SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-28036
BROOKS FIBER PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
43-1656187
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
425 Woods Mill Road South, Suite 300, St. Louis, Missouri 63017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-878-1616
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Shares of Voting Common Stock outstanding at September 30, 1996: 28,461,890 par
value $.01.
Exhibit Index is on page 27.
1
<PAGE>
BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
PART I - Financial Information
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 ............................................ 3
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1996 and 1995 ..... 4
Consolidated Statement of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1996 .......... 5
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1996 and 1995 ................ 6
Notes to Consolidated Financial Statements ................... 7 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 14 - 24
Part II - Other Information
Item 6. Exhibit(s) and Reports on Form 8-K ........................... 25
Signatures ........................................................... 26
2
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Balance Sheets
<CAPTION>
September 30, 1996 December 31, 1995
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 203,034,000 $ 59,913,000
Marketable securities .................................................... 126,634,000 --
Accounts receivable, net ................................................. 10,349,000 2,003,000
Other current assets ..................................................... 6,639,000 1,183,000
------------------ ------------------
Total current assets ............................................ 346,656,000 63,099,000
NETWORKS AND EQUIPMENT, net ................................................... 210,874,000 50,042,000
INVESTMENT IN MINORITY-OWNED VENTURE .......................................... 5,000,000 --
OTHER ASSETS, net ............................................................. 74,820,000 33,469,000
------------------ ------------------
$ 637,350,000 $ 146,610,000
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ................................. $ 21,390,000 $ 5,186,000
------------------ ------------------
Total current liabilities ....................................... 21,390,000 5,186,000
------------------ ------------------
LONG-TERM DEBT ................................................................ 314,440,000 43,977,000
MINORITY INTERESTS ............................................................ 10,761,000 3,992,000
COMMON STOCK, subject to redemption, $.01 par value,
2,016,000 and 0 shares issued and outstanding ............................ 25,200,000 --
SHAREHOLDERS' EQUITY:
Preferred stock, 1,040,012 shares authorized:
Convertible preferred stock, Series A-1, $.01 par value;
0 and 396,000 shares issued and outstanding ........................ -- 39,600,000
Convertible preferred stock, Series A-2, $.01 par value;
0 and 419,705 shares issued and outstanding ........................ -- 65,596,000
Convertible preferred stock, Series B-1, $.01 par value;
0 and 12,000 shares issued and outstanding ......................... -- 1,200,000
Convertible preferred stock, Series B-2, $.01 par value;
4,545 shares authorized; 0 and 4,545 shares
issued and outstanding ............................................. -- 711,000
Common stock, $.01 par value, 50,000,000 shares authorized,
26,445,890 and 1,162,800 shares issued and outstanding ................. 264,000 12,000
Additional paid-in capital ............................................... 305,715,000 --
Accumulated deficit ...................................................... (40,420,000) (13,664,000)
------------------ ------------------
Total shareholders' equity ...................................... 265,559,000 93,455,000
------------------ ------------------
$ 637,350,000 $ 146,610,000
================== ==================
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------- -----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 12,943,000 $ 3,797,000 $ 28,147,000 $ 10,309,000
Expenses:
Service costs ...................................... 6,125,000 1,831,000 12,585,000 5,248,000
Selling, general & administrative expenses ......... 10,158,000 3,027,000 25,504,000 7,818,000
Depreciation and amortization ...................... 4,265,000 1,120,000 9,859,000 2,873,000
--------------- --------------- --------------- ---------------
20,548,000 5,978,000 47,948,000 15,939,000
--------------- --------------- --------------- ---------------
Loss from operations .......................... (7,605,000) (2,181,000) (19,801,000) (5,630,000)
Other income (expense):
Interest income .................................... 4,816,000 569,000 11,074,000 746,000
Interest expense ................................... (7,653,000) (965,000) (19,250,000) (2,679,000)
--------------- --------------- --------------- ---------------
Loss before minority interests ................ (10,442,000) (2,577,000) (27,977,000) (7,563,000)
Minority interests in share of loss .................... 451,000 271,000 1,590,000 589,000
--------------- --------------- --------------- ---------------
Net loss ...................................... $ (9,991,000) $ (2,306,000) $ (26,387,000) $ (6,974,000)
=============== =============== =============== ===============
Pro forma loss per common and common
equivalent share ................................... $ (0.35) $ (0.12) $ (1.10) $ (0.36)
=============== =============== =============== ===============
Pro forma weighted average number of
shares outstanding ................................. 28,368,352 19,523,584 24,071,672 19,523,584
=============== =============== =============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
Convertible Preferred Stock
------------------------------------------------------------------------
Series A-1 Series A-2
---------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 ............................... 396,000 $ 39,600,000 419,705 $ 65,596,000
Merger with BTC
- issuance of common stock .......................... -- -- -- --
- conversion of preferred stock
to common stock ................................... (6,350) (635,000) (6,061) (1,000,000)
Issuance of Series A-2 Preferred Stock ................. -- -- 6,060 997,000
Preferred Stock Warrants Exercised ..................... 9,940 109,000 -- --
Initial Public Offering
- issuance of common stock .......................... -- -- -- --
- common stock, subject to redemption,
exchanged for common stock ........................ -- -- -- --
- conversion of preferred stock
to common stock ................................... (399,590) (39,074,000) (419,704) (65,593,000)
Common Stock Options Exercised ......................... -- -- -- --
Common Stock Warrants Exercised.........................
