10-Q 1 g72875e10-q.txt ORIUS CORP - FORM 10-Q 09/30/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________to_______________ Commission file number 333-36952 ORIUS CORP. (Exact name of registrant as specified in its charter) Florida 65-0894212 --------------------------------- ------------------ (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 1401 Forum Way, Suite 400 West Palm Beach, FL 33401 (Address of principal executive office) (Zip Code) (561) 687-8300 (Registrant's telephone number, including area code) 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) INDEX

2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements. 3 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Consolidated Statements of Operations (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements. 4 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Consolidated Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements. 5 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION OVERVIEW The interim consolidated financial statements of Orius Corp. and its subsidiaries ("Orius" or the "Company"), the successor to LISN Holdings, Inc. ("LISN"), as of September 30, 2001 and December 31, 2000 include the accounts of Orius and its subsidiaries and in the opinion of management, include all necessary adjustments, consisting of only normal recurring adjustments, to present fairly the consolidated financial position and results of operations of the Company for the periods presented. The accompanying consolidated financial statements have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Accordingly, these unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and notes thereto, for the year ended December 31, 2000. Reported interim results of operations are not necessarily indicative of those expected for the year ending December 31, 2001. 2. ACCOUNTING CHANGE On January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be recorded on the balance sheet at their fair value. Derivatives that are not hedges are recorded at fair value through earnings. Changes in the fair values of derivatives designated as fair-value hedges are recognized in earnings as offsets to changes in the fair value of the underlying asset or liability. For derivatives designated as cash-flow hedges, changes in the fair values are deferred and recorded in other comprehensive income until the hedged transaction occurs and is recognized in earnings. The ineffective portion of a hedging derivative is immediately recognized in earnings. The implementation of SFAS No. 133 did not have a material impact on our results of operations or financial position at adoption and during the three quarters ending September 30, 2001. Our risk-management policies and objectives for holding hedging instruments have not changed with the adoption of Statement of Financial Accounting Standards No. 133. At September 30, 2001, $3.0 million representing fair values of derivative contracts is included in other non-current liabilities. In June 2001, Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets," was issued. SFAS No. 142 will be effective for our Company beginning January 1, 2002 and will also require that we perform an impairment analysis on existing goodwill. While the Company currently evaluates goodwill for impairment as required by existing accounting standards, management is assessing the potential effect of this new pronouncement. The Financial Accounting Standards Board also issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143, which is effective for fiscal years beginning after June 15, 2002, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144, which is effective for fiscal years beginning after December 15, 2001, addresses financial accounting and reporting for the impairment of long-lived assets, excluding goodwill and intangible assets, to be held and used or disposed of. Although the Company does not expect the implementation of these standards to have a significant effect on the results of operations or financial condition, the Company has not completed its analysis of the effects that these new standards will have on the results of operations. 6 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) 3. COMPREHENSIVE LOSS Comprehensive loss for the three and nine months ended September 30, 2001 was as follows:

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings, and related billings on uncompleted projects at September 30, 2001 and December 31, 2000 are as follows:

5. ACQUISITIONS During the first quarter of 2001, the Company completed the acquisition of the assets of Quality Metal Works, Inc. ("QMW"), Sorenson Construction, Inc., Sorenson Leasing, Inc. ("Sorenson") and acquired the stock of K&S Construction, Inc. ("K&S"). The total purchase consideration of $47.6 million, consisting of $35.0 million cash (net of $.3 million cash acquired and $3.4 million accrued purchase price adjustment) and $8.9 million in common stock, preferred stock and junior subordinated debt, exceeded the fair value of the tangible net assets acquired by $35.3 million, which is being amortized on a straight-line basis over 25 years. These acquisitions were accounted for as purchase combinations in the first quarter of fiscal 2001, accordingly results of QMW, Sorenson and K&S have been included in the consolidated results of the Company from the date of acquisition. Additionally, during the first nine months of 2001, certain purchase price adjustments resulted in payments of approximately $11.8 million of which $11.7 million was paid in cash and $.1 million was paid in common stock, preferred stock and junior subordinated notes. 7 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) The following information represents the unaudited pro forma results of operations as if the aforementioned acquisitions were completed on January 1, 2000. These pro forma results give effect to increased interest expense for acquisition-related debt and amortization of related goodwill. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of operations which would have been achieved had these acquisitions been completed on January 1, 2000, nor are the results indicative of the Company's future results of operations.

