<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 333-56365
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MJD COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3725229
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
521 EAST MOREHEAD STREET, SUITE 250 28202
CHARLOTTE, NORTH CAROLINA
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 344-8150
------------------------
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 / /
As of May 12, 1999, the registrant had outstanding 1,810,147 shares of common
stock.
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<PAGE>
MJD COMMUNICATIONS, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...........................................................................
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998............................................................................ 3
Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and
1998......................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and
1998......................................................................................... 5
Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................... 9
Item 3a. Quantitative and Qualitative Disclosures About Market Risk..................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 16
Item 5. Other Information.............................................................................. 16
Item 6. Exhibits and Reports on Form 8-K............................................................... 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 12,240 13,241
Accounts receivable and other....................................................... 22,520 22,395
----------- ------------
Total current assets.................................................................. 34,760 35,636
----------- ------------
Property, plant, and equipment, net................................................... 143,942 142,321
----------- ------------
Other assets:
Investments......................................................................... 33,719 37,894
Goodwill, net of accumulated amortization........................................... 209,749 203,867
Deferred charges and other assets................................................... 21,603 21,173
----------- ------------
Total other assets.................................................................... 265,071 262,934
----------- ------------
Total assets.......................................................................... $ 443,773 440,891
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 9,365 10,153
Current portion of long-term debt, and other........................................ 4,530 4,383
Demand notes payable................................................................ 754 754
Accrued interest payable............................................................ 8,783 3,947
Other accrued liabilities........................................................... 5,025 6,842
----------- ------------
Total current liabilities............................................................. 28,457 26,079
----------- ------------
Long-term liabilities:
Long-term debt, net of current portion.............................................. 363,641 364,610
Put warrant obligation.............................................................. 4,558 4,169
Deferred credits and other long-term liabilities.................................... 35,528 32,712
----------- ------------
Total long-term liabilities........................................................... 403,727 401,491
----------- ------------
Minority interest..................................................................... 494 435
----------- ------------
Common stock subject to put option.................................................... 3,000 3,000
----------- ------------
Stockholders' equity:
Common stock........................................................................ 17 17
Additional paid-in capital.......................................................... 45,785 45,735
Retained deficit.................................................................... (37,707) (35,866)
----------- ------------
Total stockholders' equity............................................................ 8,095 9,886
----------- ------------
Total liabilities and stockholders' equity............................................ $ 443,773 440,891
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Operating revenues:
Switched services....................................................................... $ 25,155 11,653
Other................................................................................... 7,673 2,902
--------- ---------
Total operating revenues.................................................................. 32,828 14,555
--------- ---------
Operating expenses:
Plant operations........................................................................ 4,645 2,409
Corporate and customer service.......................................................... 6,574 3,287
Depreciation and amortization........................................................... 7,182 2,632
Cost of services resold................................................................. 2,780 1,022
Other general and administrative........................................................ 5,275 1,166
--------- ---------
Total operating expenses.................................................................. 26,456 10,516
--------- ---------
Income from operations.................................................................... 6,372 4,039
--------- ---------
Other income (expense):
Net gain on sale of investments......................................................... 206 7
Interest income......................................................................... 165 37
Dividend income......................................................................... 405 29
Interest expense........................................................................ (9,334) (2,860)
Other nonoperating, net................................................................. 140 (3)
--------- ---------
Total other expense....................................................................... (8,418) (2,790)
--------- ---------
Earnings (loss) before income taxes and extraordinary item................................ (2,046) 1,249
Income tax (expense) benefit.............................................................. 231 (615)
--------- ---------
Earnings (loss) before extraordinary item................................................. (1,815) 634
Extraordinary item net of tax............................................................. -- (2,521)
--------- ---------
Loss before minority interest............................................................. (1,815) (1,887)
Minority interest in income of subsidiaries............................................... (26) (25)
--------- ---------
Net loss.................................................................................. $ (1,841) (1,912)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................ $ (1,841) (1,912)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization........................................................... 7,669 2,711
Other non cash income................................................................... (222) (148)
Loss on early retirement of debt........................................................ -- 2,897
Changes in assets and liabilities arising from operations, net of acquisitions:
Accounts receivable................................................................... 1,250 (978)
Accounts payable and accrued expenses................................................. (862) (2,231)
Minority interest..................................................................... 26 25
Income taxes recoverable.............................................................. 3,651 (784)
---------- ----------
Total adjustments....................................................................... 11,512 1,492
---------- ----------
Net cash provided (used) by operating activities........................................ 9,671 (420)
---------- ----------
Cash flows from investing activities:
Net capital additions................................................................... (3,105) (655)
Acquisitions of telephone properties.................................................... (13,035) (63,947)
Other, net.............................................................................. 7,562 (763)
---------- ----------
Net cash used in investing activities................................................... (8,578) (65,365)
---------- ----------
Cash flows from financing activities:
Loan origination costs.................................................................. -- (9,000)
Proceeds from issuance of long-term debt................................................ -- 195,000
Repayment of long-term debt............................................................. (2,151) (86,865)
Net proceeds from the issuance of common stock.......................................... -- 16,838
Repurchase of preferred stock and warrants.............................................. -- (130)
Other, net.............................................................................. 57 (47,009)
---------- ----------
Net cash provided (used) by financing activities........................................ (2,094) 68,834
---------- ----------
Net increase (decrease) in cash and cash equivalents...................................... (1,001) 3,049
Cash and cash equivalents, beginning of period............................................ 13,241 6,822
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 12,240 9,871
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL REPORTING
The unaudited interim financial statements include the consolidated
statements of the Company. In the opinion of the management of the Company, its
respective financial statements reflect all adjustments necessary for a fair
presentation of results of operations, financial position, and cash flows. The
results of operations for the interim periods are not necessarily indicative of
the results of operations which might be expected for the entire year. The
condensed consolidated financial statements should be read in conjunction with
the Company's 1998 annual report on Form 10-K, which was filed on March 29,
1999.
