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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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: March 31, 1998 [ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition
period from __________ to
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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
(Registrants' telephone number, including area code)
American Communications Services, Inc., 131 National Business
Parkway, Annapolis Junction, MD 20701
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 8, 1998, Common
Stock, Par Value $0.01 -- 46,463,723
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<PAGE>
e.spire COMMUNICATIONS, INC.
FORM 10 -- Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 1998 (unaudited) and December 31,
1997 3
Condensed Consolidated Statements of
Operations -- Three Months Ended March 31,
1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1998 and 1997
(unaudited) 5
Notes to Unaudited Condensed Consolidated
Interim Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 6. Exhibits and reports on Form 8-K 12
Signatures......................................................... 13
Index of Exhibits.................................................. 14
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
e.spire COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31, December 31,
1998 1997
------------- --------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $216,651 $260,837
Restricted cash and investments 27,107 26,526
Trade accounts receivable, net 21,353 15,514
Other current assets 3,852 6,127
------------- --------------
Total current assets 268,963 309,004
------------- --------------
Networks, equipment and furniture, gross 337,356 282,152
Less: accumulated depreciation and amortization (38,958) (31,675)
------------- --------------
298,398 250,477
Deferred financing fees,
net of accumulated amortization of
$4,413 and $3,649 at March 31, 1998
and December 31, 1997, respectively 37,749 25,031
Intangible assets,
net of accumulated amortization of
$980 and $776 at March 31, 1998
and December 31, 1997, respectively 7,928 8,132
Restricted cash and investments 30,250 45,375
Other assets 822 876
------------- --------------
Total assets $644,110 $638,895
============= ==============
LIABILITIES, REDEEMABLE STOCK AND OPTIONS,
AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable - current portion $ 875 $ 438
Accounts payable 21,292 18,308
Accrued interest 6,471 13,360
Accrued employee costs 1,553 2,353
Lease obligation 3,936 0
Other accrued liabilities 5,870 2,311
------------- --------------
Total current liabilities 39,997 36,770
------------- --------------
Long Term Liabilities
Notes payable, less current portion 467,290 460,848
Other long-term liabilities 1,895 474
Lease obligation 23,668 0
------------- --------------
Total liabilities 532,850 498,092
------------- --------------
Redeemable stock and options:
Redeemable options 1,000 1,000
14 3/4% Redeemable Preferred Stock due 2008 58,717 55,060
12 3/4% Junior Redeemable Preferred Stock
due 2009 154,935 150,099
------------- --------------
Total redeemable stock and options 214,652 206,159
Stockholders Equity:
Common Stock, $0.01 par value,
75,000,000 shares authorized,
38,192,722 and 37,219,419 shares,
respectively issued and outstanding 380 372
Additional paid-in capital 125,779 131,728
Accumulated deficit (229,551) (197,456)
------------- --------------
Total stockholders' deficit (103,392) (65,356)
------------- --------------
Total liabilities, redeemable stock
and options and stockholders'
deficit $644,110 $ 638,895
============= ==============
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)
For the three months ended March 31,
--------------------------------------
1998 1997
---------------- ------------------
(unaudited)
Revenues $ 27,469 $ 8,177
Operating Expenses
Network, development and operations 19,253 8,669
Selling, general and administrative 19,806 13,925
Non-cash compensation expense 1,633 239
Depreciation and amortization 8,251 4,118
---------------- ------------------
Total Operating Expenses 48,943 26,951
Loss from Operations (21,474) (18,774)
Non-operating income/expenses
Interest and other income (4,376) (884)
Interest and other expense 14,997 6,133
---------------- ------------------
Net loss (32,095) (24,023)
Preferred stock dividends/accretion 8,493 989
---------------- ------------------
Net loss to common stockholders $ (40,588) $(25,012)
================ ==================
Basic and Diluted Loss per Share $ (1.08) $ (3.19)
================ ==================
