<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
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 OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 HOLCOMB WOODS PARKWAY
SUITE 440
ROSWELL, GEORGIA 30076
-------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 993-1570
--------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
---------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of June 11, 1999, there were 11,754,593 shares, par value $.001 per share, of
the Registrant's Common Stock outstanding.
<PAGE> 2
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Able Telcom Holding Corp. ("Registrant" or "Company") is amending its Form 10-Q
filed on June 14, 1999 to (i) include the restated financial statements for the
three and six months ended April 30, 1999. Refer to note 2 of this amended 10-Q
and note 22 of the Company's Form 10-K for the year ended October 31, 1999, for
an explanation of the adjustments made to the financial statements, and (ii)
include certain additional disclosures in the notes to the quarterly financial
statements.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 30, 1999
(Unaudited) and October 31, 1998............................... 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three months and six months
ended April 30, 1999 and 1998.................................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended April 30, 1999 and 1998............... 5
Notes to Condensed Consolidated Financial Statements (Unaudited). 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 23
PART II. OTHER INFORMATION
Items 1, 4 and 5 - Not Applicable
Item 2. Changes in Securities and Use of Proceeds....................... 23
Item 3. Defaults Upon Senior Securities................................. 25
Item 6. Exhibits and Reports on Form 8-K................................ 26
SIGNATURES................................................................... 33
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998(1)
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Currents Assets:
Cash and cash equivalents ................................................. $ 30,502 $ 13,544
Accounts receivable, net .................................................. 79,589 64,159
Costs and profits in excess of billings on uncompleted contracts .......... 58,819 105,478
Prepaid expenses and other current assets ................................. 971 2,641
--------- ---------
Total current assets ................................................. 169,881 185,822
--------- ---------
Property and equipment, net .................................................. 29,129 32,074
--------- ---------
Other assets:
Goodwill, net ............................................................. 38,022 31,374
Assets held for sale ...................................................... 12,750 38,750
Other non-current assets .................................................. 23,086 2,740
--------- ---------
Total other assets ................................................... 73,858 72,864
--------- ---------
Total assets ......................................................... $ 272,868 $ 290,760
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ......................................... $ 678 $ 14,438
Accounts payable and accrued liabilities .................................. 54,253 61,229
Accruals for incurred job costs ........................................... 44,280 51,111
Billings in excess of costs and profits on uncompleted contracts .......... 7,726 6,328
Reserves for losses on uncompleted contracts .............................. 17,655 25,390
Notes payable shareholders/directors ...................................... -- 1,182
Stock appreciation rights payable ......................................... -- --
--------- ---------
Total current liabilities ............................................ 124,592 159,678
Long-term debt, non-current portion ....................................... 65,789 61,685
Advances from WorldCom .................................................... 32,000 --
Property tax payable, non-current portion ................................. 14,287 15,118
Other non-current liabilities ............................................. 6,528 2,737
--------- ---------
Total liabilities .................................................... 243,196 239,218
Contingencies ................................................................
Series B Preferred Stock, $.10 par value; aggregate liquidation value of
$3,895,000 and $17,820,000; 4,000 shares authorized;
779 and 3,564 shares issued and outstanding ............................. 2,385 11,325
Shareholders' Equity:
Common stock, $.001 par value, authorized 25,000,000 shares; 11,756,593 and
11,065,670 shares issued and outstanding,
respectively ............................................................. 12 11
Additional paid-in capital ................................................ 43,633 35,164
Senior Note Warrants ...................................................... 1,244 1,244
Series B Preferred Stock Warrants ......................................... 7,294 5,400
WorldCom Stock Options .................................................... -- 3,490
WorldCom Phantom Stock .................................................... 606 606
Retained earnings (deficit) ............................................... (25,502) (5,698)
--------- ---------
Total shareholders' equity ............................................... 27,287 40,217
--------- ---------
Total liabilities and shareholders' equity ........................... $ 272,868 $ 290,760
========= =========
</TABLE>
- ----------------------
(1) The balance sheet at October 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
---------------------------- ------------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Construction and maintenance ........................... $ 88,008 $ 34,552 $ 181,088 $ 56,820
Conduit ................................................ 35,721 -- 35,721 --
------------ ----------- ------------ -----------
Total revenue ................................. 123,729 34,552 216,809 56,820
Costs and expenses:
Construction and maintenance ....................... 77,560 24,612 155,656 43,607
Costs of conduit ................................... 34,673 -- 34,673 --
General and administrative expense ................. 8,681 6,169 18,367 9,365
Impairment of intangible assets .................... 2,465 -- 2,465 --
Depreciation and amortization expense .............. 3,207 1,591 5,984 2,832
------------ ----------- ------------ -----------
Total costs and expenses........................ 126,586 32,372 217,145 55,804
------------ ----------- ------------ -----------
Income (loss) from operations ............................ (2,857) 2,180 (336) 1,016
------------ ----------- ------------ -----------
Other income (expense):
Interest expense ............................... (2,210) (276) (4,688) (788)
Change in value of stock appreciation rights ... 7,230 -- 1,896 --
Other .......................................... (551) (179) (554) 159
----------- ----------- ----------- ------------
Total other income (expense).................... 4,469 (455) (3,346) (629)
Income (loss) before income taxes, minority interest
and extraordinary item ................................. 1,612 1,725 (3,682) 387
Provision for (benefit from) income taxes ................ 15 673 (35) 151
------------ ----------- ------------ -----------
Income (loss) before minority interest and
extraordinary item...................................... 1,597 1,052 (3,647) 236
Minority interest ........................................ 125 185 199 296
------------ ----------- ------------ -----------
Income (loss) before extraordinary item................... 1,472 867 (3,846) (60)
Extraordinary loss on the early extinguishment
of debt, net of tax of zero.. .......................... 3,067 -- 3,067 --
------------ ----------- ------------ -----------
Net income (loss) ........................................ (1,595) 867 (6,913) (60)
Preferred stock dividends ................................ (64) (29) (244) (78)
Redemption of 2,785 shares of Series B Preferred Stock ... (4,323) -- (4,323) --
Modification of exercise price of
Series B Preferred Stock Warrants....................... (1,894) -- (1,894) --
Modification of conversion price of
Series B Preferred Stock................................ (6,430) -- (6,430) (105)
------------ ----------- ------------ -----------
Income (loss) applicable to common stock ................. $ (14,306) $ 838 $ (19,804) $ (243)
============ =========== ============ ===========
Weighted average shares outstanding:
Basic ............................................... 11,717,244 9,480,335 11,709,839 9,192,508
Diluted ............................................. 11,717,244 9,588,747 11,709,839 9,192,508
Income (loss) per share:
Basic:
Income (loss) applicable to common stock before
extraordinary item .............................. $ (0.96) $ 0.09 $ (1.43) $ (0.03)
Extraordinary loss on the early extinguishment
of debt, net of tax of zero...................... (0.26) -- (0.26) --
Income (loss) applicable to common stock .......... (1.22) 0.09 (1.69) (0.03)
Diluted:
Income (loss) applicable to common stock before
extraordinary item .............................. $ (0.96) $ 0.09 $ (1.43) $ (0.03)
Extraordinary loss on the early extinguishment
of debt, net of tax of zero...................... (0.26) -- (0.26) --
Income (loss) applicable to common stock .......... (1.22) 0.09 (1.69) (0.03)
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED APRIL 30,
1999 1998
-------- --------
<S> <C> <C>
Cash provided by operating activities .......................................... $ 17,645 $ 2,362
Investing Activities:
Capital expenditures, net ................................................... (1,646) (7,033)
Acquisition of businesses (net of cash acquired of $4,351 in 1998) .......... -- 320
-------- --------
Net cash used in investing activities ....................................... (1,646) (6,713)
-------- --------
Financing Activities:
Repayments of long-term debt and other borrowings ........................... (31,232) (26,021)
Proceeds from the issuance of long-term debt
and other borrowings ..................................................... 32,163 30,194
Net proceeds from preferred stock offering .................................. (92) --
Proceeds from the exercise of stock options ................................. 330 183
Dividends paid on preferred stock ........................................... (244) (183)
Distributions to minority interests ......................................... (110) --
Foreign currency translation adjustment ..................................... 138 --
Other ....................................................................... 6 2
-------- --------
Net cash provided by financing activities ................................ 959 4,175
-------- --------
Increase in cash and cash equivalents .......................................... 16,958 (176)
Cash and cash equivalents, beginning of period ................................. 13,544 6,230
-------- --------
Cash and cash equivalents, end of period ....................................... $ 30,502 $ 6,054
======== ========
Supplemental Disclosure:
Valuation of detachable warrants ............................................... $ -- $ 1,244
Valuation of stock appreciation rights ......................................... 1,896 --
Common stock issued in accordance with GEC earnout provisions .................. 4,595 1,278
Common stock issued in exchange for note payable to director ................... 828 --
Modification of conversion price of Series B Preferred Stock ................... 6,430 105
Modification of exercise price of Series B Preferred Stock Warrants ............ 1,894 --
Compensation recognized on deferred compensation plans ......................... 710 --
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATION AND BASIS OF PRESENTATION
Able Telcom Holding Corp. and Subsidiaries ("Able Telcom" or the "Company")
develops, builds and maintains communications systems for companies and
governmental authorities. The Company is headquartered in West Palm Beach,
Florida, and operates its subsidiaries throughout the United States, as well as
in South America. The Company is organized in the following groups:
<TABLE>
<CAPTION>
ORGANIZATIONAL GROUP SERVICES PROVIDED
- -------------------- -----------------
<S> <C>
Network Services Design, development, engineering, installation,
construction, operation and maintenance services for
telecommunications systems
Transportation Services Design, development, integration, installation,
construction, project management, maintenance and
operation of automated toll collection systems,
electronic traffic management and control systems,
and computerized manufacturing systems
Communications Development Design, installation and maintenance services to
(Latin America) foreign telephone companies
</TABLE>
Each group is comprised of subsidiaries of the Company with each having local
executive management functioning under a decentralized operating environment.
