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, 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 33,472,466 shares issued and 33,266,777
outstanding at October 31, 2000
<PAGE>
INDEX
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - September 30, 2000 (unaudited)
and December 31, 1999 2
Consolidated statements of income (unaudited) -
Three months ended September 30, 2000 and 1999; Nine months
ended September 30, 2000 and 1999 3
Consolidated statement of changes in stockholders'
equity - Nine months ended September 30, 2000 (unaudited) 4
Consolidated statements of cash flows (unaudited) - Nine
months ended September 30, 2000 and 1999 5
Notes to consolidated financial statements (unaudited)
- September 30, 2000 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 14,061,982 $ 3,358,341
Accounts receivable - trade, net 62,450,870 50,577,092
Costs and estimated earnings in excess of billings 38,480,442 16,125,647
Inventory, net 20,805,426 18,722,334
Income tax receivable 4,396,311 868,055
Deferred tax asset 1,961,894 1,961,894
Other current assets 4,699,589 2,685,835
------------- -------------
Total current assets 146,856,514 94,299,198
Property and equipment, net 43,680,351 27,098,135
Goodwill, net 61,515,593 40,398,981
Other assets, net 3,929,755 1,537,546
------------- -------------
Total assets $ 255,982,213 $ 163,333,860
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable and
capital lease obligations $ 5,657,155 $ 6,656,379
Current portion of notes payable to
related parties 341,165 925,911
Accounts payable 26,091,967 16,395,723
Accrued expenses 6,839,356 5,373,737
------------- -------------
Total current liabilities 38,929,643 29,351,750
Notes payable and capital lease obligations 14,849,706 11,868,269
Notes payable to related parties -- 146,776
Line of credit 76,337,986 45,737,986
Deferred tax liability 1,720,146 1,720,146
------------- -------------
Total liabilities 131,837,481 88,824,927
------------- -------------
Stockholders' equity:
Common stock, no par value, 100,000,000
shares authorized; 33,398,970 shares
issued and 33,193,281 shares outstanding
at September 30, 2000; 29,978,157
shares issued and 29,772,468 shares
outstanding at December 31, 1999 89,447,569 60,124,750
Additional paid-in capital 12,731,149 2,581,149
Foreign currency translation adjustment (47,911) --
Retained earnings 22,844,012 12,633,121
------------- -------------
124,974,819 75,339,020
Less: treasury stock, 205,689 shares, at cost (830,087) (830,087)
------------- -------------
Total stockholders' equity 124,144,732 74,508,933
------------- -------------
Total liabilities and stockholders' equity $ 255,982,213 $ 163,333,860
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
(unaudited)
Revenues $ 87,368,954 $ 53,414,015 $ 227,033,295 $ 129,990,025
Cost of revenues 66,239,101 42,441,328 165,001,224 99,152,895
------------ ------------ ------------- -------------
Gross margin 21,129,853 10,972,687 62,032,071 30,837,130
General and administrative
expenses 14,070,214 8,765,133 38,600,308 19,804,750
------------ ------------ ------------- -------------
Income from operations 7,059,639 2,207,554 23,431,763 11,032,380
------------ ------------ ------------- -------------
Other income (expense):
Interest income 240,084 93,650 636,360 175,109
Interest expense (2,340,651) (1,138,273) (5,947,837) (2,531,765)
Other income (expense) (7,065) 63,651 (82,652) (45,068)
Non-recurring
acquisition-related expenses -- -- (1,380,286) --
------------ ------------ ------------- -------------
(2,107,632) (980,972) (6,774,415) (2,401,724)
------------ ------------ ------------- -------------
Net income before
provision for income taxes 4,952,007 1,226,582 16,657,348 8,630,656
Provision for income taxes (1,782,723) (583,898) (6,446,457) (3,563,053)
------------ ------------ ------------- -------------
Net income $ 3,169,284 $ 642,684 $ 10,210,891 $ 5,067,603
Preferred stock dividend -- -- -- 4,000
------------ ------------ ------------- -------------
Net income attributable
to common stockholders $ 3,169,284 $ 642,684 $ 10,210,891 $ 5,063,603
------------ ------------ ------------- -------------
Earnings per common share:
Basic $ 0.10 $ 0.02 $ 0.32 $ 0.18
Diluted $ 0.09 $ 0.02 $ 0.29 $ 0.17
Shares used in computing
earnings per share:
Basic 32,955,548 29,494,551 31,789,906 28,638,612
Diluted 36,026,127 31,141,653 34,822,425 30,440,304
</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, 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 2,228,563 11,340,758
