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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-79743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ORIUS CORP.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 1731 65-0894212
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
WILLIAM J. MERCURIO
1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
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COPIES TO
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DONN A. BELOFF JORGE L. FREELAND
AKERMAN, SENTERFITT & EIDSON, P.A. WHITE & CASE LLP
450 EAST LAS OLAS BOULEVARD 200 S. BISCAYNE BOULEVARD
FORT LAUDERDALE, FLORIDA 33301 MIAMI, FLORIDA 33131
954-463-2700 305-371-2700
954-463-2224 (FACSIMILE) 305-358-5744 (FACSIMILE)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the earlier offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE OFFERING PRICE REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common stock, par value
$.0001 per share........ 12,305,000 shs. $16.00 $196,880,000 $54,733
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</TABLE>
(1) Includes 1,605,000 shares of common stock issuable pursuant to an
over-allotment option granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) $41,700 previously paid and $13,033 paid with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, JULY , 1999
(ORIUS LOGO)
10,700,000 SHARES
COMMON STOCK
Orius is a leading provider of installation, design, engineering and maintenance
services for the telecommunications and cable television systems industry in the
United States. This is our initial public offering of shares of common stock. We
are offering 7,400,000 shares and selling stockholders are offering 3,300,000
shares. Orius will not receive any proceeds from the sale of the shares of
common stock by the selling stockholders.
No public market currently exists for our shares. We intend to list the shares
on the New York Stock Exchange under the symbol "ORS." We expect that the
initial public offering price will be between $14.00 and $16.00 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS, PROCEEDS
PRICE TO DISCOUNTS AND BEFORE EXPENSES, TO SELLING
PUBLIC COMMISSIONS TO ORIUS STOCKHOLDERS
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<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL $ $ $ $
</TABLE>
We and the selling stockholders have granted the underwriters an option to
purchase up to 1,605,000 additional shares of common stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any.
-------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares of common stock to investors in
Baltimore, Maryland on , 1999.
DEUTSCHE BANC ALEX. BROWN BANC OF AMERICA SECURITIES LLC
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 1999.
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MAP OF CONTINENTAL UNITED STATES INDICATING ORIUS' HEADQUARTERS AND PROJECT
LOCATIONS AS OF JUNE 30, 1999.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Orius, its financial statements and the related notes
appearing elsewhere in this prospectus. Unless otherwise indicated, all
information contained in this prospectus has been adjusted to reflect a 10.3609
for one stock split to be effected immediately prior to the closing of this
offering.
OUR COMPANY
We are a leading provider of installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry in the United States. We also install, design, engineer and maintain
interior wiring for integrated voice, data and video networks in commercial,
institutional and governmental facilities. Our customers utilize our services to
add capacity to their existing networks, expand their networks into new
geographic markets and maintain their existing fiber-optic, coaxial and copper
cable networks.
Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Jones
Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox Communications,
Charter Communications and Digital Teleport. Approximately 80% of our pro forma
revenues in 1998 were generated from repeat customers, often under turnkey or
master service agreements. The demand for our services has accelerated as:
- traditional telecommunications and cable television industries have
converged
- our customers have encountered rapid growth in voice and data traffic
over their networks, and
- many of our customers have identified outsourcing as an efficient means
to expand, maintain and replace their communication networks.
We were formed in August 1997 to create a nationwide provider of
comprehensive services for telecommunications providers and cable television
system operators. We have completed 13 acquisitions since March 1998 and
currently perform work nationwide. We had pro forma revenues for the year ended
December 31, 1998 of approximately $265 million, of which 47% was from services
provided to cable television system operators, 29% was from services provided to
telecommunications providers and 24% was from interior wiring and other
services.
We estimate that the market for installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry exceeded $15 billion in 1998. We believe that our industry presents
substantial growth opportunities for large companies with broad geographic
coverage, comprehensive technical capabilities, and responsive and quality
service. Growth in our industry has been driven by the following trends:
- deregulation
- increased voice and data traffic on telecommunications networks
- increased outsourcing
- consolidation of telecommunications providers and cable television system
operators
- emergence of preferred service providers, and
- consolidation of our fragmented industry.
To enhance our position as a leading provider of comprehensive
installation, design, engineering and maintenance services, we intend to
supplement our internal growth with selective acquisitions. The businesses we
have acquired have achieved internal growth on a combined basis at a compound
annual rate of 16% between 1996 and 1998. As the size of,
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and services offered by, telecommunications providers and cable television
system operators have expanded, these operators are increasingly requiring
providers of installation, design, engineering and maintenance services to offer
these services simultaneously in multiple geographic regions. Many of the
smaller companies in our industry do not have the financial resources necessary
to provide comprehensive services over a broad geographic area or the ability to
manage multiple projects. As a result, we believe that there will continue to be
consolidation within our industry and a large number of attractive acquisition
candidates.
BACKGROUND
Our company was formed by members of our senior management team to create a
nationwide provider of comprehensive installation, design, engineering and
maintenance services to the telecommunications and cable television systems
industry. The founding members of our executive management each have an average
of 30 years of experience within our industry. In March 1998, we acquired four
businesses with operations in 28 states that provide installation, design,
engineering and maintenance services to cable television system operators. These
businesses had combined 1998 revenues of approximately $66 million. Principal
customers of these businesses include TCI, Adelphia, Time Warner, Cablevision,
Ameritech, Bell Atlantic and Jones Intercable.
In June 1998 and August 1998, we acquired four additional businesses with
operations in 16 states that expanded our geographic coverage and resources to
service cable television system operators and enabled us to broaden our customer
base to include telecommunications providers. These additional acquisitions had
combined 1998 revenues of approximately $56 million. Principal customers of
these businesses include MediaOne, Cox Communications, Falcon, Media Com and
Intermedia.
RECENT DEVELOPMENTS
Recent Acquisitions
In February 1999, we acquired four additional businesses with operations in
17 states and combined 1998 revenues of approximately $113 million. These
companies offer installation, design, engineering and maintenance services to
the telecommunications and cable television systems industry primarily to
telecommunications providers and, to a lesser extent, cable television system
operators, and interior wiring services to a variety of commercial and
government entities.
In May 1999, we acquired Texel Corporation with operations in six states
and the District of Columbia and 1998 revenues of approximately $30 million.
Texel provides interior wiring services to commercial, institutional and
government entities.
New Credit Facility
In June 1999, we received a commitment for a new revolving credit facility
in the amount of $150 million. This facility will be provided by a group of
banks and other financial institutions led by Bank of America, N.A. We expect to
enter into this facility following the closing of this offering. The facility
will mature approximately five years after the date of the closing of the
facility.
Orius is a Delaware corporation and our principal executive offices are
located at 1401 Forum Way, Suite 400, West Palm Beach, Florida 33401. Our
telephone number is (561) 687-8300.
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THE OFFERING
The following information, and similar information throughout this
prospectus relating to shares to be outstanding after this offering, assumes
that (1) the underwriters do not exercise the option granted by us to purchase
up to 1,605,000 additional shares of common stock and (2) all outstanding shares
of preferred stock, the junior convertible promissory note and 339,983 warrants
are converted into shares of common stock immediately prior to the closing of
this offering. References to outstanding shares exclude 746,773 shares of common
stock issuable upon exercise of outstanding warrants and options at a weighted
average exercise price of $5.87 per share, and 2,285,098 shares reserved for
future grants under our stock option plan.
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Common stock offered by Orius................ 7,400,000 shares
Common stock offered by the selling
stockholders............................... 3,300,000 shares
Total........................................ 10,700,000 shares
Common stock to be outstanding after this
offering................................... 29,253,227 shares
Use of proceeds.............................. We will use the net proceeds of this offering
to reduce existing indebtedness and for
general corporate purposes, including
possible acquisitions.
Over-allotment option........................ We and the selling stockholders have granted
the underwriters an option to purchase up to
1,605,000 additional shares of common stock.
Proposed New York Stock Exchange symbol...... ORS
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We were formed in August 1997 to create a nationwide provider of
installation, design, engineering and maintenance services to the
telecommunications and cable television systems industry. We acquired eight
businesses in 1998 and five additional businesses in 1999. While the businesses
were acquired at various dates during 1998 and 1999, the following pro forma
statements of operations are presented as if all such acquisitions and this
offering had occurred on January 1, 1998. The following pro forma balance sheet
gives effect to the Texel acquisition and this offering as if they had occurred
on March 31, 1999.
The unaudited pro forma financial information presented below is intended
to give you a better understanding of what the results of the operations and
financial position of all of our businesses might have looked like had they been
combined as of January 1, 1998. We prepared the pro forma statements of
operations by combining the historical results of each acquired company as if it
had been acquired on January 1, 1998 with our historical financial statements.
We then adjusted the combined amounts for the effects of certain other pro forma
adjustments discussed in the footnotes below and the consummation of this
offering. The acquired businesses may have performed differently if they had
been combined as of January 1, 1998. You should not rely on the pro forma
information as being indicative of the historical results that we would have had
or the future results that we will experience.
You should read the summary financial data presented below in conjunction
with the information contained in "Selected Pro Forma Financial Data," "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the related notes appearing elsewhere in this prospectus.
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<CAPTION>
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
-------------------------------- ---------------------- --------------------------------
PRO FORMA, PRO FORMA, PRO FORMA,
PRO AS PRO AS PRO AS
ACTUAL FORMA(A) ADJUSTED(B) FORMA(A) ADJUSTED(B) ACTUAL FORMA(A) ADJUSTED(B)
------ -------- ----------- -------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:................... $81,551 $264,740 $264,740 $52,519 $52,519 $46,069 $68,156 $68,156
Expenses:
Direct costs.............. 59,896 193,455 193,455 40,425 40,425 36,224 51,703 51,703
General and
administrative.......... 8,645 24,788 24,788 5,140 5,140 4,540 6,925 6,925
Depreciation and
amortization............ 3,567 9,724 9,724 2,431 2,431 1,808 2,431 2,431
------- -------- -------- ------- ------- ------- ------- -------
Total................. 72,108 227,967 227,967 47,996 47,996 42,572 61,059 61,059
Income from operations...... 9,443 36,773 36,773 4,523 4,523 3,497 7,097 7,097
Other (Income) Expense:
Interest expense, net..... 2,508 14,261 4,140 3,565 1,035 2,160 3,565 1,035
Other (income) expense.... (72) (225) (225) (70) (70) (26) 29 29
------- -------- -------- ------- ------- ------- ------- -------
Income before income tax
provision and
extraordinary charge...... 7,007 22,737 32,858 1,028 3,558 1,363 3,503 6,033
Provision for income taxes.. 3,283 9,891 14,294 447 1,548 692 1,503 2,588
------- -------- -------- ------- ------- ------- ------- -------
Income before extraordinary
charge.................... $ 3,724 $ 12,846 $ 18,564 $ 581 $ 2,010 $ 671 $ 2,000 $ 3,445
======= ======== ======== ======= ======= ======= ======= =======
PRO FORMA PER SHARE DATA:
Diluted earnings per share.. $ 0.63 $ 0.07 $ 0.12
Diluted shares outstanding.. 29,518 29,518 29,518
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AT MARCH 31, 1999
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PRO FORMA,
ACTUAL PRO FORMA(A) AS ADJUSTED(B)
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BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ -- $ 2,126 $ 2,126
Working capital............................................ 37,810 40,984 62,805
Property and equipment, net................................ 35,314 36,324 36,324
Total assets............................................... 198,694 233,363 230,887
Long term debt............................................. 111,329 134,779 56,718
Convertible preferred stock and redemption rights on junior
convertible subordinated note............................ 21,526 21,526 --
Total stockholders' equity................................. 8,815 11,836 130,768
</TABLE>
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(a) For an explanation of the calculation of the pro forma adjustments, see
"Selected Pro forma Financial Data."
(b) Adjusted to give effect to the sale of the shares of common stock offered by
us, the conversion of the convertible preferred stock and junior convertible
subordinated note and 339,983 warrants, and the application of the net
proceeds therefrom. See "Use of Proceeds."
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our operations.
If any of the following risks actually materialize, our business, financial
condition or results of operations could be materially and adversely affected.
In such case, the trading price of our common stock could decline and you may
lose all or part of your investment.
WE MAY BE UNSUCCESSFUL IN INTEGRATING AND MANAGING THE COMPANIES WE ACQUIRE AND
THEREFORE WE MAY NOT ACHIEVE DESIRED OPERATING EFFICIENCIES
If we are unable to integrate or successfully manage the companies we have
acquired or may acquire in the future, we may not realize our anticipated cost
savings and revenue growth which may result in reduced profitability or
operating losses. To manage the combined enterprise on a profitable basis, we
must continue to institute common systems and procedures. We intend to continue
to integrate the computer, accounting and financial reporting systems, and some
of the operational, administrative, banking and insurance procedures of the
businesses we have acquired or may acquire in the future. However, we cannot be
certain that we will successfully institute these common systems and procedures
without substantial costs, delays or other operational or financial problems. In
addition, we cannot be certain that our recently assembled management group will
be able to successfully manage as a combined entity the businesses we have
acquired or may acquire in the future.
OUR SUBSIDIARIES HAVE A LARGE DEGREE OF OPERATING INDEPENDENCE WHICH COULD
RESULT IN INCONSISTENT OPERATIONS AND FINANCIAL PRACTICES
A key element of our strategy to increase the profitability and revenues of
the businesses we acquire is to operate such businesses on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and the internal growth of the individual business. If we do not
implement proper overall business controls, this strategy could result in
inconsistent operating and financial practices at the businesses we acquire, and
our overall profitability could be adversely affected.
OUR HISTORICAL AND PROPOSED GROWTH BY ACQUISITION MAY ADVERSELY AFFECT OUR
OPERATING RESULTS
Acquisitions involve a number of special risks including:
- failure of the acquired businesses to achieve the results we expect
- diversion of our management's attention from operational matters
- our inability to retain key personnel of the acquired businesses
- risks associated with unanticipated events or liabilities
- the potential disruption of our business, and
- customer dissatisfaction or performance problems at the acquired
business.
We expect to face competition for acquisition candidates, which may limit
the number of our acquisition opportunities and may lead to higher acquisition
prices. The realization of all or any of these risks could materially and
adversely affect the reputation of our company and our combined results of
operations.
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WE MAY NOT BE ABLE TO CONTINUE OUR GROWTH THROUGH ACQUISITIONS
We may be unable to support our growth strategy through acquisitions if we
cannot finance future acquisitions. We may use our common stock for all or a
portion of the consideration for future acquisitions. If our common stock does
not maintain a sufficient market value or potential acquisition candidates are
unwilling to accept our common stock as part of the consideration for the sale
of their businesses, we may be required to utilize more of our cash resources to
pursue our acquisition program. Using cash for acquisitions limits our financial
flexibility and makes us more likely to seek additional capital through future
debt or equity financings. If we seek more debt, we may have to agree to
financial covenants that limit our operational and financial flexibility. When
we seek additional debt or equity financings, we cannot be certain that
additional debt or equity will be available to us at all or on terms acceptable
to us. We are required to obtain the consent of our lenders for acquisitions
which exceed minimum levels of cash consideration. We cannot readily predict the
timing, size and success of our acquisition efforts or the capital we will need
for these efforts.
ALL OF OUR CONTRACTS CAN BE CANCELED ON SHORT NOTICE
All of our contracts are cancelable upon 30, 60 or 90 days notice.
Accordingly, we cannot give assurance that our future revenues will approximate
our historical performance. If any canceled contracts are not replaced with
contracts from other customers, or if we do not receive orders under our master
service agreements, our revenues would decrease, we would be unable to meet our
fixed expenses and our profitability would be materially and adversely affected.
All of our $368 million backlog at March 31, 1999 can be canceled at any
time without penalty, except, in some cases, for the recovery of our actual
committed costs and profit on work performed up to the date of cancellation.
Cancellations of pending purchase orders or terminations or reductions of
purchase orders in progress from our customers could have a material adverse
effect on our business, as discussed in the prior paragraph. Our backlog may
fluctuate and does not necessarily indicate the amount of future sales.
OUR MASTER SERVICE AGREEMENTS AND TURNKEY AGREEMENTS SUBJECT US TO UNCERTAIN
REVENUE GROWTH AND SUBSTANTIAL UNREIMBURSED EXPENDITURES
A significant decline in work assigned to us under our master service
agreements and our turnkey agreements could materially and adversely affect our
results of operations due to a decline in revenue and our inability to offset
expenditures for working capital and equipment. Under our master service
agreements, we may be one of several companies that perform services for the
customer and our customers have no obligation to undertake any installation
projects or other work with us. Therefore, despite the long-term nature of these
master service agreements, they do not give us the security that typical
long-term contracts may provide. Under our turnkey agreements, the substantial
working capital and equipment required during the initial stages of these
agreements and the fixed unit-priced nature of these agreements subject us to
additional risks.
WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES
Our ability to provide high-quality services on a timely basis requires
that we employ an adequate number of skilled engineers, equipment operators,
linemen, foremen, cable and fiber splicers and project managers. Accordingly,
our ability to increase our productivity and profitability will be limited by
our ability to attract, train and retain skilled personnel. We, like many of our
competitors, are currently experiencing shortages of qualified personnel. We
cannot be certain that we will be able to maintain an adequate skilled labor
force necessary to
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operate efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the supply of skilled
personnel.
TECHNOLOGICAL CHANGES COULD REDUCE DEMAND FOR OUR SERVICES
New technologies could reduce the need for installation, repair and
replacement of wireline services, which could reduce the demand for our
business. Our industry is subject to rapid changes in technology. Wireline
systems used for the transmission of video, voice and data are subject to
potential displacement by various technologies, including wireless technologies.
Our customers may develop new technologies that allow users to receive enhanced
services without a significant upgrade of their existing telecommunications
networks.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES IN THE INDUSTRY
Our industry is highly competitive and is served by numerous small,
owner-operated private companies, a few public companies and several large
regional companies. Accordingly, we cannot assure you that we will be able to
maintain or enhance our competitive position. There are no substantial barriers
to entry in our industry and we expect that competition will intensify in the
future. As a result, any organization that has adequate financial resources and
access to technical expertise may become one of our competitors. Competition in
the industry depends on a number of factors, including price. Our competitors
may have lower overhead cost structures and may, therefore, be able to provide
their services at lower rates than we can provide such services. Our competitors
have greater market presence, engineering and marketing capabilities, and
financial, technological and personnel resources than those available to us. As
a result, they may be able to develop and expand their customer base more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than we can. We also face competition from the in-house
service organizations of our existing or prospective customers which often
employ personnel who perform some of the same types of services as we do.
WE HAVE EXPERIENCED AND EXPECT TO CONTINUE TO EXPERIENCE QUARTERLY VARIATIONS IN
REVENUES AND NET INCOME
Quarterly variations in our revenues and net income result from many
factors, including:
- the timing of acquisitions
- variations in the margins of projects performed during any particular
quarter
- the timing and volume of work under new agreements
- the budgetary spending patterns of customers
- the termination of existing agreements
- costs we incur to support growth internally or through acquisitions or
otherwise
- the change in mix of our customers, contracts and business
- increases in construction and design costs, and
- general economic conditions.
Our revenues and net income in the first quarter and the fourth quarter
have in the past been, and may in the future be, materially and negatively
affected by adverse weather conditions and the year-end budgetary spending
patterns of our customers.
THE DEPARTURE OF KEY PERSONNEL COULD DISRUPT OUR BUSINESS
We depend upon the continued services and experience of our senior
management team, including William J. Mercurio, our President and Chief
Executive Officer, and of the managers of
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businesses we acquire. The loss of the services of any of our key employees
could have a material adverse effect on our business by disrupting our business
plan and growth strategy.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Those sales might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
29,253,227 shares of common stock, and options and warrants to acquire 746,773
shares of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the 10,700,000 shares offered by this prospectus are
freely tradable and the remaining 18,553,227 shares of common stock held by
existing stockholders on completion of this offering will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules 144
or 701 promulgated under the Securities Act. All of the shares outstanding prior
to completion of this offering are subject to contractual restrictions that
prohibit the stockholders from selling or otherwise disposing of such shares for
a period of 180 days after the date of this prospectus without the prior written
consent of Deutsche Bank Securities, Inc. After 180 days following the
completion of this offering, we intend to file a registration statement under
the Securities Act to register 3,000,000 shares of common stock issuable on
exercise of stock options or other awards granted or to be granted under our
existing stock option plan, which shares will be freely saleable in the public
market immediately following exercise of such options.
ANTI-TAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS COULD MAKE
AN ACQUISITION OF OUR COMPANY MORE DIFFICULT
Our certificate of incorporation provides that our Board of Directors may
issue preferred stock without stockholder approval. Our bylaws provide for
staggered terms for the members of our Board of Directors and impose limitations
on the ability of stockholders to propose matters to be voted on at our annual
meeting. These provisions could make it more difficult for a third party to
acquire us.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK
There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us and may not be
indicative of prices that will prevail in the trading market.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The trading price of our common stock could be subject to fluctuations in
response to the following factors:
- variations in our results of operations
- developments that affect the industry
- the overall economy, and
- the financial markets.
11
<PAGE> 13
The market price of our common stock is also influenced by market
conditions for the common stock of our competitors and by changes in
recommendations or earnings estimates by securities analysts.
THE BOOK VALUE OF YOUR COMMON STOCK WILL BE SUBSTANTIALLY DILUTED IN THIS
OFFERING
The price you will pay for our common stock will be substantially higher
than the pro forma tangible book value per share of our common stock. As a
result, you will experience immediate and substantial dilution of $13.84 per
share in tangible book value, and the existing stockholders of our company will
receive a material increase in the tangible book value per share of their shares
of common stock. You will experience additional dilution as a result of common
stock being issued upon the exercise of outstanding stock options and warrants.
To implement our acquisition strategy, we intend to issue additional shares of
common stock in connection with future acquisitions, which may result in
additional dilution.
THE YEAR 2000 PROBLEM COULD DISRUPT OUR BUSINESS
Many computer programs and applications define the applicable year using
two digits rather than four. The "Year 2000 problem" refers to the inability of
these computer programs on and after January 1, 2000 to recognize that "00"
refers to "2000" rather than "1900." The term "Year 2000 compliant" means a
computer or a computer system that has been designed or modified to recognize
dates on and after January 1, 2000. We are in the process of upgrading our
information systems which we expect to be Year 2000 compliant. We have initiated
an audit of our third-party vendors, suppliers and customers to determine their
readiness for the Year 2000 problem. We cannot be certain that unexpected Year
2000 compliance problems of our systems or of our vendors, suppliers and
customers will not materially and adversely affect our business, financial
condition or operating results. The unanticipated failure of one of these
systems to properly recognize date information beyond the year 1999 could have a
significant adverse impact on our ability to deliver services to customers and
to manage our continuing operations.
12
<PAGE> 14
USE OF PROCEEDS
We estimate that we will receive net proceeds of $101.4 million from the
sale of the 7,400,000 shares of common stock offered by us, assuming a public
offering price of $15.00 per share and after deducting underwriting discounts
and estimated expenses payable by us, of $9.6 million. The estimated net
proceeds will be $ million if the underwriters' over-allotment option is
exercised in full. We will not receive any portion of the proceeds from the sale
of shares of common stock by the selling stockholders.
We intend to use the net proceeds of the offering to reduce outstanding
indebtedness under our credit facility. As of June 30, 1999, approximately $167
million was outstanding under our credit facility. The indebtedness to be repaid
out of the net proceeds from the offering consists of $55.7 million of term
loans bearing interest at LIBOR plus a 3.0% margin and due on February 26, 2004,
and $44.7 million of term loans, bearing interest at LIBOR plus a 3.75% margin
and due on February 26, 2005. This indebtedness was incurred under our credit
facility in connection with our prior acquisitions.
We intend to use the balance of the estimated net proceeds, if any, for
acquisitions, capital expenditures and working capital. Pending such uses, we
intend to invest the net proceeds in interest-bearing, investment-grade
instruments, certificates of deposit, or direct or guaranteed obligations of the
United States. We continually evaluate potential acquisition candidates and
intend to continue to pursue selective acquisition opportunities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock and we do
not anticipate paying any cash dividends in the near future. Our current and
proposed credit facilities prohibit the payment of dividends on our common
stock. We currently intend to retain future earnings, if any, to finance
operations and the expansion of our business. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
dependent upon our financial condition, operating results, capital requirements
and such other factors as the Board of Directors deems relevant.
13
<PAGE> 15
CAPITALIZATION
The table below sets forth the following:
- our actual capitalization as of March 31, 1999
- our capitalization on a pro forma basis after giving effect to the
acquisition of Texel accounted for as a purchase, and
- our capitalization on a pro forma basis after giving effect to the
acquisition of Texel, as adjusted to give effect to our sale of 7,400,000
shares and application of the estimated net proceeds from this offering
as described in "Use of Proceeds."
This table should be read in conjunction with our financial statements and
related notes and the Selected Pro Forma Financial Data and related notes, which
are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
(IN THOUSANDS)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term debt:
Credit facility........................................ $110,250 $133,700 $ --
New senior credit facility............................. -- -- 55,639
Other.................................................. 1,079 1,079 1,079
-------- -------- --------
Total long-term debt........................... 111,329 134,779 56,718
-------- -------- --------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares outstanding.................... 10,017 10,017 --
Series B, 7,596.38 shares outstanding.................. 10,453 10,453 --
Value of redemption rights associated with junior
subordinated convertible note(1)....................... 1,056 1,056 --
-------- -------- --------
21,526 21,526 --
-------- -------- --------
Stockholders' equity:
Warrants............................................... 869 869 75
Common stock, $0.0001 par value, 47,000,000 shares
authorized; 13,421,163 shares issued on an actual
basis; 14,451,499 shares issued on a pro forma
basis; 29,253,227 shares issued on a pro forma as
adjusted basis...................................... 1 1 3
Additional paid-in-capital............................. 7,945 10,966 130,690
Retained earnings...................................... -- -- --
-------- -------- --------
Total stockholders' equity..................... 8,815 11,836 130,768
-------- -------- --------
Total capitalization........................... $141,670 $168,141 $187,486
======== ======== ========
</TABLE>
- ---------------------
(1) The Company will convert the junior subordinated note into 692,626 shares of
common stock immediately prior to the closing of this offering.
14
<PAGE> 16
DILUTION
The pro forma negative net tangible book value of our common stock as of
March 31, 1999, was $(63.5) million or $(2.90) per share of common stock. Pro
forma negative net tangible book value per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities, after
giving effect to the acquisition of Texel, divided by the number of shares of
common stock outstanding immediately prior to this offering.
After giving effect to our sale of 7,400,000 shares of common stock in this
offering and after deduction of the underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of March
31, 1999, would have been approximately $33.9 million, or $1.16 per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of approximately $4.06 per share to existing stockholders and an
immediate dilution of $13.26 per share to new investors purchasing common stock
in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Offering price per share.................................... $15.00
Pro forma negative net tangible book value per share prior
to this offering.......................................... $(2.90)
Increase in pro forma net tangible book value per share to
existing stockholders..................................... $ 4.06
Pro forma net tangible book value per share after the
offering.................................................. $ 1.16
Dilution per share to new investors......................... $13.84
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on the initial
public offering price:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT NUMBER PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 21,853,227(1) 74.7% 34,682,042 23.8% $ 1.59
New investors................. 7,400,000 25.3 111,000,000 76.2 15.00
---------- ----- ----------- ----- ------
Total............... 29,253,227 100.0% 145,682,042 100.0% $ 4.98
========== ===== =========== ===== ======
</TABLE>
The table excludes 746,773 shares of common stock issuable upon exercise of
outstanding warrants and options at a weighted average exercise price of $5.87
per share, and 2,285,098 shares reserved for future grants under our stock
option plan. We may also issue additional shares to acquire additional
businesses or upon exercise of stock options granted in the future, which could
result in additional dilution to our stockholders.
- ---------------
(1) Includes 14,101,791 shares of common stock owned by our executive officers
and directors and their affiliates.
15
<PAGE> 17
SELECTED PRO FORMA FINANCIAL DATA
We were formed in August 1997 to create a nationwide provider of
installation, design, engineering and maintenance services to the
telecommunications and cable television systems industry. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following pro forma statements of operations are
presented as if all such acquisitions and this offering had occurred on January
1, 1998. The following pro forma balance sheet gives effect to the Texel
acquisition and this offering as if they had occurred on March 31, 1999.
The following selected pro forma financial data has been derived from (1)
our financial information, which includes information for the acquired
businesses and, when applicable, includes adjustments to conform fiscal periods
to calendar periods, (2) the audited financial statements and notes thereto of
certain of the acquired businesses for certain periods and (3) our audited
financial statements and notes thereto since inception, which financial
statements appear elsewhere in this prospectus.
The selected pro forma financial data has been prepared for comparative
purposes only and do not purport to be indicative of the results which would
have been achieved had the acquired businesses been purchased and this offering
consummated as of the assumed dates, nor are the results indicative of our
future results. The selected pro forma financial data should be read in
conjunction with "Selected Historical Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our Financial
Statements and related notes since inception and certain of the acquired
businesses for certain periods and the Unaudited Pro Forma Financial Statements
and related notes included elsewhere in this prospectus.
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:....................... $81,551 $183,189 $ -- $264,740 $ -- $264,740
EXPENSES:
Direct costs.................. 59,896 134,484 (925)(c) 193,455 -- 193,455
General and administrative.... 8,645 31,910 (15,767)(d) 24,788 -- 24,788
Depreciation and
amortization................ 3,567 5,173 984(e) 9,724 -- 9,724
------- -------- -------- -------- -------- --------
Total.................. 72,108 171,567 (15,708) 227,967 -- 227,967
INCOME FROM OPERATIONS.......... 9,443 11,622 15,708 36,773 -- 36,773
OTHER (INCOME) EXPENSE:
Interest expense, net......... 2,508 674 11,079(f) 14,261 (10,121)(h) 4,140
Other (income) expense........ (72) (153) -- (225) -- (225)
------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAX
PROVISION..................... 7,007 11,101 4,629 22,737 10,121 32,858
PROVISION FOR INCOME TAXES...... 3,283 253 6,355(g) 9,891 4,403(g) 14,294
------- -------- -------- -------- -------- --------
NET INCOME...................... $ 3,724 $ 10,848 $ (1,726) $ 12,846 $ 5,718 $ 18,564
======= ======== ======== ======== ======== ========
Earnings per share:
Basic and Diluted........... $ 0.63(i)
</TABLE>
16
<PAGE> 18
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:........................ $4,219 $48,300 $ -- $52,519 $ -- $ 52,519
EXPENSES:
Direct costs................... 3,364 37,054 7(c) 40,425 -- 40,425
General and administrative..... 710 5,550 (1,120)(d) 5,140 -- 5,140
Depreciation and
amortization................. 203 1,383 845(e) 2,431 -- 2,431
------ ------- -------- ------- -------- --------
Total................... 4,277 43,987 (268) 47,996 -- 47,996
INCOME (LOSS) FROM OPERATIONS.... (58) 4,313 268 4,523 -- 4,523
OTHER (INCOME) EXPENSE:
Interest expense, net.......... (57) 278 3,344(f) 3,565 (2,530)(h) 1,035
Other (income) expense......... (53) (17) -- (70) -- (70)
------ ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION...................... 52 4,052 (3,076) 1,028 2,530 3,558
PROVISION FOR INCOME TAXES....... 358 519 (430)(g) 447 1,101(g) 1,548
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)................ $ (306) $ 3,533 $ (2,646) $ 581 $ 1,429 $ 2,010
====== ======= ======== ======= ======== ========
Earnings per share
Basic and Diluted............ $ 0.07(i)
</TABLE>
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:........................ $46,069 $22,087 $ -- $68,156 $ -- $ 68,156
EXPENSES:
Direct costs................... 36,224 15,479 -- 51,703 -- 51,703
General and administrative..... 4,540 2,453 (68)(d) 6,925 -- 6,925
Depreciation and
amortization................. 1,808 661 (38)(e) 2,431 -- 2,431
------- ------- ------- ------- -------- --------
Total................... 42,572 18,593 (106) 61,059 -- 61,059
INCOME FROM OPERATIONS........... 3,497 3,494 106 7,097 -- 7,097
OTHER (INCOME) EXPENSE:
Interest expense, net.......... 2,160 (34) 1,439(f) 3,565 (2,530)(h) 1,035
Other (income) expense......... (26) 55 -- 29 -- 29
------- ------- ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND EXTRAORDINARY
CHARGE......................... 1,363 3,473 (1,333) 3,503 2,530 6,033
PROVISION FOR INCOME TAXES....... 692 203 608(g) 1,503 1,085(g) 2,588
------- ------- ------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY
CHARGE......................... $ 671 $ 3,270 $(1,941) $ 2,000 $ 1,445 $ 3,445
======= ======= ======= ======= ======== ========
Earnings per share
Basic and Diluted............ $ 0.12(i)
========
</TABLE>
17
<PAGE> 19
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------------------------------------------------------------------
THE PRO FORMA OFFERING PRO FORMA,
COMPANY(J) TEXEL(J) ADJUSTMENTS(K) PRO FORMA ADJUSTMENTS(K) AS ADJUSTED
---------- -------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........... $ -- $ 2,126 $ -- $ 2,126 $ -- $ 2,126
Accounts receivable,
net................... 43,400 6,525 -- 49,925 -- 49,925
Unbilled accounts
receivable for
work-in-process....... 25,391 786 -- 26,177 -- 26,177
Inventory............... 14,682 -- -- 14,682 -- 14,682
Prepaid and other
current assets........ 1,241 14 -- 1,255 -- 1,255
-------- ------- ------- -------- -------- --------
Total current
assets....... 84,714 9,451 -- 94,165 -- 94,165
-------- ------- ------- -------- -------- --------
Property and equipment,
net................... 35,314 1,010 -- 36,324 -- 36,324
-------- ------- ------- -------- -------- --------
Goodwill, net........... 72,611 -- 24,208(i) 96,819 -- 96,819
Deferred financing
costs, net............ 3,976 -- -- 3,976 (2,476)(v) 1,500
Other, including
deferred income tax
asset................. 2,079 -- -- 2,079 -- 2,079
-------- ------- ------- -------- -------- --------
Total.......... $198,694 $10,461 $24,208 $233,363 $ (2,476) $230,887
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-
term debt............. $ 10,271 $ -- $ 1,550(ii) $ 11,821 $(11,821)(vi) $ --
Borrowing under credit
facility.............. 8,000 -- 2,000(ii) 10,000 (10,000)(vi) --
Accounts payable........ 13,796 1,297 -- 15,093 -- 15,093
Accrued liabilities..... 11,552 786 -- 12,338 -- 12,338
Deferred revenues....... 3,084 102 -- 3,186 -- 3,186
Other liabilities,
including deferred
income tax
liability............. 201 -- 542(iii) 743 -- 743
-------- ------- ------- -------- -------- --------
Total current
liabilities... 46,904 2,185 4,092 53,181 (21,821) 31,360
-------- ------- ------- -------- -------- --------
Long-term debt.......... 111,329 -- 23,450(ii) 134,779 (78,061)(vi) 56,718
Deferred income tax
liability............. 5,450 -- 1,624(iii) 7,074 -- 7,074
Deferred revenues....... 4,670 297 -- 4,967 -- 4,967
-------- ------- ------- -------- -------- --------
Total
liabilities... 168,353 2,482 29,166 200,001 (99,882) 100,119
Convertible preferred
stock................. 20,470 -- -- 20,470 (20,470)(vii) --
Value of redemption
rights associated with
junior subordinated
convertible note...... 1,056 -- -- 1,056 (1,056)(vii) --
-------- ------- ------- -------- -------- --------
21,526 -- -- 21,526 (21,526) --
-------- ------- ------- -------- -------- --------
Stockholders'
equity.............. 8,815 7,979 (4,958)(iv) 11,836 118,932(viii) 130,768
-------- ------- ------- -------- -------- --------
Total.......... $198,694 $10,461 $24,208 $233,363 $ (2,476) $230,887
======== ======= ======= ======== ======== ========
</TABLE>
18
<PAGE> 20
NOTES TO SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent the actual historical 1998 results of the
Company, including results for the acquired businesses purchased in the related
1998 period from the date of acquisition. Results for the three months ended
March 31, 1999 represent our actual historical results, including results for
the acquired businesses purchased in the first quarter of 1999 from the date of
acquisition.
(b) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent combined historical 1998 results for (1) the
acquired businesses purchased in the related 1998 period prior to the date of
acquisition and (2) the acquired businesses purchased in 1999. Results for the
three months ended March 31, 1999 represent combined historical results for (1)
the acquired businesses purchased in 1999 prior to the date of acquisition and
(2) Texel which was acquired on May 25, 1999.
(c) Reflects the decrease resulting from differentials between the
compensation levels of the former owners of U.S. Cable that related to direct
costs and the terms of their employment agreements entered into with the
Company. A portion of the salaries of the former owners of U.S. Cable is also
included in general and administrative expenses. After the acquisition of the
acquired businesses, the owners' duties and responsibilities will not change and
additional costs are not expected to be incurred related to their efforts.
(d) The pro forma adjustment consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------
1998 1998 1999
------------ ------- -----
<S> <C> <C> <C>
Owners compensation (i)..................................... $(14,615) $(1,114) $(168)
Business not acquired (ii).................................. (1,372) (86) --
Rent expense (iii).......................................... 220 80 100
-------- ------- -----
$(15,767) $(1,120) $ (68)
======== ======= =====
</TABLE>
(i) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and the
terms of the employment agreements entered into between certain of the
former owners and the Company. After the acquisition of the acquired
businesses, the owners' duties and responsibilities will not change and
additional costs are not expected to be incurred related to their
efforts.
(ii) Reflects the elimination of a business not purchased from CATV
Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease terms
as compared to lease terms entered into by former owners. In addition,
reflects the increase in rent expense and corresponding decrease in
depreciation expense and real estate tax expense resulting from our
leasing rather than owning certain related facilities which were not
purchased from the former owners of the acquired businesses.
(e) Depreciation has been derived utilizing the property and equipment
values of each of the acquired businesses at the time of their acquisition,
rather than utilizing values of property, plant and equipment actually held by
each of the acquired businesses in the period presented. Reflects the impact on
depreciation resulting from the application of our straight-line depreciation
policy rather than those of the former owners of the acquired businesses. In
addition, reflects the change in depreciation resulting from the write-up of
property and equipment to fair value arising from purchase accounting. Also
reflects amortization of goodwill calculated based on goodwill lives ranging
from 10 to 40 years. The pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------
1998 1998 1999
------------ ----- -----
<S> <C> <C> <C>
Depreciation:
Change in accounting policy............................... $(3,088) $(437) $(738)
Write-up of property and equipment........................ 1,864 601 363
------- ----- -----
(1,224) 139 (375)
Amortization of goodwill.................................... 2,208 696 336
------- ----- -----
$ 984 $ 835 $ (38)
======= ===== =====
</TABLE>
(f) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the purchase of
the acquired businesses. In addition, reflects elimination of $67 and $25 during
the year ended December 31, 1998 and three months ended March 31, 1998,
respectively, of a business not
19
<PAGE> 21
NOTES TO SELECTED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
purchased from CATV Subscriber Services. Under the terms of our bank credit
agreements, interest accrues at variable borrowing rates. If interest rates were
to fluctuate by 1/8 of 1 percent, pro forma interest expense would change by
$194 for the year ended December 31, 1998 and $49 for the three month periods
ended March 31, 1998 and March 31, 1999.
