-----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, Vc9e89kSJLkAoVtzlBcm5y5bl6YagM2bHOnIRXGHZWe6o9czNncZxUTyMfzPYT71 pnM2ro2fMvDgxsk0AzuZpw== 0000950147-99-001250.txt : 19991115 0000950147-99-001250.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950147-99-001250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99751247 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 THE QTR ENDED 9/30/99 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 SEPTEMBER 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 28,762,748 outstanding at September 30, 1999 INDEX INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated balance sheets - September 30, 1999 (unaudited) and December 31, 1998 2 Consolidated statements of operations (unaudited) Three months ended September 30, 1999 and 1998; Nine months ended September 30, 1999 and 1998 3 Consolidated statements of changes in stockholders' equity (unaudited) - Nine months ended September 30, 1999 4 Consolidated statements of cash flows (unaudited) - Nine months ended September 30, 1999 and 1998 5 Notes to consolidated financial statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 1 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 ------------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,727,604 $ 4,789,547 Accounts receivable, net 39,212,409 22,602,042 Cost and estimated earnings in excess of billings 15,268,457 5,191,428 Inventory, net 18,926,459 16,946,143 Other current assets 3,936,578 1,125,426 ------------- ------------- Total current assets 83,071,507 50,654,586 Property and equipment, net 21,939,248 10,042,072 Intangibles, net 40,327,977 23,168,632 Other 1,255,964 749,099 ------------- ------------- Total assets $ 146,594,696 $ 84,614,389 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable and capital lease obligations $ 27,532,982 $ 8,955,241 Accounts payable 14,736,368 9,464,558 Accrued expenses 4,905,387 2,252,307 Billings in excess of costs and estimated earnings 2,080,619 449,205 Income taxes payable 342,411 3,036,621 Other current liabilities 923,017 -- ------------- ------------- Total current liabilities 50,520,784 24,157,932 Notes payable and capital lease obligations 23,066,577 4,076,308 Other 783,126 822,327 ------------- ------------- Total liabilities 74,370,487 29,056,567 ------------- ------------- Stockholders' equity: Series C 4% convertible preferred stock, no par value, 1,000 shares authorized; 400 shares issued and outstanding at December 31, 1998 -- 306,665 Common Stock, no par value, 100,000,000 shares authorized; 28,968,437 shares issued and 28,762,748 shares outstanding at September 30, 1999; 26,614,018 shares issued and 26,408,329 shares outstanding at December 31, 1998 59,211,227 47,361,495 Additional paid-in capital 2,581,149 2,581,149 Retained earnings 11,261,920 6,138,600 ------------- ------------- 73,054,296 56,387,909 Less: Treasury Stock, 205,689 shares, at cost (830,087) (830,087) ------------- ------------- Total stockholders' equity 72,224,209 55,557,822 ------------- ------------- Total liabilities and stockholders' equity $ 146,594,696 $ 84,614,389 ============= =============
See notes to consolidated financialb statements. 2 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 ------------- ------------- ------------- ------------- (unaudited) Revenues $ 46,981,560 $ 25,685,899 $ 115,587,088 $ 71,757,712 Cost of revenues 36,740,722 17,095,736 86,789,406 47,213,446 ------------- ------------- ------------- ------------- Gross margin 10,240,838 8,590,163 28,797,682 24,544,266 General and administrative 8,242,661 4,201,170 18,316,959 12,256,633 ------------- ------------- ------------- ------------- Income from operations 1,998,177 4,388,993 10,480,723 12,287,633 Other income (expense): Interest income 9,210 87,417 175,109 153,292 Interest expense (876,182) (323,217) (2,019,477) (710,170) Other 23,779 (34,282) 54,017 (72,396) ------------- ------------- ------------- ------------- Income before non-recurring acquisition costs and provision for income taxes 1,154,984 4,118,911 8,690,372 11,658,359 Non-recurring acquisition costs -- (890,000) -- (890,000) ------------- ------------- ------------- ------------- Income before provision for income taxes 1,154,984 3,228,911 8,690,372 10,768,359 Provision for income taxes (582,987) (866,835) (3,563,052) (2,533,229) ------------- ------------- ------------- ------------- Net income $ 571,997 $ 2,362,076 $ 5,127,320 $ 8,235,130 ------------- ------------- ------------- ------------- Preferred stock dividend -- (8,602) (4,000) (46,887) ------------- ------------- ------------- ------------- Net income attributable to common stockholders before proforma provision for income taxes 571,997 2,353,474 5,123,320 8,188,243 Proforma provision for income taxes -- (272,924) -- (1,267,847) ------------- ------------- ------------- ------------- Net income attributable to common stockholders after proforma provision for income taxes $ 571,997 $ 2,080,550 $ 5,123,320 $ 6,920,396 ============= ============= ============= ============= Earnings per common share: Basic $ 0.02 $ 0.09 $ 0.18 $ 0.36 Diluted $ 0.02 $ 0.09 $ 0.17 $ 0.31 Proforma earnings per common share: Basic $ 0.02 $ 0.08 $ 0.18 $ 0.31 Diluted $ 0.02 $ 0.08 $ 0.17 $ 0.26 Shares used in computation: Basic 28,628,588 25,263,581 27,772,649 22,606,672 Diluted 30,275,690 27,704,768 29,574,341 26,876,972
