<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________
COMMISSION FILE NO. 333-58693
------------------------
LOGIX COMMUNICATIONS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OKLAHOMA 73-1533356
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
3555 NW 58TH,
TENTH FLOOR
OKLAHOMA CITY, OKLAHOMA 73112
(Address of principal executive offices) (Zip Code)
</TABLE>
(405) 516-8400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO 12(G) OF THE ACT: NONE
------------------------
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 July 31, 2000, there were 71,250,000 shares of the registrant's $.01
par value Class A Common Stock outstanding, of which 1,752,242 shares were
beneficially owned by persons not affiliated with the registrant. There is no
established market value for the registrant's Class A Common Stock.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
--------------------- --------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
1 Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999....................................... 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999........ 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999...................... 5
Notes to Condensed Consolidated Financial Statements........ 6
2 Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 13
3 Quantitative and Qualitative Disclosure About Market Risk... 21
PART II. OTHER INFORMATION
1 Legal Proceedings........................................... 22
2 Changes in Securities and Use of Proceeds................... 22
3 Defaults Upon Senior Securities............................. 22
4 Submission of Matters to a Vote of Security Holders......... 22
5 Other Information........................................... 22
6 Exhibits and Reports on Form 8-K............................ 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 729 $ 672
Restricted cash and investments........................... 41,284 40,079
Accounts receivable, net.................................. 17,734 21,792
Receivables--affiliates................................... 1,676 1,376
Prepaid expenses.......................................... 814 3,269
Other current assets...................................... 1,062 1,581
--------- ---------
Total current assets.................................... 63,299 68,769
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 120,639 121,136
--------- ---------
OTHER ASSETS:
Restricted cash and investments........................... -- 21,062
Goodwill, net............................................. 114,294 121,279
Deferred financing costs, net............................. 11,111 13,345
Excess of cost over original cost of assets acquired,
net..................................................... 2,439 2,486
Investment in unconsolidated partnership and other........ 1,812 1,886
Other intangibles, net.................................... 3,756 4,698
--------- ---------
Total other assets...................................... 133,412 164,756
--------- ---------
Total assets............................................ $ 317,350 $ 354,661
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 10,748 $ 23,776
Accrued expenses.......................................... 12,054 9,086
Deferred revenue and customer deposits.................... 2,498 2,346
Current portion of long-term debt......................... 1,370 1,404
--------- ---------
Total current liabilities............................... 26,670 36,612
--------- ---------
LONG-TERM DEBT, net of current portion...................... 384,209 438,330
INVESTMENT TAX CREDITS...................................... 94 99
COMMITMENTS (Note 4)
SENIOR EXCHANGEABLE PREFERRED STOCK......................... 94,923 --
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 100,000,000 shares
authorized and 71,250,000 shares issued and
outstanding............................................. 713 713
Paid-in capital........................................... 11,448 11,448
Retained deficit.......................................... (200,707) (132,541)
--------- ---------
Total stockholder's deficit............................. (188,546) (120,380)
--------- ---------
Total liabilities and stockholder's deficit................. $ 317,350 $ 354,661
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE....................................... $ 29,234 $ 28,187 $ 56,248 $ 56,741
OPERATING EXPENSES:
Cost of service............................. 21,756 21,252 46,613 41,547
Selling, general and administrative......... 13,456 14,166 31,711 27,466
Loss on disposition......................... 3,847 -- 3,847 --
Depreciation and amortization............... 6,553 4,939 12,774 9,477
---------- ---------- ---------- ----------
Total operating expenses.................. 45,612 40,357 94,945 78,490
---------- ---------- ---------- ----------
OPERATING LOSS................................ (16,378) (12,170) (38,697) (21,749)
OTHER INCOME (EXPENSES):
Equity in income (loss) of unconsolidated
partnership............................... (6) 38 (5) 84
Interest income............................. 921 1,507 1,899 3,282
Interest expense............................ (11,066) (11,515) (25,574) (23,194)
Other....................................... 172 2 175 (2)
---------- ---------- ---------- ----------
Total other expenses, net................. (9,979) (9,968) (23,505) (19,830)
LOSS BEFORE EXTRAORDINARY ITEM................ (26,357) (22,138) (62,202) (41,579)
EXTRAORDINARY ITEM (Note 2)................... -- -- (2,533) --
---------- ---------- ---------- ----------
NET LOSS...................................... $ (26,357) $ (22,138) $ (64,735) $ (41,579)
DIVIDENDS ON PREFERRED STOCK.................. (3,431) -- (3,431) --
---------- ---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.... $ (29,788) $ (22,138) $ (68,166) $ (41,579)
========== ========== ========== ==========
BASIC NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE:
Before extraordinary item................... $ (.42) $ (.31) $ (.92) $ (.58)
Extraordinary item.......................... -- -- (.04) --
---------- ---------- ---------- ----------
BASIC NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS PER COMMON SHARE............... $ (.42) $ (.31) $ (.96) $ (.58)
========== ========== ========== ==========
BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................. 71,250,000 71,250,000 71,250,000 71,250,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(64,735) $(41,579)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 12,774 9,477
Amortization of bond premium and financing costs........ 784 985
Disposition of business................................. 3,847 --
Deferred investment tax credits......................... (5) (5)
Equity in (income) loss of unconsolidated partnership... 5 (84)
Extraordinary loss on financing costs................... 2,533 --
Changes in current assets and liabilities--
Accounts receivable..................................... 3,974 (4,251)
Prepaid expenses........................................ 2,455 (463)
Other current assets.................................... 301 (859)
Accounts payable........................................ (13,028) (4,519)
Accrued expenses........................................ 2,968 1,173
Other current liabilities............................... (411) 170
-------- --------
Net cash used in operating activities................. (48,538) (39,955)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (6,996) (27,791)
Acquisitions of businesses................................ -- 171
Purchase of other assets.................................. (92) (552)
Receivable--affiliates, net............................... (300) 4,500
Investment in unconsolidated partnership and other........ (128) --
-------- --------
Net cash used in investing activities................. (7,516) (23,672)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 46,141 17,500
Repayments of long-term debt.............................. (50,296) (649)
Sale of senior exchangeable preferred stock............... 41,492 --
Interest on restricted investments........................ (1,693) (2,725)
Maturities of restricted investments...................... 21,438 21,438
Deferred financing costs.................................. (971) (914)
-------- --------
Net cash provided by financing activities............. 56,111 34,650
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 57 (28,977)
CASH AND CASH EQUIVALENTS, beginning of period.............. 672 31,675
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 729 $ 2,698
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)....... $ 28,319 $ 23,298
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Dividends issued on the Senior Exchangeable Preferred
Stock................................................... $ 3,431 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION:
Logix Communications Enterprises, Inc. (the "Company" or "Logix") was
incorporated as an Oklahoma corporation under the name Dobson Wireline Company
in December 1997, as part of a reorganization by its former parent company,
Dobson Communications Corporation ("Dobson Communications"). Its name was
changed to Logix Communications Enterprises, Inc. in October 1998. On
January 24, 2000, Dobson Communications distributed Logix's stock to certain
Dobson Communications' shareholders.
