SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-19589
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ARGUSS HOLDINGS, INC.
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(Exact name of Registrant issuer as specified in its Charter)
DELAWARE 02-0413153
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(State or other jurisdiction of (IRS Employer
Incorporation of Organization) Identification No.)
ONE CHURCH STREET, SUITE 302, ROCKVILLE, MARYLAND
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(Address of Principal executive offices)
20850
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(Zip Code)
(301) 315-0027
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(Issuer's telephone number including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: NONE
TITLE OF CLASS
COMMON STOCK, $.01 PAR VALUE
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 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of February 25, 2000, 13,037,073 shares of common stock, $ .01 par
value per share were outstanding. The aggregate market value of the shares of
common stock, held by non-affiliates, based upon the closing price for such
stock on February 25, 2000 was approximately $180,889,388.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement for its Annual Meeting of Stockholders
to be held May 18, 2000 is incorporated by reference into Part III hereof.
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PART I
Statements made in this report that are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that actual results may differ substantially from such forward-looking
statements. Forward-looking statements may be subject to certain risks and
uncertainties, including, but not limited to, continued acceptance of Arguss
Holdings, Inc.'s products and services in the marketplace, uncertainties
surrounding new acquisitions, floating rate debt, risks of the construction
industry, including weather and an inability to plan and schedule activity
levels, doing business overseas and risks inherent in concentration of business
in certain customers. All of these risks are detailed from time to time in
Arguss Holdings, Inc.'s filings with the Securities and Exchange Commission.
Accordingly, the actual results of Arguss Holdings, Inc. (the "Company" or
"Arguss") could differ materially from such forward-looking statements.
ITEM 1. BUSINESS
GENERAL
The Company conducts its operations through its wholly owned
subsidiaries, Arguss Communications Group subsidiary ("ACG") and Conceptronic,
inc. ("Conceptronic"). Through ACG, Arguss is a leading provider of
telecommunications infrastructure services including project management, design,
engineering, construction and maintenance for Internet, telecommunications and
broadband service providers. Conceptronic manufactures and sells highly
advanced, computer-controlled equipment used in the surface mount electronics
circuit assembly industry ("SMT").
The Company was organized as a Delaware corporation on June 1, 1987.
The Company currently owns companies that serve the telecommunications industry
and the circuit board manufacturing industry. The Company has adopted an
entrepreneurial management style, which stresses operational reliance on the
entrepreneurial partners who previously owned the companies acquired. Employees
are incentivized at all levels of responsibility with stock options.
Prior to May 1997, the Company operated as a single entity under the
name "Conceptronic, Inc." On May 9, 1997, the shareholders of the Company
approved a plan providing for the internal restructuring of the Company whereby
the Company became a holding company, and its operating assets were held by
wholly owned subsidiaries. Accordingly, on May 9, 1997, the Company transferred
substantially all of its Conceptronic, Inc. operating assets to a newly formed,
wholly owned subsidiary of the Company, and the Company changed its name to
Arguss Holdings, Inc. The subsidiary then adopted the name "Conceptronic, Inc."
TELECOM INFRASTRUCTURE SERVICES
The Company has continued to expand its abilities as a full service
telecom infrastructure services provider. During 1999, the Company acquired a
cable engineering and design firm. The Company also has continued to
successfully manage turnkey projects in Denver, CO and Portland, OR,
strengthening its reputation for providing a full range of telecom
infrastructure services.
Through its strategy of evolving into a geographic and customer diverse
telecom infrastructure services company, ACG is able to exploit the rapidly
accelerating deployment of fiber optics throughout the United States.
Telecommunications companies are expanding rapidly due to deregulation within
the industry coupled with the increased demand for telecommunications services
by both commercial and non-commercial users. The Company is participating in the
industry's expansion through the construction of expanded capacity by deploying
fiber optic cable, replacing aging copper and coaxial infrastructure and
upgrading the capacity of existing infrastructure.
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ACG intends to emphasize its high quality reputation, outstanding
customer base and highly motivated employees in competing for large national
contracts. ACG believes that a high quality and well maintained fleet of
vehicles and construction machinery and equipment is essential to meet
customers' needs for high quality and on-time service. ACG is committed to
invest in its repair and maintenance capabilities to maintain the quality and
life of its equipment. Additionally, ACG makes a substantial investment annually
in new vehicles and equipment.
Through its acquisitions in the telecom infrastructure services
industry, the Company seeks to evolve into a geographically diverse telecom
infrastructure services entity with a reputation for high quality and on-time
performance. The Company has diversified its customer base and believes it is
included on the bid lists of many of the major telecommunications firms. During
1999, the Company, through ACG, actively pursued acquisitions in the telecom
infrastructure services industry. The Company enhanced its telecom service
capacity through its three 1999 acquisitions.
HOLDING COMPANY STRUCTURE
Arguss is a holding company with no operations other than an investment
in its wholly owned operating subsidiaries. At December 31, 1999, there were no
restrictions with respect to dividends or other payments from the operating
subsidiaries to Arguss.
CUSTOMERS
During 1999, the Company provided services to many of the national
firms in the telecommunications industry. Certain of the Company's more
significant customer relationships were with Media One, Tele-Communications,
Inc. ("TCI") and Time Warner, Inc. TCI accounted for approximately 35% of
consolidated net sales during the twelve months ended December 31, 1999. TCI has
been a major customer for several years, and the Company believes that they will
continue to be a major customer. Combined, Media One, TCI and Time Warner, Inc.
accounted for approximately 51% of consolidated net sales in 1999.
BACKLOG
At December 31, 1999, ACG had a backlog of estimated commitments of
$300 million to perform services in 2000 and later years, compared to $150
million at December 31, 1998. Of ACG's backlog, over 70% is expected to be
constructed within the next twelve months.
SAFETY AND RISK MANAGEMENT
The Company is committed to ensuring that its employees perform their
work in the safest possible manner. The Company regularly communicates with its
employees to promote safety and to instill safe work habits. The Company's
safety director, an ACG employee, reviews accidents and claims throughout the
operating subsidiaries, examines trends and implements changes in procedures or
communications to address any safety issues.
COMPETITION
The Company operates in a competitive industry. See further discussion
of competition under "Risk Factors."
RISK FACTORS
The Company is involved in the telecom infrastructure services
industry, which can be negatively affected by rises in interest rates,
downsizings in the economy and general economic conditions. In addition, the
Company's activities are hampered by weather conditions and an inability to plan
and forecast activity levels.
The three largest customers of the Company account for approximately
51% of its revenues. Although the Company considers its relationships with each
of these customers to be strong, the loss of one or more of these customers
could have a material adverse impact on the Company.
ACG operates in a competitive and fragmented industry. ACG competes
with service providers ranging from small regional companies which service a
single market to larger firms servicing multiple regions, as well as large
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national and multi-national contractors. ACG believes it competes favorably with
the other companies in the telecom infrastructure services industry.
A significant portion of the Company's growth in recent years has been
from the acquisition of other businesses. There can be no assurance that future
acquisitions will occur or, if they occur, will be beneficial to the Company and
its stockholders.
ACG's operations are expected to have seasonally weaker results in the
first and fourth quarters of the year, and may produce stronger results in the
second and third quarters. This seasonality is primarily due to the effect of
winter weather on outside plant activities in the northern areas served by ACG,
as well as reduced daylight hours and customer budgetary constraints. Certain
customers tend to complete budgeted capital expenditures before the end of the
year, and postpone additional expenditures until the subsequent fiscal period.
ACG continues to actively pursue larger regional telecom infrastructure
contracts with major telecommunications firms. The positive impact of major
contracts requires that ACG undertake extensive up front preparations with
respect to staffing, training and relocation of equipment. Consequently, ACG may
incur significant period costs in one fiscal period and realize the benefit of
contractual revenues in subsequent periods.
The Company has not paid cash dividends on its common stock since its
inception and intends to retain earnings, if any, to finance the development and
expansion of its business. As a result, the Company does not anticipate paying
dividends on its common stock in the foreseeable future. Payment of dividends,
if any, will depend on the future earnings, capital requirements and financial
position of the Company, plans for expansion, general economic conditions and
other pertinent factors.
The Company has approximately $35 million of unhedged variable rate
debt. Any general increase in interest rate levels will increase the Company's
cost of doing business. See further discussion under "Liquidity and Capital
Resources."
To hedge the variable term loan interest rate risk for $30 million in
notional amount, five-year, term financing facility, the Company has entered
into an interest rate swap pursuant to which it pays fixed interest rates and
receives variable interest rates on the same notional amount. Other parties to
the agreements expose the Company to credit losses for the periodic settlements
of amounts due under the Interest Rate Swaps in the event of non-performance.
However, the Company does not anticipate that it will incur any material credit
losses because it does not anticipate non-performance by the counter parties.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1999, 1998 and 1997, Conceptronic
expended approximately $926,000, $1,096,000 and $489,000 respectively, or
approximately 7.4%, 6.4% and 2.6% of its net sales for each respective year, on
research and product development. In 1998 and 1999, expenditures primarily
involved work on a new line of ovens that incorporate a modular design to
enhance efficiency of manufacturing processes, as well as adaptability to
customer configuration requirements.
EMPLOYEES
As of December 31, 1999, the Company had 1,560 employees, all of whom
were full time. Approximately 24 of the Company's employees are represented by
labor organizations. The Company is not aware of any other employees seeking
organization. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
FACILITIES
ACG's corporate headquarters is located in an office facility in Epsom,
New Hampshire. ACG's divisional facilities include a 9,000-sq. ft. maintenance
facility the Company acquired in 1997, and a 10,000-sq. ft. office facility on
an adjacent lot constructed during 1997. During 1999, the Company acquired
certain facilities that were previously leased including a 21,000 square foot
combined office, warehouse and maintenance facility located in Costa Mesa, CA,
and a 13,000 square foot office and maintenance facility in Woodinville, WA.
(See further discussion of these transactions in Note 16 to consolidated
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financial statements.) ACG also leases divisional headquarters located in
various regions of the United States including a 3,000 square foot office
facility located in Palm Harbor, FL, a 6,000 square foot office and maintenance
facility in Mukilteo, WA and a 10,000 square foot office and maintenance
facility in Salem, OR.
ACG's principal operations are conducted at local construction offices,
equipment yards and storage facilities. These facilities are temporary in nature
with most of ACG's services performed on customer premises or job sites. Because
equally suitable temporary facilities are available in all areas where ACG does
business, these facilities are not material to ACG's operations.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company and certain of its
subsidiaries have pending and unasserted claims. It is the opinion of the
Company's management, based on information available at this time, that these
claims will not have a material adverse impact on the Company's consolidated
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $ .01 par value per share, trades on The
NASDAQ National Market of The NASDAQ Stock Market under the symbol "ARGX." For
the periods reported below, the following sets forth the high and low sales
price information for the common stock as reported by the National Association
of Securities Dealers Automated Quotation System (NASDAQ).
High Low
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1999
First Quarter $18.25 $13.56
Second Quarter $19.50 $14.125
Third Quarter $18.93 $13.50
Fourth Quarter $15.875 $11.50
High Low
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1998
First Quarter $18.50 $13.50
Second Quarter $19.125 $15.00
Third Quarter $18.75 $13.50
Fourth Quarter $20.50 $12.00
High Low
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1997
First Quarter $ 8.625 $ 5.50
Second Quarter $ 8.0625 $ 6.00
Third Quarter $12.375 $ 7.50
Fourth Quarter $14.75 $10.00
The Company has not paid dividends to its stockholders since its
inception, and does not plan to pay dividends on its common stock in the
foreseeable future. The Company intends to retain any earnings to finance
growth.
