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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 12, 1999
QUANTA SERVICES, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 1-13831
DELAWARE 74-2851603
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1360 POST OAK BLVD., SUITE 2100
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 629-7600
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As indicated in the Registrant's Form 8-K as filed with the Securities and
Exchange Commission on February 26, 1999, the financial and pro forma financial
information required to be filed therewith would be filed not later than April
27, 1999. Accordingly, Items 7(a) and 7(b) of the Form 8-K are hereby amended to
read in their entirety as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. Pro forma financial information
The following Unaudited Pro Forma Combined Financial Statements of Quanta
Services, Inc. and Subsidiaries are attached hereto and made a part hereof:
(i) Basis of Presentation
(ii) Unaudited Pro Forma Combined Balance Sheet
(iii) Notes to Unaudited Pro Forma Combined Balance Sheet
(iv) Unaudited Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1998
(v) Notes to Unaudited Pro Forma Combined Statement of Operations
b. Financial Statements of business acquired.
The following Financial Statements of Northern Line Layers, Inc. as of
December 31, 1998 are attached hereto and made a part hereof:
(i) Report of Independent Public Accountants
(ii) Combined Balance Sheet
(iii) Combined Statement of Operations
(iv) Combined Statement of Stockholders' Equity
(v) Combined Statement of Cash Flows
(vi) Notes to Combined Financial Statements
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PAGE
----
Quanta Services, Inc. and Subsidiaries Unaudited Pro Forma
Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-2
Unaudited Pro Forma Combined Balance Sheet................ F-3
Notes to Unaudited Pro Forma Combined Balance Sheet....... F-4
Unaudited Pro Forma Combined Statement of Operations...... F-5
Notes to Unaudited Pro Forma Combined Statement of
Operations............................................. F-6
Northern Line Layers, Inc.
Report of Independent Public Accountants.................. F-7
Combined Balance Sheet.................................... F-8
Combined Statement of Operations.......................... F-9
Combined Statement of Stockholders' Equity................ F-10
Combined Statement of Cash Flows.......................... F-11
Notes to Combined Financial Statements.................... F-12
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4
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.
QUANTA SERVICES, INC.
Date: April 23, 1999
By: /s/ BRAD EASTMAN
----------------------------------
Brad Eastman
Vice President, Secretary and
General Counsel
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
Quanta Services, Inc. and Subsidiaries Unaudited Pro Forma
Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-2
Unaudited Pro Forma Combined Balance Sheet................ F-3
Notes to Unaudited Pro Forma Combined Balance Sheet....... F-4
Unaudited Pro Forma Combined Statement of Operations...... F-5
Notes to Unaudited Pro Forma Combined Statement of
Operations............................................. F-6
Northern Line Layers, Inc.
Report of Independent Public Accountants.................. F-7
Combined Balance Sheet.................................... F-8
Combined Statement of Operations.......................... F-9
Combined Statement of Stockholders' Equity................ F-10
Combined Statement of Cash Flows.......................... F-11
Notes to Combined Financial Statements.................... F-12
F-1
6
QUANTA SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet gives effect to the
acquisition by Quanta Services, Inc. and Subsidiaries ("Quanta" or the
"Company") of Northern Line Layers, Inc. which was acquired subsequent to
December 31, 1998 as if it had occurred on December 31, 1998. The unaudited pro
forma combined statement of operations give effect to this transaction as if it
had occurred on January 1, 1998.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Quanta's management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what Quanta's financial position or
results of operations would actually have been if the acquisition of Northern
Line Layers, Inc. in fact had occurred on those dates and are not necessarily
representative of Quanta's financial position or results of operations for any
future period. Since the acquired company was not under common control or
management during the period covered by the pro forma financial statements,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this filing, as well as information included in Quanta's
Form 10-K for the year ended December 31, 1998.
F-2
7
QUANTA SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
QUANTA
SERVICES, INC.