Average number of common/common
equivalent shares outstanding 37,709,282 7,852,467
================ ==================
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
e.spire COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
For the three months ended March 31,
1998 1997
------------ -------------
(unaudited)
Cash flows from operating activities
Net Loss $ (32,095) $ (24,023)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 7,487 4,118
Interest deferral and accretion 6,881 6,133
Amortization of deferred financing fees 764 -
Noncash compensation, consultants
and other expenses 1,633 239
Changes in operating assets and liabilities:
Restricted cash related to operating
activities - (2,028)
Trade accounts receivable (5,839) (1,733)
Other current assets 2,275 227
Other assets 54 398
Accounts payable 2,984 (4,595)
Other accrued liabilities (3,724) 2,127
-------------- --------------
Net cash used in operating activities (19,580) (19,137)
Cash flows from investing activities
Purchase of furniture and equipment (6,992) (1,893)
Network development costs (20,608) (37,382)
-------------- --------------
Net cash used in investing activities (27,600) (39,275)
Cash flows from financing activities
Payment of deferred financing fees (13,482) (3,000)
Restricted cash related to financing
activities 14,544 -
Other financing activities, net 1,932 946
-------------- --------------
Net cash provided by (used for)
financing activities 2,994 (2,054)
Net decrease in cash & cash equivalents (44,186) (60,466)
Cash and cash equivalents
- beginning of period 260,837 78,619
-------------- --------------
Cash and cash equivalents
- end of period $ 216,651 $ 18,153
============== ==============
Supplemental disclosure of cash flow information
Interest paid $ 14,453 $ -
Assets acquired under capital lease $ 27,604 $ -
Accrual of stock bonuses $ 1,009 $ -
Dividends declared with preferred stock $ - $ 989
Increase in goodwill $ - $ (8,131)
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
e.spire COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The 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 consolidated balance sheet as of March 31, 1998, the consolidated
statements of earnings for the three months ended March 31, 1998 and 1997, and
the consolidated statements of cash flows for the three months ended March 31,
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 March 31, 1998, and for all periods presented, have been made.
Certain amounts in the consolidated statements have been reclassified to conform
to the 1998 presentation. Operating results for the three months ended March 31,
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 1997 annual report to
shareholders.
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 $1,213,000 and $4,370,000 at March 31, 1998 and 1997,
respectively. The face amount of all bonds and letters of credit is
approximately $6,315,000 and $7,372,000 as of March 31, 1998 and 1997,
respectively. In addition, the Company currently has approximately $56,144,000
in an escrow account to be used to fund the next four interest payments of its
13 3/4 percent senior notes due 2007. Approximately $27,108,000 of the escrow
account is classified as current. The escrow account is invested in cash
equivalents consisting of government and commercial securities.
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the Company's
short- and long-term debt securities and marketable equity securities are
accounted for at market value. The fair market value of short- and long-term
investments is determined based on quoted market prices. The Company's
marketable securities have been classified as available for sale and are
recorded at current market value with an offsetting adjustment to stockholders'
equity (deficit). At March 31, 1998 and 1997, fair market value approximated
amortized cost.
Use of Estimates
The preparation of the 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 receives a significant portion of its revenues from a small
number of major customers, particularly the long distance telecommunications
companies that service 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 Internet Service Providers (ISPs).
Such companies operate in a highly competitive and uncertain environment.
Approximately 15% of the Company's revenues for the three months ended March 31,
1998 was attributed to these companies. At March 31, 1998, the Company had trade
accounts receivable of $5.3 million from ISPs. At March 31, 1998, the Company
also has equipment with a carrying value of approximately $13.5 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.
