SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
_______ 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: 000-21605
HYPERION TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1669404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Main at Water Street
Coudersport, PA 16915-1141
(Address of principal (Zip code)
executive offices)
814-274-9830
(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:
At August 12, 1998, 22,114,718 shares of Class A Common Stock, par
value $0.01 per share, and 32,576,113 shares of Class B Common Stock,
par value $0.01 per share, of the registrant were outstanding.
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets - March 31, 1998 and June 30, 1998.........................3
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1997 and 1998.........................................................................4
Condensed Consolidated Statements of Cash Flows - Three months ended
June 30, 1997 and 1998.........................................................................5
Notes to Condensed Consolidated Financial Statements.............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................17
Item 2. Changes in Securities and Use of Proceeds......................................................18
Item 3. Defaults Upon Senior Securities................................................................18
Item 4. Submission of Matters to a Vote of Security Holders............................................18
Item 5. Other Information..............................................................................18
Item 6. Exhibits and Reports on Form 8-K...............................................................18
SIGNATURES..............................................................................................20
INDEX TO EXHIBITS.......................................................................................21
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share amounts)
March 31, June 30,
1998 1998
-------------- ----------------
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 230,750 $ 444,265
Other current assets 4,434 7,114
Due from affiliates - net -- 7,934
-------------- ----------------
Total current assets 235,184 459,313
U.S. government securities - pledged 70,535 71,535
Investments 50,116 49,770
Property, plant and equipment - net 250,633 288,909
Other assets - net 28,425 27,858
-------------- ----------------
Total $ 634,893 $ 897,385
============== ================
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND (DEFICIENCY):
OTHER STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 11,775 $ 28,490
Due to affiliates - net 1,442 --
Accrued interest and other current liabilities 4,687 13,243
-------------- ----------------
Total current liabilities 17,904 41,733
13% Senior Discount Notes due 2003 215,213 222,949
12 1/4% Senior Secured Notes due 2004 250,000 250,000
Note payable - Adelphia 35,876 --
Other debt 27,687 27,228
-------------- ----------------
Total liabilities 546,680 541,910
-------------- ----------------
12 7/8% Senior exchangeable redeemable preferred stock 207,204 214,085
-------------- ----------------
Commitments and contingencies (Note 3)
Common stock and other stockholders' equity (deficiency):
Class A common stock, $0.01 par value, 300,000,000
shares authorized, 396,500 and 22,082,603 shares
outstanding, respectively 4 221
Class B common stock, $0.01 par value, 150,000,000
shares authorized, 32,500,000 and 32,568,294 shares
outstanding, respectively 325 326
Additional paid in capital 179 301,263
Class A common stock warrants 13,000 --
Class B common stock warrants 11,087 4,917
Loans to stockholders (3,000) --
Accumulated deficit (140,586) (165,337)
-------------- ----------------
Total common stock and other stockholders' equity (deficiency) (118,991) 141,390
============== ================
Total $ 634,893 $ 897,385
============== ================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended
June 30,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Revenues $ 1,520 $ 7,635
------------- -------------
Operating expenses:
Network operations 1,180 4,989
Selling, general and administrative 2,380 8,432
Depreciation and amortization 1,372 6,120
------------- -------------
Total 4,932 19,541
------------- -------------
Operating loss (3,412) (11,906)
Other income (expense):
Interest income 763 6,059
Interest expense (8,077) (13,704)
Other income -- 1,000
------------- -------------
Loss before income taxes and
equity in net loss of joint ventures (10,726) (18,551)
Income tax expense -- --
------------- -------------
Loss before equity in net loss
of joint ventures (10,726) (18,551)
Equity in net loss of joint ventures (2,540) (3,190)
------------- -------------
Net loss (13,266) (21,741)
Dividend requirements applicable to preferred stock -- (6,807)
------------- ------------
Net loss applicable to common stockholders $ (13,266) $ (28,548)
============= =============
Basic and diluted net loss per weighted average
share of common stock $ (0.38) $ (0.59)
============= =============
Weighted average shares of
common stock outstanding 34,890 48,110
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months
Ended June 30,
--------------------------------
1997 1998
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (13,266) $ (21,741)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation 1,054 5,188
Amortization 318 932
Noncash interest expense 6,727 8,473
Equity in net loss of joint ventures 2,540 3,190
Issuance of Class A common stock bonus 27 761
Change in operating assets and liabilities net of effects of acquisitions:
Other assets - net (951) (4,113)
Accounts payable 109 16,716
Accrued interest and other 1,035 8,616
--------------- ---------------
Net cash (used in) provided by operating activities (2,407) 18,022
--------------- ---------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (18,766) (43,464)
Investments in joint ventures (18,031) (2,905)
--------------- ---------------
Cash used in investing activities (36,797) (46,369)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of Class A common stock -- 255,462
Costs associated with issuance of Class A common stock -- (14,417)
Repayment of debt (151) (459)
Advances from (to) related parties 849 (1,724)
Repayment of loans to stockholders -- 3,000
--------------- ---------------
Net cash provided by financing activities 698 241,862
--------------- ---------------
(Decrease) increase in cash and cash equivalents (38,506) 213,515
Cash and cash equivalents, beginning of period 59,814 230,750
--------------- ---------------
Cash and cash equivalents, end of period $ 21,308 $ 444,265
=============== ===============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
Hyperion Telecommunications, Inc. is a majority owned subsidiary of
Adelphia Communications Corporation ("Adelphia"). The accompanying unaudited
condensed consolidated financial statements of Hyperion Telecommunications,
Inc. and its majority owned subsidiaries ("Hyperion" or the "Company") have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission.
In the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary for a fair presentation of Hyperion at June
30, 1998 and the unaudited results of operations for the three months ended June
30, 1997 and 1998, have been included. These condensed consolidated financial
statements should be read in conjunction with the Company's consolidated
financial statements included in its Annual Report on Form 10-K for the fiscal
year ended March 31, 1998. The results of operations for the three months ended
June 30, 1998, are not necessarily indicative of the results to be expected for
the fiscal year ending March 31, 1999.
1. Significant Events Subsequent to March 31, 1998:
On May 8, 1998, the Company issued and sold 12,500,000 shares of Class
A Common Stock at a price to the public of $16.00 per share (the "IPO").
