SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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
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(State or other jurisdiction of incorporation or organization)
43-1656187
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(I.R.S. Employer Identification No.)
425 Woods Mill Road South, Suite 300, St. Louis, Missouri 63017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-878-1616
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Shares of Common Stock, par value $.01, outstanding at May 7, 1997: 37,965,465.
Exhibit Index is on page 21.
1
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BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1997 5
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 18
PART II - OTHER INFORMATION
Item 2. Changes in Securities 19
Item 6. Exhibit(s) and Reports on Form 8-K 19
Signatures 20
2
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Balance Sheets
<CAPTION>
March 31, 1997 December 31, 1996
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 192,169,000 $ 261,880,000
Marketable securities, at cost .............................................. 156,705,000 182,304,000
----------------- -----------------
348,874,000 444,184,000
Accounts receivable, net .................................................... 18,420,000 13,989,000
Other current assets ........................................................ 6,977,000 11,989,000
----------------- -----------------
Total current assets ............................................. 374,271,000 470,162,000
NETWORKS AND EQUIPMENT, at cost ................................................... 406,569,000 306,455,000
Less accumulated depreciation and amortization .............................. 22,875,000 16,114,000
----------------- -----------------
NETWORKS AND EQUIPMENT, net ....................................................... 383,694,000 290,341,000
INVESTMENT IN MINORITY-OWNED VENTURE .............................................. 20,000,000 20,000,000
OTHER ASSETS, net ................................................................. 145,023,000 99,078,000
----------------- -----------------
$ 922,988,000 $ 879,581,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 31,473,000 $ 6,511,000
Accrued liabilities ......................................................... 13,282,000 17,915,000
Other current liabilities ................................................... 1,032,000 10,511,000
----------------- -----------------
Total current liabilities ........................................ 45,787,000 34,937,000
----------------- -----------------
LONG-TERM DEBT, net of current portion ............................................ 566,510,000 552,810,000
MINORITY INTERESTS ................................................................ 3,452,000 --
COMMON STOCK, subject to redemption, $.01 par value,
2,016,000 shares issued and outstanding ..................................... 25,200,000 25,200,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized,
31,316,179 and 29,066,139 shares issued and outstanding ................... 313,000 291,000
Additional paid-in capital .................................................. 363,899,000 323,850,000
Accumulated deficit ......................................................... (82,173,000) (57,507,000)
----------------- -----------------
Total shareholders' equity ....................................... 282,039,000 266,634,000
----------------- -----------------
$ 922,988,000 $ 879,581,000
================= =================
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended March 31
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Revenues ......................................... $ 20,550,000 $ 6,795,000
Expenses:
Service costs ............................... 11,003,000 2,868,000
Selling, general & administrative expenses .. 15,852,000 6,621,000
Depreciation and amortization ............... 8,736,000 2,427,000
--------------- ---------------
35,591,000 11,916,000
--------------- ---------------
Loss from operations .................. (15,041,000) (5,121,000)
Other income (expense):
Interest income ............................. 5,072,000 1,793,000
Interest expense ............................ (14,705,000) (3,835,000)
--------------- ---------------
Loss before minority interest ......... (24,674,000) (7,163,000)
Minority interest in share of loss ............... 8,000 523,000
--------------- ---------------
Net loss .............................. $ (24,666,000) $ (6,640,000)
=============== ===============
Pro forma loss per common and common
equivalent share ............................ $ (0.77) $ (0.34)
=============== ===============
Pro forma weighted average number of
shares outstanding .......................... $ 32,171,019 $ 19,523,584
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<CAPTION>
Common Stock Additional Total
----------------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ..... 29,066,139 $ 291,000 $ 323,850,000 $ (57,507,000) $ 266,634,000
Issuance of common stock in
connection with secondary
offering, net .............. 1,008,514 10,000 23,211,000 -- 23,221,000
Issuance of common stock in
connection with acquisitions 600,000 6,000 15,722,000 -- 15,728,000
Options exercised .............. 641,526 6,000 1,116,000 -- 1,122,000
Net loss ....................... -- -- -- (24,666,000) (24,666,000)
------------- ------------- ------------- ------------- -------------
Balance, March 31, 1997 ........ 31,316,179 $ 313,000 $ 363,899,000 $ (82,173,000) $ 282,039,000
============= ============= ============= ============= =============
See accompanying notes to consolidated financial statements
</TABLE>
5
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended March 31
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (24,666,000) $ (6,640,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 8,736,000 2,428,000
