UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee
Required) For the fiscal year ended October 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee
Required) For the transition period from ______________ to
- ---------------.
Commission file number 0-21986
ABLE TELCOM HOLDING CORP.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0013218
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1601 Forum Place, Suite 1110, West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 688-0400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act: Common Stock
<PAGE>
PART 1
ITEM 1. BUSINESS
Overview
Able Telcom Holding Corp. ("Able Telcom" or the "Company")
specializes in the design, installation, maintenance and systems integration of
advanced communication networks for voice, data, and video systems. These
services are provided for an array of complementary applications, presently
those for telecommunications infrastructure, traffic management systems,
automated manufacturing systems and utility networks. The Company is currently
organized into four operating groups: telecommunication services, cable
television services, traffic management services and communications development.
Each group, excluding cable television services, is comprised of subsidiaries of
the Company with each having local executive management functioning under a
decentralized operating environment. The Company formed the cable television
services group to facilitate planned expansion during 1997.
STRATEGY
The Company's overall strategy is to capture an increased share of
the market for outsourced network installation, maintenance and system
integration services. The Company believes that customers will continue to
require such services to deploy and upgrade the fiber optic, coaxial and digital
network infrastructure associated with advancements in technology and the
competition created by the convergence of the telecommunications, computer and
media industries. The Company intends to accomplish this objective primarily
through continued strategic acquisitions and internal growth of existing and
complementary lines of business. The Company believes that the communication
services industry is highly fragmented, consisting of a large number of smaller,
regional businesses, and presents significant opportunities for consolidation.
The Company plans to target those businesses with high quality management and
strong performance records and to integrate such acquired operations into the
Company's operating groups.
Additionally, the Company intends to expand its businesses through
increased marketing efforts by broadening the range of services it offers to
customers. The Company believes its current expertise in telecommunications,
traffic management and systems integration services can be expanded to cable
television and other cable and wireless communication systems and is actively
seeking acquisition candidates in areas that complement its existing strengths.
The Company expects to achieve margin improvement through cross-utilization
among operating groups of people, equipment and technologies and through the
centralization of certain financial controls, cash and risk management.
Historical Development of Business
The Company was incorporated in 1987 as "Delta Venture Fund, Inc.," a
Colorado corporation. The Company adopted its current name in 1989 and changed
its corporate domicile to Florida in 1991.
Commencing in mid-1992 until mid-1994, 95% of the Company's revenues and
profits were derived from telecommunication services provided primarily through
two majority owned subsidiaries located in Caracus, Venezuela. Such services
were provided to one customer, CANTV, the Venezuelan national telephone company.
During the second half of the fiscal year ended October 31, 1994, Venezuelan
operations decreased dramatically due to the economic climate in that country
and other factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 15 to the Company's Consolidated
Financial Statements, included elsewhere in this report, for additional
information concerning Latin American operations.
<PAGE>
To reduce the effect of conditions outside the Company's control in
its Latin American operations, the Company expanded its business focus to
include marketing its services in the United States. The Company commenced this
process in June 1994, with the acquisition of Transportation Safety Contractors,
Inc. and its affiliates ("Transportation Safety" or "TSCI"), an established
Tampa, Florida based group of companies that install and maintain traffic
control signage, signalization and lighting systems and that perform outside
plant telecommunication services. The majority of TSCI's business is conducted
in Florida and Virginia with the state departments of transportation and various
city and county municipalities.
In anticipation of further expansion in the domestic market, during
the fourth quarter of fiscal 1995, the Company reorganized its management and
operational structure into four operating groups, each consisting of
subsidiaries of the Company, and embarked on a series of acquisitions. On
December 8, 1995, the Company acquired the common stock of H.C. Connell, Inc.
("Connell"). Connell, a twenty year old business, performs primarily outside
plant telecommunication and electric power services for local telephone and
utility companies in central Florida providing the Company expanded market share
and a significant new customer. On October 12, 1996, the Company acquired the
common stock of Georgia Electric Company ("GEC"), a forty-five year old business
headquartered in Albany, Georgia. GEC operates in eight southeastern states
specializing in the installation, testing and maintenance of intelligent highway
and communication systems including computerized traffic management, wireless
and fiber optic data networks, weather sensors, voice data and video systems and
computerized manufacturing and control systems. Subsequent to the fiscal year
ended October 31, 1996, the Company acquired the common stock of Dial
Communications, Inc. ("Dial") of Tallahassee, Florida. Operating in northern
Florida, Alabama and Georgia for more than twenty five years, Dial provides
outside and inside plant telecommunication services to the regional Bell
operating company, other local and long distance phone companies , private
businesses and universities. Reference is made to Note 3 to the Company's
Consolidated Financial Statements, "Acquisitions", included elsewhere in this
report for additional information.
Services, Markets and Customers
Telecommunication service activities, presently performed through
three subsidiaries, include a full line of network technical services for
building both `outside plant' and `inside plant' telecommunication systems.
Outside plant services consist principally of the large scale installation and
maintenance of coaxial and fiber optic cable and ancillary equipment for digital
voice, data and video transmissions installed aerially or underground to upgrade
or replace existing telephone networks. During fiscal year 1996, through an
acquisition in December 1995, the Company expanded its outside plant services to
include the maintenance and installation of electric utility grids and water and
sewer utilities. The Company provides such services primarily under hourly and
per unit basis contracts to local telephone companies including Bell South
Telecommunications, Inc., U.S. West, Inc., United Telephone Company, GTE Corp.
and Sprint Corp. The Company also provides these services to long distance
telephone companies such as AT&T, electric utility companies, local
municipalities and cable television multiple system operators in the United
States.
Inside plant services, developed through internal expansion during
fiscal 1996, consist of the engineering, design, installation and integration of
telecommunication networks and delivery systems for voice, data and video
providing connectivity and networking to offices for large private businesses
including banks, universities and hospitals. The Company's inside plant services
tend to be less capital intensive, but requires a more technically skilled
workforce.
<PAGE>
Presently, the Company's telecommunication service activities are
primarily focused in the southeastern United States. Telecommunication services
and related activities accounted for 42%, 26% and 9% of the Company's
consolidated revenues for fiscal years 1996, 1995 and 1994, respectively.
Revenues from telecommunication services are expected to increase in 1997 as a
result of the acquisition of Dial in December 1996.
During fiscal year 1996, the Company formed a cable television services
group in anticipation of internal expansion and planned acquisitions during
1997. This group presently has no material operations.
Traffic Management Services. The Company's traffic management services are
provided through its TSCI and GEC subsidiaries, acquired in June 1994 and
October 1996, respectively. The Company's traffic management group installs and
maintains traffic control and signalization devices. These services include the
design and installation of signal devices (such as stoplights, crosswalk signals
and other traffic control devices) for rural and urban traffic intersections,
drawbridge and railroad track signals and gate systems, and traffic detection
and data gathering devices. The Company also designs, installs and maintains
"intelligent highway" communication systems that involve the interconnection of
data and video systems, fog detection devices, remote signalization or
computerized signage. These systems monitor traffic conditions, communicate such
conditions to central traffic control computers, and provide real-time responses
to dynamic changes in traffic patterns and climate conditions by changing speed
limit display devices, lowering traffic control gates, or changing the text on
remote signs and signals. Through GEC, the Company also installs and maintains
computerized manufacturing systems for various industrial businesses. Many of
the functions of the traffic management group, particularly those involved in
intelligent highway systems, complement those of the telecommunications services
group.
The Company's traffic management services are provided primarily to state
and local governments, in six southeastern states. Beginning with the
acquisition of TSCI in the third quarter of fiscal 1994, traffic management
services accounted for 50%, 65% and 38% of the Company's consolidated revenues
during fiscal years 1996, 1995 and 1994, respectively. The Company expects
revenues from traffic management services to increase in fiscal 1997 due to the
operations of GEC, which the Company acquired during the last month of fiscal
1996.
In October 1996, the Company placed Gerry Hall, a former principal of GEC,
in charge of its traffic management group and replaced certain management of its
TSCI operations with experienced managers from GEC. These personnel changes were
initiated with a view towards increasing revenues, improving productivity and
reducing overhead costs at TSCI and as part of the integration of the business
operations of GEC into the Company's existing traffic management operations.
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Overview"). Mr. Hall managed GEC, as well as other companies in a
similar line of business, for more than 20 years prior to the Company's
acquisition of GEC and Mr. Hall's employment with the Company. Mr. Hall has also
been appointed to the Company's board of directors.
Communications Development Group. The Company's communications development
group manages the Company's joint venture arrangements in Latin America,
primarily Venezuela, which were formed to provide telecommunication installation
and maintenance services to privatized local phone companies. These joint
ventures are in the form of subsidiaries in which the Company has an 80% voting
and ownership interest and a 50% share of profits and losses. During fiscal
years 1996, 1995 and 1994, the Company's Latin American operations accounted for
8%, 9% and 53% of the Company's revenues on a consolidated basis.
<PAGE>
During fiscal year 1996, the Company's communications development group
expanded its business to include the marketing to Latin American telephone
companies of "Neurolama", an internally developed proprietary telephone call
record and data collection system. The Company also began to acquire and upgrade
existing mobile radio networks to provide a localized wireless communication
service in the southeastern United States. To date, both such business ventures
have incurred only start-up and marketing costs with no corresponding revenues
and there can be no assurance that either business will develop revenues
sufficient to offset such costs.
The Company's statement of its expectations of future revenues is a
"forward-looking" statement based on the past financial performance of recent
acquisitions. The Company knows of no presently existing factors that would
cause such company's revenues to decrease from historical levels. Still, there
can be no assurance that past performance is indicative of future results.
Should revenues decline substantially due to foreseen or unforeseen factors,
such as failures in the integration of recent acquisitions into the Company's
operations, losses of significant customers, changes in the overall economic
climate in the areas in which such company does business, loss of key employees,
or other factors, such decline in revenues could cause the Company's
expectations to differ materially from those stated.
Significant Customers
Revenues derived from the Company's largest customers are presented as
follows:
<TABLE>
<CAPTION>
% of Revenues of:
-------------------------------
Traffic
Management The Company
Services
<S> <C> <C>
----------------- ------------
1996
Florida Department of Transportation 24% 12%
1995
Florida Department of Transportation 14% 9%
Virginia Department of Transportation 14% 9%
1994
Florida Department of Transportation 37% 14%
Virginia Department of Transportation 13% 5%
</TABLE>
<TABLE>
<CAPTION>
Telecommunication The Company
Services
----------------- ------------
<S> <C> <C>
1996
United Telephone of Florida 48% 20%
Florida Power Corp. 31% 13%
1995
United Telephone of Florida 69% 18%
1994
United Telephone of Florida 100% 9%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Revenues of:
-------------------------------
Communications
Development
Services The Company
----------------- ------------
<S> <C> <C>
1996
Compania Anonima Nacional de
Telefonos de Venezuela (CANTV) 63% 5%
1995
CANTV 67% 6%
1994
CANTV 98% 52%
</TABLE>
Contracts
TELECOMMUNICATION AND RELATED SERVICES
The Company generally provides telecommunication, cable
television, electric utility and manufacturing system services (i.e.,
non-governmental business) under comprehensive master service contracts that
either give the Company the right to perform certain services at negotiated
prices in a specified geographic area during the contract period or pre-qualify
the Company to bid on projects being offered by a customer. Contracts for
projects are awarded based on a number of factors such as price competitiveness,
quality of work, on-time completion and the ability to mobilize equipment and
personnel efficiently. The Company is typically compensated on an hourly or per
unit basis or, less frequently, at a fixed price for services performed.