Simultaneously with the closing of the IPO, the Company (i) issued and sold an
additional 3,324,001 shares of Class A Common Stock to Adelphia at a purchase
price of $15.00 per share (or an aggregate of approximately $49,900) and (ii)
issued 3,642,666 shares of Class A Common Stock to Adelphia in exchange for
certain of the Company's indebtedness and payables owed to Adelphia at a
purchase price of $15.00 per share (or an aggregate of $54,600). In a related
transaction, on June 5, 1998, the Company issued and sold 350,000 shares of
Class A Common Stock at the $16.00 IPO price pursuant to the underwriters'
over-allotment option in the IPO. These transactions increased the Company's
equity by approximately $285,000, while raising approximately $241,000 of net
proceeds to continue the expansion of the Company's existing markets and to
build new markets.
In connection with the IPO, Adelphia purchased all warrants, including
any antidilutive provisions, issued to MCI in connection with a previous
agreement which designated the Company as MCI's preferred provider of end use
dedicated access for all new MCI customers and of end user dedicated access
circuits resulting from conversions from incumbent LECs in the Company's
markets. Furthermore, in consideration of the obligations undertaken by Adelphia
to facilitate the agreements between MCI and the Company, the Company paid to
Adelphia a fee of $500 and issued a warrant to Adelphia to purchase 200,000
shares of Hyperion's Class A Common Stock at an exercise price equal to the IPO
price.
During the three months ended June 30, 1998, 183,105 Class B warrants
were exercised and converted into 1,109,613 shares of Class B Common Stock. Of
the 1,109,613 shares issued, 1,041,319 shares had been converted into Class A
Common Stock as of June 30, 1998. The Company received $3 in consideration for
the exercise of the Class B warrants.
On May 15, 1998, Lenfest Telephony, Inc. ("Lenfest") exercised its
warrant to receive 731,624 shares of Hyperion's Class A Common Stock. The
warrant related to the purchase by Hyperion of Lenfest's partnership interest in
the Harrisburg, Pennsylvania network on February 12, 1998. The Company received
no additional consideration for the exercise of the warrant.
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
Since April 1, 1998, Hyperion entered into a series of agreements with
Qwest Communications, Williams Communications and several other fiber optic
network providers that will allow the Company to significantly increase its
presence in the eastern half of the United States. These agreements, totaling
$107,000 to be paid by Hyperion over the next two years, provide the Company
with ownership or an indefeasible right of use (IRU) to over 8,100 route miles
of fiber optic cable. The Company believes this will allow Hyperion to expand
its business strategy to include on-net provisioning of regional long distance,
internet and data communications and to cost-effectively further interconnect
most of its existing networks with each other and with approximately 25 new
first- and second-tier markets and 25 new third-tier markets by the end of 2001.
2. Investments:
The equity method of accounting is used to account for investments in
joint ventures in which the Company holds less than a majority interest. Under
this method, the Company's initial investment is recorded at cost and
subsequently adjusted for the amount of its equity in the net income or losses
of its joint ventures. Dividends or other distributions are recorded as a
reduction of the Company's investment. Investments in joint ventures accounted
for using the equity method reflect the Company's equity in their underlying net
assets.
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
<TABLE>
The Company's nonconsolidated investments are as follows:
Ownership March 31, June 30,
Percentage 1998 1998
-------------- -------------- ----------------
<S> <C> <C> <C>
MediaOne Fiber Technologies (Jacksonville) 20.0 % $ 7,979 $ 7,979
Multimedia Hyperion Telecommunications (Wichita) 49.9 3,900 3,362
MediaOne of Virginia (Richmond) 37.0 7,212 7,212
PECO-Hyperion (Philadelphia) 50.0 21,150 25,400
PECO-Hyperion (Allentown, Bethlehem, Easton, Reading) 50.0 1,750 3,050
Hyperion of York 50.0 3,500 4,500
Entergy Hyperion Telecommunications of Louisiana 50.0 3,000 3,525
Entergy Hyperion Telecommunications of Mississippi 50.0 3,275 3,775
Entergy Hyperion Telecommunications of Arkansas 50.0 3,550 4,275
Baker Creek Communications 49.9 (1) 10,009 5,154
Other Various 1,323 1,322
-------------- ----------------
66,648 69,554
Cumulative equity in net losses (16,532) (19,784)
-------------- ----------------
Total $ 50,116 $ 49,770
============== ================
<FN>
(1) On March 24, 1998, the Federal Communications Commission ("FCC") completed
the auction of licenses for Local Multipoint Distribution Service. The
Company, through Baker Creek Communications, was the successful bidder at a
net cost of $25,600 for 232 31-Ghz licenses, which cover approximately 38%
of the nation's population - in excess of 90 million people in the eastern
half of the United States. The Company funded $10,000 of such purchase in
January 1998, a portion of which was refunded, as only a 20% deposit is
required until the licenses are granted. The Company is committed to
provide further funding to consummate such purchase upon the granting of
such licenses by the FCC.
</FN>
</TABLE>
Summarized combined unaudited financial information for the
Company's investments being Accounted for using the equity method of accounting,
is as follows:
March 31, June 30,
1998 1998
-------------- -----------------
Current assets $ 7,476 $ 14,568
Property, plant and equipment -net 153,495 159,143
Other non-current assets 13,454 3,552
Current liabilities 13,422 12,870
Non-current liabilities 58,004 47,341
Three months ended June 30,
1997 1998
-------------- -----------------
Revenues $ 2,536 $ 5,207
Net loss (3,577) (6,989)
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
3. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of material commitments and
contingencies.
4. Net Loss Per Weighted Average Share of Common Stock:
Net loss per weighted average share of common stock is computed based on
the weighted average number of common shares outstanding after giving effect to
dividend requirements on the Company's preferred stock. Diluted net loss per
common share is equal to basic net loss per common share because additional
warrants outstanding had an anti-dilutive effect for the periods presented;
however, these warrants could have a dilutive effect on earnings per share in
the future.
5. Supplemental Financial Information:
The Company, in connection with the IPO, issued 3,642,666 shares of
Class A Common Stock to Adelphia in exchange for certain of the Company's
indebtedness and payables owed to Adelphia at a purchase price of $15.00 per
share, or an aggregate of $54,600. The carrying value of such indebtedness and
payables owed to Adelphia was $44,261.
On April 1, 1998, the Company issued 58,500 shares of Class A Common
Stock to an executive of the Company pursuant to his employment agreement.
There was no cash paid for interest during the three months ended June
30, 1997 and 1998.
Accumulated depreciation of property, plant and equipment amounted to
$14,251 and $19,439 at March 31, 1998 and June 30, 1998, respectively.
