WFI to divest all of its operations in Mexico for total approximate cash consideration of $18M

February 20, 2006

4 Min Read

SAN DIEGO -- WFI (Nasdaq: WFII) announced today that it has entered into a definitive agreement to divest all of its operations in Mexico for total approximate cash consideration of $18 million, payable in installments, subject to adjustment, which approximates the net book value of the operations, including $13.5 million of contingent liabilities. The transfer of the Mexican operations is effective as of February 17, 2006, and the closing is to occur on or before March 10, 2006. In addition to the Mexico transaction, WFI will also exit certain other businesses in South America. Accordingly, WFI also announced today that it would reschedule its fourth quarter earnings release and conference call to March 14, 2006 to accommodate the additional time and procedures required to present the discontinued operations for the current year and prior year.

In making this decision, WFI's Board of Directors considered a number of business factors occurring in the region to arrive at the conclusion that the divesture was in the best interests of the shareholders. The benefits associated with this transaction will improve WFI's free cash flow, improve overall liquidity for WFI, and allow the Company to focus more of its resources on its domestic operations, including investing in the growth of its government business.

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets," WFI's Mexican and South American operations will be treated as discontinued operations in the Company's financial statements for the fourth quarter and full year ended December 31, 2005. In addition, all prior year presentations are required to be reclassified to reflect the discontinued operations. The Company does not currently expect the exit costs associated with any of the discontinued operations to be material. The transaction is structured as a sale of the subsidiaries of WFI in Mexico, and the purchase price consists of $1.5 million in cash being paid on February 17, 2006, plus a secured promissory note in the principal amount of $16.5 million payable in installments through December 31, 2006, subject to adjustment. The note is secured by pledges of assets and a personal guaranty. The employees associated with the Mexican operations are expected to continue as employees under the new ownership.

The decision by the Company to divest the Mexican operations was prompted by the changing business climate in Mexico and a review of the strategic alternatives for the Company's free cash flow. Unfavorable contractual terms recently proposed by the Company's largest customers in Mexico would further increase the extensive working capital required to operate a Mexican deployment company while pricing pressure threatens to adversely affect the future profitability of the Mexican operations. Further, the recent refinements of the cell site build plans by the Company's largest customers have resulted in the cancellation of a number of sites that the Company was currently building in Mexico and other South American locations. This will result in an estimated write-off of unrecoverable expenses of approximately $5 to $6 million for the fourth quarter of 2005, for which the Company has not yet been able to negotiate any termination settlements with its customers to offset these costs.

In conjunction with this divestiture plan and based on the deteriorating business conditions in the region, the Company also made the decision that in regards to business going forward in South America, it will focus on providing lower risk, higher margin engineering services in Brazil.

The purchaser, Sakoki LLC, is a newly-formed entity controlled by Massih Tayebi. Although Massih Tayebi has no current role with the Company, he was a co-founder of the Company, having served as Chief Executive Officer from inception in 1994 through September 2000, and as a director from inception through April 2002. In addition, Massih Tayebi owns or controls approximately 10% of the total voting power of the Company's capital stock. He is also the brother of Masood Tayebi, WFI's Chairman of the Board of Directors. Masood Tayebi has no personal financial interest in the transaction and will have no role with the entity that is purchasing the Mexico operations. The transaction was approved by the disinterested members of WFI's Board of Directors after consideration of other expressions of interest and a valuation analysis by an independent audit firm.

Wireless Facilities Inc. (Nasdaq: WFII)

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