UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-29375
SAVVIS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1809960
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12851 WORLDGATE DRIVE
HERNDON, VA 20170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(703) 234-8000
(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 /_/
COMMON STOCK, $.01 PAR VALUE - 92,961,326 SHARES
OUTSTANDING AS OF AUGUST 8, 2000
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
The Index of Exhibits appears on page 18.
<PAGE>
SAVVIS Communications Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1999
and June 30, 2000......................................................... 3
Consolidated Statements of Operations for
the three and six months ended June 30, 2000,
the period January 1, 1999 to April 6, 1999
and the period April 7 1999 to June 30, 1999............................... 4
Consolidated Statements of Cash Flows for the
three and six months ended June 30, 2000,
the period January 1, 1999 to April 6, 1999
and the period April 7, 1999 to June 30, 1999............................. 5
Consolidated Statements of Changes in Stockholders Equity
for the period January 1, 2000 to June 30, 2000 ......................... 6
Notes to Consolidated Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 17
Item 2. Changes in Securities and Use of Proceeds................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................ 18
Signatures.............................................................................. 19
Exhibits
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAVVIS Communications Corporation
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 2000
------------ ----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 2,867 $ 137,483
Restricted cash ......................................................................... -- 5,055
Accounts receivable from an affiliate ................................................... -- 21,453
Trade accounts receivable, less allowance for doubtful accounts
of $375 in 1999 and $300 in 2000 ...................................................... 2,271 4,088
Prepaid expenses ........................................................................ 503 2,228
Other current assets .................................................................... 88 801
--------- ---------
Total current assets .................................................................. 5,729 171,108
PROPERTY PLANT AND EQUIPMENT -- Net ...................................................... 5,560 231,755
GOODWILL AND INTANGIBLE ASSETS -- Net of accumulated amortization
of $12,217 in 1999 and $19,061 in 2000 .................................................. 26,250 19,528
OTHER NON-CURRENT ASSETS ................................................................. 1,757 14,802
--------- ---------
TOTAL .................................................................................... $ 39,296 $ 437,193
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................ $ 5,093 $ 116,258
Accrued compensation payable ............................................................ 1,928 3,778
Due to an affiliate...................................................................... 24,065 24,391
Current portion of capital lease obligations ............................................ 2,462 20,636
Other accrued liabilities ............................................................... 5,083 18,825
--------- ---------
Total current liabilities ............................................................. 38,631 183,888
--------- ---------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION .......................................... 3,431 32,334
NOTES PAYABLE, LESS CURRENT PORTION .......................................... -- 16,458
--------- ---------
Total Liabilities ........................................................................ 42,062 232,680
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock; 50,000,000 authorized, none issued and outstanding..................... -- --
Common stock; $.01 par value, 250,000,000 authorized,
77,210,286 issued and outstanding in 1999 and
92,935,097 issued and 92,923,347 outstanding in 2000 .................................. 772 929
Additional paid-in capital .............................................................. 84,973 367,738
Accumulated deficit ..................................................................... (38,617) (104,289)
Deferred compensation ................................................................... (49,894) (59,844)
Accumulated other comprehensive income ..................................................
Cumulative foreign currency translation adjustment .................................... -- (15)
Treasury stock at cost; 0 shares in 1999 and 11,750 shares in 2000 ..................... -- (6)
--------- ---------
Total stockholders' (deficit) equity ..................................................... (2,766) 204,513
--------- ---------
TOTAL .................................................................................... $ 39,296 $ 437,193
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SAVVIS Communications Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Period from Period from Six Months
Three Months Ended January 1 to April 7 to Ended
June 30, April 6, June 30 June 30,
--------------------------- -------------- ------------- ------------
1999 2000 1999 1999 2000
------------- ------------- -------------- ------------- ------------
(Successor) (Successor) (Predecessor) (Successor) (Successor)
<S> <C> <C> <C> <C> <C>
REVENUES:
Managed data networks (including $42,444
for the three months ended June 30, 2000
and $59,790 for the six months ended June 30,
2000 from an affiliate) ...................... $ -- $ 42,538 $ -- $ -- $ 59,945
Internet access .............................. 5,499 8,046 5,303 5,499 14,662
Installation & other ......................... 414 542 137 414 1,195
------------- ------------- -------------- ------------- ------------
Total revenue ............................. 5,913 51,126 5,440 5,913 75,802
------------- ------------- -------------- ------------- ------------
DIRECT COSTS AND OPERATING EXPENSES:
Data communications and operations
(excluding $.5 million and $1.0 million
of equity-based compensation for the
three and six month periods in
2000, respectively) .......................... 6,240 57,407 6,371 6,240 84,736
Sales and marketing (excluding $1.6
million and $3.0 million of equity-based
compensation for the three and six month
periods in 2000, respectively) ............... 3,017 8,131 2,618 3,017 15,139
General and administrative (excluding
$2.2 million and $4.2 million in
equity-based compensation for the
three and six month periods in 2000,
respectively) ................................ 2,551 6,034 2,191 2,551 10,007
Depreciation and amortization ................... 4,740 14,816 817 4,740 24,426
Impairment of assets ............................ -- -- 1,383 -- --
Non-cash compensation ........................... -- 4,275 -- -- 8,175
------------- ------------- -------------- ------------- ------------
Total direct costs and operating expenses.. 16,548 90,663 13,380 16,548 142,483
------------- ------------- -------------- ------------- ------------
LOSS FROM OPERATIONS .............................. (10,635) (39,537) (7,940) (10,635) (66,681)
NONOPERATING INCOME (EXPENSE):
Interest income .............................. 15 2,375 23 15 3,719
Interest expense ............................. (318) (1,832) (158) (318) (2,710)
