000 $ 351,000
======== ======== ========== =========
</TABLE>
The total tax provision differs from the amount computed using the U.S.
federal statutory income tax rates as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Pretax net income.......... $740,000 $4,066,000 $4,569,000 $1,580,000
U.S. statutory rates....... 34% 34% 34% 34%
Tax at statutory rates..... 252,000 1,382,000 1,553,000 537,000
Income taxable to S
Corporation
shareholders............. 1,000 (890,000) (165,000) (454,000)
Effect of change in tax
status................... -- 125,000 -- --
Non deductible expenses.... -- -- -- 185,000
U.S. state income taxes,
net of federal tax
benefit.................. -- 8,000 -- 5,000
</TABLE>
F-32
<PAGE> 35
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Effect of graduated
rates.................... (60,000) -- -- --
Excess income tax payable
in foreign
jurisdictions............ -- 11,000 245,000 78,000
-------- ---------- ---------- ----------
$193,000 $ 636,000 $1,633,000 $ 351,000
======== ========== ========== ==========
</TABLE>
Undistributed earnings of the Company's Canadian subsidiaries amounted to
approximately $5.7 million at September 30, 1998. Essentially all of those
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been provided thereon.
Upon distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes, net of foreign tax credits,
and withholding taxes payable in Canada.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Assets:
Allowance for doubtful accounts.... $ -- $ -- $ (51,000)
Liabilities:
Deferred taxable income on
uncompleted contracts............ 580,000 534,000 479,000
-------- -------- ----------
$580,000 $534,000 $ 428,000
======== ======== ==========
Noncurrent
Liabilities:
Depreciation and amortization...... $ 27,000 $ 48,000 $2,626,000
Amortization of debt discount...... -- -- 322,000
Other.............................. -- -- 14,000
-------- -------- ----------
$ 27,000 $ 48,000 $2,962,000
======== ======== ==========
</TABLE>
NOTE 10--EARNINGS PER SHARE
The numerators and denominators of basic and fully diluted earnings per
share are as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator--Net income as
reported............... $ 547,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
Dividends on preferred
shares.............. (39,000) -- -- -- --
---------- ---------- ---------- ---------- ----------
$ 508,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
========== ========== ========== ========== ==========
</TABLE>
F-33
<PAGE> 36
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Denominator--Weighted
average number of
shares outstanding
Basic weighted average
number of shares.... 4,776,000 4,776,000 5,263,000 4,776,000 6,531,000
Effect of dilutive
stock options and
warrants............ -- -- 331,000 -- 1,105,000
---------- ---------- ---------- ---------- ----------
Diluted weighted
average number of
shares............ 4,776,000 4,776,000 5,594,000 4,776,000 7,636,000
========== ========== ========== ========== ==========
</TABLE>
At September 30, 1998, 342,000 weighted-average shares associated with the
Convertible Debt discussed in Note 8 were excluded from the computation of
diluted earnings per share for the Transition Period because their inclusion
would have had an anti-dilutive effect on earnings per share. All other
potential common shares have been included in the diluted earnings per share
calculation. All potential common shares were included in the calculation of
diluted earnings per share for the years ended February 29, 1996 and February
28, 1997 and 1998.
NOTE 11--STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
During the year ended February 28, 1998, the Company merged with WTC
Holdings Ltd. and its wholly-owned subsidiary, Western Telecom Construction Ltd.
(collectively, "Western Telecom"). The merger was accounted for as a
pooling-of-interests and the February 28, 1997 financial statements have been
restated to include the accounts of Western Telecom. In February 1994, Western
Telecom issued 467 shares of Class A redeemable preferred stock. The preferred
stock ranked in priority to common stock in the event of liquidation,
dissolution or winding up of the affairs of Western Telecom. The shares also
contain stated redemption values and rights to 5% noncumulative dividends when
declared by the Board of Directors. There were no unpaid dividends at February
28, 1997 and 1998. The preferred stock has no voting rights.
The shares have been reflected at their total redemption price of $450,000
in the February 28, 1997 balance sheet. During the year ended February 28, 1998,
the Company redeemed all outstanding shares.
COMMON STOCK
The Company has a single class of $0.01 par value common stock. Authorized
shares total 10 million, of which 2,580,000 have been registered on Form SB-2
with the Securities and Exchange Commission under the 1933 Securities Act. A
total of 1,200,000 of the registered securities were sold in connection with an
initial public offering on October 15, 1997. Proceeds from the offering totaled
$7.5 million, net of $485,000 of underwriting costs.
As disclosed in Note 3, an additional 1,277,000 shares were issued in
connection with various business combinations during the Transition Period and
an additional 3,969,000 shares were issued in the fiscal year ended February 28,
1998. During the fiscal year ended February 28, 1998, a total of 7,000 shares
were issued as stock awards to employees of the Company and acquired businesses
as incentive to remain in the employ of the Company.
F-34
<PAGE> 37
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK WARRANTS
In connection with its initial public offering in October 1997, the Company
issued stock warrants to purchase 1,380,000 shares of common stock of the
Company with an exercise price of $9.00 per share. The warrants contained a
provision whereby the Company could call for redemption of the warrants if the
closing price of the Company's common stock equaled or exceeded $15.00 for ten
consecutive days. During the Transition Period 559,000 warrants to purchase
559,000 shares of common stock were tendered for exercise with aggregate
proceeds of $4.79 million to the Company, net of commissions and related
expenses of $243,000. On September 29, 1998, the Company exercised its right to
call the remaining warrants, with a redemption date of October 30, 1998.
Subsequent to September 30, 1998 and prior to the redemption date, 819,000
warrants were tendered for conversion with gross proceeds of $7.37 million,
resulting in the cancellation of the remaining warrants which were not tendered.
NOTE 12--STOCK OPTIONS
The Company has two stock option plans that provide for the granting of
stock options to certain officers, employees, directors and consultants of the
Company and its subsidiaries. These options generally vest over a period of
three years from the date of grant (as determined by the Company's Compensation
Committee) and have a maximum exercise term of ten years from the date of grant.
The 1998 Stock Incentive Compensation Plan (the "1998 Plan") is the only plan
with stock option awards currently available for grant; a prior plan has stock
options exercisable at September 30, 1998 to purchase up to 400,000 shares of
common stock. The Company is authorized to grant options for up to ten percent
of the issued shares of common stock under the 1998 Plan. A summary of awards
granted under the plans is as follows for the fiscal year ended February 28,
1998 and the Transition Period:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
FEBRUARY 28, 1998 SEPTEMBER 30, 1998
--------------------------- ---------------------------
WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year....... -- -- 592,000 $ 7.78
Options granted........... 592,000 $7.78 121,500 18.63
Options exercised......... -- -- 37,000 7.80
Options forfeited......... -- -- -- --
------- ----- ------- ------
Options outstanding at end
of year................. 592,000 $7.78 676,500 $ 9.87
======= ===== ======= ======
Options exercisable at end
of year................. 105,000 $8.07 125,500 $ 7.85
======= ===== ======= ======
</TABLE>
A summary of stock options outstanding as of September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- NUMBER WEIGHTED-
AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
------------------------ ------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$13.40 to 26.00.............. 137,000 4.8 years $18.60 -- --
$7.50 to 8.25................ 525,000 3.6 years 7.24 123,300 $7.99
$1.00........................ 4,500 3.4 years 1.00 1,500 1.00
$.01......................... 10,000 3.6 years 0.01 700 0.01
</TABLE>
F-35
<PAGE> 38
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies the accounting provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations for its
stock-based plans. Accordingly, costs for employee stock options or issuance of
shares is measured as the excess, if any, of the fair value of the Company's
common stock at the measurement date over the amount the employee must pay to
acquire the stock. The cost is recognized ratably by the Company as compensation
expense over the vesting period. The expense for the fiscal year ended February
28, 1998 and the Transition Period was $21,000 and $35,000 respectively.
