<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to_______________
Commission file number
ORIUS CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0894212
------------------------------- -----------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
--------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(561) 687-8300
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 14, 2000
----- -----------------------------------
Common Stock, par value $.01 25,891,960
<PAGE> 2
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
September 30, 2000 and December 31, 1999 3
Consolidated Statements of
Operations for the three and nine months ended
September 30, 2000 and September 30, 1999 4
Consolidated Statements of
Cash Flows for the nine months ended
September 30, 2000 and September 30, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 6(a). Exhibits 20
SIGNATURES 21
2
<PAGE> 3
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of
-----------------------------------
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ -- $ 28,664,199
Accounts receivable, net 168,506,790 128,780,860
Costs and estimated earnings in excess of billings 39,700,265 24,675,434
Inventories 24,151,635 16,453,878
Other current assets 4,030,994 4,728,028
------------- -------------
Total current assets 236,389,684 203,302,399
------------- -------------
Property and equipment, net 59,921,356 44,399,631
Goodwill, net 419,772,568 359,881,615
Other assets 19,053,907 14,394,187
------------- -------------
Total assets $ 735,137,515 $ 621,977,832
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowing under credit facility $ 15,000,000 $ --
Current portion of debt and leases 13,113,486 8,796,941
Accounts payable - trade 31,731,842 29,640,803
Accrued liabilities 37,490,092 34,050,765
Payable to shareholder -- 11,454,413
Other current liabilities 1,913,112 7,240,943
------------- -------------
Total current liabilities 99,248,532 91,183,865
------------- -------------
Long-term debt and leases 583,266,222 458,069,425
Deferred taxes 16,316,865 5,609,352
------------- -------------
Total liabilities 698,831,619 554,862,642
------------- -------------
Securities subject to put and call arrangements -- 54,946,000
Series C participating, redeemable preferred stock, 200,000,000 authorized,
205,770 and 194,371 issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 244,722,635 199,019,074
Stockholders' equity (net capital deficiency):
Common stock $.01 par value, 200,000,000 shares authorized 258,920 250,254
Paid in capital 35,127,749 33,365,746
Retained deficit (243,803,408) (220,465,884)
------------- -------------
Total stockholders' equity (net capital deficiency) (208,416,739) (186,849,884)
------------- -------------
Total liabilities and stockholders' equity (net capital
deficiency) $ 735,137,515 $ 621,977,832
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 197,179,474 $ 42,010,043 $ 547,047,706 $ 102,207,954
Expenses:
Direct costs 148,366,787 29,299,627 399,048,476 69,476,457
General and administrative 17,633,549 4,238,882 54,662,481 15,851,631
Depreciation and amortization 7,886,649 143,413 21,647,129 447,987
------------- ------------- ------------- -------------
Total operating expenses 173,886,985 33,681,922 475,358,086 85,776,075
------------- ------------- ------------- -------------
Income from operations 23,292,489 8,328,121 71,689,620 16,431,879
------------- ------------- ------------- -------------
Other expense (income):
Interest expense, net 19,614,043 3,811,531 50,518,006 5,183,777
Other expense (income) (156,555) (45,195) (252,339) (140,946)
------------- ------------- ------------- -------------
Total other expenses 19,457,488 3,766,336 50,265,667 5,042,831
------------- ------------- ------------- -------------
Income before provision for income tax 3,835,001 4,561,785 21,423,953 11,389,048
------------- ------------- ------------- -------------
Provision for income tax 199,852 1,971,291 10,497,730 2,622,559
------------- ------------- ------------- -------------
Net income $ 3,635,149 $ 2,590,494 $ 10,926,223 $ 8,766,489
============= ============= ============= =============
Net income applicable to common shareholders:
Net income as reported $ 3,635,149 $ 2,590,494 $ 10,926,223 $ 8,766,489
Accretion and dividends on
Series C participating
redeemable preferred stock (2,935,625) -- (34,287,810) --
------------- ------------- ------------- -------------
Net (loss) income applicable to
common shareholders $ 699,524 $ 2,590,494 $ (23,361,587) $ 8,766,489
============= ============= ============= =============
Pro forma net income data
Net income as reported $ 3,635,149 $ 2,590,494 $ 10,926,223 $ 8,766,489
Pro forma adjustment to
provision for income taxes -- -- -- 1,199,320