6. ACCOUNTS RECEIVABLE The allowance for doubtful accounts was $3,778,103 and $1,193,999 at September 30, 2001 and December 31, 2000, respectively. For the three months ended September 30, 2001, based on an assessment of outstanding customer balances and the current economic condition the Company increased its allowance for doubtful accounts by $3 million. Included in accounts receivable at September 30, 2001 are unbilled receivables of $14,073,236 and retainage of $9,296,520. The balances billed but not paid by customers pursuant to retainage provisions in customer contracts will be due upon completion of all terms of the contracts. Substantially all of the retention balances at September 30, 2001 are expected to be collected within the next twelve months. Unbilled accounts receivable relate to the Company's unit based contracts and represent revenue the Company is entitled to based upon the units delivered as of the balance sheet date. Accounts receivable consist of the following:

7. LONG TERM DEBT AND CAPITAL LEASES On December 15, 1999, NATG Holdings, LLC ("NATG") and Orius Capital Corp. ("Capital Corp."), each wholly owned subsidiaries of the Company, entered into a credit agreement with Deutsche 8 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) Bank Securities, Inc., Bankers Trust and a syndicate of banks. The credit agreement includes a revolving credit facility, in an aggregate amount not to exceed $100 million at any time, maturing on December 15, 2004, and a $275 million senior secured term loan credit facility. The term loan facility is allocated among a $75 million Term Loan A with a letter of credit facility, maturing on December 15, 2004; and a $200 million Term Loan B facility, maturing on December 15, 2006. Amounts under the revolving credit facility and Term Loan A facility bear interest, at NATG's choice, at either the Federal Funds Rate plus 0.50% or the Eurodollar rate, in each case plus an applicable margin of 0.75% to 2.00% and 1.75% to 3.00%, respectively, determined on the most recent total debt to EBITDA ratio. Amounts under Term Loan B facility bear interest, at NATG's choice, at either Bankers Trust Prime Rate or the Federal Funds Rate plus 0.50%, or the Eurodollar rate plus a margin of 3.5%. Loans made under the revolving credit facility and the Term Loan A, B and C (discussed more fully below) facility are collateralized by a pledge of all of the assets of the Company and its subsidiaries. During the first quarter of 2000, NATG and Capital Corp. completed a private offering of $150 million of 12.75% Senior Subordinated Notes due 2010. The notes are guaranteed by the Company and all of the Company's subsidiaries. A portion of the proceeds from this offering was used to pay down the principal amount outstanding on Term Loan B. In September 2000, NATG exchanged the notes for substantially identical notes that were registered under the Securities Act of 1933, as amended. On July 5, 2000, the Company entered into an Amended and Restated Credit Agreement providing for additional borrowings of $60 million under Term Loan C of the senior credit facility, which were primarily used to pay down amounts due under the revolving credit facility. Amounts under Term Loan C, due December 15, 2007, bear interest at the greater of Bankers Trust Prime Rate or the Federal Funds Rate plus 0.50% or the Eurodollar rate, plus a margin of 3.75%. The senior credit facility also contains affirmative and negative covenants relating to the Company's operations. In June of 2001, the Company anticipated that, at June 30, 2001, it would not be in compliance with certain financial covenants of its senior credit