The Company adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), which was effective as of January
1, 1996. The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model and the following assumptions:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Risk-free interest rate........................ 6.38% 4.75%
Expected life.................................. 2.7 years 2.7 years
Expected volatility............................ 29% 70%
Expected dividend yield........................ 0% 0%
</TABLE>
Had the Company elected to recognize compensation expense as provided for
by SFAS No. 123, the Company's net income amounts on a pro forma basis for the
year ended February 28, 1998 and the Transition Period would have been as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Pro forma net income adjusted.................. $2,721,000 $838,000
========== ========
Pro forma basic earnings per share............. $ 0.52 $ 0.13
========== ========
Pro forma diluted earning per share............ $ 0.49 $ 0.11
========== ========
</TABLE>
The weighted average fair values per share at the date of grant for options
granted during the year ended February 28, 1998 and the Transition Period were
as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Options with exercise prices less than the fair
value of the stock at the date of grant...... 39,500 19,100
--weighted average fair value................ $ 6.00 $ 12.00
Options with exercise prices equal to the fair
value of the stock at the date of grant...... 311,500 102,400
--weighted average fair value................ $ 1.25 $ 9.00
Options with exercise prices greater than the
fair value of the stock at the date of
grant........................................ 241,000 --
--weighted average fair value................ $ 0.50 --
</TABLE>
F-36
<PAGE> 39
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash paid for interest......... $ 91,000 $80,000 $ 107,000 $ 312,000
Cash paid for income taxes..... 128,000 77,000 177,000 280,000
Non-cash transactions
Stock issuances for business
acquisitions................. -- -- 1,184,000 8,100,000
</TABLE>
NOTE 14--RETIREMENT PLAN
The Company's subsidiary, Westower Communications Inc., adopted a defined
contribution retirement plan, effective January 1, 1997. The plan contains
certain participation criteria and allows for both employee and employer
discretionary contributions. The total Company funded discretionary contribution
for the years ended February 29, 1996 and February 28, 1997 and 1998 was $0,
$46,000 and $52,000, respectively. There were no employer contributions during
the Transition Period.
NOTE 15--RELATED PARTY TRANSACTIONS
ADVANCE TO RELATED PARTIES
During the fiscal year ended February 28, 1998, the Company advanced
$119,000 to a Canadian corporation owned by certain stockholders of Westower
Corporation. Proceeds were used by the Corporation to purchase facilities leased
by two of the Company's subsidiaries. The advance was repaid during the
Transition Period. The Company also advanced $77,000 to several stockholders
during the fiscal year ended February 28, 1998 which were repaid during the
Transition Period. At September 30, 1998, additional related party advances
include $379,000 of unsecured non-interest bearing shareholder loans made by
subsidiaries, prior to acquisition, during the Transition Period which are
expected to be paid in full subsequent to September 30, 1998. At September 30,
1998, the Company has a $65,000 receivable from a former shareholder of an
acquired S corporation. The acquired S corporation made a distribution to the
shareholder, prior to the combination, in an amount to meet the shareholder's
current estimated tax obligation. Subsequent to the combination it was
determined that the tax liability was approximately $65,000 overestimated and a
receivable for the excess distribution has been recorded.
NOTE RECEIVABLE
At September 30, 1998, the Company had a note receivable for $495,000, plus
accrued interest of $17,000, from an organization with which they share a common
director. The note bears interest at 12% and is collateralized by warrants to
purchase shares of the Company's common stock, and is due on demand.
MANAGEMENT SERVICES AND ACCOUNTS PAYABLE
In prior years the Company received consulting services from Westower
Consulting Ltd., a Canadian corporation owned by a stockholder of Westower
Corporation. Charges for these services were $94,000 and $126,000 in the fiscal
years ended February 28, 1997 and 1998, respectively. Included in trade accounts
payable at February 28, 1998 is $39,000 due to Westower Consulting Ltd. Fees
billed by related entities generally do not continue subsequent to acquisition
by the Company as the related services are performed by employees and officers
of the Company.
F-37
<PAGE> 40
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES AND ADVANCES PAYABLE TO RELATED PARTIES
Notes and advances payable to related parties consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Unsecured advances and notes payable
to stockholders and officers, paid
in full during the Transition
Period............................. $ -- $ 871,000 $ --
Unsecured advances payable to officers
and stockholders, in Canadian
dollars, with no stated interest
rate and no specific repayment
terms, paid in full during the
Transition Period.................. -- 173,000 --
Unsecured advances payable to officers
and stockholders, with no stated
interest rate, and no specific
repayment terms.................... -- -- 228,000
Unsecured notes payable to officers
and stockholders, paid in full
during the transition period....... 672,000 1,000,000 --
-------- ---------- --------
$672,000 $2,044,000 $228,000
======== ========== ========
</TABLE>
FACILITY LEASES
Two subsidiaries acquired during the fiscal year ended February 28, 1998,
501053 B.C. Ltd. and National Tower Service Ltd., lease their operating
facilities, on a month-to-month basis, from Canadian corporations owned by
certain stockholders of Westower Corporation. Lease payments made during the
Transition Period were $39,000 and there were no significant lease payments made
to the stockholders during the fiscal year ended February 28, 1998.
NOTE 16--COMMITMENTS AND CONTINGENCY
The Company leases operating facilities, office equipment and vehicles
under noncancelable operating lease agreements. Future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
---------------------------------------------------------
<S> <C>
1999..................................................... $ 607,000
2000..................................................... 348,000
2001..................................................... 203,000
2002..................................................... 67,000
2003..................................................... 63,000
Thereafter............................................... 52,000
----------
Total.................................................... $1,340,000
==========
</TABLE>
Rent and lease expense was $29,000, $224,000, $259,000 and $632,000 for the
fiscal years ended February 29, 1996 and February 28, 1997 and 1998 and the
Transition Period, respectively.
F-38
<PAGE> 41
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
NOTE 17--CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash, cash equivalents and trade
accounts receivable. The Company places its temporary cash investments with a
major financial institution. At times, deposits with any one institution may
exceed federally insured limits. The Company extends credit to customers based
on evaluation of customer's financial condition and credit history. Collateral
is generally not required. Customers include large Canadian and U.S. companies
concentrated in the telecommunications industry.
Contract revenues from two customers accounted for 29% of revenues during
the fiscal year ended February 28, 1998, and one customer accounted for 56% of
revenues during the fiscal year ended February 28, 1997. Accounts receivable
from two customers comprise 48% of accounts receivable at February 28, 1998 and
one customer accounted for 39% of account receivable at February 28, 1997. There
were no customers who accounted for greater than 10% of sales for the Transition
Period and there were no customers with accounts receivable representing 10% or
more of the total accounts receivable at September 30, 1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes the Company's financial results depend in significant part upon the
success of these customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have an adverse effect on the Company's
business, financial condition and results of operations.
NOTE 18--SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, as these entities and
its existing operations exhibit similar financial performance and have similar
economic characteristics, they have been aggregated as one segment.
The following table summarizes contract and other revenues and long-lived
assets related to the respective countries in which the Company operates.
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- ----------
<S> <C> <C> <C>
Contract and other revenues................ $14,775,000 $8,897,000 $5,878,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- ----------
<S> <C> <C> <C>
Contract and other revenues................ $46,091,000 $39,177,000 $6,914,000
Long-lived assets.......................... $ 2,707,000 $ 1,000,000 $1,707,000
</TABLE>
F-39
<PAGE> 42
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues............... $41,662,000 $22,160,000 $19,502,000
Long-lived assets......................... $ 4,321,000 $ 1,196,000 $ 3,125,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues............... $31,944,000 $19,982,000 $11,962,000
Long-lived assets......................... $ 7,574,000 $ 3,729,000 $ 3,845,000
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
excludes intangible assets.
NOTE 19--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, trade accounts receivable and
payable, and other current liabilities approximate their carrying amounts. The
fair values of advances to and from related parties approximate their fair value
due to the short term nature of the instruments. The fair values of long-term
debt, which are based on the present values of the underlying cash flows
discounted at the Company's incremental borrowing rates, are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Long-term debt.......................... $822,000 $794,000 $19,446,000
</TABLE>
NOTE 20--SUBSEQUENT EVENTS
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The merger was effected
by exchanging 200,000 shares of common stock valued at approximately $4.1
million, based on the publicly traded price, $4.4 million in cash, and the
assumption of certain liabilities, for all membership interests in Summit. The
former members of Summit may also receive an additional 100,000 shares of common
stock, based on certain performance criteria during the three years following
the date of acquisition. The acquisition was accounted for using the purchase
method for business combinations resulting in goodwill of approximately $8.0
million.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging 188,000 shares of common stock valued at approximately $4 million,
based on the publicly traded price, $1 million in cash, and the assumption of
certain liabilities including distributions payable to former shareholders in
the amount of $800,000, for all outstanding shares of Teletronics. The
acquisition was accounted for using the purchase method for business
combinations resulting in goodwill of approximately $5.0 million.