------------- ------------- ------------- -------------
Pro forma net income $ 3,635,149 $ 2,590,494 $ 10,926,223 $ 7,567,169
============= ============= ============= =============
Earnings (loss) per share
available to common
shareholders
Basic and diluted $ 0.03 $ 1.77 $ (0.91) $ 1.33
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Operating activities:
Net Income $ 10,926,223 $ 8,766,489
Adjustments to reconcile net cash provided by (used in) operating
activities:
Depreciation and amortization 21,647,129 447,987
Deferred taxes 10,259,161 1,823,200
Changes in assets and liabilities
Accounts receivable (31,761,439) (21,785,910)
Inventories (5,058,156) (1,030,923)
Other assets (17,016,447) (19,100)
Accounts payable and accrued liabilities 6,311,491 6,483,179
Other liabilities (6,487,215) (392,687)
------------- -------------
Net cash provided by (used in) operating activities (11,179,253) (5,707,765)
------------- -------------
Investing activities:
Capital expenditures (18,372,579) (2,596,778)
Acquisitions (59,548,658) (100,000)
------------- -------------
Net cash used in investing activities (77,921,237) (2,696,778)
------------- -------------
Financing activities:
Borrowing on debt facilities 182,908,160 --
Proceeds from issuance of long-term debt 150,000,000 75,000,000
Distributions paid to stockholders (11,454,413) (6,141,864)
Repayment of long-term debt (206,206,407) (1,182,200)
Proceeds from issuance of junior notes -- 637,000
Amounts paid for deferred financing costs (6,255,084) (2,269,238)
Issuance of Preferred Stock 21,155 136,955
Retirement of Common Stock -- (127,410,625)
Issuance of Common Stock 4,116 67,867,196
Redemption of securities subject to put and call arrangements (48,581,236) --
------------- -------------
Net cash provided by financing activities 60,436,291 6,637,224
------------- -------------
Net decrease in cash and cash equivalents (28,664,199) (1,767,319)
Cash and cash equivalents at beginning of period 28,664,199 2,788,838
------------- -------------
Cash and cash equivalents at end of period $ -- $ 1,021,519
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
OVERVIEW
The interim consolidated financial statements of Orius Corp. ("Orius"),
the successor to LISN Holdings, Inc. ("LISN"), and its subsidiaries (the
"Company") as of September 30, 2000 and December 31, 1999 and for the three and
nine months ended September 30, 2000 and 1999 include the accounts of Orius 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 consolidated financial statements have
been prepared by the Company, without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures made are adequate to make the
information presented not misleading. Accordingly, these unaudited Consolidated
Financial Statements should be read in conjunction with the audited Consolidated
Financial Statements, and notes thereto for 1999. Reported interim results of
operations are not necessarily indicative of those expected for the year.
The financial information as of and for the period ended September 30,
1999 represents the information of LISN, which was deemed the accounting
acquirer in the December 15, 1999 business combination.
On December 15, 1999, Orius and LISN entered into a business
combination in which the former stockholders of LISN acquired control of Orius
and its subsidiaries. Accordingly, LISN is considered the acquiring corporation
and corporate predecessor for accounting purposes, and the financial information
as of and for the nine months ended September 30, 1999 represents the
information of LISN, see "ORIUS/LISN TRANSACTION" (Note 3).
2. STOCK SPLIT
In September 1999, the Orius Board of Directors authorized a 10.36 for
1 stock split. All share amounts presented in these financial statements have
been restated to reflect the split.
3. ORIUS/LISN TRANSACTION
On December 15, 1999, LISN's former shareholders acquired control of
Orius and its wholly-owned subsidiary, NATG Holdings, LLC ("NATG"), through the
following steps:
o Former LISN shareholders, members of management and certain
co-investors invested an aggregate cash amount of $112.2
million in LISN immediately prior to the transaction. In
exchange for this investment, a "strip" of Orius securities
were issued comprised of $41.3 million of junior subordinated
notes, $60.8 million of Series C redeemable preferred stock
and $10.1 million of common stock.
o Former LISN shareholders exchanged LISN common stock,
preferred stock and junior subordinated notes for a similar
strip of securities issued by Orius.
o NATG borrowed $328.5 million under the new multi-tranche
senior credit facilities and the senior subordinated term
loan, and repaid approximately $256.1 million of LISN and
Orius indebtedness.