Logix is a leading provider of integrated local and long distance, data and
other telecommunications services to small and medium-sized business customers
throughout its region. The Company provides these services through two business
segments: integrated communications provider ("ICP") operations and incumbent
local exchange carrier ("ILEC") operations. The Company has operations in
Oklahoma, Texas, Colorado, Missouri and Arkansas.
ICP
The Company commenced its ICP operations in December 1997 through its
subsidiary, Logix Communications Corporation ("LCC"). The Company's ICP
operations generate revenue from local exchange, intrastate and interstate
services, enterprise network, enhanced data, Internet and intranet services,
private line, integration services and long-haul transport services. The Company
currently provides these services primarily to customers in markets in Arkansas,
Colorado, Missouri, Oklahoma and Texas. As of June 30, 2000, the Company's ICP
operations served 62,498 access lines equivalents compared to 44,445 access
lines equivalents as of June 30, 1999. The increase was mainly due to the
Company's internal growth and expansion into seven additional cities in Texas,
Missouri and Arkansas.
The Company has a 20% interest in and manages the Forte of Colorado, General
Partnership which provides fiber optic telecommunication service between
Springfield, Colorado and Colorado Springs, Colorado. The entity which holds the
20% interest is Dobson Fiber/FORTE of Colorado, Inc.
LCC's operations are affected by the competitive environment in which LCC
operates. LCC's performance will further be affected by its ability to develop a
sufficient customer base, attract, retain, and motivate qualified personnel,
lease adequate trunking capacity from ILECs or other ICPs, and complete the
integration of its operations support systems and other back office systems.
LCC's networks and telecommunications services are subject to significant
regulation at the federal, state and local levels. Delays in receiving required
regulatory approvals or the enactment of new adverse regulation or regulatory
requirements may have an adverse effect upon LCC. Although management believes
that LCC will be able to successfully mitigate these risks, there is no
assurance that LCC will be able to do so or that LCC will operate profitably in
the near future. Expenses are expected to exceed revenues in each location in
which LCC offers service until a sufficiently large customer base is established
to generate substantial additional revenues.
ILEC
The Company, through Dobson Telephone Company, Inc. ("Dobson Telephone"),
provides wireline telephone service to nine adjoining exchanges in western
Oklahoma and three adjoining exchanges adjacent to the eastern Oklahoma City
metropolitan area. Dobson Telephone operates under the authority
6
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION: (CONTINUED)
of the Federal Communications Commission ("FCC"). Rates charged by Dobson
Telephone are regulated by the FCC and the Oklahoma Corporation Commission.
Dobson Telephone, like other wireline companies that operate in rural areas
where the cost to provide service is higher than normal, receives high cost
support funds from state jurisdictions and the federal universal service fund.
Approximately 35.4% and 33.7%, or $1.5 million and $1.2 million, for the three
months ended June 30, 2000 and 1999, respectively, and 33.8% and 31.5%, or
$2.5 million and $2.4 million, for the six months ended June 30, 2000 and 1999,
respectively, of the Company's ILEC operations was from these two sources. The
Company's ILEC operations served 13,523 access lines as of June 30, 2000 and
13,629 access lines as of June 30, 1999.
CAPITAL RESOURCES AND GROWTH
The Company's successful implementation of its strategy, including the
further expansion of its customer base is dependent upon securing adequate
capital resources. The Company's resources include mortgage notes payable,
financing from Dobson CC Limited Partnership ("DCCLP"), cash flow from
operations and certain shareholder commitments. DCCLP is committed to assisting
the Company in obtaining funds to support the Company's operations, as needed,
if needed, in 2000. In addition, the Company expects to pursue additional
financing in the near term.