Non-cash interest expense .......................................... 13,480,000 3,754,000
Minority interests ................................................. (8,000) (523,000)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable ........................................... (4,420,000) (382,000)
Accounts payable and accrued expenses ......................... 6,529,000 (1,830,000)
Other, net .................................................... 10,781,000 1,253,000
--------------- ---------------
Net cash provided by (used in) operating activities ....... 10,432,000 (1,940,000)
--------------- ---------------
Cash flows from investing activities:
Purchase of networks and equipment ..................................... (82,505,000) (15,577,000)
Purchase of marketable securities ...................................... (53,902,000) (25,154,000)
Maturity of marketable securities ...................................... 79,500,000 --
Increase in other assets ............................................... (4,497,000) (2,159,000)
Payment for acquisitions, net of cash acquired ......................... (46,273,000) 1,285,000
--------------- ---------------
Net cash used in investing activities ..................... (107,677,000) (41,605,000)
--------------- ---------------
Cash flows from financing activities:
Issuance of common stock, net .......................................... 24,343,000
Issuance of preferred stock and subscriptions
receivable payments, net ............................................. 997,000
Minority investment in subsidiary ...................................... 3,460,000 --
Proceeds from long-term debt, net ...................................... -- 249,917,000
Repayment of long-term debt and capital leases, net .................... (95,000) (3,233,000)
Other financing activities ............................................. (174,000) (10,253,000)
--------------- ---------------
Net cash provided by financing activities ................. 27,534,000 237,428,000
--------------- ---------------
Net increase (decrease) in cash ........................... (69,711,000) 193,883,000
Cash, beginning of period ................................................... 261,880,000 59,913,000
--------------- ---------------
Cash, end of period ......................................................... $ 192,169,000 $ 253,796,000
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............................... $ 1,225,000 $ 58,000
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
6
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BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheet of Brooks Fiber Properties, Inc. ("BFP"
or the "Company") at December 31, 1996 was obtained from the Company's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and, in the opinion of management,
contain all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation. Operating results for the
three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The
Company's accounting policies and certain other disclosures are set
forth in the notes to the Company's audited consolidated financial
statements as of and for the year ended December 31, 1996.
2. CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents
consist primarily of cash on hand and highly liquid securities with
insignificant interest-rate risk and original maturities of three
months or less at date of acquisition.
3. MARKETABLE SECURITIES
Marketable securities consist of treasury bills and notes, commercial
paper, and repurchase agreements with maturities beyond three months
but less than twelve months. Marketable securities are stated at cost,
adjusted for discount accretion and premium amortization. The
securities in the Company's portfolio are classified as "held to
maturity" as management has the intent and ability to hold those
securities to maturity.
4. ACQUISITIONS
Effective February 1, 1997, the Company acquired 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 purchase price was paid through the issuance by the Company
of an aggregate of 600,000 shares of common stock valued at current
market value and cash.
7
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The above acquisition was 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 date of acquisition. Intangible assets
of $42.4 million were recorded as a result of this acquisition.
On February 25, 1997, the Company acquired a 60% interest in a company
formed by MaineCom Services (MaineCom), a subsidiary of Central Maine
Power Co., 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. The
Company has contributed approximately $5.2 million for its 60%
interest; MaineCom's investment of approximately $3.5 million is
reflected as a minority interest investment.
5. NETWORKS AND EQUIPMENT
Networks and equipment consist of the following:
March 31, December 31,
1997 1996
------------ ------------
Telecommunications networks................ $223,663,000 $170,687,000
Electronic and related equipment........... 123,973,000 85,050,000
Office equipment and furniture............. 26,652,000 22,625,000
Leasehold improvements and other equipment. 15,652,000 14,456,000
Land and buildings......................... 16,629,000 13,637,000
------------ ------------
406,569,000 306,455,000
Less accumulated depreciation.............. 22,875,000 16,114,000
------------ ------------
$383,694,000 $290,341,000
============ ============
As of March 31, 1997 and December 31, 1996, networks and equipment
include $32,747,000 and $21,875,000, respectively, of networks in
progress that are not in service and, accordingly, have not been
depreciated. In addition, for the three months ended March 31, 1997,
interest totaling $987,000 has been capitalized in connection with the
Company's network construction projects.
