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: June 30, 1999
[ ] 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 No.)
organization)
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:
The number of shares at e.spire Common Stock, Par Value $0.01 outstanding on
August 5, 1999 was 50,153,942.
===============================================================================
<PAGE>
e.spire COMMUNICATIONS, INC.
FORM 10 -- Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1999 (unaudited)
and December 31, 1998 1
Condensed Consolidated Statements of Operations --
Three and Six Months Ended June 30, 1999 and 1998 (unaudited) 2
Condensed Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1999 and 1998 (unaudited) 3
Notes to Unaudited Condensed Consolidated
Interim Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and reports on Form 8-K 16
Signatures.................................................................. 17
Index of Exhibits........................................................... 18
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
e.spire COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 120,427 $328,758
Restricted cash and investments 31,683 30,769
Trade accounts receivable, net of allowance for doubtful accounts
of $10,325 and $5,581 at June 30, 1999 and December 31, 1998,
respectively 81,780 42,254
Unbilled revenue 10,774 12,093
Other current assets 7,233 8,742
-------------- --------------
Total current assets 251,897 422,616
-------------- --------------
Networks, equipment and furniture, gross 714,009 561,954
Less: accumulated depreciation and amortization (115,847) (76,020)
-------------- --------------
598,162 485,934
Deferred financing fees, net of accumulated amortization of
$10,349 and $7,855 at June 30, 1999 and December 31, 1998,
respectively 40,264 42,184
Intangible assets, net of accumulated amortization of
$7,832 and $3,897 at June 30, 1999 and December 31, 1998,
respectively 10,822 14,743
Restricted cash and investments 0 15,125
Other assets 7,439 2,355
-------------- --------------
Total assets $ 908,584 $ 982,957
============== ==============
LIABILITIES, REDEEMABLE STOCK, AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable - current portion $ 3,063 $ 2,188
Obligations under capital leases - current portion 5,885 3,607
Accounts payable 53,046 66,647
Accrued interest 13,865 13,864
Accrued employee costs 8,081 1,682
Other accrued liabilities 9,795 8,894
-------------- --------------
Total current liabilities 93,735 96,882
-------------- --------------
Long Term Liabilities:
Notes payable, less current portion 749,844 723,105
Obligations under capital leases, less current portion 34,006 20,915
Other long-term liabilities 3,408 2,745
-------------- --------------
Total liabilities 880,993 843,647
-------------- --------------
Redeemable stock
14 3/4% Redeemable Preferred Stock due 2008 78,324 70,136
12 3/4% Junior Redeemable Preferred Stock due 2009 182,360 170,908
-------------- --------------
Total redeemable stock 260,684 241,044
Stockholders equity (deficit):
Common Stock, $0.01 par value, 125,000,000 shares authorized,
49,993,630 and 48,446,064 shares, respectively, issued and outstanding 500 484
Additional paid-in capital 243,507 258,317
Accumulated deficit (477,100) (360,535)
-------------- --------------
Total stockholders' deficit (233,093) (101,734)
-------------- --------------
Total liabilities, redeemable stock and options and stockholders' deficit $ 908,584 $ 982,957
============== ==============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
e.spire COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data)
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- ---------------------------------------
1999 (a) 1998 1999 (a) 1998
----------------- ------------------ ------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Telecommunications services $ 44,755 $ 28,974 $ 84,788 $ 55,118
Network technologies services 18,565 6,778 36,605 8,103
----------------- ------------------ ------------------ -----------------
Total revenues 63,320 35,752 121,393 63,221
Cost of sales:
Telecommunications services 28,484 23,009 56,618 42,127
Network technologies services 10,778 1,335 19,881 1,470
----------------- ------------------ ------------------ -----------------
Total cost of sales 39,262 24,344 76,499 43,597
Gross margin:
Telecommunications services 16,271 5,965 28,170 12,991
Network technologies services 7,787 5,443 16,724 6,633
----------------- ------------------ ------------------ -----------------
Total gross margin 24,058 11,408 44,894 19,624
Operating expenses:
Selling, general and administrative 37,830 21,648 74,052 41,454
Noncash compensation expense 2,144 1,794 5,193 3,427
Depreciation and amortization 23,502 9,777 43,677 17,383
----------------- ------------------ ------------------ -----------------
Total operating expenses 63,476 33,219 122,922 62,264
Loss from operations (39,418) (21,811) (78,028) (42,640)
Nonoperating income/expenses
Interest and other income (3,251) (5,615) (7,518) (9,991)
Interest and other expense 23,210 16,249 46,055 31,891
----------------- ------------------ ------------------ -----------------
Net loss (59,377) (32,445) (116,565) (64,540)
Preferred stock dividends and accretion 10,000 8,607 19,697 17,100
----------------- ------------------ ------------------ -----------------
Net loss applicable to common stockholders $ (69,377) $ (41,052) $ (136,262) $ (81,640)
================= ================== ================== =================
Basic and diluted net loss per common share $ (1.40) $ (0.91) $ (2.77) $ (1.97)
================= ================== ================== =================
Weighted average number of common
shares outstanding 49,696,463 45,281,794 49,191,841 41,495,538
================= ================== ================== =================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
(a) Interest and other income includes a $450 gain associated with the sale of
switched resale lines.
<PAGE>
<TABLE>
<CAPTION>
e.spire COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
For the six months ended June 30,
1999 1998
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
Net Loss $ (116,565) $ (64,540)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 43,761 17,383
Interest deferral and accretion 28,489 14,108
Amortization of deferred financing fees 2,494 1,756
Noncash compensation 5,193 3,427
Non-monetary revenue (11,862) (4,606)
Changes in operating assets and liabilities:
Trade accounts receivable (26,345) (13,124)
Other current assets (3,491) 1,330
Other assets (84) (166)
Accounts payable (13,601) 10,923
Other accrued liabilities 3,911 4,234
-------------------- --------------------
Net cash used in operating activities (88,100) (29,275)
Cash flows from investing activities
Payments for networks, equipment
and furniture (132,726) (79,752)
-------------------- --------------------
Net cash used in investing activities (132,726) (79,752)
Cash flows from financing activities
Issuance of common stock - 135,227
Payment of dividends for preferred stock (57) -
Payment of notes payable (875) -
Payment of lease obligation (3,960) -
Payment of deferred financing fees (574) (14,669)
Restricted cash related to financing activities 14,211 12,438
Exercise of warrants, options and other 3,750 9,775
-------------------- --------------------
Net cash provided by financing activities 12,495 142,771
Net (decrease) increase in cash & cash equivalents (208,331) 33,744
Cash and cash equivalents - beginning of period 328,758 260,837
==================== ====================
Cash and cash equivalents - end of period $ 120,427 $ 294,581
==================== ====================
Supplemental disclosure of cash flow information:
Interest paid $ 18,636 $ 14,453
Assets acquired under capital lease $ 19,329 $ 37,045
Dividends declared with preferred stock $ 13,411 $ 11,742
Increase in intangibles $ 14 $ 1
Accrual of stock bonuses $ 4,053 $ 1,859
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<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 June 30, 1999, the condensed
consolidated statements of operations for the three and six months ended June
30, 1999 and 1998, and the condensed consolidated statements of cash flows for
the six months ended June 30, 1999 and 1998, 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 June 30, 1999, and for all periods
presented, have been made. Certain amounts in the 1998 condensed consolidated
statements have been reclassified to conform to the 1999 presentation. Operating
results for the three and six months ended June 30, 1999, 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-K for the fiscal year ended December 31, 1998.
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 $3,931,000 at June 30, 1999, and $1,223,000 at
December 31, 1998. The face amount of all bonds and letters of credit is
approximately $17,583,000 as of June 30, 1999, and $12,292,000 as of December
31, 1998. In addition, as of June 30, 1999, the Company currently has
approximately $27,752,000 in an escrow account to fund the next two interest
payments of its 13 3/4 % senior notes due 2007. 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.
Risks and Uncertainties
The Company has recorded revenue of approximately $10.7 million and $18.8
million, respectively, for the three and six months ended June 30, 1999 and
approximately $4.1 million and $6.6 million for the same period of 1998 for
reciprocal compensation relating to the transport and termination of local
traffic primarily to Internet service providers ("ISPs") from customers of
incumbent local exchange carriers ("ILECs") pursuant to various interconnection
agreements. These ILECs have not paid and have disputed the majority of these
charges, based on the belief that such calls are not local traffic, as defined
by the various agreements and under state and federal laws and public policies.