Contract duration either is for a specified term, usually one to three years, or
is dependent on the size and scope of the project. In most cases, the Company's
customers supply most of the materials required for a particular project,
generally consisting of cable, equipment and hardware and the Company supplies
the expertise, personnel, tools and equipment necessary to perform its services.
TRAFFIC MANAGEMENT AND GENERAL UTILITY SERVICES
For traffic management and general utility services (i.e.,
government funded business) the Company generally obtains fixed price contracts
for projects, either as a prime or, more often, as a subcontractor, on a
competitive bid basis. Typically, for prime contracts, a state department of
transportation ("DOT") or other governmental body provides to qualified
contractors a set of specifications for the project. The company then estimates
the total project cost based on input from engineering, production and materials
procurement personnel. A bid is then submitted by the Company along with a bid
bond. For most government funded projects, the scope of work extends across many
industry segments. In such cases, the Company subcontracts its expertise to a
prime contractor. The Company must submit performance bonds on substantially all
contracts obtained. The Company believes its relations with its bonding company
are good and that its bonding capacity is adequate. However, the financial
viability of the Company is dependent on maintaining adequate bonding capacity
and any loss of such would have a material adverse effect on the Company.
Contract duration is dependent on the size and scope of the project
but typically is from six to nine months. Contracts generally set forth
date-specific milestones and provide for severe liquidated damages for failure
to meet the milestone by the specified dates.
<PAGE>
At January 29, 1997, the Company was not aware of any contracts for which it may
be subject to significant liquidated damages. The failure to complete the
contract backlog on time could have a material adverse impact on the financial
condition of the Company. The Company is typically paid based on "completed
units". Retainage is normally held on contracts (usually 5% to 10% of the
contract amount), until approximately 90 days after the services are rendered
and accepted by the customer. The majority of the contracts are
bonded/guaranteed as to payment by the DOT upon performance by the Company.
In addition to generating revenues from the installation of traffic
management systems under fixed price contracts, the Company performs under
maintenance contracts with the DOT obtained through competitive bidding.
Maintenance contracts are normally for a renewable one to three year term. Under
such contracts, the Company generally is assigned a section of highway along
which to maintain traffic control devices and is paid on a per unit basis.
In most cases, the Company must supply the materials required for a
particular project, including materials and component parts required for the
production of highway signage and guardrails and the assembly of various
electrical and computerized systems. Aluminum sheeting, steel poles, concrete,
reflective adhesive, wood products, cabling and electrical components are the
principal materials purchased domestically for the production of highway signage
and guardrailing. Generally, the supply and costs of these materials has been
and is expected to continue to be stable, and the Company is not dependent upon
any one supplier for these materials. The Company also purchases various
components for the assembly of various electrical, lighting and computerized
traffic control systems. Many of these materials must be certified as meeting
specifications established by the DOT and are generally only supplied by a
limited number of vendors. The unavailability of those components could have an
adverse impact on meeting deadlines for the completion of projects which may
subject the Company to liquidated damages. However, the availability of these
materials, generally, has been adequate.
Competition
The market for communication network and related services is characterized
by a large number of smaller size private companies that compete for business
generally in a limited geographic area or with a few principal customers.
However, there are also several competitors which compete with the Company on a
much larger scale, some of which are larger in size and have greater financial
resources than the Company. There are no competitors controlling substantial
market share either domestically or in the countries in which the Company
operates in Latin America. The Company's ability to assemble a large, trained
work force, offer a turnkey service mix and satisfy the requirements for
capital, bonding, technical, administrative and financial pre-qualifications
allows it to bid on larger projects and to compete on a national and
international level. Management believes that the factors required for continued
success with a limited number of key customers include financial ability,
quality and breadth of services, reliability and the ability to mobilize a
competent work force promptly for large projects.
Changes in the level of customer capital expenditures, customers utilizing
their own personnel to perform services, technological advancement, federal
funding and state spending may affect the volume of work available to the
Company as well as the Company's profitability.
Backlog
As of January 29, 1997, the Company had a total backlog of business,
giving effect to the acquisition of Dial and including estimates related to "per
unit basis" contracts, of approximately $105 million compared to $44 million on
February 1, 1996. Approximately 70% of the total backlog is expected to be
completed within the next fiscal year. Contract backlog of $24 million relating
to the installation of traffic management systems is under performance bonds and
the Company may be subject to liquidated damages for failure to perform in a
timely manner.
<PAGE>
Seasonality
Operations of the Company are seasonal, resulting in reduced revenues and
profits during the first quarter (November, December and January) relative to
other quarters. Factors affecting the seasonality of the Company's business are
holiday season shut-downs, winter weather and capital expenditure patterns by
telephone companies that can impede outside plant construction activities. The
impact of seasonality is mitigated somewhat by the presence of Company's
operations primarily in the southern United States.
Employees
At January 29, 1997, the Company and its subsidiaries had approximately
1,510 employees of which approximately 93 represents a nucleus of senior
executive, technical and managerial personnel. Approximately 366 of the total
employees are affiliated with Latin American operations. The number of employees
considered as laborers can vary significantly according to contracts in
progress. Such employees are generally available to the Company through an
extensive network of contacts within the communications industry.
No employees of the Company are represented by a labor union and the
Company considers relations with key and other employees to be good.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal proceedings, including suits
involving certain acquisition agreements and notes payable relating to TSCI. The
notes payable, including accrued interest totaling approximately $1,308,000 and
$235,000 respectively, are classified as current in the accompanying balance
sheet. In the opinion of management, the ultimate outcome of the legal
proceedings will not have a material adverse effect on the financial position of
the Company.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial
condition and results of operations of the Company for the three years ended
October 31, 1996. This information should be read in conjunction with the
Company's Consolidated Financial Statements appearing elsewhere in this
document. Except for historical information contained herein, the matters
discussed below contain forward looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets and
profitability. In addition, expectations are based on certain assumptions, among
them that revenues from the acquired businesses will not decline materially from
prior years and that the Company's contract backlog will not be materially
adversely impacted by unforeseen events. Should these assumptions prove to be in
error, the Company's results could differ materially from those expected.
<PAGE>
Overview
General
The Company's strategy is to capture an increased share of the market for
outsourced network installation, maintenance and system integration services
related to fiber optic, coaxial and digital network infrastructure. The Company
believes that customers will continue to require such services due to
advancements in technology and developments in the telecommunications, computer
and media industries. This strategy includes plans to grow existing and
complimentary lines of business and to acquire other communication services
companies with high quality management and strong performance records and to
integrate such acquired operations into the Company's existing operations.
Management believes that such acquisitions will enable the Company to improve
economies of scale, increase gross margins, and become a leading provider of
communications infrastructure services.
During fiscal 1996, the Company implemented a number of strategic
initiatives to achieve growth and improve operating efficiencies and
profitability. Such initiatives commenced with the reorganization of the
Company's corporate structure into operational groups and was followed by the
completion of several strategic acquisitions and the integration of those
businesses into the Company's operations. For fiscal year 1997, the Company
expects to continue an aggressive growth strategy with a portfolio of profitable
core and complementary businesses.
The success of the Company's growth strategy will depend in part upon
the Company's obtaining an expanded debt facility, which it is currently
seeking, and additional equity capital. In December 1996, the Company raised
$6,000,000 through the issuance of convertible preferred equity securities
effected through a private placement and $3,000,000 from a bank loan in
connection with an acquisition, both of which are more fully described below.
Although the Company believes that additional financing will be obtained, there
can be no assurance that such can be obtained or obtained on terms favorable to
the Company. In addition, the Company's growth strategy contains certain
inherent risks including maintaining the organizational infrastructure to
support rapid growth and the integration and management of new acquisitions.
There can be no assurance that the Company's growth strategy will be successful.
Acquisitions
In December 1995, the Company acquired the common stock of Connell for
approximately $2,300,000 (book-value). Connell, operating for over twenty years,
provides outside plant telecommunication, electric power and other utility
services in central Florida. The purchase price was paid with seller notes and
loans from two directors of the Company aggregating $500,000. The seller notes
and the loans from directors were repaid as of January 2, 1997, through the
proceeds of the private placement.
In October 1996, the Company acquired the common stock of GEC for a
$3,000,000 initial cash purchase price and a five year earn-out arrangement to
be paid in a number of common shares of the Company to be determined at the end
of each of the respective years based on actual pretax earnings. The cash
portion of the purchase price was funded from a term loan with a bank. There was
no material goodwill recorded in connection with the payment of the initial
purchase price. GEC, in business for over forty-five years installs and
maintains intelligent highway, computerized manufacturing and voice, data and
video communication systems throughout the southeastern United States.
<PAGE>
In December 1996, the Company acquired the common stock of Dial for
approximately $4,600,000, paid through the Company's existing line of credit, a
$1,900,000 term loan with a bank, 108,489 shares of the Company's common stock
and a promissory note in the amount of $892,000. The Company expects to record
approximately $1,500,000 of goodwill in connection with the transaction which
will be amortized over twenty years. Dial provides inside and outside plant
telecommunication services in Florida, Georgia and Alabama and has been in
business over twenty-five years.
See Note 3 to the Company's Consolidated Financial Statements,
"Acquisitions."
Latin American Operations
For the year ended October 31, 1996 the Company's net loss from Latin
American operations increased by $3,573,668 as compared to the year ended
October 31, 1995 due primarily to an approximate $921,000 charge relating to the
write-off of certain goodwill related to Latin American operations, an
approximate $1,180,000 foreign currency loss relating to the devaluation of the
Venezuelan Bolivar and provisions totaling approximately $353,000 relating to
the write-down of various investments, accounts receivable and deferred tax
assets (see Note 15 to the Company's consolidated financial statements, "Latin
American Operations"). Additionally, during the year ended October 31, 1996 the
Company's Latin American operations supported approximately $1,100,000 of
marketing expenses relating to a proprietary product, discussed below.
For the year ended October 31, 1995 Latin American revenues decreased
$10,555,236 as compared to the year ended October 31, 1994. Revenues generated
by the Company's Venezuelan operations are dependent upon one customer. During
November 1994 this customer stopped outsourcing its inside plant services.
Inside plant services represented approximately 90% of the revenues generated by
the Company's Venezuelan operations from this customer during the year ended
October 31, 1994.
