UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 Commission File No 1-13278
INTERNATIONAL FIBERCOM, INC.
Incorporated in the State of Arizona IRS No. 86-0271282
3410 E. University Drive, Suite 180
Phoenix, AZ 85034
(602) 941-1900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Common Stock without par value 28,714,317 shares issued and 28,508,628
outstanding at June 30, 1999
<PAGE>
INDEX
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1999 (unaudited)
and December 31, 1998 1
Consolidated statements of operations (unaudited) -
Three months ended June 30, 1999 and 1998; Six months
ended June 30, 1999 and 1998 3
Consolidated statements of changes in stockholders'
equity - Six months ended June 30, 1999 (unaudited) and
December 31, 1998 4
Consolidated statements of cash flows (unaudited) - Six
months ended June 30, 1999 and 1998 5
Notes to consolidated financial statements (unaudited)
- June 30, 1999 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 3,388,834 $ 4,789,547
Accounts receivable
- trade, net of allowance 30,995,344 21,860,773
- other 1,539,022 741,269
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,451,944 5,191,428
Inventory, net of allowance (Note 2) 18,081,194 16,946,143
Prepaid expenses 883,205 262,426
Deferred tax asset 1,474,225 863,000
------------ ------------
Total Current Assets 69,813,768 50,654,586
Property and Equipment, net 18,407,612 10,042,072
Other Assets:
Loans receivable related party 205,291 220,200
Goodwill, net 37,687,497 22,855,531
Covenant not to compete, net 274,432 313,101
Other assets 260,364 348,551
Deferred acquisition costs 250,000 125,000
Debt issue costs, net 73,867 55,348
------------ ------------
38,751,451 23,917,731
------------ ------------
Total Assets $126,972,831 $ 84,614,389
============ ============
See notes to consolidated financial statements.
1
<PAGE>
INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
------------ -----------
(Unaudited)
Current Liabilities:
Notes payable - current portion $ 17,913,435 $ 6,410,568
Notes payable - related party 925,911 2,029,287
Obligations under capital lease -
current portion 1,065,878 515,386
Accounts payable 11,689,725 9,464,558
Accrued expenses 3,497,611 2,252,307
Billings in excess of cost and estimated
earnings on uncompleted contracts 1,325,246 449,205
Income taxes payable 602,341 3,036,621
------------ -----------
Total Current Liabilities 37,020,147 24,157,932
Long-Term Liabilities:
Notes payable-long term 11,989,898 2,117,522
Notes payable-related party 684,878 1,151,196
Obligations under capital lease -
long term 5,241,990 807,590
Deferred income tax payable 1,064,157 822,327
------------ -----------
Total Long-Term Liabilities 18,980,923 4,898,635
------------ -----------
Total Liabilities 56,001,070 29,056,567
------------ -----------
Stockholders' Equity:
Series C 4% convertible preferred stock,
no par value 1,000 shares authorized,
400 shares issued and outstanding -- 306,665
Common Stock, no par value, 100,000,000
shares authorized; 28,714,317 shares
issued and 28,508,628 shares outstanding
at June 30, 1999; 26,271,545 shares issued
and 26,065,855 shares outstanding at
December 31, 1998 58,529,867 47,361,495
Additional paid-in capital 2,581,149 2,581,149
Retained Earnings 10,690,832 6,138,600
------------ -----------
71,801,848 56,387,909
Less: treasury stock 205,689 shares, at cost 830,087 830,087
------------ -----------
Total Stockholders' Equity 70,971,761 55,557,822
------------ -----------
Total Liabilities and Stockholders' Equity $126,972,831 $84,614,389
============ ===========
See notes to consolidated financial statements.