Conversion of minority interest in
subsidiary to common stock ............................. -- -- -- --
Net Loss ............................................... -- -- -- --
--------------- --------------- --------------- ---------------
Balance, September 30, 1996 ............................ -- $ -- -- $ --
=============== =============== =============== ===============
<CAPTION>
Convertible Preferred Stock
------------------------------------------------------------------------
Series B-1 Series B-2
---------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
Balance, January 1, 1996 ............................... 12,000 $ 1,200,000 4,545 $ 711,000
Merger with BTC
- issuance of common stock .......................... -- -- -- --
- conversion of preferred stock
to common stock ................................... -- -- -- --
Issuance of Series A-2 Preferred Stock ................. -- -- -- --
Preferred Stock Warrants Exercised ..................... -- -- -- --
Initial Public Offering
- issuance of common stock .......................... -- -- -- --
- common stock, subject to redemption,
exchanged for common stock ........................ -- -- -- --
- conversion of preferred stock
to common stock ................................... (12,000) (1,200,000) (4,545) (711,000)
Common Stock Options Exercised ......................... -- -- -- --
Common Stock Warrants Exercised ........................
Conversion of minority interest in
subsidiary to common stock ............................. -- -- -- --
Net Loss ............................................... -- -- -- --
--------------- --------------- --------------- ---------------
Balance, September 30, 1996 -- $ -- -- $ --
=============== =============== =============== ===============
<PAGE>
<CAPTION>
Total
--------------------------------- Additional Accumulated Shareholders'
Shares Amount Paid-In Capital Deficit Equity
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ................ 1,162,800 $ 12,000 $ -- $ (13,664,000) $ 93,455,000
Merger with BTC
- issuance of common stock ........... 756,340 8,000 9,447,000 -- 9,455,000
- conversion of preferred stock
to common stock .................... 248,220 2,000 1,633,000 -- --
Issuance of Series A-2 Preferred Stock .. -- -- -- -- 997,000
Preferred Stock Warrants Exercised ...... -- -- -- -- 109,000
Initial Public Offering
- issuance of common stock ........... 7,385,331 74,000 185,119,000 -- 185,193,000
- common stock, subject to redemption,
exchanged for common stock ......... 224,000 2,000 2,798,000 -- 2,800,000
- conversion of preferred stock
to common stock .................... 16,527,920 165,000 106,413,000 -- --
Common Stock Options Exercised .......... 40,492 -- 192,000 -- 192,000
Common Stock Warrants Exercised.......... 91,898 1,000 113,000 114,000
Conversion of minority interest in
subsidiary to common stock .............. 8,889 -- -- (369,000) (369,000)
Net Loss ................................ -- -- -- (26,387,000) (26,387,000)
--------------- --------------- --------------- --------------- ---------------
Balance, September 30, 1996 ............. 26,445,890 $ 264,000 $ 305,715,000 $ (40,420,000) $ 265,559,000
=============== =============== =============== =============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended September 30
-----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................................. $ (26,387,000) $ (6,974,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................................................ 9,859,000 2,873,000
Non-cash interest expense ............................................................ 19,026,000 2,656,000
Minority interests ................................................................... (1,590,000) (589,000)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable ............................................................... (5,578,000) (212,000)
Accounts payable and accrued expenses ............................................. (147,000) 1,247,000
Other, net ........................................................................ (3,674,000) (1,000)
--------------- ---------------
Net cash used in operating activities ......................................... (8,491,000) (1,000,000)
--------------- ---------------
Cash flows from investing activities:
Purchase of networks and equipment ....................................................... (134,348,000) (15,240,000)
Purchase of marketable securities ........................................................ (250,123,000) --
Maturity of marketable securities ........................................................ 122,994,000 --
Additions to other assets ................................................................ (9,353,000) (1,871,000)
Acquisitions of businesses, net of cash acquired ......................................... (2,705,000) (13,941,000)
Investment in minority-owned venture ..................................................... (5,000,000) --
--------------- ---------------
Net cash used in investing activities ......................................... (278,535,000) (31,052,000)
--------------- ---------------
Cash flows from financing activities:
Issuance of common stock ................................................................. 185,500,000 --
Issuance of preferred stock and subscriptions
receivable payments, net ............................................................... 1,106,000 84,170,000
Proceeds from minority interests ......................................................... 7,991,000 4,088,000
Proceeds from long-term debt, net ........................................................ 238,926,000 5,682,000
Repayment of long-term debt and capital leases ........................................... (3,376,000) --
--------------- ---------------
Net cash provided by financing activities ..................................... 430,147,000 93,940,000
--------------- ---------------
Net increase in cash .......................................................... 143,121,000 61,888,000
Cash, beginning of period .................................................................... 59,913,000 8,795,000
--------------- ---------------
Cash, end of period .......................................................................... $ 203,034,000 $ 70,683,000
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................................. $ 221,000 $ 130,000
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
BROOKS FIBER PROPERTIES, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated balance sheet of Brooks Fiber Properties, Inc. ("BFP"
or the "Company") at December 31, 1995 was obtained from the Company's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and, in the opinion of management,
contain all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation. Operating results for the
three months and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The Company's accounting policies and certain
other disclosures are set forth in the notes to the Company's audited
consolidated financial statements as of and for the year ended
December 31, 1995.
