UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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
Commission File No. 000-31359
CORECOMM LIMITED
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-3032245
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
110 East 59th Street, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 906-8440
--------------
(Registrant's telephone number, including area code)
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
----- -----
The number of shares outstanding of the issuer's common stock as of September
30, 2000 was 72,024,560.
<PAGE>
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 ....................... 2
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 2000 and 1999 ....... 3
Condensed Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 2000 .......................... 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 1999 ................. 5
Notes to Condensed Consolidated Financial Statements ........... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................ 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .......... 24
Item 6. Exhibits and Reports on Form 8-K .............................. 24
SIGNATURES ............................................................... 26
<PAGE>
CoreComm Limited and Subsidiaries
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CoreComm Limited and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited) (See Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 34,961,000 $ 86,685,000
Marketable securities 15,587,000 92,041,000
Accounts receivable-trade, less allowance for
doubtful accounts of $9,174,000 (2000)
and $3,949,000 (1999) 39,924,000 7,875,000
Due from NTL Incorporated 1,814,000 195,000
Other 16,244,000 5,791,000
--------------- --------------
Total current assets 108,530,000 192,587,000
Fixed assets, net 171,174,000 90,619,000
Goodwill, net of accumulated amortization of
$14,568,000 (2000) and $7,262,000 (1999) 370,261,000 57,888,000
LMDS license costs 25,366,000 25,366,000
Other, net of accumulated amortization
of $5,363,000 (2000) and $2,202,000 (1999) 438,924,000 25,643,000
--------------- --------------
$ 1,114,255,000 $392,103,000
=============== ==============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 52,694,000 $ 13,851,000
Accrued expenses 75,702,000 32,215,000
Equipment payable - 4,702,000
Current portion of long-term debt and capital
lease obligations 24,346,000 19,127,000
Deferred revenue 13,941,000 1,400,000
--------------- --------------
Total current liabilities 166,683,000 71,295,000
Long-term debt 356,759,000 179,318,000
Capital lease obligations 5,984,000 14,564,000
Commitments and contingent liabilities
Shareholders' equity:
Series preferred stock - $.01 par value,
authorized 5,000,000 shares:
Series A, liquidation preference $50,024,000;
issued and outstanding 50,000 (2000)
and none (1999) shares - -
Series B, liquidation preference $250,074,000;
issued and outstanding 250,000 (2000) and
none (1999) shares 3,000 -
Series C, none issued or outstanding - -
Common stock - $.01 par value, authorized
200,000,000 shares; issued and outstanding
72,025,000 (2000) and 38,556,000 (1999) shares 720,000 386,000
Additional paid-in capital 912,539,000 246,319,000
Deferred non-cash compensation (24,870,000) -
(Deficit) (292,989,000) (119,779,000)
--------------- --------------
595,403,000 126,926,000
Treasury stock at cost, 1,329,000 shares (10,574,000) -
--------------- --------------
584,829,000 126,926,000
--------------- --------------
$ 1,114,255,000 $ 392,103,000
=============== ==============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
balance sheet at that date. See accompanying notes.
<PAGE>
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 18,263,000 $ 21,107,000 $ 56,619,000 $ 37,139,000
Costs and expenses
Operating 25,746,000 23,374,000 77,446,000 37,524,000
Selling, general and administrative 23,123,000 24,205,000 72,044,000 43,725,000
Corporate 3,363,000 2,346,000 8,559,000 6,489,000
Non-cash compensation 3,234,000 1,056,000 35,420,000 1,056,000
Nonrecurring charges (243,000) - 775,000 -
Depreciation 7,389,000 4,964,000 19,494,000 6,674,000
Amortization 3,477,000 3,833,000 9,812,000 5,005,000
------------- ------------- -------------- -------------
66,089,000 59,778,000 223,550,000 100,473,000
------------- ------------- -------------- -------------
Operating (loss) (47,826,000) (38,671,000) (166,931,000) (63,334,000)
Other income (expense)
Interest income and other, net 1,626,000 546,000 5,476,000 3,416,000
Interest expense (3,900,000) (1,351,000) (11,434,000) (1,569,000)
------------- ------------- -------------- -------------
(Loss) before income tax provision (50,100,000) (39,476,000) (172,889,000) (61,487,000)
Income tax provision (49,000) (274,000) (321,000) (839,000)
------------- ------------- -------------- -------------
Net (loss) $ (50,149,000) $ (39,750,000) $ (173,210,000) $ (62,326,000)
============= ============= ============== =============
Basic and diluted net (loss) per share $(1.24) $(1.08) $(4.35) $(1.90)
============= ============= ============== =============
See accompanying notes.
</TABLE>
<PAGE>
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Series A Series B Preferred
Preferred Stock Stock Common Stock Additional
--------------- ------------------ ---------------------- Paid-In
Shares Par Shares Par Shares Par Capital
--------------- ------------------ ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 38,556,000 $386,000 $246,319,000
Exercise of stock options 1,605,000 16,000 12,170,000
Exercise of warrants 35,000 - 276,000
Common stock issued for acquisitions 31,829,000 318,000 333,011,000
Preferred stock issued for an acquisition 250,000 $ 3,000 199,997,000
Preferred stock issued for cash 50,000 $ - 50,000,000
Accreted dividends on preferred stock (98,000)
Deferred non-cash compensation 60,290,000
Non-cash compensation expense
Common stock issued for acquisition and
returned to treasury, at cost 10,574,000
Net (loss) for the nine months ended
September 30, 2000
--------------- ------------------ ---------------------- ------------
Balance, September 30, 2000 50,000 $ - 250,000 $ 3,000 72,025,000 $720,000 $912,539,000
====== ===== ======= ======= ========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
Deferred Treasury Stock
Non-Cash --------------------------
Compensation (Deficit) Shares Amount
------------ ------------- --------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $(119,779,000)
Exercise of stock options
Exercise of warrants
Common stock issued for acquisitions
Preferred stock issued for an acquisition
Preferred stock issued for cash
Accreted dividends on preferred stock
Deferred non-cash compensation $(31,338,000)
Non-cash compensation expense 6,468,000
Common stock issued for acquisition and
returned to treasury, at cost (1,329,000) $(10,574,000)
Net (loss) for the nine months ended
September 30, 2000 (173,210,000)
------------ ------------- --------------------------
Balance, September 30, 2000 $(24,870,000) $(292,989,000) (1,329,000) $(10,574,000)
============ ============= ========== ============
</TABLE>
The Condensed Consolidated Statement of Shareholders' Equity reflects on a
retroactive basis the 3-for-2 stock split by way of a stock dividend paid on
February 2, 2000.
