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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-44273
FWT, INC.
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 75-1040743
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
701 HIGHLANDER BLVD., SUITE 200
ARLINGTON, TEXAS 76015
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(817) 255-3060
(Telephone number, including area code, of Registrant's Principal Executive
Offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
There were 136.14 shares of the registrant's common stock, par value $10.00
per share, outstanding as of July 27, 1998.
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TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
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PART I
1. Business....................................................
2. Properties..................................................
3. Legal Proceedings...........................................
4. Submission of Matters to a Vote of Security Holders.........
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters.........................................
6. Selected Financial Data.....................................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................
8. Financial Statements and Supplementary Data.................
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant..........
11. Executive Compensation......................................
12. Security Ownership of Certain Beneficial Owners and
Management..................................................
13. Certain Relationships and Related Transactions..............
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.........................................................
(i)
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FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-K, words such as "anticipate," "believe,"
"estimate," "expect," "intend," "predict," "project," and similar expressions,
as they relate to FWT, Inc. ("FWT" or the "Company") or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, expected
or projected. Such forward-looking statements reflect the current views of the
Company's management with respect to future events and are subject to these and
other risks, uncertainties and assumptions relating to the operations, results
of operations, growth strategy and liquidity of the Company. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
paragraph. See "Risk Factors."
PART I.
All references to a fiscal year in this Form 10-K refer to the fiscal year
of FWT, Inc. ending on April 30 (the "Fiscal Year") of the specified year.
ITEM 1. BUSINESS.
GENERAL
The Company is a recognized name in the design, manufacture and marketing
of wireless communications infrastructure products, including towers, monopoles,
shelters and disguised sites. The Company's product line is used by customers in
the cellular, personal communications services ("PCS"), enhanced specialized
mobile radio ("ESMR"), paging, radio and television broadcasting, fiber optics
and microwave industries. The Company's customers include many of the larger
wireless service providers, such as Nextel Communications, AT&T Wireless, MCI
and Sprint Spectrum. During Fiscal Year 1998, sales to Nextel Communications and
AT&T Wireless accounted for approximately 24.2% and 8.1%, respectively, of the
Company's net revenues. During Fiscal Year 1997, sales to Nextel Communications
and AT&T Wireless accounted for approximately 6.2% and 25.0%, respectively, of
the Company's net revenues. Because all wireless service providers need
infrastructure products, the Company believes it is well-positioned to
capitalize on the continued growth of the wireless communications industry,
regardless of which technologies or service providers dominate the industry in
the future.
RECAPITALIZATION AND STOCK PURCHASE
On November 12, 1997, the Company, FWT Acquisition, Inc. (a wholly-owned
subsidiary of Baker Communications Fund, L.P., a private equity fund that
invests in communications related services, equipment and applications entities
("Baker")), T.W. Moore, Betty Moore, Roy J. Moore, Thomas F. Moore and Carl R.
Moore (each of the natural persons, the "Existing Shareholders") entered into
and consummated the transactions set forth in a Stock Purchase and Redemption
Agreement and related documents (collectively, the "Transaction Agreements").
The Transaction Agreements contemplated, among other things, two primary
transactions. The first transaction contemplated by the Transaction Agreements
included (i) the incurrence by the Company of $100.0 million senior secured
indebtedness (the "Senior Credit Facility"), (ii) a redemption by the Company
from the Existing Shareholders of an aggregate of 235.86 shares of the Company's
common stock, par value $10.00 per share (the "Common Stock"), for aggregate
consideration of approximately $83.1 million, including related consulting,
legal and accounting costs of approximately $1.2 million, (iii) the repayment of
all the outstanding funded indebtedness of the Company in an aggregate amount of
approximately $22.1 million, and (iv) the distribution of an immaterial amount
of selected assets to certain Existing Shareholders (such transactions are
collectively referred to as the "Recapitalization"). The
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second transaction contemplated by the Transaction Agreements included the
purchase by FWT Acquisition, Inc. of an aggregate of 108.9 shares of the Common
Stock from Existing Shareholders for aggregate consideration totaling
approximately $36.0 million (the "Stock Purchase" and together with the
Recapitalization, the "Transactions"). As a result of the Transactions, FWT
Acquisition, Inc. holds approximately 80.0% of the outstanding shares of Common
Stock, and Roy J. Moore, Thomas F. Moore and Carl R. Moore (collectively, the
"Roll-over Shareholders") hold in the aggregate approximately 20.0% of the
outstanding shares of Common Stock. For financial reporting purposes, the
Recapitalization was accounted for by the Company as an acquisition of treasury
stock.
The borrowings under the Senior Credit Facility, cash from the Company of
approximately $5.0 million, notes payable of approximately $1.9 million, and the
distribution of selected assets were used to consummate the Transactions. In
order to repay the borrowings under the Senior Credit Facility, the Company
issued $105.0 million aggregate principal amount of 9 7/8% Senior Subordinated
Notes due 2007 (the "Former Notes") on November 17, 1997 (the "Initial
Offering"). The Former Notes were exchanged for an equal principal amount of the
Company's 9 7/8% Senior Subordinated Notes due 2007 in integral multiples of
$1,000 (the "Exchange Notes") in accordance with an exchange offer pursuant to
which a registration statement on Form S-4, which became effective on March 13,
1998, was filed by the Company (the "Exchange Offer").
PRODUCTS
The Company has grown from a small manufacturing shop into a recognized
industry supplier that operates two manufacturing facilities and provides a
broad array of wireless communications infrastructure products for the wireless
communications industry, including:
Towers. Lattice towers are vertical structures most frequently used by
wireless and broadcast service providers to support antennas. They can be
self-supporting, typically three-legged structures, or supported by guy
wires attached to anchors in the ground.
Monopoles. Monopoles are tapered, sleeve-fit or round flange-fit
antenna structures that serve as an alternative to towers, and are
generally regarded as more aesthetically pleasing and easier to install
than towers.
Shelters. Shelters are small, pre-fabricated buildings which are used
to house the electronic equipment required for cell sites and fiber optic
networks. Shelters generally range from 100 to 500 square feet and are
typically made with an aluminum exterior.
Disguised Sites. Disguised site products are designed to blend with
the surrounding environment. These products include TREE-CELL monopoles,
flag poles, church and clock towers, stadium light poles, self-support
towers with cladding and painted monopoles.
COWS. Cell-Sites-on-Wheels ("COWS") are mobile structures that combine
an antenna support structure, power supply and radio equipment enclosure.
COWS are used when temporary coverage is needed, often before a permanent
site is built, for special high usage events or for disaster recovery.
PowerMount(TM). The PowerMount(TM) is a patented product that allows a
wireless service provider to install a fully sectored antenna array on an
electrical utility support structure, thereby taking advantage of an
existing site.
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The following table summarizes FWT's sales and percentage of total sales by
product line for each of the last three fiscal years.
Fiscal Year Ended
---------------------------------------------------
Product Line April 30, 1998 April 30, 1997 April 30, 1996
------------ --------------- --------------- ---------------
($ in thousands)
Towers.................................... $38,454 50.8% $25,092 35.2% $17,862 41.8%
Monopoles................................. 19,793 26.2 28,080 39.5 5,852 13.7
Other(1).................................. 17,358 23.0 18,016 25.3 18,987 44.5
------- ----- ------- ----- ------- -----
Total Sales..................... $75,605 100.0% $71,188 100.0% $42,701 100.0%
======= ===== ======= ===== ======= =====
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(1) Includes Shelters, Disguised Sites, COWS, PowerMount(TM), Generators,
Freight and Engineering Services.
COMPETITIVE STRENGTHS
The Company believes that its products and customer service distinguish it
as one of the leading designers and manufacturers of wireless communications
infrastructure products and that the Company's strong market position in its
product segments and continued opportunities for growth and profitability are
attributable to the following competitive strengths:
- Reputation for Customer Service and On-Time Delivery. Management believes
that one of FWT's greatest competitive advantages is its tradition of,
and reputation for, customer service. The use of a direct sales force
plays a significant role in customer service. In addition, over the past
three years, the Company has invested in additional manufacturing
capacity, manufacturing process enhancements, in-house engineering
capabilities and job tracking systems that allows the Company to respond
more efficiently to customers' requests and helps the Company to reduce
delivery times that consistently outperform industry standards. The
majority of the Company's customers are wireless communications service
providers that compete in an industry where time to market is critical.
In an attempt to improve customer delivery requirements, the Company has
reduced its delivery cycle times from ten weeks to four weeks during the
fourth quarter of Fiscal Year 1998. FWT believes it has a significant
competitive advantage in meeting these customers' needs by reliably
meeting their often aggressive time frames.
- Reputation for High Quality Products. The Company's design and certain
production processes allow the Company to achieve and maintain a
consistent product quality. Moreover, the Company installed more rigorous
quality control standards during the fourth quarter of Fiscal Year 1998
including an increase in production line quality control personnel and
took steps towards ISO 9000 certification. The Company anticipates that
it will receive ISO 9000 certification during calendar year 1998.
Management believes that domestic and international wireless
communications service providers will respond favorably to this strategy.
- Low Cost Structure through Strategic Relationship. The Company believes
it enjoys a position as a low cost provider. This position has resulted
from a key strategic relationship with Delta Steel, Inc. ("Delta Steel")
which management believes will enable it to (i) reduce purchasing and
manufacturing costs as a percentage of total sales, (ii) focus on its
core competencies in product design and finishing, quality control,
customer service and sales and marketing, and (iii) limit its plant and
working capital investments. This relationship allows FWT to take
delivery of steel on a consignment and just-in-time basis. This
relationship is important and, should it terminate, the Company's profits
could decline significantly.
- Complete Product Line Offering. The Company believes that it is the only
leading market share provider of wireless communications infrastructure
products that offers a complete line of products. The Company believes
that none of its competitors offer as many products as FWT, and that
FWT's product offerings allow it to operate as a single source supplier
to wireless communications service providers.
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- Solid Market Positions in Growth Industry. The Company believes it is
currently the second largest participant in each of the monopole and
tower markets and, in recent years, has increased its market share in
each of these markets. Although the Company believes it is well
positioned to benefit from the expected growth in the wireless
communications industry because of its strong market positions, there are
other competitors in both the monopole and tower markets who could
increase their market share. This could reduce the benefit that the
Company might derive from industry growth.
- Experienced Management Team. Substantially all of the Company's executive
officers and management personnel have spent considerable portions of
their careers in manufacturing. Management's expertise and in depth
knowledge of the Company's products and customers are further
complemented by the experience of the principals at Baker, a private
equity fund that invests in communications related services, equipment
and applications entities.
BUSINESS AND GROWTH STRATEGY
Management believes that the Company's growth will be driven by leveraging
its competitive strengths, excellent reputation and broad product line, into a
stronger market position by (i) capitalizing on the growth of the wireless
communications industry, (ii) further broadening its base of product offerings,
(iii) pursuing certain acquisitions and alliances on a forward integrated basis,
and (iv) further expansion into international markets.
- Capitalize on Growth in the Wireless Communications Industry. The Company
has grown rapidly over the past five years by taking advantage of the
growing demand for wireless communications services, and by positioning
itself as a reliable, customer focused provider of wireless
communications infrastructure products. However, the Company must work to
manage its growth so that it can continue to satisfy its customers. The
Company believes that there are several industry trends which indicate an
increase in demand for wireless communications infrastructure products.
These include: (i) the continued construction of cellular networks which
is expected to grow as providers make capacity enhancements and
transition from analog to digital; (ii) the widespread introduction of
PCS; (iii) the launch of high definition television ("HDTV"); and (iv)
the growth of wireless local loop ("WLL") systems which is expected to
increase, particularly in emerging economies.
- Broaden Product Offerings. The Company has developed relationships with
numerous electrical utility companies through the introduction of its
PowerMount(TM) product, which provides a co-location opportunity within a
standard electrical transmissions structure. The Company plans to market
this product and other utility applications in the future and believes
these relationships will prove beneficial in entering these markets. In
addition, the introduction of HDTV will require towers of over one
thousand feet and are expected to sell for approximately $1.0 million
each. The Company believes it is well-positioned to take advantage of
each of these opportunities.
- Pursue Strategic Alliances and Acquisitions. The Company plans to
evaluate selective opportunities that will enhance its position within
the cell site development process. The Company believes there are various
opportunities beyond providing wireless communications infrastructure
products used in the construction of wireless communications networks.
These include site installation services, tower ownership and management
businesses. The Company believes these closely related businesses could
be integrated with its current operations to increase the value the
Company provides to its customer base. From time to time, the Company
engages in discussions or otherwise evaluates opportunities that may lead
to the acquisition by the Company of one or more closely related
businesses. The ability of the Company to complete any such acquisitions
is subject to limitations imposed by the terms and conditions of the
Credit Agreement dated November 12, 1997, by and among the Company,
Bankers Trust Company and BT Commercial Corporation, as amended (the
"Revolving Credit Facility"), and the Indenture dated as of November 15,
1997 (the "Indenture") between the Company and Norwest Bank Minnesota,
N.A., as trustee.
- Expand into International Markets. The Company believes there are
opportunities to expand its geographical reach particularly into Asia and
Latin America. The trend towards global deregulation of
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wireless communications markets provides substantial growth opportunities
for wireless communications infrastructure product manufacturers. The
Company believes its strong relationships with its domestic customers,
many of whom are already building networks internationally, provides an
advantage in competing for wireless communications infrastructure
business in new international markets. Although the growth of
international markets provides the Company with significant
opportunities, cultural differences may provide the Company with
obstacles that may impede the Company's further expansion into
international markets.
MANAGEMENT'S OPERATING OBJECTIVES
Management believes it has defined clearly the Company's operating
objectives by placing further emphasis on product quality, operating processes
and metrics, and product line standardization which should in turn further
improve process cycle time. This focus on reducing process cycle time is
expected to result in enhanced profitability of the Company and the continued
reduction in order lead time requirements.
The Company's operating objectives and product and service offerings should
further benefit its market share position. Management believes that customers
will continue to centralize purchasing and look for additional outsourcing
relationships in an effort to focus their internal resources. Also, as "build to
suit" customers accelerate their buildout schedules, these objectives are
expected to enhance further customer relationships.
The implementation of the Company's operating objectives and enhancements
in management practices continues to progress. Management believes that
opportunities exist for improvements in profitability and have identified and
addressed many of these opportunities. Management implemented the following
changes during the fourth quarter of Fiscal Year 1998 and will continue to
implement these changes throughout Fiscal Year 1999:
- Labor Cost Controls. The Company reduced the level of full time
equivalent employees by approximately 30.0% as compared to the third
quarter of Fiscal Year 1998.
- Quality System Emphasis. The Company expects to receive ISO 9000
certification during Fiscal Year 1999.
- Monopole Production Enhancements. The Company placed in production the
first of two automated seam-welding units in June 1998 and is scheduled
to place the second unit in production during September 1998. Management
believes that these units will increase monopole production capacity,
while at the same time reducing labor and rework costs.
- Work in Process/Job Status Reporting. The Company has implemented system
improvements that allow for monitoring of orders throughout the
production process.
- Reduction in Order Lead-time Requirement. The Company's order lead time
has been reduced from 8 to 10 weeks during November 1997 to consistently
less than 4 weeks at the end of Fiscal Year 1998. Management expects to
reduce further this order lead time with additional process enhancements
and improvements.
- Capacity Identification and Expansion. Management has identified prior
capacity and believes that the process enhancements to date have
increased this capacity.
- Product Standardization. By continuing to standardize the Company's
product and service offerings, management believes that cost and
throughput improvements will be realized in future periods.
MANUFACTURING
The Company's operations are characterized by an automated design process,
which enables it to achieve a higher level of efficiency in manufacturing than
those competitors not having the same design process. In addition, management
recently implemented the following improvements to the Company's manufacturing
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process, which have resulted in higher quality products, increased production
capacity, a more efficient manufacturing process and improved delivery time for
most of the Company's products: (i) automation of additional functions in the
manufacturing process, including job tracking, (ii) reduction in number of
employees in the manufacturing process partially offset by an increase in
production line quality control personnel and (iii) improved processes in an
effort to obtain ISO 9000 certification.