(g) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal statutory rate of
35% and the applicable state statutory rate for each of the Acquired Businesses
throughout the period presented.
(h) Reflects the decrease in interest expense at our borrowing rate under
our new credit facility on the indebtedness remaining after using the proceeds
from the initial public offering to repay a portion of our indebtedness. Under
the terms of our new credit facility, interest accrues at variable borrowing
rates. If interest rates were to fluctuate by 1/8 of 1 percent, pro forma
interest expense as adjusted would change by $45 for the year ended December 31,
1998 and $11 for the three month periods ended March 31, 1998 and March 31,
1999.
(i) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period, after
giving effect to the conversion of series A and series B preferred stock, the
stock split, this offering and the conversion of the junior subordinated
convertible note as well as the dilutive effect of shares issuable upon exercise
of outstanding options.
(j) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(k) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $23,458 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition, reflects $750
of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under the
senior secured credit facility and revolving credit facility, respectively,
to fund the Texel acquisition of $26,250 and $750 of transaction related
expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of Texel.
(v) Reflects the capitalization of deferring financing fees incurred for
the new credit facility and the write-off of fees associated with the
previous facility.
(vi) Reflects the repayment of debt with the proceeds from the initial
public offering.
(vii) Reflects the conversion of the convertible preferred stock and the
junior convertible subordinated note.
(viii) Reflects the issuance of common stock in conjunction with the
initial public offering and the conversion of the convertible preferred
stock and the junior convertible subordinated note and the exercise of
339,983 warrants.
20
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Channel as of December
31, 1997 and for the years ended December 31, 1996 and 1997 have been derived
from audited financial statements and related notes included elsewhere in this
prospectus. The following selected historical financial data of Channel as of
December 31, 1994, 1995 and 1996 and for the years ended December 31, 1994 and
1995 have been derived from unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data of our company as of and for the
period ended December 31, 1998 have been derived from the audited financial
statements and related notes appearing elsewhere in this prospectus.
The selected historical financial data of our company as of and for the
three months ended March 31, 1999 have been derived from unaudited financial
statements included elsewhere in this prospectus which have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data.
The selected historical financial data should be read in conjunction with
the information contained in "Selected Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
OPERATING DATA THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CHANNEL:(a)
Total revenues............... $23,218 $20,731 $32,125 $20,268 $4,219
Income (loss) from
operations................. 1,786 279 3,914 1,926 (58)
Income before tax
provision.................. 1,613 138 4,100 2,062 52
THE COMPANY:
Total revenues............... $81,551 $46,069
Income from operations....... 9,443 3,497
Income before tax provision
and extraordinary charge... 7,007 1,363
Extraordinary charge, net of
tax benefit................ 770
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AT DECEMBER 31,
------------------------------------------- AT MARCH 31,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
CHANNEL:
Working capital........................ $2,476 $2,605 $4,709 $4,746
Total assets........................... 7,555 8,484 12,948 9,669
Total debt............................. 2,228 2,912 -- --
THE COMPANY:
Working capital........................ $20,965 $ 37,810
Total assets........................... 95,836 198,694
Total debt............................. 55,264 129,600
</TABLE>
- ------------
(a) Income from operations and income before tax provision reflect certain
expenses, such as excess owners' compensation, which would not be included
in our company's results going forward. The operating data of the
predecessor includes the results of certain operations which were sold
during 1996.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains statements of a
forward-looking nature relating to future events or our future financial
performance. These statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this prospectus. The historical results set forth in this
discussion and analysis are not necessarily indicative of trends with respect to
our actual or projected future financial performance. This discussion and
analysis should be read in conjunction with the financial statements and related
notes which appear elsewhere in this prospectus.
OVERVIEW
We derive our revenues primarily from installing, designing, engineering
and maintaining aerial and underground fiber-optic, coaxial and copper cable
systems. In addition, we provide interior wiring services, which include the
installation of integrated voice, data and video local and wide area networks in
facilities. Finally, we also provide installation services for utility
companies. We currently perform work for more than 200 customers. We had pro
forma 1998 revenues of approximately $265 million and approximately $68 million
for the three months ended March 31, 1999. Of our pro forma 1998 revenues, 47%
was from services provided to cable television system operators, 29% was from
services provided to telecommunications providers and 24% was from interior
wiring and other services.
Our three primary types of contracts include:
- installation contracts for specific projects
- master service agreements for all specified services within a defined
geographic territory, and
- turnkey agreements for comprehensive installation, design, engineering
and maintenance services.
These contracts are awarded on the basis of competitive bids, the final terms
and pricing of which are frequently negotiated with the customer. The majority
of our contracts provide that we will furnish a specified unit of service for a
specified unit of price. For example, we contract to install cable for a
specified rate per foot. We recognize revenues as the related work is performed.
Production reports are inspected and approved by both our on-site quality
control manager and the customer's on-site project manager. A small percentage
of our work is performed under percentage-of-completion contracts. Under this
method, revenues are recognized on a cost-to-cost method based on the percentage
of total cost incurred to date in proportion to total estimated cost to complete
the contract.
Project-specific agreements are billed on either a unit basis, as work is
completed, or a deferred unit basis, when work is completed in connection with
the overall project. Unbilled revenues consist of work-in-process on contracts
based on work performed, but not yet billed. All costs associated with unbilled
revenues are recorded as expenses in the same period as the unbilled revenue.
Customers are generally billed weekly. This process is intended to keep disputed
billings to a minimum, improve receivable collections and reduce our risk on
deferred billing projects. Master service agreements are billed on a unit basis
where bills are delivered upon completion of work. Turnkey agreements are billed
both on a unit and deferred unit basis.
Direct costs include all direct costs of providing services to our
customers, other than depreciation on fixed assets which we own or use under
capital leases. Except for turnkey agreements, materials are typically provided
by our customers. General and administrative costs include all costs of our
management personnel and the management of our subsidiaries, rent,
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<PAGE> 24
utilities, travel and centralized costs such as insurance administration,
professional costs and certain clerical and administrative overhead. Our
operating subsidiaries' management personnel, and, with respect to national
accounts, our executive management, handle all sales and marketing functions as
part or their regular duties and, therefore, we do not incur material selling
expenses.
RECENT ACQUISITIONS
Channel Communications, Inc. has been designated as our accounting
acquiror. All our acquisitions were accounted for using the purchase method of
accounting and, as a result, our financial statements will not include the
results of operations of the acquisitions prior to the date they were acquired.
The excess of the fair value of the consideration paid for the acquisitions of
$96.5 million over the fair value of the net assets purchased from the acquired
corporations has been recorded as goodwill. The majority of this goodwill is
being amortized over its estimated useful life of 40 years as a non-cash charge
to operating income. The effect to our net income of this amortization expenses,
a majority which is not deductible for tax purposes, is expected to be
approximately $2.8 million per year. Due to the timing of our acquisitions and
related costs, we believe that period to period comparisons may not be
meaningful in the near future.
1998 ACQUISITIONS
Our corporate predecessor, North American Tel-Com Group, was incorporated
in Florida in 1997. Orius was incorporated in Delaware in January 1999 and, in
February 1999, as a result of a corporate reorganization, North American became
our subsidiary. North American had no substantive operations until March 1998
when we acquired Cablemasters Corp., Channel, Excel Cable Construction, Inc. and
Mich-Com Cable Services, Incorporated, with combined 1997 revenues of
approximately $44 million.
In June 1998, we acquired U.S. Cable, Inc., with 1997 revenues of
approximately $15 million.
In August 1998, we acquired CATV Subscriber Services, Inc., Burn-Techs,
Inc. and State Wide CATV, Inc., with combined 1997 revenues of approximately $26
million.
1999 ACQUISITIONS
In February 1999, we acquired DAS-CO of Idaho, Inc., Schatz Underground
Cable, Inc., Copenhagen Utilities & Construction, Inc. and Network Cabling
Services, Inc., which have combined 1998 revenues of approximately $113 million.
In May 1999, we acquired Texel, with 1998 revenues of approximately $30
million.
These 13 acquisitions have pro forma 1998 revenues of approximately $265
million and combined 1997 revenues of approximately $217 million. Prior to their
acquisition by Orius, many of our subsidiaries were operated with different
strategic and financial objectives. Some of the former owners of the businesses
we acquired sought to maximize cash flow and stockholder distributions, rather
than reinvest earnings in future growth. In addition, our acquired businesses
operated under varying tax structures which influenced the historical level of
owners' compensation. As a result of the foregoing, gross profits and selling,
general and administrative expenses as a percentage of revenues may not be
comparable among the acquired businesses on an historical basis.
We entered into a new credit facility in connection with our February 1999
acquisitions and incurred a one-time non-cash related charge of approximately
$800,000, net of tax benefit of approximately $600,000. At March 31, 1999 we had
deferred financing costs recorded as an asset of approximately $4 million and
anticipate that some portion and possibly all of the
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<PAGE> 25
$4 million may be written-off in a similar non-cash charge upon the closing of
this offering in connection with the refinancing of our existing credit
facility.
RESULTS OF OPERATIONS
PRO FORMA AND COMBINED RESULTS OF OPERATIONS -- ORIUS
Pro Forma Three Months Ended March 31, 1999 Compared to Pro Forma Three
Months Ended March 31, 1998
Revenues. Revenues increased 30.0%, or $15.0 million, from $52.5 million
for the three months ended March 31, 1998 to $68.2 million for the three months
ended March 31, 1999. The growth was primarily attributable to a 43% increase in
demand from our cable customers and a 34% increase attributed to our
telecommunications customers, which when combined accounted for $16.0 million of
the total increase. Included in that amount was approximately $7.2 million of
revenues from turnkey contracts with our cable customers, which were not in
place during the prior period. Additionally, favorable weather conditions at key
telecommunications project sites allowed for an overall increase in services
provided. Revenues from interior wiring and other customers grew 4% over the
comparable period, or $400,000, due to a general increase in demand for our
services.
Direct Costs. Direct costs increased 28.0%, or $11.3 million, from $40.4
million for the three months ended March 31, 1998 to $51.7 million for the three
months ended March 31, 1999. These amounts represent a 1.4% decrease in direct
costs as a percentage of revenues from 76.9% for the three months ended March
31, 1998 to 75.5% for the three months ended March 31, 1999. The improvement was
a result of improved pricing on selected turnkey and master service agreements
contracts, increased utilization of assets and generally favorable weather
conditions, which led to improved labor productivity. This productivity was
partially offset by the increased reliance on subcontractors as a percentage of
total labor to service the increasing level of activity.
General and Administrative Expenses. General and administrative expenses
increased 35.0%, or $1.8 million from $5.1 million for the three months ended
March 31, 1998 to $6.9 for the three months ended March 31, 1999, and
represented 9.8% of revenues in 1998 and 10.2% of revenues in 1999. The variance
was primarily due to the increased payroll and expenses required to service the
increased levels of activity, and a one time consulting payment of $550,000
related to the closing of four acquisitions in the quarter. Exclusive of this
payment, general and administrative expenses decreased to 9.3% as a percent of
revenues for the three months ended March 31, 1999.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $2.4 million for the three months ended March 31, 1998 and for the
three months ended March 31, 1999.
Interest Expense. Interest expense, net, was $3.6 million for the three
months ended March 31, 1998 and for the three months ended March 31, 1999.
Provision For Income Taxes. The provision for income taxes increased from
$447,000 to $1.5 million from the first quarter of 1998 to the first quarter of
1999. Our effective tax rate was 43.5% in 1998 and 42.9% in 1999 including
provision for federal, state and local taxes in each of the periods. The
increase was primarily attributable to the increased profits generated by our
company.
Pro Forma Year Ended December 31, 1998 Compared to Combined Year Ended
December 31, 1997
Revenues. Revenues increased 21.8%, or $47.3 million, from $217.4 million
for the year ended December 31, 1997 to $264.7 million for the year ended
December 31, 1998. Growth
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<PAGE> 26
in demand from our cable and interior wiring customers each exceeded 45%, a
combined increase of $55.3 million due to a general increase in demand for our
services. Revenues from our telephone customers increased $1.0 million or 1.5%
compared to prior year due to an increase in activities under master service
agreements. Other contract revenues declined $9.0 million or 37.2% due to the
completion of several municipal construction contracts in 1997.
Direct Costs. Direct costs increased from $163.9 million for the year
ended December 31, 1997 to $193.3 million for the year ended December 31, 1998.
The increase was due to the increased level of activity, and represents a
decline in direct costs as a percentage of revenues of 2.4% from 75.4% for the
year ended December 31, 1997 to 73.0% for the year ended December 31, 1998. The
increased productivity was due to increased utilization of assets and a shift to
higher margin telecommunications contracts from municipal construction
contracts.
Pro Forma Year Ended December 31, 1998
Revenues. Revenues for the year ended December 31, 1998 were $264.7
million.
Direct Costs. Direct costs for the year ended December 31, 1998 were
$193.3 million, or 73.0% of revenues.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1998 were $24.8 million, or 9.4% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the year ended December 31, 1998 was $9.7 million, or 3.7% of
revenues.
Income From Operations. Income from operations for the year ended December
31, 1998 was $36.8 million, or 13.9% of revenues.
Interest Expense. Net interest expense for the year ended December 31,
1998 was $14.2 million, or 5.4 % of revenues.
Provision For Income Taxes. The provision for income taxes for the year
ended December 31, 1998 was $9.9 million, or 3.7% of revenues.
HISTORICAL RESULTS OF OPERATIONS -- ORIUS AND CHANNEL
Our historical financial statements for the year ended December 31, 1998
include the results of Channel prior to its acquisition, for accounting
purposes, by our company on March 31, 1998. These results include the other
companies acquired in 1998 from the dates of acquisition. Our historical
financial statements for the three months ended March 31, 1998 and the year
ended December 31, 1997 consist solely of the results of Channel.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
The variations in our historical results for the three months ended March
31, 1999 and 1998 were primarily attributable to our completion of 12
acquisitions at different times during 1998 and the three months ended March 31,
1999. Accordingly, we believe that further explanation of these variances are
not meaningful.
Revenues. Revenues for the three months ended March 31, 1999 were $46.1
million and for the three months ended March 31, 1998 were $4.2 million.
Direct Costs. Direct costs for the three months ended March 31, 1999 were
$36.2 million, or 78.6% of revenues and for the three months ended March 31,
1998 were $3.3 million, or 79.7% of revenues.
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<PAGE> 27
General and Administrative Expense. General and administrative expenses for
the three months ended March 31, 1999 were $4.5 million or 9.9% of revenues and
for the three months ended March 31, 1998 were $710,000 or 16.8% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization for
the three months ended March 31, 1999 was $1.8 million or 3.9% of revenues and
for the three months ended March 31, 1998 was $203,000 or 4.8% of revenues.
Interest Expense (Income), Net. Interest expense, net, for the three months
ended March 31, 1999 was $2.2 million and for the three months ended March 31,
1998 was ($57,000).
Provision For Income Taxes. The provision for income taxes for the three
months ended March 31, 1999 was $114,000 and for the three months ended March
31, 1998 was $358,000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The variations in our historical results for the years ended December 31,
1998 and 1997 were primarily attributable to our completion of eight
acquisitions at different dates during 1998. Accordingly, we believe that
further explanation of these variances are not meaningful.
Revenues. Revenues for the year ended December 31, 1998 were $81.5 million
and for the year ended December 31, 1997 were $20.3 million.
Direct Costs. Direct costs for the year ended December 31, 1998 were $59.9
million, or 73.4% of revenues and for the year ended December 31, 1997 were
$15.3 million, or 75.3% of revenues.
General and Administrative Expense. General and administrative expenses for
the year ended December 31, 1998 were $8.6 million or 10.6% of revenues and for
the year ended December 31, 1997 were $2.3 million or 11.2% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization for
the year ended December 31, 1998 was $3.6 million or 4.4% of revenues and for
the year ended December 31, 1997 was $823,000 or 4.1% of revenues.
Interest Expense (Income), Net. Interest expense, net, for the year ended
December 31, 1998 was $2.5 million and for the year ended December 31, 1997 was
($66,000).
Provision (Benefit) For Income Taxes. The provision for income taxes for
the year ended December 31, 1998 was $3.3 million and for the year ended
December 31, 1997 was ($137,000).
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues decreased 36.9%, or $11.9 million, from $32.1 million
for the year ended December 31, 1996 to $20.3 million for the year ended
December 31, 1997. The decrease was primarily attributable to a reduction in
demand for Channel's services and the sale by Channel of certain operating
assets.
Direct Costs. Direct costs decreased 35.1%, or $8.3 million, from $23.5
million for the year ended December 31, 1996 to $15.3 million for the year ended
December 31, 1997. As a percentage of revenues, direct costs increased from
73.2% to 75.2% primarily due to an increase of fixed costs as a percentage of
direct costs.
General and Administrative Expense. General and administrative expenses
decreased 43.8%, or $1.8 million, from $4.0 million for the year ended December
31, 1996 to $2.3 million for the
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year ended December 31, 1997. As a percentage of revenues, general and
administrative expense decreased from 12.5% to 11.2 as a result of a reduction
of salary related costs.
Depreciation and Amortization Expense. Depreciation and amortization
increased 22.8%, or $153,000, from $670,000 for the year ended December 31, 1996
to $823,000 for the year ended December 31, 1997. As a percentage of revenues,
depreciation and amortization expense increased from 2.1% to 4.1% primarily due
to fixed charges resulting from capital investments made prior to the reduction
in demand for services.
Interest Income, Net. Interest income, net, decreased 32%, or $31,000, from
$97,000 for the year ended December 31, 1996 to $66,000 for the year ended
December 31, 1997 due to a reduction in the amount of invested cash.
Provision (Benefit) For Income Taxes. The provision (benefit) for income
taxes, decreased 108.5%, or $1.8 million from a provision of $1.6 million for
the year ended December 31, 1996 to a benefit of ($137,000) for the year ended
December 31, 1997. The decrease was attributable to a reduction in taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements have been primarily to support our increased
working capital requirements, for capital expenditures and to fund acquisitions.
We have historically financed our liquidity needs through a combination of bank
borrowings, the sale of debt and equity securities and cash flow from
operations.
As of March 31, 1999, we had $0 cash and cash equivalents, working capital
of $37.8 million, including $18.3 million of short-term debt, and long-term debt
of $111.3 million, net of current maturities, including borrowings of $128.0
million under our credit facilities.
During the three months ended March 31, 1999, we used $8.5 million of net
cash in operating activities primarily related to increases in accounts
receivable, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by our acquisitions
and as such are not comparable to prior periods. We used net cash in investing
activities of $67.3 million, including $65.7 million used for the purchase of
businesses, net of cash acquired. Financing activities provided a net cash flow
of $73.6 million, resulting primarily from $130.5 million of borrowings under
our credit facility reduced by payment of debt assumed in connection with
acquisitions and private sales of equity securities. In connection with entering
the credit agreement on February 26, 1999, we issued to several of the lenders
warrants to purchase a total of 371,853 shares of common stock. The warrants
expire March 31, 2009 and entitle the holders to purchase common stock for $.01
per share. The warrants are exercisable at any time. In February 1999, we sold
7,596.38 shares of Series B preferred stock for $7.6 million and 1,029,078
shares of our common stock to our existing stockholders and employees for $2.4
million. The proceeds from those transactions were used to fund a portion of the
1999 acquisitions.
In connection with the acquisition of Network Cabling Services, Inc., we
are obligated to pay up to $500,000 in each of the next two years if the
acquired company meets designated financial targets through December 31, 2000.
In connection with the acquisition of Copenhagen Utilities, Inc., we are
obligated to pay up to $2,438,000 and issue up to 120,259 additional shares of
common stock in each of the next two years if the acquired company meets
designated financial targets through December 31, 2000. If the additional
consideration is paid it will be accounted for as additional purchase price
consideration.
During the three months ended March 31, 1999, we funded $1.5 million of
capital expenditures for an upgrade in our management information systems and
additions to our
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<PAGE> 29
vehicles and equipment. We expect to spend approximately $9.5 million for
capital expenditures for the remainder of 1999.
During the nine months ended December 31, 1998, we used $5.2 million of net
cash in operating activities primarily related to increases in accounts
receivables, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by the acquisitions
throughout the period and as such are not comparable to prior periods. We used
net cash in investing activities of $44.6 million, including $40.9 million used
for the purchase of businesses, net of cash acquired. Financing activities
provided a net cash flow of $50.7 million, resulting primarily from $61.3
million of borrowings under our credit facility reduced by payment of debt
assumed in connection with acquisitions and private sales of equity securities.
In March 1998, we sold 10,000 shares of Series A preferred stock for $4.4
million, net of issuing costs. At the same time, we borrowed $1 million in the
form of a junior subordinated convertible note. The proceeds from those
transactions were used to fund a portion of the 1998 acquisitions.
We currently have a $170 million credit facility with a group of financial
institutions. Our existing subsidiaries, and future subsidiaries will, guarantee
the repayment of all amounts due under our credit facility, and the existing
facility restricts pledges of our material assets. The credit facility contains
usual and customary covenants for a credit facility of this nature including the
prohibition of the payment of dividends, certain financial ratios and
indebtedness covenants and a requirement to obtain the consent of our lenders
for acquisitions exceeding a certain level of cash consideration. As of June 30,
1999, we had approximately $167 million outstanding under the credit facility.
In June 1999, we received a commitment for a new revolving credit facility
in the amount of $150 million. This facility will be provided by a group of
banks and other financial institutions led by Bank of America, N.A. We expect to
enter into this facility following the closing of this offering. The facility
will mature approximately five years after the date of the closing of the
facility.
Through May 26, 1999, we had acquired 13 businesses for an aggregate
consideration of $19.8 million of common stock, $138.6 million in cash and the
assumption of $14.6 million in debt. The cash portion of such consideration was
provided by borrowings under our credit facility and the issuance of debt and
equity securities.
As part of our growth strategy, we intend to pursue selective acquisitions.
The timing, size or success of any prospective acquisitions and the related
capital commitments cannot be predicted. To the extent that we seek to grow by
acquisitions that involve consideration other than our common stock, our capital
requirements may increase, although we are not currently subject to any
commitments or obligations with respect to any additional acquisitions. We
expect to fund future acquisitions primarily with issuances of additional equity
securities, the available portion of our credit facility and cash flow from
operations. We expect that our cash flow from operations and proceeds from the
offering will provide sufficient cash to allow us to meet our working capital
needs, debt service requirements and planned capital expenditures for property
and equipment through the end of 2000.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our operations are seasonal, generally resulting in reduced revenues and
profits during the first and fourth quarters relative to other quarters. Factors
affecting the seasonality of our business are holiday season shut-downs, adverse
weather conditions and capital expenditure patterns of our customers that can
negatively affect telecommunications systems repair, replacement and expansion.
Additionally, our industry can be highly cyclical. As a result, our business
volume may be adversely affected by declines in new projects in various
geographic regions. Quarterly results may also be materially affected by the
timing and magnitude of
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<PAGE> 30
acquisitions and related costs, variations in the margins of projects performed
during any particular quarter and regional economic conditions. Accordingly, our
operating results in any particular quarter may not be indicative of the results
that can be expected for any other quarter or for the entire year.
YEAR 2000 COMPLIANCE
Many computer programs and applications define the applicable year using
two digits rather than four in order to save memory and enhance the speed of
repeated date-based calculations. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000 compliant"
means a computer or a computer system that has been designed or modified to
recognize dates on and after January 1, 2000. We may be affected by Year 2000
issues in our own information technology ("IT") systems or non-IT systems, as
well as by Year 2000 issues related to IT and non-IT systems operated by third
parties. If our systems are not Year 2000 compliant, they could malfunction or
fail altogether, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
CURRENT SITUATION
Our plan to address the Year 2000 issue is structured in three phases:
inventory, analysis and implementation. The inventory phase is an investigation
of all our operations to identify the software and hardware used in all of our
systems. The analysis phase is an evaluation of each component to determine date
sensitivity to the Year 2000 and the identification and recommendation of
possible corrective actions. The implementation phase involves testing and
verification that the systems to be implemented are Year 2000 compliant, and are
deployed as required into our overall systems.
IT SYSTEMS. Our current state of progress with our IT systems is as follows:
- Inventory Phase. Since March, 1998, we have acquired 13
telecommunications companies each with its own information system for
project management, inventory control and financial reporting. We
determined that one system should be developed to manage our projected
growth. We believe the inventory phase of our IT systems is complete.
- Analysis Phase. During the fourth quarter of 1998, we began evaluating
software products from third-party vendors that included modules for
project management, inventory control, database and financial reporting
to replace the ITsystems of businesses we have acquired. Each of the
third-party vendors from which we purchased software modules and hardware
components of our new system certified to us that the modules and
components were Year 2000 compliant. The majority of our IT system will
be implemented without modification. We have engaged a consulting firm
that will certify that any needed modifications are Year 2000 compliant.
We are in the process of reviewing all of the Year 2000 testing programs
of vendors who have provided us with certifications to determine the
quality of their testing and whether additional testing will be required.
We believe we are 85% complete with testing of all of the components, and
expect to complete this process by October 31, 1999. We are not currently
aware of any Year 2000 problems relating to our IT system or the systems
and hardware supplied by third parties which would have a material effect
on our business, results of operations, or financial condition. To date,
we have handled our Year 2000 plan with our own internal personnel and
have not engaged any third-party consultants other than those involved
with implementation of our new systems.
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<PAGE> 31
- Implementation Phase. The implementation phase consists of the
conversion and replacement of the systems of our acquired businesses with
the third-party software and hardware selected in the IT analysis phase
of the project. During December 1998, we began converting our operations
to the new systems. Currently, we operate 13 subsidiaries and have
converted eight of these locations to the new IT systems. The remaining
five subsidiaries have begun implementation activities and are expected
to be converted by October 31, 1999.
NON-IT SYSTEMS. We are at the initial inventory phase for our non-IT systems
such as chips and microprocessors that may be embedded in our facilities and
equipment. We believe there is a minimal amount of dependence of our critical
operations on non-IT systems. However, since we have not completed our inventory
and assessment, we cannot currently determine if there are any potential Year
2000 problems that would cause a material adverse effect on our business,
results of operations, or financial condition. We expect to complete all phases
of our Year 2000 plan for our non-IT systems by October 31, 1999.
THIRD-PARTY SYSTEMS. We rely on third-party suppliers for operating supplies,
merchandise for resale, utilities, equipment and other key services.
Additionally, we rely on several key large customers for a continued source of
revenues. Interruption of any third-parties' operations due to Year 2000 issues
could have a material adverse effect on our business, results of operations or
financial condition. We have begun efforts to evaluate the progress of our
critical third-party suppliers and customers relative to their Year 2000 issues.
Letters and questionnaires are being sent to all essential third parties with
which we do business to assess their Year 2000 readiness. To the extent
necessary, we will seek alternative third-party relationships if circumstances
warrant. We expect to complete the analysis of the Year 2000 plan for our third-
party systems by October 31, 1999.
COSTS
The majority of our costs to address the Year 2000 issue are related to the
development of our new management information systems. Such costs principally
consist of licensing software modules and purchasing hardware components. As of
March 31, 1999, we have spent a total of approximately $500,000 for the new IT
systems. Such costs have been capitalized in accordance with generally accepted
accounting principles. We expect to incur $500,000 in additional software and
hardware costs installing the new IT system at our remaining current locations
in 1999. The aggregate cost of conversion and training employees for the new IT
system, which will be charged to expense in the period incurred, is expected to
be approximately $200,000. Although we do not expect to incur significant
expenses to address the Year 2000 issue beyond our capital investment in the new
IT system software and hardware, Year 2000 problems may require us to incur
unanticipated expenses which could have a material adverse effect on our
business, financial condition, or results of operations. These costs account for
approximately 90% of our information technology budget for 1999. To date, the
development of our management information system has run concurrent with and
been a part of our Year 2000 compliance efforts. No other major projects have
been deferred as a result of the system development effort. The source of the
funds for our Year 2000 compliance efforts has been cash generated from
operations and borrowings under our senior credit facilities.
RISKS RELATING TO THE COMPANY'S FAILURE TO BECOME YEAR 2000 COMPLIANT
Our worst case scenarios resulting from the Year 2000 issue include:
- interruptions to our customers' operations which could prevent them from
utilizing our services and paying for the services when rendered;
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<PAGE> 32
- disruptions to our utilities and other service providers which could
prevent us from operating in the normal course of business;
- failure of our suppliers' operations which could result in our inability
to obtain equipment, materials and supplies to meet the demands of our
customers;
- failure to convert all of our locations to our new management information
system before December 31, 1999 which could prevent such locations from
processing invoices from our projects and tracking accounts receivable,
tracking employee productivity and other critical financial data. These
and other unknown items could prevent our locations from providing
services to our customers in a timely manner; and
- failure to convert all of the systems of the businesses we acquire during
1999 to our system prior to the year 2000 which could prevent these
locations from being integrated into the rest of our operations leading
to a loss in productivity, profitability and the ability to conduct
ongoing operations in the normal course of business.
Such failures could materially and adversely affect our business, results
of operations and financial condition. Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third-party suppliers and customers, we are unable to
determine at this time what our most reasonable and likely worst case scenario
would be or whether the consequences of Year 2000 failures will have a material
adverse impact on our results of operations, liquidity, or financial condition.
As we complete all of the phases of our Year 2000 compliance plan, we expect to
have a better understanding of our most reasonably likely worst case scenarios
and will tailor our contingency plans accordingly.
CONTINGENCY PLANS
Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. Contingency plans for Year 2000-related interruptions are
being developed and will include emergency backup and recovery procedures for
lost data, manual invoicing, billing and collection procedures, identification
of alternate suppliers, acceleration of conversion times to our management
information system and increasing inventory levels of critical supplies and
equipment. These activities are intended to provide a means of managing risk,
but cannot eliminate the potential for disruption due to third-party failure. We
are currently considering what our final contingency plans will be in the event
that we are not able to bring all of our existing and acquired systems into Year
2000 compliance by the end of 1999. We currently plan to complete all
contingency plans by October 31, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998 the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SoP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and in April 1998 AcSEC issued SoP
98-5, "Reporting on the Costs of Start-up Activities." Both SoPs are effective
for Orius' 1999 financial statements. SoP 98-1 provides guidance on accounting
for costs of computer software developed or obtained for internal use. SoP 98-5
requires that entities expense start-up costs and organization costs as they are
incurred. The adoption of these SoPs in the first quarter of 1999 did not have a
material affect on Orius' financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for the
Company's 2000 financial statements, but that
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date is expected to be delayed to 2001 by the FASB. This Statement requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. Due
to the complexity of this Statement, the Company is still evaluating the impact,
if any, on Orius' financial statements.
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OUR BUSINESS
INTRODUCTION
We are a leading provider of installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry in the United States. We also install, design, engineer and maintain
interior wiring for integrated voice, data and video networks in commercial,
institutional and governmental facilities, which demand has been stimulated by
the rapid increases in internal networking of personal computers. Our customers
utilize our services to add capacity to their existing networks, expand their
networks into new geographic markets and maintain their existing fiber-optic,
coaxial and copper cable networks. Fiber-optic cable consists of bundles of
parallel glass fibers which are capable of transmitting a high volume of data
and coaxial cable is copper cable surrounded by several layers of insulation. We
had pro forma 1998 revenues of approximately $265 million, of which 47% was from
services provided to cable television system operators, 29% was from services
provided to telecommunications providers and 24% was attributable to interior
wiring and other services.
We currently have executive offices in 9 states and perform work
nationwide. Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Jones
Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox Communications,
Charter Communications and Digital Teleport. Approximately 80% of our pro forma
revenues in 1998 was generated from repeat customers, in some cases under
turnkey or master service agreements. The demand for our services has
accelerated as:
- traditional telecommunications and cable television industries have
converged,
- our customers have encountered rapid growth in voice and data traffic
over their networks, and
- many of our customers have identified outsourcing as an efficient means
to expand, maintain and replace their communication networks.
INDUSTRY
We estimate that the market for installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry exceeded $15 billion in 1998. We believe that our industry presents
substantial growth opportunities for large companies with broad geographic
coverage, comprehensive technical capabilities, and responsive and quality
service. Growth in our industry has been driven by the following trends:
Telecom Deregulation. The Telecommunications Act of 1996 substantially
revised prior law by preempting state and local government control over access
to the telecommunications and cable television market and eliminating certain
regulatory barriers to competition. We believe the elimination of these entry
barriers has and will continue to increase competition among telecommunications
providers and cable television system operators in this market. In addition,
many state regulatory commissions eliminated pricing regulations for
telecommunications providers and cable television system operators, thus
requiring these providers to be price competitive and thereby become efficient
in installing and maintaining their telecommunications and cable television
networks. As a result, providers are entering new markets, offering services
that once were reserved for incumbent providers, and expanding and improving
their existing networks.
Increased Voice and Data Traffic on Telecommunications Networks. Growth in
demand for telecommunications voice traffic, electronic commerce, delivery of
information and entertainment services, and the growth, use and reliance on
personal computers has created an increased need for greater bandwidth.
Bandwidth controls both the speed and breadth of voice,
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video and data communications and is limited by the size of the cable or other
facilities through which communications flow. Because of the physical
limitations of existing network facilities, telecommunications providers and
cable television system operators are upgrading facilities with new and
innovative technology, expanding and, in many cases, replacing existing telecom
infrastructure to allow for increased bandwidth in order to offer faster and
greater volume of communications flow.
Increased Outsourcing. The need to upgrade and expand telecommunications
and cable television systems as a result of deregulation and the growth in
demand for enhanced services and bandwidth are expected to continue to increase
the current level of outsourcing to telecommunications providers and cable
television system operators. The outsourcing trend has largely been driven by
the efforts of telecommunications providers and cable television system
operators to expedite the expansion, maintenance, replacement and enhancement of
their networks, to reduce costs and to focus on their core competencies.
Companies that specialize in providing services to the telecommunications and
cable television industry are able to provide these services on an effective and
low cost basis. In addition, we believe that telecommunications providers and
cable television system operators are seeking to reduce the number of service
providers they utilize by establishing preferred relationships with a select
number of providers that are able to offer comprehensive solutions to their
network needs across a broad geographic area.
Industry Consolidation. While deregulation has created new market
participants, consolidation in the telecommunications and cable television
industry has created geographically diverse and in some cases integrated
providers. The expanding geographic markets served by telecommunications
providers and cable television system operators increase the requirement for
telecommunications and cable television service providers to have broader
geographic coverage capabilities. As the size and scope of telecommunications
providers and cable television system operators have expanded, they are
increasingly requiring service providers to provide installation, design,
engineering, and maintenance services simultaneously over multiple geographic
regions. Many of the smaller companies in our industry do not have the financial
resources necessary to provide comprehensive service capabilities over a broad
geographic area or the ability to manage multiple projects.
Emergence of Preferred Service Providers. We believe that
telecommunications providers and cable television system operators increasingly
prefer to simplify vendor management through the use of well capitalized
telecommunications and cable television service providers which provide
comprehensive services and broad geographic coverage. These service providers
must be able to build out large and complex networks quickly and with a high
level of quality. Furthermore, telecommunications and cable television service
providers must be able to rapidly mobilize their capital equipment, financial
assets and personnel resources to effectively respond to the increasing scale
and time constraints of customer demands. As telecommunications providers and
cable television system operators expand their geographic market, we believe
they often desire to extend existing relationships with service providers to
these new markets and are increasing the use of turnkey and master service
agreements. Turnkey agreements typically require the service provider to
install, design, engineer and often maintain a comprehensive network for a
specific project. Master service agreements typically require the service
provider to install, design and maintain systems and equipment for a variety of
projects over a three to five year period. Telecommunications and cable
television service providers also must be able to support the substantial
initial working capital and equipment commitments required for these turnkey and
master service agreements. This trend favors larger, better capitalized service
providers over smaller industry competitors.
Consolidation of Our Industry. We believe our industry is highly
fragmented. Most companies in our industry are relatively small, privately-held
companies that have limited access to capital and offer a limited range of
services over a small geographic area to a single customer
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or relatively few customers. In the future, telecommunications and cable
television service providers will need significant management expertise,
technical capabilities and capital resources to provide the level of service
necessary to gain significant market share. As a result, we believe that there
will continue to be consolidation within our industry and a large number of
attractive acquisition candidates.
STRATEGY
Our objective is to enhance our position as a leading provider of
comprehensive telecom infrastructure services in the United States. We seek to
take advantage of the growth trends in the telecom industry by offering
reliable, quality service on a nationwide basis. We also seek to expand our
ability to provide services under turnkey and master service agreements that
allow us to be the sole provider of a variety of services. We believe our
ability to offer outside installation and inside premise wiring services
provides us with a competitive advantage as certain projects include the
placement and removal of various types of cable systems both inside and outside
of facilities. We expect to grow both internally and by acquiring well-
established and leading regional telecommunications and cable television service
companies. Our growth will enhance our geographic coverage and allow us to
continue to develop our diverse customer base. We also plan to continue to
implement our operating strategy with respect to the businesses we acquire. Key
elements of our growth and operating strategies include the following:
GROWTH STRATEGY
Internal Growth. We are focused on generating internal growth by:
- increasing the volume of services we provide to existing customers in
their current markets
- expanding the scope of services we provide to existing customers
- leveraging customer relationships into new markets served by existing
customers
- broadening our customer base, and
- geographically expanding our service area.
Additionally, the competitive pressures of deregulation have prompted
several existing customers to increase the outsourcing of noncore activities,
which can provide opportunities for enhancing internal growth without
necessarily requiring us to achieve market share gains. We are also able to
increase internal growth by enhancing the utilization of the businesses we
acquire by integrating their resources with those of our other operating
subsidiaries.
Our strong customer relationships, comprehensive service capabilities and
nationwide geographic coverage enable us to cross-market our services and
resources. These abilities and our expertise in engineering and installation
project management give us a competitive advantage in obtaining new contracts.
In addition, we have recently begun to offer our customers integrated
installation, design, engineering and maintenance services on large-scale
turnkey projects, which we believe distinguishes us from many of our
competitors.
An example of the success of our internal growth strategies is our
experience on a major turnkey project for TCI. In March 1998, we were awarded a
three-year, $60 million contract for the design, engineering and installation of
a fiber-optic/coaxial hybrid cable network for TCI in its Pittsburgh region. The
three-year contract, which may be extended from time to time, involves the
installation of approximately 7,800 miles of cable in western Pennsylvania,
northern West Virginia and eastern Ohio. Although the TCI contract was
originally awarded to Channel, Excel, Cablemasters and Mich-Com have also been
involved in the completion of the contract. As a result of our enhanced combined
resources and our active cross-marketing efforts, in June
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1998 we were awarded a similar $10 million turnkey contract in Tulsa, Oklahoma
for the installation of a TCI cable network. Revenues from turnkey agreements
for the year ended December 31, 1998 and the three months ended March 31, 1999
were $4.3 million and $7.2 million, respectively. We are currently involved in
discussions with several other customers for similar turnkey contracts.
