<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 0-28036
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, Town & Country, Missouri 63017
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 878-1616
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, par value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class)
Preferred Stock Purchase Rights, par value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class)
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 [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of close of business on February 28, 1997: $547,396,664.(1)
Common stock outstanding at February 28, 1997: 32,672,579 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 1996 Annual Report to Stockholders of Brooks Fiber Properties,
Inc. (Part II).
2. Portions of the Proxy Statement for the 1997 Annual Meeting of the
Stockholders of Brooks Fiber Properties, Inc. called to be held on April 29,
1997 (Part III).
- ---------------
(1) As used herein, "voting stock held by non-affiliates" means shares of
Common Stock held by persons other than executive officers, directors (including
investment funds affiliated with directors) and persons holding in excess of 10%
of the registrant's Common Stock. The determination of market value of the
Common Stock is based on the last reported sale price of the Common Stock as
reported by the Nasdaq National Market on the date indicated. The determination
of the "affiliate" status for purposes of this report on Form 10-K shall not be
deemed a determination as to whether an individual is an "affiliate" of the
registrant for any other purpose.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. Brooks Fiber Properties, Inc. (the
"Company") is a Delaware corporation founded in November 1993. The Company is a
leading full service provider of competitive local telecommunications services,
commonly referred to as a competitive local exchange carrier ("CLEC"), to long
distance carriers ("IXCs"), Internet Service Providers ("ISPs"), wireless
carriers and business, government and institutional end users in selected cities
within the United States. The Company's principal executive offices are located
at 425 Woods Mill Road South, Suite 300, Town & Country, Missouri 63017, and its
telephone number at those offices is (314) 878-1616.
In January 1994, the Company completed its first acquisition, an
operating system in Springfield, Massachusetts and rights of way for the
development of networks in Hartford, Connecticut and Providence, Rhode Island,
where networks have been constructed by the Company and are operational. In
October 1994, the Company acquired an operating system serving Sacramento, a
system under construction in San Jose, and a local and long distance resale
operation based in San Francisco, California that serves small to medium sized
businesses in the San Francisco Bay area. The San Jose network was activated
during December 1994 and has since been expanded into Sunnyvale, Santa Clara,
Milpitas and Palo Alto, California.
During 1994, the Company also developed business plans and obtained
right-of-way agreements and the necessary operating rights to construct networks
in Oklahoma City, Oklahoma, and Little Rock, Arkansas. These networks, which
added a total of 46 route miles to the Company's networks, became operational
during the first half of 1995.
In March 1995, the Company acquired the assets of a 105-mile network in
Tulsa, Oklahoma. Also during 1995, the Company commenced the construction of
networks in Bakersfield, Fresno and Stockton, California, Albuquerque, New
Mexico, Knoxville, Tennessee, Jackson, Mississippi, Reno, Nevada and Tucson,
Arizona, all of which are now operational.
Effective January 2, 1996, Brooks Telecommunications Corporation
("BTC"), a founding stockholder of the Company, and the previous owner of GLA
International, Inc. ("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.
In addition, effective January 31, 1996, the Company acquired the business of
City Signal, Inc. ("City Signal"), with a 208 mile network in Grand Rapids,
Michigan, an operating network in Lansing, Michigan and networks under
construction in Traverse City, Michigan and Toledo, Ohio.
On June 25, 1996, the Company formed a strategic alliance with VERIO,
Inc. ("VERIO"), formerly known as World-Net Access, Inc., a consolidator of
ISPs, and has committed a total of $20 million for an approximate 25%
fully-diluted interest in VERIO, and it is possible that the Company will decide
to commit additional funds in furtherance of this
<PAGE>
strategic alliance. The Company intends that both companies will seek ways to
work together to provide customer-oriented Internet and Intranet communications
solutions.
Effective July 1, 1996, the Company acquired the stock of ALD
Communications, Inc. ("ALD"), a switchless reseller of long distance services
and a shared tenant service provider of telecommunications services primarily to
customers in the San Francisco, California area with aggregate annualized
revenues of approximately $6.4 million, based on August 1996 results. Effective
September 1, 1996, the Company also acquired Bittel Communications Corporation
("Bittel"), a switch-based long distance reseller serving the San Francisco and
Los Angeles markets with annualized revenues of approximately $9 million, based
on July 1996 results.
Also during 1996, the Company commenced the construction of networks in
White Plains, New York, Stamford, Connecticut, Kansas City, Missouri,
Springfield, Missouri and San Mateo, California, all of which are expected to be
operational by the end of the second quarter of 1997. Since January 1, 1997, the
Company has commenced construction of networks in Long Island, New York and
Minneapolis and St. Paul, Minnesota which are expected to be operational by year
end 1997.
On February 25, 1997, the Company and MaineCom Services, Inc.
("MaineCom"), a subsidiary of Central Maine Power Company, formed a joint
venture company, owned 60% by the Company and 40% by MaineCom, for the purposes
of constructing, owning, operating and developing networks initially in
Portland, Maine and Nashua and Manchester, New Hampshire and other markets in
Maine and New Hampshire as may be agreed upon by the Company and MaineCom in the
future.
On March 28, 1997, the Company completed the acquisition of certain
companies related to Phoenix FiberLink, Inc. ("Phoenix FiberLink") with assets
and networks in operation and under construction in Salt Lake City, Utah and
Reno, Nevada, together with Phoenix FiberLink's operating rights in Boise,
Idaho. The Salt Lake network interconnects locations in the greater Salt Lake
City, Utah area with approximately 66 route miles of optical fiber cable in
operation or under construction. In Reno, Phoenix FiberLink interconnects
locations in the greater Reno, Nevada area with approximately 31 route miles of
optical fiber cable in operation or under construction. The Company plans to
interconnect the Reno network with the Company's existing 24 mile network in
Reno. In Boise, Phoenix FiberLink has performed the initial design and
development for the construction and operation of a 21-mile fiber optic
telecommunications network.
Network Data:
As of December 31
------------------------------
1994 1995 1996
------- ---------- -------
Cities in Operations .......................... 5 11 23
Cities under Construction ..................... 6 10 7
Buildings Connected ........................... 62 216 2,121
Route Miles ................................... 107 262 1,059
Fiber Miles ................................... 6,437 17,111 71,292
2
<PAGE>
Voice Grade Equivalent (VGE) Circuits ......... 59,208 122,617 516,743
Switches Installed ............................ -- 1 20
CLEC lines in service ......................... -- 3,187(1) 21,013
Employees ..................................... 89 165 789
- ---------------
(1) On a pro forma basis, giving effort to the acquisition of City Signal, Inc.
on January 31, 1996.
Until recently, the Company's capital expenditure programs were
directed primarily toward the construction and acquisition of new networks and
the purchase of related equipment. While the Company intends to continue these
activities on a selective basis, the Company plans to focus on the expansion and
development of its existing networks, including continued deployment of switches
and interconnection with the central offices of incumbent local exchange
companies (the "ILECs"), in order to take advantage of its developing
demand-based opportunities in those networks. For the three years ended December
31, 1996, the Company's capital expenditures totaled $6.7 million, $27.6 million
and $217.2 million, respectively. The Company estimates it will invest a total
of approximately $400 million in its networks during 1997.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company operates
in a single industry segment, telecommunications services. Information about the
amounts of revenues, operating profit or loss and identifiable assets of the
Company as of and for each of the three years ended December 31, 1996, is set
forth in the Company's Consolidated Financial Statements incorporated herein by
reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS. The Company is organized as a
holding company with individual operating subsidiaries which focus on specific
market segments. Through its operating subsidiaries, the Company acquires and
constructs its own state-of-the-art digital optical fiber telecommunications
networks and facilities and leases network capacity from others to provide IXCs,
ISPs, wireless carriers and business, government and institutional end users
with an alternative to the ILECs for a broad array of high quality voice, data
and other telecommunications services. Certain of the Company's subsidiaries
located in California currently provide single source integrated local and long
distance telecommunications services and facilities management for medium and
small businesses utilizing the facilities of other providers. Through GLA, the
Company provides a full range of consulting, network engineering and
construction, strategic planning, infrastructure planning and design and
information system services and solutions for the Company and a wide variety of
other telecommunications providers. Through its strategic alliance with VERIO,
the Company plans to develop and offer a wide range of Internet-related services
to users of VERIO's national ISP network, including various dial-up and
dedicated Internet access options.
The Company's networks are organized to take advantage of ongoing
technological, competitive and regulatory changes. The Company sells its
services primarily to IXCs, ISPs, wireless carriers and business, government and
institutional customers who are high volume users of telecommunications
services. Expenditures by IXCs for access connections to their customers
represent their largest single expense and are estimated by industry sources to
represent as much as 45% of the revenues generated by long distance calls.
Through the
3
<PAGE>
deployment of state-of-the-art fiber optic networks and switches, the Company is
able to provide the IXCs served by its networks with high quality, reliable
services at prices less than those the regulated ILECs currently charge. The
Company can expand its capabilities to offer these services beyond the locations
served by its networks by interconnecting its facilities with the facilities of
the ILECs, IXCs and other providers of telecommunications services.
CORPORATE STRATEGY
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 principal elements of the Company's strategy include:
TARGET SECOND AND THIRD TIER MARKETS. The Company believes that continuing
pro-competitive regulatory changes and the broadening range of services that can
be offered by CLECs present attractive opportunities for new CLEC entrants in
second and third tier cities (those with populations ranging from 250,000 to two
million) where there are typically fewer CLEC competitors than in first tier
markets and where the ILECs generally have placed a lower priority on installing
fiber optic systems comparable to those being installed by the Company. As an
early entrant in selected second and third tier cities, the Company believes it
can attain a leadership position by securing needed franchises and
rights-of-way, installing robust state-of- the-art CLEC networks and facilities
and establishing customer relationships with IXCs, ISPs, wireless carriers and
business, government and institutional end users that will enable it to take
advantage of the attractive potential growth rates for local exchange service
revenues in those markets. The Company is also pursuing opportunities in
selected first tier markets (those with populations over two million) utilizing
the Company's existing operational capabilities in conjunction with operating
agreements with the Company's major IXC customers (see "Build on strategic
relationships" below). The Company's networks are generally designed to access
at least 70% to 80% of the identified business, government and institutional end
user revenue base and the IXC facilities ("Points of Presence" or "POPs") and
substantially all of the central offices of the ILECs within their markets.
AGGRESSIVELY PURSUE SWITCHED SERVICES OPPORTUNITY. The Telecommunications Act of
1996 mandates that ILECs throughout the U.S. enter into arrangements with
competitors such as the Company for central office collocation and unbundling of
local services. The Company believes that implementation of these and other
pro-competitive policies creates favorable opportunities to pursue more
aggressively the provision of local switched services. At December 31, 1996, the
Company had a total of 20 digital telephone switches installed serving a total
of 24 of its operating networks, and the Company plans to leverage its networks
and customer relationships by offering local dial tone, switched access
termination and origination services, centrex and desktop products in all of its
networks. The Company has increased the number of CLEC lines in service from
3,187 at December 31, 1995 (on a pro forma basis giving effect to the
acquisition of City Signal) to 21,013 at December 31, 1996, with annualized CLEC
revenues increasing from $2.5 million based on December 1995 revenues to $17.4
million based on December 1996 revenues. See "-- Current Products and Services."
4
<PAGE>
EXPAND ENHANCED SERVICE OFFERINGS. Consistent with its strategy of aggressively
pursuing switched services opportunities, the Company is expanding its
capabilities to provide enhanced services that complement its switch-based
services. Such enhanced services include, among others, high speed video
conferencing, frame relay and ATM-based packet transport services and Internet
access products. The Company is currently offering such services in certain
markets and expects to offer such services in all of its operating networks by
the end of 1997. The Company also plans to continue to upgrade and add to its
systems and services as technology and regulations permit. See "-- Planned
Products and Services."
CONTINUE TO BUILD OUT EXISTING SYSTEMS. The Company strives to build a
sufficient revenue base in each of its systems to generate the cash flow
necessary to enable it to devote more resources to developing and expanding its
systems as opposed to funding initial operating losses. As a result of favorable
regulatory developments and the Company's initial favorable experiences with the
provision of local switched services, the Company decided during 1996 to more
rapidly develop and expand its systems. Its plans include increasing the number
of cities served, expansion of its existing networks and accelerating the
deployment of switches and ILEC central office collocations. The Company
believes that its access to significant capital and technical resources and its
ongoing efforts to develop close working relationships with its IXC customers
(see "-- Build on strategic relationships" below) will enable it to more rapidly
develop and expand its systems, add to its service offerings and establish the
strong customer relationships necessary to solidify its competitive position in
its selected markets.
CONTINUE TO INCREASE THE NUMBER OF CITIES SERVED. During 1996, the Company
achieved its long-stated goal of having systems in operation or under
construction in a total of 30 cities by the end of 1996, and the Company plans
to have systems in operation or under construction in a total of 40 cities by
the end of 1997 and a total of 50 cities by the end of 1998. The Company's
expansion into additional cities is expected to be accomplished by the
acquisition of existing networks as well as the development of new networks. See
"-- Network Acquisition, Development and Design" and "-- Network Construction."
By adding networks, the Company believes it can increase revenues and obtain
economies of scale in its operating costs.
BUILD ON STRATEGIC RELATIONSHIPS. In order to capitalize on the competitive
dynamics of the changing IXC/ILEC relationships, the Company has established
close business alliances with major IXCs, including joint ventures and preferred
vendor relationships. In accordance with this strategy, (1) the Company and
MCImetro Access Transmission Services, Inc. ("MCImetro"), a wholly-owned
subsidiary of MCI Communications Corporation ("MCI"), have entered into
agreements which provide that, until September 30, 2001, the Company will be
MCImetro's preferred provider of certain local access services in a number of
the Company's markets and pursuant to which MCImetro has acquired 958,720 shares
of the Company's Common Stock (see "-- Strategic Relationships" below), (2) the
Company has concluded a national preferred vendor agreement with AT&T
Communications, Inc. ("AT&T Communications"), a wholly-owned subsidiary of AT&T
Corp. ("AT&T"), pursuant to which the Company has become AT&T Communications'
preferred supplier of local access services in most of the Company's markets,
and (3) in February 1997, the Company concluded an agreement with AT&T pursuant
to which the Company will provide switched access origination and termination of
AT&T's long distance
5
<PAGE>
customer calls through the Company's local networks in most of the Company's
markets. The Company believes preferred vendor relationships with IXCs provide
opportunities to leverage its partners' sales channels and market support to
sell the Company's products and services and expand the Company's potential
revenue base. In addition, the Company believes that relationships with IXCs
facilitate its entry into new markets by providing access between the IXCs and
their customers. The Company has organized a national account marketing
organization to manage such relationships. The Company believes this marketing
effort, along with its number of cities served, financial resources and
telecommunications expertise, position it well to develop and maintain these
strategic relationships. See "-- Strategic Relationships."
LEVERAGE UPON GLA'S SIGNIFICANT TELECOMMUNICATIONS INFRASTRUCTURE CAPABILITIES.
GLA, a wholly-owned subsidiary of the Company, offers a full range of
consulting, management, engineering and information system solutions for
telecommunications companies. GLA provides a full range of network engineering,
construction, design and strategic planning services, as well as financial and
management software products, including specifically designed software for
billing systems, toll rating, plant records and financial applications. GLA's
capabilities also serve as an internal source for the telecommunications
infrastructure support needed for the Company's CLEC business.
