<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) April 3, 2000
------------------------
MJD COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 333-56365 13-3725229
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
521 EAST MOREHEAD STREET, SUITE 250, CHARLOTTE, NORTH CAROLINA 28202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 344-8150
----------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 3, 2000, MJD Ventures, Inc. ("Ventures"), a Delaware corporation
and a wholly-owned subsidiary of MJD Communications, Inc., a Delaware
corporation (the "Registrant"), acquired all of the outstanding capital stock of
TPG Communications, Inc., a Delaware corporation ("TPGC"), pursuant to the terms
of a Stock Purchase Agreement, dated as of December 23, 1999, by and among
Ventures, TPGC, TPG Partners L.P, a Delaware limited partnership, TPG Parallel I
L.P., a Delaware limited partnership, J. Milton Lewis and Robert DiPauli, for an
aggregate purchase price of approximately 146.3 million, including costs of
acquisition but excluding the repayment by Ventures of approximately
$70.9 million of TPGC's outstanding indebtedness. TPGC serves approximately
52,000 access lines located primarily in the Florida panhandle region.
The purchase price was funded with borrowings under the Registrant's credit
facility.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Consolidated Financial Statements of TPG Communications, Inc as and for the
Years Ended December 31, 1999 and 1998.
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet of MJD Communications, Inc. as of
December 31, 1999.
Pro Forma Consolidated Statement of Operations of MJD Communications for the
Year Ended December 31, 1999.
(C) EXHIBITS
2.1 Stock Purchase Agreement, dated as of December 23, 1999, by and among
MJD Ventures, Inc., TPG Communications, Inc., TPG Partners, L.P., TPG
Parallel I, L.P., J. Milton Lewis and Robert DiPauli.(1)
2.2 First Amendment to the Stock Purchase Agreement dated March 31, 2000 by
and among MJD Ventures, Inc., TPG Communications, Inc., TPG Partners,
L.P., TPG Parallel I, L.P., J. Milton Lewis and Robert DiPauli.
- ------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements set forth in the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: April 17, 2000 MJD COMMUNICATIONS, INC.
By: /s/ WALTER E. LEACH, JR.
-----------------------------------------
Name: Walter E. Leach, Jr.
Title: Senior Vice President,
Chief Financial Officer
and Secretary
</TABLE>
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement, dated as of December 23, 1999, by
and among MJD Ventures, Inc., TPG Communications, Inc., TPG
Partners, L.P., TPG Parallel I, L.P., J. Milton Lewis and
Robert DiPauli.(1)
2.2 First Amendment to the Stock Purchase Agreement dated March
31, 2000 by and among MJD Ventures, Inc., TPG
Communications, Inc., TPG Partners, L.P., TPG Parallel I,
L.P.,
J. Milton Lewis and Robert DiPauli.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1999.
4
<PAGE>
TPG COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
TPG COMMUNICATIONS, INC.
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ 1
Consolidated Balance Sheets................................. 2-3
Consolidated Statements of Operations and Retained
Earnings.................................................. 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6-18
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TPG Communications, Inc.:
We have audited the accompanying consolidated balance sheets of TPG
Communications, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations and retained earnings, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TPG
Communications, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Jacksonville, Florida
February 11, 2000
1
<PAGE>
TPG COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 5,055,607 6,585,734
Accounts receivable, net of allowance for doubtful
accounts of $318,769 and $140,007 at 1999 and 1998...... 7,212,242 6,221,124
Inventories............................................... 1,084,172 1,059,003
Prepaid expenses.......................................... 232,948 384,927
Income tax receivable..................................... 311,037 --
Other current assets...................................... 233,070 173,811
------------ ------------
Total current assets.................................... 14,129,076 14,424,599
------------ ------------
Investments:
Rural Telephone Bank Class C stock........................ 7,904,347 7,904,347
CoBank B Participation Certificates....................... 1,251,807 813,830
Goodwill, net............................................... 40,011,815 41,230,918
Other assets................................................ 401,177 435,279
Property, plant and equipment:
Land...................................................... 1,158,681 1,158,681
Buildings and improvements................................ 4,854,881 4,840,742
Machinery and equipment................................... 69,783,511 63,323,267
Vehicles.................................................. 1,165,267 1,198,702
Construction in progress.................................. 83,254 1,056,251
------------ ------------
77,045,594 71,577,643
Accumulated depreciation.................................... (15,405,343) (15,695,834)
------------ ------------
Net property, plant and equipment....................... 61,640,251 55,881,809
------------ ------------
Total assets............................................ $125,338,473 120,690,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,295,730 2,414,365
Interest payable.......................................... 1,470,081 1,541,341
Income taxes payable...................................... -- 775,584
Deferred subsidy revenue.................................. 1,263,476 13,589
Contract payable.......................................... 1,293,695 --
Deferred compensation..................................... 542,026 278,096
Advalorem taxes........................................... 1,001,302 --
Other accrued liabilities................................. 1,740,756 1,173,998
Long-term debt due within one year........................ 6,168,796 5,994,884
------------ ------------
Total current liabilities............................... 15,775,862 12,191,857
------------ ------------
Long-term debt due after one year......................... 64,769,111 68,937,619
Severance benefits........................................ 163,912 150,888
Deferred income taxes payable, net........................ 4,712,299 2,944,976
------------ ------------
Total liabilities....................................... 85,421,184 84,225,340
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value; 1,000,000 shares
authorized, issued and outstanding...................... 10,000 10,000
Additional paid-in capital................................ 29,990,000 29,990,000
Retained earnings......................................... 9,917,289 6,465,442
------------ ------------
Total stockholders' equity.............................. 39,917,289 36,465,442
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity.............. $125,338,473 120,690,782
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TPG COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Revenues:
Wireline revenues......................................... $30,084,461 30,084,168
Non-wireline revenues..................................... 4,157,871 4,017,294
----------- ----------
Total revenues.......................................... 34,242,332 34,101,462
----------- ----------
Expenses:
Wireline operating expenses............................... 8,145,899 7,204,955
Non-wireline operating expenses........................... 1,277,300 825,941
Customer service expenses................................. 3,660,845 3,232,677
General and administrative expenses....................... 4,479,476 4,146,254
----------- ----------
Total expenses.......................................... 17,563,520 15,409,827
