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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 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)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 [ ]
There were 136.14 shares of the registrant's common stock, par value $10.00
per share, outstanding as of September 14, 1998.
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INDEX
PAGE
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PART I -- FINANCIAL INFORMATION...................................... 2
Item 1. Financial Statements........................................ 2
Balance Sheets (unaudited) as of July 31, 1998 and April 30,
1998...................................................... 3
Statements of Income (unaudited) for the Three Month Periods
Ended July 31, 1998 and 1997.............................. 4
Statements of Cash Flows (unaudited) for the Three Month
Periods Ended July 31, 1998 and 1997...................... 5
Notes to Unaudited Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................
PART II -- OTHER INFORMATION......................................... 13
Item 1. Legal Proceedings........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures........................................................... 16
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FORWARD-LOOKING STATEMENTS
This Form 10-Q 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-Q, 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, including high level of
and restrictions imposed by debt, ability to implement management initiatives,
dependence on the wireless communications industry, fluctuations in quarterly
results, and competition. 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. The risk
factors set forth in the Company's report on Form 10-K for the fiscal year ended
April 30, 1998, which was filed on July 29, 1998, are hereby incorporated by
reference.
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS
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FWT, INC.
BALANCE SHEETS
UNAUDITED
AS OF JULY 31, 1998 AND APRIL 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
JULY 31, APRIL 30,
1998 1998
--------- ---------
Current assets:
Cash and cash equivalents................................. $ 4,438 $ 5,890
Accounts receivable, less allowance for doubtful accounts
of $188 and $175, respectively......................... 5,915 6,734
Inventories............................................... 9,667 8,828
Prepaid expenses.......................................... 455 2,327
Other current assets...................................... 79 52
-------- --------
Total current assets.............................. 20,554 23,831
Property, plant, and equipment:
Land and land improvements................................ 1,447 924
Buildings and building improvements....................... 4,965 4,810
Machinery and equipment................................... 8,100 6,802
-------- --------
14,512 12,536
Less accumulated depreciation............................. (3,358) (3,062)
-------- --------
Net property, plant, and equipment................ 11,154 9,474
Deferred tax asset.......................................... 20,607 20,607
Other noncurrent assets..................................... 5,725 5,807
-------- --------
Total assets...................................... $ 58,040 $ 59,719
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,777 $ 6,026
Accrued interest.......................................... 2,281 4,763
Other accrued expenses and liabilities.................... 4,747 4,031
Notes payable............................................. 22 52
Current portion of long-term debt......................... -- --
-------- --------
Total current liabilities......................... 13,827 14,872
Long-term debt, less current portion........................ 105,000 105,000
-------- --------
Total liabilities................................. 118,827 119,872
Commitments and Contingencies
Shareholders' equity (deficit):
Common stock, $10 par value; 1,000 shares authorized, 372
shares issued, 136.14 shares outstanding............... 4 4
Additional paid-in capital................................ 29,583 29,583
Treasury stock, at cost, 235.86 shares.................... (83,100) (83,100)
Retained earnings (deficit)............................... (7,274) (6,640)
-------- --------
Total shareholders' equity (deficit).............. (60,787) (60,153)
-------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $ 58,040 $ 59,719
======== ========
The accompanying notes are an integral part of these financial statements.
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FWT, INC.
STATEMENTS OF INCOME
UNAUDITED
FOR THE THREE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
(IN THOUSANDS)
THREE MONTHS ENDED
JULY 31,
-------------------
1998 1997
-------- --------
Sales....................................................... $18,052 $21,212
Cost of sales............................................... 13,343 14,640
------- -------
Gross profit................................................ 4,709 6,572
Selling, administrative and general expenses................ 2,582 2,926
------- -------
Operating income.................................. 2,127 3,646
Interest income............................................. 22 97
Interest expense............................................ (2,895) (53)
Other income................................................ 112 65
------- -------
Income before income tax provision................ (634) 3,755
Income tax provision........................................ -- 84
------- -------
Net income (loss)................................. (634) 3,671
======= =======
Pro forma financial information:
Pro forma adjustment for federal tax provision.... 1,248
-------
Pro forma net income.............................. $ 2,423
=======
The accompanying notes are an integral part of these financial statements.
