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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
[ ] 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 0-25314
e.spire COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1947746
(State or other (I.R.S.
jurisdiction of Employer
incorporation or Identification
organization) No.)
133 National Business Parkway, Annapolis Junction, MD 20701
(Address of principal executive offices)
(301) 361-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 10, 1998, Common
Stock, Par Value $0.01 -- 48,619,748
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<PAGE>
e.spire COMMUNICATIONS, INC.
FORM 10 -- Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
September 30, 1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statements of
Operations -- Three and Nine Months Ended
September 30, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows -- Nine Months Ended September 30, 1998
and 1997 (unaudited) 5
Notes to Unaudited Condensed Consolidated
Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 6. Exhibits and reports on Form 8-K 16
Signatures................................................................ 17
Index of Exhibits....... ................................................. 18
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
e.spire COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 437,251 $ 260,837
Restricted cash and investments 31,471 26,526
Trade accounts receivable, net 43,607 15,514
Other current assets 7,608 6,127
-------------- -------------
Total current assets 519,937 309,004
-------------- -------------
Networks, equipment and furniture, gross 467,515 282,152
Less: accumulated depreciation and amortization (59,157) (31,675)
-------------- -------------
408,358 250,477
Deferred financing fees, net of accumulated amortization of
$6,454 and $3,649 at September 30, 1998 and December 31, 1997, 43,538 25,031
respectively
Intangible assets, net of accumulated amortization of
$1,386 and $776 at September 30, 1998 and December 31, 1997, 9,351 8,132
respectively
Restricted cash and investments 13,066 45,375
Other assets 1,447 876
-------------- -------------
Total assets $ 995,697 $ 638,895
============== =============
LIABILITIES, REDEEMABLE STOCK AND OPTIONS,
AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable - current portion $ 1,750 $ 438
Accounts payable
48,650 18,308
Accrued interest 7,343 13,360
Accrued employee costs 2,635 2,353
Lease obligation - current portion 4,734 0
Other accrued liabilities 7,111 2,311
-------------- -------------
Total current liabilities 72,223 36,770
-------------- -------------
Long Term Liabilities:
Notes payable, less current portion 709,910 460,848
Other long-term liabilities 3,105 474
Lease obligation, less current portion 21,716 0
-------------- -------------
Total liabilities 806,954 498,092
-------------- -------------
Redeemable stock and options:
Redeemable options 0 1,000
14 3/4% Redeemable Preferred Stock due 2008 65,981 55,060
12 3/4% Junior Redeemable Preferred Stock due 2009 165,300 150,099
-------------- -------------
Total redeemable stock and options 231,281 206,159
Stockholders Deficit:
Common Stock, $0.01 par value, 125,000,000 shares authorized,
48,136,236 and 37,219,419 shares,
respectively, issued and outstanding 481 372
Additional paid-in capital 257,753 131,728
Accumulated deficit (300,772) (197,456)
-------------- -------------
Total stockholders' deficit (42,538) (65,356)
-------------- -------------
Total liabilities, redeemable stock and options
and stockholders' deficit $ 995,697 $ 638,895
============== =============
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
e.spire COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Telecommunications services $ 34,002 $ 15,508 $ 89,121 $ 34,726
Network technologies 11,458 547 19,560 1,121
-------------- -------------- -------------- --------------
Total revenues 45,460 16,055 108,681 35,847
Operating expenses
Network, development and operations 29,197 13,676 72,794 33,317
Selling, general and administrative 28,685 15,122 70,139 43,326
Non-cash compensation expense 1,562 500 4,989 1,324
Depreciation and amortization 11,551 6,621 28,934 16,077
-------------- -------------- -------------- --------------
Total operating expenses 70,995 35,919 176,856 94,044
Loss from operations (25,535) (19,864) (68,175) (58,197)
Non-operating income/expenses
Interest and other income (6,930) (2,815) (16,921) (3,893)
Interest and other expense 20,171 12,915 52,062 25,336
-------------- -------------- -------------- --------------
Net loss (38,776) (29,964) (103,316) (79,640)
Preferred stock dividends/accretion 9,022 2,489 26,122 3,584
-------------- -------------- -------------- --------------
Net loss to common stockholders $ (47,798) $ (32,453) $ (129,438) $ (83,224)
============== ============== ============== ==============
Basic and Diluted loss per share $ (1.00) $ (0.90) $ (2.97) $ (3.45)
============== ============== ============== ==============
Average number of common/common
equivalent shares outstanding 47,732,934 36,228,568 43,574,670 24,139,630
============== ============== ============== ==============
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
e.spire COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1997
------------------- -------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Loss $ (103,316) $ (79,640)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 28,934 16,077
Interest deferral and accretion 24,573 18,801
Amortization of deferred financing fees 2,805 1,767
Noncash compensation 4,088 1,324
In-kind revenue (9,002) 0
Changes in operating assets and liabilities:
Restricted cash related to operating activities 0 (2,603)
Trade accounts receivable (27,389) (8,273)
Other current assets (1,481) (2,540)
Other assets (571) 226
Accounts payable 29,952 (24,998)
Other accrued liabilities (815) 10,455
------------------- -------------------
Net cash used in operating activities (52,222) (69,404)
Cash flows from investing activities
Purchase of net assets of Data Access Technologies (1,027) 0
Networks, equipment and furniture (148,338) (103,851)
------------------- -------------------
Net cash used in investing activities (149,365) (103,851)
Cash flows from financing activities
Issuance of notes payable 224,959 1,492
Issuance of common stock 134,261 40,702
Issuance of Redeemable Preferred Stock and warrants 0 70,855
Issuance of Senior Notes 0 220,000
Payment of notes payable 0 (1,134)
Payment of lease obligation (1,978) 0
Payment of deferred financing fees (21,312) (19,421)
Restricted cash related to financing activities 27,364 (70,000)
Exercise of warrants, options and other 14,707 2,016
------------------- -------------------
Net cash provided by financing activities 378,001 244,510
Net increase in cash & cash equivalents 176,414 71,255
Cash and cash equivalents - beginning of period 260,837 78,619
------------------- -------------------
Cash and cash equivalents - end of period $ 437,251 $ 149,874
=================== ===================
Supplemental disclosure of cash flow information
Interest paid $ 30,048 $ 0
Assets acquired under capital lease $ 37,025 $ 0
Dividends declared with preferred stock $ 23,989 $ 3,584
Stock issued under purchase agreements - 1,070,360 shares $ 2,515 $ 8,119
Accrual of stock bonuses $ 1,859 $ 0
See accompanying notes to unaudited condensed consolidated interim
financial statements.