Towers. Each tower is designed and manufactured to customer specifications.
Factors such as weight and technology of attachments, expected wind load,
deflection parameters and icing load are used as inputs to the design process
and affect manufacturing. Tower components, including legs, braces and cross
bars are manufactured as components for each individual tower order. Sections
are welded together and sent to a local facility for galvanizing. Management
believes the Company is at approximately 50.0% of tower manufacturing capacity.
In addition, management recently invested in certain production enhancements,
including the purchase of break away guy and pivot-based jigs, which have
increased the productivity of the tower manufacturing process while decreasing
related labor costs.
Monopoles. The initial phase of monopole manufacturing is performed
pursuant to an agreement with Delta Steel. Flat sheet steel is initially
purchased by Delta Steel and stored at its facility. Delta Steel burns or cuts
the steel to produce the proper shape and performs the braking operation to bend
the steel into two sections. This work-in-process inventory is then shipped to
FWT, which performs the seam welding operation and joins the two sections
together to form the monopole at its Kennedale production facility. Finishing
operations are performed to customer specifications, including attaching
footholds and connectors, cable openings and base plates. Finished steel is
currently shipped to Houston for galvanizing, but will be galvanized at a site
adjacent to the Company's Fort Worth facility which is expected to be
operational in late 1998.
The Company placed the first of two new automated seam welding units to be
utilized in its monopole manufacturing process into operation in June 1998, with
the second unit scheduled to be placed in operation in September 1998. These
units represent the largest component of the Company's capital expenditure
budget for the remainder of calendar year 1998. Management anticipates that
these automated seam welding units will reduce labor and rework costs associated
with its monopole manufacturing process and increase its production capacity in
future periods.
Shelters and COWS. Shelters are manufactured by welding together a steel
skid frame that serves as the base of the shelter. Aluminum walls and a roof are
then attached to the skid. The interior of the shelter is then finished with
paneling, electrical wires, alarms, heating, ventilation and air conditioning
and other accessories according to the customer's specifications. COWS are
shelters which have been augmented with a trailer frame, generator and
retractable antenna support structure.
PowerMounts(TM). Plate steel is burned to form attachment plates which are
then welded to pipe steel sections. Steel antenna platforms developed by welding
various angle and tubular components are then consolidated with pipe sections
for shipment.
CUSTOMERS
FWT sells its products to leading wireless service providers throughout the
U.S. and, to a lesser extent, Canada and Mexico. In Fiscal Year 1998, the
Company's five largest customers collectively represented approximately 54.9% of
the Company's sales. Due to fluctuations in the network construction schedules
of different service providers, the Company's largest customers vary
considerably from year to year. The
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following table presents the customers of the Company that represent over 10.0%
of the Company's sales by Fiscal Year.
FISCAL YEAR ENDED APRIL 30,
-----------------------------
1998 1997 1996
------ ------ -------
Nextel Communications....................................... 24.2% -- --
AT&T Wireless............................................... -- 25.0% --
Northern Telecom............................................ -- -- 19.79%
PCS Primeco................................................. -- -- 14.26%
Price Communications (f/k/a Palmer Wireless)................ -- -- 10.65%
The Company provides its customers with comprehensive design assistance and
support before, during and after delivery of its products. In addition, the
Company's customer service professionals are available to respond to order
tracking, design, installation and other questions.
The Company generally warrants its products for a period of one year,
although some warranties are extended for as long as twenty years. Once the
warranty expires, the customer typically employs local contractors to modify the
structure as needed. Historically, FWT's warranty expenses have not been
material.
SALES AND MARKETING
The Company sells its products through a direct sales force who have
relationships with most of the major wireless service and build to suit
providers. Under new management, the operational emphasis of the direct sales
force has shifted to focusing more of its sales efforts on the Company's
competitive strengths, in particular its product quality, customer service,
complete product line offering and reduced delivery times. The Company believes
that its direct sales force enables the Company to keep abreast of new business
opportunities while being able to respond quickly to the customer's questions
and needs. The Company's sales force is paid a base salary plus a bonus based
upon the Company reaching certain profit levels.
The Company believes that many of its customers, or prospective customers,
have procedures by which they identify a limited number of suppliers to become
approved vendors for the construction of their infrastructure network. Certain
customers award master purchase agreements only to such approved vendors. The
Company's sales strategy then focuses on signing agreements whereby FWT becomes
a primary or approved vendor to such customers. These agreements typically
establish general terms and conditions, as well as pricing for the Company's
products. These agreements do not generally guarantee a particular quantity of
sales, but they allow Company personnel easier access to these customers,
thereby fostering relationships with local personnel.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company's ability to compete in these markets depends to a large extent on its
ability to provide high quality, competitively priced products within a
customer's delivery time schedule. In these key areas, the Company believes that
its tradition of, and reputation for, customer service combined with its ability
to produce products in shorter cycle times help to differentiate FWT from its
competition.
There are a number of participants that compete in the Company's markets
including Andrew, EEI, PiRod, Rohn Industries, Sabre, Summit and
Valmont/Microflect. Management believes that the Company has a significant
market position in most of its product segments.
BACKLOG
As of April 30, 1998, the Company had a sales backlog of approximately
$16.9 million of which approximately $4.4 million was finished goods backlog.
Although the sales backlog consists of firm orders for which products are yet to
be completed, these orders can be modified or terminated. However, when compared
to total order volume, the amount of modifications and terminations has
historically not been material.
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EMPLOYEES
As of April 30, 1998, the Company had approximately 348 full-time
employees, of which 262 worked in manufacturing facilities and 86 worked in
corporate or administrative functions. None of the Company's employees are
unionized, and the Company believes that its relationship with employees is
good.
PATENTS AND TRADEMARKS
FWT has an approved patent for the PowerMount(TM), a product that allows a
wireless service provider to install a fully sectored antenna array on an
electrical utility support structure. FWT has also secured a trademark on the
name PowerMount(TM). FWT and PAL Telecom Group jointly hold a patent for TREE-
CELL, a monopole product that is designed to blend with the surrounding
environment.
ENVIRONMENTAL REGULATION
FWT is subject to various federal, state and local health, safety and
environmental laws and regulations. The Company believes that it is in material
compliance with existing applicable health, safety and environmental laws and
regulations and has all necessary permits and licenses.
INDUSTRY OVERVIEW
The monopole and tower segments of the communications infrastructure
industry have seven and six significant participants, respectively, who together
have a large market share position in their particular market segment. Builders
of wireless networks typically seek to purchase antenna support structures from
established manufacturers who have the capacity to produce large numbers of
products in a timely fashion. The Company believes these requirements often lead
wireless service providers to enter into master purchase agreements with a
limited number of communications infrastructure companies, including the
Company.
The Company believes the following four trends are driving the
communications industry: (i) deregulation of global communications markets; (ii)
introduction of new competitors; (iii) the development of cost efficient and
capacity enhanced technology; and (iv) elasticity of demand for communications
products and services. These factors increase minutes of use ("MOU"), which is
the main factor driving wireless communications infrastructure spending because
wireless service providers plan their capital spending based on anticipated MOU.
Emerging digital wireless technologies and an increase in the number of service
providers are increasing capacity and quality and lowering the cost per minute
per subscriber. This lower cost enables service providers to lower rates which
makes wireless services more affordable to a broader consumer base. This
encourages increased MOU which, in turn, drives additional infrastructure
spending.
ITEM 2. PROPERTIES.
As of April 30, 1998, the Company owns the following two manufacturing
facilities: (i) the Loop 820 location, with 9,802 square feet of office space
and 58,675 square feet of covered production space on approximately 13 acres and
(ii) the Kennedale location, with 7,000 square feet of office space and 142,400
square feet of covered production space on approximately 56 acres. Each of the
facilities owned by the Company is located near Fort Worth, Texas. Also, the
Company leases a 16,000 square foot corporate office facility in Arlington,
Texas. In addition, the Company leased 500 square feet of office space and
22,120 square feet of covered production space at Delta Steel's manufacturing
facility located in the Fort Worth area. In June 1998, the Company and Delta
Steel revised their contract to terminate this lease. FWT's monopole production
facility in Kennedale provides the space requirements previously leased from
Delta Steel. The Company believes, in light of the capital expenditure budget,
that these facilities provide adequate capacity for the expected growth in the
future.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in ordinary litigation incidental
to the conduct of its business. Management believes that none of the Company's
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 28, 1998, the holders of shares of Common Stock held a special
meeting. The following proposals were voted on at this meeting:
(i) A proposal to restate the articles of incorporation of the
Company. This proposal was adopted and approved by such holders based on
the following vote: 108.91 shares of Common Stock (or approximately 80% of
the outstanding shares of Common Stock as of the date of such vote) voted
in favor of this proposal, and 27.23 shares of Common Stock (or
approximately 20% of the outstanding shares of Common Stock as of the date
of such vote) voted against this proposal. The restated articles of
incorporation, among other things, limit the liability of directors of the
Company, provide for indemnification of directors, officers and employees
of the Company, allow interested director transactions (subject to certain
restrictions), and provide for shareholder action without unanimous written
consent.
(ii) A proposal to elect Douglas A. Standley as a member of the board
of directors of the Company. This proposal was adopted and approved by such
holders based on the following vote : 127.06 shares of Common Stock (or
approximately 93% of the outstanding shares of Common Stock as of the date
of such vote) voted in favor of this proposal, and 9.076 shares of Common
Stock (or approximately 7.0% of the outstanding shares of Common Stock as
of the date of such vote) voted against this proposal. Messrs. Baker,
Bettino, Moore and Scott continued as directors following the meeting. Mr.
Standley is the President and Chief Executive Officer of the Company.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock has not been registered pursuant to the Securities
Exchange Act of 1934, as amended, and is not publicly traded.
As of April 30, 1998, the number of record holders of Common Stock was
four. See "Business -- Recapitalization and Stock Purchase" and "Security
Ownership of Certain Beneficial Owners and Management".
Since becoming taxable as a Subchapter C corporation for federal income tax
purposes, the Company has neither paid nor declared any dividends on its Common
Stock. The Company intends to retain any future earnings to fund growth and does
not anticipate paying any cash dividends in the foreseeable future. In addition,
the Company's ability to pay dividends is restricted by the Indenture.
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical income statement data for Fiscal Years 1998, 1997,
1996 and 1995 and the summary historical balance sheet data as of April 30,
1998, 1997 and 1996 presented below were derived from the historical financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants. The selected historical income statement for Fiscal Year 1994 and
the summary historical balance sheet data as of April 30, 1995 and 1994 were
derived from the Company's unaudited financial statements that, in the opinion
of the Company's management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for the fair presentation of the financial
condition and results of operations as of and for such periods. The data
contained in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements and Supplementary Data".
FISCAL YEAR ENDING APRIL 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Sales................................................. $ 75,605 $71,188 $42,701 $30,388 $20,233
Cost of sales......................................... 57,674 49,249 32,006 23,838 16,041
-------- ------- ------- ------- -------
Gross profit.......................................... 17,931 21,939 10,695 6,550 4,192
Selling, administrative and general................... 10,492 8,353 4,244 4,139 3,849
Provision for nonrecurring items...................... 2,108 -- -- -- --
-------- ------- ------- ------- -------
Operating income...................................... 5,331 13,586 6,451 2,411 343
Interest income (expense), net........................ (5,405) 197 123 69 44
Other income (expense), net(1)........................ 610 571 512 3 (50)
-------- ------- ------- ------- -------
Income before income tax provision.................... 536 14,354 7,086 2,483 337
Income tax provision(2)............................... 368 316 162 53 --
-------- ------- ------- ------- -------
Income before extraordinary item...................... 168 14,038 6,924 2,430 337
Extraordinary item, net of tax benefit(3)............. (1,518) -- -- -- --
-------- ------- ------- ------- -------
Net income (loss)(2).................................. $ (1,350) $14,038 $ 6,924 $ 2,430 $ 337
======== ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(4)............................................. $ 7,334 $14,937 $ 7,494 $ 2,827 $ 633
Depreciation.......................................... 995 508 375 299 275
Capital expenditures.................................. 2,388 4,341 1,198 1,324 988
Cash flows provided by operating activities........... 12,202 5,783 4,846 1,422 259
Cash flows used in investing activities............... (2,053) (4,323) (1,182) (1,262) (971)
Cash flows provided by (used in) financing
activities.......................................... (8,742) (1,025) (1,459) (300) 675
BALANCE SHEET DATA:
Working capital....................................... $ 8,959 $18,509 $ 9,815 $ 5,278 $ 3,660
Total assets.......................................... 59,719 40,203 19,489 11,854 8,716
Long-term debt, net of current portion................ 105,000 1,512 375 475 575
Shareholders' equity (deficit)........................ (60,153) 25,297 13,977 8,412 6,182
- ---------------
(1) Other income for Fiscal Years 1997 and 1996 consists primarily of income
related to farm operations and the disposition of farm assets. The remaining
farm assets as of November 11, 1997 were distributed in connection with the
Recapitalization.
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(2) The historical financial statements do not include a provision for federal
income taxes for the periods from May 1, 1993 to November 11, 1997 as the
Company had elected to be taxed as a Subchapter S corporation. The following
table presents historical net income (loss) on a pro forma basis adjusted
for a federal income tax provision in order to reflect the Company's change
in tax status (in thousands):
FISCAL YEAR ENDING APRIL 30,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ----
Pro Forma adjustment for federal income
taxes...................................... $ -- $4,773 $2,354 $ 826 $115
======= ====== ====== ====== ====
Pro Forma net income (loss).................. $(1,350) $9,265 $4,570 $1,604 $222
======= ====== ====== ====== ====
(3) Represents the write-off of $2.4 million of deferred financing costs related
to the Senior Credit Facility net of a deferred tax benefit of $900,000.
(4) EBITDA consists of net income before interest expense, taxes, depreciation,
amortization and extraordinary items. EBITDA is included because it is
widely used as a measure of a company's operating performance, but should
not be construed as an alternative to either: (i) net income (determined in
accordance with generally accepted accounting principles ("GAAP")) as a
measure of profitability or (ii) cash flows from operating activities
(determined in accordance with GAAP). EBITDA does not take into account the
Company's debt service requirements and other commitments, and, accordingly,
is not necessarily indicative of amounts that may be available for
discretionary use. In addition, as EBITDA may not be calculated in the same
manner by all companies and analysts, EBITDA may not be comparable to other
similarly titled measures of other companies.
Net income used in the determination of EBITDA for Fiscal Year 1998 has
been reduced by the special charges to cost of sales of approximately $2.8
million recorded during the fourth quarter of Fiscal Year 1998 and the
provision for non-recurring expenses of approximately $2.1 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a recognized name in the design, manufacture and marketing
of wireless communications infrastructure products, including towers, monopoles,
shelters and disguised sites. The Company's product line is used by customers in
the cellular, PCS, ESMR, paging, radio and television broadcasting, fiber optics
and microwave industries. The Company's customers include many of the larger
wireless communications service providers, such as Nextel Communications, AT&T
Wireless, MCI and Sprint Spectrum.
The following table summarizes FWT's sales and percentage of total sales by
product line for each of the last three Fiscal Years:
FISCAL YEAR ENDED
---------------------------------------------------
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1996
PRODUCT LINE --------------- --------------- ---------------
------------ ($ IN THOUSANDS)
Towers............................ $38,454 50.8% $25,092 35.2% $17,862 41.8%
Monopoles......................... 19,793 26.2 28,080 39.5 5,852 13.7
Other(1).......................... 17,358 23.0 18,016 25.3 18,987 44.5
------- ----- ------- ----- ------- -----
Total Sales............. $75,605 100.0% $71,188 100.0% $42,701 100.0%
======= ===== ======= ===== ======= =====
- ---------------
(1) Includes Shelters, Disguised Sites, COWS, PowerMount(TM), Generators,
Freight and Engineering Services.