Expansion Through Selective Acquisitions. We believe that the increasing
trend toward the use of preferred service providers will result in a competitive
disadvantage for small and mid-sized companies that do not have access to
capital and cannot provide a comprehensive range of telecommunications and cable
television network services on a nationwide basis. As a result, we expect that
there will continue to be a large number of attractive acquisition candidates
that desire to join larger, better capitalized industry participants to compete
on a nationwide basis. We believe that our financial strength, experienced
management and decentralized operating strategy will be attractive to
acquisition candidates. The key elements of our acquisition strategy are:
- Enter New Geographic Markets. We intend to expand into geographic
markets we do not currently serve by selectively acquiring
well-established telecommunications and cable television service
providers that, like our current operating subsidiaries, are leaders in
their regional markets, are financially stable, have a strong customer
base, have senior management committed to participating in our future
growth and can enhance the resource utilization and internal growth of
the businesses we have previously acquired.
- Expand Services Within Existing Markets. We intend to explore selective
acquisition opportunities in the geographic markets we already serve as
well as markets serviced by businesses we acquire in the future. Once we
have entered a specific geographic market, we will seek to acquire other
well-established service providers in that particular market to deepen
our market penetration and expand the range of services offered to our
customers. We will also pursue acquisitions of smaller companies whose
operations can be integrated into and leveraged with our existing
operations.
OPERATING STRATEGY
Operate on a Decentralized Basis. We manage our operations on a
decentralized basis while overall operating and financial controls and strategic
planning are maintained at our corporate headquarters. Our operating
subsidiaries retain responsibility for the operations, profitability and growth
of their individual businesses. We believe that our decentralized operating
structure retains the entrepreneurial spirit of each of the businesses we
acquire and permits us to capitalize on the acquired businesses' local and
regional market knowledge, specialized skills, local brand name recognition and
customer relationships. Our operating subsidiaries have been in business for an
average of approximately 22 years. Our executive management team has
responsibility for overall operations, financing, capital expenditures,
insurance, investor relations, employee benefit plans, corporate strategy and
acquisitions. In addition, our executive management team is integrating
management information systems and accounting reporting systems through all of
our operating subsidiaries.
Achieve Operating Efficiencies. We are continuing to centralize certain
administrative functions. In addition, by combining overlapping operations of
certain of the businesses we acquire, we expect to achieve more efficient asset
and personnel utilization and realize savings in overhead and other expenses. We
intend to use our increased purchasing power to gain volume discounts in areas
such as vehicles and equipment, materials, marketing, bonding, employee benefits
and insurance. As we grow internally and acquire additional businesses, we will
seek to realize additional cost savings and other benefits through shared
purchasing, bidding, scheduling and other business practices. We have
established a program where we periodically review our operations at the
subsidiary level in order to identify those practices that
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can be successfully implemented throughout our operations nationwide. When
appropriate, our operating subsidiaries work together in bidding for, winning
and executing new contracts for telecom infrastructure projects by pooling their
available resources, technical expertise and coverage in key geographic areas.
Our executive management team coordinates our overall bidding strategies to
maximize the utilization of our resources. We intend to continue to develop and
expand the use of management information systems to enhance financial controls,
project costing and asset utilization.
Attract, Train And Retain Highly Qualified Personnel. We focus on
attracting and retaining a highly trained and motivated workforce in order to
consistently deliver innovative customer solutions and high-quality service. Our
strategy is to become the employer of choice in each of the markets in which we
operate by offering our employees:
- comprehensive ongoing internal technical training programs throughout
their careers
- competitive compensation and employee benefits
- career development opportunities and geographic mobility, and
- equity participation in our success.
We have a centralized employee training program and conduct numerous
additional training programs throughout our offices. We believe that we have the
comprehensive training, nationwide presence and financial resources to better
attract and retain a highly qualified workforce than many of our competitors.
SERVICES
Installation and Maintenance. We provide a full range of installation and
maintenance services to our customers. The services we provide include the
splicing and placing of cable, excavation of trenches in which to place the
cable, placement of related structures such as poles, anchors, conduits,
manholes, cabinets and closures, placement of drop cable from the main
distribution lines to the customer's home and businesses, and maintenance and
removal of these facilities. In addition, we install and maintain transmission
and central office equipment. We have the capacity to directionally bore the
placement of cables, a highly specialized and increasingly necessary method of
placing buried cable networks in congested urban and suburban markets where
trenching is highly impractical. We also employ a licensed rail plow device
which enables us to bury cable on railway easements expeditiously at a low cost.
Design and Engineering. We offer a variety of design and engineering
capabilities. We design aerial, buried and underground fiber-optic and copper
cable systems from the telephone central office to the ultimate consumer's home
or business. Engineering services for local exchange carriers include the design
of service area concept boxes, terminals, buried and aerial drops, transmission
and central office equipment design and the proper administration of feeder and
distribution cable pairs. For competitive access providers, we design building
entrance laterals, fiber rings and conduit systems. We obtain rights of way and
permits in support of engineering activities, and provide installation
management and inspection personnel in conjunction with engineering services or
on a stand-alone basis. For cable television system operators, we perform make
ready studies, strand mapping, field walk out, computer-aided radio frequency
design and drafting, and fiber-optic cable routing and design.
Interior Wiring and Other Services. We provide a variety of interior
wiring services which include the installation, design, engineering and
maintenance of telecommunications and cable television networks in commercial,
institutional and governmental facilities. These services generally include the
development of communication networks within a company or government agency
related primarily to the establishment and maintenance of computer operations,
telephone systems, Internet access and communications systems established for
purposes of
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monitoring environmental controls or security procedures. We also provide
installation services for gas and water utilities.
ACQUISITION PROGRAM
Since our formation in August 1997, we have acquired 13 telecommunications
providers and cable television system operators which have pro forma 1998
revenues of approximately $265 million. The following table sets forth the
businesses we have acquired.
<TABLE>
<CAPTION>
MONTH
BUSINESS ACQUIRED ACQUIRED PRINCIPAL CUSTOMERS HEADQUARTERS
- ----------------- -------- ------------------- ------------
<S> <C> <C> <C>
Texel Corporation............. May 1999 Premise Wiring Reston, VA
Copenhagen Utilities &
Construction, Inc........... February 1999 Telecommunications Clackamas, OR
Network Cabling Services,
Inc......................... February 1999 Premise Wiring Houston, TX
Schatz Underground Cable,
Inc......................... February 1999 Telecommunications/Cable TV Villa Ridge, MO
DAS-CO of Idaho, Inc.......... February 1999 Telecommunications Nampa, ID
Burn-Techs, Inc............... August 1998 Telecommunications Tampa, FL
State Wide CATV, Inc.......... August 1998 Cable TV Tampa, FL
CATV Subscriber Services,
Inc......................... August 1998 Cable TV Greensboro, NC
U.S. Cable, Inc............... June 1998 Cable TV O'Fallon, MO
Channel Communications, Inc... March 1998 Cable TV Sheboygan, WI
Cablemasters Corp............. March 1998 Cable TV Erie, PA
Mich-Com Cable Services
Incorporated................ March 1998 Cable TV Stuart, FL
Excel Cable Construction,
Inc......................... March 1998 Cable TV Jacksonville, FL
</TABLE>
We believe that we are regarded by acquisition candidates as an attractive
acquirer because of the following:
- our strategy for creating a nationwide comprehensive and professionally
managed business servicing the telecommunications and cable television
systems industry
- our access to capital resources
- our decentralized operating strategy and opportunities to participate in
a larger organization
- our potential for increased profitability due to centralizing certain
administrative functions, enhanced management information systems and
economies of scale, and
- the potential for owners of the businesses being acquired to participate
in our planned growth while realizing liquidity.
The management of our acquired companies are instrumental in identifying and
assisting in the completion of future acquisitions.
We have developed a set of financial, geographic and management criteria
designed to assist management in the evaluation of acquisition candidates. These
criteria evaluate a variety of factors, including, but not limited to the
following:
- experience and reputation of the candidate's management and operations
- expertise of personnel
- composition and size of the candidate's customer base
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- whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates
- whether the acquisition will augment our market share or services offered
or help protect our existing customer base
- historical and projected financial performance
- historical and projected internal rate of return, return on assets and
return on revenues
- potential synergies gained by combining the acquisition candidate with
our existing operations, and
- liabilities, contingent or otherwise, of the candidate.
We anticipate that acquisition candidates in the target markets and services
will typically have annual revenues ranging from $10 million to $100 million,
exclusive of acquisitions which may have annual revenues below $10 million. All
acquisitions are subject to initial evaluation and approval by our management
before being recommended to our Board of Directors. The evaluation by management
includes comprehensive financial, accounting and legal due diligence of the
acquisition candidate.
BIDDING AND CONTRACTS
Our contracts are awarded on a competitive basis, a negotiated basis, or a
combination of the two depending on the nature of the contract and the customer.
Upon receipt of a request for proposal, we develop a detailed bid which meets
the unique specifications and requirements of each project. This process often
entails strategic business analysis, resource planning, network design, cost and
engineering studies and, in some cases, development of financing alternatives
for the project. Bids may be structured as fixed price or cost plus, depending
on the requirements of the request for proposal, and are typically quoted on a
per unit basis. In either case, we believe that we enjoy a favorable competitive
position due to our ability to provide a full range of high quality
installation, design, engineering and maintenance services nationwide. Although
master service agreements have historically been awarded in a competitive
bidding process, recent trends have been toward securing or extending such
contracts on negotiated terms. With the rapid expansion of the
telecommunications and cable television networks, we believe that more master
service agreements will be awarded on the basis of negotiated terms as opposed
to the competitive bidding process.
Our three primary types of contracts include:
- installation contracts for specific projects
- master service agreements for all specified services within a defined
geographic territory, and
- turnkey agreements for comprehensive installation, design, engineering
and maintenance services.
Project-Specific Contracts. We refer to contracts covering bids for
particular services at specified prices as project-specific contracts.
Generally, these contracts cover most installation projects completed in over
one year. The majority of these contracts provide that we will furnish a
specified unit of service for a specified unit of price. For example, we
contract to install cable for a specified rate per foot. Pro forma revenues for
project-specific contracts were $165 million in 1996, $174 million in 1997 and
$218 million in 1998.
Master Service Agreements. We refer to contracts with telecommunications
providers and cable television system operators for the exclusive use of our
services to perform all work up to a price ceiling within a specific geographic
area as master service agreements. Under master
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service agreements, project services are provided upon the execution of work
orders, which will describe the work to be undertaken. Each master service
agreement contemplates hundreds of individual installation and maintenance
projects generally valued at less than $50,000 each. While the terms of these
agreements range from three to five years, our customers are generally able to
terminate the agreements upon 90 days prior written notice and are often
permitted to use other providers or to have the services performed by their own
regularly employed personnel. Pro forma revenues for master service agreements
were $32 million in 1996, $43 million in 1997 and $43 million in 1998.
Turnkey Agreements. We refer to contracts covering a comprehensive
spectrum of services, including the installation, design, engineering, and
maintenance of telecommunications and cable television networks on a fixed
unit-priced basis, as turnkey agreements. As we continue to grow and expand the
scope of services we provide, we are able to enter into an increasing number of
contracts to provide turnkey services. Even though these are generally long-term
agreements, the pricing for our services is not necessarily fixed because these
agreements often contain price adjustment provisions that are favorable to us as
well as performance and completion incentives. Turnkey agreements require
substantial initial working capital and equipment, which are partially funded by
customer prepayments. Pro forma revenues for turnkey agreements were $0 in 1996,
$0 in 1997 and $4 million in 1998.
CUSTOMERS
We served a diverse group of more than 200 customers in 1998. Our customers
include telecommunications providers such as incumbent local exchange carriers,
competitive local exchange carriers long-distance service providers and cable
television system operators. We also provide services to governmental entities,
general contractors, owners and managers of commercial and institutional
facilities such as public schools and utility providers. On a pro forma basis,
TCI and U.S. West each accounted for approximately 10% of our revenues during
1998. For the three months ended March 31, 1999, TCI was the only customer which
accounted for more than 10% of our pro forma revenues - $11.5 million, or 17%.
SALES AND MARKETING
Our sales and marketing efforts are primarily the responsibility of the
management of our operating subsidiaries. Our executive management supplements
their efforts with respect to national accounts. We focus on increasing the
value of comprehensive services provided to existing customers, actively
cross-marketing our additional services to our existing customer base and
developing new customer relationships. The management at each of our operating
subsidiaries has been responsible for developing and maintaining successful
long-term relationships with customers which helps facilitate our repeat
business and generate cross-marketing opportunities. We use both the written and
verbal referrals of our customers to help generate new business. Many of our
customers or prospective customers have a qualification procedure for becoming
an approved vendor based upon the satisfaction of particular performance and
safety standards set by the customer. These customers often maintain a list of
vendors meeting such standards and award contracts for individual jobs only to
such vendors. We strive to maintain our status as a preferred and qualified
vendor to such customers.
BACKLOG
We define our backlog as the uncompleted portion of services to be
performed under project specific contracts and the estimated value of future
services that we expect to provide under master service and turnkey agreements.
As of March 31, 1999, our backlog was approximately $368 million. Of that
amount, approximately $200 million is for work scheduled to be performed in 1999
and approximately $120 million is for work scheduled to be performed
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in 2000. Approximately $16.5 million of our backlog represents work subject to
performance bonds and we may be required to pay liquidated damages if we fail to
perform in a timely manner. Two of our customers, TCI and US West, each
represent over 15% of our backlog. Due to the nature of our contractual
commitments, in many instances our customers do not commit to the volume of
services to be purchased under the contract. Rather, these contractual
provisions commit us to perform these services if requested by the customer and
commit the customer to obtain these services from us if they are not performed
internally. Many of the contracts are multi-year contracts and we include
revenues from all the services projected to be performed over the life of the
contract in our backlog based upon our historical relationships with our
customers and experience in these types of contracts.
SAFETY AND RISK MANAGEMENT
We are committed to ensuring that our employees perform their work in a
safe environment. We regularly communicate with our employees to promote safety
and to instill safe work habits through our company-wide employee training and
educational programs. We have dedicated risk managers at each of our operating
subsidiaries who review all accidents and claims, examine trends and implement
changes in procedures or communications to address any safety issues. We also
have a dedicated risk manager at our corporate headquarters who monitors the
risk management programs at our subsidiaries and establishes overall corporate
risk management objectives and standards.
EMPLOYEES
As of June 30, 1999, we had approximately 200 salaried employees, including
executive officers, project managers or engineers, job superintendents, staff
and clerical personnel. We also had approximately 2,470 field-based employees,
approximately 1,460 of which are paid on an hourly basis and approximately 1,000
of which are paid on a production basis. The number of employees can vary
significantly according to contracts in progress. We maintain a core of
technical and managerial personnel from which we draw to supervise all projects.
As the need arises, we also subcontract with independent contractors to supply
additional employees to complete specific projects. As of June 30, 1999, we had
approximately 1,200 subcontracted workers. Approximately 120 of our employees
are represented by a labor union and we consider relations with key and other
employees to be good.
EQUIPMENT AND FACILITIES
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty installation equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners. The
total size of the equipment fleet approximates 2,100 units. We believe that
these vehicles generally are well-maintained and adequate for our present
operations. We believe that in the future, we will be able to lease or purchase
this equipment at favorable prices due to our larger size and the volume of our
leasing and purchasing activity.
Our corporate headquarters are located in West Palm Beach, Florida. Our
subsidiaries operate from one office facility which we own in Villa Ridge, MO
and leased administrative offices in: Jacksonville, FL; Stuart, FL; Tampa, FL;
Namja, ID; O'Fallon, MO; Greensboro, NC; Clackamer, OR; Erie, PA; Houston, TX;
Reston, VA; and Sheboygan, WI. Our subsidiaries also lease various district
field offices, equipment yards, shop facilities and temporary storage locations.
We also lease other smaller properties as necessary to enable us to efficiently
perform our obligations under master service agreements and other contracts. We
believe that our facilities are generally adequate for our needs. We do not
anticipate difficulty in replacing such facilities or securing additional
facilities, if needed.
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COMPETITION
The market in which we operate is highly competitive, requiring substantial
resources and skilled and experienced personnel. We compete with other companies
in all of the markets in which we operate, some of which are large publicly
traded companies that may have greater financial, technical and marketing
resources than we do, including, Dycom Industries, Inc., MasTec, Inc. and Quanta
Services, Inc. There are relatively few, if any, barriers to entry into the
markets in which we operate and, as a result, any organization that has adequate
financial resources and access to technical expertise may become a competitor to
us. We may also face competition from the in-house service organizations of our
existing or prospective customers which often employ personnel who perform some
of the same types of services as those provided by us. Although a significant
portion of these services is currently outsourced, there can be no assurance
that our existing or prospective customers will continue to outsource service
requirements for installation, design, engineering and maintenance services in
the future.
We believe that the principal competitive factors in our market include
technical expertise, reputation, price, quality of service, availability of
skilled technical personnel, geographic presence, breadth of service offerings,
adherence to industry standards and financial stability. We believe that we
compete favorably within our industry on the basis of these factors.
LEGAL PROCEEDINGS
We occasionally are a party to legal proceedings incidental to our ordinary
business operations. At present, we are not a party to any pending legal
proceedings that we believe could have a material adverse effect on our
business, financial condition or results of operations.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William J. Mercurio....................... 59 President, Chief Executive Officer and
Chairman of the Board of Directors
Robert E. Agres........................... 38 Vice President and Chief Financial Officer
Robert J. Garrett......................... 61 Vice President-Business Development
Joseph P. Powers.......................... 53 Vice President-Operations
Bernard E. Czarnecki...................... 45 President-Cablemasters, Director
Jeffrey J. Ebersole....................... 43 President-Channel, Director
William Mullen............................ 46 President-U.S. Cable, Director
Douglas F. Berman......................... 33 Director
Sami Mnaymneh............................. 38 Director
Brian Schwartz............................ 32 Director
</TABLE>
William J. Mercurio has been our President, Chief Executive Officer and
Chairman of our Board of Directors since our formation in August 1997. Mr.
Mercurio has more than 25 years of experience in our industry. From 1995 to
1997, Mr. Mercurio served as President and Chief Executive Officer of Able
Telcom Holding Corp., a publicly-traded telecommunications installation, design,
engineering and maintenance services company. From 1986 to 1995, Mr. Mercurio,
who is a certified public accountant, owned a consulting and accounting firm.
From 1971 to 1986, Mr. Mercurio held various positions with Burnup & Sims, Inc.
at the time a publicly-traded telecom infrastructure service provider, including
Senior Vice President, Chief Financial Officer and was a member of the Board of
Directors. While at Burnup & Sims, Mr. Mercurio participated in over 30
acquisitions and was responsible for all financing and accounting matters.
Robert E. Agres has been our Chief Financial Officer since June 1998. From
1990 to 1997, Mr. Agres served as Senior Vice President and Chief Financial
Officer of Triarc Beverage Group, where he was primarily responsible for
Triarc's subsidiary, Royal Crown Company, Inc. From 1997 to 1998 Mr. Agres was a
private financial consultant. Mr. Agres, who is a CPA, has more than 15 years of
experience in accounting and financial reporting including work at two public
companies and public accounting at KMG prior to joining the company.
Robert J. Garrett has been our Vice President for Business Development
since our formation in August 1997. Mr. Garrett has more than 40 years of
experience in the telecom infrastructure services industry. From 1995 to 1997,
Mr. Garrett was Vice President of Development for Irwin Utilities, a Texas-based
cable television installation company. For 36 years, until 1995, he was a
district manager with American Telephone and Telegraph where he managed major
telecom projects in Florida, Georgia, Louisiana, and New York.
Joseph P. Powers has been our Vice President for Operations since our
formation in August 1997. Mr. Powers has more than 32 years of experience in the
telecom infrastructure services industry. From 1995 to 1997, he served as
President of Able Communication Services, Inc., a wholly-owned subsidiary of
Able Telcom. From 1990 to 1995, he was Director of Operations for Voltelcom, the
telecommunications installation, design, engineering and maintenance services
division of Volt Information Sciences.
Bernard E. Czarnecki has served as a Director since March 1998. He has
served as President of Cablemasters since he founded that company in 1983.
Jeffrey J. Ebersole has served as a Director since March 1998. He has
served as President of Channel since he founded that company in 1978.
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<PAGE> 45
William Mullen has served as a Director since July 1998. He currently
serves as the President of U.S. Cable and has been associated with that company
since 1972.
Douglas F. Berman has served as a Director since March 1998. Mr. Berman
joined HIG in 1996 and became a Managing Director of HIG in 1998. From 1992 to
1996, Mr. Berman was with Bain & Company, an international management consulting
firm, where he managed a variety of projects for Fortune 500 companies. Mr.
Berman is also a director of Let's Talk Cellular & Wireless, Inc.
Sami Mnaymneh has served as a Director since March 1998. He co-founded HIG
Capital Management, Inc. in 1993 and serves as one of its Managing Directors.
Before founding HIG, Mr. Mnaymneh was a Managing Director at The Blackstone
Group, where he specialized in providing financial advisory services to Fortune
100 companies. Mr. Mnaymneh is also a director of Let's Talk Cellular &
Wireless, Inc.
Brian Schwartz has served as a Director since February 1999. Mr. Schwartz
joined HIG in 1994 and became a Managing Director of HIG in 1998. Before joining
HIG, Mr. Schwartz worked for PepsiCo, Inc.'s Strategic Planning Department.
BOARD OF DIRECTORS
Our Board of Directors has seven members. Upon the closing of this
offering, the Board of Directors will have five members, including Messrs.
Mercurio and Mnaymneh. Our certificate of incorporation provides that our Board
of Directors will be divided into three classes, with regular three year
staggered terms and initial terms of one, two and three years. Accordingly, Mr.
will hold office until the annual meeting of stockholders to be
held in 2000, Messrs. and will hold office until
the 2001 annual meeting, and Messrs. Mercurio and Mnaymneh will hold office
until the 2002 annual meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an Audit Committee and a Compensation Committee.
Messrs. and have agreed to serve as the initial
members of our Audit Committee. The duties and responsibilities of the Audit
Committee include (1) recommending to the full Board of Directors the
appointment of our auditors and any termination of engagement, (2) reviewing the
plan and scope of audits, (3) reviewing our significant accounting policies and
internal controls, (4) administering our compliance programs, (5) having general
responsibility for all related auditing matters and (6) approving all
transactions with affiliates.
The Compensation Committee is composed of two directors. Our Chief
Executive Officer makes recommendations to the committee as to the compensation
of our officers, including salary, bonus, stock options and benefits, as well as
the nomination of officers to be appointed by the Board of Directors. The
current members of the Compensation Committee are Messrs. Mnaymneh and Mercurio.
Mr. Mercurio has agreed to resign from the Compensation Committee and will be
replaced by .
DIRECTORS' COMPENSATION
We do not currently pay any fees to directors. We reimburse all directors
for out-of-pocket expenses incurred in connection with the rendering of services
as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Mercurio, a member of the Compensation Committee, is our President and
Chief Executive Officer. Mr. Mnaymneh, a member of our Compensation Committee,
is a controlling person of HIG, one of our principal stockholders. See "Certain
Transactions" for a description
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<PAGE> 46
of various transactions between us, Mr. Mercurio and HIG. None of our executive
officers has served as a director or member of the compensation committee of
another entity, one of whose executive officers served as a director or member
of our Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1998 concerning compensation we paid to our Chief Executive Officer
and our other executive officers who were compensated over $100,000 during that
year. None of the executive officers appearing in the Summary Compensation Table
has received any stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION FOR FISCAL 1998
-------------------------------------
OTHER ANNUAL
NAME SALARY BONUS COMPENSATION(1)
- ---- -------- -------- ---------------
<S> <C> <C> <C>
William J. Mercurio................................. $135,375 $100,000 $6,750
Joseph P. Powers.................................... 101,250 60,000 4,500
</TABLE>
- ------------
(1) Primarily represents amounts paid for auto allowance.
STOCK OPTION PLAN
We have a stock option plan which provides for the grant of both
nonstatutory stock options and stock options intended to be treated as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended. Our stock option plan provides that stock options may be
granted by the Compensation Committee. The Compensation Committee has the sole
authority to grant option awards, to construe and interpret the plan and to make
all other determinations and take any and all actions necessary or advisable for
the administration of the plan. The stock option plan is intended to provide
incentives to, and rewards for, certain of our employees and non-employee
directors. All of our employees, non-employee directors, officers and advisors
are eligible to receive awards and vote on the stock option plan, but only
employees are eligible to receive incentive stock options. Incentive stock
options granted under the stock option plan are non-transferable other than by
will or by the laws of descent and distribution.
The stock option plan may be amended at any time by the Board of Directors,
although the Board of Directors may condition any amendment on the approval of
our stockholders if such approval is necessary or advisable with respect to tax,
securities or other applicable laws. Options will be exercisable during the
period specified in each option agreement and will generally become exercisable
in installments pursuant to a vesting schedule designated by the Compensation
Committee. If a change of control of Orius occurs, the Board may terminate all
options as of that date or accelerate the expiration of the options to the tenth
day after the change of control. The stock option plan terminates in 2008.
The total number of shares of common stock reserved for issuance under the
stock option plan is 3,000,000. We have granted incentive stock options to
acquire 714,902 shares of common stock, 103,609 of which are currently
exercisable. We have awarded options on five occasions. In each case, the
options vest in three equal installments on the first, second and third
anniversaries of the date of grant. All of the options which we have awarded are
incentive stock options, exercisable for a period of ten years, and the awards
have been made only to our employees. All options expire 90 days after an
employee ceases to be employed by the Company. The options were granted at
exercise prices ranging from $4.83 per share to $8.69 per share when the
estimated market price for the common stock ranged from $1.45 to $3.21 per
share.
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<PAGE> 47
EXECUTIVE EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Mercurio, Powers and Garrett,
dated February 26, 1999. Mr. Mercurio's employment agreement has a four-year
term and Messrs. Powers' and Garrett's agreements have two-year terms. Mr.
Mercurio receives a base salary of $400,000 per year, subject to adjustments for
inflation. Messrs. Powers and Garrett receive a base salary of $200,000 and
$150,000 per year, respectively, subject to adjustments for inflation. All three
employment agreements provide for health, life and disability insurance and
other benefits. They also contain covenants not to compete for a certain period
of time. So long as we do not terminate the executives without cause, this
period will run through their employment and end on February 28, 2003 with
respect to Mr. Mercurio, and February 28, 2001 with respect to Messrs. Powers
and Garrett, or one year after their employment, whichever date is later. If we
terminate Mr. Mercurio without cause or due to his death or disability, then we
must pay him his salary for a period of two years following the date of
termination. If that happens, Mr. Mercurio also will have the right to exercise
any options and warrants granted to him while he was an employee. If Mr.
Mercurio's termination is due to his death or permanent disability, then we must
pay him (or his estate) his salary for one year after his death or date of
disability. If Messrs. Powers or Garrett are terminated without cause, we must
continue to pay full compensation and benefits to the terminated executive until
February 28, 2001. If either executive's termination is due to his death or
permanent disability, then we must pay him (or his estate) his salary for one
year after his death or date of disability.
None of our executive officers are parties to any agreements that are
triggered upon a "change of control."
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<PAGE> 48
CERTAIN TRANSACTIONS
GENERAL
We have, from time to time, entered into various transactions with certain
of our officers, directors and principal stockholders and entities in which such
parties have an interest. We believe that each such transaction has been on
terms no less favorable to us than could be obtained in a transaction with an
independent third party.
ORGANIZATION OF ORIUS
We were formed in August 1997 by William Mercurio, Joseph Powers and Robert
Garrett, who acted as co-founders of Orius and paid nominal cash consideration
for 1,865,915 shares of common stock. In March 1998, we acquired Cablemasters,
Excel, Mich-Com and Channel for $25.1 million (including assumed indebtedness of
$2.6 million) and 5,192,676 shares of common stock. Messrs. Ebersole and
Czarnecki, directors of Orius, were stockholders of two of the founding
companies. Mr. Ebersole received $12.9 million and 2,779,415 shares of common
stock in connection with the sale of Channel to us. We also entered into two
three-year leases with entities controlled by Mr. Ebersole for the lease of
Channel's headquarters and office space. The monthly rent for both leases is
approximately $10,600. At the time of the acquisition of Channel, Mr. Ebersole
entered into a three-year employment agreement with Channel that provided for an
initial annual base salary of $150,000. In addition, Mr. Ebersole received
$200,000 and 59,399 shares of our common stock as a finders fee for identifying
certain acquisition candidates. Mr. Czarnecki received $4.6 million and 982,835
shares of common stock in connection with the sale of Cablemasters. Mr.
Czarnecki also signed a three-year employment agreement with Cablemasters, with
an initial annual base salary of $150,000. HIG Cable, Inc. (an entity controlled
by Mr. Mnaymneh) purchased 10,000 shares of our Series A preferred stock for
$4.5 million and $1.0 million of our 9% junior subordinated promissory notes,
which will be converted into an aggregate of 3,809,451 shares of common stock
immediately prior to the closing of this offering, to fund a portion of our
initial acquisitions.
U.S. CABLE ACQUISITION
In June 1998, we acquired U.S. Cable from its former shareholders,
including William Mullen, one of our directors. Mr. Mullen and members of his
immediate family received $5.1 million and 1,091,833 shares of our common stock.
Mr. Mullen signed a three year employment agreement with U.S. Cable with an
initial annual base salary of $140,000 and became a member of our Board of
Directors. U.S. Cable also entered into a five-year lease for its corporate
headquarters with an entity controlled by Mr. Mullen at a monthly base rent of
$5,000. As a result of the U.S. Cable acquisition, the conversion ratio of the
series A preferred stock held by HIG Cable, Inc. was adjusted to convert into an
additional 935,837 shares of common stock. This adjustment was a term of the
series A preferred stock when it was originally issued. In addition, Mr.
Mercurio received an additional 337,987 shares of common stock and Mr. Garrett
received an additional 144,852 shares pursuant to the terms of the original
issuance of these shares.
1999 ACQUISITIONS
In February 1999, we acquired Schatz, DAS-CO, Copenhagen and Network in a
transaction that was designed to give tax-free treatment to the stock issued to
the former stockholders of the acquired companies. To complete these
acquisitions all of our then existing stockholders exchanged their interests in
the company for new interests in Orius and we raised additional equity to fund
the 1999 acquisitions. HIG Cable West, Inc. (an entity controlled by Mr.
Mnaymneh) acquired 7,596.38 shares of our series B preferred stock for $7.6
million, which
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<PAGE> 49
will be converted into 3,252,286 shares of common stock immediately prior to the
closing of the offering. We also sold 1,066,219 shares of our common stock to
our then existing stockholders for $2.4 million. The following officers,
directors and principal stockholders (including immediate family members and
affiliated entities of such persons) purchased the number of shares indicated at
$2.34 per share, in cash: William J. Mercurio -- 132,319, Robert E.
Agres -- 41,444, Bernard E. Czarnecki -- 115,843, and William Mullen -- 106,717.
In connection with the 1999 acquisitions, we paid (1) Mercurio and Associates,
P.A., an affiliate of William J. Mercurio, a consulting fee of $550,000 for
assistance in identification of, and due diligence with respect to, acquisition
candidates and (2) HIG, an entity controlled by Mr. Mnaymneh, $267,000 for fees
and expenses.
We have agreed to pay HIG Capital LLC, an entity controlled by Mr.
Mnaymneh, a professional banking fee of $ in connection with this
offering, less $ for fees previously paid. We do not currently have any
other agreements or arrangements with any of our executive officers or directors
for the payment of fees or the reimbursement of expenses, other than pursuant to
employment agreements.
OTHER
Rosemarie Mulholland, the daughter of William J. Mercurio, is our Secretary
and Treasurer. Ms. Mulholland, a certified public accountant, received total
compensation of $64,287 from us in 1998, including a salary of $53,787 and an
accrued bonus of $10,500. Ms. Mulholland also received options to purchase 9,325
shares of our common stock, exercisable at $4.80 per share. The options vest in
equal annual increments in April 1999, 2000 and 2001.
COMPANY POLICY
In the future, any transactions with our directors, officers, employees or
affiliates are anticipated to be minimal and will, in any case, be approved by a
majority of the Board of Directors or a committee thereof, including a majority
of disinterested members of the Board of Directors.
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<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The table below lists information about the beneficial ownership of our
common stock as of June 30, 1999, including shares which the individuals have
the right to acquire within 60 days upon the conversion of our convertible
preferred stock or junior convertible note or the exercise of options or
warrants, by (a) each person whom we know to own beneficially more than 5% of
our common stock, (b) each of our directors and named executive officers (c) all
of our directors and executive officers as a group, and (d) our selling
stockholders.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING THE OFFERING
------------------- SHARES TO -------------
NAME NUMBER % BE OFFERED NUMBER %
---- ----------- ----- ---------- ------- ---
<S> <C> <C> <C> <C> <C>
Sami Mnaymneh(1)....................... 7,061,738 32.8
Douglas F. Berman(1)................... 7,061,738 32.8
Brian Schwartz(1)...................... 7,061,738 32.8
HIG Cable, Inc.(2)..................... 3,809,451 20.1
HIG Cable West, Inc.(3)................ 3,252,286 18.4
Jeffery J. Ebersole.................... 2,838,814 19.6
William J. Mercurio.................... 1,255,915 8.7
Bernard E. Czarnecki................... 1,098,678 7.6
Robert J. Garrett...................... 930,356 6.4
Larry Bonadeo.......................... 823,070 5.7
P. Nicholas Johnson.................... 764,733 5.3
Jerry R. Wood and Sandra M. Wood,
trustees............................. 760,448 5.3
William Mullen Trust................... 569,530 3.9
Robert Mullen.......................... 552,650 3.8
Kenneth Childress...................... 401,236 2.8
Douglas Hoffman........................ 378,980 2.6
Joseph P. Powers....................... 305,266 2.1
Glenn E. Mullen........................ 168,036 1.2
PNC Bank, N.A.(4)...................... 175,306 1.2
Magnetite Asset Investor LLC(4)........ 106,241 (5)
Heller Financial Inc.(4)............... 31,870 (5)
GMS Consultants Group, Inc............. 47,049 (5)
Robert E. Agres........................ 46,624 (5)
Merrill Lynch Capital Corporation(4)... 26,565 (5)
All officers and directors as a group
(10 persons)......................... 14,106,921 65.6
</TABLE>
- ------------
(1) Consists of shares owned by HIG Cable, Inc. and HIG Cable West, Inc. that
are deemed to be owned by this person because of his position as a managing
director of HIG.
(2) Consists of shares issuable upon conversion of series A preferred stock and
upon conversion of a convertible promissory note.
(3) Consists of shares issuable upon conversion of series B preferred stock.
(4) Consists of shares issuable upon conversion of warrants.
(5) Less than 1%.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock will consist of shares of common stock
having a par value of $.0001 per share and shares of preferred stock
having a par value of $.0001 per share.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Such
holders are not entitled to vote cumulatively for the election of directors.
Holders of common stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of funds legally available for the payment of dividends. The Board of
Directors is not required to declare dividends, and it currently expects to
retain earnings to finance the development of our business.
Upon a liquidation of our company, holders of the common stock will be
entitled to a pro rata distribution of our assets, after payment of all amounts
owed to our creditors, and subject to any preferential amount payable to holders
of our preferred stock, if any. Holders of common stock have no preemptive,
subscription, conversion, redemption or sinking fund rights.
PREFERRED STOCK
Our certificate of incorporation permits the Board of Directors to issue
shares of preferred stock in one or more series and to fix the relative rights,
preferences and limitations of each series. Among such rights, preferences and
limitations are dividend rates, provisions of redemption, rights upon
liquidation, conversion privileges and voting powers. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from acquiring, a majority of our
outstanding voting stock. There are currently two series of preferred stock
outstanding, all of the shares of which are held by HIG, which will be converted
into an aggregate of 6,369,111 shares of common stock immediately prior to the
closing of this offering.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of our certificate of incorporation and bylaws
summarized below may be deemed to have an anti-takeover effect and may
discourage, delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by the
stockholders.
Authorized But Unissued Shares. Subject to the applicable requirements of
the exchange or automated quotation service on which our shares are listed or
traded, the authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public or private offerings to raise additional capital, corporate acquisitions
or employee benefit plans. The existence of authorized but unissued and
unreserved common stock and preferred stock may enable the Board of Directors to
issue shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of our company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of our management.
Indemnification and Limitation of Liability. Our certificate of
incorporation and bylaws provide that our directors, officers, employees and
agents shall be indemnified by us to the full extent permitted by Delaware law,
as it now exists or may be amended in the future, against all
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<PAGE> 52
expenses and liabilities reasonably incurred in connection with service for or
on our behalf. Our bylaws also provide that the right of any person to
indemnification shall be a contract right and shall not be exclusive of any
other right to which such person may be entitled. Our certificate of
incorporation contains a provision permitted by Delaware law that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty, unless the director has breached his or her duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, paid a dividend or approved a stock repurchase in
violation of Delaware law or obtained an improper personal benefit. This
provision does not alter a director's liability under the federal securities
laws. In addition, this provision does not affect the availability of equitable
remedies, such as injunction or rescission, for breach of fiduciary duty.
Statutory Business Combination Provisions. Our certificate of
incorporation provides that we will NOT be governed by certain provisions of
Delaware and Florida law that have been enacted to deter or frustrate takeovers
of Delaware corporations or foreign corporations operating in Florida. Section
203 of the Delaware General Corporation Law generally provides that a Delaware
corporation may not engage in any of a broad range of business combinations with
an interested stockholder, except under certain limited circumstances. The
Florida Control Share Act generally provides that shares acquired above than
some specified thresholds will not possess any voting rights unless such voting
rights are approved by a majority of a corporation's disinterested stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 29,253,227 shares of common
stock outstanding. All of the shares offered hereby will be freely saleable in
the public market after completion of this offering, unless acquired by
affiliates of our company. All of the shares outstanding prior to completion of
this offering are subject to contractual restrictions that prohibit the
stockholders from selling or otherwise disposing of shares for a period of 180
days after the date of this prospectus without the prior written consent of
Deutsche Bank Securities, Inc. After February 25, 2000, all of the currently
outstanding shares will be eligible for resale in the public market, subject to
the restrictions of Rule 144.
We have agreed not to sell, contract or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus, except
as consideration for business acquisitions or upon exercise of currently
outstanding stock options or warrants, without the prior written consent of
Deutsche Bank Securities, Inc.
In general, under Rule 144, a person (or persons who shares are
aggregated), including persons who may be deemed affiliates of our company, who
has beneficially owned his or her shares for at least one year is entitled to
sell within any three-month period that number of shares which does not exceed
the greater of 1% of the outstanding shares of the common stock (292,532 shares
after completion of this offering) or the average weekly trading volume during
the four calendar week preceding each such sale. Sales under Rule 144 also are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about our company. Under Rule 144(k),
a person (or persons whose shares are aggregated) who is not or has not been
deemed an "affiliate" of the company for at least three months and who has
beneficially owned his or her shares for at least two years would be entitled to
sell such shares under Rule 144 without regard to the limitations discussed
above.
There has been no public market for the common stock prior to this offering
and no assurance can be given that an active public market for the common stock
will develop or be sustained after completion of this offering. Sales of
substantial amounts of the common stock, or the perception that such sales could
occur, could adversely affect the prevailing market price
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<PAGE> 53
of the common stock and could impair our ability to raise capital or effect
acquisitions through the issuance of common stock.