The closing price of the Company's common stock on NASDAQ on February
25, 2000 was $13.875 per share. As of February 25, 2000, the Company had
approximately 300 stockholders of record for its common stock. The Company has
approximately 1200 stockholders holding common stock in brokerage accounts.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the
Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995. This
data should be read in conjunction with the consolidated financial statements
and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
1999 1998(1)(2) 1997(1)(2) 1996 1995
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<S> <C> <C> <C> <C> <C>
Net Sales $197,408,000 $145,017,000 $53,284,000 $15,653,000 $15,028,000
============ ============ =========== =========== ===========
Depreciation $8,407,000 $6,197,000 $1,243,000 $295,000 $329,000
Goodwill amortization 4,568,000 2,754,000 946,000 -- --
Interest Expense 4,435,000 3,113,000 652,000 236,000 152,000
Income Before
Income Taxes 13,160,000 6,698,000 2,803,000 103,000 412,000
Net Income $6,450,000 $2,995,000 $1,805,000 $88,000 $412,000
========== ========== ========== ======= ========
Income per
Share
- Basic $.54 $.28 $.24 $.04 $.24
==== ==== ==== ==== ====
- Diluted $.50 $.26 $.22 $.04 $.24
==== ==== ==== ==== ====
Weighted Average
Number of Shares
- Basic 12,048,000 10,575,000 7,674,000 2,033,000 1,700,000
========== ========== ========= ========= =========
- Diluted 13,004,000 11,537,000 8,061,000 2,082,000 1,730,000
========== ========== ========= ========= =========
Total Assets $199,201,000 $152,922,000 $59,035,000 $19,107,000 $7,815,000
============ ============ =========== =========== ==========
Current Portion of
Long-term Debt $7,340,000 $11,429,000 $1,632,000 $48,000 $43,000
========== =========== ========== ======= =======
Long-term Debt
Excluding Current
Portion $19,423,000 $23,187,000 $6,995,000 $1,038,000 $1,087,000
=========== =========== ========== ========== ==========
Cash Dividends
Per Common Share -0- -0- -0- -0- -0-
</TABLE>
NOTES TO SELECTED FINANCIAL DATA:
(1) The operations of the acquired telecom service companies are included from
their respective dates of acquisition.
(2) Includes non-cash stock option compensation expense of $2,204,000 and
$516,000, respectively, for the years ended December 31, 1998 and 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company (including the Notes thereto)
included elsewhere in this document.
PLAN OF OPERATIONS
The Company conducts its operations through its wholly owned
subsidiaries, Arguss Communications, Group, Inc. ("ACG"), formerly White
Mountain Cable Construction Corp., and Conceptronic, Inc. ("Conceptronic"). ACG
is engaged in the construction, reconstruction, maintenance, engineering,
design, repair and expansion of communications systems, cable television and
data systems, including providing aerial, underground and long-haul construction
and splicing of both fiber optic and coaxial cable to major telecommunications
customers. Conceptronic manufactures and sells highly advanced,
computer-controlled equipment used in the surface mount, electronics circuit
assembly industry ("SMT").
ACQUISITIONS
During 1999, the Company, through ACG, actively pursued acquisitions in
the telecom infrastructure services industry. The Company enhanced its telecom
service capacity through its three 1999 acquisitions . The aggregate purchase
price, including additional payments, was approximately $7.5 million in cash and
484,000 shares of the Company's common stock, plus the assumption of debt. Each
of the acquisitions was accounted for as a purchase, and the results of
operations of the acquired companies were included in the consolidated results
of the Company from their respective acquisition dates. Approximately $11
million of goodwill was recorded by the Company in connection with the
acquisitions, which reflects the adjustments necessary to allocate the
individual purchase prices to the fair value of assets acquired and liabilities
assumed.
During 1998, the Company acquired three telecom infrastructure service
companies for an aggregate purchase price of $38.3 million in cash and 3,586,000
shares of the Company's common stock, plus the assumption of debt. Included
therein, and pursuant to the purchase agreements, the Company paid former
shareholders of acquired companies an additional $19.3 million in cash and
1,535,000 shares of the Company's common stock in full satisfaction of their
additional payments during the twelve months ended December 31, 1999. Additional
payments earned under the terms of the agreements were recorded as an increase
in goodwill. Each of the acquisitions was accounted for as a purchase, and the
results of operations of the acquired companies were included in the
consolidated results of the Company from their respective acquisition dates.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
The Company had net income of $6,450,000 for the twelve months ended
December 31, 1999, compared to net income of $2,995,000 for the twelve months
ended December 31, 1998. The increase in net income was due primarily to the
profitable results of the telecom services segment whose pretax income increased
to $14,043,000 for the twelve months ended December 31, 1999 from $7,538,000 in
the previous year. (See Note 4 to Consolidated Financial Statements.)
Net sales for the twelve months ended December 31, 1999 increased
$52,391,000 or 36% to $197,408,000 from $145,017,000 for the twelve months ended
December 31, 1998 due primarily to the impact of an August 1, 1998 acquisition
which contributed $22,380,000 for the seven months ended July 31, 1999, and also
due to a strong combined sales increase of $29,041,000 or 23% at ACG divisions
owned at least one year. The increase in revenues at ACG was driven by the
continued strong demand for ACG's services because of bandwidth expansion.
Recent increased growth in telecommunications voice, video and data traffic,
electronic commerce, and in the transmission of high quality information,
entertainment and other content over the Internet, coupled with the increase use
of and reliance on personal computers has enhanced the need for greater
bandwidth.
Gross profit margin, excluding depreciation, was 24.5% of sales for the
twelve months ended December 31, 1999, compared to 23.6% for the comparable
period in 1998. Improvements in margins during the twelve months ended December
31, 1999 are primarily due to the maturing of ACG's large scale, multi-year
projects in Denver, CO, Orlando, FL and Portland, OR. Improvements in margins
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were offset, in part, by reduced levels of construction activity in Alaska,
which typically has above average gross profit margins.
Selling, general and administrative expenses for the twelve months
ended December 31, 1999 were $16,934,000, compared to $14,457,000 for the
comparable period one year ago. The increase was due primarily to the
acquisitions made during 1999 and late in 1998 ("Acquisitions") which accounted
for $1,134,000 in expenses, as well as performance based compensation incurred
in 1999. Selling, general and administrative expenses (excluding non-cash stock
compensation expense) as a percent of sales were 8.6% for the twelve months
ended December 31, 1999, compared to 8.5% for the same period in 1998. In 1998,
there was $2,204,000 in non-cash stock compensation expense, compared to none in
1999.
Depreciation expense increased to $8,407,000 for the twelve months
ended December 31, 1999, compared to $6,197,000 for the twelve months ended
December 31, 1998, due primarily to ACG which spent an aggregate of $13.5
million during 1999 on capital assets and the Acquisitions.
Goodwill amortization, which is calculated using a twenty-year
amortization period, increased to $4,568,000 during the twelve months ended
December 31, 1999, from $2,754,000 for the twelve months ended December 31,
1998. The increase is due primarily to additional payments of $41,358,000 made
to former shareholders of companies purchased during 1999 and 1998. The
additional payments earned under the purchase agreements were recorded as an
increase to goodwill. The additional goodwill is amortized over the remaining
amortization periods.
Net interest expense for the twelve months ended December 31, 1999 was
$3,987,000, compared to $2,707,000 for the comparable period one year ago. The
increase in amounts outstanding under bank credit facilities is attributable to
financing of the additional payments to former shareholders of acquired
companies, capital expenditures for equipment and working capital for long-term,
large scale projects. See Liquidity and Capital Resources for a discussion of
the Company's debt facilities.
Income tax expense was $6,710,000 for the twelve months ended December
31, 1999, compared to $3,703,000 for the twelve months ended December 31, 1998.
The effective income tax rate was 51% and 55% for the twelve months ended
December 31, 1999 and 1998, respectively. Goodwill amortization, which is
non-deductible for income tax purposes, impacts the effective tax rate creating
an unusual relationship between the expected effective tax rate and pretax
income. During the twelve months ended December 31, 1999 and 1998, respectively,
the Company utilized an effective income tax rate of 38% and 39%, respectively,
prior to giving effect to the impact of non-deductible goodwill amortization on
pretax income.
1998 COMPARED TO 1997
The Company had net income of $2,995,000 for the twelve months ended
December 31, 1998, compared to net income of $1,805,000 for the twelve months
ended December 31, 1997. The increase in net income was due primarily to the
profitable results of the telecom services segment whose pretax income increased
to $7,538,000 for the twelve months ended December 31, 1998 from $3,151,000 in
the previous year. (See Note 4 to Consolidated Financial Statements.)
Net sales for the twelve months ended December 31, 1998 increased
$91,733,000 or 172% to $145,017,000 from $53,284,000 for the twelve months ended
December 31, 1997 due primarily to the acquisitions made during 1998 which had
sales of $46,692,000, and also due to a strong combined sales increase of
$47,824,000 at existing ACG divisions owned at least one year, which was offset,
in part, by Conceptronic's decrease in sales of $1,232,000. The increase in
revenue at ACG is primarily due to increased project activity in Denver, CO and
Portland, OR during 1998. Conceptronic sales for 1998 were below the levels
achieved for 1997 due primarily to the industry-wide softening of activity in
the SMT circuit assembly business.
Gross profit margin, excluding depreciation, was 23.6% of sales for the
twelve months ended December 31, 1998, compared to 29.4% for the comparable
period in 1997. The decrease was due primarily to ACG. ACG incurred transition
costs in commencing a project in Charlotte, NC, as well as in terminating its
involvement in its Dallas, TX project. In addition, ACG incurred transition
costs in commencing projects in Denver, CO and Portland, OR. ACG reallocated its
telecom construction resources from Dallas, TX to other projects that had
superior profit potential for the next twelve months. Further, ACG has a lower
overall gross profit percentage than does Conceptronic. ACG, with average gross
profit margin of 22% in 1998, represented 88% of consolidated sales in 1998
compared to 65% in 1997. Conceptronic maintained its margins at 33%.
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Selling, general and administrative expenses for the twelve months
ended December 31, 1998 were $14,457,000, compared to $9,042,000 for the
comparable period one year ago. The increase was due largely to the acquisitions
made during 1998, which accounted for $4,527,000 in expenses, including the
increase of non-cash stock compensation of $1,642,000.
Depreciation expense increased to $6,197,000 for the twelve months
ended December 31, 1998, compared to $1,243,000 for the twelve months ended
December 31, 1997, due primarily to the acquisitions made during 1998 which
added $2,563,000 of depreciation expense, and ACG spent an aggregate of $16.8
million in 1998 and $7.0 million in 1997 on capital assets.
Goodwill amortization, which is calculated using a twenty-year
amortization period, increased to $2,754,000 from $946,000 for the twelve months
ended December 31, 1998. The increase is due primarily to the acquisitions made
during 1998, which had $1,447,000 of goodwill amortization.