Common stock issued under ESPP 237,488 1,576,976
Common stock issued in connection
with acquisitions 890,584 15,395,994
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, September 30, 2000 (unaudited) 33,398,970 $89,447,569 $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 11,340,758
Common stock issued under ESPP 1,576,976
Common stock issued in connection
with acquisitions 15,395,994
Non-recurring acquisition-related
expenses paid in common stock 1,009,091
Change in foreign currency translation (47,911) (47,911)
Stock option and warrant
income tax benefit 10,150,000
Net income 10,210,891 10,210,891
------------ ------------ --------- ------------
Balance, September 30, 2000 (unaudited) $ (47,911) $ 22,844,012 $(830,087) $124,144,732
============ ============ ========= ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------ ------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 10,210,891 $ 5,067,603
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and goodwill amortization 8,657,301 5,191,568
Loss (gain) on sale of fixed assets (9,079) 154,289
Amortization of debt issuance costs 234,612 71,996
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 (8,797,257) (6,280,382)
Costs and estimated earnings in excess of
billings, net (24,448,085) (6,262,755)
Inventory, net (2,074,092) (1,792,193)
Income taxes 6,621,744 (2,720,368)
Other current assets (1,953,838) (875,115)
Other assets (1,832,764) (26,050)
Accounts payable 8,230,422 (329,915)
Accrued expenses 1,457,029 (389,617)
------------ ------------
Net cash provided by (used in) operating
activities (2,694,025) (8,190,939)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (20,985,370) (11,291,520)
Cash received from sale of property and equipment 1,322,134 243,835
Payments for acquisitions (9,865,339) (11,340,929)
------------ ------------
Net cash used in investing activities (29,528,575) (22,388,614)
------------ ------------
Cash flows from financing activities:
Net change in line of credit borrowings 30,600,000 37,937,986
Notes payable and capital lease obligations, net 925,287 (8,564,805)
Repayment of notes payable to related parties (731,522) (1,072,201)
Debt issuance costs (785,257) (168,889)
Proceeds from ESPP 1,576,975 476,160
Proceeds from warrant and stock option exercises 11,340,758 2,930,196
------------ ------------
Net cash provided by financing activities 42,926,241 31,538,447
------------ ------------
Net increase (decrease) in cash and cash equivalents 10,703,641 958,894
Cash and cash equivalents, beginning of period 3,358,341 4,840,816
------------ ------------
Cash and cash equivalents, end of period $ 14,061,982 $ 5,799,710
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL FIBERCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended September 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 $ 29,057,055 $ 18,473,640
Cash paid for acquisitions (net of cash acquired) (9,315,339) (11,340,929)
------------ ------------
Liabilities and notes assumed and stock issued to sellers $ 19,741,716 $ 7,132,711
============ ============
Increase in additional paid-in capital resulting from
recognizing tax benefits from stock option and
warrant exercises $ 10,150,000 $ --
============ ============
Foreign currency translation adjustment $ 47,911 $ --
============ ============
</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; 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 September 30, 2000 and the results
of its operations for the three and nine month periods ended September 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 nine month periods ended September
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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Accounts receivable, net:
Contract billings $ 57,832,951 $ 40,592,199
Retainage 4,516,247 3,673,616
Non-contract related accounts receivable 1,016,578 7,475,519
------------- ------------
63,365,776 51,741,334
Less: allowance for doubtful accounts (914,906) (1,164,242)
------------- ------------
$ 62,450,870 $ 50,577,092
============= ============
Costs and estimated earnings in excess of billings:
Costs incurred on contracts in progess $ 136,261,445 $ 76,631,918
Estimated earnings 53,635,061 21,033,140
------------- ------------
189,896,506 97,665,058
Less: billings to date (151,416,064) (81,539,411)
------------- ------------
$ 38,480,442 $ 16,125,647
============= ============
Inventory, net:
New and used telecommunications equipment $ 20,518,845 $ 19,218,888
Cabling and equipment 1,581,551 1,222,039