The Company's customers include local and long distance telephone companies,
utilities, cable television operators, financial institutions, universities,
medical facilities, correctional facilities and local, state and federal
governments.
In the opinion of management, the unaudited condensed consolidated financial
statements furnished herein include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
operations for the interim periods presented. These interim results of
operations are not necessarily indicative of results for the entire year. The
condensed consolidated financial statements contained herein should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's 1998 Annual Report on Form 10-K/A ("Form 10-K/A").
6
<PAGE> 7
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions on Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements.
Certain items in the condensed consolidated financial statements as of October
31, 1998 have been reclassified to conform with the current presentation.
2. QUARTERLY FINANCIAL DATA
The quarterly unaudited amounts for the three months ended April 30, 1999,
have been adjusted from amounts previously reported by the Company in its
quarterly filings with the Securities and Exchange Commission. The adjustments
relate to accounting errors discovered subsequent to October 31, 1999. Their
nature and effects on the results of operations for the quarterly period ended
April 30, 1999, are summarized below (in thousands, except per share data):
<TABLE>
<CAPTION>
As Reported Adjustments Adjusted
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $124,481 $ 752 $123,729
Operating income (loss) 536 (3,393) (2,857)
Net income (loss) 41 (1,636) (1,595)
Income (loss) applicable to common stock (15,151) 845 (14,306)
Income (loss) applicable to common stock per share (1.29) 0.07 (1.22)
</TABLE>
<TABLE>
<CAPTION>
Net Loss
Applicable to
Net Income (Loss) Common Stock
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Amounts previously reported $ 41 $(15,151)
Adjustments:
WorldCom SAR obligation (1) 821 821
Improperly deferred costs (2) (2,382) (2,382)
Costs improperly charged against reserves (3) 623 623
Equipment impairment loss (4) (1,146) (1,146)
Tax effects of all adjustments (5) 807 807
Series B redemption and modification (6) -- 2,481
Other adjustments (7) (18) (18)
Long-term service contracts adjustments (8) (341) (341)
- -----------------------------------------------------------------------------------------------------
Total adjustments (1,636) 845
- -----------------------------------------------------------------------------------------------------
Restated amounts $(1,595) $(14,306)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The obligation under the WorldCom SARs was calculated using a Black-Scholes
option-pricing model. The obligation should have been accounted for at
"intrinsic value" determined as the difference between the closing price of
the Company's common stock on the balance sheet date and the strike price of
$7.00.
(2) The Company deferred certain costs relating to its operation of the
Violation Processing Center for the New Jersey Consortium that should have
been expensed as incurred.
(3) Indirect costs were not consistently allocated to Transportation Services
Group jobs. In addition, costs were charged against reserves for Loss Jobs
that were not related to those jobs.
(4) An impairment loss for certain equipment for one of the Company's
subsidiaries should have been recognized in the second quarter.
(5) The tax provision for all quarters has been restated, including reversal of
approximately $1.2 million tax benefit originally offset against the
extraordinary loss on the early extinguishment of debt.
(6) The February 1999 redemption of Series B Preferred Stock and the
modification of the terms of the then remaining Series B shares was not
correctly determined.
(7) Other adjustments made as a result of the year-end audit affected the
previously reported quarterly amounts as shown.
(8) These adjustments recognize losses on long-term service contracts as
incurred as discussed more fully in the following paragraph.
LONG-TERM SERVICE CONTRACTS
During the three months ended July 31, 1999, an accrual of $8.4 million was
made with an offsetting increase to goodwill for projected losses on long-term
service contracts assumed as part of the acquisition of MFSNT for operation
and maintenance of fiber networks. The contracts extend for fifteen to twenty
years. Performance under these agreements, which were predominately executed in
1996 and 1997, began during fiscal 1999. The Company subsequently determined
that the costs to perform under these contracts are expected to be greater than
amounts presently expected to be billable to network users under firm
contractual commitments. The appropriate accounting treatment for long-term
service contracts of this nature is not clearly defined, particularly when the
contracts have been assumed as part of a purchase business combination. However,
based on the Company's ongoing discussions with the SEC, the Company believes
the SEC does not believe accruals for future losses on these types of long-term
service obligations are appropriate. The Company has also subsequently
determined that such losses cannot be reasonably estimated due to potential
changes in various assumptions. Consequently, the Company has determined the
appropriate accounting for these obligations is to record any such losses in the
periods in which the losses are incurred. The Company has restated its quarterly
results for the first, second and third quarters of 1999 to reflect these losses
as incurred and to reverse the additional $8.4 million accrued for these
obligations. In March 2000, the SEC informed the Company that it would not
object to the conclusion that such revised accounting is appropriate under
generally accepted accounting principles.
7
<PAGE> 8
3. ACQUISITION
On July 2, 1998, the Company acquired the network construction and
transportation systems business of ("MFSNT") from WorldCom, Inc. ("WorldCom")
pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On
September 9, 1998, the Company and WorldCom finalized the terms of the Plan of
Merger through the execution of an amended agreement. The acquisition of MFSNT
was accounted for using the purchase method of accounting at a total price of
approximately $67.5 million. The allocation of purchase price to identifiable
assets and liabilities acquired is based upon preliminary estimates. The Company
is in the process of obtaining additional information necessary to finalize the
allocation of purchase price. The effect of the final allocation on previously
reported amounts is not expected to be significant. In addition, the MFSNT
acquisition agreements, as amended, provide that on November 30, 2000, the
Company shall pay to WorldCom certain amounts, if positive: (i) The difference
between $9.0 million related to losses on MFSNT projects in existence on March
31, 1998 and recorded by MFSNT as of June 30, 1998, and the amount actually lost
on such contracts through November 30, 2000, (ii) the difference between $3.0
million related to losses on MFSNT projects not recorded by MFSNT as of June 30,
1998 and the amount actually lost on such contracts through November 30, 2000,
and (iii) the difference between $5.0 million and the aggregate costs of Able in
defending the litigation, and payments made in settlement or in payment of
judgements with respect to preacquisition litigation.
In conjunction with the acquisition of MFSNT, the Company granted an option to
WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the
Company's common stock, at an exercise price of $7.00 per share, but subject to
a 1,817,941 share maximum limitation, and the right to receive upon satisfaction
of certain conditions phantom stock awards (the "Phantom Stock Awards")
equivalent to 600,000 shares of common stock, payable in cash, stock, or a
combination of both at the Company's option. The WorldCom Phantom Stock Awards
are exercisable only on the following three days: July 2, 1999, July 2, 2000, or
July 2, 2001. WorldCom will be entitled to receive any appreciation of the
Common Stock over a base price of $5 3/32 per share, but in no event shall the
maximum payment exceed $25.00 per share. The fair values of the WorldCom Option
and Phantom Stock Awards were estimated at the date of grant at $3.5 million and
$0.6 million, respectively, and are included as a component of the total
consideration paid for the acquisition of MFSNT.
On January 8, 1999, the Company and WorldCom agreed to convert the WorldCom
Option into stock appreciation rights ("SARs") with similar terms and
provisions, except that the SARs provide for the payment of cash to WorldCom
based upon the appreciation of the Company's common stock over a base price of
$7.00 per share. The SARs may revert back to the WorldCom Option allowing for
the exercise of all 2,000,000 shares (no longer subject to the 1,817,941 share
limitation) if certain shareholder approvals are received.
In connection with the establishment of the stock appreciation rights liability
as of January 8, 1999, the intrinsic value was estimated to be approximately
$1.9 million as compared to the previously estimated fair value of the WorldCom
Option. The difference of $1.6 million represents a reduction of paid-in
capital. The exercise period for the SARs granted commences on the earlier of:
(i) one (1) business day after the date upon which the potential issuance of
common stock is voted on by the shareholders of the Company, and (ii) July 1,
1999, and ending on January 2, 2002. As of April 30, 1999, the intrinsic value
of the stock appreciation rights liability has been estimated to be zero and a
credit to income of $7.2 million and $1.9 million has been reflected as a change
in value of SARs in the three and six months ended April 30, 1999, respectively,
in the accompanying condensed consolidated statements of operations.
4. ASSUMPTION OF COMSAT CONTRACTS
On February 25, 1998, Georgia Electric Company ("GEC") assumed obligations to
complete 12 contracts (the "COMSAT Contracts") with the Texas Department of
Transportation from CRSI Acquisition, Inc., a subsidiary of COMSAT Corporation
("COMSAT"). The COMSAT Contracts were for the installation of intelligent
traffic management systems and the design and construction of wireless
communication networks. In exchange for assuming the obligations to perform
under the COMSAT Contracts, GEC received consideration from COMSAT of
approximately $15.0 million and assumed existing payables of approximately $2.6
million.
On February 25, 1998, the date when GEC assumed the COMSAT contracts, the
remaining amounts billable to the customers for these contracts totaled $17.0
million. The estimated costs to complete these contracts for COMSAT was from
$17.0 million to $27.3 million. GEC made the following entry to reflect the
assumption of the COMSAT contracts (amounts in thousands):
8
<PAGE> 9
<TABLE>
<S> <C>
Consideration received:
Cash $ 4,663
Accounts receivable 3,754
Equipment and other assets 6,548
- ------------------------------------------------------------------------------------------------
Subtotal 14,965
Accounts payable assumed (2,549)
- ------------------------------------------------------------------------------------------------
Deferred revenue (net amount received from COMSAT to complete the contracts) $(12,416)
- ------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of revenues and costs associated with the COMSAT
contracts for the three and six months ended April 30, 1999 (amounts in
thousands):
<TABLE>
<CAPTION>
Three Six
Months Months
------ ------
<S> <C> <C>
Billings on the COMSAT contracts (1) 3,251 5,556
Deferred revenue recognized 1,032 2,531
- -----------------------------------------------------------------------------------------------------------------------
4,283 8,087
Direct contracts costs 2,048 5,115
- -----------------------------------------------------------------------------------------------------------------------
Gross margin from COMSAT contracts 2,235 2,972
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Billings on the COMSAT contracts include approved change order revenues
associated with these contracts but not anticipated when GEC assumed
such contracts.
