Quarterly Report on Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to __________
COMMISSION FILE NUMBER: 0-29279
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CHOICE ONE COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 16-1550742
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 CHESTNUT STREET, ROCHESTER, NEW YORK 14604-2417
(Address of principal executive offices) (Zip Code)
(716) 246-4231
(Registrant's telephone number, including area code)
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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 the filing
requirements for the past 90 days. Yes X No _____
As of November 1, 2000 there were outstanding 37,911,771 shares of the
registrant's common stock, par value $.01 per share.
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CHOICE ONE COMMUNICATIONS AND SUBSIDIARIES FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................1
Quantitative and Qualitative Disclosures about Market Risk...........11
Financial Statements.................................................13
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999....................................................13
Condensed Consolidated Statements of Operations for the three months
ended September 30, 2000 and September 30, 1999......................14
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 2000 and September 30, 1999......................15
Condensed Consolidated Statements of Cash Flow for the nine months
ended September 30, 2000 and September 30, 1999......................16
Notes to Condensed Consolidated Financial Statements.................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................25
Item 2. Changes in Securities and Use of Proceeds............................25
Item 3. Defaults Upon Senior Securities......................................25
Item 4. Submission of Matters to a Vote of Security Holders..................25
Item 5. Other Information....................................................25
Item 6. Exhibits and Reports on Form 8-K.....................................25
Signatures ................................................................26
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are an integrated communications provider offering broadband data
and voice telecommunications services primarily to small and medium-sized
businesses in second and third tier markets in the northeastern and midwestern
United States. Our offerings include high-speed data and Internet service,
principally utilizing DSL technology, local exchange service, long distance
service, Web design, development and hosting services. We seek to become the
leading integrated service provider in each of our target markets by offering a
single source for competitively priced, high quality, customized
telecommunications services. A key element of our strategy is to be one of the
first integrated service providers to provide comprehensive coverage in each of
the markets we serve. We are achieving this market coverage by installing both
data and voice network equipment in the central offices of established telephone
companies, a process known as collocation. We also intend to increase
utilization of our market network coverage by offering data and voice services
on a wholesale basis to Internet service and other telecommunications providers.
Through our strategy of connecting substantially all of our clients directly to
our own switches, we are able to more efficiently route traffic, ensure quality
service and control costs.
The results of operations for the Company for the three months and nine
months ended September 30, 2000 include the consolidated results of US Xchange
for two months since the acquisition date of August 1, 2000.
The Company was formed on June 2, 1998 and our initial public offering
was completed in February 2000. Through January 1999, we were in the development
stage of operations and did not generate any revenue. Our principal activities
through January 1999 consisted of hiring management and other key personnel,
raising capital, procurement of governmental authorizations and space in central
offices, acquisition of equipment and facilities, development, acquisition and
integration of operations support systems and other back office systems and
negotiation of interconnection agreements.
Our revenue is not indicative of revenue that may be attained in the
future. As a result of our development activities, we have experienced
significant operating losses and negative adjusted EBITDA to date. We do not
expect to achieve positive adjusted EBITDA while we emphasize development,
construction and expansion of our telecommunications services business and until
we establish a sufficient revenue-generating client base. We expect to continue
to experience increasing operating losses and negative adjusted EBITDA as we
expand our operations.
Included in our management's discussion and analysis of financial
condition and results of operations is adjusted EBITDA. Adjusted EBITDA
represents earnings before interest, income taxes, depreciation and
amortization, non-cash deferred compensation, non-cash management allocation
charges, accretion on preferred stock and accrued PIK (paid in kind) dividends
on preferred stock. Adjusted EBITDA is used by management and certain investors
as an indicator of a company's historical ability to service debt. Management
believes that an increase in adjusted EBITDA is an indicator of improved ability
to service existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, adjusted EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either operating income, as determined by generally accepted accounting
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principles, nor as an indicator of operating performance or cash flows from
operating, investing and financing activities, as determined by generally
accepted accounting principles, and is thus susceptible to varying calculations.
Adjusted EBITDA as presented may not be comparable to other similarly titled
measures of other companies.
Inasmuch as the Company has significantly increased the scope and size
of its operations from its infancy during the three months ended September 30,
1999, a comparison of the three months ended September 30, 2000 results with the
three months ended September 30, 1999 is not meaningful.
The net loss applicable to common stock for the three months ended
September 30, 2000 was $53.7 million. The net loss for the three months ended
September 30, 1999 was $9.1 million. Adjusted EBITDA was a negative $21.4
million for the three months ended September 30, 2000 versus a negative $6.7
million for the three months ended September 30, 1999.
Gross profit, revenue less direct network costs, was $3.8 million or
17.7% of revenue during the three months ended September 30, 2000 versus a loss
of $1.0 million for the three months ended September 30, 1999.
We have rapidly deployed our networks since commencing service. We were
operational in 24 markets across the northeastern United States as of September
30, 2000. The table below provides selected key operational data as of and for
the three months ended:
September 30, 2000 September 30, 1999
Markets Served 24 5
Number of switches-voice 22 5
Number of switches-data 42 8
Total Central Office Collocations 290 67
Central Office Collocations-voice & data 202 25
Central Office Collocations-voice only 54 42
Central Office Collocations-data only 34 --
Estimated Addresssable Market (Business Lines) 3.0 million 880,000
Lines Sold in quarter-total 40,573 5,274
Lines sold in quarter-voice 39,199 5,136
Lines sold in quarter-data 1,374 138
Lines Installed in quarter-total 28,755 4,660
Lines installed in quarter-voice 27,896 4,603
Lines installed in quarter-data 859 57
Lines in service-total 148,086 6,986
Lines in service-voice 145,397 6,929
Lines in service-data 2,689 57
Total Employees 1,302 271
Sales Employees 530 112
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During the three months ended September 30, 2000, we continued our
progress in the area of electronic bonding. In order to minimize the time
between a client order and service installation we have established an on-line
and real-time connection of our operations support systems, called electronic
bonding, with Verizon South. In the second quarter of 2000, we had established
electronic bonding with Verizon North. Electronic bonding automates the service
provisioning process, leading to enhanced quality of service and a reduction in
the overall processing intervals for our clients.
We have also rolled out online, web-based billing to our clients. The
ChoiceInvoice(TM) will help businesses manage their telecommunications expenses.
Our clients will have the ability to sort and select information providing them
a method to analyze data and make decisions. The ChoiceInvoice(TM) provides
local and long distance call detail, invoices for multiple locations, and
twelve-month past billing activity. The ChoiceInvoice(TM) will enhance the
Company's operational efficiency and significantly reduce paper, handling and
processing costs.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenue
The Company generated $21.4 million in revenue during the three months
ended September 30, 2000. Revenue for the three months ended September 30, 2000
represents a 105% increase compared to revenue for the three months ended June
30, 2000. The Company installed 28,755 lines during the three months ended
September 30, 2000; an increase of 54% compared with 18,635 lines installed
during the three months ended June 30, 2000. At September 30, 2000, the Company
has a total installed base of 148,086 lines, which compares with 51,745 access
lines in service as June 30,2000. Sales are expected to increase from the level
realized during the three months ended September 30, 2000 as new markets are
opened and as existing markets achieve full sales staffing levels.
The Company continues to focus on sales of facilities-based lines. At
September 30, 2000, facility-based lines represent 85% of the total installed
base as compared to 93% of the total installed base at June 30, 2000. The
decrease from 93% to 85% is attributed to the acquisition of US Xchange on
August 1, 2000. US Xchange, prior to being acquired, had sold resale lines in
cities where it had no collocations.
Revenue was generated from local calling and long distance services,
DSL and other data services, and E-services, including Web design, development
and hosting services. The market for local and long distance services is well
established and we expect revenue growth principally from taking market share
away from other service providers. Similarly, we expect revenue from access
charges that are based on long distance calls made by and to our customers and
reciprocal compensation that entitles us to bill the established telephone
companies for calls in the same local calling area, placed by their clients to
our clients, to increase as revenue increases but at a declining rate as we
increase our client base. Access and reciprocal compensation as a percent of
revenue was 15% and 7% respectively, for the three months ended September 30,
2000.
The market for high-speed data communications services and Internet
access is rapidly growing. We expect to generate revenue from the sale of these
services to end user clients in the small and medium-sized business market
segments.
