-----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, Owl4w9KkCqSgF1i86/UPU329yLf3EEtI85CTXNiuIlW+HrYZPGSDRD/xfquRd5Mk DUa5hYjk1iWpcBfNESKX8Q== /in/edgar/work/0000950147-00-500108/0000950147-00-500108.txt : 20001115 0000950147-00-500108.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950147-00-500108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 767355 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 e-5660.txt QUARTERLY REPORT FOR THE QTR ENDED 9/30/00 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 September 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 33,472,466 shares issued and 33,266,777 outstanding at October 31, 2000 INDEX INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets - September 30, 2000 (unaudited) and December 31, 1999 2 Consolidated statements of income (unaudited) - Three months ended September 30, 2000 and 1999; Nine months ended September 30, 2000 and 1999 3 Consolidated statement of changes in stockholders' equity - Nine months ended September 30, 2000 (unaudited) 4 Consolidated statements of cash flows (unaudited) - Nine months ended September 30, 2000 and 1999 5 Notes to consolidated financial statements (unaudited) - September 30, 2000 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 6. Exhibits and Reports on Form 8-K 18 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 ------------- ------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 14,061,982 $ 3,358,341 Accounts receivable - trade, net 62,450,870 50,577,092 Costs and estimated earnings in excess of billings 38,480,442 16,125,647 Inventory, net 20,805,426 18,722,334 Income tax receivable 4,396,311 868,055 Deferred tax asset 1,961,894 1,961,894 Other current assets 4,699,589 2,685,835 ------------- ------------- Total current assets 146,856,514 94,299,198 Property and equipment, net 43,680,351 27,098,135 Goodwill, net 61,515,593 40,398,981 Other assets, net 3,929,755 1,537,546 ------------- ------------- Total assets $ 255,982,213 $ 163,333,860 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Current portion of notes payable and capital lease obligations $ 5,657,155 $ 6,656,379 Current portion of notes payable to related parties 341,165 925,911 Accounts payable 26,091,967 16,395,723 Accrued expenses 6,839,356 5,373,737 ------------- ------------- Total current liabilities 38,929,643 29,351,750 Notes payable and capital lease obligations 14,849,706 11,868,269 Notes payable to related parties -- 146,776 Line of credit 76,337,986 45,737,986 Deferred tax liability 1,720,146 1,720,146 ------------- ------------- Total liabilities 131,837,481 88,824,927 ------------- ------------- Stockholders' equity: Common stock, no par value, 100,000,000 shares authorized; 33,398,970 shares issued and 33,193,281 shares outstanding at September 30, 2000; 29,978,157 shares issued and 29,772,468 shares outstanding at December 31, 1999 89,447,569 60,124,750 Additional paid-in capital 12,731,149 2,581,149 Foreign currency translation adjustment (47,911) -- Retained earnings 22,844,012 12,633,121 ------------- ------------- 124,974,819 75,339,020 Less: treasury stock, 205,689 shares, at cost (830,087) (830,087) ------------- ------------- Total stockholders' equity 124,144,732 74,508,933 ------------- ------------- Total liabilities and stockholders' equity $ 255,982,213 $ 163,333,860 ============= =============
See notes to consolidated financial statements. 2 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------- ------------- (unaudited) Revenues $ 87,368,954 $ 53,414,015 $ 227,033,295 $ 129,990,025 Cost of revenues 66,239,101 42,441,328 165,001,224 99,152,895 ------------ ------------ ------------- ------------- Gross margin 21,129,853 10,972,687 62,032,071 30,837,130 General and administrative expenses 14,070,214 8,765,133 38,600,308 19,804,750 ------------ ------------ ------------- ------------- Income from operations 7,059,639 2,207,554 23,431,763 11,032,380 ------------ ------------ ------------- ------------- Other income (expense): Interest income 240,084 93,650 636,360 175,109 Interest expense (2,340,651) (1,138,273) (5,947,837) (2,531,765) Other income (expense) (7,065) 63,651 (82,652) (45,068) Non-recurring acquisition-related expenses -- -- (1,380,286) -- ------------ ------------ ------------- ------------- (2,107,632) (980,972) (6,774,415) (2,401,724) ------------ ------------ ------------- ------------- Net income before provision for income taxes 4,952,007 1,226,582 16,657,348 8,630,656 Provision for income taxes (1,782,723) (583,898) (6,446,457) (3,563,053) ------------ ------------ ------------- ------------- Net income $ 3,169,284 $ 642,684 $ 10,210,891 $ 5,067,603 Preferred stock dividend -- -- -- 4,000 ------------ ------------ ------------- ------------- Net income attributable to common stockholders $ 3,169,284 $ 642,684 $ 10,210,891 $ 5,063,603 ------------ ------------ ------------- ------------- Earnings per common share: Basic $ 0.10 $ 0.02 $ 0.32 $ 0.18 Diluted $ 0.09 $ 0.02 $ 0.29 $ 0.17 Shares used in computing earnings per share: Basic 32,955,548 29,494,551 31,789,906 28,638,612 Diluted 36,026,127 31,141,653 34,822,425 30,440,304