The revenues, cost of revenues and gross margins are non-recurring and are not
generally indicative of returns the Company expects to achieve on future
contracts.
5. ASSETS HELD FOR SALE
During the three months ended April 30, 1999, the Company finalized the sale of
conduit inventory, which had previously been reported as held for sale and runs
from Ohio to New York generating gross revenues of $35.7 million and net cash
proceeds of $27.0 million.
Assets held for sale at October 31, 1998, included approximately $26.0 million
of certain fiber optic conduit that was constructed by MFSNT prior to the MFSNT
Acquisition (the "NYSTA Network") and sold during the quarter ended April 30,
1999.
A portion (approximately 528 miles) of the NYSTA Network, was constructed on
rights of way obtained from the New York State Thruway Authority (i.e.,
"NYSTA"). This portion of the network is referred to as the "On-NYSTA network."
Separately, MFSNT was granted use of the right of way from others for a
contiguous network (the "Off-NYSTA" network) that connects the "On-NYSTA"
network to Cleveland, Ohio.
MFSNT owned or owns the conduit and equipment shelters installed in both
portions of the network. The conduit network was substantially complete and
sold at the date of acquisition in July 1998. As the system was constructed,
the costs had been initially deferred as "inventory" because it was MFSNT's
intention to sell undivided interests (indefeasible rights of use, or "IRU's")
in the owned ducts and shelters to other users. The fiber and electronics for
the network are generally owned by the users, although the Company retained
rights to a limited amount of excess capacity for some minor segments of the
network. The right of way for the On-NYSTA portion of the network is owned by
NYSTA (see revenue sharing with NYSTA below). Title to the On-NYSTA portion of
the network will transfer to NYSTA after twenty years.
The Company is not in the telephone or data distribution business, so no part
of the networks have been viewed as the construction of productive assets for
their own use.
The construction accounting was implemented with respect to the NYSTA Network
as follows:
- - Total construction costs were estimated and accumulated in the job cost
ledgers as incurred. Costs incurred were effectively charged to cost of
construction and maintenance or left on the balance sheet as "costs and
profits in excess of billings on uncompleted contracts" based on signed
contracts from users.
- - The approach treated each new contract signed as a sale of partially
completed "inventory." Some of the revenue would be recognized on
signing based on the calculated percentage complete and a proportionate
part of the "inventory" costs would be charged off. In this way,
revenues from each new contract were effectively recognized on a
progress to completion basis.
- - When it became apparent that total revenues to be received from sale of
the inventory, as well as profits from separate installation agreements
with the users, would be less than the costs to construct the conduit
network, an estimated loss expected to be incurred to complete the
project was accrued.
As owner of the right of way, NYSTA shares in user fees from the "On-NYSTA"
system. The arrangement entitled MFSNT to retain 100% of user fees up to
approximately $50.7 million. Then, NYSTA was entitled to 10% of user fees until
MFSNT had received and retained, as cost recovery, approximately $95.5 million
(i.e., from cumulative user fees of approximately $101.3 million); thereafter,
NYSTA is entitled to 50% of user fees and 20% of revenues received by MFSNT for
performance under operation and maintenance ("O&M") contracts with the users.
The O&M contracts provide for installment payments to MFSNT, generally over
twenty years, to offset costs of providing this service.
As part of the agreement, MFSNT also installed and maintains for NYSTA, free of
charge, a 16-strand fiber optic communications network within the conduit system
owned by MFSNT for the sole use of NYSTA.
At the date of acquisition of MFSNT by the Company, negotiations were in process
with a telecommunications company for purchase of nearly all the remaining
network capacity. In purchase accounting, the Company applied a similar
conceptual "inventory" approach to the valuation of this asset. It was estimated
that the user would pay a one-time, up-front fee of $34.5 million for the IRU's
with respect to both the On-NYSTA and Off-NYSTA portions of the network. Of that
amount it was estimated that approximately $8.5 million would be payable to
NYSTA based on the revenue sharing arrangement. Consequently, the Company
allocated $26.0 million of the purchase price to this asset. When the sale
closed in April 1999, Able recorded actual revenues of $35.7 million, and costs
of approximately $34.7 million, equal to $26.0 million assigned to the conduit
in purchase accounting, plus a revenue sharing payment due NYSTA from the
transaction of approximately $8.7 million.
The agreement with NYSTA also provides for sharing of "profits" experienced by
MFSNT in excess of certain specified percentages of related costs with respect
to fiber and equipment installation contracts for the "On-NYSTA" system
separately entered into by MFSNT with the users. Disputes have arisen between
MFSNT and NYSTA with respect to sharing of revenues from a specific
installation contract. Upon closing the April 1999 sale of the remaining
conduit inventory, a Partial Release and Settlement Agreement was made with
NYSTA. From those proceeds, $6.8 million was placed into escrow until NYSTA's
rights to share in revenues equal to twice that amount can be decided through
arbitration or otherwise settled. The escrowed funds are included in other
non-current assets as of April 30, 1999.
With only two exceptions, user fees were paid in their entirety at or shortly
after the time of execution of the user agreements. However, two of the user
agreements provide for the fees to be paid in installments over twenty years.
MFSNT had included these amounts in unbilled receivables (costs and profits in
excess of billings) at their gross, undiscounted future amounts. Consequently,
an adjustment was recorded by the Company to reallocate the purchase price to
recognize a discount on these long-term receivables. The discounted (at 10%)
present value of these long-term receivables was approximately $3.9 million at
April 30, 1999. Interest income from amortization of the discount was
approximately $0.1 million for the six months ended April 30, 1999.
While MFSNT and the Company have sold IRU's that constitute virtually all the
usable value of the network, MFSNT is still the legal owner and responsible for
property taxes assessed on the network. Ownership of the On-NYSTA portion of the
network automatically transfers to NYSTA after twenty years. Consistent with the
concept of having sold the network, MFSNT accrued and expensed, prior to the
acquisition, the estimated present value of future property taxes that would be
payable over the twenty-year term of the agreements. The Company recorded this
liability in purchase accounting at approximately $15.0 million, using a
discount rate of 15%. Amortization of the discount is included in interest
expense and amounted to $0.5 million and $1.1 million for the three months and
six months ended April 30, 1999.
Prospective Accounting for Sales of IRU's : FIN 43 broadens the definition of
real estate and will likely require that some or all elements of fiber optic
networks (e.g., right-of-way and conduit) must now be defined as real estate and
revenue recognition criteria for the sale or lease of IRU's will be provided by
SFAS No. 66, "Accounting for Sales of Real Estate." SFAS 66 is a different
accounting model and is likely to result in the deferral and amortization of
both costs and revenues related to network assets that would have previously
been accounted for as described above. Among other requirements, SFAS 66
requires title to transfer to the buyer for up-front revenue recognition to be
appropriate. FIN 43 is effective for all sales of real estate with property
improvements or integral equipment entered into after June 30, 1999.
Consequently, none of the transactions entered into by MFSNT prior to July 2,
1998, or the conduit sale closed by the Company in April 1999 are subject to
those provisions. However, for transactions subsequent to June 30, 1999, the
Company will be required to apply the guidance of FIN 43.
Much of the conceptual basis for the IRU accounting historically followed by
MFSNT is that the arrangements for use of the conduit qualify for revenue
recognition as sales-type leases under SFAS No. 13. No part of the transaction
was viewed as a "real estate" transaction, so the legal transfer of title to the
"leased" assets was not considered determinative as to whether or not the
transactions could be recorded as sales versus operating leases.
9
<PAGE> 10
6. INVESTMENT IN KANAS (HELD FOR SALE)
An equity interest in Kanas was acquired in the MFSNT Acquisition, and has been
held for sale since that time. The original carrying value of the Company's
interest in Kanas, which was assigned in purchase accounting, represents the net
proceeds originally expected to be received from the sale of Kanas stock and was
based, in part, on active negotiations with potential buyers.
The Company is a 25% owner of Kanas, with the remaining 75 percent owned by
native corporations of Alaska. Kanas was established by its shareholders with a
$100,000 total equity contribution ($25,000 per shareholder) to construct a
telecommunications network along the Alaskan Pipeline system between Prudhoe
Bay, Alaska and Valdez, Alaska (the "Alyeska Network"). MFSNT had been
contracted by Kanas to build the fiber optic network which cost in excess of
$83.0 million and was funded by Kanas through a credit agreement that is
guaranteed by Worldcom.
Kanas owns and is responsible for maintaining the Alyeska Network. While the
Company does not participate in the day-to-day management of Kanas, Kanas had
contracted with MFSNT to operate and maintain the Alyeska Network for 15 years.
The term of the Kanas O&M agreement began in December 1998. Through April 30,
1999, service contract revenues have been insufficient to cover costs of
performance and are not projected to be sufficient to do so for at least the
foreseeable future.
As of April 30, 1999, the unaudited financial statements of Kanas reflected
total assets, liabilities and net deficit of $86.0 million, $90.9 million and
$4.9 million, respectively. The April 30, 1999, deficit includes $4.2 million
of network depreciation.
At the date of the acquisition of MFSNT, the Company anticipated a near-term
sale of its interest in Kanas. Accordingly, the estimated amount expected to be
realized on sale was allocated to this investment in purchase accounting and,
in accordance with the guidance of EITF Issue 87-11, "Allocation of Purchase
Price to Assets to be Sold," the equity method of accounting was not employed.
The anticipated final acceptance of the network by Alyeska has yet to occur and
the timing of any sale of this interest by the Company is uncertain.