See accompanying notes.
<PAGE>
CoreComm Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
2000 1999
---------------------------------
<S> <C> <C>
Net cash (used in) operating activities $ (112,320,000) $ (47,973,000)
Investing activities
Purchase of fixed assets (43,573,000) (14,906,000)
Acquisitions, net of cash acquired (92,320,000) (47,056,000)
Purchase of marketable securities (36,021,000) (65,299,000)
Proceeds from sales of marketable securities 114,870,000 154,544,000
---------------------------------
Net cash provided by (used in) investing activities (57,044,000) 27,283,000
Financing activities
Proceeds from borrowing, net of financing costs 71,161,000 -
Proceeds from issuance of preferred stock 50,000,000 -
Proceeds from exercise of stock options and warrants 12,462,000 13,101,000
Principal payments (4,217,000) (2,214,000)
Principal payments of capital lease obligations (11,766,000) (1,534,000)
---------------------------------
Net cash provided by financing activities 117,640,000 9,353,000
---------------------------------
Decrease in cash and cash equivalents (51,724,000) (11,337,000)
Cash and cash equivalents at beginning of period 86,685,000 26,161,000
---------------------------------
Cash and cash equivalents at end of period $ 34,961,000 $ 14,824,000
=================================
Supplemental disclosure of cash flow information
Cash paid for interest $ 13,752,000 $ 735,000
Income taxes paid 364,000 1,209,000
Supplemental schedule of non-cash investing activities
Liabilities incurred to acquire fixed assets $ 37,529,000 $ 6,335,000
Common stock, preferred stock and warrants issued for acquisitions 533,329,000 43,203,000
Notes issued for acquisitions 108,669,000 -
See accompanying notes.
</TABLE>
<PAGE>
CoreComm Limited and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. Management does not anticipate that the
adoption of this standard will have a significant effect on results of
operations, financial condition or cash flows of the Company.
In January 2000, the Company declared a 3-for-2 stock split by way of a stock
dividend, which was paid on February 2, 2000. The condensed consolidated
financial statements and the notes thereto give retroactive effect to the stock
split.
NOTE 2. DOMESTICATION MERGER
In September 2000, CoreComm Limited, a Bermuda corporation, merged with and into
its newly-formed, wholly-owned Delaware corporate subsidiary. The Delaware
corporation then merged into ATX Telecommunications Services, Inc. ("ATX") with
ATX being the surviving corporation and changing its name to CoreComm Limited.
For accounting purposes, the Company's predecessor is CoreComm Limited, the
Bermuda corporation.
NOTE 3. ACQUISITIONS
On September 29, 2000, the Company completed two significant strategic
acquisitions. The Company acquired Voyager.net, Inc. ("Voyager"), a large
independent Internet communications company focused on the Midwestern United
States. Voyager was acquired for approximately $36.1 million in cash and
19,431,000 shares of the Company's common stock. The common stock was valued at
$154.6 million, the fair value at the time of the closing of the transaction. In
addition, the Company incurred acquisition related costs of approximately $8.5
million and repaid approximately $24.0 million of Voyager debt including accrued
interest.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 3. ACQUISITIONS (CONTINUED)
The Company also acquired ATX, a competitive local exchange carrier ("CLEC")
providing integrated voice and high-speed data services, including long
distance, local, wireless and network services through the use of telephone
switching equipment and other physical facilities in the New York - Virginia
corridor. ATX was acquired for approximately $39.4 million in cash,
approximately $108.7 million of the Company's senior unsecured notes due 2003,
12,398,000 shares of the Company's common stock and $250.0 million liquidation
preference of the Company's Series B preferred stock. The common stock was
valued at $178.7 million, the fair value at the time of the third amendment to
the ATX merger agreement on July 31, 2000. The Series B preferred stock was
valued at $200.0 million, the fair value on the date of issuance. In addition,
the Company incurred acquisition related costs of approximately $11.0 million.
These acquisitions have been accounted for as purchases, and, accordingly the
net assets of the acquired business have been included in the consolidated
financial statements at September 30, 2000. The results of operations from the
date of acquisition to September 30, 2000 of Voyager and ATX were not
significant and have not been included in the Company's consolidated results of
operations. The aggregate purchase price of $761.0 exceeded the estimated fair
value of net tangible assets acquired by $721.2 million, which was allocated as
follows: $401.5 million to other intangibles and $319.7 to goodwill. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on the estimated fair values at
acquisition. Changes to the allocation of purchase price are expected as
valuations or appraisals of assets and liabilities are completed.
In May 1999, the Company acquired 100% of the stock of MegsINet Inc. and the
CLEC assets of USN Communications, Inc. These acquisitions were accounted for as
purchases, and, accordingly, the net assets and results of operations of the
acquired businesses were included in the consolidated financial statements from
the dates of acquisition.