The Company has recorded revenues of approximately $2.4 million in the
first three months of 1998 for reciprocal compensation relating to the transport
and termination of Internet traffic for incumbent local exchange carriers
("ILECs") pursuant to various interconnection agreements. These ILECs have not
paid and have disputed these charges based on the belief that such charges are
not local traffic as defined by the various agreements. 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 any state public utility commission in a state in
which the Company provides switched services or the FCC that would indicate that
calls placed by end users to ISPs would not qualify as local traffic subject to
the payment of reciprocal compensation. At March 31, 1998, the Company had
approximately $4.0 million in trade accounts receivable related to these
interconnection agreements.
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.
Note 4: New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board 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.
<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 primarily in major markets 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 has 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. The Company's facilities-based network
infrastructure is designed to provide services to customers on an end-to-end
basis, and, as of March 31, 1998, was comprised of 1,314 route miles of fiber in
its 32 local networks in 19 states, 44 Newbridge ATM switches, 17 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 has enhanced the scope of its product offerings from dedicated
services to a full range of switched voice, data and Internet services in order
to meetthe needs of business end-users, and is expanding its sales, marketing,
customercare 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. By March 31, 1998, e.spire
had sold 71,581 customer access lines, of which 57,653 were installed,
representing a significant increase over the 360 access lines sold as of March
31, 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 completion of its
own fiber optic network.
<PAGE>
RESULTS OF OPERATIONS
Network Statistics
The following table presents key operating statistics for the Company for
the reporting periods.
<TABLE>
<CAPTION>
Access
Operational Route Fiber Lines 5ESS
As of Date Employees Networks Miles Miles Bldgs VGE Sold Switches
------------ ----------- ---------- ------- ------- ------ --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 834 32 1,314 112,086 1,912 1,059,601 71,581 17
December 31, 1997 803 32 1,061 92,528 1,604 1,052,698 43,581 16
September 30, 1997 699 32 977 85,976 1,239 989,285 28,394 9
June 30, 1997..... 559 31 957 82,693 1,083 886,375 9,177 8
March 31, 1997.... 502 28 908 75,867 858 554,883 360 5
December 31, 1996. 322 21 697 48,792 595 384,134 0 1
September 30, 1996 272 19 543 32,774 532 267,894 0 0
June 30, 1996..... 199 15 386 28,476 216 137,431 0 0
March 31, 1996.... 142 10 200 9,466 133 125,208 0 0
</TABLE>
Employees represent full-time employees of the Company. Operational networks
represent networks that are in service and have revenue generating customers.
VGE represents voice grade equivalent circuits, a measure of service equivalent
to one telephone line actually billed to a customer. Access lines represent
business lines providing switched voice services.
REVENUES
The Company reported an increase in revenues of $19.3 million, or 236%, to
$27.5 million for the three months ended March 31, 1998 compared with revenues
of $8.2 million for the three months ended March 31, 1997. This increase was
primarily attributable to the Company's rapid expansion of its local fiber optic
networks into 32 markets, up from 28 markets at March 31, 1997, and the increase
in route miles , buildings connected and voice and data switches deployed. As of
March 31, 1998, the Company had installed 17 Lucent 5ESS switches, up from 5
Lucent 5ESS switches as of March 31, 1997. In addition, the Company has deployed
44 Newbridge ATM switches over its coast-to-coast data network as of March 31,
1998. Also, access lines sold have increased to 71,581 at March 31, 1998 from
360 at March 31, 1997. For the three months ended March 31, 1998, approximately
31% of the Company's 1998 revenues were derived from special access and
dedicated services, approximately 34% from data and Internet services and
approximately 35% from switched local and other services. For the three months
ended March 31, 1997, approximately 53% of the Company's 1997 revenues were
derived from special access and dedicated services and approximately 47% were
derived from data and Internet services.
OPERATING EXPENSES
Network Development and Operations
Network development and operating expenses for the three months ended March
31, 1998 increased $10.6 million, or 122%, to $19.3 million from $8.7 million
for the same period of 1997. Of these amounts, approximately $16.3 million and
$5.5 million, respectively, represented the costs of telecommunications services
paid to Interexchange Carriers ("IXCs") , ILECs and others for leased
telecommunications facilities and services. In addition, approximately $3.0
million and $3.2 million, respectively, represented network related personnel
costs. The increase in costs was due primarily to the Company's rapid deployment
of operational networks, Lucent 5ESS switches and access lines.