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We price our services competitively in relation to those of the
established telephone companies and offer combined service discounts designed to
give clients incentives to buy a portfolio of services and enter into multi-year
service agreements. Although pricing will be an important part of our strategy,
we believe that direct relationships with our customers and consistent, high
quality service and customer support will be key to generating customer loyalty.
Our experience demonstrates that there is significant churn of
customers within the telecommunications industry, and we believe that churn is
especially high when customers are only buying long distance services from a
carrier or when customers are buying resold services. We expect to minimize
churn by providing superior customer care, by offering a competitively priced
portfolio of local, long distance, data and Internet services, and by focusing
on offering our own facilities based services. Churn for the nine months ended
September 30, 2000 has been below 1% per month.
Network Costs
Network costs for the three months ended September 30, 2000 were $17.6
million representing an 81% increase compared to network costs for the three
months ended June 30, 2000. This sharp increase is consistent with the
deployment of our networks and growth of our services as well as the impact of
the financial results of US Xchange for the two months in the period from August
1, 2000 (date of acquisition) to September 30, 2000. Gross profit was $3.8
million or 17.7% of revenue during the three months ended September 30, 2000
versus gross profit of $0.7 million or 6.7% of revenue for the three months
ended June 30, 2000.
Under our network buildout strategy, we are deploying voice and data
switches with local and long distance capability and leasing transmission lines
from the established telephone companies and other competitive local exchange
carriers to connect our switch with our transmission equipment collocated in the
established telephone company's central offices. We will lease transmission
lines from the established telephone companies to connect our clients and other
carriers' networks to our network. We plan to lease capacity or overbuild
specific network segments in certain markets as economically justified by
traffic volume growth. In addition, we expect to increase the capacity of our
switches, and may install additional switches, in a market as demand warrants.
We have acquired the rights to two fiber optic lines between Springfield and
Worcester, Massachusetts and have an option to purchase the rights to additional
fiber optic lines.
We entered into a master facilities agreement with Fiber Technologies,
a company that designs, constructs and leases high performance fiber networks in
second and third tier markets in the Northeast and Mid-Atlantic regions of the
United States. The agreement provides us with a 20-year lease for fiber without
electronics in 13 of our markets. Fiber deployment will allow us to
optimize network costs and enhance the quality and reliability of our network.
Fiber Technologies commenced construction in three markets during the third
quarter. We expect to take possession of the completed fiber networks in these
markets by early 2001 and expect to begin installing electronics during the
first quarter of 2001.
In August 2000, we entered into a fiber optic and grant of indefeasible
right to use agreement with RVP Fiber L.L.C. The agreement provides us with a
fiber network consisting of 485 intra-city and 1,691 inter-city miles within the
nine markets of the former US Xchange. On September 30, 2000, the intra-city
fiber network was operational and 112 miles of the inter-city
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fiber network was operational. We expect the remaining fiber network to be
activated in these nine markets during 2001.
We expect switch site lease costs will be a significant part of our
ongoing cost of services. The costs to lease transmission lines from the
established telephone companies will vary by company and are regulated by state
authorities. Collocation costs are also expected to be a significant part of our
network development and ongoing cost of services. We will be required to invest
a significant amount of funds to develop the central office collocation sites
and to deploy the transmission and distribution electronics. We have entered
into an agreement with Lucent Technologies, Inc. to purchase Lucent equipment at
a discount to their standard pricing with a term expiring in December 2002.
In order to enter a market, we must enter into an interconnection
agreement with the established telephone company to make comprehensive calling
available to our clients. Typically these agreements set the cost per minute to
be charged by each party for the calls which have traversed between each
carrier's network, often referred to as reciprocal compensation. These costs
grow in proportion to outbound call volume and are expected to be a major
portion of our cost of services. To the extent our clients' outbound call volume
is equivalent to their inbound call volume, we expect that our interconnection
costs paid to the established telephone companies (reciprocal compensation
expense) will be substantially offset by the interconnection revenue received
from the established telephone companies (reciprocal compensation revenue).
We have entered into a resale agreement with Frontier Communications of
the West Inc. to provide us with long distance transmission services. This
agreement provides for the resale of long distance services on a per-minute
basis and contains minimum volume commitments. In the event we fail to meet our
minimum volume commitments, we may be obligated to pay under-utilization charges
and in the event we underestimate our need for transmission capacity, we may be
required to obtain capacity through more expensive means. Transmission capacity
costs will increase as our clients' long distance calling volume increases, and
we expect that these costs will be a significant portion of our cost of long
distance services. As traffic on specific routes increases, however, we may
lease or otherwise acquire transmission capacity which, over time, would have
the effect of reducing our per unit network costs and increasing our
depreciation and amortization expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
September 30, 2000 were $33.5 million compared to selling, general and
administrative expenses of $21.7 million during the three months ended June 30,
2000. These increased expenses resulted primarily from the acquisition of US
Xchange since August 1, 2000 and the related growth in employees. Revenue growth
has exceeded the increase in selling, general and administrative expenses.
Revenue increased 105% from June 30, 2000, while selling, general and
administrative expenses have grown 54%.
The number of employees increased to 1,302 as of September 30, 2000,
from 671 as of June 30, 2000 and 271 as of September 30, 1999. As of September
30, 2000, sales employees (which include direct sales, sales support and sales
management) increased to 530. This compares to 283 as of June 30, 2000 and 112
as of September 30, 1999. We expect the number
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of sales employees and total employees to increase throughout the remainder
of 2000 as we continue to expand in Columbus, Dayton and Akron, Ohio.
Our selling, general and administrative expenses include selling and
marketing costs, client care, billing, corporate administration, personnel and
network maintenance.
We have developed a customized information system and procedures for
operations support systems and other back office systems that are required to
enter, schedule, provision and track a client order from point of sale to the
installation and testing of service and that will include or interface with
trouble management, inventory, billing, collection and client care service
systems. Along with the development cost of the systems, we will also incur
ongoing expenses for client care and billing. We currently outsource our billing
under an agreement with ADC Communications, Inc. (formerly Saville Systems
Inc.). This agreement provides for the processing of our billing records and
includes minimum monthly transaction fees based on the number of calls and
access lines billed to customers. Billing is expected to be a significant part
of our ongoing administrative expenses.
We will incur other costs and expenses, including the costs associated
with the maintenance of our network, administrative overhead, office leases and
bad debt. We expect that these costs will grow significantly as we expand our
operations and that administrative overhead will be a large portion of these
expenses during the start-up phase of our business. However, we expect most of
these expenses to become smaller as a percentage of our revenue as we build our
client base.
Management Ownership Allocation Charge and Deferred Compensation
The magnitude of the loss for the three months and nine months ended
September 30, 2000 is impacted by the management ownership allocation charge
included in selling, general and administrative expenses. Institutional
investors of Choice One Communications L.L.C. and 27 members of our management
owned approximately 95.0% and 5.0%, respectively, of the ownership interests of
Choice One Communications L.L.C., the entity that owned all of our outstanding
capital stock. As a result of the successful completion of the initial public
offering, Choice One Communications L.L.C. was dissolved and its assets, which
consisted almost entirely of our capital stock, were distributed to our
institutional investors and management. Approximately 68.5% of the stock held by
the L.L.C. was distributed to our institutional investors and 31.5% was
distributed to management, which is the full amount allocable to management
under the L.L.C. agreement.
Under generally accepted accounting principles, upon consummation of
the initial public offering, we were required to record the $119.9 million
increase in the assets of Choice One Communications L.L.C. allocated to
management as an increase in additional paid-in capital, with a corresponding
increase in deferred compensation, of which we were required to record $64.5
million as a non-cash, non-recurring charge to operating expense during the
period in which this offering is consummated and $55.4 million was recorded as
deferred management ownership allocation charge. The deferred charge will be
amortized at $19.0 million, $23.9 million, $11.6 million and $.9 million during
2000, 2001, 2002 and 2003, respectively. During the three months and nine months
ended September 30, 2000 the company recognized amortization of deferred
management ownership allocation charge of $6.3 million and $77.2 million,
respectively.
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In addition to the above expenses, we recognized $2.0 million and $4.4
million of non-cash deferred compensation amortization during the three months
and nine months ended September 30, 2000, respectively. Deferred compensation
was recorded in connection with membership units of Choice One Communications
LLC sold to certain management employees and grants to employees under our 1998
Stock Option Plan. In August 2000, deferred compensation of $14.8 million was
recorded to stockholders' equity in connection with the issuance of restricted
shares to the employees of the former US Xchange, Inc.
