SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 23, 1998
SPECIALTY TELECONSTRUCTORS, INC.
(Exact name of Registrant as specified in charter)
NEVADA 1-13272 85-0421409
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
12001 STATE HIGHWAY 14 NORTH 87008
CEDAR CREST, NEW MEXICO (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (505) 281-2197
DAFS03...:\95\66295\0003\1761\8-K6128X.58E
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 23, 1998, Specialty Teleconstructors, Inc., a Nevada
corporation ("STI" and, together with its subsidiaries, the "Company"),
consummated the transactions contemplated by that certain Amended and Restated
Agreement and Plan of Merger, dated as of February 16, 1998 and amended and
restated as of April 22, 1998 (the "Merger Agreement"), among STI, OAI
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of STI
("Acquisition"), OmniAmerica Holdings Corporation, a Delaware corporation
("Holdings"), OmniAmerica, Inc., a Delaware corporation and wholly-owned
subsidiary of Holdings, Omni/HSW Acquisition, Inc., which, prior to its merger
with and into Holdings immediately prior to the Merger (as hereinafter defined)
was a Delaware corporation ("Omni/HSW"), and HMTF/Omni Partners, L.P., a
Delaware limited partnership ("OmniPartners"). On April 23, 1998, (i) Omni/HSW
was merged (the "HSW Merger") with and into Holdings, with Holdings being the
surviving corporation of the HSW Merger and (ii) immediately thereafter,
Acquisition was merged (the "Merger") with and into Holdings, with Holdings
being the surviving corporation of the Merger and, as a result of the Merger, a
wholly-owned subsidiary of STI.
At the effective time of the Merger (the "Effective Time"), each
share of common stock, par value $.01 per share, of Holdings outstanding
immediately prior to the Effective Time was converted into the right to receive
0.09109398 shares of common stock, par value $.01 per share, of STI ("STI Common
Stock"). At the consummation of the Merger, STI issued 6,750,000 shares of STI
Common Stock to OmniPartners, the former stockholder of Holdings.
The aggregate consideration paid to acquire Holdings and its
subsidiaries pursuant to the Merger Agreement was determined as the result of
arm's length negotiations between STI and Holdings. Prior to the consummation of
the Merger, Holdings and its subsidiaries owned assets constituting real estate,
equipment and other physical property used in the operation of the wireless
communications and broadcast transmission tower business and, subject to any
dispositions that may be agreed upon in the future, such assets will continue to
be utilized by the Company for such purposes.
Pursuant to the Merger Agreement, effective as of the Effective
Time, three of STI's directors, Terry D. Farmer, Frank D. Lackey and Jon D.
Word, resigned from the Board of Directors of STI. Simultaneously therewith, the
remaining members of the Board of Directors of STI increased the size of the
Board of Directors to eight directors and elected one director designated by
certain existing stockholders of STI, Jeffrey A. Howard, and three directors
designated by Hicks, Muse, Tate & Furst Incorporated, a Texas corporation that
is an affiliate of OmniPartners ("HMTF"), Jack D. Furst, Carl E. Hirsch and
Lawrence D. Stuart, Jr., with one additional director to be designated by HMTF
subsequent thereto, to fill the vacancies created by the increase in size of the
Board of Directors of STI. The Restated Articles of Incorporation of STI provide
for a classified Board of Directors. The members of the Board of Directors of
STI are classified as follows:
2
<PAGE>
Class I Directors
-----------------
Jeffrey A. Howard
Lawrence D. Stuart, Jr.
Class II Directors
------------------
John D. Emery
Carl E. Hirsch
Class III Directors
-------------------
Michael R. Budagher
Ernie L. Carpenter
Jack D. Furst
Each Class I director will hold office until the 1998 annual meeting
of stockholders of STI, each Class II director will hold office until the 1999
annual meeting of stockholders of STI and each Class III director will hold
office until the 2000 annual meeting of stockholders of STI and, in each case,
until his successor is duly elected or appointed and qualified in the manner
provided in the Restated Articles of Incorporation of STI or Amended and
Restated By-Laws of STI, or as otherwise provided by applicable law.
At the Effective Time, pursuant to the Merger Agreement, the
following individuals were elected as officers of STI:
Jack D. Furst -- Chairman of the Board
Carl E. Hirsch -- President and Chief Executive Officer
Michael R. Budagher -- Chief Operating Officer and Vice Chairman
Anthony S. Ocepek -- Chief Financial Officer
Jeffrey A. Howard -- Vice President -- Corporate Development
F. Howard Mandel -- Vice President and General Counsel
Steven M. Smith -- Vice President -- Finance
In connection with the consummation of the Merger, STI and certain
stockholders of STI entered into that certain Post-Merger Stockholders Agreement
(the "Stockholders Agreement"), dated as of April 23, 1998. Pursuant to the
Stockholders Agreement, HMTF is entitled to designate up to four directors of
the Board of Directors of STI, dependent upon the percentage of the STI Common
Stock owned by OmniPartners and its affiliates. Also pursuant to the terms of
the Stockholders Agreement, STI has the right of first offer upon the proposed
transfer of certain shares of STI Common Stock that are subject to the
Stockholders Agreement. In addition, OmniPartners and certain of its affiliates
have agreed that prior to the termination of the Stockholders Agreement, none of
them will purchase or otherwise acquire, directly or indirectly, more than 49.9%
of the outstanding shares of STI Common Stock. Furthermore, none of such parties
will take certain actions, including, without limitation, soliciting proxies,
encouraging the formation of voting trusts or commencing other actions in order
to seek control of the Board of Directors of STI.
3
<PAGE>
The description of the Merger Agreement contained herein is
qualified in its entirety by reference to the definitive agreement, which is
filed herewith as Exhibit 2.1 and the description of the Stockholders Agreement
contained herein is qualified in its entirety by reference to the definitive
agreement, which is filed herewith as Exhibit 4.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following are the audited historical financial statements
for (i) Holdings as of December 31, 1997 and for the period from inception
(October 15, 1997) through December 31, 1997, (ii) HSW Associates, Inc., a
Florida corporation ("HSW"), as of December 31, 1997 and for each of the two
years in the period then ended, (iii) TowerCom, Limited, a Florida limited
partnership ("TowerCom"), as of December 31, 1997 and December 31, 1996 and for
the years then ended, (iv) Miller Transmission Tower Company, Limited, a Texas
limited partnership ("Miller"), as of December 31, 1997 and December 31, 1996
and for the years then ended, and (v) Kline Iron & Steel Company, Inc., a South
Carolina corporation ("Kline"), as of September 30, 1997 and September 30, 1996
and for the years then ended.
4
<PAGE>
Report of Independent Auditors
Board of Directors
OmniAmerica Holdings Corporation
We have audited the accompanying consolidated balance sheet of OmniAmerica
Holdings Corporation (the Company) as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the period from inception (October 15, 1997) through 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 the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OmniAmerica Holdings Corporation at December 31, 1997, and the consolidated
results of their operations and their cash flows for the period from inception
(October 15, 1997) through December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 20, 1998
5
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Balance Sheet
December 31, 1997
ASSETS
Current assets:
Cash $ 4,442
Accounts receivable, less allowance for doubtful
accounts of $323 15,273
Prepaid expenses 56,411
-------------
Total current assets 76,126
Property and equipment:
Land 234,805
Buildings and improvements 729,195
Towers 517,239
Office and computer equipment 37,855
Vehicles 38,707
-------------
1,577,801
Less allowance for depreciation 2,407
1,555,394
Other assets:
Goodwill, net of accumulated amortization of $11,848 5,040,640
Investment in Kline Iron & Steel Co., Inc. 7,509,019
Other 425,314
12,974,973
Total assets $ 14,606,493
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 11,175
Accounts payable, officers 568,184
Accrued liabilities 937,895
Note payable 6,325,000
------------
7,842,254
Stockholder's equity:
Common stock, $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 7,501,000 75,010
Additional paid-in capital 7,500,990
Retained earnings (deficit) (811,761)
------------
Total stockholder's equity 6,764,239
Total liabilities and stockholder's equity $ 14,606,493
See accompanying notes.
6
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Operations
Period from Inception (October 15, 1997) through December 31, 1997
Tower rental revenues $ 15,597
Cost of services 1,206
-----------
Gross margin 14,391
General and administrative expenses 838,791
Depreciation and amortization 14,255
----------
853,046
----------
Operating loss (838,655)
Other income (expense):
Equity in earnings of Kline Iron & Steel Co., Inc. 59,279
Interest income 360
Interest expense (32,745)
----------
26,894
----------
Loss before income taxes (811,761)
Income tax benefit -
----------
Net loss $(811,761)
==========
See accompanying notes.
7
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Stockholder's Equity
Period from Inception (October 15, 1997) through December 31, 1997
<TABLE>
<CAPTION>
Additional Retained Total
Common Stock Paid-in Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
--------------- -------------- --------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Balance at October 15,
1997 (Inception) - $ - $ - $ - $ -
Common stock issued
for cash 7,501,000 75,010 7,425,990 - 7,501,000
Issuance of stock
option (Note 9) - - 75,000 - 75,000
Net loss - - - (811,761) (811,761)
--------------- -------------- --------------- ---------------- --------------------
Balance at
December 31, 1997 7,501,000 $75,010 $7,500,990 $(811,761) $6,764,239
=============== ============== =============== ================ ====================
</TABLE>
See accompanying notes.
8
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Cash Flows
Period from Inception (October 15, 1997) through December 31, 1997
OPERATING ACTIVITIES
Net loss $ (811,761)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 14,255
Equity in earnings of Kline Iron & Steel Co., Inc. (59,279)
Provision for losses on accounts receivable 323
Change in operating assets and liabilities:
Increase in accounts receivable (15,596)
Increase in prepaid expenses (56,411)
Increase in accounts payable, officers 568,184
Increase in accounts payable 11,175
Increase in accrued expenses 937,895
-----------
Net cash provided by operating activities 588,785
INVESTING ACTIVITIES
Purchase of property and equipment (76,564)
Acquisitions of tower sites and related property (208,725)
Investment in Kline Iron & Steel Co., Inc. (7,374,740)
Other (425,314)
-----------
Net cash used in investing activities (8,085,343)
-----------
FINANCING ACTIVITIES
Proceeds from stock issuance 7,501,000
Net cash provided by financing activities 7,501,000
Increase in cash 4,442
Cash at beginning of period -
-----------
Cash at end of period $ 4,442
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ -
Income taxes -
Non-cash investing and financing activities:
Issuance of note payable to purchase Radio Seaway
Incorporated (Note 8) 6,325,000
Issuance of stock option (Note 9) 75,000
See accompanying notes.
9
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
OmniAmerica Holdings Corporation (the Corporation), a Delaware corporation, is
headquartered in West Palm Beach, Florida, and was formed by HMTF/Omni Partners,
L.P. (the Partnership) as a holding company for its wholly-owned subsidiary,
OmniAmerica, Inc. (Omni), on October 15, 1997. The Company owns and manages
transmission towers for radio and television broadcasting, paging, cellular,
personal communication system (PCS), and other wireless technologies throughout
the United States.
On November 14, 1997, the Corporation acquired a one-third interest in Kline
Iron & Steel Co., Inc. (Kline), a tower fabrication company, for approximately
$7 million which is accounted for using the equity method (see Note 9).
Additionally, the Corporation acquired the following towers, real estate, and
property during 1997, each of which was accounted for using the purchase method
of accounting:
<TABLE>
<CAPTION>
PROPERTY ACQUIRED PURCHASE
FROM LOCATION PRICE DATE ACQUIRED
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dein P. Spriggs and Palm Beach $ 175,000 November 24, 1997
Robert D. Abersold Gardens, Florida
(three non-operating
towers)
Radio Seaway, Warrensville $6,325,000 December 19, 1997
Incorporated (one Heights, Ohio
operating tower)
</TABLE>
The statement of operations includes revenues and operating costs of the
acquired towers from their respective dates of acquisition.
2. ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
10
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and Omni. All significant intercompany accounts and transactions have been
eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, as follows:
Buildings 39 years
Towers 15 years
Antenna equipment 5 years
Vehicles 5 years
Furniture and fixtures 7 years
Computer and office equipment 5 years
GOODWILL AND OTHER ASSETS
Goodwill of $5,052,488, primarily associated with the Radio Seaway, Incorporated
transaction, is being amortized on a straight-line basis over its estimated
useful life of fifteen years.
REVENUE RECOGNITION
Revenue is recognized as earned over the respective lease terms.
FEDERAL INCOME TAXES
Income taxes are reported under the liability method. Accordingly, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
11
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN KLINE
The difference between the cost of the Corporation's interest in Kline and the
amount of underlying equity in net assets at the date of acquisition is
approximately $6.2 million, which is being amortized on a straight-line basis
over 40 years.
CONCENTRATION OF CREDIT RISK
The Corporation provides services to major communications companies, most of
which are in major metropolitan areas. The Corporation may perform periodic
credit evaluations of the customers' financial condition and generally does not
require collateral. Receivables generally are due within 30 days.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31
1997
----
Accrued professional fees $555,691
Accrued payroll and related 332,186
Accrued franchise taxes 32,075
Accrued interest 16,636
Other 1,307
---------
$937,895
12
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES
Deferred tax assets and liabilities are as follows:
DECEMBER 31
1997
----
Deferred tax assets:
Tax benefit of net operating loss carryforward $ 64,028
Start-up costs deferred for tax purposes 271,643
----------
Total deferred tax assets 335,671
Less: valuation allowance (312,789)
----------
22,882
Deferred tax liability:
Equity in earnings of Kline Iron & Steel Co., Inc.
not currently taxable (22,882)
----------
Net deferred tax assets $ -
==========
The difference between the effective income tax rate and the statutory tax rate
is attributable to the uncertainty of the realization of deferred tax assets.
The Corporation has a net operating loss carryforward of approximately $165,000
for tax purposes to offset future taxable income. The net operating loss
carryforward expires in 2012.
5. RELATED PARTY
Carl E. Hirsch and Anthony S. Ocepek, officers of the Corporation, used personal
funds to pay expenses relating to the formation of the Corporation, such as
office space rent, travel, telephone, payroll, and purchases of property and
equipment. These expenses totaled $568,184 and are included in accounts payable,
officers.
13
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS
The Company leases office space and certain equipment under operating leases
expiring through 2000. Rent expense was $29,719 for the period ended December
31, 1997. Future minimum payments under non-cancelable operating leases for the
year ending December 31, are as follows:
1998 $42,260
1999 9,000
2000 1,500
-------
$52,760
=======
7. TOWER RENTAL REVENUE
The Corporation receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower rental revenues under tower leases in effect at December
31, 1997, are as follows:
1998 $ 493,176
1999 457,782
2000 402,039
2001 355,797
2002 259,974
Thereafter 766,188
-----------
$2,734,956
===========
8. NOTES PAYABLE
The acquisition of Radio Seaway, Incorporated was financed by the issuance to
its owner of a note payable for $6,325,000, bearing interest at 8% and due on
January 7, 1998. The note was paid in full on that date, including $16,636 of
accrued interest.
14
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
9. INVESTMENT IN KLINE IRON & STEEL CO., INC.
Summarized financial information of Kline is as follows:
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 SEPTEMBER 30
1997 1997
-----------------------------------------------------
Sales $ 13,311,541 $ 49,045,582
Gross profit 1,931,713 6,608,425
Net income 480,939 1,009,375
(UNAUDITED)
DECEMBER 31
1997
----------------------------
Current assets $ 14,327,009
Non-current assets 3,408,961
Current liabilities 11,494,362
Non-current liabilities 2,267,391
Stockholders' equity 3,974,217
In connection with the Kline transaction, the Corporation granted Jerome C.
Kline, Kline's shareholder, an option to purchase up to 500,000 shares of the
Corporation's common stock at an exercise price of $1.00 per share, increasing
8% per year, for a period of five years commencing on November 14, 1997, and
ending on November 14, 2002. The value assigned to this option at its date of
issue of $75,000 represents additional consideration for the Kline stock
purchase. As of December 31, 1997, no options have been exercised.
The Corporation's investment in Kline includes a 1.5% transaction fee of
$105,000 paid to Hicks, Muse, Tate & Furst Incorporated, an affiliate of the
Partnership.
15
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
10. PARTNERSHIP INTERESTS
The agreement under which the Partnership was formed (the Partnership Agreement)
provides for conveying to members of management, interests in the partnership,
representing rights to partnership distributions to the extent cumulative
partnership distributions exceed specified thresholds. The partnership interests
that may be allocated to members of management range from zero up to a total of
15% (rights to up to 6.4% have been allocated to members of management through
December 31, 1997). The percentage to be conveyed is determined based on
performance criteria set forth in the Partnership Agreement. The fair value of
partnership interests earned through December 31, 1997, is not material.
11. YEAR 2000 ISSUE (UNAUDITED)
When the Corporation was formed during 1997, it purchased Year 2000-ready
computers and related office equipment. Additionally, management has determined
that its towers and related equipment are unaffected by the year 2000.
12. SUBSEQUENT EVENTS
On January 6, 1998, the Corporation issued 11,183,724 shares of common stock to
the Partnership in exchange for approximately $11.2 million cash. A portion of
these funds were used to pay the note payable to Radio Seaway, Incorporated.
On February 4, 1998, the Corporation issued 55,414,574 shares of common stock to
the Partnership in exchange for approximately $55.4 million cash.
Through February 20, 1998, the Corporation has acquired the following towers,
real estate, and property:
ACQUISITION LOCATION PURCHASE PRICE DATE ACQUIRED
- --------------------------------------------------------------------------------
Ardman Broadcasting
(2 operating towers) Ft. Pierce, FL $ 1,350,000 January 15, 1998
TowerCom, Limited
(2 operating towers and 2
towers under construction) Miami, FL $27,500,000 February 5, 1998
Miller Transmission Tower
Company Ltd.
(2 operating towers and 1
tower under construction) Dallas, TX $24,100,000 February 6, 1998
16
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
12. SUBSEQUENT EVENTS (CONTINUED)
On February 17, 1998, the Partnership signed a definitive agreement under which
the Corporation and Specialty Teleconstructors, Inc. (Specialty), a publicly
traded Nasdaq-listed company, will merge in a stock-for-stock transaction valued
at approximately $500 million. The Corporation and Specialty will combine in a
tax-free exchange of stock in which the Partnership will receive approximately
6.75 million newly-issued shares of Specialty in exchange for 100% of the
Corporation's common stock.
Immediately prior to the closing of the Corporation's merger with Specialty, the
Corporation expects to merge with Omni/HSW Acquisition, Inc. (Omni/HSW), a
corporation formed by the Partnership in 1998 which, in January 1998, purchased
and currently manages 22 operating towers and has two towers under construction.
These transactions are expected to be completed by the end of April 1998.
17
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholder
HSW Associates, Inc.
We have audited the accompanying statement of assets sold by HSW Associates,
Inc. (HSW) as of December 31, 1997, and the related statements of revenues and
direct operating expenses of assets sold by HSW Associates, Inc. for each of the
two years in the period then ended. These statements are the responsibility of
HSW's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets sold by HSW
Associates, Inc. and the related statements of revenues and direct operating
expenses of assets sold by HSW Associates, Inc. are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of assets sold by HSW Associates,
Inc. and the related statements of revenues and direct operating expenses of
assets sold by HSW Associates, Inc. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statement of assets sold by HSW
Associates, Inc. and the related statements of revenues and direct operating
expenses of assets sold by HSW Associates, Inc. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the assets sold by HSW Associates, Inc. as of December 31, 1997, and
the related revenues and direct operating expenses of assets sold by HSW
Associates, Inc. for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 31, 1998
18
<PAGE>
HSW Associates, Inc.
Statement of Assets Sold by HSW Associates, Inc.
December 31, 1997
Fixed assets, at cost:
Buildings $ 152,201
Towers 1,669,608
----------
1,821,809
Less: accumulated depreciation 431,812
----------
Fixed assets, net $1,389,997
==========
See accompanying notes.
19
<PAGE>
HSW Associates, Inc.
Statements of Revenues and Direct Operating Expenses
of Assets Sold by HSW Associates, Inc.
YEAR END DECEMBER 31
1997 1996
------------------ ----------
Lease revenue of assets sold $962,664 $638,887
Direct operating expenses of assets sold:
Depreciation 99,518 60,609
Utilities 118,596 98,968
Maintenance 48,846 29,780
Insurance 1,195 1,552
Property Taxes 33,322 20,115
Other 22,563 13,429
---------- ----------
Total direct operating expenses of assets sold 324,040 224,453
---------- ----------
Excess of revenues over direct operating $638,624 $414,434
========== ==========
expenses of assets sold
See accompanying notes.
20
<PAGE>
HSW Associates, Inc.
Notes to Financial Statements
December 31, 1997 and 1996
1. BASIS OF PRESENTATION
HSW Associates, Inc. (HSW) and OmniAmerica, Inc. (the Buyer) entered into an
Agreement for the acquisition of certain towers of HSW (the Agreement) dated
January 15, 1998, under which the Buyer acquired certain assets and assumed
certain obligations of HSW. The assets acquired consist primarily of twenty-four
telecommunication towers (the Towers) owned by HSW. Of these twenty-four towers,
twenty-one are currently operational. The remaining three towers are valued at
$54,252 at December 31, 1997, and are included in the Statement of Assets Sold
by HSW Associates, Inc. Under the terms of the Agreement, the Buyer assumed all
obligations of HSW as landlord, licensor or tenant relating to the tower space
leases with respect to the period after the closing date. The Buyer also assumed
all obligations of HSW subsequent to the closing date relating to the operation
of the Towers and any contracts entered into by HSW during the ordinary course
of business of HSW relating to the Towers but only to the extent that such
contracts were chosen to be included in the obligations assumed by the Buyer.
The Buyer did not assume any of the following operating liabilities incurred
prior to the acquisition of the Towers: liabilities relating to litigation or
claims, tax liabilities, liabilities of HSW as employer, operating liabilities
incurred prior to the acquisition of the Towers, liabilities relating to
indebtedness of HSW, environmental liabilities and liabilities associated with
transaction costs incurred by HSW relating to the Agreement.
The accompanying statement of assets sold by HSW Associates, Inc. and the
related statements of revenues and direct operating expenses of assets sold by
HSW Associates, Inc. were prepared for the purpose of complying with the
requirements of the Securities and Exchange Commission for inclusion in the
Current Report on Form 8-K of Specialty Teleconstructors, Inc. and are not
intended to be a complete presentation of HSW's assets and liabilities or
revenues and expenses.
Property taxes are allocated for the assets sold by HSW based on the respective
asset's net book value.
Lease revenues represent charges for tower usage billed to third-party customers
under lease arrangements.
21
<PAGE>
HSW Associates, Inc.
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized ratably over the lease term, reduced by any amounts not
considered collectible.