Revenues and net (loss) income pertaining to Latin American operations are
presented below for the years ended October 31, 1996, 1995, and 1994:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenues 3,745,858 3,227,750 13,782,986
Net (loss)income (3,628,503) (54,835) 3,746,578
</TABLE>
The Company's net assets of Latin American subsidiaries totaled $2,080,053 and
$5,150,292 at October 31, 1996 and 1995, respectively.
Reorganization of Traffic Management Operations
The Company's TSCI subsidiary installs and maintains traffic control and
signal devices. These devices include stoplights, crosswalk signals and other
traffic control devices for rural and urban traffic intersections, drawbridge
and railroad track signals and gate systems and traffic detection and data
gathering devices.
TSCI's contracts are generally for a fixed price, most often, as a
subcontractor on large transportation construction projects. Each contract's
duration depends upon the size and scope of the project but typically ranges
from six to nine months. Contracts generally set forth date-specific milestones
and call for periodic payments from prime contractors.
<PAGE>
The Company accounts for TSCI's contracts using the
percentage-of-completion method. Under this method, revenues are recognized as
contract costs are incurred. Contract costs include all direct material and
labor costs as well as those indirect costs relating to the contract such as
indirect labor, supplies and equipment costs. Inherent in this method are
estimates determined by management as to the total costs to be incurred for a
given contract and the level of completion as of a given date. Changes in job
performance, condition and estimated profitability may result in revisions to
costs and profits which are recognized in the period in which the changes are
determined.
During the fourth quarter of fiscal year 1996, the Company recorded
adjustments pertaining to TSCI to provide allowances for uncollectible accounts
receivable and obsolete inventory. These adjustments aggregated approximately
$1,351,000. Additionally, the Company revised estimates of completion and
remaining costs to complete certain TSCI contracts. The adverse effect of these
revisions on the Company's consolidated statement of operations aggregated
approximately $1,330,000.
The Company recorded the fourth quarter adjustments after observing that
accounts receivable collection, labor productivity and inventory utility had
declined relative to the prior fiscal quarters of 1996. Further, of the 133
contracts entered into during fiscal year 1996, 30 were substantially completed
during the fourth quarter. As these contracts matured, the Company observed that
costs relating to such contracts were higher, collections on the contracts were
lower, and inventory management had been less efficient than in the Company's
past experience.
The principal reasons for the change in contract performance during the
fourth quarter of fiscal year 1996 is due to remedial expenses incurred and
increased costs of production. During the fiscal year, the Company expanded its
operations in Southern Florida. The Company's customer base and labor force in
this geographic area was markedly different from those areas where the Company,
since its inception, had an existing work force and established customer
relationships. In this expanded geographic area, the Company encountered slower
payment practices, increased cost of labor and materials, and decreased rates of
production. Remedial costs incurred in the fourth quarter approximated $200,000
of which $110,000 can be attributed to contracts in Southern Florida. Increased
production costs approximated $930,000 of which $600,000 can be attributed to
contracts in Southern Florida.
Additionally, the Company replaced its TSCI senior management in the
fourth quarter of fiscal year 1996. As a result, the Company experienced
employee turnover in several mid-level field manager positions causing a
slowdown in production. This change in management contributed to lower labor
productivity, and other fourth quarter operational inefficiencies that were
experienced throughout TSCI. The costs incurred in the fourth quarter associated
with the employee turnover aggregated approximately $200,000.
The Company has implemented a number of measures designed to reverse
TSCI's experience during the fourth quarter of 1996. The Company's current TSCI
managers are experienced managers who were associated with GEC, which the
Company purchased during the fourth quarter of 1996 as part of its traffic
management services group. In addition, the Company has implemented strict cost
controls, centralized contract decision making and review, and inventory control
procedures. The Company believes that these controls will result in lower
contract costs, increased margins, and increased operational efficiencies. The
Company expects to continue to expand its traffic management services into other
markets, and believes that its current management has the experience to operate
effectively in the Company's current and future markets.
<PAGE>
Product Development Expenditures
During fiscal year 1996, the Company began to market to Latin American
telephone companies an internally developed proprietary telephone call record
and data collection system, termed "Neurolama". To date, the business has
incurred only start-up and marketing costs aggregating $1.1 million with no
corresponding revenues. Such costs are primarily included in "Charges and
transaction/translation losses related to Latin American operations" in the
accompanying Consolidated Statements of Operations. Also, the Company began to
acquire and upgrade existing mobile radio networks to provide a localized
wireless communication service with only immaterial costs incurred through
October 31, 1996. There can be no assurance that the Company will generate
sufficient revenues from either business to offset its startup costs.
Results of Operations
The following table sets forth, for the periods indicated, selected
elements of the Company's Consolidated Statements of Operations as a percentage
of its revenues.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenues 100.0% 100.0% 100.0%
------ ------ ------
Cost of revenues 82.8 78.3 63.6
General and administrative 17.2 15.4 16.2
Depreciation and amortization 5.6 5.4 3.3
Charges and transaction/translation
losses related to Latin American 7.3 0.3 9.3
operations
Operating (loss) income (12.9) 0.6 7.7
Interest expense 2.8 3.2 1.5
Interest and dividend income 0.5 1.6 1.6
(Loss) income before income taxes
and minority interest (15.1) (0.9) 7.8
Income tax (benefit) expense (1.8) (1.0) 2.4
Minority interest 1.2 0.9 1.7
Net (loss) income (12.1) (0.8) 3.7
</TABLE>
Year Ended October 31, 1996 compared to Year Ended October 31, 1995.
The Company reported a net loss of ($5,910,248) or ($.71) per share
for the year ended October 31, 1996 compared to a net loss of ($281,166) or
($.03) per share for 1995. The net loss for fiscal 1996 is attributable
primarily to charges recorded in connection with Latin American operations,
including costs associated with marketing the Company's proprietary telephone
billing system, and with the restructuring of TSCI. See "Latin American
Operations" and "Restructuring of Traffic Management Operations".
Revenues and Gross Margins
The Company's revenues are derived primarily from hourly or per unit basis
contracts for telecommunication and related services. For products and services
performed relating to the installation of traffic management and certain general
utility services, the Company is compensated largely under competitively bid
fixed price contracts with time of performance dependent upon the size of the
project, normally three months to one year. The Company's profitability on fixed
price contracts is partially dependent upon its ability to control material, and
particularly, labor costs incurred under such contracts. The award of fixed
price contracts are often accompanied by one to three year maintenance contracts
which compensate on a per unit basis and typically provide higher margins.
<PAGE>
Revenues for the year ended October 31, 1996, were $48,906,170
representing an increase of $13,498,589 or 38% compared to revenues for the year
ended October 31, 1995 of $35,407,581. The overall increase in total revenues is
primarily a result of the acquisition of Connell which provided $12,138,224 of
revenues since the acquisition date of December 8, 1995. The decrease in
revenues from existing businesses is primarily attributable to TSCI which
provided revenues of $21,181,435 for fiscal year 1996 compared to revenues of
$22,872,331 for fiscal 1995. Revenues from Latin American operations totaled
$3,745,858 and $3,227,750 in 1996 and 1995, respectively.
The Company expects revenues to continue to increase in fiscal year 1997
as a result of recent acquisitions, internal growth, and the completion of its
current contract backlog. The Company had a contract backlog at January 29,
1997, giving effect to the acquisition of Dial and including estimates related
to "per unit" basis contracts, of approximately $105 million compared with a
contract backlog of $44 million at February 1, 1996.
Costs of revenues increased to $40,486,018 in 1996 from $27,719,750 for
the year ended October 31, 1995 and was 82.8% and 78.3% of revenues for the
years ended October 31, 1996 and 1995, respectively. The decline in gross margin
percentage in fiscal year 1996 is primarily attributable to a significant
decline in labor productivity at TSCI. The Company has put in place measures
that are designed to improve labor productivity, control costs and generate
other operational efficiencies from the assimilation of recent acquisitions. See
"Restructuring of Traffic Management Operations". If these measures are
successful, the Company's gross margins are expected to improve during fiscal
year 1997. Cost of revenues for Latin American operations totaled $2,130,683 and
$1,636,009 in 1996 and 1995, respectively.
Operating Expenses and Other
General and administrative expenses for the year ended October 31, 1996
were $8,403,491 or 17.2% of revenues compared to $5,464,338 or 15.4% of revenues
for 1995. The increase in general and administrative expenses in fiscal 1996 is
primarily attributable to the acquisition of Connell which accounted for
$800,000 of such expenses and the inclusion of $900,000 of charges representing
the write-off of various assets at TSCI, primarily accounts receivable. General
and administrative expenses for Latin America were $1,613,569 in 1996 and
$1,175,811 in 1995.
Depreciation and amortization expense was $2,749,804 for the year ended
October 31, 1996 or 5.6% of revenues compared to $1,914,064 or 5.4% of revenues
for 1995. The increase in such expenses is primarily attributable the
acquisition of Connell and additional depreciation resulting from the purchase
during 1996 of $2,557,258 of equipment required to meet growth primarily in the
Company's telecommunication services group. Depreciation and amortization
expense relating to Latin American operations totaled $498,589 in 1996 and
$465,492 in 1995.
Charges and transaction/translation losses related to Latin
American operations includes charges and costs totaling $3,553,373 for fiscal
year 1996. Such amounts includes a $920,551 non-cash charge relating to the
write-off of certain goodwill, a $1,179,769 foreign currency loss relating to
Venezuelan operations, a provision of $353,053 which consists of a write-down of
various investments, accounts receivable and other assets to net realizable
value and $1,100,000 of marketing expense associated with the Company's
proprietary billing system.
<PAGE>
Interest expense was $1,350,440 for 1996 or 2.8% of revenues compared to
$1,117,932 or 3.2% of revenues for 1995. This increase is due primarily to
approximately $2,300,000 of debt incurred in connection with the acquisition of
Connell and additional equipment debt of $600,000.
For fiscal year 1996, the Company recorded a benefit for income taxes of
$890,695 on a pretax loss of $7,398,826 or an effective income tax rate of (12)%
compared to an income tax benefit of $368,105 on pretax loss of $332,082 or an
effective tax rate of (111)% in 1995. The rate in 1995 results primarily from
the reduction in taxes provided on foreign operations.
Minority interest, prior to August 1, 1995, represents a shareholder's 20%
share of the earnings of the Company's Venezuelan corporations. On August 1,
1995, the Company entered into an agreement whereby the shareholder's
proportionate share of any future earnings increased from 20% to 50% (see Note
15 to the Company's consolidated financial statements, "Latin American
Operations"). For fiscal year 1996, losses were allocated to minority interest
to the extent of its invested capital.
Year Ended October 31, 1995 compared to Year Ended October 31, 1994
The Company reported a net loss of ($281,166) or ($.03) per share
for the year ended October 31, 1995 compared to net income of $946,013 or $.12
per share for 1994. The net operating loss for fiscal 1995 is primarily
attributable to gross margins which were lower than expectations relating to
TSCI.