See notes to consolidated financial statements. 3 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 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 2,228,563 11,340,758 Common stock issued under ESPP 237,488 1,576,976 Common stock issued in connection with acquisitions 890,584 15,395,994 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, September 30, 2000 (unaudited) 33,398,970 $89,447,569 $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 11,340,758 Common stock issued under ESPP 1,576,976 Common stock issued in connection with acquisitions 15,395,994 Non-recurring acquisition-related expenses paid in common stock 1,009,091 Change in foreign currency translation (47,911) (47,911) Stock option and warrant income tax benefit 10,150,000 Net income 10,210,891 10,210,891 ------------ ------------ --------- ------------ Balance, September 30, 2000 (unaudited) $ (47,911) $ 22,844,012 $(830,087) $124,144,732 ============ ============ ========= ============
See notes to consolidated financial statements. 4 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, ------------------------------- 2000 1999 ------------ ------------ (unaudited) Cash flows from operating activities: Net income $ 10,210,891 $ 5,067,603 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and goodwill amortization 8,657,301 5,191,568 Loss (gain) on sale of fixed assets (9,079) 154,289 Amortization of debt issuance costs 234,612 71,996 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 (8,797,257) (6,280,382) Costs and estimated earnings in excess of billings, net (24,448,085) (6,262,755) Inventory, net (2,074,092) (1,792,193) Income taxes 6,621,744 (2,720,368) Other current assets (1,953,838) (875,115) Other assets (1,832,764) (26,050) Accounts payable 8,230,422 (329,915) Accrued expenses 1,457,029 (389,617) ------------ ------------ Net cash provided by (used in) operating activities (2,694,025) (8,190,939) ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment (20,985,370) (11,291,520) Cash received from sale of property and equipment 1,322,134 243,835 Payments for acquisitions (9,865,339) (11,340,929) ------------ ------------ Net cash used in investing activities (29,528,575) (22,388,614) ------------ ------------ Cash flows from financing activities: Net change in line of credit borrowings 30,600,000 37,937,986 Notes payable and capital lease obligations, net 925,287 (8,564,805) Repayment of notes payable to related parties (731,522) (1,072,201) Debt issuance costs (785,257) (168,889) Proceeds from ESPP 1,576,975 476,160 Proceeds from warrant and stock option exercises 11,340,758 2,930,196 ------------ ------------ Net cash provided by financing activities 42,926,241 31,538,447 ------------ ------------ Net increase (decrease) in cash and cash equivalents 10,703,641 958,894 Cash and cash equivalents, beginning of period 3,358,341 4,840,816 ------------ ------------ Cash and cash equivalents, end of period $ 14,061,982 $ 5,799,710 ============ ============
See notes to consolidated financial statements. 5 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine Months Ended September 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 $ 29,057,055 $ 18,473,640 Cash paid for acquisitions (net of cash acquired) (9,315,339) (11,340,929) ------------ ------------ Liabilities and notes assumed and stock issued to sellers $ 19,741,716 $ 7,132,711 ============ ============ Increase in additional paid-in capital resulting from recognizing tax benefits from stock option and warrant exercises $ 10,150,000 $ -- ============ ============ Foreign currency translation adjustment $ 47,911 $ -- ============ ============
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; 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 September 30, 2000 and the results of its operations for the three and nine month periods ended September 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 nine month periods ended September 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:
September 30, December 31, 2000 1999 ------------- ------------ Accounts receivable, net: Contract billings $ 57,832,951 $ 40,592,199 Retainage 4,516,247 3,673,616 Non-contract related accounts receivable 1,016,578 7,475,519 ------------- ------------ 63,365,776 51,741,334 Less: allowance for doubtful accounts (914,906) (1,164,242) ------------- ------------ $ 62,450,870 $ 50,577,092 ============= ============ Costs and estimated earnings in excess of billings: Costs incurred on contracts in progess $ 136,261,445 $ 76,631,918 Estimated earnings 53,635,061 21,033,140 ------------- ------------ 189,896,506 97,665,058 Less: billings to date (151,416,064) (81,539,411) ------------- ------------ $ 38,480,442 $ 16,125,647 ============= ============ Inventory, net: New