------------- ------------- -------------- ------------- ------------
Total nonoperating income (expense) ....... (303) 543 (135) (303) 1,009
LOSS BEFORE INCOME TAXES .......................... (10,938) (38,994) (8,075) (10,938) (65,672)
INCOME TAXES ...................................... -- -- -- -- --
------------- ------------- -------------- ------------- ------------
NET LOSS .......................................... $ (10,938) $ (38,994) $ (8,075) $ (10,938) $ (65,672)
============= ============= ============== ============= ============
PREFERRED STOCK DIVIDENDS ......................... -- -- (706) -- --
AMORTIZATION OF DEFERRED FINANCING COSTS
AND DISCOUNT ON PREFERRED STOCK .............. -- -- (244) -- --
------------- ------------- -------------- ------------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................. $ (10,938) $ (38,994) $ (9,025) $ (10,938) $ (65,672)
============= ============= ============== ============= ============
BASIC AND DILUTED LOSS PER COMMON SHARE ........... $ (0.15) $ (0.44) $ (0.14) $ (0.15) $ (0.78)
============= ============= ============== ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING ............... 72,000,000 88,115,271 66,018,388 72,000,000 84,119,579
============= ============= ============== ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SAVVIS Communications Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Period from Period from
January 1 to April 7 to Six Months
April 6, June 30, Ended
1999 1999 June 30, 2000
---------------- --------------- --------------
(Predecessor) (Successor) (Successor)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................. $ (8,075) $ (10,938) $ (65,672)
Reconciliation of net loss to net cash used in operating
activities:
Depreciation and amortization ..................... 817 4,740 24,426
Impairment of fixed assets ........................ 1,383 -- --
Compensation expense relating to the
issuance of options and restricted stock ........ 78 -- 8,175
Net changes in operating assets and liabilities:
Accounts receivable ............................... (17) 63 (23,270)
Other current assets .............................. (18) 10 (713)
Other assets ...................................... (156) 35 (13,168)
Prepaid expenses .................................. (51) (246) (1,725)
Accounts payable .................................. (127) (641) 32,679
Deferred revenue .................................. 52 (119) --
Other accrued liabilities ......................... (71) 976 7,392
---------------- --------------- ------------
Net cash used in operating activities ..................... (6,185) (6,120) (31,876)
---------------- --------------- ------------
INVESTING ACTIVITIES:
Capital expenditures ...................................... (275) (368) (85,507)
---------------- --------------- ------------
Net cash used in investing activities ..................... (275) (368) (85,507)
---------------- --------------- ------------
FINANCING ACTIVITIES:
Purchase of treasury stock ................................ -- -- (6)
Exercise of stock options ................................. 28 -- 424
Issuance of common stock .................................. -- -- 333,364
Principal payments under capital lease obligations ........ (182) (176) (8,049)
Proceeds from borrowings from an affiliate ................ 4,700 6,600 5,912
Repayment of borrowings from an affiliate ................. -- -- (5,585)
Preferential distribution to an affiliate ................. -- -- (68,991)
Funding of letter of credit facilities (restricted) ....... -- -- (5,055)
Principal payments on borrowings from bank ................ (13) -- --
---------------- --------------- ------------
Net cash provided by financing activities ............... 4,533 6,424 252,014
---------------- --------------- ------------
Net effect of changes in exchange rates on cash and equivalents -- -- (15)
---------------- --------------- ------------
NET INCREASE(DECREASE)IN CASH
AND CASH EQUIVALENTS ...................................... (1,927) (64) 134,616
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 2,521 594 2,867
---------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 594 $ 530 $ 137,483
================ =============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt incurred under capital lease obligations ............. $ 2,634 $ -- $ 55,126
Debt incurred in equipment acquisition .................... -- -- 16,458
Capital expenditures accrued and unpaid ................... -- -- 86,686
Preferred stock dividends ................................. 706 -- --
Amortization of deferred financing costs................... 76 -- --
Accretion of preferred stock discount ..................... 168 -- --
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest .................................... $ 99 $ 97 $ 954
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SAVVIS Communications Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(U.S. Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Number of Shares
----------------------
Common Treasury
Stock Stock
----------- ---------
<S> <C> <C>
BALANCE, DECEMBER 31, 1999 77,210,286 --
Issuance of common stock in
initial public offering 14,875,000 --
Issuance of common stock upon
exercise of stock options 849,811 --
Issuance of stock options and
restricted stock -- --
Recognition of deferred
compensation cost -- --
Purchase of shares for treasury -- (11,750)
Foreign currency translation
adjustment -- --
Preferential distribution to
an affiliate -- --
Net loss -- --
---------- --------
BALANCE, JUNE 30, 2000 92,935,097 (11,750)
---------- --------
</TABLE>
<TABLE>
<CAPTION>
Amounts
----------------------------------------------------------------------------------------
Additional
Common Paid-In Foreign Deferred Accumulated Treasury
Stock Capital Currency Compensation Deficit Stock Total
------ ----------- --------- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $772 $ 84,973 -- $(49,894) $(38,617) $ -- $ (2,766)
Issuance of common stock in
initial public offering 149 333,216 -- -- -- -- 333,365
Issuance of common stock upon
exercise of stock options 8 416 -- -- -- -- 424
Issuance of stock options
and restricted stock -- 18,125 -- (18,125) -- -- --
Recognition of deferred
compensation cost -- -- -- 8,175 -- -- 8,175
Purchase of shares for treasury -- -- -- -- -- (6) (6)
Foreign currency translation
adjustment -- -- (15) -- -- -- (15)
Preferential distribution to
affiliate -- (68,992) -- -- -- -- (68,992)
Net loss -- -- -- -- (65,672) -- (65,672)
---- -------- ------- -------- -------- ---- -------
BALANCE, JUNE 30, 2000 $929 $367,738 $ (15) $(59,844) $(104,289) $ (6) $204,513
---- -------- ------- -------- -------- ---- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SAVVIS Communications Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars in thousands)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The acquisition by Bridge of SAVVIS on April 7, 1999 resulted in the Company
reporting in its 1999 Form 10-K and in its Registration Statement on Form S-1
(File No. 333-90881), as amended (the "Form S-1"), results of operations for the
period January 1, 1999 through April 6, 1999 as being the "Predecessor" period,
due to a change in the basis of accounting upon the acquisition by Bridge. The
Statements of Operations for this period included in the six-month reporting
period in 1999 were identical to the results of operations for the period
January 1, 1999 through March 31, 1999 and April 1, 1999 to June 30, 1999.