F-40
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
CORD Communications, Inc.
We have audited the accompanying balance sheets of CORD Communications,
Inc. as of June 30, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of CORD Communications, Inc. as
of June 30, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As described in note 13 to the financial statements, the Company was sold
subsequent to June 30, 1998.
/S/ MOSS ADAMS LLP
Beaverton, Oregon
October 21, 1998
F-41
<PAGE> 44
CORD COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 27,730 $ 913,514
Accounts receivable--trade, (net of allowance)............ 1,951,901 2,452,205
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 151,817 735,634
Unbilled amounts on completed contracts................... 175,209 394,502
Accrued interest receivable............................... 14,410 7,744
Employee advances......................................... 1,471 5,961
Refundable income taxes................................... 440,320 --
Prepaid expenses.......................................... 43,392 11,069
---------- ----------
Total current assets........................................ 2,806,250 4,520,629
Property and equipment, net of accumulated depreciation..... 401,834 399,218
Other assets................................................ 42,949 39,749
---------- ----------
Total assets................................................ $3,251,033 $4,959,596
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable--trade................................... $1,459,981 $1,247,921
Note payable.............................................. 500,000 155,000
Notes payable--stockholder and related party.............. -- 87,402
Current portion, long-term debt and capital lease
obligations............................................ 38,897 48,474
Accrued wages and payroll taxes........................... 243,426 193,051
Other accrued liabilities................................. 83,562 17,832
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 443,185 69,352
Income taxes payable...................................... -- 547,000
Deferred income taxes..................................... 194,800 841,478
---------- ----------
Total current liabilities................................... 2,963,851 3,207,510
---------- ----------
Long-term debt and capital lease obligations................ 53,766 86,121
---------- ----------
Deferred income taxes....................................... 260,700 --
---------- ----------
Stockholders' equity (deficit):
Common stock, $1 par value, 1,000,000 shares authorized,
2,000 shares issued, 873 shares outstanding............ 873 873
Additional paid-in-capital................................ 350,878 350,878
Retained earnings (deficit)............................... (318,437) 1,374,812
Note receivable--stock subscription....................... (60,598) (60,598)
---------- ----------
Total stockholders' equity (deficit)........................ (27,284) 1,665,965
---------- ----------
Total liabilities and stockholders' equity.................. $3,251,033 $4,959,596
========== ==========
</TABLE>
See accompanying notes.
F-42
<PAGE> 45
CORD COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CONTRACT REVENUES........................................... $11,010,207 $15,902,768
COST OF CONTRACTS:
Subcontractors............................................ 3,642,346 3,522,513
Labor..................................................... 2,754,248 3,672,345
Materials and supplies.................................... 1,532,546 2,008,403
Equipment costs and rental................................ 615,980 867,399
Other..................................................... 805,431 875,529
----------- -----------
Total cost of contracts..................................... 9,350,551 10,946,189
GROSS PROFIT................................................ 1,659,656 4,956,579
GENERAL AND ADMINISTRATIVE EXPENSES......................... 4,157,468 1,916,076
----------- -----------
OPERATING INCOME (LOSS)..................................... (2,497,812) 3,040,503
OTHER INCOME (EXPENSES):
Interest income........................................... 10,887 8,044
Interest expense.......................................... (41,521) (100,982)
Other..................................................... 37,088 18,826
----------- -----------
Total other income (expenses)............................... 6,454 (74,112)
INCOME (LOSS) BEFORE INCOME TAXES........................... (2,491,358) 2,966,391
PROVISION FOR INCOME TAXES.................................. (798,109) 1,339,829
----------- -----------
NET (LOSS) INCOME........................................... $(1,693,249) $ 1,626,562
=========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE> 46
CORD COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
--------------- PAID-IN EARNINGS STOCK
SHARES AMOUNT CAPITAL (DEFICIT) SUBSCRIPTION TOTAL
------ ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996..... 873 $873 $350,878 $ (251,750) $(80,207) $ 19,794
Receipts on note receivable
stock subscription....... -- -- -- -- 19,609 19,609
Net income for the year.... -- -- -- 1,626,562 -- 1,626,562
--- ---- -------- ----------- -------- -----------
Balance, June 30, 1997..... 873 873 350,878 1,374,812 (60,598) 1,665,965
--- ---- -------- ----------- -------- -----------
Loss for the year.......... -- -- -- (1,693,249) -- (1,693,249)
--- ---- -------- ----------- -------- -----------
Balance, June 30, 1998..... 873 $873 $350,878 $ (318,437) $(60,598) $ (27,284)
=== ==== ======== =========== ======== ===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 47
CORD COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $(1,693,249) $ 1,626,562
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization............................. 131,561 73,507
Deferred income taxes..................................... (385,978) 780,000
Gain (loss) on sale of fixed assets....................... 10,436 (4,284)
Changes in certain operating assets and liabilities:
Accounts receivable--trade............................. 500,304 (1,716,878)
Costs and estimated earnings in excess of billings..... 583,817 (662,048)
Unbilled amounts on completed contracts................ 219,293 (394,502)
Accrued interest receivable............................ (6,666) 3,466
Employee advances...................................... 4,490 (4,976)
Refundable income taxes................................ (440,320) --
Prepaid expenses....................................... (32,323) (16)
Other assets........................................... (3,200) (26,074)
Accounts payable--trade................................ 212,060 875,528
Accrued wages and payroll taxes........................ 50,375 143,130
Other accrued liabilities.............................. 65,730 (1,702)
Billings in excess of costs and estimated earnings..... 373,833 (65,560)
Income taxes payable................................... (547,000) 542,654
----------- -----------
Net cash (used in) from operating activities......... (956,837) 1,168,807
----------- -----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Decrease (increase) in note receivable--stock
subscription.............................................. -- 19,609
Proceeds from sale of equipment............................. 2,800 --
Purchase of property and equipment.......................... (147,413) (290,046)
----------- -----------
Net cash used in investing activities................ (144,613) (270,437)
----------- -----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and capital lease
obligations............................................... 8,000 123,620
Principal payments on long-term debt and capital lease
obligations............................................... (49,932) (60,481)
Proceeds from stockholder loans............................. -- 6,767
Principal payments on stockholder loans..................... (87,402) --
Net change in notes payable................................. 345,000 (110,000)
----------- -----------
Net cash from (used in) financing activities......... 215,666 (40,094)
----------- -----------
NET (DECREASE) INCREASE IN CASH............................. (885,784) 858,276
CASH AND CASH EQUIVALENTS, beginning of year................ 913,514 55,238
----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 27,730 $ 913,514
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 41,521 $ 100,982
=========== ===========
Interest received........................................... $ 4,221 $ 11,510
=========== ===========
Income taxes paid........................................... $ 575,188 $ 505
=========== ===========
</TABLE>
See accompanying notes.
F-45
<PAGE> 48
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
CORD Communications, Inc. was incorporated in July 1994 in the state of
California. The Company constructs cellular communication sites, underground and
overhead telephone and utility lines, and commercial tenant improvements. In
addition, they perform site acquisition and lease negotiations, and provide land
use planning services. The Company operates primarily in California, Washington,
and Oregon.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. At June 30, 1997, cash and cash
equivalents that exceeded the FDIC insurance limits were $711,410.
ACCOUNTS RECEIVABLE
In the normal course of business, the Company extends credit to customers,
principally with customers located in California, Washington, and Oregon.
Collectibility of accounts receivable is periodically assessed by management.
This assessment provides the basis for any allowance for doubtful accounts and
related bad debt expense. An allowance of $83,000 was considered necessary by
management at June 30, 1998. No allowance for doubtful accounts was considered
necessary by management as of June 30, 1997. A concentration of credit risk
exists in connection with the Company's trade customers due to the proximity of
location and services provided. As of June 30, 1998 and 1997, the Company had
accounts receivable balances of $1,951,901 and $2,452,205, which were exposed to
the concentration of credit risk. Credit risk related to contract receivables is
minimized by the Company's rights under lien laws on contracts subject to those
laws.