DEPRECIATION
Tower and buildings are depreciated using a straight-line method over 15 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FUTURE MINIMUM RENTALS
Future minimum rentals receivable under noncancelable operating leases as of
December 31, 1997, are approximately:
1998 $1,114,145
1999 988,707
2000 883,959
2001 674,941
2002 and thereafter 370,121
----------
Total $4,031,873
==========
22
<PAGE>
Independent Auditors' Report
The Partners of
TowerCom, Limited:
We have audited the accompanying balance sheets of TowerCom, Limited (the
Partnership) as of December 31, 1997 and 1996 and the related statements of
operations, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1997 and 1996 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 19, 1998
Jacksonville, Florida
23
<PAGE>
TOWERCOM, LIMITED
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 149,148 495,617
Accounts receivable- trade (note 3) 200,134 179,699
Accounts receivable- related party (note 5) 100,237 23,609
Prepaid expenses 57,825 58,868
-------------- --------------
Total current assets 507,344 757,793
Property, plant and equipment (notes 2, 3 and 4): 11,209,671 10,643,177
Less accumulated depreciation (1,311,641) (951,387)
-------------- --------------
9,989,030 9,691,790
Accounts receivable, net of current portion 506,216 387,370
Goodwill, net of accumulated amortization of $68,117 in 1997 258,740 280,541
and $46,316 in 1996
Deferred debt issue costs, net of accumulated amortization of 107,835 123,520
$49,016 in 1997 and $33,331 in 1996
Other 12,454 24,820
-------------- --------------
Total assets $11,290,619 11,265,834
============== ==============
Liabilities and Partners' Capital
Current installments of long-term debt (note 3) 762,194 703,935
Accounts payable 10,502 11,796
Accrued liabilities 48,350 39,878
-------------- --------------
Total current liabilities 821,046 755,609
Long-term debt, excluding current installments (note 3) 5,824,760 6,552,848
-------------- --------------
Total liabilities 6,645,806 7,308,457
-------------- --------------
Partners' capital 4,644,813 3,957,377
-------------- --------------
Commitments (note 6)
Total liabilities and partners' capital $11,290,619 11,265,834
============== ==============
See accompanying notes to financial statements.
</TABLE>
24
<PAGE>
TOWERCOM, LIMITED
Statements of Operations
For the years ended December 31, 1997 and 1996
1997 1996
---- ----
Rental income (notes 3 and 4) $2,720,657 2,721,020
Operating expenses (note 5):
Salaries and benefits 244,247 181,384
Depreciation and amortization 400,207 437,252
Real estate and other taxes 62,562 61,303
Insurance 53,119 45,186
Rent 22,194 17,736
Utilities 69,445 69,961
Repairs and maintenance 81,698 101,561
Professional fees 45,614 67,523
Security 80,696 78,042
Travel and entertainment 12,200 16,637
Promotion 12,116 4,226
Other 37,443 31,248
---------- -----------
Total operating expenses 1,121,541 1,112,059
---------- -----------
Net operating income 1,599,116 1,608,961
Other, net:
Interest income 43,226 16,668
Interest expense (577,590) (663,595)
Development expense (46,909) (34,637)
---------- -----------
Total other (581,273) (681,564)
---------- -----------
Net income $1,017,843 927,397
========== ===========
See accompanying notes to financial statements.
25
<PAGE>
TOWERCOM, LIMITED
Statements of Partners' Capital
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
TowerCom, South- South John H. Anthony S. Total
Inc. coast Atlantic Wilson Ocepek
Capital Tower
Corp. Corp.
--------- ---------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $32,358 1,461,885 1,461,885 279,652 - 3,235,780
Net income 9,274 418,998 418,998 80,127 - 927,397
Distribution to Partners' (2,000) (93,000) (93,000) (17,800) - (205,800)
--------- ---------- ---------- --------- -------- ------------
Balance, December 31, 1996 39,632 1,787,883 1,787,883 341,979 - 3,957,377
Paid in Capital - - - - 675,000 675,000
Net income 10,178 436,634 436,634 83,505 50,892 1,017,843
Distributions to Partners' (10,056) (454,234) (454,234) (86,883) - (1,005,407)
--------- ---------- ---------- --------- -------- ------------
Balance, December 31, 1997 $39,754 1,770,283 1,770,283 338,601 725,892 4,644,813
========= ========== ========== ========= ======== ============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
TOWERCOM, LIMITED
Statements of Cash Flows
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,017,843 927,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 400,207 437,252
Changes in assets and liabilities:
Accounts receivable (215,909) (121,555)
Prepaid expenses and other 10,942 (10,965)
Accounts payable (1,294) (16,262)
Accrued liabilities 8,472 (19,851)
------------ -----------
Net cash provided by operating activities 1,220,261 1,196,016
------------ -----------
Cash flows from investing activities:
Capital expenditures (566,494) (13,759)
------------ -----------
Net cash used in investing activities (566,494) (13,759)
------------ -----------
Cash flows from financing activities:
Paid in Capital 675,000 -
Distributions to Partners (1,005,407) (205,800)
Repayment of long-term debt (669,829) (614,543)
------------ -----------
Net cash used in financing activities (1,000,236) (820,343)
------------ -----------
Net increase (decrease) in cash and cash equivalents (346,469) 361,914
Cash and cash equivalents at beginning of period 495,617 133,703
------------ -----------
Cash and cash equivalents at end of period $ 149,148 495,617
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 580,143 635,429
============ ===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
TowerCom, Limited, a Florida Limited Partnership (the Partnership),
was formed on November 17, 1994 to engage in the business of owning,
developing, constructing, leasing, operating, and selling broadcast
towers and related equipment. The Partnership currently owns and
leases two broadcast towers located in Dade County and Orange
County, Florida.
The Partnership is owned 1% by TowerCom, Inc., a Florida
corporation, 42.898% (45.18% in 1996) by Southcoast Capital
Corporation, a Florida corporation (Southcoast), 42.898% (45.18% in
1996) by South Atlantic Tower Corporation, a Delaware corporation,
5% (0% in 1996) by TowerCom's President, and 8.204% (8.64% in 1996)
by an individual.
(b) Cash Equivalents
Cash and cash equivalents includes all short-term investments with
original maturity dates of three months or less.
(c) Property Plant and Equipment
Property, plant and equipment, excluding the towers and buildings,
are recorded at cost and depreciated over their estimated useful
lives by a method that approximates the double declining balance
method.
The towers and buildings are recorded at cost and depreciated over
their estimated useful lives by the straight-line method.
(d) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of property, plant and equipment and is amortized over 15
years by the straight-line method.
(e) Deferred Debt Issue Costs
Debt origination costs are deferred and amortized over the term of
the loan using the straight-line method which approximates the
effective interest method.
28
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, continued
(f) Revenue Recognition
Rent income is recognized as revenue over the life of the lease by
the straight-line method.
(g) Income Taxes
No provision for Federal or state income taxes has been made since
income taxes of the Partnership are the responsibility of the
Partners.
(h) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(i) Allocation of Profits and Losses and Cash Distributions
As defined in the Limited Partnership agreement, the following
summarizes the allocation of net income and losses and cash
distributions:
o The net income and losses of the Partnership shall be
allocated to the Partners in proportion to their Percentage
Interests, as defined.
o Annual cash distributions shall be made in amounts at least
equal to the Federal Income Tax liability of the Partners
attributable to the net income allocated to the Partners for
the year calculated at an assumed marginal income tax rate of
thirty one percent (31%).
o Cash distributions for any other purpose are at the sole
discretion of the General Partner and shall be distributed to
the Partners in proportion to their Percentage Interests, as
defined.
29
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, continued
(j) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of
Long-lived assets and certain identifiable intangibles, including
goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered impaired, the impairment to be recognized is
measured by the amounts by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(k) Reclassifications
Certain 1996 financial statement amounts have been reclassified to
conform to the 1997 presentation.
(2) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31,
1997 and 1996:
Estimated
depreciable
1997 1996 lives (years)
------------ ------------ -------------
Land $ 2,558,334 $ 2,174,148 -
Land Improvements 469,802 469,802 15
Towers 5,680,925 5,680,925 30
Buildings 1,690,996 1,686,643 39
Electrical, mechanical and
technical equipment 554,559 542,042 7
Office equipment 43,297 39,278 5
Furniture and fixtures 22,484 22,299 7
Other 28,040 28,040 7
Construction in progress 161,234 -
------------ -------------
Property, plant and equipment 11,209,671 10,643,177
Less accumulated depreciation (1,311,641) (951,387)
------------ -------------
Net property, plant and
equipment $ 9,898,030 $ 9,691,790
============ =============
30
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(3) Long-term Debt
Long-term debt represents a promissory note payable to a bank, secured by
all property, plant, and equipment, rents and leases. Monthly installments
of $104,164, including interest at 8.23%, are payable through November
2004.
Principal payment requirements for the next five years and thereafter are
as follows:
1998 $ 762,194
1999 825,275
2000 892,423
2001 967,436
2002 1,047,503
Thereafter 2,092,123
----------
$6,586,954
==========
The fair value of long-term debt, as determined using current rates,
approximates carrying value. The long-term debt was paid in full on
February 6, 1998 (note 7).
(4) Rentals under Operating Leases
The two broadcast towers and adjacent buildings are leased under various
operating leases with expiration dates extending to the year 2010. The
cost and accumulated depreciation of these assets were $7,371,920 and
$768,765 at December 31, 1997, and $7,367,568 and $537,924 at December 31,
1996, respectively.
The following is a schedule by years of the minimum future rentals on non
cancelable operating leases as of December 31, 1997:
1998 $ 2,264,917
1999 2,113,982
2000 1,328,255
2001 1,153,471
2002 820,758
Later years 2,834,657
-----------
Total minimum future rentals $10,516,040
===========
31
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(5) Transactions With Related Parties
Accounts receivable represent non-interest bearing advances due from two
related parties.
The Partnership had a management agreement with Southcoast. Management
fees of $30,000 a year were recorded for the years ended December 31, 1997
and 1996, respectively.
The Partnership paid $7,000 and $6,000 to a related party for
reimbursement of attorney costs associated with ongoing lease review and
new projects for the years ended December 31, 1997 and 1996, respectively.
(6) Commitments
On August 27, 1997, the Partnership entered a capital lease with the
Milwaukee Area Technical College (MATC) for excess tower capacity on a
transmission tower yet to be constructed, on land owned by MATC. The
initial lease term is for 25 years with renewal options extending the term
for up to 80 years.
The Partnership has agreed to finance and construct the tower. The debt
service cost is to be recovered from gross revenues received from tenants
on the tower which the Partnership must secure. The Partnership will then
share 30-35% of the remaining net cash flow after debt service cost with
MATC, as defined in the lease agreement.
To date, no contracts have been entered for the engineering, construction
or financing of the tower.
(7) Subsequent Event
On February 6, 1998, the Partnership was sold to OmniAmerica, Inc. for
$28,000,000. The senior vice president and chief operating officer of
OmniAmerica, Inc. also served as president of the Partnership from May 21,
1997 to the date of sale. The note payable to the bank was paid in full in
conjunction with the closing of this sale.
32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
New York, New York
We have audited the accompanying balance sheets of MILLER TRANSMISSION
TOWER COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and
1996 and the related statements of operations, changes in partners' deficiency
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 MILLER TRANSMISSION TOWER
COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and 1996 and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
March 3, 1998
33
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
------ ---------- ----------
ASSETS
Cash $ 132,936 $ 306,110
Accounts receivable 19,371 20,375
Prepaid insurance 12,967 12,557
Land 1,207,260 1,207,260
Towers, net of accumulated depreciation 2,079,195 2,376,219
Investment in partnership 5,274 -
Deferred loan costs, net 42,662 53,545
---------- ----------
$3,499,665 $3,976,066
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES
Note payable $3,989,443 $4,300,000
Accrued expenses 47,150 43,888
Security deposits 116,360 89,280
Prepaid rental income 19,746 1,000
---------- ----------
4,172,699 4,434,168
PARTNERS' DEFICIENCY (673,034) (458,102)
---------- ----------
$3,499,665 $3,976,066
========== ==========
See notes to financial statements.