(2) ACQUISITIONS
On February 1, 1999, the Company acquired 100% of the outstanding common
stock of Ravenswood Communications, Inc. and its subsidiaries. On February 16,
1999 the Company acquired 98% of the outstanding common stock of Columbus Grove
Telephone Company and its subsidiary. The aggregate purchase price for these
acquisitions was $14.9 million, and acquisition costs were approximately
$295,000.
These acquisitions have been accounted for as purchases and, accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values at the dates of acquisition, and the results of operations have been
included in the accompanying consolidated financial statements since the dates
of acquisition. Not all purchase price allocations have been finalized, however,
due to the existence of certain pre-acquisition contingencies. Consequently,
adjustments to the preliminary allocations of purchase price may emerge as
contingencies are resolved, provided that any such adjustments are expected to
occur not more than twelve months from the relevant acquisition date. Goodwill
recognized in connection with these acquisitions was approximately $6.7 million
and will be amortized over an estimated useful life of 40 years.
On April 30, 1999, the Company acquired 100% of the outstanding stock of
Union Telephone Company of Hartford and subsidiaries, Armour Independent
Telephone Co., Bridgewater-Canistota Independent Telephone Co. and WMW Cable TV
Co. (collectively, "Union") for approximately $16.5 million. The acquisition
will be accounted for using the purchase method of accounting.
The Company has entered into a definitive agreement to acquire one other
unrelated rural local exchange carrier ("RLEC"). The acquisition is expected to
close in the third quarter of 1999. The purchase price is expected to be
approximately $3.2 million and will be financed through cash flow from existing
operations or the Company's senior secured credit facility. The acquisition will
be accounted for using the purchase method of accounting.
The following unaudited pro forma information presents the combined results
of operations of the Company as though the acquisitions in 1999 and 1998,
including the pending acquisition, occurred on January 1, 1998. These combined
results include certain adjustments, including amortization of goodwill,
increased interest expense on debt related to the acquisitions and related
income tax effects. The pro forma financial information does not necessarily
reflect the results of operations that would have been
6
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS (CONTINUED)
achieved had the acquisitions been consummated as of the assumed dates, nor are
the results necessarily indicative of the Company's future results of
operations.
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED MARCH 31,
----------------------------
<S> <C> <C>
1999 1998
------------- -------------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues....................................................... $ 34,267 31,052
Net loss....................................................... (1,653) (3,857)
</TABLE>
(3) STOCK OPTION PLAN
In February 1999, the compensation committee of the Board of Directors of
Fairpoint Communications Corp. ("Fairpoint"), approved the grant of options
covering 855,500 shares of common stock of FairPoint under the FairPoint
Communications Corp. Stock Incentive Plan at an exercise price of $0.50 per
share, which is the estimated fair market value of Fairpoint's common stock. The
options have a term of ten years.
(4) REPORTABLE SEGMENTS
The Company has two reportable segments: incumbent local exchange carrier
(ILEC) operations and competitive local exchange carrier (CLEC) operations. The
ILEC operations provide local, long distance and other telecommunications
services to customers in rural communities in which competition currently does
not exist for local telecommunications services. The CLEC operations provide
local and long distance telecommunications services to customers in markets
outside of the Company's ILEC markets.
The Company utilizes the following information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
ILEC CLEC
OPERATIONS OPERATIONS TOTAL
------------ ----------- ---------
<S> <C> <C> <C>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three months ended March 31, 1999:
Revenue from external customers......................... $ 30,689 2,138 32,827
Intersegment revenues................................... -- 235 235
EBITDA.................................................. 17,107 (2,663) 14,444
</TABLE>
7
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) REPORTABLE SEGMENTS (CONTINUED)
A reconciliation of reportable segment amounts to the Company's consolidated
balances for the three months ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
EBITDA to net loss:
EBITDA........................................................................... $ 14,444
Other components of EBITDA
Depreciation and amortization.................................................. (7,182)
Interest expense............................................................... (9,334)
Income tax expense 231
---------
Net loss..................................................................... $ (1,841)
---------
---------
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION THAT MANAGEMENT
BELIEVES IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF THE CONSOLIDATED
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF MJD COMMUNICATIONS, INC. AND
ITS SUBSIDIARIES (COLLECTIVELY, THE "COMPANY"). THE DISCUSSION SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1998, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 29, 1999.
