-----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, HqGgG3Ya5oANgTQwe5FdopT/tYrTtFTtN3srzdVfakF10mVL+7cmkkpCCCAZg9HR mF5u4GZBM5diLUX5vF1H6A== 0000950147-99-000854.txt : 19990813 0000950147-99-000854.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950147-99-000854 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL FIBERCOM INC CENTRAL INDEX KEY: 0000924632 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [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: 99685562 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 QUARTERLY REPORT FOR QTR ENDED 6/30/99 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, 1999 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) 941-1900 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 28,714,317 shares issued and 28,508,628 outstanding at June 30, 1999 INDEX INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets - June 30, 1999 (unaudited) and December 31, 1998 1 Consolidated statements of operations (unaudited) - Three months ended June 30, 1999 and 1998; Six months ended June 30, 1999 and 1998 3 Consolidated statements of changes in stockholders' equity - Six months ended June 30, 1999 (unaudited) and December 31, 1998 4 Consolidated statements of cash flows (unaudited) - Six months ended June 30, 1999 and 1998 5 Notes to consolidated financial statements (unaudited) - June 30, 1999 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 1999 1998 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 3,388,834 $ 4,789,547 Accounts receivable - trade, net of allowance 30,995,344 21,860,773 - other 1,539,022 741,269 Costs and estimated earnings in excess of billings on uncompleted contracts 13,451,944 5,191,428 Inventory, net of allowance (Note 2) 18,081,194 16,946,143 Prepaid expenses 883,205 262,426 Deferred tax asset 1,474,225 863,000 ------------ ------------ Total Current Assets 69,813,768 50,654,586 Property and Equipment, net 18,407,612 10,042,072 Other Assets: Loans receivable related party 205,291 220,200 Goodwill, net 37,687,497 22,855,531 Covenant not to compete, net 274,432 313,101 Other assets 260,364 348,551 Deferred acquisition costs 250,000 125,000 Debt issue costs, net 73,867 55,348 ------------ ------------ 38,751,451 23,917,731 ------------ ------------ Total Assets $126,972,831 $ 84,614,389 ============ ============ See notes to consolidated financial statements. 1 INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1999 1998 ------------ ----------- (Unaudited) Current Liabilities: Notes payable - current portion $ 17,913,435 $ 6,410,568 Notes payable - related party 925,911 2,029,287 Obligations under capital lease - current portion 1,065,878 515,386 Accounts payable 11,689,725 9,464,558 Accrued expenses 3,497,611 2,252,307 Billings in excess of cost and estimated earnings on uncompleted contracts 1,325,246 449,205 Income taxes payable 602,341 3,036,621 ------------ ----------- Total Current Liabilities 37,020,147 24,157,932 Long-Term Liabilities: Notes payable-long term 11,989,898 2,117,522 Notes payable-related party 684,878 1,151,196 Obligations under capital lease - long term 5,241,990 807,590 Deferred income tax payable 1,064,157 822,327 ------------ ----------- Total Long-Term Liabilities 18,980,923 4,898,635 ------------ ----------- Total Liabilities 56,001,070 29,056,567 ------------ ----------- Stockholders' Equity: Series C 4% convertible preferred stock, no par value 1,000 shares authorized, 400 shares issued and outstanding -- 306,665 Common Stock, no par value, 100,000,000 shares authorized; 28,714,317 shares issued and 28,508,628 shares outstanding at June 30, 1999; 26,271,545 shares issued and 26,065,855 shares outstanding at December 31, 1998 58,529,867 47,361,495 Additional paid-in capital 2,581,149 2,581,149 Retained Earnings 10,690,832 6,138,600 ------------ ----------- 71,801,848 56,387,909 Less: treasury stock 205,689 shares, at cost 830,087 830,087 ------------ ----------- Total Stockholders' Equity 70,971,761 55,557,822 ------------ ----------- Total Liabilities and Stockholders' Equity $126,972,831 $84,614,389 ============ =========== See notes to consolidated financial statements. 