After 180 days after completion of this offering, we intend to file a
registration statement under the Securities Act to register 3,000,000 shares of
common stock issuable on exercise of stock options or other awards granted or to
be granted under our stock option plan. After the filing of such registration
statement, those shares will be freely saleable in the public market immediately
following exercise of such options.
In addition, our existing stockholders, who after the closing of this
offering will own approximately shares of common stock, have the
right to include their shares in public offerings of our securities. Two of our
stockholders, holding shares of common stock, have the right to
cause us to register shares of common stock owned by them.
TRANSFER AGENT AND REGISTRAR
will serve as transfer agent and registrar for our common
stock.
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<PAGE> 54
PLAN OF DISTRIBUTION
We have entered into an underwriting agreement with the underwriters named
below in which they have severally agreed to purchase from us the number of
shares of common stock set forth beside their names below. Deutsche Bank
Securities, Inc., Banc of America Securities LLC, Morgan Keegan & Company, Inc.,
and The Robinson-Humphrey Company, LLC are the representatives of the
underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities, Inc. .............................
Banc of America Securities LLC..............................
Morgan Keegan & Company, Inc................................
The Robinson-Humphrey Company, LLC..........................
--------
Total.............................................
========
</TABLE>
The obligation of the underwriters to purchase the common stock is subject
to the terms and conditions set forth in the underwriting agreement. The
underwriting agreement requires the underwriters to purchase all of the shares
of the common stock offered by this prospectus, if any are purchased. The shares
of common stock offered by the underwriters pursuant to this prospectus are
subject to prior sale, when, as and if delivered to and accepted by the
underwriters, and subject to the underwriters' right to reject any order in
whole or in part.
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price of $ per share.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the public offering price. These
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the public offering price. The underwriters may change the public offering price
after the common stock is released for sale to the public.
The underwriters may sell more shares than the total number set forth in
the table above. To cover these sales, the underwriters have an option to
purchase up to 1,605,000 additional shares of common stock from Orius and
certain selling stockholders at the public offering price less the underwriting
discounts and commissions set forth in the table above. The underwriters may
exercise this option for 30 days after the date of this prospectus only to cover
these sales. To the extent that the underwriters purchase shares pursuant to
this option, each of the underwriters will purchase shares in approximately the
same proportion as the number of shares of common stock to be purchased by it
shown in the above table bears to 10,700,000 and we will be obligated, pursuant
to the option, to sell such shares to the underwriters. If purchased, the
underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.
Orius and the selling stockholders have agreed to indemnify the
underwriters with respect to certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over allot shares of the
common stock in connection with this offering, thereby creating a short position
in the underwriters' account. A short position results when an
53
<PAGE> 55
underwriter sells more shares of common stock than such underwriter is committed
to purchase. Additionally, to cover such over allotments or to stabilize the
market price of the common stock, the underwriters may bid for, and purchase,
shares of the common stock at a level above that which might otherwise prevail
in the open market. The underwriters are not required to engage in these
activities, and, if commenced, any such activities may be discontinued at any
time. The underwriters may also reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by that
underwriter or dealer.
We have agreed not to make any offering, sale, short sale, transfer, pledge
or other disposition of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of common stock, or agreement for such, for a period of 180 days
after the date of this prospectus, directly or indirectly, without the prior
written consent of Deutsche Bank Securities, Inc., except that we may, without
this consent, issue options granted under the stock option plan and issue shares
upon exercise of options granted under the stock option plan, and in connection
with the acquisitions of businesses.
Our executive officers, directors, and current stockholders have agreed not
to offer, sell, contract to sell, grant any option or other right for the sale
of, pledge or otherwise dispose of any shares of common stock or any securities
convertible or exchangeable into common stock owned or acquired in the future in
any manner until 180 days after the date of this prospectus, without the prior
written consent of Deutsche Bank Securities, Inc. These restrictions will be
applicable to any shares acquired by any of those persons during the applicable
restricted period.
The representatives of the underwriters have advise us that they do not
intend to confirm sales to any account over which they exercise discretionary
authority.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares to be sold and offered hereby by us
to certain of our employees and other persons. The number of shares of common
stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered hereby. Certain individuals purchasing reserved shares may
be required to agree not to sell, offer or otherwise dispose of any shares of
common stock for a period of three months after the date of this prospectus.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in such negotiations are prevailing market conditions,
our result of operations in recent periods, the market capitalizations and
stages of development of other companies that we and the representatives believe
to be comparable to Orius, estimates of our business potential, the present
state of our development and other factors deemed relevant. The initial public
offering price set forth on the cover page of this prospectus should not be
considered an indication of the actual value of our common stock. Such price is
subject to change as a result of market conditions and other factors.
Application has been made to have our common stock listed on the New York Stock
Exchange under the proposed symbol "ORS."
EXPERTS
The consolidated financial statements of Orius Corp. and Subsidiaries as of
December 31, 1998 and for the period from March 31, 1998 through December 31,
1998 included in this
54
<PAGE> 56
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Channel Communications, Inc.,
f/k/a Kenya Corp., as of and for the two years ended December 31, 1997 included
in this prospectus have been included in reliance on the report of Williams,
Young & Associates, LLC, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of U.S. Cable, Inc. as of September 30, 1996 and
1997 and June 30, 1998 and for each of the two years in the period ended
September 30, 1997 and for the nine months ended June 30, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of CATV Subscriber Services, Inc. and its
subsidiary as of December 31, 1997 and August 31, 1998 and for the year ended
December 31, 1997 and the eight months ended August 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of DAS-CO of Idaho, Inc. as of December 31, 1997
and 1998 and for each of three years in the period ended December 31, 1998
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Schatz Underground Cable, Inc. as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 included in this prospectus have been included in reliance on the
report of Milhouse, Martz & Neal, L.L.P., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Network Cablings Services, Inc. included in
this prospectus and in the registration statement have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their report appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
The financial statements of Copenhagen Utilities and Construction, Inc. as
of December 31, 1997 and 1998 and for each of three years in the period ended
December 31, 1998 included in this prospectus have been included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Texel Corporation as of December 31, 1997 and
1998 and for each of two years in the period ended December 31, 1998 included in
this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale, Florida will pass upon
the validity of the common stock offered by this prospectus for us. Legal
matters for the underwriters in connection with the offering will be passed upon
by White & Case LLP, Miami, Florida.
55
<PAGE> 57
ADDITIONAL INFORMATION
We intend to file annual, quarterly, and special reports, proxy statements,
and other information with the Securities and Exchange Commission. Such reports,
proxy and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7
World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, at prescribed rates. The
Commission maintains a website that contains all information filed
electronically by us. The address of the Commission's website is
http://www.sec.gov. Our common stock is proposed to be listed on the New York
Stock Exchange. Reports, proxy statements and other information concerning Orius
can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
This prospectus constitutes a part of a registration statement on Form S-1
filed by us with the Commission under the Securities Act, with respect to the
securities offered in this prospectus. The registration statement contains
additional information with respect to Orius and this offering. Accordingly, we
refer you to the registration statement and to the exhibits to such registration
statement for further information with respect to Orius and the securities
offered in this prospectus. Certain parts of the registration statement are
omitted as allowed by the rules and regulations of the Commission. Copies of the
registration statement and its exhibits are on file at the offices of the
Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described above.
We have summarized certain provisions of documents discussed in this
prospectus. If you have any questions concerning those provisions or documents,
we encourage you to read the entire documents which are on file with the
Commission as exhibits to the registration statement.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ORIUS CORP. AND SUBSIDIARIES INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets....................... F-3
Interim Consolidated Statements of Operations............. F-4
Interim Consolidated Statements of Cash Flows............. F-5
Notes to Interim Consolidated Financial Statements
(unaudited)............................................ F-6
ORIUS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial
Statements............................................. F-12
Unaudited Pro Forma Statements of Operations.............. F-13
Unaudited Pro Forma Balance Sheet......................... F-16
Notes to Unaudited Pro Forma Financial Statements......... F-17
ORIUS CORP. AND SUBSIDIARIES
Financial Statements -- December 31, 1998
Report of Independent Accountants......................... F-19
Consolidated Balance Sheet................................ F-22
Consolidated Statements of Operations..................... F-23
Consolidated Statements of Cash Flows..................... F-24
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-25
Notes to Consolidated Financial Statements................ F-26
U.S. CABLE, INC.
Financial Statements -- September 30, 1996 and 1997 and
June 30, 1998
Report of Independent Accountants......................... F-37
Balance Sheets............................................ F-38
Statements of Operations.................................. F-39
Statements of Cash Flows.................................. F-40
Statements of Changes in Shareholders' Equity............. F-41
Notes to Financial Statements............................. F-42
CATV SUBSCRIBER SERVICES, INC. AND ITS SUBSIDIARY
Financial Statements -- December 31, 1997 and August 31,
1998
Report of Independent Accountants......................... F-47
Balance Sheets............................................ F-48
Statements of Operations.................................. F-49
Statements of Cash Flows.................................. F-50
Statements of Changes in Stockholders' Equity............. F-51
Notes to Financial Statements............................. F-52
DAS-CO OF IDAHO, INC.
Financial Statements -- December 31, 1996, 1997 and 1998
Report of Independent Accountants......................... F-57
Balance Sheets............................................ F-58
Statements of Operations.................................. F-59
Statements of Cash Flows.................................. F-60
Statements of Changes in Stockholders' Equity............. F-61
Notes to Financial Statements............................. F-62
</TABLE>
F-1
<PAGE> 59
<TABLE>
<S> <C>
SCHATZ UNDERGROUND CABLE, INC.
Financial Statements -- December 31, 1996, 1997 and 1998
Report of Independent Accountants...................................................................... F-66
Balance Sheets......................................................................................... F-67
Statements of Income and Retained Earnings............................................................. F-68
Statements of Cash Flows............................................................................... F-69
Notes to Financial Statements.......................................................................... F-70
NETWORK CABLING SERVICES, INC.
Financial Statements -- September 30, 1997 and 1998 and December 31, 1997 and 1999 unaudited
Report of Independent Certified Public Accountants..................................................... F-75
Balance Sheets......................................................................................... F-76
Statements of Income................................................................................... F-77
Statements of Cash Flows............................................................................... F-78
Statements of Stockholders' Equity..................................................................... F-79
Notes to Financial Statements.......................................................................... F-80
COPENHAGEN UTILITIES AND CONSTRUCTION, INC.
Consolidated Financial Statements -- December 31, 1996, 1997 and 1998
Report of Independent Accountants...................................................................... F-85
Consolidated Balance Sheets............................................................................ F-86
Consolidated Statements of Operations.................................................................. F-87
Consolidated Statements of Cash Flows.................................................................. F-88
Notes to Consolidated Financial Statements............................................................. F-89
TEXEL CORPORATION
Financial Statements -- December 31, 1997 and 1998 and March 31, 1998 and 1999 unaudited
Report of Independent Accountants...................................................................... F-96
Balance Sheets......................................................................................... F-97
Statements of Operations............................................................................... F-98
Statements of Cash Flows............................................................................... F-99
Statements of Changes in Shareholders' Equity.......................................................... F-100
Notes to Financial Statements.......................................................................... F-101
</TABLE>
F-2
<PAGE> 60
ORIUS CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31,
DECEMBER 31, MARCH 31, 1999
1998 1999 (NOTE 12)
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................... $ 2,252,303 $ -- $ --
Accounts receivable, net.................................... 26,153,402 43,399,783 43,399,783
Unbilled accounts receivable................................ 12,189,615 25,391,153 25,391,153
Inventory................................................... 9,542,743 14,681,541 14,681,541
Prepaid and other current assets............................ 852,481 1,241,667 1,241,667
----------- ------------ ------------
Total current assets................................ 50,990,544 84,714,144 84,714,144
----------- ------------ ------------
PROPERTY AND EQUIPMENT, NET................................. 15,474,071 35,314,088 35,314,088
----------- ------------ ------------
OTHER ASSETS:
Goodwill, net............................................... 27,052,711 72,611,233 72,611,233
Deferred financing costs, net............................... 1,400,527 3,976,256 3,976,256
Other....................................................... 917,986 2,078,681 2,078,681
----------- ------------ ------------
Total other assets.................................. 29,371,224 78,666,170 78,666,170
----------- ------------ ------------
TOTAL............................................... $95,835,839 $198,694,402 $198,694,402
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long term debt........................... $ 5,864,268 $ 10,270,713 $ 10,270,713
Borrowing under credit facility............................. 6,750,000 8,000,000 8,000,000
Accounts payable............................................ 8,288,999 13,796,238 13,796,238
Accrued liabilities......................................... 5,844,889 11,552,177 11,552,177
Deferred revenues........................................... 2,621,398 3,083,725 3,083,725
Other liabilities, including deferred income tax
liability................................................. 655,988 201,099 201,099
----------- ------------ ------------
Total current liabilities........................... 30,025,542 46,903,952 46,903,952
----------- ------------ ------------
Long-term debt.............................................. 42,649,585 111,328,837 111,328,837
Deferred income tax liability............................... 2,594,697 5,450,539 5,450,539
Deferred revenues........................................... 4,670,000 4,670,000 4,670,000
----------- ------------ ------------
Total liabilities................................... 79,939,824 168,353,328 168,353,328
----------- ------------ ------------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares issued and outstanding.......... 7,340,649 10,017,496 --
Series B, 7,596.33 shares issued and outstanding........ -- 10,452,866 --
Value of redemption rights associated with junior
subordinated convertible note............................. 493,358 1,056,290 --
----------- ------------ ------------
7,834,007 21,526,652 --
----------- ------------ ------------
STOCKHOLDERS' EQUITY:
Warrants.................................................... -- 868,538 868,538
Common stock, par value $.0001 per share; 48,696,230 shares
authorized; 10,897,151 and 13,421,163 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively.............................................. 105 130 197
Additional paid-in capital.................................. 7,427,745 7,945,754 29,472,339
Retained earnings........................................... 634,158 -- --
----------- ------------ ------------
Total stockholders' equity.......................... 8,062,008 8,814,422 30,341,074
----------- ------------ ------------
Total............................................... $95,835,839 $198,694,402 $198,694,402
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 61
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
REVENUES, NET:.............................................. $4,218,833 $46,069,230
---------- -----------
EXPENSES:
Direct costs................................................ 3,364,584 36,223,996
General and administrative.................................. 709,928 4,540,170
Depreciation and amortization............................... 202,643 1,808,211
---------- -----------
Total............................................. 4,277,155 42,572,377
---------- -----------
Income (loss) from operations............................... (58,322) 3,496,853
Other (income) expense:
Interest expense, net..................................... (57,697) 2,160,091
Other income.............................................. (52,966) (26,257)
---------- -----------
Income before income tax provision and extraordinary item... 52,341 1,363,019
Provision for income taxes.................................. 358,430 692,000
---------- -----------
(Loss) income before extraordinary charge................... (306,089) 671,019
Extraordinary charge for debt retirement, net of tax benefit
of $578,000............................................... -- (770,000)
---------- -----------
(LOSS) FROM OPERATIONS...................................... $ (306,089) $ (98,981)
========== ===========
Accretion and dividends associated with preferred stock and
junior convertible note................................... (6,096,307)
-----------
Net (loss) available to common stockholders................. $(6,195,288)
-----------
(Loss) per share:
Basic:
(Loss) available to common stockholders................ $ (0.46)
Extraordinary charge................................... $ (0.07)
-----------
Net loss available to common stockholders.............. $(1,113.05) $ (0.53)
========== ===========
Weighted average shares outstanding:
Basic..................................................... 275 11,738,489
========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 62
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net (Loss)................................................ $ (306,089) $ (98,981)
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts.................... 165,000 4,091
Depreciation and amortization........................... 202,643 1,808,211
Extraordinary charge.................................... -- 1,348,000
Amortization of deferred finance costs.................. -- 1,890,162
Loss (gain) on disposal of assets....................... 1,928 (16,400)
Deferred income taxes................................... 330,254 (314,673)
Changes in assets and liabilities:
Accounts receivable, billed and unbilled................ 903,872 (8,232,905)
Inventories............................................. -- (3,714,821)
Other current assets.................................... (51,198) (364,733)
Other noncurrent assets................................. (2,598) 47,329
Accounts payable and accrued liabilities................ (46,997) (926,969)
Deferred revenues....................................... -- 171,202
Other liabilities....................................... (31,242) (133,261)
---------- ------------
Net cash provided by (used in) operating activities....... 1,165,573 (8,533,748)
---------- ------------
INVESTING ACTIVITIES:
Capital expenditures.................................... (152,337) (1,534,966)
Purchases of subsidiaries, net of cash acquired......... -- (65,745,431)
---------- ------------
Net cash (used in) investing activities................... (152,337) (67,280,397)
---------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility........................... 51,074 130,500,000
Principal payments on notes payable and credit
facility............................................. -- (62,472,266)
Amounts paid for deferred financing costs............... -- (4,465,891)
Distributions paid to stockholder....................... (6,117) --
Proceeds from issuance of common stock.................. -- 2,403,622
Proceeds from issuance of convertible preferred stock,
net of costs......................................... -- 7,596,377
---------- ------------
Net cash provided by financing activities................. 44,957 73,561,842
---------- ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............. 1,058,193 (2,252,303)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD............... 346,636 2,252,303
---------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD..................... $1,404,829 $ --
========== ============
Cash paid for:
Interest................................................ $ 855 $ 760,363
Income taxes............................................ $ 59,418 $ 793,760
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 63
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Orius Corp. and its
subsidiaries (the "Company") as of and for the period ended March 31, 1999
includes the accounts of the Company and its subsidiaries and in the opinion of
management, includes all necessary adjustments, consisting of only normal
recurring adjustments, to present fairly the consolidated financial position and
results of operations of the Company for the periods presented. The accompanying
unaudited consolidated financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. Accordingly, these
unaudited consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in this registration statement. Reported interim results of operations
are based in part on estimates, and are not necessarily indicative of those
expected for the year.
With the acquisitions discussed in Note 5, the Company assumed and began to
offer contracts under fixed price arrangements. Consequently, the Company
modified its revenue recognition policy to include these types of contracts. For
fixed priced contracts, Orius Corp. recognizes revenue and the related costs
under the percentage-of-completion method. Revenues from these contracts are
recognized as the related costs are incurred based on the relationship of costs
incurred to total estimated contract costs. Unbilled accounts receivable for
contracts-in-progress represents revenue recognized but not yet billed. Deferred
revenue represents billings on contracts for which costs have not yet been
incurred and revenue has not been recognized. At the time a loss on a contract
becomes known, the entire amount of the estimated loss is accrued.
The financial information as of and for the period ended March 31, 1998
represents the information of Channel Communications, Inc., which was deemed the
accounting acquirer in the March 31, 1998 simultaneous business combination.
Such financial information has been derived from the audited accounts as of and
for the same period which appear elsewhere in this registration statement.
2. REORGANIZATION
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters Corp.;
Excel Cable Construction, Inc.; Mich-Com Cable Services Incorporated; U.S.
Cable, Inc.; CATV Subscriber Services, Inc.; Statewide CATV, Inc.; and
Burn-Techs, Inc. The common stock of NATG is owned by the former owners of these
companies and certain executive officers and founders of NATG. HIG Cable, Inc.
owns all the outstanding Convertible Preferred Stock.
On February 8, 1999, a reorganization of the Company occurred in connection
with the acquisition of four companies and related financing. Orius Corp., a
Delaware corporation, was formed, and it formed NATG Holdings, LLC, a Delaware
limited liability company. All of the interest in NATG Holdings is held by Orius
Corp. NATG Holdings formed a subsidiary, NATG Merger Sub., which was merged with
and into NATG with NATG as the surviving corporation.
As a result of the Reorganization, NATG became an indirect wholly owned
subsidiary of Orius. The Reorganization resulted in all of the stockholders of
NATG holding shares of Orius.
F-6
<PAGE> 64
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Shares of common and Preferred Stock of NATG were converted into one-tenth of a
share of common and preferred stock of Orius, respectively. This one-for-ten
exchange was the same for all stockholders and has been reflected in these
financial statements by restating all share amounts.
3. EARNINGS PER SHARE
Diluted earnings per common share have been excluded because inclusion of
the effects on earnings per share associated with the convertible preferred
stock, junior convertible note, options and warrants issued during the period
would be anti-dilutive.
4. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share presented below were computed under SFAS No.
128 "Earnings per Share" based on the weighted average number of common shares
outstanding during the period after giving retroactive effect to the exchange of
the Company's Series A and Series B preferred stock to the Company's newly
established common stock, the split of the Company's newly established common
stock, the Company's planned initial public offering of common stock and the
conversion of the junior subordinated convertible note. All common shares and
stock options issued have been included as outstanding for the entire period
using the treasury stock method and the estimated public offering price per
share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
------------------------
MARCH 31, MARCH 31,
1998 1999
--------- ------------
<S> <C> <C>
Pro forma net income per share (unaudited):
Basic..................................................... $ 0.07 $ 0.12
Diluted................................................... $ 0.07 $ 0.12
Pro forma weighted average shares outstanding (unaudited):
Basic..................................................... 29,285 29,285
Diluted................................................... 29,518 29,518
</TABLE>
5. ACQUISITIONS
On February 26, 1999, four companies were acquired for total consideration
of $73.1 million plus transaction related expenses of $.9 million. Additionally,
approximately $7.1 million of debt was assumed. Cash paid for the four
acquisitions totaled $65.7 million (net of cash acquired of $4.8 million) and
the value of common stock issued (1,494,922 shares) totaled $3.5 million. The
purchase price of each acquisition is subject to a customary purchase price
adjustment mechanism and finalization of certain valuations.
The companies acquired were: DAS-CO of Idaho, Inc.; Copenhagen Utilities
and Construction, Inc.; Shatz Underground Cable, Inc.; and Network Cabling
Services, Inc. All the acquisitions were accounted for as purchases and were
included in the results of operations from the date of acquisition. The goodwill
associated with all the acquisitions during the period ended March 31, 1999
totaled $45.0 million. In connection with the acquisition of Network Cabling
Services, Inc., the Company is obliged to pay up to $500,000 in each of the next
two years if the acquired company meets certain performance levels through
December 31, 2000. In connection with the acquisition of Copenhagen Utilities,
Inc., the Company is obligated to pay up to $2,438,000 and issue up to 120,259
additional shares of common stock in each of the
F-7
<PAGE> 65
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
next two years if the acquired company meets certain performance levels through
December 31, 2000. If such contingent consideration is paid, it will be
accounted for as additional purchase price consideration.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions and the seven
acquisitions completed during the year ended December 31, 1998 had been
completed on January 1, 1998. These pro forma results give effect to increased
interest expense for acquisition debt and amortization of related goodwill.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed on January 1, 1998 nor are the
results indicative of the company's future results of operations (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $45,108 $62,105
Net income.................................................. $ (570) $ 1,458
Net (loss) available to common stock per share.............. $ (0.44) $ (3.58)
</TABLE>
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 and March 31, 1999 is
detailed by type of borrowing as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Bank credit facilities:
Revolving credit facility, maturing on April 1, 2005;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... $ 6,750,000 $ --
Revolving credit facility, maturing on February 26, 2004;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, plus a margin ranging from 2.25% to 3.00% for
LIBOR and 1.25% to 2.00% for Federal Funds Margin based
on leverage ratio, beginning June 30, 1999............. 8,000,000
Term loan, amortizing with final payment due April 1,
2003; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... 27,625,000 --
Term loan, amortizing with final payment due April 1,
2005; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.375% or
0.875%, respectively................................... 18,950,000 --
Term loan A, amortizing with final payment due December
31, 2003; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, plus a margin ranging from 2.25% to 3.00%
for LIBOR and 1.25% to 2.00% for Federal Funds. Margin
based on leverage ratio, beginning June 30, 1999....... 60,000,000
</TABLE>
F-8
<PAGE> 66
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Term loan B, amortizing with final payment due December
31, 2004; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, in either case plus a margin of 3.75% or
2.75%, respectively 45,000,000
Term loan C, amortizing with final payment due December
31, 2005; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, in either case plus a margin of 5.00% or
4.00%, respectively.................................... 14,151,462
Junior subordinated convertible note, due April 15, 2005,
interest rate of 9%....................................... 1,063,750 1,086,300
Other debt and capital lease obligations.................... 875,103 1,361,788
----------- ------------
Total debt and capital lease obligations.......... 55,263,853 129,599,550
Less current portion........................................ 12,614,268 18,270,713
----------- ------------
Long-term debt.............................................. $42,649,585 $111,328,837
=========== ============
</TABLE>
On February 26, 1999, NATG Holdings entered into a new credit agreement
with Merrill Lynch, Pierce, Fenner & Smith Incorporated and PNC Bank, National
Association (PNC), as joint lead arrangers and a new syndication of banks (New
Credit Agreement). The New Credit Agreement includes a $25.0 million revolving
credit facility, maturing in 5 years, and a $120.0 million senior secured term
loan credit facility. The term loan facility is allocated among a $60.0 million
Term Loan A facility, maturing on December 1, 2003; a $45.0 million Term Loan B
facility, maturing on December 1, 2004; and a $15.0 million Term Loan C
facility, maturing on December 1, 2005. Of this credit facility, NATG Holding
borrowed $2.0 million under the revolving credit facility, $60.0 million under
the Term Loan A facility, $45.0 million under the Term Loan B facility, and
$15.0 million under the Term Loan C facility to complete the four new
acquisitions and to repay substantially all indebtedness of NATG, and terminate
all commitments to make extensions of credit to NATG, under NATG's old credit
facility with PNC.
Amounts under the credit facility bear interest, at the Company's choice,
at either LIBOR plus an applicable margin; or, the higher of PNC's corporate
base rate of interest, or the Federal Fund Rate plus 0.50% (the ABR), in each
case plus an applicable margin. For LIBOR loans, the margin is 3.00% for the
revolving credit facility and Term Loan A facility, 3.75% for the Term Loan B
facility and 5.00% for Term Loan C facility. For ABR loans, the margin is 2.00%
for the revolving credit facility and Term Loan A facility, 2.75% for the Term
Loan B facility and 4.00% for Term Loan C facility. Beginning June 30, 1999, the
margins for all interest rates will be adjusted based upon certain leverage
ratios, but cannot exceed the ranges disclosed above. Outstanding amounts under
the credit facility are secured by substantially all of NATG Holdings' assets
and the pledge of all of the outstanding shares of common stock of each or
Orius' direct and indirect subsidiaries, including NATG. The credit facility
also contains certain affirmative and negative covenants relating to NATG
Holdings' operations.
As a result of the termination and repayment of the indebtedness
outstanding under the old credit facility, the deferred financing costs
associated with the old credit facility totaling $1,348,000 were written off
resulting in an extraordinary charge to income of $770,000, net of tax benefits
of $578,000.
F-9
<PAGE> 67
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
During the three months ended March 31, 1999, the accretion associated with
the junior subordinated convertible note totaled approximately $562,732 which
represents the estimated appreciation in the value of common stock into which
the debt could have been converted.
7. CONVERTIBLE PREFERRED STOCK
In connection with the reorganization discussed above, the number of shares
of common stock into which the Series A Convertible Preferred Stock (Series A
Preferred) was convertible was changed to 3,116,828. Additionally, the provision
that reduced the conversion rate in the event of an initial public stock
offering of Orius Corp. common stock was removed from the Series A Preferred
rights. At March 31, 1999, the total recorded value of the Series A Preferred
has been determined based upon the convertible common shares of 3,116,828 at
$3.214 per share, or $10,017,485. The accretion to that value during the period
ended March 31, 1999 was $2,676,847.
In connection with the acquisitions on February 26, 1999, HIG Cable West,
Inc. purchased 7,596.38 shares of Series B Convertible Preferred Stock (Series B
Preferred) for $7,569,377. The Series B Preferred has the same rights as the
Series A Preferred and may be converted into 3,252,289 shares of Orius Corp.
common stock. At March 31, 1999, the recorded value of the Series B Preferred
has been determined based upon the converted common shares of 3,252,289 at
$3.214 per share, or $10,452,856. The accretion from February 26, 1999 to March
31, 1999 totaled $2,856,728.
8. WARRANTS TO PURCHASE COMMON STOCK
In connection with entering the new credit agreement on February 26, 1999,
the Company issued to the joint lead arrangers and certain of the banks that
participated in the new credit agreement warrants to purchase a total of 371,853
shares of common stock. The warrants expire March 31, 2009 and entitle the
holders to purchase common stock for $.01 per share. The warrants are
exercisable any time after the consummation of an initial public offering,
September 30, 2003 or in the event of a merger or other change of control.
The estimated fair market value of the warrants at date of issuance of
$868,538 has been reflected in the separate component of stockholders' equity
entitled warrants. An offsetting amount has been reflected as a discount or
reduction of the Company's long-term debt. The $868,538 of discount is being
recognized as interest expense using the effective interest method over 66
months which is the weighted average life of the credit agreement components
including the full capacity of the revolver and the Term A, B and C loans.
9. ISSUANCE OF COMMON STOCK
On February 26, 1999, the Company issued to certain of its then existing
stockholders 1,029,086 shares of common stock in exchange for cash of
$2,403,622.
10. INCOME TAXES
In connection with the simultaneous business combination on March 31, 1998,
Channel Communications, Inc.'s S corporation status for income tax purposes was
terminated. Consequently, a change to income tax expense of $330,254 was
recorded to establish deferred tax liabilities with payment to be spread over
four years.
F-10
<PAGE> 68
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
11. SUBSEQUENT EVENTS -- ACQUISITION
On May 25, 1999, the Company acquired all of the outstanding stock of Texel
Corporation for cash of $26.25 million and 1,030,335 shares of common stock,
plus transaction costs of $750 thousand.
12. PRO FORMA BALANCE SHEET (UNAUDITED)
In July 1999, the Company announced its plan to exchange all outstanding
convertible Series A and Series B preferred stock and the junior subordinated
convertible note for 7,061,745 shares of common stock immediately preceding an
initial public offering of its common stock. Additionally, the Company announced
its plan to split each share of common stock into 10.3609 shares of common
stock. The effect of this exchange and split has been reflected in the unaudited
pro forma balance sheet and all share amounts presented reflect the split.
F-11
<PAGE> 69
ORIUS CORP. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
We (Orius Corp.) were formed in August 1997 to create a nationwide provider
of comprehensive telecom infrastructure services. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following unaudited pro forma statements of
operations are presented as if all such acquisitions and this offering had
occurred on January 1, 1998. The following unaudited pro forma balance sheet
gives effect to the Texel acquisition and this offering as if they had occurred
on March 31, 1999. All other acquisitions occurred prior to March 31, 1999 and
are included in the Company's balance sheet at March 31, 1999.
The following unaudited pro forma financial statements have been derived
from (1) our (including the acquired businesses) financial information and, when
applicable, includes adjustments to conform fiscal periods to calendar periods,
(2) the audited financial statements and notes thereto of certain of the
acquired businesses for certain periods and (3) audited financial statements and
notes thereto since inception, which financial statements appear elsewhere in
this prospectus.
The unaudited pro forma financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the acquired businesses been purchased and
this offering consummated as of the assumed dates, nor are the results
indicative of our future results. The unaudited pro forma financial statements
should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto since inception and
certain of the acquired businesses for certain periods included elsewhere
herein.
F-12
<PAGE> 70
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------------------------
THE CABLE- U.S. STATE- BURN-
COMPANY MASTERS EXCEL MICH-COM CABLE WIDE TECHS CATV DAS-CO SCHATZ COPENHAGEN
------- ------- ------ -------- ------ ------ ----- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:............ $81,551 $3,485 $1,868 $2,379 $9,465 $3,524 $597 $19,412 $21,778 $31,254 $35,192
EXPENSES:
Direct costs........ 59,896 2,500 1,545 1,953 6,832 2,879 223 16,018 14,548 18,867 27,092
General and
administrative.... 8,645 572 94 187 3,013 272 41 3,493 3,830 9,137 7,701
Depreciation and
amortization...... 3,567 114 35 73 259 125 14 296 938 2,199 840
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
Total.......... 72,108 3,186 1,674 2,213 10,104 3,276 278 19,807 19,316 30,203 35,633
INCOME (LOSS) FROM
OPERATIONS.......... 9,443 299 194 166 (639) 248 319 (395) 2,462 1,051 (441)
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 2,508 43 -- 7 (67) 24 -- 290 (44) 576 (170)
Other (income)
expense........... (72) (6) (1) 30 (144) -- -- 4 (77) (35)
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 7,007 262 195 129 (428) 224 319 (685) 2,502 552 (236)
PROVISION FOR INCOME
TAXES............... 3,283 -- -- 21 (156) 1 96 (248) -- 224 (76)
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
NET INCOME (LOSS).... $ 3,724 $ 262 $ 195 $ 108 $ (272) $ 223 $223 $ (437) $ 2,502 $ 328 $ (160)
======= ====== ====== ====== ====== ====== ==== ======= ======= ======= =======
Earnings per share,
basic and diluted...
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
PRO
OFFERING FORMA,
NETWORK PRO ADJUST- AS
CABLING TEXEL ADJUSTMENTS FORMA MENTS ADJUSTED
------- ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:............ $24,586 $29,649 $ -- $264,740 $ -- $264,740
EXPENSES:
Direct costs........ 21,393 20,634 (925)(b) 193,455 -- 193,455
General and
administrative.... 1,808 1,762 (15,767)(c) 24,788 -- 24,788
Depreciation and
amortization...... 179 101 984(d) 9,724 -- 9,724
------- ------- --------- -------- --------- --------
Total.......... 23,380 22,497 (15,708) 227,967 -- 227,967
INCOME (LOSS) FROM
OPERATIONS.......... 1,206 7,152 15,708 36,773 -- 36,773
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 143 (128) 11,079(e) 14,261 (10,121)(g) 4,140
Other (income)
expense........... (12) 88 -- (225) -- (225)
------- ------- --------- -------- --------- --------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 1,075 7,192 4,629 22,737 10,121 32,858
PROVISION FOR INCOME
TAXES............... 391 -- 6,355(f) 9,891 4,403(f) 14,294
------- ------- --------- -------- --------- --------
NET INCOME (LOSS).... $ 684 $ 7,192 $ (1,726) $ 12,846 $ 5,718 $ 18,564
======= ======= ========= ======== ========= ========
Earnings per share,
basic and diluted... $ 0.63(h)
</TABLE>
F-13
<PAGE> 71
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------------------------------------------------
THE CABLE- U.S. STATE
COMPANY MASTERS EXCEL MICH-COM CABLE WIDE BURN-TECHS CATV DAS-CO SCHATZ COPENHAGEN
------- ------- ------ -------- ------ ----- ---------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:............ $4,219 $3,485 $1,868 $2,379 $3,948 $909 $189 $8,069 $2,655 $4,830 $7,654
Expenses:
Direct costs........ 3,364 2,500 1,545 1,953 2,557 598 30 6,673 2,060 3,458 6,149
General and
administrative.... 710 572 94 187 888 166 4 639 682 1,066 532
Depreciation and
amortization...... 203 114 35 73 75 36 2 139 235 400 221
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
Total.......... 4,277 3,186 1,674 2,213 3,520 800 36 7,451 2,977 4,924 6,902
INCOME (LOSS) FROM
OPERATIONS.......... (58) 299 194 166 428 109 153 618 (322) (94) 752
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... (57) 43 -- 7 (32) 15 -- 115 (2) 129 (5)
Other (income)
expense........... (53) (6) (1) 30 (12) -- -- (9) 8 (15) (31)
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 52 262 195 129 472 94 153 512 (328) (208) 788
PROVISION FOR INCOME
TAXES............... 358 -- -- 21 196 -- -- 167 -- 56 --
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
NET INCOME (LOSS).... $ (306) $ 262 $ 195 $ 108 $ 276 $ 94 $153 $ 345 $ (328) $ (264) $ 788
====== ====== ====== ====== ====== ==== ==== ====== ====== ====== ======
Earnings per share,
basic and diluted...
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------------------------------
PRO
OFFERING FORMA,
NETWORK PRO ADJUST- AS
CABLING TEXEL ADJUSTMENTS FORMA MENTS ADJUSTED
------- ------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:............ $4,903 $7,411 $ -- $52,519 $ -- $52,519
Expenses:
Direct costs........ 4,272 5,259 7(b) 40,425 -- 40,425
General and
administrative.... 339 381 (1,120)(c) 5,140 -- 5,140
Depreciation and
amortization...... 38 15 845(d) 2,431 -- 2,431
------ ------ -------- ------- -------- -------
Total.......... 4,649 5,655 (268) 47,996 -- 47,996
INCOME (LOSS) FROM
OPERATIONS.......... 254 1,756 268 4,523 -- 4,523
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 38 (30) 3,344(e) 3,565 (2,530)(g) 1,035
Other (income)
expense........... -- 19 -- (70) -- (70)
------ ------ -------- ------- -------- -------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 216 1,767 (3,076) 1,028 2,530 3,558
PROVISION FOR INCOME
TAXES............... 79 -- (430)(f) 447 1,101(f) 1,548
------ ------ -------- ------- -------- -------
NET INCOME (LOSS).... $ 137 $1,767 $ (2,646) $ 581 $ 1,429 $ 2,010
====== ====== ======== ======= ======== =======
Earnings per share,
basic and diluted... $ 0.07(h)
</TABLE>
F-14
<PAGE> 72
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------
THE NETWORK
COMPANY DAS-CO SCHATZ COPENHAGEN CABLING TEXEL ADJUSTMENTS
------- ------ ------ ---------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:......................... $46,069 $3,660 $4,698 $3,877 $3,801 $6,051 $ --
Expenses:
Direct costs.................... 36,224 1,910 3,457 2,640 3,012 4,460 --
General and administrative...... 4,540 368 902 474 314 395 (68)(c)
Depreciation and amortization... 1,808 122 320 160 28 31 (38)(d)
------- ------ ------ ------ ------ ------ ---------
Total..................... 42,572 2,400 4,679 3,274 3,354 4,886 (106)
INCOME FROM OPERATIONS............ 3,497 1,260 19 603 447 1,165 106
OTHER (INCOME) EXPENSE:
Interest expense, net........... 2,160 (3) (12) (19) 31 (31) 1,439(e)
Other (income) expense.......... (26) 1 (1) 8 1 46 --
------- ------ ------ ------ ------ ------ ---------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION and extraordinary
charge.......................... 1,363 1,262 32 614 415 1,150 (1,333)
PROVISION FOR INCOME TAXES........ 692 18 13 -- 172 -- 608(f)
------- ------ ------ ------ ------ ------ ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGE.......................... $ 671 $1,244 $ 19 $ 614 $ 243 $1,150 $ (1,941)
======= ====== ====== ====== ====== ====== =========
Earnings per share, basic and
diluted.........................
