<PAGE> 1
[CORECOMM LETTERHEAD]
CORECOMM LIMITED ANNOUNCES FINANCING COMMITMENTS AND
FINANCIAL RESULTS FOR THE SECOND QUARTER OF 2000
ANNOUNCES $310 MILLION OF FINANCING
SUCCESSFUL IMPLEMENTATION OF BUNDLING STRATEGY AND "CORE.COM" INTERNET-CENTRIC
SERVICE DELIVERY
New York, New York (August 14, 2000) - CoreComm Limited (NASDAQ: COMM) announced
today its operating results for the three months ended June 30, 2000, and that
it has obtained significant funding commitments toward the financing of its
recently announced acquisitions as well as ongoing operations.
Barclay Knapp, Chief Executive, stated: "We are pleased to announce that we have
been successful in raising commitments for significant amounts of capital toward
the funding of our acquisitions and future operations. The Company has
successfully obtained $310 million in committed financing sources: $150 million
in the form of a commitment for a fully underwritten bank financing, which has
been provided by the Chase Manhattan Bank; $110 million in the form of Senior
Notes, which are available to be issued to the shareholders of ATX
Telecommunications, Inc. at the time of the closing of the acquisition; and $50
million in the form of Convertible Preferred Stock. We believe that this
demonstrates our continued ability to raise capital, even in difficult financial
markets.
"We are also pleased to announce another successful quarter of operational
results. In all areas of the business, we have made significant strides this
year. Our new bundled telephone and Internet offering to the residential market
is showing results, as more than 50% of our gross adds in the second quarter
chose our 'E-chat' bundled service package. Under this offering, customers can
receive telephone and dial-up Internet service for the same amount they are
paying today for telephone service alone from the incumbent.
"In addition, we have begun to demonstrate the value of building our
'Internet-centric' service delivery systems. Today, potential residential
customers can go to our www.core.com site and, in a unique, fully online
process, change their phone and Internet service to CoreComm. In June, only four
months after the launch, more than 15% of our orders came directly through our
web site. We will continue to expand the functionality of this site throughout
the year.
"We continued the buildout of our local 'smart build' networks, and our Detroit
switch has recently become operational, joining Chicago, Cleveland, and
Columbus. We are connecting customers directly to these networks (on-net), as
well as successfully migrating existing resale customers to on-net. Our
proprietary information systems and our fully electronically bonded provisioning
systems continue to demonstrate their significant efficiency and accuracy.
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CoreComm Limited
August 14, 2000
Page 2
"We look forward to combining our internal operational success with the
acquisitions of ATX and Voyager.net, both of which will significantly advance
our business plan. We recently completed our proxy review process with the SEC,
and expect to close both transactions in September. With the significant
financing commitments in place, we look forward to completing these
acquisitions, and further developing the combined company into a major national
Internet and telecommunications provider in the U.S."
OPERATING HIGHLIGHTS
The Company made significant developments in the second quarter:
- Pro forma for the pending acquisitions of Voyager and ATX, CoreComm had
the following subscribers:
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Residential Local Access Lines 36,000
Business Local Access Lines 195,000
Long Distance Access Line Equivalents 359,000
Internet Subscribers 460,000
Total Revenue Generating Units 1,050,000
</TABLE>
- Our fully integrated telephone and Internet residential product
packages are demonstrating success. Called "e-chat", the service
includes local telephone, long distance telephone, and Internet access
for the same amount as telephone alone from the incumbent telephone
provider. 52% of total new residential customers in the second quarter
(and 90% of those customers who used our web site to sign up for
service) chose the e-chat package. The packages, which vary slightly by
region, include: local telephone service, local calling plans,
telephone features (call waiting and caller-ID), long distance service
(10 cents per minute), a personal toll free 800-number, as well as
premium Internet service with unlimited access, multiple e-mail
addresses and personal web space. Customers can flexibly upgrade their
package to include more services such as additional telephone features,
a second line, minutes of long distance, and additional e-mail
addresses.
- In July, our Class 5 switch and collocation facilities became
operational in Detroit, Michigan, joining Chicago, Cleveland, and
Columbus as areas where we are facilities-based. We are currently
adding customers onto the switch, and have begun to expand existing
marketing efforts in both the residential and business markets.