These consolidated financial statements for the three- and six-month periods
ended June 30, 2000 and 1999 and the related footnote information are unaudited
and have been prepared under the rules and regulations of the Securities and
Exchange Commission and on a basis substantially consistent with the audited
consolidated financial statements of SAVVIS Communications Corporation and its
subsidiaries (collectively, "SAVVIS" or the "Company") as of and for the period
ended December 31, 1999 included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission (the "Annual Report"). These
financial statements should be read in conjunction with the audited consolidated
financial statements and the related notes to the consolidated financial
statements of the Company included in the Annual Report. In the opinion of
management, the accompanying consolidated financial statements contain all
adjustments (consisting of normal recurring adjustments) which management
considers necessary to present fairly the consolidated financial position of the
Company at June 30, 2000 and the results of its operations and cash flows for
the three- and six-month periods ended June 30, 2000 and 1999. The results of
operations for the three-month period ended June 30, 2000 may not be indicative
of the results expected for any succeeding quarter or for the entire year ending
December 31, 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
RESTRICTED CASH - Restricted cash consists of amounts supporting outstanding
letters of credit, principally related to office space and data center
construction.
RECLASSIFICATIONS - Certain amounts from prior periods have been reclassified to
conform to current period presentation.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which, as amended by SFAS
No. 138 in June 2000, establishes accounting and reporting standards for
derivative instruments, including some derivatives embedded in other contracts,
and for hedging activities by requiring that all derivatives be recognized on
the balance sheet and measured at fair value. In June 1999, the FASB issued SFAS
No. 137, "Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133," which deferred the effective date for us
until January 1, 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The guidelines in SAB No. 101 must be adopted
by the fourth quarter of 2000. We are in the process of evaluating the potential
impact of this statement on our financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an Interpretation of APB
Opinion No. 25," which clarifies the application of APB Opinion No. 25 for
certain issues including: (1) the defining of an employee for purposes of
applying APB Opinion No. 25, (2) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (3) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award and (4)
the accounting for an exchange of stock compensation awards in a business
combination. Interpretation No. 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur either after December 15, 1998 or
January 12, 2000. We do not expect that the adoption of this interpretation will
have a material impact on our financial position or results of operations.
7
<PAGE>
NOTE 2 - ORGANIZATION
On April 7, 1999 (the "acquisition date"), the Company was acquired by a
wholly-owned subsidiary of Bridge Information Systems, Inc. ("Bridge") in an all
stock transaction that was accounted for as a "purchase transaction" under
Accounting Principles Board Opinion No. 16.
The value of the Bridge shares and options issued and the costs incurred by
Bridge in connection with the acquisition aggregated $32 million. In accordance
with the accounting requirements of the Securities and Exchange Commission,
purchase transactions that result in one entity becoming substantially
wholly-owned by the acquirer establish a new basis of accounting in the acquired
entity's records for the purchased assets and liabilities. Thus, the purchase
price has been allocated to the underlying assets purchased and liabilities
assumed based on their estimated fair values at the acquisition date.
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), defined as net income (loss) plus all other changes
(cumulative foreign currency translation adjustment) in equity from nonowner
sources, was $(39.0) million and $(65.7) million for the three- and six-months
months ended June 30, 2000. During 1999 there were no items of other
comprehensive income (loss).
NOTE 4 - CASH AND CASH EQUIVALANTS
Cash and cash equivalents include cash on hand, money market investments and
government agency securities. The agency securities have maturities ranging from
overnight to seven days and are stated at cost, which approximates market.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
---- ----
<S> <C> <C>
Computer equipment ............................. $ 801 $ 921
Communications equipment ....................... 1,057 189,880
Purchased software ............................. 107 249
Furniture and fixtures ......................... 322 990
Leasehold improvements ......................... 382 518
Construction in progress ....................... -- 23,762
Equipment under capital lease
obligations .................................. 5,089 35,215
----- ------
7,758 251,535
Less accumulated depreciation and
amortization ............................. (2,198) (19,780)
------- --------
$ 5,560 $ 231,755
========= =========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and other actions arising in
the normal course of its business. While the results of such proceedings and
actions cannot be predicted, management believes, based on the advice of legal
counsel, that the ultimate outcome of such proceedings and actions will not have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
On June 30, 2000, the Company entered into a term loan facility for the
financing of approximately $38 million of network equipment and services. As of
June 30, 2000, the Company has not drawn on the financing arrangement, but has
recorded approximately $28 million of this equipment on its balance sheet. Of
the $28 million that has been recorded, approximately $6 million has been
previously paid for by the Company, with the remaining $22 million recorded in
accounts payable. In July 2000, the Company drew approximately $28 million under
this term loan facility, which will be recorded as notes payable, payable in
eight equal quarterly installments commencing on June 30, 2001, bearing interest
at a variable market-based rate.