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------
PRO OFFERING PRO FORMA,
FORMA ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
REVENUES:......................... $68,156 $ -- $68,156
Expenses:
Direct costs.................... 51,703 -- 51,703
General and administrative...... 6,925 -- 6,925
Depreciation and amortization... 2,431 -- 2,431
------- --------- -------
Total..................... 61,059 -- 61,059
INCOME FROM OPERATIONS............ 7,097 -- 7,097
OTHER (INCOME) EXPENSE:
Interest expense, net........... 3,565 (2,530)(g) 1,035
Other (income) expense.......... 29 -- 29
------- --------- -------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION and extraordinary
charge.......................... 3,503 2,530 6,033
PROVISION FOR INCOME TAXES........ 1,503 1,085(f) 2,588
------- --------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGE.......................... $ 2,000 $ 1,445 $ 3,445
======= ========= =======
Earnings per share, basic and
diluted......................... $ 0.12(h)
</TABLE>
F-15
<PAGE> 73
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------------------------------------------------------------------
THE PRO FORMA OFFERING PRO FORMA,
COMPANY(I) TEXEL(I) ADJUSTMENTS(J) PRO FORMA ADJUSTMENTS(J) AS ADJUSTED
---------- -------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......... $ -- $ 2,126 $ -- $ 2,126 $ -- $ 2,126
Accounts receivable, net.......... 43,400 6,525 -- 49,925 -- 49,925
Unbilled accounts receivable for
work-in-process................. 25,391 786 -- 26,177 -- 26,177
Inventory......................... 14,682 -- -- 14,682 -- 14,682
Prepaid and other current
assets.......................... 1,241 14 -- 1,255 -- 1,255
-------- ------- ------- -------- -------- --------
Total current assets...... 84,714 9,451 -- 94,165 -- 94,165
-------- ------- ------- -------- -------- --------
Property and equipment, net....... 35,314 1,010 -- 36,324 -- 36,324
-------- ------- ------- -------- -------- --------
Goodwill, net..................... 72,611 -- 24,208(i) 96,819 -- 96,819
Deferred financing costs, net..... 3,976 -- -- 3,976 (2,476)(v) 1,500
Other, including deferred income
tax asset....................... 2,079 -- -- 2,079 -- 2,079
-------- ------- ------- -------- -------- --------
TOTAL..................... $198,694 $10,461 $24,208 $233,363 $ (2,476) $230,887
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long term
debt............................ $ 10,271 $ -- $ 1,550(ii) $ 11,821 $(11,821)(vi) $ --
Borrowing under credit facility... 8,000 -- 2,000(ii) 10,000 (10,000)(vi) --
Accounts payable.................. 13,796 1,297 -- 15,093 -- 15,093
Accrued liabilities............... 11,552 786 -- 12,338 -- 12,338
Deferred revenues................. 3,084 102 -- 3,186 -- 3,186
Other liabilities, including
deferred income tax liability... 201 -- 542(iii) 743 -- 743
-------- ------- ------- -------- -------- --------
Total current
liabilities............. 46,904 2,185 4,092 53,181 (21,821) 31,360
-------- ------- ------- -------- -------- --------
Long-term debt.................... 111,329 -- 23,450(ii) 134,779 (78,061)(vi) 56,718
Deferred income tax liability..... 5,450 -- 1,624(iii) 7,074 -- 7,074
Deferred revenues................. 4,670 297 -- 4,967 -- 4,967
-------- ------- ------- -------- -------- --------
Total liabilities......... 168,353 2,482 29,166 200,001 (99,882) 100,119
-------- ------- ------- -------- -------- --------
Convertible preferred stock....... 20,470 -- -- 20,470 (20,470)(vii) --
Value of redemption rights
associated with junior
subordinated convertible note... 1,056 -- -- 1,056 (1,056)(vii) --
-------- ------- ------- -------- -------- --------
21,526 -- -- 21,526 (21,526) --
-------- ------- ------- -------- -------- --------
Stockholders' equity.............. 8,815 7,979 (4,958)(iv) 11,836 118,932(viii) 130,768
-------- ------- ------- -------- -------- --------
TOTAL..................... $198,694 $10,461 $24,208 $233,363 $ (2,476) $230,887
======== ======= ======= ======== ======== ========
</TABLE>
F-16
<PAGE> 74
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) For the Company, results for the year ended December 31, 1998 and for
the three months ended March 31, 1998 represent actual historical 1998 results,
including results for the Acquired Businesses purchased in the related 1998
period from the date of acquisition. Results for the three months ended March
31, 1999 represent actual historical results for the Company, including results
for the acquired businesses purchased in the first quarter of 1999 from the date
of acquisition. For the acquired businesses, results for the year ended December
31, 1998 and for the three months ended March 31, 1998, represent combined
historical results for (i) the acquired businesses purchased in the related 1998
period prior to the date of acquisition and (ii) the acquired businesses
purchased in 1999. For the acquired businesses, results for the three months
ended March 31, 1999 represent combined historical results for (i) the acquired
businesses purchased in 1999 prior to the date of acquisition and (ii) Texel
which was acquired on May 25, 1999.
(b) Reflects the decrease resulting from differentials between compensation
levels of the former owners of U.S. Cable that related to direct costs and the
terms of their employment agreements entered into with the Company. A portion of
the salaries of the former owners of U.S. Cable is also included in general and
administrative expenses. After the acquisition of the acquired businesses, the
owners' duties and responsibilities will not change and additional costs are not
expected to be incurred related to their efforts.
(c) The pro forma adjustment consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------
1998 1998 1999
------------ ------- -----
<S> <C> <C> <C>
Owners compensation(i)...................................... $(14,615) $(1,114) $(168)
Business not acquired(ii)................................... (1,372) (86) --
Rent expense(iii)........................................... 220 80 100
-------- ------- -----
$(15,767) $(1,120) $ (68)
-------- ------- -----
</TABLE>
(i) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and the
terms of the employment agreements entered into between certain of the
former owners and the Company. After the acquisition of the acquired
businesses, the owners' duties and responsibilities will not change and
additional costs are not expected to be incurred related to their efforts.
(ii) Reflects the elimination of a business not purchased from CATV
Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease terms
as compared to lease terms entered into by former owners. In addition,
reflects the increase in rent expense and corresponding decrease in
depreciation expense and real estate tax expense resulting from leasing
rather than owning certain related facilities which were not purchased from
the former owners of the acquired businesses.
(d) Depreciation has been derived utilizing the property, plant and
equipment values of each of the acquired businesses at the time of their
acquisition, rather than utilizing values of property, plant and equipment
actually held by each of the acquired businesses in the period presented.
Reflects the impact on depreciation resulting from the application of our
straight-line depreciation policy rather than those of the former owners of the
acquired businesses. In addition, reflects the change in depreciation resulting
from the write-up of property, plant and equipment to fair value.
value arising from purchase accounting. Also reflects amortization of goodwill
calculated based on goodwill lives ranging from 10 to 40 years. The pro forma
adjustments consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------ -------------
1998 1998 1999
------------ ----- -----
<S> <C> <C> <C>
Depreciation:
Change in accounting policy............................... $(3,088) $(462) $(738)
Write-up of property and equipment........................ 1,864 601 363
------- ----- -----
(1,224) 139 (375)
Amortization of goodwill.................................... 2,208 696 337
------- ----- -----
$ 984 $ 835 $ (38)
------- ----- -----
</TABLE>
(e) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the purchase of
the acquired businesses. In addition, reflects elimination of $67 and $25 during
the year ended December 31, 1998 and three months ended March 31, 1998,
respectively, of a business not purchased from CATV Subscriber Services. Under
the terms of our bank credit agreements, interest accrues at variable
F-17
<PAGE> 75
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA) -- (CONTINUED)
borrowing rates. If interest rates were to fluctuate by 1/8 of 1 percent, pro
forma interest expense would change by $194 for the year ended December 31, 1998
and $49 for the three month periods ended March 31, 1998 and 1999.
(f) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal statutory rate of
35% and the applicable state statutory rate for each of the acquired businesses
throughout the period presented.
(g) Reflects the decrease in interest expense at our borrowing rate under
our new credit facility on the indebtedness remaining after using the proceeds
from the initial public offering to repay a portion of our indebtedness. Under
the terms of new credit facility, interest accrues at variable borrowing rates.
If interest rates were to fluctuate by 1/8 of 1 percent, pro forma interest
expense as adjusted would change by $45 for the year ended December 31, 1998 and
$11 for the three month periods ended March 31, 1998 and March 31, 1999.
(h) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period, after
giving effect to the conversion of Series A and Series B Preferred Stock, the
Stock Split, the Offering and the conversion of the junior subordinated
convertible note as well as the dilutive effect of shares issuable upon exercise
of outstanding options.
(i) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(j) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $23,458 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition, reflects $750
of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under the
senior secured credit facility and revolving credit facility, respectively,
to fund the Texel acquisition of $26,250 and $750 of transaction related
expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of Texel.
(v) Reflects the capitalization of deferring financing fees incurred for
the new credit facility and the write-off of fees associated with the
previous facility.
(vi) Reflects the repayment of debt with the proceeds from the initial
public offering.
(vii) Reflects the conversion of the convertible preferred stock and the
junior convertible subordinated note.
(viii) Reflects the issuance of common stock in conjunction with the
initial public offering and the conversion of the convertible preferred
stock and the junior convertible subordinated note and the exercise of
339,983 warrants.
F-18
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
ORIUS CORP. AND SUBSIDIARIES
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Orius Corp.
and Subsidiaries (the "Company") at December 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 29, 1999, except for Note 18 as
to which the date is July 7, 1999
F-19
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholder and Board of Directors of
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Channel
Communications, Inc. (f/k/a Kenya Corp.) as of December 31, 1997, and the
related consolidated statements of income and retained earnings and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the consolidated
financial position of Kenya Corporation and subsidiary as of December 31, 1997,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
February 27, 1998
F-20
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
Stockholder and Board of Directors
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Kenya
Corporation and Subsidiary as of December 31, 1996, and the related consolidated
statement of income and retained earnings and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our report dated August 15, 1997, we expressed a qualified opinion
because of the non recognition of a loss of $723,716 for an uncollectible
receivable in 1995. This loss was recorded in 1996. If the financial statements
were corrected for this departure, net income would be increased by $723,716 in
1996 and decreased by $723,716 in 1995. The net effect of this loss on retained
earnings as of December 31, 1996 is $0. The Company has changed its method of
accounting for this transaction and restated its financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the financial statements, as presented herein, is different from that
expressed in our previous report.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the consolidated
financial position of Kenya Corporation and Subsidiary as of December 31, 1996,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
August 15, 1997, except as to the
third paragraph above, which is
as of May 26, 1999.
F-21
<PAGE> 79
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 346,636 $ 2,252,303
Accounts receivable, net.................................. 4,349,058 26,153,402
Unbilled accounts revenue................................. 1,495,732 12,189,615
Inventory................................................. -- 9,542,743
Prepaid and other current assets.......................... 76,158 852,481
---------- -----------
Total current assets...................................... 6,267,584 50,990,544
---------- -----------
Property and equipment, net................................. 3,303,390 15,474,071
---------- -----------
Other assets:
Goodwill, net............................................. 81,304 27,052,711
Deferred financing costs, net............................. -- 1,400,527
Other..................................................... 16,450 917,986
---------- -----------
Total other assets........................................ 97,754 29,371,224
---------- -----------
Total assets...................................... $9,668,728 $95,835,839
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long term debt......................... $ -- $ 5,864,268
Borrowing under credit facility........................... -- 6,750,000
Accounts payable.......................................... 1,244,919 8,288,999
Accrued liabilities....................................... 276,682 5,844,889
Deferred revenues......................................... -- 2,621,398
Other liabilities, including deferred income tax
liability.............................................. -- 655,988
---------- -----------
Total current liabilities......................... 1,521,601 30,025,542
---------- -----------
Long-term debt.............................................. -- 42,649,585
Deferred income tax liability............................... -- 2,594,697
Deferred revenues........................................... -- 4,670,000
---------- -----------
Total liabilities................................. 1,521,601 79,939,824
---------- -----------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized; 10,000 shares issued and
outstanding............................................... -- 7,340,649
Value of redemption rights associated with junior
subordinated convertible note............................. -- 493,358
---------- -----------
-- 7,834,007
---------- -----------
Stockholders' equity:
Common stock: no par value, 275 shares authorized, issued
and outstanding at December 31, 1997; par value $.0001
per share, 48,696,230 shares authorized, 10,897,151
shares issued and outstanding at December 31, 1998..... 27,500 105
Additional paid-in capital................................ 386 7,427,745
Retained earnings......................................... 8,119,241 634,158
---------- -----------
Total stockholders' equity........................ 8,147,127 8,062,008
---------- -----------
Total liabilities and stockholders' equity........ $9,668,728 $95,835,839
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-22
<PAGE> 80
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CHANNEL COMPANY
------------------------- --------------
YEARS ENDED
DECEMBER 31, YEAR ENDED
------------------------- DECEMBER 31,
1996 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
REVENUES, NET:................................. $32,124,776 $20,267,800 $81,550,425
----------- ----------- -----------
EXPENSES:
Direct costs................................... 23,518,738 15,256,947 59,896,854
General and administrative..................... 3,297,932 2,260,758 8,645,007
Depreciation and amortization.................. 670,436 823,602 3,566,508
----------- ----------- -----------
Total................................ 27,487,106 18,341,307 72,108,369
----------- ----------- -----------
Income (loss) from operations.................. 4,637,670 1,926,493 9,442,056
Other (income) expense:
Interest expense, net................... (97,068) (66,314) 2,507,395
Other income............................ (88,669) (69,812) (72,345)
----------- ----------- -----------
Income before income tax provision and
discontinued operations...................... 4,823,407 2,062,619 7,007,006
(Benefit) provision for income taxes........... 1,619,000 (137,387) 3,283,430
----------- ----------- -----------
Income (loss) from continuing operations....... 3,204,407 2,200,006 3,723,576
Loss from discontinued operations, net of tax
benefit of $77,401........................... (121,063) -- --
Gain on sale of assets of discontinued
operation, net of tax of $1,042,760.......... 2,003,648 -- --
----------- ----------- -----------
Net income (loss).............................. $ 5,086,992 $ 2,200,006 3,723,576
=========== ===========
Accretion and dividends associated with
preferred stock and junior convertible
note......................................... (3,395,507)
-----------
Net income available to common stockholders.... $ 328,069
===========
Per common share:
Basic:
Income (loss) from operations............. $ 11,652.39
Loss from discontinued operations......... (440.23)
Gain on sale of discontinued operations... 7,285.99
-----------
Net income (loss) available to common
stockholders................................. $ 18,498.15 $ 8,000.02 $ 0.04
=========== =========== ===========
Weighted average shares outstanding:
Basic........................................ 275 275 8,361,078
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-23
<PAGE> 81
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CHANNEL COMPANY
----------------------- --------------
YEARS ENDED
DECEMBER 31, YEAR ENDED
----------------------- DECEMBER 31,
1996 1997 1998
---------- ---------- --------------
<S> <C> <C> <C>
Increase (Decrease) in cash and equivalents from:
Operating Activities:
Net Income................................................ $5,086,992 $2,200,006 $ 3,723,576
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts.................... -- 14,047 405,284
Depreciation and amortization........................... 837,130 823,602 3,566,508
Amortization of deferred finance costs.................. -- -- 166,919
Loss (gain) on disposal of assets....................... (3,032,742) (13,705) 53,150
Deferred income tax benefit............................. 133,420 (220,276) (307,439)
Changes in assets and liabilities:
Accounts receivable and unbilled revenues............... (1,246,198) (2,982,762) (11,151,317)
Inventories............................................. -- -- (9,542,743)
Income tax receivable................................... 196,406 -- --
Other current assets.................................... (69,602) 86,050 690,921
Other noncurrent assets................................. 958,917 9,623 (576,584)
Accounts payable and accrued liabilities................ 303,055 (112,602) 2,273,173
Deferred revenues....................................... -- -- 7,291,398
Other liabilities....................................... 2,216,568 (2,185,326) (641,807)
---------- ---------- ------------
Net cash provided by (used in) operating activities....... 5,383,946 (2,381,343) (4,048,961)
---------- ---------- ------------
INVESTING ACTIVITIES:
Capital expenditures.................................... (2,475,748) (211,947) (3,923,200)
Proceeds from sale of assets............................ 3,214,590 57,542 75,510
Purchases of subsidiaries, net of cash acquired,
including payment to accounting acquirer.............. -- -- (40,934,547)
Collection on notes receivable stockholder.............. 982,823 548,614 --
---------- ---------- ------------
Net cash provided by (used in) investing activities....... 1,721,665 394,209 (44,782,237)
---------- ---------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility........................... -- -- 61,306,677
Principal payments on notes payable and credit
facility.............................................. (2,911,878) -- (13,434,749)
Amounts paid for deferred financing costs............... -- -- (1,567,446)
Distributions paid to stockholder....................... -- (2,593,439) (6,117)
Proceeds from issuance of convertible preferred stock,
net of costs.......................................... -- -- 4,438,500
---------- ---------- ------------
Net cash provided by (used in) financing activities....... (2,911,878) (2,593,439) 50,736,865
---------- ---------- ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............. 4,193,733 (4,580,573) 1,905,667
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 733,476 4,927,209 346,636
---------- ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $4,927,209 $ 346,636 $ 2,252,303
========== ========== ============
Cash paid for:
Interest................................................ $ 97,525 $ 19,858 $ 2,306,701
Income taxes............................................ $ 26,356 $2,185,326 $ 2,769,243
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-24
<PAGE> 82
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
----------------- ------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ---------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 275 $ 27,500 -- $ -- $ 386 $8,512,674 $ 8,540,560
Net Income.............. 2,200,006 2,200,006
Distributions........... (2,593,439) (2,593,439)
----- -------- ---------- ---- ---------- ---------- -----------
Balance at December 31,
1997.................. 275 27,500 -- -- 386 8,119,241 8,147,127
Distributions........... (166,787) (166,787)
Shares exchanged........ (275) (27,500) 2,779,387 27 27,473 -- --
Cash payment to
accounting acquirer... (4,440,635) (7,646,365) (12,087,000)
Common stock issued for
acquisitions.......... 8,117,764 78 11,840,521 11,840,599
Accretion associated
with junior
subordinated
convertible note...... (493,358) (493,358)
Accretion associated
with convertible
preferred stock,
including dividends... (2,902,149) (2,902,149)
Net income.............. 3,723,576 3,723,576
----- -------- ---------- ---- ---------- ---------- -----------
Balance at December 31,
1998.................. -- $ -- 10,897,151 $105 $7,427,745 $ 634,158 $ 8,062,008
===== ======== ========== ==== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
F-25
<PAGE> 83
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMMENCEMENT OF OPERATIONS
Orius Corp. was formed in January 1999 by North American Tel-Com Group,
Inc. (NATG or the Company). NATG was formed in 1997 to create a nationwide
provider of comprehensive telecom infrastructure services. As further discussed
in Note 17, as a result of a merger in February 1999, NATG became an indirect
subsidiary of Orius. NATG had no substantive operations prior to March 31, 1998
and these financial statements reflect the NATG operations from March 31, 1998
through December 31, 1998, NATG's fiscal year end.
On March 31, 1998, NATG and several other parties simultaneously entered
into a series of transactions and agreements including: a new stockholders'
agreement (Note 9); preferred stock coupled with a redemption agreement (Notes 7
and 8) and a junior subordinated convertible note (Note 6) were issued to HIG
Cable, Inc. (HIG), a credit facility and loan agreement was completed (Note 6);
and four stock exchange agreements were completed (Note 3). The result of these
transactions was the commencement of NATG's operations. NATG had no substantive
operations from its inception in August 1997 to March 31, 1998 and these
financial statements reflect the NATG operations from March 31, 1998 through
December 31, 1998. As further discussed in Note 17, Orius was reorganized in
early 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Business -- The Company's operations consist primarily of
installation, design, engineering, and maintenance services for the telecom
industry in the United States.
Principles Of Consolidation -- The consolidated financial statements
include NATG Corp. and its subsidiaries, all of which are currently wholly owned
subsidiaries of NATG. All material intercompany accounts and transactions have
been eliminated. The Company operates and reports financial results on a fiscal
year of 52 or 53 weeks ending on the Saturday closest to December 31.
Accordingly, fiscal 1998 ended on December 31, 1998.
Use Of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates and such differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, depreciation and amortization, and in the
estimated lives of assets including intangibles.
Earnings Per Share -- Diluted earnings per share have not been presented
because inclusion of the effects of the Company's convertible securities and
options granted to management are anti-dilutive individually and in the
aggregate.
Revenues -- Orius Corp.'s revenue consists principally of unit contracts.
Consequently, Orius Corp. accounts for revenue and related costs using the
units-of-delivery revenue recognition method. Revenue is recognized as the
related units are completed, and costs allocable to the delivered units are
recognized as the cost of earned revenue. Unbilled revenues consist of
work-in-process on contracts based on management's estimate of work performed,
but not billed. All costs associated with unbilled revenues are recorded as
expenses in the same period as the unbilled revenue. At the time a loss on a
contract becomes known, the entire amount of the estimated ultimate loss is
accrued. Deferred revenues consist principally of
F-26
<PAGE> 84
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prepayments by customers for the cost of material and services to be provided
and are recognized as revenues as the related material is used or services are
provided.
Additionally, Orius Corp. recognizes revenues from short term contracts
with duration under two weeks under the completed contract method. Billings and
costs are accumulated on the balance sheet, and no profit or income is recorded
before completion or substantial completion of the work.
Cash And Cash Equivalents -- Cash and cash equivalents include all highly
liquid investments with a maturity of three months or less at the time of
purchase. For purposes of the consolidated statements of cash flows, the Company
considers these to be cash equivalents.
Property And Equipment -- Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful life of the
assets utilizing the straight-line method. The estimated useful service lives of
the assets are: buildings -- 20-30 years; leasehold improvements -- the term of
the respective lease or the estimated useful life of the improvements, whichever
is shorter; vehicles -- 3-7 years; equipment and machinery -- 3-7 years;
computer software and hardware -- 3-5 years; and furniture and fixtures -- 5-7
years. Maintenance and repairs are expensed as incurred; expenditures that
enhance the value of the property or extend its useful life are capitalized.
When assets are sold or retired, the cost and related accumulated depreciation
are removed from the accounts and the resulting gain or loss is included in
income.
Inventory -- Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market. Inventory consists of items purchased for resale at
cost based on terms of customer contracts. Accordingly, there is no cost other
than the purchase price of the items purchased included in the carrying value.
Fair Value Of Financial Instruments -- The fair value of the Company's
financial instruments approximate the carrying values.
Intangible Assets -- The excess of the purchase price over the fair market
value of the tangible net assets of acquired businesses (goodwill) is amortized
on a straight-line basis over estimated useful lives of 10 to 40 years. The
appropriateness of the carrying value of goodwill is reviewed periodically by
the Company at a subsidiary level. An impairment loss for the difference between
fair value and recorded value is recognized when the projected undiscounted
future cash flows are less than the carrying value of goodwill. No impairment
loss has been recognized in the period presented. Amortization expense was
$574,753 for the fiscal period ending December 31, 1998. The intangible assets
at December 31, 1998 are net of accumulated amortization of $574,753.
Included in other assets are intangible assets for deferred financing
costs. Deferred financing costs of $1,567,446 are being amortized over the term
of the related debt facility. For the period ended December 31, 1998, $166,919
of amortization expense related to these costs has been included in interest
expense.
Income Taxes -- The Company and its subsidiaries file a consolidated
federal income tax return. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Stock Option Plans -- In October 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock Based Compensation," which was effective for the Company
beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of stock
based compensation arrange-
F-27
<PAGE> 85
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ments with employees, and encourages, but does not require, compensation cost to
be measured based on the fair value of the equity instrument awarded. Under SFAS
No. 123, companies are permitted, however, to continue to apply Accounting
Principle Board (APB) Opinion No. 25, which recognizes compensation based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees,
and will disclose in the annual financial statements the required pro forma
effect on net income and earnings per share. See Note 12.
Recently Issued Accounting Pronouncements -- In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes standards for the accounting and reporting of derivative
instruments, including certain derivative instruments imbedded in other
contracts, (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as other assets
or liabilities in the statement of financial position, and measure those
instruments at fair value. This statement is effective for financial statements
for periods beginning after December 15, 1999.
3. ACQUISITIONS
On March 31, 1998, Channel Communications, Inc. (Channel), Cablemasters
Corp., Excel Cable Construction, Inc. and Mich-Com Cable Services Incorporated
simultaneously entered into stock exchange agreements with the Company. Common
stock of each of these companies was exchanged for cash and common stock of the
Company. In accordance with APB Opinion No. 16, Channel was deemed to be the
accounting acquirer of the other companies involved in the simultaneous business
combination. This designation was made because after giving effect to the
transactions on March 31, 1998, Channel held the largest percentage of voting
common stock and was the largest entity involved in the simultaneous business
combination. Accordingly, the cash paid of $12,087,000 to former Channel
stockholders was accounted for as a reduction of Channel's March 31 equity and
no value was ascribed to the Company shares of common stock received by the
former stockholders.
Seven companies, including the companies involved in the simultaneous
business combination other than Channel, were acquired during 1998 for total
consideration of $39,583,400 plus transaction related expenses of $1,209,350.
Cash paid for the seven acquisitions totaled $27,638,200 (net of cash acquired
of $3,025,200) and the value of common stock issued, including the value of the
shares held by Orius management, totaled $11,840,600. Additionally,
approximately $7.5 million of debt was assumed. Summarized below are the seven
acquisitions:
<TABLE>
<CAPTION>
ACQUISITION PRIMARY PRINCIPAL
COMPANY ACQUIRED DATE LOCATION CUSTOMERS
---------------- ----------- -------------- ------------------
<S> <C> <C> <C>
Cablemasters Corp........................... 3/31/98 Pennsylvania Cable TV
Excel Cable Construction, Inc............... 3/31/98 Florida Cable TV
Mich-Com Cable Services Incorporated........ 3/31/98 Florida Cable TV
U.S. Cable, Inc............................. 6/30/98 Missouri Cable TV
CATV Subscriber Services, Inc............... 8/31/98 North Carolina Cable TV
State Wide CATV, Inc........................ 8/31/98 Florida Cable TV
Burn-Techs, Inc............................. 8/31/98 Florida Telecommunications
</TABLE>
All the acquisitions were accounted for as purchases and were included in
the results of operations from the date of acquisition. The goodwill associated
with all the acquisitions during 1998 totaled $27,627,465.
F-28
<PAGE> 86
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions had been
completed on January 1, 1998. These pro forma results give effect to increased
interest expense for acquisition debt and amortization of related goodwill.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed on January 1, 1998 nor are the
results indicative of the company's future results of operations (in thousands).
<TABLE>
<S> <C>
Revenues.................................................... $123,338
Net income.................................................. $ 6,591
Net income available to common stock per share.............. $ 3.04
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Contract billings........................................... $4,067,489 $23,673,522
Retainage.............................................. 301,569 2,818,579
---------- -----------
4,369,058 26,492,101
Less allowance for doubtful accounts................... 20,000 338,699
---------- -----------
Accounts receivable, net.................................. $4,349,058 $26,153,402
========== ===========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts, the majority of the retention balances at December 31, 1998 are
expected to be collected within the next twelve months.
5. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheet includes the following property
and equipment at December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Land, building and leasehold improvements................... $ 510,217 $ 616,258
Vehicles.................................................. 3,010,131 12,957,646
Equipment and machinery................................... 3,331,415 7,579,213
Office equipment, including furniture and fixtures, and
computer equipment and software........................ -- 770,931
---------- -----------
6,851,763 21,924,048
Less accumulated depreciation............................. 3,548,374 6,449,977
---------- -----------
Property and equipment, net............................... $3,303,389 $15,474,071
========== ===========
</TABLE>
Certain subsidiaries of the Company have entered into lease arrangements
accounted for as capitalized leases. The carrying value of capital leases at
December 31, 1998 was $474,326, net of accumulated depreciation of $76,628.
Assets under capital leases are included as a component of vehicles, and
equipment and machinery. Maintenance and repairs of property and equipment
amounted to $1,204,600 for the period ended December 31, 1998.
F-29
<PAGE> 87
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 is detailed by type of
borrowing as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Bank credit facility:
Revolving credit facility, maturing on April 1, 2005;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... $ 6,750,000
Term loan, amortizing with final payment due April 1,
2003; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... 27,625,000
Term loan, amortizing with final payment due April 1,
2005; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.375% or
0.875%, respectively................................... 18,950,000
Capital lease obligations................................... 402,819
Equipment loans............................................. 472,284
Junior subordinated convertible note, due April 15, 2005,
interest rate of 9%....................................... 1,063,750
-----------
Total debt and capital lease obligations.......... 55,263,853
Less current portion........................................ 12,614,268
-----------
Long-term debt.............................................. $42,649,585
===========
</TABLE>
BANK CREDIT FACILITY
On March 31, 1998, the Company entered into a credit facility with PNC
Bank, National Bank (PNC) as Bank and agent (the Credit Agreement), to provide
for two term notes totaling $19,000,000 and a revolving credit facility,
including a letter of credit subfacility, in the amount of $10,000,000. In
conjunction with the purchase of U.S. Cable, Inc., the Credit Agreement was
amended on June 30, 1998, increasing the revolving credit note to $12,000,000
and the term notes to $33,000,000. In conjunction with the acquisition of CATV
Subscriber Services, Inc., State Wide CATV, Inc., and Burn-Techs, Inc., a second
amendment to the credit facility occurred on August 31, 1998, increasing the
revolving credit note to $15,000,000 and the term loans to $47,000,000. The term
loan in the amount of $28,000,000 matures on April 1, 2003. The revolving credit
note and the other term loan in the amount of $19,000,000, mature on April 1,
2005. There is a commitment fee of 0.50% of the unused portion of the credit
facility.
Outstanding amounts under the credit facility were secured by substantially
all of the Company's assets and the pledge of all of the outstanding shares of
common stock of each of the Company's direct and indirect subsidiaries. The
credit facility also contains certain affirmative and negative covenants
relating to the Company's Holding's operations. As discussed in Note 16, the
Company entered a new bank credit agreement on February 26, 1999.
At December 31, 1997, the Company had a revolving line-of-credit with a
bank for $2,500,000. The line of credit agreement expired June 30, 1998. At
December 31, 1997, none of the line-of-credit had been drawn.
F-30
<PAGE> 88
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
In addition to the borrowings under the credit facility, certain
subsidiaries have obligations outstanding under capital leases and other
equipment financing arrangements. The remaining obligations are payable in
monthly installments expiring at various dates through June 2003.
JUNIOR SUBORDINATED CONVERTIBLE NOTE
On March 31, 1998, the Company sold to HIG a $1,000,000, 9% junior
subordinated convertible note, due April 15, 2005 (the Junior Convertible Note).
Any time at the option of HIG, or at the Company's option upon an initial public
offering, the debt may be converted into 64,343.3 shares of the Company's common
stock. As further discussed in Note 8, the Company and HIG entered into a
redemption agreement that gives HIG certain rights to put its converted common
stock to the Company. Due to the conversion feature of the Junior Convertible
Note coupled with the redemption rights of HIG, the liability associated with
the Junior Convertible Note is adjusted at each balance sheet date to the
greater of the principal plus interest due or the fair market value of the
converted common stock. At December 31, 1998, the fair market value of the
converted common stock is estimated at $24.20. Accordingly, the liability for
the Junior Convertible Note is recorded at $1,063,750. The amount attributable
to the accretion to the fair value of the converted common stock for the period
ended December 31, 1998 of $493,358 is recorded as a reduction of retained
earnings and on a separate line in the balance sheet. The interest charge for
the period ended December 31, 1998 totaled $63,500 and was recorded as interest
expense.
MATURITIES
At December 31, 1998, the estimated aggregate annual repayments for notes
payable and capital lease obligations are as follows:
<TABLE>
<S> <C>
Maturities for fiscal years:
1999................................................... $12,614,268
2000................................................... 6,277,265
2001................................................... 6,722,108
2002................................................... 7,027,750
2003................................................... 8,021,212
Thereafter............................................. 14,601,250
-----------
$55,263,853
===========
</TABLE>
7. SERIES A CONVERTIBLE PREFERRED STOCK
The Company issued 10,000 shares of Series A Convertible Preferred Stock
(Preferred Stock) to HIG for $4,438,500, net of $61,500 of issue costs. The
Preferred Stock has an 8% cumulative dividend, is convertible to shares of Orius
common stock, has full voting rights on an as-if converted basis and conversion
is at the discretion of HIG. At December 31, 1998, the Preferred Stock could
have been converted to 303,333 shares of common stock. The conversion rate may
be reduced to ensure that the value received by HIG in an initial public
offering of Orius common stock (an IPO) is equal to the face value of the
Preferred Stock plus accrued and unpaid dividends. In the event of an IPO, the
Company has the right to force conversion of the Preferred Stock. Further, HIG
has been given certain redemption rights discussed in Note 8.
F-31
<PAGE> 89
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the total recorded value of the Preferred Stock has
been determined based upon the value of the converted common stock shares of
303,333 at $24.20 per share or $7,340,649. The $24.20 per share price was based
upon the value of the additional preferred stock purchased by HIG on February
26, 1999 as further discussed in Note 16.
8. HIG REDEMPTION RIGHTS
The Company entered into a redemption agreement on March 31, 1998 with HIG
(the Redemption Agreement) that allows HIG to redeem its converted shares of
common stock derived from the Preferred Stock and Junior Convertible Note.
Pursuant to the Redemption Agreement, HIG may cause the Company to redeem its
converted shares of common stock at the earlier of a sale of the Company, a
merger involving the Company, commencement of liquidation or bankruptcy
proceedings, or April 15, 2005. Conversion can only occur for all of the shares
Preferred Stock at once and the Junior Convertible Note must be converted at the
same time. The redemption value of the converted shares of common stock is the
greater of fair market value at the date of redemption or the initial purchase
price for the Preferred Stock and Junior Convertible Note plus any accumulated
and unpaid dividends and interest. In the event of an initial public offering of
Orius common stock, HIG's redemption rights are terminated.
9. STOCKHOLDERS' AGREEMENT
On March 31, 1998, a stockholders agreement was entered into by all of the
common stockholders and HIG. The stockholders agreement limits the transfer of
the common shares to immediate family and HIG has certain limited rights with
respect to sales of its shares. Generally, the existing stockholders have the
right of first refusal for all proposed sales of common stock, but the Company
has no obligation to repurchase any shares except those covered by the
Redemption Agreement discussed in Note 8.
10. INCOME TAXES
Effective January 1, 1997, Channel elected to be treated as an S
corporation for income tax purpose as allowed under the Internal Revenue Code.
With this conversion, the Company's net deferred tax balance of $220,276 was
reversed as a credit to the provision for income taxes. The tax liabilities for
the year ended December 31, 1997 were the responsibility of the individual
shareholder. In connection with the transaction on March 31, 1998, the Company's
S corporation status was terminated. With this termination, the Company was
required to recognize a deferred tax liability and corresponding charge to
income of $330,254 with payment to be spread over four years.
The components of the provision for income taxes for the period ended
December 31, 1998 and 1996 are:
<TABLE>
<CAPTION>
1996 1998
---------- ----------
<S> <C> <C>
Current:
Federal................................................... $2,225,000 $2,847,352
State..................................................... 225,859 715,341
---------- ----------
2,450,859 3,562,693
---------- ----------
</TABLE>
F-32
<PAGE> 90
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1998
---------- ----------
<S> <C> <C>
Deferred:
Federal................................................... 123,000 (555,480)
State..................................................... 10,500 (82,213)
---------- ----------
133,500 (637,693)
---------- ----------
Total tax provision............................... $2,584,359 $2,925,000
========== ==========
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
liabilities and assets at December 31, 1998 and their approximate tax effects
are as follows:
<TABLE>
<CAPTION>
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts............................. $1,169,722 $ 463,327
Deferred compensation....................................... 212,037 83,988
Other....................................................... 48,220 19,100
---------- ----------
Total deferred tax assets......................... 1,429,980 566,415
---------- ----------
Accumulated depreciation.................................... 4,780,492 1,893,553
Reversal of cash basis...................................... 3,200,098 1,267,559
---------- ----------
Total deferred tax liabilities.................... 7,980,591 3,161,112
---------- ----------
Net deferred tax liability........................ $6,550,611 $2,594,697
========== ==========
</TABLE>
A reconciliation of the expected provision for income taxes at the
statutory Federal income tax rate and the actual provision for the period ended
December 31, 1998 and 1996 are as follows:
<TABLE>
<CAPTION>
1996 1998
----------------- -----------------
AMOUNT % AMOUNT %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Expected total tax at statutory rate................ $2,362,196 34.0 $2,364,586 34.0
State taxes, net of federal benefit................. 149,067 2.1 472,125 6.8
Nondeductible amortization.......................... -- -- 195,416 2.8
Other, net.......................................... 73,096 1.1 (107,127) (1.5)
---------- ---- ---------- ----
$2,584,359 37.2 $2,925,000 42.1
========== ==== ========== ====
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have defined contribution plans that
provide retirement benefits to all employees that elect to participate. Under
the plans, participating employees may defer up to 15% of their base pre-tax
compensation. Generally, the Company's contributions to the plans are
discretionary. The Company's contributions were $72,509 in the fiscal period
ended December 31, 1998.
12. STOCK OPTION PLANS
The Company has reserved 50,000 shares of common stock under its 1998
Incentive Stock Option Plan (the "1998 Plan") which was approved by the
stockholders on March 30, 1998. The 1998 Plan provides for the granting of
options to key employees. Options are exercisable over a period of 5 years. At
December 31, 1998, options available for grant under the 1998 plan totaled
17,525 shares.
F-33
<PAGE> 91
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1998, the Company granted to key employees under the 1998 Plan,
options to purchase an aggregate of 32,475 shares of common stock. The options
were granted at prices ranging from $50 to $90, prices representing a premium to
the fair market value on the date of grant. At December 31, 1998, the
weighted-average remaining contractual life of the stock options outstanding is
approximately nine years. As of December 31, 1998, no options were exercisable.
Grants of options under the plan are accounted for using the intrinsic
value method. Accordingly, no compensation cost has been recognized for grants
made to date. There would have been no difference in net income for the year
ended December 31, 1998 had compensation cost been determined by computing under
the provisions of SFAS 123 regarding the minimum fair value of each grant. For
purposes of this calculation, the fair value of each option grant is estimated
as of the date of grant using the Black-Scholes option pricing model. The
weighted-average assumptions used in determining fair value as disclosed for
SFAS 123 were risk-free interest rates ranging from 5.0% to 5.7% and an option
life of six years.
13. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The operating subsidiaries obtain contracts from both public and private
concerns. For the period ended December 31, 1998, approximately 56% of the
contract revenues were from three customers (TCI, Time Warner, and MediaOne),
with the largest customer representing approximately 24% of the contract
revenues.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable.
The three customers noted above represent a significant portion of the Company's
customer base. As of December 31, 1998, the total outstanding trade receivables
from these customers was approximately $13 million or 50% of the Company's
outstanding trade receivables.
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered operating leases covering
office facilities, vehicles and equipment that have non-cancelable terms in
excess of one year. Certain of these leases contain renewal provisions and
generally require the Company to pay insurance, maintenance, and other operating
expenses. Total expense incurred under operating lease agreements for period
ended December 31, 1998 was approximately $1,183,300.