The resolution of these disputes will be based on rulings by state public
utility commissions ("PUCs"), the Federal Communications Commission ("FCC"), the
courts and/or commercial arbitrators. The FCC ruled that ISP-bound traffic is
jurisdictionally "interstate in nature", but delegated to state PUCs the
decision of whether reciprocal compensation must be paid under the terms of
local interconnection agreements. To date, there have been no unfavorable final
rulings concerning payment of past due reciprocal compensation amounts for ISP
traffic in states that e.spire billed reciprocal compensation through June 30,
1999. The Company has outstanding trade accounts receivable related to
reciprocal compensation of approximately $31.4 million at June 30, 1999.
Although, there can be no assurance that future regulatory rulings will be
favorable to the Company, and, the timing of receipts cannot be predicted at
this time, the Company believes that all of these amounts are ultimately
collectible.
Certain of the Company's interconnection agreements with the ILECs have
expired or soon will expire. The Company believes that there is risk that the
future rates for reciprocal compensation under new interconnection agreements,
some of which are currently in negotiation, may be significantly less than
current rates.
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 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, " Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of all
fiscal years beginning June 15, 2000. The Company is currently assessing the
impact of this standard.
In June 1999, the FASB issued FASB Interpretation No. 43, "Real Estate Sales
: An interpretation of FASB Statement No.66," which is effective for all
transactions entered into after June 30, 1999. The Company is currently
assessing the impact of this interpretation and such impact could be
significant.
Note 5: Segment Reporting
During 1998, the Company adopted Statement of Financial Accounting Standard
No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise and
Related Information." The Company has identified two reportable segments:
Telecommunications services and Network Technologies services. The
Telecommunications services segment provides special access, local switched
voice, data transmission, and Internet services, over the Company's own
facilities and on a limited resale basis. The Network Technologies services
segment offers fiber optic network design, project management and construction
services. The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business unit requires different technology and marketing strategies.
The Company evaluates the performance of each segment based on revenues from
third parties and gross margin, which are separately disclosed on the condensed
consolidated statement of operations for each segment. The reportable total
assets for Telecommunications services and Network Technologies services are
approximately $873.3 million and $35.3 million, respectively at June 30, 1999.
Network Technologies services assets primarily consist of accounts receivable
and property, plant and equipment that are specifically identifiable with
Network Technologies.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections herein,
including statements regarding the development of the Company's businesses, the
markets for the Company's services and products, the Company's anticipated
capital expenditures, and other similar statements are forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) which can be identified as any statement that does not relate
strictly to historical or current facts. Forward-looking statements use such
words as plans, expects, will, will likely result, are expected to, will
continue, is anticipated, estimate, project, believes, anticipates, intends,
may, should, continue, seek, could and other similar expressions. Although the
Company believes that its expectations are based on reasonable assumptions, it
can give no assurance that its expectations will be achieved. The important
factors that could cause actual results to differ materially from those in the
forward-looking statements herein (the "Cautionary Statements") include, without
limitation, the Company's degree of financial leverage, risks associated with
debt service requirements and interest rate fluctuations, risks associated with
acquisitions and the integration thereof, the impact of restriction under the
Company's financial instruments, dependence on availability of transmission
facilities, regulation risks including the impact of the Telecommunications Act
of 1996, contingent liabilities, the impact of competitive services and pricing,
the ability of the Company to successfully implement its strategies, as well as
the other risks referenced from time to time in the Company's filings with the
SEC, including the Company's Form 10-K for the year ended December 31, 1998. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. The Company does not undertake any
obligation to release publicly any revisions to such forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
OVERVIEW
e.spire seeks to be a leading facilities-based integrated communications
provider ("ICP") to small- and medium-sized businesses. The Company is one of
the first Competitive Local Exchange Carriers ("CLECs") to combine the provision
of voice services, such as dedicated access, local, and long distance, with
advanced data services, such as frame relay, asynchronous transfer mode ("ATM"),
and Internet services. The Company currently offers voice services in 37 U.S.
markets where it has state-of-the-art local fiber optic networks and offers data
services in 48 U.S. markets where it provides access to 387 data
points-of-presence ("POPs"). Through its subsidiary, ACSI Network Technologies,
Inc. ("ACSI NT"), e.spire also offers network design and construction services
to CLECs, interexchange carriers ("IXCs"), corporations, and municipalities in
selected markets throughout the U.S.
While the ILECs, such as BellSouth, SBC Communications, Bell Atlantic,
Ameritech, U S West, and GTE, still dominate most local markets given their long
history of monopoly control, regulatory changes have clearly mandated their
markets to be subject to competition. Enabled by the Federal Telecommunications
Act of 1996, e.spire can bundle a broader suite of service offerings over a
wider geography, combined with the ability to price more competitively, than its
Regional Bell Operating Company competitors. Moreover, e.spire has
state-of-the-art network technology, compared to most of the legacy systems and
infrastructure of the ILECs. These competitive advantages have enabled the
Company to compete successfully thus far and create the opportunity for future
increases in market penetration. The Company targets small- and medium-sized
businesses for fully bundled voice and high-speed data services, a niche that is
largely underserved by the ILECs and other CLECs.
As of June 30, 1999, e.spire had 118,075 local access lines in service, of
which approximately 83% were on-switch. These lines represent approximately
13,000 customers. The Company's facilities-based network infrastructure is
designed to provide services to customers seeking end-to-end connectivity. As of
June 30, 1999, e.spire's infrastructure was comprised of 3,647 route miles of
fiber in its 37 local voice markets throughout the Southeast and Eastern
seaboard of the United States, 25 Lucent 5ESS voice switches, 103 central office
co-locations, and approximately 26,000 backbone long-haul route miles in its
leased coast-to-coast broadband data network. Further complementing the data
infrastructure, e.spire has 387 data POPs which are a combination of both
e.spire's infrastructure and various network-to-network interconnection
arrangements. e.spire is a Tier 1 Internet provider and has more than 50 public
and private peering arrangements to date, which should ensure robust
connectivity to all Internet destinations. e.spire provides dial-up Internet
service and web hosting through its wholly owned subsidiary CyberGate.
In the second quarter of 1999, e.spire announced the lighting of its
182-mile network in New York. In addition, e.spire recently turned up services
in three new Tier 1 cities, Atlanta, South Florida (Ft. Lauderdale/Miami), and
San Antonio, with local fiber-optic networks and Lucent 5ESS switches. By the
end of 1999, e.spire plans to add service in other Tier 1 markets including
Philadelphia and Washington, DC/Northern Virginia, and to provide long-haul
transport services between New York and Baltimore through a long-term dark
fiber lease with Metromedia Fiber Network, Inc.
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, have
resulted in a negative cash flow until an adequate customer base is
established. However, as the Company's customer base grows, the Company expects
that as a facilities-based provider, incremental revenues can be generated with
decreasing incremental operating expenses, which will 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.
Telecommunication Services
e.spire's Telecommunications services include local, long distance, special
access services, high-speed data and Internet services, including dial-up and
dedicated Internet access, frame relay, and ATM. To become a single source
provider of voice and data services, e.spire has introduced one of the
industry's first integrated product lines offering bundled local and long
distance together with data and Internet services. The Company also provides
value-added services such as web hosting, messaging and e-commerce solutions,
custom network services (which includes design, installation, maintenance,
hardware, and configuration of a customer's network), and firewall services
(security and monitoring of a customer's network). In the first quarter of 1999,
the Company announced that it signed an agreement with Covad Communications,
Inc. ("Covad") that enables it to offer digital subscriber line ("DSL") service,
a high-speed enabling technology providing a "last mile" connection to the
Internet. e.spire is currently in DSL beta-testing phase with Covad, and expects
to introduce its first DSL service in the second half of 1999, starting in
selected e.spire markets.
The Company is already expanding its data and Internet offerings to some of
the larger Tier 1 markets across the U.S. e.spire plans to launch during the
second half of 1999 dial-up Internet service to small- and medium-sized business
customers in 25 cities where it already provides local switched services.