The Company's sales have grown from $42.7 million in Fiscal Year 1996 to
$75.6 million in Fiscal Year 1998 representing a CAGR of 33.1%. This growth has
been driven by external and internal factors. The primary external factor is the
growth of wireless communications networks in the U.S., which in turn has fueled
demand for the Company's products. In order to capitalize on this growth, the
Company has made a variety of strategic internal changes, including (i)
enhancing the efforts of the direct sales force; (ii) improving relationships
with key suppliers; (iii) investing in automation; (iv) improvements in
manufacturing processes, such as lead time enhancements; and (v) increasing
investment in customer service. While there has been a recent industry-wide
decline in demand, these internal and external trends are expected to continue
to benefit the Company in the future.
The Company's operations are characterized by an automated design process
and strategic outsourcing of non-core functions. Management believes that these
initiatives will lead to decreases in purchasing and manufacturing costs as a
percentage of revenue.
The Company's principal raw materials are steel and zinc. Because price
increases in materials affect all competitors and because most contracts have
provisions for materials price increases, any increases in the cost of goods
sold resulting from raw material price increases have historically been passed
along to the customer. Furthermore, the Company's outsourcing contracts have
reduced its inventory risk by supplying a number of components on a consignment
and just-in-time basis.
RECAPITALIZATION AND STOCK PURCHASE
On November 12, 1997, the Transactions were consummated. As a result of the
Transactions, FWT Acquisition, Inc. holds approximately 80.0% of the outstanding
Common Stock and the Roll-over Shareholders hold approximately 20.0% of the
outstanding Common Stock. For financial reporting purposes, the Recapitalization
was accounted for by the Company as an acquisition of treasury stock.
The borrowings under the Senior Credit Facility, cash from the Company of
approximately $5.0 million, notes payable of approximately $1.9 million, and the
distribution of selected assets, were used to consummate the Recapitalization.
In order to repay the Senior Credit Facility, the Company issued the former
Notes. The Former Notes were exchanged for the Exchange Notes pursuant to the
Exchange Offer.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of each statement of income item to total sales and selected cash
flow data. The results of operations are not necessarily indicative of results
for any future period. The following data should be read in conjunction with the
financial statements of the Company and notes thereto included elsewhere in this
Form 10-K.
FISCAL YEAR ENDED
------------------------------------------------
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1996
-------------- -------------- --------------
INCOME STATEMENT DATA:
Sales................................................. 100.0% 100.0% 100.0%
Cost of sales......................................... 76.3 69.2 75.0
------- ------- -------
Gross profit.......................................... 23.7 30.8 25.0
Selling, administrative and general expenses.......... 13.9 11.7 10.0
Provision for nonrecurring expenses................... 2.8 -- --
------- ------- -------
Operating income...................................... 7.0 19.1 15.0
Interest expense...................................... (7.6) -- --
Interest and other income............................. 1.3 1.1 1.6
------- ------- -------
Income before income tax provision and extraordinary
item................................................ 0.7 20.2 16.6
Income tax provision(1)............................... 0.5 0.4 0.4
------- ------- -------
Net income before extraordinary item.................. 0.2 19.7 16.2
Extraordinary item, net of tax benefit(2)............. (2.0) -- --
------- ------- -------
Net income (loss)..................................... (1.8)% 19.7% 16.2%
======= ======= =======
($ IN THOUSANDS)
OTHER DATA:
EBITDA(3)............................................. $ 7,334 $14,937 $ 7,494
OTHER FINANCIAL DATA:
Cash flows provided by operating activities........... $12,202 $ 5,783 $ 4,846
Cash flows used in investing activities............... (2,053) (4,323) (1,182)
Cash flows used in financing activities............... (8,742) (1,025) (1,459)
- ---------------
(1) As a Subchapter S corporation, the Company historically had not incurred
federal income taxes. Earnings of the Company for federal tax purposes were
taxed to the individual owners as they were earned. The Company's status for
federal income tax purposes changed to a Subchapter C corporation on
November 12, 1997. Accordingly, since such date, the provision for income
taxes includes federal income taxes.
(2) Represents the write-off of $2.4 million of deferred financing costs related
to the Senior Credit Facility net of a deferred tax benefit of $900,000.
(3) EBITDA consists of net income before interest expense, taxes, depreciation,
amortization and extraordinary items. EBITDA is included because it is
widely used as a measure of a company's operating performance, but should
not be construed as an alternative to either: (i) net income (determined in
accordance with generally accepted accounting principles ("GAAP")) as a
measure of profitability or (ii) cash flows from operating activities
(determined in accordance with GAAP). EBITDA does not take into account the
Company's debt service requirements, capital expenditures and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use. In addition, as EBITDA may not be
calculated in the same manner by all companies and analysts, EBITDA may not
be comparable to other similarly titled measures of other companies.
Net income used in the determination of EBITDA for Fiscal Year 1998 has
been reduced by the special charges to cost of sales of approximately $2.8
million recorded during the fourth quarter of Fiscal Year 1998 and the
provision for non-recurring expenses of approximately $2.1 million.
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Fiscal Year Ending April 30, 1998 Compared to Fiscal Year Ending April 30,
1997
Sales. Sales for Fiscal Year 1998 were approximately $75.6 million as
compared to approximately $71.2 million for Fiscal Year 1997, an increase of
approximately $4.4 million or 6.20%. The increase in sales is primarily
attributable to an increase in sales of towers and related products, partially
offset by a decline in demand for monopoles and related products. Management
attributes the increase in sales of towers to gains in market share and to the
focus by the primary wireless communications service providers in the
construction of co-location and corridor cellular antenna sites. Co-location and
corridor antenna sites typically require taller and heavier structures, such as
towers. Management attributes the decline in demand for monopoles to an overall
market slowdown during the last two quarters of Fiscal Year 1998 and, in certain
circumstances, to increased delivery times experienced in Fiscal Year 1998 due
to the delay in shipment of the Company's seam welding equipment.
Although the Company experienced an overall increase in sales during Fiscal
Year 1998 as compared to Fiscal Year 1997, the Company did not achieve sales
levels in the second, third and fourth quarters of Fiscal Year 1998 similar to
those experienced historically. Management believes the decrease in demand is an
industry wide condition due to a slowdown in the build-out programs of the
wireless communications service providers and the consolidation of some of these
providers. Management believes this slowdown will continue until these providers
resume their build-out programs to previous levels.
Cost of Sales. Cost of sales for Fiscal Year 1998 was approximately $57.7
million as compared to approximately $49.2 million for Fiscal Year 1997, an
increase of approximately $8.5 million or 17.1%. Cost of sales as a percentage
of sales increased from 69.2% in Fiscal Year 1997 to 76.3% in Fiscal Year 1998.
Through the third quarter of Fiscal Year 1998, cost of sales as a percentage of
sales was 71.2%. Management believes that numerous factors contributed to this
increase in cost of sales as a percentage of sales. A portion of this increase
was recorded during the fourth quarter of Fiscal Year 1998. Further, the Company
took a physical inventory at April 30, 1998, which resulted in $2.8 million of
additional charges to cost of sales. The reasons for these charges and such
factors are, among other things:
(a) During the fourth quarter of Fiscal Year 1998, management
continued the process of implementing operating and control process
improvements. Management believes these process improvements will allow the
Company to achieve additional manufacturing cost reductions in future
periods and improve the Company's competitive position. These changes
required management to review existing manufacturing, purchasing and
inventory processes and controls. Current management believes the results
of the physical inventory reflect inadequate recordkeeping, lack of
enforcement of purchasing and inventory controls, and the lack of a
perpetual inventory system. Current management is not able to quantify the
effects on prior periods due to the above practices. The following charges
have been quantified and were included in the fourth quarter charges
mentioned above:
(i) approximately $700,000 based upon parts shortages relating to
customer inventories held in the Company's possession for which payment
has been received from the customer. These parts shortages were
identified by the Company in the fourth quarter of Fiscal Year 1998 when
reviewing process controls related to inventories and performing the
physical inventory. As a result, the Company recorded a charge during
the fourth quarter of Fiscal Year 1998 of approximately $700,000 for the
related obligations. Management believes it has implemented appropriate
procedural changes to minimize the impact in future periods; and
(ii) approximately $400,000 based upon operational enhancements and
further process controls implemented in the fourth quarter of Fiscal
Year 1998 which resulted in the estimated net realizable value of
certain of the Company's inventories to exceed their cost. Therefore,
the Company recorded a charge of approximately $400,000 during the
fourth quarter of Fiscal Year 1998 and scrapped certain other
inventories during this quarter to reflect such inventories at their
estimated net realizable value.
(b) during the first two fiscal quarters of Fiscal Year 1998 as
compared to the same periods of Fiscal Year 1997, previous management of
FWT increased the manufacturing labor force. The increase in
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17
personnel resulted in higher than expected labor costs. During January
1998, the Company reduced its manufacturing labor force by approximately
120 personnel. The cost savings from this reduction in labor force were not
realized until late in the fourth quarter of Fiscal Year 1998 due to the
Company's production cycle times and revenue recognition policy;
(c) during Fiscal Year 1998, the Company's monopole production
facility experienced higher labor costs and higher than normal rework costs
resulting primarily from the transition of previously outsourced monopole
production to in-house production which was further exacerbated by, among
other things, a delay in the delivery of automated seam weld equipment. The
original delivery of this automated seam weld equipment and other
production equipment was scheduled for the last quarter of calendar year
1997. The Company cancelled its contract with its original supplier of the
seam-welding equipment during the fourth quarter of Fiscal Year 1998
because of delivery delays and ordered two seam-welding units from an
alternate source. One of these units was placed in service in June 1998 and
the second unit is expected to be placed in operation in September 1998.
These units represent the largest component of the Company's capital
expenditure budget for the remainder of calendar year 1998. Management
anticipates that these seam-welding units will significantly reduce labor
costs associated with its monopole facility and increase its production
capacity in future periods;
(d) during Fiscal Year 1998, the Company had a supply contract in
place with its primary supplier of steel used for the production of
monopoles. The terms of the contract included, among other items, rental
costs for space at the supplier's production facility. Due to the reduced
demand for monopoles experienced during Fiscal Year 1998, management came
to believe that the terms of the contract were no longer a competitive
advantage. Accordingly, during the fourth quarter of Fiscal Year 1998, the
Company renegotiated the terms of its supply contract. The revised contract
eliminates the rental charges previously incurred by the Company, provides
for volume rebates, allows the Company to order steel required for other
product lines from this supplier, and allows the Company to fulfill
production requirements from inventories held at the Company's facilities
on a consignment basis. Management believes the changes made to the
contract will enhance future profitability of its monopole products and
allow the Company to become more competitive in its pricing;
(e) the Company experienced lower demand for its primary steel
products during the latter periods of Fiscal Year 1998, resulting in lower
than anticipated absorption of manufacturing labor and overhead costs; and
(f) the Company experienced pricing pressure during the period due to
increased competition in the market. The Company believes this pricing
pressure may continue and could have a detrimental effect on margins in
future periods.
Selling, Administrative and General Expenses. Operating expenses for Fiscal
Year 1998 were approximately $10.5 million as compared to approximately $8.4
million for Fiscal Year 1997, an increase of approximately $2.1 million or
25.6%. As a percentage of sales, operating expenses increased from 11.7% in
Fiscal Year 1997 to 13.9% in Fiscal Year 1998. The increase in operating
expenses during Fiscal Year 1998 reflects, among other items, the following:
(a) an increase in payroll and payroll related expenses due to (i)
headcount increases primarily during the first three fiscal quarters of
Fiscal Year 1998, (ii) development of an in-house engineering staff; and
(iii) the hiring of new executive management and enhancements in skill
levels of other key employees following consummation of the Transactions.
Management believes these cost increases will be mitigated in future
periods due to the departures of the former executive officers (see
discussion below of nonrecurring expenses) and other personnel reductions
made during the fourth quarter of Fiscal Year 1998;
(b) an increase in selling related expenses, primarily travel and
entertainment, trade show costs, salary costs and sales commissions. During
the fourth quarter of Fiscal Year 1998, the Company redesigned its sales
compensation programs (including the elimination of sales commissions),
sales
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territories and selling activities. Management believes these changes will
result in reduced selling related expenses in future periods;
(c) an increase in depreciation and amortization costs associated with
Fiscal Year 1997 capital expenditures for computer equipment and software
programs;
(d) an increase in property taxes associated with bringing its new
monopole production facility on-line during late Fiscal Year 1997;
(e) an increase in legal and other professional services costs
associated with its public reporting requirements;
(f) a charge recorded during the fourth quarter of Fiscal Year 1998
relating to the termination of the Company's defined benefit pension plan;
(g) accrued management fees relating to the financial advisory
agreement with Baker; and
(h) an increase in communication and delivery expenses due to
intensified customer service related activities.
Provision for Nonrecurring Expenses. Nonrecurring expenses totaled
approximately $2.1 million or 2.8% of sales during Fiscal Year 1998. These items
consisted of the following:
(a) a charge of approximately $1.7 million recorded during the fourth
quarter of Fiscal Year 1998. This charge reflects the estimated amounts due
pursuant to the Voluntary Retirement Agreement, dated as of February 27,
1998 (the "Voluntary Retirement Agreement") between the Company and Thomas
F. Moore (a former executive officer of the Company) and the estimated
amounts due to Roy J. Moore and Carl R. Moore (former executive officers of
the Company) pursuant to the terms of their respective employment
agreements;
(b) a charge of approximately $250,000 recorded during the fourth
quarter of Fiscal Year 1999 due to changes implemented in certain employee
benefit programs. These changes included expansion of group health
coverages for employees and dependents, revisions to the Company's
vacation, disability and sick pay benefits, and implementation of a 401(k)
program in July 1998; and
(c) relocation costs of approximately $167,000 associated with the
hiring of new executive management and other key employees following the
consummation of the Transactions.
Interest Income. Interest income for Fiscal Year 1998 was approximately
$397,000 as compared to approximately $272,000 for Fiscal Year 1997, an increase
of approximately $125,000 or 46.01%. Interest income resulted from the Company
depositing available funds in overnight investment accounts. The increase in
interest income in Fiscal Year 1998 resulted from higher available cash balances
as compared to Fiscal Year 1997.
Interest Expense. Interest expense for Fiscal Year 1998 was approximately
$5,802,000 as compared to approximately $75,000 for Fiscal Year 1997, an
increase of approximately $5,727,000. The increase in interest expense resulted
primarily from the issuance of the Former Notes in November 1997 following
consummation of the Transactions, which were exchanged for the Exchange Notes in
the Exchange Offer. The Company anticipates that interest expense in Fiscal Year
1999 will be significantly higher as the Exchange Notes will be outstanding for
a full year.
Income Tax Provision. The Company's effective tax rate for Fiscal Year 1998
was 68.75% as compared to 2.2% for Fiscal Year 1997. The increase in the
effective tax rate reflects the Company's change in tax status from a Subchapter
S corporation to a Subchapter C corporation following the consummation of the
Transactions and the effect of increasing the valuation allowance associated
with its deferred tax assets.
Extraordinary Item, net of tax benefit. The extraordinary loss of
approximately $1.5 million (net of tax benefit of approximately $863,000) for
Fiscal Year 1998 reflects the writeoff of financing costs totaling approximately
$2.4 million associated with the Senior Credit Facility. In connection with the
Recapitalization,
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the Company borrowed $100.0 million under the Senior Credit Facility. These
borrowings were repaid from the net proceeds of the Former Notes issued by the
Company in November 1997.
Fiscal Year Ending April 30, 1997 Compared to Fiscal Year Ending April 30,
1996
Sales. Sales increased by $28.5 million to $71.2 million, an increase of
66.7%. The increase in sales was fueled by an increase in demand for PCS and
cellular cell sites among several of the Company's key customers. The addition
of a direct sales force resulted in increased sales to key customers.
Cost of Sales. Cost of sales increased $17.2 million to $49.2 million. Cost
of sales as a percentage of revenue decreased from 75.0% in 1996 to 69.2% in
1997 because of price increases of the Company's products combined with
purchasing economies of scale and volume-based manufacturing efficiencies.