6. Recent Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income." issued by the Financial
Accounting Standards Board in June 1997 is effective for the interim period
ended June 30, 1998, with reclassification of comparative financial statements.
SFAS No. 130 defines comprehensive income and outlines certain reporting and
disclosure requirements related to comprehensive income. Hyperion has no items
of other comprehensive income for either the three months ended June 30, 1997 or
1998.
-------------------------------------------------
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with the Company's unaudited Condensed Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Form 10-Q and the Company's audited
Consolidated Financial Statements and Notes thereto filed on Form 10-K for the
fiscal year ended March 31, 1998.
Overview
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the effects of future regulation, future capital commitments and the effects of
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, acquisitions and divestitures,
government and regulatory policies, the pricing and availability of equipment,
materials, and inventories, technological developments and changes in the
competitive environment in which the Company operates. Unless otherwise stated,
the information contained in this Form 10-Q is as of and for the three months
ended June 30, 1997 and 1998.
The "Company" or "Hyperion" means Hyperion Telecommunications, Inc.
together with its majority-owned subsidiaries, except where the context
otherwise requires. Unless the context otherwise requires, references herein to
the "networks," the "Company's networks" or the "Operating Companies' networks"
mean the (a) 22 telecommunications networks in operation or under construction
(the "Existing Networks") owned as of June 30, 1998 by 20 Operating Companies
(which, as defined herein, are (i) wholly and majority owned subsidiaries of the
Company or (ii) joint venture partnerships and corporations managed by the
Company and in which the Company holds less than a majority equity interest with
one or more other partners) and (b) additional networks planned for development
(the "New Networks") as of such date.
The Company, through its Operating Companies, provides a competitive
alternative to the telecommunications services offered by the incumbent local
exchange carriers ("LECs") in its markets. The Operating Companies' customers
are principally small, medium and large businesses and government and
educational end users as well as Interexchange or Long Distance Carriers
("IXCs") and other telecommunications providers. The Company believes that its
strategy of utilizing local partners to develop its networks has allowed the
Company to build networks with greater coverage, lower upfront and ongoing costs
and superior service and reliability.
As of June 30, 1998, the Company's Operating Companies are made up of
ten wholly-owned subsidiaries (through which the Company has an interest in 11
networks), one partnership in which it is a majority owner and nine joint
venture investments (through which the Company has an interest in ten networks)
in which the Company owns 50% or less. Results of the wholly and majority owned
subsidiaries and partnerships are consolidated into the Company's financial
statements. The Company's pro rata share of the results of the Operating
Companies where the Company owns 50% or less are recorded under the caption
"Equity in net loss of joint ventures" in the Company's consolidated financial
statements and results of operations utilizing the equity method of accounting.
Correspondingly, the Company's initial investments in these Operating Companies
have been carried at cost, and subsequently have been adjusted for the Company's
pro rata share of the Operating Companies' net losses, additional capital
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
contributions to the Operating Companies, and distributions from the Operating
Companies to the Company. Hyperion's weighted average ownership in these
Operating Companies is 78%, based upon gross property plant and equipment.
The Company initiated its switched services deployment plan in 1997
and currently provides switched services in 19 markets, two of which were placed
in operation during the three month period ended June 30, 1998. Switches for all
remaining markets are expected to be operational during 1998. In the Existing
Networks, the Company estimates that there are approximately 13.2 million
business access lines in service. With the expansion of the Company's business
into the New Networks , the Company anticipates that its total addressable
market will exceed $40 billion annually or 20 million access lines. The Company
has experienced initial success in the sale of business access lines with
approximately 64,000 access lines sold as of June 30, 1998, of which
approximately 47,100 lines are installed. As of June 30, 1998, approximately 70%
of these access lines are provisioned entirely on the Company's network ("on-net
lines") with the remainder being a combination of unbundled loops or total
service resale from LEC networks.
Recent Developments
On May 8, 1998, the Company issued and sold 12,500,000 shares of Class
A Common Stock at a price to the public of $16.00 per share (the "IPO").
Simultaneously with the closing of the IPO, the Company (i) issued and sold an
additional 3,324,001 shares of Class A Common Stock to Adelphia at a purchase
price of $15.00 per share (or an aggregate of approximately $49,900) and (ii)
issued 3,642,666 shares of Class A Common Stock to Adelphia in exchange for
certain of the Company's indebtedness and payables owed to Adelphia at a
purchase price of $15.00 per share (or an aggregate of $54,600). In a related
transaction, on June 5, 1998, the Company issued and sold 350,000 shares of
Class A Common Stock at the $16.00 IPO price pursuant to the underwriters'
over-allotment option in the IPO. These transactions increased the Company's
equity by approximately $285,000, while raising approximately $241,000 of net
proceeds to continue the expansion of the Company's Existing Networks and to
build New Networks.
In connection with the IPO, Adelphia purchased all warrants, including
any antidilutive provisions, issued to MCI in connection with a previous
agreement which designated the Company as MCI's preferred provider of end use
dedicated access for all new MCI customers and of end user dedicated access
circuits resulting from conversions from incumbent LECs in the Company's
markets. Furthermore, in consideration of the obligations undertaken by Adelphia
to facilitate the agreements between MCI and the Company, the Company paid to
Adelphia a fee of $500 and issued a warrant to Adelphia to purchase 200,000
shares of Hyperion's Class A Common Stock at an exercise price equal to the IPO
price.
During the three months ended June 30, 1998, 183,105 Class B warrants
were exercised and converted into 1,109,613 shares of Class B Common Stock. Of
the 1,109,613 shares issued, 1,041,319 shares had been converted into Class A
Common Stock as of June 30, 1998. The Company received $3 in consideration for
the exercise of the Class B warrants.
On May 15, 1998, Lenfest Telephony, Inc. ("Lenfest") exercised its
warrant to receive 731,624 shares of Hyperion's Class A Common Stock. The
warrant related to the purchase by Hyperion of Lenfest's partnership interest in
the Harrisburg, Pennsylvania network on February 12, 1998. The Company received
no additional consideration for the exercise of the warrant.
Since April 1, 1998, Hyperion entered into a series of agreements with
Qwest Communications, Williams Communications and several other fiber optic
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
network providers that will allow Hyperion to significantly increase its
presence in the eastern half of the United States. These agreements, totaling
$107,000 to be paid by Hyperion over the next two years, provide Hyperion with
ownership or an indefeasible right of use to over 8,100 route miles of fiber
optic cable. The Company believes this will allow Hyperion to expand its
business strategy to include on-net provisioning of regional long distance,
internet and data communications and to costeffectively further interconnect
most of its existing networks with each other and with approximately 25 new
first- and second-tier markets and 25 new third-tier markets by the end of 2001.