Network Technologies Services
Through its ACSI NT subsidiary, e.spire designs and constructs high-speed,
advanced fiber-optic networks for managing third parties, such as other CLECs,
IXCs, corporations, and municipalities. ACSI NT provides expertise for
engineering, and construction processes and outsources the actual physical
construction work to subcontractors. ACSI NT performs preliminary market
analysis, develops business plans, performs site assessments, manages liability
and risk, manages construction, installs fiber, and monitors completed networks.
The continued growth of the Internet and bandwidth-intensive advanced data
services, together with deregulation and technology improvements, has generated
increasing demand for telecommunications network design and construction. ACSI
NT has demonstrated its expertise in building virtually all of e.spire's
high-quality networks for e.spire's own use. It has leveraged its network
expertise up to third parties and has developed a business that is a low risk,
opportunistic, and a diversified source of revenues with healthy margins, all
with a limited use of the Company's capital.
<PAGE>
RESULTS OF OPERATIONS
REVENUES
The Company reported an increase in total revenues of $27.5 million, or 77%,
to $63.3 million for the three months ended June 30, 1999, compared with
revenues of $35.8 million for the three months ended June 30, 1998, as discussed
below. For the six months ended June 30, 1999, total revenues increased $58.2
million, or 92%, to $121.4 million from $63.2 million for the same period of
1998, as discussed below.
Telecommunications services
The Company reported an increase in telecommunications services revenues of
$15.8 million, or 55%, to $44.8 million for the quarter ended June 30, 1999,
compared with revenues of $29.0 million for the quarter ended June 30, 1998. For
the six months ended June 30, 1999, telecommunications services revenues
increased $29.7 million, or 54% to $84.8 million from $55.1 million for the six
months ended June 30, 1998. Included in Telecommunications services are revenues
from the dedicated access, switched local, long distance, reciprocal
compensation and data/Internet products. The increase in revenues was
attributable to the Company's continued greater presence and expansion in its
markets. Also, bundled service offerings such as e.spire Platinum and Gold have
contributed to the increase in revenues. The Company also increased the number
of route miles, fiber miles, co-locations, buildings connected, voice switches
and data POPs. Between June 30, 1998 and June 30, 1999, the Company increased
route miles by 2,214 miles, or 155%, increased fiber miles by 42,238 or 34%,
co-locations increased by 35 or 51% and buildings connected increased by 1,295,
or 54%. Lucent 5ESS switches deployed increased to 25 as of June 30, 1999, from
17 as of June 30, 1998. In addition, the growth is attributable to the Company's
leased coast-to-coast broadband network infrastructure by which it delivers both
ATM and frame relay products via its 387 data POPs which are a combination of
both e.spire's infrastructure and various network-to-network interconnection
arrangements. The number of data POPs has increased to 387 as of June 30, 1999,
from 223 as of June 30, 1998. Gross access lines installed increased by 32,442,
or 38% to 118,075 at June 30, 1999, from 85,633 at June 30, 1998. In line with
the Company's previously announced initiative to eliminate local switched
resale, over 36,000 resale lines have been eliminated from the access line base
through forced attrition and a multi-phase sale. At June 30, 1999, approximately
83% of total installed lines were "on-switch" versus approximately 33% as of
June 30, 1998.
Included in telecommunications services revenues is reciprocal compensation
of approximately $10.7 million and $4.1 million, for the three months ended June
30, 1999 and 1998, respectively, and approximately $18.8 million and $6.6
million for the six months ended June 30, 1999 and 1998, respectively, relating
to the transport and termination of local traffic primarily to ISPs from ILEC
customers, pursuant to various interconnection agreements. These ILECs have not
paid and have disputed the majority of these charges based on the belief that
such calls are not local traffic as defined by the various agreements and under
state and federal law and public policies. The resolution of these disputes will
be based on rulings by state PUCs, the FCC, the courts and/or commercial
arbitrators. The FCC ruled that ISP-bound traffic is jurisdictionally
"interstate in nature" but delegated to state PUCs the decision of whether
reciprocal compensation must be paid under the terms of local interconnection
agreements. To date, there have been no unfavorable final rulings concerning
payment of past due reciprocal compensation amounts for ISP traffic in states in
which e.spire billed reciprocal compensation through June 30, 1999. Although
there can be no assurance that future decisions will be favorable to the
Company, the Company believes that all of these amounts are ultimately
collectible, although the timing of receipts cannot be predicted at this time.
Network technologies services
Network technologies services revenues increased $11.8 million, or 174%, to
$18.6 million for the three months ended June 30, 1999, compared with revenues
of $6.8 million for the three months ended June 30, 1998. For the six month
periods ended June 30, 1999 and 1998, network technologies services revenues
increased $28.5 million, or 352%, to $36.6 million from $8.1 million,
respectively. The increase in revenues is attributable to the continued growth
in the size and number of construction contracts in this expanded operation. The
network technologies segment offers fiber-optic network design, project
management and construction services by ACSI NT. Also, included in network
technologies revenues are revenues for construction contracts and grants of
IRUs on portions of e.spire's networks to IXCs
and other customers. The Company recognized approximately $6.2 million and $11.9
million for the three and six months ended June 30, 1999, respectively, in
revenues from agreements to exchange IRU multiple fibers along certain sections
of e.spire's networks for dissimilar assets or for IRUs on other company's
networks with substantial cash payments. Included in the three and six months
ended June 30, 1999, revenues of approximately $10.2 million and $19.3 million,
respectively, were derived from contracts with two major customers. The Company
expects to see continued increases in revenues from network technologies due to
future growth and expansion in this line of business.
COST OF SALES
For the quarter ended June 30, 1999, compared with the quarter ended June
30, 1998, total cost of sales increased $14.9 million, or 61%, to $39.3 million
from $24.3 million for the three months ended June 30, 1998, as discussed below.
Cost of sales increased $32.9 million, or 75%, to $76.5 million for the six
months ended June 30, 1999 from $43.6 million for the same period of 1998, as
discussed below.
Telecommunications services
Cost of sales for telecommunications services increased $5.5 million, or
24%, to $28.5 million for the quarter ended June 30, 1999, from $23.0 million
for the same period of 1998. For the six months ended June 30, 1999,
telecommunications services cost of sales increased $14.5 million, or 34%, to
$56.6 million from $42.1 million for the six months ended June 30, 1998. These
increases relate to growth in the delivery of switched, data and special access
services and the addition of engineering and operations personnel dedicated to
supporting the network infrastructure.
Included in cost of sales are costs of telecommunications services paid to
IXCs, ILECs and others for leased telecommunications facilities, access and
services. Such costs increased approximately $5.5 million to approximately $25.9
million for the three months ended June 30, 1999, from approximately $20.4
million for the three months ended June 30, 1998. For the six months ended June
30, 1999, these costs increased approximately $15.5 million to $52.0 million
compared with $36.5 million for the same period of 1998. In addition, network
related personnel costs such as employee salaries and benefits are also included
in cost of sales. For the three months ended June 30, 1999 and 1998, these costs
were approximately $2.6 million for each period. For the six months ended
June 30, 1999 and 1998, these costs decreased approximately $1.0 million to
approximately $4.6 million from $5.6 million, respectively.
Network technologies services
Cost of sales for network technologies services increased $9.4 million, to
approximately $10.8 million for the quarter ended June 30, 1999, compared with
$1.3 million for the same period of 1998. For the six months ended June 30,
1999, cost of sales increased $18.4 million to $19.9 million from $1.5 million
for the same period of 1998. Included in network technologies cost of sales are
direct materials and labor associated with the construction of networks and
costs associated with contracted services. The costs are attributable to the
increased growth in this expanded line of business. The Company expects this
growth to continue into the future as the network technologies segment continues
to expand.
GROSS MARGIN
For the quarter ended June 30, 1999, total gross margins increased $12.7
million, or 111%, to $24.1 million from $11.4 million for the quarter ended June
30, 1998, as discussed below. Gross margins increased $25.3 million, or 129%, to
$44.9 million for the six months ended June 30, 1999 from $19.6 million for the
same period of 1998, as discussed below.