Selling, General and Administrative
For the three months ended March 31, 1998, selling, general and
administrative expenses increased $5.9 million, or 42%, to $19.8 million from
$13.9 million for the same period of 1997. Related personnel costs increased to
$5.8 million for the quarter ended March 31, 1998 from $5.4 million for the
quarter ended March 31, 1997. Corresponding operating costs increased to $14.0
million for the quarter ended March 31, 1998 from $8.5 million for the quarter
ended March 31, 1997. This increase reflected costs associated with the
Company's efforts to significantly expand its network support, sales, marketing
and administrative staff and facilities.
Non-Cash Compensation
Non-cash stock compensation expense increased $1.4 million, or 583%, to $1.6
million for the quarter ended March 31, 1998 from $0.2 million for the quarter
ended March 31, 1997. Included in non-cash compensation for 1998 was
approximately $0.4 million for the issuance of common stock in connection with
1998 performance bonuses paid in the first quarter.
Depreciation and Amortization
Depreciation and amortization expenses increased $4.1 million, or 100%, to
$8.3 million for the three months ended March 31, 1998 from $4.1 million for the
three months ended March 31, 1997. This increase was due to an increase in
capital assets to $336.6 million at March 31, 1998 compared with capital assets
of $282.2 million at December 31, 1997 and capital assets of $186.0 at March 31,
1997 as well as an increased amount of network assets placed in service.
INTEREST AND OTHER INCOME
Interest and other income increased $3.5 million, or 395%, to $4.4 million
for the three months ended March 31, 1998 from $0.9 million for the three months
ended March 31, 1997. The increase in interest and other income reflects the
increase in earnings from the proceeds received from 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) and the 12 3/4% Junior Redeemable Preferred Stock
due 2009 (the "12 3/4% Preferred Stock") which have been invested.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $8.9 million, or 145%, to $15.0 million
for the three months ended March 31, 1998 from $6.1 million for the three months
ended March 31, 1997. The increase reflected the accrual of interest related to
the 12 3/4% Senior Discount Notes due 2006 (the "2006 Notes") and 2007 Notes and
the Company's increased borrowings under the credit facility with AT&T Credit
Corporation.
EBITDA
EBITDA increased $2.8 million, or 20%, to ($11.6) million for the three
months ended March 31, 1998 from ($14.4) million for the three months ended
March 31, 1997. The increase was due to the changes in revenues, network
development and operations and selling, general and administrative expense
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 $8.1 million, or 33.6%, to $32.1 million for the three months ended
March 31, 1998 from $24.0 million for the three months ended March 31, 1997.
Further, net loss to common stockholders increased $15.6 million, or 62%, from
$25.0 million for the same period, due to the increase in preferred stock
dividends and accretion during 1998. This increase is primarily attributable to
the issuance of 14 3/4% Preferred Stock and the 12 3/4% Preferred Stock.
<PAGE>
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. On April 3, 1998, the Company completed an offering of
8,100,000 shares of Common Stock (the "April 1998 Offering"). Of the 8,100,000
shares of Common Stock offered, 7,502,418 were sold by the Company and 597,582
were sold by various selling stockholders. The net proceeds to the Company were
approximately $130 million from the sale of the 7,502,418 shares. Including the
April 1998 Offering, the Company has raised approximately $775 million from debt
and equity financings. The Company estimates that for 1998, capital required for
expansion of its infrastructure and services and to fund negative cash flow will
be approximately $200 million. At March 31, 1998, the Company had approximately
$211.4 million of cash and cash equivalents available for such purposes. 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 are 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.
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.