<TABLE>
<S> <C>
For fiscal years ending:
1999........................................................ $ 610,512
2000........................................................ 262,510
2001........................................................ 150,497
2002........................................................ 133,929
2003........................................................ 68,278
----------
Total Payments......................................... $1,225,726
==========
</TABLE>
15. RELATED PARTY TRANSACTIONS
Certain subsidiaries of the Company lease administrative offices from
partnerships and corporations of which certain officers of the subsidiaries are
the general partners or shareholders. The total expense under these arrangements
was $174,718 during the period
F-34
<PAGE> 92
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1998. The future minimum lease commitments under these
arrangements are $140,715 in 1999 and 2000, $121,500 in 2001, $83,070 in 2002
and $35,768 in 2003.
16. SALE OF SUBSIDIARY
In January 1996 and September 1996, the Company sold the operating assets
of its subsidiary, Channelvision Cable TV, Inc. in two separate transactions.
Proceeds from the sales were $3,195,640 with a gain of $3,046,408 being
recognized on the sales. The 1996 financial statements include the losses from
discontinued operations and the net gain from the disposal of assets, after
applicable income taxes of $1,042,760. Revenues of the subsidiary were $114,606
in 1996.
17. SUBSEQUENT EVENTS
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters Corp.;
Excel Cable Construction, Inc.; Mich-Com Cable Services Incorporated; U.S.
Cable, Inc.; CATV Subscriber Services, Inc.; State Wide CATV, Inc., and
Burn-Techs, Inc. The common stock of the Company is owned by the former owners
of these companies and certain executive officers and founders of the Company.
HIG Cable, Inc. owns all the outstanding Preferred Stock of the Company.
On February 8, 1999 a reorganization of NATG occurred in connection with
the acquisition of four companies and related financing. Orius Corp., a Delaware
corporation, was formed, and it formed NATG Holdings, LLC, a Delaware limited
liability company. All of the interest in NATG Holdings is held by Orius Corp.
In February 1999, NATG Holdings formed a subsidiary, NATG Merger Sub., which was
merged with and into NATG with NATG as the surviving corporation.
As a result of the merger, NATG became an indirect wholly owned subsidiary
of Orius. The merger resulted in all of the stockholders of NATG holding shares
of Orius. Shares of common and Preferred Stock of NATG were converted into
one-tenth of a share of common and preferred stock of Orius, respectively. This
one-for-ten exchange was the same for all stockholders and has been reflected in
these financial statements. Furthermore, the Company sold a total of 99,323.25
shares (on a post-split basis) of common stock to existing stockholders for
$2,403,623.
On February 26, 1999, four companies were acquired by NATG Holdings for
consideration of $69.4 million in cash and 144,285 shares of Orius common stock.
The four companies acquired by NATG Holdings were Schatz Underground Cable, Inc;
DAS-CO of Idaho, Inc.; Copenhagen Utilities and Construction, Inc.; and Network
Cabling Services, Inc.
In connection with these acquisitions, NATG Holdings entered into a $25.0
million revolving credit facility, maturing in 5 years, and a $120.0 million
senior secured credit facility with Merrill Lynch Capital Corporation and PNC,
as agents for a syndicate of financial institutions (the Agents). The term loan
facility is allocated among a $60.0 million Term Loan A facility, maturing on
December 1, 2003; a $45.0 million Term Loan B facility, maturing on December 1,
2004; and a $15.0 million Term Loan C facility, maturing on December 1, 2005. Of
this credit facility, NATG Holdings borrowed $2.0 million under the revolving
credit facility, $60.0 million under the Term Loan A facility, $45.0 million
under the Term Loan B facility, and $15.0 million under the Term Loan C facility
to complete the four new acquisitions and to repay substantially all
indebtedness of NATG, and terminate all commitments to make extensions of credit
to NATG, under NATG's existing credit facility with PNC. Additionally, the
Company issued to the Agents 35,890 warrants to purchase common stock of Orius
Corp. for $.01 per share.
F-35
<PAGE> 93
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts under the credit facility bear interest, at the Company's choice,
at either LIBOR plus an applicable margin; or, the higher of PNC's corporate
base rate of interest, or the Federal Fund Rate plus 0.50% (the ABR), in each
case plus an applicable margin. For LIBOR loans, the margin is 3.00% for the
revolving credit facility and Term Loan A facility, 3.75% for the Term Loan B
facility and 5.00% for Term Loan C facility. For ABR loans, the margin is 2.00%
for the revolving credit facility and Term Loan A facility, 2.75% for the Term
Loan B facility and 4.00% for Term Loan C facility. Outstanding amounts under
the credit facility are secured by substantially all of NATG Holdings' assets
and the pledge of all of the outstanding shares of common stock of each of
Orius' direct and indirect subsidiaries, including NATG. The credit facility
also contains certain affirmative and negative covenants relating to NATG
Holding's operations.
Also in connection with the acquisitions, HIG made an additional investment
in 7,596.38 shares of the Company's Series B Preferred Stock (the Series B
Preferred) for $7,569,377. The Series B Preferred is convertible into Orius
common stock based upon a conversion rate that resulted in 312,784 converted
common shares at the date of issuance, or a value of $24.20 per share on a split
basis.
18. SUBSEQUENT EVENT -- STOCK SPLIT
In connection with its initial public offering of common stock, the Company
announced that each share of common stock will split into 10.3609 shares of
common stock. The effect of this split has been reflected in these financial
statements.
Pro Forma Earnings per Share
Pro forma earnings per share presented below was computed under SFAS No.
128 "Earnings per Share" based on the weighted average number of common shares
outstanding during the period after giving retroactive effect to the exchange of
the Company's Series A and Series B preferred stock to the Company's newly
established common stock, the split of the Company's newly established common
stock, the Company's planned initial public offering of common stock and the
conversion of the junior subordinated convertible note. All common shares and
stock options issued have been included as outstanding for the entire period
using the treasury stock method and the estimated public offering price per
share.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Pro forma net income per share (unaudited):
Basic..................................................... $ 0.63
Diluted................................................... $ 0.63
Pro forma weighted average shares outstanding (unaudited):
Basic..................................................... 29,285
Diluted................................................... 29,518
</TABLE>
F-36
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of U.S. Cable, Inc. at September 30, 1996 and 1997 and June
30, 1998, and the results of its operations and its cash flows for each of the
two years in the period ended September 30, 1997 and the nine months ended June
30, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 1, 1999
F-37
<PAGE> 95
U.S. CABLE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 856,593 $ 4,251,340 $ 2,069,038
Accounts receivable............................ 3,200,754 2,426,636 3,771,432
Deferred billings.............................. 2,043,590 1,393,030 2,706,321
Inventory...................................... 386,473 315,112 204,609
Prepaid expenses............................... 112,074 105,678 81,133
Income tax receivable.......................... -- -- 574,211
---------- ----------- -----------
Total current assets................... 6,599,484 8,491,796 9,406,744
---------- ----------- -----------
Property and equipment, net...................... 1,331,382 1,465,180 1,079,415
---------- ----------- -----------
Other assets..................................... 239,742 235,111 176,255
---------- ----------- -----------
Total assets........................... $8,170,608 $10,192,087 $10,662,414
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 245,465 $ 167,433 $ --
Accounts payable............................... 1,086,878 665,798 1,014,495
Accrued payroll and payroll taxes.............. 2,399,806 3,294,402 3,026,879
Accrued expenses............................... 92,736 74,351 30,918
Income taxes payable........................... 49,820 103,389 --
---------- ----------- -----------
Total current liabilities.............. 3,874,705 4,305,373 4,072,292
---------- ----------- -----------
Long-term debt................................... 741,424 649,187 --
---------- ----------- -----------
Shareholders' equity:
Common stock, no par value, 40,000 shares
authorized; 36,720 (1996 and 1997) and
27,356 (1998) shares issued and
outstanding................................. 232,174 901,541 1,904,022
Retained earnings.............................. 5,387,405 6,329,855 4,686,100
Less treasury stock, 19,697 (1996), 16,267
(1997) shares at cost....................... (2,065,100) (1,993,869) --
---------- ----------- -----------
Total shareholders' equity............. 3,554,479 5,237,527 6,590,122
---------- ----------- -----------
Total liabilities and shareholders'
equity............................... $8,170,608 $10,192,087 $10,662,414
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 96
U.S. CABLE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues....................................... $14,963,035 $16,111,159 $12,354,223
----------- ----------- -----------
Cost of revenues:
Materials.................................... 1,203,284 404,374 466,178
Subcontracting fees.......................... 5,094,629 6,299,154 5,006,676
Direct labor................................. 2,022,261 1,860,541 1,445,939
Overhead expenses............................ 3,162,098 3,543,693 2,326,318
----------- ----------- -----------
Total cost of revenues............... 11,482,272 12,107,762 9,245,111
----------- ----------- -----------
Gross profit................................... 3,480,763 4,003,397 3,109,112
General and administrative expenses............ 1,753,565 2,175,709 3,440,303
----------- ----------- -----------
Income (loss) from operations.................. 1,727,198 1,827,688 (331,191)
----------- ----------- -----------
Other (income) expenses:
Interest income.............................. (22,969) (125,026) (134,320)
Interest expense............................. 38,076 58,885 30,150
Miscellaneous................................ 14,807 (22,738) (145,101)
----------- ----------- -----------
Total other (income) expense......... 29,914 (88,879) (249,271)
----------- ----------- -----------
Income (loss) before income taxes.............. 1,697,284 1,916,567 (81,974)
(Benefit) Provision for income taxes........... 681,758 766,725 (19,598)
----------- ----------- -----------
Net income (loss).............................. $ 1,015,526 $ 1,149,842 $ (62,376)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 97
U.S. CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).............................. $ 1,015,526 $1,149,842 $ (62,376)
----------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on investments, net....................... (2,798) (2,599) (29,629)
Gain on sale of equipment, net................. (32,883) (40,028) (70,947)
Depreciation................................... 447,349 458,508 334,187
Equity in losses (earnings) of affiliated
company..................................... 15,008 (8,398) (20,259)
Deferred income tax provision.................. -- (25,000) 15,000
Changes in assets and liabilities
Accounts receivable......................... (1,721,481) 774,118 (1,344,796)
Deferred billings........................... (176,469) 650,560 (1,313,291)
Inventory................................... (53,171) 71,361 110,503
Other assets................................ (8,433) 6,396 24,545
Accounts payable............................ 261,354 (421,080) 348,697
Accrued payroll and payroll taxes........... 1,468,503 894,596 (267,523)
Accrued expenses............................ 44,870 (18,385) (43,433)
Income taxes payable/receivable............. (477,119) 78,569 (692,600)
----------- ---------- -----------
Total adjustment....................... (235,270) 2,418,618 (2,949,546)
----------- ---------- -----------
Net cash (used) provided by operating
activities..................................... 780,256 3,568,460 (3,011,922)
----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment............ (627,479) (699,134) (493,830)
Proceeds from sale of property and equipment... 61,040 146,856 616,355
Proceeds from distributions of investment
earnings.................................... 5,696 30,654 --
Proceeds from sale of investments.............. -- -- 120,049
Net increase in cash value of life insurance... (14,660) (15,026) (11,305)
----------- ---------- -----------
Net cash provided by (used in) investing
activities..................................... $ (575,403) $ (536,650) $ 231,269
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt...... 750,907 391,730 --
Principal payments on long-term debt........... (351,107) (561,999) (816,620)
Payments of dividends to shareholders.......... (55,718) (207,392) (205,056
Sales of treasury stock........................ 340,283 1,132,328 1,620,027
Purchases of treasury stock.................... (643,050) (391,730) --
----------- ---------- -----------
Net cash provided by financing activities........ 41,315 362,937 598,351
----------- ---------- -----------
Net (decrease) increase in cash and cash
equivalent..................................... 246,168 3,394,747 (2,182,302)
Cash and cash equivalent --
Beginning of year.............................. 610,425 856,593 4,251,340
----------- ---------- -----------
Cash and cash equivalent --
End of year.................................... $ 856,593 $4,251,340 $ 2,069,038
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 98
U.S. CABLE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- RETAINED --------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT
------ ---------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995... 36,720 $ 72,819 $4,427,597 18,398 $(1,602,978)
Net income.................... 1,015,526
Dividends paid................ (55,718)
Purchases of 3,370 shares..... 3,370 (643,050)
Sales of 2,071 shares......... 159,355 (2,071) 180,928
------ ---------- ---------- ------ -----------
BALANCE AT SEPTEMBER 30, 1996... 36,720 $ 232,174 $5,387,405 19,697 $(2,065,100)
Net income.................... 1,149,842
Dividends paid................ (207,392)
Purchases of 1,822 shares..... 1,822 (391,730)
Sales of 5,252 shares......... 669,367 (5,252) 462,961
------ ---------- ---------- ------ -----------
BALANCE AT SEPTEMBER 30, 1997... 36,720 $ 901,541 $6,329,855 16,267 $(1,993,869)
Net loss...................... (62,376)
Dividends..................... (205,056)
Sales of 6,903 shares......... 1,017,666 (6,803) 602,361
Retirement of 9,364 shares.... (9,364) (15,185) (1,376,323) (9,364) 1,391,508
------ ---------- ---------- ------ -----------
BALANCE AT JUNE 30, 1998........ 27,356 $1,904,022 $4,686,100 -- $ --
====== ========== ========== ====== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 99
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies
followed in the preparation of the financial statements.
PRINCIPAL ACTIVITIES
U.S. Cable, Inc. (the "Company,") incorporated on December 12, 1963, is a
cable installation contractor for cable companies throughout the United States.
During the course of its business, the Company grants unsecured credit to its
customers.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the
unit price of a contract is determined to be below estimated cost, the entire
estimated ultimate loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable for work
performed prior to the balance sheet date. All costs associated with the
deferred billings are also recognized as expenses as of the balance sheet date.
ACCOUNTS RECEIVABLE
Accounts receivable include amounts that represent retainage on contracts
which is collectible at the conclusion of the contracts. Retainage included in
the accounts receivable balance totaled $627,348, $288,770 and $607,200 as of
September 30, 1996 and 1997, June 30, 1998, respectively. Historically, the
Company has not experienced any significant bad debts or pricing adjustments
and, accordingly, there is no provision for bad debts or other allowances
recorded as of any balance sheet date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased
with original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Inventory consists primarily of purchased materials used in
the installation of cable systems.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods.
Repairs and maintenance charges which do not increase the useful lives of the
assets are charged to expense as incurred.
F-42
<PAGE> 100
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon sale or retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts and resulting gain or loss included in
other income.
TREASURY STOCK
The Company's common stock is no par value. When common stock is
repurchased, it is recorded as treasury stock at the cost of repurchase. When
treasury stock is sold, treasury stock is reduced by the lesser of the sale
price or original cost with any excess proceeds over cost used to increase
common stock. All treasury stock was retired during the period ended June 30,
1998.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes, which have not been material, are recognized for differences
between the basis of assets and liabilities for financial statement and income
tax purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate the
carrying values due to their short-term maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
costs associated with the work-in-progress, allowances for doubtful accounts,
depreciation and amortization, and in the estimated lives of assets.
NOTE 2 -- STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................ $ 36,826 $ 59,714 $49,732
========== ======== =======
Income taxes............................................ $1,158,877 $713,156 $83,791
========== ======== =======
</TABLE>
F-43
<PAGE> 101
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Land........................................... $ 142,430 $ 140,075 $ --
Buildings and improvements..................... 368,352 414,903 --
Vehicles....................................... 1,156,937 1,170,674 1,398,052
Construction equipment......................... 822,094 848,179 885,981
Office equipment............................... 106,515 117,477 68,701
----------- ----------- -----------
2,596,328 2,691,308 2,352,734
Accumulated depreciation....................... (1,477,590) (1,598,441) (1,614,133)
----------- ----------- -----------
Total................................ $ 1,118,738 $ 1,092,867 $ 738,601
=========== =========== ===========
</TABLE>
NOTE 4 -- INVESTMENT IN AFFILIATED COMPANY
The Company has an investment in an affiliated company which is accounted
for using the equity method of accounting. The total investment was $26,558 and
$19,026 at September 30, 1996 and 1997, respectively. The Company sold its
interest in the affiliated company during 1998 for $62,144 resulting in a gain
of $38,789. Cash received from the affiliates in the form of distributions has
not been significant.
NOTE 5 -- LONG-TERM DEBT
Long-term debt at September 30, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Note payable to Allegiant Bank with 35 monthly payments of
$2,889 including interest at prime plus 1/2% and a final
payment due June 28, 1999. Secured by certain equipment... $ 84,319 $ --
Promissory note to former shareholder with annual
installments of $12,210 plus interest at the one-year US
Treasury Bill rate determined at each anniversary......... 61,050 --
Promissory note to shareholder with annual installments of
$83,143 plus interest at the one-year U.S. Treasury Bill
rate determined at each anniversary....................... 498,857 415,714
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% Secured
by certain land........................................... 45,940 37,232
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% Secured
by certain land........................................... 45,940 37,232
Promissory note to former shareholder, payable in annual
installments of $46,583 plus interest (tied to the rate on
US Treasury Bills)........................................ 93,167 --
Promissory note to former shareholder, payable in annual
installments of $49,911 plus interest (tied to the rate on
US Treasury Bills)........................................ 149,732 --
</TABLE>
F-44
<PAGE> 102
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Promissory note to shareholder, payable in annual
installments of $65,288 plus interest (tied to the rate on
US Treasury Bills)........................................ -- 326,442
--------- ---------
Total other....................................... 9,884 --
Total............................................. 986,889 816,620
Less current portion........................................ (245,465) (167,433)
--------- ---------
Total............................................. $ 741,424 $ 649,187
========= =========
</TABLE>
NOTE 6 -- INCOME TAXES
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1997 JUNE 30, 1998
-------- -------- -------------
<S> <C> <C> <C>
Current:
Federal.............................................. $586,317 $664,369 $(20,676)
State................................................ 95,441 127,356 (13,922)
-------- -------- --------
681,758 791,725 (34,598)
Deferred............................................... -- (25,000) 15,000
-------- -------- --------
Total tax provision (benefit).......................... $681,758 $766,725 $(19,598)
======== ======== ========
</TABLE>
The difference between income tax expense (or benefit) calculated by
multiplying the Federal statutory rate by income (or loss) before income taxes
and the reported amount of income tax expense (or benefit) is due state taxes
and nondeductible meals and entertainment expenses. Deferred tax assets and
liabilities are not significant.
NOTE 7 -- RETIREMENT PLAN
The Company has a qualified 401(k) profit sharing plan covering all
full-time employees employed one year. The Company matches 100% of the employee
deferral amount up to 2.5% of the employee's compensation. Total Company
contributions were $38,098 and $38,937 for the years ended September 30, 1996
and 1997, respectively and $30,845 for the period ended June 30, 1998.
NOTE 8 -- COMMON STOCK
All of the common stock of U.S. Cable, Inc., is subject to an agreement
between the company and its shareholders who have the right to require the
Company to repurchase shares at fair market value in the event of death,
retirement and certain financial hardships.
NOTE 9 -- CONCENTRATIONS OF BANK BALANCE
The Company maintains accounts with a bank totaling $856,593, $4,251,340
and $2,069,038 at September 30, 1996 and 1997 and June 30, 1998, respectively.
The cash at this bank is primarily invested in cash equivalents.
NOTE 10 -- CONCENTRATION OF CUSTOMERS
Sales to three major customers; Media One, Time Warner and Cox
Communications, who operate cable television networks, for the years ended
September 30, 1996 and 1997 and the
F-45
<PAGE> 103
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
period ended June 30, 1998 were $14,228,938, $13,889,838 and $10,857,676,
respectively representing 95%, 86% and 88% of sales, respectively. Account
receivable from the three major customers at September 30, 1996 and 1997 and
June 30, 1998 were $5,025,742, $3,475,362, and $6,102,784, and, respectively
representing 95%, 91% and 94% of account receivable balance, respectively.
NOTE 11 -- DIVIDEND
The Board of Directors of the Company declared and paid the dividends of
$2, $11 and $8 per share for the years ended September 30, 1996 and 1997 and the
period ended June 30, 1998, respectively.
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Company paid consultancy fees of $250,000 to its shareholders for the
period ended June 30, 1998 in connection with the negotiation of the sale of the
Company's common stock to North American Tel-Com Group, Inc. ("NATG.") These
amounts were recorded as administrative expenses.
The Company sold certain land, buildings, construction equipment and other
investments to a shareholder for $672,894 during the period ended June 30, 1998
resulting in a gain of approximately $110,000 which was recorded as
miscellaneous income. Management believes the prices paid by the shareholder
approximated fair market value.
The Company sold and purchased shares of common stock to certain employees
of the company during all the periods presented. The share prices for these
transactions were determined by a formula which management believes resulted in
share prices that approximated the fair value of the common stock. There were no
differences between the formula prices per share and the prices per share paid
or received by the company. Accordingly, no compensation expense was recorded in
the financial statements for any of these transactions.
NOTE 13 -- LEASE COMMITMENT
Prior to June 30, 1998, the Company sold its building to a shareholder and
leased it back commencing from July 1, 1998 under a capital lease agreement.
Under the capital lease agreement, the Company is required to pay the annual
lease payment for a term of five years commencing from July 1, 1998. The lease
payments are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 60,000
2000........................................................ 60,000
2001........................................................ 60,000
2002........................................................ 60,000
2003........................................................ 60,000
--------
300,000
Less: Imputed interest...................................... (54,567)
--------
$245,433
========
</TABLE>
NOTE 14 -- SALE OF COMMON STOCK
On June 30, 1998 the Company's shareholders entered into a stock exchange
agreement with NATG. Pursuant to that transaction, all the shares of the
Company's common stock were exchanged for cash and shares of NATG common stock.
The financial statements of the Company as of and for the period ended June 30,
1998 do not reflect the share exchange agreement.
F-46
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, retained earnings and of cash
flows present fairly, in all material respects, the financial position of CATV
Subscriber Services, Inc. and its subsidiary (the "Company") at December 31,
1997 and August 31, 1998, and the results of its operations and its cash flows
for the year ended December 31, 1997 and the eight months ended August 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 23, 1999
F-47
<PAGE> 105
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
BALANCE SHEETS AT DECEMBER 31, 1997
AND AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,100 $ 231,418
Accounts receivable, net.................................. 5,976,705 4,713,417
Deferred billings......................................... 1,364,080 2,975,188
Inventory................................................. -- 138,421
Prepaid expenses & other current assets................... 134,848 493,941
---------- -----------
Total current assets.............................. 7,506,733 8,552,385
---------- -----------
Property and equipment, net................................. 1,837,508 2,154,989
---------- -----------
Other assets................................................ 47,887 24,031
---------- -----------
Total assets...................................... $9,392,128 $10,731,405
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $3,108,447 $ 190,676
Capital lease obligation, current......................... 246,763 347,445
Accounts payable.......................................... 883,702 465,882
Amounts due to -- NATG.................................... -- 3,317,768
Accrued costs in excess of billings....................... 784,000 1,709,503
Accrued payroll and payroll taxes......................... 42,406 120,491
Accrued expenses.......................................... 912,431 1,063,840
---------- -----------
Total current liabilities......................... 5,977,749 7,215,605
---------- -----------
Long-term liabilities:
Notes payable............................................. 582,043 251,060
Capital lease obligation, noncurrent...................... 192,698 319,818
Deferred income tax payable............................... 159,093 188,947
---------- -----------
Total long-term liabilities....................... 933,834 759,825
---------- -----------
Shareholders' equity:
Common stock, par value $10; 10,000 shares authorized;
1,615 (1997) and 1,806 (1998) shares issued and
outstanding............................................ 16,150 18,060
Paid-in capital........................................... 5,015 813,700
Retained earnings......................................... 2,459,380 1,924,215
---------- -----------
Total shareholders' equity........................ 2,480,545 2,755,975
---------- -----------
Total liabilities and shareholders' equity........ $9,392,128 $10,731,405
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE> 106
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
Revenues.................................................... $21,546,731 $19,411,946
----------- -----------
Cost of revenues:
Materials................................................. 489,937 404,313
Subcontracting fees....................................... 8,302,304 8,333,115
Direct labor.............................................. 6,096,415 4,505,819
Overhead expenses......................................... 4,375,972 3,070,671
----------- -----------
Total cost of revenues............................ 19,264,628 16,313,918
----------- -----------
Gross profit................................................ 2,282,103 3,098,028
General and administrative expenses......................... 1,972,025 3,493,019
----------- -----------
(Loss) income from operations............................... 310,078 (394,991)
----------- -----------
Other (income) expense:
Interest expense, net..................................... 333,332 289,788
Miscellaneous............................................. 31,170 --
----------- -----------
Total other (income) expense...................... 364,502 289,788
----------- -----------
Loss before income taxes.................................... (54,424) (684,779)
Income tax benefit.......................................... (1,725) (247,564)
----------- -----------
Net loss.................................................... $ (52,699) $ (437,215)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE> 107
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss).................................................. $ (52,699) $ (437,215)
----------- -----------
Adjustment to reconcile net (loss) to net cash used in
operating activities:
Loss on sale of equipment................................. 31,509 --
Depreciation expense...................................... 505,639 296,369
Provision for bad debt.................................... 385,017 1,014,578
Deferred income tax provision............................. 33,813 (354,734)
Changes in assets and liabilities
Accounts receivable.................................... (2,065,764) 248,710
Deferred billings...................................... (1,364,080) (1,611,108)
Inventory.............................................. -- (138,421)
Prepaid and other current assets....................... (5,387) 25,495
Other assets........................................... (3,164) 23,856
Accounts payable....................................... 844,807 (417,820)
Accrued costs in excess of billings.................... 784,000 925,503
Accrued payroll and payroll taxes...................... 17,437 78,085
Accrued expenses....................................... (12,990) 151,409
Accrued income taxes................................... (359,198) --
----------- -----------
Total adjustment.................................. (1,208,361) 241,922
----------- -----------
Net cash used in operating activities....................... $(1,261,060) $ (195,293)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (254,448) (271,421)
Proceeds from sale of property and equipment.............. 19,920 --
Net (increase) in cash value of life insurance............ (9,993) --
----------- -----------
Net cash (used in) investing activities..................... (244,521) (271,421)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt................. 9,366,314 257,350
Principal payments on long-term debt...................... (7,913,819) (3,506,104)
Payment of capital lease obligation....................... (320,075) (114,627)
Amounts received from NATG................................ -- 3,317,768
Payment of dividends...................................... -- (97,950)
Proceeds from issuance of stock........................... -- 810,595
----------- -----------
Net cash provided by financing activities................... 1,132,420 667,032
----------- -----------
Net increase (decrease) in cash and cash equivalent......... (373,161) 200,318
Cash and cash equivalent -- Beginning of year............... 404,261 31,100
----------- -----------
Cash and cash equivalent -- End of year..................... $ 31,100 $ 231,418
=========== ===========
Non-Cash Transactions:
Capital lease obligations................................... $ 207,242 $ 342,429
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 108
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUED
AND COMMON RETAINED PAID-IN
OUTSTANDING STOCK EARNINGS CAPITAL
------------- ------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............... 1,615 $16,150 $2,512,079 $ 5,015
Net loss................................. (52,699)
----- ------- ---------- --------
BALANCE AT DECEMBER 31, 1997............... 1,615 $16,150 $2,459,380 $ 5,015
Net loss................................. (437,215)
Dividends paid........................... (97,950)
Issuance of 191 shares................... 191 1,910 808,685
----- ------- ---------- --------
BALANCE AT AUGUST 31, 1998................. 1,806 $18,060 $1,924,215 $813,700
===== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 109
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies
followed in the preparation of the financial statements.
COMPANY'S ACTIVITIES
CATV Subscriber Services, Inc. (the Company), incorporated in North
Carolina in March 1972, is a provider of infrastructure services to cable
television system operators.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting. The consolidated financial statements include the accounts
of CATV Subscriber Services, Inc., and its wholly owned inactive subsidiary,
Arizona Cable Concepts, Inc. Intercompany accounts have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in determining the Company's revenue recognition of
work-in-progress, costs associated with the work-in-progress, allowances for
doubtful accounts, depreciation and amortization, and in the estimated useful
lives of assets.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the
unit price of a contract is determined below cost, the entire estimated ultimate
loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable on work performed
prior to December 31, 1997 and August 31, 1998. All costs associated with the
deferred billings are also recognized as expenses as of the balance sheet date.
ACCRUED COSTS IN EXCESS OF BILLINGS
Accrued costs in excess of billings represents estimated cost required to
complete the current units of production in excess of amounts billed for those
units of production.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased
with original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market, and consists of materials purchased for installation of cable
television networks.
F-52
<PAGE> 110
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods for
income tax and financial statement purposes. Repairs and maintenance charges
which do not increase the useful lives of the assets are charged to expense as
incurred. Upon sale or retirement, the cost and related accumulated depreciation
are eliminated from the respective accounts and resulting gain or loss included
in current income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate their
carrying value due to the short-term maturities of these financial instruments.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
and lives for financial statement and income tax purposes) and certain reserves
recorded for book purposes that are not currently deductible for tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
NOTE 2 -- STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
DECEMBER 31, ENDED AUGUST 31,
1997 1998
------------ ----------------
<S> <C> <C>
Cash paid during the year for:
Interest.................................................. $333,332 $289,788
======== ========
Income taxes.............................................. $359,198 $201,983
======== ========
</TABLE>
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1997 and
August 31, 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Trade receivables........................................... $5,433,509 $5,097,585
Retainage................................................... 928,213 745,732
Allowance for doubtful accounts............................. (385,017) (1,129,900)
---------- ----------
Accounts receivable, net.................................... $5,976,705 $4,713,417
========== ==========
</TABLE>
F-53
<PAGE> 111
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retainage consists of amounts that are not due until the completion of a
contract. The allowance for doubtful accounts was increased by $997,374 during
1998 for the write-off of receivables from St. Martin Cable TV, FWI. (SMCTV).
The Company filed a claim against SMCTV in mid-1997 and has received only
insignificant payments since that time. During 1998, the Company elected to not
pursue the collection of the receivable due to costs associated with doing so.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 37,018 $ --
Office building............................................. 93,628 --
Leasehold improvements...................................... 2,344 2,344
Automobiles and trucks...................................... 2,315,510 2,820,681
Equipment and tools......................................... 1,684,571 1,847,788
Furniture and fixtures...................................... 147,568 223,676
----------- -----------
4,280,639 4,894,489
Accumulated depreciation.................................... (2,443,131) (2,739,500)
----------- -----------
Total............................................. $ 1,837,508 $ 2,154,989
=========== ===========
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Long-term debt at December 31, 1997 and August 31, 1998, consists of the
following:
<TABLE>
<CAPTION>
1997 1998
---------- --------
<S> <C> <C>
Notes payable to BB&T Bank with monthly installments of
$33,333 plus interest at prime plus 1.5%. Secured by St.
Martin Cable TV system and all Company assets............. $ 987,993 $ --
Note payable to BB&T Bank. Monthly interest payable at prime
plus 2% and a principal due upon demand. Secured by all
Company assets............................................ 2,341,991 --
Notes payable to Ford Motor Credit payable in monthly
installments ranging from $405 to $906 with terms of 36 to
60 months; interest ranges from 8.25% to 10.95%........... 308,970 387,401
Notes payable to GMAC Financial Services with 48 monthly
payments of principal and interest of $795; interest at
9.50%..................................................... 17,726 12,474
Notes payable to Mazda American Credit payable in 36 monthly
installments of $1,198; interest at 8.25%................. -- 37,128
Other equipment loans....................................... 33,810 4,733
---------- --------
Total............................................. 3,690,490 441,736
Less current portion........................................ 3,108,447 190,676
---------- --------
Total............................................. $ 582,043 $251,060
========== ========
</TABLE>
F-54
<PAGE> 112
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt for each of the 5 years subsequent to August
31, 1998 are as follows:
<TABLE>
<S> <C>
1999...................................................... $190,676
2000...................................................... 130,655
2001...................................................... 79,940
2002...................................................... 33,770
2003...................................................... 6,695
--------
$441,736
========
</TABLE>
On August 30, 1998, NATG loaned the Company $3,317,768 which was used to
repay certain of the Company's indebtedness.
NOTE 6 -- INCOME TAXES
The components of the provision (benefit) for income taxes for the year
ended December 31, 1997 and the period ended August 31, 1998:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current:
Federal................................................... $(30,918) $ 93,238
State..................................................... (4,620) 13,932
-------- ---------
(35,538) 107,170
-------- ---------
Deferred:
Federal................................................... 29,417 (308,619)
State..................................................... 4,396 (46,115)
-------- ---------
33,813 (354,734)
-------- ---------
Total tax benefit........................................... $ (1,725) $(247,564)
======== =========
</TABLE>
The effective income tax rate for 1997 and 1998 varies from the federal
statutory rate of 34% due primarily to state taxes, as detailed above, and
certain non-deductible entertainment expenses.
Deferred tax assets in the amount of $398,000 due to reserves for the St.
Martin receivable are included in prepaid expenses and other current assets as
of August 31, 1998. The deferred tax liabilities of $159,093 and $188,947 at
December 31, 1997 and August 31, 1998, respectively consist primarily of tax
depreciation in excess of book. There are no other significant deferred tax
amounts recorded as of December 31, 1997 or August 31, 1998.
NOTE 7 -- CONCENTRATION OF CUSTOMERS
The Company's customer base is highly concentrated with customers operating
cable television networks. For the year ended December 31, 1997 and the eight
months ended August 31, 1998 and as of those dates, five customers Media One,
Falcon Communications, Cox Communications, Charter Communications and Time
Warner, accounted for approximately 77% and 87%, respectively, of net revenues
and accounts receivable.
F-55
<PAGE> 113
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEASE COMMITMENT
The Company and its subsidiary maintain various capital leases for
equipment. Future minimum lease payments for each of the years subsequent to
August 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $347,445
2000........................................................ 180,425
2001........................................................ 93,469
2002........................................................ 45,924
--------
$667,263
========
</TABLE>
NOTE 9 -- SUBSEQUENT EVENTS
On August 31, 1998, the company's shareholders entered into an agreement to
exchange all of the common stock of CATV for cash and stock of the Company. The
effect of this stock exchange agreement has not been reflected in these
accounts.
F-56
<PAGE> 114
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of DAS-CO of Idaho, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of DAS-CO of Idaho, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boise, Idaho
May 3, 1999
F-57
<PAGE> 115
DAS-CO OF IDAHO, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 283,383 $ 826,986
Accounts receivable....................................... 4,182,269 4,551,536
Unbilled accounts receivable for contracts-in-process..... 844,114 433,416
Inventory................................................. 159,526 166,881
Other current assets...................................... 59,412 3,213
---------- ----------
Total current assets.............................. 5,528,704 5,982,032
---------- ----------
Property and equipment, net................................. 3,422,112 3,097,182
---------- ----------
Total assets...................................... $8,950,816 $9,079,214
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt......................... $ 206,180 $ 208,500
Accounts payable.......................................... 683,810 1,258,516
Accrued liabilities....................................... 127,982 115,662
Profit sharing contribution payable....................... 100,000 100,000
Deferred revenue.......................................... -- 306,669
---------- ----------
Total current liabilities......................... 1,117,972 1,989,347
Long-term debt, less current portion........................ 510,154 284,828
---------- ----------
Total liabilities................................. 1,628,126 2,274,175
---------- ----------
Contingencies and Commitments (Note 8)...................... -- --
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $1 per share; 5,000 shares
authorized and issued (including 1,200 shares held in
treasury).............................................. 5,000 5,000
Retained earnings......................................... 7,322,997 6,805,346
---------- ----------
Total............................................. 7,327,997 6,810,346
Less treasury stock, at cost.............................. (5,307) (5,307)
---------- ----------
Total stockholders' equity........................ 7,322,690 6,805,039
---------- ----------
Total liabilities and stockholders' equity........ $8,950,816 $9,079,214
========== ==========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-58
<PAGE> 116
DAS-CO OF IDAHO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues....................................... $20,389,928 $19,126,148 $21,778,456
----------- ----------- -----------
Costs and expenses:
Cost of revenues............................. 14,443,164 13,682,534 15,415,090
Selling, general and administrative.......... 3,267,175 3,502,691 3,900,768
----------- ----------- -----------
Total................................ 17,710,339 17,185,225 19,315,858
----------- ----------- -----------
Income from operations......................... 2,679,589 1,940,923 2,462,598
Other (income) expense:
Interest income.............................. (46,722) (62,683) (86,981)
Interest expense............................. 115,010 72,991 42,914
(Gain) loss on disposal of assets............ (14,236) (6,848) 4,238
----------- ----------- -----------
Income before income tax provision............. 2,625,537 1,937,463 2,502,427
Provision for income taxes..................... -- -- --
----------- ----------- -----------
Net income........................... $ 2,625,537 $ 1,937,463 $ 2,502,427
=========== =========== ===========
Pro Forma Tax Provision (Unaudited):
Income before income taxes................... $ 2,625,537 $ 1,937,463 $ 2,502,427
Pro forma provision for income taxes......... 997,000 736,200 950,900
----------- ----------- -----------
$ 1,628,537 $ 1,201,263 $ 1,551,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-59
<PAGE> 117
DAS-CO OF IDAHO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents from:
OPERATING ACTIVITIES:
Net income................................... $ 2,625,537 $ 1,937,463 $ 2,502,427
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization............. 768,440 883,658 937,988
(Gain) loss on disposal of assets......... (14,236) (6,848) 4,238
Changes in assets and liabilities:
Accounts receivable....................... 1,445,670 (1,439,915) (369,267)
Unbilled accounts receivable for
contracts-in-process.................... (491,856) (352,258) 410,698
Inventories............................... (20,170) (139,356) (7,355)
Other current assets...................... (11,223) (15,852) 56,199
Accounts payable.......................... (160,178) 30,677 574,706
Accrued liabilities....................... (21,893) 62,631 (12,320)
Deferred revenue.......................... (155,120) -- 306,669
----------- ----------- -----------
Net cash inflow from operating activities.... 3,964,971 960,200 4,403,983
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures...................... (1,692,719) (758,280) (1,014,322)
Proceeds from sale of assets.............. 16,931 6,848 90,362
----------- ----------- -----------
Net cash outflow from investing activities... (1,675,788) (751,432) (923,960)
----------- ----------- -----------
FINANCING ACTIVITIES:
Payments on line of credit................ (905,000) -- --
Proceeds from long-term debt.............. 821,303 -- --
Principal payments on long-term debt...... (683,756) (177,713) (223,006)
Distributions............................. (200,000) (1,330,000) (2,713,414)
----------- ----------- -----------
Net cash outflow from financing activities... (967,453) (1,507,713) (2,936,420)
----------- ----------- -----------
Net cash inflow (outflow) from all
activities................................ 1,321,730 (1,298,945) 543,603
Cash and cash equivalents at beginning of
year...................................... 260,598 1,582,328 283,383
----------- ----------- -----------
Cash and cash equivalents at end of year..... $ 1,582,328 $ 283,383 $ 826,986
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest....................... $ 142,592 $ 72,991 $ 42,914
Noncash investing and financing activities:
Assets acquired through a capital lease...... $ 178,697 $ -- $ --
Distribution of equipment to stockholders.... $ -- $ -- $ 306,664
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-60
<PAGE> 118
DAS-CO OF IDAHO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 5,000 $5,000 $ 4,289,997 $(5,307) $ 4,289,690
Net income......................... 2,625,537 2,625,537
Distributions...................... (200,000) (200,000)
----- ------ ----------- ------- -----------
Balance at December 31, 1996....... 5,000 $5,000 $ 6,715,534 (5,307) $ 6,715,227
Net income......................... 1,937,463 1,937,463
Distributions...................... (1,330,000) (1,330,000)
----- ------ ----------- ------- -----------
Balance at December 31, 1997....... 5,000 $5,000 7,322,997 (5,307) 7,322,690
Net income......................... 2,502,427 2,502,427
Distributions...................... (3,020,078) (3,020,078)
----- ------ ----------- ------- -----------
Balance at December 31, 1998....... 5,000 $5,000 $ 6,805,346 $(5,307) $ 6,805,039
===== ====== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-61
<PAGE> 119
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DAS-CO of Idaho, Inc. (the Company) is a provider of installation, design,
engineering and maintenance services for the telecom industry, formerly in the
western United States. The Company is headquartered in Nampa, Idaho, and has
offices in Twin Falls and Pocatello, Idaho.