and used telecommunications equipment $ 20,518,845 $ 19,218,888 Cabling and equipment 1,581,551 1,222,039 Raw materials 820,200 253,577 ------------- ------------ 22,920,596 20,694,504 Less: allowance for obsolete inventory (2,115,170) (1,972,170) ------------- ------------ $ 20,805,426 $ 18,722,334 ============= ============ Property and equipment, net: Construction equipment $ 33,108,166 $ 23,882,017 Vehicles 10,542,215 8,115,934 Building and land 9,269,396 2,854,860 Office furniture and equipment 7,674,571 5,157,612 Software 2,581,869 1,964,772 Leasehold improvements 1,178,158 752,141 ------------- ------------ 64,354,375 42,727,336 Less: accumulated depreciation and amortization (20,674,024) (15,629,201) ------------- ------------ $ 43,680,351 $ 27,098,135 ------------- ------------ Goodwill, net: Goodwill $ 67,208,643 $ 43,906,591 Less: accmulated amortization (5,693,050) (3,507,610) ------------- ------------ $ 61,515,593 $ 40,398,981 ============= ============
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 $3,182,190 were issued as of September 30, 2000). 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 September 30, 2000, total line of credit borrowings were $76,337,986. 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 September 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. In September 2000, the borrowing limit under the equipment lease line of credit was further increased to $25,000,000. Total borrowings outstanding at September 30, 2000 under the equipment lease line was $15,418,324. 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 during the nine months ended September 30, 2000. Therefore, the Company issued 199,530 shares of IFCI common stock, valued at $4,060,579, and paid $1,638,546 in cash, to the former owners of Kleven - CA, All Star and Blue Ridge, and issued 254,205 shares of IFCI common stock, valued at $3,257,002 into an escrow account for potential future issuance to the former owners of All Star. The total consideration was recorded as additional goodwill. During the first quarter of 2000, the Company acquired Beecroft Trenching, Inc. ("Beecroft") in exchange for 248,738 shares of IFCI common stock, valued at $5,187,001 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) During the third quarter of 2000, the Company acquired Precision Direction Services, Inc. ("Precision") in exchange for 31,959 shares of IFCI common stock, valued at $612,000, and $175,000 in cash. The Company accounted for the acquisition of Precision using the purchase method of accounting. NOTE 5 - STOCKHOLDERS' EQUITY: STOCK OPTION AND WARRANT INCOME TAX BENEFIT During the nine months ended September 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 nine months ended September 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 Nine Months Ended September 30, September 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Numerator: Numerator for basic earnings per share - net income attributable to common stockholders $ 3,169,284 $ 642,684 $10,210,891 $ 5,067,603 Preferred stock dividends -- -- -- 4,000 ----------- ----------- ----------- ----------- Numerator for diluted earnings per share - adjusted net income attributable to common stockholders $ 3,169,284 $ 642,684 $10,210,891 $ 5,063,603 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 32,955,548 29,494,551 31,789,906 28,638,612 Effect of dilutive securities: Convertible preferred stock -- -- -- 14,631 Convertible debt -- -- -- 101,025 Dilutive options and warrants 3,070,579 1,647,102 3,032,519 1,686,036 ----------- ----------- ----------- ----------- Diluted shares outstanding 36,026,127 31,141,653 34,822,425 30,440,304 =========== =========== =========== ===========
10 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) NOTE 6 - SEGMENT INFORMATION: The Company delivers it products and services through three operating segments: infrastructure development, equipment distribution and wireless. Infrastructure development provides consulting, design and engineering services; installs and maintains internal and external broadband communications systems, including underground and aerial fiber-optic and copper systems; and installs and maintains integrated local and wide area networks. 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 includes technology and traditional deployment services. Wireless technologies includes the design, manufacture and installation of proprietary wireless connectivity solutions designed to enable and enhance wireless communications, in both fixed and mobile applications. Wireless services includes site development, maintenance and optimization services. Segment information for the three and nine months ended September 30, 2000 and 1999 is as follows:
Infrastructure Equipment Development Distribution Wireless Total ------------ ------------ ---------- ------------ For the three months ended September 30, 2000: Revenues $ 73,927,683 $ 10,781,256 $2,660,015 $ 87,368,954 Gross margin 17,298,718 3,004,186 826,949 21,129,853 Depreciation and amortization 2,795,705 353,608 115,982 3,265,295 Interest expense 2,019,749 183,035 137,867 2,340,651 Operating income (loss) 6,669,094 1,180,971 (790,426) 7,059,639 For the three months ended September 30, 1999: Revenues $ 45,367,029 $ 7,433,306 $ 613,680 $ 53,414,015 Gross margin 8,771,343 2,115,720 85,624 10,972,687 Depreciation and amortization 1,735,091 325,779 203,774 2,264,644 Interest expense 1,041,346 88,012 8,915 1,138,273 Operating income (loss) 1,879,355 789,891 (461,692) 2,207,554
11 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd (UNAUDITED) e
Infrastructure Equipment Development Distribution Wireless Total ------------ ------------ ---------- ------------ For the nine months ended September 30, 2000: Revenues $ 195,848,756 $ 26,771,777 $ 4,412,762 $ 227,033,295 Gross margin 52,850,728 7,892,226 1,289,117 62,032,071 Depreciation and amortization 7,414,608 996,625 246,068 8,657,301 Interest expense 5,278,535 458,685 210,617 5,947,837 Operating income (loss) 21,993,616 2,903,962 (1,465,815) 23,431,763 Assets 194,472,871 52,382,269 9,127,072 255,982,213 For the nine months ended September 30, 1999: Revenues $ 104,415,780 $ 23,411,391 $ 2,162,854 $ 129,990,025 Gross margin 22,452,875 7,470,060 914,195 30,837,130 Depreciation and amortization 4,052,229 919,862 219,477 5,191,568 Interest expense 2,193,419 329,124 9,222 2,531,765 Operating income 7,340,218 3,633,800 58,362 11,032,380 Assets 102,529,671 44,293,455 6,416,745 153,239,871
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. 12 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; 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 248,738 shares of IFCI common stock, valued at $5,187,001, 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 third quarter of 2000, the Company acquired Precision Direction Services, Inc. ("Precision") in exchange for 31,959 shares of IFCI common stock, valued at $612,000, and $175,000 in cash. The Company accounted for the acquisition of Precision 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, and has been subsequently increased to $25 million. 13 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 September 30, Nine Months Ended September 30, ------------------------------------------ --------------------------------------------- 2000 1999 2000 1999 ------------------- -------------------- --------------------- --------------------- Revenues $ 87,368,954 100.0% $ 53,414,015 100.0% $ 227,033,295 100.0% $ 129,990,025 100.0% Cost of revenues 66,239,101 75.8% 42,441,328 79.5% 165,001,224 72.7% 99,152,895 76.3% ------------ ----- ------------ ----- ------------- ----- ------------- ----- Gross margin 21,129,853 24.2% 10,972,687 20.5% 62,032,071 27.3% 30,837,130 23.7% General and administrative 14,070,214 16.1% 8,765,133 16.4% 38,600,308 17.0% 19,804,750 15.2% ------------ ----- ------------ ----- ------------- ----- ------------- ----- Income from operations 7,059,639 8.1% 2,207,554 4.1% 23,431,763 10.3% 11,032,380 8.5% ------------ ----- ------------ ----- ------------- ----- ------------- ----- Other income (expense): Interest expense (2,340,651) -2.7% (1,138,273) -2.1% (5,947,837) -2.6% (2,531,765) -2.0% Other income (expense) 233,019 0.3% 157,301 0.2% 553,708 0.2% 130,041 0.1% Non-recurring acquisition- related expenses -- 0.0% -- 0.0% (1,380,286) -0.6% -- 0.0% ------------ ----- ------------ ----- ------------- ----- ------------- ----- (2,107,632) -2.4% (980,972) -1.9% (6,774,415) -3.0% (2,401,724) -1.9% ------------ ----- ------------ ----- ------------- ----- ------------- ----- Net income before provision for income taxes 4,952,007 5.7% 1,226,582 2.2% 16,657,348 7.3% 8,630,656 6.6% Provision for income taxes (1,782,723) -2.1% (583,898) -1.0% (6,446,457) -2.8% (3,563,053) -2.7% ------------ ----- ------------ ----- ------------- ----- ------------- ----- Net income $ 3,169,284 3.6% $ 642,684 1.2% $ 10,210,891 4.5% $ 5,067,603 3.9% ============ ===== ============ ===== ============= ===== ============= =====
REVENUES. Revenues for the three months ended September 30, 2000 increased $34.0 million, or 63.6%, to $87.4 million from $53.4 million for the same period in 1999. This increase was comprised of revenue growth of $28.6 million in the infrastructure development segment, $3.4 million in the equipment distribution segment and $2.0 million in the wireless segment. Revenues for the nine months ended September 30, 2000 increased $97.0 million, or 74.7%, to $227.0 million from $130.0 million for the same period in 1999. This increase was comprised of revenue growth of $91.4 million in the infrastructure development segment, $3.3 million in the equipment distribution segment and $2.3 million in the wireless segment. The revenue increase for the infrastructure development segment for the three months ended September 30, 2000, compared to the same period in 1999, consisted of $4.9 million of revenues generated from