----------- ----------
Gross profit............................................ 16,678,812 18,691,635
Depreciation and amortization............................... 6,594,270 8,994,818
----------- ----------
Operating income........................................ 10,084,542 9,696,817
Dividend income............................................. 1,084,822 1,267,059
Interest income............................................. 132,271 271,276
Interest expense............................................ (5,663,320) (6,216,218)
----------- ----------
Income before income taxes.............................. 5,638,315 5,018,934
Provision for income taxes.............................. 2,186,468 1,809,385
----------- ----------
Net income.............................................. $ 3,451,847 3,209,549
Retained earnings, beginning of period...................... 6,465,442 3,255,893
----------- ----------
Retained earnings, end of period............................ $ 9,917,289 6,465,442
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TPG COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Operating activities:
Net income................................................ $ 3,451,847 3,209,549
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization........................... 6,594,270 8,994,818
Stock dividends......................................... (437,977) (463,908)
Deferred income taxes................................... 1,767,323 991,744
Changes in operating assets and liabilities:
Accounts receivable................................... (991,118) (687,443)
Inventories........................................... (25,169) (172,428)
Prepaid expenses and other current assets............. 151,979 (225,714)
Other assets.......................................... (59,259) (19,248)
Accounts payable...................................... (118,635) 313,602
Interest payable...................................... (71,260) (129,217)
Deferred subsidy revenue.............................. 1,249,887 13,589
Contract payable...................................... 1,293,695 --
Deferred compensation................................. 263,930 191,665
Other accrued liabilities and advalorem and income
taxes............................................... 494,463 283,178
----------- ----------
Net cash provided by operating activities........... 13,563,976 12,300,187
----------- ----------
Investing activities:
Purchases of property, plant and equipment................ (11,150,466) (5,963,751)
Proceeds from sale of property, plant and equipment....... 50,959 38,643
----------- ----------
Net cash used in investing activities............... (11,099,507) (5,925,108)
----------- ----------
Financing activities:
Proceeds from additional borrowings....................... 2,000,000 --
Principal payments on long-term debt...................... (5,994,596) (5,994,597)
----------- ----------
Net cash used in financing activities............... (3,994,596) (5,994,597)
----------- ----------
Net (decrease) increase in cash and cash
equivalents....................................... (1,530,127) 380,482
Cash and cash equivalents at beginning of period............ 6,585,734 6,205,252
----------- ----------
Cash and cash equivalents at end of period.................. $ 5,055,607 6,585,734
=========== ==========
Supplemental cash flow information:
Cash paid for interest.................................... $ 5,734,580 6,345,435
=========== ==========
Cash paid for income taxes................................ $ 1,514,773 --
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) OWNERSHIP
TPG Communications, Inc. (herein referred to as "TPGC" or the "Company") was
incorporated in August 1995 under the laws of the State of Delaware. TPCG owns
directly or indirectly all of the common stock of St. Joe Communications, Inc.,
GTC, Inc., and TPGC Finance Corporation.
(2) OPERATIONS
TPG Communications, Inc., provides telephone service, telephone equipment
sales, maintenance and rentals and also has certain interexchange long-distance
activities. Local telephone service has historically been provided to customers
located in northwest Florida, southern Georgia and Alabama through the following
subsidiaries: St. Joseph Telephone & Telegraph Company, Gulf Telephone Company
(Gulf) and The Florala Telephone Company, Inc. (Florala). During 1997, Gulf and
Florala were merged into St. Joseph Telephone & Telegraph Company and its name
was changed to GTC, Inc. This merger was accounted for at historical cost.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The Company's telephone operations are regulated, primarily for rate
making purposes, by the Federal Communications Commission (FCC) for
interstate jurisdictional operations. The Company's intrastate service
operations are regulated by the Alabama, Georgia and Florida Public Service
Commissions (FPSC). Accordingly, the Company maintains its accounts in
conformity with the Uniform System and Classification of Accounts as
prescribed by the FCC and modified by the Commissions.
The Company is no longer subject to traditional rate of return
measurement for intrastate purposes. Basic service and vertical feature
rates are currently subject to the FPSC "price cap" plan. Under the FPSC
price cap plan the rates for basic services are frozen from the time the
company elected price cap (June 1996) until 2001 after which they may be
increased by 1% less than the CPI inflation rate. Vertical feature rates
were not frozen and may increase by a maximum of 6% per year unless a
competitor enters the company's service area at which time these rates may
be increased by a maximum of 20% per year. Currently there are no
competitors in the company's service area that would allow the company to
increase vertical feature rates by the larger amount. Vertical features are
not required for provision of basic service and include features such as:
call waiting, caller id, and voice messaging.
(B) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of TPG
Communications, Inc., St. Joe Communications, Inc., GTC, Inc. and TPGC
Finance, Inc. All intercompany balances and transactions have been
eliminated in consolidation.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, bank demand accounts
and repurchase agreements having original maturities of less than three
months.
5
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) INVENTORIES
Inventories consist of material and supplies used for construction and
maintenance of telephone plant and items available for sale in the Company's
retail stores. Inventories are stated at the lower of weighted average cost
or market.
(E) GOODWILL
On April 11, 1996, TPGC acquired St. Joe Communications, Inc. This
acquisition was recorded under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on fair value at the acquisition date.
Goodwill is amortized on a straight-line basis over 40 years.
Accumulated amortization was approximately $4,474,000 and $3,255,000 at
December 31, 1999, and 1998, respectively. Amortization expense for the year
ended December 31, 1999 and 1998 was approximately $1,219,000 and
$1,240,000, respectively.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
provided on the straight line method, using class or overall group rates.
Such rates range from 3% to 20%. The weighted average annual depreciation
rate was approximately 7% for 1999 and 11% for 1998. Depreciation expense
was $5,341,065 and $7,703,454 for the years ended December 31, 1999 and
1998, respectively. Depreciation for 1998 includes approximately
$1.9 million for the additional depreciation of switching equipment.
In general, retirements of telecommunications plant and the cost of
removal are charged to accumulated depreciation, which is also credited with
the proceeds of sales or salvage value.
(G) LONG-LIVED ASSETS
The Company reviews long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount exceeds
the fair value of the asset.