6
<PAGE> 7
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
o Convertible preferred stock, junior subordinated notes,
warrants and a portion of the common stock of Orius were
redeemed. This redemption included put and call arrangements
with certain Orius security holders which required payment of
approximately $54.9 million (see Note 9) and the issuance of
additional strips of Orius securities in the first half of
2000.
o Orius management exchanged approximately one-half of the
value of their equity interests in Orius for a strip of
securities initially valued and comprised of $30.4 million in
aggregate principal amount of Orius junior subordinated notes,
$44.7 million in preferred stock and $8.3 million in common
stock. Although LISN is the acquiring corporation for
accounting purposes, the transaction resulted in LISN becoming
a wholly-owned subsidiary of NATG, which is a wholly-owned
subsidiary of Orius.
As the accounting predecessor, LISN's historical financial statements
are the historical financial statements of Orius.
Although LISN is the acquiring corporation for accounting purposes
(because former LISN shareholders acquired approximately 75% of common equity
interest) the transaction resulted in LISN becoming a wholly-owned subsidiary of
NATG, which is a wholly-owned subsidiary of Orius. As the accounting
predecessor, LISN's historical financial statements are the historical financial
statements of Orius and include the results of Orius' operations from December
15, 1999 through December 31, 1999.
The total purchase consideration of $165.5 million in cash and $83.4
million in Orius rollover value (excluding amounts payable under put/call
arrangements) plus transaction related expenses of $6.3 million exceeded the
fair value of the tangible net assets acquired by $360.5 million, which is being
amortized on a straight-line basis over 25 years.
The excess purchase price over the fair value of the assets acquired
has been allocated to goodwill. While the various synergies of the Orius/LISN
combination are readily identifiable, the Company belies that these are not
reliably measurable and, accordingly, considers these to be elements of
goodwill.
7
<PAGE> 8
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
4. COMPUTATION OF EARNINGS PER SHARE
Below is a reconciliation between basic and diluted earnings per share
for the three and nine months ended September 30, 2000 and 1999. Currently, the
Company's shares are not publicly traded.
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------------------------
2000 1999*
-------------------------------------------- ---------------------------------------
Income Shares Per Income Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
------------- ------------- ----- ----------- ------------- -----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,635 $ 2,590
Less: Preferred stock
dividends and
accretion (2,936) --
------- -------
Basic earnings
per share 699 25,890 $ 0.03 2,590 1,464 $ 1.77
------- ------- ======= ------- ----- ======
Effect of dilutive
securities:
Contingently
issuable shares -- 29 -- --
Stock options -- 1,087 -- --
------- ------ ------- ------
Diluted earnings
per share $ 699 27,006 $ 0.03 $ 2,590 1,464 $ 1.77
======= ====== ====== ======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------------------
2000 1999*
-------------------------------------------- ---------------------------------------
Income Shares Per Income Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
------------- ------------- ----- ----------- ------------- -----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 10,926 $ 8,766
Less: Preferred stock
dividends and
accretion (34,288) --
-------- --------
Basic and diluted
earnings per share $ (23,362) 25,698 $ (0.91) $ 8,766 6,614 $ 1.33
========= ====== ======= ======= ===== ======
</TABLE>
* Since the effects of the stock options are anti-dilutive for the three
and nine months ended September 30, 1999, these effects have not been
included in the calculation of dilutive EPS.
** Since the effects of the stock options and earn-out contingencies are
anti-dilutive for the nine months ended September 30, 2000, these
effects have not been included in the calculation of dilutive EPS.
8
<PAGE> 9
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings, and related billings on uncompleted
projects at September 30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts $ 104,092,472 $ 107,039,766
Billings to date 64,392,207 82,364,332
------------- -------------
Net costs and earnings in excess of billings $ 39,700,265 $ 24,675,434
============= =============
Costs and estimated earnings in excess of billings $ 41,095,673 $ 27,098,079
Billings in excess of costs and estimated earnings (1,395,408) (2,422,645)
------------- -------------
Net costs and earnings in excess of billings $ 39,700,265 $ 24,675,434
============= =============
</TABLE>
6. ACQUISITIONS
During 2000 the Company acquired Irwin Utilities of Texas Inc.
("Irwin"), Fenix Communications, Inc. ("Fenix"), Midwest Splicing and
Activation, Inc. ("Midwest"), and Hattech, Inc. ("Hattech"). The total purchase
consideration of $57.3 million consisting of $48.7 million cash (excluding of
$2.2 million of transaction related expenses) and $8.5 million in common stock,
preferred stock and junior subordinated debt exceeded the fair value of the
tangible net assets acquired by $45.3 million which is being amortized on a
straight-line basis over 25 years. Results of Fenix, Midwest and Hattech have
been included in the consolidated results of the Company from the date of
acquisition.