Telecommunications services
Telecommunications services gross margins increased $10.3 million, or 173%
to $16.3 million for the quarter ended June 30, 1999 from $6.0 million for the
same period of 1998. For the six months ended June 30, 1999, telecommunications
services gross margins increased $15.2 million, or 117%, to $28.2 million from
$13.0 million for the six months ended June 30, 1998. These increases were
primarily due to increases in reciprocal compensation as described above. In
addition, increased sales volume and the Company's continued effort to
aggressively exit the resale business contributed to the increased gross
margins. Also, the Company continues to achieve network cost savings through
negotiations with vendors.
Network technologies services
Network technologies services gross margin increased $2.3 million, or 43% to
$7.8 million for the three months ended June 30, 1999 from $5.4 million for the
three months ended June 30, 1998. For the six months ended June 30, 1999,
network technologies services gross margin increased $10.1 million, or 152%, to
$16.7 million from $6.6 million for the six months ended June 30, 1998. The
increase was due to increases in revenue as described above and the sale of
broader range projects during the period.
OPERATING EXPENSES
Selling, General and Administrative
For the quarter ended June 30, 1999, selling, general and administrative
("SG&A") expenses increased $16.2 million, or 75%, to $37.8 million from $21.7
million for the same period of 1998, as discussed below. SG&A expenses increased
$32.6 million, or 79%, to $74.1 million for the six months ended June 30, 1999
from $41.5 million for the same period of 1998, as discussed below.
Included in SG&A expenses are personnel costs such as employee salaries,
benefits and commissions. Such costs increased $7.4 million, to $15.1 million
for the quarter ended June 30, 1999 from $7.7 million for the quarter ended June
30, 1998. For the six months ended June 30, 1999, these costs increased
approximately $14.4 million to $29.5 million compared with $15.1 million for the
same period of 1998. Also, included in SG&A expenses are operating costs such as
rent, advertising, general administrative and office expenses. These expenses
increased $8.7 million, to $22.7 million for the quarter ended June 30, 1999
from $14.0 million for the quarter ended June 30, 1998. For the six months ended
June 30, 1999, these costs increased approximately $18.2 million to $44.6
million compared with $26.4 million for the same period of 1998.
Increases in SG&A expenses are a result of the Company's efforts directed at
obtaining more "on-switch" and "on-net" customers through direct sales. The
primary costs associated with the increase in direct sales include salaries and
commissions that have increased from 1998 and are expected to continue to
increase as the Company continues to generate new customers. Another factor
contributing to the increases in SG&A expenses were backoffice expenses
which were a result of increases in personnel and professional service costs
associated with the Company's rapid growth which was necessary to maintain and
improve existing processes. In addition, the Company continues the
implementation of its operational support systems ("OSS") program over the
next 12-18 months in which, it will continue to invest capital. As these
systems are being installed, the Company will continue to incur backoffice
operating expenses to support the existing processes. The Company also
continues to incur increased expenses associated with its growth, including
costs related to its increased revenues and the increase in number of office
locations and facilities. In addition, costs associated with Y2K
remediation efforts have also contributed to the increases.
Non-Cash Stock Compensation
Non-cash stock compensation expense increased $0.4 million, or 20%, to $2.1
million for the quarter ended June 30, 1999, from $1.8 million for the quarter
ended June 30, 1998. Non-cash stock compensation expenses increased $1.8
million, or 52%, to $5.2 million for the six months ended June 30, 1999 from
$3.4 million for the same period of 1998.
Included in non-cash compensation are accruals for the issuance of common
stock in connection with performance bonuses and costs of grants of employee
stock options. Costs associated with the accrual for performance bonuses were
approximately $2.0 million and $1.2 million for the quarters ended June 30, 1999
and 1998, respectively, and $4.1 million and $2.3 million for the six months
ended June 30, 1999 and 1998. The costs for the compensation associated with
stock option plans was approximately $0.1 million for the quarter ended June 30,
1999, and $0.6 million for the same period of 1998. For the six months ended
June 30, 1999, stock option plan costs were approximately $1.1 million compared
with $1.1 million for the six months of 1998.
Depreciation and Amortization
Depreciation and amortization expenses increased $13.7 million, or 140%, to
$23.5 million for the quarter ended June 30, 1999, from $9.8 million for the
quarter ended June 30, 1998. Depreciation and amortization expenses increased
$26.3 million, or 151%, to $43.7 million for the six months ended June 30, 1999
from $17.4 million for the same period of 1998. These increases were due to an
increase in gross capital assets to $714.0 million at June 30, 1999, compared
with capital assets of $397.5 million at June 30, 1998.
INTEREST AND OTHER INCOME
Interest and other income decreased $2.4 million, or 42%, to $3.3 million
for the quarter ended June 30, 1999, from $5.6 million for the quarter ended
June 30, 1998. Interest and other income decreased $2.5 million, or 25%, to $7.5
million for the six months ended June 30, 1999 from $10.0 million for the same
period of 1998. Included in interest and other income is a gain of approximately
$0.4 million associated with the sale of certain customer lines and the related
accounts receivable. The sale of the customer base was part of the Company's
strategy to eliminate its switched resale business. The decrease in interest and
other income reflects the decrease in the unrestricted cash and cash equivalents
balance from June 30, 1998 to June 30, 1999. These funds have been invested in
commercial paper, U.S. Government Securities and money market instruments.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $7.0 million, or 43%, to $23.2 million
for the quarter ended June 30, 1999, from $16.2 million for the quarter ended
June 30, 1998. Interest and other expense increased $14.2 million, or 44%, to
$46.1 million for the six months ended June 30, 1999 from $31.9 million for the
same period of 1998. The increase was primarily due to the accrual of interest
related to the 10 5/8% Senior Discount Notes due 2008 (the "2008 Notes") which
were issued in July 1998. Furthermore, 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") and the interest expense associated
with the Company's capital leases also contributed to the increase in interest
expense.
EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
decreased by $3.1 million, or 30%, to a loss of $13.3 million for the quarter
ended June 30, 1999, from a loss of $10.2 million for the same period of 1998.
EBITDA decreased $6.9 million, or 32% to $28.7 million for the six months ended
June 30, 1999 from $21.8 million for the same period of 1998. The decrease was
due to the increases in cost of sales and SG&A expenses which offset the
increases in revenues as discussed above.
EBITDA consists of net income (loss) before net interest, income taxes,
depreciation and amortization, non-cash stock compensation and, for the quarter
and year-to-date periods ended June 30, 1999, includes
a gain of approximately $0.4 million associated with the elimination of the
Company's switched resale line of business. EBITDA is a measure commonly used
in the telecommunications industry and is presented to assist in understanding
the Company's operating results. However, it is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles.
NET LOSS & NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
As a result of the previously discussed increases in revenues, cost of
sales, operating expenses, depreciation and amortization, and interest income
and expense, net loss increased $26.9 million, or 83%, to $59.4 million for the
quarter ended June 30, 1999, from a loss of $32.4 million for the quarter ended
June 30, 1998. Net loss increased $52.0 million, or 81% to $116.6 million for
the six months ended June 30, 1999 from $64.5 million for the same period of
1998. Furthermore, net loss applicable to common stockholders increased $28.3
million, or 69%, to $69.4 million for the quarter ended June 30, 1999, from a
loss of $41.1 million for the same period of 1998. For the six months ended June
30, 1999, net loss applicable to common stockholders increased $54.6 million, or
67%, to $136.3 million from $81.6 million for the same period of 1998. These
increases to net loss applicable to common stockholders are attributable to the
changes mentioned above, as well as, an increase in preferred stock dividends
and accretion related to 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, 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. From the Company's inception through June 30, 1999, the
Company has raised net proceeds of approximately $1.0 billion from debt and
equity financings. The Company's cash, cash equivalent and restricted cash
decreased $222.5 million for the six months ended June 30, 1999, due to capital
expended for the expansion of the Company's infrastructure and services and to
fund negative cash flow, including principal and interest payments. 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. At
June 30, 1999, the Company had approximately $152.1 million of cash, cash
equivalents and restricted cash available for such purposes. The Company
continues to consider potential acquisitions or other arrangements that may fit
the Company's strategic plan. Any such acquisitions or arrangements that the
Company might consider are likely to require additional equity or debt
financing, which the Company will seek to obtain as required and which may also
require that the Company obtain the consent of its debt holders.
