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, 2000 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) 387-4000
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 32,845,038 shares issued and 32,639,349
outstanding at July 31, 2000
<PAGE>
INDEX
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - June 30, 2000 (unaudited)
and December 31, 1999 ............................................... 2
Consolidated statements of income (unaudited) -
Three months ended June 30, 2000 and 1999; Six months
ended June 30, 2000 and 1999 ........................................ 3
Consolidated statements of changes in stockholders'
equity - Six months ended June 30, 2000 (unaudited) ................. 4
Consolidated statements of cash flows (unaudited) - Six
months ended June 30, 2000 and 1999 ................................. 5
Notes to consolidated financial statements (unaudited)
- June 30, 2000 ..................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................... 16
Item 2. Changes in Securities ............................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ................. 17
Item 6. Exhibits and Reports on Form 8-K .................................... 17
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 11,972,618 $ 3,358,341
Accounts receivable - trade, net 58,305,365 50,577,092
Costs and estimated earnings in excess of billings 28,095,165 16,125,647
Inventory, net 20,923,624 18,722,334
Income tax receivable 4,908,253 868,055
Deferred tax asset 1,961,894 1,961,894
Other current assets 5,624,852 2,685,835
------------- -------------
Total current assets 131,791,771 94,299,198
Property and equipment, net 36,973,036 27,098,135
Goodwill, net 57,350,416 40,398,981
Other assets, net 3,396,165 1,537,546
------------- -------------
Total assets $ 229,511,388 $ 163,333,860
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable and
capital lease obligations $ 4,878,928 $ 6,656,379
Current portion of notes payable to
related parties 590,379 925,911
Accounts payable 21,632,248 16,395,723
Accrued expenses 7,892,690 5,373,737
------------- -------------
Total current liabilities 34,994,245 29,351,750
Notes payable and capital lease obligations 10,614,403 11,868,269
Notes payable to related parties -- 146,776
Line of credit 65,237,986 45,737,986
Deferred tax liability 1,720,146 1,720,146
------------- -------------
Total liabilities 112,566,780 88,824,927
------------- -------------
Stockholders' equity:
Common stock, no par value, 100,000,000
shares authorized; 32,801,637 shares
issued and 32,595,948 shares outstanding
at June 30, 2000; 29,978,157 shares
issued and 29,772,468 shares outstanding
at December 31, 1999 85,389,512 60,124,750
Additional paid-in capital 12,731,149 2,581,149
Foreign currency translation adjustment (20,694) --
Retained earnings 19,674,728 12,633,121
------------- -------------
117,774,695 75,339,020
Less: treasury stock, 205,689 shares, at cost (830,087) (830,087)
------------- -------------
Total stockholders' equity 116,944,608 74,508,933
------------- -------------
Total liabilities and stockholders' equity $ 229,511,388 $ 163,333,860
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(unaudited)
Revenues $ 75,607,042 $ 44,858,587 $ 139,664,341 $ 76,576,010
Cost of revenues 53,617,499 34,057,626 98,762,123 56,711,567
------------ ------------ ------------- ------------
Gross margin 21,989,543 10,800,961 40,902,218 19,864,443
General and administrative
expenses 12,620,164 6,125,633 24,530,094 11,039,617
------------ ------------ ------------- ------------
Income from operations 9,369,379 4,675,328 16,372,124 8,824,826
------------ ------------ ------------- ------------
Other income (expense):
Interest income 206,497 43,039 396,276 81,459
Interest expense (1,951,845) (833,542) (3,607,186) (1,393,492)
Other income (expense) (102,962) 36,601 (75,587) (108,719)
Non-recurring
acquisition-related expenses (1,380,286) -- (1,380,286) --
------------ ------------ ------------- ------------
(3,228,596) (753,902) (4,666,783) (1,420,752)
------------ ------------ ------------- ------------
Net income before
provision for income taxes 6,140,783 3,921,426 11,705,341 7,404,074
Provision for income taxes (2,707,627) (1,549,921) (4,663,734) (2,979,155)
------------ ------------ ------------- ------------
Net income $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,424,919
Preferred stock dividend -- -- -- 4,000
------------ ------------ ------------- ------------
Net income attributable
to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,420,919
============ ============ ============= ============
Earnings per common share:
Basic $ 0.11 $ 0.08 $ 0.23 $ 0.16
Diluted $ 0.10 $ 0.08 $ 0.21 $ 0.15
Shares used in computing
earnings per share:
Basic 31,855,754 28,816,969 31,225,287 28,332,675
Diluted 34,589,542 30,596,545 34,251,549 30,274,673
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in
Shares Amount Capital
---------- ----------- -----------
<S> <C> <C> <C>
Balance January 1, 2000 29,978,157 $60,124,750 $ 2,581,149