See notes to consolidated financial statements. 3 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Series C Preferred Stock Common Stock -------------------------- -------------------------- Shares Amount Shares Amount ----------- ----------- ----------- ----------- Balance, January 1, 1999 400 $ 306,665 26,614,018 $47,361,495 Current year activity (unaudited): Preferred Stock Dividends 592 4,000 Conversion of Series C Preferred Stock (400) (306,665) 79,840 306,665 Conversion of convertible debt 182,648 1,000,000 Common Stock issued in connection with acquisitions 1,021,271 7,132,711 Common Stock purchased under ESPP 83,593 476,160 Exercise of Common Stock options and warrants 986,475 2,930,196 Net income ----------- ----------- ----------- ----------- Balance, September 30, 1999 (unaudited) -- $ -- 28,968,437 $59,211,227 =========== =========== =========== =========== Additional Retained Treasury Paid-in Capital Earnings Stock Totals ----------- ----------- ----------- ----------- Balance, January 1, 1999 $ 2,581,149 $ 6,138,600 $ (830,087) $55,557,822 Current year activity (unaudited): Preferred Stock Dividends (4,000) -- Conversion of Series C Preferred Stock -- Conversion of convertible debt 1,000,000 Common Stock issued in connection with acquisitions 7,132,711 Common Stock purchased under ESPP 476,160 Exercise of Common Stock options and warrants 2,930,196 Net income 5,127,320 5,127,320 ----------- ----------- ----------- ----------- Balance, September 30, 1999 (unaudited) $ 2,581,149 $11,261,920 $ (830,087) $72,224,209 =========== =========== =========== ===========
See notes to consolidated financial statements. 4 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, --------------------------- 1999 1998 ------------ ------------ (unaudited) Cash flows from operating activities: Net income $ 5,127,320 $ 8,235,130 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 5,831,116 2,377,487 Acquisition fees paid in Common Stock -- 150,000 Changes in assets and liabilities: Increase in accounts receivable (5,033,834) (10,513,676) Increase in costs and estimated earnings in excess of billings, net (6,262,755) (281,792) Increase in inventory (1,792,193) (6,994,628) Increase in other current assets (737,293) (93,001) Increase in other assets (113,323) (546,197) Increase (decrease) in accounts payable (613,171) 3,096,580 Increase (decrease) in accrued expenses (882,521) 1,054,771 Increase (decrease) in income taxes payable (2,720,368) 1,719,951 Increase in other current liabilities 923,017 -- Decrease in other liabilities (440,548) -- ------------ ------------ Net cash used in operating activities (6,714,553) (1,795,375) ------------ ------------ Cash flows from investing activities: Acquistion of property and equipment (11,960,675) (4,709,896) Cash payments made in business acquisitions (11,491,944) (1,402,095) Net assets of businesses acquired 151,015 -- ------------ ------------ Net cash used in investing activities (23,301,604) (6,111,991) ------------ ------------ Cash flows from financing activities: Net borrowings under notes payable and capital lease obligations 27,547,858 2,560,859 Proceeds from exercise of common stock options and warrants 2,930,196 8,891,363 Proceeds from issuance of Common Stock to Employee Stock Purchase Plan 476,160 -- S-Corp shareholder distribution -- (646,412) Purchase of Treasury Stock -- (162,070) ------------ ------------ Net cash provided by financing activities 30,954,214 10,643,740 ------------ ------------ Net increase in cash 938,057 2,736,374 Cash, beginning of period 4,789,547 3,355,875 ------------ ------------ Cash, end of period $ 5,727,604 $ 6,092,249 ============ ============ See notes to consolidated financial statements. 5 INTERNATIONAL FIBERCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS cont'd Nine Months Ended September 30, ----------------------- 1999 1998 ---------- ---------- (unaudited) Supplemental disclosure of non-cash transactions: Common Stock issued in business acquisitions $7,132,711 $ 525,000 Conversion of convertible debt 1,000,000 600,000 Conversion of Series B Preferred Stock -- 1,126,837 Conversion of Series C Preferred Stock 306,665 459,997 Preferred Stock dividends paid in Common Stock 4,000 46,887 Accrued interest paid in Common Stock -- 46,918 Accrued offering costs paid in Common Stock -- 310,323 Issuance of additional shares of Common Stock relating to 1997 private placement -- 1,948,959 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., a C Corporation incorporated in Arizona on December 29, 1972, offers a wide range of services to the communications marketplace throughout the United States through three principle operating segments: Infrastructure Development and Services, Equipment Distribution, and Wireless Technologies. Infrastructure Development and Services represents the Company's primary operating segment and includes design and engineering services, installation, integration and maintenance of underground and aerial fiber optic, copper and broadband communications systems, as well as integrated local and wide area networks. Equipment Distribution services include the purchase and sale of new and used telecommunications equipment used in the digital access, switching and transport systems of communications service providers. Wireless Technologies services include the design, manufacture and installation of proprietary wireless communications equipment used to enhance radio frequency transmission in tunnels, subways and other confined environments. 