facility ("Events of Default"). Accordingly, on June 30, 2001, the Company and its lenders entered into the Second Amendment and Waiver to Amended and Restated Credit Agreement (the "Second Amendment"). The Second Amendment waives compliance with the Events of Default at June 30, 2001. Additionally, the Second Amendment provides that (a) the Company deliver daily cash reports to an agent of the lenders, (b) the revolving credit facility be limited to an aggregate amount of $85.95 million, and (c) no additional Junior Subordinated Notes be issued. Fees associated with the Second Amendment were approximately $0.2 million. On July 27, 2001, the Company entered into the Third Amendment to the Amended and Restated Credit Agreement (the "Third Amendment") which supercedes the Second Amendment. The Third Amendment, which is effective until July 22, 2002, requires the Company to meet revised financial covenants which are generally less restrictive than those that existed in the Amended and Restated Credit Agreement. At July 22, 2002, the covenants revert to those specified by the Amended and Restated Credit Agreement and become effective for the June 30, 2002 test period. Additionally, the Third Amendment (a) increased applicable base rate margin ranges for the revolving credit facility and Term Loan A, Term Loan B and Term Loan C to 2.25% to 2.75%, 2.75% to 3.25% and 3.00% to 3.50%, respectively and the applicable Eurodollar rate margin ranges for the revolving credit facility and Term Loan A, Term Loan B and Term Loan C to 3.25% to 3.75%, 3.75% to 4.25% and 4.00% to 4.50%, respectively, (b) limited the revolving credit facility to $49.2 million, (c) converted $37 million outstanding under the revolving credit facility to a term loan, (d) changed the current interest payments from quarterly to monthly, and (e) restricted the Company's ability to incur additional indebtedness. Fees associated with the Third Amendment were approximately $1.3 million. 9 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) In September of 2001, the Company anticipated that, at September 30, 2001, it would not be in compliance with certain of the revised financial covenants of the Third Amendment ("revised covenants"). Accordingly, on November 20, 2001, the Company entered into the Fourth Amendment to Amended and Restated Credit Agreement (the "Fourth Amendment"). The Fourth Amendment waives certain of the revised covenants for the test periods ended September 30, 2001 and December 31, 2001. At January 15, 2002, the revised covenants become effective again and the waiver period ends. Based upon the Company's projections, it is probable that it will not meet its financial covenants subsequent to the waiver period. Therefore, in accordance with EITF 86-30, "Classification of Obligations when a Violation is Waived by the Creditor," at September 30, 2001, outstanding balances under the Amended and Restated Credit Agreement are reflected as current liabilities in the consolidated balance sheet. In connection with the Third Amendment, an affiliate of the Company's majority shareholder contributed $10 million in exchange for 1,772,181 shares of the Company's common stock and 10,375 shares of the Companies Series F preferred stock, see Note 9. In connection with the Third and Fourth Amendments, an affiliate of the majority shareholder has agreed, under certain circumstances, to provide additional cash of up to $15 million through the period ending July 22, 2002. As of September 30, 2001 and December 31, 2000, long-term debt and capital lease obligations consisted of the following:

10 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued)

