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 SEPTEMBER 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
28,762,748 outstanding at September 30, 1999
<PAGE>
INDEX
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated balance sheets -
September 30, 1999 (unaudited) and December 31, 1998 2
Consolidated statements of operations (unaudited)
Three months ended September 30, 1999 and 1998;
Nine months ended September 30, 1999 and 1998 3
Consolidated statements of changes in stockholders'
equity (unaudited) - Nine months ended September 30, 1999 4
Consolidated statements of cash flows (unaudited) -
Nine months ended September 30, 1999 and 1998 5
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
1
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,727,604 $ 4,789,547
Accounts receivable, net 39,212,409 22,602,042
Cost and estimated earnings in excess of billings 15,268,457 5,191,428
Inventory, net 18,926,459 16,946,143
Other current assets 3,936,578 1,125,426
------------- -------------
Total current assets 83,071,507 50,654,586
Property and equipment, net 21,939,248 10,042,072
Intangibles, net 40,327,977 23,168,632
Other 1,255,964 749,099
------------- -------------
Total assets $ 146,594,696 $ 84,614,389
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable
and capital lease obligations $ 27,532,982 $ 8,955,241
Accounts payable 14,736,368 9,464,558
Accrued expenses 4,905,387 2,252,307
Billings in excess of costs
and estimated earnings 2,080,619 449,205
Income taxes payable 342,411 3,036,621
Other current liabilities 923,017 --
------------- -------------
Total current liabilities 50,520,784 24,157,932
Notes payable and capital lease obligations 23,066,577 4,076,308
Other 783,126 822,327
------------- -------------
Total liabilities 74,370,487 29,056,567
------------- -------------
Stockholders' equity:
Series C 4% convertible preferred stock, no par
value, 1,000 shares authorized; 400 shares
issued and outstanding at December 31, 1998 -- 306,665
Common Stock, no par value, 100,000,000 shares
authorized; 28,968,437 shares issued and
28,762,748 shares outstanding at September 30,
1999; 26,614,018 shares issued and 26,408,329
shares outstanding at December 31, 1998 59,211,227 47,361,495
Additional paid-in capital 2,581,149 2,581,149
Retained earnings 11,261,920 6,138,600
------------- -------------
73,054,296 56,387,909
Less: Treasury Stock, 205,689 shares, at cost (830,087) (830,087)
------------- -------------
Total stockholders' equity 72,224,209 55,557,822
------------- -------------
Total liabilities and stockholders' equity $ 146,594,696 $ 84,614,389
============= =============
</TABLE>
See notes to consolidated financialb statements.
2
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues $ 46,981,560 $ 25,685,899 $ 115,587,088 $ 71,757,712
Cost of revenues 36,740,722 17,095,736 86,789,406 47,213,446
------------- ------------- ------------- -------------
Gross margin 10,240,838 8,590,163 28,797,682 24,544,266
General and administrative 8,242,661 4,201,170 18,316,959 12,256,633
------------- ------------- ------------- -------------
Income from operations 1,998,177 4,388,993 10,480,723 12,287,633
Other income (expense):
Interest income 9,210 87,417 175,109 153,292
Interest expense (876,182) (323,217) (2,019,477) (710,170)
Other 23,779 (34,282) 54,017 (72,396)
------------- ------------- ------------- -------------
Income before non-recurring acquisition
costs and provision for income taxes 1,154,984 4,118,911 8,690,372 11,658,359
Non-recurring acquisition costs -- (890,000) -- (890,000)
------------- ------------- ------------- -------------
Income before provision for income taxes 1,154,984 3,228,911 8,690,372 10,768,359
Provision for income taxes (582,987) (866,835) (3,563,052) (2,533,229)
------------- ------------- ------------- -------------
Net income $ 571,997 $ 2,362,076 $ 5,127,320 $ 8,235,130
------------- ------------- ------------- -------------
Preferred stock dividend -- (8,602) (4,000) (46,887)
------------- ------------- ------------- -------------
Net income attributable to common
stockholders before proforma
provision for income taxes 571,997 2,353,474 5,123,320 8,188,243
Proforma provision for income taxes -- (272,924) -- (1,267,847)
------------- ------------- ------------- -------------
Net income attributable to common
stockholders after proforma provision
for income taxes $ 571,997 $ 2,080,550 $ 5,123,320 $ 6,920,396
