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FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM __________________ TO __________________
Commission file number 0-25194
FIRSTCOM CORPORATION
(Exact name of registrant as specified in charter)
TEXAS 87-0464860
(State of Incorporation) (IRS Employee Identification)
220 ALHAMBRA CIRCLE, SUITE 910
CORAL GABLES, FLORIDA 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number:
(305) 448-4422
(Former name, former address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period than 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of April 30, 2000 - 31,579,225
NOTE: Page 1 of sequentially numbered pages.
1
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FIRSTCOM CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets - as of
March 31, 2000 (unaudited)and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999
(unaudited) 4
Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 2000
(unaudited) 5
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000
(unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results Of Operations 9
PART II OTHER INFORMATION
Signatures 18
Exhibit Index 19
2
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PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3/31/00 12/31/99
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 26,891 $ 12,986
Restricted cash ........................................................ 105 645
Restricted investments ................................................. 20,713 20,440
Accounts receivable, net ............................................... 12,030 11,041
Prepaid expenses and other current assets .............................. 3,196 2,775
--------- ---------
Total current assets ................................................... 62,935 47,887
Property, plant, and equipment, net .................................... 99,143 92,469
Intangible assets, net ................................................. 17,286 17,704
Deferred financing costs and other assets .............................. 14,131 14,050
--------- ---------
Total assets ........................................................... $ 193,495 $ 172,110
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term bank debt ................................................... $ 4,488 $ 55
Vendor financing, current .............................................. 1,340 814
Current maturities of long-term debt ................................... (0) 50
Lease obligations, current ............................................. 51 70
Accounts payable ....................................................... 13,520 12,653
Accrued interest ....................................................... 8,954 3,716
Other accrued expenses ................................................. 1,600 5,334
Deferred income taxes .................................................. 302 302
Other current liabilities .............................................. 2,600 1,220
--------- ---------
Total current liabilities .............................................. 32,855 24,214
Senior notes, net ...................................................... 133,438 133,197
Long-term bank debt .................................................... 509 2,008
Vendor financing ....................................................... 5,451 4,050
Lease obligations, less current portion ................................ 146 142
Deferred income taxes .................................................. 2,134 2,228
Other Liabilities ...................................................... 840 239
--------- ---------
Total liabilities ...................................................... 175,373 166,078
Minority interest ...................................................... 3,033 3,012
Redeemable Preferred Stock, $.001 par value, authorized
10,000,000 shares, issued and outstanding 1,396,654 and 1,345,507 shares
as of March 31, 2000 and December 31, 1999,
respectively ........................................................... 12,123 11,720
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
30,890,528 and 26,858,526 shares as of March 31, 2000 and December 31,
1999, respectively ..................................................... 31 27
Additional paid in capital ............................................. 89,852 68,476
Warrants ............................................................... 26,737 26,737
Accumulated deficit .................................................... (113,416) (95,057)
Cumulative translation adjustments ..................................... (238) (238)
--------- ---------
2,966 (55)
Shareholder loans ...................................................... 0 (8,645)
--------- ---------
Total stockholders' equity (deficit) ................................... 2,966 (8,700)
--------- ---------
Total liabilities and stockholders' equity (deficit) ................... $ 193,495 $ 172,110
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Long Distance ............................ $ 6,650 $ 6,024
Internet and data ........................ 5,100 2,257
------------ ------------
11,750 8,281
Operating expenses:
Cost of revenues: .......................... 5,309 6,028
Selling, general and administrative ........ 10,056 4,345
Non-cash compensation and
Consulting expenses ....................... 57 82
Depreciation and amortization .............. 2,936 893
Merger expense ............................. 6,137 --
------------ ------------
24,495 11,348
Loss from operations ....................... (12,745) (3,067)
Interest expense ........................... (5,854) (4,504)
Interest income ............................ 392 800
Other income/(expense), net ................ 270 (378)
------------ ------------
Net loss before income taxes ............... ($ 17,937) ($ 7,149)
Income taxes ............................... 17 --
------------ ------------
Net Loss ................................... ($ 17,954) ($ 7,149)
============ ============
Net basic and diluted loss per share ....... ($ 0.61) ($ 0.37)
============ ============
Weighted average common shares outstanding.. 29,660,707 19,115,555
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMMULATIVE
------------------ PAID IN ACCUMULATED TRANSLATION SHAREHOLDER
SHARES AMOUNT CAPITAL WARRANTS DEFICIT ADJUSTMENT LOANS TOTAL
---------- ------ ---------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999..... 26,858,526 $27 $68,476 $26,737 ($95,057) ($238) ($8,645) ($8,700)
Exercise of stock options....... 4,032,002 4 16,221 -- 16,225
Repayment of Shareholder Loan... 8,674 8,674
Expense due to Accelerated......