2. Cash and Cash Equivalents
-------------------------
For the purpose of reporting cash flows, cash and cash equivalents
consist primarily of cash on hand and highly liquid securities with
insignificant interest-rate risk and original maturities of three months
or less at date of acquisition.
3. Marketable Securities
---------------------
Marketable securities consist of treasury bills and notes, commercial
paper, and repurchase agreements with maturities beyond three months but
less than twelve months. Marketable securities are stated at cost,
adjusted for discount accretion and premium amortization. The securities
in the Company's portfolio are classified as "held to maturity" as
management has the intent and ability to hold those securities to
maturity.
7
<PAGE>
4. Acquisitions
------------
Pursuant to an Agreement and Plan of Merger between Brooks
Telecommunications Corporation (BTC) and the Company, BTC was merged
into the Company on January 2, 1996, and the securities of the Company
held by BTC were canceled. Following the merger, the former holders of
BTC's common stock, preferred stock, convertible notes, options and
warrants received shares of the Company's common stock, options, and
warrants. After the consideration of the shares of BFP held by BTC at
the time of acquisition, the Company issued 756,340 shares of common
stock valued at $12.50 per share and certain options and warrants (see
Note 8). Intangible assets of approximately $6.1 million were recorded
as a result of this acquisition.
On January 31, 1996, the Company acquired City Signal, Inc., a provider
of competitive access and local exchange services in Michigan and Ohio,
and certain assets of a related entity, from an unrelated party. In
connection with the acquisition, the Company issued approximately 2.2
million shares of common stock and assumed certain specified
liabilities. Intangible assets of approximately $13.1 million were
recorded as a result of this acquisition. In addition, the Company
granted the seller the option to require the Company to repurchase any
or all shares at a price of $12.50 per share on or before February 1,
1998. In conjunction with the Company's initial public offering (see
Note 7), the holder of such shares sold 10% of the shares. Accordingly,
approximately 2.0 million shares remain subject to redemption.
Effective July 1, 1996, the Company acquired 100% of the stock of ALD
Communications, Inc. ("ALD"), a switchless reseller of long distance
services, and Tenant Network Services, Inc. ("TNS"), a wholly-owned
subsidiary of ALD which acts as a shared tenant service provider of
telecommunications services, both of which provide their services
primarily to customers in the San Francisco, California area.
8
<PAGE>
Effective September 1, 1996, the Company acquired 100% of the stock of
Bittel Telecommunications Corporation ("Bittel"), a switch-based
reseller of long distance services, with such services provided
primarily to customers in the San Francisco and Los Angeles, California
areas.
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of operations of the acquired
companies have been included in the Company's consolidated financial
statements since the effective dates of acquisition. The aggregate
purchase price for these acquisitions was allocated based on fair values
as follows:
Fair value of tangible assets acquired $ 41,683,985
Fair value of intangible assets acquired 35,820,751
Liabilities assumed (37,345,272)
-------------
Purchase price, net of cash acquired $ 40,159,464
=============
In June 1996, the Company and MCImetro Access Transmission Services,
Inc. ("MCImetro") entered into an agreement pursuant to which MCImetro
has acquired a 15% interest in the Company's Sacramento, California
network for $4.5 million, and has invested an additional $3.5 million in
the Company's San Jose joint venture company. In accordance with the
provisions of the agreements between the Company and MCImetro, on
October 10, 1996, MCImetro exchanged the agreed value of these
investments for approximately 3.2% of the Company's common stock.
In June 1996, the Company formed a strategic alliance with World-Net
Access, Inc., ("World-Net") through a $5 million investment in exchange
for a 20 percent fully-diluted interest in World-Net. The investment in
World-Net is classified as Investment in Minority-Owned Venture on the
Company's consolidated balance sheet. World-Net is a privately-held,
development stage company founded to form a national Internet Service
9
<PAGE>
Provider network. (See Note 11 for discussion of an additional
commitment to World- Net.)
5. Networks and Equipment, Net
---------------------------
Networks and equipment consist of the following:
September 30 December 31
1996 1995
------------- -------------
Telecommunications networks $ 85,748,000 $ 30,158,000
Electronic and related equipment 98,141,000 20,174,000
Office equipment and furniture 17,302,000 2,435,000
Land and buildings 12,668,000 -
Leasehold improvements 4,013,000 232,000
Transportation equipment 4,034,000 173,000
------------- -------------
221,906,000 53,172,000
Less accumulated depreciation 11,032,000 3,130,000
------------- -------------
$ 210,874,000 $ 50,042,000
============= =============
As of September 30, 1996 and December 31, 1995, networks and equipment
include $33,455,000 and $4,469,000, respectively, of networks in
progress that are not in service and, accordingly, have not been
depreciated. In addition, for the nine months ended September 30, 1996,
interest totaling $1,243,000 has been capitalized in connection with the
Company's construction activities. There was no interest capitalized for
the twelve-month period ended December 31, 1995.