============= ============= ============= =============
Earnings per common share:
Basic $ 0.02 $ 0.09 $ 0.18 $ 0.36
Diluted $ 0.02 $ 0.09 $ 0.17 $ 0.31
Proforma earnings per common share:
Basic $ 0.02 $ 0.08 $ 0.18 $ 0.31
Diluted $ 0.02 $ 0.08 $ 0.17 $ 0.26
Shares used in computation:
Basic 28,628,588 25,263,581 27,772,649 22,606,672
Diluted 30,275,690 27,704,768 29,574,341 26,876,972
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Series C Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 400 $ 306,665 26,614,018 $47,361,495
Current year activity (unaudited):
Preferred Stock Dividends 592 4,000
Conversion of Series C Preferred Stock (400) (306,665) 79,840 306,665
Conversion of convertible debt 182,648 1,000,000
Common Stock issued in connection
with acquisitions 1,021,271 7,132,711
Common Stock purchased under ESPP 83,593 476,160
Exercise of Common Stock options
and warrants 986,475 2,930,196
Net income
----------- ----------- ----------- -----------
Balance, September 30, 1999 (unaudited) -- $ -- 28,968,437 $59,211,227
=========== =========== =========== ===========
<CAPTION>
Additional Retained Treasury
Paid-in Capital Earnings Stock Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 $ 2,581,149 $ 6,138,600 $ (830,087) $55,557,822
Current year activity (unaudited):
Preferred Stock Dividends (4,000) --
Conversion of Series C Preferred Stock --
Conversion of convertible debt 1,000,000
Common Stock issued in connection
with acquisitions 7,132,711
Common Stock purchased under ESPP 476,160
Exercise of Common Stock options
and warrants 2,930,196
Net income 5,127,320 5,127,320
----------- ----------- ----------- -----------
Balance, September 30, 1999 (unaudited) $ 2,581,149 $11,261,920 $ (830,087) $72,224,209
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------
1999 1998
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 5,127,320 $ 8,235,130
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 5,831,116 2,377,487
Acquisition fees paid in Common Stock -- 150,000
Changes in assets and liabilities:
Increase in accounts receivable (5,033,834) (10,513,676)
Increase in costs and estimated earnings
in excess of billings, net (6,262,755) (281,792)
Increase in inventory (1,792,193) (6,994,628)
Increase in other current assets (737,293) (93,001)
Increase in other assets (113,323) (546,197)
Increase (decrease) in accounts payable (613,171) 3,096,580
Increase (decrease) in accrued expenses (882,521) 1,054,771
Increase (decrease) in income taxes payable (2,720,368) 1,719,951
Increase in other current liabilities 923,017 --
Decrease in other liabilities (440,548) --
------------ ------------
Net cash used in operating activities (6,714,553) (1,795,375)
------------ ------------
Cash flows from investing activities:
Acquistion of property and equipment (11,960,675) (4,709,896)
Cash payments made in business acquisitions (11,491,944) (1,402,095)
Net assets of businesses acquired 151,015 --
------------ ------------
Net cash used in investing activities (23,301,604) (6,111,991)
------------ ------------
Cash flows from financing activities:
Net borrowings under notes payable and capital
lease obligations 27,547,858 2,560,859
Proceeds from exercise of common stock options
and warrants 2,930,196 8,891,363
Proceeds from issuance of Common Stock to
Employee Stock Purchase Plan 476,160 --
S-Corp shareholder distribution -- (646,412)
Purchase of Treasury Stock -- (162,070)
------------ ------------
Net cash provided by financing activities 30,954,214 10,643,740
------------ ------------
Net increase in cash 938,057 2,736,374
Cash, beginning of period 4,789,547 3,355,875
------------ ------------
Cash, end of period $ 5,727,604 $ 6,092,249
============ ============
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS cont'd
Nine Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
(unaudited)
Supplemental disclosure of non-cash transactions:
Common Stock issued in business acquisitions $7,132,711 $ 525,000
Conversion of convertible debt 1,000,000 600,000
Conversion of Series B Preferred Stock -- 1,126,837
Conversion of Series C Preferred Stock 306,665 459,997
Preferred Stock dividends paid in Common Stock 4,000 46,887
Accrued interest paid in Common Stock -- 46,918
Accrued offering costs paid in Common Stock -- 310,323
Issuance of additional shares of Common Stock
relating to 1997 private placement -- 1,948,959
See notes to consolidated financial statements.