2
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $40,740,191 $24,395,919 $68,605,528 $46,063,898
Cost of sales 30,645,906 16,257,367 50,048,684 30,762,417
----------- ----------- ----------- -----------
Gross profit 10,094,285 8,138,552 18,556,844 15,301,481
General and administrative expenses 5,612,808 4,732,523 10,074,299 8,238,972
----------- ----------- ----------- -----------
Income from operations 4,481,477 3,406,029 8,482,545 7,062,509
Other income (expense):
Interest income 43,038 40,941 81,459 72,725
Interest expense (666,230) (177,390) (1,058,856) (325,472)
Other income 3,508 24,611 10,922 31,032
Gain on disposal of assets 12,386 2,474 19,317 11,208
----------- ----------- ----------- -----------
(607,298) (109,364) (947,158) (210,507)
----------- ----------- ----------- -----------
Income before provision for
income taxes 3,874,179 3,296,665 7,535,387 6,852,002
Provision for income taxes 1,549,921 1,034,766 2,979,155 1,666,394
----------- ----------- ----------- -----------
Net income 2,324,258 2,261,899 4,556,232 5,185,608
Preferred stock dividend -- 15,375 4,000 38,285
----------- ----------- ----------- -----------
Net income attributable to common
stockholders before proforma
provision for income taxes $ 2,324,258 $ 2,246,524 $ 4,552,232 $ 5,147,323
=========== =========== =========== ===========
Proforma provision for income
taxes (Note 3) -- 283,900 -- 1,074,407
----------- ----------- ----------- -----------
Net income attributable to common
stockholders after proforma
provision for income taxes $ 2,324,258 $ 1,962,624 $ 4,552,232 $ 4,072,916
=========== =========== =========== ===========
Proforma earnings per common
share (Note 4):
Basic $ .08 $ .09 $ .17 $ .19
=========== =========== =========== ===========
Diluted $ .08 $ .08 $ .16 $ .16
=========== =========== =========== ===========
Earnings per common share:
Basic $ .08 $ .10 $ .17 $ .24
=========== =========== =========== ===========
Diluted $ .08 $ .09 $ .16 $ .20
=========== =========== =========== ===========
Shares used in computing earnings
per share:
Basic 27,951,006 22,385,382 27,466,712 21,356,201
Diluted 29,730,582 26,821,998 29,408,710 26,378,074
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999 AND YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- -----------------------
Series B Series C Shares Amount
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Stockholders' Equity, January 1, 1998 $ 1,126,837 $ 766,662 19,886,849 $32,390,731
Series B preferred stock conversion 792,046 1,126,837
Series C preferred stock conversion (1,126,837) (459,997) 126,316 459,997
Conversion of 5.5% convertible debentures 480,000 600,000
Accrued Interest paid in stock 7,744 46,948
Public warrants exercises 1,288,930 6,981,453
Non-Employee option/warrant exercises 2,682,632 2,013,393
Employee stock option exercises 788,745 392,150
Common shares purchased under ESPP 139,876 678,305
Riley acquisition 28,236 150,000
General acquisition 17,857 125,000
Dumbauld acquisition
Diversitec finders fee 41,885 250,000
Treasury stock repurchase 25,131 150,000
Issuance of repricing shares 300,000 1,948,959
S-Corporation shareholder distribution
Preferred stock dividends 7,771 47,722
Net income
----------- --------- ---------- -----------
Stockholders' Equity, December 31, 1998 -- $ 306,665 26,614,018 $47,361,495
Series C preferred stock conversion (306,665) 79,840 306,665
AeroComm acquisition 304,908 2,134,350
Non-employee option/warrant exercises 263,800 689,944
Employee stock option exercises 130,325 259,997
Preferred stock dividends 592 4,000
Net income
----------- --------- ---------- -----------
Stockholders' Equity, March 31, 1999 -- -- 27,393,483 $50,756,451
=========== ========= ========== ===========
Additional
Paid-In Retained Treasury
Capital Earnings Stock Totals
----------- ------------ ---------- ------------
Stockholders' Equity, January 1, 1998 $2,961,109 $(4,570,591) $(668,017) $ 32,006,731
Series B preferred stock conversion --
Series C preferred stock conversion --
Conversion of 5.5% convertible debentures 600,000
Accrued Interest paid in stock 46,948
