UNITED STATES
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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-49899
-------------------------------------------------------------
ATX COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4078506
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 906-8485
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
CORECOMM HOLDCO, INC.
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
The number of shares outstanding of the issuer's common stock as of June 30,
2002 was 30,000,054.
ATX Communications, Inc. (formerly CoreComm Holdco, Inc and Subsidiaries)
Index
PART I. FINANCIAL INFORMATION Page
------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2002 (Unaudited) and December 31, 2001 ......................................... 2
Condensed Consolidated Statements of Operations -
Three and Six months ended June 30, 2002 and 2001 (Unaudited) ........................... 3
Condensed Consolidated Statement of Shareholders' Equity (Deficiency) -
Six months ended June 30, 2002 (Unaudited) .............................................. 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2002 and 2001 (Unaudited) ..................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ..................................................... 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................................. 36
PART II. OTHER INFORMATION
------------------------------
Item 1. Legal Proceedings........................................................................... 37
Item 4. Submission of Matters to A Vote of Security Holders......................................... 42
Item 5. Other Information........................................................................... 42
Item 6. Exhibits and Reports on Form 8-K ........................................................... 42
SIGNATURES .............................................................................................. 45
----------
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
June 30, December 31,
2002 2001
--------------- ---------------
(Unaudited) (See Note)
Assets
Current assets:
Cash and cash equivalents $ 20,352,000 $ 24,966,000
Accounts receivable-trade, less allowance for doubtful
accounts of $8,245,000 (2002) and $9,759,000 (2001) 36,544,000 32,261,000
Due from CoreComm Limited -- 646,000
Due from NTL Incorporated 298,000 --
Other 3,471,000 3,683,000
-----------------------------------------
Total current assets 60,665,000 61,556,000
Fixed assets, net 74,446,000 86,722,000
Investment in CoreComm Limited 3,863,000 3,863,000
Goodwill 147,380,000 147,380,000
Intangible assets, net 5,539,000 5,706,000
Other, net of accumulated amortization of $1,552,000 (2002) and $1,045,000
(2001) 10,579,000 11,393,000
-----------------------------------------
$ 302,472,000 $ 316,620,000
=========================================
Liabilities and shareholders' equity (deficiency)
Current liabilities:
Accounts payable $ 56,985,000 $ 37,348,000
Accrued expenses 61,465,000 67,766,000
Due to NTL Incorporated -- 917,000
Due to CoreComm Limited 320,000 --
Current portion of long-term debt and capital lease obligations 9,398,000 9,667,000
Deferred revenue 25,670,000 29,652,000
-----------------------------------------
Total current liabilities 153,838,000 145,350,000
Long-term debt 145,084,000 144,413,000
Notes payable to NTL Incorporated 16,696,000 15,807,000
Capital lease obligations 244,000 267,000
Commitments and contingent liabilities
Shareholders' equity (deficiency):
preferred stock-- $.01 par value, authorized
10,000,000 shares; issued and outstanding none -- --
Common stock-- $.01 par value, authorized 250,000,000
shares; issued and outstanding 30,000,000 shares 300,000 300,000
Additional paid-in capital 1,022,634,000 1,022,634,000
Deficit (1,036,324,000) (1,012,151,000)
-----------------------------------------
(13,390,000) 10,783,000
-----------------------------------------
$ 302,472,000 $ 316,620,000
=========================================
Note: The balance sheet at December 31, 2001 has been derived from the audited balance sheet at that date.
See accompanying notes.
2
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenues $ 75,209,000 $ 73,126,000 $ 149,520,000 $ 145,937,000
Costs and expenses
Operating 48,758,000 57,662,000 96,796,000 121,182,000
Selling, general and administrative 20,224,000 23,319,000 42,537,000 54,114,000
Corporate 1,616,000 812,000 3,314,000 2,910,000
Non-cash compensation -- 3,234,000 -- 6,468,000
Recapitalization costs 4,270,000 -- 5,452,000 --
Other charges -- 33,366,000 -- 33,485,000
Asset impairments -- -- -- 167,599,000
Depreciation 9,140,000 11,567,000 18,021,000 23,579,000
Amortization 83,000 23,097,000 167,000 54,606,000
-------------------------------- --------------------------------
84,091,000 153,057,000 166,287,000 463,943,000
-------------------------------- --------------------------------
Operating loss (8,882,000) (79,931,000) (16,767,000) (318,006,000)
Other income (expense)
Interest income and other, net 100,000 656,000 234,000 1,320,000
Interest expense (3,737,000) (7,383,000) (7,640,000) (11,524,000)
-------------------------------- --------------------------------
Loss before income tax benefit (12,519,000) (86,658,000) (24,173,000) (328,210,000)
Income tax benefit -- 33,000 -- 33,000
-------------------------------- --------------------------------
Net loss $ (12,519,000) $ (86,625,000) $ (24,173,000) $(328,177,000)
================================ ================================
Basic and diluted net loss per share $ (.42) $ (3.04) $ (.81) $ (11.50)
================================ ================================
Weighted average number of shares 30,000,000 28,542,000 30,000,000 28,542,000
================================ ================================
See accompanying notes.
3
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Condensed Consolidated Statement of Shareholders' Equity (Deficiency)
(Unaudited)
Common Stock
---------------------------------- Additional
Shares Par Paid-In Capital Deficit
---------------------------------------------------------------------------
Balance, December 31, 2001 30,000,000 $ 300,000 $ 1,022,634,000 $(1,012,151,000)
Net loss for the six months ended
June 30, 2002 -- -- -- (24,173,000)
---------------------------------------------------------------------------
Balance, June 30, 2002 30,000,000 $ 300,000 $ 1,022,634,000 $(1,036,324,000)
===========================================================================
See accompanying notes.
4
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2002 2001
------------------------------
Net cash provided by (used in) operating activities $ 1,126,000 $(25,382,000)
Investing activities
Purchase of fixed assets (5,448,000) (6,192,000)
Proceeds from sales of marketable securities -- 2,737,000
------------------------------
Net cash (used in) investing activities (5,448,000) (3,455,000)
Financing activities
Proceeds from borrowing, net of financing costs -- 63,679,000
Principal payments -- (831,000)
Principal payments of capital lease obligations (292,000) (5,512,000)
------------------------------
Net cash provided by (used in) financing activities (292,000) 57,336,000
------------------------------
(Decrease) increase in cash and cash equivalents (4,614,000) 28,499,000
Cash and cash equivalents at beginning of period 24,966,000 22,773,000
------------------------------
Cash and cash equivalents at end of period $ 20,352,000 $ 51,272,000
==============================
Supplemental disclosure of cash flow information
Cash paid for interest $ 5,463,000 $ 6,410,163
==============================
Supplemental schedule of non-cash investing activities
Liabilities incurred to acquire fixed assets $ 293,000 $ 6,786,000
==============================
See accompanying notes.
5
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to the rules and regulations of the SEC.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in Item 14(d) of CoreComm Limited's
annual report on Form 10-K/A for the year ended December 31, 2001.
Note 2. ATX Communications Recapitalization
In April 2001, ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and
Subsidiaries), referred to as the Company, and CoreComm Limited completed a
reevaluation of their business plans in light of market conditions and made
significant modifications to the plans. The Company streamlined its strategy and
operations to focus on its two most successful and promising lines of business.
The first is integrated communications products and other high
bandwidth/data/web-oriented services for the business market. The second is
bundled local telephony and Internet products for the residential market, with a
focus on using Internet interfaces, as well as our call centers, to efficiently
sell, to install our products and service our customers.