Vesting of Stock Options........ 5,155 5,155
Interest on Shareholder Loan.... -- (29) (29)
Preferred Stock PIK Dividend.... (405) (405)
Net Loss........................ (17,954) (17,954)
---------- --- ------- ------- --------- ----- ------- --------
Balances at March 31, 2000........ 30,890,528 $31 $89,852 $26,737 ($113,416) ($238) ($0) $2,966
========== === ======= ======= ========= ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................... ($17,954) ($ 7,149)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense ................. 2,936 893
Amortization of deferred financing costs and
original issue discounts .............................. 432 357
Accrued income on restricted investments .............. (271) (542)
Capitalized interest related to network
construction .......................................... 0 (1,532)
Non-cash compensation and consulting expense .......... 5,212 82
Changes in operating assets and liabilities:
Accounts receivable .................................. (989) (152)
Prepaid expenses and other current assets ............ (419) (518)
Other assets ......................................... (118) 159
Accounts payable and accrued expenses ................ 2,371 4,420
Other current liabilities ............................ 1,873 540
-------- --------
Net cash used in operating activities .................. (6,927) (3,442)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ................ (9,346) (12,072)
Reduction of restricted cash .......................... 539 14,572
Acquisition of FirstCom Colombia, net ................. -- (4,936)
-------- --------
Net cash used in investing activities .................. (8,807) (2,436)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Shareholder Loans ........................ 8,674 --
Net proceeds from vendor financing .................... 2,764 178
Exercise of stock options ............................. 16,169 19
Payments under leasing obligations .................... (15) (37)
Net change in bank debt and promissory notes .......... 2,047 --
-------- --------
Net cash provided by financing activities .............. 29,639 160
-------- --------
Net increase (decrease) in cash and cash
equivalents ............................................ 13,905 (5,718)
-------- --------
Cash and cash equivalents at beginning of year ......... 12,986 8,892
-------- --------
Cash and cash equivalents at end of period ............. $ 26,891 $ 3,174
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included
herein have been prepared by FirstCom Corporation (the "Company"). The foregoing
statements contain all adjustments, consisting only of normal recurring
adjustments which are, in the opinion of the Company's management, necessary to
present fairly the consolidated financial position of the Company as of March
31, 2000 and the consolidated results of its operations and its consolidated
cash flows for the three month periods ended March 31, 2000 and 1999.
Certain information and footnote disclosure normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the instructions, rules
and regulations prescribed by the Securities and Exchange Commission ("the
Commission"). Although the Company believes the disclosures provided are
adequate to make the information presented not misleading, it strongly
recommends that these unaudited condensed consolidated financial statements be
read in conjunction with the audited consolidated financial statements and the
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
NOTE 1 - TELECOMMUNICATIONS NETWORKS
Telecommunications networks are recorded at cost and are depreciated on
a straight-line method over the estimated useful lives of the related assets.
Construction, engineering, interest , labor costs and import and value added
taxes directly related to the development of the Company's networks are
capitalized. The Company begins depreciating these costs when the networks
become commercially operational.
Telecommunications networks consists of:
March 31, DECEMBER 31,
2000 1999
--------- ------------
Telecommunications equipment ................ $104,442 94,356
Telecommunications equipment pending
installation and construction in progress.... -- 1,260
Office equipment, furniture and vehicles .... 8,871 8,363
-------- --------
113,313 103,979
Less: accumulated depreciation .............. (14,170) (11,510)
-------- --------
$ 99,143 $ 92,469
======== ========
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NOTE 2- BANK DEBT
During February 2000, certain subsidiaries of the Company entered into
a term credit facility (the "Term Facility") with a bank. The significant
provisions of the Term Facility are as follows: (i) maximum amount available
$10,000, (ii) annual interest rate of Libor plus 6% or Prime plus 5%, (iii)
principal maturity date of January 2, 2001, (iii) interest payments on the
outstanding principal balance are due quarterly beginning June 30, 2000, (iv)
the Term Facility is collateralized by certain telecommunications equipment and
(v) mandatory prepayment provisions exist upon the occurrence of certain events
including a change of control, as defined in the Indenture. As of March 31,
2000, the Company had $3,300 outstanding under the Term Facility.