8
<PAGE>
On June 30, 2000, SAVVIS executed an agreement to acquire $30 million of
telecommunications equipment and related services with a vendor. Upon execution,
the Company took delivery of certain equipment and paid approximately $5 million
to the vendor. Of the remaining $25 million, approximately $16.5 million has
been financed by the vendor over six years at 11% interest, with payments
commencing in the third quarter of 2000. The remaining $8.5 million has been
recorded in other accrued liabilities, due over the next twelve months.
On March 31, 2000, the Company entered into a three-year software licensing
agreement with a vendor for the acquisition of unlimited software licenses for
certain customer applications over the global network. The agreement called for
payments totaling $7 million through June 30, 2000 with the balance of $6
million due in installments on September 1 and December 1 of the year 2000. In
addition, the Company will pay $1 million annually for three years relating to
maintenance contract in support of the software licenses.
On March 23, 2000, SAVVIS entered into a $30 million, thirty-nine month lease
facility relating to equipment necessary for the network expansion. Payments
under the lease were zero for months one to three, and will be $.3 million in
months three to six, and $1.1 million in months seven to thirty-nine.
On January 24, 2000, SAVVIS entered into a 10-year lease for its new, 80,582
square foot, headquarters office building located in Herndon, VA. Monthly lease
payments begin at $.2 million per month and escalate to $.3 million per month by
year ten.
NOTE 7 - CAPITAL STOCK
An initial public offering of the Company's common stock was completed on
February 18, 2000. A total of 14.875 million shares were sold by the Company in
the offering at $24 per share. The Company received net proceeds from this
transaction of approximately $333 million, of which approximately $127 million
was paid to Bridge.
Simultaneous with the completion of the public offering, the Company purchased
or subleased Bridge's global Internet protocol network assets. The final
purchase price of the assets (at Bridge's carrying value), after the
determination for and reconciliations of the specific assets purchased, was
approximately $77 million, of which approximately $52 million was paid from the
offering proceeds. SAVVIS also paid a $69 million preferential distribution, as
adjusted, to Bridge. Additionally, the Company assumed capital lease obligations
of approximately $25 million related to these network assets.
NOTE 8 - RELATED PARTY TRANSACTIONS
In connection with Bridge's acquisition of the Company and through the date of
our initial public offering as discussed in Note 2, Bridge funded the Company's
operations. At December 31, 1999 and June 30, 2000, the Company had amounts
payable to Bridge of $24.1 million and $24.4 million, respectively.
Concurrent with the asset purchase, the Company also entered into a 10-year
network services agreement with Bridge under which the Company will provide
managed data networking services to Bridge. The Company's fees are based upon
the cash cost to Bridge of operating the network as configured on the date the
Company acquired it, and fees for additional services provided following the
closing of the transfer are set for a three-year term based on an agreed pricing
schedule which is revised annually. Bridge has agreed to pay a minimum of
approximately $105 million, $132 million and $145 million for network services
in 2000, 2001 and 2002, respectively.
In connection with the principal agreements entered into effective February 18,
2000, between the Company and Bridge, related to the network acquisition by the
Company, SAVVIS generated revenues for network services rendered to Bridge
amounting to $59.9 million for the period February 18 to June 30, 2000. SAVVIS
incurred obligations to Bridge amounting to approximately $1.0 million for the
same period relating to obligations under the Technical Services and
Administrative Services Agreements.
9
<PAGE>
NOTE 9 - INDUSTRY SEGMENT AND GEOGRAPHIC REPORTING
The Company's operations are organized into three geographic operating segments
- Americas, Europe and Asia. The Company evaluates the performance of its
segments and allocates resources to them based on revenue and adjusted EBITDA,
which is defined as the respective consolidated loss before interest, taxes,
depreciation, amortization and non-cash compensation charges. Financial
information for the Company's geographic segments for the three and six months
ended June 30, 2000 is presented below. In 1999, the Company had one operating
segment - the Americas.
<TABLE>
<CAPTION>
Americas Europe Asia Eliminations Total
-------- ------ ----- ------------ -----
Three months ended
June 30, 2000:
<S> <C> <C> <C> <C> <C>
Revenue ............ $ 40,269 $ 6,643 $ 4,214 $ -- $ 51,126
Adjusted EBITDA .... (19,790) (656) -- -- (20,446)
Assets ............. 424,799 8,734 6,397 (2,736) 437,194
Capital Expenditures 117,530 9 333 -- 117,872
</TABLE>
<TABLE>
Americas Europe Asia Eliminations Total
-------- ------ ----- ------------ -----
Six months ended
June 30, 2000:
<S> <C> <C> <C> <C> <C>
Revenue ............ $ 60,306 $ 9,500 $ 5,996 $ -- $ 75,802
Adjusted EBITDA .... (33,415) (665) -- -- (34,080)
Assets ............. 424,799 8,734 6,397 (2,736) 437,194
Capital Expenditures 228,161 8,805 6,811 -- 243,777
</TABLE>
Adjusted EBITDA for all reportable segments differs from the consolidated loss
before income taxes reported in the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Adjusted EBITDA $ (20,446) $ (34,080)
Plus adjustments as follows:
Depreciation and amortization (14,816) (24,426)
Interest, net 543 1,009
Non-cash compensation (4,275) (8,175)
------- -------
Consolidated loss before income taxes $ (38,994) $ (65,672)
=========== =========
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH (1) OUR
ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, AND
(2) OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS, NOTES THERETO AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 INCLUDED IN OUR ANNUAL
REPORT FOR SUCH PERIOD AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
RESULTS SHOWN HEREIN ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE
EXPECTED IN ANY FUTURE PERIODS. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS BASED ON CURRENT EXPECTATIONS WHICH INVOLVE RISKS AND UNCERTAINTIES.
ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995) AS A RESULT OF A NUMBER OF FACTORS. FOR A
DISCUSSION OF THE MATERIAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, YOU SHOULD READ "RISK FACTORS"
INCLUDED IN PART I, ITEM 1 OF OUR 1999 ANNUAL REPORT ON FORM 10-K.
GENERAL
We are a rapidly growing provider of high quality, high performance global data
networking and Internet-related services to medium and large businesses,
multinational corporations and Internet service providers. To provide our
Internet access services, we use the SAVVIS ProActiveSM Network, a data
communications network that uses our nine PrivateNAPsSM and our proprietary
routing policies to reduce data loss and enhance performance by avoiding the
congested public access points on the Internet.
We began commercial operations in 1996, offering Internet access services to
local and regional Internet service providers. Our customer base has grown from
15 customers at the end of 1996 to approximately 1,627 at June 30, 2000.
On April 7, 1999, we were acquired by Bridge in a stock-for-stock transaction
that was accounted for as a "purchase transaction" under Accounting Principles
Board Opinion No. 16. Since the purchase transaction resulted in our Company
becoming a wholly owned subsidiary of Bridge, SEC rules required us to establish
a new basis of accounting for the assets purchased and liabilities assumed. As a
result, the purchase price has been allocated to the underlying assets purchased
and liabilities assumed based on estimated fair market value of these assets and
liabilities on the acquisition date, and the difference between the purchase
price and the fair market value was recorded as goodwill. The accounting for the
purchase transaction has been "pushed down" to our financial statements. The
impact of the acquisition on our balance sheet, as a result of the application
of fair value accounting, was to increase intangibles, goodwill, other
liabilities and stockholders' equity. As a result of the acquisition and the
"push down" accounting, our results of operations following the acquisition,
particularly our depreciation and amortization, are not comparable to our
results of operations prior to the acquisition.
On September 10, 1999, Bridge sold in a private placement approximately 25% of
its equity ownership in SAVVIS to the existing stockholders of Bridge, at which
time Welsh Carson purchased from Bridge a 12% interest in SAVVIS. On February
28, 2000, Bridge completed the sale of an additional 6,250,000 shares of SAVVIS
common stock to Welsh Carson. Bridge and Welsh Carson now own approximately 49%
and 16% of SAVVIS' common stock, respectively.
Simultaneously with the completion of the initial public offering of our common
stock in February 2000, we acquired Bridge's global Internet protocol network
for total consideration of approximately $77 million plus a payment representing
a preferential distribution to Bridge of approximately $69 million. See Note 7
to the unaudited consolidated financial statements. The purchase substantially
increased our depreciation and amortization. At that time, we entered into a
10-year network services agreement with Bridge under which we provide managed
data networking services to Bridge. Our initial network service fees are based
upon the cash cost to Bridge of operating the network as configured on October
31, 1999, as adjusted for changes to the network and associated personnel
related to Bridge's network requirements through February 17, 2000. Our fees for
additional services provided following February 17, 2000 were set for a
three-year term based on an agreed price schedule. Bridge has agreed to pay us a
minimum of $105 million, $132 million and $145 million for network services in
2000, 2001 and 2002, respectively.
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Because the amounts paid to us under the network services agreement for the
services provided over the original network acquired from Bridge are based upon
the cash cost to operate the original network, the provision of such services
did not and will not have an impact on our cash flows from operations. However,
due to amortization and depreciation relating to the network, the provision of
services under the network services agreement resulted in our incurring losses
from operations, and these losses will continue until we can sell additional
services over the network to Bridge or to other customers. The effects of such
operating losses will include continued increases in our accumulated deficit and
reductions in stockholders' equity.
Bridge has agreed to provide to us various services, including technical
support, customer support and project management in the areas of installation,
provisioning, help desk, and repair and maintenance. In addition, Bridge has
agreed to provide to us additional administrative and operational services, such
as payroll and accounting functions, benefit management and office space, until
we develop the capabilities to perform these services ourselves. We expect to
develop many of these capabilities by the end of 2000.
Our revenue is derived primarily from the sale of data networking (principally
to Bridge), Internet access and colocation services. Assuming we had received
the minimum revenues under the network services agreement for the first year of
the agreement in 1999, Bridge would have represented approximately 83% of our
1999 revenues. Bridge has informed us that it expects to convert its remaining
customers to the Internet protocol network over the next three years. We expect
that, to the extent these customers are converted, Bridge will order additional
services from us under the network services agreement. We cannot assure you that
any of these customers will be converted or as to when any conversions will be
completed.
RESULTS OF OPERATIONS
The historical financial information included in this Form 10-Q does not reflect
our future results of operations, financial position and cash flows. Our results
of operations, financial position and cash flows subsequent to the purchase of
Bridge's network and the execution of the related agreements is not comparable
to prior periods. The acquisition by Bridge of SAVVIS on April 7, 1999 resulted
in the Company reporting in its 1999 Annual Report and in its Form S-1 results
of operations for the period January 1, 1999 through April 6, 1999 as being the
"Predecessor" period, due to a change in the basis of accounting upon the
acquisition by Bridge. The Statements of Operations included in the six-month
reporting period in 1999 were identical to the reported results of operations
for the period January 1, 1999 through March 31, 1999 and the period April 1,
1999 through June 30 1999.
THREE MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Revenue.
Revenue was $51.1 million for the three months ended June 30, 2000, an increase
of $45.2 million or 765%, from $5.9 million for the three months ended June 30,
1999. The revenue growth resulting from the initiation of managed data network
services, under the Bridge network services agreement entered into on February
18, 2000, accounted for $42.5 million of the increase. Internet access revenues
increased 46% to $8.0 million in the second quarter of 2000, compared to $5.5
million for the comparable period in 1999. These increases were driven by an
increase in active customer circuits of 186% to approximately 2,000 as of June
30, 2000 from approximately 700 as of the end of the second quarter in 1999.