6. Other Assets, Net
-----------------
Other assets consist of the following:
10
<PAGE>
September 30 December 31
1996 1995
------------- -------------
Goodwill $ 51,925,000 $ 29,129,000
Debt issuance costs and interest rate
cap arrangements 13,744,000 3,070,000
Organization, development, rights-of-way,
pre-operating costs, and other 13,347,000 2,922,000
------------- -------------
79,016,000 35,121,000
Less accumulated amortization 4,196,000 1,652,000
------------- -------------
$ 74,820,000 $ 33,469,000
============= =============
7. Shareholders' Equity
--------------------
Effective January 2, 1996, the Company's Board of Directors authorized a
20-for-1 split for each share of common stock and adjusted all
outstanding common stock options and warrants accordingly. All share
data presented within the consolidated financial statements have been
revised to reflect the 20-for-1 stock split.
On May 2, 1996, the Company completed its initial public offering
("IPO") of 7,385,331 shares of common stock at a price of $27.00 per
share, for gross proceeds of approximately $199.4 million and proceeds
net of underwriting discounts, advisory fees and expenses of
approximately $185.2 million.
8. Stock Options and Warrants
--------------------------
The Company's 1993 Stock Option Plan (the "Plan") authorizes the
granting of options and stock appreciation rights covering up to
3,400,000 shares of common stock. The options generally vest over a
period of three years from the date of grant.
Stock option activity for the Plan for the nine months ended
September 30, 1996 is as follows:
11
<PAGE>
Number Price per Share
--------------- ---------------
Balance, December 31, 1995 1,651,660 $4.00 - $6.60
Granted 1,226,000 $12.50 - $33.75
Exercised 40,492 $4.00 - $6.60
Canceled 144,000 $6.00 - $12.50
--------------- ---------------
Balance, September 30, 1996 2,693,168 $4.00 - $33.75
=============== ===============
Also, in connection with the Agreement and Plan of Merger between the
Company and BTC, the Company issued options and warrants to certain of
the shareholders and employees of BTC for the purchase of 1,134,840
shares of the Company's common stock at prices of $11.35 to $31.04 per
share. The warrants expire at various dates from March 31, 1997 to
December 21, 1999. The options generally vest over a three-year period
from the date of grant.
9. Long-Term Debt
--------------
On February 26, 1996, the Company completed the issuance and sale of
$425.0 million aggregate principal amount of 10 7/8% Senior Discount
Notes due March 1, 2006, for which gross proceeds of approximately
$250.0 million were received. No cash payments of interest are required
prior to September 1, 2001. Commencing at such time, the Company will be
required to make semi-annual interest payments on the Senior Discount
Notes, totaling approximately $46.2 million annually.
10. Pro Forma Loss Per Share
------------------------
Pro forma loss per share has been computed using the number of shares of
common stock and common stock equivalents outstanding. The weighted
average number of shares used in computing pro forma loss per share was
28,368,352 and 24,071,672 for the three and nine month periods ended
September 30, 1996, respectively, and 19,523,584 for the three and nine
month periods ended September 30, 1995. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, shares issued and
stock options and warrants granted at prices below the initial public
offering price of $27.00 per share
12
<PAGE>
during the twelve-month period preceding the date of the Company's
initial filing of the Registration Statement related to such initial
public offering have been included in the calculation of common stock
equivalent shares for the nine months ended September 30, 1996, using
the treasury stock method, as if they were outstanding for all of 1995
and for the entire six month period ended June 30, 1996. For the three
months ended September 30, 1996, the weighted average number of shares
was based on common stock outstanding and does not include common stock
equivalents as their inclusion would be anti-dilutive.
11. Commitments and Contingencies
-----------------------------
During September 1995, GST Tucson Lightwave, Inc. ("Lightwave") was
permitted to intervene in litigation originally filed by Brooks Fiber
Communications of Tucson, Inc. a wholly-owned subsidiary of BFP ("BFC
Tucson"). Lightwave filed a counterclaim against BFC Tucson, BFP, and
Tucson Electric Power Company ("TEP") charging BFC Tucson, BFP, and TEP
with violations of antitrust laws, all of which stem from an agreement
between BFC Tucson and TEP that allowed BFC Tucson exclusive rights, for
one year, to utilize certain of TEP's rights-of-way. The original causes
of the action have been settled, however, the counterclaim by Lightwave
is currently still pending. The Company believes the claim to be without
merit and intends to vigorously defend against this action. The Company
believes that resolution of the matter will not have a material adverse
effect on the financial condition or results of operations of the
Company.
Subsequent to September 30, 1996, the Company committed an additional
$15 million to World-Net (see Note 4), which would increase the
Company's fully-diluted interest to 25.5% from its present 20%. It is
possible that the Company may commit additional funds to World-Net in
furtherance of this strategic alliance.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's condensed Consolidated Financial Statements and Notes thereto
included herewith, and with the Company's Management's Discussion and Analysis
of Financial Condition and Results of Operations and audited consolidated
financial statements and notes thereto as of and for the
year ended December 31, 1995.