AND NORTHERN LINE PRO FORMA PRO FORMA
SUBSIDIARIES LAYERS, INC. ADJUSTMENTS(A) TOTAL
-------------- ------------- -------------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 3,246 $ 2,757 $ -- $ 6,003
Accounts receivable, net...................... 71,992 8,100 -- 80,092
Cost and estimated earnings in excess of
billings on uncompleted contracts.......... 22,620 455 -- 23,075
Inventories................................... 2,534 -- -- 2,534
Prepaid expenses and other current assets..... 4,337 -- -- 4,337
-------- ------- ------- --------
Total current assets.................. 104,729 11,312 -- 116,041
PROPERTY AND EQUIPMENT, net..................... 74,165 3,684 -- 77,849
OTHER ASSETS.................................... 5,177 59 -- 5,236
GOODWILL, net................................... 150,887 -- 29,079 179,966
-------- ------- ------- --------
Total assets.......................... $334,958 $15,055 $29,079 $379,092
======== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.......... $ 3,786 $ 910 $ -- $ 4,696
Accounts payable and accrued expenses......... 38,031 5,901 -- 43,932
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 7,031 139 -- 7,170
-------- ------- ------- --------
Total current liabilities............. 48,848 6,950 -- 55,798
LONG-TERM DEBT, net of current maturities....... 60,201 549 22,384 83,134
CONVERTIBLE SUBORDINATED NOTES.................. 49,350 -- -- 49,350
DEFERRED INCOME TAXES AND OTHER NON-CURRENT
LIABILITIES................................... 6,261 -- -- 6,261
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock............................... -- -- -- --
Common Stock.................................. -- -- -- --
Limited Vote Common Stock..................... -- -- -- --
Treasury Stock................................ -- (240) 240 --
Unearned ESOP shares.......................... (1,831) -- -- (1,831)
Additional paid-in capital.................... 145,151 197 14,054 159,402
Retained earnings............................. 26,978 7,599 (7,599) 26,978
-------- ------- ------- --------
Total stockholders' equity............ 170,298 7,556 6,695 184,549
-------- ------- ------- --------
Total liabilities and stockholders'
equity.............................. $334,958 $15,055 $29,079 $379,092
======== ======= ======= ========
The accompanying notes are an integral part of these pro forma combined
financial statements.
F-3
8
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) These adjustments reflect the purchase of Northern Line Layers, Inc. that
was consummated on February 16, 1999, including approximately $22,384,000
of debt incurred under Quanta's line of credit to finance the cash portion
of the purchase price paid upon acquisition and approximately 667,000
shares issued.
F-4
9
QUANTA SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
QUANTA
SERVICES, INC.
AND NORTHERN LINE PRO FORMA PRO FORMA
SUBSIDIARIES LAYERS, INC. ADJUSTMENTS TOTAL
-------------- ------------- ----------- ---------
REVENUES.................................... $309,209 $46,744 $ -- $355,953
COST OF SERVICES (including depreciation)... 249,195 34,315 -- 283,510
-------- ------- ------- --------
Gross Profit.............................. 60,014 12,429 -- 72,443
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 26,418 5,437 55(a) 31,910
MERGER EXPENSES -- Pooling.................. 231 -- -- 231
GOODWILL AMORTIZATION....................... 2,513 -- 727(b) 3,240
-------- ------- ------- --------
Income (loss) from Operations............. 30,852 6,992 (782) 37,062
OTHER INCOME (EXPENSE)
Interest Expense.......................... (4,635) (131) (1,567)(c) (6,333)
Other, net................................ 641 512 -- 1,153
-------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE..... 26,858 7,373 (2,349) 31,882
PROVISION FOR INCOME TAXES.................. 11,683 -- 2,345(d) 14,028
-------- ------- ------- --------
NET INCOME (LOSS)........................... $ 15,175 $ 7,373 $(4,694) $ 17,854
======== ======= ======= ========
BASIC EARNINGS PER SHARE.................................................................. $ 0.97
========
DILUTED EARNINGS PER SHARE................................................................ $ 0.95
========
DILUTED EARNINGS PER SHARE BEFORE MERGER EXPENSES......................................... $ 0.96
========
SHARES USED IN COMPUTING PRO FORMA COMBINED EARNINGS PER SHARE --
BASIC(e)................................................................................ 18,313
========
DILUTED(e).............................................................................. 19,333
========
The accompanying notes are an integral part of these pro forma combined
financial statements.