On August 12, 1999, the Company completed a $200 million Senior Secured Credit
Facilities (the "Credit Facilities") consisting of a $35 million revolver, a $55
million multiple draw term loan each with a 6.5 year maturity, and a $110
million term loan with a 7 year maturity. Of the Credit Facilities, a total of
$164 million is immediately available to the Company. The remaining
$36 million becomes available upon the Company's completion of an additional
junior capital raise of at least $100 million. Also, the Credit Facilities
contain an Incremental Facility of up to an additional $100 million, although
no lender is obligated to participate in the Incremental Facility. The Credit
Facilities are secured by the capital stock of all of the restricted
subsidiaries of the Company and the assets of the Company and its restricted
subsidiaries, including promissory notes representing Intercompany indebtedness.
In addition, the Credit Facilities contain certain covenants some of which
impose certain restrictions on the Company and its restricted subsidiaries
including, without limitation, restrictions on the declaration or payment of
dividends with respect to the capital stock of the Company, the conduct of
certain activities, certain investments, the creation of additional liens
or indebtedness, the disposition of assets, transactions with affiliates and
fundamental changes.
Including the Credit Facility, management anticipates that the Company's
current cash resources are sufficient to fund the Company's continuing negative
cash flow and required capital expenditures into the first half of 2000. 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 may 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.
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 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 $67.7 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 5 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 a credit facility with AT&T
Commercial Finance Corporation, now known as Newcourt Commercial Finance
Corporation, ("Newcourt Credit Facility") for the development and construction
of fiber-optic local networks. The Company has financing commitments for $35.0
million under the Newcourt Credit Facility, of which, $35 million had been
borrowed as of December 31, 1997. Payments of principal and interest on
borrowings under the Newcourt Credit Facility are payable quarterly, commencing
in 1998. The loans under the Newcourt Credit Facility are secured by the capital
stock of the material subsidiaries of the Company and the promissory notes (the
"Intercompany Notes") of certain subsidiaries of the Company evidencing the
debt. In addition, the Newcourt Credit Facility includes covenants, some of
which impose certain restrictions on the Company and its material subsidiaries
including restrictions on the declaration or payment of dividends, the conduct
of certain activities, certain investments, the creation of additional liens or
indebtedness, the disposition of assets, transactions with affiliates and
extraordinary corporate transactions. In conjunction with the Company's
previously discussed Credit Facility, the Newcourt Credit Facility was retired
on August 12, 1999.
On March 31, 1998, the Company restructured certain leases resulting in a
change from operating to capital lease treatment. This transaction resulted in
capital lease obligations totaling $39.9 million, being included in liabilities
as of June 30, 1999.
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 $225 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.
YEAR 2000 PROGRAM
The Year 2000 problem 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 assessed both hardware and software for the Company's telecommunications
network and information systems, the Company has determined that to the best of
its current knowledge, 82% of its hardware and software is Year 2000 compliant
as of July 31, 1999. Accordingly, the Company believes that it will not be
required to modify or replace a significant portion 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 currently expects that its efforts
to bring 100% of the software and hardware that it uses into compliance will be
manageable. The Company has completed its overall-planning phase and has
verified its information systems inventory. The Company currently is well into
the execution phase of its Year 2000 program. This includes executing
remediation plans to upgrade the remaining non-compliant hardware and software
to Year 2000 compliance not later than October 31, 1999, developing business
continuity plans and contingency plans, defining testing plans, and executing a
vendor management plan to ensure compliance of our supply chain.
The Company has engaged a consulting firm certified by the Information
Technology Association of America Year 2000 to help execute its Year
2000-readiness program in conjunction with e.spire staff.
Based upon results of the above comprehensive systems assessment, the
Company believes that work associated with bringing the Company into full Year
2000 compliance is limited to installing available compliant software upgrades
for commercial off-the-shelf software, the remediation of the applications 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 reasonably 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 applications is not completed, it may have to resort to manual
reporting processes for that subsidiary. The Company's Year 2000 plan includes
risk assessment and contingency planning processes that are designed to provide
alternative courses of action for the Company to follow if any of the
remediation efforts are not successful or if a supplier's processes or products
are not Year 2000 ready. The full contingency planning processes are planned to
be completed by the end of September 1999.
The Company is in ongoing communication with all of its significant hardware
and software suppliers and has been in communication 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 it include the
estimated costs and time associated with the impact of third party Year 2000
problems based on presently available information. However, there can be no
guarantee that the software or systems of other companies on which the Company's
systems rely will be converted timely 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 the Company may have significant problems
associated with service fulfillment, billing, trouble reporting and service
providing. 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 June 30, 1999, the Company has incurred approximately $2.1
million cumulatively for the initial Year 2000 Assessment Report, inventory
database and validation, and beginning remediation efforts. The total cost of
the Year 2000 project is currently expected to be no more than the $5-$6 million
originally estimated 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>
PART II
OTHER INFORMATION
ITEM 1 -- Legal Proceedings
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
None.
ITEM 4 -- Submission of Matters to a Vote of Security Holders
On May 12, 1999, the Company held its annual meeting of stockholders and
four proposals were considered. All such proposals were approved by the
stockholders.
The first proposal was to elect the six nominees to the Board of Directors.
The following is a separate tabulation with respect to the vote for each
nominee.
Anthony J. Pompliano: For: 33,752,760 Against: 0
Edwin M. Banks: For: 33,777,622 Against: 0
Peter C. Bentz: For: 33,777,622 Against: 0
Benjamin P. Giess: For: 33,773,369 Against: 0
Christopher L. Rafferty: For: 33,777,707 Against: 0
Olivier L. Trouveroy: For: 33,777,897 Against: 0
The second proposal was to approve and ratify amendments to the 1996
Employee Stock Purchase Plan (the "Plan") to increase the number of shares of
Common Stock reserved for issuance upon exercise of options granted under the
Plan from 500,000 to 1,000,000 shares. The following is a breakdown of the vote
on such matter.
Abstained For Against Broker Non-Votes
43,992 33,357,737 478,666 0
The third proposal was to approve the 1998 Restricted Stock Plan. The
following is a breakdown of the vote on such matter.
Abstained For Against Broker Non-Votes
64,576 31,107,809 2,708,010 0
The fourth proposal was to ratify the selection of KPMG LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1999. The following is a breakdown of the vote on such matter.
Abstained For Against Broker Non-Votes
19,530 33,603,339 257,526 0
<PAGE>
ITEM 6 -- Exhibits and Reports On Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------- ------------
10.1 Employment agreement between American Communications Services,
Inc. and Richard Putt
10.2 Amendment No. 1 to the employment agreement between e.spire
Communications, Inc. and Richard Putt
11 Statement re computation of per share earnings
27 Financial Data Schedule
99 Supplemental Financial Information
(b) Reports on Form 8-K
On July 8, 1999, e.spire filed an 8-K announcing that the Company had authorized
Goldman Sachs Credit Partners L.P., as Syndication Agent, to seek to arrange
$200 million of 6.5-7.0 year Senior Secured Credit Facilities consisting of $125
million secured pro rata facilities unfunded at closing and a $75 million
secured term loan facility funded at closing; with The Bank of New York
serving as Administrative Agent; First Union National Bank serving as
Documentation Agent; and Newcourt Capital, e.spire's principal existing
secured lender, serving as Collateral Agent.
<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/ Anthony J. Pompliano
-------------------------
Anthony J. Pompliano,
August 16, 1999 Chairman and Chief
Executive Officer
/s/ David L. Piazza
-------------------------
David L. Piazza
August 16, 1999 Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
10.1 Employment agreement between
American Communications Services, Inc.
and Richard Putt E-1
10.2 Amendment No. 1 to employment agreement between
e.spire Communications Services, Inc. and Richard Putt E-2
11 Statement re: computation of per-share earnings (loss) E-3
27 Financial Data Schedules E-4
99 Supplemental Financial Information E-5
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Employment Agreement"), made
as of this 4th day of December, 1997 by and between AMERICAN COMMUNICATIONS
SERVICES, INC., a Delaware corporation, having its principal place of business
at 131 National Business Parkway, Suite 100, Annapolis Junction, Maryland 20701
(which, together with any affiliates or subsidiaries are hereinafter
collectively referred to as "Company") and Richard Putt, an individual residing
at 2019 Calvin Cliff Lane, Cincinnati, Ohio 45206 (hereinafter referred to as
"Employee").