Current year activity (unaudited):
Exercise of common stock
options and warrants 1,778,908 9,878,945
Common stock issued under ESPP 237,373 1,576,157
Common stock issued in connection
with acquisitions 743,021 12,800,569
Non-recurring acquisition-related
expenses paid in common stock 64,178 1,009,091
Change in foreign currency translation
Stock option and warrant
income tax benefit 10,150,000
Net income
---------- ----------- -----------
Balance, June 30, 2000 (unaudited) 32,801,637 $85,389,512 $12,731,149
========== =========== ===========
Foreign
Currency Retained Treasury
Translation Earnings Stock Totals
------------ ------------ --------- ------------
Balance January 1, 2000 $ -- $ 12,633,121 $(830,087) $ 74,508,933
Current year activity (unaudited):
Exercise of common stock
options and warrants 9,878,945
Common stock issued under ESPP 1,576,157
Common stock issued in connection
with acquisitions 12,800,569
Non-recurring acquisition-related
expenses paid in common stock 1,009,091
Change in foreign currency translation (20,694) (20,694)
Stock option and warrant
income tax benefit 10,150,000
Net income 7,041,607 7,041,607
------------ ------------ --------- ------------
Balance, June 30, 2000 (unaudited) $ (20,694) $ 19,674,728 $(830,087) $116,944,608
============ ============ ========= ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income $ 7,041,607 $ 4,424,919
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and goodwill amortization 5,365,224 2,926,924
Loss on sale of fixed assets 64,334 157,641
Amortization of debt issuance costs 131,520 46,481
Non-recurring acquisition-related
expenses paid in common stock 1,009,091 --
Changes in operating assets and liabilities
net of business combinations:
Accounts receivable, net (4,653,947) (4,058,684)
Costs and estimated earnings in excess of
billings, net (12,162,808) (5,783,401)
Inventory, net (2,192,290) (1,080,757)
Income taxes 6,109,802 (2,460,438)
Other current assets (2,994,352) (50,268)
Other assets (1,178,518) 714,165
Accounts payable 3,858,142 (1,462,877)
Accrued expenses 1,986,685 (374,252)
------------ ------------
Net cash provided by (used in) operating
activities 2,384,490 (7,000,547)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (11,754,429) (6,858,323)
Cash received from sale of property and equipment 326,066 188,564
Payments for acquisitions (8,665,330) (8,415,961)
------------ ------------
Net cash used in investing activities (20,093,693) (15,085,720)
------------ ------------
Cash flows from financing activities:
Net change in line of credit borrowings 19,500,000 26,902,611
Notes payable and capital lease obligations, net (3,398,492) (7,371,975)
Repayment of notes payable to related parties (482,309) (1,569,694)
Debt issuance costs (750,821) --
Proceeds from ESPP 1,576,157 476,160
Proceeds from warrant and stock option exercises 9,878,945 2,230,600
------------ ------------
Net cash provided by financing activities 26,323,480 20,667,702
------------ ------------
Net increase (decrease) in cash and cash equivalents 8,614,277 (1,418,565)
Cash and cash equivalents, beginning of period 3,358,341 4,840,816
------------ ------------
Cash and cash equivalents, end of period $ 11,972,618 $ 3,422,251
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
(unaudited)
Supplemental disclosure of non-cash transactions:
In connection with acquisitions, the Company assumed
liabilities as follows:
Fair value of assets acquired $ 25,008,109 $ 15,566,908
Cash paid for acquisitions (net of cash acquired) $ (8,665,330) $ (8,415,961)
------------ ------------
Liabilities and notes assumed and stock issued to sellers $ 16,342,779 $ 7,150,947
============ ============
Increase in additional paid-in capital resulting from
recognizing tax benefits from stock option and
warrant exercises $ 10,150,000 $ --
============ ============
Foreign currency translation adjustment $ 20,694 $ --
============ ============
</TABLE>
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. ("IFCI" or the "Company"), a C Corporation
incorporated in Arizona on December 29, 1972, is an end-to-end, independent
solutions provider serving the telecommunications industry. The Company delivers
a broad range of solutions designed to enable, enhance and support voice, data
and video communications through wired and wireless networks operating inside
and outside buildings - internal and external networks. In delivering these
solutions, the Company designs, develops, installs and maintains networks that
support Internet-related and other communications applications and services for
its customers through broadband, including fiber-optic and copper, and wireless
connectivity solutions. The Company develops, manufactures and sells proprietary
wireless communications equipment. The Company also resells new, deinstalled and
refurbished communications equipment from a variety of manufacturers. The
Company delivers its products and services through three operating segments:
infrastructure development; wireless technologies; and equipment distribution.