NOTE 3 - Merger Expense
During the three months ended March 31, 2000 the Company recognized
approximately $5,200 of non-cash expense related to the accelerated vesting of
un-vested stock options for certain former employees. Such expense is classified
in Merger Expense in the accompanying condensed statement of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT SHARE, PER SHARE AND UNIT
AMOUNTS)
THE INFORMATION CONTAINED IN THIS DOCUMENT CONTAINS "FORWARD-LOOKING STATEMENTS"
THAT REFLECT THE COMPANY'S CURRENT EXPECTATIONS, HOPES, INTENTIONS, PLANS AND
STRATEGIES. THE WORDS OR PHRASES "IS EXPECTED," "WILL CONTINUE, "ANTICIPATES,"
"ESTIMATES," "EXPECTS," "PLANS," "INTENDS," OR SIMILAR EXPRESSIONS IN THIS
DOCUMENT ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 27A OF
THE SECURITIES ACT OF 1933, AS ENACTED BY THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THERE CAN BE NO ASURANCE THAT SUCH FORWARD-LOOKING
STATEMENTS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE EXPECTATIONS THAT
MAY BE IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED
TO, THE ECONOMIC ENVIRONMENT OF THE LATIN AMERICAN COUNTRIES IN WHICH THE
COMPANY OPERATES, CHANGES IN GOVERNMENTAL REGULATION, THE COMPANY'S LIQUIDITY
AND CAPITAL RESOURCES, COMPETITION, ACTUAL DEMAND FOR THE COMPANY'S SERVICES AND
THE OTHER FACTORS IDENTIFIED IN THIS DOCUMENT. THE COMPANY DOES NOT UNDERTAKE TO
UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. ALL STATEMENTS IN THIS DOCUMENT ARE
FORWARD-LOOKING STATEMENTS, EXCEPT FOR HISTORICAL INFORMATION CONTAINED IN THIS
DOCUMENT.
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this document.
OVERVIEW
FirstCom's objective is to become a leading provider of broadband
communications services mainly to business customers in key Latin American
business centers.
FirstCom Corporation ("FirstCom" or "Company") provides broadband
communications services primarily to business customers in four major
metropolitan business centers: Santiago, Chile; Lima/Callao, Peru; and Bogota
and Cali, Colombia. FirstCom primarily targets business customers,
communications carriers and other high volume users by offering a wide range of
high bandwidth integrated telecommunications services including data, voice,
video, audio and Internet access. Specific service offerings in each country
vary depending on the current concessions held by FirstCom in the particular
country, as well as local laws and regulations and the infrastructure in each
country.
8
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Until November 1996, FirstCom was a development stage company whose
activities primarily consisted of the acquisition of licenses, concessions and
rights-of-way in selected Latin American communications markets. Since that
time, FirstCom has focused on the development and operation of high-capacity
fiber optic networks in Latin American business centers.
FirstCom currently owns and operates fiber optic ATM/IP networks in
Santiago, Chile, Lima/Callao, Peru, and Bogota and Cali, Colombia. ATM/IP is an
information transfer standard that is one of a general class of packet-based
technologies. ATM/IP can be used by many different information systems,
including local area networks, to deliver traffic at varying rates, permitting a
mix of data, voice, video and Internet applications. A summary of key operating
metrics follows:
A SUMMARY OF KEY METRICS AS OF MARCH 31, 2000 FOLLOWS (UNAUDITED):
<TABLE>
<CAPTION>
CHILE PERU COLOMBIA CORPORATE TOTAL
----- ---- -------- --------- -----
<S> <C> <C> <C> <C> <C>
NETWORK INSTALLATION
Route Kilometers - metropolitan area 306 1,228 815 2,349
Route Kilometers - domestic - - - -
Fiber Kilometers - metropolitan area 4,743 31,236 17,996 53,975
Fiber Kilometers - domestic - - - -
Buildings Connected 225 681 734 1,640
PVC's Sold 1,089 847 1,314 3,250
VGEs 35,115 10,683 10,770 56,568
Data & Dedicated Internet Customers 699 582 181 1,462
Employees 276 284 164 17 741
</TABLE>
Through FirstCom's Chilean subsidiaries, FirstCom currently provides
its corporate customers in Santiago with the following broadband communications
services:
/bullet/ high-quality voice and high-speed data communications services on a
private line basis, LAN to LAN interconnections, dedicated channels for
access to local information warehouses (e.g. credit bureaus, etc.),
remote terminal access, PBX to PBX connections, remote printing
capabilities, local and wide area network design, engineering,
installation, systems' integration and support services;
/bullet/ domestic and international long distance services, switched and
dedicated, in part, through FirstCom's own gateway switch and satellite
earth station, as well as through interconnections with other Chilean
long distance carriers; and
/bullet/ high-speed Internet access services.
Through its Peruvian subsidiary, FirstCom currently provides its
corporate customers in Lima and Callao with the following broadband
communications services:
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/bullet/ high-quality voice and high-speed data communications services on a
private line basis, LAN to LAN interconnection and remote terminal
access;
/bullet/ domestic and international long distance services switched and
transported through interconnections with Telefonica del Peru;
/bullet/ local voice services switched and transported through Telefonica del
Peru (service to begin in the second half of 2000); and
/bullet/ high-speed Internet access services.