REVENUE AND COST RECOGNITION
Revenues from fixed-price construction contracts are recognized on the
percentage of completion method, measured on the basis of cost incurred to date
to total estimated cost for each contract. Because of inherent uncertainties in
estimating cost to complete, it is at least reasonably possible that the
estimates used will change in the near term.
Contract costs include all direct material, equipment and labor costs,
subcontract costs and those indirect costs related to contract performance, such
as supplies, travel and per diem costs. General and administrative costs 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
arising from final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Claims are generally included in contract revenues when settled.
The asset, "Cost and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in advance of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in advance of revenues recognized.
F-46
<PAGE> 49
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets.
<TABLE>
<S> <C>
Vehicles................................................ 5 years
Office furniture and equipment.......................... 3 to 7 years
Construction equipment.................................. 5 to 7 years
Leasehold improvements.................................. 3 years
</TABLE>
Property and equipment consisted of the following at June 30, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Vehicles............................................. $ 342,782 $ 275,864
Office furniture and equipment....................... 183,760 137,735
Construction equipment............................... 119,028 112,648
Leasehold improvements............................... 19,361 19,361
--------- ---------
664,931 545,608
Less accumulated depreciation........................ (263,097) (146,390)
--------- ---------
$ 401,834 $ 399,218
========= =========
</TABLE>
The cost and related accumulated depreciation of assets sold or disposed
are removed from the accounts, and any resulting gain or loss is included in
operations. Repairs and maintenance expenditures are expensed as incurred.
INCOME TAXES
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 primarily to different methods of accounting for depreciation and the
use of the cash method for income tax purposes. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates used in preparing these financial statements include
estimated costs to complete which have a direct effect on gross profit.
VALUATION OF LONG LIVED ASSETS AND CHANGE IN ACCOUNTING POLICY
The Company periodically reviews long-lived assets and certain identifiable
intangibles whenever events of changes in circumstance indicate that the
carrying amount of an asset may not be recoverable. There will be no provisions
for impairment during 1998 or 1997.
F-47
<PAGE> 50
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. NOTE PAYABLE
The Company has a line of credit with South Umpqua State Bank, which bears
interest at the Wall Street Journal's published prime rate plus 1%. The Company
may borrow up to $1,000,000 under the terms of the line of credit. The note is
collateralized by equipment, intangible assets, chattel paper accounts,
equipment, and general intangibles. The note payable is also personally
guaranteed by the stockholders of the Company. Borrowing on the line is limited
to 70% of receivables less than 90 days old, less retainage receivables. The
line of credit was scheduled to expire on February 1, 1999, however, the note
was paid off on September 1, 1998 (see note 13).
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Notes payable to Ford Motor Credit Corp. with interest from
9.75% to 10.25%, payable in monthly installments of
$1,149, including interest, maturing from 1999 through
2001, collateralized by vehicles.......................... $ 25,798 $ 36,431
Notes payable to South Umpqua State Bank with interest from
8.48% to 10.75%, payable in monthly installments of
$1,950, including interest, maturing from 1998 through
2001, collateralized by vehicles.......................... 21,968 36,074
Note payable to Damerow Ford with interest at 8.65%, payable
in monthly installments of $646, including interest,
maturing in 2001, collateralized by a vehicle............. 21,349 26,950
Note payable on equipment with interest from 1.9%, to 11.5%
payable in monthly installments of $1,716, including
interest, maturing in 1998 through 2001, collateralized by
equipment................................................. 11,518 28,068
Capital lease obligations for equipment, payable in monthly
installments of $608, including interest, inputed from
15.29% to 20.92%, maturing in 1999 through 2001,
collateralized by equipment............................... 12,030 7,072
-------- --------
92,663 134,595
Less current portion........................................ (38,897) (48,474)
-------- --------
Long-term portion........................................... $ 53,766 $ 86,121
======== ========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDING JUNE 30, MATURING
-------------------- --------
<S> <C>
1999................................................. $38,897
2000................................................. 27,571
2001................................................. 22,396
2002................................................. 3,743
2003................................................. 56
-------
$92,663
=======
</TABLE>
4. OPERATING LEASE COMMITMENTS
The Company leases office and storage space, vehicles, and communication
analyzing equipment under non-cancelable operating leases expiring on various
dates through February 2000. Total rental payments amounted to $229,482 and
$109,964 for the years ended June 30, 1998 and 1997, respectively.
F-48
<PAGE> 51
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental commitments under non-cancelable leases payable over
the remaining lives of the leases are:
<TABLE>
<CAPTION>
MINIMUM
LEASE
YEAR ENDING JUNE 30, PAYMENTS
-------------------- --------
<S> <C>
1999................................................ $73,793
2000................................................ 7,098
-------
$80,891
=======
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The Company has recorded the following costs and estimated earnings on
contracts in progress:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress........... $ 1,506,191 $ 1,563,604
Estimated earnings................................ 402,937 807,434
----------- -----------
Revenue recognized to date...................... 1,909,128 2,371,038
Less billings to date........................... (2,200,496) (1,704,756)
----------- -----------
$ (291,368) $ 666,282
=========== ===========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
contracts in progress............................... $ 151,817 $735,634
Billings in excess of costs and estimated earnings on
contracts in progress............................... (443,185) (69,352)
--------- --------
$(291,368) $666,282
========= ========
</TABLE>
6. CONTRACT BACKLOG
The following schedule summarizes changes in backlog on contracts during
the year ended June 30, 1998 and 1997. Backlog represents the amount of gross
revenue the Company expects to realize from work to be performed on contracts in
progress at year-end.
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Backlog balance, beginning of year.............. $ 1,279,115 $ 2,568,957
New contracts during the year................... 10,571,539 14,612,926
------------ ------------
11,850,654 17,181,883
Less: contract revenue earned during the year... (11,010,207) (15,902,768)
------------ ------------
Backlog balance, end of year.................... $ 840,447 $ 1,279,115
============ ============
</TABLE>
F-49
<PAGE> 52
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1997
--------- ----------
<S> <C> <C>
Current
Federal........................................... $(404,249) $ 426,013
State............................................. (7,883) 133,816
--------- ----------
(412,132) 559,829
--------- ----------
Deferred
Federal........................................... (308,781) 624,000
State............................................. (77,196) 156,000
--------- ----------
(385,977) 780,000
--------- ----------
$(798,109) $1,339,829
========= ==========
</TABLE>
The difference between the actual income tax provision (benefit) and the
tax provision (benefit) computed by applying the statutory federal rate to
income (loss) before taxes is attributable to the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1998 1997
------------------ ------------------
AMOUNT % AMOUNT %
--------- ----- ---------- ----
<S> <C> <C> <C> <C>
Federal statutory income tax provision
(benefit)................................. $(847,062) (34.0)% $1,008,573 34.0%
State statutory income tax provision
(benefit)................................. (211,766) (8.5)% 252,143 8.5%
Carryback of net operating losses (NOL) in
years with rates different than statutory
rates..................................... 13,300 0.5% -- --
Change in valuation allowance for deferred
taxes..................................... 283,370 11.4% -- --
Other....................................... (35,951) (1.4)% 79,113 2.7%
--------- ----- ---------- ----
Actual income tax provision (benefit)....... $(798,109) (32.0)% $1,339,829 45.2%
========= ===== ========== ====
</TABLE>
F-50
<PAGE> 53
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The composition of the deferred income tax assets and liabilities at June
30, 1998 and 1997 are:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
--------- -----------
<S> <C> <C>
Current deferred tax assets
Differences in basis in assets due to cash method
used for income taxes......................... $ -- $ 751,789
Bad debts, vacation accrual and other............ 115,100 --
Tax benefit of net operating loss
carryforwards................................. 283,370 --
Valuation allowance.............................. (283,370) --
--------- -----------
115,100 751,789
--------- -----------
Current deferred tax liabilities
Differences in basis in liabilities due to cash
method used for income taxes.................. -- (1,593,267)
Difference in revenue recognized on uncompleted
contracts..................................... (171,300) --
Deferral of taxes from conversion from cash to
accrual completed contract.................... (134,500) --
Other............................................ (4,100) --
--------- -----------
(309,900) (1,593,267)
--------- -----------
Net current deferred tax liabilities............... $(194,800) $ (841,478)
========= ===========
Non-current deferred tax assets
Capitalization differences between financial and
tax accounting................................ $ 9,000 $ 1,266
Other............................................ 19,300 --
--------- -----------
28,300 1,266
--------- -----------
Non-current deferred tax liabilities
Deferral of taxes from conversion from cash to
accrual completed contract.................... (269,000) --
Depreciation differences between financial and
tax accounting................................ (20,000) (1,266)
--------- -----------
(289,000) (1,266)
--------- -----------
Net non-current deferred tax liabilities........... $(260,700) $ --
========= ===========
</TABLE>
The Company's net operating loss carryforward will expire in 2013.