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 June 30, 2000 and the results of its
operations for the three and six month periods ended June 30, 2000. 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,
2000 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2000. 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-K for the year ended December 31, 1999.
The Company's consolidated financial statements have been restated to reflect
the merger with Premier Cable Communications, Inc. ("Premier"), accounted for as
a pooling-of-interests.
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, 1999 have been reclassified in the
accompanying consolidated financial statements to conform with the current
period 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 - SIGNIFICANT BALANCE SHEET COMPONENTS:
Significant balance sheet components consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Accounts receivable, net:
Contract billings $ 54,636,033 $ 40,592,199
Retainage 4,070,893 3,673,616
Non-contract related accounts receivable 665,201 7,475,519
------------- ------------
59,372,127 51,741,334
Less: allowance for doubtful accounts (1,066,762) (1,164,242)
------------- ------------
$ 58,305,365 $ 50,577,092
============= ============
Costs and estimated earnings in excess of billings:
Costs incurred on contracts in progess $ 117,228,335 $ 76,631,918
Estimated earnings 42,085,828 21,033,140
------------- ------------
159,314,163 97,665,058
Less: billings to date (131,218,998) (81,539,411)
------------- ------------
$ 28,095,165 $ 16,125,647
============= ============
Inventory, net:
New and used telecommunications equipment $ 20,622,509 $ 19,218,888
Cabling and equipment 1,791,227 1,222,039
Raw materials 577,058 253,577
------------- ------------
22,990,794 20,694,504
Less: allowance for obsolete inventory (2,067,170) (1,972,170)
------------- ------------
$ 20,923,624 $ 18,722,334
============= ============
Property and equipment, net:
Construction equipment $ 27,207,329 $ 23,882,017
Vehicles 10,210,869 8,115,934
Building and land 8,564,960 2,854,860
Office furniture and equipment 7,349,777 5,157,612
Software 2,059,280 1,964,772
Leasehold improvements 1,053,790 752,141
------------- ------------
56,446,005 42,727,336
Less: accumulated depreciation and amortization (19,472,969) (15,629,201)
------------- ------------
$ 36,973,036 $ 27,098,135
============= ============
</TABLE>
8
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd
(UNAUDITED)
NOTE 3 - OPERATING LINE OF CREDIT:
In March 2000, 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 $100,000,000 (plus
$10,000,000 in stand-by letters of credit, of which $0 were issued as of June
30, 2000) and the borrowings bear interest at either LIBOR plus 175 to 250 basis
points or the prime rate plus 25 to 100 basis points, determined based on
certain financial covenants, at the discretion of the Company. The Company has
an option, subject to certain conditions, to increase the maximum borrowings to
$150,000,000. As of June 30, 2000, total line of credit borrowings were
$65,237,986. The Agreement requires monthly payments of interest and it matures
in March 2003. Borrowings are secured by substantially all of the Company's
assets and the Company is required to pay an annual commitment fee equal to
0.375% to 0.5%, determined based on certain financial covenants, of the unused
portion of the line of credit. The Agreement places certain business, financial
and operating restrictions on the Company relating to, among other things, the
incurrence of additional indebtedness, acquisitions, asset sales, mergers,
dividends, distributions and repurchases and redemption of capital stock. The
Agreement also requires that specified financial ratios and balances be
maintained. As of June 30, 2000, the Company was in compliance with these
covenants.
In connection with the Agreement, the borrowing limit under the Company's
equipment lease line of credit was increased from $10,000,000 to $15,000,000.
NOTE 4 - ACQUISITIONS:
Pooling-of-Interests Acquisitions
On June 1, 2000, the Company consummated a business combination with Premier
which included the exchange of 865,963 shares of International Fibercom, Inc.
common stock for all outstanding shares of Premier. In connection with the
business combination with Premier, the Company incurred transaction-related
costs of $1,380,286, which were charged to operations.
Purchase Acquisitions
During 1998 and 1999, the Company acquired Kleven Communications - CA, Inc.