CERTAIN STATEMENTS INCLUDED IN THIS DOCUMENT ARE FORWARD-LOOKING, SUCH AS
STATEMENTS RELATING TO ESTIMATES OF OPERATING AND CAPITAL EXPENDITURE
REQUIREMENTS, FUTURE REVENUE AND OPERATING INCOME, AND CASH FLOW AND LIQUIDITY.
SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS IN THE FUTURE TO DIFFER SIGNIFICANTLY FROM RESULTS EXPRESSED OR IMPLIED
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 AND BUSINESS CONDITIONS, GOVERNMENTAL AND REGULATORY POLICIES, AND
THE COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY OPERATES. THESE AND OTHER RISKS
ARE DETAILED BELOW AS WELL AS IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
MJD Communications, Inc. ("MJD") focuses primarily on acquiring and
operating rural local exchange carriers ("RLECs"), the rural segment of the
telecommunications industry. During the first quarter ending March 31, 1999, MJD
acquired two RLECs, Ravenswood Communications, Inc. and The Columbus Grove
Telephone Company (collectively the "1999 Acquisitions"), which in the aggregate
serve approximately 3,900 access lines. Including the 1999 Acquisitions, the
Company owned and operated 19 RLECs which served approximately 135,000 access
lines located in eleven states at March 31, 1999.
MJD has initiated a competitive local exchange carrier ("CLEC") strategy
through its wholly-owned subsidiary FairPoint Communications Corp.
("FairPoint"). FairPoint began offering telecommunications services in April
1998. At March 31, 1999, FairPoint was providing telecommunications services in
twenty-four markets and had provisioned approximately 11,000 access lines. With
the inclusion of FairPoint, total access lines under management by the Company
was approximately 146,000 at March 31, 1999.
REVENUES: The Company's switched revenues are derived primarily from: (i)
the provision of basic local telephone service revenues; and (ii) the provision
of network access to inter-exchange carriers ("IXCs") for origination and
termination of interstate and intrastate long distance telephone calls. Other
revenues include ancillary service revenues such as billing and collection, long
distance resale, enhanced services, and other such ancillary services and
FairPoint's revenues.
OPERATING EXPENSES: The Company's operating expenses are categorized as
plant operations, corporate and customer service, depreciation and amortization,
cost of services resold and other general and administrative expenses. Access
line growth, the Company's acquisition activity and general business
inflationary adjustments influence year to year changes in such expenses.
OTHER (INCOME) EXPENSES: The Company's other income includes interest
income, dividends, gain or loss on sale of assets and other miscellaneous,
non-operating income. The Company's other expenses consist primarily of interest
expense on the Company's debt and other non-operating expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
OPERATING REVENUE. Net revenue increased $18.3 million, or 125.5%, to $32.8
million from $14.6 million for the three months ended March 31, 1999 and 1998,
respectively. The 1999 Acquisitions and the
9
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acquisitions completed by the Company in 1998 (the "1998 Acquisitions")
accounted for $17.0 million, or 117.0%, of the revenue increase. For the RLECs
owned and operated for a comparable period in 1999 and 1998, net revenues were
unchanged at $14.5 million. FairPoint reported first quarter 1999 revenues of
$1.3 million, or 8.7% of the increase in revenues reported for the three months
ended March 31, 1999. As FairPoint began reporting revenues in April 1998,
FairPoint has no comparable information to report for the three months ended
March 31, 1998.
Basic local service revenue increased $3.9 million to $6.1 million from $2.2
million for the three months ended March 31, 1999 and 1998, respectively. This
revenue increase is primarily attributable to an increase in access lines from
the 1999 Acquisitions and the 1998 Acquisitions. The 1999 Acquisitions and the
1998 Acquisitions acquired after the first quarter 1998 accounted for 82,556
access lines, or 61% of total access lines, operated by the Company at March 31,
1999. For RLECs owned and operated by the Company for the comparable periods
ending March 31, 1999 and 1998, these RLECs achieved internal growth of 3,320
access lines. The 1999 Acquisitions and 1998 Acquisitions contributed $3.7
million of the increase in basic local service revenue for the three months
ended March 31, 1999. For the RLECs owned and operated for a comparable period,
basic local service revenues increased by $0.2 million to $2.4 million from $2.2
million for the three months ended March 31, 1999 and 1998, respectively.
Universal Service Support Fund ("USSF") revenue increased $0.4 million to
$1.5 million from $1.1 million for the three months ended March 31, 1999 and
1998, respectively. The 1999 Acquisitions and 1998 Acquisitions reported $0.3
million in USSF revenue for the three months ended March 31, 1999. For the RLECs
owned and operated for a comparable period, USSF revenues increased by $0.1
million to $1.2 million from $1.1 million for the three months ended March 31,
1999 and 1998, respectively.
Network access revenues or interstate and intrastate revenues increased $9.2
million to $17.5 million from $8.3 million for the three months ended March 31,
1999 and 1998, respectively. This revenue increase is attributable to the
increase in minutes of use contributed by the 1999 Acquisitions and 1998
Acquisitions. Network access revenues contributed by the 1999 Acquisitions and
1998 Acquisitions in the three months ended March 31, 1999 was $9.5 million. For
the RLECs owned and operated for a comparable period, network access revenues
decreased by $0.3 million to $8.0 million from $8.3 million for the three months
ended March 31, 1999 and 1998, respectively.