Net interest expense for the twelve months ended December 31, 1998 was
$2,707,000, compared to $559,000 for the comparable period one year ago. The
increase in amounts outstanding under bank credit facilities which is
attributable to financing of the acquisitions made during 1998, equipment
acquisition lines, and the revolving line of credit resulted in the increase in
aggregate net interest expense. See Liquidity and Capital Resources for a
discussion of the Company's debt facilities.
Income tax expense was $3,703,000 for the twelve months ended December
31, 1998, compared to $998,000 for the twelve months ended December 31, 1997.
The effective income tax rate was 55% and 36% for the twelve months ended
December 31, 1998 and 1997, respectively. Goodwill amortization, which is
non-deductible for income tax purposes, impacts the effective tax rate creating
an unusual relationship between the expected effective tax rate and pretax
income. During the twelve months ended December 31, 1998 and 1997, the Company
utilized an effective income rate of 39% prior to giving effect to the impact of
non-deductible goodwill amortization on pretax income. In 1997 the effective
income tax rate, prior to giving effect to the impact of non-deductible goodwill
amortization on pretax income, was reduced as a result of reversing the entire
deferred tax asset valuation allowance during the year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the twelve months ended December
31, 1999 improved to $22,293,000 from $4,898,000 for the twelve months ended
December 31, 1998, and from $2,334,000 provided by operations in 1997. Cash flow
from operations in 1999 was positively impacted by the reduction in the number
of day's sales outstanding in accounts receivable from 90 days to approximately
70 days. As a result, accounts receivables did not increase in relation to the
growth in revenues which provided approximately $9.8 million in operating cash
flows during 1999. Increased profitability from ACG operations provided the
remaining increase in cash flow during 1999. In 1998, the positive impact on
cash flow from operations from the acquisitions made during 1998 was $5,484,000.
Net cash used for investing activities for the twelve months ended
December 31, 1999 was $39,384,000, compared to $35,369,000 and $17,096,000 in
the comparable periods of 1998 and 1997. Of the 1999 investing activities,
$6,925,000 was used to make acquisitions compared to $19,041,000 used in 1998.
In 1999, pursuant to the provisions of the purchase agreements, $19,349,000 was
paid to former shareholders of acquired companies. In 1999, $13,596,000 was
spent on capital equipment acquisitions compared to $16,937,000 in 1998 and
$7,196,000 in 1997. The decrease from 1998 reflects the maturation of ACG
projects, which temporarily reduced the need for increased investments in
capital assets. The Company expects to increase the level of its capital
expenditures in 2000.
Net cash flow provided by financing activities was $20,770,000 for the
twelve months ended December 31, 1999, compared to net cash flow provided by
financing activities of $31,075,000 for the comparable period in 1998 and
$5,659,000 in 1997. The financing activity in 1999 reflects the use of proceeds
from the Company's expanded credit line to meet working capital needs associated
with large scale, long-term projects, additional payments to former shareholders
of acquired companies, as well as financing for acquisitions and the purchase of
equipment.
In March 1999, the Company increased its availability under credit
facilities with banks. The Company entered into a syndicated credit facility of
$100 million with six money center and regional banks. The Company pledged the
capital stock of its wholly owned subsidiaries and the majority of the Company's
assets to secure the credit facility. The Company uses the credit facility to
provide working capital for current operations, to finance acquisitions, to
purchase capital assets and for other corporate purposes. The credit facility
10
<PAGE>
has a $70 million revolving credit feature, as well as a $30 million amortizing
five-year term facility. Amounts borrowed under the line will bear interest
either as a relationship to the London Interbank Offered Rate ("LIBOR"), plus
1.25% to 2.25%, or at the Prime Rate plus up to 1.00%, as determined by the
ratio of the Company's total funded debt to EBITDA. The Company incurs
commitment fees of .25% to .50% as determined by the ratio of the Company's
total funded debt to EBITDA on any unused borrowing capacity under the credit
facility.
To hedge the variable term loan interest rate risk for $30 million in
notional amount, five-year, term financing facility, the Company has entered
into an interest rate swap pursuant to which it pays fixed interest rates and
receives variable interest rates on the same notional amount. During the twelve
months ended December 31, 1999, the Company's payment under the interest rate
swap aggregated approximately $70,000.
The Company has entered into four letters of intent to purchase
telecommunications services companies. The aggregate purchase price of these
four acquisitions will be approximately $58,000,000, plus the assumption of
debt. Half of that amount, or $29,000,000, will be paid in cash and half will be
satisfied by issuance of the Company's common stock. The Company will finance
the cash portion of the purchase price utilizing the existing lines of credit.
The Company expects to close these purchases by the end of the second quarter,
2000. In order to accommodate continued working capital needs as well as
potential future acquisitions, the Company is in the process of increasing the
availability under its existing credit facility. At December 31, 1999, the
Company had $35,000,000 available under its existing credit facility.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into fixed interest rate exchange agreements
("Interest Rate Swaps") which it uses to manage interest rate risk arising from
the Company's debt. Interest Rate Swaps are accounted for as hedges, and,
accordingly, amounts receivable or payable under Interest Rate Swaps are
recognized as adjustments to interest expense. Gains and losses on early
terminations of Interest Rate Swaps are included in the carrying amount of the
related debt, and amortized as yield adjustments over the remaining term of the
derivative financial instruments. The Company does not use such instruments for
trading purposes.
The Company has entered into an interest rate swap in the same notional
amount, term and interest rate relationship to LIBOR as the Company's
$24,750,000 variable rate term loan. Arguss pays a fixed interest rate of 5.78%
pursuant to the interest rate swap. The Company continues to incur interest
expense for the bank's applicable margins ranging from 1.25% to 2.25% above
LIBOR as determined by the ratio of the Company's total funded debt to EBITDA.
All of the principal of the variable rate debt subject to the interest rate swap
would be repaid over the next four years thereby diminishing the impact of
market valuations on hedges.
Interest rate swaps are entered into as a hedge of underlying debt
instruments to effectively change the characteristics of the interest rate
without actually changing the debt instrument. For fixed rate debt, interest
rate changes affect the fair value, but do not impact earnings or cash flow.
Conversely, for floating rate debt, interest rate changes generally do not
affect the fair market value, but do impact future earnings and cash flow. A one
percentage point decrease in interest rates would decrease the fair value of
interest rate swaps by approximately $250,000. The earnings and cash flow impact
for the next year resulting from a one percentage point increase interest in
rates would be neutral because of the cash flow received from the swaps. All of
the principal of the variable rate debt subject to the interest rate swap would
be repaid over the next four years thereby diminishing the impact of market
valuations on hedges. During the year ended December 31, 1999, the Company's
payments under Interest Rate Swaps were $70,000.
The Company's Interest Rate Swaps expire as follows:
Interest Rate Swaps 12/31/99
------------------- --------
Expiration Date Interest Rate Notional Amount Market Value
- --------------- ------------- --------------- ------------
March 01, 2004 5.78% $24,750,000 $275,000
Other parties to the agreements expose the Company to credit losses for
the periodic settlements of amounts due under the Interest Rate Swaps in the
event of non-performance. However, the Company does not anticipate that it will
11
<PAGE>
incur any material credit losses because it does not anticipate non-performance
by the counter parties.
SEASONALITY
The Company's telecom services operations are expected to have
seasonally weaker results in the first and fourth quarters of the year, and may
produce stronger results in the second and third quarters. This seasonality is
primarily due to the effect of winter weather on outside plant activities in the
northern areas served by ACG, as well as reduced daylight hours and customer
budgetary constraints. Certain customers tend to complete budgeted capital
expenditures before the end of the year, and postpone additional expenditures
until the subsequent fiscal period.
YEAR 2000 DATE CONVERSION
The Year 2000 issue relates to the inability of certain computer
software programs to properly recognize and process date-sensitive information
relative to the year 2000 and beyond. Without corrective measures, this issue
could cause computer applications to fail or to create erroneous results.
Incomplete or untimely resolution of the Year 2000 issue by the Company or by
its key vendors, customers suppliers or by other third parties could have a
materially adverse impact on the Company's business, operations or financial
condition in the future.
In conjunction with its review of its Year 2000 compliance issues, the
Company has conducted an inventory of its information technology ("IT") and
manufacturing and telecom services systems ("non-IT"), as well as its
telecommunications systems. Arguss has addressed its Year 2000 compliance issue
for IT, non-IT and telecommunications systems. The total cost with respect to
systems and other modifications to Company IT, non-IT and telecommunications
systems did not exceed $300,000, more than one-half of which was expended in
1998. The Company expended less than $100,000 on Year 2000 remediation during
the twelve months ended December 31, 1999.
To date, the Company has not experienced any material Year 2000 issues
and has been informed by our material suppliers and vendors that they have also
not experienced material Year 2000 issues. The Company has not spent a material
amount on Year 2000 compliance issues. Most expenses have related to the
operating costs associated with time spent by employees and consultants in the
evaluation and implementation process and Year 2000 compliance matters
generally.
IMPACT OF INFLATION
The primary inflationary factor affecting the Company's operation is
increased labor costs. The Company's revenue is principally derived from
services performed under master contracts, which typically include provisions to
increase contract prices on an annual basis based on increases in the services
price index. Accordingly, the Company believes that increases in labor costs
will not have a significant impact on its results of operations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the Company is exposed to interest
rate risk. To reduce variable term loan interest rate risk, the Company has
entered into an interest rate swap in the same notional amount, term and
interest rate relationship to LIBOR as the Company's $24,750,000 variable rate
term loan. Arguss pays a fixed interest rate of 5.78% pursuant to the interest
rate swap. The Company continues to incur interest expense for the bank's
applicable margins ranging from 1.25% to 2.25% above LIBOR as determined by the
ratio of the Company's total funded debt to EBITDA.
Interest rate swaps are entered into as a hedge of underlying debt
instruments to effectively change the characteristics of the interest rate
without actually changing the debt instrument. For fixed rate debt, interest
rate changes affect the fair value, but do not impact earnings or cash flow.
Conversely, for floating rate debt, interest rate changes generally do not
affect the fair market value, but do impact future earnings and cash flow. A one
percentage point decrease in interest rates would decrease the fair value of
interest rate swaps by approximately $250,000. The earnings and cash flow impact
for the next year resulting from a one percentage point increase interest rates
would be neutral because of the cash flow received from the swaps. All of the
principal of the variable rate debt subject to the interest rate swap would be
repaid over the next four years thereby diminishing the impact of market
valuations on hedges.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 and the Index therein for a listing of the financial
statements included as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Items 10 to 13 are incorporated herein by reference to the Company's
definitive proxy statement for its 1999 Annual Meeting of Stockholders to be
held May 18, 2000, to be filed with the Securities and Exchange Commission.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following is a list of the financial statements that are filed
herewith:
Page
----
Independent Auditors' Report 18
Consolidated Balance Sheets at December 31, 1999 and 1998 19
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997 20
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flow for the years ended December 31,
1999, 1998 and 1997 22
Notes to Consolidated Financial Statements 24
13
<PAGE>
(a) (2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as a part of this
Report under "Schedule II". "Schedule II" - Valuation and Qualifying Accounts -
for the three years ended December 31, 1999. All other schedules called for by
Form 10-K are omitted because they are inapplicable.
Schedule II
Arguss Holdings, Inc.