("Kleven - CA"), All Star Telecom, Inc. ("All Star") and Blue Ridge Solutions
("Blue Ridge") and accounted for the acquisitions using the purchase method of
accounting. Their respective purchase agreements included provisions for
contingent consideration that is payable if certain financial targets are met
over a three-year period. Certain financial targets specified in the purchase
agreements were achieved by Kleven - CA, All Star and Blue Ridge through June
30, 2000 and the Company therefore, during the six months ended June 30, 2000,
issued 175,636 shares of IFCI Common Stock, valued at $3,510,579, and paid
$1,088,546 in cash, to the former owners of All Star and Blue Ridge, issued
254,205 shares of IFCI common stock, valued at $3,257,002 into an escrow account
for future issuance to the former owners of All Star and accrued $1,100,000 of
consideration to be paid to the former owner of Kleven - CA in July 2000. The
total consideration was recorded as additional goodwill.
During the first quarter of 2000, the Company acquired Beecroft Trenching, Inc.
("Beecroft") in exchange for 161,623 shares of IFCI common stock, valued at
$3,841,576, and $4,436,425 in cash. The Company accounted for the acquisition of
Beecroft using the purchase method of accounting.
During the second quarter of 2000, the Company acquired New York Antenna, Inc.
("NYA") in exchange for 151,557 shares of IFCI common stock, valued at
$2,191,412, and $2,105,475 in cash. The Company accounted for the acquisition of
NYA using the purchase method of accounting.
9
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY:
Stock Option and Warrant Income Tax Benefit
During the six months ended June 30, 2000, certain employees and non-employees
of the Company exercised incentive stock options, non-qualified stock options
and warrants to purchase common stock of the Company. The exercise of
in-the-money non-qualified stock options and warrants, as well as the
disqualifying disposition of in-the-money incentive stock options, results in
ordinary income to the individual and a corresponding income tax deduction for
the Company. The total benefit to be recognized by the Company resulting from
these exercises and sales of stock options and warrants during the six months
ended June 30, 2000 is $10,150,000. This amount has been recorded on the balance
sheet as income tax receivable and additional paid-in-capital.
Computation of Earnings Per Share
The computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per
share - net income attributable
to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,424,919
Preferred stock dividends -- -- -- 4,000
----------- ----------- ----------- -----------
Numerator for diluted earnings per
share - adjusted net income
attributable to common stockholders $ 3,433,156 $ 2,371,505 $ 7,041,607 $ 4,420,919
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings
per share - weighted-average
shares outstanding 31,855,754 28,816,969 31,225,287 28,332,675
Effect of dilutive securities:
Convertible preferred stock -- -- -- 22,068
Convertible debt -- 122,435 -- 152,375
Dilutive options and warrants 2,733,788 1,657,141 3,026,262 1,767,555
----------- ----------- ----------- -----------
Diluted shares outstanding 34,589,542 30,596,545 34,251,549 30,274,673
----------- ----------- ----------- -----------
</TABLE>
NOTE 6 - SEGMENT INFORMATION:
The Company delivers it products and services through three operating segments:
infrastructure development, equipment distribution and wireless technologies.
Infrastructure development provides consulting, design and engineering services;
installs and maintains internal and external broadband communications systems,
including underground and aerial fiber-optic, copper and wireless systems; and
installs and maintains integrated local and wide area networks.
10
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd
(UNAUDITED)
Equipment distribution resells new, deinstalled and refurbished communications
equipment manufactured by a variety of companies. This equipment is used in the
digital access, switching and transport systems of communications service
providers and other companies.
Wireless technologies designs, manufactures and installs proprietary wireless
connectivity solutions designed to enable and enhance wireless communications,
in both fixed and mobile applications, and tests and certifies wireless systems.