Results of Operations
Three Months Ended June 30, 1998 in Comparison with Three Months Ended June 30,
1997
Revenues increased 402% to $7,635 for the three months ended June 30,
1998, from $1,520 for the same quarter in the prior fiscal year. Growth in
revenues of $6,115 resulted from an increase in revenues from majority and
wholly-owned Operating Companies of approximately $6,201 as compared to the same
period in the prior fiscal year due to increases in the customer base and the
consolidation of the Buffalo, Syracuse, New Jersey, Louisville, Lexington and
Harrisburg networks. The increase was offset somewhat by decreased management
fees of $88 from the same period in the prior fiscal year, as a result of the
recent consolidations.
Network operations expense increased 323% to $4,989 for the three
months ended June 30, 1998 from $1,180 for the same quarter in the prior fiscal
year. The increase was attributable to the expansion of operations at the NOCC,
and the increased number and size of the operations of the Operating Companies
which resulted in increased employee related costs and equipment maintenance
costs and the consolidation of the Buffalo, Syracuse, New Jersey, Louisville,
Lexington and Harrisburg networks.
Selling, general and administrative expense increased 254% to $8,432
for the three months ended June 30, 1998 from $2,380 for the same quarter in the
prior fiscal year. The increase was due primarily to an increase in the sales
force in the Existing Networks and an increase in corporate overhead costs to
accommodate the growth in the number, size and operations of Operating Companies
managed and monitored by the Company, as well as the consolidation of the
Buffalo, Syracuse, New Jersey, Louisville, Lexington and Harrisburg networks.
Depreciation and amortization expense increased 346% to $6,120 during
the three months ended June 30, 1998 from $1,372 for the same quarter in the
prior fiscal year primarily as a result of increased amortization of deferred
financing costs and increased depreciation resulting from the higher depreciable
asset base at the NOCC and the majority and wholly owned Operating Companies and
the consolidation of the Buffalo, Syracuse, New Jersey, Louisville, Lexington
and Harrisburg networks.
Interest income for the three months ended June 30, 1998 increased 694%
to $6,059 from $763 for the same quarter in the prior fiscal year as a result of
increased cash and cash equivalents and U.S. Government securities due to the
investment of the proceeds of the 12 1/4% Senior Secured Notes, the 12 7/8%
Senior Exchangeable Redeemable Preferred Stock and the IPO.
Interest expense increased 70% to $13,704 during the three months ended
June 30, 1998 from $8,077 for the same period in the prior fiscal year. The
increase was attributable to higher interest expense associated with the
accretion of the 13% Senior Discount Notes and interest on the 12 1/4% Senior
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
Secured Notes, partially offset by the reduction of interest expense associated
with the reduced amounts payable to Adelphia.
Other income for the three months ended June 30, 1998 of $1,000 related
to the sale of a warrant in Telergy, Inc. No such payment was received in the
prior fiscal year.
Equity in net loss of joint ventures increased by 26% to $3,190 during
the three months ended June 30, 1998 from $2,540 for the same quarter in the
prior fiscal year as the nonconsolidated Operating Companies increased
operations. The net losses of the nonconsolidated Operating Companies for the
three months ended June 30, 1998 were primarily the result of increased revenues
only partially offsetting startup and other costs and expenses associated with
design, construction, operation and management of the networks of the Operating
Companies, and the effect of the typical lag time between the incurrence of such
costs and expenses and the subsequent generation of revenues by a network. The
increase was partially offset by the consolidation of the Buffalo, Syracuse, New
Jersey, Louisville, Lexington and Harrisburg networks for the current period.
The number of nonconsolidated Operating Companies paying management
fees to the Company decreased from 14 at June 30, 1997 to 8 at June 30, 1998 due
to the Company's increased ownership in certain operating companies. These
Operating Companies and networks under construction paid management and
monitoring fees to the Company, which are included in revenues, aggregating
approximately $742 for the three months ended June 30, 1998, as compared with
$830 for the same quarter in the prior fiscal year. The nonconsolidated
Operating Companies' net losses, including networks under construction, for the
three months ended June 30, 1997 and 1998 aggregated approximately $3,577 and
$6,989 respectively.
Preferred stock dividends for the three months ended June 30, 1998 of
$6,807 related to the 12 7/8% Senior Exchangeable Redeemable Preferred Stock.
For the same quarter in the prior fiscal year, the Company had not issued any
preferred stock.
Supplementary Proportionate Share Operating Company Financial Analysis
The Company believes that working with Local Partners to develop
markets has enabled the Company to build larger networks in a rapid and cost
effective manner. The Company currently has joint ventures with Local Partners
where the Company owns 50% or less of each partnership or corporation. As a
result of the Company's ownership position in these joint ventures, a
substantial portion of the Operating Companies' results are reported by the
Company on the equity method of accounting for investments which only reflects
the Company's pro rata share of net income or loss of the Operating Companies.
Because all of the assets, liabilities and results of operations of the
Operating Companies are not presented in the Company's consolidated financial
statements, financial analysis of these Operating Companies based upon the
Company's results does not represent a complete measure of the growth or
operations of the Operating Companies.
In order to provide an additional measure of the growth and performance
of the Company and its Operating Companies, management of the Company analyzes
financial information of the Operating Companies on a proportionate share
presentation basis. Proportionate share presentation reflects the collective sum
of Hyperion and Hyperion's economic interest in each of the Operating Companies
at Hyperion's ownership percentage as of June 30, 1998. All historical results
of operations are presented as if Hyperion's ownership percentage as of June 30,
1998 of its Operating Companies were in place during the entire period
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
presented. While this presentation format is not in accordance with generally
accepted accounting principles ("GAAP"), management of Hyperion believes that
this format better depicts the operational progress, and the associated economic
effect on Hyperion, of the Company's results of operations during the period.
This financial information, however, is not indicative of the Company's overall
financial position or results of operations.