(H) INVESTMENTS
The Company's investment in Rural Telephone Bank Class C stock is stated
at the fair value as determined on the date of acquisition of St. Joe
Communications, Inc. on April 11, 1996 by TPGC. The stock is backed by the
Rural Utilities Service and cannot be sold separate from the Company as a
whole. In the event the Rural Telephone Bank ceases to exist, these 8,348
shares would be redeemed at a par value of $1,000 per share. Cash dividends
received are presented as dividend income.
6
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) REVENUE RECOGNITION
Wireline revenues are those revenues derived by access to, or use of,
the Company's telecommunications network. These include local and
long-distance service revenues as well as access revenues received from
interexchange carriers for access to the Company's network. Billings for
local service revenues are generally rendered monthly in advance and are
recognized as revenues when earned. Long-distance service and access
revenues are recognized monthly as the related service is provided.
In providing interexchange carriers access to its network, the Company
participates in a nationwide revenue-sharing mechanism (pool). Revenues are
based on mutual cost reimbursement and sharing of revenue with the
participants of the pool. These are estimated monthly by the pool
administrator and are subject to finalization within a 24 month period.
Approximate access service revenues were $7,897,977 and $8,685,000 for 1999
and 1998, respectively. The 1999 and 1998 pool revenue includes negative
adjustments from prior years of approximately $15,500 and $154,000,
respectively. Amounts receivable from the pool were approximately $1,172,000
and $921,000 at December 31, 1999 and 1998, respectively.
Non-wireline revenues are primarily equipment sales, rental and
maintenance and are recognized as revenues at the time of sale or as the
related service is provided. Non-wireline revenues also include billing and
collecting revenues, the related costs of which are recorded as customer
service expenses.
(J) INCOME TAXES
The Company follows the asset and liability method of Statement of
Financial Accounting Standards, No. 109. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
(K) STOCK-BASED COMPENSATION
The Company applies the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 also allows entities to apply the
provisions of Accounting principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants as if
the fair-value method defined in SFAS No. 123 has been applied. The Company
has elected to apply the provisions of APB Opinion No. 25.
(L) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and (ii) the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
7
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(4) LONG-TERM DEBT
Long-term debt as of December 31, consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable--CoBank............................... $68,937,907 74,932,503
Revolver--CoBank................................... 2,000,000 --
----------- -----------
70,937,907 74,932,503
Less portion due within one year................... 6,168,796 5,994,884
----------- -----------
Long-term debt due after one year.................. $64,769,111 68,937,619
=========== ===========
</TABLE>
- ------------------------
Note payable--CoBank includes several fixed and variable rate term notes
with interest rates ranging from 7.55% to 8.50% with principal and interest due
quarterly through 2011. Substantially all of the assets of the Company have been
pledged as security for the mortgage notes. Under the terms of the agreements,
there are financial covenants relating to minimum financial and operating
ratios.
The CoBank note prohibits the Company from making any distributions of cash
or property to any shareholder, paying dividends on any shares of its capital
stock, or redeeming or retiring capital stock until the entire debt amount has
been paid or the ratio of consolidated equity to consolidated assets, as defined
in the agreement, is greater than 35%.
Revolver--CoBank represents a note payable under a revolving line of credit
for advances up to $5,500,000. The interest rate is determined at the time of
each advance and will be either (i) CoBank National Variable Rate, (ii) fixed
rate as designated by CoBank, or (iii) the U.S. Treasury Rate for maturities
matching the period of the loan. The rate at December 31, 1999 was 8.50%.
Payments are due in quarterly installments plus interest through April 15, 2011
at which time all unpaid principal and interest amounts are due. The borrowings
are secured by all real and personal property of the Company.
CoBank distributes dividends in relation to the above outstanding notes.
Dividend income includes $625,682 and $662,725 resulting from CoBank cash and
stock dividends received for 1999 and 1998, respectively. The carrying value of
long-term debt approximates market.
The aggregate amount of principal payments due in each of the five years
subsequent to December 31, 1999 is:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- ----------- -----------
<S> <C>
2000........................................................ $ 6,168,796
2001........................................................ 6,168,508
2002........................................................ 6,168,508
2003........................................................ 6,168,508
2004........................................................ 6,168,508
Thereafter.................................................. 40,095,079
-----------
$70,937,907
===========
</TABLE>
8
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(5) PENSION PLANS
The Company has two defined contribution plans covering substantially all
employees. The Company made contributions to the defined contribution plan of
$94,688 and $144,425 during the years ended December 31, 1999 and 1998,
respectively.
The Company sponsors two qualified defined benefit pension plans for its
hourly and salaried employees. On November 17, 1997, the Board of Directors
voted to cease benefit accruals for all employees participating in the hourly
pension plan. The effective date of this amendment varied by division and ranged
from December 31, 1997 to June 30, 1998. On December 11, 1998 the Board of
Directors voted to cease benefit accruals for all employees participating in the
salaried pension plan. The effective date of this amendment was December 31,
1998.
The following tables provide a reconciliation of the changes in the defined
benefit pension plans' projected benefit obligations and fair value of assets
for the years ended December 31, 1999 and 1998, and a statement of funded status
as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Change in projected benefit obligation:
Obligation at beginning of year....................... $565,217 619,985
Service cost.......................................... -- 249,037
Interest cost......................................... 56,689 39,321
Actuarial (gain) loss................................. 70,638 (63,091)
Benefit payments...................................... (59,008) (37,686)
Curtailments.......................................... -- (242,349)
-------- --------
Obligation at end of year........................... $633,536 565,217
======== ========
Change in plan assets (primarily money market funds):
Fair value of plan assets at beginning of year........ $644,401 384,010
Actual return on plan assets.......................... 24,051 30,172
Employer contributions................................ 94,688 267,905
Benefit payments...................................... (59,008) (37,686)
-------- --------
Fair value of plan assets at end of year............ $704,132 644,401
======== ========
Funded status:
Funded status at end of year.......................... $ 70,596 79,184
Unrecognized prior service cost....................... 51,800 57,572
Unrecognized loss..................................... 102,263 30,330
-------- --------
Prepaid pension cost................................ $224,659 167,086
======== ========
</TABLE>
The Company's hourly pension plan was the only pension plan with an
accumulated benefit obligation in excess of plan assets at December 31, 1999 and
1998. The actuarially determined deferred costs resulting from this funding
shortfall are not significant to the financial statements.