Also in April 2001, the Company and CoreComm Limited commenced a process to
potentially sell selected assets and businesses (now owned by the Company) that
are not directly related to their competitive local exchange carrier, referred
to as CLEC, business, and retained advisors for the purpose of conducting this
sale. The Company's CLEC assets and businesses include its local and
toll-related telephone services that compete with the incumbent local exchange
carrier, referred to as ILEC, and other carriers.
In October 2001, the Company and CoreComm Limited commenced the ATX
Communications recapitalization. In the first phase of the ATX Communications
recapitalization, which was completed in December 2001, the Company and CoreComm
Limited entered into agreements with holders of approximately $600 million of
outstanding indebtedness and preferred stock whereby the holders agreed, among
other things, to exchange their debt and preferred stock for approximately 87%
of the Company's common stock. In addition, the holders of CoreComm Limited's 6%
Convertible Subordinate Notes due 2006 received the amount of an October 1, 2001
interest payment of $4.8 million in the aggregate.
6
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 2. ATX Communications Recapitalization (continued)
The following summarizes the indebtedness and preferred stock that was exchanged
for shares of the Company's common stock in December 2001:
Principal Amount
or Stated Value
Description Date Issued Issuer when Issued
----------- ----------- ------ -----------
CoreComm Limited and
10.75% Unsecured Convertible PIK Notes due 2011 April 2001 the Company $10.0 million
10.75% Senior Unsecured Convertible PIK CoreComm Limited and
Notes Due 2010 December 2000 the Company $16.1 million
Senior Unsecured Notes Due September
29, 2003 September 2000 CoreComm Limited $108.7 million
6% Convertible Subordinated Notes Due
2006 October 1999 CoreComm Limited $175.0 million(1)
Series A and Series A-1 Preferred
Stock September 2000 CoreComm Limited $51.1 million
Series B Preferred Stock September 2000 CoreComm Limited $250.0 million
(1) $164.75 million was outstanding as of December 31, 2001, of which $160
million was exchanged.
The Company exchanged the approximately $10.8 million principal and accrued
interest of 10.75% Unsecured Convertible PIK Notes Due 2011 and the
approximately $18.0 million principal and accrued interest of 10.75% Senior
Unsecured Convertible PIK Notes Due 2010 for shares of its common stock. The
Company recorded an extraordinary gain of $25.7 million from the extinguishment
of these notes, and incurred costs of $2.7 million in 2001 in connection with
the ATX Communications recapitalization. This gain is based on the fair value of
$0.9797 per share on December 31, 2001 for the shares issued by the Company in
exchange for the notes. The Company incurred additional costs, which consist
primarily of employee incentives, legal fees, accounting fees and printing fees,
in connection with the ATX Communications recapitalization of $4,270,000 and
$5,452,000 during the three and six months ended June 30, 2002.
The shareholders and noteholders who exchanged their shares and notes,
respectively, received shares of the Company and no longer have securities of
CoreComm Limited.
Following the completion of the first phase of the ATX Communications
recapitalization on December 28, 2001 (but prior to the completion of the second
phase on July 1, 2002), approximately 87% of the Company's outstanding shares,
or 26,056,806 shares, were owned by the former holders of indebtedness and
preferred stock of the Company and CoreComm Limited, and approximately 13% of
the Company's outstanding shares, or 3,943,248 shares, were held by the CoreComm
Limited.
7
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 2. ATX Communications Recapitalization (continued)
As a result of the completion of the first phase of the ATX Communications
recapitalization, the Company held $160 million principal amount of CoreComm
Limited's 6% Convertible Subordinated Notes Due 2006, approximately $105.7
million principal amount of CoreComm Limited's Senior Unsecured Notes due
September 29, 2003, approximately 51,000 shares of CoreComm Limited's Series A
preferred stock and 250,000 shares of CoreComm Limited's Series B preferred
stock. As of June 30, 2002, the Company's investment in CoreComm Limited notes
and preferred stock was $3,863,000.
In the second phase of the ATX Communications recapitalization, the Company
offered to all holders of CoreComm Limited common stock and all remaining
holders of 6% Convertible Subordinated Notes due 2006 of CoreComm Limited to
exchange shares of the Company's common stock for their CoreComm Limited common
stock and their notes, respectively. The Company completed the exchange offer on
July 1, 2002, and issued 3,610,624 shares of common stock to former holders of
CoreComm Limited common stock and holders of 6% Convertible Subordinated Notes
due 2006 of CoreComm Limited. Following the exchange offer, the Company
transferred the shares of CoreComm Limited common stock that it received in the
exchange offer to a wholly-owned subsidiary. The Company then merged this
subsidiary into CoreComm Limited, with CoreComm Limited surviving the merger as
a wholly-owned subsidiary of the Company. CoreComm Limited has surrendered to
the Company all of the shares of the Company's common stock that CoreComm
Limited held at the completion of the exchange offers, excluding 39,168 shares,
which are being held for holders of the 6% Convertible Subordinated Notes who
did not participate in the exchange offer. In exchange for CoreComm Limited
surrendering such shares of the Company's common stock, CoreComm Limited and the
Company have agreed to waivers and amendments to delay CoreComm Limited from
having to make any payments with respect to the CoreComm Limited securities held
by the Company through April 2003. Also, as part of the exchange agreement
between the Company and CoreComm Limited, the due date of CoreComm Limited's
Senior Unsecured Notes was extended until September 29, 2023.
In connection with the second phase of the ATX Communications recapitalization,
on July 1, 2002 the Company converted all of the 6% Convertible Subordinated
Notes Due 2006 of CoreComm Limited and all of the shares of Series A and B
preferred stock of CoreComm Limited that it owned into shares of CoreComm
Limited common stock. All of these shares of CoreComm Limited were tendered in
the exchange offer, and subsequently, all of the shares received by the Company
in the exchange offer were cancelled. The Company continues to hold
approximately $105.7 million principal amount of CoreComm Limited's Senior
Unsecured Notes.
8
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 2. ATX Communications Recapitalization (continued)
In connection with the ATX Communications recapitalization, on July 2, 2002,
Nasdaq transferred CoreComm Limited's listing on the Nasdaq National Market to
the Company. On May 16, 2002, Nasdaq provided CoreComm Limited with notice of a
Nasdaq Staff Determination indicating that CoreComm Limited common stock was
subject to delisting from the Nasdaq National Market because CoreComm Limited
did not comply with the minimum bid price and the minimum market value of
publicly held shares requirements for continued listing. On June 28, 2002, a
hearing was held before a Nasdaq Listing Qualifications Panel to review the
Nasdaq Staff Determination. The Panel has not yet issued its opinion. Under
Nasdaq rules, pending a decision by the Panel, the Company's common stock will
continue to trade on the Nasdaq National Market. We cannot assure you that we
will be able to maintain the Nasdaq National Market listing for shares of our
common stock. If our common stock is delisted from the Nasdaq National Market,
it could, among other things, have a negative impact on the trading activity and
price of the common stock and could make it more difficult for us to raise
equity capital in the future. If our common stock is delisted from the Nasdaq
National Market, the shares will likely begin trading on the OTC Bulletin Board.
Note 3. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for the Company on January 1, 2002.
This Statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other related
accounting guidance. The adoption of this new standard had no significant effect
on the results of operations, financial condition or cash flows of the company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for the Company on January 1, 2003. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible fixed assets and the associated asset retirement costs.