WorldCom was and continues to be the guarantor of the payment obligations of
Kanas under its credit agreement. In conjunction with the acquisition of MFSNT,
the Company has agreed to indemnify WorldCom under its guarantee. The aggregate
commitment of the lenders under the Kanas credit agreement at April 30, 1999 was
approximately $83.4 million.
7. GOODWILL:
Goodwill represents the amount by which the purchase price of businesses
acquired exceeds the fair value of the net assets acquired under the purchase
method of accounting. Goodwill is being amortized on a straight-line basis over
20 years. A rollforward of goodwill from January 31, 1999, is as follows
(amounts in thousands):
<TABLE>
<S> <C>
Net goodwill, at January 31, 1999 $35,997
Dial Communications, Inc. ("Dial")(1) (1,319)
MFSNT (2) 3,763
Amortization (419)
- -----------------------------------------------------------------------
Net goodwill, at April 30, 1999 $38,022
- -----------------------------------------------------------------------
</TABLE>
Adjustments made to goodwill during the quarter ended April 30, 1999, related
to:
(1) The Company terminated the operation of Dial and wrote-off the related
goodwill.
(2) Goodwill was increased by approximately $3.8 million for adjustments
to the MFSNT purchase price allocation.
Amortization expense was $0.4 million and $0.8 million for the three and six
months ended April 30, 1999, respectively.
8. IMPAIRMENT OF INTANGIBLE ASSETS
As part of the integration of MFSNT into the Company, management has undertaken
a consolidation and realignment of all subsidiaries into operational divisions,
both to achieve operational synergies and to close unprofitable operations. As a
result of significant turnover and the deterioration of underlying contracts,
the Company closed Dial during the three months ended April 30, 1999. For the
three and six months ended April 30, 1999 Dial had contract margins of $(2.7)
million and $(2.9) million, respectively, and losses before income taxes of
$(5.9) million and $(6.6) million, respectively, which included a $1.3 million
reduction of goodwill. In addition, the Company wrote-off $1.2 million of
equipment during the quarter ended April 30, 1999.
9. RESERVES FOR LOSSES ON UNCOMPLETED CONTRACTS
The following is a summary of the reserves for losses on uncompleted contracts
(amounts in thousands):
<TABLE>
<CAPTION>
Transportation Services
Network Services Group Group Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, October 31, 1998 $ 8,029 $17,361 $25,390
Amount utilized (1,231) (6,068) (7,299)
- -----------------------------------------------------------------------------------------
Balance, January 31, 1999 $ 6,798 $11,293 $18,091
- -----------------------------------------------------------------------------------------
Additions -- 1,858 1,858
Amount Utilized (1,250) (1,044) (2,294)
- -----------------------------------------------------------------------------------------
Balance, April 30, 1999 $ 5,548 $12,107 $17,655
- -----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
10. BORROWINGS
In February 1999, WorldCom advanced the Company $32.0 million, against amounts
otherwise payable pursuant to the WorldCom Master Services Agreement, for
purposes of facilitating the purchase of 2,785 shares, or approximately 78% of
the Series B Preferred Stock, as defined below, and the purchase of the
outstanding $10.0 million principal amount of Senior Notes, defined below (the
"WorldCom Advance"). The purchase of the Senior Notes resulted in an
extraordinary loss on the early extinguishment of debt of $3.1 million.
The original terms of the WorldCom Advance provided for interest at 11.5% and
was repayable on the earlier of (i) October 31, 2000 or (ii) the dates of
redemption and/or conversion of the Series B Preferred Stock or the Senior
Notes. On April 1, 1999, the terms of the WorldCom Advance were amended to
clarify the terms of the WorldCom Advance, to subordinate the payment terms to
the holders of the Credit Facility, defined below, to eliminate interest, and to
amend the repayment date to November 30, 2000.
The WorldCom Advance agreement also provided for additional advances to the
Company of up to $15.0 million against amounts otherwise payable pursuant to the
WorldCom master services agreement. These additional advances are non-interest
bearing and would be repayable to WorldCom on November 30, 2000. To date, the
Company has not received any additional advances against the $15.0 million
available.
During the three months ended April 30, 1999, the maturity date in the Company's
Credit Facility was amended to November 1, 2000 and certain minimum ratios were
also amended. The Company was in compliance, or has received waivers for
non-compliance, with all provisions of the Credit Facility at April 30, 1999.
11. CONTINGENCIES
LITIGATION
On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the
United States District Court for the Southern District of Florida, against the
Company and Thomas M. Davidson, who has since become a member of the Company's
Board of Directors. SIRIT asserts claims against the Company for tortuous
interference, fraudulent inducement, negligent misrepresentation and breach of
contract in connection with the Company's agreement to purchase the shares of
MFSNT and seeks injunction relief and compensatory damages in excess of $100.0
million.
On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a
lawsuit in the United States District Court for the Southern District of Florida
against the Company, and certain of its officers. SFSC asserts claims under the
federal securities laws against the Company and four of its officers that the
defendants allegedly caused the Company to falsely represent and mislead the
public with respect to two acquisitions, COMSAT and MFSNT, and the ongoing
financial condition of the Company as a result of the acquisitions and the
related financing of those acquisitions. SFSC seeks certification as a class
action on behalf of itself and all others similarly situated and seeks
unspecified damages and attorneys' fees.
The Company is subject to a number of lawsuits and claims for various amounts
which arise out of the normal course of its business. The Company intends to
vigorously defend itself in these matters. The disposition of the lawsuits and
claims is not determinable. The Company does not believe that any judgment would
have a material adverse effect on the Company's financial position.
11
<PAGE> 12
KANAS GUARANTY AGREEMENT
In conjunction with the acquisition of MFSNT, the Company has agreed to
indemnify WorldCom with respect to WorldCom's guarantee of the payment
obligations of Kanas under its credit agreement. The aggregate commitment of the
lenders under this agreement is $83.4 million, and the purpose of the Kanas
Credit Agreement is to provide the funds necessary to complete the Alyeska
Project.
CONTRACTS
The Company has and will continue to execute various construction and other
contracts which may require the Company to, among other items, maintain specific
financial parameters, meet specific milestones and post adequate collateral
generally in the form of performance bonds. Failure by the Company to meet its
obligation under these contracts may result in the loss of the contract and
subject the Company to litigation and various claims, including liquidated
damages.
12. SERIES B PREFERRED STOCK
During the three months ended January 31, 1999, the Company was in technical
violation of certain provisions of its Series B Preferred Convertible Stock
("Series B Preferred Stock") issued in June 1998. Such default resulted from the
Company's failure to have a registration statement covering the resale of shares
of common stock underlying the Series B Preferred Stock and warrants associated
with the Series B Preferred Stock (the "Registration Statement") declared
effective by December 27, 1998. Such default gave the holders of the Series B
Preferred Stock the option to require the Company to redeem their securities at
premium prices. During the quarter ended January 31, 1999, the holders of the
Series B Preferred Stock notified the Company of their intent to exercise such
redemption right; however, such notice was subsequently deferred.
In February 1999, as described above, approximately 78% of the Series B
Preferred Stock was purchased from the original holders and, in connection with
such purchase, the Company was given until May 18, 1999 to effect the
Registration Statement described above. The Purchaser and the remaining holders
of the Series B Preferred Stock agreed to either waive all outstanding defaults
under such securities or refrain from exercising any remedies with respect to
any such outstanding defaults for a period of 90 days from February 17, 1999.
During such period of time, the Company had agreed to use its best efforts to
have the Registration Statement declared effective. To date, the Registration
Statement has not been declared effective. In May 1999, the holders of the
remaining 779 shares agreed to a further extension from May 19, 1999 to August
18, 1999.
In connection with the purchase of the 78% of the Series B Preferred Stock, the
Company agreed to certain modifications in the conversion price of the related
warrants. The terms of the existing Series B Preferred Stock conversion price
for the remaining shares were modified from 97% of market value, as defined in
the agreements, to a fixed amount of approximately $3.50 per share for the
remaining 779 shares. The conversion price of (i) warrants to purchase a total
of 370,000 shares of the Company's common stock was reduced to $13.25 per share
and (ii) warrants to purchase a total of 630,000 shares of common stock was
reduced to $13.50 per share.
On May 7, 1999, the warrants to purchase the 630,000 shares of common stock were
purchased by the Company for $3.00 per share.
The purchase of 78% of the Series B Preferred Stock, the modification of the
conversion price of the remaining Series B Preferred Stock and the modification
of the Series B Preferred Stock Warrants resulted in charges to income
applicable to common stock during the three months ended April 30, 1999 of $12.6
million.
In addition, during the second quarter ended April 30, 1999, the Company was and
continues to be in default on the Series B Preferred Stock for the nonpayment of
dividends related to the remaining 22% (or 779 shares) of shares of Series B
Preferred Stock.
13. STOCKHOLDERS EQUITY
During the three months ended April 30, 1999:
- - The Company issued 628,398 shares of its common stock to the former
owners of GEC in settlement of additional purchase price earned and
accrued during fiscal 1998.
- - The Company issued 115,286 shares of its common stock to a director of
the Company in full settlement of amounts due this director and
previously reported as "Notes Payable to Directors."
12
<PAGE> 13
14. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128, EARNINGS
PER SHARE (dollars, in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Basic:
Income (loss) available to common
stockholders (numerator) ............................ $ (14,306) $ 838 $ (19,804) $ (243)
Weighted-average number of
common shares (denominator) ......................... 11,717,244 9,480,335 11,709,839 9,192,508
Income (loss) per common share ....................... $ (1.22) $ 0.09 $ (1.69) $ (0.03)
Diluted:
Income (loss) available to common
stockholders (numerator) ............................ $ (14,306) $ 838 $ (19,804) $ (243)
Weighted-average number of common shares .............. 11,717,244 9,480,335 11,709,839 9,192,508
Common stock equivalents arising
from stock options, warrants and
convertible preferred stock ......................... 1,248,647 108,412 2,138,826 79,156
Total shares (denominator) ............................ 12,965,891 9,588,747 13,848,665 9,271,665
Income (loss) per common share(1) ..................... $ (1.22) $ 0.09 $ (1.69) $ (0.03)
</TABLE>
- -------------------------
(1) The effect of securities that could dilute basic earnings per share are
antidilutive for all periods presented, therefore, basic and diluted
earnings per share are equivalent. The Company has potentially dilutive
securities that could have a dilutive effect in the future. Those
securities include warrants related to the Series A Preferred Stock, Series
B Preferred Stock warrants, stock options, warrants and phantom stock
awards.