CURRENT PRODUCTS AND SERVICES
SPECIAL AND SWITCHED ACCESS AND PRIVATE LINE SERVICES. The Company currently
provides several types of special and switched access and private line services
to its IXC and end-user customers. Historically, competitive access providers
("CAPs") such as the Company were able to offer only non-switched special access
and private line services which involved the installation of dedicated lines to
provide the following types of communications links:
o POP-to-POP Special Access -- Telecommunications lines linking the POPs of one
IXC or the POPs of different IXCs in a market, allowing these POPs to exchange
transmissions for transport to their final destinations.
o End-User/IXC Special Access -- Telecommunications lines between an end user,
such as a large business, and the local POP of its selected IXC.
o Private Line -- Telecommunications lines connecting various locations of one
or more customers' operations, suitable for transmitting voice and data traffic
internally.
The Interconnection Decisions of the Federal Communications Commission
(the "FCC") in 1992 and 1993 allowed CAPs to provide a broader range of services
by enabling them to access additional customers through connections with the
ILECs' networks. These services include:
o Collocated Special Access -- A dedicated line carrying switched transmissions
from the IXC POP, through the ILEC's central office to the end user.
6
<PAGE>
o Collocated POP-to-ILEC Switched Access Transport -- A dedicated line carrying
switched transmissions from the ILEC's central office to an IXC's POP.
To provide these services, the Company offers various types of highly
reliable, dedicated fiber optic lines that operate at different speeds and
handle varying amounts of traffic to provide tailor-made solutions to its
customers' needs.
o DS-0 -- A dedicated line service that meets the requirements of everyday
business communications, with transmission capacity of up to 64 kilobits of
bandwidth per second (a voice grade equivalent circuit). This service offers a
basic low capacity dedicated digital channel for connecting telephones, fax
machines, personal computers and other telecommunications equipment.
o DS-1 -- A high speed channel typically linking high volume customer locations
to IXCs or other customer locations. Used for voice transmissions as well as the
interconnection of Local Area Networks ("LANs"), DS-1 service accommodates
transmission speeds of up to 1.544 megabits per second, the equivalent of 24
voice-grade equivalent circuits. The Company offers this high-capacity service
for customers who need a larger communications pipeline.
o DS-3 -- This service provides a very high capacity digital channel with
transmission capacity of 45 megabits per second, which is equivalent to 28 DS-1
circuits or 672 voice grade equivalent circuits. This is a digital service used
by IXCs for central office connections and by some large commercial users to
link multiple sites.
SWITCH-BASED SERVICES. The Company has added and is continuing to add
capabilities to provide local dial tone and switched access termination and
origination services to its networks. As of December 31, 1996, the Company had
20 advanced, state-of-the-art switches installed which served a total of 24 of
its networks.
Most states have taken regulatory and legislative action to open local
communications markets to various degrees of local exchange competition and
co-carrier status. As of December 31, 1996, the Company had established
interconnection arrangements with ILECs for 26 of its 30 networks. The Company
expects that continuing pro-competitive regulatory changes, including those
mandated by the Telecommunications Act of 1996, together with increasing
customer demand, will create more opportunities to introduce additional services
and expand the Company's networks to address a larger customer base.
CENTREX AND LONG-DISTANCE RESALE. Retail business customers served by the
Company's subsidiaries in California can acquire centrex and long-distance
services direct from the Company. The Company's subsidiaries purchase those
services in bulk from the ILEC and the IXCs and provide their retail customers
with a single source of integrated local and long distance telecommunications
services and facilities management at a discount from the published retail ILEC
tariff rates. By using centrex service instead of a private branch exchange
("PBX") to direct their telecommunications traffic, customers can avoid the
large investment in equipment required and the fixed costs associated with
maintaining a PBX network infrastructure. The Company's centrex service allows
medium to small business customers who lack the size or
7
<PAGE>
resources to support their own PBX to benefit from a sophisticated
telecommunications system. The Company's acquisitions of ALD, Tenant Network
Services, Inc. and Bittel in 1996 have complemented its long-distance resale
services directed to such customers.
CONSULTING SERVICES. Through GLA, the Company provides a full range of
consulting, management, engineering and information system solutions for
telephone, cable television and power companies, wireless providers and other
telecommunications infrastructure owners and operators in the United States and
elsewhere. GLA significantly expanded its capabilities through the acquisition
of Design Extenders, Inc. in January 1994 and its acquisition of Graphic Data
Solutions, a telecommunications software and mapping firm, in January 1995.
Following is a brief description of the services offered by each of GLA's
divisions:
CONSULTING SERVICES. Provides specialized consulting services to telephone,
cable television and other telecommunications providers. GLA consulting
professionals combine extensive experience in telecommunications and cable
network technology for support of a wide variety of assignments that include
engineering planning, network design, strategic planning, opportunity and
technical assessments, plus project management and due diligence initiatives. In
addition to its management consulting services, GLA also provides field services
that support outside plant design, engineering and construction management.
Efforts include field survey and design, project engineering and engineering
project management, plus central office equipment and outside plant installation
services.
DESIGN EXTENDER. One of the industry's leaders in providing engineering, design
and mapping services for hybrid fiber-coax systems, serving large cable
television systems operators. Services include systems design and analysis,
as-built and strand mapping, and digitizing.
TELEDATA. Provides engineering and CAD services for the conversion of
telecommunications systems, maps and drawings for use with applications on
clients' automated mapping/facilities management/geographical information
systems (AM/FM/GIS).
TELEMAP. Designs AM/FM/GIS software products for clients engaged in designing
telecommunications networks.
TELESYSTEMS. Designs and installs financial and management software products for
telecommunications companies. Products include software for billing systems,
toll rating, plant records and financial applications.
PLANNED PRODUCTS AND SERVICES
The Company is expanding its capabilities to provide enhanced services,
such as high speed video conferencing, Internet access, frame relay and
ATM-based packet transport services. The Company is currently offering such
services in certain markets and expects to have such capabilities in all of its
operating networks by the end of 1997. These capabilities will enable the
Company to offer a variety of enhanced services where the transport function is
combined with a specific application to provide an integrated turnkey solution
to its customer's voice, data and
8
<PAGE>
video transmission requirements. These enhanced services include applications
such as LAN-to- LAN interconnect services, packet transport services, high speed
video conferencing, Internet access, frame relay, remote database access and
backup services, and fractional bandwidth services, utilizing both the Company's
networks and switches as well as facilities and services provided by others.
This will enable the Company to provide a customer with all of its business
lines and offer a wide range of switched-based value-added services, such as
directory and operator assistance, audio and video conferencing, calling cards,
800-numbers, voice mail, Internet access and other enhanced services.
STRATEGIC RELATIONSHIPS
From time to time, the Company has held discussions with other
communications entities concerning the establishment of possible strategic
relationships, including transactions involving preferred vendor relationships
and equity investments in the Company and one or more of its subsidiaries.
On May 30, 1996, the Company and MCImetro entered into an amendment to
the Company's master service agreement with MCImetro which provides that, until
September 30, 2001, the Company will be MCImetro's preferred provider of certain
local access services in a number of the Company's markets at a discount to
prevailing optimized ILEC rates for comparable circuits. Under the amended
master service agreement, MCImetro has agreed to purchase from the Company, with
certain provisos, all of MCImetro's required local access in specified markets
for new end-user services (and, at MCImetro's election, existing end user
services), and has given the Company a right of first refusal on a
circuit-by-circuit basis to provide other access services required by MCImetro
in such markets. The Company and MCImetro also entered into a subscription
agreement on June 24, 1996 pursuant to which MCImetro acquired a 15% interest in
the Company's Sacramento, California network for $4.5 million and MCImetro
invested an additional $3.5 million in the Company's majority-owned San Jose
joint venture company formed in September 1995 to operate and expand the
Company's existing network in San Jose and its environs. In accordance with the
provisions of the agreements between the Company and MCImetro, on October 10,
1996, MCImetro exchanged the agreed value of its September 1995 investment in
the San Jose network and the agreed value of its June 1996 investments in both
networks for an aggregate of 958,720 shares of the Company's Common Stock.
In December 1995, the Company and AT&T Communications signed a national
preferred vendor agreement pursuant to which the Company has become AT&T
Communications' preferred supplier of dedicated special access, switched access
transport and switched business and residential line services in most of the
Company's markets. The agreement provides that the Company will provide such
services to AT&T Communications at a discount to the tariffed or published ILEC
rates. In February 1997, the Company and AT&T announced an expansion of this
relationship to include several of the new markets which the Company has
recently acquired or is in the process of constructing networks. The Company is
currently providing certain services under the agreement in 20 markets and
expects to add additional services in these markets and to add additional
markets during 1997. The Company's provision of existing services in any
additional markets and additional services is subject to the mutual agreement of
9
<PAGE>
the Company and AT&T Communications with respect to each market, including
satisfactory completion of network validation tests. As a result, there is no
assurance that the national vendor agreement will be extended to cover
additional markets and services.
In February 1997, the Company concluded an agreement with AT&T pursuant
to which the Company will provide switched access origination and termination of
AT&T's long distance customer calls through the Company's local networks in most
of the Company's markets.
The Company believes that Internet and Intranet products and services
complement the Company's existing telecommunications services and present the
Company with potential revenue opportunities, through both the retention of
existing customers and the addition of new customers. To pursue such
opportunities, on June 25, 1996, the Company formed a strategic alliance with
VERIO, a consolidator of ISPs, and has committed a total of $20 million for an
approximate 25% fully-diluted interest in VERIO, and it is possible that the
Company will decide to commit additional funds in furtherance of this strategic
alliance. The Company intends that both companies will seek ways to work
together to provide customer-oriented Internet and Intranet communications
solutions. The Company plans to develop and offer a wide range of
Internet-related services to users of VERIO's national ISP network, including
various dial-up and dedicated Internet access options.
CITIES SERVED
Subsidiaries of the Company currently have systems in operation or
under construction in the following cities:
OTHER CLEC
NETWORKS IN CITY
NETWORKS OF THE COMPANY ----------------------
CITY SERVED CURRENT ANNOUNCED
- -------------------------------------------------------- ---------- ----------
Eastern Region
Springfield, Massachusetts ........................... 0 0
Providence, Rhode Island ............................. 2 1
Hartford, Connecticut ................................ 3 0
Grand Rapids, Michigan ............................... 0 0
Lansing, Michigan .................................... 0 1
Traverse City, Michigan .............................. 0 0
Toledo, Ohio(1) ...................................... 0 1
White Plains, New York(1) ............................ 1 0
Stamford, Connecticut(1) ............................. 1 0
Long Island, New York(1) ............................. 1 1
Portland, Maine(1)(2) ................................ 0 1
Nashua, New Hampshire(1)(2) .......................... 1 0
Manchester, New Hampshire(1)(2) ...................... 0 0
CENTRAL REGION
Oklahoma City, Oklahoma .............................. 2 0
Tulsa, Oklahoma ...................................... 0 1
Little Rock, Arkansas ................................ 2 1
Tucson, Arizona ...................................... 2 0
Albuquerque, New Mexico .............................. 2 0
10
<PAGE>
Knoxville, Tennessee ................................. 0 2
Jackson, Mississippi ................................. 1 1
Kansas City, Missouri(1) ............................. 1 1
Springfield, Missouri(1) ............................. 0 1
Minneapolis, Minnesota(1) ............................ 2 1
St. Paul, Minnesota(1) ............................... 0 0
WESTERN REGION
Sacramento, California ............................... 1 1
San Jose, California ................................. 2 0
Sunnyvale, California ................................ 2 0
Santa Clara, California .............................. 2 0
Stockton, California ................................. 0 0
Fresno, California ................................... 0 1
Bakersfield, California .............................. 0 1
Milpitas, California ................................. 2 0
Palo Alto, California ................................ 2 0
San Mateo, California(1) ............................. 2 0
Reno, Nevada ......................................... 0 0
Salt Lake City, Utah ................................. 2 0
San Francisco, California(3) ......................... N/A N/A
- ---------------
(1) Networks under construction.
(2) Majority-owned joint venture.
(3) Facilities management operations serving the San Francisco Bay area.
The Company believes its regional aggregation strategy will yield
economies of scale in service costs and allow service-affecting decisions to
occur closer to its customers.
NETWORK ACQUISITION, DEVELOPMENT AND DESIGN
Before determining to acquire or construct a network in a particular
city, the Company's corporate development staff reviews the demographic,
economic, competitive and telecommunications demand characteristics of the city,
including its location, the concentration of potential business, government and
institutional end user customers, the economic prospects for the area, available
data regarding IXC and end user demand and actual and potential CLEC
competitors. Market demand is estimated on the basis of market research
performed by Company personnel and others, utilizing a variety of data including
estimates of the number of interstate access and intrastate private lines in the
city based primarily on FCC reports and commercial data bases.
If a particular city targeted for development is deemed to have
sufficiently attractive demographic, economic, competitive and
telecommunications demand characteristics, the Company's network planning and
design personnel design a network targeted to provide access to 70% to 80% of
the identified business, government and institutional end user revenue base, to
the IXC POPs and the ILEC's principal central office(s) in the city, utilizing a
"self-healing" optical fiber ring architecture (build-out to 100% of the
identified end users is not considered to be cost-effective in most cases
because a portion of the demand is located in low density areas).
11
<PAGE>
Concurrently, the Company's corporate development personnel visit the location
of the proposed network to begin discussions with city officials, right-of-way
providers, IXCs and potential end user customers.
Based on the data developed during these preliminary studies and
visits, in connection with either an acquisition or the construction of a
network, including estimates of the costs for fiber optic cable, transmission
and other electronic equipment, engineering, distribution and construction,
building entrance requirements and right-of-way acquisition, the Company
develops detailed financial estimates based on the anticipated demand for the
Company's current services (at present, the financial estimates prepared by the
Company for this purpose generally do not include potential future revenues for
certain enhanced products and services, which the Company plans to offer in all
of its operating networks by the end of 1997; see "-- Planned Products and
Services"). If the financial estimates meet or exceed the Company's minimum rate
of return thresholds using a discounted cash flow analysis, the Company's
corporate development personnel prepare a detailed business and financial plan
for the proposed network, including competitive, regulatory and right-of-way
analyses.
In the case of acquisitions, Company personnel perform due diligence in
order to determine if the city and network involved meet the foregoing
development and construction criteria. The ability of the Company to acquire
suitable additional systems will be subject to competition for acquisition
candidates.
NETWORK CONSTRUCTION
When the Company decides to build a network, the Company's corporate
development staff obtains any needed city authorizations. In some cities, a
construction permit is all that is required. In other cities, a license
agreement or franchise may also be required. Such licenses and franchises are
generally for a term of limited duration. The Telecommunications Act of 1996
requires that local governmental authorities treat telecommunications carriers
in a competitively neutral, non-discriminatory manner. The Company's current
licenses and franchises expire in different years, ranging from 2000 to 2010.
City franchises often require payment of franchise taxes which in some cases can
be included as part of customer charges for use of the network. The Company's
corporate development staff also finalizes arrangements for needed
rights-of-way. The Company strives to obtain rights-of-way on favorable terms
that afford the opportunity to expand the networks as business develops.