Depreciation and Amortization
Depreciation and amortization for the three months ended September 30,
2000 was $14.7 million representing a 267% increase compared to depreciation and
amortization expenses for the three months ended June 30, 2000. The increase is
consistent with the deployment of our networks and initiation of services in 24
markets by September 30, 2000 including the nine markets within the former US
Xchange. Our depreciation and amortization expense includes depreciation of
switch related equipment, non-recurring charges and equipment collocated in
established telephone company central offices, network infrastructure equipment,
information systems and furniture and fixtures.
It also includes amortization of goodwill, customer base and an IRU.
Goodwill from the acquisitions of US Xchange, Atlantic Connections and EdgeNet
Inc. was $329.5 million, $7.0 million and $3.5 million, respectively. Customer
base acquired through the acquisitions of US Xchange, Atlantic Connections and
EdgeNet Inc. was $31.0 million, $3.3 million and $0.5 million, respectively. The
value assigned to the IRU from the acquisition of US Xchange was $42.0 million
and is being amortized over 20 years. Goodwill and customer base is being
amortized over a 10-year and five-year period, respectively. We expect that our
depreciation and amortization expense will increase as we continue to make
capital expenditures, acquire long-term rights in telecommunications facilities
and acquire other businesses.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenue
The Company generated $38.6 million in revenue during the nine months
ended September 30, 2000 compared to $0.9 million during the nine months ended
September 30, 1999. The Company installed, or obtained through the incremental
gain from the acquisition of US Xchange, 127,990 lines during the nine months
ended September 30, 2000 , compared with 6,986 lines installed during the nine
months ended September 30, 1999. At September 30, 2000, the Company has a total
installed base of 148,086 lines, which compares with 6,986 access lines in
service as September 30, 1999. Sales are expected to increase from the level
realized during the nine months ended September 30, 2000 as new markets are
opened and as existing markets achieve full sales staffing levels.
Network Costs
Network costs for the nine months ended September 30, 2000 were $34.3
million compared to network costs of $2.6 million for the nine months ended
September 30, 1999. This sharp increase is consistent with the deployment of our
networks and growth of our services in 24 markets as compared to 5 markets as of
September 30, 1999.
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During the nine months ended September 30, 2000, we achieved positive
gross margin of $4.3 million or 11.1% of revenue during the nine months ended
September 30, 2000 versus a loss of $1.6 million for the nine months ended
September 30, 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
September 30, 2000 were $132.5 million compared to selling, general and
administrative expenses of $14.2 million during the nine months ended September
30, 1999. These increased expenses resulted primarily from the recording of a
$77.2 million non-cash management allocation charge during the nine months ended
September 30, 2000 as a result of the company's initial public offering in
February 2000 and from the acquisition of US Xchange since August 1, 2000 and
the related growth in employees. Revenue growth has exceeded the increase in
selling, general and administrative expenses. Revenue increased 376% as compared
to the nine months ended September 30, 1999, while selling, general and
administrative expenses, excluding the non-cash management allocation charge and
amortization of deferred compensation, have grown 297% for the same period.
Excluding the non-cash management allocation charge and amortization of deferred
compensation, selling, general and administrative expenses were $50.9 million
for the nine months ended September 30, 2000 as compared to $12.8 million for
the nine months ended September 30, 1999.
The number of employees increased to 1,302 as of September 30, 2000,
from 271 as of September 30, 1999. As of September 30, 2000, sales employees
(which include direct sales, sales support and sales management) increased to
530. This compares to 112 as of September 30, 1999. We expect the number of
sales employees and total employees to increase throughout the remainder of
2000.
Management Ownership Allocation Charge and Deferred Compensation
Under generally accepted accounting principles, upon consummation of
the initial public offering, we were required to record the $119.9 million
increase in the assets of Choice One Communications L.L.C. allocated to
management as an increase in additional paid-in capital, with a corresponding
increase in deferred compensation, of which we were required to record $64.5
million as a non-cash, non-recurring charge to operating expense during the
period in which this offering is consummated and $55.4 million was recorded as
deferred management ownership allocation charge. The deferred charge will be
amortized at $19.0 million, $23.9 million, $11.6 million and $.9 million during
2000, 2001, 2002 and 2003, respectively. During the nine months ended September
30, 2000 the company recognized amortization of deferred management ownership
allocation charge of $77.2 million.
In addition to the above expenses, we recognized $4.4 million and $1.4
million of non-cash deferred compensation amortization during the nine months
ended September 30, 2000 and 1999, respectively. Deferred compensation was
recorded in connection with membership units of Choice One Communications LLC
sold to certain management employees and grants to employees under our 1998
Stock Option Plan. In August 2000, deferred compensation of $14.8 million was
recorded to stockholders' equity in connection with the issuance of restricted
shares to the employees of the former US Xchange, Inc.
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Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30,
2000 was $21.7 million as compared to $3.4 million of depreciation and
amortization expenses for the nine months ended September 30, 1999. The increase
is consistent with the deployment of our networks and initiation of services in
24 markets by September 30, 2000 including the nine markets within the former US
Xchange. Our depreciation and amortization expense includes depreciation of
switch related equipment, non-recurring charges and equipment collocated in
established telephone company central offices, network infrastructure equipment,
information systems and furniture and fixtures.
It also includes amortization of goodwill, customer base and an IRU.
Goodwill from the acquisitions of US Xchange, Atlantic Connections and EdgeNet
Inc. was $329.5 million, $7.0 million and $3.5 million, respectively. Customer
base acquired through the acquisitions of US Xchange, Atlantic Connections and
EdgeNet Inc. was $31.0 million, $3.3 million and $0.5 million, respectively. The
value assigned to the IRU from the acquisition of US Xchange was $42.0 million
and is being amortized over 20 years. Goodwill and customer base is being
amortized over a 10-year and five-year period, respectively. We expect that our
depreciation and amortization expense will increase as we continue to make
capital expenditures, acquire long-term rights in telecommunications facilities
and acquire other businesses.
The net loss applicable to common stock for the nine months ended
September 30, 2000 was $160.4 million. The net loss for the nine months ended
September 30, 1999 was $20.1 million. Adjusted EBITDA was a negative $46.6
million for the nine months ended September 30, 2000 versus a negative $14.5
million for the nine months ended September 30, 1999.
Interest Expense and Income.
Interest expense for the three months and nine months ended September
30, 2000 was approximately $4.0 million and $6.2 million, respectively. Interest
expense includes interest payments on borrowings under our credit facility. It
also includes amortization of deferred financing costs related to our credit
facility. Interest expense for the three months and nine months ended September
30, 1999 was $0.3 million and $0.8 million, respectively.
Interest income for the three months and nine months ended September
30, 2000 was approximately $0.3 million and $1.4 million, respectively. Interest
income results from the investment of cash and cash equivalents, mainly from the
cash proceeds generated from the initial public offering of our common stock in
February 2000. Interest income for the three months and nine months ended
September 30, 1999 was $66,000.
Income Taxes
We have not generated any taxable income to date and do not expect to
generate taxable income in the next few years. Use of our net operating loss
carryforwards, which begin to expire in 2018, may be subject to limitations
under Section 382 of the Internal Revenue Code of 1986, as amended. We have
recorded a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, due to the uncertainty of its
realizability.
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LIQUIDITY AND CAPITAL RESOURCES
Credit Facility. Our credit facility permits us to borrow up to $350.0
million, subject to various conditions, covenants and restrictions with maximum
borrowing limits to be reduced starting in 2003 by 5.0% with increasing
reductions thereafter for each year until maturity in February 2009. As of
September 30, 2000, there were $47.9 million in borrowings outstanding under the
revolving portion, and $125.0 million under the term B loan of the credit
facility. The credit facility, which is secured by liens on substantially all of
our and our subsidiaries' assets and a pledge of our subsidiaries' common stock,
contains covenants and events of default that are customary for credit of this
nature.
Cash Flows. We have incurred significant operating and net losses since
our inception. We expect to continue to experience increasing operating losses
and negative adjusted EBITDA as we expand our operations and build our client
base. As of September 30, 2000, we had an accumulated deficit of $197.9 million.