The Company is in the process of evaluating the financial statement impact of
the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow
9
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 3. Recent Accounting Pronouncements (continued)
approach previously required by SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
adopted SFAS No. 142 on January 1, 2002. The adoption of this new standard had
no significant effect on the results of operations, financial condition or cash
flows of the Company, other than amortization of goodwill ceased as of January
1, 2002.
Upon the adoption of SFAS No. 142, the Company performed an analysis of its
intangible assets acquired before July 1, 2001 to determine whether they should
be classified and accounted for as part of or separate from goodwill. As a
result of the analysis, the Company determined that its identifiable intangible
assets such as customer lists and LMDS licenses do not meet the indefinite life
criteria of SFAS No. 142. Additionally, the Company determined that, with
respect to these assets, no changes in the remaining useful lives of these
assets were required.
The Company also performed an evaluation for impairment of its goodwill as of
January 1, 2002, and determined that no impairment charge was required. Absent
any new indicators of impairment, the Company's next evaluation of impairment
will be the annual test on October 1, 2002.
The following table shows the Company's net loss and our basic and diluted loss
per share, had SFAS No. 142 been in effect for the six months ended June 30,
2001.
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
-------------- ------------- -------------- -------------
Net loss-- as reported $ (12,519,000) $ (86,625,000) $ (24,173,000) $(328,177,000)
Goodwill amortization -- 22,989,000 -- 54,359,000
Workforce amortization -- 21,000 -- 52,000
------------------------------------------------------------------------
Net loss-- as adjusted $ (12,519,000) $ (63,615,000) $ (24,173,000) $(273,766,000)
========================================================================
Basic and diluted loss per share:
Net loss per share-- as reported $ (0.42) $ (3.04) $ (0.81) $ (11.50)
Goodwill amortization -- 0.81 -- 1.91
Workforce amortization -- -- -- --
------------------------------------------------------------------------
Net loss per share-- as adjusted $ (0.42) $ (2.23) $ (0.81) $ (9.59)
========================================================================
10
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 4. Revenues
Revenue consists of:
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---------------------------------------------------------------
Local exchange services $ 25,783,000 $ 23,712,000 $ 52,055,000 $ 47,422,000
Toll-related telephony services 18,221,000 20,423,000 35,910,000 41,622,000
Internet, data and web-related services 22,931,000 22,927,000 46,375,000 45,361,000
Other (a) 8,274,000 6,064,000 15,180,000 11,532,000
---------------------------------------------------------------
$ 75,209,000 $ 73,126,000 $149,520,000 $145,937,000
===============================================================
(a) Other includes carrier access billing, reciprocal compensation, information
services, wireless and paging.
Note 5. Asset Impairments
At March 31, 2001 the Company reduced the carrying amount of goodwill related to
two of its acquisitions by $167,599,000. In connection with the reevaluation of
its business plan and the decision to sell its non-CLEC assets and business
announced in April 2001, the Company was required to report all long-lived
assets and identifiable intangibles to be disposed of at the lower of carrying
amount or estimated fair value less cost to sell. The carrying amount of
goodwill related to these acquisitions was eliminated before reducing the
carrying amounts of other assets. The estimated fair value of these businesses
was determined based on information provided by the investment bank retained for
the purpose of conducting this sale.
Note 6. Intangible Assets
Intangible assets consist of:
June 30, December 31,
2002 2001
-------------------------
(unaudited)
LMDS license costs $4,230,000 $4,230,000
Customer lists, net of accumulated amortization of
$1,031,000 (2002) and $864,000 (2001) 1,309,000 1,476,000
-------------------------
$5,539,000 $5,706,000
=========================
11
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 7. Fixed Assets
Fixed assets consist of:
June 30, December 31,
2002 2001
--------------------------------
(unaudited)
Operating equipment $ 105,064,000 $ 102,529,000
Computer hardware and software 54,108,000 53,313,000
Other equipment 13,091,000 12,956,000
Construction-in-progress 2,280,000 --
--------------------------------
174,543,000 168,798,000
Accumulated depreciation (100,097,000) (82,076,000)
--------------------------------
$ 74,446,000 $ 86,722,000
================================
Note 8. Accrued Expenses
Accrued expenses consist of:
June 30, December 31,
2002 2001
---------------------------
(unaudited)
Payroll and related $ 4,838,000 $ 7,517,000
Professional fees 1,244,000 935,000
Taxes, including income taxes 14,502,000 16,534,000
Accrued equipment purchases 176,000 385,000
Toll and interconnect 27,350,000 28,668,000
Reorganization costs 5,929,000 7,273,000
Other 7,426,000 6,454,000
---------------------------
$61,465,000 $67,766,000
===========================
12
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 9. Long-Term Debt
Long-term debt consists of:
June 30, December 31,
2002 2001
-----------------------------
(unaudited)
Senior secured credit facility, less unamortized discount of
$11,016,000 (2002) and $11,687,000 (2001) $145,084,000 $144,413,000
Other -- 33,000
-----------------------------
145,084,000 144,446,000
Less current portion -- 33,000
-----------------------------
$145,084,000 $144,413,000
=============================
The interest rate on the senior secured credit facility was initially, at the
Company's option, either 3.25% per annum plus the base rate, which is the higher
of the prime rate or the federal funds effective rate plus 0.5% per annum; or
the reserve-adjusted London Interbank Offered Rate plus 4.25% per annum. In
April 2001 the interest rate was amended to, at the Company's option, either
3.5% per annum plus the base rate, which is the higher of the prime rate or the
federal funds effective rate plus 0.5% per annum, or the reserve-adjusted London
Interbank Offered Rate plus 4.5% per annum. Interest is payable monthly on the
facility. The unused portion of the facility is subject to a commitment fee
equal to 1.25% per annum payable quarterly, subject to reduction to 1.00% per
annum based upon the amount borrowed under the facility. At June 30, 2002 and
December 31, 2001, the effective interest rate on the amounts outstanding was
6.75% and 6.86%, respectively. Effective April 13, 2002, the interest rate on
the facility is 6.75%, which will remain in effect until October 12, 2002.
Note 10. Related Party Transactions
Some of the officers and directors of the Company are also officers or directors
of NTL Incorporated, referred to as NTL. In April 2001, CoreComm Limited and the
Company as co-obligors issued to NTL $15 million aggregate principal amount of
10.75% Unsecured Convertible PIK Notes Due April 2011. At June 30, 2002, and
December 31, 2001 the total amount of the notes outstanding, less the
unamortized discount of $347,000, and $367,000, was $16,696,000 and $15,807,000,
respectively.
NTL provided the Company with management, financial, legal and technical
services, and continues to provide access to office space and equipment and use
of supplies. Amounts charged to the Company by NTL consisted of salaries and
direct costs allocated to the Company where identifiable, and a percentage of
the portion of NTL's corporate overhead, which cannot be specifically allocated
to NTL. It is not practicable to determine the amounts of these expenses
13
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 10. Related Party Transactions (continued)
that would have been incurred had the Company operated as an unaffiliated
entity. In the opinion of management, this allocation method is reasonable.
These methods are currently being reviewed and it is expected that the charges
for these services provided by NTL will be reduced following such review. NTL
charged the Company $88,000 and $136,000 for the three months ended June 30,
2002 and 2001, respectively, and $172,000 and $240,000 for the six months ended
June 30, 2002 and 2001, respectively, which are included in corporate expenses.