F-51
<PAGE> 54
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. BOND GUARANTEES
Most of the Company's business activities are performed under contract
agreements with customers which require bond guarantees from an independent
surety company. As is customary in the construction industry, the Company has
pledged all of its assets in order to indemnify the surety company against
losses under these bond guarantees.
9. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1996, the Company bought back 418 shares of
its stock which was owned by a principal stockholder. The buy-back of stock was
accomplished by providing an unsecured promissory note for $138,063 payable upon
demand, which accrued interest at the rate of 10% per annum. During the year
ended June 30, 1998, the Company paid the remaining principal balance
outstanding at June 30, 1997 of $87,402.
The Company leases equipment from a principal stockholder. Lease payments
for the years ended June 30, 1998 and 1997 were $57,600 and $78,920,
respectively. Amounts included in accounts payable that were due to the
stockholder for equipment rental were $0 and $22,200 at June 30, 1998 and 1997,
respectively.
On June 30, 1995, the Company had an outstanding unsecured note receivable
from a stockholder, which it had received in exchange for the issuance of common
stock. The note is payable upon demand and accrues interest at the rate of 10%
per annum. The Company received payments of principal and interest of $0 and
$30,820 at June 30, 1998 and 1997, respectively. The remaining principal balance
owed the Company at June 30, 1998 and 1997 was $60,598. The Company's accrued
interest balance at June 30, 1998 and 1997 was $14,410 and $7,744, respectively.
10. DEFINED CONTRIBUTION PENSION PLAN
Effective January 1997, the Company adopted a 401(k) retirement plan that
covers all employees who have completed one year of service and are at least 21
years of age. The Company's contributions, which are discretionary, are
allocated to participants based on a percentage of wages. Participants may also
make elective contributions. Employer pension expense for the year ended June
30, 1998 and 1997 totaled $28,409 and $0, respectively.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, accounts receivable, accounts payable, and other current
liabilities--At June 30, 1998, carrying amounts of these financial instruments
approximate fair value because of their short maturities.
Long term debt and capital lease obligations--At June 30, 1998, estimated
fair value of long-term debt approximates the carrying amount of $92,663, based
on current rates offered for similar debt.
12. YEAR 2000 COMPLIANCE
The Company is conducting a review of its computer and other systems to
identify those areas that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company is currently
working with consultants who believe, with modifications to existing software
and converting to new software and hardware, the Year 2000 problem will not pose
significant operational problems and is not anticipated to be material to its
financial position or results of operations in any given year.
F-52
<PAGE> 55
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENTS
On September 1, 1998, the Company's line of credit was paid in full and
canceled.
On August 31, 1998, the stockholders of CORD Communications sold all of the
outstanding shares of stock to Westower Corporation in exchange for $5,000,000
in cash and 217,389 shares of Westower stock. The stockholders can receive
347,826 additional shares contingent on the performance of CORD Communications
during the twelve months following the purchase. The purchase agreement also
provides that Westower will support CORD's need for additional working capital
during the twelve months following the purchase. Westower is a larger cellular
tower contractor and operator, and is planning to bring its additional
marketing, operational and capital resources to CORD Communications in order to
grow and enhance the Company's business activities.
F-53
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
In our opinion, the accompanying balance sheet and the related statements
of income, members' equity and cash flows present fairly, in all material
respects, the financial position of Summit Communications, LLC at September 30,
1998, and the results of its operations and its cash flows for the nine months
ended September 30, 1998, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The financial
statements of Summit Communications, LLC for the Period of Inception (May 24,
1997) to December 31, 1997 were audited by other independent accountants whose
report dated March 5, 1998 expressed an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
May 21, 1999
F-54
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
Ridgeland, Mississippi
We have audited the accompanying balance sheet of Summit Communications,
LLC, as of December 31, 1997 and the related statements of income, members'
equity and cash flows for the Period of Inception (May 24, 1997) to 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Communications, LLC
as of December 31, 1997, the results of its operations and its cash flows for
the Period of Inception (May 24, 1997) to December 31, 1997, in conformity with
generally accepted accounting principles.
/S/ SHEARER, TAYLOR & CO., P.A.
March 5, 1998
Jackson, Mississippi
F-55
<PAGE> 58
SUMMIT COMMUNICATIONS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 541,850
Accounts receivable....................................... $1,142,771 2,791,203
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 117,648 411,766
Note receivable from member............................... 155,000
Other current assets...................................... 60,949 98,088
---------- ----------
Total current assets........................................ 1,321,368 3,997,907
---------- ----------
Property and equipment
Machinery and equipment................................... 479,459 568,336
Vehicles.................................................. 398,916 529,734
Furniture and fixtures.................................... 17,292 24,104
---------- ----------
895,667 1,122,174
Less: Accumulated depreciation............................ (196,346) (384,547)
---------- ----------
Property and equipment, net............................ 699,321 737,627
---------- ----------
Other assets................................................ 19,671 18,421
---------- ----------
$2,040,360 $4,753,955
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Current liabilities
Book overdraft......................................... $ 118,249
Accounts payable....................................... 183,876 $1,361,357
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 265,520 532,608
Accrued expenses and other liabilities................. 84,266 225,356
Line of credit......................................... 116,537 442,144
Note payable to member................................. 388,938
Current portion of capital lease obligations........... 14,917 65,630
Current portion of long-term debt...................... 52,041 125,802
---------- ----------
Total current liabilities................................... 1,224,344 2,752,897
Capital lease obligations, less current portion............. 18,881 126,697
Long-term debt, less current portion........................ 231,053 469,989
---------- ----------
Total liabilities........................................... 1,474,278 3,349,583
---------- ----------
Commitments and contingencies
Members' equity............................................. 566,082 1,404,372
---------- ----------
$2,040,360 $4,753,955
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 59
SUMMIT COMMUNICATIONS, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
Contract revenues earned.................................... $5,477,770 $8,334,650
---------- ----------
Cost of contract revenues (exclusive of depreciation and
amortization shown below)
Materials, supplies and contract services................. 2,519,761 3,992,685
Direct labor.............................................. 867,387 1,261,849
Other direct costs........................................ 726,241 1,031,938
---------- ----------
Total cost of contract revenues............................. 4,113,389 6,286,472
---------- ----------
Gross margin................................................ 1,364,381 2,048,178
---------- ----------
Selling, general and administrative expenses................ 645,953 922,198
Depreciation and amortization............................... 197,061 196,616
---------- ----------
Income from operations...................................... 521,367 929,364
Other income (expense)
Other income, net......................................... 1,533
Interest expense.......................................... (45,285) (92,607)
---------- ----------
Net income.................................................. $ 476,082 $ 838,290
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 60
SUMMIT COMMUNICATIONS, LLC
STATEMENT OF MEMBERS' EQUITY
<TABLE>
<S> <C>
Capital contributions (May 24, 1997)........................ $ 100,000
Net income.................................................. 476,082
Distributions to members.................................... (10,000)
----------
December 31, 1997........................................... 566,082
Net income.................................................. 838,290
September 30, 1998.......................................... $1,404,372
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 61
SUMMIT COMMUNICATIONS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 476,082 $ 838,290
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Depreciation and amortization............................. 197,061 196,616
Loss on disposal of assets................................ 15,520
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECT
OF ACQUISITION:
Accounts receivable.................................... (1,142,771) (1,648,432)
Cost and estimated earnings in excess of billings on
uncompleted contracts................................ (117,648) (294,118)
Other current assets................................... (37,189) (37,139)
Accounts payable....................................... 183,876 1,177,481
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 265,520 267,088
Accrued expenses and other liabilities................. 6,253 141,090
----------- -----------
Net cash (used in) provided by operating activities......... (168,816) 656,396
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition................................. (512,207)
Purchases of property and equipment....................... (13,865) (577,476)
Proceeds from disposals of property and equipment......... 501,670
----------- -----------
Net cash used in investing activities....................... (526,072) (75,806)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to member........................................ (155,000)
Proceeds from line of credit, net......................... 116,537 325,607
Proceeds from note payable to member...................... 400,000
Repayments of note payable to member...................... (11,062) (10,741)
Repayments of capital lease obligations................... (301,930) (14,857)
Proceeds from long-term debt.............................. 300,174 500,000
Repayments of long-term debt.............................. (17,080) (565,500)
Increase (decrease) in book overdraft..................... 118,249 (118,249)
Capital contributions..................................... 100,000
Distributions to members.................................. (10,000)
----------- -----------
Net cash provided by (used in) financing activities......... 694,888 (38,740)
----------- -----------
Net increase in cash........................................ 541,850
Cash at beginning of period.................................