Net cash used for operating activities was approximately $46.5 million for the
nine months ended September 30, 2000 and approximately $16.7 million for the
nine months ended September 30, 1999. The net cash used for operating activities
during the nine months ended September 30, 2000 was primarily due to net losses.
Net cash provided by financing activities was $458.8 million for the
nine months ended September 30, 2000 and $48.3 million for the nine months ended
September 30, 1999. Net cash provided by financing activities for the nine
months ended September 30, 2000 was primarily related to the initial public
offering completed in February 2000, issuance of Series A preferred stock in
August 2000 and borrowings under the credit facility. Net cash provided by
financing activities for the nine months ended September 30, 1999 was related to
borrowings under the credit facility and proceeds from capital contributions.
Capital Requirements. Capital expenditures were $88.4 million and $33.0
million for the nine months ended September 30, 2000 and September 30, 1999,
respectively. Capital expenditures were $34.9 million for the three months ended
September 30, 2000. We expect that our capital expenditures will continue at
this rate through the fourth quarter of 2000 in connection with the purchase of
infrastructure equipment necessary for the development and expansion of our
network, the development of new markets and potential acquisitions, investments
and strategic alliances. The rate of capital expenditures is expected to
gradually slow in 2001 as we near completion of our 29 market plan.
Further, our commitment for fiber network, as part of our original 29
market plan, could be up to $100.0 million over the 20-year term of the
agreement, subject to certain performance criteria and price reductions in
accordance with the related fiber optic agreement.
To expand and develop our business, we will need a significant amount
of cash. The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of the demand for our services
and regulatory, technological and competitive developments, including additional
market developments and new opportunities in the industry and other factors. We
may require additional financing, or require financing sooner than anticipated,
if our development plans or projections change or prove to be inaccurate or to
complete our roll-out plan to 29 markets. We may also require additional
financing in order to take advantage of unanticipated opportunities, to effect
acquisitions of businesses, to develop new services or to otherwise respond to
changing business conditions or unanticipated competitive pressures. Sources of
additional financing may include commercial bank
-10-
<PAGE>
borrowings, vendor financing or the private or public sale of equity or
debt securities. Our ability to obtain additional financing is uncertain.
At September 30, 2000, we had approximately $1.2 million in cash and
cash equivalents. In addition, the Company has a $350.0 million senior credit
facility and $180.0 million subordinated debt facility. At September 30, 2000,
there were borrowings of $173.0 outstanding on the credit facility. On November
10, 2000, the Company borrowed $180.0 million under its subordinated debt
facility of which cash proceeds were $146.4 million, after fees and escrowed
interest. The Company believes that its cash resources and available credit
facilities are sufficient to meet the future capital and operating requirements
for its 29 market plan which extends beyond the next twelve months.
CERTAIN FACTORS EFFECTING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. The words "believes",
"expects", "estimates", "anticipates", "will be" and "plans" and similar words
or expressions identify forward-looking statements made by or on behalf of the
Company. These forward-looking statements are subject to many uncertainties and
factors that may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Examples of such uncertainties and factors include, but are not
limited to, availability of financing and regulatory approvals, the number of
potential customers in a target market, the existence of strategic alliances or
relationships, technological, regulatory or other developments in the Company's
business, changes in the competitive climate in which the Company operates and
the emergence of future opportunities, all of which could cause actual results
and experiences of Choice One to differ materially from anticipated results and
expectations expressed in the forward-looking statements contained herein. These
and other applicable risks are summarized under the caption "Risk Factors" and
elsewhere in the Company's Registration Statement on Form S-1, Registration No.
333-91321, filed with the Securities and Exchange Commission and declared
effective on February 16, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2000, the carrying value of our debt obligations
excluding capital lease obligations was $172.9 million and the fair value of
those obligations was $173.2 million. A hypothetical decrease of approximately
1% from prevailing interest rates at September 30, 2000, would result in an
increase in fair value of long-term debt by approximately $8.2 million.
Also, a hypothetical increase of approximately 1% from prevailing
interest rates at September 20, 3000, would result in an approximate increase in
cash required for interest on variable rate debt during the next five fiscal
years of $0.6 million per year.
We do not use derivative financial instruments for speculative
purposes. Interest rate swap agreements are used to reduce our exposure to risks
associated with interest rate fluctuations and, subject to limitations and
conditions, are required by our credit facility. By their nature, these
instruments would involve risk, including the risk of nonperformance by
counterparties, and our maximum potential loss may exceed the amount recognized
in our balance sheet. We would attempt to control our exposure to counterparty
credit risk through monitoring procedures and by entering into multiple
contracts.
-11-
<PAGE>
At September 30, 2000, we had an interest rate swap agreement for a
notional amount of $125.0 million. Based on the fair value of the interest rate
swap at September 30, 2000, it would have cost us $1.1 million to terminate the
agreement. A hypothetical 1% decrease in the rate would decrease the fair value
by approximately $0.4 million.
-12-
<PAGE>
PART I FINANCIAL INFORMATION
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(amounts in thousands, except share and per share data)
September 30, DECEMBER 31,
2000 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ................... $ 1,174 $ 3,615
Accounts receivable, net .................... 18,125 2,929
Prepaid expenses and other current assets ... 2,788 709
--------- ---------
Total current assets ............................... 22,087 7,253
Property and Equipment:
Property and equipment ...................... 306,397 77,318
Less - accumulated depreciation ............. (18,160) (4,891)
--------- ---------
Total property and equipment ................ 288,237 72,427
Other assets, net .................................. 383,146 14,832
--------- ---------
Total assets ................................ $ 693,470 $ 94,512
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt .................. $ 30 $ --
Accounts payable ................................... 15,021 5,060
Accrued expenses ................................... 28,520 11,228
--------- ---------
Total current liabilities .......................... 43,571 16,288
Long-Term Debt and Other Liabilities:
Long-term debt, less current portion ............... 172,851 51,500
Other long-term liabilities ........................ 1,675 --
--------- ---------
Total long-term debt and other liabilities ......... 174,526 51,500
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized; and 200,000 shares
issued and outstanding, ($214,000 liquidation value) 2 --
Common stock, $0.01 par value, 150,000,000 and
47,730,196 shares authorized, 37,910,973
and 22,022,056 shares issued and outstanding
as of September 30, 2000 and December 31, 1999,
respectively ....................................... 379 220
Additional paid-in capital ......................... 735,338 72,454
Deferred compensation .............................. (62,414) (8,401)
Accumulated deficit ................................ (197,932) (37,549)
--------- ---------
Total stockholders' equity ......................... 475,373 26,724
--------- ---------
Total liabilities and stockholders' equity ......... $ 693,470 $ 94,512
========= ---------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-13-
<PAGE>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Revenue ................................................................. $ 21,354 $ 793
Operating expenses:
Network costs ..................................................... 17,579 1,780
Selling, general and administrative, including
non-cash deferred compensation of $1,958 and $730 in 2000 and 1999,
respectively and non-cash management ownership allocation charge
of $6,342 and $0 in 2000 and 1999, respectively ................. 33,457 6,405
Depreciation and amortization ...................................... 14,690 1,464
------------ ------------
Total operating expenses ..................................... 65,726 9,649
------------ ------------
Loss from operations .................................................... (44,372) (8,856)
Interest income/(expense):
Interest income .................................................... 281 66
Interest expense ................................................... (3,990) (311)
------------ ------------
Total interest income/(expense), net .................................... (3,709) (245)
------------ ------------
Net loss ................................................................ (48,081) (9,101)
Accretion on preferred stock ............................................ 962 --
Accrued dividends on preferred stock .................................... 4,667 --
------------ ------------
Net loss applicable to common stock ..................................... $ (53,710) $ (9,101)
============ ============
Net loss per share, basic and diluted ................................... $ (1.50) $ (0.41)
============ ============
Weighted average number of shares outstanding,
basic and diluted .................................................. 35,851,310 22,022,256
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
-14-
<PAGE>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Revenue ........................................................................ $ 38,555 $ 947
Operating expenses:
Network costs ............................................................ 34,280 2,577
Selling, general and administrative, including
non-cash deferred compensation of $4,435 and $1,410 in 2000 and 1999,
respectively and non- cash management ownership allocation charge
of $77,212 and $0 in 2000 and 1999, respectively ........................ 132,544 14,236
Depreciation and amortization ............................................ 21,668 3,373
------------ ------------
Total operating expenses ............................................. 188,492 20,186
------------ ------------
Loss from operations ........................................................... (149,937) (19,239)
Interest income/(expense):