Rights-of-way are typically leased under multi-year agreements with renewal
options and are generally non-exclusive. The Company leases underground conduit
and pole space and other rights-of-way from entities such as ILECs and other
utilities, railroads, long distance providers, state highway authorities, local
governments and transit authorities. The Telecommunications Act of 1996 requires
most utilities, including most ILECs and electric companies, to afford CLECs
access to their poles and conduits and rights-of-way at reasonable rates on
non-discriminatory terms and conditions.
The Company's networks are constructed to cost-effectively access areas
of significant end user telecommunications traffic, as well as the POPs of most
IXCs and the principal ILEC central offices in the city. The Company establishes
general requirements for network design which are then provided to an
engineering firm that renders drawings of the contemplated
12
<PAGE>
network and the required deployment. Construction and installation services are
generally provided by independent contractors selected through a competitive
bidding process. Company personnel provide project management services,
including contract negotiation and supervision of the construction, testing and
certification of all facilities. The construction period for a new network
varies depending upon the number of route miles to be installed, the initial
number of buildings targeted for connection to the network, the general
deployment of the network and other factors. Networks that the Company has
installed to date generally have become operational within four to six months
after the beginning of construction.
EQUIPMENT SUPPLY
The Company purchases fiber optic cable and transmission and other
electronic equipment from Lucent Technologies, Inc. (formerly AT&T Network
Systems) and other suppliers at prevailing market prices. The Company expects
that fiber optic cable, equipment and supplies for the construction and
development of its networks will continue to be readily available from Lucent
Technologies, Inc. and other suppliers as required. In August 1995, the Company
entered into an agreement with Lucent Technologies, Inc. under which, as of
December 31, 1996, it has accepted delivery of 16 state-of-the-art 5ESS(R)-2000
switches.
CONNECTIONS TO CUSTOMER LOCATIONS
Office buildings are connected by network backbone extensions to one of
a number of physical rings of fiber optic cable, which originate and terminate
at the Company's central node. Signals are sent through a network backbone to
the central node simultaneously on both primary and alternate protection paths.
Most buildings served have a discreet Company presence (referred to as a "remote
node") located in the building. Within each building, Company-owned internal
wiring connects the Company's remote node to the customer premises. Customer
equipment is connected to Company-provided electronic equipment generally
located in the remote node where customer transmissions are digitized, combined
and converted to an optical signal. The traffic is then transmitted through the
network backbone to the Company's central node where originating traffic can be
reconfigured for routing to its ultimate destination on the network.
The Company locates its remote node electronic equipment either in a
room leased from the building owner or on a customer's premises. Leasing space
from a building owner enables the Company to share electronic equipment among
multiple customers, causes little interruption for customers during installation
and maintenance and allows the Company to introduce new services rapidly and at
low incremental cost. For these reasons, the Company believes that leasing or
otherwise controlling equipment rooms in buildings served is desirable and has
therefore chosen to establish such arrangements where possible. When the Company
is unable to lease space from the building owner, the Company generally utilizes
space provided by the customer at no cost to the Company.
13
<PAGE>
SALES AND MARKETING
The Company seeks to leverage its networks through sales and marketing
activities targeted at two separate telecommunications services customer groups:
wholesale and retail. Wholesale customers consist of IXCs and information
service providers such as commercial data processing service providers and ISPs.
Retail customers are composed primarily of businesses, government and
institutional telecommunications users that have high volume dedicated and
switched service telecommunications requirements and, to a lesser extent,
include residential customers for switched services. Services are offered in
accordance with tariffs filed with the FCC for interstate services and state
regulatory authorities for intrastate services. Since they are classified by the
FCC as non-dominant carriers, the Company's subsidiaries do not have to cost-
justify their rates and in certain cases may enter into customer and product
specific arrangements. Telecommunications services accounted for approximately
100%, 100% and 87.2% of the Company's total consolidated revenues in 1994, 1995
and 1996, respectively.
WHOLESALE CUSTOMERS. The Company currently targets the major IXCs, such as AT&T,
MCI, Sprint Corporation, WorldCom, Inc. and Frontier, and major information
service providers on a national basis. The Company believes that it can
effectively compete to provide access products (i.e., DS-1, DS-3, frame relay,
ATM and Internet hub servers) to these target customers in the cities in which
it operates based on price, reliability, state-of-the-art technology, route
diversity, ease of ordering and customer service. The Company provides
POP-to-POP and POP-to-end user non-switched access services and switched access
termination and origination services at prices below those the regulated ILECs
currently charge. The Company strives to establish close working relationships
with its IXC customers through "electronic bonding" of its operations with those
of the IXCs. Electronic bonding provides a seamless integration of the Company's
networks with the IXC's network which enables the IXC to access service, billing
and other data direct from the Company's networks and permits the IXC to enter
automated service requests (ASRs) electronically through the integrated network.
Wholesale customers are currently marketed by national account
representatives since the major IXCs and information service providers have
established national or regional groups to manage and coordinate their
purchasing of access services. These groups assess CLECs not only upon price,
quality, service and ease of provisioning in a particular market, but also upon
size, scope of operations and financial stability in order to maximize the
leverage of their CLEC relationships. The Company focuses on serving its IXC
customers in all of the Company's cities with a view to establishing national
preferred vendor relationships.
For the year ended December 31, 1996, approximately 22% of the
Company's consolidated revenues were attributable to access services provided to
IXCs pursuant to numerous individual service orders. Approximately 13% of such
consolidated revenues were attributable to services provided to MCI and its
affiliates pursuant to more than 200 individual service orders. The loss of
access revenues from IXCs in general or the loss of MCI as a customer could have
a material adverse effect on the Company's business.
IXC customers typically place individual service orders for specific
circuits for the Company to provide private line or local access services under
master service agreements which
14
<PAGE>
do not obligate the customer to any level of business. Most of such current
service orders can be terminated by the customer on 60 days or less notice,
subject, in certain cases, to specified termination liabilities. However, as
indicated above under "-- Strategic Relationships," during 1996, the Company
entered into a national preferred vendor agreement with AT&T Communications
under which the Company has become AT&T Communications' preferred supplier of
certain specified services in certain specified markets, and has also entered
into an amendment to its master service agreement with MCImetro which provides
that, until September 30, 2001, the Company will be MCImetro's preferred
supplier of local access services in a number of the Company's markets.
Information service providers typically commit to a service agreement for a term
of up to three to five years which is either renegotiated or, with certain
contracts, automatically renewed for successive one-year periods or converted to
a month-to-month arrangement at the end of the contract term. The Company's
wholesale rates are sometimes based on published tariffs, which are subject to
revision from time to time, based upon changes in the published tariffs. The
Company believes that it is well positioned to serve the IXCs and information
service providers and generally has good relationships with its IXC and
information service provider customers.
RETAIL CUSTOMERS. The Company primarily targets four retail customer segments --
government, finance, health care and education -- all of which have high volume
telecommunications requirements. The Company is currently providing these
customers private line services such as point-to-point communications, dedicated
DS-Os, DS-1s and DS-3s, dedicated high-speed Internet access, local dial tone
and switched access termination and origination services. The Company is
currently introducing frame relay and ATM-based packet transport capabilities
and will have the capability to offer a wide range of switch-based, value added
services, such as directory and operator assistance, audio and video
conferencing, calling cards, 800-numbers, voice mail and enhanced fax, Internet
access and a variety of native speed LAN-to-LAN and FDDI transport services, as
well as high quality video transport. These services provide customers with cost
effective data transmission and access to services such as the Internet.
ATM-based packet transport capabilities will also provide a vehicle for
launching future services such as ultra high speed data and compressed video
transport.
The Company believes that it can effectively compete for business,
government, institutional and other end user customers based upon price,
reliability, product diversity, service and custom solutions to the customer's
needs. The Company offers such services to retail customers at prices below
those currently offered by the regulated ILECs. In addition, the Company's
self-healing optical rings ("SONET") provide reliability which the Company
believes is generally superior to the reliability provided by many of the ILECs.
Retail customers are currently marketed through Company direct sales
representatives in each city. The national sales organization also provides
support for the local sales groups and develops new product offerings and
customized telecommunications applications and solutions which address the
specific requirements of particular customers. In addition, the Company markets
its products through advertisements, trade journals, media relations, direct
mail and participation in trade conferences.
15
<PAGE>
Retail customers typically commit to a service agreement for a term of
three to five years which is either renegotiated or automatically converted to a
month-to-month arrangement at the end of the contract term. Retail contracts are
generally at fixed rates. The Company believes that it has generally good
relationships with its retail customers.
CONSULTING CUSTOMERS. GLA's sales and marketing efforts are directed towards a
wide variety of telephone, cable television and power companies, wireless
providers and other telecommunications infrastructure owners and operators in
the United States and elsewhere. GLA offers multi-faceted solutions to
customers' telecommunications infrastructure requirements utilizing its varied
technical and engineering expertise to offer a complete package of consulting,
field service and information systems support. GLA's engineering and technical
personnel include professionals who have significant technical and engineering
expertise in most of the critical voice, video, data and wireless
telecommunications technologies.
NETWORK OPERATIONS
The Company's networks consist of fiber optic digitally-based
communications paths which allow for high-speed, high quality transmission of
voice, data and video communications. The Company typically installs backbone
fiber optic cables containing either 96 or 144 fiber strands, which have
significantly greater bandwidth carrying capacity than traditional analog copper
cables. Using current electronic transmitting devices, a single pair of glass
fibers on the Company's networks can transmit up to 32,256 simultaneous voice
conversations, whereas a typical pair of wires in a traditional analog copper
cable installed in many current ILEC networks can currently carry only a maximum
of 24 simultaneous voice conversations. The Company expects that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber, thereby providing more bandwidth carrying capacity
at relatively low incremental cost.
The Company offers end-to-end fully protected fiber services utilizing
SONET ring architecture which routes customer traffic simultaneously in both
directions around the ring to provide protection against fiber cuts. Back-up
electronics for high-speed circuits become operational in the event of failure
of the primary components adding further redundancy to the Company's systems.
The Company's networks are monitored seven days per week, 24 hours per
day by the Company's NOC Centers (Network Operations Control Centers) in St.
Louis, Missouri and Grand Rapids, Michigan. The NOC Centers provide a single
point of contact for network monitoring, troubleshooting and dispatching, as
well as capabilities for "electronic bonding" with customers.
With full time monitoring, service problems are detected, diagnosed
and, in most cases, repaired remotely from the NOC Centers, typically before
they adversely affect the Company's customer and often before the customer even
notices a problem. The NOC Centers provide real-time alarm status and
performance information for each of the Company's networks around the country.
They also afford improved disaster recovery to customers through remote circuit
provisioning and cross-connect features.
16
<PAGE>
EMPLOYEES
At December 31, 1996, the Company had approximately 789 full-time
employees. None of the Company's employees is represented by a union or covered
by a collective bargaining agreement. The Company believes it has a highly
capable and motivated work force with whom relations are good. In connection
with the construction and maintenance of its fiber optic networks, the Company
uses third-party contractors, some of whose employees may be represented by
unions or covered by collective bargaining agreements.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Item 1 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
40 cities by the end of 1997 and 50 cities by the end of 1998 and its plans to
offer switched and enhanced services in all of its markets by the end of 1997,
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 option 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.
ITEM 2. PROPERTIES
The Company leases network hub sites and other facility locations and
sales and administrative offices in each of the cities in which it has
operations. During the year ended December 31, 1996, rental expense for such
locations and offices totaled $3.2 million. At December 31, 1996, minimum future
rental payments under noncancelable leases covering the Company's locations,
offices and other equipment totaled $25.7 million. The Company owns a 23 acre
parcel of land in Town & Country, Missouri, on which it is constructing its new
corporate headquarters building. A wholly-owned subsidiary of the Company owns a
42,000 square foot office building in Grand Rapids, Michigan that houses a
switch, NOC Center and office facilities.
ITEM 3. LEGAL PROCEEDINGS
On September 22, 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 the Company ("BFC
Tucson"), styled Brooks Fiber Communications of Tucson, Inc. v. City of Tucson,
cause No. CIV 95-655-TUC-RMB, U.S. District Court, District of Arizona. On
October 2, 1995, Lightwave filed a counterclaim against BFC Tucson, the Company
and Tucson Electric Power Company ("TEP"), charging BFC
17
<PAGE>
Tucson, the Company and TEP with violations of antitrust laws, all of which
alleged violations 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 action have been settled; however, the
counterclaim by Lightwave is currently still pending. The counterclaim seeks
treble damages, attorneys' fees, costs (all in an unspecified amount) and such
other relief as the court deems proper. The Company believes the claims are
without merit and intends to defend vigorously against this action. The Company
believes that resolution of the matter will not have a material adverse effect
on the consolidated financial condition or results of operations of the Company.
From time to time the Company or a subsidiary of the Company is named
as a defendant in routine lawsuits incidental to its business. Based on the
information currently available, the Company believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information regarding the market for the Company's Common Stock,
the number of holders thereof, quarterly market price ranges and dividends set
forth on the inside back cover of the 1996 Annual Report to the Stockholders of
Brooks Fiber Properties, Inc. (the "1996 Annual Report") is hereby incorporated
herein by reference.
Pursuant to an Agreement and Plan of Merger dated December 19, 1995
between BTC and the Company, BTC was merged with and into the Company on January
2, 1996, the Company's securities held by BTC were canceled and the 53 security
holders of BTC received an aggregate of (1) 2,167,360 shares of Common Stock,
(2) 81,597 Warrants to purchase shares of Series A-1 Preferred Stock at $220.00
per share if exercised prior to November 10, 1996, $290.00 per share if
exercised thereafter and prior to November 10, 1997, and $380.00 per share if
exercised thereafter and prior to November 10, 1998, (3) 55,540 Warrants to
purchase shares of Common Stock at $11.35 per share, which expire on December
21, 1999, (4) 758,980 Warrants to purchase shares of Common Stock at $22.17 per
share, which expire at various dates during 1998 and (5) 320,320 Stock Options
to purchase shares of Common Stock at $11.35 per share, which expire at various
times between December 15, 2003 and September 8, 2005. The issuance of the
foregoing securities in the merger was not registered under the Securities Act
of 1933, as amended (the "Securities Act") in reliance on the exemption for
nonpublic offerings provided by Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. The Company believes that no more than
35 of the holders of BTC securities were non-accredited investors and that each
person who was not an accredited investor had such knowledge in financial and
business matters to be capable of evaluating the merits and risks of the merger.
Each of the holders of BTC securities was furnished a copy of the Joint
Proxy/Consent Statement dated December 20, 1995 of BTC and the Company with
respect to the Special Meeting of Stockholders of BTC held on January 2, 1996,
which contained information meeting the information requirements of Rule 502 of
Regulation D. Each of such holders acquired the Company's securities issued
pursuant to the merger for investment and subject to restrictions on transfer
which were described in appropriate legends on such securities.
Pursuant to an Agreement and Plan of Merger dated January 17, 1996 with
City Signal, Inc. and Ronald H. Vander Pol, a wholly-owned subsidiary of the
Company was merged with and into City Signal, Inc. on February 1, 1996, and Mr.
Vander Pol received 2,240,000 shares of Common Stock in exchange for his shares
of common stock of City Signal, Inc. The issuance of such Common Stock in the
merger was not registered under the Securities Act in reliance on the exemption
for nonpublic offerings provided by Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated thereunder. Mr. Vander Pol is an accredited
investor who acquired such shares for investment and subject to restrictions on
transfer which were described in appropriate legends on the certificate
representing such shares of Common Stock.