Other revenues increased $4.8 million to $7.7 million from $2.9 million for
the three months ended March 31, 1999 and 1998, respectively. Revenue
contribution from the 1999 Acquisitions and the 1998 Acquisitions provided $3.5
million of the increase in other revenue for the three months ended March 31,
1999. For the RLECs owned and operated for a comparable period by the Company,
other revenues remained at $2.9 million for the three months ended March 31,
1999 and 1998. FairPoint had revenue of $1.3 million for the three months ended
March 31, 1999. As Fairpoint began reporting revenue in April, 1998, Fairpoint
has no comparable revenue information to report for the three months ended March
31, 1998.
OPERATING EXPENSES. Operating expenses, which include plant operations,
corporate and customer service, depreciation and amortization, cost of services
resold and other general and administrative expenses, increased $15.9 million to
$26.5 million from $10.5 million for the three months ended March 31, 1999 and
1998, respectively. The increase was primarily attributed to the operating
expenses associated with the 1999 Acquisitions and the 1998 Acquisitions, which
in the aggregate accounted for $11.7 million of the increase. For RLECs owned
and operated for a comparable period, operating expenses increased approximately
$0.5 million, or 5.3%, to $11.0 million for the three months ended March 31,
1999 from $10.4 million for the three months ended March 31, 1998. The change
was primarily attributable to an increase in corporate and customer service
expenses and in cost of services resold at the Company's long distance
subsidiary, ST Long Distance. FairPoint's operating expenses were $3.7 million,
or 34.9%, of the Company's operating expense increase, for the three months
ended March 31, 1999. As FairPoint began
10
<PAGE>
reporting expenses in April 1998, FairPoint has no comparable expense
information to report for the three months ended March 31, 1998.
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $2.3 million, or 57.8%, to $6.4 million from $4.0
million for the three months ended March 31, 1999 and 1998, respectively. As a
percentage of revenues, income from operations was 19.4% as compared to 27.8%
for the three months ended March 31, 1999 and 1998, respectively. This income
from operations margin decline for the three months ended March 31, 1999 is
attributed to the expenses associated with FairPoint and an increase in
corporate and customer services expenses. For RLECs owned and operated for a
comparable period, the income from operations decreased $0.6 million to $3.5
million in 1999 from $4.1 million in 1998 and the income from operations margin
decreased to 10.7% from 28.1%. The decrease was attributable to an increase in
corporate and customer services expenses and depreciation.
OTHER INCOME (EXPENSE). Net other expense increased $5.6 million to $8.4
million from $2.8 million for the three months ended March 31, 1999 and 1998,
respectively. The increase was primarily attributable to an increase in interest
expense associated with the additional debt incurred to complete the 1998
Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Implementation of the Company's acquisition strategy has required a
significant portion of the Company's capital resources. The Company historically
has used the proceeds of institutional and bank debt, private equity offerings,
and the Company's available cash flow, to fund the Company's acquisition
strategy.
The Company maintains a senior secured credit facility (the "Credit
Facility"). Within the Credit Facility there is an $85 million reducing
revolving term facility with a remaining term of five and one-half years. This
facility is available for general corporate purposes, capital expenditures and
acquisitions. At March 31, 1999, there was no outstanding balance under this
revolving term facility. Borrowings under the Credit Facility are guaranteed by
the Company's four mid-tier subsidiary companies and secured by certain
subsidiaries' pledge of stock. Pursuant to the Credit Facility, the Company is
required to comply with certain financial covenants. For the three months ended
March 31, 1999, the Company was in compliance with such covenants.
On May 5, 1998, the Company consummated a public offering of debt consisting
of $125 million in aggregate principal amount of 9 1/2% Senior Subordinated
Notes and $75 million in aggregate principal amount of Floating Rate Callable
Securities, each due in 2008 (collectively the "Notes"). The Notes are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company, and effectively subordinated to
all existing and future debt and other liabilities of the Company's
subsidiaries. Interest on the Notes is payable semi-annually.
Besides debt service, the Company's primary liquidity requirements are
expected to be for general corporate purposes, capital expenditures and to
finance the Company's pending or future acquisition activities. The Company
believes that proceeds from the Credit Facility and the sale of non-core assets
during 1999 are sufficient to fund the pending acquisition. The Company has
historically generated sufficient cash flow from operations to meet all of its
capital expenditure requirements. During the first quarter of 1999 and 1998, the
Company spent approximately $3.1 million and $0.7 million respectively, on
capital expenditures. The Company expects capital expenditures in 1999 for all
existing operations to be approximately $25.0 million, which is expected to be
funded through existing operations.
The Company's entry into additional markets as a CLEC is expected to result
in the Company incurring initial operating losses in its CLEC business. The
Company invested approximately $5.0 million in Fairpoint in 1998 and expects to
invest approximately $15.0 million in 1999, in order to enable FairPoint to
expand into ten additional markets and increase its total number of CLEC markets
served to 24. In
11
<PAGE>
addition, FairPoint plans to build telecommunications facilities to migrate its
customers to the Company's existing networks, which will require substantial
capital expenditures in 1999 and 2000. The Credit Facility limits the funding of
such losses and capital expenditures to (i) $5.0 million per year so long as the
senior debt leverage ratio (as calculated under the Credit Facility) exceeds
4.0x and (ii) $15.0 million per year whenever such leverage ratio is under 4.0x.
