-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOWmPF3nR3bsJfTPWR+9+yJBklewYTcpTBeA+lnPcBHVh/gZ21SPeYBznADQUP/O IM2AFN6JS8WXP+7uFScijw== /in/edgar/work/20000814/0000950147-00-001242/0000950147-00-001242.txt : 20000921 0000950147-00-001242.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950147-00-001242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL FIBERCOM INC CENTRAL INDEX KEY: 0000924632 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 860271282 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13278 FILM NUMBER: 700290 BUSINESS ADDRESS: STREET 1: 3410 E UNIVERSITY STREET 2: SUITE 180 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6029411900 MAIL ADDRESS: STREET 1: 3410 E UNIVERSITY STREET 2: SUITE 180 CITY: PHOENIX STATE: AZ ZIP: 85034 10-Q 1 0001.txt QUARTERLY REPORT FOR THE QTR ENDED 6/30/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission File No 1-13278 INTERNATIONAL FIBERCOM, INC. Incorporated in the State of Arizona IRS No. 86-0271282 3410 E. University Drive, Suite 180 Phoenix, AZ 85034 (602) 387-4000 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 [ ] Common Stock without par value 32,845,038 shares issued and 32,639,349 outstanding at July 31, 2000 INDEX INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets - June 30, 2000 (unaudited) and December 31, 1999 ............................................... 2 Consolidated statements of income (unaudited) - Three months ended June 30, 2000 and 1999; Six months ended June 30, 2000 and 1999 ........................................ 3 Consolidated statements of changes in stockholders' equity - Six months ended June 30, 2000 (unaudited) ................. 4 Consolidated statements of cash flows (unaudited) - Six months ended June 30, 2000 and 1999 ................................. 5 Notes to consolidated financial statements (unaudited) - June 30, 2000 ..................................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................... 16 Item 2. Changes in Securities ............................................... 16 Item 4. Submission of Matters to a Vote of Security Holders ................. 17 Item 6. Exhibits and Reports on Form 8-K .................................... 17 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 ------------- ------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 11,972,618 $ 3,358,341 Accounts receivable - trade, net 58,305,365 50,577,092 Costs and estimated earnings in excess of billings 28,095,165 16,125,647 Inventory, net 20,923,624 18,722,334 Income tax receivable 4,908,253 868,055 Deferred tax asset 1,961,894 1,961,894 Other current assets 5,624,852 2,685,835 ------------- ------------- Total current assets 131,791,771 94,299,198 Property and equipment, net 36,973,036 27,098,135 Goodwill, net 57,350,416 40,398,981 Other assets, net 3,396,165 1,537,546 ------------- ------------- Total assets $ 229,511,388 $ 163,333,860 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Current portion of notes payable and capital lease obligations $ 4,878,928 $ 6,656,379 Current portion of notes payable to related parties 590,379 925,911 Accounts payable 21,632,248 16,395,723 Accrued expenses 7,892,690 5,373,737 ------------- ------------- Total current liabilities 34,994,245 29,351,750 Notes payable and capital lease obligations 10,614,403 11,868,269 Notes payable to related parties -- 146,776 Line of credit 65,237,986 45,737,986 Deferred tax liability 1,720,146 1,720,146 ------------- ------------- Total liabilities 112,566,780 88,824,927 ------------- ------------- Stockholders' equity: Common stock, no par value, 100,000,000 shares authorized; 32,801,637 shares issued and 32,595,948 shares outstanding at June 30, 2000; 29,978,157 shares issued and 29,772,468 shares outstanding at December 31, 1999 85,389,512 60,124,750 Additional paid-in capital 12,731,149 2,581,149 Foreign currency translation adjustment (20,694) -- Retained earnings 19,674,728 12,633,121 ------------- ------------- 117,774,695 75,339,020 Less: treasury stock, 205,689 shares, at cost (830,087) (830,087) ------------- ------------- Total stockholders' equity 116,944,608 74,508,933 ------------- ------------- Total liabilities and stockholders' equity $ 229,511,388 $ 163,333,860 ============= =============
See notes to consolidated financial statements. 2 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------- ------------ (unaudited) Revenues $ 75,607,042 $ 44,858,587 $ 139,664,341 $ 76,576,010 Cost of revenues 53,617,499 34,057,626 98,762,123 56,711,567 ------------ ------------ ------------- ------------ Gross margin 21,989,543 10,800,961 40,902,218 19,864,443 General and administrative expenses 12,620,164 6,125,633 24,530,094 11,039,617 ------------ ------------ ------------- ------------ Income from operations 9,369,379 4,675,328 16,372,124 8,824,826 ------------ ------------ ------------- ------------ Other income (expense): Interest income 206,497 43,039 396,276 81,459 Interest expense (1,951,845) (833,542) (3,607,186) (1,393,492) Other income (expense) (102,962) 36,601 (75,587) (108,719) Non-recurring acquisition-related expenses (1,380,286) -- (1,380,286) -- ------------ ------------ ------------- ------------ (3,228,596) (753,902) (4,666,783) (1,420,752) ------------ ------------ ------------- ------------ Net income before provision for income taxes 6,140,783 3,921,426 11,705,341 7,404,074 Provision for income taxes (2,707,627) (1,549,921) (4,663,734) (2,979,155) ------------ ------------ ------------- ------------ Net income $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,424,919 Preferred stock dividend -- -- -- 4,000 ------------ ------------ ------------- ------------ Net income attributable to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,420,919 ============ ============ ============= ============ Earnings per common share: Basic $ 0.11 $ 0.08 $ 0.23 $ 0.16 Diluted $ 0.10 $ 0.08 $ 0.21 $ 0.15 Shares used in computing earnings per share: Basic 31,855,754 28,816,969 31,225,287 28,332,675 Diluted 34,589,542 30,596,545 34,251,549 30,274,673