----------- -----------
Cash at end of period....................................... $ -- $ 541,850
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 62
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD OF INCEPTION (MAY 24, 1997) TO DECEMBER 31, 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Summit Communications LLC (the "Company") is incorporated under the laws of
the state of Mississippi as a limited liability company (LLC). The Company
constructs communications towers for use by the radio, television, telephone and
other industries in the continental United States.
Accounting 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. Examples of estimates subject to possible revision based upon
the outcome of future events include costs and estimated earnings on uncompleted
contracts and depreciation on property and equipment. Actual results could
differ from those estimates.
Revenue and Cost Recognition
Revenues from fixed-priced and modified fixed-price construction contracts
are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to total estimated costs to complete each
contract. Most of the Company's contracts are short-term and are completed in
two to three months.
Contract costs include all direct material and labor costs and those direct
costs related to contract performance, such as supplies, tools and repairs.
Selling, general and administrative costs, including indirect costs on
contracts, are charged to expense as incurred. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues earned.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives by major asset category are as follows: machinery and
equipment--2 to 10 years; vehicles--3 to 5 years; furniture and fixtures--3 to 7
years. Gains or losses on the dispositions of assets are recorded at the time of
disposition and are included in other income. The costs of normal repairs and
maintenance are charged to expense as incurred.
Income Taxes
Income of the Company is taxed directly to its members for Federal income
tax purposes. As a result, no provision for Federal income taxes has been
reflected in the accompanying financial statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation. These reclassifications had no effect on
previously reported results of operations, net assets, cash flows or members'
equity.
F-60
<PAGE> 63
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. UNCOMPLETED CONTRACTS
The following is a summary of costs, estimated earnings and billings on
uncompleted contracts:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Costs incurred on uncompleted contracts....... $1,143,511 $2,471,585
Estimated earnings............................ 495,683 888,087
---------- ----------
1,639,194 3,359,672
Less: Billings to date........................ 1,787,066 3,480,514
---------- ----------
$ (147,872) $ (120,842)
========== ==========
Presentation in the accompanying balance
sheet:
Cost and estimated earnings in excess of
billings on uncompleted contracts........ $ 117,648 $ 411,766
Billings in excess of costs and estimated
earnings on uncompleted contracts........ (265,520) (532,608)
========== ==========
$ (147,872) $ (120,842)
========== ==========
</TABLE>
3. LINE OF CREDIT
Line of credit consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Line of credit for $600,000 payable to
commercial bank; interest at the lender's
prime rate (8.5% at December 31, 1997) plus
0.5%; principal and interest payable January
1, 1998; collateralized by inventory,
property and equipment, and accounts
receivable.................................. $ 57,593
Line of credit for $750,000 payable to
commercial bank; interest at the lender's
prime rate, (8.5% at December 31, 1997) plus
0.5%; principal and interest payable July 1,
1998; collateralized by inventory, property
and equipment, and accounts receivable...... 58,944
Line of credit for $750,000 payable to
commercial bank; interest at the lender's
prime rate (8.25% at September 30, 1998)
plus 0.25%; principal payable April 30,
1999, interest payable monthly;
collateralized by inventory, property and
equipment and accounts receivable; amended
on October 16, 1998 increasing the line of
credit available to $1,000,000 and interest
to the 90 day LIBOR rate plus 2.25%......... $442,144
-------- --------
$116,537 $442,144
======== ========
</TABLE>
F-61
<PAGE> 64
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. NOTE PAYABLE TO MEMBER
Note payable to member consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to member; interest at a specified commercial
bank's prime rate, 8.5% at December 31, 1997; principal
payable on July 18, 1998 and interest payable
quarterly............................................... $388,938
========
</TABLE>
The net proceeds of the note were used to acquire the net assets in Note
11. In April 1998, the Company refinanced the note with a note payable to a
commercial bank (see Note 5).
Interest paid to the member was approximately $17,000 and $11,000 for the
Period of Inception (May 24, 1997) to December 31, 1997 and the nine months
ended September 30, 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Note payable to commercial bank at an interest
rate of 8.5%; payable in monthly
installments of $6,176, including interest,
through September 25, 2002; collateralized
by property and equipment and accounts
receivable.................................. $283,094 $249,221
Note payable to commercial bank at an interest
rate of 8.75%; payable in monthly
installments of $8,207, including interest,
through April 5, 2003; collateralized by
property and equipment and accounts
receivable.................................. 346,570
-------- --------
283,094 595,791
Less: Current portion......................... (52,041) (125,802)
-------- --------
Long-term debt, less current portion.......... $231,053 $469,989
======== ========
</TABLE>
The following is a summary of the future aggregate amounts of principal
payments for long-term debt at September 30, 1998:
<TABLE>
<S> <C>
Three months ending December 31, 1998.................... $ 30,443
1999..................................................... 128,542
2000..................................................... 140,099
2001..................................................... 152,696
2002..................................................... 144,011
---------
595,791
Less: Current portion.................................... (125,802)
---------
$ 469,989
=========
</TABLE>
F-62
<PAGE> 65
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CAPITAL LEASE OBLIGATIONS
The following is a summary of future minimum lease payments under capital
lease agreements at September 30, 1998:
<TABLE>
<S> <C>
Three months ending December 31, 1998..................... $ 22,933
1999...................................................... 70,699
2000...................................................... 65,529
2001...................................................... 62,712
--------
Total minimum lease payments.................... 221,873
Less: Amount representing interest........................ (29,546)
--------
$192,327
========
</TABLE>
The following is a summary of assets and accumulated depreciation of assets
under capital lease agreements as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Vehicles...................................... $54,397 $138,697
Machinery..................................... 92,473
------- --------
54,397 231,170
Less: Accumulated depreciation................ (6,802) (21,463)
------- --------
$47,595 $209,707
======= ========
</TABLE>
Depreciation expense includes amortization of assets under capital leases
of $6,802 and $18,811 for the Period of Inception (May 24, 1997) to December 31,
1997 and for the nine months ended September 30, 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan, which is the
401(k) Profit Sharing Plan and Trust. Employees become eligible for
participation in the plan after one year of service. Employees may contribute a
percentage of their gross compensation not to exceed certain limits.
Contributions by the Company are made at the discretion of the members. There
were no contributions made by the Company related to this plan for the Period of
Inception (May 24, 1997) to December 31, 1997 and for the nine months ended
September 30, 1998.
8. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE
At September 30, 1998, the Company had a note receivable for $155,000 from
one of its members. The note bears interest at the same rate as the line of
credit, is payable on demand, and is uncollateralized. The note was subsequently
repaid in full.
SALE OF BUILDINGS
In February 1998, the Company acquired a building from one of the members
for $500,000. In July 1998 the building was sold to the members resulting in a
loss of approximately $12,000.
F-63
<PAGE> 66
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FACILITY LEASES
The Company leases space in two buildings owned by the members of the
Company under a month to month operating lease. For the nine months ended
September 30, 1998, total rent paid to the members was approximately $9,300.
9. CONTINGENCIES
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
10. CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash and accounts receivable. The
Company deposits its cash with a major financial institution. At times, deposits
may exceed federally insured limits. The Company extends credit to customers
based on evaluation of the customer's financial condition and credit history.