6
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
International FiberCom, Inc., a C Corporation incorporated in Arizona on
December 29, 1972, offers a wide range of services to the communications
marketplace throughout the United States through three principle operating
segments: Infrastructure Development and Services, Equipment Distribution, and
Wireless Technologies. Infrastructure Development and Services represents the
Company's primary operating segment and includes design and engineering
services, installation, integration and maintenance of underground and aerial
fiber optic, copper and broadband communications systems, as well as integrated
local and wide area networks. Equipment Distribution services include the
purchase and sale of new and used telecommunications equipment used in the
digital access, switching and transport systems of communications service
providers. Wireless Technologies services include the design, manufacture and
installation of proprietary wireless communications equipment used to enhance
radio frequency transmission in tunnels, subways and other confined
environments.
BASIS OF PRESENTATION:
In the opinion of management, the accompanying consolidated financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position as of September 30, 1999 and the results
of its operations for the three and nine month periods ended September 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 nine month periods ended September
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.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany amounts and
transactions have been eliminated.
RECLASSIFICATIONS:
Certain balances as of December 31, 1998 and for the three and nine month
periods ended September 30, 1998 have been reclassified in the accompanying
consolidated financial statements to conform with the current year presentation.
These reclassifications had no effect on previously reported net income or
stockholders' equity.
7
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS cont'd
(UNAUDITED)
NOTE 2 - INVENTORY:
The components of inventory consist of the following:
September 30, December 31,
1999 1998
------------ ------------
New and used telecommunications equipment $ 19,237,623 $ 18,058,880
Cabling and equipment 1,912,846 847,433
Raw materials 179,810 --
------------ ------------
21,330,279 18,906,313
Less: allowance for obsolete inventory (2,403,820) (1,960,170)
------------ ------------
$ 18,926,459 $ 16,946,143
============ ============
NOTE 3 - PROFORMA PROVISION FOR INCOME TAXES:
On September 1, 1998, the Company acquired United Tech, Inc. ("United") and
Diversitec, Inc. ("Diversitec"). The Company accounted for the acquisitions
using the pooling of interests method of accounting whereby the Company
exchanged shares of Common Stock for all the outstanding 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, were not subject to federal income taxes prior to the acquisition
date. Accordingly, a proforma provision for income taxes has been recorded in
the consolidated statements of operations for the period up to the acquisition
date as if both companies were subject to federal income taxes for all periods
presented.
8
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY:
Earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share -
net income attributable to common
stockholders before proforma provision
for income taxes $ 571,997 $ 2,353,474 $ 5,123,320 $ 8,188,243
Interest and finance expense on
convertible debt 6,001 26,764 31,126 130,341
Preferred Stock dividends -- 8,602 4,000 46,887
----------- ----------- ----------- -----------
Numerator for diluted earnings per share $ 577,998 $ 2,388,840 $ 5,158,446 $ 8,365,471
=========== =========== =========== ===========
Proforma Numerator:
Proforma numerator for basic earnings per
share - net income attributable to
common stockholders after proforma
provision for income taxes $ 571,997 $ 2,080,550 $ 5,123,320 $ 6,920,396
Interest and finance expense on
convertible debt 6,001 26,764 31,126 130,341
Preferred Stock dividends -- 8,602 4,000 46,887
----------- ----------- ----------- -----------
Proforma numerator for diluted earnings
per share $ 577,998 $ 2,115,916 $ 5,158,446 $ 7,097,624
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding 28,628,588 25,263,581 27,772,649 22,606,672
----------- ----------- ----------- -----------
Effect of dilutive securities:
Convertible preferred stock -- 163,458 14,631 513,444
Dilutive options and warrants 1,647,102 2,095,081 1,686,036 3,516,186
Convertible debt -- 182,648 101,025 240,670
----------- ----------- ----------- -----------
Dilutive potential common shares 1,647,102 2,441,187 1,801,692 4,270,300
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 30,275,690 27,704,768 29,574,341 26,876,972
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.02 $ 0.09 $ 0.18 $ 0.36
Diluted $ 0.02 $ 0.09 $ 0.17 $ 0.31
Proforma earnings per common share:
Basic $ 0.02 $ 0.08 $ 0.18 $ 0.31
Diluted $ 0.02 $ 0.08 $ 0.17 $ 0.26
</TABLE>
9
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 5 - SEGMENT INFORMATION:
The Company's operations are classified into three principal segments which
include Infrastructure Development and Services, Equipment Distribution, and
Wireless Technologies. Infrastructure Development and Services represents the
Company's primary operating segment and includes design and engineering
services, installation, integration and maintenance of underground and aerial
fiber optic, copper and broadband communications systems, and integrated local
and wide area networks. Equipment Distribution services include the purchase and
sale of new and used telecommunications equipment used in the digital access,
switching and transport systems of communications service providers and other
Fortune 500 companies. Wireless Technologies services include the design,
manufacture and installation of proprietary wireless communications equipment
used to enhance radio frequency transmission and reception in tunnels, subways
and other confined environments.