Valuation and Qualifying Accounts
Balance at Charged to Write-Offs
Beginning Bad Debt Charged to Balance at
of Year Expense Allowance End of Year
------- ------- --------- -----------
Allowance for
Doubtful Accounts
1999 $265,000 $282,000 $(439,000) $108,000
1998 129,000 221,000 (85,000) 265,000
1997 65,000 69,000 (5,000) 129,000
14
<PAGE>
(a) (3) EXHIBITS
The following exhibits required to be filed herewith are attached or
incorporated by reference to the filings previously made by the Company as noted
below:
- --------------------------------------------------------------------------------
Exhibit No.
- -----------
3(a) Certificate of Incorporation, as amended, incorporated by reference as
an Exhibit to the Company's Registration Statement on Form S-18 (No.
33-36142-B).
3(a)(I) Certificate of Designation establishing Class A common stock
incorporated by reference to Exhibit 4(a) to the Company's Registration
Statement Form S-8 (No. 333-19277).
3(b) Bylaws, as amended, incorporated by reference as an Exhibit to the
Company's Registration Statement Form S-18 (No. 33-36142-B).
10(a) Equipment Lease between the Company and Eaton Financial Corporation
incorporated by reference as an Exhibit to the Company's Registration
Statement on Form S-18 (No. 33-36142-B).
10(b) Line of Credit Agreement dated May 1, 1995 between the Company and the
First National Bank of Boston incorporated by reference as an Exhibit
to the Company's Form 10-KSB for 1995.
10(c) Agreement and Plan of Merger, dated February 26, 1997, by and between
White Mountain Cable Construction Corp., Conceptronic, Inc. and White
Mountain Acquisition Company, Inc. incorporated by reference in the
Company's Current Report on Form 8-K, dated March 5, 1997.
10(d) Guarantee Agreement dated March 5, 1997 by Conceptronic in favor of
Citizens Bank New Hampshire incorporated by reference in the Company's
Current Report on Form 8-K, dated March 5, 1997.
10(e) Purchase and Sale Agreement dated September 19, 1997 by and between TCS
Communications, Inc., Arguss Holdings, Inc. and White Mountain Cable
Construction Corp. incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K, dated September 19, 1997.
10(f) Agreement and Plan of Merger dated January 2, 1998 by and between
Can-Am Construction, Inc. Arguss Holdings, Inc. and White Mountain
Cable Construction Corp. incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K, dated January 2, 1998.
10(g) Agreement and Plan of Merger dated January 2, 1998 by and between
Schenck Communications, Inc., Arguss Holdings, Inc. and White Mountain
Cable Construction Corp. incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K, dated January 2, 1998.
10(h) Agreement and Plan of Merger dated October 6, 1997 by and between Rite
Cable Construction, Inc., Arguss Holdings, Inc. and White Mountain
Cable Construction Corp. incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K, dated January 2, 1998.
10(i) Financing and Security Agreement dated September 11, 1997 by and among
Arguss Holdings, Inc., White Mountain Cable Construction Corp.,
Conceptronic and NationsBank, NA and related promissory notes
incorporated by reference to Exhibit 10 as an Exhibit to the Company's
Form 10-KSB for 1997.
10(j) First Amendment to Financing and Security Agreements dated October 6,
1997 by Arguss Holdings, Inc., White Mountain Cable Construction Corp.,
Conceptronic and NationsBank, NA and related promissory notes
incorporated by reference to Exhibit 10 in the Company's Form 10-KSB
for 1997.
10(k) Second Amendment to Financing and Security Agreement, dated January 2,
1998, by and among Arguss Holdings, Inc., White Mountain Cable
Construction Corp., Conceptronic, Inc. and NationsBank, NA,
incorporated by reference to Exhibit 10 to the Company's Form 10-QSB
for the quarter ended March 31, 1998.
10(l) Third Amendment to Financing and Security Agreement dated May 11, 1998,
by and among Arguss Holdings, Inc., White Mountain Cable Construction
Corp., Conceptronic, Inc. and NationsBank, NA, incorporated by
reference to Exhibit 10 to the Company's Form-10-10-QSB for the quarter
ended March 31, 1998.
10(m) Fourth Amendment to Financing and Security Agreement dated May 26,
1998, by and among Arguss Holdings, Inc., White Mountain Cable
Construction Corp., Conceptronic, Inc. and NationsBank, NA,
incorporated by reference to Exhibit 10 to the Company's Form-10-K,
dated March 16, 1999.
15
<PAGE>
10(n) Fifth Amendment to Financing and Security Agreement dated May 31, 1998,
by and among Arguss Holdings, Inc., White Mountain Cable Construction
Corp., Conceptronic, Inc. and NationsBank, NA, incorporated by
reference to Exhibit 10 to the Company's Form-10-K, dated March 16,
1999.
10(o) Sixth Amendment to Financing and Security Agreement dated June 26,
1998, by and among Arguss Holdings, Inc., White Mountain Cable
Construction Corp., Conceptronic, Inc. and NationsBank, NA,
incorporated by reference to Exhibit 10 to the Company's Form 10-QSB
for the quarter ended June 30, 1998.
10(p) Seventh Amendment to Financing and Security Agreement dated October 16,
1998, by and among Arguss Holdings, Inc., White Mountain Cable
Construction Corp., Conceptronic, Inc. and NationsBank, NA,
incorporated by reference to Exhibit 10 to the Company's Form-10-K,
dated March 16, 1999.
10(q) Agreement and Plan of Merger dated September 4, 1998 by and between
Underground Specialties, Inc., Arguss Holdings, Inc. and White Mountain
Cable Construction Corp. incorporated by reference to Exhibit 10 to the
Company's current report on Form 8-K dated September 4, 1998 and filed
on September 18, 1998.
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
- --------------------------------------------------------------------------------
(b) REPORTS ON FORM 8-K
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Arguss Holdings, Inc.
By: /s/ Rainer H. Bosselmann
------------------------
Rainer H. Bosselmann
Chief Executive Officer
March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
/s/ Rainer H. Bosselmann
---------------------------
Rainer H. Bosselmann
Principal Executive Officer and Director
March 15, 2000
/s/ Garry A. Prime
---------------------------
Garry A. Prime
Director
March 15, 2000
/s/ William A. Barker
---------------------------
William A. Barker
Director
March 15, 2000
/s/ James W. Quinn
---------------------------
James W. Quinn
Director
March 15, 2000
/s/ Richard S. Perkins, Jr.
---------------------------
Richard S. Perkins, Jr.
Director
March 15, 2000
/s/ DeSoto S. Jordan, Jr.
---------------------------
DeSoto S. Jordan, Jr.
Director
March 15, 2000
/s/ Peter L. Winslow
---------------------------
Peter L. Winslow
Director
March 15, 2000
/s/ H. Haywood Miller III
---------------------------
H. Haywood Miller III
Executive Vice President and Secretary
March 15, 2000
/s/ Arthur F. Trudel
---------------------------
Arthur F. Trudel
Principal Accounting Officer and
Principal Financial Officer
March 15, 2000
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Arguss Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Arguss
Holdings, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in Item 14(a)2 of this
report. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Arguss
Holdings, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
- ------------------
KPMG LLP
Boston, Massachusetts
February 14, 2000
18
<PAGE>
ARGUSS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
------
Current assets: 1999 1998
---- ----
Cash and cash equivalents $ 5,498,000 $ 1,819,000
Restricted cash from customer advances 1,752,000 978,000
Accounts receivable, trade, including retainage
of $3,973,000 and $3,384,000, respectively
net of allowance for doubtful accounts of $108,000
and $265,000 in 1999 and 1998, respectively 37,775,000 35,263,000
Costs and earnings in excess of billings, net 6,825,000 3,087,000
Inventories 4,534,000 5,657,000
Other current assets 1,732,000 1,399,000
Deferred tax asset 1,829,000 1,844,000
------------ ------------
Total current assets 59,945,000 50,047,000
------------ ------------
Property, plant and equipment 53,219,000 39,359,000
Less accumulated depreciation 16,171,000 8,212,000
------------ ------------
Property, plant and equipment, net 37,048,000 31,147,000
------------ ------------
Goodwill, net 102,208,000 71,728,000
------------ ------------
$199,201,000 $152,922,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 7,340,000 $ 11,429,000
Short-term borrowings 35,000,000 8,038,000
Accounts payable 18,551,000 13,798,000
Billings in excess of costs and earnings -- 748,000
Customer advances, net 1,201,000 1,380,000
Accrued expenses and other liabilities 9,496,000 7,098,000
Due to former shareholders of
acquired companies 650,000 7,604,000
------------ ------------
Total current liabilities 72,238,000 50,095,000
------------ ------------
Long-term debt, excluding current portion 19,423,000 23,187,000
Deferred income taxes 4,425,000 3,675,000
------------ ------------
Total liabilities 96,086,000 76,957,000
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 1,000,000
shares; no shares issued
Common stock, $.01 par value,
authorized 20,000,000 shares;
13,014,000 and 10,849,000
issued and outstanding at December
31, 1999 and 1998, respectively 130,000 109,000
Additional paid-in capital 92,598,000 61,327,000
Common stock issuable to former
shareholders of acquired companies 500,000 11,092,000
Retained earnings 9,887,000 3,437,000
------------ ------------
Total stockholders' equity 103,115,000 75,965,000
------------ ------------
$199,201,000 $152,922,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
Net sales $ 197,408,000 $ 145,017,000 $ 53,284,000
Cost of sales,
excluding depreciation 149,099,000 110,803,000 37,636,000
------------- ------------- ------------
Gross profit, excluding
depreciation 48,309,000 34,214,000 15,648,000
Selling, general and
administrative expenses 16,934,000 14,457,000 9,042,000
Depreciation 8,407,000 6,197,000 1,243,000
Goodwill amortization 4,568,000 2,754,000 946,000
Engineering and development
expenses 1,253,000 1,401,000 1,055,000
------------- ------------- ------------
Income from operations 17,147,000 9,405,000 3,362,000
------------- ------------- ------------
Other income (expense):
Interest income and other 448,000 406,000 93,000
Interest expense (4,435,000) (3,113,000) (652,000)
------------- ------------- ------------
(3,987,000) (2,707,000) (559,000)
------------- ------------- ------------
Income before income taxes 13,160,000 6,698,000 2,803,000
Income taxes 6,710,000 3,703,000 998,000
------------- ------------- ------------
Net income $ 6,450,000 $ 2,995,000 $ 1,805,000
============= ============= ============
Income per share
- basic $ .54 $ .28 $ .24
============= ============= ============
- diluted $ .50 $ .26 $ .22
============= ============= ============
Weighted average number
of shares outstanding
- basic 12,048,000 10,575,000 7,674,000
============= ============= ============
- diluted 13,004,000 11,537,000 8,061,000
============= ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
<TABLE>
<CAPTION>
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Retained
Common stock Additional Stock due Earnings/ Total
----------------------------------------- Paid-in to former Accumulated Stockholders'
Shares Class A Amount Capital Shareholders Deficit Equity
------ ------- ------ ------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 1,700,000 $ 4,000,000 $ 57,000 $ 16,077,000 $ -- ($ 1,363,000) $ 14,771,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Stock Option
Exercises 55,000 -- 1,000 170,000 -- -- 171,000
Issuance of
common stock
related to
acquisitions 2,764,000 -- 27,000 20,196,000 -- -- 20,223,000
Conversion of
Class A
common stock 4,000,000 (4,000,000) -- -- -- -- --
Net income -- -- -- -- -- 1,805,000 1,805,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1997 8,519,000 -- 85,000 36,443,000 -- 442,000 36,970,000
Stock Option
Exercises 279,000 -- 3,000 1,341,000 -- -- 1,344,000
Tax benefit -
stock options -- -- -- 463,000 -- -- 463,000
Issuance of
common stock
related to
acquisitions 2,051,000 -- 21,000 23,080,000 -- -- 23,101,000
Common stock
due to former
shareholders
of acquired
companies -- -- -- -- 11,092,000 -- 11,092,000