8. SERIES C PARTICIPATING PREFERRED STOCK The Orius Series C participating preferred stock ("Series C preferred") accrues dividends daily at a rate of 12% per annum based on a liquidation value of $1,000 per share and participates in any dividends paid to holders of the common stock. The Series C participating preferred stock will be redeemed on December 31, 2019 at its purchase price, plus accrued dividends and the liquidation value of the common stock into which it is convertible. At September 30, 2001, the total recorded value of the Series C preferred stock has been determined based upon its original purchase price of $1,019 per share and accrued and unpaid dividends of $43.5 million. For the three months and nine months ended September 30, 2001, accrued and unpaid dividends are $5.8 million and $18.4 million, respectively. The decrease in the estimated value of the Company's common stock and the related decrease in the liquidation value of the Series C preferred has resulted in no change and an increase of $14.6 million for the three months and nine months ended September 30, 2001, respectively, in income available to common shareholders. 9. SERIES F PREFERRED STOCK The Orius Series F preferred stock ("Series F preferred") accrues dividends daily at a rate of 20% per annum based on a liquidation value of $1,000 per share plus all accumulated and unpaid dividends. Upon liquidation of the Company, the holders of the Series F preferred stock would be entitled to receive the liquidation value of their stock plus accrued and unpaid dividends prior to any payment made upon any other capital stock or equity securities of the Company. The Series F preferred stock will be redeemed on December 1, 2010 at its liquidation value plus all accumulated and unpaid dividends. On August 8, 2001, an affiliate of the Company's majority shareholder contributed $10 million in cash in exchange for 10,375 shares of Orius Series F preferred stock with a liquidation value of $10.4 million, see Note 7. At September 30, 2001, the total recorded value of the Series F preferred stock includes accrued and unpaid dividends of $.3 million and accretion of $.4 million. Dividends and accretion 11 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) are recorded as an increase in the retained deficit and a reduction of the income available to common shareholders. The Company shall redeem all of the outstanding Series F preferred stock contemporaneously with the consummation of a change of control; provided that all outstanding Senior Debt has been paid in full. Additionally, the Company may, at any time and from time to time, without premium or penalty, redeem all or any portion of the outstanding Series F preferred stock. 10. PROVISION FOR INCOME TAX The tax provision for the nine months ended September 30, 2001, reflects an estimated annual effective tax rate of 27.53 %. This revised rate is the result of the Company's revised forecast of its annual pretax results and is influenced by the non-deductible amortization of goodwill associated with the Company's acquisitions. 11. SEGMENTS To strategically manage its business, the Company has designated two operating segments. The internal telecom service segment provides engineering, furnishing and installation of network equipment and related components and maintenance services. The external telecom services segment provides installation, design engineering and maintenance of fiber optic, coaxial and copper cable networks for the telecom industry. Identifiable assets for each operating segment are as follows:

Revenues and income before income taxes for each operating segment are as follows:

12 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued)

(1) Income before provision for income taxes have been impacted by an allocation of corporate expenses based on a percentage of revenue. 12. RESTRUCTURING CHARGES To reduce costs and improve productivity, the Company is streamlining corporate structure and consolidating warehouse operations. In connection with this initiative the Company implemented a plan of restructuring designed to improve its overall performance. In addition, the Company will continue to evaluate opportunities to improve performance and institute additional restructuring activities as necessary. In the second quarter of 2001, the Company recorded restructuring charges of $1.7 million consisting of employee termination benefits, a provision for lease termination costs and abandonments of property and equipment associated with certain warehouse facilities. Approximately $1.1 million of the restructuring charge is related to severance payments for two corporate officers, $.2 million is related to lease termination costs for the consolidation of various warehouse facilities and $.4 million is related to the abandonment of property and equipment. In the third quarter of 2001, the Company recorded restructuring charges of $3.1 million consisting of employee termination benefits, a provision for lease termination costs and abandonments of property and equipment associated with certain warehouse facilities. Approximately $1.0 million of the restructuring charge is related to severance payments for various personnel, $1.7 million is related to lease 13 Orius Corp. and Subsidiaries (formerly LISN Holdings, Inc.) Notes to Consolidated Financial Statements (Unaudited) - (Continued) termination costs for the consolidation of various warehouse facilities and $.3 million is related to the abandonment of property and equipment. The components of the restructuring charges recorded in the second and third quarter of 2001 are as follows:

13. COMMITMENTS AND CONTINGENCIES In the normal course of business, certain subsidiaries of the Company have pending and unasserted claims. It is the opinion of the Company's management, based on the information available at this time, that these claims will not have material adverse impact on the Company's Consolidated Financial Statements. 14. SUBSEQUENT EVENTS As discussed in Note 7, on November 20, 2001 the Company entered into the Fourth Amendment to Amended and Restated Credit Agreement. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to the assessment and understanding of the Company's consolidated financial condition and results of operations. The discussion should be read in conjunction with the Consolidated Financial Statements and notes hereto. Certain statements under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such forward looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward looking statements. Such factors include general economic and business conditions, telecom infrastructure service competition, the impact of federal regulation and changes in other laws affecting the Company. For a discussion of risks, you are urged to refer to "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. RESULTS OF OPERATIONS The following table sets forth, as a percentage of revenue earned, certain items in the Company's Consolidated Statements of Operations for the periods indicated:

Three months ended September 30, 2001 compared to three months ended September 30, 2000 Revenue. Revenue for the period decreased 38.9%, or $76.7 million, from $197.2 million for the three months ended September 30, 2000 to $120.5 million for the three months ended September 30, 2001. The reduction was primarily attributable to a slowdown in project work in our external segment. Additionally, the Company experienced reduced demand for central office services primarily from our largest customer, Verizon. Direct Costs. Direct costs decreased 36.9%, or $54.7 million, from $148.4 million for the three months ended September 30, 2000 to $93.6 million for the three months ended September 30, 2001. This decrease is directly related to the lower revenue base. As a percent of revenue, direct costs increased 3.3% to 77.7% 15 for the three months ended September 30, 2001 from 75.2% for the three months ended September 30, 2000. This increase was due to absorption of fixed costs over a lower revenue base and competitive pricing. In addition, direct costs increased during the period by approximately $1.0 million for inventory write downs for obsolete inventory related to our internal segment. General and Administrative Expenses. General and administrative expenses increased 7.4%, or $1.3 million, from $17.6 million for the three months ended September 30, 2000 to $18.9 million for the three months ended September 30, 2001. The increase in general and administrative expenses is related to an increase in the allowance for doubtful accounts of $3.0 million for the period ended September 30, 2001, see Note 6 of the Consolidated Financial Statements. This reserve was made in connection with the recent economic events and a continued slowdown in the telecom industry. This increase is offset by lower SG&A associated with the Company's cost cutting program. Depreciation and Amortization Expense. Depreciation and amortization expense increased 9.5%, or $.8 million, from $7.9 million for the three months ended September 30, 2000 to $8.6 million for the three months ended September 30, 2001. The increase in amortization and depreciation expense is mainly due to the amortization of goodwill and depreciation of assets associated with the related 2001 acquisitions. Restructuring. A charge for restructuring was taken during the third quarter of fiscal 2001, see Note 12 of the Consolidated Financial Statements. Interest Expense. Interest expense decreased 7.2%, or $1.4 million, from $19.6 million for the three months ended September 30, 2000 to $18.2 million for the three months ended September 30, 2001. This decrease in interest expense was primarily attributable to lower interest rates. Provision for Income Taxes. For the period ended September 30, 2001 the provision for income taxes decreased by $6.7 million, from a provision of $.2 million for the three months ended September 30, 2000 to a benefit of $6.5 million for the three months ended September 30, 2001. This decrease is due to the pre-tax loss for the nine months ended September 30, 2001 using the expected annualized effective tax rate, based on projected results through year end December 31, 2001. Nine months ended September 30, 2001 compared to nine months ended September 30, 2000 Revenue. Revenue for the period decreased 22.8%, or $124.6 million, from $547.0 million for the nine months ended September 30, 2000 to $422.5 million for the nine months ended September 30, 2001. This decrease was primarily due to the continued slowdown in project related work in our external segment and the decreased demand for central office services in our internal segment. Direct Costs. Direct costs decreased 17.3%, or $69.0 million, from $399.0 million for the nine months ended September 30, 2000 to $330.1 million for the nine months ended September 30, 2001. This reduction is related to the lower revenue base. As a percent of revenue direct costs increased 7.1% to 78.1% for the nine months ended September 30, 2001 from 72.9% for the nine months ended September 30, 2000. This increase was due to absorption of fixed costs over a lower revenue base and competitive pricing pressure. In addition, direct costs increased during the period by approximately $1.6 million for inventory write downs related to turnkey operations in our external segment and by $1.0 million for inventory write downs associated with inventory obsolescence in our internal segment. General and Administrative Expenses. General and administrative expenses increased 5.8%, or $3.2 million, from $54.7 million for the nine months ended September 30, 2000 to $57.8 million for the nine months ended September 30, 2001. Increases in general and administrative expenses are related primarily to the $3 million additional allowance for doubtful accounts taken in the three month period ended September 30, 2001, see Note 6 of the Consolidated Financial Statements. This increase is offset by lower SG&A associated with Company cost cutting plans instituted