Segment information for the three months ended September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Infrastructure
Development Equipment Wireless
and Services Distribution Technologies Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
For the three months ended
September 30, 1999:
Revenues $ 38,934,574 $ 7,433,306 $ 613,680 $ 46,981,560
Gross Profit 8,039,494 2,115,720 85,624 10,240,838
Interest expense 779,255 88,012 8,915 876,182
Depreciation and amortization 2,249,734 325,779 203,744 2,779,257
Operating income (loss) 1,695,107 802,149 (499,079) 1,998,177
For the three months ended
September 30, 1998:
Revenues $ 16,613,533 $ 9,072,366 $ -- $ 25,685,899
Gross Profit 3,998,527 4,591,636 -- 8,590,163
Interest expense 209,444 113,773 -- 323,217
Depreciation and amortization 480,449 294,046 -- 774,495
Operating income 1,497,037 2,891,956 -- 4,388,993
</TABLE>
10
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 5 - SEGMENT INFORMATION (CONTINUED):
Segment information for the nine months ended September 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Infrastructure
Development Equipment Wireless
and Services Distribution Technologies Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
For the nine months ended
September 30, 1999:
Revenues $ 90,012,843 $ 23,411,391 $ 2,162,854 $115,587,088
Gross Profit 20,413,427 7,470,060 914,195 28,797,682
Interest expense 1,681,131 329,124 9,222 2,019,477
Depreciation and amortization 4,691,777 919,862 219,477 5,831,116
Operating income 6,820,767 3,643,094 16,862 10,480,723
Assets 96,585,896 43,651,374 6,357,426 146,594,696
For the nine months ended
September 30, 1998:
Revenues $ 39,493,458 $ 32,264,254 $ -- $ 71,757,712
Gross Profit 8,427,630 16,116,636 -- 24,544,266
Interest expense 431,442 278,728 -- 710,170
Depreciation and amortization 1,488,006 889,481 -- 2,377,487
Operating income 1,995,248 10,292,385 -- 12,287,633
Assets 35,129,572 41,793,184 -- 76,922,756
</TABLE>
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
International FiberCom, Inc. (the "Company") offers a wide range of services and
equipment to the communications marketplace. The Company provides services and
equipment to communications service providers, Fortune 500 companies,
governmental agencies and other private end users. The Company's operations are
classified into three principal segments which include Infrastructure
Development and Services, Equipment Distribution, and Wireless Technologies.
Infrastructure Development and Services (referred to as "Infrastructure" or
"Core Business") represents the Company's primary operating segment and includes
design and engineering services, installation, integration and maintenance of
underground and aerial fiber optic, copper and broadband communications systems,
and integrated local and wide area networks. Historically, the Company has
presented its engineering, infrastructure development, and systems integration
activities as separate operating segments. However, increased revenues from
full-service customer relationships which incorporate multiple services offered
within the Company's Core Business have resulted in changes in the way the
Company manages and analyzes its business.
Equipment Distribution services include the purchase and sale of new and used
telecommunications equipment used in the digital access, switching and transport
systems of communications service providers and other Fortune 500 companies.
Wireless Technologies services include the design, manufacture and installation
of proprietary wireless communications equipment used to enhance radio frequency
transmission and reception in tunnels, subways and other confined environments.
The Company derives a substantial portion of its revenue through contracts
accounted for under the percentage of completion method whereby revenue is
recognized based on the ratio of contract costs incurred to total estimated
contract costs. As a result, gross margins can vary from month to month based on
changes in estimated project costs. As of September 30, 1999, the Company had
backlog relating to contracts accounted for under the percentage of completion
method totaling approximately $89.5 million, of which approximately $60 million
related to contracts in progress.