34
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
SALES $1,575,110 $1,512,843
OPERATING EXPENSES 873,075 729,989
---------- ----------
INCOME FROM OPERATIONS 702,035 782,854
---------- ----------
OTHER (INCOME) EXPENSES
Interest income (11,739) (1,553)
Income from partnership (4,474) -
Amortization of other assets 10,883 908
Interest expense 352,297 427,081
---------- ----------
346,967 426,436
NET INCOME $ 355,068 $ 356,418
========== ==========
See notes to financial statements.
35
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIENCY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partner Deficiency
------- ------- ----------
<S> <C> <C> <C>
PARTNERS' DEFICIENCY, DECEMBER 31, 1995 $(5,144) $(509,376) $(514,520)
CAPITAL DISTRIBUTIONS - 1996 (3,000) (297,000) (300,000)
NET INCOME - 1996 3,564 352,854 356,418
-------- --------- ----------
PARTNERS' DEFICIENCY, DECEMBER 31, 1996 $(4,580) $(453,522) $(458,102)
CAPITAL DISTRIBUTIONS - 1997 (5,700) (564,300) (570,000)
NET INCOME - 1997 3,551 351,517 355,068
-------- --------- ----------
PARTNERS' DEFICIENCY, DECEMBER 31, 1997 $(6,729) $(666,305) $(673,034)
======== ========== ==========
</TABLE>
See notes to financial statements.
36
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $355,068 $ 356,418
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 297,024 281,392
Amortization of other assets 10,883 908
(Increase) decrease in:
Accounts receivable 1,004 29,165
Prepaid insurance (410) 645
Increase (decrease) in:
Accrued expenses 3,262 43,888
Security deposits 27,080 200
Prepaid rental income 18,746 618
------------ -----------
Net cash from operating activities 712,657 713,234
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in partnership (5,274) -
------------ -----------
Net cash (used for) investing activities (5,274) -
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 4,300,000
Deferred loan cost - (54,454)
Payment of notes payable (310,557) (4,401,424)
Capital distributions paid (570,000) (300,000)
------------ -----------
Net cash (used for) financing activities (880,557) (455,878)
------------ -----------
NET INCREASE (DECREASE) IN CASH (173,174) 257,356
CASH, BEGINNING 306,110 48,753
------------ -----------
CASH, END $132,936 $ 306,110
============ ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST $352,297 $ 310,910
============ ===========
</TABLE>
See notes to financial statements.
37
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Miller Transmission Tower Company, Ltd. is a Texas Limited Partnership whose
primary purpose is to lease tower space on two transmission towers. The towers
are located in the State of Texas.
Method of Accounting
The Partnership prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Management believes that all accounts receivable as of December 31, 1997 and
1996 were fully collectible. Therefore, no allowance for doubtful accounts was
recorded.
Property and Equipment
Property and equipment is stated at cost. The cost of equipment is depreciated
over the estimated useful lives of 15 years utilizing the 150% declining balance
method. A change to the straight-line depreciation method was made in the year
in which the straight-line method yields a higher expense than the 150%
declining balance method. Depreciation expense for December 31, 1997 and 1996
was $297,024 and $281,392, respectively.
Deferred Loan Cost
The deferred loan cost is the unamortized balance of bank fees and
professional fees that were incurred to obtain long-term financing from Compass
Bank. These costs are amortized on a straight-line basis over 60 months.
Amortization expense for the years ended December 31, 1997 and 1996 was $10,883
and $908, respectively.
38
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Income Tax
The Partnership is not a taxpaying entity for Federal and State income tax
purposes and therefore no provision for Federal income taxes has been recorded
in the financial statements. Income from the partnership is taxed to the
partners on their respective income tax returns.
Partnership Allocation
The General and Limited Partner have an agreement as to the allocation of net
earnings and distributions.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnership to credit risk
include cash deposits in excess of federally insured limits.
Credit risks to the Partnership relate to the broadcasting industry which
serve as its customer base.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - TOWERS
The towers are summarized as follows:
1997 1996
----------- ----------
Tower - Milton $ 4,889,029 $4,889,029
Tower - Evelyn 200,000 200,000
----------- ----------
5,089,029 5,089,029
Less accumulated depreciation 3,009,834 2,712,810
----------- ----------
$ 2,079,195 $2,376,219
=========== ==========
39
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 3 - NOTES PAYABLE
On November 21, 1996, the Partnership borrowed from Compass Bank, a Texas
state chartered association, in the form of a promissory note, $4,300,000. The
proceeds of the loan were used to refinance the existing long-term debt and for
the repairs and maintenance of the towers. This note was subsequently paid off
on February 2, 1998 (see Subsequent Events).
The interest rate on the outstanding principal amount of the loan was
based on the prime rate as published in The Wall-Street Journal's "Money Rates"
table. The rates at December 31, 1997 and 1996 were 8.50% and 8.25%,
respectively. The outstanding principal amount was to be paid in sixty monthly
installments which began January 3, 1997. Accrued but unpaid interest on the
loan shall be payable on the same dates as, but in addition to, the principal
payments. Any additional prepayments of principal will be applied first toward
accrued but unpaid interest and then to principal in the inverse order of
maturity.
The loan was collateralized by a first priority deed of trust lien on the
two towers and guaranteed, jointly and severally, by each partner.
Interest expense incurred on the above note was $352,297 and $41,388 as of
December 31, 1997 and 1996, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Partnership is managed by the general partner, Cadogan, Inc. The
Partnership paid the general partner $231,000 and $225,080 during the years
ended December 31, 1997 and 1996, respectively, for management services.
On May 6, 1997 Miller Transmission Tower Company, Ltd. paid $800 for an
eighty percent interest in Cowboy Tower Company, LLC, a newly formed Limited
Liability Company. Its share of income from Cowboy Tower Company, LLC was
$4,474.
NOTE 5 - SUBSEQUENT EVENTS
The Partnership sold its land, building, and towers on February 6, 1998
and has effectively ceased active operations.
40
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Kline Iron & Steel Co., Inc.
Columbia, South Carolina
We have audited the accompanying balance sheets of Kline Iron & Steel Co., Inc.
as of September 30, 1997 and 1996, and the related statements of income,
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kline Iron & Steel Co., Inc. as
of September 30, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated, in all material respects, in relation to the
basic financial statements taken as a whole.
DERRICK, STUBBS & STITH, L.L.P.
December 9,1997
41
<PAGE>
EXHIBIT A
KLINE IRON & STEEL CO., INC.
BALANCE SHEET
SEPTEMBER 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ -------------- ---------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $3,901,167 $
Accounts Receivable - Customers,
Less, Allowance for Doubtful Accounts
(1997 - $9,989; 1996 - $9,989) 7,953,448 7,158,078
Accounts Receivable - Other 81,865 47,035
Inventories 2,421,259 2,643,472
Prepaid Expenses 205,953 139,457
Income Tax Refunds Due 47,785
Investments 30,000 30,000
-------------- ---------------
Total Current Assets $14,593,692 $10,065,827
-------------- ---------------
Long-Term Receivables:
Notes Receivable - Related Parties $ 121,296 $ 135,699
Cash Surrender Value of Life Insurance 215,627 195,259
-------------- ---------------
Total Long-Term Receivables $ 336,923 330,958
-------------- ---------------
Property and Equipment:
Machinery and Equipment $6,511,786 $ 6,346,461
Vehicles 449,598 364,843
Office Equipment and Furniture 1,192,001 1,102,521
Buildings and Improvements - West 2,714,334 2,699,775
Columbia
Leasehold Improvements - Columbia 340,485 329,763
Other Property 19,688 49,797
Land - West Columbia 274,690 274,690
Construction in Progress 1,972
-------------- ---------------
Total Cost $11,504,554 $11,167,850
Less, Accumulated Depreciation 8,127,699 7,593,013
-------------- ---------------
Net Property and Equipment $ 3,376,855 $ 3,574,837
-------------- ---------------
Other Assets:
Deposits with Others $ 3,740 $ 3,625
Deferred Financing Costs - Net of
Accumulated Amortization
(1997 - $10,735; 1996 - $6,939) 3,691 7,488
-------------- ---------------
Total Other Assets $ 7,431 $ 11,113
-------------- ---------------
Total Assets $18,314,901 $13,982,735
============== ===============
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY 1997 1996
-------------------- -------------- ---------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 2,781,335 $ 3,655,636
Current Maturities of
Long-Term Debt 570,684 397,951
Billings in Excess of Costs and
Estimated Earnings 6,489,592 3,384,852
Sales Tax Payable 91,394 64,430
Payroll Taxes Payable 38,093 38,839
Accrued Expenses 1,497,859 462,954
Accrued Income Taxes 316,007 5,646
Other Liabilities 31,636 30,715
-------------- ---------------
Total Current Liabilities $11,816,600 $ 8,041,023
-------------- ---------------
Long-Term Debt, Less Current Maturities:
Notes Payable $ 2,778,063 $ 3,341,526
-------------- ---------------
Deferred Income Taxes $ 206,960 $ 96,283
-------------- ---------------
Total Liabilities 14,801,623 $11,478,832
-------------- ---------------
Stockholder's Equity:
Common Stock:
Voting (100,000 shares of $1 par value
authorized; 32,000 shares issued and
outstanding) $ 32,000 $ 32,000
Non-voting (1,000,000 shares of $1 par
value authorized; 160,000 shares
issued and outstanding) 160,000 160,000
Additional Paid-In Capital 11,527 11,527
Retained Earnings 3,309,751 2,300,376
-------------- ---------------
Total Stockholder's Equity $ 3,513,278 $ 2,503,903
-------------- ---------------
Total Liabilities and Stockholder's
Equity $ 18,314,901 $ 13,982,735
============== ===============
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
EXHIBIT B
Sheet 1
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
Sales $49,045,582 100.00 $36,423,115 100.00
- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Cost of Sales:
Inventories - Beginning $ 2,643,472 5.39 $ 2,145,286 5.89
Purchases - Steel 10,709,825 21.84 9,829,072 26.98
Purchases - Bolts 486,762 .99 484,343 1.33
Purchases - Paint 929,381 1.90 1,210,299 3.32
Engineering - In House 1,292,614 2.64 1,118,478 3.07
Engineering - Outside 1,842,501 3.76 1,588,207 4.36
Plant Salaries and Wages 3,913,893 7.98 3,145,804 8.64
Plant Vacation and Sick Pay 274,091 .55 264,823 .73
Plant Payroll Taxes and Insurance 511,003 1.04 440,934 1.21
Plant Workman's Compensation 210,150 .43 283,647 .78
Plant Supervision 854,528 1.74 755,031 2.07
Temporary Labor 297,477 .61 113,191 .31
Quality Assurance 119,888 .24 110,566 .30
Repairs and Maintenance 723,481 1.47 590,809 1.62
Welding Supplies 188,401 .38 147,418 .40
Painting Supplies 189,224 .39 213,457 .59
Small Tools and Supplies 329,522 .67 247,334 .68
Plant Vehicle Expense 82,214 .17 65,119 .18
Utilities 423,735 .86 412,121 1.13
Depression - Machinery and Equipment 307,599 .63 167,157 .46
Depreciation - Plant 160,915 .33 157,870 .43
Rent 108,000 .22 100,000 .27
Property Taxes 167,176 .34 122,309 .34
Other Plant Expense 162,511 .33 144,985 .40
Sublet Fabrication 5,962,399 12.16 2,534,005 6.96
Sublet Installation 7,228,873 14.74 3,750,948 10.30
Purchased Finished Goods 3,349,288 6.83 3,173,681 8.71
Sales and Use Tax 369,186 .75 155,030 .43
Insurance and Bonds 310,151 .63 75,143 .21
Other Direct Job Costs 343,278 .70 351,496 .97
Delivery Expense - In House 140,314 .29 118,900 .33
Delivery Expense - Common Carrier 226,564 .46 721,971 1.98
----------- ----- ----------- -----
$44,858,416 91.46 $34,739,434 95.38
Inventories - Ending 2,421,259 4.93 2,643,472 7.26
----------- ----- ----------- -----
Cost of Sales $42,437,157 86.53 $32,095,962 88.12
----------- ----- ----------- -----