Segment information for the three and six months ended June 30, 2000 and 1999 is
as follows:
<TABLE>
<CAPTION>
Infrastructure Equipment Wireless
Development Distribution Technologies Total
----------- ------------ ------------ -----
<S> <C> <C> <C> <C>
For the three months ended June 30, 2000:
Revenues $ 65,033,854 $ 9,376,444 $ 1,196,744 $ 75,607,042
Gross margin 18,710,683 2,806,611 472,249 21,989,543
Depreciation and amortization 2,449,091 330,404 86,540 2,866,035
Interest expense 1,728,816 158,470 64,559 1,951,845
Operating income (loss) 8,642,248 1,196,077 (468,946) 9,369,379
For the three months ended June 30, 1999:
Revenues $ 35,807,576 $ 8,426,924 $ 624,087 $ 44,858,587
Gross margin 7,628,088 2,868,549 304,324 10,800,961
Depreciation and amortization 1,363,511 297,484 21,031 1,682,026
Interest expense 727,362 106,180 -- 833,542
Operating income 2,980,009 1,627,252 68,067 4,675,328
For the six months ended June 30, 2000:
Revenues $121,921,073 $15,990,521 $ 1,752,747 $139,664,341
Gross margin 35,317,695 4,888,040 696,483 40,902,218
Depreciation and amortization 4,551,468 646,453 167,303 5,365,224
Interest expense 3,224,616 275,707 106,863 3,607,186
Operating income (loss) 15,503,492 1,719,630 (850,998) 16,372,124
Assets 172,301,081 49,516,270 7,694,037 229,511,388
For the six months ended June 30, 1999:
Revenues $ 59,048,751 $15,978,085 $ 1,549,174 $ 76,576,010
Gross margin 13,681,532 5,354,340 828,571 19,864,443
Depreciation and amortization 2,308,156 597,324 21,444 2,926,924
Interest expense 1,145,693 247,483 316 1,393,492
Operating income 5,433,852 2,867,902 523,072 8,824,826
Assets 80,286,811 45,259,603 6,450,608 131,997,022
</TABLE>
For purpose of measuring the results of operations of each segment, the Company
allocates corporate overhead and assets to each segment based on a percentage of
revenues.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
We are an end-to-end, independent solutions provider serving the
telecommunications industry. We deliver a broad range of solutions designed to
enable, enhance and support voice, data and video communications through wired
and wireless networks operating inside and outside buildings - internal and
external networks. In delivering these solutions, we design, develop, install
and maintain networks that support Internet-related and other communications
applications and services for our customers through broadband, including
fiber-optic, copper, and wireless connectivity solutions. We develop,
manufacture and sell proprietary wireless communications equipment. We also
resell new, deinstalled and refurbished communications equipment from a variety
of manufacturers.
We have grown significantly since 1997 as a result of internal growth and
strategic acquisitions. Consolidated revenues since 1997 have grown at an
average annual rate of 60%. We deliver our products and services through three
operating segments:
* Infrastructure Development;
* Wireless Technologies; and
* Equipment Distribution.
We derive a substantial portion of our 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 increase or decrease based upon changes in cost and
revenue estimates during individual contract periods.
During the first quarter of 2000, we acquired Beecroft Trenching, Inc.
("Beecroft") in exchange for 161,623 shares of IFCI common stock, valued at
$3,841,979, and $4,436,425 in cash. The acquisition of Beecroft was accounted
for using the purchase method of accounting.
During the second quarter of 2000, we acquired New York Antenna, Inc. ("NYA") in
exchange for 151,557 shares of IFCI common stock, valued at $2,191,412, and
$2,105,475 in cash. We accounted for the acquisition of NYA using the purchase
method of accounting.
During the second quarter of 2000, we consummated a business combination with
Premier Cable Communications, Inc. ("Premier") which included the exchange of
865,963 shares of IFCI common stock for all outstanding shares of Premier. The
business combination with Premier was accounted for as a pooling-of-interests
and we incurred transaction-related costs of $1,380,286, which were charged to
operations. IFCI's consolidated financial statements have been restated to
reflect the business combination with Premier.
In March 2000, we entered into an Amended and Restated Revolving Credit
Agreement (the "Agreement") with a syndication of commercial banks. Under the
terms of the Agreement, we may borrow up to $100 million (including $10 million
in stand-by letters of credit), an increase from the original borrowing limit of
$60 million under the original Revolving Credit Agreement.. We have an option,
subject to certain conditions, to increase the maximum borrowings to
$150,000,000. Our borrowings under the Agreement bear interest at either LIBOR
plus 175 to 250 basis points or the prime rate plus 25 to 100 basis points,
determined based on certain financial covenants, at our discretion. In
connection with the Agreement, the borrowing limit under our equipment lease
line of credit was increased from $10 million to $15 million.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our consolidated statement of operations in
dollars and as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------
2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues $ 75,607,042 100.0% $ 44,858,587 100.0%
Cost of revenues 53,617,499 70.9% 34,057,626 75.9%
------------ ----- ------------ -----
Gross margin 21,989,543 29.1% 10,800,961 24.1%
General and administrative 12,620,164 16.7% 6,125,633 13.7%
------------ ----- ------------ -----
Income from operations 9,369,379 12.4% 4,675,328 10.4%
