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
(SPECIAL FINANCIAL REPORT PURSUANT TO SECTION 15(d)(2))
(Mark One)
-------
[X] Annual report pursuant to section 13 or 15(d) of the securities
exchange act of 1934 for the fiscal year ended October 31, 2000
or
[_] Transition report pursuant to section 13 or 15(d) of the securities
exchange act of 1934 for the transition period from _______ to _______
000-30966
(Commission File Number)
BRACKNELL CORPORATION
(Exact name of registrant as specified in its charter)
Ontario, Canada Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 South Eighth Street, Suite 1100
Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
612-604-0101
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common shares, no
par value
Pursuant to Rule 15-d-2 of the Act, this annual report contains only
financial statements for the fiscal years ended October 31, 2000, 1999 and 1998.
Indicate by a 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 therein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 7, 2001 was $365,731,218.
The number of shares of the registrant's common shares outstanding at
February 7, 2001 was 64,304,390.
Documents incorporated by reference: None
PART II
ITEM 8. Financial Statements and Supplementary Data
This Annual Report on Form 10-K for the fiscal year ended October 31,
2000 is being filed pursuant to Rule 15d-2. Rule 15d-2 provides generally that
if a registrant files a registration statement under the Securities Act of 1933,
as amended, which does not contain certified financial statements for the
registrant's last full fiscal year (or for the life of the registrant if less
than a full year), then the registrant shall, within 90 days of the effective
date of the registration statement, file a special report furnishing certified
financial statements for such last fiscal year or other period as the case may
be. Rule 15d-2 further provides that such special financial report is to be
filed under cover of the facing sheet appropriate for the annual report of the
registrant. Bracknell Corporation's Registration Statement on Form F-4
(Registration No. 333-47608), declared effective December 11, 2000, did not
contain certified financial statements for the Registrant's last full fiscal
year, that is the fiscal year ended October 31, 2000. Therefore, as required by
Rule 15d-2, certified financial statements for the fiscal year ended October 31,
2000 are filed herewith.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) (1) Financial Statements:
Page
Bracknell Corporation. and Subsidiaries:
Annual Financial Statements
Independent Accountant's Report.............................................................
Consolidated Balance Sheets as of October 31, 2000 and 1999.................................
Consolidated Statements of Operations for the years ended October 31, 2000, 1999 and 1998...
Consolidated Statements of Cash Flows for the years ended October 31, 2000, 1999 and 1998...
Consolidated Statements of Stockholder's Equity for the years ended
October 31, 2000, 1999 and 1998.........................................................
Notes to Consolidated Financial Statements..................................................
(2) Financial Statement Schedules:
None
(c) Exhibits:
-1-
INDEX OF EXHIBITS
Exhibit
Number
- ------
2.1 Amended and Restated Agreement and Plan of Merger dated as of November
14, 2000 among Bracknell Corporation ("Bracknell"), Bracknell
Acquisition Corporation and Able Telcom Holdings Corp. Pursuant to Reg.
S-K ,Item 601(b)(2), Bracknell agrees to furnish a copy of the
Disclosure Schedules to such Agreement to the Commission upon request
(Incorporated by reference to Exhibit 2 filed with Registration
Statement on Form F-4 (Registration No. 333-47608))
3.1 Articles of Amalgamation of Bracknell, as amended to date
3.2 By-Laws of Bracknell(Incorporated by reference to Exhibit 3(ii) filed
with Registration Statement on Form F-4 (Registration No. 333-47608))
10.1.1 Second Amended and Restated Credit Agreement dated as of July 21, 2000
among Bracknell Corporation, Nationwide Electric, Inc. and The State
Group Limited, as borrowers, the lenders party thereto and the Royal
Bank of Canada. (Incorporated by reference to Exhibit 10(i) filed with
Registration Statement on Form F-4 (Registration No. 333-47608))
10.1.2 Third Amended and Restated Credit Agreement, dated as of December 22,
2000 among Bracknell Corporation, Nationwide Electric, Inc. and The
State Group Limited, as borrowers, the lenders party thereto and Royal
Bank of Canada
10.2.1 Credit Agreement dated as of July 21, 2000 among Bracknell Limited
Partnership, as borrower, the lenders party thereto and the Royal Bank
of Canada. (Incorporated by reference to Exhibit 10(ii) filed with
Registration Statement on Form F-4 (Registration No. 333-47608))
10.2.2 Amended and Restated Credit Agreement dated as of December 22, 2000
among Bracknell Limited Partnership, as borrower, the lenders party
thereto and the Royal Bank of Canada
10.3.1 Bracknell Corporation Employee Share Purchase Plan (U.S.)
10.3.2 Bracknell Corporation Employee Share Purchase Plan (Canada)
10.4 Bracknell Corporation Retirement Savings Plan for U.S. Employees
10.5 Bracknell Corporation Stock Option Plan
10.6.1 Employment Agreement of Paul D. Melnuk
10.6.2 Form of Employment Agreement
21.1 Subsidiaries of Bracknell
All other schedules and exhibits are omitted because they are either not
applicable or not required in this filing.
-2-
AUDITORS' REPORT
To the Stockholders of
Bracknell Corporation:
We have audited the accompanying consolidated balance sheets of Bracknell
Corporation (the "Company") as of October 31, 2000 and 1999 and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
three years in the period ended October 31, 2000. These consolidated 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 auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
October 31, 2000 and 1999 and the results of its operations and its cash flows
for the three years in the period ended October 31, 2000 in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, effective
November 1, 1998, the Company changed its method of accounting for revenue on
certain fixed-price contracts.
Arthur Andersen LLP
December 22, 2000.
Toronto, Canada.