The terms of the Notes also impose certain restrictions on the Company's ability
to fund FairPoint's expansion. If FairPoint's business plan proves to be
successful, the Company believes Fairpoint will be able to raise separate
capital for its future capital requirements.
Net cash provided by operating activities was $9.7 million for the three
months ended March 31, 1999 and net cash used by operating activities was $0.4
million for the three months ended March 31, 1998. Net cash used in investing
activities was $8.6 million and $65.4 million for the three months ended March
31, 1999 and 1998, respectively. These cash flows primarily reflect expenditures
relating to acquisitions of RLECs of $13.0 million and $63.9 million for the
three months ended March 31, 1999 and 1998, respectively, and capital
expenditures of $3.1 million and $0.7 million for the three months ended March
31, 1999 and 1998, respectively. Net cash used by financing activities was $2.1
million for the three months ended March 31, 1999 and net cash provided by
financing activities was $68.8 million for the three months ended March 31,
1998. These cash flows for the three months ended March 31, 1999 primarily
represent the repayment of long-term debt. The cash flows for the three months
ended March 31, 1998 primarily represent borrowings, in the amount of $195.0
million and proceeds from the issuance of common stock of $16.8 million. A
majority of the proceeds for the three months ended March 31, 1998 were utilized
to repay long-term debt of $86.9 million and to complete the 1998 Acquisitions.
Adjusted EBITDA is not a measure of performance under generally accepted
accounting principles and should not be construed as a substitute for
consolidated net earnings (loss) as a measure of performance or as a substitute
for cash flow as a measure of liquidity. Adjusted EBITDA presented herein
differs from the definition of EBITDA in the indenture relating to the Notes.
The definition of EBITDA in such indenture is designed to determine EBITDA for
the purposes of contractually limiting the amount of debt which the Company may
incur. Adjusted EBITDA as calculated by the Company is not necessarily
comparable to similarly captioned amounts of other companies.
Adjusted EBITDA is presented because management believes it provides useful
information regarding the Company's ability to incur and/or service debt.
Increases or decreases in Adjusted EBITDA may indicate improvements or
decreases, respectively, in the Company's free cash flows available to incur
and/or service debt and cover fixed charges. Management expects that, because
Adjusted EBITDA is commonly used in the telecommunications industry as a measure
of performance, investors may use this data to analyze and compare other
telecommunications companies with the Company in terms of operating performance,
leverage and liquidity.
Adjusted EBITDA represents net earnings (loss) plus interest expense, income
taxes, depreciation and amortization, and extraordinary items.
Adjusted EBITDA increased 115.0% to $14.4 million for the three months ended
March 31, 1999 from $6.7 million for the three months ended March 31, 1998.
Adjusted EBITDA reported by the RLECs was $17.1 million and by FairPoint was
$(2.7) million for the three months ended March 31, 1999.
The Company may secure additional funding through the sale of public or
private debt and/or equity securities or enter into another bank credit facility
to fund future acquisitions and operations. If the Company's growth occurs more
rapidly than is currently anticipated or if its operating results are below
expectations, there can be no assurance that the Company will be successful in
raising sufficient additional capital on terms that it will consider acceptable,
or that the Company's operations will produce positive cash flow in sufficient
amounts to meet its debt obligations. The Company's failure to raise and
generate sufficient funds may require it to delay or abandon some of its planned
future growth or expenditures, which could have a material adverse effect on the
Company's growth and its ability to compete in the telecommunications industry.
12
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
anticipates adopting this accounting pronouncement in 2000; however, management
believes it will not have a significant impact on the Company's consolidated
financial statements.
YEAR 2000
The year 2000 issue concerns the inability of computer systems and certain
other equipment to properly recognize and process data that uses two digits
rather than four to designate particular years. The Company has initiated a Year
2000 Project Plan ("the Plan") to assess whether its systems that process date
sensitive information will perform satisfactorily leading up to and beyond
January 1, 2000. The goal of the Plan is to correct, prior to January 1, 2000,
any year 2000-related problem with critical systems, the failure of which could
have a material adverse effect on the Company's operations. The Plan includes
steps to (i) identify each critical system element that requires date code
remediation, (ii) establish a plan to remediate such systems, (iii) implement
all required remediations and (iv) selectively test the remediated systems.