Selling, Administrative and General Expenses. Selling, administrative and
general expenses increased by $4.1 million to $8.4 million. As a percentage of
sales, this represents an increase from 10.0% in 1996 to 11.7% in 1997. For
Fiscal Year 1997, selling expenses represented 21% and general and
administrative expenses represented 79% of total selling, general and
administrative expenses compared to 18% and 82% for the respective expense
categories in 1996. During this period, the Company significantly expanded its
direct sales force and increased its engineering and project management staff
and as a result, cost of personnel was $5.6 million in 1997 compared to $2.4
million in 1996. Additionally, bonuses in the amount of $1.3 million were paid
to certain Existing Shareholders in 1997 and are included in the cost of
personnel. All other selling, general and administrative expenses, including
information systems support, was $2.8 million in 1997 and $1.7 million in 1996.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. Management believes this
quarterly fluctuation is due to the capital budgeting cycle of many of its
customers who often purchase a disproportionately higher share of the Company's
products at the end of such customer's fiscal year to reach their annual cell
site development goals. This typically falls in the fourth and first quarters of
the calendar year, which approximately corresponds to the third and fourth
quarters of FWT's Fiscal Year. In addition, the zoning approval process adds an
element of unpredictability to the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through internally
generated funds and existing cash reserves. The Company produced a net cash flow
of approximately $1.4 million for Fiscal Year 1998.
Operating activities produced a net cash flow of approximately $12.2
million during Fiscal Year 1998, primarily as a result of changes in working
capital. The primary changes in working capital accounts were as follows:
(a) accounts receivable decreased approximately $10.7 million during
Fiscal Year 1998. This decrease is attributable to an intensified
collection effort by management and improvements made by new management in
the cycle time and control processes related to customer invoicing;
(b) accrued expenses and other liabilities increased by approximately
$5.9 million during Fiscal Year 1998. This increase is attributable to
interest accrued on the Former Notes issued by the Company following
consummation of the Transactions, which were exchanged for the Exchange
Notes pursuant to the Exchange Offer, and the approximately $1.7 million
charge recorded during the fourth quarter of Fiscal Year 1998 relating to
estimated amounts due to certain former executive officers of the Company
and employee benefit accruals;
(c) prepaid expenses increased by approximately $1.3 million during
fiscal year 1998. This increase is attributable to payments made to the
Internal Revenue Service pursuant to Section 444 of the Internal
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20
Revenue Code. The Company was required to make such payments due to its
subchapter S status prior to consummation of the Transactions and its
fiscal year election of April 30; and
(d) accounts payable decreased by approximately $4.2 million during
Fiscal Year 1998. This decrease is attributable to a lower volume of
purchasing activities during the fourth quarter of Fiscal Year 1998 as
compared to the fourth quarter of Fiscal Year 1997.
Investing activities utilized net cash flow of approximately $2.1 million
during Fiscal Year 1998, reflecting the Company's capital equipment expenditures
of approximately $2.4 million and proceeds of approximately $335,000 from the
disposition of capital equipment no longer required by the Company.
Financing activities utilized net cash flow of approximately $8.7 million
during Fiscal Year 1998. The significant sources and uses of cash from financing
activities were as follows:
(a) the Company borrowed $20.0 million under a secured credit facility
with a bank. The proceeds, together with cash on hand, were used to pay a
$21.0 million distribution to certain Existing Shareholders prior to, and
in anticipation of, the Recapitalization;
(b) the Company borrowed $100.0 million under the Senior Credit
Facility in connection with the Recapitalization. The proceeds, net of
issuance costs of approximately $2.9 million and together with cash on
hand, were used to repay existing notes payable and long-term debt of
approximately $22.1 million and to purchase treasury shares from the
Existing Shareholders; and
(c) the Company issued the Former Notes in the aggregate principal
amount of $105.0 million following consummation of the Transactions. The
proceeds, net of issuance costs of approximately $5.0 million, were used to
repay borrowings under the Senior Credit Facility.
The Company determines its short-term liquidity needs based upon estimated
cash requirements over the next twelve months, and its long-term liquidity needs
based upon estimated cash requirements for periods in excess of twelve months.
The Company has entered into a Revolving Credit Facility that, subject to
borrowing base limitations and satisfaction of customary borrowing conditions
and financial covenants, allows the Company to borrow up to $25.0 million. The
Company's principal sources of short-term and long-term liquidity are cash flows
generated from operations and, if necessary, borrowings under the Revolving
Credit Facility. The primary uses of cash are debt service requirements, capital
expenditures and working capital requirements. Borrowings under the Revolving
Credit Facility are based upon eligible accounts receivable and eligible
inventories, as defined. Based upon the Company's borrowing base as of April 30,
1998, the Company had availability under the terms of the Revolving Credit
Facility of approximately $10.6 million. Borrowings under the Revolving Credit
Facility were approximately $14,000 as of April 30, 1998.
The Company, as a matter of course, reviews the covenants associated with
the Revolving Credit Facility. The Company was in compliance with these
covenants as of April 30, 1998. The Company expects to request, and may be
required to request, a modification of its covenants. Management believes its
relationship with the lender under the Revolving Credit Facility is such that
suitable modifications, if required, will be agreed upon without materially
diminishing its borrowing capacity under the Revolving Credit Facility.
The Company has a capital expenditure budget of approximately $2.6 million
for Fiscal Year 1999. This budget includes projected expenditures of
approximately $1.0 million for site development and the build-out of additional
production facilities, approximately $1.4 million for additional manufacturing
equipment and approximately $200,000 for miscellaneous office equipment and the
purchase of computer software to ensure the Company is compliant with the Year
2000 issue.
As the Company's business grows, its equipment and working capital
requirements will continue to increase. The Company believes that cash generated
from operations will be sufficient to meet its short-term liquidity needs.
However, there can be no assurance that such resources will be sufficient to
meet the Company's anticipated requirements or that the Company will not require
additional debt or equity financing within such time frame.
18
21
INFLATION
Certain of the Company's expenses, such as compensation benefits, raw
materials and equipment repair and replacement, are subject to normal
inflationary pressures. While the Company to date has been able to offset
inflationary cost increases through increased operating efficiencies and price
increases to its customers, there can be no assurance that the Company will be
able to offset any future inflationary cost increases through these or similar
means.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of computer programs written using two
digits rather than four digits to define "date" fields. Information systems have
time sensitive operations that, as a result of this data field limitation, could
disrupt activities in the normal business cycle. The Company purchased new
information systems in July 1998 and should complete implementation in the
fourth calendar quarter of 1998. The new information systems will replace
existing systems that should mitigate the Year 2000 issue with respect to the
Company's information systems. However, if such modifications are not made, or
are not timely completed, the Year 2000 issue could have a material adverse
impact on the results and operations of the Company.
The Company has not discussed the Year 2000 issue with its customers and
suppliers. There can be no assurance that the systems of these other companies
will be timely converted, and the failure of the Company's significant suppliers
and customers to make necessary Year 2000 modifications could have a material
adverse impact on the Company's results and operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
19
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
ITEM PAGE
---- ----
Report of Independent Public Accountants....................
Balance Sheets as of April 30, 1998 and 1997................
Statements of Income For Each of the Three Years in the
Period Ending April 30, 1998..............................
Statements of Shareholders' Equity (Deficit) For Each of the
Three Years In the Period Ending April 30, 1998...........
Statements of Cash Flows For Each of the Three Years in the
Period Ending April 30, 1998..............................
Notes to Financial Statements...............................
Financial statement schedules are omitted as the required information is
presented in the financial statements or notes thereto or is not necessary.
20
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
FWT, Inc. :
We have audited the accompanying balance sheets of FWT, Inc., a Texas
corporation (the "Company"), as of April 30, 1998 and 1997, and the related
statements of income, shareholders' equity (deficit) and cash flows for each of
the three years in the period ending April 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FWT, Inc. as of April 30,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ending April 30, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 27, 1998
21
24
FWT, INC.
BALANCE SHEETS
AS OF APRIL 30, 1998 AND APRIL 30, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
APRIL 30,
-------------------
1998 1997
-------- -------
Current Assets:
Cash and cash equivalents................................. $ 5,890 $ 4,483
Accounts receivable, less allowance for doubtful accounts
of $175 and $75, respectively.......................... 6,734 17,560
Inventories............................................... 8,828 8,357
Prepaid expenses.......................................... 2,327 984
Other current assets...................................... 52 519
-------- -------
Total current assets.............................. 23,831 31,903
Property, Plant, And Equipment:
Land and land improvements................................ 924 867
Buildings and building improvements....................... 4,810 4,467
Machinery and equipment................................... 6,802 5,463
-------- -------
12,536 10,797
Less accumulated depreciation............................. (3,062) (2,497)
-------- -------
Net property, plant, and equipment................ 9,474 8,300
Deferred tax asset.......................................... 20,607 --
Other noncurrent assets..................................... 5,807 --
-------- -------
Total assets...................................... $ 59,719 $40,203
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ -- $ 188
Accounts payable.......................................... 6,026 10,195
Accrued interest.......................................... 4,763 --
Other accrued expenses and liabilities.................... 4,031 2,543
Notes payable............................................. 52 468
-------- -------
Total current liabilities......................... 14,872 13,394
Long-term debt, less current portion........................ 105,000 1,512
-------- -------
Total liabilities................................. 119,872 14,906
Commitments and Contingencies
Shareholders' Equity (Deficit):
Common stock, $10 par value; 1,000 shares authorized, 372
shares issued, 136.14 and 372 shares outstanding,
respectively........................................... 4 4
Additional paid-in capital................................ 29,583 1
Treasury stock, at cost, 235.86 shares as of April 30,
1998................................................... (83,100) --
Retained earnings (deficit)............................... (6,640) 25,292
-------- -------
Total shareholders' equity (deficit).............. (60,153) 25,297
-------- -------
Total liabilities and shareholders' equity
(deficit)........................................ $ 59,719 $40,203
======== =======
The accompanying notes are an integral part of these financial statements.
22
25
FWT, INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDING APRIL 30, 1998
(IN THOUSANDS)
YEAR ENDING APRIL 30,
---------------------------
1998 1997 1996
------- ------- -------
Sales....................................................... $75,605 $71,188 $42,701
Cost of sales............................................... 57,674 49,249 32,006
------- ------- -------
Gross profit................................................ 17,931 21,939 10,695
Selling, administrative and general expenses................ 10,492 8,353 4,244
Provision for nonrecurring expenses......................... 2,108 -- --
------- ------- -------
Operating income.......................................... 5,331 13,586 6,451
Interest income............................................. 397 272 156
Interest expense............................................ (5,802) (75) (33)
Other income................................................ 610 571 512
------- ------- -------
Income before income tax provision and extraordinary
item................................................... 536 14,354 7,086
Income tax provision........................................ 368 316 162
------- ------- -------
Net income before extraordinary item...................... 168 14,038 6,924
Extraordinary item, net of tax benefit...................... (1,518) -- --
------- ------- -------
Net income (loss)......................................... $(1,350) $14,038 $ 6,924
======= ======= =======
Pro Forma Financial Information:
Pro Forma adjustment for federal tax provision............ -- 4,773 2,354
------- ------- -------
Pro Forma net income (loss)............................... $(1,350) $ 9,265 $ 4,570
======= ======= =======
The accompanying notes are an integral part of these financial statements.
23
26
FWT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDING APRIL 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
TOTAL
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK SHAREHOLDERS'
--------------- PAID-IN EARNINGS ------------------ EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT (DEFICIT)
------ ------ ---------- --------- ------- -------- -------------
Balance, April 30, 1995....... 372 $ 4 $ 1 $ 8,407 -- $ -- $ 8,412
Net income.................. -- -- -- 6,924 -- -- 6,924
Distributions............... -- -- -- (1,359) -- -- (1,359)
--- --- ------- -------- ------- -------- --------
Balance, April 30, 1996....... 372 4 1 13,972 -- -- 13,977
Net income.................. -- -- -- 14,038 -- -- 14,038
Distributions............... -- -- -- (2,718) -- -- (2,718)
--- --- ------- -------- ------- -------- --------
Balance, April 30, 1997....... 372 4 1 25,292 -- -- 25,297
Distributions............... -- -- -- (21,000) -- -- (21,000)
Net income, May 1, 1997 to
November 11, 1997........ -- -- -- 5,290 -- -- 5,290
Reclassification of
undistributed Subchapter
S corporation earnings... -- -- 9,582 (9,582) -- -- --
Recapitalization of the
Company.................. -- -- 20,000 -- 235.86 (83,100) (63,100)
Net loss, November 12, 1997
to April 30, 1998........ -- -- -- (6,640) -- -- (6,640)
--- --- ------- -------- ------- -------- --------
Balance, April 30, 1998....... 372 $ 4 $29,583 $ (6,640) 235.86 $(83,100) $(60,153)
=== === ======= ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
24
27
FWT, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDING APRIL 30, 1998
(IN THOUSANDS)
Year Ending April 30,
-----------------------------
1998 1997 1996
--------- ------- -------
Cash Flows From Operating Activities:
Net income before extraordinary item...................... $ 168 $14,038 $ 6,924
Adjustments to reconcile net income before extraordinary
item to net cash provided by operating activities:
Provision for losses on accounts receivable............ 100 -- --
Depreciation........................................... 995 508 375
Amortization........................................... 283 -- --
Net (gain) loss on sales of property and equipment..... (252) 52 (21)
Adjustments to working capital accounts:
Accounts receivable.................................... 10,726 (8,049) (4,205)
Inventories............................................ (471) (7,394) (311)
Prepaid expenses....................................... (1,343) (862) (116)
Other assets........................................... 242 (211) 31
Accounts payable....................................... (4,169) 6,622 1,480
Accrued expenses and other liabilities................. 5,923 1,079 689
--------- ------- -------
Net cash provided by operating activities......... 12,202 5,783 4,846
--------- ------- -------
Cash Flows From Investing Activities:
Expenditures for property and equipment................... (2,388) (4,341) (1,198)
Proceeds from sales of property and equipment............. 335 18 16
--------- ------- -------
Net cash used in investing activities............. (2,053) (4,323) (1,182)
--------- ------- -------
Cash Flows From Financing Activities:
Proceeds from notes payable, net of financing costs....... 117,131 468 --
Payments of notes payable................................. (122,376) -- --
Proceeds from long-term debt, net of issuance costs....... 99,710 1,325 --
Payments of long-term debt................................ (1,700) (100) (100)
Payments for acquisition of treasury stock................ (80,507) -- --
Distributions paid to shareholders........................ (21,000) (2,718) (1,359)
--------- ------- -------
Net cash used in financing activities............. (8,742) (1,025) (1,459)
--------- ------- -------
Net increase in cash and cash equivalents................... 1,407 435 2,205
Cash and cash equivalents, beginning of period.............. 4,483 4,048 1,843
--------- ------- -------
Cash and cash equivalents, end of period.................... $ 5,890 $ 4,483 $ 4,048
========= ======= =======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest............................................... $ 758 $ 73 $ 31
Taxes.................................................. 99 23 1
Non Cash Investing and Financing Activities:
Additional paid-in capital resulting from deferred tax
asset................................................ 20,000 -- --
Additional paid-in capital resulting from undistributed
Subchapter S corporation earnings.................... 9,582 -- --
Subordinated promissory notes payable issued in
connection with Recapitalization..................... 1,946 -- --
Distribution of assets in connection with
Recapitalization..................................... $ 617 $ -- $ --
The accompanying notes are an integral part of these financial statements.
25
28
FWT, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996
NOTE 1. NATURE OF OPERATIONS AND RECAPITALIZATION
FWT, Inc., formerly Fort Worth Tower Company, Inc. ("FWT" or the
"Company"), a Texas corporation, manufactures, sells and installs transmitting
towers, monopoles, PowerMount(TM) and related accessories used principally to
support communications and broadcasting antennae for the telecommunications
industry. This includes cellular telephone, personal communications systems
("PCS"), commercial and amateur broadcasting, private microwave and television.
Operating results are strongly influenced by growth in demand for
telecommunications infrastructures services. The Company also produces shelters
and cabinets used to house electronic communications and broadcasting equipment.