2 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net sales $40,740,191 $24,395,919 $68,605,528 $46,063,898 Cost of sales 30,645,906 16,257,367 50,048,684 30,762,417 ----------- ----------- ----------- ----------- Gross profit 10,094,285 8,138,552 18,556,844 15,301,481 General and administrative expenses 5,612,808 4,732,523 10,074,299 8,238,972 ----------- ----------- ----------- ----------- Income from operations 4,481,477 3,406,029 8,482,545 7,062,509 Other income (expense): Interest income 43,038 40,941 81,459 72,725 Interest expense (666,230) (177,390) (1,058,856) (325,472) Other income 3,508 24,611 10,922 31,032 Gain on disposal of assets 12,386 2,474 19,317 11,208 ----------- ----------- ----------- ----------- (607,298) (109,364) (947,158) (210,507) ----------- ----------- ----------- ----------- Income before provision for income taxes 3,874,179 3,296,665 7,535,387 6,852,002 Provision for income taxes 1,549,921 1,034,766 2,979,155 1,666,394 ----------- ----------- ----------- ----------- Net income 2,324,258 2,261,899 4,556,232 5,185,608 Preferred stock dividend -- 15,375 4,000 38,285 ----------- ----------- ----------- ----------- Net income attributable to common stockholders before proforma provision for income taxes $ 2,324,258 $ 2,246,524 $ 4,552,232 $ 5,147,323 =========== =========== =========== =========== Proforma provision for income taxes (Note 3) -- 283,900 -- 1,074,407 ----------- ----------- ----------- ----------- Net income attributable to common stockholders after proforma provision for income taxes $ 2,324,258 $ 1,962,624 $ 4,552,232 $ 4,072,916 =========== =========== =========== =========== Proforma earnings per common share (Note 4): Basic $ .08 $ .09 $ .17 $ .19 =========== =========== =========== =========== Diluted $ .08 $ .08 $ .16 $ .16 =========== =========== =========== =========== Earnings per common share: Basic $ .08 $ .10 $ .17 $ .24 =========== =========== =========== =========== Diluted $ .08 $ .09 $ .16 $ .20 =========== =========== =========== =========== Shares used in computing earnings per share: Basic 27,951,006 22,385,382 27,466,712 21,356,201 Diluted 29,730,582 26,821,998 29,408,710 26,378,074
See notes to consolidated financial statements. 3 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1999 AND YEAR ENDED DECEMBER 31, 1998
Preferred Stock Common Stock ------------------------- ----------------------- Series B Series C Shares Amount ----------- --------- ---------- ----------- Stockholders' Equity, January 1, 1998 $ 1,126,837 $ 766,662 19,886,849 $32,390,731 Series B preferred stock conversion 792,046 1,126,837 Series C preferred stock conversion (1,126,837) (459,997) 126,316 459,997 Conversion of 5.5% convertible debentures 480,000 600,000 Accrued Interest paid in stock 7,744 46,948 Public warrants exercises 1,288,930 6,981,453 Non-Employee option/warrant exercises 2,682,632 2,013,393 Employee stock option exercises 788,745 392,150 Common shares purchased under ESPP 139,876 678,305 Riley acquisition 28,236 150,000 General acquisition 17,857 125,000 Dumbauld acquisition Diversitec finders fee 41,885 250,000 Treasury stock repurchase 25,131 150,000 Issuance of repricing shares 300,000 1,948,959 S-Corporation shareholder distribution Preferred stock dividends 7,771 47,722 Net income ----------- --------- ---------- ----------- Stockholders' Equity, December 31, 1998 -- $ 306,665 26,614,018 $47,361,495 Series C preferred stock conversion (306,665) 79,840 306,665 AeroComm acquisition 304,908 2,134,350 Non-employee option/warrant exercises 263,800 689,944 Employee stock option exercises 130,325 259,997 Preferred stock dividends 592 4,000 Net income ----------- --------- ---------- ----------- Stockholders' Equity, March 31, 1999 -- -- 27,393,483 $50,756,451 =========== ========= ========== =========== Additional Paid-In Retained Treasury Capital Earnings Stock Totals ----------- ------------ ---------- ------------ Stockholders' Equity, January 1, 1998 $2,961,109 $(4,570,591) $(668,017) $ 32,006,731 Series B preferred stock conversion -- Series C preferred stock conversion -- Conversion of 5.5% convertible debentures 600,000 Accrued Interest paid in stock 46,948 Public warrants exercises 6,601,493 Non-Employee option/warrant exercises (379,960) 2,013,393 Employee stock option exercises 392,150 Common shares purchased under ESPP 678,305 Riley acquisition 150,000 General acquisition 125,000 Dumbauld acquisition 250,000 Diversitec finders fee 150,000 Treasury stock repurchase (162,070) (162,070) Issuance of repricing shares 1,948,959 S-Corporation shareholder distribution (646,410) (646,410) Preferred stock dividends (47,722) -- Net income 11,403,323 11,403,323 ----------- ----------- --------- ------------ Stockholders' Equity, December 31, 1998 $ 2,581,149 $ 6,138,600 $(830,087) $ 55,557,822 Series C preferred stock conversion -- AeroComm acquisition 2,134,350 Non-employee option/warrant exercises 689,944 Employee stock option exercises 259,997 Preferred stock dividends (4,000) -- Net income 2,231,974 2,231,974 ----------- ----------- --------- ------------ Stockholders' Equity, March 31, 1999 $ 2,581,149 $ 8,366,574 $(830,087) $ 60,874,087 =========== =========== ========= ============