Thus far, the identification phase has identified year 2000 issues in the
following critical Company-owned systems; (i) switching and transmission
hardware and software used by the Company to route and deliver telephone calls;
(ii) network support systems, including customer services systems and (iii)
billing and collection systems used by the Company to invoice and process most
of its customer payments. In addition, the Company (i) receives critical
services from providers of utilities and other services to facilities that house
employees and switching, transmission and other equipment and (ii) is dependent
upon outside vendors for, among other things, the provision of critical network
components. The Company is also critically reliant upon the systems of other
telecommunication carriers with which the Company's systems interconnect for the
routing and delivery of telephone calls. The Company has also identified
potential Year 2000 related liability with respect to the telephone equipment
manufactured by unaffiliated parties that the Company has sold or leased to its
customers. The identification, planning and remediation phases of the Plan are
materially complete as they relate to Company-owned systems
Based on work completed under the Plan to date, the Company currently
intends to take the following additional steps under its Plan with respect to
Company-owned systems, third-party vendors and other telecommunications
carriers:
- The Company generally plans to remediate Company-owned switching,
transmission, billing and collection and other critical systems through
the revision or replacement of current system components. Necessary
changes to Company-owned systems are in process and are expected to be
completed by mid-year 1999. The selective testing and verification of such
changes are expected to be completed during 1999. Due to the large number
of system components requiring remediation, the Company does not intend to
test every remediated system but will rely upon the results of selective
testing to determine the effectiveness of remediation efforts.
- With respect to critical services provided by utilities and other third
parties, the Company is in the process of contacting all such suppliers
and plans to have contacted all such suppliers before the end of first
quarter 1999. Thus far, a majority of those suppliers contacted have
responded that their systems and service delivery mechanisms are Year 2000
compliant or can be made so through currently available modifications. The
Company plans to continue monitoring all third-party remediation efforts
and to make contingency plans for the delivery of such services as
necessary.
13
<PAGE>
- The Year 2000 compliance status of other telecommunications carriers with
which the Company's switching systems interconnect is not yet known. The
Company is making inquiries with these carriers to determine their
compliance status and expects to obtain the results of compliance tests
during second quarter 1999, although there can be no assurance that
carriers will supply this information.
While the Company currently believes that it will be able to remediate and
selectively test Company-owned systems in time to minimize any detrimental
effect on its operations, there can be no assurance that such steps will be
successful. Failure by the Company to timely and effectively remediate its
systems, or the failure of critical vendors and suppliers and other
telecommunications carriers to remediate affected systems, could have a material
adverse impact on the Company's business, financial condition, results of
operations and prospects. Because the impact of Year 2000 issues on the Company
is materially dependent on the mitigation efforts of parties outside the
Company's control, the Company cannot assess with certainty the magnitude of any
such potential adverse impact. However, based upon risk assessment work
conducted thus far, the Company believes that the most reasonably likely worst
case scenario of the failure by the Company, its suppliers or other
telecommunications carriers with which the Company interconnects to resolve Year
2000 issues would be an inability by the Company (i) to provide
telecommunications services to the Company's customers, (ii) to route and
deliver telephone calls originating from or terminating with other
telecommunications carriers, (iii) to timely and accurately process service
requests and (iv) to timely and accurately bill its customers. In addition to
lost earnings, these failures could also result in a loss of customers due to
service interruptions and billing errors, substantial claims by customers and
increased expenses associated with Year 2000 litigation, stabilization of
operations and executing mitigation and contingency plans.
Contingency planning to maintain and restore services in the event of
natural disasters, power failures and systems-related problems is a routine part
of the Company's operations. The Company believes that such contingency plans
will assist the Company in responding to the failure by outside service
providers to successfully address Year 2000 issues. In addition, the Company is
currently identifying and considering various Year 2000-specific contingency
plans, including identification of alternate vendors and service providers and
manual alternatives to system operations. These Year 2000-specific contingency
plans are expected to be materially completed during the first quarter of 1999,
but their review and development will continue throughout 1999.
Although the total costs to implement the Plan cannot be precisely
estimated, the Company anticipates spending approximately of $1.0 million. The
costs incurred to date and estimated remaining costs are for outside
consultants, software and hardware applications. These costs will be expensed as
incurred, unless new systems are purchased that should be capitalized in
accordance with generally accepted accounting principles. The Company does not
separately track the internal costs incurred for the Year 2000 project, and such
cost are principally the related payroll costs for its information systems
group. Some of the costs represent ongoing investment in systems upgrades, the
timing of which is being accelerated in order to facilitate Year 2000
compliance. In some instances, such upgrades will position the Company to
provide more and better-quality services to its customers than they currently
receive. The Company expects to fund these costs with cash provided by
operations. Cost estimates and statements of the Company's plans discussed above
are forward-looking statements that are derived using numerous assumptions of
future events, many of which are outside the Company's control, including the
availability and future cost of trained personnel and various other resources,
third party modification plans, the absence of systems requiring remediation
that have not yet been discovered, and other factors.
14
<PAGE>
ITEM 3A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt as approximately 82%
of the Company's debt is at fixed rates or effectively at fixed rates through
the use of interest rate swaps. At March 31, 1999, the fair value of the
Company's long-term debt is estimated by discounting the future cash flows of
each instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities. At March 31, 1999, the Company had
long-term debt with a carrying value of approximately $367.2 million and
estimated fair value of approximately $369.8 million. The market risk is
estimated as the potential decrease in fair value of the Company's long-term
debt resulting from a hypothetical increase of 91.9 basis points in interest
rates (ten percent of the rates currently offered to the Company). An increase
in interest rates would result in approximately a $0.7 million decrease in fair
value of the Company's long-term debt.