Interest income ........................................................... 1,426 66
Interest expense .......................................................... (6,243) (898)
------------ ------------
Total interest income/(expense), net ........................................... (4,817) (832)
------------ ------------
Net loss ....................................................................... (154,754) (20,071)
Accretion on preferred stock ................................................... 962 --
Accrued dividends on preferred stock ........................................... 4,667 --
------------ ------------
Net loss applicable to common stock ............................................ $ (160,383) $ (20,071)
============ ============
Net loss per share, basic and diluted .......................................... $ (5.18) $ (0.91)
============ ============
Weighted average number of shares outstanding,
basic and diluted ........................................................... 30,963,595 22,022,256
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
-15-
<PAGE>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $(160,383) $ (20,071)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization .............. 21,668 3,373
Amortization of deferred
financing costs ...................... 667 161
Accretion on preferred stock ............... 962 --
Accrued dividends on preferred stock ....... 4,667 --
Deferred compensation and management
ownership allocation charge .............. 81,647 1,410
Changes in assets and liabilities:
Accounts receivable, net ................ (6,330) (685)
Prepaid expenses and other assets ....... (6,163) (346)
Accounts payable ........................ 2,562 1,737
Accrued expenses ........................ 14,240 (2,319)
--------- ---------
Net cash used in operating activities .......... (46,463) (16,740)
Cash flows from investing activities:
Capital expenditures ........................... (88,413) (33,043)
Cash payments for acquisition of business,
net of cash acquired ......................... (326,374) --
--------- ---------
Net cash used in investing activities .......... (414,787) (33,043)
Cash flows from financing activities:
Additions to long-term debt .................... 185,751 33,000
Principal payments of long-term debt ........... (64,400) (28,000)
Proceeds from capital contributions and issuance
of common stock .............................. 150,276 43,951
Proceeds from issuance of preferred stock ...... 198,002 --
Payments of financing costs .................... (10,820) (656)
--------- ---------
Net cash provided by financing activities ...... 458,809 48,295
--------- ---------
Net increase/(decrease) in cash and cash equivalents .... (2,441) (1,488)
Cash and cash equivalents, beginning of period .......... 3,615 1,491
--------- ---------
Cash and cash equivalents, end of period ................ $ 1,174 $ 3
========= =========
Supplemental disclosures of cash flow information:
Interest paid .................................. $ 3,552 $ 736
========= =========
Income taxes paid .............................. $ 2 $ 10
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
-16-
<PAGE>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
(Unaudited)
NOTE 1. GENERAL
Choice One Communications Inc., (the "Company") is an integrated
communications provider offering broadband data and voice telecommunications
services primarily to small and medium-sized businesses in second and third tier
markets in the mid-western and northeastern United States. The Company's
services include high-speed data and Internet service, principally utilizing
digital subscriber line (DSL) technology, local exchange service, long distance
service, Web design, development and hosting services. The Company seeks to
become the leading integrated communications provider in each target market by
offering a single source for competitively priced, high quality, customized
telecommunications services.
Until February 1999, the Company was in the development stage, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." The Company's
principal activities included developing its business plans; procuring
governmental authorizations; raising capital; hiring management and other key
personnel; developing, acquiring and integrating operations support systems and
other back office systems; acquiring equipment and facilities; and negotiating
interconnection agreements. Accordingly, the Company has incurred operating
losses and operating cash flow deficits. Expenses are expected to exceed revenue
in each location in which the Company offers service until a sufficient customer
base is established. It is anticipated that obtaining a sufficient customer base
will take a number of years, and positive cash flows from operations are not
expected in the near future.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The interim consolidated
financial statements include the consolidated accounts of Choice One
Communications Inc. and its wholly-owned subsidiaries (collectively, "the
Company") with all significant intercompany transactions eliminated. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial position, results
of operations and cash flows for the interim periods presented have been made.
Certain footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such SEC rules and regulations. These financial
statements should be read in conjunction with the Company's audited financial
statements as of and for the year ended December 31, 1999. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform to the current period presentation.
Unless otherwise stated, all amounts are in thousands except share and
per share data.
-17-
<PAGE>
NOTE 3. ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". The Company is expected to adopt
the statement in its first fiscal quarter of 2001. SFAS No. 133 requires that
all derivative financial instruments, such as interest rate swap agreements, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Due to the Company's limited use of
derivatives, the adoption of SFAS No. 133 is not expected to have a material
effect on the Company's financial statements.
Derivative instruments are used by the Company to manage its interest
rate exposures. The Company does not use the instruments for speculative
purposes. Interest rate swaps are employed as a requirement of the Company's
senior credit facility. The facility requires a hedge of interest rate for 50%
of the outstanding principal balance once the Company has utilized 50% of the
aggregate funding under the facility. The interest differential to be paid or
received under the related interest rate swap agreements is recognized over the
life of the related debt and is included in interest expense or income. Credit
risk associated with nonperformance by counterparties is mitigated by using
major financial institutions with high credit ratings.
NOTE 4. ACQUISITION
On August 1, 2000, the Company acquired US Xchange, Inc. a corporation
headquartered in Grand Rapids, Michigan, which is engaged in the business of
integrated communications services within the midwest, primarily third tier
cities. The purchase price was approximately $324.5 million in net cash and 6.2
million shares of common stock issued to the sole shareholder. The net cash
consideration paid consists of $303.0 disbursed upon closing and $21.5 disbursed
prior to and subsequent to the closing date in connection with the acquisition.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of US Xchange, Inc. have
been included in the Company's consolidated financial statements since the
acquisition date.
The purchase price was allocated based upon the fair value of the
assets acquired and liabilities assumed with any excess reflected as intangibles
consisting of goodwill ($329.5 million) and customer base ($31 million) and
property plant and equipment consisting of an indefeasible right to use fiber
($42 million), which is being amortized on a straight-line basis over 10 years,
five years and 20 years, respectively. The assets and liabilities of US Xchange,
Inc. have been recorded at their estimated fair value subject to adjustments
based on the results of an independent appraisal. In connection with the
acquisition, liabilities assumed and cash paid were as follows (in thousands):
Fair value of assets acquired, including cash acquired............. $535,028
Less-liabilities assumed........................................... 10,347
------
Total consideration paid........................................... 524,681
Less-cash acquired................................................. 29,086
Less-common stock issued........................................... 171,083
-------
Net cash paid for acquisition...................................... $324,512
========
-18-
<PAGE>
On February 24, 2000, the Company acquired EdgeNet, Inc. a corporation
based in Buffalo, New York, which is engaged in the business of providing
Internet home page design and development. The purchase price was approximately
$4.3 million, approximately $1.9 million in cash and approximately $2.4 million
in a promissory note that was converted into 132,148 shares of the Company's
common stock on September 9, 2000. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the net assets and results of
operations of EdgeNet, Inc. have been included in the Company's consolidated
statement since the acquisition date.
The purchase price was allocated based upon the fair value of the
assets acquired and liabilities assumed with any excess reflected as goodwill
($3.5 million), which is being amortized on a straight-line basis over ten
years. In connection with the acquisition, liabilities assumed and cash paid
were as follows:
Fair value of assets acquired, including cash acquired............. $4,397
Less-liabilities assumed........................................... 134
--------
Total consideration paid........................................... 4,263
Less-cash acquired................................................. 1
Less-amounts borrowed.............................................. 2,400
-----
Net cash paid for acquisition...................................... $1,862
======
NOTE 5. PRO FORMA RESULTS OF OPERATIONS
The following audited pro forma condensed results of operations combine
the operations of the Company with those of US Xchange acquired on August 1,
2000 as well as Atlantic Connections acquired on November 3, 1999, as if the
acquisitions had occurred on January 1, 1999. The pro forma information is
presented after giving effect to certain adjustments for depreciation,
amortization of intangible assets, interest expense on the acquisition financing
and non-cash deferred compensation charge on restricted shares of common stock
issued on August 1, 2000. The acquisitions were accounted for using the purchase
method of accounting.
The unaudited pro forma results of operations are based upon currently
available information and upon certain assumptions that the Company believes are
reasonable. The unaudited pro forma statements do not purport to represent what
the Company's financial position or results of operations would actually have
been if the transaction in fact occurred on such date or at the beginning of the
period indicated or to project the Company's financial position or the results
of operations at any future date or for any future period.