Other revenues, consisting of installation and equipment sales, increased from
$.4 million in 1999 to $.5 million for the second quarter of 2000.
Data Communications and Operations.
Data communications and operations expenses consist primarily of leased routers
and switches, leased long distance and local circuit costs, leased colocation
space, installed local access lines at customer sites, as well as related
operating expenses such as repairs and maintenance associated with network
operations, customer support and field service, and engineering personnel costs.
Data communications and operations expenses were $57.4 million for the quarter
ended June 30, 2000; an increase of $51.2 million from $6.2 million for the
three months ended June 30, 1999. The increase in expenses related principally
to the costs incurred by SAVVIS to operate the newly-acquired Internet protocol
network (from Bridge) since February 18, 2000 and other increases in the number
of leased long distance, dedicated customer and dial-up circuits to support the
increased customer circuits in operation.
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Sales and Marketing.
Sales and Marketing expenses consist of personnel and related sales commission
costs, advertising and direct marketing, and travel. Sales and marketing
expenses were $8.1 million for the three months ended June 30, 2000, up 170% or
$5.1 million as compared to the second quarter of 1999. This increase is
principally attributed to personnel related costs and sales commissions of $2.9
million associated with the growth in sales and marketing staff and a $1.7
million increase in expenditures on advertising and marketing initiatives.
General and Administrative.
General and administrative expenses consist primarily of compensation and
occupancy costs for executive, financial, legal, tax and support personnel,
travel, and bad debt costs. General and administrative expenses amounted to $6.0
million for the three months ended June 30, 2000 and $2.6 million for the three
months ended June 30, 1999, an increase of $3.4 million or 137%. This increase
resulted from increased occupancy costs of $1.0 million related to the Company's
move to its new headquarters during the second quarter, increased personnel
costs of $.5 million to support the expansion of the customer base and the
overall growth of the business, an increase of $1.1 million for professional
audit, tax, legal and consulting services, and an increase of $.3 million in
insurance expense. Bad debt expense amounted to $.04 million in 2000 versus $.3
million for the three months ended June 30, 1999.
Non-cash Compensation.
Non-cash compensation amounting to $4.3 million represents the amortization
charge to earnings in the quarter ended June 30, 2000 for the difference between
the imputed fair market value of our common stock and the exercise price for
options granted on various dates in early 2000 and late 1999.
Depreciation and Amortization.
Depreciation and amortization expense was $14.8 million for the three months
ended June 30, 2000, an increase of $10.1 million from the three months ended
June 30, 1999. This increase resulted primarily from $9.1 million of
depreciation on the network acquired from Bridge on February 18, 2000.
Interest.
Interest income from the investment of the initial public offering proceeds
amounted to $2.4 million in the quarter ended June 30, 2000, an increase of $2.4
million for the three months ended June 30, 1999. Interest expense for the
quarter ended June 30, 2000 amounted to $1.8 million, an increase of $1.5
million from the comparable period in 1999. This increase is attributable to
interest expense on capital equipment financing incurred since the acquisition
of the Internet protocol network in February 2000.
Net Loss.
The net loss for the three months ended June 30, 2000 was $39.0 million, or
$0.44 basic and diluted loss per share, an increase of $28.1 million from the
net loss for the three months ended June 30, 1999 of $10.9 million, or $0.15 per
share. The primary reasons for the increase in net loss are:
o The $10.1 million increase in depreciation and amortization expense due
primarily to the acquisition of the Internet protocol network from Bridge
and other network equipment.
o A decrease in gross profit (revenues less data communications and
operations expenses) of $6.3 million related to expansion of our Internet
protocol network.
o Increased sales and marketing expenses of $5.1 million related to growth in
staff and advertising and marketing initiatives. o Increased general and
administrative expenses of $3.5 million related to growth in staff,
increased occupancy, and increased professional services.
o An increase in non-cash compensation expense of $4.3 million related to the
imputed fair value of stock option grants.
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<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Revenue.
Revenue was $75.8 million for the six months ended June 30, 2000, an increase of
$64.4 million or 568%, from $11.4 million for the six months ended June 30,
1999. The revenue growth resulting from the initiation of managed data network
services, under the Bridge network services agreement entered into on February
18, 2000, accounted for $59.9 million of the increase. Internet access revenues
increased 36% to $14.7 million in the first half of 2000, compared to $10.8
million for the comparable period in 1999. These increases were driven by an
increase in active customer circuits of 186% to approximately 2,000 as of June
30, 2000 from 700 as of June 30, 1999. Other revenues, consisting of
installation and equipment sales, increased from $.6 million in 1999 to $1.2
million in 2000.
Data Communications and Operations.
Data communications and operations expenses consist primarily of leased routers
and switches, leased long distance and local circuit costs, leased colocation
space, installed local access lines at customer sites, as well as related
operating expenses such as repairs and maintenance associated with network
operations, customer support and field service, and engineering personnel costs.
Data communications and operations expenses were $84.7 million for the six
months ended June 30, 2000; an increase of $72.1 million from $12.6 million for
the six months ended June 30, 1999. The increase in expenses related principally
to the costs incurred by SAVVIS to operate the newly-acquired Internet protocol
network (from Bridge) since February 18, 2000 and other increases in the number
of leased long distance, dedicated customer and dial-up circuits to support the
increased customer circuits in operation.
Sales and Marketing.
Sales and Marketing expenses consist of personnel and related sales commission
costs, advertising and direct marketing, and travel. Sales and marketing
expenses were $15.1 million for the six months ended June 30, 2000, up 169% or
$9.5 million as compared to the first six months of 1999. This increase is
principally attributed to personnel related costs and sales commissions of $5.3
million associated with the growth in sales and marketing staff and a $3.0
million increase in expenditures on advertising and marketing initiatives.