F-5
10
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(a) Adjusts compensation expense to the level the previous owners of Northern
Line Layers, Inc. have agreed to receive as employees of the Company
subsequent to their acquisition.
(b) Adjusts amortization expense to reflect purchase price allocations on
Northern Line Layers, Inc.
(c) Records incremental interest expense on the debt incurred to effect the
purchase of Northern Line Layers, Inc.
(d) Reflects the incremental provision for providing federal income taxes on
Northern Line Layers, Inc., which was previously taxed as an S corporation,
as well as federal and state income taxes relating to the pro forma income
statement adjustments.
(e) The computation of pro forma basic and diluted earnings per share for the
year ended December 31, 1998 is based upon the historical weighted average
shares of common stock outstanding at December 31, 1998, adjusted for the
issuance of 666,948 shares related to the acquisition of Northern Line
Layers, Inc.
F-6
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northern Line Layers, Inc.:
We have audited the accompanying combined balance sheet of Northern Line Layers,
Inc., a Montana corporation, as of December 31, 1998, and the related combined
statements of operations, stockholders' equity and cash flows for the year 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 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Northern Line
Layers, Inc., as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 19, 1999
F-7
12
NORTHERN LINE LAYERS, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 2,756,582
Accounts receivable --
Trade, net of allowance of $150,000.................... 5,552,679
Retainage.............................................. 2,299,386
Other receivables...................................... 248,711
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 454,562
-----------
Total current assets.............................. 11,311,920
PROPERTY AND EQUIPMENT, net................................. 3,683,978
OTHER ASSETS, net........................................... 58,800
-----------
Total assets...................................... $15,054,698
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations............... $ 910,371
Accounts payable and accrued liabilities.................. 5,901,276
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 138,823
-----------
Total current liabilities......................... 6,950,470
LONG-TERM OBLIGATIONS, net of current maturities............ 548,839
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 50,000 shares authorized,
23,700 shares issued and 16,700 shares outstanding..... --
Additional paid-in capital................................ 196,882
Retained earnings......................................... 7,598,507
Treasury stock, 7,000 shares, at cost..................... (240,000)
-----------
Total stockholders' equity........................ 7,555,389
-----------
Total liabilities and stockholders' equity........ $15,054,698
===========
The accompanying notes are an integral part of these combined financial
statements.
F-8
13
NORTHERN LINE LAYERS, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES.................................................... $46,743,617
COSTS OF SERVICE (including depreciation)................... 34,315,158
-----------
Gross profit...................................... 12,428,459
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 5,436,682
-----------
Income from operations............................ 6,991,777
-----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (131,167)
Other income, net......................................... 511,990
-----------
Other income (expense), net....................... 380,823
-----------
NET INCOME.................................................. $ 7,372,600
===========
The accompanying notes are an integral part of these combined financial
statements.