WITNESSETH
WHEREAS, the Company desires to employ the services of
Employee as its Executive Vice President, Customer/Field Services under the
terms and conditions set forth herein; and
WHEREAS, Employee desires to provide services as Executive
Vice President, Customer/Field Services for the Company under the terms and
conditions set forth herein.
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 as follows:
1. Employment. The Company hereby agrees to employ Employee
and Employee hereby agrees to said employment in accordance with the terms and
conditions hereinafter set forth.
2. Term. Employment hereunder shall be deemed to have
commenced as of December 15, 1997 (the "Effective Date") and continue through
December 15, 1999, unless otherwise terminated pursuant to the terms hereof, or
otherwise extended or renewed annually by written agreement upon such terms and
conditions as are then mutually acceptable to the Employee and the Company.
3. Location. The Company shall provide office space for
Employee at the Company's headquarters within the Annapolis, Maryland
metropolitan area or wherever the Company's headquarters may be located.
4. Duties. Employee shall serve as Executive Vice President,
Customer/Field Services of the Company. Employee shall report to, and take
direction from the Chief Executive Officer ("CEO"). Employee shall be
responsible for field sales, customer service, operations and other duties
commensurate with Employee's position as Executive Vice President,
Customer/Field Services or any other position of comparable seniority as
directed by the CEO. Employee shall devote his full business time to the affairs
of the Company.
5. Compensation.
a. Salary. Employee shall be compensated by the payment of $200,000 per annum in
accordance with the Company's standard payroll practices for employees at his
level, (as such amount may be increased from time to time, "Base Salary").
Employee understands that all salary and bonus compensation paid to Employee
under this Employment Agreement shall be subject to the usual and customary
federal and state tax withholding and other employment taxes as required by law.
Except for the cash bonuses payable in accordance with section 5(b) hereof, in
the event Employee is terminated For Cause as defined in paragraph 12 hereof or
voluntarily leaves the Company's employ, all compensation shall be prorated if
employment is terminated other than at the end of a calendar month. Employee
will receive a salary review on October 1, 1998. Additional or increased
compensation, while not formalized, will be based on the Company's performance
as well as his individual contribution to that performance, and shall be
determined at the sole discretion of the CEO and the Company's Board of
Directors (the "Board").
b. Cash Bonuses. On January 5, 1998, Employee shall be entitled to receive, a
one-time, lump-sum payment of $125,000 as a signing bonus in consideration of
execution of this Agreement. Such signing bonus shall be paid in the event the
Company terminates this Agreement for any reason prior to January 5, 1998. In
addition, Employee shall be eligible to receive an annual cash bonus (the
"Performance Bonus") for up to $100,000 based upon the achievement of certain
performance goals as reasonably determined by the CEO. Such Performance Bonus
will be payable within sixty (60) days after the completion of each fiscal year
of the Company during the term hereof. The performance goals for the fiscal year
ending December 31, 1998, shall be determined within thirty (30) days of the
Effective Date and the performance goals for each fiscal year thereafter will be
determined no later than thirty (30) days after the end of the preceding fiscal
year. Notwithstanding the foregoing, if the Company eliminates Performance
Bonuses for senior management of the Company, other than for Jack E. Reich and
Anthony J. Pompliano, the Company shall not be required to pay the Performance
Bonus to Employee. If, however, senior management (other than Anthony J.
Pompliano or Jack E. Reich) continues to be paid, or be eligible for a similar
type bonus, Employee will be entitled to the Performance Bonus on the terms set
forth in Paragraph 5.b.
c. Stock Options.
(i) In addition to the foregoing compensation, Employee is hereby granted
non-qualified options under the Company's Amended 1994 Stock Option Plan (the
"Plan") to purchase up to 150,000 shares of the common stock of the Company upon
the following terms and conditions (such options are referred to herein as the
"Stock Options"). Subject to the vesting requirements set forth herein, the
Stock Options shall be exercisable as to each tranche of shares through the day
immediately preceding the fifth (5th) anniversary of the vesting date for such
tranche. The exercise price of the Stock Options will be 85% of the last
reported sale price of the common stock on January 2, 1998, the date of grant as
determined pursuant to the terms of the Plan. The Stock Options will vest on an
"earn out" basis, that is 37,500 Stock Options will vest after completion of
Employee's first year of employment with the Company (December __, 1998), 37,500
Stock Options will vest after completion of Employee's second year of employment
with the Company (December ___, 1999), 37,500 Stock Options will vest after
completion of Employee's third year of employment with the Company (December __,
2000), and 37,500 Stock Options will vest after completion of Employee's fourth
year of employment with the Company (December __, 2001). The Stock Options shall
not vest if, prior to the relevant vesting date, Employee voluntarily leaves the
Company's employ or if Employee is terminated, except as set forth in paragraph
12.
(ii) In addition to the issuance of the Initial Stock Options as provided above,
Employee is hereby granted additional non-qualified options under the Plan to
purchase an aggregate of 50,000 shares of common stock (the "Performance Stock
Options"), at 85% of the last reported sale price of the common stock on January
2, 1998. The Performance Stock Options immediately shall vest and become
exercisable, at such time as Employee has met the management business objectives
(which are to be reasonably determined by the designated Officer within sixty
(60) days of the Effective Date), provided that Employee is then employed by the
Company. Once vested, the Performance Stock Options shall be exercisable for a
term of five years from the date of vesting. The Stock Options shall not vest
if, prior to the relevant vesting date, Employee voluntarily leaves the
Company's employ or if Employee is terminated, except as set forth in paragraph
12.
(iii) With respect to amendments to the Plan, and with respect to future stock
option plans or programs to be participated in by senior officers or key
employees of the Company or its successor companies, Employee shall participate
in an equitable manner, consistent with the participation of other senior
managers and key employees of the Company.
6. Other Payments and Benefits. In addition to the
compensation and other consideration provided in paragraph 5 above, Employee
will be given a payment not to exceed $50,000 for payment of reasonable costs to
relocate his personal goods and family to the Annapolis Junction, MD area within
a reasonable time after the Effective Date, which is expected to be not later
than April 1, 1998. In the event Employee voluntarily leaves the Company's
employ prior to completion of his six months of employment, he will be required
to reimburse the Company for any moving expenses paid.
7. Fringe Benefit Plans. Employee shall be entitled to all
benefits accorded to Company officers in general . Employee shall also be
entitled to participate in fringe benefit plans, including, but not limited to,
the Company's medical and dental insurance, life insurance, stock option plans,
or other benefit plans which may be adopted or amended by the Company from time
to time during the term of this Employment Agreement to the same extent and in
the same manner as other employees similarly situated. Employee's participation
in and coverage under such fringe benefits plans shall become effective on the
Effective Date.
8. Employee and Company Representations. Employee hereby
represents and warrants to the Company that (i) the execution, delivery and
performance of this Employment Agreement by Employee do not and will not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Employee is a party or is
presently bound; and (ii) Employee is not a party to or bound by any employment
agreement or non-competition agreement or confidentiality agreement with any
other person or entity.
9. Business Expenses. The Company shall reimburse Employee for
all reasonable business and professional expenses incurred by Employee in
connection with his employment within thirty (30) days of the Company's receipt
of vouchers, receipts or other appropriate documentation which conform to the
requirements of the Company's expense reimbursement procedures.
10. Vacation. Employee shall be entitled to an initial annual
vacation of three (3) weeks. Scheduling of each vacation shall be with the
reasonable consent of the CEO.
<PAGE>
11. Professional Education. Employee's attendance at
professional seminars, and the payment and/or reimbursement of costs and
expenses associated therewith, shall be decided on an ad hoc basis by the
Company and Employee.