On February 26, 1999, the Company was sold to Orius Corp. headquartered in
West Palm Beach, Florida, (the acquisition).
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and such differences may be material to the financial statements.
Revenue: Revenues from contracts are recognized as the related costs are
incurred based on the relationship of costs incurred to total estimated contract
costs. Unbilled accounts receivable for contracts-in-process represents revenue
recognized but not billed. Deferred revenue represents billings on contracts for
which costs have not yet been incurred and revenue has not been recognized. At
the time a loss on a contract becomes known, the entire amount of the estimated
loss is accrued.
Cash and Cash Equivalents: Cash and cash equivalents include cash balances
on deposit with banks, overnight repurchase agreements, and various other
financial instruments purchased with a remaining maturity of three months or
less. At times, balances on deposit with banks may exceed amounts insured by the
Federal Deposit Insurance Corporation.
Inventory: Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.
Property and Equipment: Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful life of the
assets utilizing the straight-line method. The estimated useful lives of the
assets are: leasehold improvements -- the term of the respective lease or the
estimated useful life of the improvements, whichever is shorter; vehicles -- 5
years; equipment and machinery -- 5 years; computer equipment -- 3-5 years; and
other equipment -- 10 years. Maintenance and repairs are expensed as incurred;
expenditures that enhance the value of the property or extend its useful life
are capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
Income Taxes: Prior to the acquisition date, the Company was an S
corporation for income tax purposes, and accordingly, any income tax liabilities
for the periods prior to acquisition were the responsibility of the respective
stockholders. Pro forma income taxes are calculated at a combined federal and
state tax rate of 38%.
Subsequent to the acquisition the Company became part of the consolidated
group for federal income tax purposes.
F-62
<PAGE> 120
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Contract billings........................................... $4,180,459 $4,117,007
Retainage................................................... 1,810 434,529
---------- ----------
Total............................................. $4,182,269 $4,551,536
========== ==========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, retainages are expected to be collected within twelve
months.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Land and leasehold improvements............................. $ 267,601 $ 282,400
Equipment and machinery..................................... 5,224,075 5,149,400
Vehicles.................................................... 2,048,723 2,274,269
Office equipment............................................ 256,175 252,865
Computer equipment.......................................... 134,337 128,337
----------- -----------
7,930,911 8,087,271
Less accumulated depreciation and amortization.............. (4,508,799) (4,990,089)
----------- -----------
Property and equipment, net................................. $ 3,422,112 $ 3,097,182
=========== ===========
</TABLE>
4. DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Contract payable with monthly payments of $19,802, including
interest at 7.062%, due April 2001; equipment is pledged
as collateral............................................. $ 704,606 $ 493,328
Contract payable with monthly payments of $1,099, including
interest at 7.9%, due November 1998; equipment is pledged
as collateral............................................. 11,728 --
--------- ---------
716,334 493,328
Less current portion........................................ (206,180) (208,500)
--------- ---------
Total long-term debt........................................ $ 510,154 $ 284,828
========= =========
</TABLE>
At December 31, 1998, the Company had an unsecured $1 million revolving
line of credit available through a financial institution, bearing interest at 2%
over the LIBOR index rate (7.75% at December 31, 1998). The note was guaranteed
by the stockholders. There were no
F-63
<PAGE> 121
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amounts outstanding at December 31, 1997 and 1998. As part of the acquisition,
the line of credit agreement was terminated.
Maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $208,500
2000........................................................ 223,582
2001........................................................ 61,246
--------
$493,328
========
</TABLE>
5. PROFIT SHARING PLAN:
The Company sponsors a 401(k) profit sharing plan covering substantially
all full-time employees. Company discretionary contributions to the plan totaled
$75,000, $100,000 and $100,000 for 1996, 1997 and 1998, respectively.
6. TRANSACTIONS WITH RELATED PARTIES:
During 1998, the Company leased office and shop facilities from businesses
owned by a related party on a month-to-month basis. On February 26, 1999 these
lease agreements were restructured to require minimum annual lease payments of
$168,744 for each of the next five years. The lease agreements contain two
five-year renewal options, at which time lease terms will be renegotiated.
Rental expense for these leases totaled $160,926, $169,200 and $155,000 for
1996, 1997 and 1998, respectively.
The Company paid consulting fees to businesses owned by related parties.
These businesses provided property management, product development, and other
services to the Company. Consulting fees were $290,910, $149,996 and $152,000
for 1996, 1997 and 1998, respectively. As a result of the acquisition, these
services will no longer be provided by these related parties.
At December 31, 1997 and 1998, the Company had related party receivables of
$5,027 and $9,477, respectively; and had related party payables of $14,100 and
$13,007, respectively.
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
In 1996, revenues from three customers; US West, Citizens and Idaho Power,
represented approximately 61%, 12%, and 10% of total revenue; in 1997, revenues
from three customers represented approximately 50%, 16%, and 15% of total
revenue; and in 1998, revenues from three customers represented approximately
41%, 13%, and 12% of total revenue.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents
and accounts receivable. The Company grants credit, generally without
collateral, to its customers, which include utility companies,
telecommunications providers and commercial companies located primarily in the
Western United States. Consequently, the Company is subject to potential credit
risk related to changes in business and economic factors throughout the Western
United States.
F-64
<PAGE> 122
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CONTINGENCIES AND COMMITMENTS:
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
F-65
<PAGE> 123
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Schatz Underground Cable, Inc. and Orius Corp.
We have audited the accompanying balance sheets of Schatz Underground
Cable, Inc. as of December 31, 1997 and 1998, and the related statements of
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Schatz Underground Cable,
Inc. as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ MILHOUSE, MARTZ & NEAL, L.L.P.
Maryland Heights, Missouri
February 17, 1999
F-66
<PAGE> 124
SCHATZ UNDERGROUND CABLE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash (Notes 2 & 13)....................................... $ 917,337 $ 2,080,720
Accounts receivable, trade (Notes 1, 5 & 12).............. 4,947,062 5,533,608
Inventory (Notes 1, 3 & 5)................................ 391,886 873,287
Prepaid expenses.......................................... 210,762 269,579
Deferred income tax benefit (Note 7)...................... 47,200 1,193,204
Prepaid income taxes...................................... -- --
----------- -----------
Total current assets.............................. 6,514,247 9,950,398
Property, plant and equipment (Notes 1, 4, 5 & 6)........... 6,858,690 7,483,645
Other assets (Note 1)....................................... 13,615 19,332
----------- -----------
Total assets...................................... $13,386,552 $17,453,375
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, line of credit (Note 5).................... $ -- $ --
Notes payable, current (Note 6)........................... 2,115,383 2,543,486
Accounts payable.......................................... 535,598 540,973
Accrued salaries.......................................... 473,300 3,672,358
Accrued income taxes...................................... 448,877 225,784
Other accrued expenses.................................... 200,469 268,775
Customer deposits......................................... 386,233 316,498
----------- -----------
Total current liabilities......................... 4,159,860 7,567,874
Notes payable, long-term (Note 6)........................... 3,829,194 4,182,397
Deferred income taxes (Note 7).............................. 186,000 163,769
Stockholders' equity:
Common stock, $1 par value; authorized 30,000 shares;
issued and outstanding 1,000 shares.................... 1,000 1,000
Paid-in capital........................................... 7,392 7,392
Retained earnings......................................... 5,203,106 5,530,943
----------- -----------
Total stockholders' equity........................ 5,211,498 5,539,335
----------- -----------
Total liabilities and stockholders equity......... $13,386,552 $17,453,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-67
<PAGE> 125
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net.................................. $20,601,378 $29,530,683 $31,254,221
Direct costs................................... 15,745,117 22,293,285 21,065,985
----------- ----------- -----------
Gross margin................................. 4,856,261 7,237,398 10,188,236
General and administrative expenses............ 4,153,824 4,948,418 9,136,881
----------- ----------- -----------
Income from operations....................... 702,437 2,288,980 1,051,355
Other income (expense):
Interest income.............................. 39,032 33,031 61,373
Other income................................. 3,236 56,104 34,699
Gain (loss) on sale of equipment............. 87,988 (4,282) 41,249
Interest expense............................. (452,796) (582,709) (636,850)
Lawsuit settlement........................... 155,000 -- --
----------- ----------- -----------
Total other income (expense)................. (167,540) (497,856) (499,529)
----------- ----------- -----------
Income before provision for income taxes..... 534,897 1,791,124 551,826
Provision for income taxes (Note 7):
Current...................................... 273,335 728,420 1,392,224
Deferred..................................... (12,445) (20,084) (1,168,235)
----------- ----------- -----------
260,890 708,336 223,989
----------- ----------- -----------
Net income................................... 274,007 1,082,788 327,837
Retained earnings, beginning of year........... 3,846,311 4,120,318 5,203,106
----------- ----------- -----------
Retained earnings, end of year............... $ 4,120,318 $ 5,203,106 $ 5,530,943
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-68
<PAGE> 126
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 274,007 $ 1,082,788 $ 327,837
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
(Gain) loss on disposal of property, plant and
equipment.......................................... (87,988) 4,282 (41,249)
Depreciation and amortization...................... 1,602,284 1,972,539 2,200,018
Deferred taxes..................................... (12,445) (20,084) (1,168,235)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... (2,174,654) (43,572) (586,546)
(Increase) decrease in inventory................ (571,288) 468,387 (481,401)
(Increase) decrease in prepaid expenses......... (97,839) (11,326) (58,817)
(Increase) decrease in prepaid income taxes..... 634,629 28,209 --
(Increase) decrease in other assets............. 1,232 (4,143) (5,717)
Increase (decrease) in accounts payable......... (140,498) 1,886 5,375
Increase (decrease) in accrued expenses......... 373,293 (226,840) 3,267,364
Increase (decrease) in customer deposits........ 27,277 358,956 (69,735)
Increase (decrease) in accrued income taxes..... -- 448,877 (223,093)
----------- ----------- -----------
Net cash provided (used) by operating
activities.................................... (171,990) 4,059,959 3,165,801
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment.............. (2,483,688) (2,705,201) (2,917,848)
Proceeds from sale of property and equipment........... 182,901 32,890 134,124
----------- ----------- -----------
Net cash used by investing activities........... (2,300,787) (2,672,311) (2,783,724)
----------- ----------- -----------
Cash flows from financing activities:
Payments on and proceeds from line-of-credit, net...... 1,255,000 (1,255,000) --
Loan proceeds -- long term............................. 4,258,733 4,860,170 2,223,266
Payments on long-term debt............................. (3,441,610) (4,111,675) (1,251,960)
Payments to and proceeds from stockholder, net......... (190,000) (190,000) (190,000)
----------- ----------- -----------
Net cash provided (used) by financing
activities.................................... 1,882,123 (696,505) 781,306
----------- ----------- -----------
Net increase (decrease) in cash.......................... (590,654) 691,143 1,163,383
Cash, beginning of year.................................. 816,848 226,194 917,337
----------- ----------- -----------
Cash, end of year........................................ $ 226,194 $ 917,337 $ 2,080,720
=========== =========== ===========
Schedule of noncash investing and financing transactions:
Cost of property, plant and equipment purchased........ $ 2,490,504 $ 2,807,580 $ 2,944,135
Net book value of trade-ins............................ (6,816) (102,379) (26,287)
----------- ----------- -----------
Cash paid for property, plant and equipment..... $ 2,483,688 $ 2,705,201 $ 2,917,848
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 456,794 $ 583,524 $ 636,850
Income taxes......................................... 103,783 251,334 1,627,615
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-69
<PAGE> 127
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a provider of installation, design, engineering and
maintenance services for the telecom industry. The company operates in the St.
Louis metropolitan area, as well as throughout the United States.
REVENUE AND COST RECOGNITION
Revenues from fixed price contracts are recognized on the
percentage-of-completion method for individual contracts. Revenues are
recognized based on fixed prices per contract for amount of work performed.
Changes in job performance, estimated profitability and final contract
settlements may result in revisions to costs and income, and are recognized in
the period in which the revisions are determined.
Contract costs include all direct materials, subcontracts, labor costs and
those indirect costs related to contract performance. General and administrative
costs are charged to expenses as incurred.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
ACCOUNTS RECEIVABLE, TRADE
Trade accounts receivable are recorded net of allowance for doubtful
accounts of $40,000 at December 31, 1997 and 1998.
INVENTORY
Materials are valued at cost on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided for in the financial statements using accelerated methods over the
estimated useful lives. Repairs and maintenance are charged to expense in the
year incurred. Additions and improvements are capitalized.
OTHER ASSETS
At December 31, 1997 and 1998, other assets consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deposits.................................................... $13,615 $11,715
Construction in progress.................................... -- 7,617
------- -------
$13,615 $19,332
======= =======
</TABLE>
ACCRUED HEALTH INSURANCE
During 1997 and through May 31, 1998, employees and their dependents were
provided comprehensive health care coverage under a self-funded plan. The
Company pays the first
F-70
<PAGE> 128
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$50,000 in medical expenses per covered individual per year. Any additional
costs are paid by the Plan's underwriters. Premiums due the underwriters are
accrued and paid monthly. The Company's self-funded liability is accrued based
on actual claims filed. The reserve liability for accrued health insurance
benefits payable was $52,466 for the year ended December 31, 1997. The Company
ceased to be self-funded on June 1, 1998 and paid all remaining self-funded
liability; therefore, no liability exists at December 31, 1998.
LEASE AGREEMENTS
Annual rentals pertaining to leases which convey merely the right to use
property are charged to current operations. Leases which are in substance
installment purchases of property are recorded as acquisitions with the asset
and the related obligation recorded in the balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments have been estimated by
management to approximate fair value.
ADVERTISING
The costs of advertising are expensed as incurred.
2. RESTRICTED CASH
At December 31, 1997, $7,500 of cash had been segregated to fund the
insurance companies draws in connection with the health benefit plan discussed
in Note 1.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Work-in-process............................................. $369,512 $865,046
Materials................................................... 22,374 8,241
-------- --------
$391,886 $873,287
======== ========
</TABLE>
F-71
<PAGE> 129
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trucks, automobiles, equipment and tools.................... $13,311,204 $15,217,306
Office furniture and equipment.............................. 156,592 216,662
Buildings and improvements.................................. 1,489,684 1,661,519
Land........................................................ 350,000 350,000
----------- -----------
15,307,480 17,445,487
Less accumulated depreciation............................... 8,448,790 9,961,842
----------- -----------
$ 6,858,690 $ 7,483,645
=========== ===========
</TABLE>
Depreciation expense was $1,602,284, $1,972,539 and $2,200,018 for years
ended December 31, 1996, 1997 and 1998, respectively.
5. NOTE PAYABLE, LINE-OF-CREDIT
The Company has an annually renewable agreement for a $2,000,000
line-of-credit with Jefferson Bank and Trust Company, which provides for
accounts receivable and inventory financing. Borrowings bear interest at 1/2%
above the Bank's prime rate and are secured by accounts receivable, inventory,
and personal guaranty of the stockholder.
At December 31, 1997 and 1998, no amount had been drawn against the
line-of-credit.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable, stockholder, payable in quarterly installments
of $47,500 plus interest at 9% Matures December 31,
2005...................................................... $1,520,000 $1,330,000
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $8,929 including interest at 8.5%.
Matures March 22, 2001 with outstanding balance due;
secured by real estate and a personal guaranty of the
stockholder............................................... 842,383 805,415
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $33,333 plus interest at prime
plus 1/2%. Matures April 22, 2001, secured by equipment
and a personal guaranty of the stockholder................ 1,333,333 933,333
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $25,000 plus interest at prime
plus 1/2% Matures April 22, 2001; secured by equipment
and a personal guaranty of the stockholder................ 1,000,000 700,000
Note payable, Jefferson Bank and Trust Company, interest
only at prime plus 1/2%. Maximum borrowings of $1,200,000
to finance equipment purchased during 1997. Matures April
22, 1998 secured by equipment and a personal guaranty of
the stockholder. The intent is to refinance the note over
four years commencing March 20, 1998. At December 31,
1997, this note is classified as a current liability...... 1,173,423 --
</TABLE>
F-72
<PAGE> 130
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $50,000 plus interest at prime
plus 1/2%. Matures February 20, 2002 Secured by equipment
and personal guarantee of the stockholder................. -- 1,900,000
Note payable, Jefferson Bank and Trust Company, interest
only of prime plus 1/2%. Matures February 20, 1999.
Secured by equipment and personal guarantee of the
stockholders.............................................. -- 996,689
Note payable, individual, payable in monthly installments of
$1,822 including interest at 10.0% 5 year amortization.
Matures March 15, 2002 secured by a freightliner truck.... 75,438 60,446
---------- ----------
5,944,577 6,725,883
Less current portion........................................ 2,115,383 2,543,486
---------- ----------
$3,829,194 $4,182,397
========== ==========
</TABLE>
Maturities of debt for 1999 and the succeeding years are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1999........................................................ $2,543,486
2000........................................................ 1,552,089
2001........................................................ 1,764,932
2002........................................................ 295,376
2003........................................................ 190,000
Thereafter.................................................. 380,000
----------
$6,725,883
==========
</TABLE>
7. INCOME TAXES
The Corporation provides for deferred income taxes for temporary
differences between the financial and income tax reporting of accrued
shareholder bonus, depreciation, accrued vacation and allowance for doubtful
accounts.
8. RELATED PARTY TRANSACTIONS
The Company has a note payable with the stockholder as explained in Note 6.
The Company leases additional facilities and real estate from the
stockholders at $2,550 and $2,000 a month, respectively, under month-to-month
leases.
9. RETIREMENT PLAN
The Company has a retirement plan (401k) which covers all employees meeting
minimum age and service requirements. The Company makes a matching contribution
of 25% of the first 4% of compensation an employee contributes. The Company made
$46,614, $49,038 and $47,241 in matching contributions for the years ended
December 31, 1996, 1997 and 1998, respectively.
Under the plan, the Company can make discretionary contributions to the
plan. For the years ended December 31, 1996, 1997 and 1998, no discretionary
contributions were made.
F-73
<PAGE> 131
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LEASE COMMITMENTS
The Company currently leases a facility in Kansas City under a long-term
lease expiring May 30, 1999. Minimum rental commitments under this lease are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- -----------
<S> <C>
1999........................................................ $17,500
=======
</TABLE>
The Company leases equipment under month-to-month leases. The Company also
leases a facility at Nixa and real estate in Villa Ridge from the stockholder
under month-to-month leases.
11. MAJOR CUSTOMERS
Sales to four major customers were approximately $16,556,622, $25,382,560
and $26,221,856 for the years ended December 31, 1996, 1997 and 1998,
respectively, representing 79.9%, 85.9% and 83.7% of total sales for those
years.
12. CREDIT RISK
The Company is involved in construction for various levels of government
and therefore issues credit under binding construction contracts to these
agencies. The Company also is engaged in commercial construction and issues
credit under binding construction contracts to various companies.
13. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the organization to credit
risk include cash on deposit with one financial institution amounting to
$896,603 and $2,070,597 at December 31, 1997 and 1998, respectively, which was
insured for up to $100,000 by the U.S. Federal Deposit Insurance Corporation.
F-74
<PAGE> 132
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
and the Board of Directors of Network Cabling Services, Inc.
We have audited the accompanying balance sheets of Network Cabling
Services, Inc. (formerly JAR Industries, Inc.) as of September 30, 1997 and
1998, and the related statements of income, stockholders' equity and cash flows
for each of the two years in the period ended September 30, 1998. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Network Cabling Services,
Inc., as of September 30, 1997 and 1998, and the results of its operations and
its cash flows for each of the two years in the period ended September 30, 1998
in conformity with generally accepted accounting principles.
As more fully discussed in Note 10, subsequent to December 31, 1998, the
Company's stockholders sold all of the outstanding common stock of the Company
to an unrelated company.
/s/ BDO Seidman, LLP
Houston, Texas
December 22, 1998, except for Note 10,
which date is February 26, 1999
F-75
<PAGE> 133
NETWORK CABLING SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents....................... $ 1,996 $ 121,842 $ 105,586
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $24,000, $30,000 and $30,000............ 3,406,797 5,236,298 4,632,975
Affiliates (Note 6).......................... 42,161 40,256 41,404
Other........................................ 13,400 1,680 --
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 2)... 53,989 679,450 1,387,810
Inventories..................................... 712,765 709,128 643,254
Prepaid expenses................................ 24,182 13,941 33,023
Refundable income taxes......................... -- 93,499 13,499
---------- ---------- ----------
Total current assets.................... 4,255,290 6,896,094 6,857,551
---------- ---------- ----------
Property and equipment, less accumulated
depreciation (Note 3)........................... 351,713 463,071 435,927
---------- ---------- ----------
Other assets.................................... 14,920 27,320 27,320
---------- ---------- ----------
Total assets.................................... $4,621,923 $7,386,485 $7,320,798
========== ========== ==========
LIABILITIES
Current liabilities:
Accounts payable................................ $1,605,506 $2,386,989 $2,178,882
Accrued expenses................................ 661,553 828,197 627,326
Income taxes payable (Note 5)................... 169,000 -- --
Note payable (Note 4)........................... -- 1,625,528 1,881,493
Current maturities of long-term debt (Note 4)... 131,599 161,929 153,711
Deferred income taxes (Note 5).................. 12,000 193,000 193,000
---------- ---------- ----------
Total current liabilities............... 2,579,658 5,195,643 5,034,412
Note payable (Note 4)............................. 400,265 -- --
Long-term debt, less current maturities (Note
4).............................................. 328,426 262,468 230,247
Deferred income taxes (Note 5).................... 34,000 40,000 40,000
---------- ---------- ----------
Total liabilities....................... 3,342,349 5,498,111 5,304,659
---------- ---------- ----------
Commitments (Note 7 and 8)
STOCKHOLDERS' EQUITY
Common stock, $1 par; shares authorized 10,000;
issued and outstanding 2,000.................... 2,000 2,000 2,000
Additional paid-in capital........................ 25,000 25,000 25,000
Retained earnings................................. 1,267,574 1,876,374 2,004,139
---------- ---------- ----------
Total................................... 1,294,574 1,903,374 2,031,139
Treasury stock, at cost, 100 shares............... (15,000) (15,000) (15,000)
---------- ---------- ----------
Total stockholders' equity.............. 1,279,574 1,888,374 2,016,139
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $4,621,923 $7,386,485 $7,320,798
========== ========== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-76
<PAGE> 134
NETWORK CABLING SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- ---------------------------
1997 1998 1997 1998
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note 1)................. $13,399,655 $22,862,869 $3,646,867 $5,370,037
Cost of Sales...................... 10,744,383 19,750,187 2,959,013 4,601,927
----------- ----------- ---------- ----------
Gross Profit....................... 2,655,272 3,112,682 687,854 768,110
General and administrative
expenses......................... 1,784,612 2,041,916 571,431 516,794
----------- ----------- ---------- ----------
Income from operations............. 870,660 1,070,766 116,423 251,316
Other income (expense):
Interest expense, net............ (95,483) (124,061) (22,799) (41,739)
Miscellaneous income (expense)... 7,456 6,095 (7,665) (1,812)
----------- ----------- ---------- ----------
Total other expense, net........... (88,027) (117,966) (30,464) (43,551)
----------- ----------- ---------- ----------
Income before income tax expense... 782,633 952,800 85,959 207,765
Income tax expense (benefit):
Current.......................... 312,000 157,000 33,000 80,000
Deferred......................... (12,000) 187,000 -- --
----------- ----------- ---------- ----------
Total.................... 300,000 344,000 33,000 80,000
----------- ----------- ---------- ----------
Net income............... $ 482,633 $ 608,800 $ 52,959 $ 127,765
=========== =========== ========== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-77
<PAGE> 135
NETWORK CABLING SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
SEPTEMBER 30, ENDED DECEMBER 31,
------------------------- -------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net income............................... $ 482,633 $ 608,800 $ 52,959 $ 127,765
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................... 103,965 151,757 27,291 54,132
Loss (gain) on disposition of property
and equipment........................ (5,015) 112 -- --
Provision for doubtful accounts........ 16,533 6,000 -- --
Deferred income taxes.................. (12,000) 187,000 -- --
Changes in assets and liabilities:
Accounts receivable.................. (1,300,397) (1,821,876) (158,351) 603,855
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... 102,865 (625,461) (418,624) (708,360)
Inventories.......................... (339,282) 3,637 (45,359) 65,874
Prepaid expenses and other assets.... (40,868) (2,159) (30,766) (19,082)
Refundable income taxes.............. -- (93,499) -- 80,000
Accounts payable..................... 809,748 781,483 (2,324) (208,107)
Accrued expenses..................... 315,097 166,644 (43,848) (200,871)
Income taxes payable................. 48,000 (169,000) (129,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............ 181,279 (806,562) (748,022) (204,794)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures..................... (151,953) (268,004) (67,639) (26,988)
Proceeds from sale of property and
equipment.............................. 7,249 4,777 -- --
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (144,704) (263,227) (67,639) (26,988)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayment of long-term debt.............. (96,783) (138,983) (378,596) (40,439)
Proceeds from long-term debt............. -- 85,000 -- --
Net borrowings on line of credit......... 35,265 1,243,618 1,285,048 255,965
Purchase of treasury stock............... (15,000) -- -- --
----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities............ (76,518) 1,189,635 906,452 215,526
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. (39,943) 119,846 90,791 (16,256)
Cash and cash equivalents, beginning of
period................................... 41,939 1,996 1,996 121,842
----------- ----------- ----------- -----------
Cash and cash equivalents, at end of
period................................... $ 1,996 $ 121,842 $ 92,787 $ 105,586
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Financial Statements.
F-78
<PAGE> 136
NETWORK CABLING SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1996.................... 2,000 $2,000 $25,000 $ 784,941 $ -- $ 811,941
Treasury stock, at cost,
100 shares.............. -- -- -- -- (15,000) (15,000)
Net income................ -- -- -- 482,633 -- 482,633
----- ------ ------- ---------- -------- ----------
Balance at September 30,
1997.................... 2,000 2,000 25,000 1,267,574 (15,000) 1,279,574
Net income................ -- -- -- 608,800 -- 608,800
----- ------ ------- ---------- -------- ----------
Balance at September 30,
1998.................... 2,000 2,000 25,000 1,876,374 (15,000) 1,888,374
Net income (unaudited).... 127,765
----- ------ ------- ---------- -------- ----------
Balance at December 31,
1998 (unaudited)........ 2,000 $2,000 $25,000 $2,004,139 $(15,000) $2,016,139
===== ====== ======= ========== ======== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-79
<PAGE> 137
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Network Cabling Services, Inc. (formerly JAR Industries,
Inc.) (the Company) was incorporated in the state of Texas in April 1981. The
Company is engaged in designing, installing and servicing data telecommunication
cabling, including fiber optic, as well as the fabrication of data and
telecommunication patch cables. The Company conducts its business primarily in
Texas, principally in Houston, Dallas, Austin, and Corpus Christi.
Interim Financial Information (Unaudited) -- The unaudited financial
statements as of December 31, 1998 and for the three month periods ended
December 31, 1997 and 1998 have been prepared on the same basis as the audited
financial statements, and, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations of such
interim period in accordance with generally accepted accounting principles.
Results for the interim periods are not necessarily indicative of results to be
expected for the full year.
Revenue and Cost Recognition -- Revenues from fixed price and time and
material cost contracts are recognized on the percentage-of-completion method.
Revenues from such contracts are measured primarily by the percentage of labor
hours incurred to date to the estimated total labor hours for each contract.
This method is used because management considers labor hours to be the best
available measure of progress on these contracts.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Selling and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
For uncompleted jobs at September 30, 1997 and 1998, the Company records
revenues earned in excess of amounts billed as an asset in the accompanying
balance sheet as "Costs and estimated earnings in excess of billings on
uncompleted contracts."
Property, Equipment And Depreciation -- Property and equipment are recorded
at cost. Depreciation is computed using primarily the straight-line method for
financial reporting purposes. Depreciation is computed for tax reporting
purposes using accelerated methods. The Company reviews the carrying values of
its long-lived assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable.
Inventories -- Inventory consists primarily of fiber optic and coaxial
cable, connectors, adapters, and similar items. Inventories are valued at the
lower of cost or market using the average cost method which approximates the
first-in, first-out (FIFO) method.
Income Taxes -- Provision for estimated income taxes is based on the
elements of income and expense reported in the statements of income. Deferred
income taxes result from temporary differences between the financial statement
and tax basis of assets and liabilities.
Concentration Of Credit Risk -- The Company had revenues from one customer
that represented 14% of total revenues for the year ended September 30, 1997,
and revenue from two customers that represented 17% and 12% of total revenue for
the year ended September 30, 1998.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and
F-80
<PAGE> 138
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
management believes it is not exposed to any significant credit risk on cash and
cash equivalents.
Cash and Cash Equivalents -- For purposes of the statements of cash flows,
all highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.
Management's Estimates and Assumptions -- The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
At September 30, 1997 and 1998, contracts totaling approximately $2,092,000
and $8,277,000, respectively, were in process. Costs and estimated earnings on
uncompleted contracts at September 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 361,293 $ 5,286,761
Estimated earnings........................................ 355,235 818,044
--------- -----------
716,528 6,104,805
Less, billings to date.................................... (662,539) (5,425,355)
--------- -----------
Total............................................. $ 53,989 $ 679,450
========= ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
The cost and estimated useful lives of property and equipment at September
30, are summarized as follows:
<TABLE>
<CAPTION>
LIVES 1997 1998
----- --------- ---------
<S> <C> <C> <C>
Installation and fabrication equipment.............. 3-7 $ 429,050 $ 675,252
Vehicles............................................ 5 84,269 86,826
Furniture and office equipment...................... 3-7 107,326 86,301
--------- ---------
620,645 848,379
Less accumulated depreciation....................... (268,932) (385,308)
--------- ---------
Net property and equipment.......................... $ 351,713 $ 463,071
========= =========
</TABLE>
4. NOTE PAYABLE AND LONG-TERM DEBT
Effective November 30, 1997, the Company refinanced its revolving line of
credit facility with another bank. The new credit agreement provides for maximum
borrowings of $2,500,000, expiring January 31, 1999, bears interest at prime
plus .25% to .75% (8.75% at September 30, 1998), and is cross-collateralized by
substantially all the assets of the Company and the personal guaranty of the two
major stockholders. As of September 30, 1998, borrowings under the credit
facility totaled $1,625,528. The credit facility requires the
F-81
<PAGE> 139
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company to maintain certain net worth and debt to equity ratios, as defined. As
of September 30, 1998, the Company was not in violation of these covenants.
For the year ended September 30, 1997, the Company had a revolving credit
facility with a bank with similar terms as the new line. As of September 30,
1997, borrowings under the credit facility totaled $400,265.
Long-term debt at September 30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Note payable to a bank bearing interest at 9.25% payable in
monthly installments of $12,694 plus interest, through May
2001, cross-collateralized by substantially all assets of
the Company and personal guarantees of the two major
stockholders.............................................. $452,488 $406,200
Note payable to a bank bearing interest at 8.25% payable in
monthly installments of $510 plus interest, through
December 2000, collateralized by business vehicles........ -- 13,766
Other....................................................... 7,537 4,431
-------- --------
460,025 424,397
Less current maturities..................................... 131,599 161,929
-------- --------
Total long-term debt........................................ $328,426 $262,468
======== ========
</TABLE>
At September 30, 1998, the aggregate remaining principal repayments of
long-term debt were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Year ending September 30,
1999........................................................ $161,929
2000........................................................ 159,389
2001........................................................ 103,079
--------
Total....................................................... $424,397
========
</TABLE>
5. INCOME TAXES
The components of deferred income tax assets and liabilities at September
30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current deferred tax asset (liability):
Inventory capitalization................................ $ 12,000 $ 14,000
Allowance for doubtful accounts......................... 8,000 10,000
Difference between book method of contract accounting
(percentage of completion) and tax method (completed
contract)............................................ (32,000) (217,000)
-------- ---------
$(12,000) $(193,000)
======== =========
Non-current deferred tax liability:
Basis difference in property and equipment.............. $(34,000) $ (40,000)
======== =========
</TABLE>
F-82
<PAGE> 140
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended September 30, 1997 and 1998, the effective tax rate
differs from the statutory income tax rate applied to pre-tax income primarily
due to expenses not deductible for tax purposes.
6. RELATED PARTY TRANSACTIONS
The Company leases its facilities and vehicles from a company affiliated
through common ownership (see Note 8). Total lease payments for the years ended
September 30, 1997 and 1998 were $200,105 and $249,195, respectively. At
September 30, 1997 and 1998, the Company had balances from related parties
bearing interest at prime due upon demand of $42,161 and $40,256, respectively.
The Company recorded interest income of approximately $1,900 and $2,400, for the
years ended September 30, 1997 and 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
Prior to September 30, 1997, the Company maintained a 401(a) plan covering
all employees with one year of service. Employees could not contribute to the
plan, however, the Company could contribute a discretionary amount. For the year
ended September 30, 1997, the Company made a discretionary contribution of
$30,000 to the plan.
Vesting occurs in 20% increments per year with full vesting upon completion
of six years of participation for the contributions made by the Company.
Effective October 1, 1997, the plan was amended to a 401(k) plan whereby
employees can contribute up to the dollar limit set by law. The Company will
make matching contributions equal to 25% of employee contributions up to 4% of
total compensation for a maximum matching contribution of 1% of total employee
compensation. For the year ended September 30, 1998, the Company contributed
approximately $22,100 in matching contributions to the plan.
8. COMMITMENTS
The Company leases its facilities, vehicles and certain equipment, under
noncancelable operating leases. Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Year ending September 30,
1999................................................... $301,655
2000................................................... 142,452
2001................................................... 37,279
--------
Total............................................. $481,386
========
</TABLE>
The Company incurred rental expense for the year ended September 30, 1997
of approximately $235,000, of which approximately $69,000 was for short-term
rentals of operating equipment. The Company incurred rental expense for the year
ended September 30, 1998 of approximately $454,000, of which $120,000 was for
short-term rentals of operating equipment.
The Company is self-insured for the health and medical insurance program
provided to employees. The coverage is a maximum of $15,000, per employee, per
year. The Company will pay approximately 67% of the cost of this coverage for
employees. If claims for an employee exceed the maximum of $15,000, re-insurance
will cover the excess. Also, if aggregate claims
F-83
<PAGE> 141
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
exceed certain calculated levels for any given year, the re-insurance will cover
any excess. The Company incurred expenses related to the health and medical
program of approximately $166,000 and $297,000 for the years ended September 30,
1997 and 1998, respectively. No claims were outstanding at September 30, 1997
and 1998.
9. SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended September 30, 1997 and 1998, the Company paid
interest of approximately $88,000 and $129,000, respectively. During the years
ended September 30, 1997 and 1998, the Company paid federal income taxes of
approximately $264,000 and $419,000, respectively.
10. SUBSEQUENT EVENT
On February 26, 1999, the stockholders of the Company sold all of the
outstanding common stock of the Company to an unrelated company. Subsequent to
the sale, the unrelated company paid off all of the outstanding debt of the
Company (see Note 4).
F-84
<PAGE> 142
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of
Copenhagen Utilities & Construction, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, retained earnings and of cash
flows present fairly, in all material respects, the financial position of
Copenhagen Utilities & Construction, Inc. (the "Company") at December 31, 1997
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
May 20, 1999
F-85
<PAGE> 143
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,100,760 $ 1,638,845
Short-term investments.................................... 750,000 750,000
Accounts receivable, net.................................. 5,522,908 3,980,602
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,438,416 2,217,739
Deferred income taxes..................................... 16,000 21,000
Prepaid expenses and other current assets................. 76,300 105,938
Income taxes receivable................................... 94,103
----------- -----------
Total current assets.............................. 9,904,384 8,808,227
Vehicles, equipment and leasehold improvements, net......... 2,098,858 1,835,429
----------- -----------
Total assets...................................... $12,003,242 $10,643,656
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including retainage of $499,749 in 1997
and $69,466 in 1998.................................... $ 2,519,770 $ 1,300,495
Accrued liabilities....................................... 2,112,636 3,185,607
Long-term debt, current portion........................... 61,023 129,364
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 780,404 250,437
Income taxes payable...................................... 435,450
----------- -----------
Total current liabilities......................... 5,909,283 4,865,903
Long-term debt.............................................. 835,277 28,032
----------- -----------
Total liabilities................................. 6,744,560 4,893,935
----------- -----------
Contingencies (Note 12)
Stockholders' equity:
Common stock:
Voting; 10,000 shares authorized, 2,496 issued and
outstanding in 1997 and 1998, par value $.02......... 50 50
Nonvoting; 90,000 shares authorized, 59,904 shares
issued and outstanding in 1997 and 1998, par value
$.02................................................. 1,198 1,198
Additional paid-in capital............................. 651,319
Retained earnings...................................... 5,257,434 5,097,154
----------- -----------
Total stockholders' equity........................ 5,258,682 5,749,721
----------- -----------
Total liabilities and stockholders' equity........ $12,003,242 $10,643,656
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-86
<PAGE> 144
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenue............................... $33,945,841 $48,377,526 $35,191,894
Contract costs................................. 27,942,424 39,166,200 27,092,236
----------- ----------- -----------
Gross profit.............................. 6,003,417 9,211,326 8,099,658
General and administrative expenses............ 4,086,357 6,888,750 8,541,112
----------- ----------- -----------
Income (loss) from operations............. 1,917,060 2,322,576 (441,454)
----------- ----------- -----------
Other (income) expense:
Interest income.............................. (108,694) (207,866) (238,701)
Interest expense............................. 52,173 43,126 68,882
(Gain) loss on disposal of assets............ 2,181 (3,238) (35,355)
----------- ----------- -----------
(54,340) (167,978) (205,174)
----------- ----------- -----------
Income (loss) before income tax
provision............................... 1,971,400 2,490,554 (236,280)
Income tax provision (benefit)................. 749,000 900,000 (76,000)
----------- ----------- -----------
Net income (loss)......................... 1,222,400 1,590,554 (160,280)
Retained earnings, beginning of year........... 2,694,480 3,816,880 5,257,434
Dividends paid................................. (100,000) (150,000) --
----------- ----------- -----------
Retained earnings, end of year................. $ 3,816,880 $ 5,257,434 $ 5,097,154
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-87
<PAGE> 145
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 1,222,400 $ 1,590,554 $ (160,280)
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 686,294 635,084 839,632
Gain on disposal of assets................ 2,181 (3,238) (35,355)
Net changes in operating assets and
liabilities:
Accounts receivables.................... (2,545,305) (645,554) 1,542,306
Prepaid expenses and other current
assets............................... (30,871) (21,264) (29,638)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ (1,388,584) (549,642) 220,677
Deferred income tax..................... (12,000) 11,000 (5,000)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ (1,420) 180,963 (529,967)
Accounts payable........................ 1,074,149 2,550 (1,219,275)
Accrued liabilities..................... 650,728 1,164,688 1,072,971
Income taxes payable (receivable)....... 804,829 (259,754) (529,553)
----------- ----------- -----------
Total adjustments.................... (759,999) 514,833 1,326,798
----------- ----------- -----------
Net cash provided by operating
activities......................... 462,401 2,105,387 1,166,518
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets............. 800 23,300 38,500
Purchase of vehicles, equipment and leasehold
improvements.............................. (988,255) (449,190) (464,648)
Purchase of short-term investments........... -- (750,000) --
----------- ----------- -----------
Net cash used in investing
activities......................... (987,455) (1,758,190) (426,148)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid............................... (100,000) (150,000) 0
Contributions from shareholders.............. -- -- 109,085
Payments on long-term debt................... (45,023) (720,223) (311,370)
----------- ----------- -----------
Net cash used in financing
activities......................... (145,023) (870,223) (202,285)
----------- ----------- -----------
Net increase (decrease) in cash...... (670,077) 59,274 538,085
Cash at beginning of year...................... 1,711,563 1,041,486 1,100,760
----------- ----------- -----------
Cash at end of year............................ $ 1,041,486 $ 1,100,760 $ 1,638,845
=========== =========== ===========
Supplemental disclosure of noncash investing
and financing transactions:
Notes payable assumed by a related party
recorded as additional paid-in capital.... $ -- $ -- $ 542,234
=========== =========== ===========
Equipment purchased with notes payable....... $ 535,277 $ 405,277 $ 114,700
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for income taxes................... $ $ 1,148,754 $ 458,553
=========== =========== ===========
Cash paid for interest....................... $ 63,919 $ 72,336 $ 51,290
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-88
<PAGE> 146
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Copenhagen Utilities & Construction, Inc. (the "Company,") an Oregon
corporation since 1975, operates in Oregon, Washington, California and Nevada.