</TABLE>
<PAGE>
e.spire COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The condensed consolidated financial statements include the accounts of
e.spire Communications, Inc. ("e.spire" or the "Company") and its wholly-owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
The condensed consolidated balance sheet as of September 30, 1998, the
condensed consolidated statements of operations for the three and nine months
ended September 30, 1998 and 1997, and the condensed consolidated statements of
cash flows for the nine months ended September 30, 1998 and 1997 have been
prepared by the Company, without audit. In the opinion of management, all
adjustments, which include normal recurring adjustments necessary to present
fairly the financial position, results of operations and cash flows at September
30, 1998, and for all periods presented, have been made. Certain amounts in the
1997 condensed consolidated statements have been reclassified to conform to the
1998 presentation. Operating results for the three and nine months ended
September 30, 1998 are not necessarily indicative of the operating results for
the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
provided are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the audited financial
statements and the related notes included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997.
Note 2: Significant Accounting Policies
Restricted Cash and Investments
The Company has provided performance bonds and letters of credit in various
cities in connection with its operations, resulting in a restriction to cash
amounting to approximately $1,221,000 at September 30, 1998 and $1,223,000 at
December 31, 1997. The face amount of all bonds and letters of credit is
approximately $10,400,000 as of September 30, 1998 and $6,300,000 as of December
31, 1997. In addition, as of September 30, 1998, the Company currently has
approximately $43,316,000 in an escrow account to be used to fund the next three
interest payments of its 13 3/4 percent senior notes due 2007. Approximately
$30,250,000 of the escrow account is classified as current. The escrow account
is invested in cash equivalents consisting of government and commercial
securities.
Use of Estimates
The preparation of the condensed consolidated 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 dates of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
<PAGE>
Risks and Uncertainties
The Company has recorded revenues of approximately $4.8 million and $11.4
million for the three and nine months ended September 30, 1998 for reciprocal
compensation relating to the transport and termination of Internet traffic for
incumbent local exchange carriers ("ILECs") pursuant to various interconnection
agreements. To date, three ILECs have begun to make payments. Historically, some
ILECs have not paid and have disputed these charges based on their contention
that calls placed by end users to Internet Service Providers (ISPs) are not
local traffic as defined by the various agreements and thus not subject to
reciprocal compensation. The resolution of these disputes will be based on
rulings by state public utility commissions and/or by the Federal Communications
Commission (FCC). To date, there have been no unfavorable final rulings by the
FCC or any state public utility commission in a state in which the Company
provides switched services that would indicate that dial-up calls placed by end
users to ISPs would not qualify as local traffic subject to the payment of
reciprocal compensation. At September 30, 1998, the Company had approximately
$11.7 million in trade accounts receivable related to reciprocal compensation.
The Company receives a significant portion of its revenues from a small
number of major customers, particularly the long distance telecommunications
companies that serve the Company's markets. The loss of any one of these
customers could have an adverse material impact on the Company's results of
operations.
The Company provides services to certain ISPs. Such companies operate in a
highly competitive and uncertain environment. Approximately 10% of the Company's
revenues for the three and nine months ended September 30, 1998 was attributed
to these companies. At September 30, 1998, the Company had trade accounts
receivable of $4.5 million from ISPs. At September 30, 1998, the Company also
had equipment with a carrying value of approximately $15.0 million that is
dedicated to providing service to these ISPs. The Company believes that, if
necessary, this equipment could be redeployed throughout the Company's data
network.
Note 3: Financing Activities
To date, the Company has funded the construction of its networks and its
operations with external financings, as described in the Liquidity and Capital
Resources section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
On July 24, 1998, the Company completed a private placement of 10 5/8%
Senior Discount Notes due 2008 yielding net proceeds to the Company of
approximately $220 million. The 2008 Notes will accrue to an aggregate principal
amount of $375 million by July 2008. The 2008 Notes will require payment of cash
interest semi-annually in arrears beginning January 1, 2004.
Note 4: New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 (FAS No. 130), "Reporting
Comprehensive Income." FAS No. 130 established standards for the reporting and
display of comprehensive income and its components in the financial statements.
The Company adopted the provisions of this Statement in the quarter ended March
31, 1998. The adoption of this statement had no impact in the manner of the
presentation of the Company's financial statements as currently or previously
reported.
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company has not completed its analysis of the impact on the financial
statements that will be caused by the adoption of this statement.