8
<PAGE>
6. OTHER ASSETS
Other assets consist of the following:
March 31, December 31,
1997 1996
------------ -------------
Goodwill.................................. $109,151,000 $ 65,648,000
Debt issuance costs....................... 20,588,000 20,437,000
Organization, development, and
pre-operating costs................... 17,272,000 13,756,000
Interest rate cap arrangements............ 1,511,000 1,511,000
Rights-of-way and other................... 4,376,000 3,604,000
------------ -------------
152,898,000 104,956,000
Less accumulated amortization............. 7,875,000 5,878,000
------------ -------------
$145,023,000 $ 99,078,000
============ =============
7. SHAREHOLDERS' EQUITY
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
and expenses totaled approximately $23.2 million.
8. STOCK OPTIONS AND WARRANTS
The Company's 1993 Stock Option Plan (the "1993 Plan") authorizes the
granting of options and stock appreciation rights covering up to
3,400,000 shares of common stock. On February 18, 1997, the
Compensation Committee of the Board of Directors adopted and approved,
subject to stockholder approval, the Company's 1997 Stock Incentive
Plan which authorizes the issuance of an additional 3,000,000 shares of
common stock; stockholders approval was subsequently obtained at the
1997 Annual Meeting of Stockholders on April 29, 1997. 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.
9
<PAGE>
Stock option activity for the 1993 Plan for the three months ended
March 31, 1997 is as follows:
Number Price per Share
-------------- ------------------------
Balance, December 31, 1996... 2,750,186 $4.00 - $33.75
Granted............. 509,808 $25.50 - $25.625
Exercised........... (641,526) $4.00 - $12.50
Canceled............ (163,427) $4.00 - $11.35
---------
Balance, March 31, 1997...... 2,455,041 $4.00 - $33.75
=========
There was no stock warrant activity during the three months ended March
31, 1997. At March 31, 1997, outstanding warrants totaled 409,860 at
prices per share ranging from $11.35 to $31.04. On March 11, 1997, the
Board of Directors of the Company approved a one-year extension of the
expiration dates of stock warrants covering an aggregate of 345,600
shares of common stock which otherwise were scheduled to expire on
various dates from March 31, 1997, through May 31, 1997.
9. PRO FORMA LOSS PER SHARE
Pro forma loss per share has been computed using the number of shares
of common stock and common stock equivalents outstanding. The weighted
average number of shares used in computing pro forma loss per share was
32,171,019 for the three-month period ended March 31, 1997, and
19,523,584 for the three-month period ended March 31, 1996. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
shares issued and stock options and warrants granted at prices below
the initial public offering price of $27.00 per share during the
twelve-month period preceding the date of the Company's initial filing
of the Registration Statement related to such initial public offering
(May 2, 1996) have been included in the calculation of common stock
equivalent shares for the three months ended March 31, 1996, using the
treasury stock method, as if they were outstanding for the entire
three-month period. For the three months ended March 31, 1997, 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.
10. COMMITMENTS AND CONTINGENCIES
During September 1995, GST Tucson Lightwave, Inc. ("Lightwave") was
permitted to intervene in litigation originally filed by Brooks Fiber
Communications of Tucson, Inc. a wholly-owned subsidiary of BFP ("BFC
Tucson"). Lightwave filed a counterclaim against BFC Tucson, BFP, and
Tucson Electric Power Company ("TEP") charging BFC Tucson, BFP, and TEP
with violations of antitrust laws, all of which stem from an agreement
between BFC Tucson and TEP that allowed BFC Tucson exclusive rights,
for
10
<PAGE>
one year, to utilize certain of TEP's rights-of-way. The original
causes of the action have been settled, however, the counterclaim by
Lightwave is currently still pending. The Company believes the claim to
be without merit and intends to vigorously defend against this action.
The Company believes that resolution of the matter will not have a
material adverse effect on the financial condition or results of
operations of the Company.