Revenues and Gross Margins
For the year ended October 31, 1995, consolidated revenues were
$35,407,581, representing an increase of $9,623,431 or 37% compared to revenues
for the year ended October 31, 1994 of $25,784,150. The overall increase in
total revenues is primarily a result of increased revenue from the Company's
domestic telecommunication services business from $2,250,618 in 1994 to
$8,992,454 in 1995 and the inclusion of a full year's revenues from the June 22,
1994 acquisition of TSCI. The acquisition of TSCI accounted for $31,864,785 or
90% of consolidated revenues in 1995 compared with $11,028,673 or 43% of
consolidated revenues in 1994. These increases in revenues were offset by the
significant decline in revenues from the Company's Latin American operations,
from $13,782,986 in 1994 to $3,227,750 in 1995. The significant decline in
revenues was primarily attributable to the severe economic conditions
experienced in Venezuela commencing in July, 1994.
Costs of revenues increased to $27,719,750 in 1995 from $16,395,098 for
the year ended October 31, 1994 and was 78.3% and 63.6% of revenues for the
years ended October 31, 1995 and 1994, respectively. The decline in gross margin
percentage in fiscal year 1995 is primarily attributable to the change in
business mix from the relatively high profits associated with Latin American
operations to more competitive domestic work. Additionally, in fiscal 1995,
margins continued to be lower than expectations on certain fixed price contracts
relating to TSCI.
Operating Expenses and Other
General and administrative expenses for the year ended October 31, 1995
were $5,464,338 or 15.4% of revenues compared to $4,166,694 or 16.2% of revenues
for 1994. Included in general and administrative expenses for fiscal 1995 were
various overhead costs, aggregating approximately $350,000 incurred to maintain
operations in Venezuela during a period for which there were no material
corresponding revenues. In addition, non-recurring legal expenses associated
with various capital raising efforts in fiscal 1995 totaled approximately
$90,000. The Company also incurred $300,000 of costs in 1995 relating to a joint
venture arrangement established to pursue the development and marketing of
certain telecommunication equipment (Neurolama) in Latin America. General and
administrative expenses for 1995 reflect a full year inclusion of costs relating
to the mid-1994 acquisition of TSCI.
<PAGE>
Depreciation and amortization expenses were $1,914,064 for the year ended
October 31, 1995 or 5.4% of revenues compared to $854,251 or 3.3% of revenues
for 1994. The increase in such expenses is primarily attributable to a full
year's inclusion of the acquisition of TSCI and additional depreciation
resulting from $2,250,904 of equipment acquired during fiscal 1995 to meet
growth in the Company's domestic telecommunication services business.
For fiscal year 1995, charges and transaction/translation losses related
to Latin American operations of $95,798 represents foreign currency
translation/transaction losses. For the year ended October 31, 1994, the
Company's Venezuelan operations incurred certain charges totaling $2,381,515 of
which $858,326 represents translation/transaction losses, and $1,523,189
represents severance and certain bad debt charges.
In the third quarter of fiscal 1995, the Company incurred a $100,379 loss
on the sale of its investment in certain municipal bond fund units that had a
carrying value of $1,408,000.
Interest expense was $1,117,932 for 1995 or 3.2% of revenues compared to
$397,167 or 1.5% of revenues for 1994. This increase is due primarily to a full
year's inclusion of debt assumed and incurred in connection with the acquisition
of TSCI.
For fiscal year 1995, the Company recorded a benefit for income taxes of
$368,105 on a pretax loss of $332,082 or an effective income tax credit of
(111)% compared to income tax expense of $632,384 on pretax income of $2,007,727
or an effective tax rate of 40% in 1994. The rate in 1995 results primarily from
the reduction in taxes provided on undistributed earnings of foreign
subsidiaries.
Minority interest in the Company's Venezuelan corporations, decreased from
$429,330 in 1994 to $317,189 in 1995, reflecting, in part, the dramatic decline
in business in Venezuela.
Liquidity and Capital Resources
At October 31, 1996, the Company's net working capital totaled $4,294,080
compared to $7,397,897 at year-end 1995. Cash and equivalents were $ 3,267,161
at October 31, 1996 compared to $2,952,239 at October 31, 1995. Cash was
impacted during 1996 primarily by cash acquired through acquisitions, a
reduction of accounts receivable and inventories, capital expenditures and the
repayment of debt.
In 1996, cash of $3,322,242 was generated from operations compared to
$473,795 in 1995. The positive cash flow from operations for fiscal year 1996 is
primarily attributable to a $3,725,739 decrease in accounts receivable and
inventories. Losses relating to Latin American operations and TSCI, were largely
of a non-cash nature.
Net cash of $2,606,060 was used in investing and financing activities
during 1996 which represents primarily the addition of $2,557,258 of equipment,
primarily purchased to meet growth in the Company's domestic telecommunication
operations, cash acquired through acquisitions of $1,760,970 and the repayment
of $1,954,192 of long-term debt, net of additional borrowings for acquisitions
of $3,500,000. The cash portion of the purchase price relating to the
acquisitions of Connell and GEC during fiscal year 1996 were funded entirely
through the proceeds of bank loans totaling $3 million and loans from two
directors totaling $500,000.
<PAGE>
On November 29, 1995, the Company entered into a $12.5 million credit
facility (the "Credit Facility") comprised of a $6,000,000 revolving line of
credit collateralized by receivables and inventory, a $2,500,000 equipment loan
facility to be secured by new or used equipment purchased, a 60-month Term A
loan in the amount of $2,750,000 secured by equipment, and a 36-month Term B
loan in the amount of $1,250,000. Each loan accrues interest at either the prime
rate or, at the Company's election, the one month LIBOR rate, plus two and seven
tenths percent. The Credit Facility contains covenants, which require among
other conditions, that the Company maintain certain tangible net worth, funded
debt and debt service amounts. At October 31, 1996, the Company was in
non-compliance with such covenants ; however, the Company obtained a waiver and
amended covenants from the lender effective as of October 31, 1996 and for
fiscal year 1997. The Company anticipates that it will be in compliance with the
modified covenants.
On December 2, 1996 the Company entered into a $3,000,000 Term
Loan (the Term Loan) with a bank in connection with refinancing the acquisition
of GEC on October 12, 1996. The Term Loan is payable in sixty monthly
installments of $50,000 plus interest at prime. Excess cash flow of GEC, as
defined, is to be paid to the Bank. The Term Loan contains covenants, which
require among other conditions, that the Company maintain certain tangible net
worth, working capital and debt service amounts. The Term Loan is collateralized
by all real and personal property of GEC. Proceeds from the term loan were
partially used to repay a $1,500,000 note payable to a bank, outstanding at
October 31, 1996 and due on December 2, 1996. The remaining proceeds were used
to repay the Company's lines of credit.
Effective December 20, 1996 the Company completed a private placement
transaction of 1,000 shares of $.10 par value, Series A Convertible Preferred
Stock (the Preferred Stock) and warrants to purchase 200,000 shares of the
Company's common stock. Gross proceeds from the offering totaled $6,000,000.
Each share of Preferred Stock is convertible to shares of the Company's common
stock after April 30, 1997 at the lesser of $9.82 per share or at a discount
(ranging from 10% to 20% depending upon the date of conversion) of the average
closing bid price of a share of common stock for three days proceeding the date
of conversion. The Preferred Stock accrues dividends at an annual rate of 5% and
is payable quarterly in arrears in cash or through a dividend of additional
shares of Preferred Stock. The warrants are exercisable at $9.82 per share after
one year provided that the Preferred Stock is not converted to common stock
prior to the first anniversary of the private placement. Upon the occurrence of
certain events, including failure to effect a timely registration statement, the
Company may be required to redeem the preferred stock at a price equal to the
liquidation preference, plus any accrued and unpaid dividends plus an amount
determined by formula. The proceeds from the private placement were used to
repay a $1,869,050 note payable to the sellers of Connell, a $250,000 note
payable to a director in connection with the acquisition of Connell, and
$2,015,895 due the former principals of GEC by GEC at the date of acquisition,
all of which were outstanding at October 31, 1996.
Accordingly, certain borrowings have been reclassified in the
October 31, 1996 balance sheet to reflect the refinancing of such debt with
proceeds from the preferred stock and the term loan. See Notes 3 and 8 of the
Notes to the Consolidated Financial Statements.
In addition, on December 2, 1996, the Company acquired all the
outstanding common stock of Dial. As consideration, the Company paid $3,000,000
in cash, issued 108,489 shares of common stock (fair value of $620,421) and
issued an $892,000 promissory note with a three year term bearing interest at
prime plus 1/2%. The cash component of the purchase was funded in part from the
Company's line of credit and the remainder through a $1,900,000 term loan from a
bank with interest at prime plus 1/2%. The principal balance of this note, plus
accrued interest, is due March 2, 1997.
<PAGE>
The success of the Company's growth strategy will depend, in part, on the
Company's obtaining an expanded debt facility and refinancing certain
acquisition related debt, as well as, obtaining additional equity capital.
Although the Company believes that additional financing will be obtained, there
can be no assurance that such can be obtained or obtained on terms favorable to
the Company. However, the Company believes that its operations will generate
sufficient cash flow to service debt and maintain existing businesses.
Nevertheless increased interest rates or other adverse developments could impair
the Company's ability to service its indebtedness, which in turn, may reduce its
ability to fund internal growth and capital expenditures.
Recently Issued Accounting Standards
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock Based Compensation," which is effective for fiscal
years beginning after December 15, 1995. The Company believes that the adoption
of this standard will not have a material effect on the Company's consolidated
results of operations or financial position.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ABLE TELCOM HOLDING CORP.