Gross Profit $ 6,608,425 13.47 $ 4,327,153 11.88
----------- ----- ----------- -----
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
EXHIBIT B
Sheet 2
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
<S> <C> <C> <C> <C>
General and Administrative Expenses:
Administrative Salaries $ 1,784,835 3.64 $ 1,154,904 3.17
Vacation and Sick Pay 25,680 .05 19,765 .05
Payroll Taxes and Insurance 120,337 .25 101,764 .28
Selling Expenses 1,296,328 2.64 1,126,255 3.09
Commissions 33,500 .07
Profit Sharing Contribution 233,727 .48 42,684 .12
Office Supplies 51,555 .11 56,848 .16
Office Repairs and Maintenance 30,844 .06 22,479 .06
Temporary Services 2,914 20,819 .06
Advertising 17,994 .04 18,158 .05
Telephone and Telegraph 46,708 .10 48,257 .13
Dues and Subscriptions 42,870 .10 33,441 .10
Travel and Entertainment 53,355 .11 48,660 .13
Taxes and Licenses 49,505 .10 53,358 .15
Insurance - General 293,365 .60 247,852 .68
Insurance - Life 114,622 .23 58,922 .16
Utilities 32,432 .06 30,887 .09
Legal and Auditing 89,332 .18 66,659 .18
Special Services and Education 130,612 .27 54,051 .15
Automobile Expense 47,436 .10 48,604 .13
Depreciation - Vehicles 1,500 1,500
Depreciation - Office Equipment 21,328 .04 18,367 .05
Depreciation - Furniture and Fixtures 3,597 4,718 .01
Depreciation - Office Building 15,565 .03 14,726 .04
Amortization - Cost of Obtaining Loan 3,796 4,214 .01
Rent 100,000 .20 100,000 .28
Janitorial Services 22,116 .05 19,434 .05
Other General Expenses 77,261 .16 64,253 .18
---------- ---- ---------- ----
Total General and Administrative
Expenses $4,743,114 9.67 $3,481,579 9.56
---------- ---- ---------- ----
Operating Income $1,865,311 3.80 $ 845,574 2.32
---------- ---- ---------- ----
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
EXHIBIT B
Sheet 3
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
<S> <C> <C> <C> <C>
Other Income and Deductions:
Other Income:
Discounts Earned $ 18,962 .04 $ 17,885 .05
Interest Earned 114,813 .23 4,344 .01
Gain on Sale of Fixed Assets 7,500 .02
Net Recoveries of Bad Debts 7,545 .02 3,685 .01
Service Charges 55 105
Other Income 5,223 .01 3,782 .01
Management Fees 26,250 .05
---------- ---- --------- ----
Total Other Income $ 180,348 .37 $ 29,801 .08
---------- ---- --------- ----
Other Deductions:
Discounts Allowed $ $ 4,813 .01
Interest Expense 339,845 .69 402,727 1.11
Contributions 76,251 .16 36,563 .10
Loss on Disposal of Fixed Assets 11,032 .02
Other Deductions 14,989 .03 47,113 .13
---------- ---- --------- ----
Total Other Deductions $ 442,117 .90 $ 491,216 1.35
---------- ---- --------- ----
Income Before Income Taxes $1,603,542 3.27 $ 384,159 1.05
---------- ---- --------- ----
Income Taxes:
States $ 87,711 .18 $ 19,031 .05
Federal 506,456 1.03 88,110 .24
---------- ---- --------- ----
Total Income Taxes $ 594,167 1.21 $ 107,141 .29
---------- ---- --------- ----
Net Income - Exhibit C $1,009,375 2.06 $ 277,018 .76
========== ==== ========= ====
Net Income - Per Share $ 5.26 $ 1.44
========== =========
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
EXHIBIT C
KLINE IRON & STEEL CO., INC.
STATEMENT OF RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---------- ----------
Retained Earnings, Beginning $2,300,376 $2,023,358
Net Income - Exhibit B 1,009,375 277,018
---------- -----------
Retained Earnings, Ending - Exhibit A $3,309,751 $2,300,376
========== ==========
See Notes to Financial Statements.
47
<PAGE>
EXHIBIT D
KLINE IRON & STEEL CO., INC.
STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income - Exhibit B $1,009,375 $ 277,018
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 595,442 426,358
Deferred Income Taxes 110,677 76,272
Allowance for Doubtful Accounts (5,750)
(Gain) Loss on Sale of Property and Equipment 3,532
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (830,200) (1,979,227)
(Increase) Decrease in Inventories 222,213 (498,186)
(Increase) Decrease in Prepaid Expenses (66,496) 351,685
(Increase) Decrease in Other Assets 47,671 (52,141)
Increase (Decrease) in Accounts Payable and Accrued Expenses 498,104 1,774,777
Increase (Decrease) in Excess Billings 3,104,740 1,516,854
--------------- --------------
Net Cash Provided by (Used in) Operating Activities $4,695,058 $1,887,660
--------------- --------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment $ (409,696) $(1,527,661)
Purchase of Investment Property (219,989)
Proceeds from Sale of Investment Property 440,542
Proceeds from Sale of Property and Equipment 12,500
(Increase) Decrease in Notes and Loans Receivable 14,403 (28,533)
(Increase) Decrease in Cash Surrender Value of Life Insurance (20,368) (22,033)
--------------- --------------
Net Cash (Used in) Investing Activities $ (403,161) $(1,357,674)
--------------- --------------
Cash Flows from Financing Activities:
Net Principal Payments on Debt $ (390,730) $ (870,793)
--------------- --------------
Net Increase (Decrease) In Cash $3,901,167 $ (340,807)
Cash:
Beginning 340,807
--------------- --------------
Ending $3,901,167 $ -----
=============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Payment for:
Interest $ 356,610 $ 400,454
=============== ==============
Income Taxes (Net of Refunds) $ 114,685 $ 156,868
=============== ==============
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
EXHIBIT E
Sheet 1
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies:
1.1 Nature of Business:
The Company, founded in 1923, contracts nationally and
internationally for the fabrication of structural and tower steel
products for private, industrial, commercial and governmental
markets. The Company's revenue from an individual customer typically
exceeds 10% of the total revenue from all contracts during the year.
Because of the nature of the Company's business, the major customers
will vary between years.
1.2 Revenue Recognition
The Company recognizes revenue from contacts on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total cost of each contract. This
method is used because management considers total cost to be the
best available measure of progress on these contracts. Contract
costs include all direct material and labor costs and those indirect
costs related to contract performance. Selling, 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 may result in revisions to
costs and income, which are recognized in the period in which the
revisions are determined. The asset "costs and estimated earnings in
excess of billings" represents revenues recognized in excess of
amounts billed. The liability "billings in excess of costs and
estimated earnings" represents billings in excess of revenues
recognized.
1.3 Cash and Cash Equivalents:
Cash and Cash Equivalents include cash in banks and all highly
liquid investments with a maturity of three months or less.
1.4 Inventories:
Inventories of structural steel (materials only) are stated at cost,
using the last-in, first-out method (LIFO). All other inventories
are valued at the lower of cost or market, using the first-in,
first-out method (FIFO).
1.5 Property and Equipment:
Property and Equipment is recorded at cost. For financial reporting
purposes, depreciation is computed using principally the
straight-line method over the useful lives of the assets which are
as follows:
49
<PAGE>
EXHIBIT E
Sheet 2
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies (continued):
1.5 Property and Equipment (continued):
Years
-----
Autos and Truck 5
Machinery and Equipment 5 to 10
Office Furniture and Fixture 7
Computer Hardware and Software 5
Buildings 10 to 20
Leasehold Improvements 10
For income tax purposes, depreciation is computed using principally
the accelerated methods over recovery periods prescribed by current
tax law.
1.6 Deferred Income Taxes:
Deferred income taxes are provided for in the financial statements
as a result of timing differences between book income and taxable
income. Timing differences arise principally from the use of
accelerated methods of depreciation.
1.7 Profit Sharing Plan:
The Company offers a defined contribution profit sharing plan under
Section 401(k) of the Internal Revenue Code covering employees who
meet the age and service requirements. Employees may elect to make
voluntary salary reduction contributions of from 1% to 15% of their
compensation limited to $9,500 per calendar year (amount adjusted
annually). During the year ended September 30, 1996, the plan was
amended to provide for employer matching contributions of 25% of the
employee's salary reductions up to 4% of compensation. Additionally,
the Company has made discretionary contributions based on net
profits of $233,727 and $42,684 for 1997 and 1996, respectively. At
September 30, 1997 and 1996, the Company had unfunded contributions
to the plan of $233,727 and $42,684, respectively. Profit sharing
plan expense, including employer matching and discretionary amounts,
for the years ended September 30, 1997 and 1996 were $282,376 and
$49,286, respectively.
1.8 Deferred Loan Costs:
The Company has incurred $14,427 in financing costs in connection
with obtaining several loans. These costs are being amortized over
the lives of these loans using the straight-line method. Accumulated
amortization at September 30, 1997 and 1996 was $10,735 and $6,939,
respectively.
1.9 Bad Debts:
Bad debts are provided for using the reserve method of accounting.
50
<PAGE>
EXHIBIT E
Sheet 3
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies (continued):
1.10 Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Inventories:
Inventories consist of:
1997 1996
----------- -----------
Raw Material, structural steel $ 1,694,906 $ 2,319,408
Work in Process 615,049 186,020
Bolts 7,000 37,000
Paint 69,104 67,298
Plant Supplies 35,199 33,746
----------- -----------
Totals $ 2,421,258 $ 2,643,472
=========== ===========
Under the last-in, first-out (LIFO) method of valuing inventories, the
procedure has been to charge higher costs to cost of goods sold while
deferring relatively lower costs in inventory, thereby reducing earnings and
inventories both for financial reporting and income tax purposes. The
amounts of inventories valued by the last-in, first-out (LIFO) method,
$1,694,906 at September 30, 1997 and $2,319,408 at September 30, 1996, are
less than replacement or current cost by $1,826,129 and $1,435,588,
respectively.
The last-in, first-out (LIFO) method's effect was to decrease net income for
the year ended September 30, 1997 by $390,541 and to decrease net income for
the year ended September 30, 1996 by $158,641.
3. Investments:
Investments are categorized as available-for-sale and consist of the
following:
1997 1996
---- ----
State of Israel floating rate Bonds $ 30,000 $ 30,000
======== ========
51
<PAGE>
EXHIBIT E
Sheet 4
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
4. Notes Receivable - Related Parties:
Related party notes receivable consist of non-interest bearing notes arising
from Company payments of premiums on life insurance policies owned by
certain corporate executives or their wives under split-dollar life
insurance agreements. The notes are collateralized by assignment of the cash
surrender values of those policies which in aggregate at September 30, 1997
and 1996 were $113,796 and $91,082, respectively.
5. Notes Payable and Capital Lease Obligations:
5.1 On October 24, 1994, the Company entered into a loan agreement with
Carolina First Bank which provided for three types of financing.
This agreement was subsequently modified on March 26, 1996. The
financing arrangement includes:
A revolving working capital line of credit in the maximum amount of
$3,000,000. Interest only payments, based on the bank's prime rate
plus one percent (prime + 1%) are payable monthly with the entire
balance becoming due on April 2, 1997. The due date was subsequently
extended until April 2, 1998.
A permanent working capital term loan in the amount of $965,000.
Interest on this loan is calculated at the bank's prime rate plus
one percent (prime + 1%). The note provides for monthly interest and
principal payments of $12,620 with the entire remaining balance due
April 2, 1999. The note also provides for an additional principal
payment due December 15th each year based on 25% of year-end net
income after taxes less current maturities of long-term debt. An
additional principal payment of $146,230 is due for the year ended
September 30, 1997. No additional principal payment was due for the
year ended September 30,1996.