The Company's ability to manage future growth will depend upon its continued
ability to monitor operations, control costs and maintain effective quality
controls which could result in higher operating expenses. Any failure to
adequately manage these areas and to implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
growth of the Company's business could have an adverse effect on the Company's
business, financial condition and results of operations.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements of the Company include the accounts of
Logix, Dobson Telephone, LCC and Dobson Fiber/FORTE of Colorado, Inc. For
financial reporting puposes, the Company consolidates each subsidiary and
partnership in which it has a controlling interest. All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
partnerships where the Company does not have a controlling interest are
accounted for under the equity method. In the opinion of management, the
consolidated financial statements reflect all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1999 Logix
Communications Enterprises, Inc. Annual Report on Form 10-K. Reference is made
herein to the "Notes to Consolidated Financial Statements" under Item 8 of the
1999 Form 10-K for additional disclosure.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously presented 1999
balances to conform them to the 2000 presentation.
7
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
2. SENIOR EXCHANGEABLE PREFERRED STOCK:
On March 30, 2000, the Company issued to DCCLP 90,000 shares of 15% Class A
Senior Exchangeable Preferred Stock manditorily redeemable in 2010 for $1,000
per share ("Preferred Stock"). The net proceeds from the sale of the Preferred
Stock were used to retire the $75 million revolving credit facility ("Senior
Credit Facility"). The $50 million outstanding under the DCCLP Credit Facility
was converted to Preferred Stock, and for cash flow purposes is a non-cash
financing activity. Logix recognized an extraordinary loss of $2.5 million as a
result of writing off previously capitalized financing costs associated with the
Senior Credit Facility. The holder of the Preferred Stock is entitled to
cumulative dividends from the date of issuance and a liquidation preference of
$1,000 per share with rights over the other classes of capital stock.
Additionally, the Preferred Stock is redeemable at the Company's option. The
holder of the Preferred Stock has no voting rights.
3. REPORT OF BUSINESS SEGMENTS:
The Company operates in two reportable segments: ICP and ILEC. These
segments are strategic business units that offer different products and
services. These segments are managed separately because the ICP segment is a
competitive communications provider and the ILEC segment is a regulated public
utility. The accounting policies of the segments are the same as those of the
Company. The Company evaluates and measures performance of each segment based on
Adjusted EBITDA, which is defined by the Company as earnings before interest
expense, income taxes, depreciation and amortization, other income (expense) and
extraordinary items. The Company accounts for intersegment sales and transfers
as if the sales or transfers were arm's length transactions with third parties
at current market prices. The Company allocates corporate overhead, income taxes
and amortization of deferred financing cost to both segments. The segments do
not have significant non-cash items other than depreciation and amortization. A
8
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
3. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
summary of the Company's operations for the three and six months ended June 30,
2000 and June 30, 1999 by segment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 2000
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 25,038 $4,196 $ 29,234
Intersegment................................ 1,104 -- 1,104
Intersegment revenue(1)..................... -- -- (1,104)
-------- ------ --------
Total operating revenue................... $ 26,142 $4,196 $ 29,234
-------- ------ --------
Adjusted EBITDA(2).............................. $(12,304) $2,479 $ (9,825)
Depreciation and amortization................... (5,751) (802) (6,553)
Interest expense, net(3)........................ (10,223) 78 (10,145)
Other income (expense), net..................... 816 (650) 166
-------- ------ --------
Income (loss) before extraordinary items.... $(27,462) $1,105 $(26,357)
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 24,716 $3,471 $ 28,187
Intersegment................................ 1,261 -- 1,261
Intersegment revenue(1)..................... -- -- (1,261)
-------- ------ --------
Total operating revenue................... $ 25,977 $3,471 $ 28,187
-------- ------ --------
Adjusted EBITDA(2).............................. $ (9,335) $2,104 $ (7,231)
Depreciation and amortization................... (4,224) (715) (4,939)
Interest expense, net(3)........................ (9,776) (232) (10,008)
Other income (expense), net..................... 40 -- 40
-------- ------ --------
Income (loss) before extraordinary items.... $(23,295) $1,157 $(22,138)
======== ====== ========
</TABLE>
9
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
3. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 48,734 $ 7,514 $ 56,248
Intersegment................................ 2,243 -- 2,243
Intersegment revenue(1)..................... -- -- (2,243)
-------- ------- --------
Total operating revenue................... $ 50,977 $ 7,514 $ 56,248
-------- ------- --------
Adjusted EBITDA(2).............................. $(29,933) $ 4,010 $(25,923)
Depreciation and amortization................... (11,226) (1,548) (12,774)
Interest expense, net(3)........................ (23,308) (367) (23,675)
Other income (expense), net..................... 820 (650) 170
-------- ------- --------
Income (loss) before extraordinary items.... $(63,647) $ 1,445 $(62,202)
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 49,268 $ 7,473 $ 56,741
Intersegment................................ 2,173 -- 2,173
Intersegment revenue(1)..................... -- -- (2,173)
-------- ------- --------
Total operating revenue................... $ 51,441 $ 7,473 $ 56,741
-------- ------- --------
Adjusted EBITDA(2).............................. $(17,276) $ 5,004 $(12,272)
Depreciation and amortization................... (8,043) (1,434) (9,477)
Interest expense, net(3)........................ (19,237) (675) (19,912)
Other income (expense), net..................... 82 -- 82
-------- ------- --------
Income (loss) before extraordinary items.... $(44,474) $ 2,895 $(41,579)
======== ======= ========
</TABLE>
10
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
3. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- -------------
<S> <C> <C>
INVESTMENT INFORMATION:
Segment assets--
ICP............................................... $261,121 $300,846
ILEC.............................................. 58,379 55,965
Intersegment receivables(1)....................... (2,150) (2,150)
-------- --------
Total segment assets............................ $317,350 $354,661
======== ========
OTHER INFORMATION:
Capital expenditures--
ICP............................................... $ 4,257 $ 36,037
ILEC.............................................. 2,739 11,389
-------- --------
Total capital expenditures...................... $ 6,996 $ 47,426
======== ========
</TABLE>
------------------------
1) The intersegment eliminations were included to reconcile reportable segment
activities to the Company's consolidated totals.