See notes to consolidated financial statements. 3 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000
Common Stock Additional ------------------------- Paid-in Shares Amount Capital ---------- ----------- ----------- Balance January 1, 2000 29,978,157 $60,124,750 $ 2,581,149 Current year activity (unaudited): Exercise of common stock options and warrants 1,778,908 9,878,945 Common stock issued under ESPP 237,373 1,576,157 Common stock issued in connection with acquisitions 743,021 12,800,569 Non-recurring acquisition-related expenses paid in common stock 64,178 1,009,091 Change in foreign currency translation Stock option and warrant income tax benefit 10,150,000 Net income ---------- ----------- ----------- Balance, June 30, 2000 (unaudited) 32,801,637 $85,389,512 $12,731,149 ========== =========== =========== Foreign Currency Retained Treasury Translation Earnings Stock Totals ------------ ------------ --------- ------------ Balance January 1, 2000 $ -- $ 12,633,121 $(830,087) $ 74,508,933 Current year activity (unaudited): Exercise of common stock options and warrants 9,878,945 Common stock issued under ESPP 1,576,157 Common stock issued in connection with acquisitions 12,800,569 Non-recurring acquisition-related expenses paid in common stock 1,009,091 Change in foreign currency translation (20,694) (20,694) Stock option and warrant income tax benefit 10,150,000 Net income 7,041,607 7,041,607 ------------ ------------ --------- ------------ Balance, June 30, 2000 (unaudited) $ (20,694) $ 19,674,728 $(830,087) $116,944,608 ============ ============ ========= ============
See notes to consolidated financial statements. 4 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ (unaudited) Cash flows from operating activities: Net income $ 7,041,607 $ 4,424,919 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and goodwill amortization 5,365,224 2,926,924 Loss on sale of fixed assets 64,334 157,641 Amortization of debt issuance costs 131,520 46,481 Non-recurring acquisition-related expenses paid in common stock 1,009,091 -- Changes in operating assets and liabilities net of business combinations: Accounts receivable, net (4,653,947) (4,058,684) Costs and estimated earnings in excess of billings, net (12,162,808) (5,783,401) Inventory, net (2,192,290) (1,080,757) Income taxes 6,109,802 (2,460,438) Other current assets (2,994,352) (50,268) Other assets (1,178,518) 714,165 Accounts payable 3,858,142 (1,462,877) Accrued expenses 1,986,685 (374,252) ------------ ------------ Net cash provided by (used in) operating activities 2,384,490 (7,000,547) ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment (11,754,429) (6,858,323) Cash received from sale of property and equipment 326,066 188,564 Payments for acquisitions (8,665,330) (8,415,961) ------------ ------------ Net cash used in investing activities (20,093,693) (15,085,720) ------------ ------------ Cash flows from financing activities: Net change in line of credit borrowings 19,500,000 26,902,611 Notes payable and capital lease obligations, net (3,398,492) (7,371,975) Repayment of notes payable to related parties (482,309) (1,569,694) Debt issuance costs (750,821) -- Proceeds from ESPP 1,576,157 476,160 Proceeds from warrant and stock option exercises 9,878,945 2,230,600 ------------ ------------ Net cash provided by financing activities 26,323,480 20,667,702 ------------ ------------ Net increase (decrease) in cash and cash equivalents 8,614,277 (1,418,565) Cash and cash equivalents, beginning of period 3,358,341 4,840,816 ------------ ------------ Cash and cash equivalents, end of period $ 11,972,618 $ 3,422,251 ============ ============
See notes to consolidated financial statements. 5 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ (unaudited) Supplemental disclosure of non-cash transactions: In connection with acquisitions, the Company assumed liabilities as follows: Fair value of assets acquired $ 25,008,109 $ 15,566,908 Cash paid for acquisitions (net of cash acquired) $ (8,665,330) $ (8,415,961) ------------ ------------ Liabilities and notes assumed and stock issued to sellers $ 16,342,779 $ 7,150,947 ============ ============ Increase in additional paid-in capital resulting from recognizing tax benefits from stock option and warrant exercises $ 10,150,000 $ -- ============ ============ Foreign currency translation adjustment $ 20,694 $ -- ============ ============