<TABLE>
Summary proportionate share information:
Three Months Ended
June 30,
1997 1998
------------ ------------
<S> <C> <C>
Proportionate revenue $ 2,798 $ 8,842
Proportionate EBITDA (3,465) (6,966)
Proportionate operating loss (7,232) (14,982)
Proportionate net loss applicable to common stockholders (15,244) (28,901)
Proportionate capital expenditures 39,539 48,158
Proportionate PP&E 196,207 384,637
</TABLE>
For the three months ended June 30, 1998, proportionate revenue
increased 216% to $8,842 as compared to $2,798 for the same quarter in the prior
fiscal year. The increase in revenues resulted primarily from increases in the
customer base, the continued maturity of the operating networks and the
continued increase of switched services in the current fiscal year. During the
three months ended June 30, 1998, the Company initiated service in two markets,
bringing the total number of operating networks to 20. In addition, the Company
initiated switched services in two of its markets, bringing the total number of
markets offering switched services to 19. During the three months ended June 30,
1998, the Operating Companies installed 23,900 additional access lines, bringing
total installed access lines to 47,100 with total sales of 64,000 access lines
as of June 30, 1998.
For the three months ended June 30, 1998, proportionate EBITDA
(earnings before interest expense, income taxes, depreciation and amortization,
other non-cash charges, gain on sale of investment, interest income and equity
in net loss of joint ventures) loss was $6,966 as compared to $3,465 for the
same quarter in the prior fiscal year. EBITDA and similar measurements of cash
flow are commonly used in the telecommunications industry to analyze and compare
telecommunications companies on the basis of operating performance, leverage,
and liquidity. While EBITDA is not an alternative to operating income as an
indicator of operating performance or an alternative to cash flows from
operating activities as a measure of liquidity, all as defined by generally
accepted accounting principles, and while EBITDA may not be comparable to other
similarly titled measures of other companies, the Company's management believes
EBITDA is a meaningful measure of performance. The increase in proportionate
EBITDA loss for three months ended June 30, 1998 was due primarily to increased
selling, general, and administrative expenses as a result of the increase in
direct sales and marketing distribution channels as the Company has aggressively
moved to an end-user strategy over the past year, focusing on medium to large
business customers, governmental and educational end-user and other
telecommunications service providers.
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
For the three months ended June 30, 1998, proportionate operating loss
was $14,982 as compared to $7,232 for the same quarter in the prior fiscal year.
The increase in proportionate operating loss was due primarily to the above
mentioned increase in selling, general and administrative expenses and increased
depreciation and amortization expense resulting from a higher depreciable asset
base.
For the three months ended June 30, 1998 proportionate net loss
applicable to common stockholders was $28,901 as compared to $15,244 for the
same quarter in the prior fiscal year. The increase in proportionate net loss
applicable to common stockholders was due primarily to the above mentioned
increase in selling, general and administrative expenses, increased depreciation
and amortization and increased interest expense and preferred stock dividends
associated with the Company's financing activities.
During the three months ended June 30, 1998, the Company and its
Operating Companies invested $53,994 in capital expenditures, of which
Hyperion's proportionate share was $48,158. As of June 30, 1998, total gross
property plant and equipment of the Company and its Operating Companies was
$495,708, of which Hyperion's proportionate share is $384,637 or 78%.
Liquidity and Capital Resources
The development of the Company's business and the installation and
expansion of the Operating Companies' networks, combined with the construction
of the Company's NOCC, have resulted in substantial capital expenditures and
investments during the past several years. Capital expenditures by the Company
were $18,766 and $43,464 for the three months ended June 30, 1997 and 1998,
respectively. Further, investments made by the Company in nonconsolidated
Operating Companies were $18,031 and $2,905 for the three months ended June 30,
1997 and 1998, respectively. The significant increase in capital expenditures
for the three months ended June 30, 1998 as compared with the same period in the
prior fiscal year is largely attributable to the capital expenditures necessary
in the markets in which the Company purchased its local partners' interests and
the capital expenditures necessary to continue to develop the switching market.
The Company expects that it will continue to have substantial capital and
investment commitments. The Company also expects to continue to fund operating
losses as the Company develops and grows its business.
The Company has experienced negative operating cash flow since its
inception. A combination of operating losses, substantial capital investments
required to build the Company's wholly and majority-owned networks and its
state-of-the-art NOCC, and incremental investments in the Operating Companies
has resulted in substantial negative cash flow.
The competitive local telecommunication service business is a
capital-intensive business. The Company's operations have required and will
continue to require substantial capital investment for (i) the installation of
electronics for switched services in the Company's networks, (ii) the expansion
and improvement of the Company's NOCC and Existing Networks, (iii) the design,
construction and development of the New Networks and (iv) the acquisition of
additional ownership interests in Existing Networks or New Networks. The Company
estimates that it will require approximately $420,000 to fund anticipated
capital expenditures, working capital requirements and operating losses of the
Company and investments in its existing and its planned new Operating Companies
through the end of calendar 1999. Expansion of the Company's networks will
include the geographic expansion of the Company's Existing Networks and the
construction of New Networks over the next several years. The Company expects to
build these New Networks in additional markets, which in some cases may include
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
additional partnerships with utility partners. Also, in the future, the Company
may increase its ownership interests in Existing Networks. The Company currently
expects that its existing cash balance and internally generated funds balance,
will be sufficient to fund the Company's capital expenditures, working capital
requirements, operating losses and pro rata investments in the Operating
Companies through the beginning of calendar 2000.
In addition to the foregoing, the Company will use funds for the
purchase of LMDS spectrum in the LMDS Auction and to construct and develop
associated facilities. The Company is in the process of defining its plans for
utilization of the LMDS Spectrum, which could involve substantial additional
funds. There can be no assurance, however, as to the availability of funds from
internal cash flow, Local Partner investments or from the private or public
equity or debt markets. Also, the indentures relating to the 13% Senior Discount
Notes (the "Senior Notes") and the 12 1/4% Senior Secured Notes (the "Senior
Secured Notes") and the Certificate of Designation for the 12 7/8% Senior
Exchangeable Redeemable Preferred Stock provide certain restrictions upon the
Company's ability to incur additional indebtedness. The Company's inability to
fund pro rata investments required for the Operating Companies could result in a
dilution of the Company's interest in the individual Operating Companies or
could otherwise have a material adverse effect upon the Company and/or the
Operating Companies.
The expectations of required future capital expenditures are based on
the Company's current estimate. There can be no assurance that actual
expenditures will not significantly exceed current estimates, that the Company
will not accelerate its capital expenditures program, or that the application of
existing cash will not otherwise vary significantly from the Company's plans.