A $550,000 mortgage loan. The loan provides for monthly principal
payments of $3,056 plus interest at the bank's prime rate plus one
percent (prime + 1%) with the remaining balance becoming due on
September 2, 1997. The due date was subsequently extended until
April 2, 2000.
The above loans are cross-collateralized and are secured by liens on
the Company's accounts receivable, equipment, inventories and by a
first mortgage on the Company's West Columbia real property.
Carolina First Bank also received assignment of a $2 million face
value life insurance policy on Mr. Jerome C. Kline (the Company's
President). These loans are unconditionally guaranteed by Mr. Jerome
C. Kline.
The loan agreements contain various restrictive covenants pertaining
to net working capital, current ratios, tangible net worth, debt to
tangible net worth and cash flow. At September 30, 1997 and 1996,
the Company was not in compliance with the loan's indebtedness to
tangible net worth covenant, however, the Company subsequently
received waivers of that covenant violation from Carolina First Bank
effective until October 1, 1998.
52
<PAGE>
EXHIBIT E
Sheet 5
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.2 On March 1, 1994, the Company entered into a promissory note with a
major shareholder which provided for the following:
A promissory note agreeing to pay the shareholder the principal sum
of $835,175 in thirteen (13) equal annual installments of $60,000
beginning on March 1, 1995 and continuing through March 1, 2007 with
the entire remaining principal balance being due and payable on
March 1, 2008. Interest at the prime rate plus one-half of one
percent (prime + 1/2%) was payable monthly beginning April 1, 1994.
Mr. Jerome C. Kline, President, had personally guaranteed the
obligations of the Company under this agreement and as security for
this personal guarantee had granted to the shareholder a first lien
mortgage on his real estate on Huger Street, Columbia, S.C. The
Company had also agreed to carry life insurance on the shareholder
in the amount sufficient to cover the note. The life insurance
policy had been assigned to the shareholder as further collateral
for the Company's obligation.
In November 1997, the Company paid the remaining principal balance
of this note in full. Prior written consent waiver was obtained from
Carolina First Bank and the surety company. The Company's balance
sheet (Exhibit A) reflects both current and long-term portions of
this debt at September 30, 1997 as if the note was to be paid
according to the original schedule of payments to avoid distortion
of the Company's financial ratios.
5.3 On February 8, 1994, the Company financed the purchase of an angle
machine for $197,000 with Machine Tool Finance Corp. The terms of
the agreement are a down payment of $4,000 and 65 monthly payments
of $3,676 including interest of 8.08%, beginning April 1, 1994
through August 1, 1999.
5.4 On August 16, 1994, the Company financed the purchase of a 1994
Dodge Intrepid for $16,800 with GMAC. The note provides for monthly
payments of $532 including interest of 8.5%, beginning September 30,
1994 through August 31, 1997.
5.5 On January 1, 1995, the Company financed the purchase of a Drill and
Marking Press Machine for $496,851 with Machine Tool Finance Corp.
The terms are 84 monthly payments of $7,942 including interest at a
rate which is 275 basis points over "LIBOR", beginning February 1,
1995 through March 1, 2002.
5.6 On June 10, 1994, the,Company financed the purchase of a phone
system for $76,753 with Siemens Credit. The terms are 60 monthly
payments of $1,594 including interest of 10%, beginning June, 10,
1994 through May 1, 1999.
53
<PAGE>
EXHIBIT E
Sheet 6
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.7 On September 9, 1996, the Company entered into a capital lease
agreement with Amplicon, Inc. involving a Peddinghaus coping
machine. The term of the lease provide for a down payment of $5,107,
twenty (20) quarterly payments of $15,321 including interest at
8.05% beginning December 1, 1996 through September 1, 2001 and a
final purchase payment of $27,951 due October 1, 2001. The coping
machine has been capitalized at a cost of $285,394 with accumulated
depreciation of $28,538 at September 30, 1997.
5.8 On October 17, 1995, the Company entered into a term loan agreement
with the South Carolina Jobs-Economic Development Authority (JEDA)
to provide a $500,000 community development block grant loan for
equipment acquisition and working capital at its West Columbia
plant. The lender is the City of West Columbia, South Carolina.
Under the terms of the loan, $250,000 is to be used for equipment
acquisition and $250,000 for working capital. Interest accrues at
eight and one-half percent (8 1/2%) fixed. The loan is to be repaid
in 59 equal monthly installments of $6,082 including interest
beginning October 31, 1995 through July 31, 2000 with a final
payment of $318,150 due August 31, 2000.
The loan is secured by a first purchase money lien on equipment
acquired with loan proceeds and a second priority blanket lien on
all furniture, fixtures, machinery and equipment owned by the
Company. Carolina First Bank (See Note 5.1) has granted waiver of
its security lien as it relates to equipment purchased with JEDA
loan proceeds. This loan has also been unconditionally guaranteed by
Mr. Jerome C. Kline (the Company's President) and life insurance in
the face amount of $500,000 on Mr. Kline has been collaterally
assigned.
This loan is pursuant to certain job creation restrictions whereby
if the Company fails to create/retain twenty-five (25) new jobs
after twenty-four (24) months, JEDA has the right to demand payment
of the loan balance or to increase the rate of interest up to an
additional five percent (5%). This stipulation was satisfied during
the year ended September 30, 1997.
On March 27,1996, the South Carolina Jobs-Economic Development
Authority transferred and assigned this loan to WAMCO XXIV, LTD.
5.9 On September 28, 1995, the Company entered into a note payable to
Concord Commercial in the amount of $342,200 to purchase a Pangborn
vertical blasting machine and a Peddinghaus fabripunch machine. The
note bears interest at eight and one quarter percent (8.25%) and is
payable in sixty (60) monthly installments of $5,340 beginning
October 13, 1995 through September 13, 2000 with one final payment
of $117,765 due October 13, 2000. The note is collateralized by the
equipment purchased.
54
<PAGE>
EXHIBIT E
Sheet 7
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.10 On November 25, 1996, the Company financed the purchase of a 1996
Chevrolet Impala for $26,238 with Carolina First Bank. The note provides
for 36 monthly payments of $827 including interest at 8.264% beginning
January 2, 1997.
5.11 The comparative principal balances of notes payable are as follows:
<TABLE>
<CAPTION>
1997 1997
------------ ------------
<S> <C> <C>
Carolina First Bank - Line of Credit (Note 5.1) $ $
Carolina First Bank - Working Capital (Note 5.1) 876,003 940,970
Carolina First Bank - Mortgage Loan (Note 5.1) 449,167 482,778
Shareholder Stock Purchase (Note 5.2) 655,175 715,175
Machine Tool Finance Corp. (Note 5.3) 74,852 111,195
GMAC (Note 5.4) 5,615
Machine Tool Finance Corp. (Note 5.5) 336,928 399,573
Siemens Credit (Note 5.6) 27,883 43,327
Amplicon Lease (Note 5.7) 215,501 271,930
JEDA Loan (Note 5.8) 431,826 466,482
Concord Commercial (Note 5.9) 261,794 302,432
Carolina First Bank - Auto Loan (Note 5.10) 19,618
------------ ------------
Totals $3,348,747 $3,739,477
Less, Current Maturities 570,684 397,951
------------ ------------
Long-Term Portion $2,778,063 $3,341,526
============ ============
</TABLE>
5.12 Future maturity of debt is as follows:
Year Ending September 30,
1998 $ 570,684
1999 1,024,754
2000 978,283
2001 336,371
2002 83,480
Subsequent Years 355,175
----------
$3,348,747
==========
55
<PAGE>
EXHIBIT E
Sheet 8
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
6. Uncompleted Contracts:
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
1997 1996
------------ -----------
Costs Incurred on Uncompleted
Contracts $44,003,729 $27,916,466
Estimated Earnings 7,192,472 3,895,673
------------ ------------
$51,196,201 $31,812,139
------------ ------------
Billings to Date 57,685,793 35,196,991
------------ -----------
Billings in Excess of Costs and
Estimated Earnings $ 6,489,592 $ 3,384,852
=========== ===========
7. Income Tax Matters:
Net deferred tax liability at September 30 consists of the following
components:
1997 1996
------------- ----------
Depreciation $(217,832) $(130,662)
Bad Debt Reserve 3,726 3,726
Inventory Capitalization 7,146 10,171
Contributions Carryforward 20,482
------------- ----------
Total Deferred Income Taxes $(206,960) $ (96,283)
============= ==========
The provision for income taxes charged to operations for the year consists
of the following:
1997 1996
-------- --------
Current Tax Expense $483,490 $30,869
Deferred Tax Expense 110,677 76,272
-------- --------
Total Income Tax Expense $594,167 $107,141
======== ========
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the years
ended September 30, 1997 and 1996 due to the following:
1997 1996
-------- ---------
Computed "Expected" Tax Expense $545,204 $ 133,072
Increase (Decrease) in Income Taxes
Resulting from:
Depreciation Method Difference (75,746) (110,203)
Nondeductible Expenses 47,575 38,596
State Income Taxes, Net of
Federal Tax Benefit 48,097 8,012
Difference in Book and Tax Loss
on Assets Disposed (3,712)
Contributions Carryover (17,770)
Alternative Minimum Tax (60,158) (38,608)
Deferred Tax Increase 110,677 76,272
--------- ----------
$ 594,167 $ 107,141
========= =========
56
<PAGE>
EXHIBIT E
Sheet 9
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
8. Related Party Transactions:
The Company leases its Huger Street property from the Company's President
and major stockholder, Mr. Jerome C. Kline. The lease is for a period of ten
years beginning February 1, 1994 for a monthly rental of $ 16,666 ($200,000
annually).
On March 1, 1994, the Company purchased and retired 269,000 shares of
non-voting common stock from a major shareholder for $895,175 (See Note 5.2
for additional information).
Until July 1997, the Company's major shareholder, Mr. Jerome C. Kline, owned
a 40% interest in Prioleau Steel, Inc. In July 1997, Mr. Kline disposed of
all of his ownership in Prioleau. During the periods, the Company had
business transactions with Prioleau as follows:
1997 1996
-------------- -----------
Transactions:
Sales To $ 127,054 $ 181,295
Purchases From 2,334,725 226,916
Balances:
Accounts and Notes Receivable 34,667 55,480
Accounts Payable 476,207
As discussed in Note 4, the Company is owed $ 121,296 by certain executives
or their wives pursuant to split-dollar life insurance agreements.
9. Lease Commitments:
The Company has entered into certain lease agreements covering real property
(Note 8) and vehicles. Minimum future lease payments at September 30, 1996
ar summarized as follows:
Year Ending September 30,
1998 $ 229,995
1999 209,838
2000 200,000
2001 200,000
2002 200,000
Thereafter 266,668
-----------
$1,306,501
10. Subsequent Event - Change in Ownership
In November 1997, Mr. Jerome C. Kline, the Company's President and former
sole shareholder, sold one-third of his stock in the Company to OmniAmerica,
Inc. and a one-third interest in his Huger Street rental property (see Note
8) to Carl E. Hirsch and Anthony S. Ocepek. Mr. Kline maintains management
of the Company.
57
<PAGE>
SCHEDULE 1
KLINE IRON & STEEL CO., INC.