See accompanying notes to consolidated financial statements. 4 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30 -------------------------- 1999 1998 ------------ ----------- Cash flows from operating activities: Net income $ 4,556,232 $ 5,185,608 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 2,377,438 1,624,291 Increase in receivables (4,169,205) (5,164,558) Increase in inventory (1,080,757) (3,424,091) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (6,356,442) (169,097) Decrease (increase) in prepaid expenses 51,561 (8,709) Increase (decrease) in accounts payable (1,437,931) 304,288 Increase (decrease) in accrued expenses (419,510) 1,283,883 Increase in billings in excess of cost and estimated earnings on uncompleted contracts 573,041 311,386 Increase (decrease) in income taxes payable (2,460,438) 861,766 ------------ ----------- Net cash provided (used) by operating activities (8,366,011) 804,767 Cash flows from investing activities: Purchase of property and equipment (6,573,609) (2,754,135) Decrease (increase) in deposits and other assets 889,280 (23,003) Increase in intangible assets (8,491,944) (1,097,385) Purchase accounting acquisitions 75,983 -- Increase in deferred acquisition costs (125,000) (192,624) ------------ ----------- Net cash used by investing activities (14,225,290) (4,067,147) Cash flows from financing activities: Net increase of loans, lease obligations and other long-term liabilities 18,483,828 329,034 Proceeds from warrant and stock option exercises 2,230,600 1,830,142 Proceeds from stock purchased under ESPP 476,160 S-Corp shareholder distribution -- (356,000) Treasury stock repurchase -- (162,070) ------------ ----------- Net cash provided by financing activities 21,190,588 1,641,106 ------------ ----------- Net decrease in cash and cash equivalents (1,400,713) (1,621,274) Cash and cash equivalents, beginning of period 4,789,547 3,355,875 ------------ ----------- Cash and cash equivalents, end of period $ 3,388,834 $ 1,734,601 ============ =========== See notes to consolidated financial statements. 5 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL CASH FLOW DISCLOSURES (UNAUDITED) Six Months Ended June 30 -------------------------- 1999 1998 ---------- ---------- Non-Cash Transactions: Accrued interest paid in Common Stock $ -- $ 46,948 Offering costs paid in Common Stock, Warrants, Options -- 310,323 Common Stock issued relating to Business Acquisitions 7,150,947 -- Convertible debt converted to Common Stock 1,000,000 600,000 Issuance of repricing shares relating to the 1997 private placement -- 1,948,959 Series B Preferred Stock converted to Common Stock -- 1,126,837 Series C Preferred Stock converted to Common Stock 306,665 -- Preferred Stock dividends paid in Common Stock 4,000 22,910 See notes to consolidated financial statements. 6 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Significant accounting policies: Basis of presentation: In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 1999 and the results of its operations for the three and six month periods ended June 30, 1999. 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, 1999 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1999. 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-KSB for the year ended December 31, 1998. 2. Inventory: The components of inventory consist of the following: June 30, December 31, 1999 1998 ------------ ------------ New and used telephone equipment $ 18,993,889 $ 18,058,880 Cabling and equipment 940,491 847,433 Raw Materials 106,984 -- ------------ ------------ 20,041,364 18,906,313 Less: allowance for obsolete inventory (1,960,170) (1,960,170) ------------ ------------ $ 18,081,194 16,946,143 ============ ============ 3. Proforma provision for income taxes: On September 1, 1998, the Company acquired United Tech, Inc. ("United") and Diversitec, Inc. ("Diversitec") under the rules of poolings of interest accounting whereby the Company exchanged shares of Common Stock for all the shares of stock of United and Diversitec. As such, all prior period consolidated financial statements presented have been restated to include the combined results of operations, financial position and cash flows of United and Diversitec as though they have always been a part of the Company. In addition, both United and Diversitec were Subchapter S Corporations for federal tax purposes and, accordingly, did not pay U.S. federal income taxes up to the acquisition date. Therefore, a proforma provision for income taxes is recorded for the period up to the acquisition date as if both companies were C Corporation tax reporting entities since inception. 7 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Stockholders' Equity:
Three Months Ended June 30 Six Months Ended June 30 -------------------------- ------------------------ 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Proforma Numerator: Proforma Numerator for basic earnings per share - net income attributable to common stockholders after proforma provision for income taxes $ 2,324,258 $ 1,962,624 $ 4,552,232 $ 4,072,916 Interest expense and finance expense on convertible debt 6,001 64,037 31,126 103,577 Preferred stock dividends -- 15,375 4,000 38,285 ----------- ----------- ----------- ----------- Proforma Numerator for diluted earnings per share - adjusted net income attributable to common stockholders plus assumed conversions $ 2,330,259 $ 2,042,036 $ 4,587,358 $ 4,214,778 =========== =========== =========== =========== Numerator: Numerator for basic earnings per share - net income attributable to common stockholders before proforma provision for income taxes $ 2,324,258 $ 2,246,524 $ 4,552,232 $ 5,147,323 Interest expense and finance expense on convertible debt 6,001 64,037 31,126 103,577 Preferred stock dividends -- 15,375 4,000 38,285 ----------- ----------- ----------- ----------- Numerator for diluted earnings per share - adjusted net income attributable to common stockholders plus assumed conversions $ 2,330,259 $ 2,325,936 $ 4,587,358 $ 5,289,185 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 27,951,006 22,385,382 27,466,712 21,356,201 Effect of dilutive securities: Convertible preferred stock -- 516,267 22,068 739,099 Dilutive options 1,657,141 3,737,701 1,767,555 4,012,126 Convertible debt 122,435 182,648 152,375 270,648 ----------- ----------- ----------- ----------- Dilutive potential common shares 1,779,576 4,436,616 1,941,998 5,021,873 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares outstanding and assumed conversions 29,730,582 26,821,998 29,408,710 26,378,074 =========== =========== =========== =========== Proforma earnings per common share: Basic $ .08 $ .09 $ .17 $ .19 =========== =========== =========== =========== Diluted $ .08 $ .08 $ .16 $ .16 =========== =========== =========== =========== Earnings per common share Basic $ .08 $ .10 $ .17 $ .24 =========== =========== =========== =========== Diluted $ .08 $ .09 $ .16 $ .20 =========== =========== =========== ===========
8 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Segment Information The Company's operations are classified into five principal reportable segments that provide different products or services. Separate management of each segment is required because each business unit has different marketing, production and technology strategies. Segment information is reported differently from the 1998 annual report to better describe how management currently analyzes its financial information and to consolidate by division how the Company is marketed to the general public and its clients. June 30, 1999 (Three Month Period Ending)
Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----- Revenues $20,912,262 $5,494,030 $5,282,888 $8,426,924 $624,087 $40,740,191 Gross Profit 3,665,478 1,300,638 1,955,296 2,868,549 304,324 10,094,285 Interest Expense 468,363 33,676 58,011 106,180 -- 666,230 Depreciation and Amortization 817,835 139,169 125,088 297,484 21,031 1,400,607 Operating Income 2,161,620 107,554 551,658 1,592,828 67,817 4,481,477 June 30, 1998 (Three Month Period Ending) Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----- Revenues $5,188,404 $5,956,706 $1,745,020 $11,505,789 $ -- $24,395,919 Gross Profit 775,808 1,313,542 146,266 5,902,936 -- 8,138,552 Interest Expense 65,192 3,221 5,430 103,547 -- 177,390 Depreciation and Amortization 503,211 44,781 138,337 310,024 -- 996,353 Operating Income (Loss) 99,581 459,848 (380,691) 3,227,291 -- 3,406,029
9 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Segment Information (Continued) June 30, 1999 (Six Month Period Ending)
Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----- Revenues $30,410,767 $11,249,906 $ 9,417,596 $15,978,085 $1,549,174 $ 68,605,528 Gross Profit 5,829,401 2,960,425 3,584,107 5,354,340 828,571 18,556,844 Interest Expense 600,824 59,412 150,821 247,483 316 1,058,856 Depreciation and Amortization 1,313,032 192,607 253,031 597,324 21,444 2,377,438 Operating Income 3,378,263 721,131 1,096,846 2,788,614 497,691 8,482,545 Assets 53,234,939 12,384,831 10,169,034 44,735,138 6,448,889 126,972,831 June 30, 1998 (Six Month Period Ending) Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----- Revenues $ 7,902,569 $11,655,731 $ 3,314,776 $23,190,822 $ -- $46,063,898 Gross Profit 1,124,234 2,727,770 568,613 10,880,864 -- 15,301,481 Interest Expense 114,368 13,937 17,984 179,183 -- 325,472 Depreciation and Amortization 693,281 80,763 280,286 569,961 -- 1,624,291 Operating Income (Loss) (25,052) 1,082,332 (484,999) 6,490,228 -- 7,062,509 Assets 11,937,472 7,082,794 3,714,198 37,673,382 -- 60,407,846