9
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(5) PENSION PLANS (CONTINUED)
The following table provides the components of net periodic pension cost for
the defined benefit pension plans for the years ended December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Service cost............................................ $ -- 249,037
Interest cost........................................... 56,689 39,321
Expected return on plan assets.......................... (40,076) (40,316)
Amortization of prior service cost...................... 5,772 5,772
Amortization of net loss................................ 14,730 613
-------- --------
Net periodic benefit cost............................... 37,115 254,427
Curtailment gain........................................ -- (242,349)
-------- --------
Net periodic pension cost after curtailments.......... $ 37,115 12,078
======== ========
</TABLE>
The 1998 curtailment gain resulted from the severance of employees under the
Company's voluntary and involuntary severance plans.
The discount rate for the plans were 8.00% and 7.25% for 1999 and 1998,
respectively. The expected long-term rate of return on assets was 6% and 8% for
1999 and 1998, respectively. The expected salary increases for the salaried plan
at December 1998 were 5%. No salary increases were anticipated in 1999 due to
the frozen status of the plan.
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1999:
U.S. Federal............................. $359,267 $1,514,848 $1,874,115
State.................................... 59,878 252,475 312,353
-------- ---------- ----------
$419,145 $1,767,323 $2,186,468
======== ========== ==========
Year ended December 31, 1998:
U.S. Federal............................. $811,874 $ 850,067 $1,661,941
State.................................... 5,767 141,677 147,444
-------- ---------- ----------
$817,641 $ 991,744 $1,809,385
======== ========== ==========
</TABLE>
Income tax expense differed from the amount computed by applying the federal
statutory rate of 35% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Income taxes computed at statutory federal rate...... $1,973,410 $1,756,627
State income taxes--net of federal impact............ 203,029 95,839
Other................................................ 10,029 (43,081)
---------- ----------
2,186,468 1,809,385
========== ==========
</TABLE>
10
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(6) INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve................................... $ 122,726 $ 32,776
Vacation accrual................................... 124,911 73,444
Net operating loss carryforwards................... -- 250,241
Compensation accrual............................... 208,680 107,067
Alternative minimum tax credit carryforward........ 551,583 777,279
---------- ----------
Total gross deferred tax assets................ $1,007,900 $1,240,807
Deferred tax liabilities:
Excess tax depreciation--property, plant and
equipment........................................ $2,904,652 $2,105,554
Excess tax amortization--goodwill.................. 2,659,386 1,964,434
Other.............................................. 156,161 115,795
---------- ----------
Total deferred tax liabilities................. 5,720,199 4,185,783
---------- ----------
Net deferred tax liabilities................. $4,712,299 $2,944,976
========== ==========
</TABLE>
Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that it is more likely
than not that the deferred tax assets will be realized, and a valuation
allowance is not considered necessary.
(7) LEASES
The Company has entered into several non-cancelable operating leases as the
lessee of vehicles and office equipment expiring through year 2002. Rental
expense for these leases was $327,110 in 1999 and $344,344 in 1998.
Future minimum lease payments as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- ----------- --------
<S> <C>
2000........................................................ 286,010
2001........................................................ 204,721
2002........................................................ 63,904
--------
Total................................................. $554,635
========
</TABLE>
The Company is also the lessor of certain fiber optics transmission assets.
This lease, which expires March 2001, is presented as an operating lease in the
accompanying financial statements. Annual rentals from this lease are
approximately $852,000.
(8) CONTINGENCIES
Since 1985 GTC, Inc. has received an interlata access subsidy of
approximately $100,000 per month as mandated by the Florida Public Service
Commission (the FPSC). On July 1, 1997, the access subsidy
11
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(8) CONTINGENCIES (CONTINUED)
administrator filed a petition with the FPSC to eliminate the subsidy. On
August 28, 1998, the FPSC issued a final order to terminate the subsidy;
however, the Company timely filed a motion for reconsideration on September 11,
1998 which continued the subsidy. Effective November 17, 1998, the FPSC granted
a motion for stay to the Company requiring the subsidy to be deposited in an
escrow account. The Company has appealed this decision to the Florida Supreme
Court, and will continue to vigorously contest the elimination of the subsidy.
Revenue recognition of this subsidy has been deferred since November 17, 1998.
The amount of cash held in escrow and recorded as deferred subsidy revenue
totaled $1,263,476 and $13,589 at December 31, 1999 and 1998, respectively.
Certain age discrimination cases have been filed against St. Joe
Communications, Inc. by former employees who were involuntarily terminated in
1997. Management is contesting the cases vigorously and believes that the
ultimate disposition of these matters will not have a material effect on the
consolidated financial position, results of operations or liquidity of the
Company.
It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. On January 18, 2000 a
preliminary site contamination assessment performed on the Company's facility
located in Perry, Florida revealed localized chemical contamination of soil and
groundwater associated with four underground storage tanks that were removed
from the property in 1985. This contamination was reported to the Florida
Department of Environmental Protection, and the Company is cooperating with that
office by conducting further tests to determine the full extent of contamination
as well as exploring whether the Company may be eligible for reimbursement of
all or part of any potential costs through the Florida trust fund reimbursement
program. There is no on-going pollution at the site, and the cost of clean-up is
presently unknown. Based on information presently available, management believes
that the ultimate disposition of this matter will not have a material effect on
the consolidated financial position, results of operations or liquidity of the
Company.
(9) STOCK BASED COMPENSATION AND SEVERANCE BENEFITS
The Company adopted a Performance Share Plan in 1996. The plan is
administered by a committee who has the exclusive authority to select employees
to be granted performance shares, to determine the base value with respect to
each performance share and other administrative matters. The maximum number of
performance shares awarded shall not exceed an aggregate of 65,000. The bonus
payments made for each performance share shall be based on the performance of
one share of common stock. Bonus payments generally are to be made based on the
net worth of the Company in excess of the preference amount as defined in the
plan. Vesting occurs in 1/3 increments over three to five years.