Shares issued in connection with these transactions were valued using
valuation models that take into account earnings multiples of comparable
companies.
The following unaudited pro forma financial information represents the
unaudited pro forma results of operations as if the aforementioned acquisitions
were completed on January 1, 1999. These pro forma results give effect to
increased interest expense for acquisition-related 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 operations which would have
been achieved had these acquisitions been completed on January 1, 1999, nor are
the results indicative of the Company's future results of operations.
9
<PAGE> 10
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
Nine Months Ended
September 30,
---------------------------
2000 1999
--------- ---------
(In Thousands)
Revenues $ 566,679 $ 417,575
Net income 10,306 4,132
Earnings per share $ 0.40 $ 0.16
7. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $869,621 and $916,601 at
September 30, 2000 and December 31, 1999, respectively. Included in accounts
receivable at September 30, 2000 are unbilled receivables of $9,939,606 and
retainage of $12,842,643.
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts,
substantially all of the retention balances at September 30, 2000 are expected
to be collected within next twelve months. Unbilled accounts receivable relate
to the Company's unit based contracts and represent revenue the Company is
entitled to based upon the units delivered as of the balance sheet date.
Accounts receivable consist of the following:
September 30, December 31,
2000 1999
------------ ------------
Contract billing $153,061,414 $118,459,600
Retainage 12,842,643 9,183,532
Other receivables 3,472,354 2,054,329
------------ ------------
Total 169,376,411 129,697,461
Less allowance for doubtful accounts 869,621 916,601
------------ ------------
Accounts receivable, net $168,506,790 $128,780,860
8. LONG TERM DEBT AND CAPITAL LEASES
During the first quarter of 2000, the Company completed a private
offering of $150 million of 12.75% Senior Subordinated Notes due in 2010. A
portion of the proceeds from this offering was used to
10
<PAGE> 11
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
pay down the principal amount outstanding on Term Loan B. In September 2000, the
Company registered the notes under Securities Act of 1933.
In July 2000 the Company entered into additional borrowings of $60
million under Term Loan C of the senior credit facility, which were primarily
used to pay down amounts due under the revolving credit facility. Amounts under
Term Loan C, due December 15, 2007, bear interest at the greater of Bankers
Trust Prime Rate or the Federal Funds Rate plus 0.50% or the Eurodollar rate, in
each case plus a margin of 2.75% to 3.75%.
The credit facility also contains affirmative and negative covenants
relating to the Company's operations. The Company was in compliance with these
covenants at September 30, 2000. Additionally, the Company is subject to
certain working capital restrictions and is restricted from declaring or paying
any dividends or making distributions on or in respect of its capital stock.
As of September 30, 2000 and December 31, 1999, long-term debt and
capital lease obligations consisted of the following:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Revolving credit facility, maturing on December 15, 2004; interest rate of prime
or Federal Funds Rate plus 0.50% or Eurodollar Rate, plus a margin of 0.75%
to 2.0% or 1.75% to 3.0%, respectively, determined
based on the most recent total debt to EBITDA ratio $ 15,000,000 $ --
Term Loan A, amortizing with final payment due December 15, 2004;
interest rate of prime or Federal Funds Rate plus 0.50% or Eurodollar Rate,
plus a margin of 0.75% to 2.0% or 1.75% to 3.0%, respectively,
determined based on most recent total debt to EBITDA ratio 70,500,000 28,531,511
Term Loan B, amortizing with final payment due December 15, 2006;
interest rate of prime or Federal Funds Rate plus 0.50% or Eurodollar
Rate, plus a margin of 2.5% to 3.5% 156,179,112 200,000,000
Term Loan C, amortizing with final payment due December 15, 2007;
interest rate of prime or Federal Funds Rate plus 0.50% or Eurodollar
Rate, plus a margin of 2.75% to 3.75% 59,850,000 --
Senior Subordinated Notes, interest paid semiannually with maturity on
February 1, 2010; interest rate of 12.75% 150,000,000 --
Senior Subordinated bridge loan maturing December 15, 2007; interest rate
of LIBOR plus 6.5% -- 100,000,000
</TABLE>
11
<PAGE> 12
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Junior Subordinated Notes including accrued interest of $12,994,786 and $671,505
at September 30, 2000 and December 31, 1999, respectively, maturing on the
later of December 15, 2009 or the first anniversary of the date on which
any debt in a high yield offerings is repaid; interest rate
of 12% 155,276,854 134,972,505
Other debt and capital lease obligations 4,573,742 3,362,350
------------- -------------
Total debt and capital lease obligations 611,379,708 466,866,366
Less current portion (28,113,486) (8,796,941)
------------- -------------
Long-term debt $ 583,266,222 $ 458,069,425
============= =============
</TABLE>
9. SECURITIES SUBJECT TO PUT AND CALL ARRANGEMENTS
At September 30, 2000 and December 31, 1999, securities subject to put
and call arrangements are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Securities subject to put and call arrangements:
Series B preferred stock $ -- $ 39,420,000
Redeemable common stock -- 15,526,000
------------ ------------
$ -- $ 54,946,000
============ ============
</TABLE>
Certain of the Orius securities were subject to put and call
arrangements whereby Orius Corp. had a call and the security holders had a put.