Public warrants exercises 6,601,493
Non-Employee option/warrant exercises (379,960) 2,013,393
Employee stock option exercises 392,150
Common shares purchased under ESPP 678,305
Riley acquisition 150,000
General acquisition 125,000
Dumbauld acquisition 250,000
Diversitec finders fee 150,000
Treasury stock repurchase (162,070) (162,070)
Issuance of repricing shares 1,948,959
S-Corporation shareholder distribution (646,410) (646,410)
Preferred stock dividends (47,722) --
Net income 11,403,323 11,403,323
----------- ----------- --------- ------------
Stockholders' Equity, December 31, 1998 $ 2,581,149 $ 6,138,600 $(830,087) $ 55,557,822
Series C preferred stock conversion --
AeroComm acquisition 2,134,350
Non-employee option/warrant exercises 689,944
Employee stock option exercises 259,997
Preferred stock dividends (4,000) --
Net income 2,231,974 2,231,974
----------- ----------- --------- ------------
Stockholders' Equity, March 31, 1999 $ 2,581,149 $ 8,366,574 $(830,087) $ 60,874,087
=========== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30
--------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
Net income $ 4,556,232 $ 5,185,608
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 2,377,438 1,624,291
Increase in receivables (4,169,205) (5,164,558)
Increase in inventory (1,080,757) (3,424,091)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (6,356,442) (169,097)
Decrease (increase) in prepaid expenses 51,561 (8,709)
Increase (decrease) in accounts payable (1,437,931) 304,288
Increase (decrease) in accrued expenses (419,510) 1,283,883
Increase in billings in excess of cost and
estimated earnings on uncompleted contracts 573,041 311,386
Increase (decrease) in income taxes payable (2,460,438) 861,766
------------ -----------
Net cash provided (used) by operating
activities (8,366,011) 804,767
Cash flows from investing activities:
Purchase of property and equipment (6,573,609) (2,754,135)
Decrease (increase) in deposits and other assets 889,280 (23,003)
Increase in intangible assets (8,491,944) (1,097,385)
Purchase accounting acquisitions 75,983 --
Increase in deferred acquisition costs (125,000) (192,624)
------------ -----------
Net cash used by investing activities (14,225,290) (4,067,147)
Cash flows from financing activities:
Net increase of loans, lease obligations and other
long-term liabilities 18,483,828 329,034
Proceeds from warrant and stock option exercises 2,230,600 1,830,142
Proceeds from stock purchased under ESPP 476,160
S-Corp shareholder distribution -- (356,000)
Treasury stock repurchase -- (162,070)
------------ -----------
Net cash provided by financing activities 21,190,588 1,641,106
------------ -----------
Net decrease in cash and cash equivalents (1,400,713) (1,621,274)
Cash and cash equivalents, beginning of period 4,789,547 3,355,875
------------ -----------
Cash and cash equivalents, end of period $ 3,388,834 $ 1,734,601
============ ===========
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CASH FLOW DISCLOSURES
(UNAUDITED)
Six Months Ended June 30
--------------------------
1999 1998
---------- ----------
Non-Cash Transactions:
Accrued interest paid in Common Stock $ -- $ 46,948
Offering costs paid in Common Stock,
Warrants, Options -- 310,323
Common Stock issued relating to
Business Acquisitions 7,150,947 --
Convertible debt converted to Common Stock 1,000,000 600,000
Issuance of repricing shares relating to the
1997 private placement -- 1,948,959
Series B Preferred Stock converted to
Common Stock -- 1,126,837
Series C Preferred Stock converted to
Common Stock 306,665 --
Preferred Stock dividends paid in Common Stock 4,000 22,910
See notes to consolidated financial statements.
6
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant accounting policies:
Basis of presentation:
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1999 and the results of its operations for the three and six month periods
ended June 30, 1999. Although management believes that the disclosures in
these financial statements are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities Exchange Commission.