during fiscal 2001. Depreciation and Amortization. Depreciation and amortization expenses increased 21.1%, or $4.6 million, from $21.6 million for the nine months ended September 30, 2000 to $26.2 million for the nine months 16 ended September 30, 2001. The increase in amortization and depreciation expense is mainly due to the acquisitions and related amortization of goodwill and depreciation of assets associated with the 2001 acquisitions. Restructuring. A charge for restructuring was taken during the second and third quarter of fiscal 2001, see Note 12 of the Consolidated Financial Statements. Interest Expense. Interest expense increased 6.4%, or $3.2 million, from $50.5 million for the nine months ended September 30, 2000 to $53.7 million for the nine months ended September 30, 2001. This increase in interest was due to the higher levels of debt incurred under our senior credit facilities in connection with our working capital requirements and acquisition activity. Provision for Income Taxes. For the period ended September 30, 2001, the provision for income taxes decreased by $24.2 million, from a provision of $10.5 million for the nine months ended September 30, 2000 to a benefit of $13.7 million for the nine months ended September 30, 2001. This decrease is due to the pre-tax loss for the nine months ended September 30, 2001 using the expected annualized effective tax rate, based on projected results through year end December 31, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's needs for capital are attributable primarily to its needs for equipment to support customer contracts and its needs for working capital sufficient to meet general corporate purposes. In addition, the Company used $35.0 million to purchase three companies during the first three months of fiscal 2001. During the second quarter additional payments of $11.6 million were made to finalize the acquisitions of companies purchased in prior periods. These purchases are expected to expand the Company's market share and geographic footprint. These purchases were financed by borrowings from the Company's bank credit facility. Capital expenditures have been financed by borrowings from the Company's credit line and internal cash flow. The Company's sources of cash have been from operating activities and bank borrowings. Net cash provided by operating activities was $27.0 million for the nine months ended September 30, 2001 compared to $1.8 million for the nine months ended September 30, 2000. Revenues are the primary sources of operating cash flow. Working capital items provided $21.6 million of operating cash flow for the nine-month period ended September 30, 2001, principally through a decrease in accounts receivable. In the nine months ended September 30, 2001, net cash used in investing activities was $60.1 million as compared to $77.9 million for the nine months ended September 30, 2000. For the nine months ended September 30, 2001 cash used for capital expenditures was $13.5 million compared to $18.4 million for the nine months ended September 30, 2000. These expenditures were for normal purchases of new equipment, and replacement of existing equipment. In the nine months ended September 30, 2001, net cash provided by financing activities was $38.0 million as compared to $47.4 million for the nine months ended September 30, 2000. The third quarter 2001 financing activities are primarily attributable to the proceeds from borrowing on debt facilities and the contribution of $10 million by an affiliate of the Company's majority shareholder in exchange for preferred and common stock. The nine month period ended September 30, 2000 reflects the activity associated with the issuance of Senior Subordinated Notes. Our senior credit facility and the indenture governing the notes contain numerous restrictive covenants, including, among other things, covenants that limit our ability to borrow money, make capital expenditures, use assets as security in other transactions, pay dividends, incur contingent obligations, sell assets and enter into leases and transactions with affiliates. For a description of our credit facility, see Note 7 of the Consolidated Financial Statements. 17 In June 2001, the Company anticipated that, at June 30, 2001, it would not be in compliance with certain financial covenants of its senior credit facility ("Events of Default"). Accordingly, on June 30, 2001, the Company and its lenders entered into the Second Agreement and Waiver to Amended and Restated Credit Agreement (the "Second Amendment"). The Second Amendment waives compliance with the Events of Default at June 30, 2001. Additionally, the Second Amendment provides that (a) the Company deliver daily cash reports to an agent of the lenders, (b) the revolving credit facility be limited to an aggregate amount of $85.95 million, and (c) no additional Junior Subordinated Notes be issues. Fees associated with the Second Amendment were approximately $0.2 million. On July 27, 2001, the