The Company conducts its business principally through its two plants located
near Fort Worth, Texas.
The Company's products are sold directly to customers throughout the United
States and in some international markets. The Company sold towers, monopoles and
shelters to Nextel Communications for use in both the PCS and cellular markets
that provided approximately 24 percent of its 1998 sales. Four other customers
in the aggregate comprised approximately 30 percent of 1998 sales, none of which
represented more than 9 percent individually. The Company sold towers and
shelters to AT&T Wireless for use in both the PCS and cellular markets that
provided approximately 25 percent of its 1997 sales. Three other customers each
comprised approximately 6 percent of 1997 sales. In fiscal year 1996, the
Company had three customers which represented sales over 10 percent. These
customers accounted for approximately 20 percent, 14 percent, and 11 percent of
1996 sales. International sales represented less than five percent of sales in
fiscal years 1998, 1997 and 1996.
On November 12, 1997, the Company, FWT Acquisition, Inc. (a wholly-owned
subsidiary of Baker Communications Fund, L.P.), T.W. Moore, Betty Moore, Roy J.
Moore, Thomas F. Moore and Carl R. Moore (each of the natural persons, the
"Existing Shareholders") entered into and consummated the transactions set forth
in a Stock Purchase and Redemption Agreement and related documents
(collectively, the "Transaction Agreements"). The Transaction Agreements
contemplated, among other things, two primary transactions. The first
transaction contemplated by the Transaction Agreements included (i) the
incurrence by the Company of $100.0 million senior secured indebtedness (the
"Senior Credit Facility"), (ii) redemption by the Company from the Existing
Shareholders of an aggregate of 235.86 shares of the Company's common stock, par
value $10.00 per share, for cash and other consideration totaling approximately
$83.1 million, (iii) the repayment of outstanding indebtedness of the Company
totaling approximately $22.1 million, and (iv) the distribution of an immaterial
amount of selected assets to certain Existing Shareholders (such transactions
are collectively referred to as the "Recapitalization"). The second transaction
contemplated by the Transaction Agreements included the purchase by FWT
Acquisition, Inc. of an aggregate of 108.91 shares of the Company's common stock
from Existing Shareholders for cash consideration totaling approximately $36.0
million (the "Stock Purchase", and together with the Recapitalization, the
"Transactions"). As a result of the Transactions, FWT Acquisition, Inc. holds
approximately 80% of FWT's outstanding common stock and three of the Existing
Shareholders hold in the aggregate approximately 20% of FWT's outstanding common
stock. For financial reporting purposes, the Recapitalization was accounted for
by the Company as an acquisition of treasury stock.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid short-term investments purchased
with original maturities of three months or less to be cash equivalents. The
cost of such short-term investments approximates fair value.
26
29
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory costs include material,
labor and factory overhead. Total inventories as of April 30, 1998 and 1997
included the following (in thousands):
APRIL 30, APRIL 30,
1998 1997
--------- ---------
Finished goods.............................................. $4,847 $6,408
Work-in process and raw materials........................... 3,981 1,949
------ ------
Total Inventories................................. $8,828 $8,357
====== ======
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Expenditures for
maintenance and repairs are charged directly against income; major renewals and
betterments are capitalized. When properties are retired or otherwise disposed
of, the original cost and accumulated depreciation are removed from the
respective accounts and the gain or loss resulting from the disposal is
reflected in income.
The Company provides for depreciation of plant and equipment over the
following estimated useful lives:
Buildings & Building Improvements........................... 5 to 40 years
Machinery and Equipment..................................... 3 to 10 years
Office Furniture and Equipment.............................. 5 to 10 years
Computer Equipment and Software............................. 3 to 5 years
Depreciation is provided using the straight-line method for financial
reporting purposes. Depreciation expense was $995,330, $507,622, and $374,859
for 1998, 1997, and 1996, respectively.
Other Noncurrent Assets
Other noncurrent assets as of April 30, 1998 consisted primarily of
deferred financing costs incurred in connection with the 9 7/8% senior
subordinated notes issued by the Company in November 1997 and the revolving
credit facility entered into by the Company in November 1997. Deferred financing
costs are charged to interest expense, using the interest method, over the
related term of the underlying indebtedness.
Revenue Recognition
Revenue from sales is recognized when the earnings process is complete,
which is generally at the time of product shipment. In circumstances where
shipments are delayed at the customer's request, revenue is recognized upon
completion of the product and after payment is received from the customer.
Management believes that payment represents acknowledgment by the customer that
all contractual terms are binding, the product has been manufactured according
to customer specifications and engineering design, the product is available for
delivery according to the schedule fixed by the customer, and the Company is not
responsible for delivery or installation. Accordingly, management believes that
the risk of ownership has passed and the earnings process is complete.
Provision for Nonrecurring Expenses
The provision for nonrecurring expenses consists of one-time charges to
operations recorded in the fourth quarter during Fiscal Year 1998 relating to
(i) terminations of employment of three former executive officers of the Company
(See Note 6), (ii) changes implemented to certain employee benefit plans, and
27
30
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(iii) relocation costs of new executive management and other key employees
following consummation of the Transactions.
Other Income
Other income consists primarily of gains recognized from the disposition of
machinery and equipment in fiscal year 1998 and from the disposition of farm
assets in fiscal years 1997 and 1996. Total farm-related income was $445,907 and
$306,112 for the years ended April 30, 1997 and 1996, respectively.
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 the
disclosure of contingent assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. FEDERAL AND STATE INCOME TAXES
Effective November 12, 1997, the Company became taxable as a Subchapter C
corporation and, accordingly, has recorded a provision for federal income taxes
since such date in the accompanying statement of income for the year ended April
30, 1998. Prior to November 12, 1997, the Company was a Subchapter S
corporation. Accordingly, no provision for federal income taxes is reflected in
the accompanying statements of income for the years ended April 30, 1997 and
1996, as well as for the period from May 1, 1997 through November 11, 1997. A
pro forma charge for federal income taxes is supplementally disclosed on the
statements of income.
During the time that the Company was a Subchapter S corporation, it had
made an election under Section 444 of the Internal Revenue Code to retain a
fiscal year of April 30. As a result of such election, the Company was required
to pay an amount, which was held by the IRS, to offset timing differences in the
payment of estimated taxes by the Company's shareholders. As of April 30, 1998,
pursuant to this requirement, the Company had made payments of $1,960,702 that
are included in prepaid expenses in the accompanying balance sheet as of April
30, 1998. As a result of the Company becoming taxable as a Subchapter C
corporation, subsequent to April 30, 1998, the Company filed for and received a
refund of such payments from the IRS.
The income tax provisions included in the accompanying statements of income
include provisions for state income taxes. For the periods from May 1, 1996 to
November 11, 1997, such provisions include amounts for various states in which
the Company was subject to income taxes because those states did not recognize
Subchapter S corporations.
In connection with the Transactions discussed in Note 1, the parties
elected jointly to treat the Transactions as an asset acquisition under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Section
338(h)(10) election"). As a result, the Company recorded a deferred tax asset of
approximately $20.0 million (net of a valuation allowance of approximately $20.0
million) as of November 12, 1997, with a corresponding credit to additional
paid-in capital. This deferred tax asset relates to future tax deductions for
the net excess of the tax bases of the assets and liabilities over the financial
statement carrying amounts as of November 11, 1997.
28
31
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision for fiscal year 1998 consists of a current
provision of approximately $112 thousand and a deferred provision of
approximately $256 thousand. The income tax provision differs from the amount
obtained by applying the statutory federal income tax rate to income before
income tax provision and extraordinary item as follows (in thousands):
Tax at statutory rate....................................... $ 182
S corporation earnings taxed to shareholders................ (1,837)
Increase in valuation allowance............................. 1,908
State income taxes and other................................ 115
-------
Income tax provision.............................. $ 368
=======
The sources of deferred tax assets as of April 30, 1998 were as follows :
Section 338(h)(10) election................................. $ 38,780
Tax loss carryforwards...................................... 2,476
Accrued liabilities......................................... 822
Inventory allowances........................................ 437
Valuation allowance......................................... (21,908)
--------
Net deferred tax assets........................... $ 20,607
========
Management anticipates future taxable income after debt service sufficient
to realize the net deferred tax assets. Any change in the valuation allowance
will be reflected as a component of the Company's income tax provision.
NOTE 4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt of the Company as of April 30, 1998 and
1997 consisted of the following:
APRIL 30, APRIL 30,
1998 1997
------------ ----------
Unsecured note payable to a bank, maximum borrowing of
$1,500,000, bearing interest at adjusted LIBOR (as
defined), principal due at original maturity of 1/1/98,
paid in full during November 1997........................ $ -0- $ 468,000
Note payable to a bank, bearing interest at 6%, payable in
quarterly installments of $25,000, original maturity of
12/31/00, secured by all receivables of the Company, paid
in full during November 1997............................. -0- 375,000
Unsecured note payable to a bank, bearing interest at
Adjusted LIBOR (as defined), payable in monthly
installments of $7,361, original maturity date of 4/1/00,
paid in full during November 1997........................ -0- 1,325,000
Subordinated promissory notes payable to Existing
Shareholders, interest at prime (8.5% at 4/30/98),
payable in monthly installments of principal and accrued
interest through November 15, 1998....................... 38,227 -0-
29
32
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, APRIL 30,
1998 1997
------------ ----------
Note payable to a bank under revolving line of credit,
interest at prime plus 1% (9.5% at 4/30/98), due
11/30/00, collateralized by substantially all assets..... 14,165 -0-
Senior subordinated notes, bearing interest at 9 7/8% and
payable semiannually on 5/15 and 11/15, principal due at
maturity on 11/15/07..................................... 105,000,000 -0-
------------ ----------
Total notes payable and long-term debt..................... 105,052,392 2,168,000
Less -- notes payable and current portion of long-term
debt..................................................... (52,392) (656,332)
------------ ----------
Long-term debt, less current portion....................... $105,000,000 $1,511,668
============ ==========
During fiscal year 1998, the Company borrowed $20.0 million under a secured
credit facility with a bank. Proceeds, together with cash on hand, were used to
pay a $21.0 million distribution to certain Existing Shareholders prior to, and
in anticipation of, the Transactions discussed in Note 1. Borrowings under this
secured credit facility (including accrued and unpaid interest) were repaid from
borrowings under the Senior Credit Facility during November 1997.
In connection with the Transactions discussed in Note 1, the Company issued
subordinated promissory notes to each of the Existing Shareholders totaling
$911,853 (the "Purchase Price Adjustment Notes") and $1,582,500 (the "Tax
Notes"). The Purchase Price Adjustment Notes bear interest at prime and were
originally payable (subject to adjustment based upon the audited working capital
of the Company as of November 10, 1997), in monthly installments of principal of
$75,987, plus accrued interest, through October 15, 1998, with a final principal
installment of $75,996, plus accrued interest, on November 15, 1998. Based upon
the working capital of FWT as of November 10, 1997, the principal amount of the
Purchase Price Adjustment Notes were subsequently reduced by $548,505, with a
corresponding reduction in the cost of the treasury stock acquired pursuant to
the Recapitalization and corresponding reductions in the scheduled monthly
principal installments. The Tax Notes were repaid (including interest at prime)
during April 1998. Each of the Purchase Price Adjustment Notes are unsecured
obligations of the Company.
In November 1997, the Company entered into a revolving credit facility with
a bank that allows the Company to borrow up to $25.0 million, subject to
borrowing base limitations and the satisfaction of customary borrowing
conditions. The revolving credit facility contains certain financial covenants
that require the Company to maintain , based upon the latest twelve months of
operations, minimum ratios of consolidated EBITDA (as defined) to consolidated
interest expense, minimum ratios of consolidated total debt to consolidated
EBITDA, and minimum levels of consolidated EBITDA. The revolving credit facility
also limits, among other items, the Company's annual capital expenditures and
the Company's ability to incur additional indebtedness. Borrowings under the
revolving credit facility were approximately $14 thousand as of April 30, 1998.
Availability under the revolving credit facility, based upon the Company's
borrowing base, was approximately $10.6 million as of April 30, 1998. As of
April 30, 1998, the Company was in compliance with all financial covenants and
similar limitations set forth in the agreement. The Company expects to request,
and may be required to request, a modification of its covenants in fiscal year
1999. Management believes its relationship with its bank is such that suitable
modifications, if required, will be agreed upon without materially diminishing
its borrowing capacity under the Revolving Credit Facility.
Subsequent to the completion of the Transactions discussed in Note 1, the
Company issued $105,000,000 aggregate principal amount of 9 7/8% senior
subordinated notes, the net proceeds from which were used to repay borrowings
incurred by the Company under the Senior Credit Facility in connection with the
Recapitalization. During April 1998, pursuant to a filing with the Securities
and Exchange Commission, the Company
30
33
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
completed an exchange offer redeeming all of the outstanding senior subordinated
notes for senior subordinated notes having the same principal amount and
interest rate, and substantially the same terms and conditions (the "Notes").
Interest on the Notes is payable semiannually on May 15 and November 15 of each
year, commencing on May 15, 1998. The Notes mature on November 15, 2007. The
Notes are unsecured senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company. The Notes are redeemable, in whole or in part, at
the option of the Company on or after November 15, 2002. In addition, at any
time on or prior to November 15, 2000, the Company may, at its option, redeem up
to 35% of the aggregate principal amount of the Notes from the proceeds of one
or more public equity offerings, at a redemption price equal to 109.875% plus
accrued and unpaid interest. Upon a Change of Control (as defined), each holder
of the Notes will have the right to require that the Company make an offer to
purchase all outstanding Notes at a price equal to 101% plus accrued interest.
The Indenture dated as of November 15, 1997 between the Company and Norwest Bank
Minnesota, N.A., as trustee, contains certain covenants that limit the ability
of the Company to, among other things, incur additional indebtedness, pay
dividends or make investments and certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates, incur
liens, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. In addition, the Company will be obligated to offer to repurchase
the Notes at 100% plus accrued and unpaid interest in the event of certain Asset
Sales (as defined).
As a result of the repayment of borrowings under the Senior Credit
Facility, the Company recorded a charge to operations of approximately $2.4
million representing the writeoff of deferred financing costs. This charge, net
of a tax benefit of approximately $863 thousand, is reflected as an
extraordinary item in the accompanying statement of income for the year ended
April 30, 1998.
The fair value of the senior subordinated notes as of April 30, 1998 is
approximately $98.7 million. The fair value of the notes has been based on a
market quotation.
NOTE 5. BENEFIT PLANS:
Profit Sharing Plan
Historically, the Company maintained a profit sharing plan which covered
substantially all employees of the Company who had at least six months of
service and were age 20 or older. The Company made discretionary contributions
at the option of the Company's board of directors. Discretionary contributions
charged to expense related to the profit sharing plan were $314,000 and $250,000
in 1997 and 1996, respectively. There were no discretionary contributions
charged to expense in 1998. In accordance with the profit sharing plan
provisions, the Company absorbed all costs associated with the administration of
the profit sharing plan.
The profit sharing plan was terminated effective April 30, 1998. The
Company expects to settle the plan in fiscal 1999 either by making lump sum
distributions to participants or purchasing nonparticipating annuity contracts
to cover vested benefits, all of which are fully funded.
Pension Plan
The Company maintained a non-contributory defined benefit plan that was
terminated effective April 30, 1997. The defined benefit plan covered all
employees of the Company who had completed at least six months of service and
had attained the age of 20 or older. Plan assets consisted of overnight bank
repurchase agreements.
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FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs related to the defined benefit pension plan for
the years ended April 30, 1997 and 1996 consisted of the following:
1997 1996
-------- --------
Service cost of current period.............................. $ 60,559 $ 61,305
Interest on projected benefit obligation.................... 162,688 154,485
Actual return on plan assets................................ (68,769) (72,684)
Net amortization and deferral............................... (65,820) (50,886)
-------- --------
Net periodic pension cost......................... $ 88,658 $ 92,220
======== ========
The following table sets forth the funded status, the assumptions used to
calculate the funded status and the amounts recognized in FWT's balance sheet as
of April 30, 1997.