Net income -- -- -- -- -- 2,995,000 2,995,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1998 10,849,000 -- $ 109,000 $ 61,327,000 $ 11,092,000 $ 3,437,000 $ 75,965,000
========== ============ ============ ============ ============ ============ ============
Stock Option
Exercises 195,000 -- 2,000 1,408,000 -- -- 1,410,000
Tax benefit -
stock options -- -- -- 598,000 -- -- 598,000
Issuance of
common stock
related to
acquisitions 1,970,000 -- 19,000 29,265,000 (11,092,000) -- 18,192,000
Common stock
due to former
shareholders
of acquired
companies -- -- -- -- 500,000 -- 500,000
Net income -- -- -- -- -- 6,450,000 6,450,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1999 13,014,000 $ -- $ 130,000 $ 92,598,000 $ 500,000 $ 9,887,000 $103,115,000
========== ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,450,000 $ 2,995,000 $ 1,805,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 8,407,000 6,197,000 1,243,000
Goodwill amortization 4,568,000 2,754,000 946,000
Non cash stock compensation -- 2,204,000 516,000
Deferred income taxes 693,000 (291,000) 91,000
Changes in operating assets and liabilities:
Accounts receivable (113,000) (12,273,000) (1,704,000)
Costs and earnings in excess of billings (3,917,000) (8,528,000) (340,000)
Inventories 1,123,000 (1,038,000) 79,000
Other current assets (281,000) 1,429,000 (1,192,000)
Accounts payable and accrued expenses 6,111,000 10,692,000 (1,203,000)
Billings in excess of costs and earnings (748,000) 758,000 --
Other liabilities -- (1,000) 2,093,000
------------ ------------ ------------
Net cash provided by
operating activities 22,293,000 4,898,000 2,334,000
------------ ------------ ------------
Cash flows from investing activities:
Disposal of fixed assets 374,000 609,000 --
Additions to fixed assets (13,484,000) (16,937,000) (7,196,000)
Payment to former shareholders
of acquired companies (19,349,000) -- --
Net purchase of companies (6,925,000) (19,041,000) (9,900,000)
------------ ------------ ------------
Net cash used by investing activities (39,384,000) (35,369,000) (17,096,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from lines of credit, net 27,997,000 35,970,000 14,111,000
Repayments of financing debt (8,650,000) (6,239,000) (8,622,000)
Proceeds from issuance of common stock 1,423,000 1,344,000 170,000
------------ ------------ ------------
Net cash provided by financing activities 20,770,000 31,075,000 5,659,000
------------ ------------ ------------
Net increase (decrease) in cash 3,679,000 604,000 (9,103,000)
Cash, at beginning of year 1,819,000 1,215,000 10,318,000
------------ ------------ ------------
Cash, at end of year $ 5,498,000 $ 1,819,000 $ 1,215,000
============ ============ ============
Supplemental disclosures of cash paid for:
Interest $ 4,158,000 $ 3,082,000 $ 651,000
Corporate income taxes $ 3,375,000 $ 3,054,000 2,010,000
</TABLE>
22
<PAGE>
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Supplemental disclosure of non cash investing and financing activities:
1999 1998 1997
---- ---- ----
Reduction in income taxes payable
due to the exercise of
stock options with previously
incurred non-cash stock
compensation expense ($ 598,000) ($ 463,000) --
Acquisitions accounted for under
purchase method of accounting:
Fair value of net assets acquired
Accounts receivable $ 2,399,000 $ 9,513,000 8,969,000
Inventory -- -- 290,000
Other current assets 52,000 491,000 978,000
Property and equipment 1,198,000 7,546,000 5,982,000
------------ ------------ ------------
Total non cash assets 3,649,000 17,550,000 16,219,000
Liabilities (1,511,000) (6,437,000) (7,854,000)
Long-term debt (371,000) (2,455,000) (3,375,000)
------------ ------------ ------------
Net non cash assets acquired 1,767,000 8,658,000 4,490,000
Cash acquired 575,000 1,725,000 661,000
------------ ------------ ------------
Fair value of net assets acquired 2,342,000 10,383,000 5,651,000
Excess of costs over fair value of
net assets acquired 11,080,000 50,028,000 25,320,000
------------ ------------ ------------
Purchase price $ 13,422,000 $ 60,411,000 $ 30,971,000
============ ============ ============
Common stock issued and issuable $ 5,847,000 $ 33,789,000 $ 20,222,000
Liability payable to former
shareholders of acquired companies 650,000 7,581,000 --
Cash paid 7,500,000 20,766,000 11,410,000
Cash acquired (575,000) (1,725,000) (661,000)
------------ ------------ ------------
Purchase price $ 13,422,000 $ 60,411,000 $ 30,971,000
============ ============ ============
Note:
- ----
During 1999, former shareholders of acquired companies received, in the
aggregate, an additional $19,349,000 in cash and 1,535,000 shares of the
Company's common stock in full satisfaction of their additional payments.
In 1998, cash paid net of cash acquired in the supplemental disclosure varies
from the statement of cash flow due to timing differences between the date of
beneficial ownership and legal closing date.
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
ARGUSS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) ORGANIZATION
Prior to May 1997, the Company operated as a single entity under the
name "Conceptronic, Inc." On May 9, 1997, the shareholders of the Company
approved a plan providing for the internal restructuring of the Company whereby
the Company became a holding company, and its operating assets were held by
wholly owned subsidiaries. Accordingly, on May 9, 1997, the Company transferred
substantially all of its Conceptronic, Inc. operating assets to a newly formed,
wholly owned subsidiary of the Company, and the Company changed its name to
Arguss Holdings, Inc. The subsidiary then adopted the name "Conceptronic, Inc"
("Conceptronic"). The Company's other wholly owned operating subsidiary is
Arguss Communications Group, Inc. ("ACG").
The Company conducts its operations through its wholly owned
subsidiaries, ACG and Conceptronic. ACG is engaged in the construction,
reconstruction, maintenance, engineering, design, repair and expansion of
communications systems, cable television and data systems, including providing
aerial, underground and long-haul construction and splicing of both fiber optic
and coaxial cable to major telecommunications customers. Conceptronic
manufactures and sells highly advanced, computer-controlled equipment used in
the surface mount electronics circuit assembly industry ("SMT").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. All significant inter-company
accounts and transactions are eliminated in consolidation.
(b) REVENUE RECOGNITION
ACG recognizes revenue using the percentage of completion method based upon an
efforts expended method during the period services are performed using
contractual pricing schedules which detail unit prices for individual services
performed. Changes to total estimated costs and anticipated losses, if any, are
recognized in the period determined. Conceptronic recognizes revenue when
equipment manufactured is shipped.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less as cash equivalents.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The cost of
maintenance and repairs is charged to earnings when incurred; major expenditures
for betterments are capitalized and depreciated.
(f) GOODWILL
Goodwill is calculated using a twenty-year amortization period. The Company
continually evaluates whether events or circumstances have occurred that
indicate that the remaining useful life of goodwill may warrant revision or that
the remaining balance may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company estimates the
undiscounted cash flow of the business enterprise segment, net of tax, over the
remaining life of the asset in determining whether the asset is recoverable.
24
<PAGE>
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance reduces deferred tax assets when it is more likely than not
that a portion of the deferred tax asset will not be realized.
(h) EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per common share reflect the maximum dilution
that would have resulted from the exercise of stock options, warrants and
contingently issuable shares. (See Note 10.) Diluted earnings per common share
are computed by dividing net income by the weighted average number of common
shares and all dilutive securities.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, short-term borrowing and
accounts payable approximate fair values due to the short maturity of these
instruments. The fair value of long-term debt approximates the carrying value
because the interest rate associated with the long-term debt is floating rate.
The fair value of Interest Rate Swaps is determined quarterly, based on the
interest rate movements in the cash markets. Amounts due under such swaps are
settled quarterly in cash. The Company has neither received nor expended
significant amounts with respect to quarterly valuations. (See Note 8 for a
discussion of the Company's use of Interest Rate Swaps and their fair value at
December 31, 1999.)
(j) IMPAIRMENT OF ASSETS
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the asset to future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less selling cost.
(k) STOCK OPTION PLAN
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period, the fair
value of all stock-based awards on the date of grant. SFAS No. 123 also allows
entities to continue to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
25
<PAGE>
(m) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into fixed interest rate exchange agreements ("Interest
Rate Swaps") which it uses to manage interest rate risk arising from the
Company's debt. Interest Rate Swaps are accounted for as hedges; and
accordingly, amounts receivable or payable under Interest Rate Swaps are
recognized as adjustments to interest expense. Gains and losses on early
terminations of Interest Rate Swaps are included in the carrying amount of the
related debt and amortized as yield adjustments over the remaining term of the
derivative financial instruments. The Company does not use such instruments for
trading purposes.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. The accounting for changes in fair
value, gains or losses depends on the intended use of the derivative and its
resulting designations. In June 1999, the Financial Accounting Standards Board
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities", which amended the effective date of SFAS No. 133. As amended, SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will adopt SFAS No. 133 by January 1, 2001. Adoption
of SFAS No. 133 is not expected to have a material impact on the consolidated
financial statements.
(n) RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenses incurred and expensed were $926,000,
$1,096,000 and $489,000, respectively, for the years ended December 31, 1999,
1998 and 1997. Such expenses are classified in engineering and development
expenses in the accompanying Consolidated Statements of Operations.
(o) RECLASSIFICATION
Certain amounts in the 1998 and 1997 financial statements have been reclassified
for comparability with the 1999 presentation.
(3) CONTRACT ACCOUNTING
The retainage included in accounts receivable which represents amounts
withheld by contract with respect to ACG accounts receivable was $3,973,000 and
$3,384,000 at December 31, 1999 and 1998, respectively. The Company expects to
collect substantially all the retainage within one year.
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Costs incurred on uncompleted contracts $ 90,798,000 $41,703,000
Estimated earnings 15,338,000 8,242,000
------------ -----------
106,136,000 49,945,000
Less: Billings to date 99,311,000 47,606,000
------------ -----------
$ 6,825,000 $ 2,339,000
============ ===========
Included in accompanying balance sheets
under the following captions:
Costs and earnings in excess of billings, net $ 6,825,000 $ 3,087,000
============ ===========
Billings in excess of costs and earnings -- $ 748,000
============ ===========
The Company receives customer advances to purchase materials related to specific
contracts. The customer advances offset material purchases included in "Costs
and earnings in excess of billings." The Company has included customer advances
of $12.6 million and $5.6 million at December 31, 1999 and 1998, respectively,
in the "Billings to date" amounts shown above.