See notes to consolidated financial statements. 6 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: International FiberCom, Inc. ("IFCI" or the "Company"), a C Corporation incorporated in Arizona on December 29, 1972, is an end-to-end, independent solutions provider serving the telecommunications industry. The Company delivers a broad range of solutions designed to enable, enhance and support voice, data and video communications through wired and wireless networks operating inside and outside buildings - internal and external networks. In delivering these solutions, the Company designs, develops, installs and maintains networks that support Internet-related and other communications applications and services for its customers through broadband, including fiber-optic and copper, and wireless connectivity solutions. The Company develops, manufactures and sells proprietary wireless communications equipment. The Company also resells new, deinstalled and refurbished communications equipment from a variety of manufacturers. The Company delivers its products and services through three operating segments: infrastructure development; wireless technologies; and equipment distribution. BASIS OF PRESENTATION: In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position as of June 30, 2000 and the results of its operations for the three and six month periods ended June 30, 2000. Although management believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission. The results of operations for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2000. The accompanying consolidated financial statements should be read in conjunction with the more detailed financial statements, and the related footnotes thereto, filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The Company's consolidated financial statements have been restated to reflect the merger with Premier Cable Communications, Inc. ("Premier"), accounted for as a pooling-of-interests. PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany amounts and transactions have been eliminated. RECLASSIFICATIONS: Certain balances as of December 31, 1999 have been reclassified in the accompanying consolidated financial statements to conform with the current period presentation. These reclassifications had no effect on previously reported net income or stockholders' equity. 7 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) NOTE 2 - SIGNIFICANT BALANCE SHEET COMPONENTS: Significant balance sheet components consist of the following:
June 30, December 31, 2000 1999 ------------- ------------ Accounts receivable, net: Contract billings $ 54,636,033 $ 40,592,199 Retainage 4,070,893 3,673,616 Non-contract related accounts receivable 665,201 7,475,519 ------------- ------------ 59,372,127 51,741,334 Less: allowance for doubtful accounts (1,066,762) (1,164,242) ------------- ------------ $ 58,305,365 $ 50,577,092 ============= ============ Costs and estimated earnings in excess of billings: Costs incurred on contracts in progess $ 117,228,335 $ 76,631,918 Estimated earnings 42,085,828 21,033,140 ------------- ------------ 159,314,163 97,665,058 Less: billings to date (131,218,998) (81,539,411) ------------- ------------ $ 28,095,165 $ 16,125,647 ============= ============ Inventory, net: New and used telecommunications equipment $ 20,622,509 $ 19,218,888 Cabling and equipment 1,791,227 1,222,039 Raw materials 577,058 253,577 ------------- ------------ 22,990,794 20,694,504 Less: allowance for obsolete inventory (2,067,170) (1,972,170) ------------- ------------ $ 20,923,624 $ 18,722,334 ============= ============ Property and equipment, net: Construction equipment $ 27,207,329 $ 23,882,017 Vehicles 10,210,869 8,115,934 Building and land 8,564,960 2,854,860 Office furniture and equipment 7,349,777 5,157,612 Software 2,059,280 1,964,772 Leasehold improvements 1,053,790 752,141 ------------- ------------ 56,446,005 42,727,336 Less: accumulated depreciation and amortization (19,472,969) (15,629,201) ------------- ------------ $ 36,973,036 $ 27,098,135 ============= ============
8 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) NOTE 3 - OPERATING LINE OF CREDIT: In March 2000, the Company entered into an Amended and Restated Revolving Credit Agreement (the "Agreement") with a syndication of commercial banks. Under the terms of the Agreement, the Company may borrow up to $100,000,000 (plus $10,000,000 in stand-by letters of credit, of which $0 were issued as of June 30, 2000) and the borrowings bear interest at either LIBOR plus 175 to 250 basis points or the prime rate plus 25 to 100 basis points, determined based on certain financial covenants, at the discretion of the Company. The Company has an option, subject to certain conditions, to increase the maximum borrowings to $150,000,000. As of June 30, 2000, total line of credit borrowings were $65,237,986. The Agreement requires monthly payments of interest and it matures in March 2003. Borrowings are secured by substantially all of the Company's assets and the Company is required to pay an annual commitment fee equal to 0.375% to 0.5%, determined based on certain financial covenants, of the unused portion of the line of credit. The Agreement places certain business, financial and operating restrictions on the Company relating to, among other things, the incurrence of additional indebtedness, acquisitions, asset sales, mergers, dividends, distributions and repurchases and redemption of capital stock. The Agreement also requires that