Year 2000 Issues
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has recently completed the planning stage of a project that
addresses the year 2000 data processing issues relating to modifications of its
mainframe computer applications. Internal and external resources are being used
to make the required modifications and perform the necessary tests, all of which
is expected to be completed by June 1999. The financial impact of these
modifications is not expected to be significant to the Company's financial
statements.
In addition, the Company has begun communicating with others whom it
does significant business with to determine their year 2000 compliance readiness
and the extent to which the Company is vulnerable to any third party year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
REGULATION
Telecommunications services provided by the Company and its networks
are subject to regulation by federal, state and local government agencies. At
the federal level, the FCC has jurisdiction over interstate and international
services. Jurisdictionally interstate services, which constitute the majority of
<PAGE>
HYPERION TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands)
the Operating Companies' current services, are communications that originate in
one state and terminate in another. Intrastate services are communications that
originate and terminate in a single state. State regulatory commissions exercise
jurisdiction over intrastate services. Additionally, municipalities and other
local government agencies may regulate limited aspects of the Company's
business, such as use of rights-of-way. Many of the regulations issued by these
regulatory bodies may be subject to judicial review, the result of which the
Company is unable to predict. The networks are also subject to numerous local
regulations such as building codes and licensing.
This section summarizes some of the more recent significant competitive
and regulatory developments in the telecommunications industry that could
potentially affect the Company, and does not purport to constitute an exhaustive
list of the legal and regulatory issues faced by the Company. For a more
detailed discussion of such legal and regulatory issues, please see the
Company's Annual Report on Form 10-K for the year ended March 31, 1998.
The Telecommunications Act of 1996 (the "Telecommunications Act")
establishes procedures under which an RBOC can enter the in-region interLATA
market upon satisfying a competitive checklist. RBOCs in the Company's operating
territories have filed applications with the FCC claiming that they have
satisfied the competitive checklist and are thus entitled to receive authority
to provide in-region interLATA services. Grant of such an application could have
a material adverse affect on the Company.
RBOCs have also recently filed petitions at the FCC requesting a waiver
of certain obligations imposed on incumbent LECs in the Telecommunications Act.
First, RBOCs have sought to provision high-speed data services free of
obligations to unbundle and offer for resale such services. RBOCs are also
seeking to provide such services on an interLATA basis without complying with
the market opening provisions of the competitive checklist set forth in the
Telecommunications Act, which otherwise would be required of them. In addition,
RBOCs have sought an FCC determination that they need not compensate CLECs for
traffic terminated to Internet Service Providers who are customers of CLECs. If
the FCC grants the RBOC petitions, such decision could have a material adverse
effect on the Company.
The FCC's Universal Service Order requires all telecommunications
carriers providing interstate telecommunications services, including the
Company, to contribute to the universal service fund. There can be no guarantee
of what effects, if any, changes in the universal service contribution factor,
which is calculated on a quarterly basis, will have on the telecommunications
industry generally, or on the Company specifically.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
(c) Sales of Unregistered Securities
Incorporated by reference herein is the portion of Item 5 of Part II of the
registrants Form 10-K for the fiscal year ended March 31, 1998 encaptioned
"Sales of Unregistered Securities".
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
The attached Exhibit 99.1 provides certain financial and business
information of the Company for the three months ended June 30, 1998, pursuant to
Section 4.03(a)(iii) of the Indenture dated April 15, 1996 with respect to the
13% Senior Discount Notes.
The attached Exhibit 99.2 provides certain financial and business
information of the Company for the three months ended June 30, 1998, pursuant to
Section 4.03(a)(iii) of the Indenture dated August 27, 1997 with respect to the
12 1/4% Senior Secured Notes.
The attached Exhibit 99.3 provides certain financial and business
information of the Company for the three months ended June 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule (supplied for the information
of the Commission).
Exhibit 99.1 "Schedule E - Form of Financial Information and
Operating Data of the Subsidiaries and the Joint Ventures
Presented by Cluster".
Exhibit 99.2 "Schedule F - Form of Financial Information and
Operating Data of the Pledged Subsidiaries and the Joint
Ventures".
Exhibit 99.3 Press Release Dated August 4, 1998
<PAGE>
(b) Reports on Form 8-K:
Form 8-Ks were filed on May 6 and June 24, 1998 which reported information under
items 5 and 7 thereof. No financial statements were filed.
<PAGE>
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.
HYPERION TELECOMMUNICATIONS, INC.
(Registrant)
Date: August 14, 1998 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Vice Chairman, Chief Financial Officer
(authorized officer) and Treasurer
Date: August 14, 1998 By: /s/ Edward E. Babcock, Jr.
Edward E. Babcock, Jr.
Vice President, Finance and
Chief Accounting Officer
<PAGE>
Exhibit Index
Exhibit 27.1 Financial Data Schedule (supplied for the
information of the Commission).
Exhibit 99.1 "Schedule E - Form of Financial Information and
Operating Data of the Subsidiaries and the Joint Ventures
Presented by Cluster".
Exhibit 99.2 "Schedule F - Form of Financial Information and
Operating Data of the Pledged Subsidiaries and the Joint
Ventures".
Exhibit 99.3 Press Release Dated August 4, 1998
<PAGE>
<TABLE>
Exhibit 99.1
SCHEDULE E
Hyperion Telecommunications, Inc.