2) Adjusted EBITDA, which is defined by the Company as earnings before interest
expense, income taxes, depreciation and amortization, other income (expense)
and extraordinary items.
3) Included in interest expense is amortization expense of deferred financing
costs.
4. COMMITMENTS:
In May 1998, the Company entered into a three year carrier service agreement
with Sprint for long distance capacity which provided for a minimum commitment
of $8.3 million, subject to upward adjustment depending on actual use. In
January 2000, the Company amended its agreement to reduce its total minimum
commitment to $7.4 million. Of this commitment, $2.6 million remained at June
30, 2000.
In June 1998, the Company entered into an agreement with MCI WorldCom to
lease long distance capacity for three years with an aggregate minimum
commitment during the term of the lease of $18 million, or $.5 million per
month. In December 1999, the Company amended the agreement to reduce its minimum
monthly commitment from $.5 million to $.4 million and its total minimum
commitment to $15.6 million, effective January 2000 through the end of the
agreement. Of this commitment, it is estimated that less than $3.2 million
remains payable as of June 30, 2000.
On January 24, 2000, Dobson Communications distributed the stock of Logix to
its stockholders. Dobson Communications executed an agreement with DCCLP under
which DCCLP agreed not to take any action which may result in Dobson
Communications recognizing taxable income because of the Logix spin-off unless
DCCLP causes Logix to execute an agreement to indemnify Dobson Communications
for any income tax, together with any penalties or interest thereon, incurred by
Dobson Communications solely attributable to the distribution of Logix stock and
arising as a result of the actions of the Logix shareholders. In connection with
the distribution, the tax sharing agreement with Dobson Communications
11
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
4. COMMITMENTS: (CONTINUED)
was terminated. As a result of the termination, Logix may owe Dobson
Communications a net tax settlement. However, Logix does not expect any tax
settlement to be material to its results of operations.
5. SUBSEQUENT EVENTS
Subsequent to the second quarter of 2000, the Company purchased
$253.6 million of its 12.25% Senior Notes due 2008 for an aggregate price of
$78.6 million. The Company expects to realize an extraordinary gain of
$175.0 million as a result of the bond repurchase in the third quarter of 2000.
Funding for the bond repurchases and operating capital was provided by
$56 million of senior loans from DCCLP.
On July 21, 2000, the Company completed the sale of its customer premise
equipment division. The Company sold the division for $450,000 to Interconnect
Consolidation Group, an unrelated Oklahoma-based company. As a result of the
sale, the Company recognized a $3.8 million loss in the second quarter of 2000
relating to the write-off of certain capitalized costs associated with the
division. The Company expects a reduction in force of 65 employees in the third
quarter 2000 as a result of this transaction.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis presents factors we believe are
relevant to an assessment and understanding of our consolidated financial
position and results of operation. This financial and business analysis should
be read in conjunction with our consolidated financial statements and notes
thereto in Item 1.
OVERVIEW
We are an integrated communications provider, or ICP, and an incumbent local
exchange carrier, or ILEC. We were incorporated as an Oklahoma corporation in
December 1997. We have network facilities in the southwestern United States and
serve small and medium-sized businesses in Amarillo, Austin, Corpus Christi,
Dallas, El Paso, Ft. Worth, Houston, Kansas City, Little Rock, Oklahoma City,
St. Louis, San Antonio, Tulsa, and in other cities in Oklahoma and Texas. We are
a "one-stop" provider of integrated communications services with a core suite of
voice and data communications services including local, long distance, long-haul
transport, enhanced data and high speed Internet access. We are continually
evaluating additional products and services to add to our offerings. For the six
months ended June 30, 2000, we provided our services to approximately 30,000
local and long distance customers, had 76,021 revenue-producing access line
equivalents and generated revenues of $54.2 million.
REVENUE
ICP OPERATIONS. Our ICP operation generates revenue from local exchange,
intrastate and interstate services, enterprise network, enhanced data, Internet
and intranet services, private line, integration services and long-haul
transport services. As of June 30, 2000, our ICP operations had 62,498 revenue-
producing access line equivalents compared to 44,443 access line equivalents as
of June 30, 1999. During the first quarter of 2000, we modified our definition
of an access line equivalent to be a revenue producing end user. As a result of
this change, we restated the number of access line equivalents in prior periods.
The increase in access lines was mainly due to our growth and expansion into six
additional cities in Texas, Missouri and Arkansas. We began offering local
facilities-based ICP services in October 1997 and currently provide these
services to customers in major markets in Oklahoma and Texas.
We offer ICP services at prices that are competitive to the incumbent local
exchange carriers. We believe that while pricing is an important element of our
marketing, small and medium-sized businesses are also focused on customer care,
bundled telecommunications services with one point of contact for sales and
service, and consistent quality of service when making their purchase decisions.
During recent years, the market prices for many telecommunications services
have declined. We believe that this trend is likely to continue and may have a
negative effect on our gross margins that may not be offset completely by
savings from decreases in our cost of service.
Current industry statistics demonstrate that there is a significant turnover
of customers within our industry. We believe that the turnover is especially
high when customers are buying resold services or only long distance services.
We believe that by offering an integrated package of telecommunications and data
services, and by providing superior customer care, we will be able to enhance
our customer retention rate.