(4) SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during 1998. SFAS No. 131 establishes
standards for reporting information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services and geographic areas. Operating
26
<PAGE>
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and assessing performance.
The Company's three reportable segments are telecom services,
manufacturing and other. The telecom services segment is engaged in the
construction, reconstruction of telecommunications systems, cable television and
data systems, including providing aerial and underground construction and
splicing for both fiber optic and coaxial cable to major telecommunications
customers. Because the telecom system projects are fully integrated
undertakings, the Company does not capture individually each component of the
service functions performed for revenue reporting purposes. The manufacturing
segment manufactures and sells highly advanced, computer-controlled equipment
used in the SMT circuit assembly industry. The "Other" column includes the
Company's corporate and unallocated expenses.
The Company's reportable segments are organized in separate business
units with different management, customers, technology and services. The
respective segments account for their respective businesses using the same
accounting policies as described in Note 2 to consolidated financial statements.
Summarized financial information concerning the Company's reportable segments
net of inter-company transactions is shown in the following tables.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999:
-------------------------------------
Telecom Equipment
Services Manufacturing Other Consolidated
-------- ------------- ----- ------------
<S> <C> <C> <C> <C>
External sales $ 180,532,000 $ 16,876,000 -- $ 197,408,000
Cost of sales, excluding
depreciation 137,570,000 11,529,000 -- 149,099,000
------------- ------------ ------------ -------------
Gross profit, excluding
depreciation 42,962,000 5,347,000 -- 48,309,000
Operating expenses
excluding depreciation 12,338,000 4,596,000 -- 16,934,000
Depreciation expense 8,240,000 157,000 10,000 8,407,000
Goodwill amortization 4,568,000 -- -- 4,568,000
Engineering and
development expenses -- 1,253,000 -- 1,253,000
------------- ------------ ------------ -------------
Total operating expense 25,146,000 6,006,000 10,000 31,162,000
------------- ------------ ------------ -------------
Interest and other income 439,000 1,000 8,000 448,000
Interest expense (4,212,000) (223,000) -- (4,435,000)
------------- ------------ ------------ -------------
Pretax income (loss) $ 14,043,000 ($ 881,000) ($ 2,000) $ 13,160,000
============= ============ ============ =============
Income taxes 6,710,000
-------------
Net income $ 6,450,000
=============
Capital expenditures $ 13,341,000 $ 141,000 $ 2,000 $ 13,484,000
============= ============ ============ =============
Property, plant
and equipment, net $ 35,756,000 $ 1,273,000 $ 19,000 $ 37,048,000
============= ============ ============ =============
Total assets $ 181,252,000 $ 10,624,000 $ 7,325,000 $ 199,201,000
============= ============ ============ =============
Total liabilities $ 75,388,000 $ 7,978,000 $ 12,720,000 $ 96,086,000
============= ============ ============ =============
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998:
-------------------------------------
Telecom Equipment
Services Manufacturing Other Consolidated
-------- ------------- ----- ------------
<S> <C> <C> <C> <C>
External sales $ 127,740,000 $ 17,277,000 -- $ 145,017,000
Cost of sales, excluding
depreciation 99,256,000 11,547,000 -- 110,803,000
------------- ------------ ------------ -------------
Gross profit, excluding
depreciation 28,484,000 5,730,000 -- 34,214,000
Operating expenses
excluding depreciation 7,505,000 4,508,000 240,000 12,253,000
Non cash stock compensation 2,163,000 -- 41,000 2,204,000
Depreciation expense 5,980,000 207,000 10,000 6,197,000
Goodwill amortization 2,754,000 -- -- 2,754,000
Engineering and
development expenses -- 1,401,000 -- 1,401,000
------------- ------------ ------------ -------------
Total operating expense 18,402,000 6,116,000 291,000 24,809,000
------------- ------------ ------------ -------------
Interest and other income 355,000 11,000 40,000 406,000
Interest expense (2,899,000) (189,000) (25,000) (3,113,000)
------------- ------------ ------------ -------------
Pretax income (loss) $ 7,538,000 ($ 564,000) ($ 276,000) $ 6,698,000
============= ============ ============ =============
Income taxes 3,703,000
-------------
Net income $ 2,995,000
=============
Capital expenditures $ 16,817,000 $ 120,000 -- $ 16,937,000
============= ============ ============ =============
Property, plant
and equipment, net $ 29,831,000 $ 1,289,000 $ 27,000 $ 31,147,000
============= ============ ============ =============
Total assets $ 122,416,000 $ 9,237,000 $ 21,269,000 $ 152,922,000
============= ============ ============ =============
Total liabilities $ 60,864,000 $ 5,710,000 $ 10,383,000 $ 76,957,000
============= ============ ============ =============
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997:
-------------------------------------
Telecom Equipment
Services Manufacturing Other Consolidated
-------- ------------- ----- ------------
<S> <C> <C> <C> <C>
Net sales $ 34,776,000 $ 18,508,000 -- $ 53,284,000
Cost of sales, excluding
depreciation 25,391,000 12,245,000 -- 37,636,000
------------- ------------ ------------ -------------
Gross profit, excluding
depreciation 9,385,000 6,263,000 -- 15,648,000
Operating expenses
excluding depreciation 3,368,000 5,158,000 -- 8,526,000
Non cash stock compensation 441,000 -- 75,000 516,000
Depreciation expense 1,028,000 210,000 5,000 1,243,000
Goodwill amortization 946,000 -- -- 946,000
Engineering and
development expenses -- 1,055,000 -- 1,055,000
------------- ------------ ------------ -------------
Total operating expense 5,783,000 6,423,000 80,000 12,286,000
------------- ------------ ------------ -------------
Interest and other income 34,000 15,000 44,000 93,000
Interest expense (485,000) (167,000) -- (652,000)
------------- ------------ ------------ -------------
Pretax income (loss) $ 3,151,000 ($ 312,000) ($ 36,000) 2,803,000
============= ============ ============ =============
Income taxes 998,000
-------------
Net income $ 1,805,000
=============
Capital expenditures $ 6,967,000 $ 186,000 $ 39,000 $ 7,153,000
============= ============ ============ =============
Property, plant
and equipment, net $ 11,859,000 $ 1,376,000 $ 39,000 $ 13,274,000
============= ============ ============ =============
Total assets $ 47,205,000 $ 10,720,000 $ 1,110,000 $ 59,035,000
============= ============ ============ =============
Total liabilities $ 15,177,000 $ 5,554,000 $ 1,334,000 $ 22,065,000
============= ============ ============ =============
</TABLE>
The Company has customers whose sales represent a significant portion of segment
net sales. Telecom services sales to three customers accounted for 54% and 56%
of that segment's 1999 and 1998 net sales, respectively. In 1997, sales to two
customers aggregated 58% of that segment's net sales. Equipment manufacturing
sales to one customer was 9%, 10% and 12%, respectively, of that segment's net
sales in 1999, 1998 and 1997.
29
<PAGE>
(5) INVENTORIES
Inventories consist of the following:
December 31,
------------
1999 1998
---- ----
Raw materials $2,537,000 $3,831,000
Work in process 1,088,000 687,000
Finished goods 909,000 1,139,000
---------- ----------
$4,534,000 $5,657,000
========== ==========
The amounts above are net of reserves for inventory valuation of $602,000 and
$662,000 at December 31, 1999 and 1998, respectively.
(6) NON-CURRENT ASSETS
Property, plant and equipment consists of the following:
December 31,
------------ Estimated
1999 1998 useful lives
---- ---- ------------
Land $ 2,006,000 $579,000 --
Buildings 4,122,000 2,609,000 31.5 years
Transportation equipment 21,865,000 17,168,000 5 years
Machinery and equipment 22,227,000 16,987,000 3-7 years
Office furniture and fixtures 2,999,000 2,016,000 4-7 years
----------- -----------
Property, plant and equipment $53,219,000 $39,359,000
=========== ===========
Goodwill consists of the following:
December 31,
------------ Estimated
1999 1998 useful lives
---- ---- ------------
Goodwill $110,476,000 $75,428,000 20 years
Less: Accumulated Amortization (8,268,000) (3,700,000)
------------ -----------
Goodwill, net $102,208,000 $71,728,000
============ ===========
(7) SHORT-TERM BORROWINGS
In March 1999, the Company increased its availability under credit
facilities with banks. The Company expanded the credit facility to $100 million
from approximately $50 million, and increased the number of banks participating
to six money center and regional banks. The Company pledged the capital stock of
its wholly owned subsidiaries and the majority of the Company's assets to secure
the credit facility. Included in the facility is a $70 million revolving line of
credit. Under the provisions of the credit agreement, borrowings are limited to
a multiple of the Company's adjusted EBITDA. Amounts borrowed under the line
will bear interest either as a relationship to the London Interbank Offered Rate
("LIBOR"), plus 1.25% to 2.25%, or to the Prime Rate plus up to 1.00%, as
determined by the ratio of the Company's total funded debt to EBITDA. The
Company also incurs a commitment fee on the unused potion of the loan at a rate
of up to 0.50%, as determined by the ratio of the Company's total funded debt to
EBITDA. The revolving line of credit has an initial three-year term, maturing on
March 19, 2002, which is renewable for up to two additional one-year periods.
Other information regarding current lines of credit for 1999 and 1998 is as
follows:
30
<PAGE>
1999 1998
---- ----
Amount outstanding at
December 31: $35,000,000 $8,038,000
Weighted average interest rate
at December 31: 8.65% 7.35%
Weighted average borrowing
outstanding during the year $24,428,000 $7,167,000
Weighted average interest rate
during the year 7.68% 7.54%
Maximum outstanding
during the year $45,090,000 $11,389,000
(8) LONG-TERM DEBT
As outlined in Note 7, in March 1999, the Company increased its
availability under credit facilities with banks. The Company expanded the credit
facility to $100 million from approximately $50 million, and increased the
number of banks participating to six money center and regional banks. Included
in the facility is a $30 million amortizing five-year term loan. Amounts
borrowed bear interest as a relationship to the London Interbank Offered Rate
("LIBOR"), plus 1.25% to 2.25%, as determined by the ratio of the Company's
total funded debt to EBITDA. Information regarding the term loans is included in
the table below:
1999 1998
Long-Term Debt $24,750,000 $32,129,000
Less: Current Portion (7,000,000) (10,798,000)
----------- -----------
Long-Term Debt
Excluding Current Portion $17,750,000 $21,331,000
=========== ===========
Weighted Average
Interest Rate @ 12/31 8.36% 7.55%
Weighted Average
Borrowing Outstanding
Throughout the Year $28,628,000 $27,506,000
Weighted Average
Interest Rate
During the Year 7.76% 7.76%
Maximum Outstanding
During the Year $31,480,000 $33,457,000
Principal Paid
During the Year $6,549,000 $5,909,000
Minimum repayments of principal on the aggregate term loan facilities are as
follows for the years ending December 31:
2000 $ 7,000,000
2001 7,000,000
2002 6,250,000
2003 3,750,000
2004 750,000
-----------
Total $24,750,000
===========
31
<PAGE>
The Company has also separately financed certain buildings, vehicles
and machinery. Information regarding these loans is included in the table below:
December 31,
------------
1999 1998
---- ----
Mortgage payable in monthly installments of
$6,807, including interest at 8.18% $ 660,000 $ 686,000
Mortgage payable in monthly installments of
$3,083, plus interest at the prime rate,
plus 1.5% payable through December 2002
At December 31, 1999, the interest rate
was 9.75% $ 477,000 $ 514,000
Subordinated mortgage payable to Granite
State Development Corporation in equal
monthly installments of $1,689, plus
annual interest at 7.06%, payable through
February 2013 451,000 472,000
Vehicle and machinery loans. Amounts will
substantially repaid over the next 24 months 425,000 815,000
----------- -----------
2,013,000 2,487,000
----------- -----------
Less current portion of long-term debt (340,000) (631,000)
----------- -----------
Long-term debt, excluding current portion $ 1,673,000 $ 1,856,000
=========== ===========
The aggregate maturities of the above long-term debt for each of the
five years subsequent to December 31, 1999, are as follows:
2000 $ 340,000
2001 217,000
2002 166,000
2003 407,000
2004 69,000
2005 and
thereafter 814,000
----------
Total $2,013,000
==========
In the ordinary course of business, the Company is exposed to floating
interest rate risk. In March 1999, the Company terminated interest rate swaps
entered into as a hedge against variable term loan interest rate risk. The
aggregate loss of approximately $330,000 on termination of the interest rate
swaps is being amortized over the remaining life of the related term loan that
was hedged.