By: /s/ William J.Mercurio May 30,1997
-------------------------------------
WILLIAM J. MERCURIO,President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signatures Title Date Signed
________________________ President and Chief
WILLIAM J. MERCURIO Executive and Financial
Officer and Director May 30, 1997
________________________ Secretary and Director May 30, 1997
WILLIAM D. CALLAHAN
____________________ Director May 30, 1997
FRAZIER L. GAINES
__________________ Director May 30, 1997
ROBERT NELLES
__________________ Director May 30, 1997
GIDEON TAYLOR
_________________ Director May 30, 1997
GERRY W. HALL
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Page
Reports of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets - October 31, 1996 and 1995 F-4
Consolidated Statements of Operations - Years ended
October 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Shareholders' Equity -
Years ended October 31, 1996, 1995 and 1994 F-7
Consolidated Statements of Cash Flows - Years ended
October 31, 1996, 1995 and 1994 F-8
Notes to Consolidated Financial Statements - October 31, 1996 F-10
Financial Statement Schedule:
II. Valuation and Qualifying Accounts - Years ended
October 31, 1996, 1995, and 1994 F-24
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
Able Telcom Holding Corp.:
We have audited the accompanying consolidated balance sheets of Able Telcom
Holding Corp. and subsidiaries (the "Company") as of October 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the two years in the period ended October 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item 14(a)
for the years ended October 31, 1996 and 1995. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express and opinion on these financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Able
Telcom Holding Corp. and subsidiaries at October 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended October 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule for the years ended October 31, 1996 and 1995, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
West Palm Beach, Florida
January 22, 1997, except for the last
paragraph of Note 8,as to which the
date is January 31, 1997
<PAGE>
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
Able Telcom Holding Corp.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Able Telcom Holding Corp. and
subsidiaries (the "Company") for the year ended October 31, 1994. In connection
with our audit of the consolidated financial statements, we also have audited
the 1994 financial statement schedule as listed in the Item 14(a). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule 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 consolidated 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 provided a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Able Telcom Holding Corp. and subsidiaries for the year ended October 31, 1994
in conformity with generally accepted accounting principles. Also, in our
opinion, the related 1994 financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", effective as of November 1, 1993.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
February 16, 1995
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31,
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,267,161 $2,952,239
Investments 571,010 571,875
Accounts receivable, net 13,617,792 10,529,124
Inventories 1,374,698 3,535,622
Costs and profits in excess of billings
on uncompleted contracts 954,269 ---
Prepaid expenses and other 757,883 831,908
Deferred income taxes 905,898 151,879
--------- ---------
Total current assets 21,448,711 18,572,647
Property and equipment, net 10,667,357 6,119,608
Other assets:
Deferred income taxes 269,942 331,739
Goodwill, net 5,919,880 7,203,761
Other 612,941 254,461
--------- ---------
Total other assets 6,802,763 7,789,961
---------- -----------
Total assets $38,918,831 $32,482,216
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31,
Liabilities and Shareholders' Equity 1996 1995
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $1,965,611 $2,222,369
Notes payable - shareholders 1,307,976 1,557,976
Lines of credit 4,626,178 3,220,000
Accounts payable and accrued liabilities 8,036,142 4,174,405
Billings in excess of costs and profits
on uncompleted contracts 1,218,724 ---
--------- ---------
Total current liabilities 17,154,631 11,174,750
Long-term debt, excluding current portion 8,149,807 3,033,000
Other liabilities 2,015,895 ---
--------- ---------
Total liabilities 27,320,333 14,207,750
Minority interest --- 807,955
Commitments and contingencies --- ---
Shareholders' equity:
Common stock, $.001 par value, authorized
25,000,000 shares; 8,203,212 and 8,193,212
shares issued and outstanding in 1996 and
1995, respectively 8,203 8,193
Additional paid-in capital 12,833,286 12,790,196
Unrealized loss on investments, net of tax (53,990) (53,125)
(Deficit) retained earnings (1,189,001) 4,721,247
---------- ----------
Total shareholders' equity 11,598,498 17,466,511
---------- ----------
Total liabilities and shareholders' equity $38,918,831 $32,482,216
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the years ended October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $48,906,170 $35,407,581 $25,784,150
---------- ---------- -----------
Costs and expenses:
Costs of revenues 40,486,018 27,719,750 16,395,098
General and administrative 8,403,491 5,464,338 4,166,694
Depreciation and amortization 2,749,804 1,914,064 854,251
Charges and transaction/translation
losses related to Latin American
operations 3,553,373 95,798 2,381,515
--------- --------- ----------
Total costs end expenses 55,192,686 35,193,950 23,797,558
---------- ---------- ----------
(Loss) income from operations (6,286,516) 213,631 1,986,592
--------- --------- ----------
Other expense (income):
Loss on sale of investments --- 100,379 ---
Interest expense 1,350,440 1,117,932 397,167
Interest and dividend income (270,163) (672,598) (418,302)
Other expenses 32,033 --- ---
--------- --------- ----------
Total other expense (income) 1,112,310 545,713 (21,135)
--------- --------- ----------
(Loss) income before income taxes
and minority interest (7,398,826) (332,082) 2,007,727
Income tax (benefit) expense (890,695) (368,105) 632,384
--------- --------- ----------
(Loss) income before minority (6,508,131) 36,023 1,375,343
interest
Minority interest (597,883) 317,189 429,330
========== ========= ==========
Net (loss) income $(5,910,248) $(281,166) $ 946,013
========== ========= ==========
(Loss) income per common share: $ (.71) $ (.03) $ .12
========= ========= ==========
Weighted average common shares and
common stock equivalents
outstanding 8,361,458 8,283,668 7,736,122
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Unrealized
Additional Loss on (Deficit)
Paid in Investments, Retained
Shares Amount Capital Net of Taxes Earnings Total
--------- -------- --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at 6,176,548 $6,177 $3,283,576 $ --- $4,056,400 $7,346,153
October 31, 1993
Issuance of
common stock 199,500 199 32,051 --- --- 32,250
for exercise of
stock options
Tax benefit for
exercise of --- --- 812,525 --- --- 812,525
stock options
Issuance of
common stock 30,000 30 29,970 --- --- 30,000
for services
rendered
Tax benefit on
issuance of
common stock --- --- 116,889 --- --- 116,889
for services
rendered
Issuance of
common stock 1,192,993 1,193 4,364,129 --- --- 4,365,322
for exercise of
warrants
Issuance of
common stock 272,730 273 2,249,720 --- --- 2,249,993
for acquisition
Remittance by
officer
relating to --- --- 80,261 --- --- 80,261
profits on
stock
transactions
Unrealized loss
on --- --- --- (146,950) --- (146,950)
investments,
restricted
Net income --- --- --- --- 946,013 946,013
--------- --------- ---------- ----------- ------- --------
Balance at October 7,871,771 7,872 10,969,121 (146,950) 5,002,413 15,832,456
31, 1994
Issuance of
common stock to
liquidate notes 259,434 259 1,499,741 --- --- 1,500,000
payable to
shareholders /
directors
Issuance of
common stock 67,007 67 334,829 --- --- 334,896
for exercise of
warrants
Cancellation of
common stock
previously (5,000) (5) (13,495) --- --- (13,500)
issued for
acquisition
Change in
unrealized loss --- --- --- 93,825 --- 93,825
on investments
Net loss --- --- --- --- (281,166) (281,166)
--------- --------- ---------- ----------- --------- ------
Balance at October 8,193,212 8,193 12,790,196 (53,125) 4,721,247 17,466,511
31, 1995
Issuance of
common stock to
directors in 10,000 10 43,090 --- --- 43,100
connection with
acquisition
Change in
unrealized loss --- --- --- (865) --- (865)
on investments
Net loss --- --- --- --- (5,910,248)(5,910,248)
========= ========= ========== ========= ========= ========
Balance at 8,203,212 $8,203 $12,833,286 $(53,990)$(1,189,001)$11,598,498
October 31, 1996
========== ======= ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net (loss) income $ (5,910,248) $ (281,166) $ 946,013
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities, net of effects of
acquisitions:
Depreciation and amortization 2,749,804 1,914,064 854,251
Bad debt expense 1,094,503 86,593 1,012,202
Provision for inventory losses 290,500 --- ---
Write down of Latin American
assets 1,593,480 --- ---
Deferred income taxes (890,695) (439,341 (1,423,195)
Loss on sale of equipment 21,805 --- ---
Loss on sale of investments --- 100,379 ---
Translation/transaction losses 1,179,769 95,798 858,326
Minority interest (597,883) 317,189 429,330
Common stock issued for services --- --- 30,000
Changes in assets and
liabilities, net of effects from
acquisitions:
Decrease in accounts receivable 1,854,735 796,530 1,474,805
Decrease (increase) in
inventories 1,871,004 (353,318) 448,597
Increase in costs and profits in
excess of billings on
uncompleted contracts (828,553) --- ---
Decrease (increase) in prepaid
expenses and other 339,711 (223,811) (8,692)
Increase in other assets (286,996) (24,373) (3,873)
Increase (decrease) in accounts
payable and accrued expenses 159,861 1,514,749) (423,423)
Increase in billings in excess
of costs and estimated profits
on uncompleted contracts 681,446 --- ---
--------- ---------- ----------
Net cash provided by operating
activities 3,322,242 473,795 4,194,341
--------- ---------- ----------
Investing Activities:
Purchases of property and
equipment (2,557,258) (2,250,904) (1,835,377)
Proceeds from the sale of
equipment 128,823 --- ---
Purchases of investments --- (350,000) (4,972,920)
Sales of investments --- 4,418,233 ---
Investments under the equity
method --- --- 50,000
Cash acquired in acquisitions 1,760,970 --- ---
Cash paid in acquisitions (3,500,000) --- (6,422,610)
--------- ---------- ----------
Net cash (used in)provided by
investing activities (4,167,465) 1,817,329 (13,280,907)
--------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Financing Activities:
Net borrowing under lines of
credit 1,254,178 378,000 495,999
Payment of shareholders/
directors loans (500,000) --- (260,846)
Borrowings from
shareholders/directors 500,000 57,976 ---
Proceeds from long-term debt 4,547,148 737,758 7,954,175
Proceeds from debt to finance
acquisition 3,000,000 --- ---
Payments on long-term debt (6,251,340) (3,775,168) (1,610,346)
Distributions to minority
interests (210,072) (500,795) (745,962)
Foreign currency translation
adjustment (778,509) --- (277,764)
Tax benefit for exercise of
stock options and issuance of
common stock for services
rendered --- --- 929,414
Proceeds from exercise of
warrants and options --- 334,896 4,397,572
Proceeds from officer relating
to profits on stock transactions --- --- 80,261
--------- ---------- ---------
Net cash provided by (used in)
financing activities 1,561 405 (2,767,333) 10,962,503
Effect of exchange rate changes on
cash and equivalents (401,260) (3,901) (580,562)
-------- - ---------- ---------
Increase (decrease) in cash and 314,922 (480,110) 1,295,375
cash equivalents
Cash and cash equivalents at
beginning of year 2,952,239 3,432,349 2,136,974
--------- ---------- ---------
Cash and cash equivalents at end of $3,267,161 $2,952,239 $3,432,349
year
========= ========== =========
Supplemental disclosures of cash flow information:
Non-cash transactions affecting operating,
investing and financing activities:
Operating activities:
Issuance of common stock for
services $ --- $ --- $ 30,000
========= ========== =========
Financing activities:
Issuance of common stock for
acquisition --- --- 2,249,993
Common stock issued to repay
shareholders/directors loans --- (1,500,000) ---
Issuance of notes payable to
shareholders/directors --- --- 3,000,000
========= ========== =========
Total financing activities $ --- $(1,500,000) $5,249,993
========= ========== =========
See Note 3 for information on
non-cash investing and financing
activities associated with
acquisitions
Interest paid $1,120,465 $ 933,302 $ 322,167
========= ========== =========
Income taxes paid, net of refunds $ --- $ 168,460 $ 816,143
</TABLE>
========= ========== =========
See accompanying notes to consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
(1) The Company
Able Telcom Holding Corp. ("Able Telcom" or the "Company") specializes in
the design, installation, maintenance and system integration of advanced
communication networks for voice, data, and video systems. These services
are provided for an array of complimentary applications, including
telecommunications infrastructure, traffic management systems, automated
manufacturing systems and utility networks. The Company is currently
organized into four operating groups: telecommunication services, cable
television services, traffic management services and communications
development. Each group, excluding cable television services, is comprised
of subsidiaries of the Company with each having local executive management
functioning under a decentralized operating environment. The Company
formed the cable televisions services group to facilitate planned
expansion during 1997.