There are 60,000 performance shares outstanding which were approximately 88%
and 70% vested at December 31, 1999 and 1998, respectively. Compensation expense
of $263,930 and $191,667 was recognized in 1999 and 1998.
The Company also has 30,000 stock options outstanding at December 31, 1999
and 1998 which are exercisable until 2006. The options were issued at fair value
at the date of grant ($30 per share), accordingly no compensation expense was
recorded. No options were issued in 1998 or 1999. Pro forma net income
disclosures are not presented as the options were substantially all vested by
the end of 1997.
12
<PAGE>
TPG COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) STOCK BASED COMPENSATION AND SEVERANCE BENEFITS (CONTINUED)
Severance benefits relate to a voluntary employee separation plan introduced
by the Company in 1996. These benefits will generally be paid in decreasing
annual amounts over the next ten years. Total expenses incurred for benefits to
be provided under the voluntary employee separation plan were approximately
$8,000 in 1999. No such expenses were incurred in 1998.
(10) STOCK PURCHASE AGREEMENT
On December 23, 1999, the shareholders of the Company entered into a stock
purchase agreement with MJD Ventures, Inc. (MJD). The agreement provides that
the Company will sell all of its issued and outstanding shares to MJD. The
closing of the stock purchase is subject to certain customary closing
conditions, including regulatory approval, but is expected to occur during 2000.
13
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial
statements give effect to significant subsequent events occurring after
December 31, 1999. Those subsequent events include financing activities
undertaken in January and February 2000 and the acquisition of TPG
Communications, Inc. ("TPG") by MJD Communications, Inc. The subsequent events
which occurred in January and February 2000, included authorizing additional
classes of capital stock, issuing and reacquiring capital stock for net cash
proceeds of $159,417,000, borrowing additional debt of $5,400,000, repaying debt
and accrued interest payable in the amount of $102,540,077, being released from
put obligations on its common stock, and recognizing compensation expense in the
amount of $28,249,011 for stock-based compensation to employees. (Hereafter,
these subsequent events are collectively referred to as the "Financing
Activities."). The accompanying unaudited pro forma condensed consolidated
financial statements also give effect to the acquisition of TPG, which occurred
on April 3, 2000, using the purchase method of accounting. The purchase price
for the acquisition of TPG was $146.3 million in cash, including direct costs of
acquisition. Cash proceeds from the Financing Activities and additional
borrowings under the Company's credit facilities were used to consummate the
acquisition of TPG.
The unaudited pro forma condensed consolidated balance sheet gives effect to
the Financing Activities and the acquisition of TPG as if the transactions had
occurred on December 31, 1999. The unaudited pro forma condensed consolidated
statement of operations gives effect to the Financing Activities and to TPG's
results of operations for the (preacquisition) year ending December 31, 1999, as
if the transactions had occurred as of January 1, 1999.
The unaudited pro forma condensed consolidated financial statements are
based upon the historical consolidated financial statements of MJD
Communications, Inc. and subsidiaries, and TPG, and should be read in
conjunction with those consolidated financial statements and notes thereto
appearing in the Company's 1999 Form 10-K and elsewhere in this document. The
unaudited condensed consolidated financial statements do not necessarily
indicate the results that would have actually occurred if the acquisition had
been in effect on the date indicated or that may occur in the future.
14
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED--AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR FINANCING ACTIVITIES FOR ACQUISITION
------------------------------------------------- ---------------------------------------------
PRO FORMA
MJD PRO FORMA NOTE BEFORE PRO FORMA NOTE PRO FORMA
HISTORICAL ADJUSTMENTS REF. ACQUISITION TPG ADJUSTMENTS REF. MJD
---------- ----------- -------- ----------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 9,923 159,417 (1) 72,200 5,056 (48,145) (7) 29,111
(97,140) (5)
Accounts receivable, net..... 25,658 -- 25,658 7,212 -- 32,870
Other current assets......... 12,819 -- 12,819 1,860 -- 14,679
-------- -------- ------- -------- -------- -------
Total current assets... 48,400 62,277 110,677 14,128 (48,145) 76,660
-------- -------- ------- -------- -------- -------
Property, plant, and
equipment, net............. 178,296 -- 178,296 61,640 -- 239,936
-------- -------- ------- -------- -------- -------
Other assets:
Investments................ 36,246 -- 36,246 9,156 -- 45,402
Goodwill, net.............. 229,389 -- 229,389 40,012 106,430 (7) 375,831
Other assets............... 23,924 -- 23,924 402 -- 24,326
-------- -------- ------- -------- -------- -------
Total other assets..... 289,559 -- 289,559 49,570 106,430 445,559
-------- -------- ------- -------- -------- -------
Total assets........... $516,255 62,277 578,532 125,338 58,285 762,155
======== ======== ======= ======== ======== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
15
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED--AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR FINANCING ACTIVITIES FOR ACQUISITION
------------------------------------------------- ----------------------------------------------
PRO FORMA
MJD PRO FORMA NOTE BEFORE PRO FORMA NOTE PRO FORMA
HISTORICAL ADJUSTMENTS REF. ACQUISITION TPG ADJUSTMENTS REF. MJD
---------- ----------- -------- ----------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable........... $ 12,778 -- 12,778 2,296 -- 15,074
Current portion of
long-term debt and demand
notes payable............ 4,618 -- 4,618 6,169 (6,169) (7) 4,618
Accrued interest payable... 4,396 (196) (5) 4,200 1,470 (1,470) (7) 4,200
Other...................... 12,728 -- 12,728 5,841 -- 18,569
-------- -------- ------- -------- -------- -------
Total current
liabilities.......... 34,520 (196) 34,324 15,776 (7,639) 42,461
-------- -------- ------- -------- -------- -------
Long-term liabilities:
Long-term debt, net of
current portion.......... 458,529 (96,944) (5) 361,585 64,769 170,556 (7) 532,195
(64,715) (7)
Deferred income taxes...... 25,039 -- 25,039 4,712 -- 29,751
Other...................... 6,305 8,445 (1) 14,750 164 -- 14,914
-------- -------- ------- -------- -------- -------
Total long-term
liabilities.......... 489,873 (88,499) 401,374 69,645 105,841 576,860