-3-
BRACKNELL CORPORATION
CONSOLIDATED BALANCE SHEETS
October 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
($U.S. in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,455 $ 427
Contract receivables, less allowance for doubtful accounts of
$1,485 in 2000 and $813 in 1999 (Note 4) 210,016 124,366
Costs and estimated earnings in excess of billings on uncompleted contracts (Note 5) 81,993 25,902
Inventory 1,901 655
Prepaid expenses and other assets 6,402 5,422
Deferred income tax assets (Note 12) 7,493 779
Income taxes receivable 2,674 -
Current assets of discontinued operations (Note 3) - 9,001
------------- ------------
TOTAL CURRENT ASSETS 314,934 166,552
------------- ------------
PROPERTY AND EQUIPMENT (Note 6) 18,044 9,229
DEFERRED INCOME TAX ASSETS (Note 12) 1,208 1,514
OTHER ASSETS, net (Note 7) 9,118 4,918
GOODWILL, net of accumulated amortization of $8,425 (1999- $324) 189,071 77,767
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS (Note 3) - 8,569
------------- ------------
TOTAL ASSETS $ 532,375 $ 268,549
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit facilities (Notes 9 and 10) $ 45,292 $ 19,935
Sunbelt Notes and current portion of long-term debt (Note 10) 40,469 240
Accounts payable and other accrued expenses 130,521 73,294
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 5) 40,242 24,676
Deferred income tax liabilities (Note 12) 4,093 -
Income taxes payable 4,350 5,067
Current liabilities of discontinued operations (Note 3) - 5,252
------------- ------------
TOTAL CURRENT LIABILITIES 264,967 128,464
------------- ------------
LONG-TERM DEBT (Notes 9 and 10) 123,817 40,312
DEFERRED INCOME TAX LIABILITIES (Note 12) 272 -
OTHER LONG-TERM LIABILITIES 1,200 1,309
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS (Note 3) - 6,084
------------- ------------
TOTAL LIABILITIES 390,256 176,169
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY (Note 11)
Common shares 91,865 57,029
Preferred shares - 5,412
Contributed surplus 229 229
Retained earnings 54,503 31,959
Cumulative other comprehensive loss (4,478) (2,249)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 142,119 92,380
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 532,375 $ 268,549
============= ============
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
BRACKNELL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended October 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
($U.S. in thousands, except per share)
Revenues $ 843,661 $ 273,265 $ 269,764
Cost of services 706,902 237,238 239,996
------------- -------------- -------------
Gross profit 136,759 36,027 29,768
Selling, general and administrative expenses 74,678 23,607 21,575
Depreciation and amortization 12,605 2,026 1,362
Restructuring and other charges (Note 15) - 7,609 -
------------- -------------- -------------
Earnings from operations 49,476 2,785 6,831
Interest expense (19,116) (655) -
Interest and other income 1,298 2,236 2,460
------------- -------------- -------------
Earnings before provision for income taxes 31,658 4,366 9,291
Provision for income taxes (11,979) (1,492) (4,915)
------------- -------------- -------------
Earnings before extraordinary item and change in accounting method 19,679 2,874 4,376
Extraordinary item, net of tax of $1,231 (2,023) - -
------------- -------------- -------------
Earnings before change in accounting method 17,656 2,874 4,376
Change in accounting method - (110) -
------------- -------------- -------------
Earnings from continuing operations 17,656 2,764 4,376
Earnings (loss) from discontinued operations, net of taxes (Note 3) 4,888 (1,380) 234
------------- -------------- -------------
Net earnings $ 22,544 $ 1,384 $ 4,610
============= ============== =============
EARNINGS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM PER SHARE
Basic $ 0.52 $ 0.10 $ 0.17
Diluted 0.51 0.10 0.16
EARNINGS FROM CONTINUING OPERATIONS PER SHARE
Basic 0.47 0.10 0.17
Diluted 0.46 0.10 0.16
NET EARNINGS PER SHARE
Basic 0.60 0.05 0.18
Diluted 0.58 0.05 0.17
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
BRACKNELL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended October 31,
- ----------------------------------------------------------------------------------------------------------------------------
($U.S. in thousands)
Cumulative
Other Total Comprehensive
Common Preferred Contributed Comprehensive Retained Stockholders' Earnings
Stock Stock Surplus Earnings (Loss) Earnings Equity (Loss)
--------- --------- ----------- -------------- ---------- -------------- -------------
Balance, October 31, 1997 $ 30,851 $ - $ - $ (856) $ 25,965 $ 55,960 $
Shares issued 176 - - - - 176
Net income - - - - 4,610 4,610 4,610
Translation adjustments - - - (2,838) - (2,838) (2,838)
--------- --------- ----------- ------------ ---------- -------------- -------------
Balance, October 31, 1998 31,027 - - (3,694) 30,575 57,908 1,772
Shares issued 26,002 5,412 - - - 31,414
Warrants issued - - 229 - - 229
Net income - - - - 1,384 1,384 1,384
Translation adjustments - - - 1,445 - 1,445 1,445
--------- --------- ----------- ------------ ---------- -------------- -------------
Balance, October 31, 1999 57,029 5,412 229 (2,249) 31,959 92,380 2,829
Shares issued 29,424 - - - - 29,424
Shares converted 5,412 (5,412) - - - -
Net income - - - - 22,544 22,544 22,544
Translation adjustments - - - (2,229) - (2,229) (2,229)
--------- --------- ----------- ------------ ---------- -------------- -------------
Balance, October 31,2000 $ 91,865 $ - $ 229 $ (4,478) $ 54,503 $ 142,119 $ 20,315
========= ========= =========== ============ ========== ============== =============
The accompanying notes are an integral part of these consolidated
financial statements.
-6-
BRACKNELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
($U.S. in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations $ 17,656 $ 2,764 $ 4,376
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,605 2,026 1,362
Provision for deferred income taxes (2,124) (7,205) 2,648
Extraordinary item 3,254 - -
Other amortization charges 1,104 - -
Income from long-term investments (74) (97) (235)
Change in accounting policy - 110 -
Other 217 125 (68)
Changes in operating assets and liabilities,
net of businesses acquired (56,778) 6,578 (199)
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (24,140) 4,301 7,884
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired, net of cash acquired (95,785) (53,386) (1,039)
Purchases of property and equipment (7,849) (1,682) (1,681)
Proceeds from the sale of discontinued operations 11,694 - -
Investment in discontinued operations - - (3,706)
Capitalized acquisition costs (1,622) - -
Other (2,478) (86) (133)
------------- -------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (96,040) (55,154) (6,559)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term facilities 105,139 25,179 -
Proceeds from the issuance of common stock 29,424 325 187
Borrowings under revolving credit facilities, net 25,357 5,566 -
Financing fees (2,998) (2,284) -
Repayment of term facility (579) (995) -
Repayment of revolving credit facilities - - (1,806)
Repayment of Sunbelt Notes (29,423) - -
Payment of long-term service arrangement (2,000) - -
Other (712) - 1,033
------------- -------------- -------------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 124,208 27,791 (586)
------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,028 (23,062) 739
CASH AND CASH EQUIVALENTS, beginning of year 427 23,489 22,750
------------- -------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 4,455 $ 427 $ 23,489
============= ============== =============
SEE NOTE 13 FOR SUPPLEMENTAL CASH FLOW INFORMATION
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
1. BUSINESS AND ORGANIZATION
Bracknell Corporation ("Bracknell" or the "Company"), a corporation
continued under the laws of Ontario, provides a full range of
infrastructure services for networks, systems, production facilities and
equipment of companies across North America. Bracknell's capabilities
include the design and engineering, project management, installation,
maintenance and service of increasingly complex and critical
infrastructure. Critical infrastructure includes those systems whose
incapacity or failure could have a devastating impact on a business.
Bracknell provides its services on systems related to voice, data and video
wireless and wireline communications, electrical power, lighting, automated
controls, heating, ventilation, air conditioning, refrigeration, plumbing
and process piping, and low voltage systems, such as fire alarms, security
and surveillance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Generally accepted accounting principles
These consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States.
Basis of presentation
The consolidated financial statements presented herein include the accounts
of the Company and wholly-owned subsidiaries acquired in business
combinations accounted for under the purchase method from their respective
acquisition dates. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Under U.S. GAAP companies are required to consolidate controlled
subsidiaries in which they have a majority (in excess of 50%) of the voting
stock interest and continuous control over the determination of the
strategic operating, investing and financing policies of over those
subsidiaries, and are required to equity account for joint ventures and for
investments over which they have significant influence.
Operating cycle
The Company's work is performed under cost-plus-fee contracts, fixed-price
contracts, and fixed-price contracts modified by incentive and penalty
provisions. The length of the contracts varies from one month to
approximately 24 months.
Assets and liabilities related to long-term contracts are included in
current assets and current liabilities in the accompanying consolidated
balance sheets as they will be liquidated in the normal course of contract
completion, although this may require more than one year.
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Risk concentrations
In the opinion of management, the significance of credit risk with respect
to contract receivables is limited due to the large number of customers and
the geographic diversification of the Company's customer base. The Company
does not require collateral or other security on most of these accounts.
However, the credit risk on these accounts is controlled through credit
approvals, lien rights and payment bonds issued on behalf of general
contractors and general monitoring procedures. The Company reviews its
contract receivables and provides for allowances periodically.
-8-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
At October 31, 2000 and 1999, no receivable from any customer exceeded five
percent of gross contract receivables nor did any customer's account exceed
more than ten percent of contract revenue for any of the periods presented.
In the course of its operations, the Company is subject to certain risk
factors including, but not limited to the following: rapid technological
and structural changes in the Company's industries, internal growth and
operating strategies, acquisition financing, significant fluctuations in
quarterly results, contracts, management of growth, dependence on key
personnel, availability of qualified employees, unionized workforce,
competition, recoverability of goodwill and potential exposure to
environmental liabilities.