10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL International FiberCom, Inc. offers a wide variety of services and equipment to the telecommunications, cable television and other related industries through twelve wholly-owned subsidiaries. Unless the context requires otherwise, all references to "we", "our" or "us" refer to International FiberCom, Inc. and its subsidiaries. Our subsidiaries are separated into the following five principal business segments: INFRASTRUCTURE DEVELOPMENT Our Infrastructure Development segment designs, installs and maintains fiber-optic cable networks for cable television and telephone companies, also known as "outside plant development". We have three subsidiaries in this segment: * Kleven Communications, Inc. ("Kleven") * Kleven Communications - CA, Inc. ("Kleven-CA") * All Star Telecom, Inc. ("All Star") Our Systems Integration segment designs, installs and maintains structured cable systems, network hardware, software, workstations and related peripherals, primarily within commercial, industrial and government facilities. We have two subsidiaries in this segment: SYSTEMS INTEGRATION * Concepts in Communications, Inc. ("Concepts") * BlueRidge Solutions, Inc. ("BlueRidge") * Washington Data Systems ("WDS") ENGINEERING Our Engineering segment specializes in the design of fiber-optic video, voice and data networks for cable television and telephone companies. This segment also provides project management, construction management, consulting services and staffing. We have two subsidiaries in this segment: * Compass Communications, Inc. ("Compass") * IFC Staffing, Inc. ("IFC Staffing") EQUIPMENT DISTRIBUTION Our Equipment Distribution segment subsidiaries purchase, sell and deal in new and used telecommunications equipment used in the digital access, switching and transport systems of telephone companies, and other Fortune 500 companies. We have three subsidiaries in this segment: * Southern Communications Products, Inc. ("Southern") * Diversitec, Inc. ("Diversitec") * United Tech, Inc. ("United Tech") WIRELESS Our Wireless segment manufactures and installs specialized wireless telecommunications equipment used to enhance radio frequency transmission and reception in tunnels, subways and other confined environments. * AeroComm, Inc. ("AeroComm") 11 Our strategy is to be a one-stop solution for the telecommunications marketplace. This strategy involves offering a wide range of engineering, consulting and maintenance services for fiber-optic and broadband networks and systems integrated with local area network ("LAN") and wide are network ("WAN") expertise and capabilities. A LAN is a group of personal computers linked together in a building or campus to share programs, data, E-mail, peripherals and other resources. A WAN is a network that covers a large geographic area, such as a state or country. We derive a substantial portion of our revenue from contracts that are accounted for under the percentage of completion method of accounting. Under this method, revenues are recorded as work progresses on a contract. Overall gross margin percentages can increase or decrease based upon changes in the estimated gross margin percentages over the lives of the individual contracts. In April 1999, we purchased all of the outstanding equity securities of All Star. All Star specializes in the engineering, development and maintenance of telecommunications infrastructure systems, including cellular, for the CATV, LEC and CLEC industries. The purchase agreement calls for an initial payment of $3.85 million in cash and the issuance of 592,857 restricted shares of common stock for a total of approximately $8 million. Additional contingent payments (up to $13.5 million) may be payable if All Star meets certain pretax targets over the next 3 years. Future contingent payments may be in cash and common stock, except that over 40% of all proceeds must be paid in stock. The acquisition will be accounted for as a purchase. In July 1999, we purchased the net assets of Washington Data Systems ("WDS"). WDS specializes in systems integration, software development and computer training and has offices in Maryland, Virginia, New York and Pennsylvania. The purchase agreement calls for an initial payment of $3.0 million in cash. Additional contingent payments (up to $10 million) may be payable if WDS meets certain pretax targets over the next 30 months. Future contingent payments may be in cash and common stock (up to 60%) at our discretion. On July 14, 1999, we entered into an Amended and Restated Revolving Line of Credit Agreement with a syndication of commercial banks led by Bank One