F-9
14
NORTHERN LINE LAYERS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
COMMON STOCK ADDITIONAL TREASURY
--------------- PAID-IN RETAINED STOCK,
SHARES AMOUNT CAPITAL EARNINGS AT COST TOTAL
------ ------ ---------- ----------- --------- -----------
BALANCE, December 31, 1997....... 23,700 $ -- $101,882 $ 6,189,395 $(240,000) $ 6,051,277
Distributions to
stockholders................ -- -- -- (5,963,488) -- (5,963,488)
Net income..................... -- -- -- 7,372,600 -- 7,372,600
Contribution from
stockholder................. -- -- 95,000 -- -- 95,000
------ ---- -------- ----------- --------- -----------
BALANCE, December 31, 1998....... 23,700 $ -- $196,882 $ 7,598,507 $(240,000) $ 7,555,389
====== ==== ======== =========== ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-10
15
NORTHERN LINE LAYERS, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 7,372,600
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization expense.................. 687,545
Loss on sale of assets................................. 20,942
Other.................................................. 61,598
Changes in operating assets and liabilities, net of
noncash transactions --
Trade receivables...................................... (2,516,193)
Retainage.............................................. (852,481)
Other receivables...................................... (60,099)
Other assets, net...................................... 67,226
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 301,912
Accounts payable and accrued liabilities............... 2,975,071
Billings in excess of costs and estimated earning on
completed contracts................................... (154,542)
-----------
Net cash provided by operating activities......... 7,903,579
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return of equity in joint venture from lawsuit
settlement............................................. 424,787
Proceeds from note receivable from stockholder............ 308,000
Proceeds from sale of property and equipment.............. 704,931
Purchases of property and equipment....................... (2,377,614)
-----------
Net cash used in investing activities............. (939,896)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations........... 515,469
Principal payments on long-term obligations............... (676,706)
Distributions to stockholders............................. (5,963,488)
-----------
Net cash used in financing activities............. (6,124,725)
-----------
NET INCREASE IN CASH........................................ 838,958
CASH, beginning of year..................................... 1,917,624
-----------
CASH, ending of year........................................ $ 2,756,582
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 87,121
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Contribution from stockholder from forgiveness of note
payable to stockholder................................. $ 95,000
===========
The accompanying notes are an integral part of these combined financial
statements.
F-11
16
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Northern Line Layers, Inc. (Northern), a Montana Subchapter S Corporation,
is primarily engaged in the installation of telephone fiber optic lines and
buried cables in the continental United States. Northern performs a majority of
its contract work under fixed-price and unit-price contracts, with contract
terms generally ranging from six to 18 months.
Lakota Iron Company, LLC (Lakota), a Montana limited liability company, is
composed primarily of assets and related liabilities that are leased to Northern
for use in its business. Both Northern and Lakota are under common control and
ownership. In December 1998, Northern acquired all of the outstanding stock of
Lakota through the exchange of 2,700 shares of Northern common stock. For
accounting purposes, the combination was treated as an exchange of interests in
companies under common control in a manner similar to a pooling of interests.
Hereinafter, Northern and Lakota will be referred to as "the Company."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The accompanying financial statements include the combined accounts and
results of operations of Northern and Lakota. All significant intercompany
accounts and transactions have been eliminated.
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
deemed probable and an allowance based upon the level of total accounts
receivable balances.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the
lease term or the estimated useful life of the asset. Depreciation and
amortization expense was $647,545 for the year ended December 31, 1998.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Noncompete Agreement
In January 1995, the Company repurchased 7,000 shares from a former
stockholder of the Company at a fair value of $240,000 and recorded the shares
at cost in treasury. In connection therewith, the Company entered into a
five-year noncompete agreement with the former stockholder for $200,000, which
is being paid over five years. The noncompete agreement is being amortized over
its useful life using the straight-line method. Accumulated amortization at
December 31, 1998, was $156,667. The noncompete agreement is included in other
assets in the accompanying combined balance sheet at December 31, 1998.
Revenue Recognition
The Company recognizes revenue when services are performed, except when
work is being performed under a fixed-price contract. Such contracts generally
provide that the customer accept completion of progress
F-12
17
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to date and compensate the Company for services which have been rendered,
measured typically in terms of units installed, hours expended or some other
measure of progress. Revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date to total estimated costs for each contract. Contract costs include all
direct material, labor and subcontract costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and
depreciation costs. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income, and their effects are
recognized in the period in which the revisions are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed-price contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balance at each balance sheet date will
be collected within the subsequent fiscal year.