Form of Financial Information and Operating Data
of the Subsidiaries and the Joint Ventures Presented by Cluster
Data presented for the quarter ended: 6/30/98
Unaudited ***
North East Mid-Atlantic Mid-South Other Networks Total
FINANCIAL DATA (dollars in thousands):
<S> <C> <C> <C> <C> <C>
Total Revenue $ 3,388.7 $ 4,035.8 $ 2,268.2 $ 3,224.8 $ 12,917.5
Total Capital Expenditures $ 9,579.7 $ 30,530.6 $ 9,876.9 $ 4,007.0 $ 53,994.2
Total EBITDA $ 203.8 $ (1,863.3) $ (2,632.4) $ 990.8 $ (3,301.1)
Gross PP&E $ 97,639.6 $ 217,354.0 $ 94,200.4 $ 86,513.8 $ 495,707.8
Proportional Revenue * $ 3,312.9 $ 2,674.3 $ 2,079.2 $ 768.7 $ 8,835.1
Proportional Capital Expenditures* $ 9,579.7 $ 6,783.7 $ 8,928.2 $ 2,866.3 $ 48,157.9
Proportional EBITDA * $ 327.7 $ (1,404.7) $ (2,080.0) $ 274.1 $ (2,882.9)
Proportional Gross PP&E * $ 97,639.6 $ 161,929.9 $ 78,126.5 $ 46,941.0 $ 384,637.0
STATISTICAL DATA Increase for June 30, 1998 quarter:
Networks in Operation -- 2 -- -- 2
Route Miles 33 59 -- -- 92
Fiber Miles 1,589 2,840 5 -- 4,434
Buildings connected 16 31 5 73 125
LEC-COs collocated ** -- 1 1 1 3
Voice Grade Equivalent Circuits (3,504) 61,200 72,840 19,824 150,360
As of March 31, 1998:
Networks in Operation 3 7 6 2 18
Route Miles 1,530 1,914 1,142 777 5,363
Fiber Miles 65,712 91,872 54,792 37,296 249,672
Buildings connected 356 613 589 351 1,909
LEC-COs collocated ** 14 61 21 17 113
Voice Grade Equivalent Circuits 177,048 434,832 136,512 247,248 995,640
As of June 30, 1998:
Networks in Operation 3 9 6 2 20
Route Miles 1,563 1,973 1,142 777 5,455
Fiber Miles 67,301 94,712 54,797 37,296 254,106
Buildings connected 372 644 594 424 2,034
LEC-COs collocated ** 14 62 22 18 116
Voice Grade Equivalent Circuits 173,544 496,032 209,352 267,072 1,146,000
Access Lines Sold 11,029 28,033 19,115 5,835 64,012
Access Lines Installed 8,004 19,937 14,952 4,184 47,077
<FN>
* Represents portion attributable to the Company.
** Local Exchange Carrier's central office
*** Other Network amounts includes Network Control Centers and Corporate Capital Expenditures
and Gross Property, Plant and Equipment
</FN>
</TABLE>
<PAGE>
Exhibit 99.2
SCHEDULE F
Hyperion Telecommunications, Inc.
Form of Financial Information and Operating Data
of the Pledged Subsidiaries and the Joint Ventures
Data presented for the quarter ended: 6/30/98
Unaudited
Total
FINANCIAL DATA (dollars in thousands)(a):
Total Revenue $ 5,742.4
Total Capital Expenditures $ 18,104.6
Total EBITDA $ (1,117.9)
Gross Property, Plant & Equipment $ 171,175.8
STATISTICAL DATA(b):
As of June 30, 1998:
Networks in Operation
Route Miles 3,032
Fiber Miles 137,794
Buildings connected 1,143
LEC-COs collocated 50
Voice Grade Equivalent Circuits 583,872
Access Lines Sold 33,313
Access Lines Installed 24,942
(a) Financial Data represents 100% of the operations of all entities except
Hyperion of Florida, which is reflected at Hyperion's ownership in the
Jacksonville network, which is 20%.
(b) Statistical Data represents 100% of operating data for all entities
<PAGE>
Exhibit 99.3
PRESS RELEASE
FOR RELEASE: IMMEDIATE
CONTACT: Ed Babcock, Vice President, Finance
(814) 274-9830
HYPERION TELECOMMUNICATIONS, INC. AND ITS OPERATING COMPANIES ANNOUNCE FIRST
QUARTER RESULTS
Coudersport, PA - August 4, 1998
John J. Rigas, Chairman of Adelphia Communications Corporation
("Adelphia") (NASDAQ NNM: ADLAC) and Hyperion Telecommunications, Inc.
("Hyperion" or "the Company") (NASDAQ NNM: HYPT) reported results of operations
for Hyperion and its Operating Companies (defined below) for the first quarter
which ended on June 30, 1998.
Due to the ownership structure of its Operating Companies, Hyperion's
and its Operating Companies' operating results are presented on both a
proportionate share presentation basis (Exhibit A below) and in accordance with
generally accepted accounting principles ("GAAP") (Exhibit B below).
Proportionate share presentation reflects the collective sum of Hyperion and
Hyperion's economic interest in each of the Operating Companies it owns and
manages at Hyperion's ownership percentage as of June 30, 1998. All historical
results of operations are presented as if Hyperion's current ownership
percentage as of June 30, 1998 of its Operating Companies were in place during
the entire period presented. While this presentation format is not in accordance
with GAAP, management of Hyperion believes that this format better depicts the
operational progress, and the associated economic effect on Hyperion, of the
Company's results of operations during the period. The Company will also include
operating results in accordance with GAAP in its Form 10-Q, which will be filed
with the SEC by August 14, 1998.
First quarter results saw proportionate revenue increase 216% to
$8,842,000 over the same quarter in the prior fiscal year and 47% versus the
March 1998 quarter. The increase in revenues for the first quarter resulted
primarily from increases in the customer base, the continued maturity of the
operating networks and the continued increase of switched services in the
current fiscal year. During the first quarter, the Company successfully launched
switched services in two additional markets, bringing the total number of
markets offering switched services to 19. During the June 1998 quarter, the
Operating Companies sold 22,500 additional access lines, bringing total sales to
64,000 access lines as of June 30, 1998. (The Company counts access lines on a
one for one basis, irrespective of the number of telephone sets in use through
trunks into a PBX; that is, no multipliers are used.) Installed lines more than
doubled, an increase of 23,800 during the June 1998 quarter, bringing total
installed access lines to 47,000 at June 30, 1998, almost 70% of which are
provisioned completely on the Company's network (on-net lines). During July
1998, the Company installed an additional 10,000 lines representing the second
consecutive month of over 10,000 access line additions, ahead of planned
provisioning rates.
First quarter proportionate EBITDA loss was $6,966,000 as compared to
$3,465,000 for the same quarter in the prior fiscal year and $4,480,000 in the
March 1998 quarter. The increase in proportionate EBITDA loss for the first
quarter was due primarily to increased selling, general, and administrative
expenses, which were slightly higher than originally expected as a result of the
ramp up in direct sales and marketing distribution channels as the Company has
<PAGE>
aggressively moved to an end-user strategy over the past year focusing on medium
to large business customers, governmental and educational end-user and other
telecommunications service providers.
First quarter proportionate net loss applicable to common stockholders
was $28,901,000 or ($0.60) per share as compared to $15,244,000 or ($0.44) per
share for the same quarter in the prior fiscal year. The increase in
proportionate net loss for the first quarter was due primarily to the above
mentioned increase in selling, general and administrative expenses, increased
depreciation and amortization expenses and increased interest expense and
preferred stock dividends associated with the Company's financing activities.