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FWT, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THE THREE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
(IN THOUSANDS)
THREE MONTHS ENDED
JULY 31,
------------------
1998 1997
------- -------
Cash Flows from Operating Activities:
Net income (loss)................................. $ (634) $ 3,671
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for losses on accounts receivable............ 13 --
Depreciation........................................... 296 136
Amortization........................................... 172 --
Adjustments to working capital accounts:
Accounts receivable.................................... 806 7,626
Inventories............................................ (839) (41)
Prepaid expenses....................................... 1,872 (1,603)
Other assets........................................... (117) 17
Accounts payable....................................... 751 (3,243)
Accrued expenses and other liabilities................. (1,766) 566
------- -------
Net cash provided by operating activities......... 554 7,129
------- -------
Cash Flows from Investing Activities:
Expenditures for property and equipment................... (1,977) (275)
Proceeds from sales of property and equipment............. 1 --
------- -------
Net cash used in investing activities............. (1,976) (275)
------- -------
Cash Flows from Financing Activities:
Proceeds from notes payable, net of financing costs....... -- 20,000
Payments of notes payable................................. (30) --
Payments of long-term debt................................ -- (56)
Distributions paid to shareholders........................ -- (20,500)
------- -------
Net cash used in financing activities............. (30) (556)
------- -------
Net increase (decrease) in cash and cash equivalents........ (1,452) 6,298
Cash and cash equivalents, beginning of period.............. 5,890 4,483
------- -------
Cash and cash equivalents, end of period.................... $ 4,438 $10,781
======= =======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest............................................... $ 5,207 $ 54
======= =======
Taxes.................................................. $ 146 $ 24
======= =======
The accompanying notes are an integral part of these financial statements.
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FWT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND
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 wireless communications
industry. This includes cellular telephone, personal communications systems,
commercial and amateur broadcasting, private microwave and television. Operating
results are strongly influenced by growth in demand for wireless communications
infrastructure services. The Company also produces shelters and cabinets used to
house electronic communications and broadcasting equipment. The Company conducts
its business principally through its corporate headquarters in Arlington, Texas
and two plants located near Fort Worth, Texas.
The unaudited financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, necessary to present a fair
statement of FWT's financial position as of July 31, 1998 and the results of its
operations for the three month periods ending July 31, 1998 and 1997. These
financial statements include estimates and assumptions made by management that
affect the reported amounts of assets and liabilities, the reported amounts of
revenues and expenses, and provisions for and the disclosure of contingent
assets and liabilities. Actual results could differ from such estimates. Results
of operations for interim periods are not necessarily indicative of results to
be obtained for the full fiscal year.
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 -- CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with original maturities of three months or less to be cash equivalents. As of
July 31, 1998, short-term investments totaling $4.0 million are included in cash
equivalents. The cost of such short-term investments approximated fair value.
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FWT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- 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 July 31, 1998 and April 30,
1998 included the following (amounts in thousands):
JULY 31, APRIL 30,
1998 1998
-------- ---------
Finished goods.............................................. $3,528 $4,847
Work-in process and raw materials........................... 6,139 3,981
------ ------
Total Inventories................................. $9,667 $8,828
====== ======
NOTE 4 -- 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.
NOTE 5 -- FEDERAL AND STATE INCOME TAXES
Effective November 12, 1997, the Company became taxable as a Subchapter C
corporation. Prior to November 12, 1997, the Company was a Subchapter S
corporation. Accordingly, no provision for federal income taxes is reflected in
the accompanying statement of income for the three month period ended July 31,
1998. A pro forma charge for federal income taxes is supplementally disclosed on
the statement of income for the three month period ended July 31, 1997.