-------- -------- ------- -------- -------- -------
Minority interest............ 443 -- 443 -- -- 443
-------- -------- ------- -------- -------- -------
Common stock subject to put
option..................... 3,000 (3,000) (3) -- -- -- --
Stockholders' equity
(deficit):
Preferred stock
Series D, nonvoting,
convertible............ -- 47 (1) 215 -- -- 215
168 (2)
Common stock
Class A voting........... 345 4 (1) 115 10 (10) (7) 115
(251) (2)
17 (3)
Class B nonvoting,
convertible............ -- 42 (1) 125 -- -- 125
83 (2)
Class C nonvoting,
convertible............ -- 42 (1) 42 -- -- 42
Additional paid-in capital... 48,793 150,837 (1) 230,862 29,990 (29,990) (7) 230,862
2,983 (3)
28,249 (4)
Accumulated other
comprehensive income....... 4,187 -- 4,187 -- -- 4,187
Unearned compensation........ -- (15,926) (4) (15,926) -- -- (15,926)
Retained earnings
(accumulated deficit)...... (64,906) (12,323) (4) (77,229) 9,917 (9,917) (7) (77,229)
-------- -------- ------- -------- -------- -------
Total stockholders'
equity (deficit)..... (11,581) 153,972 142,391 39,917 (39,917) 142,391
-------- -------- ------- -------- -------- -------
Total liabilities and
stockholders'
equity............... $516,255 62,277 578,532 125,338 58,285 762,155
======== ======== ======= ======== ======== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
16
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(UNAUDITED--AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR FINANCING ACTIVITIES FOR ACQUISITION
------------------------------------------------- ---------------------------------------------
PRO FORMA PRO FORMA
MJD PRO FORMA NOTE BEFORE BEFORE NOTE PRO FORMA
HISTORICAL ADJUSTMENTS REF. ACQUISITION TPG ACQUISITION REF. MJD
---------- ----------- -------- ----------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............ $147,539 -- 147,539 34,242 -- 181,781
Operating expenses:
Plant operations............ 21,088 -- 21,088 9,423 -- 30,511
Corporate and customer
service................... 54,901 -- 54,901 3,661 -- 58,562
Depreciation and
amortization.............. 31,632 -- 31,632 6,594 2,447 (8) 40,673
Cost of services resold..... 19,190 -- 19,190 -- -- 19,190
Other general and
administrative............ 9,028 16,570 (4) 25,598 4,479 -- 30,077
-------- -------- ------- ------ ------- -------
Total operating
expenses.............. 135,839 16,570 152,409 24,157 2,447 179,013
-------- -------- ------- ------ ------- -------
Operating income
(loss)................ 11,700 (16,570) (4,870) 10,085 (2,447) 2,768
-------- -------- ------- ------ ------- -------
Other income (expense):
Interest expense............ (51,185) 1,400 (5) (49,785) (5,663) (9,154) (9) (64,602)
Other, net.................. 4,930 -- 4,930 1,216 -- 6,146
-------- -------- ------- ------ ------- -------
Total other income
(expense)............. (46,255) 1,400 (44,855) (4,447) (9,154) (58,456)
-------- -------- ------- ------ ------- -------
Earnings (loss) before
income taxes and
minority interests.... (34,555) (15,170) (49,725) 5,638 (11,601) (55,688)
Income tax expense
(benefit)................... (5,615) (6,068) (6) (11,683) 2,186 (3,662) (10) (13,159)
Minority interests in income
of subsidiaries............. (100) -- (100) -- -- (100)
-------- -------- ------- ------ ------- -------
Income (loss) from continuing
operations.................. $(29,040) (9,102) (38,142) 3,452 (7,939) (42,629)
======== ======== ======= ====== ======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
17
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(UNAUDITED--AMOUNTS IN THOUSANDS)
FINANCING ACTIVITIES
The pro forma adjustments that give effect to the Financing Activities are
as follows:
(1) ISSUANCE OF CAPITAL STOCK
In January 2000, the Company realized net cash proceeds of $159,417,000 from
the issuance of capital stock. Capital stock issued by the Company included
307,200 shares of Class A common stock issued under stock options and warrants
for net cash proceeds of $135,000. The Company issued 4,673,920 shares of
convertible Series D preferred, 100,160 shares of Class A common stock,
4,243,728 shares of convertible Class B common stock, and 4,269,440 shares of
convertible Class C common stock for net cash proceeds of $159,282,000. Offering
expenses associated with the issuance of the capital stock were $23,445,100,
which includes a liability of $8,445,000 for transaction fees due to an existing
shareholder which is not payable until the shareholder liquidates all of their
holdings in the Company.
An entry has been made in the accompanying unaudited pro forma condensed
consolidated balance sheet to record the issuance of capital stock, which is
summarized as follows. Dollar amounts are presented in thousands.
<TABLE>
<CAPTION>
DOLLARS
--------
<S> <C>
Cash proceeds, net of expenses.............................. $159,417
Liability to shareholder for transaction fee................ 8,445
--------
Net additional capital from issuance of capital
stock............................................... $150,972
========
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
Capital stock issued:
Series D preferred................................... 4,673,920 $ 47
Class A common....................................... 407,360 4
Class B common....................................... 4,243,728 42
Class C common....................................... 4,269,440 42
Additional paid-in capital........................... 150,837
--------
Net additional capital........................... $150,972
========
</TABLE>
(2) EXCHANGE OF CAPITAL STOCK
In January 2000, the Company issued 16,787,800 shares of Series D preferred
stock and 8,300,000 shares of convertible Class B common stock in exchange for
25,087,800 shares of Class A common stock. The Class A common stock was retired
upon reacquisition. A pro forma entry has been made in the accompanying
unaudited pro forma condensed consolidated balance sheet to record the exchange
of capital stock, which is summarized as follows. Dollar amounts are presented
in thousands.
18
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES DOLLARS
----------- --------
<S> <C> <C>
Capital stock accounts:
Series D preferred.................................... 16,787,800 $ 168
Class A common........................................ (25,087,800) (251)
Class B common........................................ 8,300,000 83
=====
</TABLE>
(3) CANCELLATION OF PUT OBLIGATION
The Company was released from put obligations associated with shareholder
loan agreements secured by 1,752,000 shares of the Company's Class A common
shares. As a result, a pro forma entry has been made to the accompanying
unaudited pro forma condensed consolidated balance sheet to reclassify
$3,000,000 from temporary equity to permanent capital.