Cash and cash equivalents
Cash and cash equivalents are short-term, highly-liquid investments that
are both readily convertible into known amounts of cash and are so near
their maturity that they present insignificant risk of changes in value
because of changes in interest rates. At times such investments may be in
excess of regulatory limits. However, the Company does not believe it is
exposed to any significant credit risk on cash and cash equivalents. For
purposes of the consolidated statements of cash flows, the Company
considers such investments with an original maturity of three months or
less to be cash equivalents.
Inventory
Inventory consists primarily of purchased materials and supplies used in
the ordinary course of business. The inventory is valued at the lower of
cost or market, with cost determined on a first-in, first-out ("FIFO")
basis.
Property and equipment
Property and equipment are recorded at cost. Equipment under capital leases
is stated at the present value of minimum lease payments. Depreciation and
amortization is provided in amounts sufficient to allocate the cost of the
depreciable or amortizable assets to operations over their estimated
service lives using the straight-line method.
Significant replacements and improvements are capitalized; other
maintenance and repairs are expensed. The cost and accumulated depreciation
of assets retired or otherwise disposed of are eliminated from the accounts
and any resulting gain or loss is credited or charged to income as
appropriate. Depreciation is recorded using straight-line methods over the
estimated useful lives of the related assets which are as follows:
Buildings 20 years
Machinery and equipment 3 - 7 years
Leasehold improvements Term of lease
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
tangible and identifiable intangible net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited, generally 10
to 20 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. If an impairment is identified, the
amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
-9-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debt issuance costs
Debt issuance costs related to the Company's Senior Credit Facility are
included in other non-current assets in the accompanying consolidated
balance sheets and amortized to interest expense over the scheduled
maturity of the debt.
Deferred acquisition costs
Pending acquisition costs are deferred and capitalized as part of completed
acquisitions or expensed in the period in which the pending acquisition is
terminated.
Warranty costs
For certain contracts the Company warrants labor for new installations and
construction and servicing of existing infrastructure. An accrual for
warranty costs is recorded based upon the historical level of warranty
claims and management's estimate of future costs.
Contract revenue recognition and contract costs
Revenues from fixed-price and modified fixed-price construction contracts
are recognized on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost for each
contract (the "cost-to-cost method"). This method is used because
management considers costs incurred to be the best available measure of
performance of progress on these contracts. Revenues from cost-plus-fee
contracts are recognized on the basis of costs incurred during the period
plus the fee earned. The Company does not recognize any gross profit
amounts related to change order work performed until it is known that the
change orders have been approved by the customer. An amount equal to
contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated. Revenue
from time and materials service, including maintenance, is recognized when
the service is performed.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as insurance, supplies,
tools and depreciation. Selling, general and administrative costs are
charged to expense as incurred.
Provisions for estimated losses on contracts in progress are made in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Profit incentives are included in revenues when
their realization is reasonably assured.
The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The liability "Billings in excess of costs and estimated earnings
on uncompleted contracts" represents billings in excess of revenues
recognized.
In addition, the Company makes investments in various business ventures in
which arrangements are made with participants in projects where the Company
provides bonding guarantees and cash advances for a share of the
participants' project income. Earnings obtained from such activities are
recognized in the consolidated statements of income based on the percentage
of completion of the related project.
-10-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of the existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Foreign currency translation
Monetary assets and liabilities within Bracknell which are denominated in
currencies other than U.S. dollars have been translated at the rate of
exchange prevailing at the balance sheet date while other balance sheet
items are translated at historic rates. Revenue and expense items have been
translated at the rate of exchange in effect on the transaction dates.
Realized, as well as unrealized, foreign exchange gains and losses are
included in earnings in the year in which they occur.
Financial Instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for contract receivables, accounts payable and other accrued
expenses approximate fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amounts reported for
the Company's borrowings under revolving credit facilities, long-term debt
and capital lease obligations approximate fair value due to interest rates
that were comparable to current rates.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial
instruments. They are subjective in nature and involve uncertainties and
matters of judgement and, therefore, cannot be determined with precision.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular instrument. Changes in assumptions could significantly affect
these estimates.
Impairment Recognition
Management evaluates the carrying value of its long-lived assets whenever
events or changes in circumstances indicate that the carrying value may not
be recoverable. To the extent the estimated future cash flows (undiscounted
and without interest) attributable to the asset, less estimated future cash
outflows, are less than the carrying amount, an impairment loss is
recognized. The amount of impairment loss to be recorded is the difference
between the asset's carrying value and the net undiscounted estimated
future cash flows. Management believes no material impairment in long-lived
assets exists at October 31, 2000.
Change in Reporting Currency
Prior to fiscal 1999, the Company prepared and filed its consolidated
financial statements in Canadian dollars. During fiscal 1999, the Company
adopted the U.S. dollar as its reporting currency for presentation of its
consolidated financial statements due to the acquisition of significant
U.S. operations. Historical consolidated results have been restated
according to SFAS 52.
Income statements have been translated from the old reporting currency into
the new reporting currency using a weighted average exchange rate for the
applicable period. Balance sheets have been translated using the applicable
period end exchange rates for all periods presented. Because of the
strengthening of the Canadian dollar and Bracknell's significant amount of
Canadian dollar assets prior to the 1999 acquisitions in the U.S., the
change in reporting currency resulted in the Company recognizing a $1,000
foreign exchange gain in 1999.
-11-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bracknell's subsidiary operations in Canada are of a self-sustaining
nature. Cumulative gains or losses arising from the translation of the
assets and liabilities of these Canadian operations are recorded as a
separate component of shareholders' equity.
Change in Accounting Method
In 1999 the Company determined that it would change the method by which
income is recorded on major fixed-price contracts. Previously, the Company
used a labor-based percentage-of-completion method, whereas it now applies
the percentage-of-completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs for each contract.
Management evaluated the underlying business factors affecting the
measurement of progress toward completion and determined that the total
cost method more accurately measured the overall progress on the fixed
price contract. In addition, the change results in consistent presentation
of all Bracknell subsidiaries.
Reclassifications
Certain reclassifications have been made to the prior years consolidated
financial statements to conform with the basis of presentation used in
2000.
Recently Issued Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No.
133 requires that changes in the derivatives fair value be recognized
currently in earnings unless specific hedge criteria are met and requires
that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The effective
date of SFAS No.133 was delayed one year to fiscal years beginning after
June 15, 2000 by SFAS No.137. Management does not believe the
implementation of this accounting pronouncement will have a material effect
on its financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No.101, "Revenue Recognition," which provides
guidance on the application of existing revenue recognition rules for
transactions that existing rules do not specifically address. In June 2000,
the SEC issued SAB No.101B, which delayed the effective date of SAB No.101.
This guidance is effective for the Company's fourth quarter of fiscal 2001.
Management does not believe the implementation of this accounting
pronouncement will have a material effect on its financial statements.
3. BUSINESS ACQUISITIONS AND DIVESTITURES
2001 Acquisition
On December 22, 2000, Bracknell completed the acquisition of Able Telcom
Holding Corp. ("Able"), a telecom network services company. The acquisition
will be accounted for under the purchase method of accounting. The equity
purchase and working capital requirements were financed with the issuance
of approximately 24 million common shares ($125 million), an estimated $85
million from the Company's newly-expanded credit facility and the issuance
of $40 million in convertible preferred stock. Concurrent with the close of
the transaction, Bracknell amended its credit facility in order to provide
working capital financing to the acquired company. See Note 9 "Credit
Facility". In addition, the Company issued 2.1 million options to purchase
shares at prices ranging from $5.62 to $9.45 per share and 2.4 million
warrants at prices ranging from $11.66 to $20.20 per share.