Overview
- --------
The Company is a leading full-service provider of competitive local
telecommunications services in selected markets in the United States. The
Company acquires and constructs its own state-of-the-art fiber optic networks
and facilities and leases network capacity from others to provide interexchange
carriers ("IXCs"), Internet service providers ("ISPs"), wireless carriers and
business, government and institutional end users with an alternative to the
incumbent local exchange carriers ("ILECs") for a broad array of high quality
voice, data, video transport and other telecommunications services.
The Company's goal is to become the primary full-service provider of
competitive local telecommunications services to IXCs, ISPs, wireless carriers
and business, government and institutional end-users in selected cities by
offering superior products with excellent customer service at prices below those
charged by the ILECs. The Company currently has systems in 30 cities, consisting
of systems in operation in 22 cities and under construction in 8 cities. The
Company plans to expand its network operations to have systems in operation or
under construction in a total of 50 cities by the end of 1998. The Company has a
total of 17 digital telephone switches installed in its networks, of which nine
are in operation. The Company expects to have switches deployed to offer local
dial tone, switched access termination and origination services, centrex, and
desktop products in substantially all of its operating networks by the end of
1996, and in all of its operating networks by the second quarter of 1997. The
Company is also adding capabilities to provide enhanced services such as high
speed video conferencing, frame relay and ATM-based packet transport
14
<PAGE>
services, and internet access products, and it expects to offer all of such
services in all of its operating networks by the end of 1997.
On January 31, 1996, the Company completed the acquisition of City
Signal, Inc., which included networks in operation or under construction in four
cities in Michigan and Ohio, including an installed switch in Grand Rapids,
Michigan. At the date of acquisition, the acquired networks had approximately
208 route miles of fiber, 30,456 in voice grade equivalent circuits ("VGEs"),
and 226 buildings connected. In addition, effective January 2, 1996, Brooks
Telecommunications Corporation ("BTC"), a founding stockholder of the Company
and the previous owner of GLA International ("GLA"), was merged into the
Company. GLA, a wholly-owned subsidiary of the Company, offers a full range of
consulting, management, engineering and information system solutions for
telecommunications companies. GLA's capabilities also serve as an internal
source for the telecommunications infrastructure support needed to facilitate
the Company's network growth and penetration of the competitive local exchange
company ("CLEC") business.
Also, effective in July 1996 the Company completed the acquisition of
ALD Communications, Inc. ("ALD"), a switchless reseller of long distance
services and provider of shared tenant services in the Bay area of San
Francisco, and effective in September 1996 completed the acquisition of Bittel
Telecommunications Corporation ("Bittel"), a switch-based reseller of long
distance services in Los Angeles and the San Francisco Bay area.
The following table provides selected statistical and financial data for
the Company as of the dates indicated:
15
<PAGE>
As of September 30,
---------------------- Percentage
1996 1995 Change
---------- ---------- -----------
Cities in operation ....................... 22 11 100%
Cities under construction ................. 8 9 -11%
Buildings connected - on-net .............. 734 190 286%
Buildings connected - off-net ............. 913 37 NM
Route miles ............................... 787 234 236%
Fiber miles ............................... 50,572 14,414 251%
Switches installed ........................ 17 -- NM
CLEC lines in service ..................... 13,107 -- NM
VGE circuits .............................. 358,640 108,841 230%
Number of employees ....................... 711 136 423%
Total Assets
(dollars in thousands) .................... $ 637,350 $ 143,210 345%
========== ========== ==========
- ---------------
NM - Not meaningful
Results of Operations
- ---------------------
Three Months Ended September 30, 1996 Compared to
Three Months Ended September 30, 1995
Revenue
The Company's revenues increased to $12.9 million for the three months
ended September 30, 1996 from $3.8 million for the three months ended September
30, 1995, an increase of 241%. Network capacity as reflected in VGEs in service
increased to 358,640 VGEs as of September 30, 1996 as compared with 108,841 VGEs
as of September 30, 1995. These increases reflect the impact of the Company's
acquisition and development activities, including an increase in the number of
networks in operation to 22 from 11 in the third quarter of 1995, as well as
increased utilization of the Company's network facilities arising from the sales
of additional services to current and new customers. A significant contributor
to the Company's revenue growth for the third quarter of 1996 relates to the
Company's entry into local exchange services in Grand Rapids, Michigan.
Annualized monthly local exchange services revenues increased from $6.4 million
based on June 1996 revenues to $10.2 million based on September 1996 revenues,
as a result of rapidly growing revenues in Grand Rapids. Local exchange services
revenues for the quarter ended September 30, 1996, totaled $2.2 million as
compared to $1.4 million for the quarter ended June 30, 1996.
16
<PAGE>
Costs and Expenses
Service costs increased to $6.1 million for the three months ended
September 30, 1996 from $1.8 million for the three months ended September 30,
1995. The increase was due primarily to the increasing costs associated with the
Company's rapidly growing local exchange services in Grand Rapids and its
expanding resale operations. Service costs consist of costs associated directly
with the operation of the Company's networks, facilities management services,
and consulting and system support activities for third parties including local
and long distance service costs, technical salaries and benefits, and
rights-of-way fees.