Our facilities-based customers provide higher gross margins than do our
resale customers. Beginning in December 1998, we initiated a plan to focus on
providing only facilities-based services. In March 1999, as part of this
strategy, we increased the rates for all resale services to equal those charged
by the Regional Bell Operating Companies, or RBOCs. As a result, some of our
resale customers terminated our services. In July 1999, we began converting our
resale customers to our unbundled network element platform, or UNE-P
facilities-based services. We expect to maintain a base of resale customers for
the foreseeable future due to some product offerings that are available via
resale but are not available (or are prohibitively costly to offer) via
facilities-based service. The table below sets forth the historical composition,
including
13
<PAGE>
the one-time restatement, of access lines between resale and facilities-based
and the recent additions for both resale and facilities-based lines:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
ACCESS LINES
Facilities-Based......................................... 50,012 14,348
Resale................................................... 12,486 30,095
------ ------
TOTAL ACCESS LINES..................................... 62,498 44,443
====== ======
NET ADDITIONS
Facilities-Based......................................... 7,888 3,073
Resale................................................... (2,745) (2,172)
------ ------
TOTAL NET ADDITIONS TO ACCESS LINES.................... 5,143 901
====== ======
PERCENTAGE OF NET ADDITIONS
Facilities-Based......................................... 100.0% 100.0%
Resale................................................... -- --
</TABLE>
INCUMBENT LOCAL EXCHANGE CARRIER OPERATIONS. Through our predecessors, we
began providing ILEC services in 1936. We currently own and operate nine
adjoining exchanges in western Oklahoma and three adjoining exchanges adjacent
to the eastern Oklahoma City metropolitan area. As of June 30, 2000, our ILEC
operations served 13,523 access lines compared to 13,629 access lines as of June
30, 1999.
Our ILEC revenues consist of:
- end user revenue, which includes charges for local service and enhanced
services such as call waiting and call forwarding;
- access revenue, which is paid by long distance carriers for providing
access from the long distance carrier's point of presence to the end user
who makes or receives a long distance call; and
- support revenue, which is paid by federal and state agencies to companies,
such as us, which operate in areas where factors such as geographic
conditions and/or subscriber density increase the cost of providing
service.
Support revenue consists of high cost funds, or HCF, from state agencies and
universal service funds, or USF, from federal and state agencies.
The following table reflects the amount of support funds we received and the
share of our ILEC revenue it represented for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Support revenue............................. $1,487 $1,169 $2,539 $2,354
Percentage of incumbent local exchange
carrier revenue........................... 35.4% 33.7% 33.8% 31.5%
</TABLE>
14
<PAGE>
The Telecommunications Act potentially impacts our sources of support
revenue. Under previous regulation, access charges contained implicit support
for high cost areas. Regulations adopted pursuant to the Telecommunications Act
would remove implicit support from access charges and place more emphasis for
such support on HCF/USF. In May 1997, the FCC adopted changes that may, over
time, reduce or eliminate subsidies to telephone companies in areas where the
cost of connecting and maintaining phone lines is demonstrated to be above the
industry or area norm. We will continue to pursue our strategy to lessen the
impact of any future regulatory changes by reducing our operating costs through
consolidation of operational functions to achieve economies of scale.
COSTS AND EXPENSES
Our primary expense categories include cost of service, selling, general and
administrative expenses, or SG&A, and depreciation and amortization.
Cost of service for our ICP operations consist primarily of fixed costs for
leased lines, the variable costs of origination and termination and access
services provided through ILECs and other telecommunications companies. We have
deployed several digital switching platforms with local and long distance
capability. In addition, we lease fiber trunking capacity from incumbent local
exchange carriers and other ICPs to connect our switches with our transmission
equipment collocated in ILEC central offices.
Depending on the type of services we provide, we may deploy high capacity
digital connections, including the lease of unbundled loops from the ILEC to
connect our customers' and other carriers' networks to our network. The lease
charges for unbundled loops vary by ILEC, and are regulated by state authorities
pursuant to the Telecommunications Act. ILECs typically charge both a startup
fee as well as monthly recurring fee for use of their central offices for
collocation.
We will use our own fiber network, where available, to carry long distance
traffic and will also enter into resale agreements with long distance carriers
for transmission services. These agreements typically provide for the resale of
long distance services on a per-minute basis and may contain minimum volume
commitments. We may be obligated to pay under-utilization charges in the event
we over-estimate our requirements; however, in the event we underestimate our
need for transmission capacity, we may be required to obtain capacity through
more expensive means. See "--Liquidity and Capital Resources."
Our SG&A includes all infrastructure costs such as selling, customer
support, corporate administration, personnel and network maintenance. Selling
expenses include commissions for our sales program. We pay commissions to direct
sales persons for new business generated with incentives for the number of
access lines sold and revenues billed. We also pay commissions to independent
sales agents for generating new sales and ongoing sales to existing customers.
As our customer base grows, and if we expand into new geographic markets, add
new sales offices and facilities and enlarge our current product offerings, the
cost of service and SG&A would be expected to increase. As we grow, over time we
expect SG&A to decrease as a percentage of our revenues.
Our depreciation and amortization represents the costs associated with the
depreciation of our fixed assets and the amortization of our intangible assets,
primarily goodwill related to our acquisition of American Telco.
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded; however,
the percentage changes are based on the actual financial statements.
15
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30,
1999
REVENUE. For the three months ended June 30, 2000, total revenue increased
$1.0 million, or 3.7%, to $29.2 million from $28.2 million in 1999. The
following table sets forth the components of our revenue for the three months
ended June 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $25,038 $24,716
ILEC...................................................... 4,196 3,471
------- -------
$29,234 $28,187
======= =======
</TABLE>
ICP. Our ICP revenue increased $.3 million, or 1.3%, to $25.0 million for
the three months ended June 30, 2000, from $24.7 million for 1999. We
experienced increased sales by our fiber operations and facilities-based access
line growth. However, this increase was partially offset by additional customer
credits, price deterioration of long distance charges and declining minutes of
use. ICP revenue also includes fiber long-haul transport services provided to
both third parties and to our affiliates.