Through its Colombian operations, FirstCom currently provides its
corporate customers in Bogota and Cali with the following broadband
communications services:
/bullet/ high-quality voice and high-speed data communications services on a
private line basis, LAN to LAN interconnection and remote terminal
access;
/bullet/ high-speed Internet access services.
FirstCom entered the Colombian market in February 1999 with the
acquisition of approximately 76% of Teleductos S.A., now known as FirstCom
Colombia S.A. ("FirstCom Colombia") and has a presence in Bogota and Cali. In
November 1999 FirstCom increased its ownership of FirstCom Colombia to 86%.
RESULTS OF OPERATIONS (Amounts in US$000) THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Consistent with 1999, during 2000 the majority of the
Company's revenues were derived primarily from its operations in Chile. However,
as a result of the acquisitions of FirstCom Internet, FirstCom Colombia and the
completion of the ATM/IP networks in Chile and Peru, long distance revenues
dropped from 73% of total revenues for the three months ended March 31, 1999 to
57% of total revenues for the three months ended March 31, 2000. The Company
expects revenues to increase over the next few years due to the expansion of its
operations in Peru, Chile and Colombia.
The Company's revenues were $11,750 for the three months ended March
31, 2000 as compared to $8,281 for the three months ended March 31, 1999. Long
distance revenues increased from $6,024 for the three months ended March 31,
1999 to $6,650 for the three months ended March 31, 2000. These revenues were
generated through the sale of approximately 37.1 million and 26.6 million
minutes for the three months ending March 31, 2000 and 1999, respectively,
resulting in an average revenue per minute of approximately $0.18 and $0.23,
respectively. The increased long distance revenue was driven by the initiation
of long distance services in Peru. The decrease in the revenue per minute is due
to an increased mix of domestic long distance traffic and decreases in tariffs
for wholesale long distance traffic. Internet and data service revenue increased
significantly from $2,257 for the three months ended March 31, 1999 to $5,100
for the three months ended March 31, 2000. This increase was attributable to the
acquisition of FirstCom Colombia and FirstCom Internet in Chile and the
initiation of Internet and data services over the Company's ATM/IP network in
Peru and Chile.
The following table details the Company's revenue mix by country:
THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Chile 57% 86%
Peru 24% 1%
Colombia 19% 13%
--- ---
100% 100%
=== ===
COST OF REVENUES. For the three months ended March 31, 2000 cost of
revenues relate principally to long distance services and include access charges
paid to local exchange carriers and transmission payments to other carriers.
Cost of revenues also include payments for rights of way related to the
Company's fiber optic networks and license royalty payments related to
telecommunication services in Peru and Colombia.
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The Company's cost of revenues was $5,309 for the three months ended
March 31, 2000 as compared to $6,028 for the three months ended March 31, 1999.
Additionally, the Company's gross margin increased from 27% for the three months
ended March 31, 1999 to 55% for the year ended March 31, 2000. The increase in
gross margin and decrease in cost of revenues is attributable to the significant
growth in the higher margin data and Internet services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, advertising and marketing costs, professional fees related to
legal, recruiting and accounting, and travel. The Company expects selling,
general and administrative expenses to increase over time as it continues to
expand its operations.
The Company's selling, general and administrative expenses were $10,056
for the three months ended March 31, 2000 as compared to $4,345 for the three
months ended March 31, 1999. This increase was primarily attributable to the
hiring of additional personnel related to the growth of the Peruvian and Chilean
operations, the acquisition of FirstCom Colombia and increased marketing efforts
in Chile and Peru. At March 31, 2000 the Company and its subsidiaries had 740
employees compared to 500 at March 31, 1999.
NON CASH COMPENSATION AND CONSULTING. The expense of $57 and $82 for
the three months ended March 31, 2000 and 1999, respectively, represents the
fair value of options granted to consultants for services provided during such
periods.
MERGER COSTS. Merger costs of $6,137 for the three months ended March
31, 2000 represents incremental expenses fees incurred in connection with the
pending merger transaction among the Company and AT&T Latin America. Included in
such merger costs are approximately $5,200 of non-cash expense related to the
accelerated vesting of un-vested stock options for certain former employees.
DEPRECIATION AND AMORTIZATION. The Company depreciates its
telecommunications networks and intangible assets on a straight line basis over
their estimated useful lives. The Company believes that depreciation and
amortization expense will continue to increase with the expansion of its
operations.
The Company's depreciation and amortization was $2,936 for the three
months ended March 31, 2000 as compared to $893 for the three months ended March
31, 1999. This increase was primarily attributable to increased investment in
the Company's telecommunications networks and the placement in service of such
assets.
INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding Notes (as defined below), bank debt, promissory notes, and vendor
financing. Interest expense has been reduced for amounts capitalized related to
the Company's construction of its fiber optic networks. Interest costs reported
with respect to the Company's Notes include amortization of (i) deferred
financing costs and (ii) original issue discount related to detachable warrants.
The Company's interest expense was $5,854 for the three months ended
March 31, 2000 as compared to $4,504 for the three months ended March 31, 1999.
The increase in interest expense is due to the decrease in capitalized interest.
Given the substantial completion of the Company's fiber optic networks, during
the three months ended March 31, 2000 the Company did not capitalize any
interest costs. However, during the three months ended March 31, 1999 the
Company capitalized $1,532 of interest costs related to the Company's fiber
optic network that was then under construction.
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INTEREST INCOME AND OTHER. The Company currently earns interest income
on cash and cash equivalents, restricted cash, and restricted investments.
The Company's interest income and other was $392 for the three months
ended March 31, 2000 as compared to $800 for the three months ended March 31,
1999. This decrease was primarily attributable to a reduction in restricted cash
and investments.
INCOME TAXES. The Company is subject to federal, state and foreign
income taxes and with the exception of its Colombian operations, has incurred no
liability for such taxes due to net operating losses incurred. Under certain
circumstances, these net operating losses could be used to offset future taxable
income. The Company's net deferred tax assets, which result primarily from the
future benefit of these net operating losses, are fully offset by a valuation
allowance for the same amount because of the uncertainty surrounding the future
realization of these net operating loss carryforwards. However, as the Company
expands its fiber optic networks in Chile, Peru and Colombia, the Company
expects to generate taxable income. Certain tax benefits could expire prior to
the time the Company generates taxable income.
The Company's income tax expense for the three months ended March 31,
2000 was $17. This expense related to the Company's operations in Colombia.
LIQUIDITY AND CAPITAL RESOURCES
On October 27, 1997, the Company consummated a private offering (the
"Senior Note Offering") of 150,000 Units (the "Units") consisting of $150,000
aggregate principal amount of 14% Notes due October 27, 2007 (the "Notes") and
5,250,000 Unit Warrants to purchase 5,250,000 shares of common stock of the
Company at an exercise price of $4.40 per share. In addition, UBS Securities
LLC, the initial purchaser of the Units in the Senior Note Offering, was granted
2,250,000 warrants to acquire 2,250,000 shares of common stock of the Company at
an exercise price of $4.40 per share.
Approximately $57,000 of the proceeds were invested in an escrow fund
(referred to herein on the Company's balance sheet as "Restricted Investments")
for payment of interest on the Notes through October 27, 2000. Under certain
circumstances, Restricted Investments may be used for repayment of principal of
the Notes. Restricted investments were reduced by $10,500 on each of April 27
and October 27 during 1998 and 1999 to pay interest on the Notes. Approximately
$62,000 of the proceeds were deposited in an account controlled by a trustee
(referred to on the Company's balance sheet as "Restricted Cash") for payment of
Permitted Expenditures, as defined in the Indenture Agreement between the
Company and State Street Bank, as Trustee (the "Indenture"). As of March 31,
2000 the Company had invested approximately $62,000 of the Restricted Cash into
its telecommunications networks and operations in Peru, Chile and Colombia.
The ability of the Company to make scheduled payments with respect to
its indebtedness, including interest on the Notes after October 27, 2000, will
depend upon, among other things, (i) its ability to implement its business plan,
and to expand its operations and to successfully develop its customer base in
its target markets, (ii) the ability of the Company's subsidiaries to remit cash
to the Company in a timely manner and (iii) the future operating performance of
the Company and its subsidiaries. Each of these factors is, to a large extent,
subject to economic, financial, competitive, regulatory and other factors, many
of which are beyond the Company's control. The Company expects that it will
continue to generate cash losses for the foreseeable future. The Company has
deposited cash in escrow funds representing interest payments with respect to
the Notes through October 2000. However, no assurance can be given that the
Company will be successful in developing and maintaining a level of cash flow
from operations sufficient to permit it to pay the principal of, and the
interest on the Notes after such time, or with respect to its other
12
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indebtedness. If the Company is unable to generate sufficient cash flow from
operations to service its indebtedness, including the Notes, it may have to
modify its growth plans, restructure or refinance its indebtedness or seek
additional capital. There can be no assurance that (i) any of these strategies
can be effected on satisfactory terms, if at all, in light of the Company's high
leverage or (ii) any such strategy would yield sufficient proceeds to service
the Company's indebtedness, including the Notes. Any failure by the Company to
satisfy its obligations with respect to the Senior Notes at maturity or prior
thereto would constitute a default under the indenture and could cause a default
under other agreements governing current or future indebtedness of the Company.