Management anticipates that the Company's current cash resources are
sufficient to fund the Company's continuing negative cash flow and required
capital expenditures in the near future. To meet its additional remaining
capital requirements and to successfully implement its strategy, the Company
will be required to sell additional equity securities, increase its existing
credit facility, acquire additional credit facilities or sell additional debt
securities, certain of which would require the consent of the Company's debt
holders. Accordingly, there can be no assurance that the Company will be able to
obtain the additional financing necessary to satisfy its cash requirements or to
implement its strategy successfully, in which event the Company will be unable
to fund its ongoing operations, which would have a material adverse effect on
its business, results of operations and financial condition.
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.
The Company also received net proceeds of approximately $4.7 million from the
private sale of an additional 50,000 shares of its preferred stock to a
principal stockholder and the exercise by that stockholder of warrants to
purchase 214,286 shares of Common Stock acquired in the Company's June 1995
preferred stock private placement.
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 April 15, 1997, the Company completed the offering of 8,000,000 shares of
Common Stock. In connection therewith, the Company completed the sale of an
additional 660,000 shares on May 14, 1997 upon exercise of the underwriters'
over-allotment option and received aggregate net proceeds of approximately $40.0
million from the sale of these 8,660,000 shares.
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 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.
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 December 30, 1997, the Company entered into 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. Payments of interest
on borrowings under the New AT&T Credit Facility are payable quarterly,
commencing in December 1998.
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 totaling $27,604,000.
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 99.1 to the Company's Annual Report on Form 10-KSB for the
fiscal period 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
e.spire's former Chief Financial Officer, Harry J. D'Andrea, initiated
litigation against the Company in the Circuit Court of Maryland for Anne Arundel
County. The lawsuit alleges four different counts: breach of contract; breach of
the covenant of good faith and fair dealing; negligent misrepresentation; and
specific performance. D'Andrea seeks damages in excess of $5,000,000, and the
right to exercise options to purchase 100,000 shares of Common Stock at $4.25
per share. The litigation currently is in the discovery stage, and a trial date
has been scheduled for July 1998. The Company believes it has meritorious
defenses to the complaint and intends to defend this lawsuit vigorously.
Additionally, 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 new regulations.
ITEM 2 -- Changes in Securities
On April 3, 1998, the Company completed the offering of 8,100,000 shares of
Common Stock. Of the 8,100,000 shares of Common Stock offered, 7,502,418 were
sold by the Company and 597,582 were sold by various selling stockholders. The
net proceeds to the company were approximately $130 million from the sale of the
7,502,418 shares.
On March 31, 1998, the Company issued additional warrants to MCI to purchase
22,921 shares of the Company's Common Stock at $16.88 per share. The shares 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.
ITEM 5 -- Other Information
On April 15, 1998, the Company announced that it had changed its name from
American Communications Services, Inc. (ACSI) to e.spire Communications, Inc.
ITEM 6 -- Exhibits and Reports On Form 8-K
(a) Exhibits
Exhibit
Number Description
11 Statement re computation of per share earnings
27 Financial Data Schedule
99 Supplemental Financial Information
<PAGE>
(b) Reports on Form 8-K
(a) On January 8, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the extension of its offer to exchange its 13 3/4%
Senior Notes due 2007 to January 16, 1998.
(b) On January 20, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the extension of its offer to exchange its 13 3/4%
Senior Notes due 2007 to January 23, 1998.
(c) On January 20, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing that the Company had entered into a Loan and
Security Agreement with AT&T Commercial Finance Corporation.
(d) On January 26, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the extension of its offer to exchange its 13 3/4%
Senior Notes due 2007 to January 27, 1998.
(e) On January 28, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the extension of its offer to exchange its 13 3/4%
Senior Notes due 2007 to February 2, 1998.
(f) On February 3, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the extension of its offer to exchange its 13 3/4%
Senior Notes due 2007 to February 3, 1998.