- Our www.core.com web site continued its development, with an increasing
number of hits and orders for service, and greater functionality.
Through this unique site, customers can change their local phone and
other services to CoreComm through an automated, online process. 15% of
new residential orders in June came in over the web site, and 74% of
such customers continued to use the web for online support. In the
second quarter, the site averaged approximately 68,000 hits per day. A
key part of our strategy is to become fully "Internet-centric",
allowing all of our customers to communicate with us online, thus both
increasing convenience to the customer and also lowering our operating
costs.
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CoreComm Limited
August 14, 2000
Page 3
- We launched DSL service to residential and business customers in
Cleveland, Chicago and Columbus. Called "Speed-e DSL", the service
gives customers the ability to access the Internet at a variety of high
speeds. Our strategy is to provide DSL both over our own facilities, as
well as in expanded territories through resale of other DSL providers.
- We have already begun our integration efforts with respect to the
pending acquisitions of ATX and Voyager.net. Although we do not
anticipate completing the acquisitions until September, we have begun
the design of our interconnected voice and Internet networks, and the
integration of certain operating functions and cross marketing plans.
NON-CASH COMPENSATION CHARGE
In the second quarter, the company recorded a non-cash compensation charge of
approximately $32 million, which is related to the issuance of options to
employees. In January 1999, CoreComm, Inc., one of CoreComm's wholly owned
subsidiaries, adopted a stock option plan. Options granted under the plan were
not to become exercisable unless and until there was either a registered public
offering of CoreComm Inc.'s common stock or a spin-off of CoreComm, Inc.
However, under the terms of the options granted under that plan, CoreComm
reserved the right to cancel the plan and issue new options in the parent
company, CoreComm Limited. In April 2000, the compensation and option committee
of CoreComm's board of directors approved the cancellation of the CoreComm, Inc.
plan and the issuance of options to purchase approximately 2.7 million shares of
CoreComm Limited common stock. Such options were granted primarily to
individuals in place of options in the public company, in general recognition of
service between 1997 and 1999. This strike price for these grants is $14.55
which the committee deemed to be the equivalent CoreComm Limited strike price
given the underlying value of the CoreComm, Inc. strike price. The new strike
price is approximately 130% of the fair market value of our common stock as of
August 11, 2000, but was approximately 30% of the fair market value of our
common stock on the date of the board approval, giving rise to the non-cash
charge. Eligibility for receiving the new grants was determined by, among other
things, continued employment with CoreComm. A total of approximately $28 million
of remaining non-cash deferred expense will be charged to non-cash compensation
expense in annual amounts over the next four years in accordance with the
vesting of the options. All such options will be fully vested by 2003.
RECENT DEVELOPMENTS
FINANCING
The Company announced today $310 million of committed financing sources:
- $150 million in the form of a commitment for a fully underwritten
senior secured credit facility by Chase Manhattan Bank. $100
million will be in a term loan facility, and $50 million will be
in a revolving credit facility. Chase Securities Inc. will act as
Sole Lead Arranger and Book Manager. The Chase Manhattan Bank will
act as Administrative Agent. Terms will be established with the
final documentation of the facilities.
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CoreComm Limited
August 14, 2000
Page 4
- $110 million in the form of Senior Notes, which may be issued to
the shareholders of ATX at the time of closing of the acquisition.
The Senior Notes have a three-year maturity and a 7% interest
rate, which may be paid in cash or common stock. The Senior Notes
may be used, at CoreComm's option, to replace cash consideration
in the acquisition of ATX.
- $50 million in the form of Convertible Preferred Stock. The
Convertible Preferred Stock has a 10 year maturity and an 8.5%
interest rate, which may be paid in common stock or additional
shares of preferred stock, and a conversion price of $16.50 per
share.
The completion of these financings are subject to obtaining approximately $50
million of financing on terms that would be subordinated to the bank facility,
completion of definitive documentation and customary and other final closing
conditions, including, in certain cases, the completion of the acquisitions of
ATX and Voyager.net. We expect to complete all of these conditions in the next
several weeks.