The Company's selling, general and administrative expenses ("SG&A") for
the three months ended September 30, 1996 were $10.2 million, as compared with
SG&A expenses of $3.0 million for the three months ended September 30, 1995. The
increase was principally due to the increasing number and continued expansion of
the Company's competitive access networks, including added personnel costs and
marketing activities related to the introduction of switched services. There is
typically a period of higher SG&A expense and a lag time in the generation of
revenues following the acquisition and development of a competitive access
network. Management expects SG&A expenses to continue to increase during the
remainder of 1996 as the Company continues to expand its networks, services and
marketing activities.
Depreciation and amortization expense increased to $4.3 million for the
three months ended September 30, 1996, from $1.1 million for the three months
ended September 30, 1995 as a result of the Company's acquisitions and the
continued expansion of the Company's networks.
Interest Income (Expense)
Interest expense totaling $7.7 million was recorded during the three
months ended September 30, 1996, as compared to interest expense of $965,000 for
the three months ended September 30, 1995. The primary contributor to the
substantial increase in interest expense as compared to the comparable period in
the prior year is non-cash interest expense totaling $6.4 million attributable
to accretion of the 10 7/8% senior discount notes (see "Liquidity and Capital
17
<PAGE>
Resources") issued by the Company on February 26, 1996. In addition, capitalized
interest of $802,000 was recorded for the quarter ended September 30, 1996,
related to network construction projects. For the quarters ended September 30,
1996 and 1995, interest income totaling $4.8 million and $569,000, respectively,
was derived from the Company's available cash and cash equivalents and
marketable securities.
Net Loss
For the reasons stated above, the Company's net loss before minority
interest increased to $10.4 million for the quarter ended September 30, 1996,
from $2.6 million for the quarter ended September 30, 1995. Minority interests
in net losses, representing minority investors' interests in certain of the
Company's subsidiaries, totaled $451,000 and $271,000 for the quarters ended
September 30, 1996 and 1995, respectively. As a result, the Company's net loss
for the quarter ended September 30, 1996 was $10.0 million as compared to a net
loss of $2.3 million for the quarter ended September 30, 1995.
EBITDA
Earnings before interest, taxes, depreciation, amortization and minority
interest (EBITDA) decreased to ($3.3) million for the three months ended
September 30, 1996, from ($1.1) million for the three months ended September 30,
1995, a decrease of $2.2 million. The decrease reflects the increasing operating
and SG&A expenses noted above resulting from the acquisition, development and
expansion of the Company's networks in order to pursue the opportunities
provided by offering the full array of local exchange services. EBITDA is a
measure commonly used in the telecommunications industry and is presented to
assist in an understanding of the Company's operating results and is not
intended to represent cash flow or results of operations in accordance with
generally accepted accounting principles.
18
<PAGE>
Nine Months Ended September 30, 1996 Compared to
Nine Months Ended September 30, 1995
Revenue
The Company's revenues increased to $28.1 million for the nine months
ended September 30, 1996 from $10.3 million for the nine months ended September
30, 1995, an increase of 173%. These increases reflect the impact of the
Company's acquisition and development activities as well as increased
utilization of the Company's network facilities arising from the sales of
additional services to current and new customers. A significant contributor to
the Company's revenue growth for the nine months ended September 30, 1996
relates to the Company's entry into local exchange services in Grand Rapids,
Michigan as a result of the Company's City Signal acquisition. Local exchange
services revenues for the nine months ended September 30, 1996, totaled $4.4
million.
Costs and Expenses
Service costs increased to $12.6 million for the nine months ended
September 30, 1996 from $5.2 million for the nine months ended September 30,
1995. Service costs as a percentage of telecommunications services revenues
declined to approximately 45% for the nine months ended September 30, 1996 as
compared to approximately 51% for the nine months ended September 30, 1995.
The Company's SG&A expenses for the nine months ended September 30, 1996
were $25.5 million, as compared with SG&A expenses of $7.8 million for the nine
months ended September 30, 1995. The increase was principally due to the
increasing number and continued expansion of the Company's competitive access
networks, including added personnel costs and marketing activities related to
the introduction of switched services.
Depreciation and amortization expense increased to $9.9 million for the
nine months ended September 30, 1996, from $2.9 million for the nine months
ended September 30, 1995 as a result of the Company's acquisitions and the
continued expansion of the Company's networks.
19
<PAGE>
Interest Income (Expense)
Interest expense totaling $19.3 million was recorded during the nine
months ended September 30, 1996, as compared to interest expense of $2.8 million
for the nine months ended September 30, 1995. The primary contributor to the
substantial increase in interest expense as compared to the comparable period in
the prior year is non-cash interest expense totaling $15.6 million attributable
to accretion of the Company's 10 7/8% senior discount notes offering. In
addition, capitalized interest of $1.3 million was recorded for the nine months
ended September 30, 1996, related to network construction projects. For the nine
months ended September 30, 1996 and 1995, interest income totaling $11.1 million
and $746,000, respectively, was derived from the Company's available cash and
cash equivalents and marketable securities.
Net Loss
For the reasons stated above, the Company's net loss before minority
interest increased to $28.0 million for the nine months ended September 30,
1996, from $7.6 million for the nine months ended September 30, 1995. Minority
interests in net losses, representing minority investors' interests in certain
of the Company's subsidiaries, totaled $1.6 million and $589,000 for the nine
months ended September 30, 1996 and 1995, respectively. As a result, the
Company's net loss for the nine months ended September 30, 1996 was $26.4
million as compared to a net loss of $7.0 million for the nine months ended
September 30, 1995.