To hedge the variable term loan interest rate risk for $30 million in
notional amount, five-year, term financing facility, the Company has entered
into an interest rate swap pursuant to which it pays fixed interest at a rate of
5.78% and receives variable interest on the same notional amount. At December
31, 1999, the market value of the swap, which expires with the maturity of the
debt on March 1, 2004, was $275,000. During the twelve months ended December 31,
1999, the Company's payment under the interest rate swap aggregated
approximately $70,000.
32
<PAGE>
Other parties to the agreements expose the Company to credit losses for
the periodic settlements of amounts due under the Interest Rate Swaps in the
event of non-performance. However, the Company does not anticipate that it will
incur any material credit losses because it does not anticipate non-performance
by the counter parties.
(9) INCOME TAXES
Income tax expense for the years ended December 31, 1999, 1998 and 1997
is as follows:
1999 1998 1997
---- ---- ----
Current:
-------
Federal $ 5,217,000 $ 3,139,000 $ 826,000
State 794,000 958,000 300,000
----------- ----------- -----------
6,011,000 4,097,000 1,126,000
----------- ----------- -----------
Deferred:
--------
Federal 765,000 (696,000) (199,000)
State (66,000) 302,000 71,000
----------- ----------- -----------
699,000 (394,000) (128,000)
----------- ----------- -----------
Total tax expense $ 6,710,000 $ 3,703,000 $ 998,000
=========== =========== ===========
Total income tax expense was allocated as follows:
Years Ended December 31 1999 1998 1997
---- ---- ----
Income from Operations $ 6,710,000 $ 3,703,000 $ 998,000
Stockholders equity for
compensation expense for
tax purposes in excess of
amounts recognized for
financial statement
purposes (598,000) (463,000) --
----------- ----------- -----------
$ 6,112,000 $ 3,240,000 $ 998,000
=========== =========== ===========
The actual income tax for the years ended December 31, 1999, 1998 and
1997, differs from the "expected" tax computed by applying the U.S. federal
corporate income tax rate of 34% to earnings before income tax as follows:
1999 1998 1997
---- ---- ----
Computed "expected" tax $ 4,606,000 $ 2,282,000 $ 953,000
Increase (decrease)
resulting from:
State income taxes, net 473,000 339,000 162,000
Goodwill amortization 1,599,000 936,000 322,000
Change in deferred tax
valuation allowance and
movement in tax reserves -- -- (555,000)
Other 32,000 86,000 116,000
----------- ----------- -----------
$ 6,710,000 $ 3,703,000 $ 998,000
=========== =========== ===========
33
<PAGE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, are as follows:
1999 1998
---- ----
Assets:
Inventory $432,000 $377,000
Allowance for doubtful
accounts 43,000 111,000
Stock options and other
compensation 683,000 1,068,000
Tax loss carryforwards
and other 671,000 288,000
----------- -----------
Total deferred tax assets 1,829,000 1,844,000
----------- -----------
Liabilities:
Property and equipment (4,022,000) (2,249,000)
Contract revenue (403,000) (1,426,000)
Total deferred tax
liabilities (4,425,000) (3,675,000)
----------- -----------
Net deferred tax
liabilities ($2,596,000) ($1,831,000)
=========== ===========
(10) STOCK OPTION PLAN
The Company established a stock option plan (the "Plan") in July 1991
pursuant to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan as amended in May 1998 authorizes the grant
of options for up to 2,400,000 shares of common stock.
Stock options granted may be "Incentive Stock Options" ("ISOs") or
"Non-qualified Stock Options" ("NSOs"). ISOs have an exercise price equal to the
stock's fair market value at the date of grant, a ten-year term and vest and
become fully exercisable one year from the date of grant. NSOs may be granted at
an exercise price less than the stock's fair market value at the date of grant
for a five-year term and vest and become fully exercisable one year from the
date of grant.
34
<PAGE>
During 1999, the Board of Directors granted 350,000 NSOs and 360,000
ISOs to employees of acquired entities and corporate employees. The NSOs were
granted at the following prices:
Grant Price Options
----------- -------
$15.50 157,000
15.75 130,000
15.875 63,000
During 1998, the Board of Directors granted 400,000 NSOs to employees
of acquired entities and corporate employees. The NSOs were granted at the
following prices:
Grant Price Options
----------- -------
$ 8.00 120,000
9.75 100,000
13.00 130,000
15.50 50,000
During 1997, the Board of Directors granted 318,000 NSOs to employees
of acquired entities and 55,000 NSOs to new corporate staff. The NSOs were
granted at the following prices:
Grant Price Options
----------- -------
$ 4.75 50,000
5.50 153,000
6.40 100,000
8.50 50,000
9.50 5,000
13.88 15,000
The Company applies APB No. 25 and related interpretations for its
stock option plan. Accordingly, compensation expense is not recorded for stock
options granted at fair market value. For NSOs, compensation equal to the excess
of market value over exercise price at date of grant is recorded as the options
vest. The Company recognized no compensation cost for the 350,000 NSOs granted
in 1999. For the 400,000 NSOs granted in 1998 set out above the Company
recognized $2,204,000 in compensation expense. For the 373,000 NSOs granted in
1997 set out above the Company recognized $516,000 in compensation expense. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
1999 1998 1997
---- ---- ----
Net income:
As reported $ 6,450,000 $ 2,995,000 $ 1,805,000
Pro forma 3,329,000 1,292,000 1,392,000
Basic income per share:
As reported $.54 $.28 $.24
Pro forma $.27 $.12 $.18
Diluted income per share:
As reported $.50 $.26 $.22
Pro forma $.26 $.11 $.17
Pro forma net income reflects only options granted in 1999, 1998 and
1997. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income amounts
35
<PAGE>
presented above because compensation cost is reflected over the options vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
The per share weighted average fair value of ISOs granted in 1999, 1998
and 1997 was $15.69, $9.96 and $6.11, respectively, on the date of grant using
the Black-Scholes option-pricing model with the following respective weighted
average assumptions: dividend yield of 0%; expected volatility of .56 in 1999,
.58 in 1998 and .077 in 1997; risk free interest rate of 5.5% in 1999, 4.9% in
1998 and 5.5% in 1997; and an expected life of five years in 1999, 1998 and
1997.
Stock option activity during the periods indicated is as follows:
No. of Weighted Average
Options Exercise Price
------- --------------
Balance at December 31, 1996 436,000 3.21
Granted 641,000 7.85
Exercised (55,000) 3.12
Forfeited (9,000) 5.75
---------
Balance at December 31, 1997 1,013,000 6.10
Granted 524,000 11.75
Exercised (279,000) 4.87
Forfeited (70,000) 8.59
---------
Balance at December 31, 1998 1,188,000 $ 9.15
---------
Granted 710,000 15.68
Exercised (195,000) 7.23
Forfeited (88,000) 15.07
---------
Balance at December 31, 1999 1,615,000 $11.93
=========
At December 31, 1999, the range of exercise prices, the number of
options outstanding and the weighted average remaining contractual life of these
options are as follows:
Weighted Average
Exercise Price No. of Options Remaining Life
-------------- -------------- --------------
$3.00 213,000 4.24
$4.75 50,000 2.35
$5.50 65,000 2.35
$5.75 7,000 7.35
$6.40 41,000 1.81
$8.00 121,000 3.04
$8.50 1,000 2.81
$9.50 5,000 2.81
$9.75 79,000 3.01
$13.00 115,000 8.00
$15.50 403,000 6.99
$15.63 22,000 8.86
$15.75 387,000 9.42
$15.88 69,000 9.07
$17.63 7,000 3.34
$17.88 30,000 6.40
---------
1,615,000
=========
At December 31, 1999 and 1998, the number of options exercisable was
758,000 and 703,000, respectively, and the weighted average exercise price of
those options was $7.72 and $6.65, respectively.
36
<PAGE>
In 1996, the Company issued to the placement agent warrants to purchase
100,000 shares of common stock. The exercise price is $3.00 per share, and the
warrants are exercisable through November 2000.
(11) DEFINED CONTRIBUTION PLANS
The Company has 401-K Savings Plans covering all of its employees,
whereby the Company makes discretionary annual contributions for its eligible
employees. The Company's expense for these defined contribution plans totaled
$220,000, $318,000 and $296,000, respectively, in 1999, 1998 and 1997.
(12) CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade accounts receivable.
ACG's three largest customers accounted for approximately 51% of
consolidated net sales for the year ended December 31, 1999. The Company does
not believe that it is exposed to significant credit risk due to the
creditworthiness of its customers.
(13) ACQUISITIONS
During 1999, the Company, through ACG, actively pursued acquisitions in
the telecom infrastructure services industry. The Company enhanced its telecom
service capacity through its three 1999 acquisitions . The aggregate purchase
price, including additional payments, was approximately $7.5 million in cash and
484,000 shares of the Company's common stock, plus the assumption of debt. Each
of the acquisitions was accounted for as a purchase, and the results of
operations of the acquired companies were included in the consolidated results
of the Company from their respective acquisition dates. Approximately $11
million of goodwill was recorded by the Company in connection with the
acquisitions, which reflects the adjustments necessary to allocate the
individual purchase prices to the fair value of assets acquired and liabilities
assumed. The additional payments to former shareholders approximating $650,000
in cash and shares of the Company's common stock with a fair value of
approximately $500,000, will be made in March 2000. The number of shares to be
issued will be determined using a price of $15.75 per share.
During 1998, the Company acquired three telecom infrastructure services
companies for an aggregate purchase price of $38.3 million in cash (including
acquisition costs) and 3,586,000 shares of the Company's common stock, plus the
assumption of debt. Included therein, and pursuant to the purchase agreements,
the Company paid former shareholders of acquired companies an additional $19.3
million in cash and 1,535,000 shares of the Company's common stock in full
satisfaction of their additional payments during the twelve months ended
December 31, 1999. Additional payments earned under the terms of the agreements
were recorded as an increase in goodwill. Each of the acquisitions was accounted
for as a purchase, and the results of operations of the acquired companies were
included in the consolidated results of the Company from their respective
acquisition dates.