In March 2000, the Series B preferred stock and $3.6 million of the redeemable
common stock were redeemed by Orius Corp. In connection with those redemptions,
the Company borrowed $41.1 million from its credit facilities. The $11.9 million
remainder of the redeemable common stock was redeemed by the Company in the
second quarter through borrowings from its credit facilities and the issuance of
junior subordinated debt and preferred stock.
10. SERIES C PARTICIPATING PREFERRED STOCK
The Orius Series C participating preferred stock accrues dividends
daily at a rate of 12% per annum based on a liquidation value of $1,000 per
share and participates in any dividends paid to holders of the common stock. The
Series C participating preferred stock will be redeemed on December 31, 2019 at
its purchase price, plus accrued dividends and the liquidation value of the
common stock into which it is convertible.
At September 30, 2000 and December 31, 1999, the total recorded value
of the Series C preferred stock has been determined based upon purchase price of
$1,000 per share, accrued and unpaid dividends of $18,993,032 and $995,918,
respectively, and a value per common share of $6.67 and $1.34, respectively. The
purchase price of $1,000 per share and the value per common share of $1.34 were
based upon the values of the preferred and common stock purchased in connection
with the Orius/LISN transaction. Subsequent value per common share is adjusted
quarterly based upon the Company's performance, recent
12
<PAGE> 13
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
transactions and comparable trading multiples for the nine months ended
September 30, 2000. For the nine months ended September 30, 2000, the resulting
accretion is $16,266,633. Accretion is recorded as an increased in the retained
deficit and a reduction in the income available to common shareholders.
11. NOTES DUE FROM STOCKHOLDER
In January 2000, pursuant to an employment agreement, the Company
issued 188,810 shares of restricted common stock with a 5-year vesting period to
its chairman and chief executive officer. These shares were purchased at fair
value as determined by the Orius/LISN transaction in return for a full recourse
promissory note with a term of 5 years and a stated interest rate of 6.46%. At
September 30, 2000, the balance due of $252,633 is shown as a reduction in
stockholders' equity.
12. PROVISIONS FOR INCOME TAX
During the quarter ended September 30, 2000, the Company initiated
certain tax planning strategies which resulted in a reduction in its 2000
estimated effective tax rate from 59% to 49%. The reduction in the annual
estimated effective rate results in a 5.2% effective rate for the quarter ended
September 30, 2000.
13. SEGMENTS
Prior to the Orius/LISN transaction on December 15, 1999, the Company
operated as one segment in the internal telecom service market providing
engineering, furnishing and installation of network equipment and related
components and maintenance services. Subsequent to the transaction and to
strategically manage its business, the Company has designated an additional
operating segment. The external telecom services segment provides installation,
design engineering and maintenance of fiber optic, coaxial and copper cable
networks for the telecom industry.
Identifiable assets for each operating segment are as follows:
As of
--------------------------------
September 30, December 31,
2000 1999
------------ ------------
Internal telecom services $102,938,159 $ 91,905,511
External telecom services 205,358,446 152,597,325
------------ ------------
Total identifiable assets 308,296,605 244,502,836
Goodwill 419,748,505 359,881,615
Corporate 7,068,342 17,593,381
------------ ------------
Total assets $735,113,452 $621,977,832
============ ============
13
<PAGE> 14
Orius Corp. and Subsidiaries (Formerly LISN Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
-----------------------------------------------------
Internal* External* Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 82,565,319 $114,614,155 $197,179,474
Income before provision
for income taxes $ (1,553,790) $ 5,388,791 $ 3,835,001
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
-----------------------------------------------------
Internal* External* Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $223,807,028 $323,240,678 $547,047,706
Income before provision
for income taxes $ 6,170,536 $ 15,253,417 $ 21,423,953
</TABLE>
* Income before provision for income tax have been impacted by an allocation
of corporate expenses based on a percentage of revenue.