13
<PAGE> 14
ITEM 2. 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 six months ended April 30, 1999 and
1998. This information should be read in conjunction with the Company's
condensed consolidated financial statements appearing elsewhere in this
document. Except for historical information contained herein, the matters
discussed below contain forward looking statements that involve risk and
uncertainties, including but not limited to economic, governmental and
technological factors affecting the Company's operations, markets and
profitability.
As a result of acquisitions during the fiscal year ended October 31, 1998,
primarily the acquisition of the network construction and transportation systems
business of MFS Network Technologies Inc. ("MFSNT"), material changes exist in
substantially all balance sheet and statements of operations categories.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected elements of
the Company's condensed statements of operations as a percentage of its
revenues:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended April 30, Ended April 30,
-------------------- ------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Construction and maintenance 71.1% 100.0% 83.5% 100.0%
Conduit sales 28.9% 0.0% 16.5% 0.0%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Construction and maintenance costs 62.7% 71.2% 71.8% 76.7%
Costs of conduit 28.0% 0.0% 16.0% 0.0%
General and administrative 7.0% 17.9% 8.5% 16.5%
Impairment on intangible assets 2.0% 0.0% 1.1% 0.0%
Depreciation and amortization 2.6% 4.6% 2.8% 5.0%
----- ----- ----- -----
Total costs and expenses 102.3% 93.7% 100.2% 98.2%
Income (loss) from operations (2.3)% 6.3% (0.2)% 1.8%
Other income (expense), including minority interest 3.5% (0.8)% (1.6)% (0.6)%
Provision for income taxes 0.0% 1.9% 0.0% 0.3%
Extraordinary loss from the extinguishment of debt,
net of tax (2.5)% 0.0% (1.4)% 0.0%
Net income (loss) (1.3)% 2.5% (3.2)% (0.1)%
Income (loss) applicable to common stock (11.6)% 2.4% (9.1)% (0.4)%
</TABLE>
14
<PAGE> 15
REVENUES
Construction and Maintenance - Construction and maintenance revenues were $88.0
million and $181.1 million for the three and six months ended April 30, 1999,
respectively, compared to $34.6 million and $56.8 for the same respective
periods of fiscal 1998 - increases of $53.4 million or 154 percent and $124.3
million or 219 percent, respectively. For the three and six months ended April
30, 1999, MFSNT generated construction and maintenance revenues of $57.9 million
and $118.1 million, respectively.
Conduit Sales - Sales of conduit during the three months ended April 30, 1999
generated revenues of $35.7 million. The sale of the conduit inventory, which
had previously been reported as held for sale and runs from Ohio to New York,
generated net cash flow to the Company of $27.0 million.
COSTS AND EXPENSES
Construction and Maintenance - Construction and maintenance costs were $77.6
million and $155.7 million for the three and six months ended April 30, 1999,
respectively, compared to $24.6 million and $43.6 million for the same
respective periods of fiscal 1998 - increases of $53.0 million or 215 percent
and $112.1 million or 257 percent, respectively. For the three and six months
ended April 30, 1999, MFSNT generated construction and maintenance costs of
$52.8 million and $103.9 million, respectively.
The Company's construction and maintenance margins were 11.9 percent and 14.0
percent for the three and six months ended April 30, 1999, respectively,
compared to 28.8 percent and 23.3 percent for the same respective periods of
fiscal 1998. The Company's construction and maintenance margins for the three
and six months ended have been adversely effected by losses from Dial
Communications, Inc. (Dial), a wholly-owed subsidiary of the Company, that has
generated negative margins of $(2.7) million and $(2.9) million for the three
and six months ended April 30, 1999, respectively.
As part of the integration of MSNT into the Company, management has undertaken a
consolidation and realignment of all subsidiaries into operational divisions,
both to achieve operational synergies and to close unprofitable operations. As a
result of significant turnover and the deterioration of underlying contracts,
the Company closed Dial during the three months ended April 30, 1999. For the
three and six months ended April 30, 1999 Dial had losses before income taxes of
$(5.9) million and $(6.6) million, respectively, which included a $1.3 million
reduction of goodwill. In addition, the Company wrote-off $1.2 million of
equipment during the quarter ended April 30, 1999. The reduction of goodwill and
the write-off of equipment are reflected in the accompanying statement of
operations for the three and six months ended April 30, 1999 as "Impairment of
Intangible Assets."
General and Administrative - General and administrative expenses were $8.7
million and $18.4 million for the three and six months ended April 30, 1999,
respectively, compared to $6.2 million and $9.4 million for the same respective
periods of fiscal 1998 - increases of $2.5 million or 40 percent and $9.0
million or 96 percent, respectively. For the three and six months ended April
30, 1999, general and administrative expense attributable to MFSNT was $3.4
million and $7.3 million, respectively.
General and administrative expenses during the three and six months ended April
30, 1999 were adversely effected by charges of $0.9 million related to deferred
compensation, stock compensation and severance agreements with former and
existing officers of the Company.
Depreciation and Amortization - Depreciation and amortization expense was $3.2
million and $6.0 million for the three and six months ended April 30, 1999,
respectively, compared to $1.6 million and $2.8 million for the same respective
periods of fiscal 1998 - increases of $1.6 million or 100 percent and $3.2
million or 114 percent, respectively. For the three and six months ended April
30, 1999, depreciation and amortization expense attributable to MFSNT was $0.8
million and $1.2 million, respectively.
Depreciation and amortization expense as a percentage of revenues was 2.6
percent and 2.8 percent for the three and six months ended April 30, 1999,
respectively, compared to 4.6 percent and 5.0 percent for the same respective
periods of fiscal 1998. These decreases as a percentage of revenue, are
attributable to the significant increase in revenues from MFSNT which, as a
construction management company, does not require the same percentage increase
in capital assets as the Company's construction companies.
15
<PAGE> 16
OTHER INCOME (EXPENSE)
Other income (expense) was $4.3 million and $(3.5) million for the three and six
months ended April 30, 1999, respectively, compared to $(0.6) million and $(0.9)
million for the same respective period of fiscal 1998 and consist of the
following:
<TABLE>
<CAPTION>
For the Three Months Ended April 30,
-------------------------------------------------
1999 1998 $ Change % Change
------- ------- -------- --------
<S> <C> <C> <C> <C>
Change in the value of stock appreciation rights $ 7,230 $ -- $ 7,230 n/a
Interest expense (2,210) (276) (1,934) 701
Minority interest (125) (185) 60 32
Other (551) (179) (372) 208
------- ------- ------- --------
$ 4,344 $ (640) $ 4,984 779%
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended April 30,
-------------------------------------------------
1999 1998 $ Change % Change
------- ------- -------- --------
<S> <C> <C> <C> <C>
Change in the value of stock appreciation rights $ 1,896 $ -- $ 1,896 n/a
Interest expense (4,688) (788) (3,900) 495
Minority interest (199) (296) 97 33
Other (554) 159 (713) 448
------- ------- ------- ------
$(3,545) $ (925) $(2,620) 283%
======= ======= ======= ======
</TABLE>
Stock Appreciation Rights - The change in the value of the stock appreciation
rights is a non-cash item related to the value of amounts potentially owed to
WorldCom under the existing WorldCom stock appreciation rights (WorldCom SARs).
Management expects the conversion of WorldCom SARs into options for the
Company's common stock at the Company's next shareholders' meeting and will not
result in a cash charge to the Company. The value of the WorldCom SARs will be
increased or decreased based on the intrinsic value of the WorldCom SAR's
utilizing the price of the Company's common stock at each reporting date until
the WorldCom SARs are converted to options or exercised by WorldCom.
Interest Expense - The increase in interest expense during fiscal 1999 compared
to fiscal 1998 is primarily attributable to the acquisition of MFSNT. During the
three and six months ended April 30, 1999, the Company had $35.0 million
outstanding under its Credit Facility with an average interest rate of
approximately 7.5 percent, $30.0 million outstanding under the WorldCom Note
with an interest rate of 11.5 percent and $15.0 million outstanding under its
property taxes payable that imputes interest at 15 percent. The $32.0 million
outstanding under the WorldCom Advance is non-interest bearing.
PROVISION FOR INCOME TAXES
The provision for income taxes was less than $.01 million for the three and six
months ended April 30, 1999, respectively, compared to $0.7 million and $0.2
million for the same respective periods of fiscal 1998.
EXTRAORDINARY LOSS
During the three months ended April 30, 1999, the Company purchased all of its
outstanding Senior Subordinated Notes with an outstanding principal balance of
$10.0 million resulting in an extraordinary
16
<PAGE> 17
loss from the early extinguishment of debt of $3.1 million. The Senior
Subordinated Note were purchased with proceeds from the WorldCom Advance.
INCOME (LOSS) APPLICABLE TO COMMON STOCK
Income (loss) applicable to common stock was $(14.3) million and $(19.8) million
for the three and six months ended April 30, 1999, respectively, compared to
$0.8 million and $(0.2) million for the same respective periods of fiscal 1998
representing additional losses of $15.1 million or 1,888 percent and $19.6
million or 9,800 percent, respectively.
During the three months ended April 30, 1999, the Company purchased 2,785
shares, or approximately 78 percent, of the Company outstanding Series B
Preferred Stock, modified the conversion price of the remaining Series B
Preferred Stock, and modified the terms of the Series B Preferred Stock Warrants
resulting in charges to income applicable to common stock of $12.6 million.