The following unaudited pro forma data summarize the results of
operations for the years ended December 31, 1999, 1998 and 1997 as if the
acquisitions made during 1998 and 1997 had been completed on January 1, 1997.
The unaudited pro forma data give effect to actual operating results prior to
the acquisition and adjustments to interest expense, goodwill amortization,
stock option expense, income taxes and number of weighted average shares
outstanding. These pro forma amounts do not purport to be indicative of the
results that would have been actually obtained if the aforementioned
acquisitions had occurred on January 1, 1997, respectively, or that may be
obtained in the future. The acquisitions made in 1999 have been excluded from
the following table because they are deemed immaterial.
37
<PAGE>
Pro Forma Data (Unaudited)
- --------------
1999 1998 1997
---- ---- ----
Sales $197,408,000 $162,084,000 $110,508,000
============ ============ ============
Gross profit, excluding
depreciation $ 48,309,000 $ 40,000,000 $ 30,390,000
============ ============ ============
Operating expenses
excluding depreciation $ 18,187,000 $ 17,559,000 $ 14,961,000
Depreciation 8,407,000 6,546,000 4,249,000
Goodwill amortization 4,568,000 2,993,000 2,993,000
Pretax income 13,160,000 9,976,000 5,981,000
Net income $ 6,450,000 $ 4,804,000 $ 2,391,000
Earnings per share
- basic $.54 $.45 $.23
- diluted $.50 $.41 $.22
Weighted average shares
outstanding
- basic 12,048,000 10,716,000 10,538,000
- diluted 13,004,000 11,677,000 10,926,000
(14) COMMITMENTS
The Company, through its subsidiaries, has entered into various
non-cancelable operating leases for facilities, transportation equipment and
machinery and equipment. Total rent expense for all operating leases was
approximately $1,668,000 $1,062,000 and $290,000 for 1999, 1998 and 1997,
respectively. The following is a schedule of future minimum lease payments for
operating leases that had initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1999:
2000 $1,462,000
2001 758,000
2002 535,000
2003 409,000
2004 286,000
Thereafter 642,000
----------
$4,092,000
==========
38
<PAGE>
(15) EARNINGS PER SHARE
The following schedules set forth the computation of diluted earnings
per common share.
1999
----
Income Net
Per Share Shares Income
--------- ------ ------
Basic $ .54 12,048,000 $6,450,000
Effect of stock options
and warrants (.02) 466,000 --
Effect of additional shares
issued for purchase
of telecom service company (.02) 480,000 --
Effect of estimated
additional shares to be
issued for purchase of
telecom service company -- 10,000 --
----- ---------- ----------
Diluted $ .50 13,004,000 $6,450,000
===== ========== ==========
1998
----
Income Net
Per Share Shares Income
--------- ------ ------
Basic $ .28 10,575,000 $2,995,000
Effect of stock options
and warrants (.01) 581,000 --
Effect of additional shares
issued for purchase
of telecom service company (.01) 381,000 --
----- ---------- ----------
Diluted $ .26 11,537,000 $2,995,000
===== ========== ==========
1997
----
Income Net
Per Share Shares Income
--------- ------ ------
Basic $ .24 7,674,000 $1,805,000
Effect of stock options
and warrants (.02) 387,000 --
----- ---------- ----------
Diluted $ .22 8,061,000 $1,805,000
===== ========== ==========
The shares to be issued as contingent consideration are included in the
calculation of diluted weighted average common shares when the related
performance criteria has been met, the number of shares can be determined and
the effect on basic earnings per common share is dilutive.
Additionally the following securities that could potentially dilute
future basic earnings per common share were not included in the above
computations of diluted earnings per share because to do so would have been
anti-dilutive:
Year Ended
December 31:
------------
1997 726,000
1998 707,000
1999 1,249,000
39
<PAGE>
(16) RELATED-PARTY TRANSACTIONS
During the twelve months ended December 31, 1999, the Company acquired
offices and equipment maintenance facilities from the former shareholders of
acquired companies, who are significant shareholders in Arguss, as well as
employees of ACG. The aggregate purchase price was $2,608,000, and was
negotiated based on independent, third party appraisals.
The Company leases office space from the former shareholder of an
acquired company who is an employee of ACG. The lease expires in 2008. Rent
expense under the operating lease amounted to approximately $26,000 in 1999. As
of December 31, 1999 future minimum lease payments under the non-cancelable
lease term are as follows: 2000, $156,000; 2001, $161,000; 2002, $166,000; 2003,
$170,000, 2004, $176,000 and $608,000 thereafter.
During the twelve months ended December 31, 1999, the Company purchased
$1,132,000 of products and services from an entity which is owned, in part, by a
former shareholder of an acquired company who is a significant shareholder in
Arguss, as well as an employee of ACG. The aggregate purchase price of the
products and services was based on fair market value.
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
1999 (A) (B) (C) First (D) Second (D) Third Fourth
- ---------------- --------- ---------- ----- ------
Net sales $37,806,000 $43,856,000 $53,351,000 $54,444,000
Gross profit, excluding
depreciation 7,225,000 11,920,000 13,709,000 12,800,000
Net income $ 101,000 $ 2,076,000 $ 2,850,000 $ 1,422,000
Basic earnings
per share $.01 $.18 $.24 $.11
Diluted earnings
per share $.01 $.16 $.22 $.11
1998 (A) (B) (C) First Second Third Fourth
- --------------- ----- ------ ----- ------
Net sales $24,239,000 $35,163,000 $45,908,000 $39,707,000
Gross profit, excluding
depreciation 5,448,000 9,349,000 11,365,000 8,052,000
Net income (loss) ($ 773,000) $ 1,166,000 $ 2,166,000 $ 436,000
Basic earnings (loss)
per share ($.07) $.11 $.20 $.04
Diluted earnings (loss)
per share ($.07) $.11 $.18 $.04
1997(A) (B) (C) First Second Third Fourth
- --------------- ----- ------ ----- ------
Net sales $ 8,976,000 $12,682,000 $14,168,000 $17,458,000
Gross profit, excluding
depreciation 2,462,000 4,431,000 4,558,000 4,197,000
Net income (loss) $ 618,000 $ 774,000 $ 610,000 ($197,000)
Basic earnings (loss)
per share $.09 $.11 $.08 ($.02)
Diluted earnings (loss)
per share $.08 $.10 $.08 ($.02)
(A) The operations of the acquired telecom service companies are included from
their respective dates of acquisition.
(B) Gross profit excludes depreciation expense relating to cost of sales of
$7,856,000, $5,840,000 and $1,176,000, in the years ended December 31,
1999, 1998 and 1997, respectively.
40
<PAGE>
(C) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings (loss) per share in
1998 and 1997 does not equal the total for the year.
(D) During the first two quarters of 1999, the Company accounted for
Conceptronic as a discontinued operation. The results were not included in
Net Sales or Gross Profit for those periods. The Company has since
reinstated Conceptronic as an operating subsidiary, and included those
amounts in year to date results included in the Statement of Operations.
Amounts relating to Conceptronic's operations excluded from the above table
are as follows:
1999 First Second
- ---- ----- ------
Net sales $3,929,000 $4,022,000
Gross profit, excluding
depreciation 1,447,000 1,207,000
(17) SUBSEQUENT EVENTS (UNAUDITED)
The Company has entered into four letters of intent to purchase
telecommunications services companies. The aggregate purchase price of these
four acquisitions will be approximately $58,000,000, plus the assumption of
debt. Half of that amount, or $29,000,000, will be paid in cash and half will be
satisfied by issuance of the Company's common stock. The Company will finance
the cash portion of the purchase price utilizing the existing lines of credit.
The Company expects to close these purchases by the end of the second quarter,
2000.
In order to accommodate continued working capital needs as well as
potential future acquisitions, the Company is in the process of increasing the
availability under its existing credit facility. In February 2000, the Company
received preliminary commitments to expand by $50 million its available
financing to an aggregate of $150 million. The commitments are subject to due
diligence and the negotiation of a comprehensive credit agreement. The
syndicated financing, which is led by Bank of America, is scheduled to close in
the second quarter of 2000.
41
ARGUSS HOLDINGS, INC.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1999
State of Names Used
Subsidiary Incorporation in Business
---------- ------------- -----------
Arguss Services Corp. Delaware Arguss Services
Arguss Communications
Group, Inc. Delaware Arguss Communications Group, Inc.
Arguss Fiber Services
White Mountain Cable Construction
TCS Communications
Can-Am Construction
Schenck Communications
Underground Specialties
Aspen International Cable
White Mountain Cable
Construction of Alaska, Inc. Alaska Schenck Communications
Conceptronic, Inc. Delaware Conceptronic
42
ARGUSS HOLDINGS, INC.
EXHIBIT 23
CONSENT OF KPMG LLP
DECEMBER 31, 1999
ACCOUNTANT'S CONSENT
The Board of Directors
Arguss Holdings, Inc.
We consent to incorporation by reference in the registration statements (No.
333-19277 and No. 333-27017) on Form S-8 and in the registration statements (No.
333-33083 and No. 333-62779) on Form S-3 of Arguss Holdings, Inc. of our report
dated February 14, 2000, relating to the consolidated balance sheets of Arguss
Holdings, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period then ended, which report appears in the December
31, 1999 annual report on Form 10-K of Arguss Holdings, Inc.
/s/ KMPG LLP
--------------------------------
KPMG LLP
Boston, Massachusetts
March 15, 2000
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SECURITIES AND EXCHANGE COMMISSION FORM 10-K FOR THE YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> $5,498,000 $1,819,000 $1,215,000
<SECURITIES> 0 0 0
<RECEIVABLES> 37,775,000 35,263,000 13,590,000
<ALLOWANCES> 0 0 0
<INVENTORY> 4,534,000 5,657,000 4,344,000
<CURRENT-ASSETS> 59,945,000 50,047,000 21,387,000
<PP&E> 53,219,000 39,359,000 15,512,000
<DEPRECIATION> (16,171,000) (8,212,000) (2,238,000)
<TOTAL-ASSETS> 199,201,000 152,922,000 59,035,000
<CURRENT-LIABILITIES> 72,238,000 61,187,000 14,279,000
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 93,228,000 75,528,000 36,528,000
<OTHER-SE> 9,887,000 3,437,000 442,000
<TOTAL-LIABILITY-AND-EQUITY> 199,201,000 152,922,000 59,035,000
<SALES> 197,408,000 145,017,000 53,284,000
<TOTAL-REVENUES> 197,408,000 145,017,000 53,284,000
<CGS> 149,099,000 110,803,000 37,636,000
<TOTAL-COSTS> 149,099,000 110,803,000 37,636,000
<OTHER-EXPENSES> 31,162,000 24,809,000 12,322,000
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,435,000 3,113,000 652,000
<INCOME-PRETAX> 13,160,000 6,698,000 2,803,000
<INCOME-TAX> (6,710,000) (3,703,000) (998,000)
<INCOME-CONTINUING> 6,450,000 2,995,000 1,805,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,450,000 2,995,000 1,805,000
<EPS-BASIC> .54 .28 .24
<EPS-DILUTED> .50 .26 .22
</TABLE>