The pro forma unaudited consolidated results of operations for the nine months
ended September 30, 2000 and 1999 assuming consummation of the acquisitions as
of January 1, 1999 are as follows:
Nine Months Ended September 30,
2000 1999
------------------------------------
Total $226,437,000 $208,056,000
Net (loss) (275,155,000) (183,591,000)
Basic and diluted net (loss) per share (4.13) (3.00)
A component of the 1999 pro forma results is associated with the acquisition of
certain assets of USN. Although USN quickly developed a large customer list and
revenue base in 1997 and 1998, it had difficulties under its previous management
providing services, including billing, customer care and other operational
areas, and filed for bankruptcy in February 1999. Since the acquisition, we have
been focusing on improving these operations, and have been successful in many
areas. However, because of quality deficiencies in the operations acquired from
USN, and the need to improve quality in order to continue to sell lines in the
former USN markets, and consistent with our due diligence, transaction structure
and purchase price, revenues associated with the USN assets declined
significantly since our acquisition.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 4. FIXED ASSETS
<TABLE>
<CAPTION>
Fixed assets consist of:
September 30, December 31,
2000 1999
---------------------------------------------
<S> <C> <C>
(Unaudited)
Operating equipment $100,326,000 $ 50,290,000
Computer hardware and software 34,548,000 17,455,000
Other equipment 27,081,000 9,300,000
Construction-in-progress 39,595,000 24,681,000
---------------------------------------------
201,550,000 101,726,000
Accumulated depreciation (30,376,000) (11,107,000)
---------------------------------------------
$171,174,000 $ 90,619,000
=============================================
NOTE 5. ACCRUED EXPENSES
Accrued expenses consist of:
September 30, December 31,
2000 1999
---------------------------------------------
(Unaudited)
Payroll and related $ 5,274,000 $ 2,903,000
Taxes, including income taxes 9,528,000 6,089,000
Accrued equipment purchases 16,986,000 13,455,000
Toll and interconnect 15,480,000 637,000
Acquisition costs 17,035,000 -
Other 11,399,000 9,131,000
---------------------------------------------
$75,702,000 $32,215,000
=============================================
NOTE 6. LONG-TERM DEBT
Long-term debt consists of:
September 30, 2000 December 31, 1999
----------------------- --------------------
(Unaudited)
6% Convertible Subordinated Notes $175,000,000 $175,000,000
Working capital promissory note, interest at 8.5% 2,071,000 3,077,000
Note payable for equipment, interest at 12.75% 4,441,000 6,238,000
Senior secured credit facility 75,000,000 -
Senior unsecured notes 108,669,000 -
Other 192,000 283,000
----------------------- --------------------
365,373,000 184,598,000
Less current portion 8,614,000 5,280,000
----------------------- --------------------
$356,759,000 $179,318,000
======================= ====================
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 6. LONG-TERM DEBT (CONTINUED)
In September 2000, subsidiaries of the Company entered into a senior secured
credit facility with The Chase Manhattan Bank as lender, administrative agent
and collateral agent. The senior secured credit facility provides for both a
term loan facility and a revolving credit facility. The term loan facility is
for an initial aggregate amount of $100.0 million and will amortize in quarterly
installments of principal commencing on December 31, 2003 with a final maturity
on September 22, 2008. At September 30, 2000, the Company had $50.0 million
outstanding under the term loan facility. The revolving credit facility is for a
total of $50.0 million. The revolving credit facility shall be automatically and
permanently reduced in increasing quarterly installments of principal commencing
on December 31, 2003 with a termination date of September 22, 2008. At September
30, 2000, the Company had $25.0 million outstanding under the revolving credit
facility. In the event the 6% Convertible Notes have not been converted or
refinanced on or prior to April 1, 2006, then the facilities become payable in
full on April 1, 2006.
The interest rate on both the term loan facility and the revolving credit
facility is initially, at the Company's option, either 3.25% per annum plus the
base rate, which is the higher of the prime rate or the federal funds effective
rate plus 0.50% per annum; or the reserve-adjusted London Interbank Offered Rate
(Adjusted LIBOR) plus 4.25% per annum. The applicable margin for the facilities
will be subject to reductions based on the ratio of the Company's consolidated
total debt to annualized EBITDA. At September 30, 2000, the effective interest
rate on the amounts outstanding was 11.04%. Interest is payable at least
quarterly. The unused portion of the facility is subject to a commitment fee
equal to 1.25% per annum payable quarterly, subject to reduction to 1.00% per
annum based upon the amount borrowed under the facility. The availability of the
remaining $75 million under the senior secured credit facility is subject to the
satisfaction of certain conditions.
In September 2000, the Company issued approximately $108,669,000 aggregate
principal amount of the senior unsecured notes to the former stockholders of
ATX. The senior unsecured notes mature on September 29, 2003. Interest on the
notes is at an annual rate of 6.47% payable in either cash or common stock, at
the Company's election, on October 1 and April 1 of each year beginning on April
1, 2001. The notes require principal payments of approximately $2.1 million on
January 1, 2001, approximately $640,000 on March 29, 2001, approximately $2.7
million on January 1, 2002 and approximately $2.7 million on January 1, 2003.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 7. PREFERRED STOCK
In September 2000, the Company issued 50,000 shares of Series A preferred stock
in exchange for cash of $50 million. The Series A preferred stock pays
cumulative dividends at 8.5% per annum of the liquidation value of $1,000 per
share, payable quarterly in arrears. At the Company's option, dividends may be
paid either in cash, shares of common stock or additional shares of Series A
preferred stock. The 50,000 shares of Series A preferred stock originally issued
are convertible at any time at the option of the holder into shares of common
stock at the stated liquidation value of $1,000 divided by the conversion price
of $14.36. Any additional shares of Series A preferred stock issued will have an
initial conversion price equal to 120% of the volume weighted average sale price
of the Company's common stock for a specified period. On September 29, 2010, the
Company will be required to redeem any shares of Series A preferred stock
outstanding for $1,000 per share plus accrued and unpaid dividends. At the
Company's discretion, the redemption price may be paid either in cash or in
shares of common stock. The Company may redeem the Series A preferred stock at a
redemption price of $1,000 per share, together with accrued and unpaid
dividends, payable either, at the Company's option in cash or in shares of
common stock, or a combination of both, beginning on September 29, 2002 if the
25-day volume weighted average sale price of the Company's common stock exceeds
certain targets. In addition, the Series A preferred stock may be redeemed by
the Company at any time following September 29, 2005 at a redemption price of
$1,010 per share, together with accrued and unpaid dividends, payable either in
cash or in shares of common stock, or a combination of both.