In July 1999, the Company purchased the net assets of Washington Data Systems
("WDS"). WDS specializes in local and wide area network systems integration and
related services and has offices in Maryland, Virginia, New York and
Pennsylvania. Under the terms of the agreement, The Company made an initial cash
payment of $3 million and future contingent payments totaling up to an
additional $10 million may be payable if certain profitability targets are met
during the 30-month period following the acquisition. Future contingent payments
may be made in either cash or common stock, at the Company's discretion, with a
maximum of 60% consisting of common stock.
Also in July 1999, the Company entered into an Amended and Restated Revolving
Credit Agreement (the "Agreement") with a syndication of commercial banks. Under
the terms of the Agreement, the Company may borrow up to $60 million, an
increase from the original borrowing limit of $30 million. Borrowings under the
Agreement bear interest at either LIBOR plus 175 to 250 basis points, determined
based on certain financial covenants, or the prime rate, at the discretion of
the Company. In connection with the Agreement, the borrowing limit under the
Company's equipment lease line of credit was increased from $5 million to $10
million.
12
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Revenues for the three and nine months ended September 30, 1999
increased $21.3 million and $43.8 million, or 82.9% and 61.1%, to $47 million
and $115.6 million, respectively, as compared to the similar periods in the
prior year. The increases were due primarily to revenue growth of $22.3 million
and $50.5 million in the Infrastructure Development and Services segment during
the three and nine months ended September 30, 1999, respectively, over the
comparable periods in the prior year. These increases were the result of
incremental revenues from acquisitions made during the year as well as revenue
growth from existing subsidiaries. Also contributing to the overall increase in
Company revenues was the addition of the Wireless Technologies segment during
the first quarter of 1999 which contributed revenues of $614,000 and $2.2
million for the three and nine months ended September 30, 1999, respectively.
Partially offsetting revenue growth in the Infrastructure and Wireless segments
was a decrease in revenues of $1.6 million and $8.9 million in the Equipment
Distribution segment for the quarter and nine months ended September 30, 1999,
respectively, over the comparable periods in the prior year.
GROSS MARGIN. Gross margin for the three and nine months ended September 30,
1999 increased $1.7 million and $4.3 million, or 19.2% and 17.3%, to $10.2
million and $28.8 million, respectively, as compared to the similar periods in
the prior year. The increases were the result of revenue growth in the
Infrastructure and Wireless segments, partially offset by a decrease in revenues
in the Equipment Distribution segment.
Gross margin, as a percentage of revenues, decreased 11.6% and 9.3% to 21.8% and
24.9% for the three and nine months ended September 30, 1999, respectively, as
compared to similar periods in the prior year. Such decreases were primarily due
to declines in the gross margins within the Equipment distribution segment.
Gross margin as a percentage of revenues for the quarter and nine months ended
September 30, 1999 were 28.5% and 31.9%, respectively, within the Equipment
Distribution segment, as compared to 50.6% and 50.0% for the comparable periods
in the prior year. Current year gross margin levels in the Equipment
Distribution segment have declined due to changes in market conditions. Gross
margin as a percentage of revenues in the Infrastructure segment decreased 3.5%
and increased 1.4% for the quarter and nine months ended September 30, 1999,
respectively, over the comparable periods in the prior year. The decrease in
gross margin as a percentage of revenues in the third quarter was due primarily
to unexpected delays in certain contract execution schedules as well as cost
overruns related to a non-core municipal utility installation contract.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the quarter
and nine months ended September 30, 1999 increased $4 million and $6.1 million,
or 96% and 49.4%, to $8.2 million and $18.3 million, respectively, as compared
to the similar periods in the prior year. The increases were primarily due to
incremental costs associated with acquisitions made during 1999 as well as
internal growth of existing subsidiaries. General and administrative expenses,
as a percentage of revenues, for the three and nine months ended September 30,
1999 increased 1.2% and decreased 1.3% to 17.5% and 15.8%, respectively, over
the comparable periods in the prior year.
OTHER INCOME (EXPENSE). Other expenses for the quarter and nine months ended
September 30, 1999 increased $570,000 and $1.2 million to $843,000 and $1.8
million, respectively, as compared to the similar periods in the prior year. The
increases are primarily due to interest expense on the Company's credit
facilities. Borrowing activity has increased significantly during 1999 due to
the acquisition of several subsidiaries through purchase agreements consisting
of all cash or cash and common stock terms as well as the acquisition of
operating equipment to support revenue growth in the Infrastructure Development
and Services segment.