The results of operations for the three and six month periods ended June 30,
1999 are not necessarily indicative of the results that may be expected for
the full year ending December 31, 1999. The accompanying consolidated
financial statements should be read in conjunction with the more detailed
financial statements, and the related footnotes thereto, filed with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Inventory:
The components of inventory consist of the following:
June 30, December 31,
1999 1998
------------ ------------
New and used telephone equipment $ 18,993,889 $ 18,058,880
Cabling and equipment 940,491 847,433
Raw Materials 106,984 --
------------ ------------
20,041,364 18,906,313
Less: allowance for obsolete inventory (1,960,170) (1,960,170)
------------ ------------
$ 18,081,194 16,946,143
============ ============
3. Proforma provision for income taxes:
On September 1, 1998, the Company acquired United Tech, Inc. ("United") and
Diversitec, Inc. ("Diversitec") under the rules of poolings of interest
accounting whereby the Company exchanged shares of Common Stock for all the
shares of stock of United and Diversitec. As such, all prior period
consolidated financial statements presented have been restated to include the
combined results of operations, financial position and cash flows of United
and Diversitec as though they have always been a part of the Company. In
addition, both United and Diversitec were Subchapter S Corporations for
federal tax purposes and, accordingly, did not pay U.S. federal income taxes
up to the acquisition date. Therefore, a proforma provision for income taxes
is recorded for the period up to the acquisition date as if both companies
were C Corporation tax reporting entities since inception.
7
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Stockholders' Equity:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Proforma Numerator:
Proforma Numerator for basic earnings per share -
net income attributable to common stockholders
after proforma provision for income taxes $ 2,324,258 $ 1,962,624 $ 4,552,232 $ 4,072,916
Interest expense and finance expense on
convertible debt 6,001 64,037 31,126 103,577
Preferred stock dividends -- 15,375 4,000 38,285
----------- ----------- ----------- -----------
Proforma Numerator for diluted earnings per share -
adjusted net income attributable to common
stockholders plus assumed conversions $ 2,330,259 $ 2,042,036 $ 4,587,358 $ 4,214,778
=========== =========== =========== ===========
Numerator:
Numerator for basic earnings per share -
net income attributable to common stockholders
before proforma provision for income taxes $ 2,324,258 $ 2,246,524 $ 4,552,232 $ 5,147,323
Interest expense and finance expense on
convertible debt 6,001 64,037 31,126 103,577
Preferred stock dividends -- 15,375 4,000 38,285
----------- ----------- ----------- -----------
Numerator for diluted earnings per share -
adjusted net income attributable to
common stockholders plus assumed conversions $ 2,330,259 $ 2,325,936 $ 4,587,358 $ 5,289,185
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 27,951,006 22,385,382 27,466,712 21,356,201
Effect of dilutive securities:
Convertible preferred stock -- 516,267 22,068 739,099
Dilutive options 1,657,141 3,737,701 1,767,555 4,012,126
Convertible debt 122,435 182,648 152,375 270,648
----------- ----------- ----------- -----------
Dilutive potential common shares 1,779,576 4,436,616 1,941,998 5,021,873
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares outstanding
and assumed conversions 29,730,582 26,821,998 29,408,710 26,378,074
=========== =========== =========== ===========
Proforma earnings per common share:
Basic $ .08 $ .09 $ .17 $ .19
=========== =========== =========== ===========
Diluted $ .08 $ .08 $ .16 $ .16
=========== =========== =========== ===========
Earnings per common share
Basic $ .08 $ .10 $ .17 $ .24
=========== =========== =========== ===========
Diluted $ .08 $ .09 $ .16 $ .20
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Segment Information
The Company's operations are classified into five principal reportable
segments that provide different products or services. Separate management of
each segment is required because each business unit has different marketing,
production and technology strategies. Segment information is reported
differently from the 1998 annual report to better describe how management
currently analyzes its financial information and to consolidate by division
how the Company is marketed to the general public and its clients.