-12-
3. BUSINESS ACQUISITIONS AND DIVESTITURES (Continued)
Pro forma
The following unaudited pro forma information presents the results of
operations as if the Able acquisition and the 2000 acquisitions described
below had been completed on November 1, 1999.
2000
--------------
Revenues $ 1,307,270
Earnings from operations 59,096
Net loss from continuing operations (25,466)
Net earnings per share
Basic (0.41)
Diluted (0.41)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquired businesses had been owned for the entire
periods presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations. Pro forma adjustments include, but are not limited to
the following: (a) contractually agreed reductions in salaries and benefits
for former owners, and certain key employees; (b) adjustment to
depreciation and amortization expense due to the purchase price
allocations; (c) the assumed reductions in interest expense due to
unassumed debt and the refinancing of the outstanding indebtedness, offset
by an assumed increase in interest expense incurred in connection with
financing the acquisitions; (d) adjustment to the federal and state income
tax provisions based on the combined operations; (e) the exclusion of
operating results of business divisions which Bracknell intends to dispose;
and (f) the exclusion of charges relating to stock appreciation rights
since these rights were eliminated at the time of the merger pursuant to
the merger agreement.
2000 Acquisitions
On February 14, 2000, the Company acquired 100% of the shares of Sylvan
Industrial Piping Inc., Sylvan Industrial Piping of Tennessee, Inc. and
Sylvan Industrial Piping of NJ, Inc. (collectively "Sylvan"). The Company
paid a total consideration of approximately $22,495 in cash, financed
through advances against the Company's Senior Credit Facility. In addition,
based on the future financial performance of Sylvan, former shareholders of
Sylvan may be entitled to receive an earn-out up to a maximum of $5,000
payable in cash over the next three years.
On February 23, 2000, the Company acquired 100% of the shares of Highlight
Construction Ltd., Highlight Antenna Services Ltd., Highlight Antenna and
Tower Services Ltd., Highlight Solutions, Inc., Highlight Towers Ontario
Ltd., and Vista Communications Technologies Ltd. (collectively
"Highlight"). The Company paid a total consideration of approximately
$2,599 in cash, financed through advances against the Company's Senior
Credit Facility. In addition, based on the future financial performance of
Highlight, former shareholders of Highlight may be entitled to receive an
earn-out up to a maximum of $700 payable in cash over the next three years
and an additional amount up to $300 depending on the collection of contract
receivables.
On March 9, 2000, the Company acquired 100% of the shares of Sunbelt
Integrated Trade Services, Inc. ("Sunbelt"). Immediately following the
acquisition of Sunbelt, Sunbelt acquired 100% of the issued and outstanding
shares of Inglett & Stubbs Inc., Schmidt Electric Company Inc., Crouch
Industries LLC and Pneu-Temp, Inc. (collectively "Sunbelt"). The Company
paid a total consideration of approximately $118,771 for Sunbelt (net of
cash assumed of $9,400), of which $70,691 was paid in cash through advances
against the Senior Credit Facility, with the remaining $48,080 satisfied
through the issuance of promissory notes (the "Sunbelt Notes"). The Sunbelt
Notes had an initial term of six months, bearing interest at 10.5% per
annum, increasing after the first 90 days to 12.5% until repaid. The
Sunbelt Notes may also be extended for additional 90-day terms or, to the
extent Bracknell does not secure financing to repay the
-13-
3. BUSINESS ACQUISITIONS AND DIVESTITURES (Continued)
Sunbelt Notes when due, the holder can choose to settle the outstanding
principal and interest by the issuance of Bracknell common and convertible
preferred shares. The Sunbelt Notes were included in the current portion of
long-term debt. Former shareholders of Sunbelt may also be entitled to
receive an earn-out up to a maximum of $72,600 over the next three years.
The earn-out is based on $4.25 for every $1.00 of Sunbelt's average
earnings before interest, taxes, depreciation and amortization ("EBITDA")
over a three year period in excess of $32,000. In addition, the former
shareholders of Sunbelt have the option to receive up to half the earn-out
in the Company's common shares at a price of $4.65 per share. Various
employees of Sunbelt also received 285,000 options to acquire common shares
of the Company that have performance-based vesting.
The Sylvan, Highlight, and Sunbelt acquisitions were accounted for by the
purchase method of accounting and, accordingly, the purchase price was
allocated to current assets as well as noncurrent tangible and intangible
assets based on their fair values as determined by management. The results
from operations have been included in the accompanying consolidated
financial statements beginning on the respective dates of the acquisitions.
The net purchase price of $143,865, including acquisition costs was
allocated as follows:
Cash paid net of cash acquired $ 95,785
Issuance of Sunbelt Notes 48,080
-----------
Purchase price 143,865
Fair value of assets acquired, net of
cash acquired (83,207)
Liabilities assumed 56,589
-----------
Goodwill $ 117,247
===========
Certain other purchase price adjustments, including working capital
adjustments and payments for earn-outs in respect of previous acquisitions
totaling $2,158 were made during fiscal 2000.
2000 Divestitures
On May 26, 2000, the Company sold its 50% equity interest in PROFAC
Facilities Management Services Inc. to its partner SNC-Lavalin, Inc. for
consideration of $15,131 in cash, of which $3,437 is dependent on certain
conditions being met in respect of the purchase of NEXACOR by PROFAC. The
Company received approximately $11,694 cash at closing with the remaining
$3,437 due September 2001. The Company recognized a pre-tax gain on the
sale of $7,134 and may record an additional pre-tax gain in excess of
$3,437 in September 2001. The prior years financial statements of the
Company have been restated to treat PROFAC as a discontinued operation.
PROFAC's operating results for all years presented were reflected as
"discontinued operations." The statements of earnings for PROFAC were as
follows:
2000 1999 1998
-------------- ------------- -------------
Revenue $ 20,604 $ 23,343 $ 23,867
Earnings before interest, taxes, depreciation
amortization and restructuring $ 685 $ (1,875) $ 857
Depreciation and amortization (724) (486) (347)
Interest and other income (715) 171 68
-------------- ------------- -------------
Earnings before taxes (754) (2,190) 578
Provision for income taxes 317 (810) 344
------------- ------------- -------------
Earnings(loss) from discontinued operations (1,071) (1,380) 234
Gain on sale of discontinued operations 5,959 - -
------------- ------------- -------------
Net earnings (loss) $ 4,888 $ (1,380) $ 234
============= ============= =============
-14-
3. BUSINESS ACQUISITIONS AND DIVESTITURES (Continued)
Pro Forma
The following unaudited pro forma information presents the results of
operations as if all the 1999 and 2000 acquisitions and divestitures had
been completed as of November 1, 1997.
The following unaudited pro forma consolidated results of operations for
the Company assumed that the acquisitions of Preferred, Nationwide, Sylvan,
Sunbelt, and Highlight were completed on November 1, 1997, and excluded the
effects of discontinued operations and the extraordinary item.
2000 1999 1998
---------- ---------- ----------
Revenues $ 968,257 $ 842,944 $ 837,596
Earnings from operations 58,518 31,291 48,273
Net earnings 22,620 6,828 18,143
Net earnings per share
Basic 0.55 0.20 0.55
Diluted 0.54 0.19 0.52
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquired businesses had been owned for the entire
periods presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations. Pro forma adjustments include, but are not limited to
the following: (a) contractually agreed reductions in salaries and benefits
for former owners and certain key employees; (b) adjustment to depreciation
and amortization expense due to the purchase price allocations; (c) the
assumed reductions in interest expense due to unassumed debt and the
refinancing of the outstanding indebtedness, offset by an assumed increase
in interest expense incurred in connection with financing the acquisitions;
and (d) adjustment to the federal and state income tax provisions based on
the combined operations.