General and Administrative.
General and administrative expenses consist primarily of compensation and
occupancy costs for executive, financial, legal, tax and support personnel,
travel, and bad debt costs. General and administrative expenses amounted to
$10.0 million for the six months ended June 30, 2000 and $4.7 million for the
six months ended June 30, 1999, an increase of $5.3 million or 111%. This
increase resulted from increased personnel costs of $.8 million to support the
expansion of the customer base and the overall growth of the business, increased
occupancy costs of $1.0 million related to the move to the Company's new
headquarters during the second quarter, an increase of $1.6 million for
professional audit, tax, legal and consulting services, an increase of $.5
million in insurance expense, and an increase of $.5 million in travel expense.
Bad debt expense amounted to $.2 million in 2000 versus $.4 million for the six
months ended June 30, 1999.
Non-cash Compensation.
Non-cash compensation amounting to $8.2 million represents the amortization
charge to earnings in the six months ended June 30, 2000 for the difference
between the imputed fair market value of our common stock and the exercise price
for options granted on various dates in 2000 and late 1999.
----------------------
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BECAUSE OF THE "PREDECESSOR" STATEMENT OF OPERATIONS IN 1999 BEING ON A
DIFFERENT BASIS OF ACCOUNTING, THE FOLLOWING AREAS IN THE STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ARE NOT COMPARED:
Depreciation and Amortization.
Depreciation and amortization expense was $24.4 million for the six months ended
June 30, 2000. $13.9 million of this amount is attributed to depreciation on the
network acquired on February 18, 2000 and $6.9 million relates to the
amortization of the goodwill associated with the mandated "push down accounting"
ascribed to the Bridge acquisition of SAVVIS in April, 1999. Goodwill is being
amortized over three years.
Impairment of Assets.
The asset impairment amount reported in the 1999 six-month statement of
operations related to an adjustment to the recorded value of fixed assets in the
amount of $1.4 million.
Interest.
Interest income from the investment of the initial public offering proceeds
amounted to $3.7 million in the six months ended June 30, 2000. Interest expense
during the same period, primarily attributed to capitalized lease obligations
and amounts payable to affiliates, amounted to $2.7 million.
Net Loss.
The net loss for the six months ended June 30, 2000 was $65.7 million, or $0.78
basic and diluted loss per share.
LIQUIDITY AND CAPITAL RESOURCES
We generated negative cash flows from operations of $31.9 million for the six
months ended June 30, 2000. For the six months ended June 30, 1999, we generated
negative operating cash flows of $12.3 million.
Net cash used in investing activities was approximately $85.5 million, which
primarily reflects the purchase of the Bridge Internet protocol network and
other property and equipment not financed. We obtained funds through issuances
of equity securities and customer receipts, including receipts from Bridge.
During the six month period, we increased our net outstanding advances from
Bridge by approximately $.3 million.
Our capital expenditures, including the purchase of the Bridge IP network,
totaled approximately $244 million in the six month period, including
approximately $158.3 million that has been financed under existing or pending
financing arrangements. We expect to incur capital expenditures of approximately
$60 million for the remainder of 2000 as we build out colocation facilities,
deploy ATM devices and expand our network to 20 new cities. On February 18,
2000, we acquired Bridge's Internet protocol network assets for total
consideration of approximately $77 million. Of this amount, $25 million was paid
by entering into a capital lease obligation with Bridge. At the request of a
lender, approximately $2.5 million of the capitalized principal obligation was
paid in March 2000. The remaining purchase price of $52 million was paid with a
portion of the net proceeds from the initial public offering of our common
stock. We also paid to Bridge, out of the offering proceeds, approximately $69
million as a preferential distribution.
In connection with our purchase of the network assets, we also entered into a
network services agreement with Bridge under which we provide Bridge with
managed data networking services. Because the amounts paid to us under the
network services agreement for the services provided over the original network
acquired from Bridge are based upon the cash cost to operate the original
network, the provision of such services did not and will not have an impact on
our cash flows from operations. However, due to amortization and depreciation
relating to the network, the provision of services under the network services
agreement resulted in our incurring losses from operations, and these losses
will continue until we can sell additional services over the network to Bridge
or to other customers. The effects of such operating losses will include
continued increases in our accumulated deficit and reductions in stockholders'
equity.
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In addition to acquiring the Internet protocol Network, we have acquired
approximately $145 million in network equipment through a combination of
financing and purchases during the first six months of 2000. We have also
incurred approximately $22 million in costs in 2000 related to data center
construction.
We have arrangements with various suppliers of communications services that
require us to maintain minimum spending levels, some of which increase over
time. Our aggregate minimum spending level is approximately $28 million in 2000.
In specific instances, we are able to choose among a variety of communications
services offered to meet these spending minimums. We are currently exceeding all
of our minimum spending requirements and expect to continue to do so as our
network requirements expand. However, if our network requirements were to
decrease, we could be obligated to make payments to these suppliers for services
we do not need.
On June 30, 2000, the Company entered into a term loan facility for the
financing of approximately $38 million of network equipment and services. As of
June 30, 2000, the Company has not drawn on the financing arrangement, but has
recorded approximately $28 million of this equipment on its balance sheet. Of
the $28 million that has been recorded, approximately $6 million has been
previously paid for by the Company, with the remaining $22 million recorded in
accounts payable. In July 2000, the Company drew approximately $28 million under
this term loan facility, which will be recorded as notes payable, payable in
eight equal quarterly installments commencing on June 30, 2001, bearing interest
at a variable market-based rate.