Until the third quarter of 2001, the Company provided NTL with access to office
space and equipment and the use of supplies for which it charged NTL a
percentage of the Company's total rent and supplies expense. It is not
practicable to determine the amounts of these expenses that would have been
incurred had the Company operated as an unaffiliated entity. In the opinion of
management, this allocation method was reasonable. The Company charged NTL
$40,000 and $107,000 for the three and six months ended June 30, 2001,
respectively, which reduced corporate expenses.
A subsidiary of the Company provides billing and software development services
to subsidiaries of NTL. The Company charges an amount in excess of its costs to
provide these services. General and administrative expenses were reduced
$254,000 and $332,000 for the three months ended June 30, 2002 and 2001,
respectively, and $566,000 and $799,000 for the six months ended June 30, 2002
and 2001, respectively, as a result of these charges.
In 2001, the Company and NTL entered into a license agreement whereby NTL was
granted an exclusive, irrevocable, perpetual license to certain billing software
developed by the Company for telephony rating, digital television events rating,
fraud management and other tasks. The sales price was cash of $12.8 million. The
billing software was being used by NTL at the time of this agreement, and was
being maintained and modified by the Company under an ongoing software
maintenance and development outsourcing arrangement between the companies. The
Company recorded the aggregate $12.8 million as deferred revenue, to be
recognized over three years, of which $1,069,000 and $2,137,000 was recognized
during the three and six months ended June 30, 2002, respectively.
The Company leases office space from entities controlled by an individual who
beneficially owns 34% of the outstanding shares of the Company's common stock.
Rent expense for these leases was approximately $450,000 and $400,000 for the
three months ended June 30, 2002 and 2001, respectively and approximately
$900,000 and $800,000 for the six months ended June 30, 2002 and 2001,
respectively.
14
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 11. Shareholders' Equity
Stock Split
On April 12, 2002, the Company declared a 3-for-1 stock split by way of a stock
dividend, which was paid on the declaration date. The condensed consolidated
financial statements and the notes thereto give retroactive effect to the stock
split.
Non-Cash Compensation
In April 2000, the Compensation and Option Committee of the CoreComm Limited
Board of Directors approved the issuance of options to purchase approximately
2,747,000 shares of CoreComm Limited common stock to various employees at an
exercise price of $14.55, which was less than the fair market value of the
CoreComm Limited's common stock on the date of the grant. In accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," in April 2000, the
Company recorded a non-cash compensation expense of approximately $29.0 million
and a non-cash deferred expense of approximately $31.3 million. From April 2000
to June 30, 2001, $16.2 million of the deferred non-cash compensation was
charged to expense, including $3.3 and $6.5 million during the three and six
months ended June 30, 2001, respectively.
Stockholder Rights Plan
The Company adopted a stockholder rights plan in December 2001. In connection
with the stockholder rights plan, the Board of Directors declared and paid a
dividend of one preferred share purchase right for each share of common stock
outstanding on December 17, 2001. Each right entitles the holder, under certain
potential takeover events, to purchase from the Company one one-thousandth of a
share of Series A Junior Participating Preferred Stock, referred to as Series A
Preferred Stock, at an initial exercise price of $8.82 as determined on July 10,
2002. The exercise price is subject to future adjustment. The rights expire on
December 17, 2011 unless an exchange or redemption or a completion of a merger
occurs first. There are 1,000,000 shares of Series A Preferred Stock authorized
for issuance under the plan. No shares of Series A Preferred Stock are issued or
outstanding.
If any Shares of Series A Preferred Stock are issued they will be entitled to a
minimum preferential quarterly dividend payment of an amount equal to the
greater of $.01 per share or 1,000 times the aggregate per share amount of all
dividends declared on the Company's common stock since the immediately preceding
dividend payment date. In the event of liquidation, the holders of Series A
Preferred Stock will be entitled to a liquidation payment of $1 per share plus
accrued and unpaid dividends. Each share of Series A Preferred Stock will have
1,000 votes on all matters and will vote as a single class with the holders of
the Company's common stock.
15
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 11. Shareholders' Equity (continued)
CoreComm Limited Stock Options
As of June 30, 2002, there were approximately 22.2 million options outstanding
to purchase shares of CoreComm Limited common stock, with an average weighted
exercise price of $4.80. If such options are exercised, the holder will receive
common stock of CoreComm Limited, which is currently a wholly-owned subsidiary
of the Company.
Note 12. Other Charges
Other charges of $33,366,000 and $33,485,000 during the three and six months
ended June 30, 2001, respectively, relate to the Company's announcements in May
and July 2001 that it was taking additional actions to reorganize, re-size and
reduce operating costs and create greater efficiency in various areas of the
Company. These costs in 2001 were for approximately 630 employees to be
terminated of which none were employed by the Company as of June 30, 2002.
The following table summarizes the reorganization charges utilized during the
six months ended June 30, 2002:
Employee
Severance Lease
And Related Exit Agreement
Costs Costs Terminations Total
--------------------------------------------------------
(in thousands)
Balance, December 31, 2001 $ 509 $ 3,106 $ 3,658 $ 7,273
Adjustments 60 2 (64) (2)
Utilized (420) (647) (275) (1,342)
------- ------- ------- -------
Balance, June 30, 2002 $ 149 $ 2,461 $ 3,319 $ 5,929
======= ======= ======= =======
Note 13. Commitments and Contingent Liabilities
As of June 30, 2002, the Company had purchase commitments of approximately
$6,844,000 outstanding.
The Company purchases goods and services from a wide variety of vendors under
contractual and other arrangements that sometimes give rise to litigation in the
ordinary course of business. The Company also provides goods and services to a
wide range of customers under arrangements that sometimes lead to disputes over
payment, performance and other obligations. Some of these disputes, regardless
of their merit, could subject the Company to costly litigation and the diversion
of its technical and/or management personnel. Additionally, any liability from
16
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 13. Commitments and Contingent Liabilities (continued)
litigation that is not covered by the Company's insurance or exceeds its
coverage could have a material adverse effect on its business, financial
condition and/or operating results. Currently, the Company has the following
outstanding matters, which, if resolved unfavorably, could have a material
adverse effect on the Company's business, financial condition and/or results of
operations:
o The Company has received correspondence dated July 23, 2002, from
Verizon's operating subsidiary in Pennsylvania alleging that Verizon is
owed a total of approximately $12.6 million for products and services
allegedly purchased in that state and threatening to implement account
embargo and service suspension procedures if payment of the alleged amount
is not received by August 23, 2002. The July 23 letter also alleges that
Verizon has the right to request a security deposit under applicable
contracts and tariffs and demands payment of such a deposit in the amount
of $5,650,000 by July 30, 2002. The Company has also received
correspondence dated July 23, 2002 from Verizon's operating subsidiary in
New Jersey alleging the right to demand a security deposit for products
and services purchased in that state and demanding payment of a deposit of
$2,700,000 by July 30, 2002. On August 1, 2002, the Company sent Verizon
formal written notice of its intent to pursue the collection of
approximately $5 million in credits associated with disputed charges that
the Company has withheld from payment as improperly billed. On or about
August 1, 2002, while the Company was investigating the claims set forth
in Verizon's letters of July 23, the Company received correspondence from
Verizon's operating subsidiaries in New Jersey and Pennsylvania alleging
that the Company had failed to pay undisputed amounts on a timely basis
and the security deposits as requested, and stating that Verizon intends
to terminate its agreements with the Company and discontinue the provision
of services and products in those states after August 31, 2002. The
Company is reviewing Verizon's claims concerning the amounts allegedly
owed in Pennsylvania and intends to pay all undisputed charges on or
before the August 23 embargo deadline. The Company is also reviewing
Verizon's demands for a security deposit and termination threats, but upon
preliminary investigation the Company believes that Verizon does not have
the right to make the deposit demands and termination threats set forth in
its letters. The Company intends to pursue all remedies available to it
and defend itself vigorously. However, it is not presently possible to
predict how these matters will be resolved.