1997
----------
Actuarial present value of benefit obligations:
Vested benefits........................................... $2,560,287
Non-vested benefits....................................... --
----------
Accumulated benefit obligation.................... $2,560,287
==========
Pension liability:
Plan assets at fair value................................. $2,342,251
Projected benefit obligation.............................. 2,560,287
----------
Projected benefit obligation in excess of plan assets..... (218,036)
Unrecognized net actuarial loss........................... --
Initial unrecognized net asset being recognized over 17
years.................................................. 23,434
Adjustment to recognize additional minimum liability...... --
----------
Pension liability included in accrued expenses and other
liabilities............................................... $ (194,602)
==========
Major assumptions:
Assumed discount rate..................................... 7.5%
Rate of increase in compensation levels................... --
Expected long-term rate of return on plan assets.......... 7.5%
The 1997 information above reflects a loss of $330,000 as a result of the
curtailment of the plan. The plan was settled during fiscal year 1998 resulting
in an additional charge to operations of approximately $130,000.
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FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its 16,000 square foot corporate office facility and
certain office equipment under operating lease agreements that began in May
1998. In addition, during 1997 the Company entered into a five-year renewable
lease agreement with a third party monopole vendor to lease manufacturing and
warehouse space. Rent expense under this lease in 1998 and 1997 was
approximately $185,000 and $46,300, respectively. Future minimum payments under
the above leases are as follows:
FISCAL YEAR ENDING APRIL 30,
----------------------------
1999........................................................ $ 472,252
2000........................................................ 480,252
2001........................................................ 488,252
2002........................................................ 436,189
2003........................................................ 264,000
----------
$2,140,945
==========
As part of the agreement with the third party monopole vendor, the Company
agreed to purchase any remaining steel plate inventory held by the lessor for
FWT's exclusive use. The steel will be provided at cost, as defined in the lease
agreement, plus $.01 per pound.
In June, 1998, the Company signed an agreement with the third party
monopole vender that, among other things, terminated its lease related to the
manufacturing and warehouse space effective June 30, 1998. The annual rentals
under the lease were approximately $185,000 per year and are included in the
above minimum lease payments.
Employment Agreements
On February 27, 1998, a shareholder and executive officer of the Company
entered into a Voluntary Retirement Agreement with the Company. Pursuant to the
agreement, he resigned from office as an executive officer and voluntarily
retired. Under the agreement, the Company agreed to pay the executive officer
and shareholder $237,500 annually through December 31, 2000 and one-half of any
bonus that otherwise would have been payable to him under his employment
agreement with the Company had his employment with the Company continued through
December 31, 2000.
On March 30, 1998, a shareholder and executive officer of the Company
terminated his employment with the Company. Pursuant to the terms of his
employment agreement with the Company, this shareholder and former executive
officer will be entitled to receive his annual salary of $200,000, an annual
bonus based upon the earnings and performance of the Company, and various other
benefits through December 31, 2000.
On April 3, 1998, a shareholder and executive officer of the Company
terminated his employment with the Company. Pursuant to the terms of his
employment agreement with the Company, this shareholder and former executive
officer will be entitled to receive his annual salary of $200,000, an annual
bonus based upon the earnings and performance of the Company, and various other
benefits through December 31, 2000.
As a result of the above terminations of employment, the Company recorded a
charge to operations of approximately $1,691,000 that is included in the
provision for nonrecurring items in the accompanying statement of income for the
year ended April 30, 1998. This charge reflects the net present value
(discounted at 8 percent) of the estimated amounts payable to the above
individuals through December 31, 2000.
As of April 30, 1998, the Company maintained employment agreements with
several employees. These agreements range in term from three to five years and
terminate at the option of the employee or for termination of employment for
just cause, as defined in the agreements. Total annual compensation under these
employment agreements is approximately $850,000.
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FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Legal
In the normal course of business, the Company is involved in various
pending legal proceedings and claims. In the opinion of management, after
consultation with counsel, the ultimate resolution of such matters will not have
a material impact on the financial condition or the future results and
operations of the Company.
License Agreement
During fiscal year 1997, the Company signed a license agreement with a
customer which grants that customer "Most Favored Customer" status with respect
to all terms and conditions (including price) relating to one of the Company's
patented products. Under the agreement, the customer also has the right to have
the product produced by another manufacturer in exchange for a license fee to
the Company. To date no license fees have been paid or are payable to the
Company. In addition, the licensing agreement restricts the transferability of
the patent related to this product. The agreement may be terminated by the
Company in the event the licensee fails to pay the license fee or defaults under
the terms of the agreement.
NOTE 7. STOCK APPRECIATION RIGHTS AGREEMENTS:
The Company has entered into stock appreciation rights agreements with
certain executive officers of the Company and a former executive officer of the
Company (the "SAR Agreements"). Each of the SAR Agreements provides for, among
other things, the payment of an amount based on a formula set forth in the SAR
Agreement by the Company to both the executive officers and former executive
officer upon the occurrence of a Liquidity Event (which is defined in the SAR
Agreement as, among other things, the completion by the Company of an initial
public offering of common stock and a situation in which FWT Acquisition, Inc.
ceases to hold more than 50% of the outstanding common stock of the Company). No
compensation expense has been recorded by the Company as no value has been
earned under the SAR Agreements.
NOTE 8. RELATED-PARTY TRANSACTIONS:
The Company occasionally pays expenses on behalf of certain shareholders
and officers. These amounts are recorded as a receivable from the shareholder or
officer until they are repaid. Additionally, certain shareholders and officers
have advanced the Company funds in the normal course of business. These amounts
are recorded as a payable to the shareholder or officer until they are repaid.
The net receivable (payable) related to these transactions were $-0-, $14,983,
and ($35,453) for the years ended April 30, 1998, 1997, and 1996, respectively.
In connection with the Transactions discussed in Note 1, the Company
entered into a ten-year financial advisory agreement with Baker Capital Corp.,
an affiliate of Baker Communications Fund, L.P., pursuant to which Baker Capital
provided financial advisory services to the Company in connection with the
Transactions. The agreement commenced on November 12, 1997 and will terminate
upon the earlier of (i) November 12, 2007 or (ii) the date on which Baker
Capital and its affiliates cease to beneficially own directly or indirectly at
least five percent of the outstanding common stock of the Company or its
successors. In payment for these services the Company paid Baker Capital a fee
of $1.0 million upon the closing of the Transactions, and paid Baker Capital a
fee of $1.0 million upon the issuance of the 9 7/8% senior subordinated notes
issued by the Company in November 1997. In addition, Baker Capital will provide
oversight and monitoring services to the Company on an ongoing basis and will
receive a fee of $250,000 per year beginning in fiscal year 1998 with an
additional $250,000 for each year the Company meets a specified EBITDA target.
The Company has agreed to indemnify Baker Capital in respect of its services
under the financial advisory agreement and to reimburse it for certain
out-of-pocket expenses. The Company has not recorded any expense in fiscal year
1998 related to the additional fee associated with EBITDA, as the Company has
not achieved the established target.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers, directors and key employees of the Company are as
follows:
NAME AGE POSITION
---- --- --------
Douglas A. Standley.................. 40 Director, President and Chief Executive Officer
William R. Estill.................... 49 Vice President of Finance and Secretary
John C. Baker........................ 48 Director
Lawrence A. Bettino.................. 37 Director
Roy J. Moore......................... 35 Director
Edward W. Scott...................... 35 Director
DOUGLAS A. STANDLEY joined the Company in November 1997 and, has served as
President and Chief Executive Officer of the Company since March 19, 1998. From
November 1997 to March 19, 1998, Mr. Standley served as Chief Operations Officer
and President of the Fort Worth Division. For approximately one and a half years
prior to joining the Company, Mr. Standley was a director of Synergetics, an
international management consulting company which specialized in consulting with
manufacturing companies. Mr. Standley has been a business consultant for the
past 19 years, specializing in turnaround environments, business integration,
production planning and management and strategic implementation. Mr. Standley
holds a bachelor's degree in business management from the University of
California at Fullerton and professional certifications from the American
Production and Inventory Control Society, the American Society of Quality
Control and the Deming Institute.
WILLIAM R. ESTILL joined the Company in January 1998 and, since that time,
has served as Vice President of Finance. Mr. Estill has also served as Secretary
of the Company since March 14, 1998. From May 1996 to November 1997, Mr. Estill
served as Chief Financial Officer of Bearcom, Inc., a privately-held distributor
of two-way radios. From April 1985 to May 1996, Mr. Estill served as Vice
President, Chief Financial Officer, Secretary and Treasurer of Sport Supply
Group, Inc., a New York Stock Exchange company. Mr. Estill was also a member of
the board of directors of Sport Supply Group, Inc. Mr. Estill holds a Bachelor
of Business Administration degree in Accounting from the University of Texas at
Arlington and passed the CPA exam in 1983.
JOHN C. BAKER became a director of the Company upon the consummation of the
Transactions on November 12, 1997. In September 1995, Mr. Baker co-founded Baker
Capital Corp. ("Baker Capital"), a private investment management firm focused on
investments in communications equipment, services and applications companies.
Previously, Mr. Baker spent fifteen years as an investment professional with
Patricof & Co. Ventures, a multinational private equity firm. Mr. Baker
currently serves on the board of directors of FORE Systems (a communications
switch manufacturer and vendor), Intermedia Communications Inc. (a competitive
local exchange company) and Resource Bancshares Mortgage Group. Mr. Baker holds
a Bachelor of Arts degree from Harvard College and received an MBA from the
Harvard Business School.
LAWRENCE A. BETTINO became a director of the Company upon the consummation
of the Transactions on November 12, 1997. Since May 1996, Mr. Bettino has been
an officer of Baker Partners which acts as the general partner of Baker. In
September 1995, Mr. Bettino co-founded Baker Capital. From 1989 to 1996, Mr.
Bettino was a General Partner of Dillon Read Venture Capital. Mr. Bettino
currently serves on the board of directors of Virtual Resources, Inc., a private
company headquartered in Atlanta. Mr. Bettino holds a Bachelor of Science degree
from Renssalaer Polytechnic Institute and received an MBA from the Harvard
Business School.
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ROY J. MOORE became a director upon the consummation of the Transactions on
November 12, 1997 and served as Chief Executive Officer from that time until
March 19, 1998. From the time Mr. Moore joined the Company in 1991 until the
consummation of the Transactions, Mr. Moore served as Vice President of
Marketing and Sales. Prior to joining the Company, Mr. Moore was a Manager with
the MAC Group, a general management consulting firm. He worked on projects in
the computer and communications industries with companies such as AT&T,
Southwestern Bell, Bell Atlantic, Pacific Telesis, British Telecom and Apple
Computer. Mr. Moore holds a Bachelor of Administration degree in Accounting and
Finance from Texas Christian University with honors, and an MBA from the
University of Virginia, where he also graduated with honors.
EDWARD W. SCOTT became a director of the Company upon the consummation of
the Transactions on November 12, 1997. Since May 1996, Mr. Scott has been an
officer of Baker Capital Partners, LLC ("Baker Partners") which acts as the
general partner of Baker. In September 1995, Mr. Scott co-founded Baker Capital.
From 1991 until 1996, Mr. Scott was employed as an investment professional by
the Apollo Investment Fund. Mr. Scott currently serves on the board of directors
of Virtual Resources, Inc., a private company. Mr. Scott holds a Bachelor of
Arts degree from Columbia College and received an MBA from the Harvard Business
School.
SHAREHOLDERS' AGREEMENT
In connection with the Transactions, FWT Acquisition, Inc., Baker and the
Roll-over Shareholders entered into a shareholders' agreement dated as of
November 12, 1997 (the "Shareholders' Agreement") that provides, among other
things, that for so long as (the "Initial Period") either (i) Roy J. Moore is
chief executive officer of the Company or (ii) Roy J. Moore, Carl J. Moore and
Thomas F. Moore (collectively, the "Moores") collectively own not less than five
percent of the shares of Common Stock that were owned by FWT Acquisition, Inc.
and the Moores immediately following the Transactions, FWT Acquisition, Inc.
shall vote the shares of Common Stock held by it in favor of Roy J. Moore as a
director of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The Company shall file the information required by this Item 11 in an
amendment to this Form 10-K in accordance with the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The outstanding equity securities of the Company consist of 136.14 shares
of Common Stock.
The following table sets forth certain information regarding the ownership
of the voting securities of the Company as of April 30, 1998. To the knowledge
of the Company, each of such shareholders has sole voting and investment power
as to the shares shown unless otherwise noted.
COMMON STOCK
--------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
---------------- ---------------- -------------------
PRINCIPAL SHAREHOLDERS:
FWT Acquisition, Inc........................................ 108.91(1) 80.00%
575 Madison Avenue, 10th Floor
New York, NY 10022
Thomas F. Moore............................................. 9.076 6.67%
701 Highlander Blvd., Suite 200
Arlington, Texas 76015
Carl R. Moore............................................... 9.076 6.67%
701 Highlander Blvd., Suite 200
Arlington, Texas 76015
Roy J. Moore................................................ 9.076 6.67%
701 Highlander Blvd., Suite 200
Arlington, Texas 76015
- ---------------
(1) FWT Acquisition, Inc. is a wholly-owned subsidiary of Baker. The general
partner of Baker, which is treated as the beneficial owner of the shares
held by Baker, is Baker Partners. The address of each of Baker and Baker
Partners is 575 Madison Avenue, 10th Floor, New York, New York 10022. Each
of Messrs. Baker, Scott and Bettino is a manager and an officer of Baker
Partners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transaction Agreements
On November 12, 1997, the Company, FWT Acquisition, Inc. and the Existing
Shareholders entered into, and consummated the transactions set forth in, the
Transaction Agreements. The Transaction Agreements contemplated, among other
things, two primary transactions. The first transaction contemplated by the
Transaction Agreements included the Recapitalization. The second transaction
contemplated by the Transaction Agreements included the Stock Purchase. As a
result of the Transactions, FWT Acquisition, Inc. holds approximately 80.0% of
the issued and outstanding shares of the Common Stock, and the Roll-over
Shareholders hold in the aggregate approximately 20.0% of the issued and
outstanding shares of the Common Stock.
The Transaction Agreements contain customary representations and warranties
and standard covenants. Such agreements provide that the Existing Shareholders
will indemnify FWT Acquisition, Inc. for losses arising from any breach of a
covenant, representation or warranty made by the Existing Shareholders in the
Transaction Agreements. Under the Transaction Agreements, the Existing
Shareholders will not be required to indemnify FWT Acquisition, Inc. until the
amount of the claim or claims for indemnification exceeds $1.0 million. Also,
the Existing Shareholders will be subject to a maximum potential indemnification
liability of $75.0 million or, in the case of willful misconduct or fraud or the
breach of certain representations or warranties, a maximum potential
indemnification liability of approximately $116.0 million. The indemnification
obligations of the Existing Shareholders with respect to the inaccuracy of all
representations or warranties, except certain representations and warranties
discussed below, shall continue through May 11, 1999. The Existing Shareholders'
indemnification obligations for inaccuracies involving tax-related
representations or
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warranties shall continue until 30 days after the expiration of the applicable
statute of limitations. The Existing Shareholders' indemnification obligations
for representations and warranties related to capitalization, outstanding
securities of the Company, title to the Company's real property and adequacy of
the Company's assets shall continue forever, subject to the expiration of any
applicable statute of limitations.
FINANCIAL ADVISORY AGREEMENT
In connection with the Transactions, the Company entered into a ten-year
agreement with Baker Capital, pursuant to which Baker Capital provided financial
advisory services to the Company in connection with the Transactions. This
agreement commenced on November 12, 1997 and will terminate upon the earlier of
(i) November 12, 2007 or (ii) the date on which Baker Capital and its affiliates
cease to beneficially own directly or indirectly at least five percent of the
outstanding Common Stock of the Company or its successors. In payment for these
services the Company paid Baker Capital a fee of $1.0 million upon the closing
of the Transactions, and paid Baker Capital a fee of $1.0 million upon the
closing of the Initial Offering. In addition, Baker Capital will provide
oversight and monitoring services to the Company on an ongoing basis and will
receive a base fee of $250,000 per year commencing in 1998 with an additional
$250,000 for each year the Company meets a specified EBITDA target. The Company
has agreed to indemnify Baker Capital in respect of its services under this
agreement and to reimburse it for certain out-of-pocket expenses.