14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, certain subsidiaries of the Company
have pending and unasserted claims. It is the opinion of the Company's
management, based on the information available at this time, that these claims
will not have material adverse impact on the Company's Consolidated Financial
Statements.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to the assessment and understanding of the
Company's consolidated financial condition and results of operations. The
discussion should be read in conjunction with the consolidated financial
statements and notes hereto.
Certain statements under this caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," may constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such forward looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors, which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements expressed
or implied in such forward looking statements, such factors include general
economic and business conditions, telecom infrastructure service competition,
the impact of federal regulation and changes in other laws affecting the
Company.
HISTORICAL RESULTS OF OPERATIONS
The historical financial statements presented herein compare actual
results for 1999 LISN Holdings, Inc. to the consolidated Orius Corp. for the
comparable periods 2000. Any analysis of revenues, cost of revenues, general and
administrative expenses, etc., could be inappropriate for comparison purposes
due to the significance of the LISN/Orius transaction of December 15, 1999 which
is more fully discussed in Notes 1 and 3 to the interim financial statements.
Accordingly, the discussion below of the Company's results of operations
includes a discussion of the Company's historical results of operations and then
a discussion of the Company's unaudited pro forma results of operations.
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<PAGE> 16
The following table sets forth, as a percentage of revenue earned,
certain items in the Company's Consolidated Statements of Operations for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ---------------------
2000 1999 2000 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Contract revenues earned 100.00% 100.00% 100.00% 100.00%
Expenses:
Cost of earned revenues,
excluding depreciation 75.24% 69.74% 72.95% 67.98%
General and administrative 8.94% 10.09% 9.99% 15.51%
Depreciation and amortization 4.00% 0.34% 3.96% 0.44%
Total 88.18% 80.17% 86.90% 83.93%
Interest expense, net 9.95% 9.07% 9.23% 5.07%
Other income, net -0.08% -0.11% -0.05% -0.14%
Income before taxes 1.94% 10.86% 3.92% 11.14%
Provision for income tax 0.10% 4.69% 1.92% 2.57%
Net income 1.84% 6.17% 2.00% 8.57%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUE. Revenue for the period increased 369.4% or $155.2 million, from $42.0
million for the three months ended September 30, 1999 to $197.2 million for the
three months ended September 30, 2000. This increase in revenue was the result
of our acquisition by LISN in December 1999.
DIRECT COSTS. Direct costs increased 406.4% or $119.1 million, from $29.3
million for the three months ended September 30, 1999 to $148.4 million for the
three months ended September 30, 2000. This increase is directly related to the
increase in revenue as a result of our acquisition by LISN. In addition direct
costs have increased due to major additions to LISN's labor force.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 316.0% or $13.4 million; from $4.2 million for the three months ended
September 30, 1999 to $17.6 million for the period ended September 30, 2000.
Increase in general and administrative expenses are related to the increase in
LISN's activity as well as our acquisition by LISN.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expenses increased
5399.3% or $7.7 million; from $.1 million for the three months ended September
30, 1999 to $7.9 million for the period ended September 30, 2000. The increase
in amortization and depreciation expense is due to the acquisition and related
amortization of goodwill and assets associated with the LISN acquisition and
four acquisitions during the nine months ended September 30, 2000.
INTEREST EXPENSE. Interest expense increased 416.6% or $15.7 million, from $3.8
million for the three months ended September 30, 1999 to $19.5 million for the
period ended September 30, 2000. This increase in interest was due to the higher
levels of debt incurred under our senior credit facilities in connection with
our LISN acquisition.
PROVISION FOR INCOME TAXES. For the period ended September 30, 1999 the
provision for income taxes decreased 89.9% or $1.8 million, from $2.0 million
for the three months ended September 30, 1999 to $.2 million for the period
ended September 30, 2000. This decrease is due to the Company's implementation
of certain tax planning strategies in the quarter ended September 30, 2000.
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<PAGE> 17
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUE. Revenue for the period increased 435.2% or $444.8 million, from $102.2
million for the nine months ended September 30, 1999 to $547.0 million for the
nine months ended September 30, 2000. This increase in revenue was the result of
our acquisition by LISN in December 1999.