Raw materials 820,200 253,577
------------- ------------
22,920,596 20,694,504
Less: allowance for obsolete inventory (2,115,170) (1,972,170)
------------- ------------
$ 20,805,426 $ 18,722,334
============= ============
Property and equipment, net:
Construction equipment $ 33,108,166 $ 23,882,017
Vehicles 10,542,215 8,115,934
Building and land 9,269,396 2,854,860
Office furniture and equipment 7,674,571 5,157,612
Software 2,581,869 1,964,772
Leasehold improvements 1,178,158 752,141
------------- ------------
64,354,375 42,727,336
Less: accumulated depreciation and amortization (20,674,024) (15,629,201)
------------- ------------
$ 43,680,351 $ 27,098,135
------------- ------------
Goodwill, net:
Goodwill $ 67,208,643 $ 43,906,591
Less: accmulated amortization (5,693,050) (3,507,610)
------------- ------------
$ 61,515,593 $ 40,398,981
============= ============
</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 $3,182,190 were issued as of
September 30, 2000). 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 September 30, 2000, total line of credit borrowings were
$76,337,986. 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 September 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. In
September 2000, the borrowing limit under the equipment lease line of credit was
further increased to $25,000,000. Total borrowings outstanding at September 30,
2000 under the equipment lease line was $15,418,324.
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 during the nine
months ended September 30, 2000. Therefore, the Company issued 199,530 shares of
IFCI common stock, valued at $4,060,579, and paid $1,638,546 in cash, to the
former owners of Kleven - CA, All Star and Blue Ridge, and issued 254,205 shares
of IFCI common stock, valued at $3,257,002 into an escrow account for potential
future issuance to the former owners of All Star. The total consideration was
recorded as additional goodwill.
During the first quarter of 2000, the Company acquired Beecroft Trenching, Inc.
("Beecroft") in exchange for 248,738 shares of IFCI common stock, valued at
$5,187,001 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)
During the third quarter of 2000, the Company acquired Precision Direction
Services, Inc. ("Precision") in exchange for 31,959 shares of IFCI common stock,
valued at $612,000, and $175,000 in cash. The Company accounted for the
acquisition of Precision using the purchase method of accounting.
NOTE 5 - STOCKHOLDERS' EQUITY:
STOCK OPTION AND WARRANT INCOME TAX BENEFIT
During the nine months ended September 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 nine months
ended September 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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per
share - net income attributable
to common stockholders $ 3,169,284 $ 642,684 $10,210,891 $ 5,067,603
Preferred stock dividends -- -- -- 4,000
----------- ----------- ----------- -----------
Numerator for diluted earnings per
share - adjusted net income
attributable to common stockholders $ 3,169,284 $ 642,684 $10,210,891 $ 5,063,603
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted-average
shares outstanding 32,955,548 29,494,551 31,789,906 28,638,612
Effect of dilutive securities:
Convertible preferred stock -- -- -- 14,631
Convertible debt -- -- -- 101,025
Dilutive options and warrants 3,070,579 1,647,102 3,032,519 1,686,036
----------- ----------- ----------- -----------
Diluted shares outstanding 36,026,127 31,141,653 34,822,425 30,440,304
=========== =========== =========== ===========
</TABLE>
10
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd
(UNAUDITED)
NOTE 6 - SEGMENT INFORMATION:
The Company delivers it products and services through three operating segments:
infrastructure development, equipment distribution and wireless.
Infrastructure development provides consulting, design and engineering services;
installs and maintains internal and external broadband communications systems,
including underground and aerial fiber-optic and copper systems; and installs
and maintains integrated local and wide area networks.
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 includes technology and traditional deployment services. Wireless
technologies includes the design, manufacture and installation of proprietary
wireless connectivity solutions designed to enable and enhance wireless
communications, in both fixed and mobile applications. Wireless services
includes site development, maintenance and optimization services.