Collateral is generally not required. Customers include large U.S. companies
concentrated in the telecommunications industry.
Contract revenues earned from three customers accounted for 54% of revenues
for the Period of Inception (May 24, 1997) to December 31, 1997. Accounts
receivable from these three customers comprise 53% of accounts receivable at
December 31, 1997. Contract revenues earned from two customers accounted for 58%
of revenues for the nine months ended September 30, 1998. Accounts receivable
from these two customers comprise 57% of accounts receivable at September 30,
1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes that financial results depend in significant part upon the success of
these customers. Although the composition of the group comprising the Company's
largest customers may vary from period to period, the loss of a significant
customer or reduction in orders by any significant customers, including
reductions due to market, economic or competitive conditions in the wireless
communications industry, may have an adverse effect on the Company's business,
financial condition and results of operations.
F-64
<PAGE> 67
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. ACQUISITION
On May 24, 1997, the Company acquired certain assets and assumed certain
liabilities of Summit Communications, Inc. (SCI), an unrelated third party, in a
purchase transaction. The following is a summary of assets acquired and
liabilities assumed in the SCI transaction:
<TABLE>
<S> <C>
Assets acquired
Other current assets.................................... $ 23,760
Property and equipment.................................. 855,896
Other assets............................................ 20,386
--------
900,042
Liabilities assumed
Long-term debt.......................................... 293,634
Capital lease obligations............................... 16,188
Accrued expenses and other liabilities.................. 78,013
--------
387,835
--------
Cash paid............................................... $512,207
========
</TABLE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
Interest paid............................... $42,644 $ 95,248
Non-cash investing and financing activities:
Vehicles and machinery acquired under
capital leases......................... $25,905 $173,386
Note payable to member refinanced with
commercial bank........................ $378,197
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
On November 10, 1998 the members sold all of their outstanding ownership
interest in the Company to Westower Corporation (Westower), a publicly traded
company, in exchange for approximately 200,000 shares of Westower and $4.4
million in cash. The members may also receive an additional 100,000 shares of
Westower common stock based upon certain performance criteria during the three
years subsequent to the date of acquisition. The purchase agreement also
provides that Westower will supply the Company's need for additional working
capital following the purchase.
On May 15, 1999, Westower entered into a definitive agreement with
SpectraSite Holdings, Inc. (SpectraSite), under which Westower will merge with a
subsidiary of SpectraSite. The transaction was consummated on September 2, 1999
and under the terms of the agreement, Westower shareholders received 1.81 shares
of SpectraSite common stock for each Westower share.
F-65
<PAGE> 68
UNAUDITED PRO FORMA FINANCIAL DATA
GENERAL
The unaudited pro forma financial data are based on the historical
financial statements of SpectraSite and Westower and the adjustments described
in the accompanying notes. The unaudited pro forma financial data do not purport
to represent what SpectraSite's, Westower's or the combined entity's financial
position or results of operations would actually have been if the transactions
had in fact occurred on the dates indicated and are not necessarily
representative of SpectraSite's financial position or results of operations at
any future date or for any future period.
SPECTRASITE
The following unaudited pro forma consolidated financial data present both
the pre-merger and post-merger unaudited pro forma consolidated statements of
operations of SpectraSite for the year ended December 31, 1999. The SpectraSite
pro forma column and the Westower pro forma column presented in the post-merger
SpectraSite unaudited pro forma consolidated statement of operations for the
year ended December 31, 1999 are derived from the pre-merger SpectraSite and
Westower pro forma consolidated statements of operations for the corresponding
periods. The unaudited pro forma consolidated statement of operations data give
effect to the following transactions as if they had occurred on January 1, 1999:
- the acquisition of 2,000 communications towers from Nextel, the leaseback
of antenna space by Nextel and SpectraSite's exclusive agreement to
acquire or construct 1,700 additional sites for Nextel;
- the issuance and sale of Holdings' 11 1/4% senior discount notes due
2009;
- initial borrowings under SpectraSite's credit facility; and
- the consummation of the Westower merger.
Certain of the data presented in the "Nextel" column to the unaudited pro
forma statement of operations of SpectraSite are estimates provided by Nextel.
None of SpectraSite's independent accountants, Nextel's independent accountants
or Westower's independent accountants have audited or otherwise tested this
data. We believe the estimated amounts are factually supported and based on
reasonable assumptions. However, these amounts may not accurately reflect the
results of operations from the Nextel towers for the periods presented or the
operating results that we can expect from the Nextel towers in the future.
The acquisition of tower assets from Nextel and the leaseback of antenna
space by Nextel are presented as if the purchase of assets had occurred on
January 1, 1999. Adjustments for revenues are based on the terms of the master
site lease agreement and on historical co-location revenues. Adjustments for
costs of operations consist of direct operating expenses, which include ground
lease payments, historical routine maintenance costs and property taxes
associated with the towers. Depreciation expense is straight-line depreciation
of the aggregate cost of the towers. Ground leases are non-cancelable operating
leases, generally for terms of five years and include options for renewal, and
pro forma ground lease expense is based on executed ground leases. Nextel has
leased space on each of the 2,000 towers we acquired, primarily for five-year
terms with options for renewal.
P-1
<PAGE> 69
The pro forma minimum ground lease expenses and minimum rental income for
these leases assuming the Nextel transaction occurred and the related leases
commenced January 1, 1999 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE RENTAL
EXPENSE INCOME
------------ --------
(IN THOUSANDS)
<S> <C> <C>
1999............................... $17,648 $ 40,766
2000............................... 17,648 40,766
2001............................... 17,648 40,766
2002............................... 17,648 40,766
2003............................... 17,648 40,766
------- --------
Total............................ $88,240 $203,830
======= ========
</TABLE>
WESTOWER
The following unaudited pro forma consolidated financial data of Westower
present the unaudited pro forma consolidated statement of operations of Westower
for the period from January 1, 1999 through September 2, 1999, the date on which
SpectraSite acquired Westower.
This statement gives effect to the acquisition of communications towers
from Koch Industries, Inc. and its affiliates, which occurred in February 1999,
as if this acquisition occurred on January 1, 1999. In addition to the above
acquisition, from January 1 through September 2, 1999, Westower acquired Cypress
Real Estate Services, Inc. and Telecommunications R. David. These acquisitions,
which are included in the historical financial statements of Westower, were not
considered significant transactions, individually or in the aggregate, and
therefore, were not included in the unaudited pro forma consolidated statement
of operations of Westower.
Adjustments for revenues are based on the executed tenant lease terms for
the Koch towers. Adjustments for costs of operations consist of direct operating
expenses, which include ground lease payments, estimated routine maintenance
costs, property taxes and insurance associated with the towers. Depreciation
expense is straight-line depreciation of the aggregate cost of $17.0 million.
The Koch ground leases are non-cancelable operating leases for a term of 49
years, and pro forma ground lease expense is based on executed ground leases.
Koch has leased space on these towers for a ten-year term with options for
renewal. The pro forma minimum ground lease expense and minimum rental income
for these leases assuming the transaction occurred and the related leases
commenced January 1, 1999 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE RENTAL
EXPENSE INCOME
------------ -------
(IN THOUSANDS)
<S> <C> <C>
1999................................ $ 439 $ 1,364
2000................................ 439 1,364
2001................................ 439 1,364
2002................................ 439 1,364
2003................................ 439 1,364
Thereafter.......................... 19,322 6,824
------- -------
Total............................. $21,517 $13,644
======= =======
</TABLE>
P-2
<PAGE> 70
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRE-MERGER
SPECTRASITE
HISTORICAL NEXTEL PRO FORMA
---------- -------- -----------
<S> <C> <C> <C>
Revenues:
Site leasing........................................ $ 46,515 $ 14,954(a) $ 61,469
Network services.................................... 53,570 -- 53,570
-------- -------- ---------
Total revenues........................................ 100,085 14,954 115,039
-------- -------- ---------
Operating expenses:
Costs of operations:
Site leasing..................................... 17,825 6,913(b) 24,738
Network services................................. 36,489 -- 36,489
Selling, general and administrative expenses........ 37,832 --(c) 37,832
Depreciation and amortization....................... 37,976 11,808(d) 49,784
Non-cash compensation charges....................... 350 -- 350
Restructuring and non-recurring charges............. 7,727 -- 7,727
-------- -------- ---------
Total operating expenses.............................. 138,199 18,721 156,920
-------- -------- ---------
Operating loss........................................ (38,114) (3,767) (41,881)
-------- -------- ---------
Other income (expense):
Interest income..................................... 8,951 -- 8,951
Interest expense.................................... (67,513) (20,554)(e) (88,067)
Other income (expense).............................. (424) -- (424)
-------- -------- ---------
Total other income (expense)..................... (58,986) (20,554) (79,540)
-------- -------- ---------
Loss before income taxes.............................. (97,100) (24,321) (121,421)
Income tax expense.................................... 568 -- 568
-------- -------- ---------
Net loss.............................................. $(97,668) $(24,321) $(121,989)
======== ======== =========
Net loss.............................................. $(97,668)
Accretion of redemption value of preferred stock...... (760)
--------
Net loss applicable to common shareholders............ $(98,428)
========
Net loss per share:
Basic and diluted................................ $ (12.48)
========
Weighted average number of shares of common stock
outstanding:
Basic and diluted................................ 7,886
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
P-3
<PAGE> 71
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
(a) Consists of $2,611 of historical co-location revenues received by
Nextel prior to the acquisition, which are based on fixed payment lease
terms. This information was provided to us by Nextel. Also consists of
$12,343 of additional revenues to be recognized by SpectraSite under the
terms of the Nextel master site lease agreement.