In September 2000, the Company issued 250,000 shares of Series B preferred stock
in connection with the ATX acquisition. The Series B preferred stock pays
cumulative dividends at an initial annual rate of $30 per share, payable
quarterly in arrears, commencing on December 31, 2000, when, if and as declared
by the Board of Directors. At the Company's discretion, dividends may be paid
either in cash or in shares of common stock. The annual dividend will increase
to $50 per share on September 29, 2001 if, by that date, any of the senior
unsecured notes remain unpaid and to $70 per share on March 29, 2002 if, by that
date, any of the senior unsecured notes remain unpaid. The Series B preferred
stock has a liquidation preference of $1,000 per share, plus accumulated and
unpaid dividends. The Series B preferred stock is convertible at any time at the
option of the holder into shares of common stock at the stated liquidation
preference of $1,000 divided by the conversion price in effect at the time of
conversion. The initial conversion price is $32.11. On March 29, 2001, the
conversion price will be reset to reflect any reduction in the principal amount
outstanding of the senior unsecured notes. On September 29, 2020, the Company
will be required to redeem any shares of Series B preferred stock outstanding
for $1,000 per share plus accrued and unpaid dividends. At the Company's
discretion, the redemption price may be paid either in cash or in shares of
common stock.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 8. SHAREHOLDER RIGHTS PLAN
The Company adopted a shareholder rights plan in September 2000. In connection
with the shareholder rights plan, the Board of Directors declared and paid a
dividend of one preferred share purchase right for each share of common stock
outstanding on October 16, 2000. Each right entitles the holder, under certain
potential takeover events, to purchase from the Company one one-hundredth of a
share of Series C Junior Participating Preferred Stock ("Series C Preferred
Stock") at an exercise price of $50.00, subject to adjustment. The rights expire
in October 2010. There are 1,000,000 shares of Series C Preferred Stock
authorized for issuance under the plan. No shares of Series C Preferred Stock
are issued or outstanding.
The Series C Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of an amount equal to the greater of $.01 per share
or an aggregate dividend of 100 times the dividend, if any, declared per share
of common stock. In the event of liquidation, the holders of Series C Preferred
Stock will be entitled to a minimum preferential liquidation payment of $1 per
share plus accrued and unpaid dividends and will be entitled to an aggregate
payment of 100 times the payment made per share of common stock. Each share of
Series C Preferred Stock will have 100 votes and will vote together with the
common stock. In the event of any merger, consolidation or other transaction in
which shares of common stock are changed or exchanged, each share of Series C
Preferred Stock will be entitled to receive 100 times the amount received per
share of common stock. The rights are protected by customary antidilution
provisions.
NOTE 9. RELATED PARTY TRANSACTIONS
Some of the officers and directors of the Company are also officers or directors
of NTL Incorporated ("NTL"). NTL provides the Company with management,
financial, legal and technical services, access to office space and equipment
and use of supplies. Amounts charged to the Company by NTL consist of salaries
and direct costs allocated to the Company where identifiable, and a percentage
of the portion of NTL's corporate overhead which cannot be specifically
allocated to NTL (which is agreed upon by the Board of Directors of NTL and the
Company). It is not practicable to determine the amounts of these expenses that
would have been incurred had the Company operated as an unaffiliated entity. In
the opinion of management, this allocation method is reasonable. For the nine
months ended September 30, 2000 and 1999, NTL charged the Company $907,000 and
$1,418,000, respectively, which is included in corporate expenses.
The Company provides NTL with access to office space and equipment and the use
of supplies. In the fourth quarter of 1999, the Company began charging NTL a
percentage of the Company's office rent and supplies expense. It is not
practicable to determine the amounts of these expenses that would have been
incurred had the Company operated as an unaffiliated entity. In the opinion of
management, this allocation method is reasonable. For the nine months ended
September 30, 2000, the Company charged NTL $204,000, which reduced corporate
expenses.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 9. RELATED PARTY TRANSACTIONS (CONTINUED)
A subsidiary of the Company provides billing and software development services
to subsidiaries of NTL. The Company charges an amount in excess of its costs to
provide these services. General and administrative expenses were reduced by
$709,000 and $619,000 for the nine months ended September 30, 2000 and 1999,
respectively, as a result of these charges.
NOTE 10. NONRECURRING CHARGES
Nonrecurring charges of $775,000 in the nine months ended September 30, 2000 are
for restructuring costs relating to the Company's announcement in March 2000 of
a reorganization of certain of its operations. The original charge consisted of
employee severance and related costs of $580,000 for approximately 70 employees
to be terminated, primarily from the sales and customer operations departments
and lease exit costs of $846,000. As of September 30, 2000, $597,000 of the
provision had been used, including $370,000 for employee severance and related
costs and $227,000 for lease exit costs. As of September 30, 2000, $651,000 of
the provision had been reversed, including $210,000 due to a reduction in the
number of employees who will receive severance payments and $441,000 due to a
reduction in the number of facilities to be closed. As of September 30, 2000,
none of the employees to be terminated remain with the Company. The remaining
provision for leases will be used through 2003.
NOTE 11. NON-CASH COMPENSATION
In April 2000, the Compensation and Option Committee of the Board of Directors
approved the issuance of options to purchase approximately 2.7 million shares of
the Company's common stock to various employees at an exercise price of $14.55,
which was less than the fair market value of the Company's common stock on the
date of the grant. In accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in April 2000 the Company recorded a non-cash compensation
expense of approximately $29.0 million and a non-cash deferred expense of
approximately $31.3 million. From April 2000 to September 30, 2000, $6.4 million
of the deferred non-cash compensation was charged to expense. The Company will
charge the deferred expense to non-cash compensation expense over the vesting
period of the stock options as follows: $3.3 million in 2000, $12.9 million in
2001, $7.5 million in 2002 and $1.2 million in 2003.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 12. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net loss per
common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (50,149,000) $ (39,750,000) $ (173,210,000) $ (62,326,000)
Preferred stock dividend (98,000) - (98,000) -
Preferred stock accretion to redemption value (6,000) - (6,000) -
-------------------------------- ---------------------------------
Loss available to common shareholders $ (50,253,000) $ (39,750,000) $ (173,314,000) $ (62,326,000)
-------------------------------- ---------------------------------
Denominator for basic net loss per common share 40,502,000 36,952,000 39,837,000 32,810,000
Effect of dilutive securities - - - -
-------------------------------- ---------------------------------
Denominator for diluted net loss per common share 40,502,000 36,952,000 39,837,000 32,810,000
-------------------------------- ---------------------------------
Basic and diluted net loss per common share $(1.24) $(1.08) $(4.35) $(1.90)
================================ =================================
</TABLE>
The shares issuable upon the exercise of stock options and warrants and upon the
conversion of convertible securities are excluded from the calculation of net
loss per common share as their effect would be antidilutive.