On August 13, 2002, Verizon and several of its other subsidiaries filed a
complaint in the United States District Court for the District of Delaware
against the Company and several of its indirect wholly owned subsidiaries
seeking payment of approximately $37 million allegedly owed to Verizon
under various contracts between Verizon and the Company and its
subsidiaries and under state and federal law.
17
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 13. Commitments and Contingent Liabilities (continued)
While the Company has not yet fully assessed Verizon's complaint, the
Company believes that it has meritorious defenses to the complaint, and
further, that the amounts owed are substantially less than the amount
claimed by Verizon. For example, we believe the figure specified in the
complaint includes significant amounts of disputes for which Verizon owes
credits to the Company, as well as payments that were made by the Company
in the ordinary course of business. The Company intends to pursue all
remedies available to it and defend itself vigorously. However, the
Company cannot be certain how or when the matter will be resolved or the
outcome of the litigation.
On March 7, 2002, CoreComm Massachusetts, Inc., an indirect wholly-owned
subsidiary of the Company initiated litigation against Verizon New England
d/b/a Verizon Massachusetts in the Suffolk Superior Court, Massachusetts,
alleging breach of contract and seeking a temporary restraining order to
prevent Verizon Massachusetts from suspending CoreComm Massachusetts'
ability to order new products and services for failure to pay various
amounts allegedly owed under the parties' interconnection agreement and
Verizon's tariffs in that state. On March 13, 2002, the court denied
CoreComm's request for a temporary restraining order and Verizon proceeded
to implement the threatened service embargo. On April 1, 2002, Verizon
filed its answer to CoreComm's complaint and filed counterclaims seeking
payment of approximately $1.2 million allegedly owed by CoreComm
Massachusetts under the agreement and tariffs. On April 10, 2002, CoreComm
Massachusetts filed an answer denying Verizon's claims. On or about May
20, 2002, Verizon served CoreComm Massachusetts with motion for summary
judgment in an effort to secure payment without further litigation. On or
about June 10, 2002, CoreComm Massachusetts submitted its opposition to
Verizon's motion for summary judgment asserting various defenses including
that the amount being sought by Verizon includes hundreds of thousands of
dollars of charges that are not attributable to the Company. The parties
are currently waiting for the court to rule on the pending summary
judgment motion. CoreComm Massachusetts believes that it will prevail on
its opposition to Verizon's motion for summary judgment, and the company
intends to pursue all available claims and defenses. However, it is not
presently possible to predict how these matters will be resolved. The
Company does not believe that the service embargo affecting its subsidiary
in Massachusetts will have a material adverse affect on the Company's
business, financial condition and/or results of operations.
o CoreComm Newco, Inc., an indirect, wholly-owned subsidiary of the Company,
is currently in litigation with Ameritech Ohio, a supplier from whom it
purchases telecommunications products and services, over the adequacy of
Ameritech's performance under a 1998 contract between CoreComm Newco and
Ameritech, and related issues. This litigation began in June 2001 when
Ameritech threatened to stop processing new orders following CoreComm
Newco's exercise of its right under the contract to withhold payments for
Ameritech's performance failures. In response to this threat, CoreComm
18
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 13. Commitments and Contingent Liabilities (continued)
Newco sought and received an order from an official of the Public
Utilities Commission of Ohio barring Ameritech from refusing to process
new CoreComm orders. Ameritech has appealed that order to the PUCO and the
appeal is still pending.
On July 5, 2001, Ameritech filed a claim with the PUCO seeking payment
from CoreComm Newco of approximately $8,600,000 allegedly owed under the
contract. On August 8, 2001, Ameritech filed a second claim against
CoreComm Newco in Ohio state court, seeking an additional approximately
$4,300,000 in allegedly improperly withheld amounts. On August 28, 2001,
CoreComm Newco exercised its right to remove the state court claim to the
United States District Court for the Northern District of Ohio, and the
parties then stipulated to a consolidation of both of Ameritech's claims
in the United States District Court. To consolidate the two claims, on
October 9, 2001, Ameritech filed an amended complaint in the United States
District Court, seeking a total of approximately $14,400,000.
On December 26, 2001, CoreComm Newco filed its answer to Ameritech's
amended complaint and simultaneously filed three counterclaims against
Ameritech and some of its affiliates, alleging breach of contract,
antitrust violations, and fraudulent or negligent misrepresentation. In
lieu of filing an answer to CoreComm Newco's counterclaims, Ameritech
filed a series of motions on March 25, 2002, asking the Court to dismiss
several of CoreComm Newco's counterclaims. On April 17, 2002, CoreComm
Newco filed its opposition to Ameritech's requests for dismissal. On July
25, 2002, the district court issued a decision denying Ameritech's motion
to dismiss and upholding CoreComm Newco's right to proceed with its
antitrust and misrepresentation claims against all counter-defendants.
The Company believes that CoreComm Newco has meritorious defenses to
Ameritech's amended complaint, and that the amount currently in dispute is
substantially less than the $14.4 million claimed in Ameritech's amended
complaint. For example, the figure specified in Ameritech's complaint does
not account for (a) more than $5.2 million in refunds that Ameritech
contends it has already credited to CoreComm Newco's accounts since the
filing its complaint, and (b) payments that were made by CoreComm Newco in
the ordinary course after the time of Ameritech's submission. However, the
Company cannot be certain how or when the matter will be resolved. The
Company also believes that, to the extent Ameritech prevails with respect
to any of its claims, Ameritech's award may be offset in whole or in part
by amounts that CoreComm Newco is seeking to obtain from Ameritech under
its counterclaims. However, it is impossible at this time to predict the
outcome of the litigation.
19
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 13. Commitments and Contingent Liabilities (continued)
o On December 3, 2001, General Electric Capital Corp. filed a lawsuit in the
Circuit Court of Cook County, Illinois against CoreComm Limited and
MegsINet, Inc., an indirect subsidiary of the Company, seeking
approximately $8 million in allegedly past due amounts and the return of
equipment under a capital equipment lease agreement between Ascend and
MegsINet. GECC is seeking all amounts allegedly owed under the lease as
well as repossession of the equipment. On February 19, 2002, the
defendants filed a motion to dismiss several of GECC's claims. In
response, GECC withdrew its original complaint and on May 1, 2002 filed an
amended complaint naming the Company as an additional defendant. On June
5, 2002, defendants filed a motion to dismiss and/or stay plaintiff's
complaint, plaintiffs filed a reply and the court has established a
schedule for additional briefing on the matter to be followed by oral
argument in late September 2002. Concurrently, on April 12, 2002, GECC
filed a second complaint in the Circuit Court of Cook County, Illinois
against MegsINet, CoreComm Limited and the Company seeking a court order
allowing it to take repossession of its alleged equipment. After a hearing
on the matter following defendants' opposition, GECC withdrew its
complaint and filed a new action on May 3, 2002. Defendant's response to
dismiss the May 3, 2002 complaint was filed on May 29, 2002 asking the
court to dismiss plaintiff's complaint and that matter remains pending.