Able is headquartered in West Palm Beach, Florida, and operates its
subsidiaries throughout the Southeastern United States, as well as in
areas of South America.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the Company and its
subsidiaries. All material intercompany accounts and transactions
have been eliminated. Operations for subsidiaries acquired are
included in the consolidated results of operations since the date of
acquisition.
.
(b) Revenue Recognition
Revenues from "per unit basis" contracts are recognized at the time
services are rendered and accepted by the customer. Revenues from
installation contracts are recognized as contract costs are incurred
under the percentage-of-completion method measured on the cost to
cost basis. Contract costs include all direct material and labor
costs as well as those indirect costs relating to the contract such
as indirect labor, supplies and equipment costs. The balance sheet
was reclassified at October 31, 1996 to present under separate
headings "Costs and profits in excess of billings on uncompleted
contracts" and "Billings in excess of costs and profits on
uncompleted contracts". At October 31, 1995 and 1994 such amounts
were included in accounts receivable and inventory.
Changes in job performance, condition and the estimated
profitability may result in revisions to costs and profits which are
recognized in the period in which the changes are determined.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(d) Property and Equipment
Property and equipment are recorded at cost. Depreciation is
provided for using the straight-line method over the estimated
useful lives of the assets.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
(e) Income Taxes
Income taxes have been provided using the asset and liability method
in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (Statement 109).
(f) Goodwill
Goodwill represents the amount by which the purchase price of
businesses acquired exceeds the fair market value of the net assets
acquired under the purchase method of accounting. Goodwill is being
amortized on a straight-line basis over 10 - 20 years.
The Company, at each balance sheet date, evaluates the
recoverability of the carrying amount of goodwill if circumstances
suggest it has been impaired. If this review indicates that goodwill
is not recoverable, as principally determined based on the estimated
undiscounted cash flows of the entity which gave rise to the
goodwill,over the remaining amortization period, then the Company's
carrying value of the goodwill is reduced by the estimated shortfall
in cash flows.
The recoverability of goodwill associated with assets acquired in a
purchase business combination is evaluated together with the related
asset if circumstances indicate the carrying amount of the asset may
not be recoverable. As required under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(Statement No. 121), if the assets and goodwill are not recoverable
their carrying value is reduced to estimated fair value based,
generally, on a discounted cash flow analysis. The initial adoption
of Statement No. 121 in 1996 did not have a material impact on the
Company's consolidated financial condition or results of operations.
See Note 15 regarding certain impairment write-downs that were
recorded during 1996.
Goodwill is net of accumulated amortization of $791,329 and $733,934
at October 31, 1996 and 1995, respectively. Amortization expense for
the years ended October 31, 1996, 1995 and 1994 was $338,859,
$468,684 and $188,894, respectively.
(g) Cash and Cash Equivalents
The Company considers all unrestricted highly liquid securities
(consisting principally of short-term money market investments and
treasury notes) with a maturity or redemption option of three months
or less at the date of purchase to be cash equivalents.
(h) Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation", the financial statements
of the Company's Latin American subsidiaries are remeasured using
the U.S. dollar as the functional currency. Monetary assets and
liabilities denominated in a foreign currency are remeasured into
U.S. dollars at the year end exchange rate. Non-monetary assets
and liabilities, and related income statement amounts are
remeasured at historical exchange rates.
(i) Investments
As of November 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Under this statement, the Company's
investments are classified as "available for sale" and, accordingly,
are recorded at the quoted market value as of the fiscal year end
with an offsetting adjustment to shareholders' equity, net of tax.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
October 31, 1996
(j) Stock Compensation
The Company currently follows Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", in accounting
for employee stock options. During October 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting
for Stock Based Compensation", which is effective for fiscal
years beginning after December 15, 1995.
The adoption of this statement is not expected to have a material
impact on the financial condition or results of operations of the
Company.
(k) Financial Statements
The carrying amounts of cash and cash equivalents, accounts
receivable (generally unsecured), accounts payable and notes payable
approximate fair value due to the short maturity of the instruments
and the provision for what management believes to be adequate
reserves for potential losses. The fair value of long-term debt is
estimated using quoted market prices, whenever available, or an
appropriate valuation method. The carrying value of long-term debt
approximates its fair value due to the variable interest rates
associated with the debt.
(l) Reclassification
Certain items in the 1995 and 1994 consolidated financial statements
have been reclassified to conform to the 1996 presentation.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities, revenues and costs. Actual results could differ
from those estimates.
(3) Acquisitions
On October 12, 1996, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of Georgia Electric Company
(GEC). As initial consideration, the Company paid $3,000,000 in cash. As
subsequent consideration, the Company will issue shares of common stock
over the next five years beginning in fiscal 1997, contingent upon the
operating performance of GEC and the market value of the Company's stock.
Such amounts will be accounted for as purchase price adjustments. The
acquisition was accounted for using the purchase method of accounting. The
results of operations are included in the consolidated statements of
operations since the date of acquisition.
The following summarizes the fair values of the assets of GEC acquired and
the liabilities of GEC assumed:
<TABLE>
<S> <C>
Cash and cash equivalents $1,366,619
Accounts receivable 4,422,983
Costs and profits in excess of billings on
uncompleted contracts 27,645
Prepaid expenses 221,105
Property and equipment 2,258,672
Other assets 44,258
Accounts payable and accrued liabilities (2,095,942)
Billings in excess of costs and profits on (529,445)
uncompleted contracts
Undistributed S Corp earnings due to former
owners (2,715,895)
==========
Net assets $ 3,000,000
==========
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
October 31, 1996
On December 8, 1995, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of H.C. Connell, Inc.
("Connell"). As consideration, the Company paid $500,000 in cash and
issued a $1,869,049 promissory note. The acquisition was accounted for
using the purchase method of accounting. The results of operations of
Connell are included in the consolidated statements of operations since
the date of the acquisition.
The following summarized the fair values of the assets of Connell acquired
and the liabilities of Connell assumed:
<TABLE>
<S> <C>
Cash and cash equivalents $394,351
Accounts receivable 1,614,923
Costs and profits in excess of billings
on uncompleted contracts 98,071
Prepaid expenses 109,661
Property and equipment 1,957,195
Other assets 27,226
Accounts payable and accrued expenses (847,928)
Billings in excess of costs and profits on
uncompleted contracts (7,833)
Borrowings (663,017)
Other liabilities (313,600)
==========
Net assets $2,369,049
==========
</TABLE>
On June 22, 1994, the Company acquired all of the outstanding common stock
of Transportation Safety Contractors, Inc. and its affiliates ("TSCI"). As
consideration, the Company paid $6,000,000 in cash, issued $3,000,000 in
promissory notes and issued 272,300 shares of restricted common stock of
the Company. In November 1994, the $3,000,000 in promissory notes were
renegotiated resulting in $1,500,000 of the promissory notes being
converted to 259,434 shares of restricted common stock of the Company with
no gain or loss recognized on the conversion. The acquisition was
accounted for using the purchase method of accounting and $6,777,017 in
goodwill was recorded which is being amortized over 20 years under the
straight-line method. Amortization expense amounted to approximately
$339,000 in 1996 and 1995 and $102,408 in 1994. The results of operations
are included in the consolidated statements of operations since the date
of the acquisition.
In June 1994, the Company acquired a 75% interest in a Brazilian
telecommunications company for $144,000 plus $356,000 in working capital
contributions. The acquisition was accounted for using the purchase method
of accounting. Approximately $497,000 in goodwill was recorded and was
being amortized over 10 years using the straight-line method. The results
of operations are included in the consolidated statements of operations
since the date of acquisition.
During the second quarter of fiscal 1996, the Company identified
circumstances which suggested the carrying value of goodwill related to
its Brazilian telecommunications company had been impaired. These included
continuing losses from operations, consistent failure to meet budgeted
operating results despite the Company's attempts to improve performance
and the Company's resulting decision during the second quarter of 1996 to
substantially curtail its telecommunications maintenance and construction
operations. As a result, the Company estimated the expected income to be
derived in future periods and the expected undiscounted future cash flows
of the Brazilian telecommunications company. The results indicated that
goodwill would not be recovered. Accordingly, during the second quarter,
the carrying value of goodwill related to this acquisition was reduced
from $447,010 to zero. This charge is included in "Charges and
transaction/translation losses related to Latin American operations" in
the Consolidated Statements of Operations for fiscal year 1996. The
acquisition did not have a material impact on 1994 operations.
Unaudited pro forma financial information for the Company is presented as
if the Company's acquisitions of GEC, Connell and TSCI had taken place as
of November 1, for each of the respective years.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
<TABLE>
<CAPTION>
Years ended October 31,
<S> <C> <C> <C>
1996 1995 1994
Revenues $75,174,571 $69,833,590 $69,196,722
Net (loss) income (1,391,591) 2,332,280 2,197,673
Net (loss) income (.17) .28 .28
per share
</TABLE>
This unaudited pro forma information does not purport to be indicative of
the results of operations which would have resulted had the acquisitions
been consummated at the dates assumed.
(4) Investments
At October 31, 1996 and 1995, investments consisted of preferred stock.
These securities are classified as available-for-sale and have a cost
basis of $625,000. The fair market value as determined by the quoted
market prices, at October 31, 1996 and 1995 was $571,010 and $571,875,
respectively. The unrealized losses on these investments of $53,990 and
$53,125, net of tax, is included as a separate component of shareholders'
equity.
Investment income consisted of dividends and interest income which
amounted to $180,015, $263,502 and $187,724 for the years ended October
31, 1996, 1995 and 1994, respectively. During the year ended October 31,
1995, the Company sold investment securities; the proceeds and realized
loss on the sale totaled $4,418,233 and $100,379, respectively.
(5) Accounts Receivable
Accounts receivable are recorded net of an allowance for doubtful accounts
of $828,186 and $535,914 at October 31, 1996 and 1995, respectively.