On March 4, 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This SOP provides guidance on
capitalizing certain costs related to computer software developed or obtained
for internal use. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company has not completed its analysis of
the impact on the financial statements that will be caused by the adoption of
this statement.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-up Activities". This statement
requires that the costs of start-up activities, including organization costs, be
expensed as incurred and is effective for fiscal years beginning after December
15, 1998. The Company has not completed its analysis of the impact on the
financial statements that will be caused by the adoption of this statement.
<PAGE>
ITEM 2 -- 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 Discussion and Analysis of Financial
Condition and Results of Operations and audited consolidated financial
statements and notes thereto for the years ended June 30, 1995 and 1996, for the
six months ended December 31, 1996 and the year ended December 31, 1997 included
in the Company's Form 10-KSB for the fiscal year ended December 31, 1997.
OVERVIEW
e.spire Communications, Inc. (formerly American Communications Services,
Inc.), formed in 1993, seeks to be a leading facilities-based Integrated
Communications Provider ("ICP") to businesses in markets primarily in the
southern half of the United States. By the end of 1997, the Company had become
one of the first Competitive Local Exchange Carriers ("CLECs") to combine the
provision of dedicated, local and long distance voice services with frame relay,
Asynchronous Transfer Mode ("ATM") and Internet services. Having established
this suite of telecommunications services which emphasizes data capabilities in
addition to traditional CLEC offerings, the Company evolved into an ICP. e.spire
seeks to provide customers with superior service and competitive prices while
offering a single source for integrated communications services designed to meet
its business customers' needs. In August 1998, the Company announced its' plan
to enter the New York and Philadelphia local markets, and to provide long-haul
fiber capabilities between New York and Baltimore through a long-term lease with
Metromedia Fiber Network, Inc. The Company's facilities-based network
infrastructure is designed to provide services to customers on an end-to-end
basis, and, as of September 30, 1998, was comprised of 1,651 route miles of
fiber in its 35 local networks in 21 states, 66 Newbridge ATM switches, 18
Lucent 5ESS switches and approximately 22,000 backbone long haul miles in its
leased coast-to-coast broadband data network.
With the passage of the federal Telecommunications Act of 1996 (the "Act"),
the Company enhanced the scope of its product offerings from dedicated services
to a full range of switched voice, data and Internet services in order to meet
the needs of business end-users, and is expanding its sales, marketing, customer
care and operations support systems ("OSS") capabilities. The Company introduced
local switched voice services, including local exchange services, in late 1996
and long distance services in late 1997. As of September 30, 1998, e.spire had
installed 115,874 customer access lines representing a significant increase over
the 20,138 access lines installed as of September 30, 1997.
The development of the Company's business and the construction, acquisition
and expansion of its networks require significant capital expenditures, a
substantial portion of which are incurred before realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative cash flow until an adequate customer base is established. However, as
the Company's customer base grows, the Company expects that incremental revenues
can be generated with decreasing incremental operating expenses, which may
provide positive contributions to cash flow. The Company has made specific
strategic decisions to build high capacity networks with broad market coverage,
which initially increases its level of capital expenditures and operating
losses. However, the Company believes that over the long term this strategy will
enhance the Company's financial performance by increasing the traffic flow over
its network. The Company also has entered into leased dark fiber and fiber
capacity arrangements, which allow the Company, by installing one or more
switches and related electronics, to enter a market prior to or in lieu of
completion of its own fiber optic network.
In 1998, the Company formed ACSI Network Technologies, Inc. ("ACSI Network
Technologies") to pursue opportunities in fiber optic network design and
construction with carriers, large customers and municipalities. ACSI Network
Technologies is a wholly owned subsidiary of e.spire which provides full service
network development solutions including business planning, market analysis,
engineering, project management, construction and network monitoring center
design.
<PAGE>
RESULTS OF OPERATIONS
REVENUES
The Company reported an increase in revenues of $29.4 million, or 183%, to
$45.5 million for the three months ended September 30, 1998, compared with
revenues of $16.1 million for the three months ended September 30, 1997. For the
nine months ended September 30, 1998, revenues increased by $72.8 million, or
203%, to $108.7 million from $35.8 million for the same period of 1997.
The increases in revenues were attributable to the Company's greater
presence and expansion in its 35 local fiber optic networks, as well as a
significant increase in activity for ACSI Network Technologies. The Company also
increased the number of route miles , buildings connected and voice and data
switches deployed. Between September 30, 1997 and September 30, 1998, the
Company increased route miles by 674, or 69% and buildings connected increased
by 1,535, or 124%. Lucent 5ESS switches deployed increased to 18 voice switches
as of September 30, 1998 from 9 switches as of September 30, 1997. In addition,
the Company has deployed 66 Newbridge ATM switches over its coast-to-coast data
network as of September 30, 1998, up from 44 as of September 30, 1997. Also,
access lines installed increased by 95,736, or 475%, to 115,874 at September 30,
1998, from 20,138 at September 30, 1997.
The increases in revenue reflects the Company's expansion of its
facilities-based infrastructure and the Company's continued sales and marketing
efforts. In addition, increases in installed access lines and data sales have
contributed to the revenue increase. Included in telecommunications services
revenues are revenues of approximately $4.8 million and $11.4 million for the
three and nine months ended September 30, 1998 for reciprocal compensation
relating to the transport and termination of traffic pursuant to various
interconnection agreements. Thses agreements are subject to renegotiation over
the next several months. The resultant new agreements may reflect rates for
reciprocal compensation that are lower than the rates available under the
current contracts. Included in network technology revenues are revenues
for construction contracts and long term leases of high capacity systems with
interexchange carriers ("IXCs") and other customers. Included in these revenues,
for the three and nine month periods ended September 30, 1998, approximately
$4.0 million and $8.6 million, respectively, was derived from a contract with a
single major IXC.