11. SUBSEQUENT EVENTS
Pursuant to definitive agreements dated as of April 1, 1997, with
Century Telephone Enterprises, Inc. for the acquisition of 100% of the
stock of Metro Access Networks, Inc. (MAN), a competitive local
exchange carrier with networks in operation or under construction in
Dallas, Fort Worth, Houston, San Antonio, Austin, Corpus Christi, and
Waco, Texas, the Company completed the acquisition of MAN on May 5,
1997. The purchase price was paid by the issuance of approximately 4.6
million shares of common stock and by payments of approximately $6.5
million in cash. The following unaudited condensed pro forma
information presents the results of operations of the Company for the
three months ended March 31, 1997, as if the above transaction had
occurred on January 1, 1997:
Revenue........................ $21,780,000
Loss before minority interest.. ($28,163,000)
On April 29, 1997, the Company's Restated Certificate of Incorporation
was amended to, among other things, increase the authorized number of
shares of common stock from 50 million shares to 150 million shares.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's condensed Consolidated Financial Statements and Notes thereto
included herewith, and with the Company's Management's Discussion and Analysis
of Financial Condition and Results of Operations and audited consolidated
financial statements and notes thereto as of and for the
year ended December 31, 1996.
OVERVIEW
The Company is a leading facilities-based provider of competitive local
telecommunications services, commonly referred to as a competitive local
exchange carrier (CLEC), 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 incumbent local exchange carriers (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 March 31, 1997, the Company had networks in operation or
under construction in a total of 37 U. S. cities (and the acquisition of Metro
Access Networks, Inc. in the second quarter has increased the total to 44
cities). The Company plans to expand its network operations to have systems in
operation or under construction in a total of 50 cities by the end of 1998. As
of March 31, 1997, the Company had a total of 21 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 in all of its operating
networks by the end of the second quarter of 1997. The Company is also expanding
its capabilities to provide flexible enhanced services that compliment 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 currently
operating networks by the end of 1997.
12
<PAGE>
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, the
Company will be MCImetro's preferred provider of certain local access services
in a number of the Company's markets. Also during February 1997, the Company and
AT&T Communications, Inc. (AT&T Communications), a wholly-owned subsidiary of
AT&T Corp. (AT&T), announced the first national agreement between AT&T and a
CLEC, 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
agreement represents a further expansion of the Company's relationship with AT&T
and provides for origination and termination of customer calls to be completed
through the Company's networks nationwide, thus bypassing the ILEC. 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.
In February 1997, the Company acquired 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.
Also in February 1997, the Company acquired a 60% interest in a company formed
by MaineCom Services (MaineCom), a wholly-owned subsidiary of Central Maine
Power Co., 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.
As of April 1, 1997, the Company signed a definitive agreement with Century
Telephone Enterprises, Inc. for the acquisition of Metro Access Networks, Inc.
(MAN), a CLEC with networks in operation or under construction in Dallas, Fort
Worth, Houston, San Antonio, Austin, Corpus Christi and Waco, Texas. On May 5,
1997, this acquisition was completed.
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.
13
<PAGE>
The following table provides selected statistical and financial data for the
Company as of the dates indicated:
As of March 31,
---------------------- Percentage
1997 1996 Change
---------- ---------- ----------
Cities in operation ........................ 26 13 100%
Cities under construction .................. 11 12 -8%
Buildings connected - on-net ............... 1,071 495 116%
Buildings connected - off-net .............. 1,739 -- NM
Route miles ................................ 1,253 507 147%
Fiber miles ................................ 97,200 26,659 265%
Switches installed ......................... 21 3 600%
CLEC lines in service ...................... 36,075 5,944 507%
VGE circuits ............................... 668,494 165,122 305%
Number of employees ........................ 1,054 456 131%
Total Assets
(dollars in thousands) ..................... $ 922,988 $ 449,135 106%
========== ========== ==========
- ---------------
NM - Not meaningful
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUE
The Company's revenues increased to $20.6 million for the three months ended
March 31, 1997 from $6.8 million for the three months ended March 31, 1996, an
increase of 203%. 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 26 from 13 in the first quarter of 1997 and 1996,
respectively, as well as increased utilization of the Company's network
facilities arising from the sales of additional services to current and new
customers. A significant contributor to the overall revenue growth has been the
continued growth of local switched service revenues. Annualized monthly local
switched service revenues increased to $22.2 million based on March 1997
revenues from $17.4 million based on December 1996 revenues. Local exchange
services revenues for the quarter ended March 31, 1997, totaled $5.3 million as
compared to $.7 million for the quarter ended March 31, 1996. The increase in
switched service revenue reflects continued growth in the Michigan markets,
where the Company has the most experience in providing switched service, as well
as significant growth in the Company's other markets. This is evidenced by the
fact that the Company's installed CLEC lines in markets other than Grand Rapids
have increased to 44% of the total lines as compared to 20% at December 31,
1996. Total CLEC lines in service increased 72% sequentially to 36,075 at March
31, 1997, from 21,013 at December 31, 1996, and increased 507% from 5,944 at
March 31, 1996.