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,
the Company had made payments of $1,960,702 pursuant to this requirement 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, the Company received a refund of such payments from the IRS during
the three month period ended July 31, 1998.
The income tax provision included in the accompanying statement of income
for the three month period ended July 31, 1997 includes a provision for state
income taxes. Such provision includes 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 to the
Transactions elected jointly to treat the Transactions as an asset acquisition
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. 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. Management anticipates future taxable income after debt
service sufficient to realize the net deferred tax
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FWT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
asset. Any change in the valuation allowance will be reflected as a component of
the Company's income tax provision.
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt of the Company as of July 31, 1998 and
April 30, 1998 consisted of the following (amounts in thousands):
JULY 31, APRIL 30,
1998 1998
-------- ---------
Subordinated promissory notes payable to Existing
Shareholders, interest at prime (8.5% at July 31, 1998)
payable in monthly installments of principal and accrued
interest through November 15, 1998........................ $ 22 $ 38
Note payable to a bank under revolving line of credit,
interest at prime plus 1% (9.5% at July 31, 1998), due
November 30, 2000, collateralized by substantially all
assets.................................................... -0- 14
Senior subordinated notes, bearing interest at 9 7/8% and
payable semiannually on May 15 and November 15, principal
due at maturity on November 15, 2007...................... 105,000 105,000
-------- --------
Total notes payable and long-term debt...................... 105,022 105,052
Less -- notes payable and current portion of long-term
debt...................................................... (22) (52)
-------- --------
Long-term debt, less current portion........................ $105,000 $105,000
======== ========
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. 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. There were no
outstanding borrowings under the revolving credit facility as of July 31, 1998.
Availability under the revolving credit facility, based upon the Company's
borrowing base, was approximately $10.4 million as of July 31, 1998. As of July
31, 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.
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FWT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
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 of 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 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. 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 Notes were issued under an Indenture dated as of
November 15, 1997 between the Company and Norwest Bank Minnesota, N.A., as
trustee, that 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).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Sales. Sales were approximately $18.0 million for the three month period
ended July 31, 1998 as compared to approximately $21.2 million for the three
month period ended July 31, 1997, a decrease of approximately $3.2 million or
14.9%. The decrease in sales is primarily attributable to a decrease in sales of
structures such as wireless communication shelters and Cell-Sites-On-Wheels
("COWS"), which accounted for approximately $2.9 million of this total sales
decrease. The Company believes the decrease in sales of these products is due to
the overall softness in the market for wireless communications infrastructure
products and the focus by the primary wireless communications service providers
on co-location sites, which already have these types of products in place.
Although the Company experienced a decrease in sales for the three month
period ended July 31, 1998 as compared to the three month period ended July 31,
1997, sales achieved in the three month period ended July 31, 1998 were slightly
higher than those experienced in the fourth quarter of the fiscal year ended
April 30, 1998.
Gross Profit. Gross profit was approximately $4.7 million for the three
month period ended July 31, 1998 as compared to approximately $6.6 million for
the three month period ended July 31, 1997, a decrease of approximately $1.9
million or 28.3%. As a percentage of sales, gross profit decreased to 26.1% from
31.0% for the three month period ended July 31, 1998 as compared to the three
month period ended July 31, 1997. This decrease is primarily attributed to a
change in product mix, primarily the lower sales volume of wireless
communication shelters and COWS since sales of these products traditionally
result in higher gross profit margins than other products of the Company. The
Company continues to experience lower gross profit margins on the production of
monopoles due to higher than normal rework costs. The Company believes the
higher costs of rework should be lowered in future periods as the recently
installed automated seam welding unit is fully implemented in the monopole
production process. In addition, under-absorption of direct labor and
manufacturing overhead contributed to the lower gross profit during the three
month period ended July 31, 1998.
Although the Company experienced a decrease in gross profit levels for the
three month period ended July 31, 1998 as compared to the three month period
ended July 31, 1997, gross profit levels achieved in the three month period
ended July 31, 1998 were higher than those experienced in the fourth quarter of
the fiscal year ended April 30, 1998.