Pro Forma Nine Months Ended
September 30, 2000 September 30, 1999
Revenue $65,400 $25,311
Loss from operations $(208,705) $(106,475)
Net loss $(224,883) $(121,710)
-19-
<PAGE>
Net loss applicable to common stock $(257,655) $(147,412)
Net loss per share, basic and diluted $(7.27) $(5.12)
Weighted average number of shares
outstanding, basic and diluted 35,442,495 28,765,215
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment, at cost consisted of the following at September
30, 2000 and December 31, 1999:
September 30, 2000 December 31, 1999
Switch equipment $191,225 $56,263
Computer equipment and software 28,260 11,416
Office furniture and equipment 9,749 2,687
Leasehold improvement 16,484 1,675
Indefeasible right to use fiber 43,703 --
Construction in progress 16,976 5,277
------ -----
$306,397 $77,318
======== =======
NOTE 7. OTHER ASSETS
Other assets consisted of the following at September 30, 2000 and
December 31, 1999:
September 30, 2000 December 31, 1999
Goodwill $340,390 $5,464
Deferred financing costs 16,125 5,305
Customer base 34,800 3,300
Other assets 1,540 1,406
----- -----
392,855 15,475
Less-Accumulated amortization 9,709 643
----- ---
$383,146 14,832
======== ======
-20-
<PAGE>
NOTE 8. ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2000 and
December 31, 1999:
September 30, 2000 December 31, 1999
Accrued network costs $12,330 $4,489
Accrued payroll and payroll
related benefits 4,699 1,093
Accrued collocation costs 3,825 2,494
Accrued interest 2,384 547
Other 5,282 2,605
----- -----
$28,520 $11,228
======= =======
NOTE 9. LONG-TERM DEBT
In February 2000, in connection with the acquisition of EdgeNet, the
Company entered into $2.4 million of promissory notes with the shareholders of
EdgeNet. The promissory notes were converted into 132,148 shares of the
Company's common stock on September 9, 2000.
In August 2000, the Company amended and restated its Credit Agreement
(the "Second Amended Agreement"). The Second Amended Agreement, which terminates
on eight and one-half years from August 1, 2000, provides the Company with an
eight-year revolving credit facility of $100.0 million, an eight-year multiple
draw term A loan of $125.0 million and an eight and one-half year term B loan of
$125.0 million. The Second Amended Agreement was used, in part, to finance the
acquisition of US Xchange and will be used to finance capital expenditures and
to provide working capital. Borrowings under the Second Amended Agreement are
secured by substantially all of the assets of the Company and bear interest, at
the Company's option, at either the LIBOR rate or the base rate (the higher of
the prime interest rate or the federal funds rate plus 0.5 percent), with
additional percentage points added based on the Company's leverage ratio, as
defined in the Second Amended Agreement. In addition, the Company is also
required to pay a commitment fee of 0.75 percent to 1.5 percent per annum based
on the unutilized portion of the credit facility.
As of September 30, 2000, the term B loan was fully funded, $47.9
million of the revolving credit facility was funded, $52.1 million remained
available under the revolving credit facility and $125.0 million remained
available under the term A loan.
The Second Amended Agreement revised certain covenants including total
debt to contributed capital, minimum revenue, maximum earnings before interest,
taxes, depreciation and amortization (EBITDA) losses, maximum capital
expenditure levels, minimum asset coverage, leverage ratio, fixed charge ratio
and interest coverage ratio, all as defined in the Amended Agreement. At
September 30, 2000, the Company was in compliance with these covenants.
-21-
<PAGE>
On August 1, 2000, the Company entered into a $180.0 million unsecured
subordinated debt facility which is a one-year overfunded facility and, upon
draw down of the loan, up to $30.0 million of the loan proceeds will be credited
into escrow to make cash interest payments on the loan. Morgan Stanley Senior
Funding, a related party to the Company, was sole lead arranger for the
subordinated debt facility. The subordinated debt facility commitment expires on
August 1, 2001. The one-year overfunded facility maturity date is the earliest
of one year from drawdown or November 30, 2001. On the maturity date, subject to
certain conditions, any outstanding balance will be redeemed with the issuance
of rollover notes. The rollover notes mature on the ninth anniversary of the
rollover issuance date. On the date of the issuance of the rollover notes, the
Company will issue warrant's representing up to 5% of the fully diluted common
stock of the Company on such date. All warrants will be exercisable at 10% above
the then current trading price for the common stock of the Company for a period
of five years from the warrants' issuance date.
On November 10, 2000, the Company funded the subordinated debt.
Borrowings, net of escrowed interest and funding fees, were $146.4 million.
Interest will be payable quarterly, based on LIBOR plus applicable margin, which
was 14.31% on November 10, 2000.
NOTE 10. DERIVATIVE INSTRUMENTS
Under the Second Amended Agreement, the Company is required to enter
into hedging agreements with respect to interest rate exposure with an aggregate
notional amount equal to 50% of the outstanding borrowings once at least 50% of
the aggregate commitment has been utilized. The Company uses interest rate swap
agreements to reduce its exposure to interest rate changes. On August 31,
2000 the Company entered into a swap contract related to $125.0 million borrowed
on the term B loan. The swap expires in 2006 and is based on three-month LIBOR,
which is fixed at 6.94%, plus applicable margin. The differential to be received
or paid under the interest rate swap agreement is recognized as a component of
interest expense.
At September 30, 2000, the notional principal amount of the interest
rate swap agreement was $125.0 million expiring in 2006. The fair value of the
swap agreement was $(1.1) million as of September 30, 2000. The fair value of
the interest rate swap agreement is estimated based on quotes from brokers and
represents the estimated amount that the Company would expect to pay to
terminate the agreement at the reporting date.
NOTE 11. CAPITALIZATION
On January 17, 2000, the Company's Board of Directors voted to amend
the Certificate of Incorporation of the Company to increase the number of
authorized common shares and preferred shares to 150 million and 5 million
respectively.
On January 25, 2000, the Company's Board of Directors approved a
354.60-for-one stock split, the effect of which is retroactively reflected
within these financial statements for all periods presented.
On February 16, 2000, the Company raised $164.3 million of gross
proceeds in an initial public offering of Common Stock (the "Equity Offering").
-22-
<PAGE>
Prior to the Equity Offering, the Company's institutional investors and
management owned 95.0 percent and 5.0 percent, respectively, of the ownership
interests of Choice One Communications, L.L.C., an entity that owned
substantially all of the Company's outstanding capital stock. As a result of the
Equity Offering, Choice One Communications, L.L.C was dissolved and its assets,
which consisted almost entirely of such capital stock, were distributed to the
Company's institutional investors and management in accordance with the LLC
Agreement. The LLC Agreement provided that the Equity Allocation between the
Company's institutional investors and management be 68.5 percent to the Investor
Members and 31.5 percent to management based upon the valuation implied by the
Equity Offering.
Under generally accepted accounting principles, upon the consummation
of the initial public offering, the Company was required to record the increase
(based upon the valuation of the Common Stock implied by the Equity Offering) in
the assets of Choice One LLC allocated to management as a $119.9 million
increase in additional paid-in capital, with a corresponding increase in
non-cash deferred compensation, of which the Company was required to record
$64.5 million as a non-cash, nonrecurring charge to operating expense and $55.4
million as a deferred management ownership allocation charge. The deferred
charge will be amortized at $19.0 million, $23.9 million, $11.6 million and $0.9
million during 2000, 2001, 2002 and 2003, respectively, which is the period over
which the Company has the right to repurchase the securities (at fair market
value or the price paid by the employee, if that price is less than fair market
value) in the event the management employee's employment with the Company is
terminated.
On August 1, 2000, the Company issued 200,000 shares of Series A senior
cumulative preferred stock and related warrants in a private placement for
$200.0 million. The Series A Preferred Stock was issued to Morgan Stanley Dean
Witter Capital Partners, a related party to the Company. Each share of Series A
preferred stock has a stated value of $1,000 and ranks senior to each other
class or series of the Company's capital stock. Dividends will accrue quarterly
at the rate of 14.0% per annum, cumulative and compounded quarterly. The Series
A preferred stock matures on August 1, 2012, at which time the Company must
redeem the shares for their stated value plus any unpaid dividends. Prior to
August 1, 2005 (the fifth anniversary of the issue date) the Company may pay
dividends quarterly in additional shares of Series A preferred stock or in cash,
at the Company's option. Thereafter until maturity, dividends are to be paid in
cash.