June 30, 1999 (Three Month Period Ending)
<TABLE>
<CAPTION>
Infrastructure Systems Equipment
Development Integration Engineering Distribution Wireless Total
----------- ----------- ----------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $20,912,262 $5,494,030 $5,282,888 $8,426,924 $624,087 $40,740,191
Gross Profit 3,665,478 1,300,638 1,955,296 2,868,549 304,324 10,094,285
Interest Expense 468,363 33,676 58,011 106,180 -- 666,230
Depreciation and
Amortization 817,835 139,169 125,088 297,484 21,031 1,400,607
Operating Income 2,161,620 107,554 551,658 1,592,828 67,817 4,481,477
June 30, 1998 (Three Month Period Ending)
Infrastructure Systems Equipment
Development Integration Engineering Distribution Wireless Total
----------- ----------- ----------- ------------ -------- -----
Revenues $5,188,404 $5,956,706 $1,745,020 $11,505,789 $ -- $24,395,919
Gross Profit 775,808 1,313,542 146,266 5,902,936 -- 8,138,552
Interest Expense 65,192 3,221 5,430 103,547 -- 177,390
Depreciation and
Amortization 503,211 44,781 138,337 310,024 -- 996,353
Operating Income
(Loss) 99,581 459,848 (380,691) 3,227,291 -- 3,406,029
</TABLE>
9
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Segment Information (Continued)
June 30, 1999 (Six Month Period Ending)
<TABLE>
<CAPTION>
Infrastructure Systems Equipment
Development Integration Engineering Distribution Wireless Total
----------- ----------- ----------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $30,410,767 $11,249,906 $ 9,417,596 $15,978,085 $1,549,174 $ 68,605,528
Gross Profit 5,829,401 2,960,425 3,584,107 5,354,340 828,571 18,556,844
Interest Expense 600,824 59,412 150,821 247,483 316 1,058,856
Depreciation and
Amortization 1,313,032 192,607 253,031 597,324 21,444 2,377,438
Operating Income 3,378,263 721,131 1,096,846 2,788,614 497,691 8,482,545
Assets 53,234,939 12,384,831 10,169,034 44,735,138 6,448,889 126,972,831
June 30, 1998 (Six Month Period Ending)
Infrastructure Systems Equipment
Development Integration Engineering Distribution Wireless Total
----------- ----------- ----------- ------------ -------- -----
Revenues $ 7,902,569 $11,655,731 $ 3,314,776 $23,190,822 $ -- $46,063,898
Gross Profit 1,124,234 2,727,770 568,613 10,880,864 -- 15,301,481
Interest Expense 114,368 13,937 17,984 179,183 -- 325,472
Depreciation and
Amortization 693,281 80,763 280,286 569,961 -- 1,624,291
Operating Income
(Loss) (25,052) 1,082,332 (484,999) 6,490,228 -- 7,062,509
Assets 11,937,472 7,082,794 3,714,198 37,673,382 -- 60,407,846
</TABLE>
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
International FiberCom, Inc. offers a wide variety of services and
equipment to the telecommunications, cable television and other related
industries through twelve wholly-owned subsidiaries. Unless the context requires
otherwise, all references to "we", "our" or "us" refer to International
FiberCom, Inc. and its subsidiaries. Our subsidiaries are separated into the
following five principal business segments:
INFRASTRUCTURE DEVELOPMENT
Our Infrastructure Development segment designs, installs and maintains
fiber-optic cable networks for cable television and telephone companies, also
known as "outside plant development". We have three subsidiaries in this
segment:
* Kleven Communications, Inc. ("Kleven")
* Kleven Communications - CA, Inc. ("Kleven-CA")
* All Star Telecom, Inc. ("All Star")
Our Systems Integration segment designs, installs and maintains structured
cable systems, network hardware, software, workstations and related
peripherals, primarily within commercial, industrial and government
facilities. We have two subsidiaries in this segment:
SYSTEMS INTEGRATION
* Concepts in Communications, Inc. ("Concepts")
* BlueRidge Solutions, Inc. ("BlueRidge")
* Washington Data Systems ("WDS")
ENGINEERING
Our Engineering segment specializes in the design of fiber-optic video, voice
and data networks for cable television and telephone companies. This segment
also provides project management, construction management, consulting
services and staffing. We have two subsidiaries in this segment:
* Compass Communications, Inc. ("Compass")
* IFC Staffing, Inc. ("IFC Staffing")
EQUIPMENT DISTRIBUTION
Our Equipment Distribution segment subsidiaries purchase, sell and deal in
new and used telecommunications equipment used in the digital access,
switching and transport systems of telephone companies, and other Fortune 500
companies. We have three subsidiaries in this segment:
* Southern Communications Products, Inc. ("Southern")
* Diversitec, Inc. ("Diversitec")
* United Tech, Inc. ("United Tech")
WIRELESS
Our Wireless segment manufactures and installs specialized wireless
telecommunications equipment used to enhance radio frequency transmission and
reception in tunnels, subways and other confined environments.