Substantially all of the Company's assets are held by its subsidiaries
and substantially all of the Company's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company's ability to pay the
principal of, and interest and liquidated damages, if any, when due, on the
Notes is dependent upon the earnings of its subsidiaries and the distribution of
sufficient funds from its subsidiaries. The Company's subsidiaries will have no
obligation, contingent or otherwise, to make funds available to the Company for
payment of the principal of, and interest and liquidated damages on, if any, the
Notes. In addition, the ability of the Company's subsidiaries to make such funds
available to the Company may be restricted by the terms of such subsidiaries'
current and future indebtedness, the availability of such funds and the
applicable laws of the jurisdictions under which such subsidiaries are
organized. Furthermore, the Company's subsidiaries will be permitted under the
terms of the Indenture to incur indebtedness that may severely restrict or
prohibit the making of distributions, the payment of dividends or the making of
loans by such subsidiaries to the Company. The failure of the Company's
subsidiaries to pay dividends or otherwise make funds available to the Company
could have a material adverse effect upon the Company's ability to satisfy its
debt service requirements including its ability to make payments on the Notes.
On November 11, 1998 a subsidiary of the Company entered into a
financing arrangement (the "First Vendor Financing") with one of the Company's
significant equipment vendors. The terms of the First Vendor Financing are as
follows: (i) maximum amount available $10,000 (ii) interest rate of LIBOR plus
5.5%, (iii) the Company may draw on the facility until December 31, 2000, (iv)
draws under the facility shall be repaid in 20 consecutive quarterly principal
and interest payments, (v) the First Vendor Financing is collateralized by the
equipment being financed. On July 28, 1999 the Company increased the maximum
amount available under the First Vendor Financing from $10,000 to $29,500. As of
March 31, 2000 the Company had approximately $6,800 outstanding under the First
Vendor Financing.
On December 24, 1998 a subsidiary of the Company entered into a
financing arrangement (the "Second Vendor Financing") with another one of the
Company's significant equipment vendors. The terms of the Second Vendor
Financing are as follows: (i) maximum amount available $10,000 (ii) interest
rate of Libor plus 4%, (iii) the Company may draw on the facility until December
31, 2000, (iv) draws under the facility shall be repaid in 20 consecutive
quarterly principal and interest payments beginning on March 31, 2001, (v)
interest only quarterly payments shall be made for each draw from the respective
date of funding through December 31, 2000, (vi) the Second Vendor Financing will
be collateralized by the equipment being financed. As of March 31, 2000 the
Company had no amounts outstanding under the Second Vendor Financing.
On June 30, 1999, the Company issued 1,250,000 shares of 15%
Convertible Redeemable Preferred Stock (the "Preferred Stock") for an aggregate
amount of $10,000. The Preferred Stock is convertible at any time at the option
of the holders into the Company's common stock on a one for one basis, subject
to adjustment. The 15% dividend is payable in kind until June 30, 2001, after
which it will be payable in cash. Beginning June 30, 2001, if the closing price
of the Company's common stock ,as quoted on the NASDAQ Stock Market, exceeds $15
per share for 30 consecutive trading days, the Preferred Stock is automatically
converted into the Company's common stock. The holders of the Preferred Stock
also have certain preemptive, redemption, anti-dilution, tag along and
registration rights.
13
<PAGE>
On August 4, 1999, the Company converted $5,000 of outstanding
promissory notes into 500,000 shares of the Company's common stock.
During December 1999, one of the Company's Chilean subsidiaries
obtained a $1,400 working capital revolving credit facility (the "Working
Capital Facility") from a local bank. The Working Capital Facility is
denominated in UF's ( a published inflation adjusted unit used in financing
transactions in Chile)and bears interest at the prevailing market rates at the
time of each draw down. As of December 31, 1999, there were no amounts
outstanding under the Working Capital Facility.
As a result of the October 1999 sale of 800,000 shares of the Company's
common stock to Patricio E. Northland during January 2000 the Company received
related proceeds of approximately $8,600.
During February 2000, certain subsidiaries of the Company entered into
a term credit facility (the "Term Facility") with a bank. The significant
provisions of the Term Facility are as follows: (i) maximum amount available
$10,000, (ii) annual interest rate of Libor plus 6% or Prime plus 5%, (iii)
principal maturity date of January 2, 2001, (iii) interest payments on the
outstanding principal balance are due quarterly beginning June 30, 2000, (iv)
the Term Facility is collateralized by certain telecommunications equipment and
(v) mandatory prepayment provisions exist upon the occurrence of certain events
including a change of control, as defined in the Indenture. As of March 31,
2000, the Company had $3,300 outstanding under the Term Facility.