Selling, Administrative and General Expenses. Selling, administrative and
general expenses were approximately $2.6 million for the three month period
ended July 31, 1998 as compared to approximately $2.9 million for the three
month period ended July 31, 1997, a decrease of approximately $300,000 or 11.8%.
As a percentage of sales, selling, administrative and general expenses increased
to 14.3% from 13.8% for the three month period ended July 31, 1998 as compared
to the three month period ended July 31, 1997. The dollar decrease is primarily
due to bonuses of approximately $608,000 paid to former executives of the
Company during the three month period ended July 31, 1997. No bonuses were paid
to executives during the corresponding three month period ended July 31, 1998.
Interest Expense. Interest expense increased by approximately $2.8 million
for the three month period ended July 31,1998 as compared to the three month
period ended July 31, 1997. The increase in interest expense during the period
is the result of the 9 7/8% senior subordinated notes issued by the Company in
April 1998 in exchange for the senior subordinated notes issued by the Company
in November 1997 following the consummation of the Transactions. The Company
anticipates that interest expense in the fiscal year ended April 30, 1999 will
be significantly higher as compared to the fiscal year ended April 30, 1998 as
the senior subordinated notes will be outstanding for an entire year.
Other Income (Expense), net. Other income (expense), net increased for the
three month period ended July 31, 1998 by approximately $47,000 as compared to
the three month period ended July 31, 1997. The increase is attributable to an
increase in the sale of scrap material resulting from the Company's normal
manufacturing processes.
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Income Tax Provision. The income tax provision decreased by approximately
$84,000 for the three month period ended July 31, 1998 as compared to the three
month period ended July 31, 1997. The Company did not increase the net deferred
tax asset during the three month period ended July 31, 1998 and as a result
increased the valuation allowance for the deferred tax assets that offset the
tax benefit of the operating losses incurred during such period.
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
deficit of approximately $1.5 million for the three month period ended July 31,
1998.
The net cash flow provided by operating activities for the three month
period ended July 31, 1998 was approximately $554,000. The primary changes in
working capital accounts for the three month period ending July 31, 1998 were as
follows:
(i) accounts receivable decreased by approximately $806,000 as a
result of intensified collection efforts started by management following
consummation of the Transactions;
(ii) inventories increased by approximately $839,000 primarily as a
result of an increase in raw material and work in process inventories;
(iii) prepaid expenses decreased by approximately $1.9 million due to
a refund received from the IRS of payments made during the fiscal year
ended April 30, 1998 pursuant to Section 444 of the Internal Revenue Code
relating to the Company's Subchapter S status prior to November 12, 1997
and its fiscal year end of April 30;
(iv) accrued interest decreased by approximately $2.5 million as a
result of interest payments made on May 15, 1998 relating to the Company's
outstanding 9 7/8% senior subordinated notes; and
(v) accounts payable and accrued liabilities (excluding accrued
interest) increased by approximately $1.5 million. These increases resulted
primarily from the increase in inventories and the timing of payments for
certain operating expenses.
The cash flow used by investing activities was approximately $2.0 million
for the three month period ended July 31, 1998, reflecting the Company's capital
equipment requirements during such period. Capital expenditures during such
period included two automated seam welding units utilized in the Company's
monopole manufacturing process. The first of these units was placed into
production during June 1998.
The cash flow used by financing activities was approximately $30,000,
reflecting payments made pursuant to the subordinated promissory notes payable
issued in connection with the Transactions and repayment of borrowings under the
Company's revolving credit facility.
The Company determines its short-term liquidity needs based upon its cash
requirements over the next twelve months, and its long-term liquidity needs
based upon its cash requirements for periods in excess of twelve months. The
Company entered into a Credit Agreement dated November 12, 1997, with Bankers
Trust Company and BT Commercial Corporation (as amended, the "Revolving Credit
Facility") that, subject to borrowing base limitations and the satisfaction of
customary borrowing conditions and financial covenants,
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allows the Company to borrow up to $25.0 million. The Company's principal
sources of short-term and long-term liquidity are cash flow generated from
operations and, if necessary, borrowings under the Revolving Credit Facility.