ACQUISITIONS
On March 10, 2000, the Company announced that it had entered into a definitive
agreement to acquire ATX Telecommunications Services, Inc. ("ATX"), which is a
facilities based CLEC and integrated communications provider serving the
Mid-Atlantic states. The transaction is subject to regulatory and CoreComm
shareholder approval and other customary closing conditions.
On March 13, 2000, the Company and Voyager.net, Inc. ("Voyager.net") announced a
definitive agreement for CoreComm to acquire Voyager.net in a stock and cash
transaction. Voyager.net is the largest independent full-service Internet
communications company in the Midwest, and is rapidly expanding into DSL
delivery of its services. The transaction is subject to shareholder approval and
other customary closing conditions. Holders of over a majority of the voting
shares of Voyager.net have entered into an agreement with the Company to vote in
favor of the transaction.
FIBER STRATEGY
Today CoreComm announced the formation of a new subsidiary to take the power of
fiber optic networks directly to the home. The new unit, CoreComm FiberCo., will
initially concentrate on bringing fiber directly to multiple dwelling units
(MDUs) located in CoreComm's service areas. CoreComm FiberCo.'s
fiber-to-the-home (FTTH) offering will include telephony service bundled with 10
megabit per second Ethernet access and a full Internet service at a very
attractive price point. The network architecture is based on Ethernet
technology, which, as a widespread standard, is easier to install, more reliable
and more customer friendly than other technologies. CoreComm is forming the
FiberCo. unit as a separate subsidiary in order to create focus and to
facilitate financing.
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CoreComm Limited
August 14, 2000
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FINANCIAL RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
2000 1999 (1)
--------- ---------
(in thousands, except per
share data)
<S> <C> <C>
REVENUES $ 19,397 $ 12,436
COSTS AND EXPENSES
Operating 27,854 11,302
Selling, general and administrative 27,988 13,736
Corporate 2,800 1,851
Non-cash compensation 32,186 --
Nonrecurring charges (408) --
Depreciation and amortization 10,056 2,303
--------- ---------
100,476 29,192
--------- ---------
Operating (loss) (81,079) (16,756)
OTHER INCOME (EXPENSE)
Net interest and other (2,044) 1,102
Income tax provision (67) (400)
--------- ---------
Net (loss) $ (83,190) $ (16,054)
========= =========
Basic and diluted net (loss) per share $ (2.08) $ (.51)
========= =========
Weighted average shares 40,047 31,527
========= =========
</TABLE>
(1) As a result of the completion of the acquisitions of 100% of the stock of
MegsINet Inc. and the CLEC assets of USN Communications, Inc. in May 1999, the
Company consolidated the results of operations of these businesses from the
dates of acquisition.
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CoreComm Limited
August 14, 2000
Page 6
DISCUSSION OF SECOND QUARTER RESULTS
The increase in revenues to $19,397,000 from $12,436,000 is primarily due to
acquisitions in 1989. The remainder of the increase is due to an increase in
customers, offset by the decline in prepaid cellular debit card and cellular
long distance revenues as a result of our termination of these services in the
third quarter of 1999. We had revenues of $811,000 in the three months ended
June 30, 1999 from the provision of these services.
Operating costs increased to $27,854,000 from $11,302,000 as a result of an
increase in the fixed component of operating expenses due to our migration to a
facilities-based infrastructure. Operating costs as a percentage of revenues is
expected to remain higher than 1999 levels until customer and revenue growth
exceeds the increase in facilities-based infrastructure costs. In the three
months ended June 30, 1999, operating costs included $663,000 related to the
prepaid cellular debit card and cellular long distance services.
Selling, general and administrative expenses increased to $27,988,000 from
$13,736,000 primarily due to increases in selling and marketing costs and
customer service costs. These costs are expected to increase in the foreseeable
future as we grow our operations and customer base.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses were $2,800,000 in
2000 and $1,851,000 in 1999.