1999 Acquisitions
On June 30, 1999, the Company acquired for cash all of the issued and
outstanding shares of Preferred Electric Inc. ("Preferred"). The purchase
price was $5,902 and was financed by cash on hand. Through 2001, an
additional amount, up to a maximum of $3,200, will be payable if certain
performance targets are met by Preferred. Total assets acquired and
liabilities assumed were approximately $3,002 and $774, respectively. The
acquisition has been accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their anticipated fair values resulted in
goodwill of approximately $3,674, which is being amortized to expense over
20 years using the straight-line method. The accompanying consolidated
statements of earnings reflect the results of operations of Preferred from
the date of acquisition through October 31, 2000.
September 30, 1999, the Company acquired for cash and common and preferred
shares of the Company, all the issued and outstanding common stock of
Nationwide Electric, Inc.("Nationwide"). The total purchase price was
$78,802, of which $47,484 was paid in cash (which included $1,887 of
transaction costs) with the remainder paid with 6,041,638 Bracknell common
shares ($25,677), 1,273,535 newly-issued Bracknell convertible preferred
shares ($5,412) and warrants entitling the holders to purchase 385,822 of
Bracknell's common shares at $4.25 for 18 months ($229). The number of
Bracknell common shares issued to the shareholders of Nationwide was
determined based upon a value of $4.25 per share. Total assets acquired and
liabilities assumed were approximately $79,952 and $73,956, respectively.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their anticipated fair values
resulted in goodwill of approximately $72,806 which is being amortized to
expense over 20 years using the straight-line method. The accompanying
consolidated statements of income reflect the results of operations of
Nationwide and Preferred from the date of the acquisition through October
31, 2000.
-15-
3. BUSINESS ACQUISITIONS AND DIVESTITURES (Continued)
The net purchase price of $84,704 for both of these acquisitions, including
acquisition costs, was allocated as follows:
Cash paid net of cash acquired $ 53,386
Common shares issued 25,677
Convertible preferred shares issued 5,412
Warrants issued 229
----------
Purchase price 84,704
Fair value of assets acquired, net of cash acquired (82,954)
Liabilities assumed 74,730
----------
Goodwill $ 76,480
==========
1999 Divestitures
During 1999 the Company sold its 50% interest in National-State
Construction Group Inc. for $1,360. Proceeds received from the National-
State transaction were $68 in cash with the remainder in the form of a note
receivable bearing interest at the prime commercial lending rate with the
remainder payable as follows:
August 30, 2001 $ 230
August 30, 2002 427
August 30, 2003 427
-------
$ 1,084
=======
The note is secured by the sold shares of National-State and an irrevocable
letter of guarantee. There was no gain or loss resulting from this
transaction.
4. CONTRACT RECEIVABLES
Contract receivables at October 31, 2000 and 1999 were as follows:
2000 1999
---------- ----------
Contract receivables $ 184,009 $ 108,881
Retention 27,492 16,298
---------- ----------
Subtotal 211,501 125,179
Less: Allowance for doubtful accounts (1,485) (813)
---------- ----------
$ 210,016 $ 124,366
========== ==========
5. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts at October 31, 2000
and 1999 were as follows:
2000 1999
---------- ----------
Costs incurred on uncompleted contracts $1,227,499 $ 521,575
Estimated earnings 158,806 63,199
---------- ----------
1,386,305 584,774
Less: Billings to date 1,344,554 583,548
---------- ----------
$ 41,751 $ 1,226
========== ==========
-16-
5. CONTRACTS IN PROGRESS (Continued)
Included in the accompanying consolidated balance sheets under the
following caption were the following:
2000 1999
--------- ---------
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 81,993 $ 25,902
Billings in excess of costs and estimated earnings on
uncompleted contracts (40,242) (24,676)
--------- ---------
$ 41,751 $ 1,226
========= =========
6. PROPERTY AND EQUIPMENT
Property and equipment at October 31, 2000 and 1999 was as follows:
2000
--------------------------------------------------------
Accumulated
Depreciation/ Net Book
Cost Amortization Value
------------- --------------- --------------
Land $ 175 $ - $ 175
Buildings 607 199 408
Machinery and equipment 33,213 19,638 13,575
Leasehold improvements 6,015 2,129 3,886
------------ --------------- --------------
$ 40,010 $ 21,966 $ 18,044
============ =============== ==============
1999
-------------------------------------------------------
Accumulated
Depreciation/ Net Book
Cost Amortization Value
-------------------------------------------------------
Land $ 181 $ - $ 181
Buildings 470 170 300
Machinery and equipment 19,430 11,021 8,409
Leasehold improvements 1,337 998 339
------------- -------------- ---------------
$ 21,418 $ 12,189 $ 9,229
============= ============== ===============
7. OTHER ASSETS
Other assets at October 31, 2000 and 1999 were as follows:
2000 1999
---------- -----------
Deferred financing fees, net of amortization of $495 (1999-$14) $ 2,247 $ 2,304
Capitalized acquisition costs 1,622 271
Long-term portion of note receivable arising from
sale of National-State 854 1,122
Long-term service arrangement fee, net of amortization
of $126 (1999 - nil) 1,874 -
Long-term investments - 24
Other 2,521 1,197
----------- -----------
$ 9,118 $ 4,918
=========== ===========
-17-
8. JOINT VENTURES
The Company engaged in joint ventures for jointly controlled
enterprises and jointly controlled operations. These were reflected in
the accompanying consolidated financial statements under the caption
other assets using the equity method of accounting. In fiscal 2000
these joint ventures no longer carried on any activities.
During 1999 the Company entered into an agreement with its joint
venture partner on the Cardinal Co-generation project, which had been
the subject of significant claims both by and against the owner,
whereby all risks and rewards associated with the settlement of these
claims would reside with the other joint venture partner. As a result
of entering into this agreement, the Company recorded an additional
loss of $2,343 in 1999 which has been reflected in restructuring and
other charges.
9. CREDIT FACILITY
Subsequent to year end the Company renegotiated its senior credit
facility and currently has in place credit facilities with total
availability of $370,000 under two senior credit agreements with a
syndicate of banks. The operating facilities are 364-day renewable
facilities and the term facilities mature on October 31, 2004. The
credit facility, made up of $250,000 in term commitments and $120,000
in operating commitments, was amended to its current amount from
$212,500 as at October 31, 2000, to provide for the acquisition of Able
Telcom and the repayment of the Sunbelt Notes. See Note 3 "Business
Acquisitions and Divestitures". Concurrent with the closing of the Able
Telcom acquisition, $105,000 of term debt was drawn to provide capital
financing to the acquired company. The Company is also committed to
receive $40,000 from the sale of convertible preferred shares
associated with the Able Telcom acquisition in the first quarter of
fiscal 2001. At October 31, 2000, the Company's drawings under the
facility were as follows:
Drawn at
October 31,
Commitment Available 2000
---------- ------------- --------------
Canadian Operating $ 25,000 $ 18,792
U.S. Operating 42,500 26,500
Canadian Term 30,000 29,598
U.S. Term 115,000 115,000
------------- ---------------
$ 212,500 $ 189,890
============= ===============
As of October 31, 2000, the available borrowings under the Canadian
operating facility were $5,072 after giving effect to outstanding
letters of credit of $1,136.
As of October 31, 2000, borrowings under these bore interest at LIBOR
plus 2.75% or prime rate plus 1.75%. However, rates can vary between
1.75% to 4.25% over LIBOR or 0.75% to 3.25% over the prime rate based
on the Company's ratio of total net debt to consolidated earnings
before interest, taxes, depreciation and amortization. The operating
facilities, which are revolving credit facilities, may be used only for
general corporate purposes and not for acquisitions. The term
facilities require repayments of 5% per quarter for the 11 quarters
beginning April 30, 2001, increasing to 10% for the next three quarters
and 15% for the final quarter.