Additionally, during the three and six months ended April 30, 1999, dividends on
the Series B Preferred Stock totaled $0.1 million and $0.2 million,
respectively.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $30.5 million at April 30, 1999 compared to $13.5
million at October 31, 1998. The increase in cash and cash equivalents of $17.0
million during the six months ended April 30, 1999 resulted from cash provided
by operating and financing activities of $17.6 million and $1.0 million,
respectively, offset by cash used in investing activities of $1.6 million.
18
<PAGE> 19
Cash provided by operating activities during the six months ended April 30, 1999
of $17.6 million is primarily the result of net unrestricted proceeds from
conduit sales of $20.0 million offset, in part, by costs on loss contracts of
$9.6 million that were charged against the reserve for contract losses.
Cash used in investing activities during the six months ended April 30, 1999 of
$1.6 million is due to net capital expenditures required to support increased
operations and replacement of existing equipment.
Cash provided by financing activities during the six months ended April 30, 1999
of $0.9 million is due primarily to redemptions of Series B Preferred Stock, net
repayments of long term debt and other borrowings, dividends paid on preferred
stock and proceeds from the issuance of stock options.
In February 1999, WorldCom advanced the Company $32.0 million for the purposes
of arranging the purchase of 2,785 shares, or approximately 78 percent of the
Series B Preferred Stock and the purchase of the outstanding $10.0 million of
Senior Notes. This advance is non-interest bearing and due the earlier of (i)
October 31, 2000 or (ii) the dates of redemption and/or conversion of the Series
B Preferred Stock or the Senior Notes.
As of April 30, 1999, the Company had fully utilized its availability under its
Credit Facility. WorldCom has agreed to make available additional non-interest
bearing advances to the Company of up to $15.0 million against amounts otherwise
payable pursuant to the WorldCom Master Services Agreement, which, if advanced,
would be due on October 31, 2000. As of April 30, 1999 and the date of this
filing, no amounts were outstanding under WorldCom's obligation to provide such
additional advances.
At the date of this filing, the Company has obtained all necessary waivers which
cover various defaults under the Company's financing and preferred stock
agreements.
The Company believes that it has available cash from operations, as well as from
the additional advance available from WorldCom described above, sufficient to
meet the Company's operating and capital requirements for the next twelve
months. Nonetheless, pursuant to the terms of the documents relating to the
Series B Preferred Stock, under certain circumstances, including without
limitation, if the registration statement that includes the shares of common
stock underlying the Series B Securities is not declared effective on or before
May 18, 1999, the Company is delisted under certain circumstances from any
securities exchange, or any representation or warranty by the Company to the
holders is not true and correct, then the holders of certain outstanding shares
of Series B Preferred Stock, in whole or part, have the option to require the
Company to redeem their securities at premium prices. Although the Company
intends to use its best efforts to comply with the provisions in the documents
relating to the Series B Preferred Stock, the failure of which would provide the
holder the right to exercise such redemption option, there can be no assurance
that the Company will be able to do so, in part, because certain of such matters
are dependent upon the efforts or approval of others (such as the Securities and
Exchange Commission with respect to the effectiveness of the aforementioned
registration statement). In addition, there can be no assurance that the Company
will not experience adverse operating results or other factors which could
materially increase its cash requirements or adversely affect its liquidity
position.
19
<PAGE> 20
CAUTIONARY STATEMENTS
Certain of the information contained herein may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, as the same may be amended from time to time ("the Act") and in
releases made by the Securities and Exchange Commission ("SEC") from time to
time. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements expressed or implied by such forward-looking statements. The
words "estimate," "believes," "project," "intend," "expect" and similar
expressions when used in connection with the Company, are intended to identify
forward-looking statements. Any such forward-looking statements are based on
various factors and derived utilizing numerous important assumptions and other
important factors that could cause actual results to differ materially from
those on the forward-looking statements. These cautionary statements are being
made pursuant to the Act, with the intention of obtaining benefits of the "Safe
Harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to those set forth below.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to: (i) risks associated with leverage, including
cost increases due to rising interest rates: (ii) risks associated with the
Company's ability to continue its strategy of growth through acquisitions; (iii)
risks associated with the Company's ability to successfully integrate all of its
recent acquisitions: (iv) the Company's ability to make effective acquisitions
in the future and to successfully integrate newly acquired businesses into
existing operations and the risks associated with such newly acquired
businesses; (v) changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws, occupational, health and safety laws:
(vi) access to foreign markets together with foreign economic conditions,
including currency fluctuations; (vii) the effect of, or changes in, general
economic conditions; (viii) economic uncertainty in Venezuela; (ix) weather
conditions that are adverse to the specific businesses of the Company, and (x)
the outcome of litigation, claims and assessments involving the Company.
Other factors and assumptions not identified above may also be involved in the
derivation of forward- looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.
YEAR 2000
The Company's business is dependent upon various computer software programs and
operating systems that utilize dates and process data beyond the year 2000. The
Company's actions to address the risks associated with the year 2000 are as
follows:
20
<PAGE> 21
THE COMPANY'S STATE OF READINESS. The Company has established programs to
coordinate its year 2000 "Y2K" compliance efforts across all business functions
and geographic areas. The scope of the programs include addressing the risks
associated with the Company's (i) information technology "IT" systems (including
the Company's products and services), (ii) non-IT systems that include embedded
technology (e.g., equipment and other infrastructure), and (iii) significant
vendors and their Y2K readiness. The Company is utilizing the following steps in
executing its Y2K compliance program: 1) awareness, 2) assessment, 3)
renovation, 4) validation and testing, and 5) implementation. The Company has
completed the awareness and assessment steps for all areas; renovation is
scheduled to be completed no later than July 31, 1999; validation and testing is
scheduled to be completed by August 31, 1999; and implementation is scheduled to
be completed by October 31, 1999.
IT SYSTEMS. The Company's most significant renovation effort involves the
conversion of substantially all of MFSNT's IT Systems. The Company believes it
will be substantially completed with its testing and implementation for all IT
Systems by October 31, 1999.
NON-IT SYSTEMS. The Company expects to have all of its mission critical non-IT
Systems Y2K compliant by October 31, 1999. The Company is currently formulating
its testing and implementation plans for its mission critical non-IT systems.
SIGNIFICANT VENDORS. As part of the Company's Y2K compliance program, the
Company has contacted its significant vendors to assess their Y2K readiness. For
all mission critical third party software embedded in or specified for use in
conjunction with the Company's IT systems and products, the Company's
communications with the vendors indicates that the vendors believe they will be
Y2K compliant by October 31, 1999. Such third party software is being tested in
conjunction with the testing of the IT systems and products discussed above.
There can be no assurance that i) the Company's significant vendors will succeed
in their Y2K compliance efforts, or ii) the failure of vendors to address year
2000 compliance will not have a material adverse effect on the Company's
business or results of operations.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Since inception of its
program through April 30, 1999, the costs related to the Company's Y2K
compliance efforts were not material. The total estimated costs to complete the
Company's Y2K compliance effort are approximately $2.0 million. The estimated
costs to complete, which does not include any costs which may be incurred by the
Company if its significant vendors fail to timely address Y2K compliance, is
based on currently known circumstances and various assumptions regarding future
events. However, there can be no assurance that these estimates will be achieved
and actual results could differ materially from those anticipated.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company's failure to timely
resolve the Y2K risks could result in system failures, the generation of
erroneous information, and other significant disruptions of business activities.
Although the Company believes it will be successful in its Y2K compliance
efforts, there can be no assurance that the Company's systems and products
contain all necessary date code changes. In addition, the Company's operations
may be at risk if its vendors and
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<PAGE> 22
other third parties fail to adequately address the Y2K issue or if software
conversions result in system incompatibilities with these third parties. To the
extent that the Company does not achieve Y2K compliance, the Company's results
of operations could be materially adversely affected. Furthermore, it has been
widely reported that a significant amount of litigation surrounding business
interruption will arise out of Y2K issues. It is uncertain whether, or to what
extent, the Company may be affected by such litigation. The most likely worst
case scenario for Y2K is that the Company's internal operating systems and
hardware become inoperable due to internal problems or date sensitive issues
which may not have been addressed by the Company's third party hardware and
software vendors. This situation could cause downtime for the accounting,
purchasing and cost management systems. Proper backup of data and implementation
of manual processing during downtime will reduce the problems to a point that
there will be little or no impact on operations or revenue. Y2K issues that
arise with customers' hardware and software may cause a short-term loss of
revenues as a result of unforseen software and/or third party hardware failures.
This exposure is expected to be minimal as the result of the Company's Y2K
compliance program efforts, which included validation and testing.
THE COMPANY'S CONTINGENCY PLAN. The Company has not yet developed a
comprehensive contingency plan to address the situation that may result if the
Company or its vendors are unable to achieve Y2K compliance for its critical
operations. During fiscal 1999, based upon the status of the Company's Y2K
compliance efforts at that time and the Company's perceived risks to critical
business operations, the Company plans to evaluate what areas the Company
believes a contingency plan may be necessary, and execute such contingency plan
if warranted. The i) inability to timely implement such a plan, if deemed
necessary, and ii) the cost to develop and implement such a plan, may have a
material adverse effect on the Company's results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. Except for
statements of existing or historical facts, the foregoing discussion of Y2K
consists of forward-looking statements and assumptions relating to
forward-looking statements, including without limitation the statements relating
to future costs, the timetable for completion of Y2K compliance efforts,
potential problems relating to Y2K, the Company's state of readiness, third
party representations, and the Company's plans and objectives for addressing Y2K
problems. Certain factors could cause actual results to differ materially from
the Company's expectations, including without limitation (i) the failure of
vendors and service providers to timely achieve Y2K compliance, (ii) system
incompatibilities with third parties resulting from software conversion, (iii)
the Company's systems and products not containing all necessary date code
changes, (iv) the failure of existing or future clients to achieve Y2K
compliance, (v) potential litigation arising out of Y2K issues, the risk of
which may be greater for information technology based service providers such as
the Company, (vi) the failure of the Company's validation and testing phase to
detect operational problems internal to the Company, in the Company's products
or services or in the Company's interface with service providers, vendors or
clients, whether such failure results from the technical inadequacy of the
Company's validation and testing efforts, the technological infeasibility of
conducting all available testing, or the unavailability of third parties to
participate in testing, or (vii) the failure to timely implement a contingency
plan to the extent Y2K compliance is not achieved.