Note 13. COMMITMENTS AND CONTINGENT LIABILITIES
As of September 30, 2000, the Company had purchase commitments of approximately
$62,000,000 outstanding.
The Company is involved in various disputes arising in the ordinary course of
its business, which may result in pending or threatened litigation. None of
these matters are expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
On September 29, 2000, we acquired ATX Telecommunications Services, Inc. ("ATX")
and Voyager.net, Inc. ("Voyager"). The results of operations from the date of
acquisition to September 30, 2000 of ATX and Voyager were not significant and
have not been included in our consolidated results of operations.
As a result of the completion of the acquisitions of 100% of the stock of
MegsINet Inc. and the CLEC assets of USN Communications, Inc. in May 1999, we
consolidated the results of operations of these businesses from the dates of
acquisition.
A significant component of the results since May 1999 is associated with the
acquisition of certain assets of USN. Although USN quickly developed a large
customer list and revenue base in 1997 and 1998, it had difficulties under its
previous management providing services, including billing, customer care and
other operational areas, and filed for bankruptcy in February 1999. Since the
acquisition, we have been focusing on improving these operations, and have been
successful in many areas. However, because of quality deficiencies in the
operations acquired from USN, and the need to improve quality in order to
continue to sell lines in the former USN markets, and consistent with our due
diligence, transaction structure and purchase price, revenues associated with
the USN assets declined significantly since our acquisition.
On November 2, 2000, based on our ongoing review of the combined company
following the recent acquisitions of ATX and Voyager, we announced that we had
identified various synergies and cost savings opportunities, including the
elimination of a number of employment redundancies within the combined groups.
We identified approximately 200 employee positions which will be eliminated in
conjunction with the integration of the operations. The vast majority of
employees in revenue generating roles will not be affected by this change. We
anticipate that we will realize significant cost savings from this effort in the
latter half of fiscal 2001. We expect to incur a restructuring charge in fiscal
2000 as a result of this review, although to date we are still in the process of
finalizing this charge.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------------------------------------
The decrease in revenues to $18,263,000 from $21,107,000 is primarily due to the
decline in the customer base associated with the USN assets. The revenues from
the USN customer base peaked in the third quarter of 1999 after our acquisition
in May 1999 and declined thereafter. These customers are now fully integrated
into our overall customer base. Additionally, prepaid cellular debit card and
cellular long distance revenues declined as a result of our termination of these
services in the third quarter of 1999. We had revenues of $511,000 in the three
months ended September 30, 1999 from the provision of these services.
<PAGE>
Operating costs increased to $25,746,000 from $23,374,000 as a result of an
increase in the fixed component of operating expenses due to our migration to a
facilities-based infrastructure. Operating costs as a percentage of revenues is
expected to remain higher than 1999 levels until customer and revenue growth
exceeds the increase in facilities-based infrastructure costs. In the three
months ended September 30, 1999, operating costs included $427,000 related to
the prepaid cellular debit card and cellular long distance services.
Selling, general and administrative expenses decreased to $23,123,000 from
$24,205,000 primarily due to the various synergies and cost savings recognized
from the integration of MegsINet and USN.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses were $3,363,000 in
2000 and $2,346,000 in 1999.
In April 2000, the Compensation and Option Committee of the Board of Directors
approved the issuance of options to purchase approximately 2.7 million shares of
the Company's common stock to various employees at an exercise price of $14.55,
which was less than the fair market value of the Company's common stock on the
date of the grant. In accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in April 2000 the Company recorded a non-cash compensation
expense of approximately $29.0 million and a non-cash deferred expense of
approximately $31.3 million. In the three months ended September 30, 2000, $3.2
million of the deferred non-cash compensation was charged to expense. The
Company will charge the deferred expense to non-cash compensation expense over
the vesting period of the stock options as follows: $3.3 million in 2000, $12.9
million in 2001, $7.5 million in 2002 and $1.2 million in 2003. The compensation
charge of $1,056,000 in 1999 is a non-cash charge related to a change in
employee stock option agreements.
Nonrecurring charges of $775,000 in the nine months ended September 30, 2000 are
for restructuring costs relating to the Company's announcement in March 2000 of
a reorganization of certain of its operations. The original charge consisted of
employee severance and related costs of $580,000 for approximately 70 employees
to be terminated, primarily from the sales and customer operations departments,
and lease exit costs of $846,000. As of September 30, 2000, $597,000 of the
provision had been used, including $370,000 for employee severance and related
costs and $227,000 for lease exit costs. As of September 30, 2000, $651,000 of
the provision had been reversed, including $210,000 due to a reduction in the
number of employees who will receive severance payments and $441,000 due to a
reduction in the number of facilities to be closed. Of the $651,000 that has
been reversed, $408,000 was reversed in the second quarter of 2000 and $243,000
was reversed in the third quarter. As of September 30, 2000, none of the
employees to be terminated remain with the Company. The remaining provision for
leases will be used through 2003.
Depreciation expense increased to $7,389,000 from $4,964,000 as a result of an
increase in fixed assets partially through acquisitions in 1999.
Amortization expense decreased to $3,477,000 from $3,833,000 due to an
adjustment to the purchase price allocations related to the acquisitions in May
1999.
<PAGE>
Interest income and other, net, increased to $1,626,000 from $546,000 primarily
due to interest income on the Company's cash, cash equivalents and marketable
securities.
Interest expense increased to $3,900,000 from $1,351,000 primarily due to
interest on the 6% Convertible Subordinated Notes issued in October 1999.
The income tax provision of $49,000 and $274,000 in 2000 and 1999, respectively,
is for state and local income tax.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
---------------------------------------------
The increase in revenues to $56,619,000 from $37,139,000 is primarily due to
acquisitions in 1999. The remainder of the increase is due to an increase in
customers, offset by the decline in prepaid cellular debit card and cellular
long distance revenues as a result of our termination of these services in the
third quarter of 1999. We had revenues of $2,409,000 in the nine months ended
September 30, 1999 from the provision of these services.