As a result of amending and restating the credit facility, the Company
charged to expense in fiscal 2000, financing fees of $3,254 associated
with the original facility. Fees associated with the next amended and
restated agreement in the amount of $2,247 are being amortized over the
remainder of the five year period of the facility. As a result of the
credit facility amendment subsequent to year end, these financing fees
will be charged to expense in the first quarter of fiscal 2001.
-18-
9. CREDIT FACILITY (Continued)
The facility is secured by a charge on all assets of the Company,
including the pledges of all shares of the Company's subsidiaries. The
facility restricts other pledges of all material assets. The credit
facility requires compliance with usual and customary covenants for a
credit facility of this nature including a limitation on the payment of
dividends on common shares and the consent of the lenders for
acquisitions that do not satisfy specified criteria and financial
covenants.
10. LONG-TERM DEBT
Long-term debt as of October 31, 2000 and 1999 was as follows:
2000 1999
----------- -----------
Term commitments (See Note 9) $ 144,598 $ 40,000
Other 1,051 552
----------- -----------
145,649 40,552
Less: Current portion 21,832 240
----------- -----------
Total $ 123,817 $ 40,312
=========== ===========
Aggregate annual maturities of long-term debt during the following
periods were as follows:
Years ending October 31,
2001 $ 21,832
2002 28,920
2003 28,920
2004 65,977
----------
$ 145,649
==========
An additional $15,750 of principal repayments are due in fiscal 2001 on
the $105,000 drawn under the credit facility to fund Able transaction.
See Note 9 "Credit Facility."
Total interest expense on long-term debt was $11,368, $289 and nil for
the years ended October 31, 2000, 1999 and 1998, respectively. For the
fiscal year ended October 31, 2000, the weighted average interest rate
was 10.4%.
11. SHAREHOLDERS' EQUITY
Common Stock
Authorized common stock consists of an unlimited number of no par value
common shares.
At October 31, 2000 and 1999 common shares issued and outstanding
consisted of 40,679,738 shares and 32,546,975 shares, respectively.
On March 31, 2000, the Company completed a public offering of 6,000,000
common shares in Canada at a price of Cdn $7.00 per share. On April 13,
2000, the underwriters exercised their full over-allotment option of
600,000 shares. After underwriter fees and expenses of $2,466, the
Company received net proceeds of $28,823 which were utilized to repay a
portion of the Sunbelt Notes.
-19-
Preferred Stock
Preferred stock consists of an unlimited number of preferred shares
issuable in series of which one series is designated Series A. Series A
preferred shares are cumulative, redeemable, retractable, convertible
preferred shares. On February 29, 2000, the shareholders approved the
conversion of each of the Company's 9.5% Convertible Preferred Shares
Series A into one common share of the Company.
Warrants
The Company has warrants outstanding entitling the holders to purchase
385,822 common shares at $4.25 until March 31, 2001.
Stock Options
The Company maintains a stock option plan which is administered by the
Board of Directors. All non-unionized employees are eligible to
participate in the plan. The option plan is considered to be
non-compensatory. As a result of option holders exercising their
options, 259,228 and 132,500 shares were issued resulting in a credit
to equity for the net proceeds of $601 and $325 for the fiscal years
ended October 31, 2000 and 1999, respectively.
Stock options granted vest in equal tranches over three years
commencing on the date of employment. The Company has also granted
performance-based stock options that vest in seven years. These options
may vest on an accelerated basis in equal tranches over three years
from the date of grant so long as the Company's shareholders experience
at least 20% compounded growth in share price over the exercise price
within each of the three years from the date of grant, measured on the
basis of the 20-trading-day average closing price for Bracknell common
shares on The Toronto Stock Exchange. Options issued under the stock
option plan may be exercised during a period determined by the Board
which may not exceed ten years.
Of the options below, 1,564,554 were exercisable at October 31, 2000.
Exercise prices range between Cdn $2.70 and Cdn $6.75 per share which
were equal to the market prices at the time the options were granted.
These options expire between January 19, 2002, and January 26, 2007.
The Company may grant options for up to 4,280,344 shares under the
stock option plan ("SOP"). The Company has 5,016,484 outstanding
options as of October 31, 2000 under the SOP, 736,140 of which are
subject to shareholder approval. The exercise price in respect to any
option issued under the SOP is required to be fixed by the board and
may not be less than the closing price of the common shares on the day
prior to the day on which the option is granted. Options issued under
the SOP may be exercised during a period determined by the Board, which
may not exceed ten years.
Activity under the SOP in U.S. dollars was as follows:
2000 1999 1998
------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ---------- ----------- ----------- ------------ ----------
Options outstanding
at beginning of period 3,431,594 $ 3.67 1,085,000 $ 2.09 1,085,000 $ 1.99
Granted 2,089,152 4.56 2,580,594 4.25 100,000 2.97
Cancelled 245,034 4.17 101,500 3.92 - -
Exercised 259,228 2.33 132,500 2.47 100,000 1.74
----------- ---------- ----------- ----------- ------------ -----------
Options outstanding
at end of period 5,016,484 $ 4.30 3,431,594 $ 3.67 1,085,000 $ 2.09
=========== ========== =========== =========== ============ ===========
Exercisable at
end of period 1,564,554 $ 3.92 1,505,149 $ 3.10 992,500 $ 2.00
=========== ========== =========== =========== ============ ===========
-20-
11. SHAREHOLDERS' EQUITY (Continued)
Additional earnings per share disclosure in accordance with APB 30 was
as follows:
2000 1999 1998
------------- -------------- -------------
Earnings per share - basic
Earnings from continuing operations before change in
accounting policy and extraordinary item 0.53 0.10 0.17
Loss from extraordinary item (0.06) - -
Earnings(loss) from discontinued operations 0.13 (0.05) 0.01
Earnings per share -diluted
Earnings from continuing operations before change in
accounting policy and extraordinary item 0.51 0.10 0.16
Loss from extraordinary item (0.05) - -
Earnings(loss) from discontinued operations 0.12 (0.05) 0.01
Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, ("Earnings per share") ("SFAS 128") which was effective for
all periods ending after December 15, 1997. SFAS 128 sets forth
requirements for computing basic and diluted earnings per share. Basic
income per common share was computed by dividing net income applicable
to common stock by the weighted average number of common shares and
contingently-issuable shares for which all conditions of issuance have
been satisfied.
The following was a reconciliation of the numerators and denominators
used in computing basic and diluted earnings per share.
Per Share
Numerator Denominator Amount
----------- ------------ -----------
For the year ended October 31, 2000
BASIC EPS
Earnings available to common stockholders $ 22,544 37,749 $ 0.60
Dilutive effect of stock options 909
----------- ------------ -----------
DILUTED EPS
Earnings available to common stockholders + assumed
conversion $ 22,544 38,658 $ 0.58
=========== ============ ===========
For the year ended October 31, 1999
BASIC EPS
Earnings available to common stockholders $ 1,384 27,003 $ 0.05
Dilutive effect of stock options 662
----------- ------------ -----------
DILUTED EPS
Earnings available to common stockholders + assumed
conversion $ 1,384 27,665 $ 0.05
=========== ============ ===========
For the year ended October 31, 1998
BASIC EPS
Earnings available to common stockholders $ 4,610 26,323 $ 0.18
Dilutive effect of stock options 455
----------- ------------ -----------
DILUTED EPS
Earnings available to common stockholders + assumed
conversion $ 4,610 26,778 $ 0.17
=========== ============ ===========
-21-
11. SHAREHOLDERS' EQUITY (Continued)
Stock Based Compensation
The Company accounts for the issuance of incentive stock options
pursuant to accounting standard APB No. 25 "Accounting for Stock Issued
to Employees." The intrinsic value method prescribed by APB No. 25
requires that the Company recognize compensation expense as the amount
by which the fair value of the stock exceeds the exercise price of
incentive stock options at the date of grant. At the date of grant,
none of the Company's incentive stock options had an exercise price
that was less than the fair value of the related stock.