* AeroComm, Inc. ("AeroComm")
11
<PAGE>
Our strategy is to be a one-stop solution for the telecommunications
marketplace. This strategy involves offering a wide range of engineering,
consulting and maintenance services for fiber-optic and broadband networks and
systems integrated with local area network ("LAN") and wide are network ("WAN")
expertise and capabilities. A LAN is a group of personal computers linked
together in a building or campus to share programs, data, E-mail, peripherals
and other resources. A WAN is a network that covers a large geographic area,
such as a state or country.
We derive a substantial portion of our revenue from contracts that are
accounted for under the percentage of completion method of accounting. Under
this method, revenues are recorded as work progresses on a contract. Overall
gross margin percentages can increase or decrease based upon changes in the
estimated gross margin percentages over the lives of the individual contracts.
In April 1999, we purchased all of the outstanding equity securities of All
Star. All Star specializes in the engineering, development and maintenance of
telecommunications infrastructure systems, including cellular, for the CATV, LEC
and CLEC industries. The purchase agreement calls for an initial payment of
$3.85 million in cash and the issuance of 592,857 restricted shares of common
stock for a total of approximately $8 million. Additional contingent payments
(up to $13.5 million) may be payable if All Star meets certain pretax targets
over the next 3 years. Future contingent payments may be in cash and common
stock, except that over 40% of all proceeds must be paid in stock. The
acquisition will be accounted for as a purchase.
In July 1999, we purchased the net assets of Washington Data Systems
("WDS"). WDS specializes in systems integration, software development and
computer training and has offices in Maryland, Virginia, New York and
Pennsylvania. The purchase agreement calls for an initial payment of $3.0
million in cash. Additional contingent payments (up to $10 million) may be
payable if WDS meets certain pretax targets over the next 30 months. Future
contingent payments may be in cash and common stock (up to 60%) at our
discretion.
On July 14, 1999, we entered into an Amended and Restated Revolving Line of
Credit Agreement with a syndication of commercial banks led by Bank One with
Union Bank of California and First Tennessee participating. In February 1999, we
entered into the original revolving credit agreement which allowed us to borrow
up to $30 million based upon our available borrowing capacity. Under the terms
of the new credit agreement we may now borrow up to $60 million. In addition,
borrowings under the new agreement will bear interest at either LIBOR plus 175
to 250 basis points, depending upon the ratio of our debt to our earnings, or
prime rate at our discretion. Under the original credit agreement our interest
rate was LIBOR plus 200 basis points or prime rate at our discretion. In
connection with the new credit agreement our $5 million lease financing
arrangement was also extended to $10 million.
RESULTS OF OPERATIONS
NET SALES. Net sales for the second quarter of 1999 increased to
$40,740,191 from $24,395,919 for the same period in 1998, an increase of 67%.
This increase in sales is primarily attributable to an increase in contract
activity in the infrastructure development and engineering segments as well as
the addition of All Star's revenue in the second quarter. Infrastructure
development and engineering segment revenues increased by over $19.3 million
from the comparable quarter of 1998 which offset a reduction in revenues in the
equipment distribution segment of approximately $3.1 million. Refer to Note 5 to
the financial statements on page F-9 for further breakdown by segment.
12
<PAGE>
GROSS PROFIT. Our gross profit increased to $10,094,285 for the second
quarter of 1999 compared with $8,138,552 for the same period in 1998. The
increase was a result of significant growth in the infrastructure development
and engineering segments, as well as the addition of profits from AeroComm and
All Star as compared to the 1998 quarter. Such increases offset a reduction in
the profit of our equipment distribution segment of approximately $3.0 million.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses were $5,612,808 for the second quarter of 1999 compared with $4,732,523
for the same period in 1998. As a percentage of net sales, the general and
administrative expenses decreased from 19% in the first quarter of 1999 to 14%
in the second quarter of 1999.