ILEC. Our ILEC revenue increased $.7 million, or 20.9%, to $4.2 million for
the three months ended June 30, 2000, compared to $3.5 million for the
three months ended June 30, 1999. Access lines were 13,523 as of June 30, 2000
compared to 13,629 as of June 30, 1999. The increase in ILEC revenue was
attributable to additional support revenue from the interstate access pool due
to additional plant in service during the first six months of 2000.
COST OF SERVICE. For the three months ended June 30, 2000, our total cost
of service increased $.5 million, or 2.4%, to $21.8 million from $21.3 million
in the comparable period of 1999. These costs consisted primarily of wholesale
charges from third party service providers relating to our ICP segment.
Wholesale cost increases were due to increases in fixed network charges. The
following table sets forth the components of our cost of service for the
three months ended June 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $21,223 $21,001
ILEC...................................................... 533 251
------- -------
Total................................................... $21,756 $21,252
======= =======
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE. For the three months ended June 30,
2000, our SG&A costs decreased $.7 million, or 5.0%, to $13.5 million compared
to $14.2 million for the three months ended June 30, 1999. Our decrease in these
costs were primarily due to a reduction in headcount in our ICP segment.
LOSS ON DISPOSITION. On July 21, 2000, we completed the sale of our
customer premise equipment division. We sold the division for $450,000 to
Interconnect Consolidation Group, an unrelated Oklahoma-based company. As a
result of the sale, we recognized a $3.8 million loss for the three months ended
June 30, 2000 relating to the write-off of certain capitalized costs associated
with the division. We expect a reduction in force of 65 employees in the third
quarter 2000 as a result of this transaction.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three months ended June 30,
2000, our depreciation and amortization expense increased $1.7 million, or
34.7%, to $6.6 million from $4.9 million for the same period of 1999. Our ICP
segment's depreciation and amortization expense increased $1.6 million, to
$5.8 million from $4.2 million. This increase is primarily a result of
depreciation and amortization on assets purchased during the year and
accelerated amortization of our goodwill, relating to our acquisition of
16
<PAGE>
American Telco, in the fourth quarter of 1999. Our ILEC segment's depreciation
increased $.1 million, or 12.3%, to $.8 million from $.7 million for the three
months ended June 30, 2000 and 1999, respectively, as a result of assets
purchased during the year.
INTEREST INCOME. Our interest income decreased $.6 million, or 38.9%, to
$.9 million for the three months ended June 30, 2000, from $1.5 million for the
same period in 1999. The decrease in interest income was a result of a decrease
of funds held in escrow as collateral for the payment of interest on our 12.25%
senior notes due 2008.
INTEREST EXPENSE. Our interest expense for the three months ended June 30,
2000 decreased $.4 million, to $11.1 million from $11.5 million for the three
months ended June 30, 1999. Our ICP segment's interest expense decreased
$.1 million, or 1.2%, to $11.2 million in 2000, from $11.3 million in 1999. The
decrease is a result of our $50 million senior credit facility established in
April 1999 being fully repaid on March 30, 2000. Our ILEC segment's interest
expense decreased $.3 million to an income of $.1 million from an expense of
$.2 million for the three months ended June 30, 2000 and 1999, respectively. The
decrease was a result of interest that was capitalized on plant under
construction.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUE. For the six months ended June 30, 2000, our total revenue
decreased $.5 million to $56.2 million from $56.7 million in 1999. The following
table sets forth the components of our revenue for the six months ended
June 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $48,734 $49,268
ILEC...................................................... 7,514 7,473
------- -------
$56,248 $56,741
======= =======
</TABLE>
ICP. Our ICP revenue decreased $.5 million, or 1.1%, to $48.7 million for
the six months ended June 30, 2000, from $49.3 million for the comparable period
of 1999. Although we experienced increased sales by our fiber operations and
facilities-based access line growth, additional customer credits and price
deterioration of long distance charges and declining minutes of use were the
primary factors relating to the decrease in revenue. Our ICP revenue also
includes fiber long-haul transport services provided to both third parties and
to our affiliates.
ILEC. Our ILEC revenue remained consistent at $7.5 million for both the six
months ended June 30, 2000 and 1999.
COST OF SERVICE. For the six months ended June 30, 2000, our total cost of
service increased $5.1 million, or 12.2%, to $46.6 million from $41.5 million in
the comparable period of 1999. These costs consisted primarily of wholesale
charges from third party service providers relating to our ICP segment.
Wholesale cost increases were due to increases in fixed network charges. The
following table sets forth the components of our cost of service for the
six months ended June 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $45,501 $41,086
ILEC...................................................... 1,112 461
------- -------
Total................................................... $46,613 $41,547
======= =======
</TABLE>
17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. For the six months ended June 30,
2000, our SG&A costs increased $4.2 million, or 15.5%, to $31.7 million compared
to $27.5 million for the six months ended June 30, 1999. The primary reason for
the increase is due to increases in our reserves for uncollectible accounts of
$3.4 million and severance costs of $2.7 million incurred. These costs were
offset by a reduction in headcount in our ICP segment
LOSS ON DISPOSITION. On July 21, 2000, we completed the sale of our
customer premise equipment division. We sold the division for $450,000 to
Interconnect Consolidation Group, an unrelated Oklahoma Company. As a result of
the sale, we recognized a $3.8 million loss for the three months ended June 30,
2000 relating to the write-off of certain capitalized costs associated with the
division. We expect a reduction in force of 65 employees in the third quarter
2000 as a result of this transaction.