On June 30, 2000, SAVVIS executed an agreement to acquire $30 million of
telecommunications equipment and related services with a vendor. Upon execution,
the Company took delivery of certain equipment and paid approximately $5 million
to the vendor. Of the remaining $25 million, approximately $16.5 million has
been financed by the vendor over six years at 11% interest, with payments
commencing in the third quarter of 2000. The remaining $8.5 million has been
recorded in other accrued liabilities due over the next twelve months.
Although we plan to invest significantly in equipment and in network expansion,
except as described in the preceding paragraphs, we have no material commitments
for such items at this time. As we expand our network, increase our employee
base to support our expanded operations and invest in our marketing and sales
organizations, we expect to have significant cash requirements for the
foreseeable future.
We believe that the net proceeds of the initial public offering will allow us to
continue in business as a going concern and will be sufficient to fund our
operating and capital needs through 2000. We are currently in discussions with a
number of vendors to obtain vendor financing for network equipment purchases and
with a number of institutions for the financing of our data centers. We will
need to raise a significant amount of capital to fund our capital expenditures,
operating deficits, working capital needs and debt service requirements after
2000. We intend to seek equity or debt financing from external sources to meet
our cash needs after 2000. We cannot assure you that such additional funding
will be available on terms satisfactory to us or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures relate to changes in interest rates. Following
the purchase of Bridge's global Internet protocol network assets in February
2000, we have begun to expand our business internationally, and as a result, we
are also exposed to changes in foreign currency exchange rates.
Our financial instruments that are sensitive to changes in interest rates are
our borrowings from Bridge, all of which were entered into for other than
trading purposes, are denominated in U.S. Dollars, and bear interest at a fixed
rate of 8%. Because the interest rate on these advances is fixed, changes in
interest rates will not directly impact our cash flows. As of June 30, 2000, the
aggregate fair value of our borrowings approximated their carrying value.
Prior to our purchase of the network assets from Bridge, changes in foreign
exchange rates did not impact our results of operations. For the quarter ended
June 30, 2000, 32% of our service revenue from Bridge was derived from
operations outside the United States, and approximately 25% of our total direct
costs incurred were outside the United States. We expect these percentages to
remain relatively constant in the periods ahead. Because our foreign revenue
closely matched our foreign costs, changes in foreign exchange rates did not
have a material impact on our results of operations in this quarter. In the
future, we may engage in hedging transactions to mitigate foreign exchange risk.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising
out of our ordinary course of business. We are not currently involved in any
material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between April 1, 2000 and June 30, 2000, we granted options to purchase 169,000
shares of our common stock to a total of 36 of our employees, each at an
exercise price of $13.875 per share, and options to purchase 133,000 shares to
127 employees each at an exercise price of $14.9375 per share. All of these
options were granted pursuant to our 1999 Incentive Stock Option Plan. These
issuances were effected in transactions not subject to the registration
requirements of the Securities Act of 1933, and these transactions were effected
without the use of an underwriter.
During the quarter ended June 30, 2000, proceeds of approximately $21,000 were
generated from the exercise of options for 41,219 shares of our common stock.
There were no significant expenses, underwriting discounts or commissions
attributable to these proceeds. We used the proceeds for general working capital
expenses incurred in the ordinary course of business. These options had been
granted under our 1999 Incentive Stock Option Plan. We issued the shares in
reliance on the exemption from registration provided by Rule 701 under the
Securities Act of 1933.
The Form S-1 relating to the initial public offering of 14,875,000 shares of our
common stock was declared effective by the SEC on February 14, 2000. We have
used approximately $127 million from the net proceeds of $333 million of our
initial public offering for payment to Bridge for the purchase of the network
and the preferential distribution and to reduce indebtedness to Bridge. $7
million was used for the purchase of the unlimited software licenses (see Note 6
to the unaudited Consolidated Financial Statements), and approximately $100
million was used for general working capital purposes and network expansion.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are either provided with this Form 10-Q or
are incorporated herein by reference.
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant
3.3* Amended and Restated Bylaws of the Registrant
4.1* Form of Common Stock Certificate
10.1 Credit Agreement, dated as of June 30, 2000, by and among SAVVIS
Communications Corporation, a Delaware corporation, SAVVIS
Communications Corporation, a Missouri corporation, and Nortel
Networks Inc.
10.2 Pledge Agreement, dated as of June 30, 2000, by and between SAVVIS
Communications Corporation, a Delaware corporation, and Nortel
Networks Inc.
10.3 Security Agreement, dated as of June 30, 2000, by and between SAVVIS
Communications Corporation, a Missouri corporation, and Nortel
Networks Inc.
10.4 Guaranty Agreement, dated as of June 30, 2000, delivered by Global
Networks Assets, LLC to and in favor of Nortel Networks Inc.
10.5 Guaranty Agreement, dated as of June 30, 2000, delivered by SAVVIS
Communications International, Inc. to and in favor of Nortel
Networks Inc.
11.1 Calculation of Basic and Diluted per share and weighted average shares
used in EPS calculation for the three months ended June 30, 2000
11.2 Calculation of Basic and Diluted per share and weighted average shares
used in EPS calculation for the six months ended June 30, 2000
27.1 Financial Data Schedule for the three- and six-months ended June 30,
2000.
</TABLE>
----
* Incorporated by reference to the same numbered exhibit to SAVVIS' Registration
Statement on Form S-1, as amended (File No. 333-90881).
(b) Reports on Form 8-K.
None.
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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.
August 14, 2000 SAVVIS Communications Corporation
---------------
Date By: /s/ Robert McCormick
------------------------------
Robert McCormick
Chief Executive Officer
August 14, 2000 By: /s/ David J. Frear
--------------- ------------------------------
Date David J. Frear
EVP & Chief Financial Officer
19