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, 1999 and the results of its operations for the three and nine month periods ended September 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 nine month periods ended September 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. 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, 1998 and for the three and nine month periods ended September 30, 1998 have been reclassified in the accompanying consolidated financial statements to conform with the current year 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 - INVENTORY: The components of inventory consist of the following: September 30, December 31, 1999 1998 ------------ ------------ New and used telecommunications equipment $ 19,237,623 $ 18,058,880 Cabling and equipment 1,912,846 847,433 Raw materials 179,810 -- ------------ ------------ 21,330,279 18,906,313 Less: allowance for obsolete inventory (2,403,820) (1,960,170) ------------ ------------ $ 18,926,459 $ 16,946,143 ============ ============ NOTE 3 - PROFORMA PROVISION FOR INCOME TAXES: On September 1, 1998, the Company acquired United Tech, Inc. ("United") and Diversitec, Inc. ("Diversitec"). The Company accounted for the acquisitions using the pooling of interests method of accounting whereby the Company exchanged shares of Common Stock for all the outstanding 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, were not subject to federal income taxes prior to the acquisition date. Accordingly, a proforma provision for income taxes has been recorded in the consolidated statements of operations for the period up to the acquisition date as if both companies were subject to federal income taxes for all periods presented. 8 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED) NOTE 4 - STOCKHOLDERS' EQUITY: Earnings per share is as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Numerator: Numerator for basic earnings per share - net income attributable to common stockholders before proforma provision for income taxes $ 571,997 $ 2,353,474 $ 5,123,320 $ 8,188,243 Interest and finance expense on convertible debt 6,001 26,764 31,126 130,341 Preferred Stock dividends -- 8,602 4,000 46,887 ----------- ----------- ----------- ----------- Numerator for diluted earnings per share $ 577,998 $ 2,388,840 $ 5,158,446 $ 8,365,471 =========== =========== =========== =========== Proforma Numerator: Proforma numerator for basic earnings per share - net income attributable to common stockholders after proforma provision for income taxes $ 571,997 $ 2,080,550 $ 5,123,320 $ 6,920,396 Interest and finance expense on convertible debt 6,001 26,764 31,126 130,341 Preferred Stock dividends -- 8,602 4,000 46,887 ----------- ----------- ----------- ----------- Proforma numerator for diluted earnings per share $ 577,998 $ 2,115,916 $ 5,158,446 $ 7,097,624 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted average shares outstanding 28,628,588 25,263,581 27,772,649 22,606,672 ----------- ----------- ----------- ----------- Effect of dilutive securities: Convertible preferred stock -- 163,458 14,631 513,444 Dilutive options and warrants 1,647,102 2,095,081 1,686,036 3,516,186 Convertible debt -- 182,648 101,025 240,670 ----------- ----------- ----------- ----------- Dilutive potential common shares 1,647,102 2,441,187 1,801,692 4,270,300 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share 30,275,690 27,704,768 29,574,341 26,876,972 =========== =========== =========== =========== Earnings per common share: Basic $ 0.02 $ 0.09 $ 0.18 $ 0.36 Diluted $ 0.02 $ 0.09 $ 0.17 $ 0.31 Proforma earnings per common share: Basic $ 0.02 $ 0.08 $ 0.18 $ 0.31 Diluted $ 0.02 $ 0.08 $ 0.17 $ 0.26
9 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED) NOTE 5 - SEGMENT INFORMATION: The Company's operations are classified into three principal segments which include Infrastructure Development and Services, Equipment Distribution, and Wireless Technologies. Infrastructure Development and Services represents the Company's primary operating segment and includes design and engineering services, installation, integration and maintenance of underground and aerial fiber optic, copper and broadband communications systems, and integrated local and wide area networks. Equipment Distribution services include the purchase and sale of new and used telecommunications equipment used in the digital access, switching and transport systems of communications service providers and other Fortune 500 companies. Wireless Technologies services include the design, manufacture and installation of proprietary wireless communications equipment used to enhance radio frequency transmission and reception in tunnels, subways and other confined environments. Segment information for the three months ended September 30, 1999 and 1998 is as follows:
Infrastructure Development Equipment Wireless and Services Distribution Technologies Total ------------ ------------ ------------ ------------ For the three months ended September 30, 1999: Revenues $ 38,934,574 $ 7,433,306 $ 613,680 $ 46,981,560 Gross Profit 8,039,494 2,115,720 85,624 10,240,838 Interest expense 779,255 88,012 8,915 876,182 Depreciation and amortization 2,249,734 325,779 203,744 2,779,257 Operating income (loss) 1,695,107 802,149 (499,079) 1,998,177 For the three months ended September 30, 1998: Revenues $ 16,613,533 $ 9,072,366 $ -- $ 25,685,899 Gross Profit 3,998,527 4,591,636 -- 8,590,163 Interest expense 209,444 113,773 -- 323,217 Depreciation and amortization 480,449 294,046 -- 774,495 Operating income 1,497,037 2,891,956 -- 4,388,993
10 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED) NOTE 5 - SEGMENT INFORMATION (CONTINUED): Segment information for the nine months ended September 30, 1999 and 1998 is as follows:
Infrastructure Development Equipment Wireless and Services Distribution Technologies Total ------------ ------------ ------------ ------------ For the nine months ended September 30, 1999: Revenues $ 90,012,843 $ 23,411,391 $ 2,162,854 $115,587,088 Gross Profit 20,413,427 7,470,060 914,195 28,797,682 Interest expense 1,681,131 329,124 9,222 2,019,477 Depreciation and amortization 4,691,777 919,862 219,477 5,831,116 Operating income 6,820,767 3,643,094 16,862 10,480,723 Assets 96,585,896 43,651,374 6,357,426 146,594,696 For the nine months ended September 30, 1998: Revenues $ 39,493,458 $ 32,264,254 $ -- $ 71,757,712 Gross Profit 8,427,630 16,116,636 -- 24,544,266 Interest expense 431,442 278,728 -- 710,170 Depreciation and amortization 1,488,006 889,481 -- 2,377,487 Operating income 1,995,248 10,292,385 -- 12,287,633 Assets 35,129,572 41,793,184 -- 76,922,756
11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL International FiberCom, Inc. (the "Company") offers a wide range of services and equipment to the communications marketplace. The Company provides services and equipment to communications service providers, Fortune 500 companies, governmental agencies and other private end users. The Company's operations are classified into three principal segments which include Infrastructure Development and Services, Equipment Distribution, and Wireless Technologies. Infrastructure Development and Services (referred to as "Infrastructure" or "Core Business") represents the Company's primary operating segment and includes design and engineering services, installation, integration and maintenance of underground and aerial fiber optic, copper and broadband communications systems, and integrated local and wide area networks. Historically, the Company has presented its engineering, infrastructure development, and systems integration activities as separate operating segments. However, increased revenues from full-service customer relationships which incorporate multiple services offered within the Company's Core Business have resulted in changes in the way the Company manages and analyzes its business. Equipment Distribution services include the purchase and sale of new and used telecommunications equipment used in the digital access, switching and transport systems of communications service providers and other Fortune 500 companies. Wireless Technologies services include the design, manufacture and installation of proprietary wireless communications equipment used to enhance radio frequency transmission and reception in tunnels, subways and other confined environments. The Company derives a substantial portion of its 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 vary from month to month based on changes in estimated project costs. As of September 30, 1999, the Company had backlog relating to contracts accounted for under the percentage of completion method totaling approximately $89.5 million, of which approximately $60 million related to contracts in progress. In July 1999, the Company purchased the net assets of Washington Data Systems ("WDS"). WDS specializes in local and wide area network systems integration and related services and has offices in Maryland, Virginia, New York and Pennsylvania. Under the terms of the agreement, The Company made an initial cash payment of $3 million and future contingent payments totaling up to an additional $10 million may be payable if certain profitability targets are met during the 30-month period following the acquisition. Future contingent payments may be made in either cash or common stock, at the Company's discretion, with a maximum of 60% consisting of common stock. Also in July 1999, 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 $60 million, an increase from the original borrowing limit of $30 million. Borrowings under the Agreement bear interest at either LIBOR plus 175 to 250 basis points, determined based on certain financial covenants, or the prime rate, at the discretion of the Company. In connection with the Agreement, the borrowing limit under the Company's equipment lease line of credit was increased from $5 million to $10 million. 