------------ ----- ------------ -----
Other income (expense):
Interest expense (1,951,845) (2.6)% (833,542) (1.9)%
Other income (expense) 103,535 0.1% 79,640 0.2%
Non-recurring acquisition-
related expenses (1,380,286) (1.8)% -- 0.0%
------------ ----- ------------ -----
(3,228,596) (4.3)% (753,902) (1.7)%
------------ ----- ------------ -----
Net income before
provision for income taxes 6,140,783 8.1% 3,921,426 8.7%
Provision for income taxes (2,707,627) (3.6)% (1,549,921) (3.4)%
------------ ----- ------------ -----
Net income $ 3,433,156 4.5% $ 2,371,505 5.3%
============ ===== ============ =====
Six Months Ended June 30,
-----------------------------------------------------
2000 1999
------------------------ -----------------------
Revenues $ 139,664,341 100.0% $ 76,576,010 100.0%
Cost of revenues 98,762,123 70.7% 56,711,567 74.1%
------------- ----- ------------ -----
Gross margin 40,902,218 29.3% 19,864,443 25.9%
General and administrative 24,530,094 17.6% 11,039,617 14.4%
------------- ----- ------------ -----
Income from operations 16,372,124 11.7% 8,824,826 11.5%
------------- ----- ------------ -----
Other income (expense):
Interest expense (3,607,186) (2.6)% (1,393,492) (1.8)%
Other income (expense) 320,689 0.2% (27,260) 0.0%
Non-recurring acquisition-
related expenses (1,380,286) (1.0)% -- 0.0%
------------- ----- ------------ -----
(4,666,783) (3.3)% (1,420,752) (1.9)%
------------- ----- ------------ -----
Net income before
provision for income taxes 11,705,341 8.4% 7,404,074 9.7%
Provision for income taxes (4,663,734) (3.4)% (2,979,155) (3.9)%
------------- ----- ------------ -----
Net income $ 7,041,607 5.0% $ 4,424,919 5.8%
============= ===== ============ =====
</TABLE>
REVENUES. Revenues for the three months ended June 30, 2000 increased $30.7
million, or 68.5%, to $75.6 million from $44.9 million for the same period in
1999. This increase was comprised of revenue growth of $29.2 million in the
infrastructure development segment, $1.0 million in the equipment distribution
segment and $573,000 in the wireless technologies segment.
Revenues for the six months ended June 30, 2000 increased $63.1 million, or
82.4%, to $139.7 million for the same period in 1999. This increase was
comprised of revenue growth of $62.9 million in the infrastructure development
segment, $203,000 in the wireless segment and relatively no change in the
equipment distribution segment.
The revenue increase for the infrastructure development segment for the three
months ended June 30, 2000, compared to the same period in 1999, consisted of
$8.6 million of revenues generated from subsidiaries acquired subsequent to June
30, 1999 and $20.6 million of revenues generated from internal increases in
contract activity resulting from increased demand for infrastructure development
services. The revenue increase for the infrastructure development segment for
the six months ended June 30, 2000, compared to the same period in 1999,
consisted of $27.4 million of revenues generated from subsidiaries acquired
subsequent to March 31, 1999 and $35.5 million of revenues generated from
internal increases in contract activity resulting from increased demand for
infrastructure development services.
The increase in revenues for the equipment distribution segment for the three
months ended June 30, 2000, compared to the same period in 1999, was primarily
the result of expanding its product line.
The increase in revenues for the wireless technologies segment for the three and
six month periods ended June 30, 2000, compared to the same periods in 1999, was
primarily the result of an increase in services performed for new and existing
customers.
GROSS MARGIN. Gross margin for the three months ended June 30, 2000 increased
$11.2 million, or 103.6%, to $22.0 million from $10.8 million for the same
period in 1999. This increase was comprised of gross margin growth of $11.1
million in the infrastructure development segment and $168,000 in the wireless
technologies segment, offset by a gross margin decline of $62,000 in the
equipment distribution segment.
Gross margin for the six months ended June 30, 2000 increased $21.0 million, or
105.9%, to $40.9 million from $19.9 million for the same period in 1999. This
increase was comprised of
13
<PAGE>
gross margin growth of $21.6 million in the infrastructure development segment,
offset by gross margin decreases of $466,000 in the equipment distribution
segment and $132,000 in the wireless technologies segment.
Gross margin as a percentage of revenues increased to 29.1% for the three months
ended June 30, 2000, from 24.1% for the same period in 1999. Gross margin as a
percentage of revenues for the infrastructure development was 28.8% for the
three months ended June 30, 2000, from 21.3% for the same period in 1999. Gross
margin as a percentage of revenues for the equipment distribution segment was
29.9% for the three months ended June 30, 2000, from 34.0% for the same period
in 1999. Gross margin as a percentage of revenues for the wireless technologies
segment was 39.5% for the three months ended June 30, 2000, from 48.8% for the
same period in 1999.
Gross margin as a percentage of revenues increased to 29.3% for the six months
ended June 30, 2000, from 25.9% for the same period in 1999. Gross margin as a
percentage of revenues for the infrastructure development was 29.0% for the six
months ended June 30, 2000, from 23.2% for the same period in 1999. Gross margin
as a percentage of revenues for the equipment distribution segment was 30.6% for
the six months ended June 30, 2000, from 33.5% for the same period in 1999.