Accounts receivable includes retainage which has been billed but is not
due until approximately 90 days after the services are rendered and
accepted by the customer. Retainage totaled $1,675,698 and $1,410,832 at
October 31, 1996 and 1995, respectively. A significant portion of accounts
receivable is derived from several major customers. (See Note 11)
(6) Uncompleted Contracts
Uncompleted contracts consist of the following at October 31, 1996:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $15,989,067
Earnings recognized on uncompleted
contracts 2,706,996
----------
Total 18,696,063
Billings to date 18,960,518
==========
Net $ 264,455
==========
</TABLE>
Included in the accompanying balance sheets under the following headings:
<TABLE>
<S> <C>
Costs and profits in excess of billings
on uncompleted contracts $ 954,269
Billings in excess of costs and profits
on uncompleted contracts 1,218,724
=========
Net $ 264,455
=========
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
(7) Property and equipment, net
Property and equipment, net, consists of the following at October 31,
<TABLE>
<S> <C> <C>
1996 1995
Land and buildings $1,398,884 $1,367,121
Equipment, furniture and 13,493,828 7,204,304
fixtures
Equipment under capital lease 637,407 ---
--------- ----------
15,530,119 8,571,425
Less accumulated depreciation (4,862,762) (2,451,817)
--------- ----------
Property and equipment, net $10,667,357 $6,119,608
</TABLE>
========== ==========
Depreciation and amortization expense relating to property and equipment
amounted to $2,410,945, $1,445,380 and $665,357 in 1996, 1995 and 1994,
respectively.
(8) Borrowings
The Company's borrowings consist of the following at October 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
Lines of Credit:
<S> <C> <C>
Bank lines of credit ($6,600,000
aggregate maximum limit at October
31, 1996) $6,200,000 maturing
on February 28, 1997; $400,000
maturingon September 30, 1997,
interest payable monthly at prime
(8.25% at October 31, 1996) to prime
plus 1/2%, secured by substantially
all the assets of the Company $6,126,178 $3,220,000
Less effect of December 2, 1996 (1,500,000) ---
refinancing transaction
========== ==========
$4,626,178 $3,220,000
========== =========
Notes Payable to Shareholders/Directors:
Notes payable to shareholders,
principal and interest due on demand
at 18%, unsecured, personally
guaranteed by a shareholder/director
of the Company $1,307,976 $1,307,976
Note payable to a director, principal
due on demand, interest due quarterly
at prime (8.25% at October 31,
1996), unsecured 250,000 250,000
--------- --------
1,557,976 1,557,976
Less effect of December 20, 1996
private placement of preferred stock (250,000) ---
========== =========
1,307,976 1,557,976
========= =========
Long-Term Debt:
Notes payable to a bank, payable in monthly
installments aggregating approximately
$158,000, interest payable monthly ranging
from prime(8.25% at October 31, 1996) to
prime plus1/2%, secured by substantially all
the assets of the Company $4,061,987 ---
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
<TABLE>
<CAPTION>
(Continued) 1996 1995
<S> <C> <C>
Note payable to a bank, principal and
interest due December 2, 1996, at
prime (8.25% at October 31, 1996),
secured by substantially all the
assets of the Company 1,500,000 ---
Note payable to the sellers of
Connell, principle and accrued
interest due January 2, 1997,
interest at 9%, secured by certain
accounts receivable and all property
and equipment of Connell not
otherwise pledged to a bank 1,869,049 ---
Mortgage note payable to a bank, payable
in monthly installments of $1,604 plus
interest at prime (8.25% at October 31,
1996) plus1/2%, secured by land and
building with a carrying value of
approximately $425,000 as of October 31,
1996 288,750 308,000
Notes payable to banks, payable in
monthly installments of principal and
interest ranging from 8.25% to 14.9%
at October 31, 1996, secured by
related equipment 91,477 92,828
Notes payable to a bank, payable in
monthly installments aggregating
approximately $133,000, interest
payable monthly ranging from the 30
day commercial paper rate (5.25% at
October 31, 1995) plus 3% to prime
(8.75% at October 31, 1995), secured
by certain investments and Company
common shares owned by two
shareholders/directors --- 3,618,710
Term loan payable to a bank, interest
based on LIBOR (5.94% at October 31,
1995) plus 3/4%, secured by certain
investments and Company common
shares owned by two
shareholders/directors --- 1,235,831
--------- ---------
7,811,263 5,255,369
Plus effect of December 1996
refinancing and private placement of 1,750,000 ---
preferred stock
Capital leases (see Note 14) ---
554,155
--------- ---------
Total long-term debt 10,115,418 5,255,369
Less current portion, giving effect to
the December 1996 refinancing and
private placement of preferred stock (1,965,611) (2,222,369)
========== ==========
Long-term debt, excluding current
portion $8,149,807 $ 3,033,000
========= ===========
</TABLE>
Effective December 2, 1996 the Company entered into a $3,000,000 Term Loan
Credit Facility (the Term Loan) with a bank. The Term Loan is payable in
sixty monthly installments of $50,000 plus interest at prime.
Additionally, excess cash flow of GEC, as defined, is to be paid to the
bank. The Term Loan contains covenants, which require among other
conditions, that the Company maintain certain tangible net worth, working
capital and debt service amounts. The Term Loan is collateralized by all
real and personal property of GEC which was acquired on October 12, 1996.
Proceeds from the term loan were used to repay $1,500,000 of a bank line
of credit outstanding at October 31, 1996 and to repay the $1,500,000 note
payable to a bank due on December 2, 1996.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
Effective December 20, 1996 the Company completed a private placement
transaction of 1,000 shares of $.10 par value, Series A Convertible
Preferred Stock (the Preferred Stock) and warrants to purchase 200,000
shares of the Company's common stock at $9.82 per share. Proceeds from the
offering totaled $6,000,000. Each share of Preferred Stock is convertible
to shares of the Company's common stock after April 30, 1997 at the lesser
of $9.82 per share or at a discount (ranging from 10% to 20% depending
upon the date of conversion) of the average closing bid price of a share
of common stock for three days proceeding the date of conversion. The
Company will recognize the discount attributable to the beneficial
conversion privilege of approximately $660,000 by accreting the amount
from the date of issuance, December 20, 1996, through the earliest date
conversion can occur, May 20, 1997, as an adjustment of net income
attributable to common shareholders. This accretion adjustment, which also
represents the adjustment needed to accrete to the redemption value of the
Preferred Stock, will result in a charge to retained earnings and
accompanying credit to the Preferred Stock. The Preferred Stock accrues
dividends at an annual rate of 5% and is payable quarterly in arrears in
cash or through a dividend of additional shares of Preferred Stock. The
warrants are exercisable after one year provided that the Preferred Stock
is not converted to common stock prior to the first anniversary date of
the private placement. Upon the occurrence of certain events, including
failure to effect a timely registration statement related to the
conversion features and warrants associated with the preferred stock, the
Company may be required to redeem the Preferred Stock at a price equal to
the liquidation preference, plus any accrued and unpaid dividends plus an
amount determined by formula. Proceeds from the private placement were
used to repay a $1,869,050 note payable to the sellers of Connell, a
$250,000 note payable to a director, and $2,015,895 due the former
principals of GEC. The amount due to the former principals of GEC
represented undistributed S corporation profits existing at the date of
acquisition, and is presented as "Other liabilities" in the accompanying
Consolidated Balance Sheet at October 31, 1996.
The aggregate maturities of long-term debt and capital leases for years
subsequent to October 31, 1996, giving effect to the December 1996
refinancing and private placement, are as follows:
<TABLE>
<S> <C>
1997 $1,965,611
1998 1,945,387
1999 1,593,910
2000 1,372,192
2001 779,024
Thereafter 340,244
---------
7,996,368
Proceeds from the December 20,
1996 private placement used to 2,119,050
repay debt
=========
$10,115,418
=========
</TABLE>
At October 31, 1996, the Company was in non-compliance with various
financial loan convenants relating to its credit facility with a bank. The
Company obtained amended covenants from the lender effective October 31,
1996 and through fiscal year 1997. The Company anticipates that it will be
in compliance with the modified covenants in 1997.
(9) Stock Options
During 1996, the Company's shareholders adopted a stock option plan
comprised of incentive stock options for employees and non-qualified stock
options for non-affiliated directors (the "Plan"). The Plan provides for
the issuance of up to 550,000 options to employees and non-affiliated
directors. The exercise price for incentive options under the Plan will
not be less than the fair value of the Company's common stock on the date
of the grant. The purchase price for grants of non-qualified stock options
will be determined by the Company's Board of Directors. At October 31,
1996, a total of 186,000 options, net of canceled shares, have been
granted under the Plan. Incentive options granted to
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
employees generally become exercisable over a three year period in equal
installments beginning the year after the date of the grant. Non-qualified
options granted to non-affiliated directors become exercisable one year
after the date of the grant.
In addition, specific stock options have been granted to certain officers
prior to or outside the Plan, a portion of which remain unexercised at
October 31, 1996. During the fiscal year ended October 31, 1992, an option
to purchase 260,000 shares of Common Stock at $.05 per share was granted
to a director of the Company. In addition, in fiscal 1993 an officer was
granted an option to purchase 100,000 shares of common stock at $.50 per
share. For the years ended October 31, 1996, 1995 and 1994, 160,500 of
these options remained outstanding and available for exercise.
During 1995, options to purchase 100,000 shares at $4.83 per share were
granted to an officer, pursuant to employment agreement. All such options
were granted at the fair market value on the date of grant and are
outstanding as of October 31, 1996.
(10) Income Taxes
An analysis of the components of (loss) income before income taxes and
minority interest and the related income tax (benefit) expense is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $(3,770,323) $ (817,790) $ 1,693,176
Foreign (3,628,503) 485,708 314,551
========== ========= ==========
$(7,398,826) $ (332,082) $ 2,007,727
=========== ========= =========
Provision for income
taxes:
Federal
Current $ --- $ --- $792,440
Deferred (969,353) (202,074) (252,402)
State
Current --- --- 153,142
Deferred (165,934) --- (60,796)
Foreign
Current --- 71,236 1,027,689
Deferred 244,592 (237,267) (1,027,689)
======== ========= ==========
Provision for income
tax (benefit)expense $(890,695) $(368,105) $ 632,384
</TABLE>
======== ========= ========
Reconciliation of the federal statutory income tax rate to the
Company's effective income
tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(Benefit) tax at
federal statutory
rate (34)% (34)% 34%
State income tax,net (4) --- 4
Non-deductible 2 35 2
goodwill
Reduction in
valuation allowance (1) (7) ---
Reduction in
(benefit) tax
provided on
foreign operations 22 (92) ---
Other 3 (13) ---
======== ========= ========
Effective income (12)% (111)% 40%
tax rate ======== ========= ========
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
1996 1995
---- ----
<TABLE>
<S> <C> <C>
Deferred tax assets:
Unrealized loss on $ 18,388 $ 18,063
investments
Reserve for bad debts 295,804 148,382
Net operating loss carry 1,452,313 460,270
forward
Foreign tax credit --- 423,914
carryforwards
Other
55,281 10,297
-------- --------
1,821,786 1,060,926
Less valuation allowance --- (44,989)
-------- --------
1,821,786 1,015,937
Deferred tax liabilities:
Plant, property and equipment (645,946) (195,939)
Investment in foreign
subsidiaries --- (329,580)
Other --- (6,800)
-------- --------
(645,946) (532,319)
-------- --------
Net deferred tax asset $1,175,840 $483,618
======== ========
</TABLE>
The Company has not provided deferred taxes for tax that could result from
the remittance of $999,115 of undistributed earnings of foreign
subsidiaries since the Company has sufficient foreign tax credits to
offset any taxes related to these undistributed earnings. It is not
practical to estimate the amount of taxes that might be payable on the
eventual remittance of such earnings. If the foreign subsidiaries were to
remit the above amount, the taxes withheld would approximate $89,000.