The Company is a provider of installation, design, engineering and maintenance
services for the telecom industry. The Company also provides installation
services for gas and water utilities. The Company is located in Clackamas,
Oregon and Sacramento, California.
These financial statements include the accounts of a special purpose
entity, Excel Equipment LLC, and is owned by the same shareholders as the
Company. On December 31, 1998, in preparation for the sale of the outstanding
shares of stock of the Company as discussed in Note 13, substantially all assets
of Excel were transferred to the Company, and the Company assumed a portion of
the Company's long-term debt. In connection with this transfer amounts owing
related entities by Excel totaling $542,234 was not assumed by the Company and
accordingly, was recorded as a contribution of capital.
Following is a summary of the Company's significant accounting policies:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents. The cost of
these investments approximates fair value. At times, temporary cash investments
may be in excess of the Federal Deposit Insurance Corporation insurance limit.
The Companies deposits in high credit quality investments with reputable
financial institutions.
SHORT-TERM INVESTMENTS
Short-term investments are stated at fair market value as of the balance
sheet date. Unrealized holding gains or losses are reported in the balance sheet
as a separate component of stockholders' equity until realized. Realized gains
and losses are included in operations.
The Company reported no unrealized gains or losses as the market value of
short-term investments approximated their cost at December 31, 1997 and 1998.
ACCOUNTING FOR LONG-TERM CONTRACTS
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting for long-term contracts. This
accounting method provides for the recognition of revenue on contracts which are
not yet completed. The amount of revenue recognized is based on the percentage
that contract costs incurred to date bear to estimated total contract costs,
except that anticipated losses are recognized in their entirety without
reference to percentage-of-completion. Contract costs include all subcontracts,
direct labor and benefits, materials and allocated equipment and indirect costs.
The Company allocates equipment and indirect costs to each contract based
on equipment usage and direct labor rates. These rates are reviewed and adjusted
periodically to reflect changes in the Company's total equipment and indirect
costs.
Revisions in estimated costs and earnings are reported in the accounting
period in which the facts requiring revisions become known.
F-89
<PAGE> 147
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Profits and losses from service and minor installation contracts are
recognized in the period the work is completed.
OPERATING CYCLE
Assets and liabilities related to long-term contracts are included in
current assets and current liabilities in the accompanying balance sheets as
they will be liquidated in the normal course of contract completion, although
this may require more than one year.
VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Vehicles, equipment and leasehold improvements are stated at cost.
Maintenance and repairs of a routine nature are charged to operations as
incurred; additions and improvements are capitalized. Gains and losses from
sales or retirements are included in operations.
Depreciation is computed by accelerated methods over the estimated useful
lives of the related assets, which are as follows:
<TABLE>
<S> <C>
Construction vehicles and equipment......................... 5 years
Office furniture and equipment.............................. 5 to 7 years
Leasehold improvements...................................... 15 years
</TABLE>
Amortization of leasehold improvements is classified as depreciation
expense for financial reporting.
INCOME TAXES
Deferred income taxes are provided for the expected future income tax
effect of differences between the tax basis of assets and liabilities and their
financial reporting amounts. At the balance sheet date, based on enacted tax
laws and statutory tax rates applicable to the years in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company's cash and accounts receivable subject the Company to
concentrations of potential credit risk. The Company limits its risk by
depositing cash only with established financial institutions which maintain high
credit standings. The Company limits its exposure to losses on accounts
receivable by maintaining a broad customer base and performing the majority of
its contracts for public agencies.
The Company has a long-term service contract to provide service for one
major customer. The Company had total revenues of $10,197,923, $16,521,016 and
$15,219,596 for fiscal
F-90
<PAGE> 148
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years 1996, 1997 and 1998, which comprises approximately 30%, 34.2% and 43.5%,
respectively.
2. SHORT-TERM INVESTMENTS:
Short-term investments at December 31, 1997 and 1998 consist of municipal
bonds with an approximately 5.60% effective annual yield. The market value of
these investments approximated cost at December 31, 1997 and 1998.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Construction contracts................................... $4,134,239 $3,533,164
Retainage on construction contracts...................... 1,398,669 457,438
---------- ----------
5,532,908 3,990,602
Less allowance for uncollectible accounts................ 10,000 10,000
---------- ----------
$5,522,908 $3,980,602
========== ==========
</TABLE>
Retainage billed but not due until contract completion is $1,398,669 and
$457,438 at December 31, 1997 and 1998. The Company expects to collect the
retainage over the next year upon contract completion.
4. LONG-TERM CONTRACTS IN PROGRESS:
Following is a summary of long-term contracts in progress:
<TABLE>
<CAPTION>
1997 1998
------------------------- --------------------------
ESTIMATED ESTIMATED
TOTAL CONTRACT TOTAL CONTRACT
CONTRACT TO DATE CONTRACT TO DATE
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Contract costs......... $43,967,855 $30,758,952 $45,321,883 $ 42,768,316
Gross profit........... 6,403,291 3,318,369 9,450,258 9,111,308
----------- ----------- ----------- ------------
Contract revenue..... $50,371,146 34,077,321 $54,772,141 51,879,624
=========== ===========
Less billings.......... (32,419,309) (49,912,322)
----------- ------------
Net underbillings.... $ 1,658,012 $ 1,967,302
=========== ============
</TABLE>
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $2,438,416 $2,217,739
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (780,404) (250,437)
---------- ----------
$1,658,012 $1,967,302
========== ==========
</TABLE>
F-91
<PAGE> 149
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Vehicles, equipment and leasehold improvements:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Construction vehicles and equipment...................... $5,633,278 $5,995,829
Office furniture and equipment........................... 338,780 500,407
Leasehold improvements................................... 126,786 126,786
---------- ----------
6,098,844 6,623,022
Less accumulated depreciation............................ 3,999,986 4,787,593
---------- ----------
$2,098,858 $1,835,429
========== ==========
</TABLE>
6. LINE OF CREDIT:
The Company maintains an operating line of credit agreement with U.S. Bank
which renews annually in May. Funds are available to a maximum of $750,000,
subject to availability of collateral (80% of eligible accounts receivable).
Borrowings under this agreement bear interest at the bank's prime lending rate.
There were no outstanding borrowings under the line of credit agreement at
December 31, 1997 or 1998.
The line of credit agreement contains certain restrictive covenants related
to the Company's current ratio, net worth and debt to equity ratio. The Company
was in compliance with all requirements at December 31, 1998.
The Company maintains a term-financing line of credit agreement with U.S.
Bank for equipment acquisitions. Under this agreement, the Company may borrow up
to $750,000 (not to exceed 80% of the sales price of equipment acquired).
Borrowings bear interest at the bank's prime lending rate plus one-half percent
(8.25% and 8.75% at December 31, 1997 and 1998). Loans are amortized over three
to five years. There were no outstanding borrowings under the equipment line of
credit agreement at December 31, 1997 or 1998.
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Contracts payable to Case Credit Corporation (12) and
Western Traction Company (1) in aggregate monthly average
installments of $11,775, including interest ranging from
6% to 7.90%; maturing in November 1999; collateralized by
construction equipment.................................... $284,138 $157,396
Related party long-term debt:
Leota Johnson, monthly installments of $3,533, including
interest of 7.5%; maturing in February 2010............ 353,470 --
Johnson Family Trust monthly installments of $2,581,
including interest of 7.5%; maturing in February
2010................................................... 258,692 --
-------- --------
896,300 157,396
Less amount due within one year............................. 61,023 129,364
-------- --------
$835,277 $ 28,032
======== ========
</TABLE>
F-92
<PAGE> 150
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The income tax provision (benefit) reported in the accompanying statements
of operations and retained earnings consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------------ ------------------------------------ ------------------------
CURRENTLY DEFERRED CURRENTLY DEFERRED CURRENTLY DEFERRED
PAYABLE PROVISION PAYABLE PROVISION PAYABLE PROVISION
(RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) BENEFIT
------------ ---------- -------- ------------ ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal.............. $632,000 $(11,000) $621,000 $790,000 $ 8,000 $798,000 $(71,000) $ 2,000
State................ 129,000 (1,000) 128,000 99,000 3,000 102,000 (7,000)
-------- -------- -------- -------- ------- -------- -------- -------
$761,000 $(12,000) $749,000 $889,000 $11,000 $900,000 $(71,000) $(5,000)
======== ======== ======== ======== ======= ======== ======== =======
Effective tax rate... 38.0% 36.1%
======== ========
<CAPTION>
1998
--------
TOTAL
--------
<S> <C>
Federal.............. $(69,000)
State................ (7,000)
--------
$(76,000)
========
Effective tax rate... (32.2)%
========
</TABLE>
The income tax provision (benefit) result in effective rates which differ
from the statutory federal income tax rate (34%) for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
federal income tax
rate.................. $670,300 34.0% $846,800 34.0% $(80,400) (34.0)%
State income taxes, net
of federal benefit.... 84,400 4.3% 68,800 2.8% (7,000) (3.0)%
Permanent differences... 16,000 0.8% 18,700 0.7% 12,700 5.4%
Fuel tax credit and
other, net............ (21,700) (1.1)% (34,300) (1.4)% (1,300) (0.6)%
-------- ---- -------- ---- -------- -----
$749,000 38.0% $900,000 36.1% $(76,000) (32.2)%
======== ==== ======== ==== ======== =====
</TABLE>
Deferred income taxes are recognized for the expected future income tax
effect of differences between the tax bases of assets and liabilities and their
financial reporting amounts (temporary differences). Following is a summary of
temporary differences and the related deferred income tax effect as of December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
AMOUNT OF DEFERRED AMOUNT OF DEFERRED
TEMPORARY INCOME TAX TEMPORARY INCOME TAX
SOURCES OF TEMPORARY DIFFERENCES DIFFERENCES EFFECT DIFFERENCES EFFECT
- -------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accrued insurance reserves..................... $35,000 $12,000 $25,000 $10,000
Allowance for uncollectible accounts
receivable................................... 10,000 4,000 10,000 4,000
State tax net operating losses net of federal
provision.................................... 165,000 7,000
------- -------
Deferred income tax benefit.................... $16,000 $21,000
======= =======
</TABLE>
Recoverable income taxes totaling $94,103 reported in the accompanying
December 31, 1998 balance sheet result from federal and state estimated tax
payments which exceeded the Company's current income tax obligations.
F-93
<PAGE> 151
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OPERATING LEASE COMMITMENTS:
The Company leases office and shop facilities in Clackamas, Oregon and
Sacramento, California from its stockholders under lease agreements which
require the Company to pay certain operating costs such as property taxes,
insurance and utilities in addition to the basic rent.
The combined rent commitment under these leases is $19,000 per month
through February 2004, exclusive of operating costs.
Rent expense charged to operations under all operating leases, including
the leases with the Company's stockholders described above, totaled
approximately, $1,291,000, $1,719,100 and $1,085,000 for 1996, 1997 and 1998,
respectively. Rent expense paid to a related party was $168,000 for each of the
years ended 1996, 1997 and 1998.
10. EMPLOYEE BENEFIT PLANS:
RETIREMENT PLANS:
The Company's hourly field employees and certain salaried employees
participate in a multi-employer money purchase pension plan sponsored by the
Associated General Contractors of America, Inc. Contributions charged to
operations under this plan totaled approximately $628,000, $683,000 and $604,000
for 1996, 1997 and 1998, respectively.
The Company maintains a defined contribution retirement plan under
provisions of Internal Revenue Code Section 401(k) for its eligible employees
not covered by the money purchase pension plan described above. The plan
requires the Company to match 50% of employee contributions, to a maximum
Company contribution of 3% of the employee's annual compensation (up to
specified limits set by law). The plan also allows for discretionary
contributions to be determined annually by the Company's Board of Directors.
Contributions charged to operations under this plan totaled approximately,
$55,000, $64,000 and $54,000, for the years ended December 31, 1996, 1997 and
1998, respectively.
INCENTIVE BONUS PLAN:
The Company has an incentive bonus plan for certain key employees under
which the employees can share in profits which the Company earns in excess of
predetermined norms. Bonuses earned under this formula have been paid or accrued
as of year-end. Bonuses paid by the Company were $1,575,000, $4,035,000 and
$5,218,500 during fiscal years 1996, 1997 and 1998, respectively.
11. RECAPITALIZATION:
In July 1997 the Company's stockholders recapitalized the Company by
creating a second class of (nonvoting) capital stock to facilitate business
succession plans. The stockholders exchanged 1,248 shares of $1 par value voting
common stock for 2,496 of voting common stock and 59,904 shares of nonvoting
common stock.
12. CONTINGENCIES:
The Company is a party to certain claims and suits arising out of the
conduct of its business. While there can be no assurance as to their ultimate
outcome, management does not
F-94
<PAGE> 152
believe these matters will have a material adverse effect on its consolidated
financial condition or operating results.
13. SUBSEQUENT EVENT:
On February 26, 1999, the stockholders of the Company sold all outstanding
shares of stock to the Orius Corporation of West Palm Beach, Florida for cash
and common stock.
F-95
<PAGE> 153
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
TEXEL Corporation and the
Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in shareholder's equity and of cash flows present fairly,
in all material respects, the financial position of TEXEL Corporation (the
Company) as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
May 14, 1999
F-96
<PAGE> 154
TEXEL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $1,395,669 $ 3,144,841 $ 2,125,996
Accounts receivable............................ 4,725,915 7,172,628 6,525,215
Costs in excess of billings on uncompleted
contracts................................... 177,080 644,353 785,519
Prepaid expenses............................... 52,570 -- 14,500
---------- ----------- -----------
Total current assets................... 6,351,234 10,961,822 9,451,230
Property and equipment, net...................... 195,395 920,046 1,009,537
---------- ----------- -----------
Total assets........................... $6,546,629 $11,881,868 10,460,767
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 757,528 $ 2,028,443 1,297,074
Accrued expenses............................... 414,636 618,298 786,053
Billings in excess of costs on uncompleted
contracts................................... 40,351 73,153 101,712
---------- ----------- -----------
Total current liabilities.............. 1,212,515 2,719,894 2,184,839
Deferred rent.................................... -- 198,065 297,098
---------- ----------- -----------
Total liabilities...................... 1,212,515 2,917,959 2,481,937
---------- ----------- -----------
Shareholders' equity:
Common stock, par value $1.00, authorized 1,000
shares; issued and outstanding 400 shares... 400 400 400
Additional paid in capital..................... 1,600 1,600 1,600
Treasury stock, 200 shares at cost............. (24,000) (24,000) (24,000)
Retained earnings.............................. 5,356,114 8,985,909 8,000,830
---------- ----------- -----------
Total shareholders' equity............. 5,334,114 8,963,909 7,978,830
---------- ----------- -----------
Total liabilities and shareholders'
equity............................... $6,546,629 $11,881,868 $10,460,767
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-97
<PAGE> 155
TEXEL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Contract and service revenue....... $21,832,078 $29,648,953 $7,410,948 $6,050,577
Cost of sales...................... 14,989,003 20,633,959 5,259,214 4,460,088
----------- ----------- ---------- ----------
Gross profit............. 6,843,075 9,014,994 2,151,734 1,590,489
Selling, general and administrative
expenses......................... 1,265,074 1,862,802 396,186 426,008
----------- ----------- ---------- ----------
Income from operations... 5,578,001 7,152,192 1,755,548 1,164,481
Other (income) expense
Interest income.................. (102,617) (127,621) (29,600) (30,652)
Other expense.................... 101,730 88,145 19,011 46,152
----------- ----------- ---------- ----------
Net Income......................... $ 5,578,888 $ 7,191,668 $1,766,137 $1,148,981
=========== =========== ========== ==========
Pro Forma Tax Provision
(Unaudited):
Income before income taxes....... $ 5,578,888 $ 7,191,668 $1,766,137 $1,148,981
Pro forma provision for income
taxes......................... 2,120,000 2,732,800 671,132 436,612
----------- ----------- ---------- ----------
Total.................... $ 3,458,888 $ 4,458,868 $1,095,005 $ 712,369
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-98
<PAGE> 156
TEXEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 5,578,888 $ 7,191,668 $ 1,766,137 $ 1,148,981
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation............... 83,767 101,434 15,180 31,332
Changes in:
Accounts receivable...... (735,921) (2,446,713) (547,239) 647,413
Prepaid expenses......... (52,570) 52,570 37,291 (14,500)
Billings in excess of
costs................. 40,351 32,802 (17,909) 28,559
Accounts payable......... 193,091 1,270,915 2,367,042 (731,369)
Accrued expenses......... 30,805 203,662 168,442 167,755
Costs in excess of
billings.............. (97,607) (467,273) (1,588,302) (141,166)
Deferred rent............ -- 198,065 -- 99,033
----------- ----------- ----------- -----------
Net cash provided by
operating
activities.......... 5,040,804 6,137,130 2,200,642 1,236,038
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (89,460) (826,085) (27,948) (120,823)
----------- ----------- ----------- -----------
Net cash used in
investing
activities.......... (89,460) (826,085) (27,948) (120,823)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Distributions to
stockholder................ (4,751,016) (3,561,873) (1,102,500) (2,134,060)
----------- ----------- ----------- -----------
Net cash used in
financing
activities.......... (4,751,016) (3,561,873) (1,102,500) (2,134,060)
----------- ----------- ----------- -----------
Increase in cash and cash
equivalents................... 200,328 1,749,172 1,070,194 (1,018,845)
Cash and cash equivalents,
beginning of year............. 1,195,341 1,395,669 1,395,669 3,144,841
----------- ----------- ----------- -----------
Cash and cash equivalents, end
of year....................... $ 1,395,669 $ 3,144,841 $ 2,465,863 $ 2,125,996
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-99
<PAGE> 157
TEXEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................ 400 $400 $1,600 $ 4,528,242 $(24,000) $ 4,506,242
Net income.......... -- -- -- 5,578,888 -- 5,578,888
Distributions to
shareholder...... -- -- -- (4,751,016) -- (4,751,016)
--- ---- ------ ----------- -------- -----------
Balance at December
31, 1997............ 400 400 1,600 5,356,114 (24,000) 5,334,114
Net income.......... -- -- -- 7,191,668 -- 7,191,668
Distributions to
shareholder...... -- -- -- (3,561,873) -- (3,561,873)
--- ---- ------ ----------- -------- -----------
Balance at December
31, 1998............ 400 400 1,600 8,985,909 (24,000) 8,963,909
Net income
(unaudited)......... 1,148,981 1,148,981
Distributions to
shareholder
(unaudited)......... (2,134,060) (2,134,060)
--- ---- ------ ----------- -------- -----------
Balance at March 31,
1999 (unaudited).... 400 $400 $1,600 $ 8,000,830 $(24,000) $ 7,978,830
=== ==== ====== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-100
<PAGE> 158
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Texel Corporation (the "Company") was incorporated in 1983 under the laws
of the Commonwealth of Virginia. The Company is a provider of premise wiring
services, primarily in the Washington, D.C. metropolitan area. The Company's
corporate headquarters are located in Reston, Virginia and as of April 30, 1999,
the Company had two regional field offices in Columbia, Maryland and Richmond,
Virginia.
The shareholder of the Company has signed a definitive agreement to sell
all of the Company's outstanding shares to Orius Corporation. The transaction is
expected to close on May 24, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACT REVENUE
The Company recognizes revenue from contracts in process on the percentage
of completion method of accounting based on contract costs incurred to date
compared with total estimated contract costs. Contract costs include all direct
labor, material, subcontract, depreciation, and other direct project costs
related to contract performance. General and administrative costs are charged to
expense as incurred.
Service revenue is recognized when the work is complete. This work is
primarily short term and completed within five days or less.
Revenues recognized in excess of amounts billed are classified as current
assets under costs in excess of billings, and amounts billed in excess of
revenues recognized to date are classified as current liabilities as billings in
excess of costs. Contract retentions are included in accounts receivable.
INCOME TAXES
The Company elected subchapter S-Corporation status effective January 1,
1984. As an S-Corporation, the shareholder reports profits or losses of the
Company, for Federal and State income tax purposes, on his individual income tax
return. As an S-Corporation, the Company was not subject to certain income taxes
at the corporate level. Substantially all payments made to the shareholder are
in the form of S-Corporation shareholder distributions. In conjunction with the
sale of the Company's outstanding stock, the Company's S-Corporation filing
status will be terminated and the Company will begin to be taxed as a
C-Corporation for federal and state income tax purposes. Pro forma income taxes
are calculated at a combined federal and state tax rate of 38%.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid short-term investments readily
convertible into cash. Cash equivalents consist primarily of time deposits and
certificates of deposit with various financial institutions. These investments
are carried at cost, which approximates market and mature within 90 days and
therefore are subject to minimal risk.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The cost of assets sold or
retired and the related amounts of accumulated depreciation are eliminated from
the accounts and the resulting
F-101
<PAGE> 159
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
gain or loss is included in the income. Renewals and betterments are
capitalized. Repairs and maintenance are charged to expense when incurred.
Depreciation is computed using the straight-line and accelerated methods
over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7.5 years
Machinery and equipment..................................... 5.5 years
Automobiles................................................. 5.5 years
Computer software........................................... 5.5 years
Leasehold improvements...................................... 31.5 years
</TABLE>
Depreciation expense in 1997 and 1998 was $83,767 and $101,434,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's assets and liabilities approximate
fair value due to the short-term maturity of these financial instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from these estimates.
3. MAJOR CUSTOMERS
Sales to individual customers representing more than 10% of total sales
were approximately $5,933,000 and $11,246,000 in 1997 and 1998, respectively.
These amounts represent sales to 2 and 3 customers, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Contract billings........................................ $4,261,637 $4,924,667
Unbilled accounts receivable............................. 360,083 1,845,201
Retainage................................................ 44,012 345,424
Rebates and other........................................ 60,183 57,336
---------- ----------
Total.......................................... $4,725,915 $7,172,628
========== ==========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balances at December 31, 1997 and 1998
are expected to be collected within twelve months of year end.
F-102
<PAGE> 160
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Leasehold improvements................................... $ 3,413 $ 687,427
Automobiles.............................................. 345,061 424,502
Machinery and equipment.................................. 292,938 338,392
Computer software........................................ 83,891 83,891
Furniture and fixtures................................... 50,598 67,774
--------- ----------
775,901 1,601,986
Less accumulated depreciation............................ (580,506) (681,940)
--------- ----------
Property and equipment, net.................... $ 195,395 $ 920,046
========= ==========
</TABLE>
6. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 387,343 $ 2,673,895
Billings on uncompleted contracts........................... (250,614) (2,102,695)
--------- -----------
$ 136,729 $ 571,200
========= ===========
Costs in excess of billings on uncompleted contracts........ 177,080 644,353
Billings in excess of costs on uncompleted contracts........ (40,351) (73,153)
--------- -----------
$ 136,729 $ 571,200
========= ===========
</TABLE>
7. LEASE COMMITMENTS
The Company leases office space at various locations under noncancelable
operating leases expiring through 2005. Each lease agreement provides for an
annual escalation of 3%.
Certain office space is leased from Trison LLC, a real estate company owned
by the sole shareholder of the Company. The lease requires monthly payments of
approximately $33,000 over a 7-year term, with a 5-year renewal option. Based on
the terms of the lease, the Company received 10-month rent abatement in return
for making necessary leasehold improvements to the office space. The rent
abatement is recognized on a straight line basis over the term of the lease.
Rent expense for office space for the year ended December 31, 1998 was $307,323.
Minimum rental payments due under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER TOTAL
---------- ------- ----------
<S> <C> <C> <C>
1999.......................................... $ 396,130 $36,784 $ 432,914
2000.......................................... 396,130 18,059 414,189
2001.......................................... 396,130 16,798 412,928
2002.......................................... 396,130 17,303 413,433
2003.......................................... 396,130 8,779 404,909
Thereafter.................................... 594,196 -- 594,196
---------- ------- ----------
Total future minimum lease
payments.......................... $2,574,846 $97,723 $2,672,569
========== ======= ==========
</TABLE>
F-103
<PAGE> 161
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses were comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Salaries, wages and benefits................................ $196,244 $273,352
Profit sharing.............................................. 115,304 177,399
Vacation accrual............................................ 49,448 59,012
Other....................................................... 53,640 108,535
-------- --------
Total............................................. $414,636 $618,298
======== ========
</TABLE>
9. PROFIT SHARING PLAN
A defined contribution retirement plan is maintained by the Company. All
full-time employees who have attained the age of twenty-one and completed one
year of service are eligible to participate in the plan. The participants may
elect to make a contribution up to 15% of their compensation not exceeding
$9,500 in 1998 as defined by the plan. The Company matches 20% of employee
contributions up to 4% of the employee's compensation. Vesting of Company
contributions occur ratably over a 7-year period. The Company also provides a
discretionary contribution to the profit sharing plan. During 1997 and 1998,
approximately $125,000 and $177,000, respectively, was expensed related to this
contribution.
10. OTHER RELATED PARTY TRANSACTIONS
The president and sole shareholder of the Company is the 30% shareholder of
Texel Systems, Inc., which is a company that performs certain phone and cable
system installation services. The Company occasionally uses Texel Systems, Inc.
as a subcontractor on its projects, and vice-versa. Total revenue and expense
recorded by the Company for services provided to or obtained from Texel Systems,
Inc. was approximately $44,000 and $173,000, respectively in 1998.
F-104
<PAGE> 162
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. ORIUS
HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND IT
DOES NOT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF WHEN THIS PROSPECTUS IS
DELIVERED OR THESE SECURITIES ARE SOLD.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Pro Forma Financial Data..... 16
Selected Historical Financial Data.... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Our Business.......................... 33
Management............................ 43
Certain Transactions.................. 47
Principal and Selling Stockholders.... 49
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 51
Plan of Distribution.................. 53
Experts............................... 54
Legal Matters......................... 55
Additional Information................ 56
Reports to Security Holders........... 56
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
10,700,000 SHARES
(ORIUS LOGO)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY
COMPANY
, 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 163
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $54,733
NASD Filing Fee............................................. $ --
NYSE Listing Fee............................................ $ --
Printing and Engraving Costs................................ $ --
Accounting Fees and Expenses................................ $ --
Legal Fees and Expenses..................................... $ --
Transfer Agent and Registrar Fees........................... $ --
Miscellaneous............................................... $ --
Total............................................. $ --
</TABLE>
- ------------
* To be supplied by amendment.
All amounts are estimated except for the SEC registration fee, the NASD
filing fee and NYSE listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporate Law of the State of
Delaware (the "GCL") permits a corporation to indemnify certain persons made a
party to an action, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. To the extent that person has been successful in any
such matter, that person shall be indemnified against expenses actually and
reasonably incurred by him. In the case of an action by or in the right of the
corporation, no indemnification may be made in respect of any matter as to which
that person was adjudged liable unless and only to the extent that the Delaware
Court of Chancery or the court in which the action was brought determines that
despite the adjudication of liability that person is fairly and reasonably
entitled to indemnity for proper expenses.
Section 102(b)(7) of the GCL enables a Delaware corporation to include a
provision in its certificate of incorporation limiting a director's liability to
the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. The Company has adopted a provision in its Amended
and Restated Certificate of Incorporation that provides for such limitation to
the full extent permitted under Delaware law.
The Company's Bylaws provides that the Company shall indemnify any
director, officer or employee or any former director, officer or employee to the
full extent permitted under Delaware law.
The Company has acquired insurance with respect to, among other things,
certain liabilities that may arise under the statutory provisions referred to
above. The directors and officers of the Company are insured against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, which might be incurred by them in such capacities and against which they
are not indemnified by the Company.
II-1
<PAGE> 164
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
On February 26, 1999, an indirect subsidiary of the Registrant was merged
with and into North American Tel-Com Group, Inc. ("NATG"). As a result of the
merger, NATG became an indirect subsidiary of the Registrant. In the merger,
each issued and outstanding share of NATG common stock was converted into
one-tenth of one share of the Registrant's common stock and each issued and
outstanding share of NATG preferred stock was converted into one-tenth of one
share of the Registrant's preferred stock. As a result of the merger, 10,517,561
shares of NATG common stock were converted into 10,897,140 shares of the
Registrant's common stock and 100,000 shares of NATG Series A Preferred Stock
were converted into 10,000 shares of Orius Series A Preferred Stock (the "Series
A Stock"). The securities issued in these transactions were intended to be
exempt from registration pursuant to Section 4(2) of the Securities Act as an
offering to a limited number of persons.
On the date of the merger, the Registrant also entered into certain
subscription agreements to raise capital to complete additional acquisitions.
The Registrant entered into a subscription agreement with HIG whereby HIG
received 7,596.38 shares of Orius Series B Preferred Stock (the "Series B
Stock") in exchange for $7,596,378. In addition, the Registrant entered into
subscription agreements with 18 of then existing stockholders and employees of
NATG and issued an aggregate amount of 1,029,078 shares of Orius common stock to
these stockholders in exchange for an aggregate sum of $2.4 million. The
securities issued in these transactions were intended to be exempt from
registration pursuant to Section 4(2) of the Securities Act as an offering to a
limited number of persons.
On February 26, 1999, the Registrant consummated the acquisitions of
Network Cabling Services, Inc., ("NCS"), Copenhagen Utilities & Construction,
Inc. ("CUCI"), and DAS-CO of Idaho, Inc ("DAS-CO"). In connection with the
acquisition of all of NSC's outstanding capital stock, the Registrant issued
310,827 shares of its common stock to six former NCS stockholders as partial
consideration for the purchase. In connection with acquisition of all of CUCI's
outstanding capital stock, the Registrant issued 1,147,100 shares of its common
stock to two former CUCI stockholders as partial consideration for the purchase.
In connection with the acquisition of all of DAS-CO's outstanding capital stock,
the Registrant issued 37,003 shares of its common stock to a key employee of
DAS-CO. The securities issued in these transactions were intended to be exempt
from registration pursuant to Section 4(2) of the Securities Act as an offering
to a limited number of persons.
On February 26, 1999, in connection with the completion of its new credit
facility, the Registrant issued warrants (the "Warrants") to acquire 371,853
shares of its common stock to five members of the loan syndicate. The securities
issued in these transactions were intended to be exempt from registration
pursuant to Section 4(2) of the Securities Act as an offering to a limited
number of persons.
On May 24, 1999, the Registrant consummated the acquisitions of Texel
Corporation ("Texel"). In connection with the acquisition of all of Texel's
outstanding capital stock, the Registrant issued 1,030,334 shares of its common
stock to the former Texel stockholder as partial consideration for the purchase.
The securities issued in this transactions were intended to be exempt from
registration pursuant to Section 4(2) of the Securities Act as an offering to a
limited number of persons.
In connection with the consummation of this offering, the Series A Stock
and the Series B Stock will be converted into shares of the Registrant's common
stock and some or all of the Warrants may be exercised. The securities issued in
those transactions are intended to be
II-2
<PAGE> 165
exempt from registration pursuant to Section 4(2) of the Securities Act as an
offering to a limited number of persons.
For all transactions listed in this Item other exemptions from registration
under the Securities Act may also have been available including exemptions under
Section 4(6) of the Securities Act and Rules 505 and 506 of Regulation D
promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS:
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
1.1*** -- Form of Underwriting Agreement
3.1*** -- Amended and Restated Certificate of Incorporation
3.2*** -- Amended Bylaws
4.1*** -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Amended Bylaws of
the Registrant defining the rights of holders of the
Registrant's common stock
4.2*** -- Specimen certificate for the Registrant's common stock
5.1*** -- Form of Opinion of Akerman, Senterfitt & Eidson, P.A.
regarding the validity of the securities offered
10.1** -- Employment Agreement, dated as of February 26, 1999, between
William J. Mercurio and the Registrant
10.2** -- Employment Agreement, dated as of February 26, 1999, between
Joseph P. Powers and the Registrant
10.3** -- Employment Agreement, dated as of February 26, 1999, between
Robert Garrett and the Registrant
10.4*** -- 1999 Stock Option Plan, as amended
10.5** -- Form of Indemnification Agreement, dated as of February 26,
1999, between the Registrant and each member of the Board of
Directors
10.6** -- Stock Exchange Agreement between North American Tel-Com
Group, Inc. ("NATG") and Jeffery J. Ebersole, dated March
31, 1998
10.7** -- Stock Exchange Agreement among NATG, David Mai and Frank
Back, dated March 31, 1998
10.8** -- Stock Exchange Agreement between NATG and Larry Bonadeo,
dated March 31, 1998
10.9** -- Stock Exchange Agreement between NATG and Bernard E.
Czarnecki, dated March 31, 1998
10.10** -- Stock Purchase Agreement among NATG and the Shareholders of
U.S. Cable, Inc., dated June 30, 1998
10.11** -- Stock Purchase Agreement between NATG and the Sole
Shareholder of Burn-Techs, Inc., dated August 31, 1998
10.12** -- Stock Purchase Agreement between NATG and the Sole
Shareholder of State Wide CATV, Inc., dated August 31, 1998
10.13** -- Stock Purchase Agreement among NATG and the Shareholders of
CATV Subscriber Services, Inc., dated August 31, 1998
</TABLE>
II-3
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
10.14** -- Stock Purchase Agreement among NATG Holdings, LLC
("Holdings") and the Shareholders of Schatz Underground
Cable, Inc., dated February 19, 1999
10.15** -- Stock Purchase Agreement among Holdings and the Shareholders
of DAS-CO of Idaho, Inc., dated February 20, 1999
10.16** -- Stock Exchange Agreement among the Registrant, Holdings and
the Shareholders of Copenhagen Utilities & Construction,
Inc., dated February 20, 1999
10.17** -- Stock Purchase Agreement among the Registrant, Holdings and
the Shareholders of Network Cabling Services, Inc., dated
February 23, 1999
10.18** -- Stock Purchase Agreement among the Registrant, Holdings and
E. Scott Kasprowicz, dated May 24, 1999
10.19** -- Credit Agreement, dated as of February 26, 1999
10.20** -- First Amendment to Credit Agreement, dated as of May 24,
1999
10.21** -- Warrant Agreement, dated as of February 26, 1999
21.1** -- Subsidiaries of the Company
23.1*** -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5 of this Registration Statement)
23.2* -- Consent of PricewaterhouseCoopers LLP
23.3* -- Consent of BDO Seidman, LLP
23.4* -- Consent of Milhouse, Martz & Neal, L.L.P.
23.5* -- Consent of Williams, Young & Associates, LLC
25.1** -- Power of Attorney (included on the signature page of this
Registration Statement)
27.1** -- Financial Data Schedule
</TABLE>
- ------------
* Filed with this Registration Statement.
** Previously filed.
*** To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a Director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such Director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 167
The Company hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. For purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Orius Corp. has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ft. Lauderdale, State of
Florida, on the 9th day of July, 1999.
ORIUS CORP.
/s/ WILLIAM J. MERCURIO
--------------------------------------
By: William J. Mercurio
Its: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM J. MERCURIO President, Chief Executive July 9, 1999
- ----------------------------------------------------- Officer (Principal Executive
William J. Mercurio Officer) and Chairman of the
Board
/s/ ROBERT E. AGRES Vice-President Finance and July 9, 1999
- ----------------------------------------------------- Chief Financial Officer
Robert E. Agres (Principal Financial and
Principal Accounting Officer)
* Director July 9, 1999
- -----------------------------------------------------
Jeffrey J. Ebersole
* Director July 9, 1999
- -----------------------------------------------------
Bernard E. Czarnecki
* Director July 9, 1999
- -----------------------------------------------------
William Mullen
* Director July 9, 1999
- -----------------------------------------------------
Sami Mnaymneh
* Director July 9, 1999
- -----------------------------------------------------
Douglas F. Berman
* Director July 9, 1999
- -----------------------------------------------------
Brian Schwartz
*By: /s/ WILLIAM J. MERCURIO
--------------------------------------------
William J. Mercurio, as
attorney-in-fact
</TABLE>
II-6
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports relating to the following financial statements which appear in such
Registration Statement.
Financial Statements Date of Report
- -------------------- --------------
Orius Corp. and Subsidiaries April 29, 1999, except as
to the stock split described
Note 18 which is as
of July 7, 1999
U.S. Cable, Inc. April 1, 1999
CATV Subscriber Services, Inc April 23, 1999
DAS-CO of Idaho, Inc. May 3, 1999
Copenhagen Utilities and Construction, Inc. May 20, 1999
Texel Corporation May 14, 1999
We also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
July 9, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Orius Corp.
West Palm Beach, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of Orius Corp. of our report dated December
22, 1998, (except for Note 10, which date is February 26, 1999) relating to the
financial statements of Network Cabling Services, Inc., which is contained in
that Prospectus.
We also consent to the reference of us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Houston, Texas
July 8, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 17, 1999 related to the financial statements of Schatz
Underground Cable, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ Milhouse, Martz & Neal, LLP
Maryland Heights, Missouri
July 8, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 27, 1998 and August 15, 1997 related to the financial
statements of Channel Communications, Inc., f/k/a Kenya Corp., which appear in
such Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
Williams Young, LLC
/s/ Williams Young, LLC
Madison, Wisconsin
July 8, 1999