The current asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and long-term obligations. The Company believes that the
carrying value of these instruments on the accompanying combined balance sheet
approximates their fair value.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. The
Company terminated its S Corporation status concurrently with the effective date
of its acquisition by Quanta (see Note 10).
Collective Bargaining Agreements
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements
expire in 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent 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. Reference is made to the
"Revenue Recognition" section of this footnote for discussion of certain
estimates reflected in the Company's financial statements.
F-13
18
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment at December 31, 1998, consists of the following:
ESTIMATED
USEFUL LIVES
IN YEARS
------------
Machinery and equipment..................................... 3-8 $ 4,642,628
Transportation equipment.................................... 3-5 1,144,313
Office furniture and equipment.............................. 5-10 467,778
Leasehold improvements...................................... 5-15 80,519
------------
6,335,238
Less-Accumulated depreciation and amortization.............. (2,651,260)
------------
Property and equipment, net....................... $ 3,683,978
============
Accounts payable and accrued liabilities at December 31, 1998, consist of
the following:
Accounts payable, trade................................................... $ 4,072,886
Accrued compensation and benefits......................................... 1,673,948
Other accrued liabilities................................................. 154,442
------------
$ 5,901,276
============
Contracts in progress at December 31, 1998, are as follows:
Costs incurred on contracts in progress................................... $ 25,749,499
Estimated earnings, net of losses......................................... 6,183,442
------------
31,932,941
Less-Billings to date..................................................... (31,617,202)
------------
$ 315,739
============
Costs and estimated earnings in excess of billings on uncompleted
contracts............................................................... $ 454,562
Less-Billings in excess of costs and estimated earnings on uncompleted
contracts............................................................... (138,823)
------------
$ 315,739
============
4. LINE OF CREDIT AND LONG-TERM OBLIGATIONS:
Line of Credit
The Company has a $2 million line-of-credit agreement with a bank (the
Credit Facility), bearing interest at the bank prime rate (7.75 percent at
December 31, 1998) plus .25 percent. The Credit Facility is secured by the
Company's cash, accounts receivable and certain property and equipment. There
was no balance outstanding on the Credit Facility at December 31, 1998, and the
Credit Facility matures on December 31, 2002.
F-14
19
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Obligations
The Company's long-term obligations at December 31, 1998, consisted of the
following:
Notes payable to a bank, variable interest rate at the prime
rate (7.75 percent at December 31, 1998) plus .75 percent,
payable in 17 equal monthly payments of principal and
interest starting in July 1999 and final payment on
December 31, 2001......................................... $ 719,469
Notes payable to a bank, 7.77% interest rate, due in
installments of $41,667, including interest, with maturity
on December 31, 2000, secured by equipment................ 499,998
9.0% Note payable, due in monthly installments of $823,
including interest, final payment on November 6, 2001,
secured by a vehicle...................................... 25,238
9.0% Note payable, due in monthly installments of $792,
including interest, final payment in December 2001,
secured by a vehicle...................................... 24,295
12.5% Note payable, due in monthly installments of $1,994,
including interest, final payment in July 2000, secured by
a vehicle................................................. 32,577
12.48% Note payable, due in monthly installment of $1,100,
including interest, final payment in August 2001, secured
by a vehicle.............................................. 29,263
15.0% Note payable, due in monthly installments of $5,009,
including interest, final payment in February 2000........ 71,103
Covenant not to compete, due in monthly installments of
$3,333, five-year agreement with final payment in February
2000...................................................... 43,333
Other....................................................... 13,934
----------
1,459,210
Less-Current maturities..................................... (910,371)
----------
Total long-term obligations....................... $ 548,839
==========
The line of credit and notes payable to a bank are subject to certain
financial reporting and financial covenant requirements. At December 31, 1998,
the Company was in compliance with all debt covenants.