The principal uses of liquidity are to meet debt service requirements, finance
the Company's capital expenditures, and fulfill working capital needs.
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 July 31, 1998 the Company had approximately $10.4 million
of availability under the terms of the Revolving Credit Facility. There were no
borrowings outstanding as of July 31, 1998.
The Company, as a matter of course, reviews the covenants associated with
its Revolving Credit Facility. The Company was in compliance with these
covenants as of July 31, 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 the fiscal year ended April 30, 1999, of which approximately $2.0 million
was expended during the three month period ended July 31, 1998 primarily for
production equipment and site development. The remaining portion of the
Company's capital expenditure budget for the fiscal year ended April 30, 1999 is
scheduled to be spent during calendar year 1998. This budget includes actual and
estimated expenditures of approximately $1.0 million for site development and
buildout 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. If the Company experiences a significant
increase in demand for its products, additional capital expenditures may be
required. The Company believes it has adequate resources to fulfill any such
requirements.
As the Company's business grows, its equipment and working capital
requirements will also continue to increase. The Company believes that the
combination of cash from operations and, if required, funds drawn under the
Revolving Credit Facility will be adequate to meet short-term liquidity needs
and to finance working capital and capital expenditures for the next twelve
months. 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 this time frame.
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 quarter of calendar year 1998. The new information systems will replace
existing systems and 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 is currently evaluating all "firmware," which is the embedded
logic chips that drive certain production equipment of the Company, for Year
2000 compliance. The Company believes the cost, if any, of bringing this
equipment into compliance with the Year 2000 issue will not be significant.
However, if such modifications and conversion, if required, are not made, the
Year 2000 issue could have a material adverse impact on the operations of the
Company.
12
14
The Company is initiating formal communications with its significant
suppliers to determine the extent to which the Company may be vulnerable to
third party failures to remediate the Year 2000 issue. There can be no assurance
that the systems of third parties, including significant suppliers of the
Company, will be timely converted and that the failure of such third paries to
comply with the Year 2000 issue would not have a material adverse impact on the
operations of the Company.
The Company intends to be Year 2000 compliant by the end of the fiscal year
ended April 30, 1999. The total cost of such Year 2000 compliance, including
conversion to new information systems, modification of "firmware" applications
and communication programs, is estimated to be approximately $200,000, which the
Company believes will be funded by cash from operations. The cost of the various
projects and the related completion dates are based upon management's best
estimates, which have been derived from assumptions regarding future events,
including the continued availability of certain resources, third party
modification plans, and other factors. However, there can be no assurance that
these estimates will be achieved and actual results could differ materially from
those estimates.
Because the Company's assessment of and solution implementation for the
Year 2000 issue is still in process, the Company has not yet developed
contingency plans for this issue. Management intends to complete the assessment
of and any contingency plans for the Year 2000 issue during the fiscal year
ended April 30, 1999.
PART II. OTHER INFORMATION
ITEM 1. 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
6(a) Exhibits:
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.*
13
15
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.*
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.*
14
16
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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.***
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.
*** Incorporated by reference. Previously filed as an Exhibit to the Company's
Form 10-K for the annual period ended April 30, 1998 filed on July 29, 1998.
6(b) Reports on form 8-K:
Not applicable.
15
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FWT, INC.
By: /s/ WILLIAM R. ESTILL
----------------------------------
William R. Estill
Vice President of Finance (duly
authorized
officer of the registrant and
principal financial
officer and principal accounting
officer)
September 14, 1998
16
18
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.*
19
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.***
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.
*** Incorporated by reference. Previously filed as an Exhibit to the Company's
Form 10-K for the annual period ended April 30, 1998 filed on July 29, 1998.