The Company has entered into interest rate swaps to manage its exposure to
fluctuations in interest rates of its variable rate debt. The fair value of
these swaps was approximately $(0.2) million at March 31, 1999. The negative
fair value indicates an estimated amount the Company would have to pay to cancel
the contracts or transfer them to other parties. Pertaining to the Credit
Facility, the Company used an interest rate swap agreement with a notional
amount of $25 million to effectively convert a portion of its variable interest
rate exposure to a fixed rate of 9.91%. The swap agreement expires on September
29, 2000. As to its Floating Rate Notes, the Company used two interest rate swap
agreements, with notational amounts of $50 million and $25 million,
respectively, to effectively convert its variable interest rate exposure to a
fixed rate of 10.01% and 9.95%, respectively. Both swap agreements expire on
November 1, 2001.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation and
regulatory proceedings incidental to the conduct of its business, but the
Company is not a party to any lawsuit or proceeding which, in the opinion of the
Company, is likely to have a material adverse effect on the Company.
On April 6, 1998, Latin World Communications, Inc. ("LWC") and Debra A.
Boudrot, LWC's principal (collectively, "Plaintiffs") sued B. Stephen May
("May"), who is a former officer of ST Long Distance (a subsidiary of the
Company), Siesta Telecom, Inc. ("Siesta"), which is a company controlled by May,
and ST Long Distance in the Circuit Court for the Twelfth Judicial Circuit,
Sarasota County, Florida. From March 1997 through early 1998, ST Long Distance
provided long distance services to Plaintiffs in connection with the Plaintiffs'
prepaid telephone card distribution business. On June 26, 1998, Plaintiffs filed
an Amended Complaint. Plaintiffs assert claims against May, Siesta and ST Long
Distance for breach of contract, fraud, misappropriation of trade secrets,
overpayments to May, interference with business relationships, deceptive trade
practices and trade slander. Plaintiffs seek approximately $1 million in damages
plus an unspecified amount of punitive damages related to these claims as well
as injunctive relief relating to certain other matters. The Company timely
answered the Plaintiffs' Complaint and Amended Complaint, denied Plaintiffs'
claims, asserted counterclaims against Plaintiffs, asserted cross-claims against
May, and filed a Third Party Complaint against David Dwiggins ("Dwiggins"), a
business partner of May. The Company intends to vigorously contest all of the
Plaintiffs' claims, believes that it has no liability to the Plaintiffs and will
actively pursue its claims against Plaintiffs, May and Dwiggins. While the
outcome of such litigation cannot be predicted, the Company does not believe
that such litigation, even if determined adversely to the Company, would have a
material adverse effect on its financial condition or results of operations.
ITEM 5. OTHER INFORMATION
RECENT AND PENDING ACQUISITIONS
The Company has recently completed the following RLEC acquisition:
On April 30, 1999, the Company acquired Union. Union is headquartered in
Hartford, South Dakota, approximately 12 miles west of Sioux Falls. Union
operates approximately 3,300 access lines in eastern South Dakota. The Company
purchased the stock of Union for approximately $16.5 million. In the year ended
December 31, 1998, Union had revenues of $3.1 million.
The Company has entered into an agreement to acquire one other unrelated
rural local exchange carrier. The acquisition is expected to close in the second
quarter of 1999. The purchase price is expected to be approximately $3.2 million
and will be financed through existing operations.
Each of the above-referenced acquisitions will be accounted for using the
purchase method of accounting.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated March 6, 1997 among the Company, MJD Partners, L.P. Carousel Capital
Partners, L.P., Kelso Investment Associates V, L.P. and Kelso Equity Partners, V, L.P., as amended*