DEPRECIATION AND AMORTIZATION EXPENSE. For the six months ended June 30,
2000, our depreciation and amortization expense increased $3.3 million, or
34.8%, to $12.8 million from $9.5 million for the same period of 1999. Our ICP
segment's depreciation and amortization expense increased $3.2 million, to
$11.2 million from $8.0 million. This increase is primarily a result of
depreciation and amortization on assets purchased during the year and
accelerated amortization of our goodwill, relating to our acquisition of
American Telco, in the fourth quarter of 2000. Our ILEC segment's depreciation
increased $.1 million, or 7.9%, to $1.5 million from $1.4 million for the six
months ended June 30, 2000 and 1999, respectively.
INTEREST INCOME. Interest income decreased $1.4 million, or 42.1%, to
$1.9 million for the six months ended June 30, 2000, from $3.3 million for the
same period in 1999. Decreased interest income was a result of a decrease of
funds held in escrow as collateral for the payment of interest on our senior
notes.
INTEREST EXPENSE. Our interest expense for the six months ended June 30,
2000 increased $2.4 million, to $25.6 million from $23.2 million for the
six months ended June 30, 1999. Our ICP segment's interest expense increased
$2.7 million, or 12.0%, to $25.2 million in 2000, from $22.5 million in 1999.
Our increase related to increased interest expense as a result of our senior
credit facility. Our senior credit facility was fully repaid on March 30, 2000.
Our ILEC segment's interest expense decreased $.3 million to $.4 million from
$.7 million for the six months ended June 30, 2000 and 1999, respectively. The
decrease was primarily due to interest that was capitalized on plant under
construction.
LIQUIDITY AND CAPITAL RESOURCES
We have required, and will likely continue to require, substantial capital,
including additional debt and/or equity, to successfully implement our business
plan. We have financed our operations through cash flows from operating
activities, as well as through debt and equity financing. Significant sustained
growth in our cash flows is necessary to meet our debt service requirements,
including our obligations on our senior notes. We expect negative cash flows and
losses before income taxes and extraordinary items to continue at least through
fiscal year 2000 and to continue as we expand our ICP operations. In addition,
our ILEC segment receives support revenue from federal and state agencies that
accounted for approximately 33.8% and 31.5% of our ILEC revenue for the
six months ended June 30, 2000 and 1999, respectively. A decrease in support
revenue, although unforeseen, could detrimentally affect our ILEC revenue and
liquidity.
NET CASH FLOW
Our net cash used in operating activities was $48.5 million and
$40.0 million for the six months ended June 30, 2000 and 1999, respectively.
Our net cash used in investing activities was $7.5 million and
$23.7 million for the six months ended June 30, 2000 and 1999, respectively.
Investing activities for the first six months of 2000 primarily related to
capital expenditures. During the first six months of 1999, our investing
activities primarily related to capital expenditures offset by a decrease in
receivables from our affiliates.
Our net cash provided by financing activities was $56.1 million and
$34.7 million for the six months ended June 30, 2000 and 1999, respectively.
During the first six months of 2000, our financing activities consisted of an
increase in the DCCLP credit facility, our issuance of preferred stock (see
Capital Resources) and maturities of securities held in escrow. This increase
was offset by the repayment of our $50 million senior credit facility. The net
cash used in financing activities during the six months of 1999 primarily
resulted from interest earned on the restricted investments purchased to finance
the interest to be paid on our senior note offering and repayments of long-term
debt.
18
<PAGE>
CAPITAL RESOURCES
On March 30, 2000, we issued to DCCLP 90,000 shares of 15% Class A Preferred
Stock manditorily redeemable in 2010 for $1,000 per share. The net proceeds from
the sale of the preferred stock were used to repay our senior credit facility.
The $50 million outstanding under the DCCLP credit facility was converted to
preferred stock. We recognized an extraordinary loss of approximately
$2.5 million as a result of writing off previously capitalized financing costs
associated with our senior credit facility. This appears as an extraordinary
item in the statement of operations. The holder of our preferred stock is
entitled to cumulative dividends from the date of issuance and a liquidation
preference of $1,000 per share with rights over the other classes of our capital
stock and junior to our senior notes. Our preferred stock is redeemable at our
option at any time and must be redeemed by April 1, 2010. The holder of the
preferred stock has no voting rights.
As of June 30, 2000, we had outstanding $350 million aggregate principal
senior notes that mature in 2008. The senior notes bear interest at an annual
rate of 12.25%, payable semi-annually on each June 15 and December 15, beginning
December 15, 1999. The senior note indenture contains restrictive covenants that
place limitations on our various activities to include indebtedness, asset
sales, liens and transactions with stockholders and affiliates. As of June 30,
2000, we were in compliance with our restrictive covenants. Of the net proceeds
from the sale of these notes, we used $122 million to purchase securities we
have pledged to secure the first six semi-annual interest payments on these
notes. The restricted cash and investment balance at June 30, 2000, relating to
these purchased securities, was $41.3 million.
Subsequent to the second quarter of 2000, we purchased $253.6 million of its
12.25% senior notes for an aggregate price of $78.6 million. We expect to
realize an extraordinary gain of $175.0 million as a result of the repurchase in
the third quarter of 2000. Funding for the repurchases and operating capital was
provided by $56 million of senior loans from Dobson CC Limited Partnership, our
controlling shareholder.