EBITDA
EBITDA decreased to ($9.9) million for the nine months ended
September 30, 1996, from ($2.8) million for the nine months ended September 30,
1995, a decrease of $7.1 million. The decrease reflects the increasing operating
and SG&A expenses noted above resulting from the acquisition, development and
expansion of the Company's networks in order to pursue the opportunities
provided by offering the full array of local exchange services.
Liquidity and Capital Resources
- -------------------------------
The Company's total assets increased from $146.6 million as of
December 31, 1995 to $637.4 million at September 30, 1996. The Company's
current assets of $346.7 million at
20
<PAGE>
September 30, 1996, including cash and cash equivalents and marketable
securities of $329.7 million, exceeded current liabilities of $21.4 million,
providing working capital of $325.3 million. Network and equipment totaled
$222.0 million at September 30, 1996 as compared to $53.2 million at December
31, 1995. Other assets, principally goodwill, net of accumulated amortization,
increased to $74.8 million at September 30, 1996 from $33.5 million at
December 31, 1995, primarily as a result of the Company's acquisitions of City
Signal, Inc., BTC and ALD, and debt issuance costs associated with the Company's
10 7/8% senior discount note offering.
In connection with the City Signal acquisition, the seller received an
option to require the Company to repurchase any or all of the 2,240,000 shares
of the Company's common stock issued in the City Signal acquisition at a price
of $12.50 per share on or before February 1, 1998. In conjunction with the
Company's IPO (see below), the holder of such shares sold ten percent (10%) of
such shares. Accordingly, shares subject to redemption total 2,016,000 shares.
On February 26, 1996, the Company sold $425.0 million aggregate
principal amount of 10 7/8% Senior Discount Notes, providing gross proceeds of
approximately $250 million, and proceeds net of underwriting fees of
approximately $241 million. No cash payments of interest are required on the
Senior Discount Notes until September 1, 2001.
On May 2, 1996, the Company sold 7,385,331 shares of the Company's
common stock in an initial public offering (IPO) at a price of $27.00 per share.
Gross proceeds from this offering totaled approximately $199.4 million and
proceeds net of underwriting discounts and advisory fees and expenses totaled
approximately $185.2 million.
In June 1996, the Company and MCImetro Access Transmission Services,
Inc. ("MCImetro") entered into an agreement pursuant to which MCImetro has
acquired a minority interest in the Company's Sacramento, California network and
has made an additional investment in the San Jose joint venture company. In
connection with these agreements, MCImetro has made additional cash investments
totaling $8.0 million. In accordance with the
21
<PAGE>
provisions of the agreements between the Company and MCImetro, on October 10,
1996, MCImetro exchanged the agreed value of these investments for approximately
3.2% of the Company's common stock.
The Company has formed a strategic alliance with World-Net Access, Inc.
("World-Net"), and has committed a total of $20 million for a 25.5%
fully-diluted interest In World-Net and it is possible that the Company may
commit additional funds to World-Net in furtherance of its strategic alliance.
World-Net is a privately-held development stage company founded to form a
national Internet Service Provider network. The Company intends for both
companies to seek ways to work together and provide customer-oriented internet
and intranet communications solutions.
Effective in July 1996, the Company acquired 100% of the stock of ALD
Communications, Inc. ("ALD"), a switchless reseller of long distance services,
and Tenant Network Services, Inc. ("TNS"), a wholly-owned subsidiary of ALD
which acts as a shared tenant service provider of telecommunications services,
both of which provide their services primarily to customers in the San
Francisco, California area.
Effective in September 1996, the Company acquired 100% of the stock of
Bittel Telecommunications Corporation ("Bittel"), a switch-based reseller of
long distance services, with such services provided primarily to customers in
the San Francisco and Los Angeles, California areas.
The competitive local telecommunications services business is a
capital-intensive business. The Company's operations have required and will
continue to require substantial capital investment for (i) the installation of
electronics for switched services in the Company's operating networks; (ii) the
expansion and improvement of the Company's operating systems, including the
installation of capabilities to provide other enhanced services; and (iii) the
acquisition, design, construction and development of additional networks. For
the nine months ended September 30,
22
<PAGE>
1996 and 1995, the Company made expenditures for the acquisition, design,
construction and development of systems totaling $134.3 million and $15.2
million, respectively.
In response to the demand initially encountered for its services, the
Company will continue aggressive capital deployment plans for the development
and expansion of its existing 30 networks to allow for an increased level of
demand-driven capital spending necessary to take full advantage of the
opportunities presented by offering a full array of local exchange services. The
Company's revised network development plans provide for the Company to (i)
increase the geographic reach and robustness of its networks to allow the
Company to serve a significantly higher percentage of its markets by extending
its networks to serve most, if not all, of the ILEC central offices in its
markets, and (ii) more rapidly deploy switches with full capabilities for local
dial tone and switched access termination and origination services. The Company
estimates that it will spend an additional $200 million through 1997 to fund
these capital needs. The Company currently intends to use the net proceeds from
its pending senior discount note offering, together with existing cash
resources, to fund these additional capital needs, as well as to cover the
related initial operating losses.