Consequently pursuant to APB No. 25, the Company's consolidated
financial statements as presented herein conform in all material
respects with US GAAP. However, had the Company adopted SFAS No. 123
"Accounting for Stock-Based Compensation", the pro forma disclosure of
the Company's earnings and earnings per share would be as follows:
2000 1999 1998
------------- -------------- -------------
Net earnings under U.S. GAAP $ 22,544 $ 1,384 $ 4,610
Stock-based compensation (3,522) (1,574) (215)
Tax effect 1,331 560 90
------------- -------------- -------------
Pro forma net earnings $ 20,353 $ 370 $ 4,485
============= ============== =============
Pro forma net earnings per share - basic $ 0.54 $ 0.01 $ 0.17
Pro forma net earnings per share - diluted 0.48 0.01 0.16
Significant assumptions were as follows:
Weighted average:
Fair value of options granted in the period $ 3.51 $ 1.70 $ 1.42
Risk-free interest rate 5.8% 5.4% 5.9%
Expected dividend yield rate - - -
Expected volatility rate 50.8% 32.8% 32.8%
Expected life of option(years) 9.8 8.0 7.0
12. INCOME TAXES
The components of income tax expense for the years ended October 31,
2000, 1999 and 1998 are were as follows:
2000 1999 1998
------------- -------------- -------------
Current $ 14,103 $ 8,697 $ 2,267
Deferred (2,124) (7,205) 2,648
------------- -------------- -------------
$ 11,979 $ 1,492 $ 4,915
============= ============== =============
-22-
12. INCOME TAXES (Continued)
A reconciliation of the Company's effective income tax rate as compared
to the tax provision calculated by applying the Canadian statutory rate
to the income before income taxes for the years ended October 31, 2000,
1999 and 1998 was as follows:
2000 1999 1998
------------ ------------- ------------
Canadian statutory income tax rate 44.0% 44.5% 44.5%
Effect of foreign tax rates (5.2) - -
Change in valuation allowance - (16.1) 3.8
Non-taxable capital gains - - (3.5)
Non-taxable foreign currency translation - (7.6) -
Non-deductible goodwill 6.2 3.9 1.4
Other (7.2) 9.5 6.7
---------- ----------- -----------
37.8% 34.2% 52.9%
========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the current deferred income tax assets and liabilities at
October 31, 2000 and 1999 were as follows:
2000 1999
--------------- --------------
Assets
------
Contract accounting $ 132 $ (1,392)
Non-deductible reserves 6,558 2,035
Other 803 136
--------------- --------------
$ 7,493 $ 779
=============== ==============
Liabilities
-----------
Contract accounting $ 4,237 $ -
Non-deductible reserves (221) -
Other 77 -
---------------- --------------
$ 4,093 $ -
================ ==============
$41 of current deferred income tax assets and $68 of current deferred
income tax liabilities were acquired during the year through
acquisitions.
The tax effects of temporary differences that give rise to significant
portions of the long-term deferred income tax assets and liabilities at
October 31, 2000 and 1999 were as follows:
2000 1999
---------------- --------------
Assets
------
Net operating loss carryforwards $ 1,145 $ 78
Property, equipment and intangibles, due to decelerated
depreciation and amortization 1,184 956
Non-deductible reserves (1,121) 480
---------------- --------------
$ 1,208 $ 1,514
================ ==============
Liabilities
-----------
Property, equipment and intangibles, due to acelerated
depreciation and amortization $ 272 $ -
=============== ==============
$54 of long-term deferred income tax liabilities were acquired during
fiscal 2000 through acquisitions.
-23-
12. INCOME TAXES (Continued)
The valuation allowance decreased by $933 for the year ended October
31, 1999. Management has considered certain tax planning strategies as
permitted under SFAS 109 "Accounting for Income Taxes." Management has
determined that the tax benefits associated with the recorded deferred
income tax assets, net of valuation allowance, are more likely than not
realizable through future taxable income and future reversals of
existing taxable temporary differences.
At October 31, 2000, the Company had loss carryforwards for federal
income tax purposes of approximately $2,327 which are available to
offset future federal taxable income, if any, expiring in 2007.
13. SUPPLEMENTAL FINANCIAL INFORMATION
The Company paid $14,716, $223 and $385 in interest for the years ended
October 31, 2000, 1999 and 1998, respectively.
The Company paid $18,595, $7,179 and $843 in income taxes for the years
ended October 31, 2000, 1999 and 1998, respectively.
The Company recorded the following significant non-cash items for the
years ended October 31, 2000 and 1999, respectively:
2000 1999
--------------- ---------------
Property and equipment acquired through the issuance
of capital lease obligations $ 180 $ 780
=============== ===============
Notes issued in lieu of cash for Sunbelt acquisition $ 48,080 $ -
=============== ===============
14. RELATED PARTY TRANSACTIONS
Management believes transactions with related parties were under terms
no less favorable to the Company than those arranged with other
parties.
Leases
The Company leases certain of its office space, production facilities
and certain equipment from related parties. These multiple lease
agreements require base monthly payments of $116 at October 31, 2000,
and have been classified as operating leases. These leases require the
Company to provide insurance, repairs and maintenance, and to pay real
estate taxes on the leased property. These leases expire between 2003
and 2009. Lease expense for the year ended October 31, 2000, was
approximately $1,117 (1999- $41, 1998- nil).
Notes
The Sunbelt Notes in the amount of $48,080 referred to in Note 3 were
issued to former owners of Sunbelt as partial consideration of the
share acquisition purchase price. The Sunbelt Notes had an initial term
of six months, bearing interest at 10.5% per annum, increasing after
the first 90 days to 12.5% until repaid. The Sunbelt Notes may also be
extended for additional 90-day terms or, to the extent Bracknell does
not secure financing to repay the Sunbelt Notes when due, the holder
can choose to settle the outstanding principal and interest then due by
the issuance of Bracknell common and convertible preferred shares. The
Sunbelt Notes are included in the current portion of long-term debt.
-24-
14. RELATED PARTY TRANSACTIONS (Continued)
Other
The Company, in the ordinary course of business, performs work for its
joint ventures on normal commercial terms and provides cash and
guarantee facilities in accordance with joint venture participant
arrangements.
The Company also provides and receives cash advances to and from
affiliated companies and business ventures. Advances made and cash
distribution receipts are mainly of a project nature and are interest
free.
15. RESTRUCTURING AND OTHER CHARGES
The restructuring and other charges incurred in 1999 resulted from the
retirement of former executives and management changes at Bracknell and
its wholly-owned subsidiary, The State Group Limited, in an amount of
$5,266 with the remainder relating to the settlement of the dispute on
the Cardinal project. The remaining balance of these accruals was
$1,253 as at October 31, 2000 (1999- $4,420).
16. COMMITMENTS AND CONTINGENCIES
The Company is involved in claims and litigation primarily arising from
the normal course of business for the reimbursement of costs of
additional work and of additional costs incurred due to changed
conditions. Any settlements or awards will be recognized when the
outcome and amounts are determinable. Management believes that the
ultimate outcome of these matters will not have a material effect on
the Company's consolidated results of operations or financial position.
In the normal course of business, the Company is required to provide
performance bonds and/or payment bonds in respect of certain contracts
that guarantee payment for labor, material and services in the event of
default by the Company. The Company has executed an indemnity agreement
in favor of the surety of these bonds. In addition, the Company
provides bonding for its various joint venture and investment
interests.