To accelerate its growth rate and to finance the launch or build-out of
additional markets, the Company will consider obtaining financing from various
sources, including additional vendor financing provided by equipment suppliers,
project financing from commercial banks and international agencies, bank lines
of credit and the sale of equity and debt securities. To the extent that the
Company or any of its subsidiaries issues debt, its leverage and debt service
obligations will increase. There can be no assurance that the Company will be
able to raise such capital on satisfactory terms, if at all. In addition, the
Indenture related to the Notes limits the ability of the Company and its
subsidiaries to incur additional indebtedness.
The Comany intends to continue to make significant capital expenditures
during the next several years in connection with the further expansion of its
networks in Peru, Chile, and Colombia and the acquistion of new customer
accounts (for which we install our equipment on the customer premises). The
Company intends to meet its capital requirements during 2000 from:
/bullet/ Cash reserves totaling approximately $27.0 million at March
31, 2000,
/bullet/ Available credit under existing vendor and bank facilities
totaling approximately $39.5 million at March 31, 2000.
The Company's budget contemplates it will need approximately $90
million during 2000 and approximately $78 million during 2001 for capital
expenditures. The Company's capital budget reflects a more aggressive deployment
of its networks in anticipation of the completion of the pending merger with
AT&T Latin America. However, the actual timing of the expenditures has not been
finalized and is dependent on a number of factors, including the availability of
adequate financing. The Company has negotiated a $10 million bank loan with an
international bank to fund capital expenditures related to its Peruvian
subsidiary. In addition, at March 31, 2000 the Company had approximately 6
million options and warrants that were exercisable at a weighted average
exercise price of $4.44, which was significantly below the Company's share value
on that date. If all such options/warrants were exercised the total cash
proceeds to the Company would approximate $26.7 million.
Currently, the Company does not have any short-term commitments beyond
those that have been disclosed as liabilities in its financial statements. We
do not have any long-term commitments to acquire capital expenditures. If we are
unable to obtain additional financing, which is greatly dependent on our ability
to complete our merger with AT&T Latin America, the Company will have to
significantly reduce its capital budgets. Such an action will significantly
decrease its planned growth and market penetration. As a result, the failure to
complete the merger with AT&T Latin America could have a material adverse effect
on the price of our common stock.
As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. The Company continues to consider
14
<PAGE>
potential acquisitions from time to time. New sources of capital such as credit
facilities and other borrowings, and additional debt and equity issuances, will
be necessary to fund any material acquisitions and similar strategic
investments.
A summary of the Company's value of common stock issued and common
stock and common stock equivalents outstanding as of March 31, 2000 and the pro
forma effect on the Company's equity capitalization upon the exercise of all
common stock equivalents outstanding at March 31, 2000 follows:
<TABLE>
<CAPTION>
OPTIONS HELD BY OTHER INCREMENTAL
ACTUAL AT MANAGEMENT AND SENIOR NOTE OPTIONS AND AS
MARCH 31, 2000 DIRECTORS (4) WARRANTS (5) WARRANTS (6) ADJUSTED (7)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares of Common Stock 30,890,528 8,595,833 242,000 1,178,436 10,016,269
Value of Common Stock
Issued (1) (2)
Par Value $30,836 $8,596 $242 $1,178 $10,016
Additional Paid in Capital $89,851,538 $53,476,828 $1,064,558 $3,013,626 $57,555,012
-------------------------------------------------------------------------------------
$89,882,373 $53,485,424 $1,064,800 $3,014,804 $57,565,028
=====================================================================================
Per Share (3) $2.91 $6.22 $4.40 $2.56 $5.75
</TABLE>
- ------------
(1) The closing price of the Common Stock on March 31, 2000 was $34.19. The
exercise of stock options and warrants as shown above assumes full vesting
of all stock options and warrants.
(2) Value of Common Stock represents the proceeds from the Company's issuance
of Common Stock and Common Stock equivalents, and is comprised of par value
and additional paid in capital, as stated in the Company's consolidated
historical financial statements.
(3) Represents the amount in (2) per share of Common Stock.
(4) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all stock options (vested and not vested) held by the
Company's management and directors and the Company's receipt of the
exercise price as of March 31, 2000.
(5) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all warrants (vested and not vested) that were issued in
connection with the Notes and are outstanding and the Company's receipt of
the exercise price as of March 31, 2000.
(6) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all other stock options and warrants (vested and not
vested) outstanding and the Company's receipt of the exercise price as of
March 31, 2000.
(7) Represents the combined increase to the Company's value of Common Stock
issued of (4), (5) and (6) above.