(b) Reflects certain direct operating expenses, primarily the cost of
executed ground leases, historical routine maintenance and property taxes
associated with the towers, paid by Nextel prior to the acquisition.
(c) SpectraSite has incurred incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
estimated to have been approximately $1,500 per month. These incremental
operating expenses are based upon management's estimates rather than on any
contractual obligation; as such, these amounts have not been presented as
adjustments in the accompanying pro forma financial statements.
(d) Reflects the depreciation of the acquired towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if SpectraSite had
issued its 11 1/4% senior discount notes due 2009 and had entered into the
credit facility on January 1, 1999 as follows:
<TABLE>
<S> <C>
PRO FORMA INTEREST EXPENSE:
Interest on 2009 notes at 11 1/4%................... $13,794
Interest on $150,000 term loan...................... 3,964
Amortization of debt issuance costs................. 1,626
Commitment fees on unused portion of credit
facility.......................................... 1,170
-------
Total adjustment.................................... $20,554
=======
</TABLE>
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<PAGE> 72
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL KOCH WESTOWER
WESTOWER ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Site leasing..................................... $ 1,649 $ 227(a) $ 1,876
Network services................................. 62,002 -- 62,002
------- ----- -------
Total revenues................................... 63,651 227 63,878
------- ----- -------
Operating expenses:
Costs of operations:
Site leasing.................................. 928 123(b) 1,051
Network services.............................. 43,943 -- 43,943
Selling, general and administrative expenses..... 18,439 -- 18,439
Depreciation and amortization.................... 2,920 142(c) 3,062
Restructuring and non-recurring charges.......... 4,629 -- 4,629
------- ----- -------
Total operating expenses........................... 70,859 265 71,124
------- ----- -------
Operating loss..................................... (7,208) (38) (7,246)
------- ----- -------
Other income (expense):
Interest income.................................. 151 -- 151
Interest expense................................. (2,317) (213)(d) (2,530)
Other income (expense)........................... 154 -- 154
------- ----- -------
Total other income (expense).................. (2,012) (213) (2,225)
------- ----- -------
Loss before income taxes........................... (9,220) (251) (9,471)
Income tax expense................................. 223 (100)(e) 123
------- ----- -------
Net loss........................................... $(9,443) $(151) $(9,594)
======= ===== =======
Net loss per share:
Basic and diluted................................ $ (1.10)
=======
Weighted average number of shares of common stock
outstanding:
Basic and diluted................................ 8,562
=======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
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<PAGE> 73
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 2, 1999
(a) Consists of additional revenues to be recognized by Westower in
connection with site lease agreements with Koch.
(b) Reflects certain direct operating expenses, primarily the cost of
executed ground leases, estimated routine maintenance, property taxes and
insurance associated with the towers.
(c) Reflects the depreciation of the acquired towers from Koch calculated
on a straight-line basis over 20 years.
(d) Reflects adjustment to interest expense related to additional
borrowings under Westower's credit facility to acquire the Koch towers, based on
the credit facility's approximate interest rate of 7.5%.
(e) Reflects income tax benefit for the Koch tower operating results at
Westower's estimated tax rate of 40%.
P-6
<PAGE> 74
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
POST-MERGER
SPECTRASITE WESTOWER MERGER SPECTRASITE
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site leasing..................... $ 61,469 $ 1,876 $ -- $ 63,345
Network services................. 53,570 62,002 (1,449)(a) 114,123
--------- ------- ------- ---------
Total revenues..................... 115,039 63,878 (1,449) 177,468
--------- ------- ------- ---------
Operating expenses:
Costs of operations:
Site leasing.................. 24,738 1,051 -- 25,789
Network services.............. 36,489 43,943 (1,014)(a) 79,418
Selling, general and
administrative expenses....... 37,832 18,439 -- 56,271
Depreciation and amortization.... 49,784 3,062 9,577(b) 61,972
(451)(c)
Non-cash compensation charges.... 350 -- -- 350
Restructuring and non-recurring
charges....................... 7,727 4,629 (4,629)(d) 7,727
--------- ------- ------- ---------
Total operating expenses........... 156,920 71,124 3,483 231,527
--------- ------- ------- ---------
Operating loss..................... (41,881) (7,246) (4,932) (54,059)
--------- ------- ------- ---------
Other income (expense):
Interest income.................. 8,951 151 (1,466)(e) 7,636
Interest expense................. (88,067) (2,530) 2,052(f) (88,545)
Other income (expense)........... (424) 154 -- (270)
--------- ------- ------- ---------
Total other income
(expense)................... (79,540) (2,225) 586 (81,179)
--------- ------- ------- ---------
Loss before income taxes........... (121,421) (9,471) (4,346) (135,238)
Income tax expense................. 568 123 -- 691
--------- ------- ------- ---------
Net loss........................... $(121,989) $(9,594) $(4,346) $(135,929)
========= ======= ======= =========
Net loss per share:
Basic and diluted................ $ 6.73(g)
=========
Weighted average number of shares
of common stock outstanding:
Basic and diluted................ 20,192
=========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
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<PAGE> 75
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
(a) Reflects the elimination of intercompany site construction revenues
and costs of site construction for towers built by Westower for SpectraSite
during the period from January 1 through September 2, 1999.
(b) Reflects amortization of goodwill as if the merger of Westower and
SpectraSite had occurred on January 1, 1999. Goodwill is amortized over 15
years.
(c) Reflects adjustments to eliminate amortization of historical goodwill
of Westower of $1,062 and to convert Westower tower depreciation from 20 years
to 15 years, increasing expense by $611.
(d) Reflects the elimination of certain non-recurring charges resulting
directly from the transaction which were incurred by Westower prior to its
acquisition by Spectrasite.
(e) Reflects an adjustment to eliminate interest income as if SpectraSite
had used cash-on-hand to repay Westower's outstanding indebtedness.
(f) Reflects adjustments to eliminate interest expense as if Westower's
credit facility and its $15,000 convertible note from BET Associates were paid
in full on January 1, 1999.
(g) SpectraSite's earnings per share for the year ended December 31, 1999
reflects the adoption of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which requires companies to compute earnings per share
under two different methods, basic and diluted. The weighted average common
shares outstanding at December 31, 1999 reflects the issuance of 15.5 million
shares of SpectraSite common stock in exchange for all of the outstanding shares
of Westower common stock.
If SpectraSite had net income during this period, diluted earnings per
share would have included potential common shares related to its convertible
preferred stock and outstanding options. These potential common shares were not
included in the diluted earnings per share calculation for the year ended
December 31, 1999 because the effect would have been antidilutive. In connection
with the Nextel tower acquisition, provisions for dividends and redemption were
eliminated with respect to Holdings' Series A and Series B preferred stock.
P-8
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECTRASITE HOLDINGS, INC.
Dated: August 18, 2000
By: /s/ DAVID P. TOMICK
------------------------------------
David P. Tomick
Executive Vice President and
Chief Financial Officer