Segment information for the three and nine months ended September 30, 2000 and
1999 is as follows:
<TABLE>
<CAPTION>
Infrastructure Equipment
Development Distribution Wireless Total
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
For the three months ended September 30, 2000:
Revenues $ 73,927,683 $ 10,781,256 $2,660,015 $ 87,368,954
Gross margin 17,298,718 3,004,186 826,949 21,129,853
Depreciation and amortization 2,795,705 353,608 115,982 3,265,295
Interest expense 2,019,749 183,035 137,867 2,340,651
Operating income (loss) 6,669,094 1,180,971 (790,426) 7,059,639
For the three months ended September 30, 1999:
Revenues $ 45,367,029 $ 7,433,306 $ 613,680 $ 53,414,015
Gross margin 8,771,343 2,115,720 85,624 10,972,687
Depreciation and amortization 1,735,091 325,779 203,774 2,264,644
Interest expense 1,041,346 88,012 8,915 1,138,273
Operating income (loss) 1,879,355 789,891 (461,692) 2,207,554
</TABLE>
11
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - cont'd
(UNAUDITED)
e<TABLE>
<CAPTION>
Infrastructure Equipment
Development Distribution Wireless Total
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
For the nine months ended September 30, 2000:
Revenues $ 195,848,756 $ 26,771,777 $ 4,412,762 $ 227,033,295
Gross margin 52,850,728 7,892,226 1,289,117 62,032,071
Depreciation and amortization 7,414,608 996,625 246,068 8,657,301
Interest expense 5,278,535 458,685 210,617 5,947,837
Operating income (loss) 21,993,616 2,903,962 (1,465,815) 23,431,763
Assets 194,472,871 52,382,269 9,127,072 255,982,213
For the nine months ended September 30, 1999:
Revenues $ 104,415,780 $ 23,411,391 $ 2,162,854 $ 129,990,025
Gross margin 22,452,875 7,470,060 914,195 30,837,130
Depreciation and amortization 4,052,229 919,862 219,477 5,191,568
Interest expense 2,193,419 329,124 9,222 2,531,765
Operating income 7,340,218 3,633,800 58,362 11,032,380
Assets 102,529,671 44,293,455 6,416,745 153,239,871
</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.
12
<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; 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 248,738 shares of IFCI common stock, valued at
$5,187,001, 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 third quarter of 2000, the Company acquired Precision Direction
Services, Inc. ("Precision") in exchange for 31,959 shares of IFCI common stock,
valued at $612,000, and $175,000 in cash. The Company accounted for the
acquisition of Precision 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, and has been
subsequently increased to $25 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 September 30, Nine Months Ended September 30,
------------------------------------------ ---------------------------------------------
2000 1999 2000 1999
------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 87,368,954 100.0% $ 53,414,015 100.0% $ 227,033,295 100.0% $ 129,990,025 100.0%
Cost of revenues 66,239,101 75.8% 42,441,328 79.5% 165,001,224 72.7% 99,152,895 76.3%
------------ ----- ------------ ----- ------------- ----- ------------- -----
Gross margin 21,129,853 24.2% 10,972,687 20.5% 62,032,071 27.3% 30,837,130 23.7%
General and administrative 14,070,214 16.1% 8,765,133 16.4% 38,600,308 17.0% 19,804,750 15.2%
------------ ----- ------------ ----- ------------- ----- ------------- -----
Income from operations 7,059,639 8.1% 2,207,554 4.1% 23,431,763 10.3% 11,032,380 8.5%
------------ ----- ------------ ----- ------------- ----- ------------- -----
Other income (expense):
Interest expense (2,340,651) -2.7% (1,138,273) -2.1% (5,947,837) -2.6% (2,531,765) -2.0%
Other income (expense) 233,019 0.3% 157,301 0.2% 553,708 0.2% 130,041 0.1%
Non-recurring acquisition-
related expenses -- 0.0% -- 0.0% (1,380,286) -0.6% -- 0.0%
------------ ----- ------------ ----- ------------- ----- ------------- -----
(2,107,632) -2.4% (980,972) -1.9% (6,774,415) -3.0% (2,401,724) -1.9%
------------ ----- ------------ ----- ------------- ----- ------------- -----
Net income before
provision for income taxes 4,952,007 5.7% 1,226,582 2.2% 16,657,348 7.3% 8,630,656 6.6%
Provision for income taxes (1,782,723) -2.1% (583,898) -1.0% (6,446,457) -2.8% (3,563,053) -2.7%
------------ ----- ------------ ----- ------------- ----- ------------- -----
Net income $ 3,169,284 3.6% $ 642,684 1.2% $ 10,210,891 4.5% $ 5,067,603 3.9%
============ ===== ============ ===== ============= ===== ============= =====
</TABLE>
REVENUES. Revenues for the three months ended September 30, 2000 increased $34.0
million, or 63.6%, to $87.4 million from $53.4 million for the same period in
1999. This increase was comprised of revenue growth of $28.6 million in the
infrastructure development segment, $3.4 million in the equipment distribution
segment and $2.0 million in the wireless segment.