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<PAGE>
COSTS AND EXPENSES
Service costs increased to $11.0 million for the three months ended March 31,
1997 from $2.9 million for the three months ended March 31, 1996. The increase
was due primarily to the impact of the Company's acquisition and development
activities, including increasing costs associated with developing the Company's
rapidly growing local exchange services and the Company's expanding 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 three
months ended March 31, 1997 were $15.9 million, as compared with SG&A expenses
of $6.6 million for the three months ended March 31, 1996. 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 during the remainder of 1997 as the Company
continues to expand its networks, services and marketing activities.
Depreciation and amortization expense increased to $8.7 million for the three
months ended March 31, 1997, from $2.4 million for the three months ended March
31, 1996, as a result of the Company's acquisitions and the continued expansion
of the Company's networks.
INTEREST INCOME (EXPENSE)
Interest expense totaling $14.7 million was recorded during the three months
ended March 31, 1997, as compared to interest expense of $3.8 million for the
three months ended March 31, 1996. The primary contributor to the substantial
increase in interest expense as compared to the comparable period in the prior
year is non-cash interest expense totaling $13.5 million attributable to
accretion of the Company's senior discount notes issued during 1996. Interest of
$987,000 was capitalized for the quarter ended March 31, 1997, related to
network construction projects. For the quarters ended March 31, 1997 and 1996,
interest income totaling $5.1 million and $1.8 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 $24.7 million for the three months ended March 31, 1997, from $7.2
million for the three months ended March 31, 1996. Minority interests in net
losses, representing minority investors' interests in
15
<PAGE>
certain of the Company's subsidiaries, totaled $8,000 and $523,000 for the three
months ended March 31, 1997 and 1996, respectively. As a result, the Company's
net loss for the three months ended March 31, 1997 was $24.7 million as compared
to a net loss of $6.6 million for the three months ended March 31, 1996.
EBITDA
Earnings before interest, taxes, depreciation, amortization and minority
interest (EBITDA) decreased to ($6.3) million for the three months ended March
31, 1997, from ($2.7) million for the three months ended March 31, 1996, a
decrease of $3.6 million. The decrease reflects 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. EBITDA is a measure commonly
used in the telecommunications industry and is presented to assist in an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased from $879.6 million as of December 31,
1996, to $923.0 million at March 31, 1997. The Company's current assets of
$374.3 million at March 31, 1997, including cash and cash equivalents and
marketable securities of $348.9 million, exceeded current liabilities of $45.8
million, providing working capital of $328.5 million as compared to $435.3
million at December 31, 1996. Network and equipment totaled $406.6 million at
March 31, 1997 as compared to $306.5 million at December 31, 1996. Other assets,
principally goodwill, net of accumulated amortization, increased to $145.0
million at March 31, 1997, from $99.1 million at December 31, 1996, primarily as
a result of the Company's acquisition of the Phoenix networks.
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 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 underwriters
were granted an over-allotment option by the Company 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 and expenses totaled approximately $23.2 million.
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
16
<PAGE>
development of additional networks; and (iv) acquisitions as an alternative to
constructing networks, adding customers or introducing additional services. For
the three months ended March 31, 1997 and 1996, the Company's capital
expenditures, primarily for installation of digital switches, expansion of
existing networks, and the design, construction, acquisition and development of
new networks totaled $82.5 million and $15.6 million, respectively.
In response to the demand initially encountered for its services, the Company
will continue aggressive capital deployment plans for the development and
expansion of its existing networks to allow for an increased level of
demand-driven capital spending necessary to take full advantage of the
opportunities presented by offering a full array of local exchange services. In
addition, with the acquisition of MAN, the Company has an opportunity to
establish a strategic market presence in Texas, the third largest
telecommunications state in the country. The addition of these markets
represents a significant increase in the Company's addressable market potential,
to 44 markets from the existing 37 markets. The Company estimates that it will
spend approximately $450 million during 1997 to fund these capital needs
(including expenditures on the networks acquired in the MAN acquisition), and
such amounts may be funded from the Company's existing cash resources and from
existing and future credit facilities.