OTHER INCOME (EXPENSE). Our other expenses were $607,298 for the second
quarter of 1999 compared with $109,364 for the same period in 1998. This
increase is primarily attributable to higher borrowing activity in connection
with our acquisitions of All Star and AeroComm in 1999, and Communications
Center, Inc., General Communications, Inc., and Riley Communications, Inc. after
the second quarter of 1998. All five of the above transactions were in part cash
purchases. In addition, we retired approximately $6 million in debt as a part of
the consideration for the All Star purchase, using funds available under our
line of credit.
The increase in other expenses is also partially attributable to increased
interest expenses under equipment financing arrangements as a result of
substantial equipment purchases in the infrastructure development segment to
meet increased demand for that segment's services.
PROVISION FOR INCOME TAX. The Company recorded income tax expense of
$1,549,921 for the second quarter of 1999 as compared to income tax expense of
$1,034,766 for the same period in 1998.
On a pro forma basis the provision for income taxes increased from
$1,318,666 in the second quarter of 1998 to $1,549,921 in the same period of
1999. The pro forma tax adjustment is stated to reflect the acquisitions of
Diversitec and United Tech as explained in Note 3 of the financial statements.
NET INCOME. We generated net income of $2,324,258, or approximately 6% of
revenues, for the second quarter of 1999 as compared with net income of
$1,962,624, after pro forma tax adjustments, or 8% of revenues, for the same
period in 1998.
PREFERRED STOCK DIVIDEND. We had no preferred stock outstanding during the
second quarter of 1999, therefore no dividends were paid.
BACKLOG. We had a backlog of approximately $65 million on a work in process
basis as of June 30, 1999. We expect such work orders to be completed by June
2000. Further, we have work orders, which were not started as of June 30, 1999,
for Cox Communications, Inc., the State of Tennessee, Nike, Inc., TCG, AT&T/BIS,
Williams Communication and US West totaling in excess of $15 million. We expect
to commence these work orders during the third quarter of 1999 and substantially
complete it by June 2000.
LIQUIDITY AND CAPITAL RESOURCES
OPERATIONS. We have historically financed our operations through a
combination of operating cash flow, lines of credit, debt and equity offerings.
Our liquidity is impacted, to a large degree, by the nature of billing
provisions under our installation and service contracts. Generally, in the early
periods of contracts, cash expenditures and accrued profits are greater than
allowed billings, while contract completion results in billing previously
unbilled costs and related accrued profits.
13
<PAGE>
For the year to date, we used $8,366,011 of net cash from operations. Cash
generated from operations of $7,558,272 includes net income of approximately
$4,556,232, depreciation and amortization of $2,377,438, a decrease in prepaid
expenses of $51,561, and an increase in overbillings of $573,041. Cash expended
for operations of $15,924,283, includes an increase in accounts receivable of
$4,169,205, an increase in inventory of $1,080,757, an increase in underbillings
of $6,356,442, a decrease in accounts payable of $1,437,931, a decrease in
accrued expenses of $419,510, and a decrease in income taxes payable of
$2,460,438.
INVESTING ACTIVITIES. For the six months ended June 30, 1999, we used
approximately $14,225,290 in investing activities. Such amount consists of our
purchase of fixed assets of approximately $6,573,609, an increase in intangible
and other assets of $7,526,681, and an increase in deferred acquisitions cost of
$125,000.
FINANCING ACTIVITIES. For the six months ended June 30, 1999, our financing
activities generated approximately $21,190,588 consisting in part of an increase
in loans and other liabilities payable of approximately $18,483,828, proceeds
from warrant and stock option exercises of $2,230,600, and proceeds from stock
purchased under the ESPP of $476,160.
As of June 30, 1999, the Company had a revolving line of credit with Bank
One and other participating institutions totaling $60 million, with an available
balance of approximately $35 million. We believe that with our current working
capital, funds generated through operations and available credit balances on our
line of credit we will have sufficient working capital to address the
anticipated growth of demand and markets for its products and services for the
next 12 to 18 months. We may, however, seek to obtain additional capital through
additional debt or equity offerings during this time period. The raising of
additional capital in public markets will primarily be dependent upon prevailing
market conditions and the demand for our products and services.