22
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on debt
obligations that impact the fair value of these obligations. The Company's
policy is to manage interest rates through a combination of fixed and variable
rate debt. Currently, the Company does not use derivative financial instruments
to manage its interest rate risk. The table below provides information about the
Company's risk exposure associated with changing interest rates (amounts in
thousands):
<TABLE>
<CAPTION>
EXPECTED MATURITY DURING THE FISCAL YEARS ENDED
1999 2000 2001 2002 2003 THEREAFTER
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate debt $ 3,278 $ 2,543 $32,109 $ 1,895 $ 1,703 $ 6,074
Average interest rate 12.6% 13.0% 11.9% 15% 15% 15%
Variable rate debt $ -- $ -- $35,000 $ -- $ -- $ --
Average interest rate --% --% 7.5% --% --% --%
</TABLE>
The Company has no cash flow exposure due to interest rate changes for its fixed
debt obligations. All of the Company's debt is non-trading. The fair value of
the Company's debt approximates its carrying value.
Although the Company conducts business in foreign countries, the international
operations were not material to the Company's consolidated financial position,
results of operations or cash flows as of April 30, 1999. Additionally, foreign
currency transaction gains and losses were not material to the Company's results
of operations for the six months ended April 30, 1999. Accordingly, the Company
was not subject to material foreign currency exchange rate risk from the effects
that exchange rate movements of foreign currencies would have on the Company's
future costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 12, 1998, the Company granted options to purchase 150,000 shares of
the Company's common stock, par value $0.001 per share ("Common Stock") to two
employees of the Company. The options were granted pursuant to the Company's
1995 Stock Option Plan, as amended (the "Plan"), are non-qualified, vested over
three years, are exercisable at $7.125 per share, and expire on July 8, 2000. In
addition, on November 12, 1998, the Company granted
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<PAGE> 24
options to purchase 350,000 shares of Common Stock to employees of the Company's
subsidiaries acquired in connection with the MFSNT acquisition. The options were
granted outside the Plan.
On December 23, 1998, the Company granted options to purchase 12,500 shares of
Common Stock to employees of the Company. The options were granted pursuant to
the Plan, are qualified, vested immediately, are exercisable at $5.75 per share,
and expire on December 31, 2004.
On December 31, 1998, in an effort to correct certain of the actions taken by
the Company's Board of Directors in order to maintain compliance with the Plan,
as amended, the Board of Director's rescinded certain of the stock option grants
made during the fiscal year ended October 31, 1998, or 530,000 options under the
Plan and 310,000 options outside the Plan. These ambiguities and compliance
issues included, in certain instances, (i) granting options that had been
granted inside the Plan where there were not a sufficient number of shares
available, (ii) granting options at below market prices to nonemployee directors
with the Plan, contrary to terms of the Plan, (iii) not specifying whether the
grants were issued inside or outside the Plan, (iv) not specifying the exercise
period for the options granted or (v) issuing options outside the Plan, which
could be considered contrary to the terms of certain financing documents. These
options, which vested immediately, were reissued at the fair market value ($5.75
per share), as defined by the Plan, on December 31, 1998, as well as shortened
certain of the expiration dates of the options. In addition, the Company
rescinded and reissued the 350,000 options outside the Plan and the 150,000
options pursuant to the Plan described above on December 31, 1998 at $5.75 per
share for the reasons described above. These options vested immediately and
expire on November 12, 2004 (outside the Plan) and December 31, 2004 (pursuant
to the Plan).
On December 31, 1998, the Company granted options to purchase 1,050,000 shares
of Common Stock to employees of the Company's subsidiaries acquired in
connection with the MFSNT acquisition. The options were granted outside the
Plan, are non-qualified, vest over three years, are exercisable at $5.75 per
share, and expire on November 12, 2004.
On December 31, 1998, the Company granted options to purchase 40,000 shares of
Common Stock to an employee of the Company. The options were granted outside the
Plan, are non-qualified, 20,000 of which vested on January 1, 1999, 10,000 vest
on December 31, 1999 and 10,000 vest on December 31, 2000, are exercisable at
$5.75 per share, and expire on the earlier of September 19, 2005 or two years
after the date of termination.
On December 31, 1998, the Company granted options to purchase 180,000 shares of
Common Stock to three employees of the Company. The options were granted
pursuant to the Plan, are non-qualified, vested immediately, are exercisable at
$5.75 per share, and expire on December 31, 2001.
On February 17, 1999, 2,785 shares of non-voting Series B Convertible Preferred
Stock, $0.10 par value ("Series B Preferred Stock") were purchased by the
Company for approximately $18.9 million and retired. In connection with the
purchase of the 78% of the Series B Preferred Stock, the Company agreed to
certain modifications in the conversion price of the related warrants. The terms
of the existing Series B Preferred Stock conversion price for the remaining
shares were modified from 97% of market value, as defined in the agreements, to
a fixed amount of approximately $3.50 per share for 404 of the remaining 779
shares. The conversion price of (i) warrants to purchase a total of 370,000
shares of the Company's common stock was reduced to $13.25 per share and (ii)
warrants to purchase a total of 630,000 shares of common stock was reduced to
$13.50 per share. On May 7, 1999, the warrants to purchase the
24
<PAGE> 25
630,000 shares of common stock were purchased by the Company for $3.00 per
share.
On February 19, 1999, 628,398 shares were issued to the former owners, or their
assignees, of Georgia Electric Corporation ("GEC") pursuant to the earn-out
provision of the acquisition agreement whereby the Company purchased all of the
outstanding stock of GEC.
Effective April 1, 1999, the Company granted to an employee options to purchase
100,000 shares of Common Stock. The options were granted outside the Plan, are
non-qualified, 75,000 of which vested immediately with the remaining 25,000
vesting on June 21, 2000, are exercisable at $6.375 per share, and expire at the
earlier of September 19, 2005 or two years from the date of termination.
Effective April 1, 1999, the Company granted a consultant options to purchase
40,000 shares of Common Stock. The options were granted outside the Plan, are
non-qualified, 20,000 of which vested immediately, 10,000 vest on April 1, 2000,
and 10,000 vest on April 1, 2001, are exercisable at $6.375 per share, and
expire two years from the date of expiration of the consulting agreement or any
extensions or renewals thereof.
On April 30, 1999, the Company granted to an employee a restricted stock award
of 50,000 shares of Common Stock.
On April 30, 1999, the Company converted a payable to a Director of the Company
in the amount of $0.8 million into 118,286 shares of Common Stock based upon a
conversion rate equal to the fair market value of the Company's common stock on
the date of conversion, or $7.00 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
For the period from November 1, 1998 through February 17, 1999, the Company was
in violation of the payment terms of its $10.0 million principal amount 12%
Senior Subordinated Notes (the "Senior Notes"). These Senior Notes were
purchased from the holders effective February 17, 1999, as described above, and
subsequently canceled.
The Company was not in compliance with certain provisions (i.e., certain minimum
ratios, total debt limitations) of the Company's $35.0 million three-year senior
secured revolving credit facility ("Credit Facility") during the six months
ended April 30, 1999. The Company has obtained a waiver for its noncompliance
during the six months ended April 30, 1999. During the three months ended April
30, 1999, the Credit Facility was amended to change certain minimum ratios.
In February 1999, as was reported on the Company's Form 10-K/A, approximately
78% of the Series B Preferred Stock was purchased from the original holders and,
in connection with such purchase, the Company was given until May 18, 1999 to
effect a registration statement covering the resale of shares of common stock
underlying the Series B Preferred Stock and warrants associated with the Series
B Preferred Stock (the "Registration Statement"). The purchaser and the
remaining holders
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<PAGE> 26
of the Series B Preferred Stock agreed to either waive all outstanding defaults
under such securities or refrain from exercising any remedies with respect to
any such outstanding defaults for a period of 90 days from February 17, 1999.
During such period of time, the Company had agreed to use its best efforts to
have the Registration Statement declared effective. To date, the Registration
Statement has not been declared effective. In May 1999, the holders of the
remaining 22% agreed to a further extension from May 19, 1999 until August 18,
1999.
In addition, during the second quarter ended April 30, 1999, the Company was and
continues to be in default on the Series B Preferred Stock for the nonpayment of
dividends related to the remaining 22% (or 779 shares) of shares of Series B
Preferred Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
2.1 Asset Purchase Agreement, dated November 26, 1997, among Able
Telcom Holding Corp., Georgia Electric Company, Transportation
Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and
COMSAT Corporation (1)
2.2 Indemnification Agreement, dated February 25, 1998, among Able
Telcom Holding Corp., Georgia Electric Company, Transportation
Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and
COMSAT Corporation (1)
2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able
Telcom Holding Corp., James P Patton, Rick Boyle and Claiborne K.
McLemore III (2)
2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able
Telcom Holding Corp., James P.Patton, Rick Boyle and Claiborne K.