In April 2000, the Compensation and Option Committee of the Board of Directors
approved the issuance of options to purchase approximately 2.7 million shares of
the Company's common stock to various employees at an exercise price which was
less than the fair market value of the Company's common stock on the date of the
grant. In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in April 2000 the Company recorded a non-cash compensation expense
of approximately $29.0 million and a non-cash deferred expense of approximately
$31.3 million. In the three months ended June 30, 2000, $3.2 million of the
deferred non-cash compensation was charged to expense. The Company will charge
the deferred expense to non-cash compensation expense over the vesting period of
the stock options as follows: $6.5 million in 2000, $12.9 million in 2001, $7.5
million in 2002 and $1.2 million in 2003.
Nonrecurring charges of $1,018,000 in the six months ended June 30, 2000 are for
restructuring costs relating to the Company's announcement in March 2000 of a
reorganization of certain of its operations. The original charge consisted of
employee severance and related costs of $580,000 for approximately 70 employees
to be terminated, primarily from the sales and customer operations departments,
and lease exit costs of $846,000. As of June 30, 2000, $441,000 of the provision
had been used, including $164,000 for employee severance and related costs and
$277,000 for lease exit costs. As of June 30, 2000, $408,000 of the provision
had been reversed, including $165,000 due to a reduction in the number of
employees who will receive severance payments and $243,000 due to a reduction in
the number of facilities to be closed. As of June 30, 2000, none of the
employees to be terminated remain with the Company. The provision for severance
and related costs will be used in 2000 and the provision for leases will be used
through 2003.
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CoreComm Limited
August 14, 2000
Page 7
Depreciation and amortization expense increased to $10,056,000 from $2,303,000
primarily as a result of an increase in fixed assets and acquisitions in 1999.
Net interest and other decreased to expense of $2,044,000 from income of
$1,102,000 primarily due to interest on the 6% Convertible Subordinated Notes
issued in October 1999 and interest on notes payable and capital leases of
acquired businesses.
A significant component of the 2000 results is associated with the acquisition
of certain assets of USN. Although USN quickly developed a large customer list
and revenue base in 1997 and 1998, it had difficulties under its previous
management providing services, including billing, customer care and other
operational areas, and filed for bankruptcy in February 1999. Since the
acquisition, we have been focusing on improving these operations, and have been
successful in many areas. However, we did not actively continue to sell
additional lines in these markets because we were not fully satisfied with the
quality of the operations. Consequently, and consistent with our due diligence,
transaction structure and purchase price, revenues associated with the USN
assets have declined significantly since our acquisition, and additional
declines may continue as customers leave or "churn" off the service.
***
CoreComm is an innovative communications company that provides integrated
telephone, Internet and data services to business and residential customers in
targeted markets throughout the United States. We are exploiting the convergence
of telecommunications and information services through a smart build strategy,
which involves the ownership of switches and related equipment for the
provisioning of services, and the leasing of the unbundled local loop, combined
with the provisioning of an IP-based, national network. This configuration of
local and national owned and leased facilities allows us to deliver a wide range
of communications services over a network architecture that we design to be
capital efficient and primarily requires success-based incremental capital. Our
goal is to expand our facilities, geography and services to become a leading
switch-based communications provider in selected major markets across the United
States.
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CoreComm Limited
August 14, 2000
Page 8
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In addition to the historical information presented, this release also includes
certain forward-looking statements concerning trends in operating results. Such
statements represent the Company's reasonable judgment on the future and are
based on assumptions and factors that could cause actual results to differ
materially. Examples of relevant assumptions and factors include, but are not
limited to, general economic and business conditions, the Company's ability to
continue to design and deploy efficient network routes, obtain and maintain any
required regulatory licenses or approvals and finance network development, all
in a timely manner, at reasonable costs and on satisfactory terms and
conditions, as well as assumptions about customer acceptance, churn rates,
overall market penetration and competition from providers of alternative
services, the impact of new business opportunities requiring significant
up-front investment, and availability, terms and deployment of capital. The
Company assumes no obligation to update these forward-looking statements to
reflect actual results, changes in assumptions or changes in factors affecting
such statements.
For further information please contact: Michael A. Peterson, Vice President -
Corporate Development or Richard J. Lubasch, Senior Vice President - General
Counsel at (212) 906-8485.