12 RESULTS OF OPERATIONS REVENUES. Revenues for the three and nine months ended September 30, 1999 increased $21.3 million and $43.8 million, or 82.9% and 61.1%, to $47 million and $115.6 million, respectively, as compared to the similar periods in the prior year. The increases were due primarily to revenue growth of $22.3 million and $50.5 million in the Infrastructure Development and Services segment during the three and nine months ended September 30, 1999, respectively, over the comparable periods in the prior year. These increases were the result of incremental revenues from acquisitions made during the year as well as revenue growth from existing subsidiaries. Also contributing to the overall increase in Company revenues was the addition of the Wireless Technologies segment during the first quarter of 1999 which contributed revenues of $614,000 and $2.2 million for the three and nine months ended September 30, 1999, respectively. Partially offsetting revenue growth in the Infrastructure and Wireless segments was a decrease in revenues of $1.6 million and $8.9 million in the Equipment Distribution segment for the quarter and nine months ended September 30, 1999, respectively, over the comparable periods in the prior year. GROSS MARGIN. Gross margin for the three and nine months ended September 30, 1999 increased $1.7 million and $4.3 million, or 19.2% and 17.3%, to $10.2 million and $28.8 million, respectively, as compared to the similar periods in the prior year. The increases were the result of revenue growth in the Infrastructure and Wireless segments, partially offset by a decrease in revenues in the Equipment Distribution segment. Gross margin, as a percentage of revenues, decreased 11.6% and 9.3% to 21.8% and 24.9% for the three and nine months ended September 30, 1999, respectively, as compared to similar periods in the prior year. Such decreases were primarily due to declines in the gross margins within the Equipment distribution segment. Gross margin as a percentage of revenues for the quarter and nine months ended September 30, 1999 were 28.5% and 31.9%, respectively, within the Equipment Distribution segment, as compared to 50.6% and 50.0% for the comparable periods in the prior year. Current year gross margin levels in the Equipment Distribution segment have declined due to changes in market conditions. Gross margin as a percentage of revenues in the Infrastructure segment decreased 3.5% and increased 1.4% for the quarter and nine months ended September 30, 1999, respectively, over the comparable periods in the prior year. The decrease in gross margin as a percentage of revenues in the third quarter was due primarily to unexpected delays in certain contract execution schedules as well as cost overruns related to a non-core municipal utility installation contract. GENERAL AND ADMINISTRATIVE. General and administrative expenses for the quarter and nine months ended September 30, 1999 increased $4 million and $6.1 million, or 96% and 49.4%, to $8.2 million and $18.3 million, respectively, as compared to the similar periods in the prior year. The increases were primarily due to incremental costs associated with acquisitions made during 1999 as well as internal growth of existing subsidiaries. General and administrative expenses, as a percentage of revenues, for the three and nine months ended September 30, 1999 increased 1.2% and decreased 1.3% to 17.5% and 15.8%, respectively, over the comparable periods in the prior year. OTHER INCOME (EXPENSE). Other expenses for the quarter and nine months ended September 30, 1999 increased $570,000 and $1.2 million to $843,000 and $1.8 million, respectively, as compared to the similar periods in the prior year. The increases are primarily due to interest expense on the Company's credit facilities. Borrowing activity has increased significantly during 1999 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 and Services segment. NON-RECURRING ACQUISITION COSTS. Non-recurring acquisition costs were attributable to certain acquisitions made during the third quarter of 1998 accounted for under the pooling of interests method. 