We have funded our ILEC operations through several RUS/RTB loans. The
RUS/RTB existing loans have scheduled maturities between 2000 and 2028. In
October 1998, RUS/RTB approved an additional 17 year loan facility that will
provide us with $16.9 million in loan funds. As of June 30, 2000, we had
borrowed $9.6 million under this additional facility. Under the RUS/RTB
facility, we must maintain certain financial ratios, and our failure to maintain
these ratios would constitute an event of default, notwithstanding our ability
to meet our debt service obligations. As of June 30, 2000, we were in compliance
with our covenants.
CAPITAL COMMITMENTS
Our capital expenditures for the six months ended June 30, 2000 were
$7.0 million and for the six months ended June 30, 1999, were $27.8 million. We
expect our capital expenditures to total approximately $20-$25 million for 2000.
Our planned capital expenditures for 2000 are primarily to:
- upgrade switch and outside plant facilities;
- provide success-based customer premise equipment;
- provide operational support system, or OSS, enhancements; and
- enhance billing systems.
We expect continued capital expenditures for our ICP operations to be made
after 2000, primarily for OSS enhancements, switch expansion and/or upgrades and
collocation. The amount and timing of our capital expenditures may differ
materially from the foregoing estimate depending on numerous factors, including
the rate at which we expand and develop our networks and customer base, our
ability to negotiate favorable prices for purchases of equipment and to acquire
and integrate necessary operations support systems and other back office
systems, whether we consummate additional acquisitions and other
19
<PAGE>
factors beyond our control, such as economic conditions, competition, market and
regulatory developments and availability of capital.
In May 1998, we entered into a three year carrier service agreement with
Sprint for long distance capacity which provides for a minimum commitment of
$8.3 million, subject to upward adjustment depending on actual use. In
January 2000, we amended our agreement to reduce our total minimum commitment to
$7.4 million. Of this committment, $2.6 million remained at June 30, 2000.
In June 1998, we entered into an agreement with MCI WorldCom to lease long
distance capacity for three years with an aggregate minimum commitment during
the term of the lease of $18 million, or $.5 million per month. In
December 1999, we amended our agreement to reduce our minimum monthly commitment
from $.5 million to $.4 million and our total minimum commitment to
$15.6 million, effective January 2000 through the end of the agreement. Of this
commitment, we estimate that less than $3.2 million remains payable as of
June 30, 2000.
Although we cannot provide any assurance, we believe that borrowings under
our RUS/RTB facility, financing previously provided by DCCLP, cash flows from
operations and certain shareholder commitments will be sufficient to satisfy our
currently expected operating expenses, capital expenditures, working capital and
debt service obligations. The actual amount and timing of our future capital
requirements may differ materially from our estimates as a result of, among
other things, the demand for our services and regulatory, technological and
competitive developments. We currently expect to pursue additional financing in
the near term. DCCLP is committed to assisting us in obtaining funds to support
our operations, as needed, if needed, in 2000. Sources of additional financing
may include commercial bank borrowings, vendor financing and the sale of equity
or debt securities. We cannot assure you that any such financing will be
available on acceptable terms or at all.
FORWARD-LOOKING STATEMENTS
The description of our plans set forth herein, including our plans and
strategies, our anticipation of revenues from designated markets, the markets
for our services and products, planned capital expenditures and possible
regulatory requirements, and other statements which predict or forecast future
events which are dependent on future events for their accuracy, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These plans involve a number
of risks and uncertainties. Important factors that could cause actual capital
expenditures, or our performance to differ materially from plans include,
without limitation, our ability to satisfy the financial covenants of our
existing debt instruments and to raise additional capital; our ability to
integrate acquired operations with existing operations, to manage our rapid
growth successfully and to compete effectively in our ILEC and ICP businesses
against competitors with greater financial, technical, marketing and other
resources; changes in end-user requirements and preferences; the development of
other technologies and products that may gain more commercial acceptance than
ours; our ability to successfully market our services to current and new
customers, interconnect with ILECs, expand or replace our operational support
systems and other back office systems, provision new customers, access markets,
install facilities, including switching electronics, and obtain leased trunking
capacity, rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions; as well as unexpected
regulatory, legislative and judicial developments. We cannot assure that the
future results will be achieved; actual events or results may differ materially
as a result of risks we face. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof. We
undertake no obligation to update or revise these forward-looking statements to
reflect events or circumstances after the date hereof including, without
limitation, changes in our business strategy or planned capital expenditures, or
to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no change in our assessment of quantitative and qualitative
disclosures about market risk since December 31, 1999.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently aware of any pending or threatened litigation against
us or our subsidiaries that could have a material adverse affect on our
financial condition, results of operations or cash flows. We are party to
routine filings and customary regulatory proceedings relating to our operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
10.1 Promissory Note for $20 million dated July 20, 2000 between
Logix Communications Corporation and Dobson CC Limited
Partnership.
10.2 Promissory Note for $15 million dated August 2, 2000 between
Logix Communications Corporation and Dobson CC Limited
Partnership.
10.3 Promissory Note for $2 million dated August 9, 2000 between
Logix Communications Corporation and Dobson CC Limited
Partnership.
10.4 Promissory Note for $7 million dated August 10, 2000 between
Logix Communications Corporation and Dobson CC Limited
Partnership.
10.5 Promissory Note for $3 million dated August 11, 2000 between
Logix Communications Corporation and Dobson CC Limited
Partnership.
27 Financial Data Schedule-Six Months Ended June 30, 2000
</TABLE>
(b) Form 8-K filings
None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
LOGIX COMMUNICATIONS ENTERPRISES, INC.
Date: August 14, 2000 By: /s/ CRAIG T. SHEETZ
-----------------------------------------
Craig T. Sheetz
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
22