SCHEDULE OF LIFE INSURANCE IN FORCE
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Policy Policy Amount of Annual Cash Type Insured Owner and
Number Date Insurance Premium Surrender Beneficiary
Value
9/30/97
---------- --------- ------------ -------- ----------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jefferson-Pilot Life JP4325636 8/12/94 $2,000,000 $17,500 $ Universal Life Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(a)
Jefferson-Pilot Life TP4375052 9/11/95 500,000 2,275 10 Year Term Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(b)
Manufacturers Life 5808645-5 8/7/90 1,300,000 55,000 213,014 Flexible B.H. Kline Kline Iron &
Insurance Company Premium Steel Co.,
Toronto, Ontario Adjustable Inc.(c)
Life
Jefferson-Pilot Life JP4454060 7/1/97 400,000 5,400 2,613 Adjustable R.C. White Kline Iron &
------------ --------
Insurance Company, Joint Steel Co.,
Greensboro, N.C. Ownership Life Inc. and
R.C. White
Totals $4,200,000 $215,627
========== ========
</TABLE>
(a) Collaterally assigned to Carolina First Bank
(b) Collaterally assigned to JEDA
(c) Collaterally assigned to Mr. B.H. Kline
58
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Financial Statements
(Unaudited)
(b) Pro Forma Financial Statements.
The following pro forma combined summary of operations combines the
results of operations of STI, Holdings, TowerCom, Kline, HSW and Miller as if
all acquisitions occurred at the beginning of the periods presented. The pro
forma information for Kline represents Holdings' one-third interest accounted on
the equity method. The pro forma combined summary of operations reflects known
changes resulting from the acquisitions but does not reflect impacts of any
changes in operations, anticipated efficiencies and synergies from
consolidation.
The pro forma combined balance sheet reflects STI's consolidated balance
sheet as of March 31, 1998 combined with the balance sheets of Holdings as of
March 31, 1998, as if the acquisition of Holdings had occurred on March 31,
1998. TowerCom, HSW and Miller are included in the Holdings balance sheet as of
March 31, 1998.
The business of these entities is subject to seasonal fluctuations and,
therefore, the results of operations for periods less than twelve months may not
be indicative of annual results. The pro forma adjustments are based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information does not purport
to represent what STI's financial position or results or operations would
actually have been if such transactions had in fact occurred on those dates and
are not necessarily representative of STI's financial position or results of
operations for any future period. The pro forma combined financial information
should be read in conjunction with the historical financial statements of STI,
Holdings, TowerCom, Kline, HSW and Miller included herein or previously filed
with the Securities and Exchange Commission.
59
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Income Statement
Year Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI (A) HOLDINGS (A) TOWERCOM (A) HSW (A) KLINE (A) MILLER (A) ADJUSTMENTS COMBINED
- ---------------------------------- ------------ ------------ ------------ --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues earned:
Installation services........... $ 57,250,485 $ ---- $ ---- $ ---- $ ---- $ ---- $ ---- $57,250,485
Component sales................. 8,376,315 ---- ---- ---- ---- ---- ---- 8,376,315
Tower leasing .................. --- 566,628 2,737,795 830,144 ---- 1,570,747 ---- 5,705,314
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Total revenues earned.......... 65,626,800 566,628 2,737,795 830,144 ---- 1,570,747 ---- 71,332,114
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Cost of revenues earned:
Installation services........... 48,298,454 ---- ---- ---- ---- ---- ---- 48,298,454
Component sales................. 5,113,096 ---- ---- ---- ---- ---- ---- 5,113,096
Tower leasing................... ---- 42,112 681,234 293,978 ---- 577,295 (136,609) D 1,458,010
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Total cost of revenues earned. 53,411,550 42,112 681,234 293,978 ---- 577,295 (136,609) 54,869,560
------------ ---------- ------------ ---------- --------- ----------- ----------- -----------
Gross profit on revenues earned... 12,215,250 524,516 2,056,561 536,166 ---- 993,452 136,609 16,462,554
Selling, general and
administrative expenses......... 5,915,808 ---- 437,603 ---- ---- 253,762 2,630,396E 9,167,399
(231,282)H
(18,888)I
180,000 J
Earnings from operations.......... 6,299,442 524,516 1,618,958 536,166 ---- 739,690 (2,423,617) 7,295,155
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Other income (deductions):
Interest income................. 181,516 ---- 25,613 ---- ---- 6,506 ---- 213,635
Interest expense................ (429,615) ---- (607,449) ---- ---- (389,896) 997,345 F (429,615)
Earnings in affiliates.......... ---- ---- ---- ---- 336,458 1,119 ---- 337,577
Other, net...................... (20,101) ---- ---- ---- ---- ---- ---- (20,101)
----------- ---------- ------------ ---------- --------- ----------- ------------ -----------
(268,200) ---- (581,836) ---- 336,458 (382,271) 997,345 101,496
----------- ---------- ----------- ---------- --------- ---------- ------------ -----------
Earnings before income taxes.... 6,031,242 524,516 1,037,122 536,166 336,458 357,419 (1,426,272) 7,396,651
Income taxes...................... 343,500 ---- ---- ---- ---- ---- 628,500 K 972,000
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Net earnings.................... 5,687,742 524,516 1,037,122 536,166 336,458 357,419 (2,054,772) 6,424,651
------------ ---------- ------------ ---------- --------- ----------- ----------- -----------
Supplemental information:
Net earnings.................... 5,687,742 524,516 1,037,122 536,166 336,458 357,419 (2,054,772) 6,424,651
Pro forma adjustment for income
taxes
of entity acquired by STI 2,140,500 ---- ---- ---- ---- ---- ---- 2,140,500
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
unrelated to
this transaction previously
filing as an
S Corporation.................
Supplemental net earnings after $ 3,547,242 $ 524,516 $ 1,037,122 $ 536,166 $ 336,458 $ 357,419 $(2,054,772) $ 4,284,151
============ ========== ============ ========== ========= =========== =========== ===========
adjustment for Income taxes of
acquired entity...............
Shares of common stock used in
computing earnings per share:
Basic.......................... 7,110,282 ---- ---- ---- ---- ---- 6,750,000 G 13,860,282
============ ========== ============ ========== ========= =========== ============ ===========
Diluted........................ 7,188,758 ---- ---- ---- ---- ---- 6,750,000 G 13,938,758
============ ========== ============ ========== ========= =========== ============ ===========
Net earnings per common share:
Basic.......................... $ 0.80 $ 0.46
============ ===========
Diluted........................ $ 0.79 $ 0.46
============ ===========
Supplemental net earnings per
common share:
Basic.......................... $ 0.50 $ 0.31
============ ===========
Diluted........................ $ 0.49 $ 0.31
============ ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
60
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Balance Sheet
March 31, 1998:
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI HOLDINGS (C) ADJUSTMENTS COMBINED
----------- --- ------------ ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents. $ 1,405,400 $ 4,200,437 $ ---- $ 5,605,837
Available for sale
securities................ 50,000 ---- ---- 50,000
Contracts receivable, net. 14,431,737 216,778 ---- 14,648,515
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... 3,220,249 ---- ---- 3,220,249
Finished goods inventory.. 3,523,546 ---- ---- 3,523,546
Prepaid income taxes...... 261,775 ---- ---- 261,775
Other..................... 402,318 180,623 ---- 582,941
------------ ------------- ---------------- ------------
Total current assets.... 23,295,025 4,597,838 ---- 27,892,663
Property and equipment, net 9,405,468 21,251,451 ---- 30,656,919
Goodwill, net of 81,633,143 L
amortization............ 3,231,872 61,387,761 (61,387,761) M 84,865,015
Investment in
unconsolidated subs..... ---- 7,670,081 ---- 7,670,081
Other assets, net......... 600,017 82,197 ---- 682,214
------------ ------------- ---------------- ------------
Total assets............ 36,532,382 94,989,328 20,245,382 151,767,092
------------ ------------- ---------------- ------------
----
Trade accounts payable.... 4,589,709 1,648,475 ---- 6,238,184
Lines of credit........... 3,031,171 ---- ---- 3,031,171
Notes payable to
stockholder............. 999,000 ---- ---- 999,000
Billings in excess of costs
and estimated earnings on
uncompleted contracts... 469,497 ---- ---- 469,497
Accrued expenses.......... 616,535 1,086,235 ---- 1,702,770
Current installments of
notes payable........... 570,998 ---- ---- 570,998
Current income taxes
payable................. 1,142,848 ---- ---- 1,142,848
Deferred income taxes..... 372,469 ---- ---- 372,469
------------ ------------- ---------------- ------------
Total current liabilities. 11,792,227 2,734,710 ---- 14,526,937
Deferred income taxes..... 90,000 ---- ---- 90,000
Notes payable to banks.... 2,404,760 ---- ---- 2,404,760
------------ ------------- ---------------- ------------
Total liabilities....... 14,286,987 2,734,710 ---- 17,021,697
------------ ------------- ---------------- ------------
Stockholders' Equity:
Common stock............ 81,555 929,060 67,500 L 149,055
(929,060) M
Additional
paid-in-capital........... 14,528,644 92,051,940 112,432,500 L 126,961,144
(92,051,940) M
Treasury stock.......... (1,387,500) ---- ---- (1,387,500)
Retained earnings....... 9,022,696 (726,382) 726,382 9,022,696
------------ ------------ ---------------- ------------
Total stockholders'
equity................ 22,245,395 92,254,618 18,769,639 134,745,395
------------ ------------- ---------------- ------------
Total stockholders'
equity and liabilities $ 36,532,382 $ 94,989,328 $ 20,245,382 $151,767,092
============ ============= ================ ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
61
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Income Statement
Nine-Month Period Ended March 31, 1998:
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI HOLDINGS (B) TOWERCOM (B) HSW (B) KLINE (B) MILLER (B) ADJUSTMENTS COMBINED
- ------------------------------- ----------- ------------ ------------ --------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues earned:
Installation services........ $39,835,298 $ ---- $ ---- $ ---- $ ---- $ ---- $ 39,835,298
Component sales.............. 5,191,456 ---- ---- ---- ---- ---- 5,191,456
Tower leasing................ ---- 470,859 2,121,603 837,677 ---- 1,207,926 4,628,065
----------- ------------ ------------ --------- ----------- ------------ ------------
Total revenues earned...... 45,026,754 470,859 2,121,603 837,677 ---- 1,207,926 49,664,819
----------- ------------ ------------ --------- ----------- ------------ ------------
Cost of revenues earned:
Installation services........ 34,422,763 ---- ---- ---- ---- ---- 34,422,763
Component sales.............. 3,222,544 ---- ---- ---- ---- ---- 3,222,544
Tower leasing................ ---- 58,113 470,761 284,431 ---- 440,028 $ (51,212)H 1,202,121
----------- ------------ ------------ --------- ----------- ------------ ---------- ------------
Total cost of revenues earned 37,645,307 58,113 470,761 284,431 ---- 440,028 (51,212) 38,847,428
----------- ------------ ------------ --------- ----------- ------------ ----------- ------------
Gross profit on revenues
earned................... 7,381,447 412,746 1,650,842 553,246 ---- 767,898 51,212 10,817,391
Selling, general and
administrative 2,978,303 1,478,010 323,945 87,520 ---- 247,332 1,700,394E 6,813,523
expenses.....................