Operating costs increased to $77,446,000 from $37,524,000 as a result of an
increase in the fixed component of operating expenses due to our migration to a
facilities-based infrastructure. Operating costs as a percentage of revenues is
expected to remain higher than 1999 levels until customer and revenue growth
exceeds the increase in facilities-based infrastructure costs. In the nine
months ended September 30, 1999, operating costs included $1,980,000 related to
the prepaid cellular debit card and cellular long distance services.
Selling, general and administrative expenses increased to $72,044,000 from
$43,725,000 primarily due to increases in selling and marketing costs and
customer service costs. These costs are expected to increase in the foreseeable
future as we grow our operations and customer base, although we expect to
realize savings from further integration of acquired businesses.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses were $8,559,000 in
2000 and $6,489,000 in 1999.
In April 2000, the Compensation and Option Committee of the Board of Directors
approved the issuance of options to purchase approximately 2.7 million shares of
the Company's common stock to various employees at an exercise price of $14.55,
which was less than the fair market value of the Company's common stock on the
date of the grant. In accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in April 2000 the Company recorded a non-cash compensation
expense of approximately $29.0 million and a non-cash deferred expense of
approximately $31.3 million. From April 2000 to September 30, 2000, $6.4 million
of the deferred non-cash compensation was charged to expense. The Company will
charge the deferred expense to non-cash compensation expense over the vesting
period of the stock options as follows: $3.3 million in 2000, $12.9 million in
2001, $7.5 million in 2002 and $1.2 million in 2003. The compensation charge of
$1,056,000 in 1999 is a non-cash charge related to a change in employee stock
option agreements.
<PAGE>
Nonrecurring charges of $775,000 in the nine months ended September 30, 2000 are
for restructuring costs relating to the Company's announcement in March 2000 of
a reorganization of certain of its operations. The original charge consisted of
employee severance and related costs of $580,000 for approximately 70 employees
to be terminated, primarily from the sales and customer operations departments,
and lease exit costs of $846,000. As of September 30, 2000, $597,000 of the
provision had been used, including $370,000 for employee severance and related
costs and $227,000 for lease exit costs. As of September 30, 2000, $651,000 of
the provision had been reversed, including $210,000 due to a reduction in the
number of employees who will receive severance payments and $441,000 due to a
reduction in the number of facilities to be closed. As of September 30, 2000,
none of the employees to be terminated remain with the Company. The remaining
provision for leases will be used through 2003.
Depreciation expense increased to $19,494,000 from $6,674,000 as a result of an
increase in fixed assets partially through acquisitions in 1999.
Amortization expense increased to $9,812,000 from $5,005,000 due to the
amortization of goodwill and other intangibles from the acquisitions in 1999 and
2000.
Interest income and other, net, increased to $5,476,000 from $3,416,000
primarily due to interest income on the Company's cash, cash equivalents and
marketable securities.
Interest expense increased to $11,434,000 from $1,569,000 primarily due to
interest on the 6% Convertible Subordinated Notes issued in October 1999 and
interest on notes payable and capital leases of acquired businesses.
The income tax provision of $321,000 and $839,000 in 2000 and 1999,
respectively, is for state and local income tax.
LIQUIDITY AND CAPITAL RESOURCES
We will require significant resources to fund the construction of our
facilities-based network, develop and expand our existing businesses and fund
near term operating losses and debt service. We expect to be able to meet our
cash requirements through December 31, 2001 with cash and securities on hand of
approximately $50.5 million as of September 30, 2000, the remaining $75 million
commitment under our $150 million senior secured credit facility provided by The
Chase Manhattan Bank and the $50 million available under our commitment for a
senior unsecured credit facility from The Chase Manhattan Bank and Chase
Securities Inc. The availability of the remaining $75 million under the senior
secured facility is subject to the satisfaction of certain conditions. The
funding of the senior unsecured facility is subject to the completion of
definitive documentation for the facility and the full availability of the
remaining $75 million of the senior secured facility. In addition, the $50
million senior unsecured credit facility is available only on or after January
31, 2001. Thus, we have to manage our cash and securities on hand to ensure they
are adequate to meet our cash requirements until the amounts committed under the
two facilities are made available. In addition, as a result of the general
conditions of the capital markets in our industry, we have eliminated business
projects from our current plans, including our entry into several markets. In
general, we cannot give any assurance that we will have sufficient resources
available to meet our expected cash requirements and obligations.
<PAGE>
We are currently negotiating with equipment manufacturers to provide us with
additional vendor financing. In the aggregate, such financings are anticipated
to be significant. We are presently in the process of negotiating terms for
these transactions. However, until definitive agreements are reached with each
vendor, we cannot be certain that the proposed financings will occur, that the
terms will not change or that any alternative financing on terms satisfactory to
us will be available.
Our ability to raise additional capital in the future will be dependent on a
number of factors, such as general economic and market conditions, which are
beyond our control. If we are unable to obtain additional financing or to obtain
it on favorable terms, we may be required to further delay the construction of
our Smart LEC (Local Exchange Carrier) network, forego attractive business
opportunities, or take other actions which could adversely affect our business,
results of operations and financial condition.
In October 1999, we issued $175 million principal amount of 6% Convertible
Subordinated Notes due 2006, and received net proceeds of $168.5 million.
Interest on the Convertible Subordinated Notes is payable semiannually on April
1 and October 1 of each year, which commenced on April 1, 2000.
We are a holding company with no significant assets other than cash and
securities and investments in and advances to our subsidiaries. We are therefore
likely to be dependent upon receipt of funds from our subsidiaries to meet our
own obligations. However, our subsidiaries' debt agreements prevent the payment
of dividends, loans or other distributions to us (except in certain limited
circumstances).
Acquisition and Related Financings. In May 1999, we acquired MegsINet and the
CLEC assets of USN Communications. The USN acquisition includes a potential
contingent payment which is capped at $58.6 million. The contingent payment is
payable only if the USN assets meet or exceed operating performance thresholds.
We have submitted a written notice to the regulatory trustee for USN that no
contingent payment is due to USN. A representative of the trustee is currently
auditing the information contained in our written notice.