Revenues for the nine months ended September 30, 2000 increased $97.0 million,
or 74.7%, to $227.0 million from $130.0 million for the same period in 1999.
This increase was comprised of revenue growth of $91.4 million in the
infrastructure development segment, $3.3 million in the equipment distribution
segment and $2.3 million in the wireless segment.
The revenue increase for the infrastructure development segment for the three
months ended September 30, 2000, compared to the same period in 1999, consisted
of $4.9 million of revenues generated from subsidiaries acquired subsequent to
September 30, 1999 and $23.7 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 nine months ended September 30, 2000, compared to
the same period in 1999, consisted of $32.2 million of revenues generated from
subsidiaries acquired subsequent to March 31, 1999 and $59.2 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
and nine month periods ended September 30, 2000, compared to the same periods in
1999, was primarily the result of expanding its product line.
The increase in revenues for the wireless segment for the three and nine month
periods ended September 30, 2000, compared to the same periods in 1999, was
primarily the result of increased demand for our proprietary wireless solutions
and the expansion of site development, maintenance and optimization services for
the wireless industry.
GROSS MARGIN. Gross margin for the three months ended September 30, 2000
increased $10.2 million, or 92.6%, to $21.1 million from $10.9 million for the
same period in 1999. This increase was comprised of gross margin growth of $8.5
million in the infrastructure development segment, $888,000 in the equipment
distribution segment and $741,000 in the wireless segment.
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<PAGE>
Gross margin for the nine months ended September 30, 2000 increased $31.2
million, or 101.2%, to $62.0 million from $30.8 million for the same period in
1999. This increase was comprised of gross margin growth of $30.4 million in the
infrastructure development segment, $422,000 in the equipment distribution
segment and $375,000 in the wireless segment.
Gross margin as a percentage of revenues increased to 24.2% for the three months
ended September 30, 2000, from 20.5% for the same period in 1999. Gross margin
as a percentage of revenues for the infrastructure development was 23.4% for the
three months ended September 30, 2000, from 19.3% for the same period in 1999.
Gross margin as a percentage of revenues for the equipment distribution segment
was 27.9% for the three months ended September 30, 2000, from 28.5% for the same
period in 1999. Gross margin as a percentage of revenues for the wireless
segment was 31.1% for the three months ended September 30, 2000, from 14.0% for
the same period in 1999.
Gross margin as a percentage of revenues increased to 27.3% for the nine months
ended September 30, 2000, from 23.7% for the same period in 1999. Gross margin
as a percentage of revenues for the infrastructure development was 27.0% for the
nine months ended September 30, 2000, from 21.5% for the same period in 1999.
Gross margin as a percentage of revenues for the equipment distribution segment
was 29.5% for the nine months ended September 30, 2000, from 31.9% for the same
period in 1999. Gross margin as a percentage of revenues for the wireless
segment was 29.2% for the nine months ended September 30, 2000, from 42.3% 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 September 30, 2000, $1.0 million of the gross margin
increase for the infrastructure development segment resulted from subsidiaries
acquired subsequent to September 30, 1999. For the nine months ended September
30, 2000, $9.1 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 segment due to an increase in
the volume of technology and service work performed. Gross margin as a
percentage of revenues declined for the wireless segment for the nine months
ended September 30, 2000, compared to the same period in 1999, 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 September 30, 2000 increased $5.3 million, or 60.5%, to $14.1
million from $8.8 million for the same period in 1999. General and
administrative expense for the nine months ended September 30, 2000 increased
$18.8 million, or 94.9%, to $38.6 million from $19.8 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 September 30, 2000 were
16.1%, compared to 16.4% for the same period in the prior year. General and
administrative expenses, as a percentage of revenues, for the nine months ended
September 30, 2000 were 17.0%, compared to 15.2% 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 September 30, 2000 increased $1.1 million,
or 114.9%, to $2.1 million from $1.0 million for the same period in 1999.