Pursuant to the Company's 1993 Stock Option Plan, the Company, on
February 20, 1996, awarded ten-year non-transferable options to purchase an
aggregate of 782,000 shares of Common Stock at an exercise price of $12.50 per
share. The issuance of such options was not
19
<PAGE>
registered under the Securities Act in reliance on the exemption for nonpublic
offerings provided by Section 4(2) of the Securities Act and the exemption for
compensatory benefit plans provided by Rule 701 promulgated under the Securities
Act. Following the Company's initial public offering of its Common Stock on May
8, 1996, the Company registered on Form S-8 under the Securities Act the shares
of Common Stock issuable upon exercise of options granted under its 1993 Stock
Option Plan.
The Company and MCImetro entered into a subscription agreement on June
24, 1996 pursuant to which MCImetro acquired a 15% interest in the Company'
Sacramento, California network for $4.5 million and MCImetro has invested an
additional $3.5 million in the 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 its September 1995
investment in the San Jose network and the agreed value of its June 1996
investments in both networks for an aggregate 958,720 shares of the Company's
Common Stock. The issuance of such shares was not registered under the
Securities Act in reliance on the exemption for nonpublic offerings provided by
Section 4(2) of the Securities Act. MCImetro, an accredited investor, acquired
such shares of the Company's Common Stock for investment and subject to
restrictions on transfer which were described in appropriate legends on the
certificate representing such shares of Common Stock.
On November 12, 1996, the Company issued an aggregate of 234,260 shares
of the Company's Common Stock to AT&T Credit Corporation in exchange for the
agreed value of AT&T Credit Corporation's investments in certain subsidiaries of
the Company made in connection with certain loans to such subsidiaries. The
issuance of such shares was not registered under the Securities Act in reliance
on the exemption for nonpublic offerings provided by Section 4(2) of the
Securities Act. AT&T Credit Corporation, an accredited investor, acquired such
shares of the Company's Common Stock for investment and subject to restrictions
on transfer which were described in appropriate legends on the certificate
representing such shares of Common Stock.
On April 18, 1996 and July 16, 1996, two related investment funds
exercised warrants to purchase an aggregate of 9,940 shares of the Company's
Common Stock and 5,120 shares of the Company's Common Stock, respectively, at
$11.00 per share (or an aggregate of $109,340) and at $22.17 per share (or an
aggregate of $113,510), respectively. The issuance and sale of the foregoing
securities was not registered under the Securities Act in reliance on the
exemption for nonpublic offerings provided by Section 4(2) of the Securities
Act. Each of the holders of such securities are accredited investors and
acquired such shares for investment and subject to restrictions on transfer
which were described in appropriate legends on the certificates representing
such shares of Common Stock.
On September 24, 1996 and October 3, 1996, an investment fund exercised
warrants to purchase an aggregate of 370,200 shares of the Company's Common
Stock at $22.17 per share and warrants to purchase an aggregate of 119,440
shares of the Company's Common Stock at $11.00 per share, respectively, in net
cashless exercises in which the holder acquired an aggregate of 160,195 shares
of the Company's Common Stock. The issuance and sale of the foregoing securities
was not registered under the Securities Act in reliance on the exemption for
20
<PAGE>
nonpublic offerings provided by Section 4(2) of the Securities Act. The holder
of such securities is an accredited investor and acquired such shares for
investment and subject to restrictions on transfer which were described in
appropriate legends on the certificates representing such shares of Common
Stock.
On various dates from November 1, 1996 through November 6, 1996,
warrants to purchase an aggregate of 37,940 shares of the Company's Common Stock
at $22.17 per share were exercised by six investment funds. An aggregate of
12,320 shares was acquired for an aggregate of $273,134 in cash, and an
aggregate of 5,249 shares was acquired in net cashless exercises. The issuance
and sale of the foregoing securities was not registered under the Securities Act
in reliance on the exemption for nonpublic offerings provided by Section 4(2) of
the Securities Act. Each of the holders of such securities are accredited
investors and acquired such shares for investment and subject to restrictions on
transfer which were described in appropriate legends on the certificates
representing such shares of Common Stock.
On various dates from October 8, 1996 through November 8, 1996,
warrants to purchase an aggregate of 1,493,840 shares of the Company's Common
Stock at $11.00 per share and 120 shares at $22.17 per share were exercised by
64 holders thereof. An aggregate of 520,809 shares was acquired for an aggregate
of $5,728,899 in cash, and an aggregate of 593,152 shares was acquired in net
cashless exercises. The issuance and sale of the foregoing securities was not
registered under the Securities Act in reliance on the exemption for nonpublic
offerings provided by Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder. The Company believes that no more than 35
of the holders of such warrants were non-accredited investors and that each
person who was not an accredited investor had such knowledge in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the Company's Common Stock. Each of the holders of such warrants
was furnished the information required by paragraphs (b)(2)(ii)(A) and (C) of
Rule 502 of Regulation D. Each of such holders acquired such securities for
investment and subject to restrictions on transfer which were described in
appropriate legends on the certificates representing such shares of Common
Stock.
On November 15, 1996, Alex. Brown & Sons Incorporated exercised a
warrant to purchase 192,340 shares of the Company's Common Stock at $8.25 per
share, or an aggregate of $1,586,805. The issuance and sale of the foregoing
securities was not registered under the Securities Act in reliance on the
exemption for nonpublic offerings provided by Section 4(2) of the Securities
Act. The holder of such securities is an accredited investor and acquired such
shares for investment and subject to restrictions on transfer which were
described in appropriate legends on the certificate representing such shares of
Common Stock.
21
<PAGE>
THE INFORMATION CALLED FOR IN ITEMS 6, 7, AND 8 OF PART II IS SET FORTH
ON THE PAGES LISTED BELOW OF THE COMPANY'S 1996 ANNUAL REPORT TO STOCKHOLDERS
AND IS INCORPORATED HEREIN BY REFERENCE IN ACCORDANCE WITH GENERAL INSTRUCTION
G(2) TO FORM 10-K:
Pages of
Annual Report
-------------
Item 6 Selected Financial Data 4
Item 7 Management's Discussion and 5 through 12
Analysis of Financial Condition and
Results of Operations
Item 8 Financial Statements and Supplementary 13 through 32
Data
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The discussion called for by Item 9 is not provided in accordance with
Instruction 1 to Item 304 of Regulation S-K since it has been previously
reported.
PART III
In accordance with General Instruction G(3) to Form 10-K, the
information required by Part III (Items 10, 11, 12 and 13) is incorporated
herein by reference to the Company's definitive proxy statement dated March 28,
1997 filed with the Securities and Exchange Commission pursuant to Regulation
14A.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. The consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1996 and 1995, the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996, and the
report thereon of KPMG Peat Marwick LLP appearing on pages 13 through 32 of the
Company's 1996 Annual Report to Stockholders, are incorporated by reference to
Item 8.
2. Financial Statement Schedules
The following consolidated financial statement schedule is
included in this report in accordance with Item 8 and paragraph (d) of Item 14.
Page
----
Schedule VII - Valuation and Qualifying Accounts(and Report 26
of Independent Auditors thereon)
All other schedules are omitted because they are not required, not applicable or
the information is given in the financial statements or notes thereto contained
in the 1996 Annual Report.
3. Exhibits (Reference to Item 601(b) of Regulation S-K).
2.1 Agreement and Plan of Merger dated December 19, 1995 between the
Company and Brooks Telecommunications Corporation (incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement on
Form S-1 (File No. 333-1924) filed with the Commission on March 4, 1996
(the "IPO Form S-1"))
2.2 Agreement and Plan of Merger dated January 17, 1996 between the
Company, Brooks Fiber Communications of Michigan, Inc., City Signal,
Inc. and Ronald H. Vander Pol (incorporated by reference to Exhibit 2.2
to the IPO Form S-1)
3.1(a) Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1(a) to the IPO Form S-1)
3.1(b) Certificate of Designation of Series C Junior Participating Preferred
Stock (incorporated by reference to Exhibit 3.1(c) to the IPO Form S-1)
3.1(c) Certificate of Amendment of Certificate of Incorporation of the Company
dated as of August 20, 1996 (incorporated by reference to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q, as amended, for the Period
Ended September 30, 1996 (File No. 0-28036)
23
<PAGE>
filed with the Commission on November 14, 1996 (the "September 30, 1996
Form 10-Q")
3.2 By-laws of the Company, as amended on February 19, 1997 (incorporated
by reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-4 (File No. 333-21223) filed with the Commission on February 5,
1997 (the "Acquisition Form S-4"))
4.1 Rights Agreement dated February 29, 1996 between the Company and The
Boatmen's Trust Company, as Rights Agent (incorporated by reference to
Exhibit 4.2 to the IPO Form S-1)
4.2 Amended and Restated Stockholders Agreement dated as of June 15, 1995
(incorporated by reference to Exhibit 4.3 to the IPO Form S-1)
4.3 Amended and Restated Registration Rights Agreement dated as of June 15,
1995 (incorporated by reference to Exhibit 4.4 to the IPO Form S-1)
4.4 Indenture dated as of February 26, 1996 between the Company and The
Bank of New York, as Trustee (incorporated by reference to Exhibit 4.6
to the IPO Form S-1)
4.5 Indenture dated as of November 7, 1996 between the Company and The Bank
of New York, as Trustee (incorporated by reference to Exhibit 4.6 to
the Company's Registration Statement on Form S-1 (File No. 333-16495)
filed with the Commission on November 20, 1996 (the "Secondary Offering
Form S-1"))
4.6 Amended and Restated Loan and Security Agreement dated as of October 1,
1996 among AT&T Credit Corporation, the Company and certain
subsidiaries of the Company (incorporated by reference to Exhibit 4.8
to the Company's Registration Statement on Form S-4 (File No.
333-18503) filed with Commission on December 20, 1996)
4.7 The Company has not filed certain instruments with respect to long-term
debt since the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries
on a consolidated basis. The Company agrees to furnish a copy of any
such agreement to the Commission upon request.
*10.1 1993 Stock Option Plan of the Company, as amended on December 23, 1996
(incorporated by reference to Exhibit 10.2 to the Acquisition Form S-4)
*10.2 Form of Non-Qualified Stock Option Agreement under the Company's 1993
Stock Option Plan (incorporated by reference to Exhibit 10.2 to the IPO
Form S-1)
*10.3 1996 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit 10.3 to the IPO Form S-1)
*10.4 1993 Stock Option Plan of Brooks Telecommunications Corporation ("BTC")
(incorporated by reference to Exhibit 10.4 to the IPO Form S-1)
24
<PAGE>
*10.5 Form of Substituted Non-Qualified Stock Option Agreement under BTC's
1993 Stock Option Plan (incorporated by reference to Exhibit 10.5 to
the IPO Form S-1)
10.6 Option Agreement dated as of January 31, 1996 between the Company and
Ronald H. Vander Pol (incorporated by reference to Exhibit 10.6 to the
IPO Form S-1)
*10.7 Employment, Consulting and Non-Competition Agreement dated as of March
11, 1997 between the Company and Robert A. Brooks (incorporated by
reference to Exhibit 10.7 to the Acquisition S-4)
11.1 Statement Re Computation of Per Share Earnings
13.1 1996 Annual Report to Stockholders of Company - except for those
portions which are expressly incorporated by reference herein, such
report is furnished for the information of the Securities and Exchange
Commission and is not deemed "filed" as part hereof
21.1 List of Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- ---------------
* Management contract or compensatory plan
(b) Reports on Form 8-K
A report on Form 8-K dated November 7, 1996 was filed reporting under
Item 5 that the Company completed the sale of $400,000,000 of its 11 7/8% Senior
Discount Notes due 2006 (the "Notes") in a private offering exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
to Goldman, Sachs & Co. and Salomon Brothers Inc. for resale of the Notes in
accordance with Rule 144A and Regulation S of the Act.
25
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Schedule VIII - Valuation and Qualifying
Accounts Years ended December 31, 1996, 1995,
and 1994
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------------------------------- --------------- --------------------------------- --------------- ---------------
Additions
---------------------------------
Charged
Balance at Charged to to Other Balance
Beginning Costs and Accounts- Deductions- at End of
Description of Period Expenses Describe (1) Describe (2) Period
- ------------------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1996
- -------------------------------
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts ............. $ 76,217 $ 288,818 $ 484,364 $ 109,652 $ 739,747
1995
- -------------------------------
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts ............. $ 82,000 $ 145,742 $ 3,818 $ 155,343 $ 76,217
1994
- -------------------------------
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts ............. $ 0 $ 3,000 $ 79,000 $ 0 $ 82,000
- ---------------
<FN>
(1) Primarily includes allowances for doubtful accounts related to acquisitions of businesses, plus cash receipts
collected on previously uncollectible accounts.
(2) Uncollectible account charged against allowance for doubtful accounts.
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Brooks Fiber Properties, Inc.:
Under date of February 12, 1997, except for Note 14, which is as of February 25,
1997, we reported on the consolidated balance sheets of Brooks Fiber Properties,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
1996 annual report on Form 10-K of Brooks Fiber Properties, Inc. In connection
with our audits of the aforementioned consolidated financial statements, we have
also audited the related financial statement schedule as listed in the
accompanying index. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 12, 1997, except for Note 14,
which is as of February 25, 1997
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: James C. Allen
------------------------------------
James C. Allen
Vice Chairman and Chief Executive
Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 28, 1997.
SIGNATURE TITLE
- --------------------------------- ---------------------------------------------
- --------------------------------- Director (Chairman of the Board)
Robert A. Brooks
James C. Allen
- --------------------------------- Vice Chairman, Chief Executive Officer and
James C. Allen Director (Principal Executive Officer)
- --------------------------------- President and Director (Chief Operating
D. Craig Young Officer)
David L. Solomon
- --------------------------------- Executive Vice President and Chief Financial
David L. Solomon Officer (Principal Financial and Accounting
Officer)
Robert F. Benbow
- --------------------------------- Director
Robert F. Benbow
William J. Bresnan
- --------------------------------- Director
William J. Bresnan
Jonathan M. Nelson
- --------------------------------- Director
Jonathan M. Nelson
- --------------------------------- Director
G. Jackson Tankersley, Jr.
Ronald H. Vander Pol
- --------------------------------- Director
Ronald H. Vander Pol
- --------------------------------- Director
Carol deB. Whitaker
28
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------
11.1 Statement Re Computation of Per Share Earnings
13.1 1996 Annual Report to Stockholders of the Company
21.1 List of Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- ---------------
See Item 14(a)(3) for a list of exhibits incorporated by reference.
29
EXHIBIT 11.1
BROOKS FIBER PROPERTIES, INC.
Statement Regarding Computation of Earnings Per Share
Year Ended December 31, 1996
Shares outstanding - January 1, 1996 ............................ 1,152,800
Weighted average number of common and common equivalent shares
issued (1) .................................................. 24,474,528
------------
Weighted average number of common and common equivalent shares
outstanding - December 31, 1996 ............................. 25,627,328
------------
Net loss ........................................................ $(43,845,000)
============
Pro forma loss per common and common equivalent shares .......... $ (1.71)
============
- ---------------
(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 year ended December 31, 1996,
using the treasury stock method, as if they were outstanding for the entire
six month period ended June 30, 1996. Subsequent to this period, 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.