(122,538)H
(14,443)I
135,000J
Earnings from operations..... 4,403,144 (1,065,264) 1,326,897 465,726 ---- 520,566 (1,647,201) 4,003,868
----------- ------------ ------------ --------- ----------- ------------ ------------ ------------
Other income (deductions):
Interest income.............. 87,068 3,743 30,533 ---- ---- 6,918 ---- 128,282
Interest expense............. (375,688) (45,240) (330,647) ---- ---- (216,890) 547,537F (420,928)
Earnings in affiliates....... ---- ---- ---- ---- 473,340 ---- ---- 473,340
Other, net................... 122,337 ---- ---- ---- ---- 3,930 ---- 126,267
----------- ------------ ------------ --------- ----------- ------------ ------------ ------------
(166,283) (41,497) (300,094) ---- 473,340 (206,042) 547,537 306,961
---------- ----------- ----------- --------- ----------- ----------- ------------ ------------
Earnings before income taxes 4,236,861 (1,106,761) 1,026,803 465,726 473,340 314,624 (1,099,664) 4,310,829
----------- ------------ ----------- ------------
Income taxes................... 1,624,000 ---- ---- ---- ---- ---- 152,000K 1,776,000
----------- ------------ ------------ --------- ----------- ------------ ----------- ------------
Net earnings................. $ 2,612,861 $(1,106,761) $ 1,026,803 $ 465,726 $ 473,340 $ 314,524 $(1,251,664) $ 2,534,829
=========== ============ ============ ========= =========== ============ ============ ============
Shares of common stock used
in computing earnings per share:
Basic...................... 7,939,998 6,750,000G 14,689,998
=========== ============ ============
Diluted.................... 8,061,836 6,750,000G 14,811,835
=========== ============ ============
Net earnings per common share:
Basic...................... $ 0.33 $ 0.17
=========== ============
Diluted.................... $ 0.32 $ 0.17
=========== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
62
<PAGE>
Specialty Teleconstructors, Inc.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The year ended June 30, 1997 for STI does not include the operations of
Holdings as their operation did not commence until October 15, 1997.
However, activity pertaining to immaterial acquisitions by Holdings with
operations during this period are reflected in the Holdings column. The
amounts presented for TowerCom, HSW, Kline and Miller represent historical
activity for the year ended June 30, 1997. The amounts under the Kline
column reflects Holdings' equity interest in one-third of the net earnings
of Kline, which does not require consolidation. See Note (K) below for a
discussion of pro forma income taxes and the reason that historical income
taxes are not provided for the acquired entities. The supplemental
information presented in the STI column represents the pro forma adjustment
to historical income taxes of STI and the effect on earnings related to the
fiscal year 1997 acquisition of Microwave Tower Service, Inc., which was an
S corporation and was accounted for as a pooling of interests. See Note 12
to the STI consolidated financial statements in its 1997 Form 10-KSB.
(B) The nine-month period ended March 31, 1998 includes the operations of
Holdings for the period October 15, 1997 (inception) through March 31, 1998,
including post-acquisition results of TowerCom, Miller and HSW. The amounts
under the TowerCom and Miller columns represents the seven-month period
ended January 31, 1998 prior to Holdings purchasing each of the operations.
The amounts under the HSW column are for the period July 1, 1997 through
January 15, 1998, when Holdings purchased the operation. See Note (K) for
discussions of pro forma income taxes and the reason historical income taxes
are not provided for the acquired entities.
(C) As of March 31, 1998, Holdings had acquired TowerCom, HSW, Miller and its
one-third interest in Kline; accordingly, such acquisitions are reported in
the historical balance sheet of Holdings.
(D) To reflect depreciation of property and equipment based on fair value
adjustments in connection with applying purchase accounting and the change
in depreciable life from a fifteen (15) year period to a thirty (30) year
period.
(E) To reflect amortization of intangible assets resulting from the application
of purchase accounting producing preliminary goodwill of approximately
$81,600,000. For purposes of the pro forma combined results of operations,
STI has used a weighted average useful life of approximately 30 years for
amortization purposes. STI is in the process of completing the allocation of
purchase price, including the identification of identifiable intangible
assets.
(F) To reflect elimination of historical interest expense related to TowerCom
and Miller. The indebtedness of such entities was either not assumed or was
repaid at acquisition using equity funding. STI's acquisition of Holdings is
being funded entirely by the issuance of common equity.
(G) To reflect shares of STI common stock issued in connection with the
acquisition of Holdings as if they had been outstanding for the entire
period.
(H) Prospective increase in compensation of an officer of STI offset by
contractual reductions in historical compensation of former owners of
acquired entities, employee benefits, management fees, and other contractual
items eliminated for the acquisition.
(I) Amounts associated with items not acquired in acquisition. Also includes
acquisition costs expensed by acquired entities that are not applicable to
ongoing operations.
63
<PAGE>
(J) To reflect oversight fee payable to Hicks, Muse, Tate & Furst based on the
higher of $180,000 per year or .2% of revenues. For the year ended June 30,
1997 and the nine-month period ended March 31, 1998, the minimum fee would
have been paid.
(K) To reflect income tax expense at STI's effective tax rate of 39% for all pro
forma adjustments and results of operations of the acquired entities,
including the effect of TowerCom, HSW and Miller as if these entities had
been a C corporation throughout the stated periods, giving the effect to
non-deductible goodwill amortization.
(L) To reflect the application of purchase accounting to STI's acquisition of
Holdings. The total purchase price of $112,500,000 was paid through the
issuance of 6,750,000 shares of STI's common stock, valued at $16.67 per
share.
(M) To eliminate historical balances of the acquired entities.
64
<PAGE>
(c) Exhibits.
Exhibit 2.1 - Amended and Restated Agreement and Plan of Merger,
dated April 22, 1998, among Specialty Teleconstructors, Inc., OAI
Acquisition Corp., OmniAmerica Holdings Corporation, OmniAmerica,
Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni Partners, L.P.*
Exhibit 4.1 - Post-Merger Stockholders Agreement, dated April 23,
1998, among Specialty Teleconstructors, Inc. and the stockholders of
Specialty Teleconstructors, Inc. party thereto.*
Exhibit 10.1 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Michael R. Budagher.*
Exhibit 10.2 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Carl E. Hirsch.*
Exhibit 10.3 - First Amendment to Employment Agreement, April dated
22, 1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Jeffrey A. Howard.*
Exhibit 10.4 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Anthony S. Ocepek.*
Exhibit 23.1 - Consent of Ernst & Young LLP
Exhibit 23.2 - Consent of KPMG Peat Marwick LLP
Exhibit 23.3 - Consent of Derrick Stubbs & Stith, L.L.P.
Exhibit 23.4 - Consent of Mendlowitz Weitsen, LLP
Exhibit 99.1 - Press Release, dated April 24, 1998.*
Exhibit 99.2 - Resignation of Terry D. Farmer, effective as of the
Effective Time.*
Exhibit 99.3 - Resignation of Frank D. Lackey, effective as of the
Effective Time.*
Exhibit 99.4 - Resignation of Jon D. Word, effective as of the
Effective Time.*
- ----------
*Previously filed.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECIALTY TELECONSTRUCTORS, INC.
(Registrant)
Date: July 7, 1998 By: /s/ F. Howard Mandel
-------------------------------------
F. Howard Mandel
Vice President and General Counsel
66
<PAGE>
The registrant hereby agrees to supplementally furnish to the Securities and
Exchange Commission, upon request, copies of all schedules to the Amended and
Restated Agreement and Plan of Merger, dated as of April 22, 1998, among
Specialty Teleconstructors, Inc., OAI Acquisition Corp., OmniAmerica Holdings
Corporation, OmniAmerica, Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni
Partners, L.P., as listed below:
SCHEDULES
4.1.1 Corporate and Partnership Existence and Authority
4.1.2 Capitalization
4.1.5 Governmental and Other Consents
4.1.6 Financial Statements
4.1.7 Absence of Certain Liabilities
4.1.8 Absence of Changes
4.1.12 Insurance
4.1.13 Title to Properties
4.1.14 Real Property and Real Property Leases
4.1.15 Intangible Personal Property
4.1.16 Agreements
4.1.17 Indebtedness and Guaranties
4.1.18 Debts to and from Related Parties
4.1.21 ERISA
4.1.22 Employees
4.1.23 No Conflicts of Interest
4.1.27 Tower Space Leases
4.1.28 KISCO Shares
4.2.4 OmniPartners Consents
4.3.1 Corporate Existence and Authority of STI
4.3.2 Capitalization of STI
4.3.4 Execution; No Violations of STI
4.3.5 Governmental and Other Consents of STI
4.3.6 Financial Statements of STI
4.3.8 Absence of Changes of STI
4.3.10 Disputes and Litigation of STI
4.3.12 Insurance of STI
4.3.13 Title to Properties of STI
4.3.14 Real Property and Real Property Leases of STI
4.3.15 Intangible Personal Property of STI
4.3.16 Agreements of STI
4.3.17 Indebtedness and Guaranties of STI
4.3.18 Debts to and from Related Parties of STI
4.3.21 Employee Benefits of STI
4.3.25 Licenses of STI
SPECIALTY TELECONSTRUCTORS, INC.
Date: July 7, 1998 By: /s/ F. Howard Mandel
-------------------------------
F. Howard Mandel
Vice President and
General Counsel
67
<PAGE>
EXHIBIT INDEX
Exhibit
2.1 - Amended and Restated Agreement and Plan of Merger, dated April
22, 1998, among Specialty Teleconstructors, Inc., OAI
Acquisition Corp., OmniAmerica Holdings Corporation,
OmniAmerica, Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni
Partners, L.P.*
4.1 - Post-Merger Stockholders Agreement, dated April 23, 1998,
among Specialty Teleconstructors, Inc. and the stockholders of
Specialty Teleconstructors, Inc. party thereto.*
10.1 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Michael R. Budagher.*
10.2 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Carl E. Hirsch.*
10.3 - First Amendment to Employment Agreement, dated April 22, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Jeffrey A. Howard.*
10.4 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Anthony S. Ocepek.*
23.1 - Consent of Ernst & Young LLP
23.2 - Consent of KPMG Peat Marwick LLP
23.3 - Consent of Derrick Stubbs & Stith, L.L.P.
23.4 - Consent of Mendlowitz Weitsen, LLP
99.1 - Press Release, dated April 24, 1998.*
99.2 - Resignation of Terry D. Farmer, effective as of the Effective
Time.*
99.3 - Resignation of Frank D. Lackey, effective as of the Effective
Time.*
99.4 - Resignation of Jon D. Word, effective as of the Effective
Time.*
- --------------
*Previously filed.
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-18899) pertaining to the Outside Directors Stock Option Plan of
Specialty Teleconstructors, Inc. of our reports dated February 20, 1998, with
respect to the financial statements of OmniAmerica Holdings Corporation for the
period ended December 31, 1997 and March 31, 1998, with respect to the
statements of assets sold by HSW Associates, Inc. as of December 31, 1997 and
statements of revenues and direct operating expenses of assets sold by HSW
Associates, Inc. for the years ended December 31, 1997 and 1996, each included
in this Report on Form 8-K/A.
ERNST & YOUNG LLP
Dallas, Texas
July 7, 1998
Exhibit 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Partners of
TowerCom, Limited:
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-18899) pertaining to the Outside Directors Stock Option Plan of
Specialty Teleconstructors, Inc. of our report dated March 19, 1998, with
respect to the balance sheets of TowerCom, Limited as of December 31, 1997 and
1996 and the related statements of operations, partners' capital and cash flows
for the years then ended, which report appears in the Form 8-K/A Amendment No. 1
dated as of July 7, 1998.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
July 7, 1998
Exhibit 23.3
CONSENT OF DERRICK, STUBBS & STITH, L.L.P.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-18899) pertaining to the Outside Directors Stock Option Plan of
Specialty Teleconstructors, Inc. of our reports dated December 9, 1997, with
respect to the balance sheets of Kline Iron & Steel Co., Inc. as of September
30, 1997 and 1996, and the related statements of income, retained earnings and
cash flows for the years then ended, each included in this Report on Form 8-K/A.
DERRICK, STUBBS & STITH, L.L.P.
July 2, 1998
Exhibit 23.4
CONSENT OF MENDLOWITZ WEITSEN, LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-18899) pertaining to the Outside Directors Stock Option Plan of
Specialty Teleconstructors, Inc. of our reports dated March 3, 1998, with
respect to the balance sheets of Miller Transmission Tower Company, Ltd. as of
December 31, 1997 and 1996 and the related statements of operations, changes in
partners' deficiency and cash flows for the years then ended, each included in
this Report on Form 8-K/A.
MENDOLWITZ WEITSEN, LLP
East Brunswick, New Jersey
July 7, 1998