In connection with the issuance of the Series A preferred stock, the
Company issued warrants to the holders of the Series A preferred stock. The
warrants to purchase 1,747,454 shares of our common stock are exercisable in
whole or in part at any time and represent 4.25% of our outstanding common stock
as of August 1, 2000 (on a pro forma fully diluted basis to give effect to the
acquisition of US Xchange). The warrant exercise price is $0.01 per share of
common stock. The warrants will expire on August 1, 2012.
In connection with the acquisition of US Xchange on August 1, 2000, the
Company issued 6,742,959 shares. The shares were issued to the sole shareholder
and employees of US Xchange. The issuance of shares to the employees of US
Xchange consisted of 535,296 restricted shares. The shares will vest over two
years at 50% per annum.
-23-
<PAGE>
NOTE 12. RELATED PARTIES
The Company entered into a master facilities agreement with Fiber
Technologies, a company that designs, constructs and leases high performance
fiber networks in second and third tier markets in the Northeast and
Mid-Atlantic regions of the United States. The agreement provides the Company
with a 20-year indefeasible right to use (IRU) fiber without electronics in
13 of Choice One's market cities. Fiber deployment will allow the Company
to optimize network costs and enhance the quality and reliability of its
network. The Company has committed to four fibers in each cable in the 13
cities. The Company's commitment could be up to $100.0 million over the 20-year
term of the agreement, subject to certain performance criteria and price
reductions in accordance with the agreement.
In addition to the master facilities agreement, the Company made a
minority equity investment in Fiber Technologies, in return for which the
Company has the right to appoint one representative to the board of directors,
and has a vote in determining the new markets in which Fiber Technologies will
develop and build local loops.
In addition, Fleet Equity Partners LP, a related party to the Company,
has a significant equity investment in Fiber Technologies and a member of the
Company's board of directors is a member of Fiber Technologies' board of
directors.
Morgan Stanley Dean Witter Capital Partners, a related party to the
Company, purchased 200,000 shares of the Company's series A senior cumulative
preferred stock on August 1, 2000.
Morgan Stanley Senior Funding, a related party to the Company, was sole
lead arranger and one of the lenders for the Company's subordinated debt
facility and was one of the lenders for the Company's senior credit facility.
In August 2000, the Company entered into a fiber optic and grant of
indefeasible right to use agreement with RVP Fiber L.L.C. The 20-year
indefeasible right to use was acquired as part of the acquisition of US Xchange
and a value of $42.0 million has been ascribed to that right. Mr. Vanderpol, a
shareholder of RVP Fiber L.L.C. is also a shareholder of the Company. Mr.
Vanderpol has the right to appoint one representative to the board of directors
of the Company, pursuant to the merger agreement with US Xchange.
-24-
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports for Form 8-K
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
A Form 8-K was filed on August 11, 2000 announcing the
completion of the acquisition of US Xchange, Inc. No financial
statements were included.
A Form 8-K/A was filed on September 15, 2000 relating the pro
forma financial information for the acquisition of US Xchange,
Inc. Audited Financial Statements of US Xchange, Inc. for each
of the three years in the period ended December 31, 2000 were
included.
-25-
<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.
CHOICE ONE COMMUNICATIONS INC.
Registrant
DATE: November 14, 2000 By: /s/ Steve Dubnik
-------------------------------------------------
Steve M. Dubnik, Chairman and Chief Executive Officer
By: /s/ Ajay Sabherwal
-------------------------------------------------
Ajay Sabherwal, Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
-26-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation Incorporated by reference from Exhibit 3.1 to
Choice One Communication Inc.'s
Registration Statement on Form S-1 declared
effective on February 16, 2000 located under
Securities and Exchange Commission File
No. 333-91321 ("February 2000 Registration
Statement")
3.2 Amended and Restated Bylaws Incorporated by reference from Exhibit 3.2 to
the February 2000 Registration Statement
3.3 Certificate of Designations for Series A Senior Incorporated by reference from Exhibit 3.1
Cumulative Preferred Stock to the August 10, 2000 8-K filing located
under Securities and Exchange Commission
File No. 29279.
10.1 1998 Employee Stock Option Plan of Choice Incorporated by reference from Exhibit 4.1 to
One Communications Inc. (May 2000 Restatement) the September 29, 2000 S-8 located under
Securities and Exchange Commission File
No. 333-47002.
10.2 1999 Directors Stock Incentive Plan of Choice One Incorporated by reference from Exhibit 4.1 to
Communications Inc. the September 29, 2000 S-8 located under
Securities and Exchange Commission File
No. 333-47008.
10.3 Transaction Agreement, dated as of July 8, 1998, Incorporated by reference from Exhibit 10.3 to
among Choice One Communications Inc., Choice the February 2000 Registration Statement
One Communications L.L.C. and holders of
Investor Equity and Management Equity
10.4 Amendment No. 1 dated as of December 18, 1998 Incorporated by reference from Exhibit 10.4 to
to Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity
10.5 Amendment No. 2 dated as of February 18, 1999 to Incorporated by reference from Exhibit 10.5 to
Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity
10.6 Amendment No. 3 dated as of May, 14 1999 to Incorporated by reference from Exhibit 10.6 to
Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity
10.7 Amendment No. 4 dated as of June 30, 1999 to Incorporated by reference from Exhibit 10.7 to
Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity
-27-
<PAGE>
10.8 Amendment No. 5 dated as of June 30, 1999 to Incorporated by reference from Exhibit 10.8 to
Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity
10.9 Amendment No. 6 dated as of November 18, 1999 Incorporated by reference from Exhibit 10.9 to
to Transaction Agreement, dated as of July 8, 1998, the February 2000 Registration Statement
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity.
10.10 Amendment No. 7 dated as of August 1, 2000 to Incorporated by reference from Exhibit 10.2 to
Transaction Agreement, dated as of July 8, 1998, the Company's 8-K filed on August 10, 2000
among Choice One Communications Inc., Choice
One Communications L.L.C. and holders of
Investor Equity and Management Equity.
10.11 Registration Rights Agreement dated as of July 8, Incorporated by reference from Exhibit 10.10
1998, among Choice One Communications Inc., the to the February 2000 Registration Statement
Investor Holders and the Management Holders
10.12 Amendment No. 1 dated as of February 18, 1999 to Incorporated by reference from Exhibit 10.11
Registration Rights Agreement dated as of July 8, to the February 2000 Registration Statement
1998, among Choice One Communications Inc., the
Investor Holders and the Management Holders
10.13 Amendment No. 2 dated as of June 30, 1999 to Incorporated by reference from Exhibit 10.12
Registration Rights Agreement dated as of July 8, to the February 2000 Registration Statement
1998, among Choice One Communications Inc., the
Investor Holders and the Management Holders
10.14 Amendment No. 3 dated as of June 30 1999 to Incorporated by reference from Exhibit 10.13
Registration Rights Agreement dated as of July 8, to the February 2000 Registration Statement
1998, among Choice One Communications Inc., the
Investor Holders and the Management Holders
10.15 Amendment No. 4 dated as of August 1, 2000 to Incorporated by reference from Exhibit 10.1 to
Registration Rights Agreement dated as of July 8, the Company's 8-K filed on August 10, 2000
1998, among Choice One Communications Inc., the
Investor Holders and the Management Holders
10.16 Form of Executive Purchase Agreement dated July Incorporated by reference from Exhibit 10.14
8, 1998 among the Choice One Communication to the February 2000 Registration Statement
Inc., Choice One Communications L.L.C. and
Certain Executives of the Registrant
10.17 Executive Purchase Agreement dated as of July 8, Incorporated by reference from Exhibit 10.15
1998 among the Choice One Communication Inc., to the February 2000 Registration Statement
Choice One Communications L.L.C. and Steve M.