SELECTED CONSOLIDATED FINANCIAL DATA
Dollars in thousands, except per share data
The Company's development and acquisition of its networks and services during
the periods reflected below materially affect the comparability of financial
data from one period to another. The following selected consolidated financial
data should be read in conjunction with the Consolidated Financial Statements
and the notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
1996 1995 1994 1993(1)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue: $45,574 $14,160 $2,809 $2
Costs and expenses:
Service costs 21,468 7,177 1,557 --
Selling, general and administrative expenses 38,596 11,405 3,966 206
Depreciation and amortization 16,296 4,118 663 3
---------- ---------- ---------- -----------
Total 76,360 22,700 6,186 209
---------- ---------- ---------- -----------
Loss from operations (30,786) (8,540) (3,377) (207)
Other income (expense), net (14,647) (2,096) (598) 2
---------- ---------- ---------- -----------
Loss before minority interest (45,433) (10,636) (3,975) (205)
Minority interest 1,590 1,085 78 --
---------- ---------- ---------- -----------
Net loss $(43,843) $(9,551) $(3,897) $(205)
========== ========== ========== ===========
Loss per share (2) $(1.71) $(0.49)
========== ==========
Number of shares (2) 25,627,328 19,523,584
========== ==========
BALANCE SHEET AND OTHER DATA:
EBITDA (3) $(14,490) $(4,422) $(2,714) $(204)
Capital expenditures 217,230 27,577 6,693 --
Acquisitions of businesses, net of cash acquired 4,290 13,941 35,669 --
Networks and equipment 306,455 53,172 21,093 --
Total assets 879,581 146,610 71,325 5,000
Long-term obligations, less current maturities 552,810 43,977 29,403 --
Shareholders' equity 266,634 93,455 36,699 4,846
- ---------------
<FN>
(1) For statement of operations data, reflects the period from inception
(November 10, 1993) to December 31, 1993.
(2) See Note 2 to the Consolidated Financial Statements, which describes the
calculation of loss per share.
(3) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and minority interests. EBITDA is commonly used
in the communications industry to analyze companies on the basis of
operation performance, leverage and liquidity.EBITDA is not intended to
represent cash flows for the periods. See the Consolidated State of Cash
Flows.
</TABLE>
4
<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 Consolidated Financial Statements and Notes thereto included
herewith.
OVERVIEW
The Company was founded in 1993 and has rapidly become a leading
facilities-based provider of competitive local telecommunications services in
selected markets within the United States. The Company competes with local
exchange carriers by providing high quality, integrated local telecommunications
services over fiber optic digital networks to meet the voice, data and video
transmission needs of its customers. The Company's customers are principally
inter-exchange carriers (IXCs), internet service providers (ISPs), wireless
carriers, telecommunications-intensive business, government and institutional
end users, and residential customers. The Company offers these customers
technologically advanced local telecommunications services as well as superior
customer service, flexible pricing and route diversity.
The Company's goal is to become the primary full-service provider of
competitive local telecommunications services to its customers in selected
cities by offering superior products with excellent customer service at prices
below those charged by the ILECs. The principal elements of the Company's
strategy include targeting selected U. S. markets with an emphasis on second-
and third-tier markets, aggressively pursuing switched services opportunities,
further building out existing systems, and expanding service offerings. The
Company provides these services in an expanding number of U. S. markets. As of
February 28, 1997, the Company has networks in operation or under construction
which serve a total of 36 U. S. cities. The Company plans to expand its network
operations to have systems in operation or under construction in a total of 40
cities by the end of 1997 and 50 cities by the end of 1998. As of December 31,
1996, the Company has a total of 20 digital telephone switches installed in its
operating networks and plans to leverage its networks and customer relationships
by offering local dial tone, switched access termination and origination
services, centrex and desktop products. As of December 31, 1996, the Company
offers such services and products in substantially all of its operating networks
and expects to offer such services and products in all of its currently
operating networks by the end of the second quarter of 1997. The Company is also
expanding its capabilities to provide flexible enhanced services that complement
its switch-based services. Such enhanced services include, among others, high
speed video conferencing, frame relay and ATM-based packet transport services,
and internet access products. The Company is currently offering such services in
certain markets and expects to offer such services in all of its operating
networks by the end of 1997.
Through December 31, 1996, the Company's growth, including its capital
expenditure requirements, acquisition financing and working capital, has been
principally funded by two senior discount note offerings during 1996, the
Company's initial public offering in May of 1996, the Company's $50 million
credit facility and two private equity offerings completed prior to 1996.
In order to capitalize on the competitive dynamics of the changing IXC/ILEC
relationships, the Company has established close business alliances with major
IXCs, including joint ventures and preferred vendor relationships. In accordance
with this strategy, the Company and MCImetro Access Transmission Services, inc.
(MCImetro), a wholly-owned subsidiary of MCI Communications Corporation (MCI),
have entered into agreements which provide that, until September 30, 2001,
5
<PAGE>
the Company will be MCImetro's preferred provider of certain local access
services in a number of the Company's markets and pursuant to which MCImetro has
acquired an investment in 958,720 shares of the Common Stock. Also, in December
1995, the Company concluded a national preferred vendor agreement with AT&T
Communications, Inc. (AT&T Communications), a wholly-owned subsidiary of AT&T
Corp. (AT&T), pursuant to which the Company has become AT&T Communications'
preferred supplier of local access services in most of the Company's markets.
During February 1997, the Company and AT&T announced the expansion of this
relationship to include several of the markets in which the Company is in the
process of acquiring or constructing networks. In addition, the Company's
relationship was further expanded in a new agreement between the Company and
AT&T whereby AT&T will begin utilizing the Company's networks to originate and
terminate the calls of AT&T customers served by the Company's networks. The
Company believes preferred vendor relationships with IXCs provide opportunities
to leverage its partners' sales channels and market support to sell the
Company's products and services and expand the Company's potential revenue base.
In addition, the Company believes that relationships with IXCs facilitate its
entry into new markets by providing access between the IXCs and their customers.
On January 31, 1996, the Company acquired 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. 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.
In July 1996, the Company acquired 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,
acquired Bittel Telecommunications Corporation (Bittel), a switch-based reseller
of long distance services in Los Angeles and the San Francisco Bay area. By
acquiring ALD and Bittel, the Company not only added businesses that compliment
its own long distance and facilities management resale operations but was also
able to increase its end-user sales force.
In addition, the Company, during early 1997, formed a joint venture for the
construction of three networks located in Maine and New Hampshire. The Company
has also signed definitive agreements related to the acquisition of networks
located in Utah and Nevada, and certain operating rights in Idaho. This
transaction is subject to regulatory approval.
The development of the Company's businesses and the construction,
acquisition and expansion of its networks require significant expenditures, a
substantial portion of which is incurred before the realization of revenues.
These expenditures, together with the associated early operating expenses,
result in negative cash flow until an adequate customer base may be established.
However, as this customer base grows, the Company expects incremental revenues
can be added within operating networks with minimal additional expense,
providing significant contributions to cash flow. The Company also incurs
ongoing capital expenditures with respect to both existing and new systems which
are directly related to the installation of new revenue-producing services.
6
<PAGE>
RESULTS OF OPERATIONS
The following summary provides revenue, income (loss) from operations and
EBITDA(1) of the Company for the periods indicated:
(in thousands) 1996 1995 1994
---- ---- ----
Revenues................................ 45,574 14,160 2,809
Income (loss) from operations........... (30,786) (8,540) (3,377)
EBITDA.................................. (14,490) (4,422) (2,714)
- ---------------
(1) EBITDA consists of net loss before minority interest, interest, income
taxes, depreciation and amortization. It is a measure commonly used in the
telecommunications industry and is presented to assist in understanding the
Company's operating results. However, it is not intended to represent cash
flow or results of operations in accordance with generally accepted
accounting principles. See the Company's consolidated financial statements
and notes thereto appearing elsewhere herein.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE
The Company's revenues increased to $45.6 million for 1996 from $14.2
million during 1995, an increase of $31.4 million or 221%. Total annualized
monthly revenues increased to approximately $73.4 million based on December 1996
revenues from $15.5 million based on December 1995 revenues. The increase in
revenues reflects the impact of the Company's acquisition and development
activities, including an increase in the number of networks in operation to 23
from 11 in 1995, and increased utilization of the Company's network facilities
arising from the sales of additional services to current and new customers.
While access revenues were the most significant contributor to the Company's
revenue growth for 1996, the Company's entry into local switched services, in
Grand Rapids, Michigan during the first quarter of 1996 and in additional
markets during the fourth quarter of 1996, was also a factor. Current annualized
monthly local switched service revenues, based on December 1996 revenues, are
$17.4 million. Local switched service revenues for the year ended December 31,
1996, totaled $7.8 million.
Network utilization as reflected in the number of on-net buildings
connected to the Company's networks increased 309% during 1996 to 883 as
compared to 216 at December 1995. The Company's penetration of buildings to
serve additional customers is further augmented by 1,238 off-net buildings
resulting in total buildings served of 2,121 at December 31, 1996. VGEs in
service increased 321% to 516,743 VGEs as of December 31, 1996, as compared with
122,617 VGEs at the end of 1995. As reflected in CLEC lines in service, network
utilization increased to 21,013 lines in service at year-end 1996, as compared
to 3,187 lines in service on January 31, 1996 in the Company's acquired Grand
Rapids operations. Network development as measured by operational networks has
increased to 23 with these networks covering 1,059 route miles at year-end 1996,
an increase of 304% from the 262 route miles in service at December 31, 1995.
Fiber miles also increased to 71,292 from the 17,111 at December 31, 1996, an
increase of 317%. In addition, the Company's aggressive switch deployment plans
have enabled the Company to deploy switches to serve 24 of the Company's markets
by year-end 1996.
7
<PAGE>
COSTS AND EXPENSES
Service costs increased to $21.5 million or 47% of telecommunications
services revenue in 1996 from $7.2 million or 51% of telecommunications services
revenue in 1995. The increase was due primarily to the impact of the Company's
acquisition and development activities, including increasing costs associated
with the Company's rapidly growing local exchange services in Grand Rapids and
the Company's expanding long distance resale operations. Total service costs
directly related to providing local exchange services increased $5.1 million in
1996. The increase in total service costs also includes an increase of $6.8
million related to the direct operating costs of the Company's long distance
resale operations. Service costs primarily represent the portion of total
operating expenses paid to third parties for unbundled loop charges and other
local and long distance service costs, including right-of-way fees. Also
included are salaries and benefits associated with the technical operations of
the networks and other network costs.
The Company's selling, general and administrative expenses (SG&A) for the
year ended December 31, 1996 were $38.6 million, as compared with SG&A expenses
of $11.4 million for the year ended December 31, 1995. The increase was
principally due to the increasing number and continued expansion of the
Company's 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 the Company's networks. Management expects SG&A
expenses to continue to increase in 1997 as the Company continues to expand its
networks, services and marketing activities.
Depreciation and amortization expense increased to $16.3 million for the
year ended December 31, 1996, from $4.1 million for the year ended December 31,
1995 as a result of the continued expansion of the Company's networks and the
Company's acquisitions.
INTEREST INCOME (EXPENSE)
Interest expense totaling $31.2 million was recorded during the year ended
December 31, 1996, as compared to interest expense of $3.7 million for the year
ended December 31, 1995. The primary contributor to the substantial increase in
interest expense as compared to the prior year is non-cash interest expense
totaling $29.8 million primarily attributable to accretion of the Company's
senior discount notes (see Liquidity and Capital Resources) issued during 1996.
Interest of $2.0 million was capitalized for the year ended December 31, 1996,
related to network construction projects. For the years ended December 31, 1996
and 1995, interest income totaling $16.5 million and $1.6 million, 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 $45.4 million in 1996, from $10.6 million in 1995.
Minority interests in net losses, representing minority investors' interests in
certain of the Company's subsidiaries, totaled $1.6 million and $1.1 million for
the years ended December 31, 1996 and 1995, respectively. As a result, the
Company's net loss for 1996 was $43.8 million as compared to a net loss of $9.6
million for 1995.
EBITDA
Earnings before interest, taxes, depreciation, amortization and minority
interest (EBITDA) decreased to ($14.5) million for the year ended December 31,
1996, from ($4.4) million for the year ended December 31, 1995, a decrease of
$10.1 million. The decrease reflects
8
<PAGE>
the increasing service 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.
Since its inception in November 1993, the development of the Company's
business has required substantial capital investments and has resulted in
substantial net losses. The acquisition of networks, procurement of
rights-of-way and start-up costs of new networks will continue to represent a
large portion of the Company's funding requirements during the Company's
continued expansion. The Company expects to have networks operating or under
development in a total of 40 cities by the end of 1997 and in 50 cities by the
end of 1998. The costs related to the acquisition and development of new
systems, along with the varying degrees of maturity of these systems, will
materially affect the comparability of the Company's financial results from one
period to another and any assessment of the Company's operating performance.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE
The Company's revenues increased to $14.2 million for the year ended December
31, 1995 from $2.8 million for the year ended December 31, 1994, an increase of
407%. Annualized monthly revenues increased to approximately $15.5 million based
on the results for the month of December 1995 from $11.9 million based on
December 1994 results. 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. Network capacity as reflected in VGEs in service
increased to 122,617 VGEs as of December 31, 1995, as compared to 59,208 VGEs as
of December 31, 1994.
COSTS AND EXPENSES
Service costs increased to $7.2 million for the year ended December 31,
1995 from $1.6 million for the year ended December 31, 1994. Service costs as a
percentage of telecommunications services revenues declined to approximately 51%
for the year ended December 31, 1995 as compared to approximately 55% for the
year ended December 31, 1994.
The Company's SG&A expenses for the year ended December 31, 1995 were $11.4
million, as compared with SG&A expenses of $4.0 million for the year ended
December 31, 1994. The increase was principally due to the increasing number and
continued expansion of the Company's competitive access networks and related
marketing activities.
Depreciation and amortization expense increased to $4.1 million for the
year ended December 31, 1995, from $663,000 for the year ended December 31,
1994, as a result of the Company's acquisitions and the continued expansion of
the Company's networks.
INTEREST INCOME (EXPENSE)
Interest expense totaling $3.7 million was recorded during the year ended
December 31, 1995, as compared to interest expense of $693,000 for the year
ended December 31, 1994, as a result of the incurrence of secured indebtedness
to finance the acquisition and development of certain of the Company's
operations. For the year ended December 31, 1995 and 1994, interest income
totaling $1.6 million and $95,000, respectively, was derived from the Company's
available cash balances.
NET LOSS
For the reasons stated above, the Company's net loss before minority
interest increased to $10.6 million for the year
9
<PAGE>
ended December 31, 1995, from $4.0 million for the year ended December 31, 1994.
Minority interests in net losses, representing minority investors' interests in
certain of the Company's subsidiaries, totaled $1.1 million and $78,000 for the
years ended December 31, 1995 and 1994, respectively. As a result, the Company's
net loss for 1995 was $9.6 million as compared to a net loss of $3.9 million for
1994.
EBITDA
EBITDA decreased to ($4.4) million for the year ended December 31, 1995,
from ($2.7) million for the year ended December 31, 1994, a decrease of $1.7
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased from $5.0 million at December 31, 1993
to $879.6 million at December 31, 1996. This growth has principally been funded
by stock offerings in 1993 and 1995, the Company's IPO during 1996, the two
offerings of Senior Discount Notes during 1996 and a secured credit facility.