Net cash used in operating activities for the three months ended March
31, 2000 was $6,927. This amount represented cash used to fund the Company's net
loss for the period.
15
<PAGE>
Net cash used in investing activities for the three months ended March
31, 2000 was $8,807. This amount primarily represented the Company's continued
build-out of its fiber-optic network as it connects new, offset by the use of
restricted cash to fund such items. The growth of the Company's fiber networks
was evidenced as route kilometers and buildings connected increased from
approximately 1,757 km and 1,091 buildings as of December 31, 1999 to
approximately 2,349km and 1,640 buildings as of March 31, 2000.
Net cash provided by financing activities for the three months ended
March 31, 2000 was $29,639. The Company received significant funding during this
period from (a) the exercise of stock options and warrants and (b) vendor
financing and (c) the repayment of a shareholder loan.
IMPACT OF YEAR 2000
In the prior year, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $63 during 1999 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations may have substantial effects on
the Company's results of operations and financial condition. Generally, the
effects of inflation in many Latin American countries, including Chile, Peru and
Colombia, have been offset in part by a devaluation of the local countries'
currencies relative to the U.S. dollar. Nevertheless, the devaluation of each
country's currency may have an adverse effect on the Company.
A substantial portion of the Company's purchases of capital equipment
and interest on the Notes is payable in U.S. dollars. To date, the Company has
not had significant foreign currency exposure with third parties and generally
intends to be paid for its services in U.S. dollars or in local currencies with
a pricing adjustment that is structured to protect the Company against the risk
of fluctuations in exchange rates. As a result, the Company has not entered into
foreign currency hedging transactions. In the future, if third party foreign
currency exposure increases, the Company may enter into hedging transactions in
order to mitigate any related financial exposure. However, a portion of sales to
customers of the Company will be denominated in local currencies, and
substantial or continued devaluation in such currencies relative to the U.S.
dollar could have a negative effect on the ability of customers of the Company
to absorb the costs of devaluation. This could result in the Company's customers
seeking to renegotiate their contracts with the Company or, failing satisfactory
renegotiation, defaulting on such contracts.
In addition, from time to time, Latin American countries have
experienced shortages in foreign currency reserves and restrictions on the
ability to expatriate local earnings and convert local currencies into U.S.
dollars. Also, currency devaluations in one country may have adverse effects in
another country, as in late 1994 and 1995, when several Latin American countries
were adversely impacted by the devaluation of the Mexican peso. Any devaluation
of local currencies in the country where the Company operates, or restrictions
on the expatriation of earnings or capital from such countries, could have a
material adverse effect on the business, results of operations and financial
condition of the Company.
16
<PAGE>
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1999 the Company has net tax operating loss
carryforwards of approximately $59,000 for U.S. income tax purposes and
approximately $46,900 for foreign income tax purposes. These carryforwards are
available to offset future taxable income, if any, and expire for U.S. income
tax purposes in the years 2007 through 2019. The foreign net operating loss
carryforwards related (1) to Peru, $15,300 expire in the years 2000 through 2003
and (2) to Chile, $31,500, do not expire.
EFFECTS OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES (the "Statement"). The Company expects to adopt the Statement
effective January 1, 2000. The Statement will require the recognition of all
derivatives on the Company's consolidated balance sheet at fair value. The
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed below are filed as part of this Report.
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule for the three months
ended March 31, 2000
(b) Reports on Form 8-K
None
18
<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 be the
undersigned, thereunto duly authorized.
FIRSTCOM CORPORATION
/s/ PATRICIO E. NORTHLAND May 15, 2000
- --------------------------- ------------
Patricio E. Northland Date
Chairman of the Board,
President, and Chief Executive Officer
(Principal Executive Officer)
/s/ JOSE A. SEGRERA May 15, 2000
- --------------------------- ------------
Jose A. Segrera Date
Principal Accounting Officer
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule for the three months
ended March 31, 2000
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 26,996
<SECURITIES> 20,713
<RECEIVABLES> 15,923
<ALLOWANCES> (3,892)
<INVENTORY> 0
<CURRENT-ASSETS> 62,935
<PP&E> 113,313
<DEPRECIATION> (14,170)
<TOTAL-ASSETS> 193,495
<CURRENT-LIABILITIES> 32,855
<BONDS> 133,438
0
12,123
<COMMON> 30
<OTHER-SE> 2,935
<TOTAL-LIABILITY-AND-EQUITY> 193,495
<SALES> 11,750
<TOTAL-REVENUES> 11,750
<CGS> (5,309)
<TOTAL-COSTS> (24,495)
<OTHER-EXPENSES> (17,938)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,854)
<INCOME-PRETAX> (17,937)
<INCOME-TAX> (17)
<INCOME-CONTINUING> (17,954)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,954)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