Concurrently, the parties have been directed to submit proposed findings
of fact and conclusions of law on the claims against MegsINet by August
23, 2002 with a decision to be rendered by the court by September 4, 2002.
Defendants intend to defend themselves vigorously against both complaints
and to pursue all available claims and defenses. However, it is impossible
at this time to predict the outcome of the litigation.
o On May 25, 2001, KMC Telecom, Inc. and some of its operating subsidiaries
filed an action in the Supreme Court of New York for New York County
against CoreComm Limited, Cellular Communications of Puerto Rico, Inc.,
CoreComm New York, Inc. and MegsINet, Inc. On that same date, KMC filed
the same cause of action in the Circuit Court of Cook County, IL. Upon
defendant's Motion to Stay the New York action, KMC voluntarily dismissed
the Illinois litigation and the matter is currently proceeding in New
York. KMC contends that it is owed approximately $2 million, primarily in
respect of alleged early termination liabilities, under a services
agreement and a co-location agreement with MegsINet. The defendants have
denied KMC's claims and have asserted that the contracts at issue were
signed without proper authorization, that KMC failed to perform under the
alleged contracts, and that the termination penalties are not enforceable.
The defendants have served discovery and intend to defend themselves in
coordination with one of their insurance carriers. On March 27, 2002,
certain of the defendants initiated litigation against several former
principals of MegsINet seeking indemnification and contribution against
KMC's claims.
20
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Notes to the Condensed Consolidated Financial Statements (continued)
(Unaudited)
Note 13. Commitments and Contingent Liabilities (continued)
o On March 1, 2002, Easton Telecom Services, LLC., referred to as Easton
LLC, initiated litigation in the Northern District of Ohio against
CoreComm Internet Group, Inc. asserting that Easton LLC is the assignee of
several rights of Easton Telecom Services, Inc., referred to as Easton
Inc., under an asset purchase agreement approved as part of the bankruptcy
disposition of Teligent, Inc., and demanding payment of approximately $4.9
million, primarily in respect of alleged early termination penalties, for
telecommunications services purportedly provided under alleged contracts
between Easton and MegsINet, Inc. Subsequently, on April 18, 2002, Easton
filed an amended complaint in the above-referenced matter naming Voyager
Information Networks, Inc. as an additional defendant and increasing the
amount in dispute to approximately $5.1 million. On May 7, 2002,
defendants' filed their answer denying Easton LLC's allegations and
asserting multiple defenses, including defenses challenging the validity
of the alleged contracts and plaintiffs claim to alleged damages. On July
8, 2002, plaintiff filed a motion for partial summary judgment on
defendants' claim that approximately $4 million of the amount at issue
constitutes an unenforceable penalty that must be dismissed by the court
as a matter of law, and defendants filed an opposition to that motion on
July 29, 2002. Defendants intend to file a cross-motion for summary
judgment declaring that the $4 million penalty is void as a matter of law,
and will defend themselves vigorously and pursue all available claims and
defenses. However, it is impossible at this time to predict the outcome of
this litigation.
o On June 7, 2002, the Board of Revenue and Finance of the Commonwealth of
Pennsylvania issued an order granting in part and denying in part the
Company's petition for review of a decision by a lower administrative
authority relating to the Company's alleged liability for sales and use
tax for the period September 1, 1997 through July 31, 2000. Pursuant to
the June 7 order, the Company has been assessed sales and use tax for the
period at issue in the amount of $631,429. On July 8, 2002, the Company
filed a petition for review of the board's order in the Commonwealth Court
of Pennsylvania seeking a further reduction of the assessment. The Company
believes that it has meritorious defenses and that the assessment should
be reduced, however it is not possible to predict how this matter will be
resolved.
21
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Until December 2001, we were a direct, wholly-owned subsidiary of CoreComm
Limited. As a result of the recapitalization transactions completed as part of
the first phase of the ATX Communications recapitalization in December 2001,
CoreComm Limited owned approximately 13% of our outstanding common stock until
June 30, 2002. As of the completion of the second phase of the ATX
Communications recapitalization on July 1, 2002, CoreComm Limited has been
merged into a wholly-owned subsidiary of the Company. Prior to the ATX
Communications recapitalization, CoreComm Limited operated the same businesses
that we currently operate.
From 1998 to 2000, we were in the process of building infrastructure to support
a national roll-out according to our original business plan. This business plan
required significant capital to fund capital expenditures, operating expenses
and debt service. As a result, we historically experienced substantial operating
and net losses. In early 2001, we still required significant funds to complete
our business plan as originally intended. However, adverse changes in the
capital markets, particularly in the telecommunications sector, made it
extremely difficult to raise new capital, and we could no longer finance our
original business plan. As a result, in 2001, we significantly revised our
business plan to focus on our most profitable businesses and geographic areas,
and reduce our operational costs and need for capital.
In 2001, we streamlined our strategy and operations to focus on our two most
successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services for
the business market. The second is bundled local telephony and Internet products
for the residential market, with a focus on using Internet interfaces, as well
as our call centers, to efficiently sell, to install our products and service
our customers. As a result of these changes, we are now focused primarily in the
Mid-Atlantic and Mid-West regions of the U.S.
We have implemented cost savings through a variety of means, including facility
consolidation, efficiency improvements, vendor negotiations, network
optimization, and headcount reduction. We have reduced network costs and capital
expenditures by converting many of our local access lines to more profitable
Unbundled Network Element - Platform pricing from Total Service Resale pricing,
which provides higher margins. In addition, we were able to reduce the number of
facilities established without substantially affecting our service area by
leasing enhanced extended local loops from the incumbent local exchange
carriers. We have also improved our operating efficiency through improved
pricing terms and the elimination of duplicative or unneeded network facilities.
22
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
These efficiencies are reflected in the decrease in our expenses of nearly $150
million on an annualized basis, as shown in the table below:
Three Months Ended
(in thousands)
---------------------------
% Reduction June 30, December 31,
Q4'00-Q2'02 2002 2000
----------- ---- ----
Operating Expenses 25% $ 48,758 $ 65,002
Selling, General and Administrative 47% 20,224 38,414
Corporate Expenses 57% 1,616 3,759
------------------------
Total 34% $ 70,598 $107,175
========================
While reducing expenses in all areas of our business, we implemented new low
cost revenue initiatives such as launching business communications service to
several markets in the Great Lakes region and residential service in the East
using existing facilities.
In addition, the recapitalization transactions completed in 2001 have reduced
interest expense and preferred stock dividends from an aggregate annual total of
approximately $53.2 million to approximately $13.7 million, $10.5 million of
which is in cash, based on interest rates as of June 30, 2002.
By the end of 2001, we had completed the implementation of our revised business
plan. Going forward, we will continue to monitor all areas of the business for
additional cost saving and revenue generating opportunities.
Although we continue to engage in efforts to increase our profitability, we are
also investigating other ways to generate cash for our business. In April 2001,
the Company and CoreComm Limited commenced a process to potentially sell
selected assets and businesses (now owned by the Company) that are not directly
related to their competitive local exchange carrier, referred to as CLEC,
business, and retained advisors for the purpose of conducting this sale. The
Company's CLEC assets and businesses include its local and toll-related
telephone services that compete with the incumbent local exchange carrier,
referred to as ILEC, and other carriers.