The Company's current assets of $470.2 million at December 31, 1996, including
cash and cash equivalents and marketable securities of $444.2 million, exceeded
current liabilities of $34.9 million, providing working capital of $435.3
million as compared to $57.9 million at December 31, 1995. Network and equipment
totaled $306.5 million at December 31, 1996 as compared to $53.2 million at
December 31, 1995.
The Company's operating activities used net cash of $17.3 million in the
year ended December 31, 1996, and $2.6 million in the year ended December 31,
1995. The increase in cash used by operating activities was primarily due to the
increased loss from operations incurred related to the acquisition, development,
and expansion of the Company's networks which is offset by increased
depreciation and amortization and non-cash interest expense associated with the
Company's debt facilities. The increase in cash used was also due to supporting
increased levels of accounts receivable and other current assets resulting from
an expanding customer base and increased interest receivable on the Company's
investments.
On February 26, 1996, the Company issued $425.0 million aggregate principal
amount of 10 7/8% Senior Discount Notes due March 1, 2006, and on November 7,
1996, issued $400.0 million aggregate principal amount of 11 7/8% Senior
Discount Notes due November 1, 2006 (the "Senior Discount Notes"). The Company
received gross proceeds of approximately $475 million, and proceeds net of
underwriting fees of approximately $458 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 connection with the City Signal acquisition, the seller has an option to
require the Company to repurchase 2,016,000 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 June 1996, the Company and MCImetro entered into an agreement pursuant
to which MCImetro acquired a minority interest in the Company's Sacramento,
California network and made an additional investment in the San Jose joint
venture company. In connection with these agreements, MCImetro made additional
cash investments totaling $8.0 million. On October 10, 1996,
10
<PAGE>
MCImetro exchanged this investment along with its initial investment made in
September 1995 for 958,720 shares of the Company's common stock.
As of December 31, 1996, outstanding indebtedness under an AT&T Credit
Facility is $50.0 million. Amounts borrowed bear interest at the 90-day
commercial paper rate plus 4.0% per annum (9.46% at December 31, 1996), payable
quarterly. Terms of the AT&T Credit Facility further provide for interest-only
payments through December 31, 1997, and a six-year principal and interest payout
period thereafter. In addition, the Company has borrowed $100,000 under a $10
million Bank Credit Facility. Terms of the Bank Credit Facility provide for a
wholly-owned subsidiary of the Company to borrow up to $10 million from time to
time prior to June 30, 1997. Additional terms provide for interest-only payments
through August 31, 1997, and a 4.5 year principal and interest payout period
thereafter.
Subsequent to December 31, 1996, the Company completed a secondary offering
of 6,723,429 shares of common stock at a price of $25.00 per share. All of these
shares were sold by existing shareholders, and the Company did not receive any
proceeds from the sale of these shares. In conjunction with the offering, the
Company granted the underwriters an over-allotment option at $25.00 per share.
This option was fully exercised by the underwriters, and an additional 1,008,514
shares were issued. Gross proceeds to the Company totaled approximately $25.2
million, and proceeds net of underwriting discounts totaled approximately $24.0
million.
In June 1996, the Company formed a strategic alliance with Verio, Inc.,
formally known as World-Net Access, Inc., and has made a $20 million convertible
preferred stock investment for a 25.5% fully-diluted interest in Verio, and it
is possible that the Company may commit additional funds in furtherance of its
strategic alliance. Verio is a privately-held consolidator of ISPs. The Company
intends for both companies to seek ways to work together and provide
customer-oriented internet and intranet communications solutions.
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; (iii) the
design, construction and development of additional networks; and (iv)
acquisitions as an alternative to constructing networks, adding customers or
introducing additional services. For the years ended December 31, 1996 and 1995,
the Company's capital expenditures, primarily for installation of digital
telephone switches, expansion of existing networks, and design, construction and
development of new networks, totaled $217.2 million and $27.6 million,
respectively. Cash used for acquisitions in 1996 and 1995 totaled $4.3 million
and $13.9 million, respectively.
In response to the demand initially encountered for its services, the
Company will continue its aggressive capital deployment plans for the
development and expansion of its existing networks to allow for an increased
level of demand-driven capital spending to take full advantage of the
opportunities presented by offering a full array of local exchange services. The
Company's 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's central offices in its markets, and (ii)
more rapidly deploy switches with full capabilities for local dial tone and
switched access termination
11
<PAGE>
and origination services. The Company estimates that it will spend $400 million
during 1997 to fund these capital needs, and such amounts may be funded from the
Company's existing cash resources.
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 telecommunications equipment 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 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. However, 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. There can be no assurance that actual expenditures will not be
significantly higher or lower.
The Company intends to preserve financial flexibility in order to react to
the rapidly evolving telecommunications marketplace and new opportunities. The
Company will continue to take advantage of favorable financing arrangements,
including the sale of debt or equity securities in the public or private
markets, to maintain this flexibility.
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 plans to offer switched and enhanced
services in all of its markets by the end of 1997, 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.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brooks Fiber Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Brooks
Fiber Properties, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Brooks Fiber
Properties, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 12, 1997, except
for Note 14, which is as
of February 25, 1997
13
<PAGE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $261,880,000 $ 59,913,000
Marketable securities, at cost, market value of
$182,190,000........................................... 182,304,000 --
------------ ------------
444,184,000 59,913,000
Accounts receivable, net.................................. 13,989,000 2,003,000
Other current assets...................................... 11,989,000 1,183,000
------------ ------------
Total current assets................................... 470,162,000 63,099,000
Networks and equipment, at cost............................. 306,455,000 53,172,000
Less accumulated depreciation and amortization............ 16,114,000 3,130,000
------------ ------------
Networks and equipment, net............................... 290,341,000 50,042,000
Investment in minority-owned venture........................ 20,000,000 --
Other assets, net........................................... 99,078,000 33,469,000
------------ ------------
$879,581,000 $146,610,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,511,000 $ 4,397,000
Accrued liabilities....................................... 17,915,000 789,000
Other current liabilities................................. 10,511,000 --
------------ ------------
Total current liabilities.............................. 34,937,000 5,186,000
------------ ------------
Long-term debt, net of current portion...................... 552,810,000 43,977,000
Minority Interests.......................................... -- 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;
0 and 4,545 shares issued and outstanding............ -- 711,000
Common stock, $.01 par value, 50,000,000 shares
authorized, 29,066,139 and 1,162,800 shares issued and
outstanding............................................ 291,000 12,000
Additional paid-in capital................................ 323,850,000 --
Accumulated deficit....................................... (57,507,000) (13,664,000)
------------ ------------
Total shareholders' equity............................. 266,634,000 93,455,000
------------ ------------
$879,581,000 $146,610,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues........................................ $ 45,574,000 $ 14,160,000 $ 2,809,000
Expenses:
Service costs................................. 21,468,000 7,177,000 1,557,000
Selling, general and administrative
expenses................................... 38,596,000 11,405,000 3,966,000
Depreciation and amortization................. 16,296,000 4,118,000 663,000
------------ ------------ -----------
76,360,000 22,700,000 6,186,000
------------ ------------ -----------
Loss from operations.......................... (30,786,000) (8,540,000) (3,377,000)
Other income (expense):
Interest income............................... 16,539,000 1,608,000 95,000
Interest expense.............................. (31,186,000) (3,704,000) (693,000)
------------ ------------ -----------
Loss before minority interest................. (45,433,000) (10,636,000) (3,975,000)
Minority interests in share of loss............. 1,590,000 1,085,000 78,000
------------ ------------ -----------
Net loss...................................... $(43,843,000) $ (9,551,000) $(3,897,000)
============ ============ ===========
Net loss per share............................ $ (1.71) $ (0.49)
============ ============
Weighted average number of shares
outstanding................................ 25,627,328 19,523,584
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK CONVERTIBLE PREFERRED STOCK
------------------------------------------------- ------------------------------------------
SERIES A-1 SERIES A-2 SERIES B-1 SERIES B-2
----------------------- ----------------------- --------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994........... 396,000 $ 39,600,000 -- -- 12,000 $ 1,200,000 -- --
Subscriptions receivable, payments
and reclassifications............. -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
-------- ------------ -------- ------------ ------- ----------- ------ ---------
Balance, December 31, 1994......... 396,000 39,600,000 -- -- 12,000 1,200,000 -- --
Issuance of Series A-2 preferred
stock............................. -- -- 419,705 $ 65,596,000 -- -- -- --
Issuance of Series B-2 preferred
stock............................. -- -- -- -- -- -- 4,545 $ 711,000
Net loss........................... -- -- -- -- -- -- -- --
-------- ------------ -------- ------------ ------- ----------- ------ ---------
Balance, December 31, 1995......... 396,000 39,600,000 419,705 65,596,000 12,000 1,200,000 4,545 711,000
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 -- -- -- --
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) (12,000) (1,200,000) (4,545) (711,000)
Options exercised.................. -- -- -- -- -- -- -- --
Warrants exercised................. -- -- -- -- -- -- -- --
Conversion of minority interest in
Subsidiaries to common stock...... -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
-------- ------------ -------- ------------ ------- ----------- ------ ---------
Balance, December 31, 1996......... -- $ -- -- $ -- -- $ -- -- $ --
======== ============ ======== ============ ======= =========== ====== =========
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN SUBSCRIPTIONS ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT EQUITY
------ ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994........... 1,162,800 $ 12,000 $ -- $(35,750,000) $ (216,000) $ 4,846,000
Subscriptions receivable, payments
and reclassifications............. -- -- -- 35,750,000 -- 35,750,000
Net loss........................... -- -- -- -- (3,897,000) (3,897,000)
---------- -------- ------------ ------------- ------------ ------------
Balance, December 31, 1994......... 1,162,800 12,000 -- -- (4,113,000) 36,699,000
Issuance of Series A-2 preferred
stock............................. -- -- -- -- -- 65,596,000
Issuance of Series B-2 preferred
stock............................. -- -- -- -- -- 711,000
Net loss........................... -- -- -- -- (9,551,000) (9,551,000)
---------- -------- ------------ ------------- ------------ ------------
Balance, December 31, 1995......... 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
Warrants exercised................. -- -- -- -- -- 109,000
Initial public offering:
-- issuance of common stock....... 7,385,331 74,000 185,149,000 -- -- 185,223,000
-- 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 -- -- --
Options exercised.................. 70,474 1,000 356,000 -- -- 357,000
Warrants exercised................. 1,489,185 15,000 7,681,000 -- -- 7,696,000
Conversion of minority interest in
Subsidiaries to common stock...... 1,201,869 12,000 10,373,000 -- -- 10,385,000
Net loss........................... -- -- -- -- (43,843,000) (43,843,000)
---------- -------- ------------ ------------- ------------ ------------
Balance, December 31, 1996......... 29,066,139 $291,000 $323,850,000 $ -- $(57,507,000) $266,634,000
========== ======== ============ ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16-17
<PAGE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (43,843,000) $ (9,551,000) $ (3,897,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 16,296,000 4,118,000 663,000
Non-cash interest expense................ 29,787,000 3,814,000 135,000
Minority interests....................... (1,590,000) (1,085,000) (78,000)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable.................... (7,931,000) (593,000) (576,000)
Accounts payable and accrued
expenses............................ (384,000) 623,000 3,955,000
Other, net............................. (9,587,000) 114,000 (133,000)
------------- ------------ ------------
Net cash provided by (used in)
operating activities........... (17,252,000) (2,560,000) 69,000
------------- ------------ ------------
Cash flows from investing activities:
Purchase of networks and equipment.......... (217,230,000) (27,577,000) (6,693,000)
Purchase of marketable securities........... (358,598,000) -- --
Maturity of marketable securities........... 176,294,000 -- --
Increase in other assets.................... (11,831,000) (2,026,000) (769,000)
Payment for acquisitions, net of cash
acquired................................. (4,290,000) (13,941,000) (35,669,000)
Investment in minority-owned venture........ (20,000,000) -- --
------------- ------------ ------------
Net cash used in investing
activities..................... (435,655,000) (43,544,000) (43,131,000)
------------- ------------ ------------
Cash flows from financing activities:
Issuances of common stock................... 193,260,000 -- --
Issuance of preferred stock and
subscriptions receivable payments, net... 1,106,000 84,107,000 21,781,000
Proceeds from minority investments.......... 7,991,000 4,088,000 1,067,000
Proceeds from long-term debt................ 477,772,000 10,760,000 29,268,000
Long-term debt issuance cost................ (19,197,000) -- --
Repayment of long-term debt and capital
leases................................... (5,797,000) -- --
Other financing activities.................. (261,000) (1,733,000) (1,337,000)
------------- ------------ ------------
Net cash provided by financing
activities..................... 654,874,000 97,222,000 50,779,000
------------- ------------ ------------
Net increase in cash.......................... 201,967,000 51,118,000 7,717,000
Cash, beginning of period..................... 59,913,000 8,795,000 1,078,000
------------- ------------ ------------
Cash, end of period........................... $ 261,880,000 $ 59,913,000 $ 8,795,000
============= ============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest...... $ 1,399,000 $ 132,000 $ 408,000
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
SUPPLEMENTAL SCHEDULE
OF NON-CASH FINANCING
AND INVESTING ACTIVITIES
Significant non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of tangible assets acquired, net of
cash acquired.................................. $ 41,614,000 5,958,000 15,037,000
Fair value of intangible assets acquired.......... 36,159,000 8,323,000 20,757,000
Liabilities assumed............................... (36,028,000) (340,000) (125,000)
Common stock issued............................... (37,455,000) -- --
------------ ---------- ----------
Cash paid for acquisitions, net of cash
acquired..................................... $ 4,290,000 13,941,000 35,669,000
============ ========== ==========
Capitalized non-cash interest on network
construction projects............................. $ 1,994,000 -- --
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Brooks Fiber
Properties, Inc. (BFP) and its wholly-owned subsidiaries (the Company). The
Company, through its subsidiaries, is a leading provider of competitive local
telecommunications services in selected cities within the United States. The
Company competes with local exchange carriers by providing high quality,
integrated local telecommunications services over fiber optic digital networks
to meet the voice, data and video transmission needs of its customers. The
Company's customers are principally inter-exchange carriers (IXCs), internet
service providers (ISPs), wireless carriers, telecommunications-intensive
business, government and institutional end users, and residential customers. The
Company offers these customers technologically advanced local telecommunications
services as well as superior customer service, flexible pricing and route
diversity.
The Company was founded on November 10, 1993, by Brooks Telecommunications
Corporation (BTC) and a group of venture capital investors who, along with BTC
and management of the Company, provided initial equity capital of $40.8 million.
As the Company's founding shareholder, BTC received 1,162,800 founder's shares
of the Company's common stock and founder's warrants to purchase an additional
81,600 shares of the Company's preferred stock (convertible into 1,632,000
shares of common stock).
Pursuant to an Agreement and Plan of Merger between 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, and options and warrants
received shares of the Company's common stock, options and warrants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of all
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
The Company considers cash equivalents as all highly liquid securities
purchased with a maturity of three months or less.
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.
FINANCIAL INSTRUMENTS:
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of marketable securities and
accounts receivable. Concentrations of credit risk of marketable securities are
limited as the Company invests in short-term, investment grade securities.