Gross margin as a percentage of revenues for the wireless technologies segment
was 39.7% for the six months ended June 30, 2000, from 53.5% for the same period
in 1999.
Gross margin increased for the infrastructure development group, both in total
and as a percentage of revenues, primarily due to obtaining larger contracts
that resulted in improved production efficiencies and more favorable terms on
new contracts. Additionally, gross margin in total increased for the
infrastructure development group as a result of newly acquired companies. For
the three months ended June 30, 2000, $3.4 million of the gross margin increase
for the infrastructure development segment resulted from subsidiaries acquired
subsequent to June 30, 1999. For the six months ended June 30, 2000, $8.8
million of the gross margin increase for the infrastructure development segment
resulted from subsidiaries acquired subsequent to March 31, 1999.
Gross margin decreased for the equipment distribution segment, both in total and
as a percentage of revenues, due to changes in the mix and cost basis of
inventory sold.
Gross margin increased in total for the wireless technologies segment due to an
increase in the volume of service work performed. Gross margin as a percentage
of revenues declined for the wireless technologies segment due the volume
increase being comprised of additional services work, which generally has a
lower gross margin percentage than product sales, and the Company concentrating
more of its efforts on the research and development of new technologies.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the three
months ended June 30, 2000 increased $6.5 million, or 106.0%, to $12.6 million
from $6.1 million for the same period in 1999. General and administrative
expense for the six months ended June 30, 2000 increased $13.5 million, or
122.2%, to $24.5 million from $11.0 million for the same period in 1999. The
increases were primarily due to incremental costs associated with acquisitions
made during the past 12 months, as well as internal growth of existing
subsidiaries and management additions made during the past 12 months to support
our continued growth. General and administrative expenses, as a percentage of
revenues, for the three months ended June 30, 2000 were 16.7%, compared to 13.7%
for the same period in the prior year. General and administrative expenses, as a
percentage of revenues, for the six months ended June 30, 2000 were 17.6%,
compared to 14.4% for the same period in the prior year. These increases as a
percentage of revenues were due to our adding personnel and creating separate
geographical management teams to support future growth.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest expense and other income
(expense) for the three months ended June 30, 2000 increased $1.1 million, or
145.2%, to $1.8 million from $754,000 for the same period in 1999. Interest
expense and other income (expense) increased $1.9 million, or 131.3%, to $3.3
million for the six months ended June 30, 2000, from $1.4 million for the same
period in 1999. The increases are primarily due to interest expense on our
credit facilities. Borrowing activity has increased significantly during the
past 12 months 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 segment.
14
<PAGE>
NON-RECURRING ACQUISITION-RELATED EXPENSES. Non-recurring acquisition-related
expenses totaled $1.4 million for the three and six months ended June 30, 2000
and consisted of expenses incurred to consummate the acquisition of Premier,
which was accounted for as a pooling-of-interests. There were no acquisitions
accounted for as pooling-of-interests in 1999.
PROVISION FOR INCOME TAXES. Income taxes for the three months ended June 30,
2000 increased $1.2 million, or 74.7%, to $2.7 million from $1.5 million for the
same period in 1999. Income taxes for the six months ended June 30, 2000
increased $1.7 million, or 56.5%, to $4.7 million from $3.0 million for the same
period in 1999. The provision for income taxes increased due to higher taxable
earnings for the three month and six month periods ended June 30, 2000, compared
to the same periods in 1999. Excluding the impact of non-recurring acquisition
related expenses, which are not deductible for tax purposes, the effective tax
rate declined to 36.0% for both the three and six months periods ended June 30,
2000, from 39.5% for the three month period ended June 30, 1999 and 40.2% for
the six month period ended June 30, 1999. This decline in the effective tax rate
is the result of us generating a more proportionate share of income in states
with lower tax rates and the effect of research and development tax credits
generated in 2000.
NET INCOME. Net income attributable to common stockholders for the three months
ended June 30, 2000 increased $1.0 million, or 44.8%, to $3.4 million from $2.4
million for the same period in 1999. Net income attributable to common
stockholders for the six months ended June 30, 2000 increased $2.6 million, or
59.1%, to $7.0 million from $4.4 million for the same period in 1999. The
increase was the result of higher gross margins, offset by increases in general
and administrative expenses, other expenses, non-recurring acquisition-related
expenses and provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our capital needs relate primarily to equipment needed to support revenue growth
and to provide working capital for general corporate purposes, including
strategic acquisitions. We have historically financed operations through a
combination of operating cash flow, lines of credit, and 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.