OPERATING EXPENSES
Network, Development and Operations
For the three months ended September 30, 1998 and 1997, network, development
and operating expenses increased $15.5 million, or 113%, to $29.2 million from
$13.7 million for the same period of 1997. For the nine months ended September
30, 1998, network development and operating expenses increased $39.5 million, or
118%, to $72.8 million from $33.3 million for the same period of 1997. The
increases in network, development and operations costs relate to increases in
the delivery of switched, data and special access services and the addition of
engineering and operations personnel dedicated to supporting the network
infrastructure. Also, the increase was due to costs associated with the
Company's network technology source of revenues.
Included in network, development and operations expenses are costs of
telecommunications services paid to Interexchange Carriers ("IXCs"), ILECs and
others for leased telecommunications facilities, access charges and services.
Such costs increased to approximately $20.0 million for the three months ended
September 30, 1998 from approximately $9.6 million for the three months ended
September 30, 1997. For the nine months ended September 30, 1998, these costs
increased to approximately $53.2 million from $22.8 million for the same period
of 1997. Costs associated with network technology revenues were approximately
$3.7 million and $5.2 million for the three and nine months ended September 30,
1998, respectively. In addition, network related personnel costs such as
employee salaries and benefits are also included in network, development and
operations expenses. For the three months ended September 30, 1998 and 1997,
these costs were approximately $5.5 million and $4.1 million, respectively. For
the nine months ended September 30, 1998 and 1997, such costs were approximately
$14.4 million and $10.5 million, respectively.
<PAGE>
Selling, General and Administrative
For the three months ended September 30, 1998, selling, general and
administrative expenses increased $13.6 million, or 90%, to $28.7 million from
$15.1 million for the same period of 1997. For the nine months ended September
30, 1998, selling, general and administrative expenses increased $26.8 million,
or 62%, to $70.1 million from $43.3 million for the same period of 1997.
Included in selling, general and administrative expenses are personnel costs
such as employee salaries, benefits and commissions. Such costs increased to
$7.5 million for the quarter ended September 30, 1998 from $4.5 million for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998
and 1997, these costs increased to $22.5 million and $15.1 million,
respectively. Also, included in selling, general and administrative expenses are
operating costs such as rent, advertising and general administrative and office
expenses. These expenses increased to $21.2 million for the quarter ended
September 30, 1998 from $10.6 million for the quarter ended September 30, 1997.
For the nine months ended September 30, 1998 and 1997, these costs increased to
$47.6 million from $28.3 million, respectively.
Increases in selling, general and administrative expenses are a result of
the Company's efforts directed at driving more on-net customers through direct
sales, as well as conversion of customers that are not presently served on the
Company's facilities. In addition, the Company has undertaken a very aggressive
OSS program to be implemented over the next fifteen months, in which it will
continue to invest a significant amount of capital dollars. As these systems are
implemented, the Company will continue to incur significant backoffice operating
expenses to support the existing processes, as well as participate in the
implementation of the new systems.
Non-Cash Compensation
Non-cash stock compensation expense increased $1.1 million, or 212%, to $1.6
million for the quarter ended September 30, 1998 from $0.5 million for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998,
non-cash stock compensation expense increased $3.7 million, or 277%, to $5.0
million from $1.3 million for the same period of 1997. Included in non-cash
compensation for 1998 are accruals for the issuance of common stock in
connection with 1998 performance bonuses; as costs of grants of employee stock
options; and the settlement of a lawsuit with a former executive.
Depreciation and Amortization
Depreciation and amortization expenses increased $5.0 million, or 74%, to
$11.6 million for the three months ended September 30, 1998 from $6.6 million
for the three months ended September 30, 1997. For the nine months ended
September 30, 1998, depreciation and amortization increased by $12.9 million, or
80%, to $28.9 million from $16.1 million for the same period of 1997. These
increases were due to an increase in capital assets to $467.5 million at
September 30, 1998 compared with capital assets of $282.2 million at December
31, 1997 and capital assets of $250.4 million at September 30, 1997 as well as
an increased amount of network assets placed in service.
INTEREST AND OTHER INCOME
Interest and other income increased $4.1 million, or 146%, to $6.9 million
for the three months ended September 30, 1998 from $2.8 million for the three
months ended September 30, 1997. For the nine months ended September 30, 1998,
interest and other income increased $13.0 million, or 335%, to $16.9 million
from $3.9 million for the same period of 1997. The increases in interest and
other income reflects the increase in earnings from the proceeds received from
the issuance of the 13 3/4% Senior Notes due 2007 (the "2007 Notes"), the 14
3/4% Redeemable Preferred Stock due 2008 (the "14 3/4% Preferred Stock"), the 12
3/4% Junior Redeemable Preferred Stock due 2009 (the "12 3/4% Preferred Stock"),
the 8,100,000 shares of Common Stock (the "1998 Common Stock Offering") and the
10.625% Senior Discount Notes due 2008 (the "2008 Notes") which have been
invested.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $7.3 million, or 56%, to $20.2 million
for the three months ended September 30, 1998 from $12.9 million for the three
months ended September 30, 1997. For the nine months ended September 30, 1998,
interest and other expense increased $26.8 million, or 105%, to $52.1 million
from $25.3 million for the same period of 1997. The increase reflected the
accrual of interest related to the 13% Senior Discount Notes due 2005 (the "2005
Notes"), the 12 3/4% Senior Discount Notes due 2006 (the "2006 Notes"), the 2007
Notes and the 2008 Notes as well as interest expense associated with the
Company's capital leases.