The Company's strategic plan calls for having systems in operation or
under development in a total of 50 cities by the end of 1998, which will require
substantial additional capital. The Company expects this expansion into
additional cities to be accomplished by the acquisition of existing networks as
well as the development of new networks. The Company will continue to evaluate
additional revenue opportunities in its existing markets and other strategic
initiatives, and as such opportunities may develop, the Company plans to make
additional capital investments in its networks that may be required to pursue
such opportunities, such as costs required to extend a network or install
additional electronics to meet specific customer requirements. Due to the number
and variability of the factors which could affect the amount of capital that
will be required for such purposes, the Company cannot provide a reasonable
estimate of such additional capital needs. For example, the size of a particular
network to be developed or acquired and the types of electronics installed can
impact significantly the amount of capital required. Similarly, the potential
cost of acquiring additional networks is not determinable, and it is possible
that the Company could acquire existing networks using a variety
23
<PAGE>
of financing alternatives. The Company expects to meet such additional capital
needs with the proceeds from existing and future credit facilities and other
borrowings, and the proceeds from sales of additional equity securities and
joint ventures. The Company's expectations of required future capital
expenditures are based on the Company's current estimates and the current state
and federal regulatory environment. There can be no assurance that actual
expenditures will not be significantly higher or lower. In addition, there can
be no assurance that the Company will be able to raise or generate sufficient
funds to enable it to meet its strategic objectives or that such funds, if
available at all, will be available on a timely basis or on terms that are
acceptable to the Company.
Information Regarding Forward-Looking Statements
- ------------------------------------------------
The statements contained in this report which are not historical facts
are forward- looking statements that involve risks and uncertainties. Management
wishes to caution the reader that these forward-looking statements, such as the
Company's plans to have systems in operation or under construction in a total of
50 cities by the end of 1998 and its expectations for the installation of
switches serving substantially all of its markets by the end of 1996, are only
predictions; actual events or results may differ materially as a result of risks
facing the Company. Such risks include, but are not limited to, the Company's
ability to successfully market its services to current and new customers, access
markets, identify, finance and complete suitable acquisitions, design fiber
optic backbone routes, install cable and facilities, including switching
electronics, and obtain rights-of-way, building access rights and any required
governmental authorizations, franchises and permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as favorable
regulatory, legislative and judicial developments.
24
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No.
(Reference to Item 601(b)
of Regulation S-K) Description
------------------------- ------------------------------------------------
11 Statement regarding Computation
of Per Share Earnings
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data Gathering,
Analysis, and Retrieval [EDGAR] purposes only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which this
report is filed.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKS FIBER PROPERTIES, INC.
(Registrant)
Date: November 1, 1996 By /S/ James C. Allen
------------------------------------
James C. Allen
(Chief Executive Officer)
Date: November 1, 1996 By /S/ David L. Solomon
------------------------------------
David L. Solomon
(Principal Financial Officer)
26
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
11 Computation of Earnings Per Share
27 Financial Data Schedule
(furnished to the Securities and Exchange Commission for
Electronic Data Gathering, Analysis, and Retrieval [EDGAR]
purposes only)
27
EXHIBIT 11
BROOKS FIBER PROPERTIES, INC.
Statement Regarding Computation of Earnings Per Share
Nine Months Ended September 30, 1996
Shares outstanding - January 1, 1996 ............................ 1,152,800
Weighted average number of common and common equivalent shares
issued (1) .................................................. 22,918,872
------------
Weighted average number of common and common equivalent shares
outstanding - September 30, 1996 ............................ 24,071,672
------------
Net loss ........................................................ $(26,387,000)
============
Pro forma loss per common and common equivalent shares .......... $ (1,10)
============
- ---------------
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options, warrants, and preferred stock. Common
equivalent shares from convertible preferred stock (using the if converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock which will be
automatically converted at the date of issuance is included even though
inclusion may be anti-dilutive. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares issued and stock options
and warrants granted by the Company at prices below the public offering
price during the twelve-month period preceding the date of the initial
filing of the Registration Statement have been included in the calculation
of common stock equivalent shares for the nine months ended September 30,
1996, using the treasury stock method, as if they were outstanding for the
entire six month period ended June 30, 1996. For the three months ended
September 30, 1996, the weighted average number of shares was based on
common stock outstanding and does not include common stock equivalents as
their inclusion would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR BROOKS FIBER PROPERTIES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<CIK> 0000915509
<NAME> BROOKS FIBER PROPERTIES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 203,034,000
<SECURITIES> 126,634,000
<RECEIVABLES> 10,349,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 346,656,000
<PP&E> 221,906,000
<DEPRECIATION> 11,032,000
<TOTAL-ASSETS> 637,350,000
<CURRENT-LIABILITIES> 21,390,000
<BONDS> 314,440,000
25,200,000
0
<COMMON> 264,000
<OTHER-SE> 265,295,000
<TOTAL-LIABILITY-AND-EQUITY> 637,350,000
<SALES> 28,147,000
<TOTAL-REVENUES> 28,147,000
<CGS> 0
<TOTAL-COSTS> 47,948,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,176,000
<INCOME-PRETAX> (26,387,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,387,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,387,000)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