specified financial ratios and balances be maintained. As of June 30, 2000, the Company was in compliance with these covenants. In connection with the Agreement, the borrowing limit under the Company's equipment lease line of credit was increased from $10,000,000 to $15,000,000. NOTE 4 - ACQUISITIONS: Pooling-of-Interests Acquisitions On June 1, 2000, the Company consummated a business combination with Premier which included the exchange of 865,963 shares of International Fibercom, Inc. common stock for all outstanding shares of Premier. In connection with the business combination with Premier, the Company incurred transaction-related costs of $1,380,286, which were charged to operations. Purchase Acquisitions During 1998 and 1999, the Company acquired Kleven Communications - CA, Inc. ("Kleven - CA"), All Star Telecom, Inc. ("All Star") and Blue Ridge Solutions ("Blue Ridge") and accounted for the acquisitions using the purchase method of accounting. Their respective purchase agreements included provisions for contingent consideration that is payable if certain financial targets are met over a three-year period. Certain financial targets specified in the purchase agreements were achieved by Kleven - CA, All Star and Blue Ridge through June 30, 2000 and the Company therefore, during the six months ended June 30, 2000, issued 175,636 shares of IFCI Common Stock, valued at $3,510,579, and paid $1,088,546 in cash, to the former owners of All Star and Blue Ridge, issued 254,205 shares of IFCI common stock, valued at $3,257,002 into an escrow account for future issuance to the former owners of All Star and accrued $1,100,000 of consideration to be paid to the former owner of Kleven - CA in July 2000. The total consideration was recorded as additional goodwill. During the first quarter of 2000, the Company acquired Beecroft Trenching, Inc. ("Beecroft") in exchange for 161,623 shares of IFCI common stock, valued at $3,841,576, and $4,436,425 in cash. The Company accounted for the acquisition of Beecroft using the purchase method of accounting. During the second quarter of 2000, the Company acquired New York Antenna, Inc. ("NYA") in exchange for 151,557 shares of IFCI common stock, valued at $2,191,412, and $2,105,475 in cash. The Company accounted for the acquisition of NYA using the purchase method of accounting. 9 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) NOTE 5 - STOCKHOLDERS' EQUITY: Stock Option and Warrant Income Tax Benefit During the six months ended June 30, 2000, certain employees and non-employees of the Company exercised incentive stock options, non-qualified stock options and warrants to purchase common stock of the Company. The exercise of in-the-money non-qualified stock options and warrants, as well as the disqualifying disposition of in-the-money incentive stock options, results in ordinary income to the individual and a corresponding income tax deduction for the Company. The total benefit to be recognized by the Company resulting from these exercises and sales of stock options and warrants during the six months ended June 30, 2000 is $10,150,000. This amount has been recorded on the balance sheet as income tax receivable and additional paid-in-capital. Computation of Earnings Per Share The computation of basic and diluted earnings per share is as follows:
Three Months Ended June 30, Six Months Ended June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Numerator: Numerator for basic earnings per share - net income attributable to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,424,919 Preferred stock dividends -- -- -- 4,000 ----------- ----------- ----------- ----------- Numerator for diluted earnings per share - adjusted net income attributable to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,420,919 ----------- ----------- ----------- ----------- Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 31,855,754 28,816,969 31,225,287 28,332,675 Effect of dilutive securities: Convertible preferred stock -- -- -- 22,068 Convertible debt -- 122,435 -- 152,375 Dilutive options and warrants 2,733,788 1,657,141 3,026,262 1,767,555 ----------- ----------- ----------- ----------- Diluted shares outstanding 34,589,542 30,596,545 34,251,549 30,274,673 ----------- ----------- ----------- -----------
NOTE 6 - SEGMENT INFORMATION: The Company delivers it products and services through three operating segments: infrastructure development, equipment distribution and wireless technologies. Infrastructure development provides consulting, design and engineering services; installs and maintains internal and external broadband communications systems, including underground and aerial fiber-optic, copper and wireless systems; and installs and maintains integrated local and wide area networks. 10 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) Equipment distribution resells new, deinstalled and refurbished communications equipment manufactured by a variety of companies. This equipment is used in the digital access, switching and transport systems of communications service providers and other companies. Wireless technologies designs, manufactures and installs proprietary wireless connectivity solutions designed to enable and enhance wireless communications, in both fixed and mobile applications, and tests and certifies wireless systems. Segment information for the three and six months ended June 30, 2000 and 1999 is as follows:
Infrastructure Equipment Wireless Development Distribution Technologies Total ----------- ------------ ------------ ----- For the three months ended June 30, 2000: Revenues $ 65,033,854 $ 9,376,444 $ 1,196,744 $ 75,607,042 Gross margin 18,710,683 2,806,611 472,249 21,989,543 Depreciation and amortization 2,449,091 330,404 86,540 2,866,035 Interest expense 1,728,816 158,470 64,559 1,951,845 Operating income (loss) 8,642,248 1,196,077 (468,946) 9,369,379 For the three months ended June 30, 1999: Revenues $ 35,807,576 $ 8,426,924 $ 624,087 $ 44,858,587 Gross margin 7,628,088 2,868,549 304,324 10,800,961 Depreciation and amortization 1,363,511 297,484 21,031 1,682,026 Interest expense 727,362 106,180 -- 833,542 Operating income 2,980,009 1,627,252 68,067 4,675,328 For the six months ended June 30, 2000: Revenues $121,921,073 $15,990,521 $ 1,752,747 $139,664,341 Gross margin 35,317,695 4,888,040 696,483 40,902,218 Depreciation and amortization 4,551,468 646,453 167,303 5,365,224 Interest expense 3,224,616 275,707 106,863 3,607,186 Operating income (loss) 15,503,492 1,719,630 (850,998) 16,372,124 Assets 172,301,081 49,516,270 7,694,037 229,511,388 For the six months ended June 30, 1999: Revenues $ 59,048,751 $15,978,085 $ 1,549,174 $ 76,576,010 Gross margin 13,681,532 5,354,340 828,571 19,864,443 Depreciation and amortization 2,308,156 597,324 21,444 2,926,924 Interest expense 1,145,693 247,483 316 1,393,492 Operating income 5,433,852 2,867,902 523,072 8,824,826 Assets 80,286,811 45,259,603 6,450,608 131,997,022
For purpose of measuring the results of operations of each segment, the Company allocates corporate overhead and assets to each segment based on a percentage of revenues. 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL We are an end-to-end, independent solutions provider serving the telecommunications industry. We deliver a broad range of solutions designed to enable, enhance and support voice, data and video communications through wired and wireless networks operating inside and outside buildings - internal and external networks. In delivering these solutions, we design, develop, install and maintain networks that support Internet-related and other communications applications and services for our customers through broadband, including fiber-optic, copper, and wireless connectivity solutions. We develop, manufacture and sell proprietary wireless communications equipment. We also resell new, deinstalled and refurbished communications equipment from a variety of manufacturers. We have grown significantly since 1997 as a result of internal growth and strategic acquisitions. Consolidated revenues since 1997 have grown at an average annual rate of 60%. We deliver our products and services through three operating segments: * Infrastructure Development; * Wireless Technologies; and * Equipment Distribution. We derive a substantial portion of our revenue through contracts accounted for under the percentage of completion method whereby revenue is recognized based on the ratio of contract costs incurred to total estimated contract costs. As a result, gross margins can increase or decrease based upon changes in cost and revenue estimates during individual contract periods. During the first quarter of 2000, we acquired Beecroft Trenching, Inc. ("Beecroft") in exchange for 161,623 shares of IFCI common stock, valued at $3,841,979, and $4,436,425 in cash. The acquisition of Beecroft was accounted for using the purchase method of accounting. During the second quarter of 2000, we acquired New York Antenna, Inc. ("NYA") in exchange for 151,557 shares of IFCI common stock, valued at $2,191,412, and $2,105,475 in cash. We accounted for the acquisition of NYA using the purchase method of accounting. During the second quarter of 2000, we consummated a business combination with Premier Cable Communications, Inc. ("Premier") which included the exchange of 865,963 shares of IFCI common stock for all outstanding shares of Premier. The business combination with Premier was accounted for as a pooling-of-interests and we incurred transaction-related costs of $1,380,286, which were charged to operations. IFCI's consolidated financial statements have been restated to reflect the business combination with Premier. In March 2000, we entered into an Amended and Restated Revolving Credit Agreement (the "Agreement") with a syndication of commercial banks. Under the terms of the Agreement, we may borrow up to $100 million (including $10 million in stand-by letters of credit), an increase from the original borrowing limit of $60 million under the original Revolving Credit Agreement.. We have an option, subject to certain conditions, to increase the maximum borrowings to $150,000,000. Our borrowings under the Agreement bear interest at either LIBOR plus 175 to 250 basis points or the prime rate plus 25 to 100 basis points, determined based on certain financial covenants, at our discretion. In connection with the Agreement, the borrowing limit under our equipment lease line of credit was increased from $10 million to $15 million. 12 RESULTS OF OPERATIONS The following table sets forth our consolidated statement of operations in dollars and as a percentage of revenues for the periods indicated.