subsidiaries acquired subsequent to September 30, 1999 and $23.7 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 nine months ended September 30, 2000, compared to the same period in 1999, consisted of $32.2 million of revenues generated from subsidiaries acquired subsequent to March 31, 1999 and $59.2 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 and nine month periods ended September 30, 2000, compared to the same periods in 1999, was primarily the result of expanding its product line. The increase in revenues for the wireless segment for the three and nine month periods ended September 30, 2000, compared to the same periods in 1999, was primarily the result of increased demand for our proprietary wireless solutions and the expansion of site development, maintenance and optimization services for the wireless industry. GROSS MARGIN. Gross margin for the three months ended September 30, 2000 increased $10.2 million, or 92.6%, to $21.1 million from $10.9 million for the same period in 1999. This increase was comprised of gross margin growth of $8.5 million in the infrastructure development segment, $888,000 in the equipment distribution segment and $741,000 in the wireless segment. 14 Gross margin for the nine months ended September 30, 2000 increased $31.2 million, or 101.2%, to $62.0 million from $30.8 million for the same period in 1999. This increase was comprised of gross margin growth of $30.4 million in the infrastructure development segment, $422,000 in the equipment distribution segment and $375,000 in the wireless segment. Gross margin as a percentage of revenues increased to 24.2% for the three months ended September 30, 2000, from 20.5% for the same period in 1999. Gross margin as a percentage of revenues for the infrastructure development was 23.4% for the three months ended September 30, 2000, from 19.3% for the same period in 1999. Gross margin as a percentage of revenues for the equipment distribution segment was 27.9% for the three months ended September 30, 2000, from 28.5% for the same period in 1999. Gross margin as a percentage of revenues for the wireless segment was 31.1% for the three months ended September 30, 2000, from 14.0% for the same period in 1999. Gross margin as a percentage of revenues increased to 27.3% for the nine months ended September 30, 2000, from 23.7% for the same period in 1999. Gross margin as a percentage of revenues for the infrastructure development was 27.0% for the nine months ended September 30, 2000, from 21.5% for the same period in 1999. Gross margin as a percentage of revenues for the equipment distribution segment was 29.5% for the nine months ended September 30, 2000, from 31.9% for the same period in 1999. Gross margin as a percentage of revenues for the wireless segment was 29.2% for the nine months ended September 30, 2000, from 42.3% 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 September 30, 2000, $1.0 million of the gross margin increase for the infrastructure development segment resulted from subsidiaries acquired subsequent to September 30, 1999. For the nine months ended September 30, 2000, $9.1 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 segment due to an increase in the volume of technology and service work performed. Gross margin as a percentage of revenues declined for the wireless segment for the nine months ended September 30, 2000, compared to the same period in 1999, 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 September 30, 2000 increased $5.3 million, or 60.5%, to $14.1 million from $8.8 million for the same period in 1999. General and administrative expense for the nine months ended September 30, 2000 increased $18.8 million, or 94.9%, to $38.6 million from $19.8 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 September 30, 2000 were 16.1%, compared to 16.4% for the same period in the prior year. General and administrative expenses, as a percentage of revenues, for the nine months ended September 30, 2000 were 17.0%, compared to 15.2% 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 September 30, 2000 increased $1.1 million, or 114.9%, to $2.1 million from $1.0 million for the same period in 1999. Interest expense and other income (expense) increased $3.0 million, or 124.6%, to $5.4 million for the nine months ended September 30, 2000, from $2.4 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 15 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. NON-RECURRING ACQUISITION-RELATED EXPENSES. Non-recurring acquisition-related expenses totaled $1.4 million for the nine months ended September 30, 2000 and consisted of expenses incurred to consummate the acquisition of Premier in June 2000, 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 September 30, 2000 increased $1.2 million, or 205.3%, to $1.8 million from $584,000 for the same period in 1999. Income taxes for the nine months ended September 30, 2000 increased $2.9 million, or 80.9%, to $6.5 million from $3.6 million