(4) COMPENSATION EXPENSE
In January 2000, the Company recognized aggregate compensation expense of
$12,323,293 related to transactions involving employee stock options. Those
transactions included the modification of options to purchase 40,600 shares of
Class A common stock ($463,002), the settlement of options to purchase 260,340
shares of Class A common stock for cash ($3,349,665), and settlement of
compensatory cash payment obligations with employee-shareholders ($8,510,626).
In addition, the Company's board of directors approved the issuance of
compensatory stock options ($15,925,718) and cash bonus commitments ($5,308,573)
to participants in a subsidiary's stock option plan in exchange for the
cancellation of all existing stock options issued by the subsidiary. The
compensatory options and cash bonuses will be recognized in expense over the
five-year vesting period. The transaction is pending approval by the
participants in the subsidiary's stock option plan.
A pro forma entry has been made to the accompanying unaudited pro forma
condensed consolidated balance sheet to give effect to these compensation
events, which is summarized as follows. Amounts are presented in thousands.
<TABLE>
<CAPTION>
<S> <C>
Compensation expense:
Modification of stock options............................. $ 462
Settlement of stock options for cash...................... 3,350
Employee shareholder cash payment obligations............. 8,511
-------
Net expense charged to retained earnings.............. 12,323
Unearned compensation....................................... 15,926
-------
Additional paid-in capital............................ $28,249
=======
</TABLE>
19
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
An entry has also been made to the accompanying unaudited pro forma
condensed consolidated statement of operations to record the effects of the
compensation charges in 1999. The compensation charge consists of the following
components:
<TABLE>
<CAPTION>
<S> <C>
Modification of stock options............................... $ 462
Settlement of stock options for cash........................ 3,350
Employee shareholder cash payment obligations............... 8,511
Amortization of unearned compensation....................... 3,185
Accrual of bonus commitment................................. 1,062
-------
Net expense........................................... $16,570
=======
</TABLE>
(5) LONG-TERM DEBT
In January 2000, the Company borrowed an additional $5,400,000 under its
subsidiary's senior secured revolving credit facility at 10.75%. On January 20,
2000, the Company repaid borrowings of $75,196,802 under it's senior secured
revolving credit facility and $27,146,966 under its subsidiary's senior secured
revolving credit facility at 10.00%, including accrued interest expense of
$196,309.
A pro forma entry has been made to the accompanying unaudited pro forma
condensed consolidated balance sheet to give effect to the net repayment of
these liabilities ($96,943,768) and accrued interest ($196,309) from the
proceeds from the issuance of the Company's capital stock.
An entry has also been made to the accompanying unaudited pro forma
condensed consolidated statement of operations to reduce interest expense
($1,400,000) for borrowings repaid in connection with the Financing Activities.
(6) INCOME TAXES
An entry has been made to the accompanying unaudited pro forma condensed
consolidated statement of operations to give effect to the income tax benefit
($6.1 million) of deductible compensation and interest expenses at an assumed
statutory rate of 40.0%.
ACQUISITION OF TPG COMMUNICATIONS, INC.
On December 23, 1999, the Company entered into a definitive agreement to
acquire all of the common stock of TPG Communications, Inc. ("TPG"). The closing
of the acquisition occurred on April 3, 2000. The acquisition of TPG will be
accounted for using the purchase method of accounting. Cash proceeds from the
Financing Activities and additional borrowings under the Company's credit
facilities were used to consummate the acquisition of TPG.
20
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The pro forma adjustments that give effect to the acquisition of TPG are as
follows.
(7) PURCHASE OF TPG
The total purchase price for the acquisition of TPG was cash of
$146,347,211, including estimated direct costs of acquisition of $1,005,0000. A
summary of the purchase price for the acquisition of TPG is as follows. Amounts
are presented in thousands:
<TABLE>
<S> <C> <C>
Purchase price payable to TPG shareholders................ 145,342
Direct costs of acquisition............................... 1,005
-------
Total purchase price................................ 146,347
Debt issued in acquisition................................ 170,556
Debt retired in acquisition, including accrued interest... (72,354) 98,202
------- -------
Net decrease to cash................................ 48,145
=======
</TABLE>
The acquisition, including the repayment of TPG's long-term debt, has been
financed through additional borrowings of $170,556,718 under the Company's
existing debt facilities (interest rate of 8.69%) and from proceeds from the
Financing Activities. The purchase price has been allocated to the assets and
liabilities of TPG, as summarized in the following table. Amounts are presented
in thousands.
<TABLE>
<S> <C>
Current assets.............................................. 14,128
Long-term assets............................................ 71,198
Goodwill.................................................... 146,442
Current liabilities......................................... (15,776)
Noncurrent liabilities...................................... (69,645)
-------
Total purchase price.................................. 146,347
=======
</TABLE>
Goodwill of $146.4 million on the acquisition of TPG will be amortized over
an estimated useful life of 40 years. The Company believes that there are no
other identifiable intangible assets associated with the acquisition.
An entry has been made to the accompanying unaudited pro forma condensed
consolidated balance sheet to record the elimination of TPG's equity accounts
($39.9 million), allocate excess purchase price to goodwill on the acquisition
of TPG ($146.4 million), eliminate pre-existing goodwill recorded by TPG
($40.0 million), record new borrowings under long-term debt facilities
($170.6 million), repayments of TPG long-term debt ($70.9 million) and accrued
interest payable ($1.5 million), and a net reduction in cash ($48.1 million).
(8) AMORTIZATION EXPENSE
An entry has been made to the accompanying unaudited pro forma condensed
consolidated statement of operations to eliminate amortization expense for
preacquisition goodwill recognized by TPG and to
21
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
amortize goodwill arising from the Company's acquisition of TPG. The entry
consists of the following components. Amounts are presented in thousands.