Maturities of long-term obligations as of December 31, 1998, are as
follows:
Year ending December 31-
1999...................................................... $ 910,371
2000...................................................... 535,203
2001...................................................... 13,637
----------
$1,459,211
==========
5. EMPLOYEE BENEFIT PLAN:
The Company established a 401(k) tax-deferred savings plan which covers
substantially all qualifying employees. Through the plan, employees may
contribute up to the maximum dollar amount as determined by the Internal Revenue
Service of their earnings through payroll deductions. The Company contributes,
on behalf of the employees, 50 percent of the employee's contribution, to a
maximum of 6 percent of the employee's salary. An employee is 100 percent vested
after five years of credited service. For the year ended December 31, 1998, the
Company contributed $72,105.
F-15
20
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
During 1998, the Company had greater than 10 percent of total sales to
three customers, which accounted for 19 percent, 49 percent and 17 percent,
respectively, of the Company's revenues. Approximately 27 percent, 59 percent
and zero percent of trade and retainage receivables at December 31, 1998, are
due from each of these customers, respectively.
The Company grants credit, generally without collateral, to its customers,
which include real estate operators, general contractors and state and
regulatory agencies located throughout the continental United States.
Consequently, the Company is subject to potential credit risk related to changes
in business and economic factors within these areas. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
7. RELATED-PARTY TRANSACTIONS:
During 1998, a note receivable was recorded for a loan to a relative of the
stockholders. The balance at December 31, 1998, was $95,148 and is reflected in
other receivables in the accompanying December 31, 1998, combined balance sheet.
Subsequent to year-end, the note receivable was collected. During 1998, the
Company wrote off a note receivable from a former stockholder of the Company for
$61,598 when it was deemed uncollectible. Such amount is recorded in selling,
general and administrative expenses in the accompanying combined statement of
operations.
The Company leases buildings, land and other equipment from affiliates of
the Company in which some of the stockholders hold common ownership.
Related-party rent expense for the year ended December 31, 1998, was $103,000.
8. LAWSUIT SETTLEMENT:
During 1996, the Company owned a 50 percent interest in a joint venture
formed to perform a construction project in New Mexico. The joint venture was
accounted for on the equity basis, and the Company's investment in the joint
venture was $424,487 at December 31, 1997. The contract was completed in 1996,
and during the course of the project the job was shut down for an extended
length of time due to customer delays. As a result, the joint venture incurred
significant damages, including idle crew time, and filed litigation against the
customer for damages during 1997. In September 1998, the joint venture reached a
settlement with the customer. In connection therewith, the Company received
approximately $425,000 representing the Company's equity investment balance in
the joint venture and approximately $416,000 representing liquidating damages.
The liquidating damages are included in other income in the accompanying
combined statement of operations.
F-16
21
NORTHERN LINE LAYERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases certain equipment under long-term operating lease
agreements which expire in various years through 2014. Rent expense for the year
ended December 31, 1998, was $780,559. The minimum lease payments for operating
leases in future years are as follows:
Year ending December 31 --
1999...................................................... $ 341,482
2000...................................................... 261,122
2001...................................................... 170,159
2002...................................................... 138,000
2003...................................................... 138,000
Thereafter................................................ 1,518,000
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Total............................................. $2,566,763
==========
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of premium-based insurance coverage,
including workers' compensation, business auto liability, general liability and
an umbrella policy.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments which are personally
guaranteed by certain stockholders of the Company.
10. SUBSEQUENT EVENT:
In February 1999, the Company was acquired by Quanta Services, Inc.
Prior to the closing of the transaction discussed above, the Company
distributed approximately $3.8 million to stockholders. The distribution
consisted of cash and in kind assets of $3.6 million and $0.2 million,
respectively. The Company funded the cash portion of the distribution through
bank borrowings.
F-17
22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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23.1 -- Consent of Independent Public Accountants
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Filed herewith