<PAGE>
EBITDA
Loss before interest, taxes, depreciation and amortization ("EBITDA")
decreased $0.3 million, or 3%, to ($12.4) million for the three months ended
September 30, 1998 from ($12.7) million for the three months ended September 30,
1997. For the nine months ended September 30, 1998, EBITDA increased $6.5
million, or 16%, to ($34.3) million from ($40.8) million for the same period of
1997. The increase was due to the increase in revenues over network development
and operations and selling, general and administrative expense as discussed
above.
NET LOSS
As a result of the aforementioned increases in revenues, operating expenses,
depreciation and amortization, and interest income and expense, net loss
increased $8.8 million, or 29%, to $38.8 million for the three months ended
September 30, 1998 from $30.0 million for the three months ended September 30,
1997. For the nine months ended September 30, 1998, net loss increased $23.7
million, or 30%, to $103.3 million from $79.6 million for the same period of
1997. Further, net loss to common stockholders increased $15.3 million, or 47%,
to $47.8 million for the three months ended September 30, 1998 from $32.5
million for the same period of 1997, due to the increase in preferred stock
dividends and accretion during 1998. For the nine months ended September 30,
1998, net loss to common stockholders increased $46.2 million, or 56%, to $129.4
million from $83.2 million for the same period of 1997. These increases to net
loss to common stockholders are primarily attributable to the preferred stock
dividends and accretion related to the issuance of the 14 3/4% Preferred Stock
and the 12 3/4% Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's further development and enhancement of new services as well as
the continued development, construction, expansion, operation and potential
acquisition of networks, will require substantial capital expenditures. The
funding of these expenditures is dependent upon the Company's ability to raise
substantial financing. As of September 30, 1998, the Company had raised
approximately $979 million from debt and equity financings. During the
nine months ended September 30, 1998, capital expended for the expansion of the
Company's infrastructure and services and to fund negative cash flow was
approximately $200 million. The Company expects to incur additional capital
expenditures for the expansion of its infrastructure and services and to fund
negative cash flow in the future. The Company continues to consider potential
acquisitions or other arrangements that may fit the Company's strategic plan.
Any such acquisition or arrangement that the Company might consider is likely to
require additional equity or debt financing, which the Company will seek to
obtain as required and may also require that the Company obtain the consent of
its debt holders. There can be no assurance that the Company will be able to
secure financings necessary to fund its negative cash flow or any such
incremental activities that it may contemplate in the future.
On July 24, 1998, the Company completed a private placement of 10 5/8%
Senior Discount Notes due 2008 yielding net proceeds to the Company of
approximately $220 million. The 2008 Notes will accrue to an aggregate principal
amount of $375 million by July 2008. The 2008 Notes will require payment of cash
interest semi-annually in arrears beginning January 1, 2004.
On April 3, 1998, the Company completed the public offering of 8,100,000
shares of Common Stock at a price of $18.50 per share of which 7,502,418 shares
were issued and sold by the Company and 597,582 shares were sold by certain
stockholders of the Company. Total net proceeds to the Company from the 1998
Common Stock Offering and the exercise of certain options and warrants in
connection therewith were approximately $134.2 million.
On March 31, 1998, the Company restructured certain leases resulting in a
change from operating to capital lease treatment. This transaction resulted in
capital leases obligations totaling $26,450,000 being included in liabilities as
of September 30, 1998.
On February 26, 1998, the Company paid approximately $10.3 million to effect
amendments (the "Amendments") to the indentures under which three classes of its
outstanding debt securities were issued. The Amendments revised certain
covenants in the indentures which significantly limited the ability of the
Company and its subsidiaries to incur additional indebtedness or make certain
investments or acquisitions. The limitations on indebtedness contained in the
indentures were amended to provide an alternative test permitting the incurrence
of additional indebtedness based on a debt to capital ratio test, and increased
the amount of unrestricted indebtedness that the Company can incur. The
Amendments also permit the incurrence of indebtedness solely for the
construction, acquisition, and improvement of telecommunications assets, subject
to certain limitations.
On December 30, 1997, the Company entered into a credit facility with AT&T
Capital Corporation ("AT&T") which replaced an existing credit facility with
AT&T (the "New AT&T Credit Facility") for the development and construction of
fiber optic local networks. The Company has financing commitments for $35.0
million under the New AT&T Credit Facility, of which $35.0 had been borrowed as
of December 31, 1997 and September 30, 1998. Payments of interest on borrowings
under the New AT&T Credit Facility are payable quarterly and commenced
in December 1998.
In October 1997, the Company issued the 12 3/4% Preferred Stock from which
the Company received net proceeds of approximately $146.0 million. Dividends on
the 12 3/4% Preferred Stock accrue from the date of issuance, are cumulative and
are payable quarterly in arrears, at a rate per annum of 12 3/4% of the
liquidation preference per share. Dividends on the 12 3/4% Preferred Stock will
be paid, at the Company's option, either in cash or by the issuance of
additional shares of 12 3/4% Preferred Stock; provided, however, that after
October 15, 2002, to the extent and for so long as the Company is not precluded
from paying cash dividends on the 12 3/4% Preferred Stock by the terms of any
agreement or instrument governing any of its then outstanding indebtedness, the
Company shall pay dividends on the 12 3/4% Preferred Stock in cash.