DIRECT COSTS. Direct costs increased 474.4% or $329.6 million, from $69.5
million for the nine months ended September 30, 1999 to $399.0 million for the
nine months ended September 30, 2000. The increase was primarily due to major
additions to LISN's labor force. Excluding the direct costs attributable to
Orius, LISN's direct cost increased $50.6 million or 173% and remained constant
as a percentage of revenue.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 244.8% or $38.8 million; from $15.9 million for the nine months ended
September 30, 1999 to $54.7 million for the period ended September 30, 2000.
Excluding the general and administrative expenses attributable to Orius, LISN's
general and administrative expenses increased $9.9 million or 162%. Excluding
Orius, these amounts represent a .4% decrease as a percentage of revenue from
15.5% to 15.1%. The increase was primarily due to increased administrative
staff and salaries relating to LISN's increased activity.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expenses increased
4732.1% or $21.2 million; from $.5 million for the nine months ended September
30, 1999 to $21.7 million for the nine months ended September 30, 2000. The
increase in amortization and depreciation expense is due to the acquisition and
related amortization of goodwill associated with the LISN acquisition and four
acquisitions during the nine months ended September 30, 2000.
INTEREST EXPENSE. Interest expense increased 896.8% or $45.2 million, from $5.0
million for the nine months ended September 30, 1999 to $50.3 million for the
period ended September 30, 2000. This increase in interest was due to the higher
levels of debt incurred under our senior credit facilities in connection with
our LISN acquisition.
PROVISION FOR INCOME TAXES. For the period ended September 30, 1999 the
provision for income taxes increased 300.3% or $7.9 million, from $2.6 million
for the nine months ended September 30, 1999 to $10.5 for the period ended
September 30, 2000. This increase is the result of the change in LISN's status
from an S corporation to a C corporation in connection with the
recapitalization of LISN in May 1999.
PRO FORMA RESULTS OF OPERATIONS
The following table, and the period-to-period comparisons which follow,
set forth unaudited pro forma financial data for the periods indicated. This pro
forma financial data has been derived by the application of pro forma
adjustments to our historical Consolidated Financial Statements and to each of
the Companies acquired by us in 1999 and 2000. For purposes of the discussion
below, we have included unaudited pro forma financial data because we believe it
provides a more meaningful basis for period-to-period comparisons than the
actual historical financial data. Due to the significant number of acquisitions
that we have completed within the last three years, our historical financial
statements are not reflective of our ongoing operations. To improve the
comparability of the periods set forth below, and to assist you in better
understanding the changes in our operations over these periods, we have provided
this pro forma information for informational purposes only. This pro forma
financial date should not be viewed as a substitute for our results of
operations calculated in accordance with generally accepted accounting
principles. In addition, the following pro forma financial data does not purport
to represent our results of operations had these transactions occurred at the
beginning of the periods presented, nor does it purport to be indicative of
future results of operations.
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<PAGE> 18
<TABLE>
<CAPTION>
Pro Forma Financial Results
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------------- --------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- -----------------
$ % $ % $ % $ %
------- ------ ------- ------ ------- ------ ------- ------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue 197,179 100.0% 166,524 100.0% 566,679 100.0% 417,575 100.0%
Direct costs 148,367 75.2% 118,027 70.9% 411,701 72.7% 296,812 71.1%
General and
administrative 17,634 8.9% 15,496 9.3% 59,481 10.5% 44,706 10.7%
------- ------ ------- ------ ------- ------ ------- ------
EBITDA* 31,178 15.9% 33,001 19.8% 95,497 16.8% 76,057 18.2%
</TABLE>
* EBITDA is defined as net income before interest expense, net, other
(income) expense, income taxes, depreciation and amortization. EBIDTA
is presented because it is commonly used by certain investors and
analysts to analyze a company's ability to service debt. However,
EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered an
alternative to operating income or net income as a measure of operating
performance or to net cash provided by operating activities as a
measure of liquidity.
PRO FORMA THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO PRO FORMA THREE
MONTHS ENDED SEPTEMBER 30, 1999
REVENUE. Revenue increased 18.4%, or $30.7 million, from $166.5 million for the
three months ended September 30, 1999 to $197.2 million for the three months
ended September 30, 2000. This growth was attributable in part to a 16.8%
increase in revenue from our external network services customers, which
accounted for $16.8 million or 54.7% of the total increase. A general increase
in demand for our services, particularly for our telecommunication customers,
was offset by a deferral of projects by broadband customers associated with
AT&T. Revenue from our internal network services customers increased 19.6%,
which accounted for $13.8 million or 45.3% of the total increase. Growth slowed
in our central office business, due to a strike at our largest customer Verizon,
and was further offset by a decline in services provided by our integrated
network services group.