13 PROVISION FOR INCOME TAXES. Income taxes for the quarter and nine months ended September 30, 1999 decreased $284,000 and increased $1 million, or 32.7% and 40.7%, to $583,000 and $3.6 million, respectively, as compared to the similar periods in the prior year. The provision for income taxes decreased due to lower current quarter and year to date taxable earnings, offset by a lower effective tax rate in 1998 due to certain acquisitions accounted for under the pooling of interests method in the third quarter of the prior year. Prior to the acquisitions, the companies acquired operated as Subchapter S corporations and, accordingly, were not subject to federal income taxes. A proforma provision for income taxes was recorded for the quarter and nine months ended September 30, 1998 to present income taxes as though the consolidated operating results of the acquired companies had been subject to federal income taxes for all periods presented. NET INCOME. Net income attributable to common stockholders before proforma provision for income taxes for the quarter and nine months ended September 30, 1999 decreased $1.8 million and $3.1 million, or 75.8% and 37.4%, to $572,000 and $5.1 million, respectively, as compared to the similar periods in the prior year. Net income attributable to common stockholders after proforma provision for income taxes decreased $1.5 million and $1.8 million, or 72.5% and 26.0%, respectively, over the comparable periods in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's capital needs relate primarily to equipment needed to support revenue growth and to provide working capital for general corporate purposes, including strategic acquisitions. The Company has historically financed operations through a combination of operating cash flow, lines of credit, and debt and equity offerings. The Company's 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 nine months ended September 30, 1999, net cash used in operations totaled $6,714,553 as compared to $1,795,375 for the comparable period in the prior year. Cash generated from operations during the period totaled $11,881,453 and consisted primarily of net income of $5,127,320, depreciation and amortization totaling $5,831,116 and an increase in other current liabilities of $923,017. Operating assets and liabilities decreased operating cash flow $18,596,006, primarily due to increases in accounts receivable, inventory and costs and estimated earnings in excess of billings and decreases in accounts payable and accrued expenses. During the nine months ended September 30, 1999, the Company used $23,301,604 in investing activities which consisted primarily of equipment purchases totaling $11,960,675 and cash used in business acquisitions totaling $11,491,944. For the nine months ended September 30, 1999, financing activities generated approximately $30,954,214 which consisted primarily of net borrowings under the Company's credit facilities totaling $27,547,858, proceeds from warrant and stock option exercises totaling $2,930,196 and proceeds from stock purchased under the Company's Employee Stock Purchase Plan totaling $476,160. As of September 30, 1999, the Company had a revolving line of credit with a syndication of commercial banks totaling $60 million, with an available balance of approximately $28 million. Additionally, the Company had a $10 million lease line of credit, with an available balance of approximately $4 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 the Company's operations for the next 12 to 18 months. The Company may, however, seek to obtain additional capital through additional debt or equity offerings depending primarily 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. 14 YEAR 2000 COMPLIANCE The Company has reviewed its computer systems to identify those areas that could be adversely affected by Y2K software failures. The Company has converted approximately 90% of its information systems to be Y2K compliant. The compliance effort to date has cost approximately $200,000 and approximately $75,000 is budgeted to complete the remaining required systems' compliance efforts. Certain computer systems acquired in connection with recent acquisitions are not Y2K compliant. However, the Company expects to be 100% compliant with respect to these systems by the end of November 1999. Although the Company anticipates that any future expenditures made in connection with Y2K conversions will not be material, there can be no assurance in this regard. The Company believes that some of its customers, particularly local exchange and long distance carriers and cable system operators may be impacted by the Y2K problem, which in turn may affect the Company. Currently, the Company 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 the Company's financial condition, results of operations or cash flow. However, the Company believes that the diversity in its customer base and services provided will limit the impact of potential delayed customer payments or lost revenues as a result of any adverse effects that Y2K problems may have on companies with whom it transacts business. 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. 15 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. 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:_______________ 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 924632 INTERNATIONAL FIBERCOM INC 1 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 5,727,604 0 39,212,409 0 18,926,459 83,071,507 35,004,519 (13,065,271) 146,594,696 50,520,784 0 0 0 59,211,227 13,012,982 146,594,696 115,587,088 115,816,214 86,789,406 105,106,365 0 0 2,019,477 8,690,372 3,563,052 5,127,320 0 0 (4,000) 5,123,320 .18 .17
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