During the first quarter, the Company and its Operating Companies
invested $53,994,000 in capital expenditures, of which Hyperion's proportionate
share was $48,158,000. As of June 30, 1998, total gross property plant and
equipment of the Company and its Operating Companies was $495,708,000, of which
Hyperion's proportionate share is $384,637,000, or 78%. As of June 30, 1998, the
Operating Companies had approximately 5,455 route miles and 254,106 fiber miles
and were connected to approximately 2,034 buildings. To date, 19 Lucent 5ESS
switches or remote switching modules have been installed to provide local
telephone service with additional 5ESS switches or remote switching modules
planned for the remaining markets throughout 1998.
During the first quarter, Hyperion completed an initial public offering
of 12,850,000 shares of its Class A Common Stock at a price to the public of $16
per share, which coupled with a conversion to equity of debt owed to Adelphia
with a fair market value of $54,600,000 and an additional $49,900,000 of cash
equity investment by Adelphia, increased the Company's equity by approximately
$285,000,000, while raising $241,000,000 of net cash proceeds to continue the
expansion of the Company's existing markets and to build new markets. As a
result of this offering Hyperion is a 66% owned subsidiary of Adelphia, the
seventh largest cable television operator in the United States.
Hyperion is a leading Competitive Local Exchange Carrier ("CLEC") that
designs, constructs, operates and manages state-of-the-art, fiber optic networks
and facilities. The Company operates one of the largest CLECs in the United
States based upon route miles and buildings connected. As of June 30, 1998 the
Company manages and operates 22 networks, 2 of which are under construction,
through (i) eight partnerships or limited liability companies with local
partners, encompassing nine networks, (ii) 10 wholly owned subsidiaries of the
Company, encompassing 11 networks, (iii) one corporation, encompassing one
network, in which the Company is a minority shareholder and (iv) one company,
encompassing one network, in which the Company is a majority equity holder
(collectively, the "Operating Companies").
Exhibit A that follows sets forth the proportionate share operating results for
Hyperion and its Operating Companies for the three months ended June 30, 1997
and 1998, respectively.
Exhibit B that follows sets forth the operating results in accordance with GAAP
for Hyperion and its consolidated subsidiaries for the three months ended June
30, 1997 and 1998, respectively.
<PAGE>
<TABLE>
EXHIBIT A
Hyperion Telecommunications, Inc. and its Operating Companies
Proportionate Share Operating Results (a)
Unaudited
Three Months Ended
June 30,
1997 1998
<S> <C> <C>
Operating Revenue $ 2,798,000 $ 8,842,000
Direct Operating Expenses 1,724,000 4,161,000
-------------------------------
Gross Margin 1,074,000 4,681,000
Sales, General & Administrative Expenses 4,539,000 11,647,000
-------------------------------
EBITDA (b) (3,465,000) (6,966,000)
Depreciation & Amortization Expense 3,767,000 8,016,000
-------------------------------
Operating Loss (7,232,000) (14,982,000)
Interest Income 777,000 6,109,000
Interest Expense (8,792,000) (14,283,000)
Other Income 3,000 1,062,000
-------------------------------
Net Loss (15,244,000) (22,094,000)
-------------------------------
Preferred Stock Dividends -- (6,807,000)
-------------------------------
Net Loss Applicable to Common Stockholders $ (15,244,000) $ (28,901,000)
===============================
Weighted Average Shares of Common Stock Outstanding 34,890,000 48,110,000
Basic and Diluted Net Loss per Weighted Average Share of Common
Stock $ (0.44) $ (0.60)
<FN>
(a) Proportionate share presentation reflects the collective sum of Hyperion's
economic interest in each of the Operating Companies it owns and manages at
Hyperion's ownership percentage as of June 30, 1998. All historical results
of operations are presented as if Hyperion's ownership percentage as of June
30, 1998 of its Operating Companies was in place for the entire period
presented. While this presentation is not in accordance with generally
accepted accounting principles ("GAAP"), management of Hyperion believes
that this format better depicts the operational progress, and the associated
economic effect on Hyperion, of the Company's results of operations during
the period.
(b) Earnings before interest, income taxes, depreciation and amortization and
other income/expense ("EBITDA") and similar measures of cash flow are
commonly used in the telecommunications industry to analyze and compare
telecommunications companies on the basis of operating performance,
leverage, and liquidity. While EBITDA is not an alternative indicator of
operating performance or an alternative to cash flows from operating
activities as a measure of liquidity as defined by GAAP, and while EBITDA
may not be comparable to other similarly titled measures of other companies,
management of the Company believes that EBITDA is a meaningful measure of
performance.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT B
Hyperion Telecommunications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
Three Months Ended
June 30,
1997 1998
<S> <C> <C>
Revenues $ 1,520,000 $ 7,635,000
Operating Expenses
Network Operations 1,180,000 4,989,000
Selling, General & Administrative 2,380,000 8,432,000
Depreciation & Amortization Expense 1,372,000 6,120,000
-------------------------------
Total 4.932,000 19,541,000
-------------------------------
Operating Loss (3,412,000) (11,906,000)
Other Income (Expense)
Interest Income 763,000 6,059,000
Interest Expense (8,077,000) (13,704,000)
Other Income 1,000,000
-------------------------------
Loss Before Equity in Net Loss (10,726,000) (18,551,000)
of Joint Ventures
Equity in Net Loss of Joint Ventures (2,540,000) (3,190,000)
-------------------------------
Net Loss (13,266,000) (21,741,000)
-------------------------------
Preferred Stock Dividends -- 6,807,000
-------------------------------
Net Loss Applicable to Common Stockholders $ (13,266,000) $ (28,548,000)
===============================
Weighted Average Shares of Common Stock Outstanding 34,890,000 48,110,000
Basic and Diluted Net Loss per Weighted Average
Share of Common Stock $ (0.38) $ (0.59)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR HYPERION TELECOMMUNICATIONS, INC. FOR THE THREE
MONTHS ENDED JUNE 30, 1998
</LEGEND>
<CIK> 0001017648
<NAME> HYPERION TELECOMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 444,265
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 288,909
<DEPRECIATION> 0
<TOTAL-ASSETS> 897,385
<CURRENT-LIABILITIES> 41,733
<BONDS> 500,177
0
214,085
<COMMON> 547
<OTHER-SE> 141,390
<TOTAL-LIABILITY-AND-EQUITY> 897,385
<SALES> 0
<TOTAL-REVENUES> 7,635
<CGS> 0
<TOTAL-COSTS> 19,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,704
<INCOME-PRETAX> (18,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,548)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