For the first six months of 2000, net cash provided by operations totaled $2.4
million as compared to cash used in operations of $7.0 million for the same
period in the prior year. Cash generated from operations during the period
totaled $13.6 million consisting of net income of $7.0 million, depreciation and
amortization of $5.4 million, non-recurring acquisition-related expenses paid in
stock totaling $1.0 million and $200,000 of other items. Operating assets and
liabilities decreased operating cash flow $11.2 million, primarily due to and
increases in accounts receivable, inventory, other assets and costs and
estimated earnings in excess of billings, offset by decreases in accounts
payable, accrued expenses and income taxes payable.
During the first six months of 2000, we used $20.1 million in investing
activities which consisted primarily of net equipment purchases totaling $11.4
million and cash used in business acquisitions totaling $8.7 million. For the
first six months of 2000, financing activities generated $26.3 million which
consisted primarily of net borrowings under our credit facilities totaling $19.5
million, $9.9 million in proceeds from warrant and stock option exercises and
$1.6 million in proceeds from common stock purchased under the ESPP, offset by
$3.9 million of net repayments of notes payable and capital lease obligations,
and $751,000 of debt issuance costs paid.
As of June 30, 2000, we had a revolving line of credit with a syndication of
commercial banks totaling $100 million (with an option, under certain
conditions, to raise the total borrowings available to $150,000,000), with an
available balance of approximately $34.8 million. Additionally, we had a $15
million lease line of credit, with an available balance of approximately $5.5
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 our operations for the
next 12 to 18 months. We
15
<PAGE>
may, however, seek to obtain additional capital through additional debt or
equity offerings depending 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.
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.
We are 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.
ITEM 2. CHANGES IN SECURITIES.
Sales of Unregistered Securities
During the second quarter of 2000, we issued 79,624 shares of common stock to
the former shareholders of All Star Telecom, Inc. ("All Star"), and 254,205
shares of common stock into an escrow fund for future issuance to the former
shareholders of All Star. These shares were issued at a price of $12.8125 per
share, the then market price, in connection with consideration payable to the
former shareholders of All Star as stated in its amended purchase agreement. All
Star was acquired by the Company in April 1999. Such shares were issued pursuant
to Section 4(2) of the Securities Act of 1933, as amended, (the "Act") and
Regulation D of the Act.
During the second quarter of 2000, we issued 151,557 shares of common stock to
the shareholders of NY Antenna, Inc. ("NYA") at a price of $14.46, the average
market price of our common stock on the NASDAQ National Market for the ten
trading days prior to issuance, in connection with our acquisition of the stock
of NYA. Such shares were issued pursuant to Section 4(2) of the Securities Act
of 1933, as amended, (the "Act") and Regulation D of the Act.
During the second quarter of 2000, we issued 865,963 shares of common stock to
the shareholders of Premier Cable Communications, Inc. ("Premier") at a price of
$15.72, the average market price of our common stock on the NASDAQ National
Market for the ten trading days beginning five days prior to close and ending
four days following close, in connection with our acquisition of all of the
common stock of Premier.. In addition, we issued 64,178 shares of common stock,
at a price of $15.72, to a business advisory group that assisted us in the
completion of the acquisition of Premier. Such shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, (the "Act") and
Regulation D of the Act.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our 2000 Annual Meeting of Shareholders on June 16, 2000. At the
Annual Meeting, the following eight individuals were elected as directors to
serve until the 2001 Annual Meeting of Shareholders:
Votes for Withheld
--------- --------
Joseph P. Kealy 24,546,142 241,022
C. James Jensen 24,546,142 241,022
John F. Kealy 24,546,142 241,022
John P. Morbeck 24,546,142 241,022
Richard J. Seminoff 24,546,142 241,022
John P. Stephens 24,546,142 241,022
Jerry A. Kleven 24,546,142 241,022
V. Thompson Brown, Jr. 24,546,142 241,022
The shareholders also approved the addition of 3,000,000 shares of common
stock to the 1997 Stock Option Plan and ratified the appointment of BDO Seidman,
LLP as our independent accountants to examine our financial statements for the
fiscal year ending December 31, 2000. The vote on these matters was as follows:
Votes Against
Votes for or Withheld Abstentions
--------- ----------- -----------
Amendment of
Stock Option Plan 16,267,601 8,380,280 131,883
Ratification of
BDO Seidman, LLP 24,627,038 107,232 52,894
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
Not applicable to this report
17
<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 14, 2000
18
<PAGE>
EXHIBIT INDEX
Exhibits Description
--------- -----------
27. Financial Data Schedule
19