On July 23, 1997, the Company completed the sale of the 2007 Notes. Of the
total net proceeds of $204.3 million, the Company placed $70.0 million
representing funds sufficient to pay the first five interest payments on the
2007 Notes into an escrow account for the benefit of the holders thereof.
Payments of interest on the 2007 Notes are payable semi-annually, and began in
January 1998.
On July 10, 1997, the Company completed the issuance and sale of 75,000
units (the "Unit Offering"), consisting of 14 3/4% Redeemable Preferred Stock
due 2008 and warrants (the "Unit Warrants") from which the Company received net
proceeds of approximately $70 million. Dividends on the 14 3/4% Preferred Stock
accrue from the date of issuance, are cumulative and are payable quarterly in
arrears, at a rate per annum of 14 3/4% of the liquidation preference per share.
Dividends on the 14 3/4% Preferred Stock will be paid, at the Company's option,
either in cash or by the issuance of additional shares of 14 3/4% Preferred
Stock; provided, however, that after June 30, 2002, to the extent and for so
long as the Company is not precluded from paying cash dividends on the 14 3/4%
Preferred Stock by the terms of any then outstanding indebtedness or any other
agreement or instrument to which the Company is then subject, the Company shall
pay dividends on the 14 3/4% Preferred Stock in cash.
On March 21, 1996, the Company completed a private offering of the 2006
Notes from which the Company received net proceeds of approximately $61.8
million. The 2006 Notes will accrue to an aggregate principal amount of $120.0
million by April 1, 2001, after which cash interest will accrue and be payable
on a semi-annual basis.
On November 14, 1995, the Company completed a private offering of the 2005
Notes and warrants from which the Company received approximately $96.1 million
in net proceeds. The 2005 Notes will accrue to an aggregate principal amount of
$190.0 million by November 1, 2000, after which cash interest will accrue and be
payable on a semi-annual basis.
YEAR 2000 PROGRAM
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date
using"00" as the year 1900 rather than the Year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
Based upon a comprehensive systems assessment of its Year 2000 readiness,
which included hardware and software for the Company's telecommunications
network and information systems, the Company has determined that 71% of its
hardware and software is Year 2000 compliant. Accordingly, the Company believes
that it will not be required to modify or replace significant portions of its
software and hardware so that its computer systems will function properly with
respect to dates in the Year 2000 and thereafter. Additionally, because the
majority of the hardware and software in use by the Company is of the commercial
off-the-shelf variety and requires minimal customization, the Company expects
its efforts to bring 100% of the software and hardware into compliance to be
minimal. The Company has completed its overall planning phase, and currently is
beginning the execution phase, which includes verification and updating of its
initial assessment, and the development and execution of specific initiatives to
upgrade the remaining non-compliant hardware and software to Year 2000
compliance not later than October 31, 1999.
The Company is upgrading hardware and software in the normal course of
maintenance to make the installed base include only Year 2000 compliant
products. In addition to the Year 2000 effort, there is a major strategic
initiative underway which will replace much of the information technology of the
Company with new products that will be compliant upon implementation. The
Company has engaged an Information Technology Association of America Year 2000
certified consulting firm to help execute its Year 2000 readiness program in
conjunction with e.spire staff. The Company also has engaged a second
independent consulting firm to perform comprehensive testing of its systems.
<PAGE>
Based upon the results of the comprehensive system assessment, the Company
believes that its risks of Year 2000 non-compliance (i.e., its "most reasonably
likely worst case scenario") are minimal and limited to replacement of a single
software product used to provision new customers, the remediation of the general
ledger of its subsidiary CyberGate, and the replacement of a small number of
personal computers. If the replacement software is not in place before the year
2000, the most likely worst case scenario is that e.spire would not be able to
add new customers to its network using an automated system, although it would be
able to add new customers manually for a limited time. If the remediation of
CyberGate's general ledger is not completed, it may have to resort to manual
reporting processes for that subsidiary.
The Company has initiated formal communications with all of its significant
hardware and software suppliers and plans to communicate with large customers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The
Company's total Year 2000 project cost and estimates to complete include the
estimated costs and time associated with the impact of third party Year 2000
issues based on presently available information. However there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems. The Company is working with its vendors to remove any
non-compliant installed hardware and software by October 31, 1999. If third
party vendors do not remediate prior to the Year 2000, the most reasonably
likely worst case scenario is that there may be problems associated with
operating systems, billing information, trouble reports and service orders.
Contingency plans will be developed as necessary if a vendor cannot provide the
necessary Year 2000 compliant product on a timely basis for the Company to meet
that date.
The Company anticipates completing the Year 2000 project not later than
October 31, 1999, which is prior to any anticipated impact on its operating
systems. As of September 30, 1998, the Company has incurred $200,000 to date for
the initial Year 2000 Assessment Report and inventory database. The total cost
of the Year 2000 project is estimated to be $5-$6 million and will be expensed
as incurred and funded with existing cash resources. The costs of the project
and the date on which the Company believes it will complete the Year 2000
modifications are based on management's best estimates, which were derived from
numerous assumptions of future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Information contained herein contains "forward-looking statements" (as such
term is defined in the Private Securities Litigation Reform Act of 1995) which
can be identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. Certain statements contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other sections herein,
including statements concerning the continued development of the Company's
businesses, the markets for the Company's services and products, the Company's
anticipated capital expenditures and regulatory reform, and other statements
contained herein regarding matters that are not historical facts, are
forward-looking statements. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The matters set
forth in Exhibit 99.2 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
risks and uncertainties, that could cause actual results to vary materially from
the future results indicated, expressed or implied, in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the future results indicated in such forward-looking statements.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 -- Legal Proceedings
On June 19, 1998, the Company completed a settlement with e.spire's former
Chief Financial Officer, Harry J. D'Andrea who had initiated litigation against
the Company in the Circuit Court of Maryland for Anne Arundel County.