with Union Bank of California and First Tennessee participating. In February 1999, we entered into the original revolving credit agreement which allowed us to borrow up to $30 million based upon our available borrowing capacity. Under the terms of the new credit agreement we may now borrow up to $60 million. In addition, borrowings under the new agreement will bear interest at either LIBOR plus 175 to 250 basis points, depending upon the ratio of our debt to our earnings, or prime rate at our discretion. Under the original credit agreement our interest rate was LIBOR plus 200 basis points or prime rate at our discretion. In connection with the new credit agreement our $5 million lease financing arrangement was also extended to $10 million. RESULTS OF OPERATIONS NET SALES. Net sales for the second quarter of 1999 increased to $40,740,191 from $24,395,919 for the same period in 1998, an increase of 67%. This increase in sales is primarily attributable to an increase in contract activity in the infrastructure development and engineering segments as well as the addition of All Star's revenue in the second quarter. Infrastructure development and engineering segment revenues increased by over $19.3 million from the comparable quarter of 1998 which offset a reduction in revenues in the equipment distribution segment of approximately $3.1 million. Refer to Note 5 to the financial statements on page F-9 for further breakdown by segment. 12 GROSS PROFIT. Our gross profit increased to $10,094,285 for the second quarter of 1999 compared with $8,138,552 for the same period in 1998. The increase was a result of significant growth in the infrastructure development and engineering segments, as well as the addition of profits from AeroComm and All Star as compared to the 1998 quarter. Such increases offset a reduction in the profit of our equipment distribution segment of approximately $3.0 million. GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses were $5,612,808 for the second quarter of 1999 compared with $4,732,523 for the same period in 1998. As a percentage of net sales, the general and administrative expenses decreased from 19% in the first quarter of 1999 to 14% in the second quarter of 1999. OTHER INCOME (EXPENSE). Our other expenses were $607,298 for the second quarter of 1999 compared with $109,364 for the same period in 1998. This increase is primarily attributable to higher borrowing activity in connection with our acquisitions of All Star and AeroComm in 1999, and Communications Center, Inc., General Communications, Inc., and Riley Communications, Inc. after the second quarter of 1998. All five of the above transactions were in part cash purchases. In addition, we retired approximately $6 million in debt as a part of the consideration for the All Star purchase, using funds available under our line of credit. The increase in other expenses is also partially attributable to increased interest expenses under equipment financing arrangements as a result of substantial equipment purchases in the infrastructure development segment to meet increased demand for that segment's services. PROVISION FOR INCOME TAX. The Company recorded income tax expense of $1,549,921 for the second quarter of 1999 as compared to income tax expense of $1,034,766 for the same period in 1998. On a pro forma basis the provision for income taxes increased from $1,318,666 in the second quarter of 1998 to $1,549,921 in the same period of 1999. The pro forma tax adjustment is stated to reflect the acquisitions of Diversitec and United Tech as explained in Note 3 of the financial statements. NET INCOME. We generated net income of $2,324,258, or approximately 6% of revenues, for the second quarter of 1999 as compared with net income of $1,962,624, after pro forma tax adjustments, or 8% of revenues, for the same period in 1998. PREFERRED STOCK DIVIDEND. We had no preferred stock outstanding during the second quarter of 1999, therefore no dividends were paid. BACKLOG. We had a backlog of approximately $65 million on a work in process basis as of June 30, 1999. We expect such work orders to be completed by June 2000. Further, we have work orders, which were not started as of June 30, 1999, for Cox Communications, Inc., the State of Tennessee, Nike, Inc., TCG, AT&T/BIS, Williams Communication and US West totaling in excess of $15 million. We expect to commence these work orders during the third quarter of 1999 and substantially complete it by June 2000. LIQUIDITY AND CAPITAL RESOURCES OPERATIONS. We have historically financed our operations through a combination of operating cash flow, lines of credit, 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. 