Dubnik
10.18 Executive Purchase Agreement dated as of July 8, Incorporated by reference from Exhibit 10.16
1998 among the Choice One Communication Inc., to the February 2000 Registration Statement
Choice One Communications L.L.C. and Mae
Squire-Dow
-28-
<PAGE>
10.19 Executive Purchase Agreement dated as of July 8, Incorporated by reference from Exhibit 10.17
1998 among the Choice One Communication Inc., to the February 2000 Registration Statement
Choice One Communications L.L.C. and Philip
Yawman
10.20 Executive Purchase Agreement dated as of July 8, Incorporated by reference from Exhibit 10.18
1998 among the Choice One Communication Inc., to the February 2000 Registration Statement
Choice One Communications L.L.C. and Kevin
Dickens
10.21 Executive Purchase Agreement dated as of July 8, Incorporated by reference from Exhibit 10.19
1998 among the Choice One Communication Inc., to the February 2000 Registration Statement
Choice One Communications L.L.C. and Ajay
Sabherwal
10.22 Second Amended and Restated Credit Agreement Incorporated by reference from Exhibit 10.8 to
dated as of August 1, 2000 among the Registrant as the Company's 8-K filed on August 10, 2000
Guarantor, subsidiaries of the Registrant, as
Borrowers, First Union Investors, Inc., as
Administrative Agent, General Electric Capital
Corporation, as Syndication Agent, and Morgan
Stanley Senior Funding, Inc. as Documentation
Agent and the lenders thereto
10.23 Lease between the Registrant and Bendersen- Incorporated by reference from Exhibit 10.21
Rochester Associates, LLC dated October 14, 1998, to the February 2000 Registration Statement
as amended
10.24 Unit Purchase Agreement dated as of October 21, Incorporated by reference from Exhibit 10.22
1999 among the Registrant, Atlantic Connections to the February 2000 Registration Statement
L.L.C., ACL Telecommunications, LTD., Paul
Cissel, Antonio Lopez, Jr. and North Atlantic
Venture Fund II, L.P.
10.25 General Agreement between the Registrant and Incorporated by reference from Exhibit 3.1 to
Lucent Technologies effective as of July 17, 1999, the Company's 10-Q for the quarter ended
as amended. June 30, 2000
10.26 Service Bureau Agreement between the Registrant Incorporated by reference from Exhibit 10.24
and Saville Systems Inc. effective September 30, to the February 2000 Registration Statement
1998
10.27 Agreement and Plan of Merger by and among Incorporated by reference from Exhibit 99.2 to
Choice One Communications Inc., Barter the Company's 8-K/A filed on May 16, 2000
Acquisition Corporation, US Xchange, Inc. and the
Stockholder of US Xchange, Inc. dated as of May
14, 2000
10.28 Securities Purchase Agreement dated as of August Incorporated by reference from Exhibit 10.7 to
1, 2000 among Morgan Stanley Dean Witter Capital the Company's 8-K filed on August 10, 2000
Partners IV, L.P., Morgan Stanley Dean Witter
Capital Partners IV 892 Investors, L.P., Morgan
Stanley Dean Witter Capital Investors IV, L.P., and
Choice One Communications Inc. relating to the
purchase and sale of securities of Choice One
Communications Inc.
-29-
<PAGE>
10.29 Warrants for the purchase of shares of Common Incorporated by reference from Exhibit 10.4,
Stock of Choice One Communications Inc. 10.5 and 10.6 to the Company's 8-K filed on August 10, 2000
10.30 Bridge Financing Agreement dated as of August 1, Incorporated by reference from Exhibit 10.3 to
2000 among Choice One Communications Inc., the the Company's 8-K filed on August 10, 2000
Lenders party hereto, and Morgan Stanley Senior
Funding, Inc., as Administrative Agent.
10.31 Fiber Optic Agreement and Grant of IRU dated Incorporated by reference from Exhibit 10.9 to
August 1, 2000 by and between Choice One the Company's 8-K filed on August 10, 2000
Communications Inc. and RVP Fiber Company,
L.L.C.
10.32 Form of Executive Employment Agreement Incorporated by reference from Exhibit 10.10
between former executives of US Xchange, Inc. and to the Company's 8-K filed on August 10,
Choice One Communications Inc. 2000
10.33 Master Facilities Agreement between Fiber Incorporated by reference from Exhibit 10.1 to
Technologies Operating Company, LLC and Choice the Company's 10-Q for the quarter ended
One Communications Inc. dated as of May 31, June 30, 2000
2000.*
10.34 Addendum Number One 5ESS(R) switch and Incorporated by reference from Exhibit 10.1 to
transmission systems Purchase Agreement between the Company's 10-Q for the quarter ended
Choice One Communications Inc and Lucent March 31, 2000
Technologies Inc. dated as of January 1, 2000.**
10.35 Choice One Communications 401(k) Plan Incorporated by reference from Exhibit 10.1 to
the Company's 10-Q for the quarter ended
March 31, 2000
11.1 Statement regarding computation of per share Filed Herewith
loss for the three month period ending September
30, 2000
11.2 Statement regarding computation of per share Filed Herewith
loss for the nine month period ending September
30, 2000
11.3 Statement regarding computation of per share Filed Herewith
loss for the three month period ending September
30, 1999
11.4 Statement regarding computation of per share Filed Herewith
loss for the nine month period ending September
30, 1999
27.1 Financial Data Schedule Filed herewith
</TABLE>
*Portions of this agreement have been omitted and filed separately with the
Commission pursuant to an application for confidential treatment under Rule
24b-2, which was granted by the Commission until May 31, 2003.
**Portions of this agreement have been omitted and filed separately with the
Commission pursuant to an application for confidential treatment under Rule
24b-2, which was granted by the Commission until December 31, 2002.
-30-
<PAGE>
EXHIBIT 11.1
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
THREE MONTHS ENDED SEPTEMBER 30, 2000
Equivalent
Title Number of Shares Percent Shares
Choice One Communications, Inc. 31,009,797 100.0% 31,009,797
Choice One Communications, Inc. 6,875,107 70.0% 4,817,376
1998 Employee Stock Option Plan 26,069 92.6% 24,137
Weighted Average Share Outstanding 35,851,310
Net Loss Applicable to Common Stock $(53,709,469)
Net Loss Per Share, Basic and Diluted $(1.50)
-31-
<PAGE>
EXHIBIT 11.2
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
NINE MONTHS ENDED SEPTEMBER 30, 2000
Equivalent
Title Number of Shares Percent Shares
Choice One Communications, Inc. 22,022,256 100.0% 22,022,256
Choice One Communications, Inc. 7,645,898 27.8% 2,125,263
February 2000 Stock Offering 8,216,750 82.8% 6,803,396
1998 Employee Stock Option Plan 26,069 48.6% 12,680
Weighted Average Share Outstanding 30,963,595
Net Loss Applicable to Common Stock $(160,383,367)
Net Loss Per Share, Basic and Diluted $(5.18)
-32-
<PAGE>
EXHIBIT 11.3
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
THREE MONTHS ENDED SEPTEMBER 30, 1999
Equivalent
Title Number of Shares Percent Shares
Choice One Communications, Inc. 22,022,256 100.0% 22,022,256
Weighted Average Share Outstanding 22,022,256
Net Loss Applicable to Common Stock $(9,101,279)
Net Loss Per Share, Basic and Diluted $(0.41)
-33-
<PAGE>
EXHIBIT 11.4
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
NINE MONTHS ENDED SEPTEMBER 30, 1999
Equivalent
Title Number of Shares Percent Shares
Choice One Communications, Inc. 22,022,256 100.0% 22,022,256
Weighted Average Share Outstanding 22,022,256
Net Loss Applicable to Common Stock $(20,071,696)
Net Loss Per Share, Basic and Diluted $(0.91)
-34-
<PAGE>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2000 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
0001091953
Choice One Communications Inc.
1,000
PERIOD-TYPE 9-MOS
FISCAL-YEAR-END DEC-31-2000
PERIOD-START JAN-01-2000
PERIOD-END SEP-30-2000
CASH 1,174
SECURITIES 0
RECEIVABLES 18,125
ALLOWANCES 0
INVENTORY 0
CURRENT-ASSETS 2,788
PP&E 306,397
DEPRECIATION 18,160
TOTAL-ASSETS 693,470
CURRENT-LIABILITIES 43,571
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 2
COMMON 379
OTHER-SE 474,992
-35-
<PAGE>
TOTAL-LIABILITY-AND-EQUITY 693,470
SALES 38,555
TOTAL-REVENUE 38,555
CGS 34,280
TOTAL-COSTS 188,492
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 4,817
INCOME-PRETAX (154,754)
INCOME-TAX 0
INCOME-CONTINUING (154,754)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (160,383)
EPS-BASIC (5.18)
EPS-DILUTED (5.18)