In September 2000, we acquired ATX and Voyager. The total consideration for the
ATX acquisition consisted of $39.4 million in cash, $108.7 million principal
amount of senior unsecured notes due 2003, 12.4 million shares of newly issued
common stock, and 250,000 shares of newly issued Series B preferred stock. The
total consideration for the Voyager acquisition consisted of $36.1 million in
cash, 19.4 million shares of newly issued common stock and the repayment of the
$24.0 million principal amount plus accrued interest outstanding under the
Voyager credit agreement. In addition, we incurred acquisition related costs of
$19.5 million. The total purchase price, including debt repayment, was $761.0
million.
The senior unsecured notes mature on September 29, 2003. Interest on the notes
is at an annual rate of 6.47% payable in either cash or common stock, at our
election, on October 1 and April 1 of each year beginning on April 1, 2001. The
notes require principal payments of approximately $2.1 million on January 1,
2001, approximately $640,000 on March 29, 2001, approximately $2.7 million on
January 1, 2002 and approximately $2.7 million on January 1, 2003.
<PAGE>
The Series B preferred stock pays cumulative dividends at an initial annual rate
of $30 per share, payable quarterly in arrears, commencing on December 31, 2000,
when, if and as declared by our Board of Directors. At our discretion, we may
pay dividends either in cash or in shares of our common stock. The annual
dividend will increase to $50 per share on September 29, 2001 if, by that date,
any of the senior unsecured notes remain unpaid and to $70 per share on March
29, 2002 if, by that date, any of the senior unsecured notes remain unpaid. The
Series B preferred stock has a liquidation preference of $1,000 per share, plus
accumulated and unpaid dividends. The Series B preferred stock is convertible at
any time at the option of the holder into shares of common stock at the stated
liquidation preference of $1,000 divided by the conversion price in effect at
the time of conversion. The initial conversion price is $32.11. On March 29,
2001, the conversion price will be reset to reflect any reduction in the
principal amount outstanding of the senior unsecured notes. On September 29,
2020, we will be required to redeem any shares of Series B preferred stock
outstanding for $1,000 per share plus accrued and unpaid dividends. At our
discretion, we may pay the redemption price either in cash or in shares of our
common stock.
In order to fund the cash portion of the ATX and Voyager acquisitions, we
obtained through our subsidiaries a $150 million senior secured credit facility
from The Chase Manhattan Bank, of which $100 million is in a term loan facility
and $50 million is in a revolving credit facility. In addition, we raised $50
million from the issuance of Series A preferred stock.
To date, there is $50 million outstanding under the term loan facility and $25
million outstanding under the revolving credit facility. The term loan facility
will amortize in quarterly installments of principal commencing on December 31,
2003 with a final maturity in September 2008. The revolving credit facility
shall be automatically and permanently reduced in increasing quarterly
installments of principal commencing on December 31, 2003 with a termination
date in September 2008. In the event our 6% Convertible Notes due 2006 have not
been converted or refinanced on or prior to April 1, 2006, then the facilities
mature and become payable in full on April 1, 2006. The interest rate on both
our term loan facility and our revolving credit facility is initially, at our
option, either 3.25% per annum plus the base rate, which is the higher of the
prime rate or the federal funds effective rate plus 0.5% per annum, or the
reserve-adjusted London Interbank Offered Rate plus 4.25% per annum. As of
September 30, 2000, the effective rate on the amounts outstanding was 11.04%.
The applicable margin for our facilities will be subject to reductions based on
the ratio of our consolidated total debt to annualized EBITDA. Interest is
payable at least quarterly. The commitment fee on the unused portion of the
commitments is 1.25% per annum payable quarterly, subject to reduction to 1% per
annum based upon the amount borrowed under the facilities.
<PAGE>
The Series A preferred stock pays cumulative dividends at 8.5% per annum of the
liquidation value of $1,000 per share, payable quarterly in arrears. At our
option, we may pay dividends either in cash, shares of our common stock or
additional shares of Series A preferred stock. The 50,000 shares of Series A
preferred stock originally issued are convertible at any time at the option of
the holder into shares of common stock at the stated liquidation value of $1,000
divided by the conversion price of $14.36. Any additional shares of Series A
preferred stock issued will have an initial conversion price equal to 120% of
the volume weighted average sale price of our common stock for a specified
period. On September 29, 2010, we will be required to redeem any shares of
Series A preferred stock outstanding for $1,000 per share plus accrued and
unpaid dividends. At our discretion, we may pay the redemption price either in
cash or in shares of our common stock. We may redeem the Series A preferred
stock at a redemption price of $1,000 per share, together with accrued and
unpaid dividends, payable either, at our option in cash or in shares of common
stock, or a combination of both, beginning on September 29, 2002 if the 25-day
volume weighted average sale price of our common stock exceeds certain targets.
In addition, the Series A preferred stock may be redeemed by us at any time
following September 29, 2005 at a redemption price of $1,010 per share, together
with accrued and unpaid dividends, payable either in cash or in shares of our
common stock, or a combination of both.
Historical Uses of Cash. For the nine months ended September 30, 2000, cash used
in operating activities increased to $112,320,000 from $47,973,000 in the nine
months ended September 30, 1999 primarily due to the increase in the net loss to
$173,210,000 from $62,326,000.
For the nine months ended September 30, 2000, cash used to purchase fixed assets
increased to $43,573,000 from $14,906,000 in the nine months ended September 30,
1999 which reflects our migration to a facilities-based infrastructure.
Acquisitions, net of cash acquired of $92,320,000 in the nine months ended
September 30, 2000 is for payments in connection with the ATX and Voyager
acquisitions. Proceeds from borrowings, net of financing costs, of $71,161,000
is primarily from the borrowings under the senior secured credit facility.
Proceeds from the issuance of preferred stock of $50,000,000 is from the sale of
the Series A preferred stock.
Network Construction. We have installed switches and other facilities, and we
are in the process of installing additional switches, Internet
points-of-presence, and other telecommunications facilities in various states.
The amount of such expenditures in the next twelve months will be related to the
number of new markets entered, the speed and location of equipment deployment,
the timing and integration of acquisitions, as well as the mix of resold vs.
facilities-based services.