Three Months Ended June 30, 2002 and 2001
The increase in revenues to $75,209,000 from $73,126,000 is due primarily to
customer acquisition, increased pricing, carrier access billing and reciprocal
compensation. In the three months ended June 30, 2002, the Company billed and
recorded approximately $1,484,000 of revenue that was related to services
provided in prior periods.
Operating costs include direct cost of sales, network costs and salaries and
related expenses of network personnel. Operating costs decreased to $48,758,000
from $57,662,000 due to a decrease in costs as a result of optimization of our
network, reduced headcount and reduction of our facilities.
23
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Selling, general and administrative expenses decreased to $20,224,000 from
$23,319,000 due to a decrease in costs as a result of reduced headcount,
reduction of our facilities and a revision in our marketing strategies. During
the three months ended June 30, 2002 we revised our estimate of potential sales
and use tax based on a reassessment in an order by the Commonwealth of
Pennsylvania, which had the effect of reducing selling, general and
administrative expenses by approximately $800,000.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses increased to
$1,616,000 from $812,000 due to the costs of additional corporate activities and
increased compensation expense.
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in April 2000, we recorded a non-cash compensation expense of
approximately $29.0 million and a non-cash deferred expense of approximately
$31.3 million. From April 1, 2001 to June 30, 2001, $3.2 million of the deferred
non-cash compensation was charged to expense. The remaining portion of deferred
non-cash compensation was charged to expense between July 1, 2001 and December
31, 2001.
We incurred additional costs, which consist primarily of employee incentives,
legal fees, accounting fees and printing fees, in connection with our
recapitalization of $4,270,000 during the three months ended June 30, 2002.
Other charges of $33,366,000 during the three months ended June 30, 2001, relate
to our announcements in May and July 2001 that we were taking additional actions
to reorganize, re-size and reduce operating costs and create greater efficiency
in various areas of the Company. These charges included employee severance and
related costs for approximately 630 employees as well as lease exit costs. An
aggregate of $21,748,000 of these costs were for equipment and other assets that
did not require any future cash outlays.
Depreciation expense decreased to $9,140,000 from $11,567,000 primarily as a
result of the reduction in the carrying value of our fixed assets as of December
31, 2001 as determined by a fair value analysis performed in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
Amortization expense decreased to $83,000 from $23,097,000 due to the reduction
in the carrying value of our intangible assets as of December 31, 2001 as
determined by a fair value analysis performed in accordance with SFAS No. 121 as
well as our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" on
January 1, 2002, which required us to cease amortizing goodwill. Amortization
expense on our goodwill and workforce during the three months ended June 30,
2001 was $23,010,000. Our net loss and our basic and diluted net loss per common
share would have been $63,615,000 and $2.23, respectively, had SFAS No. 142 been
in effect for the first quarter of 2001.
Interest income and other, net, decreased to $100,000 from $656,000 primarily
due to the reduction of interest income resulting from lower cash balances in
2002.
24
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Interest expense decreased to $3,737,000 from $7,383,000 due primarily to a
reduction in the effective interest rate on our senior secured credit facility.
The effective interest rate on our senior secured credit facility at June 30,
2002 and June 30, 2001 was 6.75% and 9.29%, respectively.
The income tax benefit of $33,000 during 2001 is from state and local income tax
refunds.
Six Months Ended June 30, 2002 and 2001
The increase in revenues to $149,520,000 from $145,937,000 is due primarily to
customer acquisition, increased pricing, carrier access billing and reciprocal
compensation. In the six months ended June 30, 2002, the Company billed and
recorded approximately $1,958,000 of revenue that was related to services
provided in prior periods.
Operating costs include direct cost of sales, network costs and salaries and
related expenses of network personnel. Operating costs decreased to $96,796,000
from $121,182,000 due to a decrease in costs as a result of optimization of our
network, reduced headcount and reduction of our facilities.
Selling, general and administrative expenses decreased to $42,537,000 from
$54,114,000 due to a decrease in costs as a result of reduced headcount,
reduction of our facilities and a revision in our marketing strategies. During
the six months ended June 30, 2002 we reduced our estimate of potential sales
and use tax based on a reassessment in an order by the Commonwealth of
Pennsylvania, which had the effect reducing selling, general and administrative
expenses by approximately $800,000.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses increased to
$3,314,000 from $2,910,000 due the costs of additional corporate activities and
increased compensation expense.
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in April 2000, we recorded a non-cash compensation expense of
approximately $29.0 million and a non-cash deferred expense of approximately
$31.3 million. From January 1, 2001 to June 30, 2001, $6.5 million of the
deferred non-cash compensation was charged to expense. The remaining portion of
deferred non-cash compensation was charged to expense between July 1 and
December 31, 2001.
We incurred additional costs, which consist primarily of employee incentives,
legal fees, accounting fees and printing fees, in connection with our
recapitalization of $5,452,000 during 2002.
Other charges of $33,485,000 during the six months ended June 30, 2001, relate
to our announcements in May and July 2001 that we were taking additional actions
to reorganize, re-size and reduce operating costs and create greater efficiency
in various areas of the Company. These charges included employee severance and
related costs for approximately 630 employees as well as
25
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
lease exit costs. An aggregate of $21,748,000 of these costs were for equipment
and other assets that did not require any future cash outlays.
Depreciation expense decreased to $18,021,000 from $23,579,000 primarily as a
result of the reduction in the carrying value of our fixed assets as of December
31, 2001 as determined by a fair value analysis performed in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
Amortization expense decreased to $167,000 from $54,606,000 due to the reduction
in the carrying value of our intangible assets as of December 31, 2001 as
determined by a fair value analysis performed in accordance with SFAS No. 121 as
well as our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" on
January 1, 2002, which required us to cease amortizing goodwill. Amortization
expense on our goodwill and workforce during the six months ended June 30, 2001
was $54,411,000. Our net loss and our basic and diluted net loss per common
share would have been $273,766,000 and $9.59, respectively, had SFAS No. 142
been in effect for the first quarter of 2001.
Interest income and other, net, decreased to $234,000 from $1,320,000 primarily
due to the reduction of interest income resulting from lower cash balances in
2002.
Interest expense decreased to $7,640,000 from $11,524,000 due primarily to a
reduction in the effective interest rate on our senior secured credit facility.
The effective interest rate on our senior secured credit facility at June 30,
2002 and 2001 was 6.75% and 9.29%, respectively.
The income tax benefit of $33,000 during 2001 is from state and local income tax
refunds.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for us on January 1, 2002. This
statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting
guidance. The adoption of this new standard had no significant effect on our
results of operations, financial condition or cash flows.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for us on January 1, 2003. This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible fixed assets and the associated asset retirement costs.
We are in the process of evaluating the financial statement impact of the
adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
26
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually, or more frequently under some conditions, for
impairment in accordance with this statement. This impairment test uses a fair
value approach rather than the undiscounted cash flow approach previously
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." We adopted SFAS No. 142 on January
1, 2002. The adoption of this new standard had no significant effect on our
results of operations, financial conditions or cash flows.