for the same period in 1999. The provision for income taxes increased due to higher taxable earnings for the three month and nine month periods ended September 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 nine months periods ended September 30, 2000, from 47.6% for the three month period ended September 30, 1999 and 41.3% for the nine month period ended September 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 September 30, 2000 increased $2.5 million, or 393.1%, to $3.2 million from $643,000 for the same period in 1999. Net income attributable to common stockholders for the nine months ended September 30, 2000 increased $5.1 million, or 101.5%, to $10.2 million from $5.1 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 nine months of 2000, net cash used in operations totaled $2.7 million as compared to cash used in operations of $8.2 million for the same period in the prior year. Cash generated from operations during the period totaled $20.1 million consisting of net income of $10.2 million, depreciation and amortization of $8.7 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 $22.8 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 nine months of 2000, we used $29.5 million in investing activities which consisted primarily of net equipment purchases totaling $19.6 million and cash used in business acquisitions totaling $9.9 million. For the first nine months of 2000, financing activities generated $42.9 million which consisted primarily of net borrowings under our credit facilities totaling $30.8 million, $11.3 million in proceeds from warrant and stock option exercises and $1.6 million in proceeds from common stock purchased under the ESPP, offset by $785,000 of debt issuance costs paid. As of September 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 $23.7 million. Additionally, we had a $25 million lease line of credit, with an available balance of approximately $9.6 million, and $6.2 million of available letters of credit. Aggregate 16 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 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 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; the Company's success in marketing its wireless products and services; 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 third quarter of 2000, we issued 23,894 shares of common stock to the former shareholders of Kleven - CA at a price of $23.02, the average market price of our common stock on the NASDAQ National Market for the ten trading days prior to issuance, in connection with contingent consideration payable to the former shareholder of Kleven - CA based upon Kleven - CA meeting certain financial targets, as specified in its purchase agreement. 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. These shares were subsequently included in a registration statement on Form S-3/A, filed with the Securities and Exchange Commission on October 10, 2000. During the third quarter of 2000, we issued 31,959 shares of common stock to the shareholders of Precision at a price of $19.15, the average market price of our common stock on the NASDAQ National Market for the ten trading days beginning four days prior to close and ending five days following close, in connection with our acquisition of Precision. 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. These shares were subsequently included in a registration statement on Form S-3/A, filed with the Securities and Exchange Commission on October 10, 2000. 17 During the third quarter of 2000, we issued 87,115 shares of common stock to the former shareholders of Beecroft at a price of $15.44, the average market price of our common stock on the NASDAQ National Market for the ten trading days beginning five days prior to September 30, 2000 and ending four days following September 30, 2000, in connection with provisions contained in the Beecroft purchase agreement that required us to issue additional shares of common stock to the former shareholders of Beecroft if the above referenced average market price was below the average market price calculated for the initial common stock issued upon the acquisition close. 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. 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 18 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: November 10, 2000 19 EXHIBIT INDEX Exhibits Description - --------- ----------- 27. Financial Data Schedule 20 EX-27 2 fds.xfd FINANCIAL DATA SCHEDULE
5 THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 2000, CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES THERETO. 1 U.S.DOLLARS 9-MOS Jan-01-2000 Dec-31-2000 Sep-30-2000 1 14,061,982 0 62,450,870 0 20,805,426 146,856,514 64,354,375 (20,674,024) 255,982,213 38,929,643 0 0 0 89,447,569 34,697,163 255,982,213 227,033,295 227,033,295 165,001,224 165,001,224 6,774,415 0 5,947,837 16,657,348 6,446,457 10,210,891 0 0 0 10,210,891 0.32 0.29
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