12. Severance.
(i)
The Company reserves the right to terminate Employee's employment at any time,
in its sole discretion, without Cause. For purposes of this Employment
Agreement, "Cause" shall mean (a) the commission of a felony, any crime
involving moral turpitude or any other act involving dishonesty, disloyalty or
fraud with respect to the Company; (b) substantial failure to perform duties as
reasonably directed by the Company, which failure is not cured within fifteen
(15) days' written notice thereof to Employee from the Company (c) gross
negligence, intentional or willful misconduct or (d) any other material breach
of this Employment Agreement by Employee which is not cured within thirty (30)
days' after written notice thereof to Employee from the Company.
(ii) If Employee's employment is terminated without Cause
("Termination"), Employee shall receive his then current Base Salary and health
and medical benefits coverage at the Company's expense for a period of one year
from the date of Termination and shall then vest in 25,000 unvested Stock
Options; provided, however, if the reason for Termination is replacement of the
current CEO within one year of the Effective Date, Employee shall then vest in
50,000 unvested Stock Options, in addition to other severance described in this
subparagraph.
(iii) In the event of a sale or merger as defined in Section
10(c ) of the Amended 1994 Stock Option Plan, Employee may, at his sole
discretion, terminate this Agreement and shall be entitled to severance payments
consisting of one year Base Salary and health and medical benefits, and the
Stock Options shall be subject to the provisions of Section 10(c ).
13. Loyalty. The performance of services hereunder shall be
Employee's exclusive employment relationship and Employee shall devote his full
business time and best efforts to the performance of services under this
Employment Agreement. During the term of this Employment Agreement, Employee
shall not at any time or place whatsoever, either directly or indirectly, engage
in business or render services to any extent whatsoever to any third party,
except under and pursuant to this Employment Agreement.
14. Confidential Information. Employee acknowledges that the
proprietary information, observations and data obtained by Employee while
employed by the Company concerning the business or affairs of the Company or any
affiliate or subsidiary thereof ("Confidential Information") is the property of
the Company. Therefore, Employee agrees not to disclose to any unauthorized
person or use for the Employee's account any Confidential Information without
the prior written consent of the Company unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Employee's acts or omissions. Upon request,
Employee shall deliver to the Company at the termination of this Employment
Agreement, or at any other time the Company may request, all memoranda, notes,
plans, records, reports and other documents (and copies thereof) relating to the
Confidential Information or the business of the Company. This provision shall
not apply to information deemed to be known by Employee at the time of the
execution of the Employment Agreement, including information gained by virtue of
his past experience and know-how, or to his general expertise.
15. Work Product. Employee agrees that all methods, analyses, reports, plans and
all similar or related information which (i) relate to the Company or any of
its affiliates or subsidiaries and which (ii) are conceived, developed or made
by Employee in the course of his employment by the Company ("Work Product")
belong to the Company. Employee will promptly disclose such Work Product to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such ownership by the Company.
16. Covenants Not to Compete or Solicit. For one (1) year
following the termination of Employee's employment with the Company, Employee
covenants and agrees with the Company not to engage, either directly or
indirectly, as an equity owner or personally as an officer, director, employee,
partner, consultant or agent, in the rendering of any of the same services as
are provided by the Company at the time Employee's employment with the Company
is terminated, or which the Company has targeted to provide in its written
business plan which has been approved by the Board of Directors as of the time
of such termination, in any of the market areas in which the Company is
providing such services at the time of such termination, or in any of the market
areas in which the Company has targeted to provide such services in its business
plan at the time of such termination, provided that Employee may own up to 2% of
the outstanding equity securities of any publicly-traded company regardless of
whether any such company is a competitor of the Company, so long as Employee's
relationship to any such company is that of a strictly passive investor.
For one (1) year following termination of employment under the
terms of this Employment Agreement, Employee covenants and agrees with the
Company not to, either directly or indirectly, whether acting on behalf of
himself or a corporation, partnership, joint venture or some other entity:
a. induce or attempt to induce any employee of the
Company to leave the Company's employ,
or in any way interfere with the relationship
between the Company and any employee
thereof; and/or
b. hire directly or through another entity any person
who was an employee of the Company at any time during
the twelve (12) months preceding Employee's
termination.
Employee represents that he has disclosed to the Company in
writing all obligations to third parties which might limit his ability to
perform services under this Employment Agreement.
17. Non-Assignability. Neither this Employment Agreement nor
any right or interest hereunder shall be assignable or subject to any
encumbrance, pledge, hypothecation, attachment, or anticipation of any kind by
Employee, his spouse or his legal representatives, without the Company's written
consent but shall inure to and be binding upon Employee's estate.
18. Entire Agreement. This Employment Agreement shall be the
entire agreement and understanding of the parties relating to the subject matter
hereof, and any prior negotiations, promises, agreements, representations,
warranties, or understandings relating to the same subject matter, and except as
specifically provided herein, shall be subject to subsequent modification only
by another mutually signed written instrument which by its terms evidences an
intention to modify or amend the provisions hereof.
19. Choice of Law. This Employment Agreement shall be
construed in accordance with the internal laws of the State of Maryland. For
purposes of this Employment Agreement, the parties consent to jurisdiction in
the State of Maryland.
20. Cost of Enforcement. Each party shall bear its own costs
and attorneys' fees in connection with any suit or proceeding against the other
to enforce any provision of this Employment Agreement or to recover damages
resulting from a breach hereof, however, the party which prevails in any such
suit or proceeding shall be entitled to receive from the non-prevailing party
the costs and reasonable attorneys' fees of the prevailing party incurred in
such suit or proceeding.
21. Severability. In the event that any provision hereof is
determined to be illegal or unenforceable, such determination shall not affect
the validity or enforceability of the remaining provisions hereof, all of which
shall remain in full force and effect.
22. Counterparts. This Employment Agreement 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 Employment
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
23. Notices. Any notice, request, claim, demand, document and
other communication hereunder to either party shall be effective upon receipt
(or refusal of receipt) and shall be in writing and delivered personally or sent
by telex or telecopy (with such telex or telecopy confirmed promptly in writing
sent by first class mail) or other similar means of communications, as follows:
(i) If to the Company, addressed to
American Communications Services, Inc.,
131 National Business Parkway, Suite 100,
Annapolis Junction, Maryland 20701
Attention: General Counsel; or
(ii) If to Employee, addressed to him at:
2019 Calvin Cliff Lane
Cincinnati, Ohio 45206
or, in each case, to such other address or telex or telecopy number as such
party may designate in writing to the other by written notice given in the
manner specified herein.
All such communications shall be deemed to have been given,
delivered or made when so delivered personally or sent by telex or telecopy
(confirmation received), or five business days after being so mailed.
<PAGE>
INTENDING TO BE LEGALLY BOUND BY THIS EMPLOYMENT AGREEMENT,
the parties have signed below as of the date first written above.
EMPLOYEE: AMERICAN COMMUNICATIONS SERVICES, INC.
/s/ Richard Putt /s/ Jack E. Reich
- ---------------- -----------------
Richard Putt Jack E. Reich
CEO and President
Exhibit 10.2
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1, made as of this 26th day of May, 1999 by and
between e.spire Communications, Inc., a Delaware corporation, formerly known as
American Communications Services, Inc., having its principal place of business
at 133 National Business Parkway, Suite 200, Annapolis Junction, Maryland 20701
(which, together with any affiliates or subsidiaries are hereinafter
collectively referred to as "Company") and Richard Putt, an individual residing
at 47840 Scottsborough Square, Potomac Falls, Virginia 20165 (hereinafter
referred to as "Employee").
WITNESSETH
WHEREAS, the Company and Employee have entered into an Employment
Agreement dated as of December 4, 1997 (the "Employment Agreement"); and
WHEREAS, the Company and Employee wish to enter into this Amendment to
provide for a loan by the Company to the employee and to set forth the repayment
terms thereof; and
WHEREAS, the Company desires to take a security interest to
collateralize the Employee's obligation to repay the loan, and Employee is
willing to grant the Company such security interest issuable to Employee upon
exercise of the options to purchase the Company's Common Stock currently owned
or obtained in the future by Employee;
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. Section 6 of the Employment Agreement shall be amended as follows:
(i) The existing Section 6 in the Employment Agreement shall
be redesignated as Section 6(a), and the "April 1, 1998" date specified therein
shall be changed to July 1, 1999".