DIRECT COSTS. Direct costs increased 25.7%, or $30.3 million, from $118.0
million for the three months ended September 30, 1999 to $148.4 million for the
three months ended September 30, 2000. As a percent of revenue, direct costs
increased to 75.2% from 70.9%, respectively, primarily due to increased
investment in internal premise services group infrastructure in the western
United States in anticipation of increased levels of activity in that region.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 13.8%, or $2.1 million, from $15.5 million for the three months ended
September 30, 1999 to $17.6 million for the three months ended September 30,
2000. The increase was due to increased payroll and other expenses resulting
from our growth. As a percent of revenue, the level of general and
administrative expenses decreased from 9.3% for the three months ended September
30, 1999 to 8.9% for the three months ended September 30, 2000, due to changes
in compensation estimated under incentive compensation arrangements.
PRO FORMA NINE MONTHS ENDED SEPTEMBER30, 2000 COMPARED TO PRO FORMA NINE MONTHS
ENDED SEPTEMBER 30, 1999
REVENUE. Revenue increased 35.7%, or $149.1 million, from $566.7 for the nine
months ended September 30, 1999 to $417.6 million for the nine months ended
September 30, 2000. This growth was attributable in part to a 34.4% increase in
revenue from our external network services customers, which accounted for
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<PAGE> 19
$84.8 million or 56.9% of the total increase. A milder than expected winter,
improving pricing and increased activities with Competitive Local Exchange
Carrier's ("CLEC's") contributed to the increase in external network services
revenue. Revenue from our internal network services customers increased 37.6%,
which accounted for $64.3 million, or 43.1% of the total increase. The majority
of the increase was due to an increase in demand for services performed in the
central office, offset by a decline in integrated premise services.
DIRECT COSTS. Direct costs increased 38.7%, or $114.9 million, from $296.8
million for the nine months ended September 30, 1999 to $411.7 million for the
nine months ended September 30, 2000. The increase was the result of our
increased level of business activity. As a percent of revenue, direct costs
increased 1.6% to 72.7 % for the nine months ended September 30, 1999 from 71.1%
for the nine months ended September 30, 2000. The reduction in productivity was
mainly due to an increased investment in infrastructure to support geographical
expansion in our internal services group.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased 33.0%, or $14.8 million, from $44.7 million for the nine months ended
September 30, 1999 to $59.5 million for the nine months ended September 30,
2000. The increase was due to increased payroll and other expenses resulting
from our growth. As a percent of revenue, the level of general and
administrative expenses decreased from 10.7% for the nine months ended September
30, 1999 to 10.5% for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital are attributable primarily to its needs
for equipment to support customer contracts and its needs for working capital
sufficient to meet general corporate purposes. In addition the Company required
capital of $595 million to purchase four companies during the first nine months
of fiscal 2000. These purchases were necessary to expand the Company's market
share and geographic footprint. These purchases were financed by borrowings from
the Company's bank credit facility. Capital expenditures have been financed by
borrowings from the Company's credit line and internal cash flow. The Company's
sources of cash have been from operating activities, bank borrowings, and the
sale of senior subordinated notes.
For the nine months ended September 30, 2000, net cash provided by
operating activities was ($11.2) million compared to ($5.7) million for the nine
months ended September 30, 1999. Revenues are the primary sources of operating
cash flow. Working capital items used ($43.8) million of operating cash flow for
the nine-month period ended September 30, 2000 principally through an increase
in accounts receivable and other assets.
In the nine months ended September 30, 2000, net cash used in investing
activities was ($77.9) million as compared to ($2.7) million for the same period
last year. For the nine months ended September 30, 2000 capital expenditures of
$18.4 million were for normal purchases of new equipment, and replacement of
existing equipment.
In the nine months ended September 30, 2000, net cash provided by
financing activities was $60.4 million, which was primarily attributable to the
proceeds from borrowing on debt facilities.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and
Result of Operations in Orius' most recent annual report filed on Form S-4
Registration Statement ("Market Risk") which became effective September 14,
2000. There has been no material change in this information.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Under its Credit Agreement dated July 5, 2000, the Company is subject
to certain working capital restrictions (see Note 8). In addition, the Company
is restricted from declaring or paying any dividends or making distributions on
or in respect of its capital stock.
ITEM 6(a). Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Orius Corp.
Date: November 14, 2000 /s/ Robert E. Agres
-----------------------------------------------
Robert E. Agres
Senior Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
21