NON-RECURRING ACQUISITION COSTS. Non-recurring acquisition costs were
attributable to certain acquisitions made during the third quarter of 1998
accounted for under the pooling of interests method.
13
<PAGE>
PROVISION FOR INCOME TAXES. Income taxes for the quarter and nine months ended
September 30, 1999 decreased $284,000 and increased $1 million, or 32.7% and
40.7%, to $583,000 and $3.6 million, respectively, as compared to the similar
periods in the prior year. The provision for income taxes decreased due to lower
current quarter and year to date taxable earnings, offset by a lower effective
tax rate in 1998 due to certain acquisitions accounted for under the pooling of
interests method in the third quarter of the prior year. Prior to the
acquisitions, the companies acquired operated as Subchapter S corporations and,
accordingly, were not subject to federal income taxes. A proforma provision for
income taxes was recorded for the quarter and nine months ended September 30,
1998 to present income taxes as though the consolidated operating results of the
acquired companies had been subject to federal income taxes for all periods
presented.
NET INCOME. Net income attributable to common stockholders before proforma
provision for income taxes for the quarter and nine months ended September 30,
1999 decreased $1.8 million and $3.1 million, or 75.8% and 37.4%, to $572,000
and $5.1 million, respectively, as compared to the similar periods in the prior
year. Net income attributable to common stockholders after proforma provision
for income taxes decreased $1.5 million and $1.8 million, or 72.5% and 26.0%,
respectively, over the comparable periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs relate primarily to equipment needed to support
revenue growth and to provide working capital for general corporate purposes,
including strategic acquisitions. The Company has historically financed
operations through a combination of operating cash flow, lines of credit, and
debt and equity offerings. The Company's 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.
For the nine months ended September 30, 1999, net cash used in operations
totaled $6,714,553 as compared to $1,795,375 for the comparable period in the
prior year. Cash generated from operations during the period totaled $11,881,453
and consisted primarily of net income of $5,127,320, depreciation and
amortization totaling $5,831,116 and an increase in other current liabilities of
$923,017. Operating assets and liabilities decreased operating cash flow
$18,596,006, primarily due to increases in accounts receivable, inventory and
costs and estimated earnings in excess of billings and decreases in accounts
payable and accrued expenses.
During the nine months ended September 30, 1999, the Company used $23,301,604 in
investing activities which consisted primarily of equipment purchases totaling
$11,960,675 and cash used in business acquisitions totaling $11,491,944. For the
nine months ended September 30, 1999, financing activities generated
approximately $30,954,214 which consisted primarily of net borrowings under the
Company's credit facilities totaling $27,547,858, proceeds from warrant and
stock option exercises totaling $2,930,196 and proceeds from stock purchased
under the Company's Employee Stock Purchase Plan totaling $476,160.
As of September 30, 1999, the Company had a revolving line of credit with a
syndication of commercial banks totaling $60 million, with an available balance
of approximately $28 million. Additionally, the Company had a $10 million lease
line of credit, with an available balance of approximately $4 million. Aggregate
proceeds from current working capital, funds generated through operations and
current availability under existing credit facilities are considered sufficient
to fund the anticipated growth in the Company's operations for the next 12 to 18
months. The Company may, however, seek to obtain additional capital through
additional debt or equity offerings depending primarily 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.
14
<PAGE>
YEAR 2000 COMPLIANCE
The Company has reviewed its computer systems to identify those areas that could
be adversely affected by Y2K software failures. The Company has converted
approximately 90% of its information systems to be Y2K compliant. The compliance
effort to date has cost approximately $200,000 and approximately $75,000 is
budgeted to complete the remaining required systems' compliance efforts. Certain
computer systems acquired in connection with recent acquisitions are not Y2K
compliant. However, the Company expects to be 100% compliant with respect to
these systems by the end of November 1999. Although the Company anticipates that
any future expenditures made in connection with Y2K conversions will not be
material, there can be no assurance in this regard. The Company believes that
some of its customers, particularly local exchange and long distance carriers
and cable system operators may be impacted by the Y2K problem, which in turn may
affect the Company. Currently, the Company 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
the Company's financial condition, results of operations or cash flow. However,
the Company believes that the diversity in its customer base and services
provided will limit the impact of potential delayed customer payments or lost
revenues as a result of any adverse effects that Y2K problems may have on
companies with whom it transacts business.
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.
15
<PAGE>
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.
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:_______________
16
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