CONCENTRATION OF CREDIT RISK:
For purposes of segment reporting, management believes the Company operates
in the telecommunications industry. Concentrations of credit risk with respect
to accounts receivable are limited due to the dispersion of the Company's
customer base among different industries and geographic areas and remedies
provided by terms of contracts and statutes. One long distance carrier customer
accounted for 13% and 24% of total revenues for the years ended December 31,
1996 and 1995, respectively.
20
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NETWORKS AND EQUIPMENT:
Networks and equipment are stated at cost. Costs of construction are
capitalized, including interest costs related to the installation and expansion
of the Company's networks. Leasehold improvements are amortized using the
straight-line method over their useful life or lease term, whichever is shorter.
Generally, provisions for depreciation are provided using the straight-line
method over the estimated useful lives beginning in the year an asset is put
into service as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Telecommunications networks................................. 8-25
Electronics and related equipment........................... 8
Office equipment and furniture.............................. 5-7
Leasehold improvements and other equipment.................. 5-10
Buildings................................................... 40
</TABLE>
OTHER ASSETS:
Goodwill is being amortized using the straight-line method over 25 years
from the dates of acquisition. The Company reviews the carrying amount of
goodwill periodically to determine whether any impairment has occurred in the
value of such assets. The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of SFAS No. 121 did not have a material impact on the Company's
financial position, results of operations or liquidity.
Direct incremental costs incurred in the organization and development of
new networks, including the costs associated with negotiating rights-of-way,
obtaining legal/regulatory authorizations, and developing network design, are
deferred and amortized over five years. Pre-operating costs representing
substantially all direct incremental non-development costs incurred during the
pre-operating phase of a newly constructed network are amortized over five-year
periods commencing with the start of operations.
Costs of the Company's interest rate cap arrangements purchased under the
terms of debt facilities are deferred and amortized over the contractual period
of the underlying interest rate cap arrangements.
Costs incurred in connection with securing the Company's debt facilities,
including commitment, legal and other such costs, are deferred and amortized
over the term of the financing.
REVENUE RECOGNITION:
The Company recognizes revenue on local telecommunications services in the
month such services are provided. Revenues and associated costs of facilities
management services are recognized as services are provided.
INCOME TAXES:
The Company accounts for income taxes in accordance with the
asset/liability method. Deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given the provisions of the enacted tax laws.
STOCK OPTION PLAN:
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits
21
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and later years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
LOSS PER SHARE:
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 loss per share was 25,627,328 and 19,523,584 for the years
ended December 31, 1996 and 1995, respectively. 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 the Company's common stock on May 2, 1996, of $27.00 per share during the
twelve-month period preceding the date of the Company's initial filing of the
Registration Statement for such offering have been included in the calculation
of common stock equivalent shares 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. Subsequent to this period, 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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of cash on hand and all highly liquid
securities with insignificant interest rate risk and original maturities of
three months or less at the date of acquisition. Accordingly, the carrying value
is a reasonable estimate of fair value.
MARKETABLE SECURITIES:
Marketable securities, as defined in Note 2, 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. The carrying value and fair value
of marketable securities at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
<S> <C> <C>
U. S. Treasury securities..................... $ 56,737,000 $ 56,703,000
Corporate debt securities..................... 125,567,000 125,487,000
------------ ------------
Total marketable securities................... $182,304,000 $182,190,000
============ ============
</TABLE>
22
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had unrealized gains of $4,000 and unrealized losses of
$118,000 related to the above marketable securities held at December 31, 1996.
ACCOUNTS RECEIVABLE:
Accounts receivable are reflected net of an allowance for doubtful accounts
of $740,000 and $76,000 at December 31, 1996 and 1995, respectively. The net
carrying value of accounts receivable approximates fair value due to the terms
of the underlying receivables.
INVESTMENT IN MINORITY-OWNED VENTURE:
The investment in minority-owned venture represents an investment in
convertible preferred stock of Verio, Inc., formerly known as World-Net Access,
Inc. (Verio). Verio is a development stage company, and the underlying
securities are not readily marketable. The investment is carried at cost, and
management believes there is no impairment of the underlying value of the
securities.
LONG-TERM DEBT:
As of December 31, 1996, the fair value of long-term debt approximated
carrying value.
In conjunction with certain of the long-term debt agreements, the Company
purchased interest rate cap arrangements under which, if the 90-day commercial
paper rate rises above 7.5%, the Company will receive payments to offset the
higher interest rates on long-term debt. These payments, if any, will be
recorded as reductions of interest expense. As of December 31, 1996, the Company
had notional amounts of interest rate caps totaling $4,752,000 and $30,551,000
related to contract periods from October 1996 through October 2001, and January
1997 through January 2002, respectively. Notional amounts decrease during the
contract period. As of December 31, 1996, the carrying value, net of
amortization, and fair value of the interest rate cap arrangements approximated
$1,498,000 and $469,000, respectively.
4. NETWORKS AND EQUIPMENT
Networks and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Telecommunications networks...................... $170,687,000 $30,158,000
Electronics and related equipment................ 85,050,000 20,174,000
Office equipment and furniture................... 22,625,000 2,435,000
Leasehold improvements and other equipment....... 14,456,000 405,000
Land and buildings............................... 13,637,000 --
------------ -----------
306,455,000 53,172,000
Less accumulated depreciation.................... 16,114,000 3,130,000
------------ -----------
$290,341,000 $50,042,000
============ ===========
</TABLE>
As of December 31, 1996 and 1995, networks and equipment include
$21,875,000 and $4,469,000, respectively, of networks in progress that were not
in service and, accordingly, have not been depreciated.
23
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS, NET
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Goodwill......................................... $ 65,648,000 $29,129,000
Debt issuance costs.............................. 20,437,000 1,559,000
Organization, development and pre-operating
costs.......................................... 13,756,000 2,341,000
Interest rate cap arrangements................... 1,511,000 1,511,000
Rights-of-way and other.......................... 3,604,000 581,000
------------ -----------
104,956,000 35,121,000
Less accumulated amortization.................... 5,878,000 1,652,000
------------ -----------
$ 99,078,000 $33,469,000
============ ===========
</TABLE>
Amortization charged to expense for the years ended December 31, 1996 and
1995 was $4,226,000 and $1,356,000, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
10 7/8% Senior discount notes, due March 1,
2006........................................... $273,379,000 $ --
11 7/8% Senior discount notes, due November 1,
2006........................................... 229,109,000 --
Credit Facility at a variable rate (approximately
9.46% at December 31, 1996).................... 50,000,000 43,877,000
Other long-term debt............................. 756,000 100,000
------------ -----------
553,244,000 43,977,000
Less: Current portion............................ 434,000 --
------------ -----------
$552,810,000 $43,977,000
============ ===========
</TABLE>
THE SENIOR DISCOUNT NOTES:
On February 26, 1996, the Company issued $425 million aggregate principal
amount of 10 7/8% Senior Discount Notes due March 1, 2006 (the 10 7/8% Senior
Discount Notes), and on November 7, 1996, issued $400 million aggregate
principal amount of 11 7/8% Senior Discount Notes due November 1, 2006 (the
11 7/8% Senior Discount Notes), from which the Company received gross proceeds
of $250 million and $225 million, respectively. The 10 7/8% Senior Discount
Notes and 11 7/8% Senior Discount Notes (the Senior Discount Notes) will not
require the payment of interest until March 1, 2001, and November 1, 2001,
respectively; however, the Company may elect to commence the payment of interest
at any time prior to that date. Thereafter, interest will be payable
semi-annually until maturity.
On or after March 1, 2001, and November 1, 2001, the Senior Discount Notes
will be redeemable at the option of the Company, in whole or in part from time
to time, at the following prices (expressed in percentages of the principal
amount
24
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at the stated maturity), if redeemed during the 12 months beginning March
1 and November 1, respectively, of the years indicated below, in each case
together with interest accrued to the redemption date.
<TABLE>
<CAPTION>
10 7/8% SENIOR 11 7/8% SENIOR
DISCOUNT NOTES DISCOUNT NOTES
-------------- --------------
<S> <C> <C>
2001....................................... 104.50% 105.94%
2002....................................... 103.00% 103.96%
2003....................................... 101.50% 101.98%
2004 and thereafter........................ 100.00% 100.00%
</TABLE>
In addition, under certain conditions related to a change in control of the
Company, the Company may be required to repurchase all or any part of the Senior
Discount Notes as stipulated in the note agreements. The Senior Discount Notes
are senior unsecured obligations of the Company and are subordinated to all
current and future indebtedness of the Company's subsidiaries, including trade
accounts payable.
CREDIT FACILITY:
The Company's Amended and Restated Loan and Security Agreement dated as of
October 1, 1996 (Credit Facility) with AT&T Credit Corporation (AT&T Credit)
provides financing for the acquisition and construction of telecommunications
networks, the purchase of equipment related to the construction and operation of
the networks, and working capital. As of December 31, 1996, outstanding
indebtedness under the Credit Facility is $50.0 million. Amounts borrowed bear
interest at the 90-day commercial paper rate plus 4.0% per annum, payable
quarterly. Terms of the Credit Facility further provide for interest-only
payments through December 31, 1997, and a six-year principal and interest payout
period thereafter. Borrowings are secured by the assets and stock of certain of
the Company's subsidiaries.
OTHER:
Other long-term debt includes $100,000 related to a $10 million credit
facility with a commercial bank (Bank Credit Facility) and $656,000 related to
certain capitalized leases. Terms of the Bank Credit Facility provide for a
wholly-owned subsidiary of the Company to borrow amounts up to $10 million from
time to time prior to June 30, 1997. Terms of the Bank Credit Facility further
provide for interest-only payments through August 31, 1997, a 4.5 year principal
and interest payout and final maturity of all loans no later than June 30, 2002.
The aforementioned credit agreements contain certain restrictive and
financial covenants, including limitations on the ability of the Company and its
subsidiaries to declare and pay dividends, incur additional indebtedness,
dispose of assets, issue additional capital stock, make loans and advances, and
the maintenance of certain financial ratios and minimum annualized operating
cash flow. At December 31, 1996, the Company was in compliance with the terms of
these covenants.
Maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,680,000
1999........................................................ 5,072,000
2000........................................................ 7,528,000
2001........................................................ 10,028,000
Thereafter.................................................. 527,502,000
------------
$552,810,000
============
</TABLE>
25
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS AND JOINT VENTURES
Pursuant to an Agreement and Plan of Merger between 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 the Company 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. Intangible assets of approximately
$6.4 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
related assets. 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 of such shares at a price
of $12.50 per share on or before February 1, 1998. In conjunction with the
Company's initial public offering, the holder of such shares sold 10% of such
shares. Accordingly, approximately 2.0 million shares remain subject to
redemption.
On March 15, 1995, the Company acquired 100% of the assets of PSC of
Oklahoma (PSO), a 105-mile competitive access network in Tulsa, Oklahoma.
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. Also, effective September 1, 1996, the Company acquired 100% of
the stock of Bittel Telecommunications Corporation (Bittel), a switch-based
reseller of long distance services primarily to customers in the San Francisco
and Los Angeles, California areas. In connection with the aforementioned
acquisitions, the Company has an obligation totaling $10 million due during
January, 1997, which is included in other current liabilities at December 31,
1996.
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 following unaudited condensed pro forma
information presents the results of operations of the Company for the years
ended December 31, 1996 and 1995 as if the above transactions had occurred on
January 1, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue......................................... $ 54,515,000 $ 34,844,000
Loss before minority interest................... $(46,410,000) $(20,125,000)
</TABLE>
The unaudited pro forma information is provided for informational purposes
only and is not necessarily indicative of the results of operations that would
have occurred had the purchases been made on January 1, 1995, or of the future
anticipated results of operations of the combined companies.
In June 1996, the Company formed a strategic alliance with Verio, Inc.,
formerly known as World-Net Access, Inc. (Verio), and to date has made a $20
million convertible preferred stock investment for a 25.5% fully-diluted
interest in Verio. The investment in Verio is classified as Investment in
Minority-Owned Venture on the Company's consolidated balance sheet. Verio is a
privately-held consolidator of ISPs.
On October 24, 1996, the Company and MaineCom Services, Inc. (MaineCom), a
subsidiary of Central Maine Power Company, entered into a letter of intent to
form a joint venture company, to be owned 60% by the Company and 40% by
MaineCom, for the purposes of constructing, owning, operating and developing
networks initially in Portland, Maine and Nashua and Manchester, New Hampshire
and other markets in Maine and New Hampshire as may be agreed upon by the
Company and MaineCom in the future.
26
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY
COMMON STOCK:
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 of
7,385,331 shares of common stock at a price of $27.00 per share. Gross proceeds
from this offering totaled approximately $199.4 million, and proceeds net of
underwriting discounts, advisory fees and expenses totaled approximately $185.2
million.
The Company's authorized common stock consists of 50,000,000 shares, of
which 49,669,100 shares are designated as voting common stock and 330,900 shares
are designated as non-voting stock. No shares of non-voting common stock are
outstanding. A total of 14,358,155 authorized shares of common stock, which have
not been reserved for issuance upon exercise of warrants and options and under
employee stock plans are available for issuance from time to time and under such
circumstances as may be determined by the Board of Directors.
In connection with the Agreement and Plan of Merger between the Company and
BTC on January 2, 1996, 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.
In June 1996, the Company and MCImetro Access Transmission Services, Inc.
(MCImetro) entered into an agreement pursuant to which MCImetro acquired a 15%
interest in the Company's Sacramento, California network for $4.5 million, and
invested an additional $3.5 million in the Company's majority-owned San Jose,
California joint venture company, formed in September 1995 between the Company
and MCImetro to operate and expand the Company's existing networks in San Jose
and its environs. 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 and its September 1995 investment in the San Jose
joint venture company for 958,720 shares of the Company's common stock.
On November 12, 1996, AT&T Credit exchanged the agreed value of its
minority investments in certain subsidiaries of the Company made in connection
with borrowings under the Credit Facility for an aggregate of 234,260 shares of
the Company's common stock.
Stock warrant activity for the years ended December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
NUMBER PRICE PER SHARE
------ ---------------
<S> <C> <C>
Balance, January 1, 1995........................ 1,632,000 $11.00
Granted....................................... 192,340 $8.25
----------
Balance, December 31, 1995...................... 1,824,340 $8.25-$11.00
Issued........................................ 814,520 $11.35-$31.04
Exercised..................................... (2,228,940) $8.25-$22.17
Canceled...................................... (60) $8.25
----------
Balance, December 31, 1996...................... 409,860 $11.35-$31.04
========== =============
</TABLE>
PREFERRED STOCK:
The Company's authorized preferred stock consists of 1,040,012 shares, of
which 50,000 shares are designated Series C Junior Participating Preferred Stock
and reserved for issuance in connection with the Rights described below. The
remainder of the preferred stock has the status of authorized and unissued
shares of preferred stock subject to issuance from time to time as a new series
of preferred stock created by resolution of the Board of Directors. At December
31, 1996, there was no preferred stock outstanding.
27
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCKHOLDER RIGHTS PLAN:
In February 1996, the Company adopted a Shareholders Protection Rights Plan
(Rights Plan) and distributed a dividend of one Preferred Stock Purchase Right
(Right) (collectively the Rights). The Rights expire on February 28, 2006. The
Rights generally will be exercisable and transferable apart from the common
stock only after the tenth day following public disclosure that a person or
group has acquired beneficial ownership of 20% or more of the voting power of
the Company's stock or the tenth business day after the date on which a person
commences a tender or exchange offer upon consummation of which such person or
group would beneficially own 20% or more of the voting power of the Company's
stock of the Company. Thereafter, each holder of a Right will be entitled to
purchase shares of common stock of the Company having a value equal to twice the
Right's exercise price.