(g) On March 17, 1998, the Company filed with the SEC a Current Report on
Form 8-K announcing the filing of Amendment No. 1 to a Registration
Statement on Form S-3 filed on March 2, 1998 (File Number 333-47155)
relating to the sale of shares of its common stock, par value $0.01.
(h) On April 14, 1998, the Company filed with the SEC a Current Report on
Form 8-K, announcing the filing of a Certificate of Ownership and
Merger with the Secretary of State of Delaware on April 13, 1998,
merging e.spire Communications, Inc., a wholly-owned subsidiary, into
the Company, in accordance with the provisions of Sections 103 and 253
of the General Corporation Law of the State of Delaware (the "Merger").
At the effective time of the Merger, the name of the surviving
corporation was changed to e.spire Communications, Inc.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
e.spire Communications, Inc.
----------------------------
(Registrant)
/s/ JACK E. REICH
-----------------
Jack E. Reich,
May 15, 1998 President and Chief Executive Officer
/s/ DAVID L. PIAZZA
-------------------
David L. Piazza
May 15, 1998 Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
11 Statement re: computation
of per-share earnings (loss) E-1
27 Financial Data Schedules E-2
99 Supplemental Financial Information E-3
EXHIBIT 11
e.spire COMMUNICATIONS, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
($ in thousands, except per share data)
Three months ended March 31,
1998 1997
--------------- -----------------
Net Loss $ (32,095) $ (24,023)
Less: Preferred Stock Accretion 8,493 989
--------------- -----------------
Net Loss to Common Stockholders $ (40,588) $ (25,012)
=============== =================
AVERAGE SHARES OUTSTANDING
Weighted Average Number of
Common Shares Outstanding 37,709,282 7,852,467
Net additional shares assuming
stock options and warrants
exercised and proceeds used
to purchase treasury stock 11,938,445 5,808,878
--------------- -----------------
Weighted average number of
common and common equivalent
shares outstanding 49,647,727 13,661,345
=============== ==================
PER SHARE AMOUNTS
Basic earnings per share $ (1.08) $ (3.19)
=============== ==================
Diluted earnings per share $ (0.82) $ (1.83)
=============== ==================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM e.spire
COMMUNICATIONS, INC. FORM 10-Q FOR THE THREE MONTHS ENDED 3/31/98 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 243,758
<SECURITIES> 0
<RECEIVABLES> 22,974
<ALLOWANCES> (1,621)
<INVENTORY> 3,852
<CURRENT-ASSETS> 268,963
<PP&E> 337,356
<DEPRECIATION> (38,958)
<TOTAL-ASSETS> 644,110
<CURRENT-LIABILITIES> 39,997
<BONDS> 467,290
0
213,652
<COMMON> 380
<OTHER-SE> (103,772)
<TOTAL-LIABILITY-AND-EQUITY> 644,110
<SALES> 0
<TOTAL-REVENUES> 27,469
<CGS> 19,253
<TOTAL-COSTS> 19,806
<OTHER-EXPENSES> 5,508
<LOSS-PROVISION> 727
<INTEREST-EXPENSE> 14,997
<INCOME-PRETAX> (32,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,095)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
EXHIBIT 99
e.spire COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
YEAR TO DATE - MARCH 31, 1998
($'s in thousands)
Networks Networks
Networkd Placed Placed Placed
in Service in Service in Service
Prior to 12/31/95 During During
1996 1997
--------------- --------------- -----------
Property, Plant & Equipment $ 122,942 $ 92,119 $ 99,982
Revenues $ 11,262 $ 5,371 $ 5,696
EBITDA $ (886) $ (952) $ (1,837)
EBIT $ (2,805) $ (2,497) $ (3,356)
Network Statistics (cumulative)
Access Lines Sold 23,910 16,184 31,487
Fiber Miles 37,634 38,895 35,557
Route Miles 609 407 298
Buildings Connected 1,035 542 335
Voice Grade Equivalents 522,204 331,028 206,369