(ii) The following Section 6(b) shall be added:
"6(b). Loan to Employee. If so requested by Employee, the
Company, shall use its best efforts to extend a loan to Employee in the
aggregate amount of up to $100,000. Any such loan shall bear simple interest at
the rate of 8% per year, and the principal and accrued interest on such loan
shall be due and payable on the one year anniversary date of such loan;
provided, however, that Employee shall be obligated to make payments of interest
and principal on such loan prior its payments of interest and principal on such
loan prior to its scheduled maturity equal to the amount of Profit (as
hereinafter defined) realized by Employee from the sale of shares of the
Company's common stock underlying options which have previously been granted
(the "Current Options") or may in the future be granted by the Company to
Employee (the "Future Options"); and, provided further, that the entire amount
of outstanding principal and accrued interest on such loan shall be immediately
due and payable in the event that the Employee's employment is terminated, and,
any amounts then owing to Employee by the Company, including any severance
payments, shall be withheld by the Company to the extent necessary to satisfy
the remaining obligations of Employee under such loan. Any such loan shall be
evidenced by a promissory note of Employee to the Company containing
commercially reasonable terms, including without limitation, full recourse
against Employee. For purposes hereof, Profit shall be equal the price at which
the shares of Common Stock are sold by Employee minus the sum of (i) the
exercise price of the underlying option and (ii) the taxes payable by Employee
with respect to the exercise price of such option.
2. Non-Assignability. Except as contemplated by Section 1 herein, neither this
Amendment nor any right or interest hereunder shall be assignable or
subject to any encumbrance, pledge, hypothecation, attachment, or
anticipation of any kind by Employee, his spouse or his legal
representatives, without the Company's written consent but shall be binding
upon Employee's estate.
3. Entire Agreement. This Amendment shall be subject to amendment,
modification or waiver only by a mutually signed written instrument which
by its terms evidences an intention to modify or amend the provisions
hereof.
4. Choice of Law. This Amendment shall be construed in accordance with the
internal laws of the State of Maryland. For purposes of this Amendment, the
parties consent to jurisdiction in the State of Maryland.
5. Cost of Enforcement. Each party shall bear its own costs and attorneys'
fees in connection with any suit or proceeding against the other to enforce
any provision of this Amendment or to recover damages resulting from a
breach hereof, however, the party which prevails in any such suit or
proceeding shall be entitled to receive from the non-prevailing party the
costs and reasonable attorneys' fees of the prevailing party incurred in
such suit or proceeding.
6. Counterparts. This 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 Amendment shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.
7. Interpretation. All masculine terms shall include the feminine counterpart
and all singular terms shall include plural and vice versa, as necessary to
interpret and enforce the intent of this Amendment. All captions are
included only for reference and shall not constitute substantive provisions
hereof.
8. Notices. Any notice, request, claim, demand, document and other
communication hereunder to either party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or
sent by telex or telecopy (with such telex or telecopy confirmed promptly
in writing send by first class mail) or other similar means of
communications, as follows:
(i) If to the Company, addressed to e.spire Communications, Inc.,
133 National Business Parkway, Suite 200,
Annapolis Junction, Maryland 20701,
Attention: Board of Directors; or
(ii) If to Employee, addressed to him at 47840 Scottsborough Square,
Potomac Falls, Virginia 20165;
or, in each case, to such other address or telex or telecopy number as such
party may designate in writing to the other by written notice given in the
manner specified herein.
All such communications shall be deemed to have been given, delivered
or made when so delivered personally or sent by telex or telecopy (confirmation
received), or five business days after being so mailed.
INTENDING TO BE LEGALLY BOUND BY THIS AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT, the parties have signed below as of the date
first written above.
EMPLOYEE: e.spire COMMUNICATIONS, INC.
/s/ Richard Putt /s/ Anthony J. Pompliano
- ---------------- -------------------------
Richard Putt Anthony J. Pompliano
Chairman & CEO
<TABLE>
<CAPTION>
EXHIBIT 11
e.spire COMMUNICATIONS, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
($ in thousands, except per share data)
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Loss $ (59,377) $ (32,445) $ (116,565) $ (64,540)
Less: Preferred Stock Accretion 10,000 8,607 19,697 17,100
--------------- --------------- --------------- ----------------
Net Loss to Common Stockholders (69,377) (41,052) (136,262) (81,640)
Add: Convertible Preferred Dividends Saved 10,000 8,607 19,697 17,100
Net Loss to Common Stockholders,
Dilutive Basis $ (59,377) $ (32,445) $ (116,565) $ (64,540)
=============== =============== =============== ================
AVERAGE SHARES OUTSTANDING
Weighted Average Number of
Common Shares Outstanding 49,696,463 45,281,794 49,191,841 41,495,538
Net additional shares assuming
stock options and warrants
exercised and proceeds used to
purchase treasury stock 5,295,616 11,205,932 5,295,616 11,205,932
--------------- --------------- --------------- ----------------
Weighted average number of common and
common equivalent shares outstanding 54,992,079 56,487,726 54,487,457 52,701,470
=============== =============== =============== ================
PER SHARE AMOUNTS
Basic earnings per share $ (1.40) $ (0.91) $ (2.77) $ (1.97)
=============== =============== =============== ================
Diluted earnings per share $ (1.08) $ (0.57) $ (2.14) $ (1.22)
=============== =============== =============== ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
e.spire Communications, Inc. Form 10-Q for the Six Months Ended 6/30/99
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 152,110
<SECURITIES> 0
<RECEIVABLES> 102,879
<ALLOWANCES> (10,325)
<INVENTORY> 7,233
<CURRENT-ASSETS> 251,897
<PP&E> 714,009
<DEPRECIATION> (115,847)
<TOTAL-ASSETS> 908,584
<CURRENT-LIABILITIES> 93,735
<BONDS> 749,844
0
260,684
<COMMON> 500
<OTHER-SE> (233,593)
<TOTAL-LIABILITY-AND-EQUITY> 908,584
<SALES> 0
<TOTAL-REVENUES> 121,393
<CGS> 76,499
<TOTAL-COSTS> 122,922
<OTHER-EXPENSES> (7,518)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,055
<INCOME-PRETAX> (116,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,565)
<EPS-BASIC> (2.77)
<EPS-DILUTED> (2.77)
</TABLE>
EXHIBIT 99.1
e.spire COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
YEAR TO DATE - JUNE 30, 1999
($'s in thousands)
<TABLE>
<CAPTION>
Networks Networks Networks Networks
Placed Placed Placed Placed
in Service in Service in Service in Service
Prior to 12/31/95 During 1996 During 1997 During 1998
------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Property, Plant & Equipment $ 177,039 $ 130,332 $ 178,351 $ 59,661
Revenues $ 29,056 $ 19,572 $ 20,716 $ 2,878
EBITDA (a) $ 6,995 $ 394 $ (3,287) $ (6,291)
EBIT (a) $ 37 $ (4,458) $ (10,301) $ (8,308)
Network Statistics (cumulative)
Access Lines Installed 34,924 21,645 49,400 13,486
Fiber Miles 44,703 40,097 46,349 24,526
Route Miles 750 477 403 152
Buildings Connected 1,618 825 1,119 126
Voice Grade Equivalents 681,796 397,485 393,584 57,574
</TABLE>
(a) Included in the EBITDA and EBIT amounts reported are costs associated with
Corporate sales, marketing and operational activities that support market
operations.
For the six months ended June 30, 1999 costs included as part of EBITDA
are $3,530 for the 1995 cities, $1,914 for the 1996 cities, $2,196 for the
1997 cities and $340 for the 1998 cities.
For the six months ended June 30, 1999 costs included as part of EBIT
are $4,902 for the 1995 cities, $2,522 for the 1996 cities, $3,509 for the
1997 cities and $815 for the 1998 cities.
For the three months ended March 31, 1999 costs included as part of
EBITDA are $1,893 for the 1995 cities, $933 for the 1996 cities, $1,098 for the
1997 cities and $222 for the 1998 cities.
For the three months ended March 31, 1999 costs included as part of EBIT
are $2,983 for the 1995 cities, $1,347 for the 1996 cities, $2,084 for the
1997 cities and $504 for the 1998 cities.
These costs were not included with the Company's Supplemental Financial
Information filed with the Company's Form 10-Q for the three month period
ended March 31, 1999.