THE DISTRIBUTION
The Company made a distribution in the amount of $21.0 million to T.W.
Moore and Betty Moore. The distribution was financed primarily by a loan from
Bank One, Texas, N.A., which was repaid in connection with the Recapitalization.
SHAREHOLDERS' AGREEMENT
In connection with the Transactions, the Company, FWT Acquisition, Inc.,
Baker and the Roll-over Shareholders entered into the Shareholders' Agreement,
which provides for, among other things, agreements and restrictions regarding
issuances and transfers of Common Stock. The Shareholders' Agreement commenced
on November 12, 1997 and will continue until the earliest of (i) the date on
which the Roll-over Shareholders no longer hold any capital stock of the
Company, (ii) the date of closing of a public offering or private placement of
equity securities of the Company, the proceeds of which to the Company are not
less than $20 million, (iii) the date on which the agreement is terminated by
written agreement of all the shareholders or (iv) the date on which the Company
ceases to exist. The agreements and restrictions include the following: (i)
rights of first refusal; (ii) preemptive rights; (iii) tag-along rights; (iv)
pledge restrictions; (v) transfer restrictions; and (vi) a carry-along provision
in favor of Baker. Further, during the Initial Period, any transaction between
the Company and FWT Acquisition, Inc. and the Roll-over Shareholders will
require unanimous consent of the Company's board of directors prior to
consummation of such transaction.
REGISTRATION RIGHTS AGREEMENT
In connection with the Transactions, the Company, FWT Acquisition, Inc. and
the Roll-over Shareholders entered into a Registration Rights Agreement dated as
of November 12, 1997. This agreement provides for, among other things,
piggy-back rights with customary cut-backs to FWT Acquisition, Inc. and the
Roll-over Shareholders and permitted transferees thereof.
VOLUNTARY RETIREMENT AGREEMENT
On February 27, 1998, Thomas F. Moore, who had served prior to that date as
the Vice President of Manufacturing of the Company, entered into the Voluntary
Retirement Agreement with the Company pursuant to which he resigned from office
as an executive officer of the Company and voluntarily retired. Under the
Voluntary Retirement Agreement, the Company has agreed to pay Mr. Moore $237,500
per year through December 31, 2000, and one-half of any bonus that otherwise
would have been payable to him under his Employment Agreement with the Company
had his employment with the Company continued through such date.
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RISK FACTORS
The following factors should be considered carefully in receiving this Form
10-K and qualify in their entirety each forward-looking statement herein.
HIGH LEVEL OF INDEBTEDNESS
In connection with the Exchange Offer, the Company incurred a significant
amount of indebtedness. At April 30, 1998, the Company's long-term indebtedness
was $105.0 million and its total shareholders' deficit was $60.2 million. In
addition, as of April 30, 1998, the Company had approximately $10.6 million of
availability under the Revolving Credit Facility. The Company, as a matter of
course, reviews the covenants associated with the Revolving Credit Facility. Due
to the nature of the Company's earnings process, the Company may be required to
request modifications of its covenants. Further, subject to the restrictions in
the Revolving Credit Facility and the Indenture, the Company may incur
additional indebtedness, including senior indebtedness with respect to the
additional Exchange Notes that may be issued under the Indenture from time to
time to finance acquisitions, capital expenditures, working capital or for other
purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Exchange Notes, including, but not limited to, the following:
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the repayment of indebtedness and will not be available for other
purposes; (ii) the Company's future ability to obtain additional debt financing
for working capital, capital expenditures, acquisitions or other purposes is
limited by the Revolving Credit Facility and the Indenture; and (iii) the
Company's level of indebtedness could limit its flexibility in reacting to
changes in the industry and general economic conditions and its ability to
withstand a prolonged downturn in the wireless communications industry. The
Company believes that certain of the Company's competitors currently operate on
a less leveraged basis and have significantly greater operating and financing
flexibility than the Company.
ABILITY TO SERVICE DEBT
The Company's ability to pay interest on the Exchange Notes and to satisfy
its other debt obligations will depend upon its future operating performance,
which will be affected by prevailing economic conditions in the wireless
communications infrastructure industry and financial, business and other
factors, certain of which are beyond its control. Should they occur, factors
that will affect operating performance include, among other things, loss of
market share, prolonged disruption in the operations at any of the Company's
manufacturing facilities and decreased demand for the Company's products. The
Company anticipates that its operating cash flow and, if necessary, borrowings
under the Revolving Credit Facility, will be sufficient to meet its operating
expenses, anticipated capital expenditures and to service its debt requirements
as they become due. However, if the Company is unable to generate sufficient
cash flow from operations to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling certain assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all. In addition, in the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Indebtedness (as defined in
the Indenture) has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Notes then
outstanding. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right of
payment to any indebtedness and not subordinated in right of payment to the
Exchange Notes, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company, merge or consolidate with
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any other person, or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of the Company.
In addition, the Revolving Credit Facility contains other and more
restrictive covenants and prohibits the Company from prepaying its indebtedness
(including the Exchange Notes). The Revolving Credit Facility also requires the
Company to maintain specified financial ratios and satisfy certain financial
condition tests. The Company's ability to meet those financial ratios and tests
can be affected by events beyond its control, and there can be no assurance that
the Company will meet those tests. A breach of any of these covenants could
result in a default under the Revolving Credit Facility and the Indenture. If an
event of default should occur under the Revolving Credit Facility, the lenders
can elect to declare all amounts of principal outstanding under the Revolving
Credit Facility, together with all accrued interests, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the Revolving Credit Facility indebtedness were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Exchange Notes. Substantially all the assets of the Company are pledged as
security under the Revolving Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DEPENDENCE ON WIRELESS COMMUNICATIONS INDUSTRY
The Company's business depends upon the capital expenditures of wireless
communications providers, which, in turn, depend upon the current and
anticipated market demand for wireless communications. The wireless
communications industry may experience downturns, which may result in a decrease
in the industry's demand for capital equipment, including antenna support
structures. There can be no assurance that the wireless communications industry
will not experience severe and prolonged downturns in the future or that the
wireless communications industry will expand as quickly as forecasted. Any
significant decrease in the level of capital expenditures by the wireless
communications industry could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Industry Overview."
AVAILABILITY OF WIRELESS COMMUNICATIONS SERVICES
A substantial majority of the Company's sales are derived from the sale of
antenna support structures and related shelters for wireless communications
networks, and the future success of the Company depends to a considerable extent
upon the continued growth and increased availability of cellular and other
wireless communications services, including PCS, domestically and
internationally. There can be no assurance that either subscriber use or the
implementation of wireless communications services will continue to grow, or
that such factors will create demand for the Company's products. The Company
believes that continued growth in the use of wireless communications services
depends on significant reductions in infrastructure capital equipment cost per
subscriber, the corresponding reductions in wireless service pricing and the
ability of the wireless communications industry to obtain the permits, licenses
and zoning relief necessary for the growth of wireless communications networks.
While in the U.S., the Federal Communications Commission has adopted regulations
requiring local phone companies to reduce the rates charged to cellular carriers
for connection to their wireline networks, it is anticipated that wireless
service rates will remain higher than rates charged by traditional wireline
companies. The growth in the implementation of wireless communications services
is dependent upon both developed countries, such as the U.S., allowing continued
deployment of new networks, and less developed foreign countries deploying
wireless infrastructures. Foreign countries or local government authorities may
decline to construct wireless communications systems, place moratoriums on
building base stations or terminate or delay construction of such systems for a
variety of reasons, including environmental issues, public resistance to tower
construction, political unrest, economic downturns, the availability of
favorable pricing for other communications services, the availability and cost
of related equipment or other delays in the implementation of these systems, in
which event demand for the Company's products will be similarly reduced or
delayed, which would materially adversely affect the Company's business,
financial condition and results of operations. See "-- Risks Associated with
International Sales," "-- Dependence on Permits, Licenses and Zoning."
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43
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences, and expects to continue to experience, significant
fluctuations in sales and operating results from quarter to quarter, which
typically falls in the fourth and first quarters of the calendar year, which
approximately correspond to the third and fourth quarters of FWT's Fiscal Year.
Quarterly results fluctuate due to a number of factors, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition. In particular, the Company's quarterly results of
operations can vary due to, among other things, the following factors: (i) the
timing, cancellation, or rescheduling of customer orders and shipments; (ii)
variations in manufacturing capacities; (iii) efficiencies and costs; (iv) the
availability and cost of components; (v) capacity and production constraints
associated with single source component suppliers; (vi) changes in the mix of
products having differing gross margins; (vii) customer service expenses; and
(viii) changes in average sales prices. In addition, the Company's quarterly
results of operations are influenced by competitive factors, including pricing,
availability and demand for the Company's products. A portion of the Company's
expenses are fixed and difficult to reduce in a short period of time. If sales
do not meet the Company's expectations, the Company's fixed expenses would
exacerbate the effect of such sales shortfall. Furthermore, announcements by the
Company or its competitors regarding new products and technologies could cause
customers to defer purchases of the Company's products. See "-- Concentration of
Customers" and "-- Dependence on Customer Satisfaction." Order deferrals and
cancellations by the Company's customers, declining average sales prices,
changes in the mix of products sold and longer than anticipated sales cycles for
the Company's products have in the past adversely affected the Company's
quarterly results of operations. There can be no assurance that the Company's
quarterly results of operations will not be similarly adversely affected in the
future.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of management, public market analysts and
investors. In any case, the Company could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONCENTRATION OF CUSTOMERS
During Fiscal Year 1998, sales to Nextel Communications and AT&T Wireless
accounted for approximately 24.2% and 8.1%, respectively, of the Company's
sales, and sales to the Company's top five customers in the aggregate accounted
for approximately 54.9% of the Company's sales. As the wireless communications
industry continues to consolidate or customers seek to establish close
relationships with their suppliers, the Company expects that its customer base
will continue to become more concentrated. If, for any reason, any of the
Company's key customers were to purchase significantly less of the Company's
products in the future, such decreased level of purchases could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Customers."
DEPENDENCE ON CUSTOMER SATISFACTION
The Company depends, in large part, on its ability to maintain a high level
of customer satisfaction. From time to time, however, the Company receives
customer complaints regarding delays in shipments or the quality of its products
and services. While the Company works to resolve all such customer complaints to
the satisfaction of all parties, there can be no assurance that any customer
will continue to purchase the Company's products.
MANUFACTURING CAPACITY CONSTRAINTS
The Company's success will depend upon its ability to increase its
production volume on a timely basis while maintaining product quality and per
unit production costs. Manufacturers often encounter difficulties in increasing
production volumes, including difficulties involving delays, quality control and
shortages of qualified
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personnel. A significant increase in production volume will require that the
Company increase its manufacturing capacity.
The Company has in the past experienced, and may in the future experience,
delays in its ability to fill orders for certain products on a timely basis
because of limits on its production capacity. Significant delays in filling
orders over an extended period would damage customer relations, which would
materially adversely affect the Company's business, financial condition and
results of operations. The production schedules for each of the Company's
products are based on orders for such products, and the Company has only limited
ability to modify short-term production schedules. If the Company were to
experience a significant increase in the demand for any of its products, it
would not be able, on a short-term basis, to satisfy such demand fully. The
ability of the Company to estimate demand may be less precise during periods of
rapid growth or with respect to new products. The failure of the Company to
forecast its requirements accurately could lead to inventory shortages or
surpluses that could have a material adverse effect on the results of operations
and lead to fluctuations in quarterly operating results.
GROWTH OPPORTUNITIES
Although management believes that opportunities may exist for the Company
to grow through either acquisitions of related businesses or entering into
strategic alliances, there can be no assurance that the Company will be able to
identify appropriate acquisitions or alliance opportunities on terms acceptable
to the Company. Furthermore, the Company may identify appropriate acquisitions
or alliances but may be unable to consummate such transactions due to the
financial condition of the Company. Finally, certain provisions of the Revolving
Credit Facility or the Indenture may limit the Company's ability to effect
acquisitions or enter into alliances. See "-- Restrictions Imposed by Terms of
the Company's Indebtedness."
MANAGEMENT OF GROWTH
The Company has undergone a period of significant growth, and its expansion
may significantly strain the Company's management, financial and other
resources. In order to sustain this growth, the Company must attract and retain
highly qualified personnel. It may become increasingly difficult for the Company
to hire such personnel. The Company believes that improvements in management and
operational controls, and operational, financial and management information
systems are needed to manage further growth. The Company currently plans to
augment its information systems. There can be no assurance that the management
information system will produce the desired efficiencies or that other
improvements will not be needed. The failure to implement such improvements
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The wireless communications infrastructure products industry is highly
competitive. The Company faces substantial competition in each of the markets it
serves from established competitors, some of which have greater financial,
engineering, manufacturing and marketing resources than the Company. The
Company's competitors in each product area can be expected to continue to
improve the design of their products, to introduce new products with competitive
prices and performance characteristics and to improve customer satisfaction.
There can be no assurance that competitive pressures will not necessitate price
reductions, adversely affecting operating results. Although the Company believes
that it has certain advantages over its competitors, maintaining such advantages
will require a continued high level of investment by the Company in sales,
marketing and other services. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be able to maintain the competitive advantages it currently enjoys.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for less than 5.0% of the Company's sales for
Fiscal Year 1998. The Company anticipates that international sales will account
for a portion of its sales in the future. International
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45
sales are subject to certain risks, including unexpected changes in exchange
rates, regulatory requirements, currency controls, tariffs and other market
barriers, political and economic instability, potentially adverse tax
consequences, natural disasters, outbreaks of hostilities, difficulties in
accounts receivable collection, extended payment terms, difficulties in managing
foreign sales representatives and difficulties in staffing and managing foreign
branch operations. Currently the Company's international sales are denominated
in U.S. dollars, and sales to international customers may be affected by
fluctuations in the U.S. dollar, which could increase the sales price in local
currencies of the Company's products. The Company is also subject to the risks
associated with the imposition of legislation and import and export regulations.
The Company cannot predict whether tariffs, quotas, duties, taxes or other
changes or restrictions will be implemented by the U.S. or other countries upon
the import or export of the Company's products in the future. In addition, the
laws of certain countries in which the Company's products are or may be sold may
not provide the Company's products and intellectual property rights with the
same degree of protection as the laws of the U.S. There can be no assurance that
these factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON SUPPLIERS
Certain of the components used in the Company's products are obtained from
a single source or a limited group of suppliers. The Company's reliance on such
suppliers involves several risks, including a potential inability to obtain an
adequate supply of required components in a timely manner, price increases and
component quality. Although the Company seeks to reduce dependence on those sole
and limited source suppliers, the partial or complete loss of certain of those
sources could have at least a temporary material adverse effect on the Company's
results of operations and damage customer relationships. Further, a significant
increase in the price of one or more of these components could materially
adversely affect the Company's results of operations.
The Company relies on Delta Steel as its sole source for braking and
shaping the steel for monopoles. While the Company believes that its contract
with Delta Steel is adequate to supply its foreseeable needs, there can be no
assurance that Delta Steel will adequately or fully perform its contractual
obligations or that Delta Steel will not experience a partial or complete loss
of the equipment necessary to perform its contractual obligations. The failure
of Delta Steel to adequately or fully perform its obligations would have a
material adverse effect on the Company's business, financial condition and
results of operations.
AVAILABILITY AND PRICE OF STEEL AND ZINC
The Company's principal raw materials are steel and zinc. The Company's
ability to continue to acquire steel and zinc on favorable terms may be
adversely affected by factors beyond its control. Because steel and zinc
constitute a substantial portion of the Company's cost of goods sold, any
increase in the price of such materials could have a material adverse effect on
the Company's profit margin. There can be no assurance that the Company will be
successful in passing along any of these cost increases to its customers.