We have deployed our Smart LEC facilities in Columbus, Ohio, Cleveland, Ohio,
Chicago, Illinois and Detroit, Michigan and are currently developing two
additional markets: New York, New York, and Boston, Massachusetts. These six
markets comprise approximately 18 million total access lines. In connection with
these markets, we are in the process of establishing collocation facilities in
131 Incumbent Local Exchange Carrier ("ILEC") central offices.
<PAGE>
Operations. Our businesses will also consume capital to acquire new customers
and to finance the working capital required to support these new customers. Our
businesses will also require additional billing, customer service and other
back-office infrastructure. These capabilities can be expanded in-house or can
be outsourced to reduce up-front capital requirements. To date, our strategy has
been to utilize the expertise developed by our management to develop in-house
billing and back-office capabilities.
LMDS. Local Multipoint Distribution Service ("LMDS") is a fixed broadband
wireless service that may be used to provide high-speed data transfer, telephone
service, telecommunications network transmission, Internet access, video
broadcasting, video conferencing and other services. The spectrum is useable for
communications services from a fixed antenna, but is not suitable for mobile or
portable communications. LMDS can be used to provide a wireless high-capacity
broadband service for the "last mile" to a home or office.
The amount of capital required to construct our LMDS systems is not easily
quantifiable at this time, but is likely to be several times the $25 million
cost of the licenses. In addition to up-front network construction costs, a
significant ongoing capital requirement will be the cost to acquire customer
premise equipment to receive and transmit LMDS signals. We will deploy this LMDS
network only if we determine that we can achieve sufficient returns on our
capital invested, from reduced costs associated with providing our services or
from new services which we can offer through LMDS technology.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
contemplated, projected, forecasted, estimated or budgeted, whether expressed or
implied, by such forward-looking statements. Such factors include the following:
general economic and business conditions, industry trends, technological
developments, the Company's ability to continue to design and build its network,
install facilities, obtain and maintain any required government licenses or
approvals and finance construction and development, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, and
availability, terms and deployment of capital.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Securities and Exchange Commission's, rule related to market risk disclosure
requires that we describe and quantify our potential losses from market risk
sensitive instruments attributable to reasonably possible market changes. Market
risk sensitive instruments include all financial or commodity instruments and
other financial instruments (such as investments and debt) that are sensitive to
future changes in interest rates, currency exchange rates, commodity prices or
other market factors. We are not exposed to market risks from changes in foreign
currency exchange rates or commodity prices. We do not hold derivative financial
instruments nor do we hold securities for trading or speculative purposes. Under
our current policies, we do not use interest rate derivative instruments to
manage our exposure to interest rate changes.
The fair-market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. In the
following table, the fair value of our convertible notes was determined from the
quoted market price. The fair value of our senior secured credit facility,
senior unsecured notes and our other notes payable are estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements.
<PAGE>
Interest Rate Sensitivity
As of September 30, 2000
Principal Amount by Expected Maturity
Average Interest Rate
<TABLE>
<CAPTION>
For the
Three
Months
Ending For the Years Ending December 31, Fair
December 31, ---------------------------------------------------------------------- Value
2000 2001 2002 2003 2004 2005 Thereafter Total 9/30/00
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt,
including current
portion
Fixed rate $1,548 $7,798 $2,838 $103,189 $ - $ - $175,000 $290,373 $171,244
Average interest rate 11.48% 9.55% 6.51% 6.47% 6.0%
Variable rate $ - $ - $ - $ 938 $4,688 $12,188 $ 57,186 $ 75,000 $ 38,577
Average interest rate libor + libor + libor + libor +
4.25% or 4.25% or 4.25% or 4.25% or
base rate base rate base rate base rate
+ 3.25% + 3.25% + 3.25% + 3.25%
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 22, 2000, the Company held a special meeting of stockholders. The
following management proposals were adopted: (1) a proposal to consider and
approve the domestication merger to make CoreComm a domestic U.S. company and
adopt the related domestication merger agreement, (2) a proposal to consider,
approve and adopt the merger agreement among CoreComm, Voyager.net, Inc. and
other parties, and (3) a proposal to consider, approve and adopt the merger
agreement among CoreComm, ATX Telecommunications Service, Inc., all of the
current ATX Stockholders and other parties. The stockholders approved the first
proposal by a vote of 26,576,980 shares in favor, 1,429,802 shares against and
267,351 shares withheld from voting. The stockholders approved the second
proposal by a vote of 26,543,942 shares in favor, 1,462,747 shares against and
267,444 shares withheld from voting. The stockholders approved the third
proposal by a vote of 27,965,357 shares in favor, 41,332 shares against and
267,444 shares withheld from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company filed the
following reports on Form 8-K:
(i) Report dated July 31, 2000, reporting under Item 5, Other Events,
that CoreComm Limited and ATX Telecommunications Services, Inc.
entered into an amendment to the terms of their merger agreement.
(ii) Report dated August 14, 2000, reporting under Item 2, Acquisition
or Disposition of Assets, that CoreComm Limited announced its
operating results for the three months ended June 30, 2000, and
that it has obtained significant funding commitments toward the
financing of its recently announced acquisitions as well as
ongoing operations.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(iii)Report dated September 11, 2000, reporting under Item 5, Other
Events, that CoreComm Limited and CoreComm Merger Sub, Inc.
entered into an amendment to their Amalgamation Agreement, dated
April 10, 2000.
(iv) Report dated September 21, 2000, reporting under Item 2,
Acquisition or Disposition of Assets, that CoreComm Limited
announced that it had received banking commitments which satisfy
conditions that will allow the Company to close on a total of
$360 million of financings.
(v) Report dated September 22, 2000, reporting under Item 5, Other
Events, that CoreComm's shareholders had approved merger
agreements with ATX Telecommunications Services, Inc and
Voyager.net.
No financial statements were filed with these reports.
<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.
CORECOMM LIMITED
Date: November 13, 2000 By: /s/ Barclay Knapp
----------------------
Barclay Knapp
President, Chief Executive Officer
and Chief Financial Officer
Date: November 13, 2000 By: /s/ Gregg N. Gorelick
----------------------
Gregg N. Gorelick
Vice President-Controller and
Treasurer(Principal Accounting Officer)