In addition, if, after any person or group has become a 20%-or-more
stockholder, the Company is involved in a merger or other business combination
transaction with another person or group in which its common stock is changed or
converted, or sells 50% or more of its assets or earning power to another person
or group, each Right will entitle its holder to purchase shares of common stock
of such other person or group having a value of twice the Right's exercise
price.
At any time prior to the time the Rights become exercisable, the Company is
generally entitled to redeem the Rights at $.001 per Right.
9. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN:
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. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant and generally vest over a period of three
years from the date of grant.
Stock option activity for the Plan for the years ended December 31, 1996,
and 1995 is as follows:
<TABLE>
<CAPTION>
PRICE PER
NUMBER SHARE
------ ---------
<S> <C> <C>
Balance, January 1, 1994.......................... 580,000 $ 4.00
Granted......................................... 460,000 $ 4.00
Canceled........................................ (120,000) $ 4.00
---------
Balance, January 1, 1995.......................... 920,000 $ 4.00
Granted......................................... 875,000 $ 4.00-$ 6.60
Canceled........................................ (143,340) $ 4.00-$ 6.60
---------
Balance, December 31, 1995........................ 1,651,660 $ 4.00-$ 6.60
Granted......................................... 1,313,000 $12.50-$33.75
Exercised....................................... (70,474) $ 4.00-$ 6.60
Canceled........................................ (144,000) $ 6.00-$12.50
---------
Balance, December 31, 1996........................ 2,750,186 $ 4.00-$33.75
=========
</TABLE>
28
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net loss and net loss per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss -- as reported.......................... $(43,843,000) $(9,551,000)
Net loss -- pro forma............................ (46,825,000) (9,847,000)
Net loss per share -- as reported................ (1.71) (0.49)
Net loss per share -- pro forma.................. (1.83) (0.50)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of three years and compensation cost for options granted prior to January
1, 1995 is not considered.
The fair value of each options grant for both 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants: expected volatility of
37.2%, risk-free interest rate of 6.1%, expected life of 5 years; and an
expected dividend yield of 0.0%.
The pro forma information is provided for informational purposes only and
is not necessarily indicative of the results of operations that would have
occurred or of the future anticipated results of operations of the Company.
EMPLOYEE STOCK PURCHASE PLAN:
In February 1996, the Company established an Employee Stock Purchase Plan
(the ESPP) to provide employees of the Company with an opportunity to purchase
common stock through payroll deductions. Under the ESPP, up to 500,000 shares of
common stock have been reserved for issuance, subject to certain antidilution
adjustments. The ESPP became effective at the time of the Company's initial
public offering of common stock in May 1996. The first offering period under the
ESPP is from May 1996 through April 30, 1997. The Board of Directors will have
authority to authorize up to four annual offering periods thereafter. The ESPP
terminates on April 30, 2001. Initially, the amount of authorized payroll
deductions will be not less than 1% nor more than 10% of an employee's cash
compensation during an offering period, but not more than $25,000 per year.
401(K) PLAN:
The Company has a 401(k) Plan which covers substantially all employees of
the Company. Employees of the Company who are 21 years of age or older are
eligible to participate in the 401(k) Plan upon completion of twelve months of
service, at which time they may voluntarily contribute a percentage of
compensation. Participants are eligible to receive Company matching
contributions each year in an amount up to 50% of the participant's contribution
up to a maximum of 4% of such participant's annual compensation. The Company's
matching contributions for 1996 and 1995 were $181,000 and $69,000,
respectively.
10. RELATED PARTY TRANSACTIONS
During November 1993, the Company entered into a management agreement with
BTC pursuant to which BTC agreed to provide certain services to the Company. The
management agreement commenced upon the Company's first acquisition (January 31,
1994). The management agreement provided for payment by the Company to BTC of a
fee equal to $250,000 per year adjusted annually beginning in 1996 and
subsequent years for inflation, plus the Company's proportionate share of rent
and support services. Furthermore, BTC charged BFP for consulting services and
certain expenses incurred, plus the Company's proportionate share of rent and
support services. Aggregate expenses related to services provided by BTC during
29
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 totaled $1,478,000. Concurrent with the Agreement and Plan of Merger
between BTC and the Company on January 2, 1996, the management agreement was
canceled.
11. INCOME TAXES
The Company files its income tax return on a consolidated basis. No
provision for income taxes was recorded for 1996, 1995, or for any prior
periods. A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for the entire portion of the net deferred
income tax asset. The valuation allowance increased by $20.6 million and $4.4
million for 1996 and 1995, respectively.
The actual income tax expense for the years ended December 31, 1996, 1995
and 1994 differs from the "expected" income tax expense, computed by applying
the U. S. Federal corporate tax rate of 35% to income before income taxes as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax
expense.......................... $(15,345,000) $(3,343,000) $(1,364,000)
Non-utilization of net operating
loss............................. 14,150,000 2,691,000 1,272,000
Amortization of goodwill........... 579,000 258,000 60,000
Minority interest.................. 557,000 380,000 27,000
Other, net......................... 59,000 14,000 5,000
------------ ----------- -----------
$ -- $ -- $ --
============ =========== ===========
</TABLE>
As of December 31, 1996 and 1995, temporary differences and carryforwards
that give rise to deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Tax loss carryforwards......................... $ 35,040,000 $ 6,358,000
Other.......................................... 611,000 52,000
------------ -----------
Gross deferred income tax assets............... 35,651,000 6,410,000
Less valuation allowance....................... (26,573,000) (6,011,000)
------------ -----------
Net deferred income tax asset.................. 9,078,000 399,000
Deferred income tax liabilities:
Tangible and intangible assets................. (9,078,000) (399,000)
Net deferred income tax liabilities............ (9,078,000) (399,000)
------------ -----------
Net deferred income taxes...................... $ -- $ --
</TABLE>
As of December 31, 1996, net operating loss carryforwards totaling $87.6
million expire in years 2008-2012 if not utilized in future income tax returns.
30
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space and other equipment at various locations
under operating leases. Rent expense totaled $3,150,000 and $688,000 for 1996
and 1995, respectively. Future minimum rental payments under non-cancelable
operating leases at December 31, 1996, were as follows:
<TABLE>
<S> <C>
1997........................................................ $ 4,328,000
1998........................................................ 3,602,000
1999........................................................ 3,252,000
2000........................................................ 2,637,000
2001........................................................ 2,343,000
Thereafter.................................................. 9,508,000
-----------
Total minimum lease payments................................ $25,670,000
</TABLE>
On September 22, 1995, GST Tucson Lightwave, Inc. (Lightwave) was permitted
to intervene in litigation originally filed by Brooks Fiber Communications of
Tucson, Inc., a wholly-owned subsidiary of the Company (BFC Tucson). On October
2, 1995, Lightwave filed a counterclaim against BFC Tucson, the Company and
Tucson Electric Power Company (TEP) charging BFC Tucson, the Company and TEP
with violations of antitrust laws, all of which alleged violations stem from an
agreement between BFC Tucson and TEP that allowed BFC Tucson exclusive rights,
for one year, to utilize certain of TEP's rights of way. The original causes of
action have been settled; however, the counterclaim by Lightwave is currently
still pending. The counterclaim seeks treble damages, attorneys' fees, costs
(all in an unspecified amount) and such other relief as the court deems proper.
The Company believes the claims are without merit and intends to defend
vigorously against this action. The Company believes that resolution of the
matter will not have a material adverse effect on the consolidated financial
condition or results of operations of the Company.
13. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
The following table presents unaudited quarterly operating results for 1995
and 1996. The Company believes that all necessary adjustments have been included
in the amounts stated below to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and notes thereto.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year or predictive of future periods.
<TABLE>
<CAPTION>
1995 1996
--------------------------------- ------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
--- --- --- --- --- --- --- ---
($ IN 000S)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. 3,023 3,489 3,797 3,851 6,795 8,409 12,943 17,427
Loss from
operations......... (1,644) (1,805) (2,181) (2,910) (5,121) (7,074) (7,605) (10,986)
Other expense, net... (712) (825) (396) (163) (2,043) (3,296) (2,837) (6,471)
------ ------ ------ ------ ------ ------- ------- -------
Loss before minority
interest........... (2,356) (2,630) (2,577) (3,073) (7,164) (10,370) (10,442) (17,457)
Minority interest.... 142 176 271 496 523 615 451 --
------ ------ ------ ------ ------ ------- ------- -------
Net loss............. (2,214) (2,454) (2,306) (2,577) (6,641) (9,755) (9,991) (17,457)
====== ====== ====== ====== ====== ======= ======= =======
Loss per share
applicable to
common
shareholders....... (.11) (.13) (.12) (.13) (.35) (.40) (.35) (.58)
====== ====== ====== ====== ====== ======= ======= =======
EBITDA(1)............ (899) (797) (1,061) (1,665) (2,693) (3,908) (3,340) (4,549)
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
- ---------------
(1) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and minority interests. EBITDA is commonly used
in the communications industry to analyze companies on the basis of
operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for the periods. See Consolidated Statement of Cash
Flows.
31
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS
On February 4, 1997, the Company completed a secondary offering of
6,723,429 shares of common stock at a price of $25.00 per share. All of the
6,723,429 shares offered were sold by existing shareholders of the Company, and
the Company did not receive any proceeds from the sale of these shares. In
conjunction with the offering, the underwriters were granted an over-allotment
option by the Company to purchase additional shares at $25.00 per share. This
option was fully exercised by the underwriters, and an additional 1,008,514
shares were issued by the Company. Gross proceeds to the Company from this
offering totaled approximately $25.2 million, and proceeds net of underwriting
discounts totaled approximately $24.0 million.
On February 7, 1997, the Company signed definitive agreements to acquire
100% of the stock of certain companies related to Phoenix Fiberlink, Inc.
(Phoenix), a provider of competitive access and internet services in Utah and
Nevada. The definitive agreements provide for the purchase price to be paid
through the issuance by the Company of an aggregate of 600,000 shares of common
stock valued at current market value and cash. The transaction is subject to
regulatory approvals.
On February 25, 1997, the Company and MaineCom Services, Inc. (MaineCom), a
subsidiary of Central Maine Power Company, formed a joint venture company, owned
60% by the Company and 40% by MaineCom, for the purposes of constructing,
owning, operating and developing networks initially in Portland, Maine, and
Nashua and Manchester, New Hampshire, and other markets in Maine and New
Hampshire as may be agreed upon by the Company and MaineCom in the future.
32
<PAGE>
EXHIBIT 21.1
BROOKS FIBER PROPERTIES, INC.
AND ITS SUBSIDIARIES
NAME OF CORPORATION DOMESTIC FOREIGN
- ------------------------------------------------------ ----------- -------------
ALD Communications, Inc. California Arizona
Florida
Illinois
Maryland
Michigan
Minnesota
Missouri
New York
Oregon
Texas
Washington
Bittel Telecommunications Corporation California Arizona
California
D.C.
Florida
Georgia
Hawaii
Illinois
Kansas
Maine
Maryland
Michigan
Missouri
Nevada
New Jersey
New York
Oklahoma
Oregon
Texas
Utah
Washington
Brooks Fiber Properties, Inc. Delaware California
Missouri
BFC Communications, Inc. Nevada California
Missouri
Brooks Fiber Communications-LD, Inc. Nevada California
Missouri
Brooks Fiber Communications-Midwest, Inc. Delaware Missouri
Brooks Fiber Communications-Northeast, Inc. Delaware Missouri
Brooks Fiber Communications of Arkansas, Inc. Delaware Missouri
Arkansas
Brooks Fiber Communications of Bakersfield, Inc. Delaware Missouri
California
Brooks Fiber Communications of California, Inc. Delaware Missouri
Brooks Fiber Communications of Connecticut, Inc. Delaware Missouri
Connecticut
Brooks Fiber Communications of Fresno, Inc. Delaware Missouri
California
Brooks Fiber Communications of Massachusetts, Inc. Delaware Missouri
Massachusetts
Brooks Fiber Communications of Michigan, Inc. Michigan Missouri
Brooks Fiber Communications of Mississippi, Inc. Delaware Missouri
Mississippi
Brooks Fiber Communications of Missouri, Inc. Delaware Kansas
Missouri
Brooks Fiber Communications of Nevada, Inc. Delaware Missouri
Nevada
Brooks Fiber Communications of New England, Inc. Delaware Missouri
Brooks Fiber Communications of New Mexico, Inc. Delaware Missouri
New Mexico
Brooks Fiber Communications of New York, Inc. Delaware Missouri
New York
Brooks Fiber Communications of Ohio, Inc. Delaware Missouri
Ohio
Brooks Fiber Communications of Oklahoma, Inc. Delaware Missouri
Oklahoma
Brooks Fiber Communications of Rhode Island, Inc. Delaware Missouri
Rhode Island
Brooks Fiber Communications of Sacramento, Inc. Nevada Missouri
California
Brooks Fiber Communications of San Jose, Inc. Nevada Missouri
California
Brooks Fiber Communications of Stockton, Inc. Delaware Missouri
California
Brooks Fiber Communications of Tennessee, Inc. Delaware Missouri
Tennessee
Brooks Fiber Communications of Texas, Inc. Delaware Missouri
Texas
Brooks Fiber Communications of Tulsa, Inc. Delaware Missouri
Oklahoma
B.T.C. Real Estate Investments, Inc. Missouri
BTC Transportation, Inc. Delaware
Fibercom of Missouri, Inc. Missouri
GLA International, Inc. Missouri
J.B. Telecom, Inc. Missouri
Silicon Valley Fiber, L.L.C. Delaware California
Missouri
Tenant Network Services, Inc. California Missouri
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
The Board of Directors and Shareholders
Brooks Fiber Properties, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos. 333-03309 and 333-03311) of Brooks Fiber Properties, Inc. of our
report dated February 12, 1997, except for Note 14, which is as of February 25,
1997, relating to the consolidated balance sheets of Brooks Fiber Properties,
Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the fiscal years in the three-year period ended December 31,
1996 and the related schedule, which report appears in the 1996 annual report on
Form 10-K of Brooks Fiber Properties, Inc.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 12, 1997, except for Note 14,
which is as of February 25, 1997
<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 STATEMENTS.
</LEGEND>
<CIK> 0000915509
<NAME> BROOKS FIBER PROPERTIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 261,880,000
<SECURITIES> 182,304,000
<RECEIVABLES> 13,989,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 470,162,000
<PP&E> 306,455,000
<DEPRECIATION> 16,114,000
<TOTAL-ASSETS> 879,581,000
<CURRENT-LIABILITIES> 34,937,000
<BONDS> 552,810,000
25,200,000
0
<COMMON> 291,000
<OTHER-SE> 266,634,000
<TOTAL-LIABILITY-AND-EQUITY> 879,581,000
<SALES> 45,574,000
<TOTAL-REVENUES> 45,574,000
<CGS> 0
<TOTAL-COSTS> 76,360,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,647,000
<INCOME-PRETAX> (43,843,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,843,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,843,000)
<EPS-PRIMARY> (1.71)
<EPS-DILUTED> (1.71)
</TABLE>