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 all of its strategic
objectives. Moreover, there can be no assurance that actual expenditures will
not be significantly higher or lower than the Company's current estimates.
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 sales of debt and equity securities in the public and private markets,
to maintain this flexibility.
17
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 establishes standards for the computation and presentation of earnings per
share for entities with publicly held common stock or potential common stock.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, and requires retroactive restatement of all prior
period earnings per share data presented. The effect of SFAS No. 128 on the
financial periods presented is not material to the Company.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this report which are not historical facts are
forward-looking statements that involve risks and uncertainties. Management
wishes to caution the reader that these forward-looking statements, such as the
Company's plans to have systems in operation or under construction in a total of
50 cities by the end of 1998 and its 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.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) (1) On March 11, 1997, the Board of the Directors of the Company approved a
one-year extension of certain of the Company's Common Stock Warrants which would
otherwise have expired on various dates from March 31, 1997, through May 31,
1997, and which relate to an aggregate of 345,600 shares of the Company's Common
Stock at prices ranging from $22.17 to $31.04 per share.
(2) On April 29, 1997, upon receiving the required approval from the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders, the Company filed a Second Restated Certificate of Incorporation
which amended Article Fourth of the Company's Restated Certificate of
Incorporation. The Second Restated Certificate of Incorporation increased the
authorized shares of the Company's Common Stock, par value $0.01, from
50,000,000 to 150,000,000. The Second Restated Certificate of Incorporation also
eliminated the Company's Series A and Series B Preferred Stock to reflect the
automatic conversion of such shares of preferred stock in connection with the
initial public offering of the Company's Common Stock in May 1996 and
redesignated the Series C Junior Participating Preferred Stock as Series A
Junior Participating Preferred Stock.
(b) Not applicable.
(c) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit No.
(Reference to Item 601(b)
of Regulation S-K) Description
------------------------- --------------------------------------------
11 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule (furnished to the
Securities and Exchange Commission for
Electronic Data Gathering, Analysis, and
Retrieval [EDGAR] purposes only)
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed a
Current Report on Form 8-K, dated March 3, 1997 (filed on March 13, 1997).
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKS FIBER PROPERTIES, INC.
(Registrant)
Date: May ___, 1997 By /S/
------------------------------------
James C. Allen
(Chief Executive Officer)
Date: May ___, 1997 By /S/
------------------------------------
David L. Solomon
(Principal Financial Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ---------------------------------------------------------- -----------
11 Computation of Earnings Per Share 22
27 Financial Data Schedule 23
(furnished to the Securities and Exchange
Commission for Electronic Data
Gathering, Analysis, and Retrieval
[EDGAR] purposes only)
21
EXHIBIT 11
BROOKS FIBER PROPERTIES, INC.
Statement Regarding Computation of Earnings Per Share
Three Months Ended March 31,
1997 1996
------------ ------------
Shares outstanding - beginning of period ......... 31,082,139 1,162,800
Weighted average number of common and common
equivalent shares issued(1) ................... 1,088,880 18,360,784
------------ ------------
Weighted average number of common and common
equivalent shares outstanding -
March 31, 1997 ................................ 32,171,019 19,523,584
------------ ------------
Net loss ......................................... $(24,666,000) $ (6,640,000)
============ ============
Pro forma loss per common and common equivalent
shares ........................................ $ (0.77) $ (0.34)
============ ============
- ---------------
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options and warrants, and preferred stock for the three
months ended March 31, 1996. For the three months ended March 31, 1996,
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, using the treasury stock method, as if
they were outstanding for the three-month period ended March 31, 1996. For
the three months ended March 31, 1997, 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.
22
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 192,169,000
<SECURITIES> 156,705,000
<RECEIVABLES> 18,420,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 374,271,000
<PP&E> 406,569,000
<DEPRECIATION> 22,875,000
<TOTAL-ASSETS> 922,988,000
<CURRENT-LIABILITIES> 45,787,000
<BONDS> 566,510,000
25,200,000
0
<COMMON> 313,000
<OTHER-SE> 281,726,000
<TOTAL-LIABILITY-AND-EQUITY> 922,988,000
<SALES> 20,550,000
<TOTAL-REVENUES> 20,550,000
<CGS> 0
<TOTAL-COSTS> 35,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,633,000
<INCOME-PRETAX> (24,666,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,666,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,666,000)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