At October 31, 1996, the Company has Federal net operating loss
carryforwards of approximately $3,990,043. These net operating loss
carryforwards begin to expire at the end of the fiscal year ending October
31, 2009..
The valuation allowance decreased by $44,989 during 1996.
(11) Major Customers/Concentration of Credit Risk
A significant portion of the Company's business is derived from three
major customers including a governmental agency, a telephone company and
an industrial manufacturer. At October 31, 1996 and 1995, the Company had
accounts receivable from these customers of $5,453,885 and $1,543,514 or
42% and 15% of total accounts receivable, respectively. Revenues from
these customers totaled $22,786,000, $9,498,000 and $6,044,000 or 50%, 27%
and 23% of consolidated revenues in fiscal years 1996, 1995 and 1994,
respectively.
Approximately 60% of the Company's Latin American revenues are derived
from one customer in Venezuela. Revenues from this customer were
approximately 4% of consolidated revenues in 1996 (6% in 1995; 53% in
1994). Accounts receivable outstanding for this customer were $257,994 and
$1,483,630 at October 31, 1996 and 1995, respectively.
(12) Industry and Geographic Area Segment Information
The Company currently operates primarily in two industry segments:
telecommunication network services for the years ended October 31, 1996,
1995 and 1994, and traffic management systems and devices for the years
ended October 31, 1996, 1995 and the period from June 22, 1994
(acquisition date of TSCI) through October 31, 1994. Traffic management
operations are conducted in the United
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996.
States while telecommunication network services are conducted both in the
United States and Latin America (mainly in Venezuela and Brazil).
Revenues, (loss) income from operations, identifiable assets, capital
expenditures and depreciation and amortization pertaining to the
industries and geographic areas in which the Company operates are
presented below.
<TABLE>
<CAPTION>
Industry Segments 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Traffic management
operations $ 22,661,644 $22,872,331 $9,750,546
Telecommunication network
services 26,244,526 12,535,250 16,033,604
---------- ---------- -----------
Total $ 48,906,170 $35,407,581 $25,784,150
========== ========== ==========
(Loss) income from operations:
Traffic management
operations $ (3,454,076) $ 286,149 $ 531,401
Telecommunication network (2,832,440) (72,518) 1,455,191
services ----------- ---------- ---------
Total $ (6,286,516) $ 213,631 $ 1,986,592
========== ========= =========
Identifiable Assets:
Traffic management
operations $ 25,099,066 $21,701,922 $20,480,935
Telecommunication network 13,819,765 10,780,294 16,122,137
services ---------- ----------- ----------
Total $ 38,918,831 $32,482,216 $36,603,072
========= ========= ==========
Capital Expenditures:
Traffic management $ 1,275,451 353,148 160,000
operations
Telecommunication network
services 2,216,097 1,897,756 1,675,377
======== ======== =========
Total $3,491,548 $2,250,904 $ 1,835,377
======== ======== =========
Depreciation and amortization:
Traffic management
operations $1,228,647 $ 996,249 $ 218,550
Telecommunication network
services 1,521,157 917,815 635,701
--------- --------- ---------
Total $2,749,804 $1,914,064 $ 854,251
======== ======== =========
Geographic areas
Revenues:
United States $45,160,312 $32,179,831 $12,001,164
Latin America 3,745,858 3,227,750 13,782,986
--------- -------- --------
Total $48,906,170 $35,407,581 $25,784,150
========== ========== ==========
(Loss) income from operations:
United States $(2,072,678) $ 364,264 (901,660)
Latin America (4,213,838) (150,633) 2,888,252
--------- -------- --------
Total $(6,286,516) $213,631 $1,986,592
Identifiable assets:
United States $36,409,993 $26,955,667 $28,847,774
Latin America 2,508,838 5,526,549 7,755,898
---------- ---------- ----------
Total $38,918,831 $32,482,216 $36,603,672
========= =========== ==========
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996.
(13) Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Revenues $11,578 $12,592 $11,860 $12,876
Operating (loss)
income (1,036) (2,095) 199 (3,355)
Net (loss) income (533) (2,562) 137 (2,952)
(Loss) income per
share $ (.06) $ (.31) $ .02 $ (.35)
1995
Revenues $ 7,625 $ 8,234 $ 9,014 $10,535
Operating (loss)
income (793) 139 231 637
Net (loss) income (842) 68 160 333
(Loss) income per
share $ (.10) $ .01 $ .02 $ .04
</TABLE>
Certain adjustments were recorded in the fourth quarter of 1996 which included
adjustments to provide allowances for uncollectible accounts receivable and
obsolete inventory. These adjustments resulted in charges against operations
aggregating approximately $1,351,000.
(14) Commitments and Contingencies
(a) Leased Properties
As of October 31, 1996, the Company leased office space and
equipment under various non-cancelable long-term operating lease
arrangements.
During fiscal year 1996, the Company leased certain equipment under
an agreement which is classified as a capital lease. Cost and
accumulated amortization of such assets as of October 31, 1996
totaled $637,407 and $90,308.
Future minimum lease payments required under operating and capital
leases with initial terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ending October 31, Leases Leases
--------- --------
<S> <C> <C>
1997 $ 155,825 $361,370
1998 155,825 273,303
1999 155,825 83,903
2000 155,825 45,103
2001 38,937 1,800
--------- -------
Total minimum lease
payments 662,237 765,479
========
Less amount representing
interest 108,082
Present value of net
minimum lease payments 554,155
Less current installments
of obligations under
capital leases 113,059
---------
Obligations under capital
leases, excluding
current installments $441,096
=========
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
Rental expense for operating leases amounted to $631,706, $323,180
and $168,000 for the years ended October 31, 1996, 1995 and 1994,
respectively. The Company paid rent to former directors of the
Company totaling $89,460 for fiscal years 1996, 1995 and 1994. In
addition, the Company has entered into an agreement with the former
principals of GEC to purchase, by June 1997, a facility for $350,000
subject to the Company obtaining favorable financing and other
terms.
(b) Litigation
The Company is involved in various claims and legal actions arising
in the ordinary course of business including claims relating to
notes payable to the former owners of TSCI. These notes payable and
related accrued interest totaling approximately $1,308,000 and
$235,000, respectively, are classified as current in the
accompanying balance sheets. In the opinion of management, the
ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
(15) Latin American Operations
Revenues, costs and expenses and net (loss) income from Latin American
operations for the years ended October 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Years ended October 31,
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Revenues $3,745,858 $3,227,750 $13,782,986
Costs and expenses 7,374,361 3,282,585 10,036,408
Net (loss) income (3,628,503) (54,835) 3,746,578
</TABLE>
The net loss for fiscal year 1996 includes charges relating to the
write-off of certain goodwill related to Latin American operations,
foreign currency losses as a result of the devaluation of the Venezuelan
Bolivar and provisions for the write-down of certain investments, accounts
receivable and deferred tax assets. Such amounts approximate $921,000,
$1,180,000 and $353,000, respectively. Additionally, during the year ended
October 31, 1996, the Company's Latin American operations supported
approximately $1.1 million of marketing expenses related to a proprietary
product.
During the second quarter of fiscal 1996, the Company identified
circumstances which suggested the carrying value of goodwill related to
its Brazilian subsidiary and master contracts of its Venezuelan
subsidiaries had been impaired. These included continuing losses from
operations, consistent failure to meet budgeted operating results despite
the Company's attempts to improve performance, the determination that
certain revenue producing contracts would not be renewed in the forseeable
future and the Company's resulting decision during the second quarter of
1996 to substantially curtail its telecommunications maintenance and
construction operations in Latin America. As a result, the Company
estimated the expected income to be derived in future periods and the
expected undiscounted future cash flows of its Latin American operations.
The results indicated that the goodwill and master contracts would not be
recovered. Accordingly, during the second quarter of 1996, the carrying
value of these assets was reduced from approximately $921,000 to zero.
This charge is included in "Charges and transaction/translation losses
related to Latin American operations" in the Consolidated Statements of
Operations for fiscal year 1996.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
Effective August 1, 1995, the Company reached an agreement with the
minority shareholders of its Venezuelan subsidiaries to compensate them
for assuming executive management and day-to-day responsibilities for the
Company's Venezuelan operations by increasing their proportionate share of
earnings and losses from 20% to 50%. The Company made this change as a
result of a demand by the minority partners for such an agreement.
Management believes such a change is necessary in that the minority
partners are Venezuelan nationals who reside in Venezuela and maintain
relationships with the customer and the workforce and are essential to the
future viability of the Company's Venezuelan operations. The agreement did
not change the Company's share of ownership and voting control in its
Venezuelan subsidiaries which remains at 80%.
During the year ended October 31, 1994, the Company incurred a total of
$1,523,189 in severance and bad debt expenses related to the Venezuelan
operations. The personnel severance costs were $693,189 and bad debt
expense was $830,000. During fiscal year ending 1995, the Company
recovered approximately $350,000 in accounts receivable that were written
off in 1994.
The Company's investment in Latin American entities, which primarily
consist of property and equipment, totaled $2,080,053 and $5,150,292 at
October 31, 1996 and 1995. respectively.
(16) Other Subsequent Events
On December 2, 1996, the Company, through a wholly owned subsidiary,
acquired all the outstanding common stock of Dial Communications, Inc.
(Dial). As consideration, the Company paid $3,000,000 in cash, issued
108,489 shares of common stock and issued an $892,000 promissory note. The
acquisition was accounted for using the purchase method of accounting and
approximately $1,500,000 of goodwill was recorded. The cash component of
the purchase was funded in part from the Company's line of credit and the
remainder through a $1,900,000 term loan from a bank with interest at
prime plus 1/2 % (8.75% at December 2, 1996) with a balloon payment for
the outstanding principal balance plus accrued interest due March 2, 1997.
In addition, in December 1996, the Company completed a private placement
transaction issuing $6,000,000 of preferred stock and obtaining a
$3,000,000 term debt facility with a bank. Proceeds from the transactions
were used to refinance certain of the Company's debt at October 31, 1996.
See Note 8.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
SCHEDULE II
Valuation and Qualifying Accounts
Years ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Balance Charged Balance
at to at
beginning Acquisitions costs Deductions end of
of and period
period expenses
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
October 31, 1996 $ 535,914 $ 2,882 $746,283 $ 456,893 $ 828,186
October 31, 1995 $1,278,933 $ --- $ 86,593 $ 829,612 $ 535,914
October 31, 1994 $ 32,894 $ 233,837 $1,012,202 $ --- $1,278,933
</TABLE>