Three Months Ended June 30, ---------------------------------------------------- 2000 1999 ----------------------- ----------------------- Revenues $ 75,607,042 100.0% $ 44,858,587 100.0% Cost of revenues 53,617,499 70.9% 34,057,626 75.9% ------------ ----- ------------ ----- Gross margin 21,989,543 29.1% 10,800,961 24.1% General and administrative 12,620,164 16.7% 6,125,633 13.7% ------------ ----- ------------ ----- Income from operations 9,369,379 12.4% 4,675,328 10.4% ------------ ----- ------------ ----- Other income (expense): Interest expense (1,951,845) (2.6)% (833,542) (1.9)% Other income (expense) 103,535 0.1% 79,640 0.2% Non-recurring acquisition- related expenses (1,380,286) (1.8)% -- 0.0% ------------ ----- ------------ ----- (3,228,596) (4.3)% (753,902) (1.7)% ------------ ----- ------------ ----- Net income before provision for income taxes 6,140,783 8.1% 3,921,426 8.7% Provision for income taxes (2,707,627) (3.6)% (1,549,921) (3.4)% ------------ ----- ------------ ----- Net income $ 3,433,156 4.5% $ 2,371,505 5.3% ============ ===== ============ ===== Six Months Ended June 30, ----------------------------------------------------- 2000 1999 ------------------------ ----------------------- Revenues $ 139,664,341 100.0% $ 76,576,010 100.0% Cost of revenues 98,762,123 70.7% 56,711,567 74.1% ------------- ----- ------------ ----- Gross margin 40,902,218 29.3% 19,864,443 25.9% General and administrative 24,530,094 17.6% 11,039,617 14.4% ------------- ----- ------------ ----- Income from operations 16,372,124 11.7% 8,824,826 11.5% ------------- ----- ------------ ----- Other income (expense): Interest expense (3,607,186) (2.6)% (1,393,492) (1.8)% Other income (expense) 320,689 0.2% (27,260) 0.0% Non-recurring acquisition- related expenses (1,380,286) (1.0)% -- 0.0% ------------- ----- ------------ ----- (4,666,783) (3.3)% (1,420,752) (1.9)% ------------- ----- ------------ ----- Net income before provision for income taxes 11,705,341 8.4% 7,404,074 9.7% Provision for income taxes (4,663,734) (3.4)% (2,979,155) (3.9)% ------------- ----- ------------ ----- Net income $ 7,041,607 5.0% $ 4,424,919 5.8% ============= ===== ============ =====
REVENUES. Revenues for the three months ended June 30, 2000 increased $30.7 million, or 68.5%, to $75.6 million from $44.9 million for the same period in 1999. This increase was comprised of revenue growth of $29.2 million in the infrastructure development segment, $1.0 million in the equipment distribution segment and $573,000 in the wireless technologies segment. Revenues for the six months ended June 30, 2000 increased $63.1 million, or 82.4%, to $139.7 million for the same period in 1999. This increase was comprised of revenue growth of $62.9 million in the infrastructure development segment, $203,000 in the wireless segment and relatively no change in the equipment distribution segment. The revenue increase for the infrastructure development segment for the three months ended June 30, 2000, compared to the same period in 1999, consisted of $8.6 million of revenues generated from subsidiaries acquired subsequent to June 30, 1999 and $20.6 million of revenues generated from internal increases in contract activity resulting from increased demand for infrastructure development services. The revenue increase for the infrastructure development segment for the six months ended June 30, 2000, compared to the same period in 1999, consisted of $27.4 million of revenues generated from subsidiaries acquired subsequent to March 31, 1999 and $35.5 million of revenues generated from internal increases in contract activity resulting from increased demand for infrastructure development services. The increase in revenues for the equipment distribution segment for the three months ended June 30, 2000, compared to the same period in 1999, was primarily the result of expanding its product line. The increase in revenues for the wireless technologies segment for the three and six month periods ended June 30, 2000, compared to the same periods in 1999, was primarily the result of an increase in services performed for new and existing customers. GROSS MARGIN. Gross margin for the three months ended June 30, 2000 increased $11.2 million, or 103.6%, to $22.0 million from $10.8 million for the same period in 1999. This increase was comprised of gross margin growth of $11.1 million in the infrastructure development segment and $168,000 in the wireless technologies segment, offset by a gross margin decline of $62,000 in the equipment distribution segment. Gross margin for the six months ended June 30, 2000 increased $21.0 million, or 105.9%, to $40.9 million from $19.9 million for the same period in 1999. This increase was comprised of 13 gross margin growth of $21.6 million in the infrastructure development segment, offset by gross margin decreases of $466,000 in the equipment distribution segment and $132,000 in the wireless technologies segment. Gross margin as a percentage of revenues increased to 29.1% for the three months ended June 30, 2000, from 24.1% for the same period in 1999. Gross margin as a percentage of revenues for the infrastructure development was 28.8% for the three months ended June 30, 2000, from 21.3% for the same period in 1999. Gross margin as a percentage of revenues for the equipment distribution segment was 29.9% for the three months ended June 30, 2000, from 34.0% for the same period in 1999. Gross margin as a percentage of revenues for the wireless technologies segment was 39.5% for the three months ended June 30, 2000, from 48.8% for the same period in 1999. Gross margin as a percentage of revenues increased to 29.3% for the six months ended June 30, 2000, from 25.9% for the same period in 1999. Gross margin as a percentage of revenues for the infrastructure development was 29.0% for the six months ended June 30, 2000, from 23.2% for the same period in 1999. Gross margin as a percentage of revenues for the equipment distribution segment was 30.6% for the six months ended June 30, 2000, from 33.5% for the same period in 1999. Gross margin as a percentage of revenues for the wireless technologies segment was 39.7% for the six months ended June 30, 2000, from 53.5% for the same period in 1999. Gross margin increased for the infrastructure development group, both in total and as a percentage of revenues, primarily due to obtaining larger contracts that resulted in improved production efficiencies and more favorable terms on new contracts. Additionally, gross margin in total increased for the infrastructure development group as a result of newly acquired