RISKS ASSOCIATED WITH TWO MANUFACTURING FACILITIES
The Company produces all of its products in two manufacturing facilities
located in Texas. As a result, any prolonged disruption in the operations at
either of the Company's manufacturing facilities, whether due to labor
difficulties, destruction of or damage to a facility or other reasons, could
have a material adverse effect on the Company's financial condition or results
of operations. See "Properties."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance and manufacturing personnel, certain of whom would be
difficult to replace. The loss of the services of certain of these key personnel
could have a material adverse effect on the Company. There can be no assurance
that the services of such personnel will continue to be available to the
Company. The Company has entered into employment agreements with
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46
certain members of its senior management team. In addition, the Company believes
that its success depends on its ability to attract and retain additional
qualified employees and that the failure to recruit such other skilled personnel
could have a material adverse effect on the Company.
DEPENDENCE ON PERMITS, LICENSES AND ZONING
The Company's success will depend on the ability of the wireless
communications infrastructure industry to obtain the permits, licenses and
zoning relief necessary for the growth of the wireless communications networks.
The wireless communications infrastructure industry often encounters significant
public resistance when attempting to obtain the necessary permits, licenses and
zoning relief. There can be no assurance that the wireless communications
infrastructure industry can obtain the number of permits, licenses and zoning
changes necessary to continue the growth of the wireless communications
networks. The failure of the wireless communications infrastructure industry to
obtain such permits, licenses and zoning relief would have a material adverse
effect on the Company's business, financial condition and results of operations.
DECREASED DEMAND FOR COMPANY'S PRODUCTS
The Company's success will depend on the continued demand for its products.
Certain factors could have the effect of significantly reducing or even
eliminating the demand for the Company's products, including technological
advancements, public resistance to infrastructure build-out, alternatives such
as non-tower or pole mounts, and the possible linkage of adverse health
consequences to wireless communication devices. Any decrease in demand for the
Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations.
ENVIRONMENTAL AND WORKER HEALTH AND SAFETY REGULATIONS
The Company is subject to various federal, state, local and foreign
environmental laws and regulations relating to the discharge, storage,
treatment, handling and disposal of certain materials, substances and water used
in, or resulting from, its operations and the remediation of contamination
associated with releases of hazardous substances both at the Company's
facilities and at offsite disposal locations. The Company's operations are also
governed by laws and regulations relating to workplace safety and worker health
that, among other things, regulate employee exposure to hazardous substances in
the workplace. The nature of the Company's operations exposes it to the risk of
liabilities or claims with respect to environmental and workplace health and
safety matters, and there can be no assurance that material costs will not be
incurred in connection with such liabilities or claims.
Based on information currently available to management, the Company
believes that the cost of compliance with existing environmental and health and
safety laws and regulations (and liability for known environmental conditions)
will not have a material adverse effect on the Company's business, financial
condition or results of operations. However, management cannot predict which
environmental or health and safety legislation or regulations will be enacted in
the future or how existing or future laws or regulations will be enforced,
administered or interpreted, nor can it predict the amount of future
expenditures that may be required in order to comply with such environmental or
health and safety laws or regulations or the response to such environmental
claims.
CONTROLLING SHAREHOLDERS
As a result of the Transactions, FWT Acquisition, Inc., a wholly-owned
subsidiary of Baker, holds approximately 80.0% of the Company's outstanding
Common Stock. Therefore, Baker has the power to control all matters submitted to
shareholders of the Company, to elect a majority of the directors of the Company
and to exercise control over the business, policies and affairs of the Company.
The interests of Baker as an equity holder may differ from the interests of
holders of the Exchange Notes.
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ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
The source of funds for any repurchase required as a result of a Change of
Control (as defined in the Indenture) will be the Company's available cash or
cash generated from operating or other sources, including borrowing, sales of
assets, sales of equity or funds provided by a new controlling person. Further,
a Change of Control will likely trigger an event of default under the Revolving
Credit Facility, which would permit the lenders thereto to accelerate the
outstanding debt under the Revolving Credit Facility. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Exchange Notes tendered and to repay
outstanding debt under the Revolving Credit Facility. Any future credit
agreements or other agreements relating to secured indebtedness to which the
Company may become a party may contain similar restrictions and provisions.
RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
In connection with the Transactions, the Company has incurred substantial
indebtedness, including the indebtedness under the Exchange Notes and the
Revolving Credit Facility. If under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Company, a court were to find that, at the time the Former Notes were issued,
(i) the Company issued the Former Notes with the intent of hindering, delaying
or defrauding current or future creditors or (ii) (A) the Company received less
than reasonably equivalent value or fair consideration for issuing the Former
Notes and (B) the Company, (1) was insolvent or was rendered insolvent by reason
of the Transactions, (2) was engaged, or about to engage, in a business or
transaction for which its assets constituted unreasonably small capital, (3)
intended to incur, or believed that it would incur, debts beyond its ability to
pay as such debts matured (as all of the foregoing terms are defined in or
interpreted under such fraudulent conveyance statutes) or (4) was a defendant in
an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment, the judgment is
unsatisfied), such court could avoid or subordinate the Exchange Notes to
presently existing and future indebtedness of the Company and take other action
detrimental to the holders of the Exchange Notes, including, under certain
circumstances, invalidating the Exchange Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or local law that is being applied in any such
proceeding. Generally, however, the Company would be considered insolvent if, at
the time it incurs the indebtedness constituting the Former Notes, either (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute and mature
or (ii) it is incurring debts beyond its ability to pay as such debts mature.
The Company's Board of Directors and management believe that at the time of
its issuance of the Former Notes, the Company (i)(A) was neither insolvent nor
rendered insolvent thereby, (B) had sufficient capital to operate its business
effectively and (C) was incurring debts within its ability to pay as the same
mature or become due and (ii) had sufficient resources to satisfy any probable
money judgment against it in any pending action. In reaching the foregoing
conclusions, the Company has relied upon its analysis of internal cash flow
projections and estimated values of assets and liabilities of the Company. There
can be no assurance, however, that such analysis will prove to be correct or
that a court passing on such questions would reach the same conclusions.
ABSENCE OF PUBLIC MARKET
There is no existing public market for the Exchange Notes. The Company does
not intend to apply for listing of the Exchange Notes offered hereby on any
national securities exchange or to seek approval for quotation on NASDAQ. There
can be no assurance as to the liquidity of any markets that may develop for the
Exchange Notes, the ability of holders of the Exchange Notes to sell their
Exchange Notes or the price at which holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
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IMPACT OF THE YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by the Year 2000.
The Year 2000 issue affects virtually all companies and organizations.
The Company intends to install new information systems so that its
computers will function properly with respect to dates in the Year 2000 and
thereafter. The Company presently believes that, with the installation of the
new information systems, the Year 2000 issue will not pose significant
operational problems. However, if such modifications are not made, or are not
timely completed, the Year 2000 issue could have a material adverse impact on
the operations of the Company.
The Company has not discussed the Year 2000 issue with its customers and
suppliers There can be no assurance that the systems of these other companies
will be timely converted and the failure of the Company's significant suppliers
and customers to make necessary Year 2000 modifications could have a material
adverse impact on the Company's results and operations.
The Company has budgeted capital expenditures of, and spent a portion of,
approximately $100,000 for the purchase of computer software to ensure the
Company is Year 2000 compliant. There can be no assurance, however, that the
Company will not have to spend additional amounts to become Year 2000 compliant
or a failure to so comply will not have a material adverse effect on the
financial condition or results of operation of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. However,
there can be no assurance that these estimates and the timetable will be
achieved and actual results could differ materially from those anticipated.
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
Independent Auditors Report
Balance Sheets as of April 30, 1998 and 1997
Statements of Income for Each of the Three Years in the Period
Ending April 30, 1998
Statements of Shareholders' Equity (Deficit) for Each of the Three
Years in the Period Ending April 30, 1998
Statements of Cash Flows for Each of the Three Years in the Period
Ending April 30, 1998
Notes to Financial Statements
(2) Financial Statement Schedules
None.
Schedules not listed above have been omitted because they are not
required or not applicable.
(3) Exhibits
The information required by this Item 14(a)(3) is set forth in the
Exhibit Index immediately following the signatures hereon.
(b) Reports on Form 8-K.
The following reports were filed on Form 8-K during the quarter ended April
30, 1998, including the date and description of each such report.
DATE OF REPORT DESCRIPTION
- -------------- ------------------------------------------------------------
March 24, 1998 On March 19, 1998, the Company announced that, for the nine
months ended January 31, 1998, it had recorded net income of
$4.2 million on sales of $58 million, as compared with net
income of $9 million on sales of $49.3 million for the
comparable nine month 1997 period. The Company also reported
a net loss of $1.1 million for the three months ended
January 31, 1998, on sales of $20.7 million. For the
comparable 1997 period, net income was $3.6 million on sales
of $22.2 million. The Company also announced that Roy J.
Moore had been named Vice Chairman and Douglas A. Standley
had been named President and Chief Executive Officer of the
Company. Previously, Mr. Moore had served as President and
Chief Executive Officer and Mr. Standley had served as Chief
Operations Officer and President, Ft. Worth Division, of the
Company.
April 8, 1998 On March 30, 1998, Roy J. Moore terminated his employment
with the Company. Mr. Moore had previously served as
President and Chief Executive Officer of the Company and,
since March 19, 1998, had served as Vice Chairman of the
Company. Under the terms of his employment agreement with
the Company, Mr. Moore will be entitled to receive an annual
salary of $200,000, an annual bonus based on the earnings
and performance of the Company, and various other benefits
with an estimated annual value of $25,000 through December
31, 2000. Mr. Moore continues to serve as a member of the
Board of Directors of the Company. In addition, on April 3,
1998, Carl R. Moore terminated his employment with the
Company. Under the terms of his employment agreement with
the Company, Mr. Moore will be entitled to receive an annual
salary of $200,000, an annual bonus based on the earnings
and performance of the Company, and various other benefits
with an estimated annual value of $25,000 through December
31, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FWT, Inc.
By: /s/ DOUGLAS A. STANDLEY
----------------------------------
Name: Douglas A. Standley
Title: President and Chief
Executive Officer
Date: July 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DOUGLAS A. STANDLEY President, Chief Executive July 29, 1998
- ----------------------------------------------------- Officer (principal executive
Douglas A. Standley officer), and Director
/s/ WILLIAM R. ESTILL Vice President of Finance July 29, 1998
- ----------------------------------------------------- (principal financial officer
William R. Estill and principal accounting
officer) and Secretary
/s/ JOHN C. BAKER Director July 29, 1998
- -----------------------------------------------------
John C. Baker
/s/ LAWRENCE A. BETTINO Director July 29, 1998
- -----------------------------------------------------
Lawrence A. Bettino
Director July 29, 1998
- -----------------------------------------------------
Roy J. Moore
/s/ EDWARD W. SCOTT Director July 29, 1998
- -----------------------------------------------------
Edward W. Scott
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 -- Purchase Agreement dated November 12, 1997, by and among
the Company, BT Alex. Brown Incorporated, SBC Warburg
Dillon Read Inc. and Smith Barney Inc.*
3.1 -- Restated Articles of Incorporation of the Company.**
3.2 -- Bylaws of the Company (as amended effective as of April
24, 1998).**
4.1 -- Indenture dated as of November 15, 1997, by and between
the Company, as Issuer, the guarantors identified
therein, and Norwest Bank Minnesota, N.A., as Trustee.*
4.2 -- Registration Rights Agreement dated November 15, 1997, by
and among the Company, BT Alex. Brown Incorporated, SBC
Warburg Dillon Read Inc. and Smith Barney Inc.*
4.3 -- Registration Rights Agreement dated November 12, 1997, by
and among FWT, Inc., Roy J. Moore, Thomas F. "Fred"
Moore, Carl R. Moore and FWT Acquisition, Inc.*
4.4 -- Form of Exchange Note (included in Exhibit 4.1).*
10.1 -- Stock Purchase and Redemption Agreement dated November
12, 1997, by and among the Company, FWT Acquisition, Inc.
and T.W. Moore, Betty Moore, Carl Moore, Fred Moore and
Roy J. Moore.*
10.2 -- General Supply Agreement, dated as of September 1, 1997,
between the Company and AT&T Wireless Services, Inc.*
10.3 -- Cooperative Production Agreement dated March 10, 1997
between the Company and Delta Steel, Inc.*
10.4 -- Transportation Contract dated March 26, 1997 between the
Company and Delta Steel, Inc.*
10.5 -- Lease Agreement dated February 18, 1997 between the
Company and Delta Steel, Inc. covering property located
at 9217 South Freeway, Fort Worth, Texas.*
10.6 -- Employment Agreement dated November 14, 1997 between the
Company and Douglas A. Standley (Exhibit A to the
Employment Agreement has been filed previously as Exhibit
10.16).*
10.7 -- Employment Agreement dated November 12, 1997 between the
Company and Roy J. Moore (Exhibit A to the Employment
Agreement has been filed previously as Exhibit 10.12).*
10.8 -- Employment Agreement dated November 12, 1997 between the
Company and Thomas F. Moore.*
10.9 -- Employment Agreement dated November 12, 1997 between the
Company and Carl R. Moore.*
10.10 -- Shareholders' Agreement dated November 12, 1997 by and
among the Company, Carl R. Moore, Thomas F. Moore, Roy J.
Moore, and for certain limited purposes, Baker
Communications Fund, L.P.*
10.11 -- Credit Agreement dated November 12, 1997 by and among the
Company, Bankers Trust Company and BT Commercial
Corporation.*
10.12 -- Stock Appreciation Rights Agreement dated November 12,
1997 between FWT, Inc. and Roy J. Moore.*
10.13 -- Financial Advisory Agreement dated November 12, 1997
between the Company and Baker Capital Corp.*
52
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 -- First Amendment to Credit Agreement dated February 11,
1998 by and among the Company, Bankers Trust Company and
BT Commercial Corporation.*
10.15 -- Voluntary Retirement Agreement dated February 27, 1998
between the Company and Thomas F. Moore.*
10.16 -- Stock Appreciation Rights Agreement dated November 14,
1997 between FWT, Inc. and Douglas A. Standley.*
10.17 -- Collateral Account Agreement dated as of November 12,
1997 by and between the Company and BT Commercial
Corporation.*
10.18 -- Blocked Account Agreement dated as of November 12, 1997
by and between the Company and BT Commercial
Corporation.*
10.19 -- Non-offset Agreement dated November 10, 1997 by and
between the Company and BT Commercial Corporation.*
10.20 -- Lockbox Agreement dated as of November 12, 1997 by and
among the Company, BT Commercial Corporation and Bank One
Texas, N.A.*
10.21 -- Company Security Agreement dated as of November 12, 1997
by and between the Company and BT Commercial
Corporation.*
10.22 -- Company Pledge Agreement dated as of November 12, 1997 by
and between the Company and BT Commercial Corporation.*
10.23 -- Company Trademark Collateral Security Agreement dated as
of November 12, 1997 by and between the Company and BT
Commercial Corporation.*
10.24 -- Company Patent Collateral Assignment and Security
Agreement dated as of November 12, 1997 by and between
the Company and BT Commercial Corporation.*
10.25 -- Intercreditor and Collateral Agency Agreement dated as of
November 10, 1997 by and among the Company, BT Commercial
Corporation and Bankers Trust Company.*
10.26 -- Office Lease dated December 23, 1997 by and between
Dorbet, Inc. as landlord and FWT, Inc. as tenant
10.27 -- Memorandum of Understanding dated June 30, 1998, between
the Company and Delta Steel, Inc.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
25.1 -- Statement of Eligibility of Trustee on Form T-1 of
Norwest Bank Minnesota, National Association.*
27.1 -- Financial Data Schedule.
- ---------------
* Incorporated by reference. Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (Registration No. 333-44273).
** Incorporated by reference. Previously filed as an exhibit to the Company's
Form 10-Q for the quarterly period ended January 31, 1998 filed on April 27,
1998.