Company entered into the Third Amendment to the Amended and Restated Credit Agreement (the "Third Amendment") which supercedes the Second Amendment. The Third Amendment, which is effective until July 22, 2002, requires the Company to meet revised financial covenants which are generally less restrictive than those that existed in the Amended and Restated Credit Agreement dated July 5, 2000. At July 22, 2002, the covenants revert to those specified by the Amended and Restated Credit Agreement and become effective for the June 30, 2002 test period. At June 30, 2002, the Company's ability to comply with the more restrictive covenants found in the Amended and Restated Credit Agreement will be dependent upon its ability to manage costs and meet its growth projections. In connection with the Third Amendment, an affiliate of the Company's majority shareholder contributed $10 million in exchange for additional shares of the Company's common and preferred stock. In addition, an affiliate of the majority shareholder has agreed, under certain circumstances, to provide additional cash of up to $15 million through the period ending July 22, 2002. The Company expects that our principal sources of liquidity will be from operations and borrowings under our senior credit facility. We believe that these funds will be sufficient to meet our debt service and working capital needs for the next twelve months. The Company's plans to manage its costs and streamline its operations, resulted in a second quarter charge of $1.7 million related to employee severance and the closure of warehouse facilities. The Company took an additional charge of $3.1 million in the three month period ended September 30, 2001 associated with employee severance, warehouse facilities and equipment abandonment. The Company anticipates that additional restructuring initiatives may impact the Company's results in the future. On November 20, 2001 the Company entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the "Fourth Amendment"). The Fourth Amendment, which is effective to, but excluding January 15, 2002, waives certain covenants for the periods ending September 30, 2001 and December 30, 2001. At which time those certain waived covenants will become effective again in accordance with the Third Amendment. Based upon the Company's projections, it is probable that it will not meet its financial covenants subsequent to the waiver period. The Company intends to renegotiate the Fourth Amendment including certain financial covenants and/or seek a waiver of such covenants. No assurance can be given that we will be able to successfully renegotiate the amended and restated credit agreements and/or obtain a waiver to our financial covenants. If the Company is not successful in renegotiating the amended and restated credit agreements and/or obtain a waiver to our financial covenants, the balances outstanding under the Fourth Amendment may be called by the lenders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Management's Discussion and Analysis of Financial Condition and Result of Operations ("Risk Factors") and Quantitative and Qualitative Disclosures about Market Risk in Orius' most recent annual report filed on Form 10-K. There has been no material change in this information. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We occasionally are a party to legal proceedings incidental to our ordinary business operations. At present, we are not party to any pending legal proceedings that we believe could have a material adverse effect on our business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On August 8, 2001, in conjunction with the Third Amendment to the Amended and Restated Credit Agreement, an affiliate of the Company's majority shareholder contributed $10 million in cash in exchange for 1,772,181 shares of common stock and 10,375 shares of Orius Series F preferred stock. The proceeds were used for general corporate purposes. These issuances were exempt from registration under Section 4 (2) of the Securities Act as transactions not involving a public offering. No underwriting discounts or commissions were paid in connection with these sales. ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES None. ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a). Exhibits

------------- * Filed herewith. + This exhibit is incorporated by reference to Orius Corp.'s filing on Form 8-K, File No. 333-36952, originally filed with the SEC on August 3, 2001. (b). Reports on Form 8-K During the quarter ended September 30, 2001, the Registrant filed a Report on Form 8-K, dated August 3, 2001, with respect to the third amendment to the amended and restated credit agreement. 20 SIGNATURES Pursuant to the requirements 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. ORIUS CORP. Date: November 21, 2001 By: /s/ ROBERT E. AGRES ------------------- Robert E. Agres Senior Vice President - Chief Financial Officer (Principal Financial and Accounting Officer) 21

ORIUS CORP 10-Q