companies. For the three months ended June 30, 2000, $3.4 million of the gross margin increase for the infrastructure development segment resulted from subsidiaries acquired subsequent to June 30, 1999. For the six months ended June 30, 2000, $8.8 million of the gross margin increase for the infrastructure development segment resulted from subsidiaries acquired subsequent to March 31, 1999. Gross margin decreased for the equipment distribution segment, both in total and as a percentage of revenues, due to changes in the mix and cost basis of inventory sold. Gross margin increased in total for the wireless technologies segment due to an increase in the volume of service work performed. Gross margin as a percentage of revenues declined for the wireless technologies segment due the volume increase being comprised of additional services work, which generally has a lower gross margin percentage than product sales, and the Company concentrating more of its efforts on the research and development of new technologies. GENERAL AND ADMINISTRATIVE. General and administrative expenses for the three months ended June 30, 2000 increased $6.5 million, or 106.0%, to $12.6 million from $6.1 million for the same period in 1999. General and administrative expense for the six months ended June 30, 2000 increased $13.5 million, or 122.2%, to $24.5 million from $11.0 million for the same period in 1999. The increases were primarily due to incremental costs associated with acquisitions made during the past 12 months, as well as internal growth of existing subsidiaries and management additions made during the past 12 months to support our continued growth. General and administrative expenses, as a percentage of revenues, for the three months ended June 30, 2000 were 16.7%, compared to 13.7% for the same period in the prior year. General and administrative expenses, as a percentage of revenues, for the six months ended June 30, 2000 were 17.6%, compared to 14.4% for the same period in the prior year. These increases as a percentage of revenues were due to our adding personnel and creating separate geographical management teams to support future growth. INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest expense and other income (expense) for the three months ended June 30, 2000 increased $1.1 million, or 145.2%, to $1.8 million from $754,000 for the same period in 1999. Interest expense and other income (expense) increased $1.9 million, or 131.3%, to $3.3 million for the six months ended June 30, 2000, from $1.4 million for the same period in 1999. The increases are primarily due to interest expense on our credit facilities. Borrowing activity has increased significantly during the past 12 months due to the acquisition of several subsidiaries through purchase agreements consisting of all cash or cash and common stock terms as well as the acquisition of operating equipment to support revenue growth in the infrastructure development segment. 14 NON-RECURRING ACQUISITION-RELATED EXPENSES. Non-recurring acquisition-related expenses totaled $1.4 million for the three and six months ended June 30, 2000 and consisted of expenses incurred to consummate the acquisition of Premier, which was accounted for as a pooling-of-interests. There were no acquisitions accounted for as pooling-of-interests in 1999. PROVISION FOR INCOME TAXES. Income taxes for the three months ended June 30, 2000 increased $1.2 million, or 74.7%, to $2.7 million from $1.5 million for the same period in 1999. Income taxes for the six months ended June 30, 2000 increased $1.7 million, or 56.5%, to $4.7 million from $3.0 million for the same period in 1999. The provision for income taxes increased due to higher taxable earnings for the three month and six month periods ended June 30, 2000, compared to the same periods in 1999. Excluding the impact of non-recurring acquisition related expenses, which are not deductible for tax purposes, the effective tax rate declined to 36.0% for both the three and six months periods ended June 30, 2000, from 39.5% for the three month period ended June 30, 1999 and 40.2% for the six month period ended June 30, 1999. This decline in the effective tax rate is the result of us generating a more proportionate share of income in states with lower tax rates and the effect of research and development tax credits generated in 2000. NET INCOME. Net income attributable to common stockholders for the three months ended June 30, 2000 increased $1.0 million, or 44.8%, to $3.4 million from $2.4 million for the same period in 1999. Net income attributable to common stockholders for the six months ended June 30, 2000 increased $2.6 million, or 59.1%, to $7.0 million from $4.4 million for the same period in 1999. The increase was the result of higher gross margins, offset by increases in general and administrative expenses, other expenses, non-recurring acquisition-related expenses and provision for income taxes. LIQUIDITY AND CAPITAL RESOURCES Our capital needs relate primarily to equipment needed to support revenue growth and to provide working capital for general corporate purposes, including strategic acquisitions. We have historically financed operations through a combination of operating cash flow, lines of credit, and debt and equity offerings. Our liquidity is impacted, to a large degree, by the nature of billing provisions under our installation and service contracts. Generally, in the early periods of contracts, cash expenditures and accrued profits are greater than allowed billings, while contract completion results in billing previously unbilled costs and related accrued profits. For the first six months of 2000, net cash provided by operations totaled $2.4 million as compared to cash used in operations of $7.0 million for the same period in the prior year. Cash generated from operations during the period totaled $13.6 million consisting of net income of $7.0 million, depreciation and amortization of $5.4 million, non-recurring acquisition-related expenses paid in stock totaling $1.0 million and $200,000 of other items. Operating assets and liabilities decreased operating cash flow $11.2 million, primarily due to and increases in accounts receivable, inventory, other assets and costs and estimated earnings in excess of billings, offset by decreases in accounts payable, accrued expenses and income taxes payable. During the first six months of 2000, we used $20.1 million in investing activities which consisted primarily of net equipment purchases totaling $11.4 million and cash used in business acquisitions totaling $8.7 million. For the