INFLATION AND SEASONALITY. We do not believe that we are significantly
impacted by inflation or seasonality.
YEAR 2000 COMPLIANCE
We have reviewed our computer systems to identify those areas that could be
adversely affected by Y2K software failures. We have converted approximately 80%
of our information systems to be Y2K compliant. The compliance effort to date
has cost approximately $140,000 and approximately $140,000 is budgeted to
complete the remaining required systems' compliance efforts. Certain computer
systems acquired in connection with recent acquisitions are not Y2K compliant.
However, we expect to be 100% compliant with respect to these systems by
November 1999. Although we expect that any future expenditures made in
connection with Y2K conversions will not be material, there can be no assurance
in this regard. We believe that some of our customers, particularly local
exchange and long distance carriers and cable system operators may be impacted
by the Y2K problem, which in turn may affect us. Currently, we cannot predict
the effect that Y2K problems may have on companies with whom it transacts
business and there cannot be any assurance that these problems will not
materially and adversely affect our financial condition, cash flow or results of
operations. As a result of this uncertainty, we formulated a contingency plan to
address the possible effects of problems encountered as a result of Y2K issues.
14
<PAGE>
FORWARD-LOOKING INFORMATION.
This Report contains certain forward-looking statements and information
within the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include the
following: the Company's success in obtaining new contracts; the volume and type
of work orders that are received under such contracts; the accuracy of the cost
estimates for the projects; the Company's ability to complete its projects on
time and within budget; levels of, and ability to collect amounts receivable;
availability of trained personnel and utilization of the Company's capacity to
complete work; the Company's ability to complete proposed acquisitions and, upon
their completion, to integrate the acquisitions into its organization and manage
its growth; competition and competitive pressures on pricing; and economic
conditions in the United States and in the regions served by the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not involved as a party to any legal proceeding other than
various claims and lawsuits arising in the ordinary course of its business, none
of which, in our opinion, is material, either on an individual or a collective
basis.
ITEMS 2 AND 3 ARE OMITTED BECAUSE THESE ITEMS ARE INAPPLICABLE TO THIS REPORT.
ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS.
We held our 1999 Annual Meeting of Shareholders on July 2, 1999. The
following Directors were elected for terms which will expire at the 2000 Annual
Meeting of Shareholders: Joseph P. Kealy, Jerry A. Kleven, Richard J. Seminoff,
V.Thompson Brown, Jr., John F. Kealy, C. James Jensen, and John P. Stephens.
The shareholders also approved the ratification of BDO Seidman, LLP as our
independent auditors for the fiscal year ended December 31, 1999 with 21,136,679
shares voting for, 61,789 shares voting against and 38,523 shares abstaining.
ITEMS 5 AND 6 ARE OMITTED BECAUSE THESE ITEMS ARE INAPPLICABLE TO THIS REPORT.
15
<PAGE>
SIGNATURE
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.
INTERNATIONAL FIBERCOM, INC.
By /s/ Terry W. Beiriger
------------------------
Terry W. Beiriger,
Chief Financial Officer
Dated: August 12, 1999
---------------
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 924632
<NAME> INTERNATIONAL FIBERCOM INC
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,388,834
<SECURITIES> 0
<RECEIVABLES> 32,534,366
<ALLOWANCES> 0
<INVENTORY> 18,081,194
<CURRENT-ASSETS> 69,813,768
<PP&E> 27,140,143
<DEPRECIATION> (8,732,531)
<TOTAL-ASSETS> 126,972,831
<CURRENT-LIABILITIES> 37,020,147
<BONDS> 0
0
0
<COMMON> 58,529,867
<OTHER-SE> 12,441,894
<TOTAL-LIABILITY-AND-EQUITY> 126,972,831
<SALES> 68,605,528
<TOTAL-REVENUES> 68,717,226
<CGS> 50,048,684
<TOTAL-COSTS> 60,122,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,058,856
<INCOME-PRETAX> 7,535,387
<INCOME-TAX> 2,979,155
<INCOME-CONTINUING> 4,556,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (4,000)
<NET-INCOME> 4,552,232
<EPS-BASIC> .17
<EPS-DILUTED> .16
</TABLE>