Interest expense and other income (expense) increased $3.0 million, or 124.6%,
to $5.4 million for the nine months ended September 30, 2000, from $2.4 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
15
<PAGE>
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.
NON-RECURRING ACQUISITION-RELATED EXPENSES. Non-recurring acquisition-related
expenses totaled $1.4 million for the nine months ended September 30, 2000 and
consisted of expenses incurred to consummate the acquisition of Premier in June
2000, 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 September
30, 2000 increased $1.2 million, or 205.3%, to $1.8 million from $584,000 for
the same period in 1999. Income taxes for the nine months ended September 30,
2000 increased $2.9 million, or 80.9%, to $6.5 million from $3.6 million for the
same period in 1999. The provision for income taxes increased due to higher
taxable earnings for the three month and nine month periods ended September 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 nine
months periods ended September 30, 2000, from 47.6% for the three month period
ended September 30, 1999 and 41.3% for the nine month period ended September 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 September 30, 2000 increased $2.5 million, or 393.1%, to $3.2 million from
$643,000 for the same period in 1999. Net income attributable to common
stockholders for the nine months ended September 30, 2000 increased $5.1
million, or 101.5%, to $10.2 million from $5.1 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 nine months of 2000, net cash used in operations totaled $2.7
million as compared to cash used in operations of $8.2 million for the same
period in the prior year. Cash generated from operations during the period
totaled $20.1 million consisting of net income of $10.2 million, depreciation
and amortization of $8.7 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 $22.8 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 nine months of 2000, we used $29.5 million in investing
activities which consisted primarily of net equipment purchases totaling $19.6
million and cash used in business acquisitions totaling $9.9 million. For the
first nine months of 2000, financing activities generated $42.9 million which
consisted primarily of net borrowings under our credit facilities totaling $30.8
million, $11.3 million in proceeds from warrant and stock option exercises and
$1.6 million in proceeds from common stock purchased under the ESPP, offset by
$785,000 of debt issuance costs paid.
As of September 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 $23.7 million. Additionally, we had a $25
million lease line of credit, with an available balance of approximately $9.6
million, and $6.2 million of available letters of credit. Aggregate
16
<PAGE>
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 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
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; the Company's success
in marketing its wireless products and services; 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 third quarter of 2000, we issued 23,894 shares of common stock to the
former shareholders of Kleven - CA at a price of $23.02, the average market
price of our common stock on the NASDAQ National Market for the ten trading days
prior to issuance, in connection with contingent consideration payable to the
former shareholder of Kleven - CA based upon Kleven - CA meeting certain
financial targets, as specified in its purchase agreement. 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. These shares were subsequently included in a
registration statement on Form S-3/A, filed with the Securities and Exchange
Commission on October 10, 2000.
During the third quarter of 2000, we issued 31,959 shares of common stock to the
shareholders of Precision at a price of $19.15, the average market price of our
common stock on the NASDAQ National Market for the ten trading days beginning
four days prior to close and ending five days following close, in connection
with our acquisition of Precision. 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. These shares were subsequently included in a registration statement on
Form S-3/A, filed with the Securities and Exchange Commission on October 10,
2000.
17
<PAGE>
During the third quarter of 2000, we issued 87,115 shares of common stock to the
former shareholders of Beecroft at a price of $15.44, the average market price
of our common stock on the NASDAQ National Market for the ten trading days
beginning five days prior to September 30, 2000 and ending four days following
September 30, 2000, in connection with provisions contained in the Beecroft
purchase agreement that required us to issue additional shares of common stock
to the former shareholders of Beecroft if the above referenced average market
price was below the average market price calculated for the initial common stock
issued upon the acquisition close. 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.
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
18
<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: November 10, 2000
19
<PAGE>
EXHIBIT INDEX
Exhibits Description
--------- -----------
27. Financial Data Schedule
20