first six months of 2000, financing activities generated $26.3 million which consisted primarily of net borrowings under our credit facilities totaling $19.5 million, $9.9 million in proceeds from warrant and stock option exercises and $1.6 million in proceeds from common stock purchased under the ESPP, offset by $3.9 million of net repayments of notes payable and capital lease obligations, and $751,000 of debt issuance costs paid. As of June 30, 2000, we had a revolving line of credit with a syndication of commercial banks totaling $100 million (with an option, under certain conditions, to raise the total borrowings available to $150,000,000), with an available balance of approximately $34.8 million. Additionally, we had a $15 million lease line of credit, with an available balance of approximately $5.5 million. Aggregate proceeds from current working capital, funds generated through operations and current availability under existing credit facilities are considered sufficient to fund the anticipated growth in our operations for the next 12 to 18 months. We 15 may, however, seek to obtain additional capital through additional debt or equity offerings depending upon prevailing market conditions and the demand for our products and services. INFLATION AND SEASONALITY. We do not believe that we are significantly impacted by inflation or seasonality. FORWARD-LOOKING INFORMATION. This Report contains certain forward-looking statements and information within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear in this report. Forward-looking statements, by their very nature, include risks and uncertainties. Accordingly, the Company's actual results could differ materially from those discussed herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the control of the Company, include the following: the Company's success in obtaining new contracts; the volume and type of work orders that are received under such contracts; the accuracy of the cost estimates for the projects; the Company's ability to complete its projects on time and within budget; levels of, and ability to collect amounts receivable; availability of trained personnel and utilization of the Company's capacity to complete work; the Company's ability to complete proposed acquisitions and, upon their completion, to integrate the acquisitions into its organization and manage its growth; competition and competitive pressures on pricing; and economic conditions in the United States and in the regions served by the Company. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. We are not involved as a party to any legal proceeding other than various claims and lawsuits arising in the ordinary course of its business, none of which, in our opinion, is material, either on an individual or a collective basis. ITEM 2. CHANGES IN SECURITIES. Sales of Unregistered Securities During the second quarter of 2000, we issued 79,624 shares of common stock to the former shareholders of All Star Telecom, Inc. ("All Star"), and 254,205 shares of common stock into an escrow fund for future issuance to the former shareholders of All Star. These shares were issued at a price of $12.8125 per share, the then market price, in connection with consideration payable to the former shareholders of All Star as stated in its amended purchase agreement. All Star was acquired by the Company in April 1999. Such shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the "Act") and Regulation D of the Act. During the second quarter of 2000, we issued 151,557 shares of common stock to the shareholders of NY Antenna, Inc. ("NYA") at a price of $14.46, the average market price of our common stock on the NASDAQ National Market for the ten trading days prior to issuance, in connection with our acquisition of the stock of NYA. Such shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the "Act") and Regulation D of the Act. During the second quarter of 2000, we issued 865,963 shares of common stock to the shareholders of Premier Cable Communications, Inc. ("Premier") at a price of $15.72, the average market price of our common stock on the NASDAQ National Market for the ten trading days beginning five days prior to close and ending four days following close, in connection with our acquisition of all of the common stock of Premier.. In addition, we issued 64,178 shares of common stock, at a price of $15.72, to a business advisory group that assisted us in the completion of the acquisition of Premier. Such shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the "Act") and Regulation D of the Act. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We held our 2000 Annual Meeting of Shareholders on June 16, 2000. At the Annual Meeting, the following eight individuals were elected as directors to serve until the 2001 Annual Meeting of Shareholders: Votes for Withheld --------- -------- Joseph P. Kealy 24,546,142 241,022 C. James Jensen 24,546,142 241,022 John F. Kealy 24,546,142 241,022 John P. Morbeck 24,546,142 241,022 Richard J. Seminoff 24,546,142 241,022 John P. Stephens 24,546,142 241,022 Jerry A. Kleven 24,546,142 241,022 V. Thompson Brown, Jr. 24,546,142 241,022 The shareholders also approved the addition of 3,000,000 shares of common stock to the 1997 Stock Option Plan and ratified the appointment of BDO Seidman, LLP as our independent accountants to examine our financial statements for the fiscal year ending December 31, 2000. The vote on these matters was as follows: Votes Against Votes for or Withheld Abstentions --------- ----------- ----------- Amendment of Stock Option Plan 16,267,601 8,380,280 131,883 Ratification of BDO Seidman, LLP 24,627,038 107,232 52,894 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K: Not applicable to this report 17 SIGNATURE 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. INTERNATIONAL FIBERCOM, INC. By /s/ Terry W. Beiriger ------------------------------------- Terry W. Beiriger, Chief Financial Officer DATED: August 14, 2000 18 EXHIBIT INDEX Exhibits Description - --------- ----------- 27. Financial Data Schedule 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 2000, CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO. 924632 INTERNATIONAL FIBERCOM INC. 1 U.S. DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 11,972,618 0 58,305,365 0 20,923,624 131,791,771 56,446,005 (19,472,969) 229,511,388 34,994,245 0 0 0 85,389,512 31,555,096 229,511,388 139,664,341 139,664,341 98,762,123 123,292,217 (4,666,783) 0 3,607,186 11,705,341 4,663,734 7,041,607 0 0 0 7,041,607 .23 .21
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