<TABLE>
<S> <C>
Amortization expense-
Goodwill from acquisition of TPG.......................... $ 3,660
TPG's pre-existing goodwill............................... (1,213)
-------
Net adjustment required............................... $ 2,447
=======
</TABLE>
(9) INTEREST EXPENSE
An entry has been made to the accompanying unaudited pro forma condensed
consolidated statement of operations to eliminate interest expense on TPG's
preacquisition long-term debt and to record interest expense on the debt issued
by the Company in connection with the acquisition. The entry consists of the
following components. Amounts are presented in thousands.
<TABLE>
<S> <C>
Interest expense for:
Borrowings of $170,556 made by the Company in connection
with the acquisition of TPG............................... $14,818
Borrowings of $70,938 by TPG, retired upon acquisition...... (5,664)
-------
Net adjustment required............................... $ 9,154
=======
</TABLE>
(10) INCOME TAXES
An entry has been made to the accompanying unaudited pro forma condensed
consolidated statement of operations to give effect to the income tax effect
($3.7 million) of deductible interest expense incurred in connection with the
acquisition of TPG at an assumed statutory rate of 40.0%.
22
<PAGE>
EXHIBIT 2.2
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FIRST AMENDMENT
DATED AS OF MARCH 31, 2000
TO
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 23, 1999
BY AND AMONG
MJD VENTURES, INC.
TPG COMMUNICATIONS, INC.
TPG PARTNERS, L.P.,
TPG PARALLEL I, L.P.,
J. MILTON LEWIS
AND
ROBERT DI PAULI
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
FIRST AMENDMENT (this "First Amendment") dated as of March 31, 2000 to STOCK
PURCHASE AGREEMENT (the "Stock Purchase Agreement"), dated as of December 23,
1999, by and among MJD Ventures, Inc. ("MJD"), TPG Communications, Inc.
("TPGC"), TPG Partners, L.P. ("TPGP"), TPG Parallel I, L.P. ("TPGI"), J. Milton
Lewis ("Lewis") and Robert Di Pauli ("Di Pauli").
WHEREAS, MJD, TPGC, TPGP, TPGI, Lewis and Di Pauli are parties to a Stock
Purchase Agreement dated as of December 23, 1999; and
WHEREAS, the parties hereto desire to amend the Stock Purchase Agreement and
certain related agreements upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used and not otherwise defined
herein shall have the respective meanings assigned to them in the Stock Purchase
Agreement.
ARTICLE II
AMENDMENTS TO THE STOCK PURCHASE AGREEMENT
Section 2.1 AMENDMENT TO ARTICLE 2. Article 2 of the Stock Purchase
Agreement is hereby amended by adding new Sections 2.6 and 2.7 following
Section 2.5 which shall read as follows:
Section 2.6 FURTHER AGREEMENTS RELATED TO PRELIMINARY BALANCE
SHEET. Notwithstanding anything in this First Amendment to the contrary,
the balance sheet identified as "March 31, 2000 Balance Sheet" included in
the document attached hereto as Exhibit A shall constitute the Preliminary
Balance Sheet and the amount identified as the "Adjusted Purchase Price"
thereon shall constitute the aggregate amount to be paid to the Sellers, the
Stock Option Holders and the Plan Participants pursuant to
Section 2.2(a)(i) of the Stock Purchase Agreement on the Closing Date and
$70,884,270.91 shall be the amount of Indebtedness for Borrowed Money
payable to the holders of Indebtedness for Borrowed Money outstanding as of
the Effective Time pursuant to Section 2.2(a)(iii) of the Stock Purchase
Agreement on the Closing Date. Notwithstanding anything in this First
Amendment to the contrary, the Purchase Price, as calculated for purposes of
Section 2.2(b), shall be calculated without regard to the interest amount of
$79,547.40 reflected in the Preliminary Balance Sheet.
Section 2.7 CLOSING DATE. Notwithstanding anything in the Stock
Purchase Agreement to the contrary, the Closing shall take place at the
offices of Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York,
New York 10022 at 9:00 a.m. local time on April 3, 2000. The parties agree
that the Closing Date shall be April 3, 2000 for all purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS OF THE PARTIES. Each of the parties hereto
hereby represents and warrants, as to itself only to the other parties hereto
that this First Amendment has been duly executed and delivered by such party and
(assuming this First Amendment has been duly authorized, executed and delivered
by the other parties hereto) constitutes a legal, valid and binding agreement of
such party, enforceable against such party in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws, now or
hereafter in effect, relating to creditors' rights generally and (ii) the remedy
of specific
<PAGE>
performance and injunctive and other forms of equitable relief, may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
ARTICLE IV
MISCELLANEOUS
Section 4.1 AMENDMENT. All references in the Stock Purchase Agreement
(and in the other agreements, documents and instruments entered into in
connection therewith) to the "Agreement", the "Purchase Agreement", or the
"Stock Purchase Agreement" shall be deemed for all purposes to refer to the
Stock Purchase Agreement as amended by this First Amendment.
Section 4.2 LIMITED EFFECT. Except as expressly modified herein, the
Stock Purchase Agreement shall continue to be, and shall remain, in full force
and effect and the valid and binding obligation of the parties thereto in
accordance with its terms.
Section 4.3 COUNTERPARTS. This First Amendment may be executed in two or
more counterparts, each of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties.
Section 4.4 GOVERNING LAW. This First Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the date first written above.
<TABLE>
<S> <C> <C>
SELLERS:
TPG PARTNERS, L.P.
TPG GENPAR, L.P.
By: TPG ADVISORS, INC.
By: /s/ RICHARD A. EKLEBERRY
-----------------------------------------
Name: Richard A. Ekleberry
Title: Vice President
TPG PARALLEL I, L.P.
TPG GENPAR, L.P.
By: TPG ADVISORS, INC.
By: /s/ RICHARD A. EKLEBERRY
-----------------------------------------
Name: Richard A. Ekleberry
Title: Vice President
/s/ J. MILTON LEWIS
-----------------------------------------
J. Milton Lewis
/s/ ROBERT DI PAULI
-----------------------------------------
Robert Di Pauli
BUYERS:
MJD VENTURES, INC.
By: /s/ EUGENE B. JOHNSON
-----------------------------------------
Name: Eugene B. Johson
Title: Executive Vice President
TPGC:
TPG COMMUNICATIONS, INC.
By: /s/ ROBERT DI PAULI
-----------------------------------------
Name:
Title:
</TABLE>