The Company and its subsidiaries are currently parties to routine litigation
incidental to their business, none of which, individually or in the aggregate,
are expected to have a material adverse effect on the Company. The Company and
its subsidiaries are parties to various court appeals and regulatory arbitration
proceedings relating to certain of the Company's interconnection agreements and
continue to participate in regulatory proceedings before the FCC and state
regulatory agencies concerning the authorization of services and the adoption of
regulations for local services.
ITEM 2 -- Changes in Securities
On September 2, 1998, the Company issued 97,029 shares of Common Stock to
Clarence P. Thrower and 52,246 shares of Common Stock to Thomas G. Yuditsky,
pursuant to an Agreement and Plan of Merger by and among e.spire Communications,
Inc.; ACSI Network Technologies Corporation; Data Access Technologies
Corporation; Clarence P. Thrower and Thomas G. Yuditsky. The shares were issued
as partial consideration for the exchange of all outstanding Common Stock of
Data Access Technologies Corporation. This transaction was consummated as a
private transaction pursuant to Section 4(2) of the Securities Act of 1933.
On September 30, 1998, the Company issued additional warrants to MCI
Communications Corporation to purchase 32,920 shares of Common Stock at $12.7172
per share. The warrants were issued in connection with the March 6, 1997
agreement between the Company and MCImetro in which MCI named e.spire as its
preferred local provider for dedicated and transport services in 21 e.spire
markets for at least a five year period.
On November 6, 1998, the Company issued 203,438 shares of Common Stock to
Internet Communications of America, Inc. pursuant to an Asset Purchase Agreement
by and among e.spire Communications, Inc.; Internet Communications of America,
Inc.; Robert Hurwitz and Elmer Hurwitz. The shares of Common Stock were issued
as partial consideration for the exchange of the right, title and interest in
certain of the assets (primarily customers and equipment) of Internet
Communications of America, Inc.
<PAGE>
ITEM 6 -- Exhibits and Reports On Form 8-K
(a) Exhibits
Exhibit
Number Description
10 Second Amended Employment Agreement between
e.spire Communications, Inc. and
Anthony J. Pompliano
11 Statement re computation of per share earnings
27 Financial Data Schedule
99 Supplemental Financial Information
(b) Reports on Form 8-K
(a) On July 27, 1998, the Company filed with the SEC a Current Report on
Form 8-K announcing the completion of a private placement of 10 5/8%
Senior Discount Notes due 2008 yielding gross proceeds of approximately
$225 million.
(b) On August 26, 1998, the Company filed with the SEC a Current Report on
Form 8-K announcing plans to expand its infrastructure by entering the
northeast business communications market with a combination of local
and long-haul fiber networks.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
e.spire Communications, Inc.
(Registrant)
/s/ JACK E. REICH
Jack E. Reich,
November 13, 1998 President and Chief Executive
Officer
/s/ DAVID L. PIAZZA
David L. Piazza
November 13, 1998 Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
10 Second Amended Employment Agreement between
e.spire Communications, Inc.
and Anthony J. Pompliano E-1
11 Statement re: computation of per-share
earnings (loss) E-2
27 Financial Data Schedules E-3
99 Supplemental Financial Information E-4
<PAGE>
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Second Amendment (the "Second Amendment") dated as of August 18,
1998 by and between e. spire Communications Inc., a Delaware corporation, having
its principal place of business at 133 National Business Parkway, Annapolis
Junction, Maryland 20701 (the "Company" or "Employer") and Anthony J. Pompliano,
an individual residing at 5030 Gulf of Mexico Drive, Longboat Key, Florida
("Employee").
WITNESSES
WHEREAS, the Company and Employee entered into (i) a Third Amended and
Restated Employment Agreement dated as of June 30, 1995 and (ii) a First
Amendment to such employment agreement dated as of January 30, 1997
(collectively, the "Employment Agreement");
WHEREAS, the Company and Employee wish to enter into this Second
Amendment to extend the term of the Employment Agreement and further modify the
terms of the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants undertaken herein, and with the intent to be legally bound hereby, the
Company and Employee hereby agree to amend the Employment Agreement as follows:
1. The reference in the first paragraph of the Employment Agreement to
"American Communications Services, Inc." is changed to "e. spire Communications,
Inc. " and the reference in the first paragraph of the Employment Agreement to
"131 National Business Parkway" is changed to "133 National Business Parkway."
2. The reference in paragraph 2 of the Employment Agreement to "August
23, 1998" is changed to "December 31, 1999."
3. The first sentence of paragraph 5a. of the Employment Agreement is
changed to read in its entirety as follows:
"Employee shall be paid an annual salary at the rate of $300,000
through December 31, 1998 and at the rate of $330,000 commencing January 1,
1999."