McLemore III (2)
2.5 Agreement and Plan of Merger by an among MFS Acquisition Corp.,
Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS
Communications Company, Inc. dated as of April 22, 1998 (9)
2.5.1 Amendment to Agreement and Plan of Merger among MFS Acquisition
Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc.
and MFS Communications Company, Inc. dated as of July 2, 1998(10)
2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan
of Merger among MFS Acquisition Corp., Able Telcom Holding Corp.,
MFS Network Technologies, Inc. and MFS Communications Company,
Inc. (11)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom
Holding Corp. dated as of September 9, 1998 (13)
2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able Telcom
Holding Corp. dated January 26, 1999 (12)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998
to MFS Communications Company, Inc. (10)
2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp., and
WorldCom Network Services, Inc. dated as of September 1, 1998(12)
2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom
Holding Corp. in favor of WorldCom, Inc. (10)
2.5.4 Master Services Agreement between WorldCom Network Services, Inc.
and MFS Network Technologies, Inc. dated as of July 2,1998
(exhibits omitted) (11)
2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among
Able Telcom Holding Corp., WorldCom Inc., MFS Communications
Company, Inc., MFS Intelenet, Inc., MFS Datanet, Inc., MFS
Telcom, Inc. and MFS Communications, Ltd. (schedule omitted) (10)
2.5.6 License Agreement between MFS Communications Company, Inc. and
Able Telcom Holding Corp. dated as of July 2, 1998 (10)
2.5.7 Modification to Stock Option Agreement between the Company and
WorldCom, Inc. dated January 8, 1999 (12)
2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement
between the Company and WorldCom, Inc. dated January 8, 1999(12)
2.5.9 Financing Agreement between WorldCom Network Services, Inc. and
Able Telcom Holding Corp. dated February 16, 1999 (12)
2.5.9.1 Amendment and Restatement of Financing Agreement by and between
WorldCom Network Services, Inc. and Able Telcom Holding Corp.
dated April 1, 1999 (16)
2.5.10 Agreement dated March 15, 1999 by and between Able Telcom Holding
Corp. and WorldCom Network Services, Inc. (16)
3.1 Articles of Incorporation of Able Telcom Holding Corp., as
amended (3) (4)
3.1.1 Articles of Amendment to the Articles of Incorporation of Able
Telcom Holding Corp. (13)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
3.2 Bylaws of Able Telcom Holding Corp., as amended (3)
4.2 Specimen Common Stock Certificate (3)
4.3 Specimen Series A Preferred Stock Certificate (6)
4.4 Form of Warrant issued to Credit Suisse, First Boston and
Silverton International Fund Limited (4)
4.6 Able Telcom Holding Corp. 1995 Stock Option Plan (13)
4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan,
dated April 24, 1998 (13)
4.8 Series B Convertible Preferred Stock Purchase Agreement (13)
4.9 Registration Rights Agreement for Series B Convertible Preferred
Stock Purchase Agreement and 350,000 Warrants (13)
4.10 Registration Rights Agreement for 650,000 Warrants associated
with Series B Convertible Preferred Stock Purchase Agreement (13)
4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in
connection with Series B Convertible Preferred Stock Purchase
Agreement (13)
4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in
connection with Series B Convertible Preferred Stock Purchase
Agreement (13)
4.13 Preferred Stock Purchase Agreement by and among Able Telcom
Holding Corp., RGC International Investors, LDC, and Cotton
Communications, Inc. dated February 17, 1999 (12)
4.14 Warrant Amendment between Able Telcom Holding Corp., and
Purchasers (as defined) dated February 17, 1999 (12)
4.15 Securities Purchase Agreement by and between the Sellers
(as defined) and Cotton Communications, Inc. dated February 17,
1999 (12)
10.15 Stock Purchase Agreement between Able Telcom Holding Corp.,
Traffic Management Group, Inc., Georgia Electric Company, Gerry
W. Hall and J. Barry Hall (5)
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.16 Stock Purchase Agreement between Able Telcom Holding Corp.,
Telecommunications Services Group, Inc., Dial Communications,
Inc., William E. Newton and Sybil C. Newton (8)
10.17 Promissory Note of Able Telcom Holding Corp. Payable to William
E. Newton and Sybil C. Newton (8)
10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp.,
Traffic Management Group, Inc., Georgia Electric Company, Gerry
W. Hall and J. Barry Hall (5)
10.25 Securities Purchase Agreements, dated as of January 6, 1998,
between Able Telcom Holding Corp. and each of the Purchasers
named therein (6)
10.25.1 Letter Agreement dated July 2, 1998 related to Securities
Purchase Agreements dated as of January 6, 1998 (13)
10.26 Senior Secured Revolving Credit Agreement dated as of April 6,
1998, between Able Telcom Holding Corp. and Suntrust Bank, South
Florida, N.A. and Bank of America, FSB (9)
10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank,
N.A. and The Several Lenders from Time to Time Parties Hereto
dated as of June 11, 1998 (exhibits and schedules omitted) (13)
10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998 (13)
10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom
Holding Corp. NationsBank N.A., and the Several Lenders from Time
to Time Parties thereto, dated as of June 30, 1998 (13)
10.32.1 Amendment and Amended and Restated Limited Waiver to June 11,
1998 Credit Agreement among Able Telcom Holding Corp.,
NationsBank N.A., and the Several Lenders from Time to Time
Parties thereto, dates as of June 30, 1998 (14)
10.33 Employment Agreement with Billy V Ray, Jr., dated December 1,
1998 (12)
10.35 Financial Advisor and Placement Engagement Letter, dated April 3,
1998, between Washington Equity Partners and Able Telcom Holding
Corp. (14)
10.36 Employment Agreement with G. Vance Cartee, dated January 4, 1999
(12)
10.37 Employment Agreement with Edward Pollock, dated January 1, 1999
(12)
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
10.38 Employment Agreement with Frazier L. Gaines, dated November 12,
1998 (12)
10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 (12)
10.41 Financing Agreement between Able Telcom Holding Corp. and Cotton
Communications, Inc. dated February 17, 1999 (without exhibits)
(12)
10.41.1 Termination Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated March 22, 1999 (14)
10.42 11.5% Non-Recourse Promissory Note between Cotton Communications,
Inc. and Able Telcom Holding Corp. dated February 17, 1999 (12)
10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999 (12)
10.44 Employment Agreement with Michael Arp, dated January 1, 1999 (14)
10.45 Consulting Agreement and Employment Agreement with James E.
Brands, dated March 15, 1999 (14)
10.46 Employment Agreement with Michael Summers, dated May___, 1999 (16)
11 Computation of Per Share Earnings (7)
16.1 Letter regarding change in certifying accountants (15)
21 Subsidiaries of Able Telcom Holding Corp. (13)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ----------------------
(1) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated February 25, 1998, as
filed with the Commission on March 12, 1998, as amended by Form
8-K/A-1, dated May 11, 1998, as filed with the Commission on April 14,
1998.
(2) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated April 1, 1998, as filed
with the Commission on April 14, 1998.
(3) Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-65854), as declared effective by the
Commission on February 26, 1994.
(4) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated December 20, 1996, as
filed with the Commission on December 31, 1996.
30
<PAGE> 31
(5) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated October 12, 1996, as filed
with the Commission on October 25, 1996.
(6) Incorporated by reference from an exhibit to the Company's Annual
Report on Form 10-K (File No. 0-21986) for the fiscal year ended
October 31, 1997, as filed with the Commission on February 13, 1998, as
amended by 10-K/A, as filed with the commission on March 20, 1998.
(7) Incorporated by reference from Note 6 to the Condensed Consolidated
Financial Statements (Unaudited) filed herewith.
(8) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated December 2, 1996, as filed
with the Commission on December 13, 1996, as amended by Form 8-K/A-1,
dated February 11, 1997, as filed with the Commission on February 11,
1997.
(9) Incorporated by reference from an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30,
1998, as filed with the Commission on June 14, 1998.
(10) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), dated July 2, 1998, as filed
with the Commission on July 16, 1998.
(11) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K/A (File No. 0-21986), dated July 2, 1998, as filed
with the Commission on August 3, 1998.
(12) Incorporated by reference from an exhibit to the Company's Annual
Report on Form 10-K/A (File No. 0-21986), for the fiscal year ended
October 31, 1998, as filed with the Commission on March 1, 1999.
(13) Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31,
1998, as filed with the Commission on September 21, 1998, as amended by
Form 10-Q/A, as filed with the Commission on October 13, 1998.
(14) Incorporated by reference to an exhibit to the Company's Form S-1 (File
No. 333-65991), as filed with the Commission on October 22, 1998, as
amended April 8, 1999.
(15) Incorporated by reference from an Exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed September 14, 1998.
(16) Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended
April 30, 1999, as filed June 14, 1999.
31
<PAGE> 32
(b) Reports on Form 8-K
On February 16, 1999, the Company filed a Current Report on Form 8-K
(File No. 0-21986), dated February 16, 1999, announcing earnings for the fiscal
year ended October 31, 1998 and the timing of filing the Annual Report on Form
10-K.
On March 16, 1999, the Company filed a Current Report on Form 8-K (File
No. 0-21986), dated March 12, 1999, announcing the resignation of Gideon D.
Taylor from the Company's Board of Directors.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
ABLE TELCOM HOLDING CORP.
(REGISTRANT)
<S> <C>
May 26, 2000 By: /S/ BILLY V. RAY, JR.
-----------------------------------
Billy V. Ray, Jr.
Chief Executive Officer
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ABLE TELCOM HOLDING CORPORATION FOR THE SIX MONTHS
ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 30,502
<SECURITIES> 0
<RECEIVABLES> 80,449
<ALLOWANCES> 860
<INVENTORY> 0
<CURRENT-ASSETS> 169,881
<PP&E> 48,872
<DEPRECIATION> 19,743
<TOTAL-ASSETS> 272,868
<CURRENT-LIABILITIES> 124,592
<BONDS> 0
0
2,385
<COMMON> 12
<OTHER-SE> 27,275
<TOTAL-LIABILITY-AND-EQUITY> 272,868
<SALES> 0
<TOTAL-REVENUES> 216,809
<CGS> 190,329
<TOTAL-COSTS> 217,145
<OTHER-EXPENSES> (1,143)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,688
<INCOME-PRETAX> 3,682
<INCOME-TAX> (35)
<INCOME-CONTINUING> (3,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,067
<CHANGES> 0
<NET-INCOME> (6,913)
<EPS-BASIC> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