13 For the year to date, we used $8,366,011 of net cash from operations. Cash generated from operations of $7,558,272 includes net income of approximately $4,556,232, depreciation and amortization of $2,377,438, a decrease in prepaid expenses of $51,561, and an increase in overbillings of $573,041. Cash expended for operations of $15,924,283, includes an increase in accounts receivable of $4,169,205, an increase in inventory of $1,080,757, an increase in underbillings of $6,356,442, a decrease in accounts payable of $1,437,931, a decrease in accrued expenses of $419,510, and a decrease in income taxes payable of $2,460,438. INVESTING ACTIVITIES. For the six months ended June 30, 1999, we used approximately $14,225,290 in investing activities. Such amount consists of our purchase of fixed assets of approximately $6,573,609, an increase in intangible and other assets of $7,526,681, and an increase in deferred acquisitions cost of $125,000. FINANCING ACTIVITIES. For the six months ended June 30, 1999, our financing activities generated approximately $21,190,588 consisting in part of an increase in loans and other liabilities payable of approximately $18,483,828, proceeds from warrant and stock option exercises of $2,230,600, and proceeds from stock purchased under the ESPP of $476,160. As of June 30, 1999, the Company had a revolving line of credit with Bank One and other participating institutions totaling $60 million, with an available balance of approximately $35 million. We believe that with our current working capital, funds generated through operations and available credit balances on our line of credit we will have sufficient working capital to address the anticipated growth of demand and markets for its products and services for the next 12 to 18 months. We may, however, seek to obtain additional capital through additional debt or equity offerings during this time period. The raising of additional capital in public markets will primarily be dependent 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. YEAR 2000 COMPLIANCE We have reviewed our computer systems to identify those areas that could be adversely affected by Y2K software failures. We have converted approximately 80% of our information systems to be Y2K compliant. The compliance effort to date has cost approximately $140,000 and approximately $140,000 is budgeted to complete the remaining required systems' compliance efforts. Certain computer systems acquired in connection with recent acquisitions are not Y2K compliant. However, we expect to be 100% compliant with respect to these systems by November 1999. Although we expect that any future expenditures made in connection with Y2K conversions will not be material, there can be no assurance in this regard. We believe that some of our customers, particularly local exchange and long distance carriers and cable system operators may be impacted by the Y2K problem, which in turn may affect us. Currently, we cannot predict the effect that Y2K problems may have on companies with whom it transacts business and there cannot be any assurance that these problems will not materially and adversely affect our financial condition, cash flow or results of operations. As a result of this uncertainty, we formulated a contingency plan to address the possible effects of problems encountered as a result of Y2K issues. 14 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. The Company is 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. ITEMS 2 AND 3 ARE OMITTED BECAUSE THESE ITEMS ARE INAPPLICABLE TO THIS REPORT. ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS. We held our 1999 Annual Meeting of Shareholders on July 2, 1999. The following Directors were elected for terms which will expire at the 2000 Annual Meeting of Shareholders: Joseph P. Kealy, Jerry A. Kleven, Richard J. Seminoff, V.Thompson Brown, Jr., John F. Kealy, C. James Jensen, and John P. Stephens. The shareholders also approved the ratification of BDO Seidman, LLP as our independent auditors for the fiscal year ended December 31, 1999 with 21,136,679 shares voting for, 61,789 shares voting against and 38,523 shares abstaining. ITEMS 5 AND 6 ARE OMITTED BECAUSE THESE ITEMS ARE INAPPLICABLE TO THIS REPORT. 15 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 12, 1999 --------------- 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 924632 INTERNATIONAL FIBERCOM INC 1 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 3,388,834 0 32,534,366 0 18,081,194 69,813,768 27,140,143 (8,732,531) 126,972,831 37,020,147 0 0 0 58,529,867 12,441,894 126,972,831 68,605,528 68,717,226 50,048,684 60,122,983 0 0 1,058,856 7,535,387 2,979,155 4,556,232 0 0 (4,000) 4,552,232 .17 .16
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