Legal
There is a dispute involving a claim for wrongful termination of a
contract at one of the Company's subsidiaries which has resulted in
litigation. The original value of the contract was $30,900. At the time
of termination, $14,900 had been paid under the contract with
undisputed receivables outstanding on the project of $9,100. Unbilled
change orders are not expected to exceed 30% of the original contract
value. The reason for the termination has not been particularized and
therefore the ultimate outcome of this matter cannot be predicted with
certainty. The Company believes that its claim for wrongful termination
has merit and that there are substantive defenses to any potential
counterclaims.
In October 1997, The Allison Company ("Allison"), a subsidiary of
Nationwide acquired in October 1998, was named as a defendant in a
lawsuit arising out of electrical work performed by Allison as a
subcontractor. The initial complaint filed against the general
contractor for the project alleges the system installed by Allison was
defective. Allison denies any responsibility for the claims on the
basis that, among other things, installation was in accordance with the
approved plans and specifications of the project. Prior to its
acquisition by Nationwide, Allison entered into mediation in an effort
to settle the lawsuit. Based on a settlement offer made during
mediation of such lawsuit, Allison recorded a $1,200 liability. Such
liability was reflected in the consolidated balance sheets within other
long-term liabilities. Under the Stock Purchase Agreement entered into
with Nationwide, former stockholders of Allison have agreed to
indemnify Nationwide for settlements reached in the above matter.
Accordingly, Nationwide recorded an asset of $720 (which is net of
associated tax benefit) to reflect such indemnification.
-25-
16. COMMITMENTS AND CONTINGENCIES (Continued)
Self-Insurance
The Company carries a broad range of insurance coverage, including
business auto liability, business property liability, workers'
compensation, general liability and an umbrella policy. The accruals
are based on known facts and historical trends and management believes
such accruals to be adequate.
Quality Mechanical Contractors Inc., ("Quality"), a wholly-owned
subsidiary of the Company, is a self-insured employer in the Nevada
Workers Compensation Program. The plan is administered by a licensed
third party administrator. The Company is indemnified for any damages
related to workers compensation claims in excess of $250 and up to
$1,000 for each accident. As of October 31, 2000, $54 for estimated
future claims was recorded in the accompanying consolidated balance
sheet in accrued expenses. The Company has provided a self insurance
bond of $187 as a condition to participate in the self-insured program,
which remained outstanding as of October 31, 2000.
Unionized Labor Force
Certain of the subsidiaries are party to various collective bargaining
agreements with certain of their employees. The agreements require the
subsidiaries to pay specified wages and provide certain benefits to
union employees. These agreements expire at various times.
Union-Administered Benefit Plans
In connection with its collective bargaining agreements with various
unions, the Company participates with other companies in the unions'
multi-employer pension plans. These plans cover all of the Company's
employees who are members of such unions. The Employee Retirement
Income Security Act of 1974, as amended by the Multi-Employer Pension
Plan Amendments Act of 1980, imposes certain liabilities upon employers
who are contributors to a multi-employer plan in the event of the
employer's withdrawal from, or upon termination of, such plan. The
Company has no plans to withdraw from these plans. The plans do not
maintain information on net assets and actuarial present value of the
plans' unfunded vested benefits allocable to the Company, and amounts,
if any, for which the Company may be contingently liable are not
ascertainable at this time.
Defined Contribution Plan
Under the various defined contribution plans the annual contributions
required by the Company are generally determined based on a percentage
of eligible wages, the level of the Company's return on sales and
return on net assets or at the discretion of the Board of Directors.
Company contributions for these plans were approximately $2,810 ($602
in respect of fiscal 2000 acquisitions, and $2,208 in respect of fiscal
1999 acquisitions), $402 and nil in 2000, 1999 and 1998, respectively.
Employee Stock Purchase Plan
The Company maintains voluntary employee stock purchase plans (the
"Plan"). The Plan allows participants to purchase the Company's common
stock through payroll deductions ranging from 2% to 10%. The Company
will match 50% of the participants' purchase up to 4% of participants'
earnings. The Plan covers full-time, non-union employees who have
completed 12 months of continuous service (1,650 hours, excluding
overtime). In addition, the participants must work at least 1,400 hours
per Plan year. For the year ended October 31, 2000, the Company matched
approximately $215 (1999- $113, 1998- $109) of participants' stock
purchases that were expensed as incurred.
-26-
16. COMMITMENTS AND CONTINGENCIES (Continued)
Operating Leases
The Company leases offices, warehouse facilities and field vehicles
that are classified as operating leases. Annual minimum lease payments
under these non-cancellable operating leases during the following
periods were as follows:
Year Ending
-----------
October 31, 2001 $ 4,924
October 31, 2002 3,403
October 31, 2003 2,976
October 31, 2004 2,505
October 31, 2005, and thereafter 3,431
-----------
$ 17,239
===========
17. SEGMENTED INFORMATION
The Company operates in one reportable segment as a facilities
infrastructure services provider. The Company designs, installs and
maintains the networks, systems and facilities supporting the
operations of commercial, industrial, special technologies and telecom
customers. Each of these services is provided by various of the
Company's subsidiaries and discrete financial information is not
provided to management at the customer level. The following table
presents information regarding revenues from the customer groupings
noted above.
Revenues:
2000 1999 1998
-----------------------------------------------------------
Commercial $ 233,343 $ 91,023 $ 89,895
Industrial 354,540 175,215 172,930
Special Technologies 120,370 - -
Telecom 135,408 7,027 6,940
--------------- --------------- ---------------
$ 843,661 $ 273,265 $ 269,765
=============== =============== ===============
The Company had operations in the United States, Canada and Other as
follows:
2000 Geographic Segment:
------------------------
U.S. Canada Other Total
---- ------ ----- -----
Revenue $ 625,246 $ 214,570 $ 3,845 $ 843,661
Total assets 255,319 277,056 - 532,375
1999 Geographic Segment:
------------------------
U.S. Canada Other Total
---- ------ ----- -----
Revenue $ 86,920 $ 181,039 $ 5,306 $ 273,265
Total assets 177,258 89,483 1,808 268,549
1998 Geographic Segment:
-----------------------
U.S. Canada Other Total
---- ------ ----- -----
Revenue $ 44,139 $ 200,761 $ 24,865 $ 269,765
Total assets 11,485 118,270 3,889 133,644
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 6, 2001
BRACKNELL CORPORATION
By: /s/ Paul D. Melnuk
---------------------------------------
Name: Paul D. Melnuk
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
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/ Paul D. Melnuk
- -----------------------------------------
Paul D. Melnuk President and Chief Executive Officer, Director March 6, 2001
/s/ John A. Witham Executive Vice President and Chief Financial
- ----------------------------------------- Officer (principal financial officer)
John A. Witham March 6, 2001
/s/ James A. Beukelman Vice President, Finance and Corporate Controller
- ----------------------------------------- (principal accounting officer)
James A. Beukelman March 6, 2001
/s/ Gilbert S. Bennett
- -----------------------------------------
Gilbert S. Bennett Chairman of the Board of Directors March 6, 2001
/s/ Jean-Rene Halde
- -----------------------------------------
Jean-Rene Halde Director March 6, 2001
/s/ Michael D. Hanna
- -----------------------------------------
Michael D. Hanna Director March 6, 2001
/s/ Wade C. Lau
- -----------------------------------------
Wade C. Lau Director March 6, 2001
/s/ James W. Moir, Jr.
- -----------------------------------------
James W. Moir, Jr. Director March 6, 2001
/s/ Tom P. Muir
- -----------------------------------------
Tom P. Muir Director March 6, 2001
/s/ Gregory J. Orman
- -----------------------------------------
Gregory J. Orman Director March 6, 2001
/s/ Allan R. Twa
- -----------------------------------------
Allan R. Twa Director March 6, 2001
-28-