2.2 Stock Purchase Agreement dated as of March 28, 1996 among MJD Services Corp., Rick A. Moore, Tom D.
Moore, Penta-Gen Investments, Inc., and Odin Telephone Exchange, Inc.*
2.3 Agreement and Plan of Merger dated as of March 27, 1998 by and among MJD Ventures, Inc., Utilities
Acquisition Corp. and Utilities, Inc.*
2.4 Agreement and Plan of Merger, dated as of August 6, 1996 among MJD Holdings Corp., C&E Acquisitions
Corp. and Chatauqua and Erie Telephone Corporation*
2.5 Stock Purchase Agreement, dated as of September 24, 1996 among MJD Holdings Corp., Kadoka Telephone Co.,
Bruce G. Conlee and Virginia L. Conlee*
2.6 Stock Purchase Agreement, dated as of June 24, 1997 among MJD Ventures, Inc., Gary Porter, Virginia M.
Porter, Renee Porter, C-R Communications, Inc., C-R Telephone Company and certain stockholders*
2.7 Agreement and Plan of Merger, dated as of September 2, 1997 among MJD Holdings Corp., Taconic
Acquisition Corp. and Taconic Telephone Corp.*
2.8 Agreement and Plan of Merger, dated December 31, 1997 among MJD Ventures, Inc., Ellensburg Acquisition
Corp. and Ellensburg Telephone Company*
2.9 Agreement and Plan of Merger, dated as of March 12, 1998 among MJD Communications, Inc., Chouteau
Acquisitions Corp., Chouteau Telephone Company and certain shareholders of Chouteau Telephone Company*
2.10 Stock Purchase Agreement, dated as of October 16, 1998 among MJD Service Corp.,
Carla J. Brownlee and Ravenswood Communications, Inc.*
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Amended and Restated By-Laws of the Company*
4.1 Indenture, dated as of May 5, 1998, between the Company and United States Trust Company of New York, as
trustee, relating to the Company's $125,000,000 9 1/2% Senior Subordinated Notes due 2008 and
$75,000,000 Floating Rate Callable Securities due 2008*
4.2 Form of Initial Fixed Rate Security*
4.3 Form of Initial Floating Rate Security*
4.4 Form of Exchange Fixed Rate Security*
4.5 Form of Exchange Floating Rate Security*
4.6 Form of Purchase Agreement dated as of April 30, 1998 between the Company and the Initial Purchasers
named therein*
4.7 Registration Agreement dated as of April 30, 1998 between the Company and the Initial Purchasers named
therein*
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.1 Credit Agreement dated as of March 30, 1998 among the Company, various lending institutions, NationsBanc
of Texas, N.A. and Bankers Trust Company*
10.2 Form of B Term Note*
10.3 Form of C Term Note--Floating Rate*
10.4 Form of C Term Note--Fixed Rate*
10.5 Form of RF Note*
10.6 Form of AF Note*
10.7 Subsidiary Guarantee, dated as of March 30, 1998, by MJD Holdings Corp., MJD Ventures, Inc., MJD
Services Corp., ST Enterprises, Ltd. for the benefit of Bankers Trust Company*
10.8 Pledge Agreement, dated as of March 30, 1998 among MJD Communications, Inc., ST Enterprises, Ltd., MJD
Holdings Corp., MJD Services Corp., MJD Ventures, Inc.,
C-R Communications, Inc., as pledgors, and Bankers Trust Company, as collateral agent and pledgee*
10.9 Capital Contribution Agreement, dated as of March 27, 1998 among Kelso Investment Associates V, L.P.,
Kelso Equity Partners V, L.P., Carousel Capital Partners, L.P., MJD Communications, Inc. and Bankers
Trust Company*
10.10 Stockholder's Agreement, dated as of July 31, 1997 among Kelso Investment Associates V, L.P., Kelso
Equity Partners V, L.P., Carousel Capital Partners V, L.P., the Company and MJD Partners, L.P.*
10.11 Registration Rights Agreement, dated as of July 31, 1997 among Kelso Investment Associates V, L.P.,
Kelso Equity Partners, L.P., the Company and MJD Partners, L.P.*
10.12 Financial Advisory Agreements, dated as of July 31, 1997 among the Company, MJD Holdings Corp. and
affiliates of each of Kelso Investment Associates V, L.P., Kelso Equity Partners, L.P. and Carousel
Capital Partners, L.P.*
10.13 Share Exchange Agreement, dated as of July 31, 1997 between the Company and MJD Partners, L.P.*
10.14 Contribution Agreement, dated as of July 31, 1997 between Meyer Haberman, Jack H. Thomas, Eugene B.
Johnson and Bugger Associates, Inc. and MJD Partners, L.P.*
10.15 Contribution Agreement, dated as of July 31, 1997 between MJD Partners, L.P. and the Company*
10.16 Amended and Restated Class A Voting Common Stock Purchase Warrants of the Company*
10.17 Consulting Agreement, dated as of July 31, 1997 between MJD Partners, Inc. and Bugger Associates, Inc.*
10.18 Severance Agreement, dated as of July 31, 1997 between ST Enterprises, LTD and John P. Duda*
10.19 Severance Agreement, dated as of July 31, 1997 among the Company, MJD Partners, Inc. and Eugene B.
Johnson*
10.20 Severance Agreement, dated as of July 31, 1997 between the Company and Walter E. Leach, Jr.*
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.21 Severance Agreement, dated as of July 31, 1997 among the Company, MJD Partners, Inc. and Jack H. Thomas*
10.22 Amendment to Credit Agreement dated as of July 30, 1998, among the Company, various lending
institutions, NationsBanc of Texas, N.A. and Bankers Trust Company*
10.23 Form of Purchase Agreement and Subordination Agreement between Bankers Trust Company and the Company*
21 Subsidiaries of the Company*
27 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K during the
quarter ended March 31, 1999
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MJD COMMUNICATIONS, INC.
BY: /S/ WALTER E. LEACH, JR.
-----------------------------------------
Walter E. Leach, Jr.
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,240
<SECURITIES> 0
<RECEIVABLES> 19,125
<ALLOWANCES> 353
<INVENTORY> 0
<CURRENT-ASSETS> 34,760
<PP&E> 320,912
<DEPRECIATION> 176,970
<TOTAL-ASSETS> 443,773
<CURRENT-LIABILITIES> 28,457
<BONDS> 200,000
0
0
<COMMON> 18
<OTHER-SE> 8,077
<TOTAL-LIABILITY-AND-EQUITY> 443,773
<SALES> 32,828
<TOTAL-REVENUES> 32,828
<CGS> 2,780
<TOTAL-COSTS> 26,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,334
<INCOME-PRETAX> (2,046)
<INCOME-TAX> (231)
<INCOME-CONTINUING> (1,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,841)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