4. The following sentence shall be inserted after the first sentence of
paragraph 5b.(iv) of the Employment Agreement:
"Employee shall be entitled to an aggregate bonus opportunity of up to
$250,000 for the 1999 fiscal year ("Fiscal 1999"). "
5. The following sentence shall be added to the end of paragraph
5b.(iv) of the Employment Agreement:
"The performance goals for Fiscal 1999 shall be determined by the
compensation committee no later December 31, 1998."
6. This will confirm that 287,500 of the 350,000 Additional Performance
Stock Options referred to in paragraph 5c. (iii) of the Employment Agreement
have vested and that the remaining 62,500 Additional Performance Stock Options
will vest on August 24, 1998, provided that Employee is employed by the Company
on such date.
7. The two references to "August 23, 1998" in the next to the last
sentence in the second paragraph following paragraph 11f. of the Employment
Agreement are changed to "December 31, 1999."
8. The following sentence shall be inserted immediately preceding the
last sentence in the second paragraph following paragraph 11f. of the Employment
Agreement:
"If Employee's employment is terminated pursuant to subparagraph (f) of
this paragraph 11, Employee shall be entitled to a lump sum payment of his
entire unpaid bonus under paragraph 5b.(iv)."
9. The provisions of paragraph 16 of the Employment Agreement shall be
modified to reflect the following:
(a) In all events the non-compete provisions of paragraph 16 of the
Employment Agreement shall be applicable and binding on Employee until December
31, 1999, at which time such provisions shall terminate.
(b) In all events, except as provided in paragraph 9(c) below, the
non-solicitation provisions of paragraph 16 of the Employment Agreement shall be
applicable and binding on Employee until December 31, 2001, at which time such
provisions shall terminate.
(c) If Employee's employment is terminated pursuant to subparagraph (f)
of paragraph 11 of the Employment Agreement, the non-solicitation provisions of
paragraph 16 of the Employment Agreement shall not be applicable or binding upon
Employee and shall terminate commencing on the date of such termination of
employment.
10. The reference to "131 National Business Parkway" in paragraph 25 of
the Employment Agreement is changed to "133 National Business Parkway."
11. Except as specifically provided otherwise herein, the Employment
Agreement shall remain in full force and effect in accordance with its terms.
12. This Second Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Second Amendment shall become
effective as of the date first above written upon the execution of a counterpart
hereof by each of the parties hereto.
e.spire Communications, Inc.
By:/s/ Jack E. Reich
-----------------------------
Jack E. Reich, President
and Chief Executive Officer
/s/ Anthony J. Pompliano
---------------------------
Anthony J. Pompliano
<PAGE>
EXHIBIT 11
e.spire COMMUNICATIONS, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Loss $ (38,776) $ (29,964) $(103,316) $ (79,640)
Less: Preferred Stock Accretion 9,022 2,489 26,122 3,584
-------------- --------------- ------------- -------------
Net Loss to Common Stockholders $ (47,798) $ (32,453) $(129,438) $ (83,224)
============== =============== ============= =============
AVERAGE SHARES OUTSTANDING
Weighted Average Number of
Common Shares Outstanding 47,732,934 36,228,568 43,574,670 24,139,630
Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury 10,909,882 9,031,779 10,909,882 9,031,779
stock
-------------- --------------- ------------- -------------
Weighted average number of common and
common equivalent shares outstanding 58,642,816 45,260,347 54,484,552 33,171,409
============== =============== ============= =============
PER SHARE AMOUNTS
Basic earnings per share $ (1.00) $ (0.90) $ (2.97) $ (3.45)
============== =============== ============= =============
Diluted earnings per share $ (0.82) $ (0.72) $ (2.38) $ (2.51)
============== =============== ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
e.spire COMMUNICATIONS, INC. FORM 10-Q FOR THE NINE MONTHS ENDED 9/30/98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 468,722
<SECURITIES> 0
<RECEIVABLES> 46,751
<ALLOWANCES> (3,144)
<INVENTORY> 7,608
<CURRENT-ASSETS> 519,937
<PP&E> 467,515
<DEPRECIATION> (59,157)
<TOTAL-ASSETS> 995,697
<CURRENT-LIABILITIES> 72,223
<BONDS> 709,910
0
231,281
<COMMON> 481
<OTHER-SE> (43,019)
<TOTAL-LIABILITY-AND-EQUITY> 995,697
<SALES> 0
<TOTAL-REVENUES> 108,681
<CGS> 72,794
<TOTAL-COSTS> 66,734
<OTHER-EXPENSES> 17,002
<LOSS-PROVISION> 3,405
<INTEREST-EXPENSE> 52,062
<INCOME-PRETAX> (103,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (103,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,316)
<EPS-PRIMARY> (2.97)
<EPS-DILUTED> (2.97)
</TABLE>
<PAGE>
EXHIBIT 99.1
e.spire COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
YEAR TO DATE - SEPTEMBER 30, 1998
($'s in thousands)
Networks Placed Networks Placed Networks Placed
in Service in Service in Service
Prior to During 1996 During 1997
12/31/95
--------------- --------------- ---------------
Property, Plant &
Equipment $ 155,940 $ 112,498 $ 138,131
Revenues $ 36,618 $ 19,597 $ 19,026
EBITDA $ (1,865) $ (4,561) $ (8,975)
EBIT $ (8,437) $ (9,745) $ (14,232)
Network Statistics (cumulative)
Access Lines Sold
37,375 19,671 46,184
Fiber Miles
43,220 40,568 45,874
Route Miles
683 426 392
Buildings Connected
1,493 768 704
Voice Grade
Equivalents 516,277 286,325 187,973