27
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Liquidity and Capital Resources
Based on our current business plan, we anticipate that we will have sufficient
cash and cash equivalents on hand to fund our operations, capital expenditures
and debt service in 2002. By the end of the 2002, we anticipate that we will be
generating enough cash from our operations, which is net of cash interest
expense, to fund our anticipated capital expenditures. However, we anticipate
that we and our subsidiaries will not generate sufficient cash from operations
to repay at maturity the entire principal amount of our outstanding
indebtedness. We intend to repay these amounts through refinancings of this
debt, or through other sources of financing. However, our ability to raise
additional capital in the future will be dependent on a number of factors, such
as our results of operations, the amount of our indebtedness, and also general
economic and market conditions, which are beyond our control. If we are unable
to obtain additional financing or to obtain it on favorable terms, we may be
required to further reduce our operations, forego attractive business
opportunities, or take other actions which could adversely affect our business,
results of operations and financial condition. In addition, as described in
detail in Note 13 above, the Company and its various subsidiaries are also
involved in litigation which, if resolved unfavorably to us, could have a
material adverse effect on the Company's business, financial condition and
results of operations, including our ability to fund our operations.
As of June 30, 2002, we had long-term debt, which consists of a $156.1 million
senior secured credit facility, approximately $17 million in principal amount of
10.75% Unsecured Convertible PIK Notes due 2011, and approximately $9.6 million
of capital leases. Debt service on the senior secured credit facility includes
approximately $10.5 million in interest expense in each of 2002 and 2003 and
$10.2 million in 2004, on an annualized basis, based on the interest rates as of
June 30, 2002, as well as quarterly amortization and principal reductions which
total $0 in 2002, $1,950,000 in 2003, and $9,750,000 in 2004. We have made
interest payments of approximately $5.4 million for our senior secured credit
facility during the six months ended June 30, 2002. The 10.75% Unsecured
Convertible PIK Notes due 2011 have no cash interest payments, and are not due
until 2011. Our capital leases have $9.4 million due during the remainder of
2002, and $0.2 million due for the remainder of their terms. However,
approximately $8.1 million of these capital leases are obligations of our
subsidiary, MegsINet, Inc. and are not obligations of the Company. MegsINet,
Inc. is currently in settlement discussions with some of the holders of these
leases. In addition, as of June 30, 2002, CoreComm Limited had $4.75 million of
6% Convertible Subordinated Notes outstanding. As of June 30, 2002, our current
liabilities exceed our current assets by approximately $93 million.
We still have significant expected capital expenditures even after the
implementation of our modified business plan. Under our revised business plan,
capital expenditures have been significantly reduced from prior levels. Total
actual capital expenditures for the six months ended June 30, 2002, described as
cash used to purchase fixed assets in our cash flow statement, were
approximately $5.4 million. According to our current plans, capital expenditures
are expected to be approximately $4.4 million for the remainder of 2002 and $9.5
million and $14.2 million in 2003 and 2004, respectively. These future capital
expenditures will depend on a number of factors relating to our business, in
particular the growth level, geographic location and services provided to new
customers added during these years. Capital expenditures in future
28
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
years will also depend on the availability of capital and the amount of cash, if
any, generated by operations, which may impact our capital decisions relating to
initiatives such as, for example, network expansion and the implementation of
upgrades to our information services platforms.
For the first six months of 2002, net cash provided by operations was
approximately $1.1 million. Continued execution of our business plan, including
revenue growth in more profitable areas and continued expense reduction, are
expected to continue to improve our financial results. An inability to generate
cash from operations and/or raise additional financing may effect our ability to
meet our cash requirements, which may have an adverse affect on us, and
potentially our viability as an ongoing business.
In addition, we are a holding company with no significant assets other than cash
and securities and investments in, and advances to, our subsidiaries. We are,
therefore, likely to be dependent upon receipt of funds from our subsidiaries to
meet our own obligations. However, our subsidiaries' debt agreements prevent the
payment of dividends, loans or other distributions to us, except in limited
circumstances. However, the limited permitted circumstances of distributions
from our subsidiaries may be sufficient for our operations, because nearly all
of the uses of funds described above are cash requirements of our subsidiaries.
Depending upon the success of the execution of our business plan, additional
capital raising may not be necessary in the foreseeable future. However, we
cannot assure you that:
(a) actual costs will not exceed the amounts estimated in our business
plan or that additional funding will not be required;
(b) we will prevail in our material litigation matters as described in
Note 13 to the financial statements
(c)we and our subsidiaries will be able to generate sufficient cash from
operations to meet capital requirements, debt service and other
obligations when required;
(d) we will be able to refinance our indebtedness as it comes due;
(e)we will be able to sell assets or businesses (75% or more of the net
proceeds from a sale may be required to be used to repay indebtedness); or
(f) we will not be adversely affected by interest rate fluctuations.
(g) we will be able to access the cash flow of our subsidiaries;
We anticipate that we and our subsidiaries will not generate sufficient cash
flow from operations to repay at maturity the entire principal amount of our
outstanding indebtedness. Accordingly, we may be required to consider a number
of measures, including: (1) refinancing all or a portion of this indebtedness,
(2) seeking modifications to the terms of this indebtedness, (3) seeking
additional debt financing, which may be subject to obtaining necessary lender
consents, (4) seeking additional equity financing, or (5) a combination of the
foregoing. We are currently in
29
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
compliance with all required ratios and covenants contained in agreements
governing our outstanding indebtedness.
The following table shows our aggregate cash interest expense and principal
payments on our existing long term debt, anticipated estimated capital
expenditures, payments on capital leases and other debt, as well as the sources
of funds that we expect to use to meet these cash requirements through 2004.
Six Months
Ended
December 31,
2002 2003 2004 Source of Funds
------------------------------------------------------------------
(in millions)
Cash Interest Expense on
existing Long-term debt(1) $ 5.4 $ 10.5 $ 10.2 Cash and cash equivalents on
hand and cash from operations
Estimated Capital
Expenditures(2) 4.4 9.5 14.2 Cash and cash equivalents on
hand and cash from operations
Principal Payments on existing
Long-term debt(3) 4.4 1.95 9.75 For 2002 and 2003, cash and
cash equivalents on hand and
cash from operations;
for 2004, cash and cash
equivalents on hand, cash from
operations, and, if required,
refinancing sources or other
sources of financing(4).
Payments on Capital Leases 9.4 0.25 -- Approximately $8.1 million of
these capital leases are
obligations of our subsidiary,
MegsINet, Inc. and are not
obligations of the Company.
MegsINet, Inc. is currently in
settlement discussions with the
holders of these leases(5);
for the remaining amounts, cash
and cash equivalents on hand
and cash from operations
------- -------- --------
$ 23.6 $ 22.20 $ 34.15
======= ======== ========
(1) The only long term debt of ours that requires cash interest expense is our
$156.1 million senior secured credit facility and $4.4 million 6%
Convertible Subordinated Notes of CoreComm Limited. The interest expense on
our senior secured credit facility is based on our current interest rate of
6.75%, which is in effect through October 12, 2002, and assumes principal
reductions as required in the facility.
(2) Future capital expenditures will depend on a number of factors relating to
our business, in particular the growth level, geographic location and
services provided to new customers added during these years.
(3) Principal payments indicated are amortization and principal reductions under
our senior secured credit facility. Also includes the outstanding $4.4
million 6% Convertible Subordinated Notes due 2006 of CoreComm Limited;
CoreComm Limited is in default on such notes.
30
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
(4) Refinancing sources may include, for example, a new bank facility used to
repay these amounts; other sources of financing may include capital raised
through new debt or equity financing or asset sales. There can be no
assurance that we will be able to refinance our indebtedness or raise the
required funds.
(5) Approximately $8 million of the capital lease and other debt obligations of
MegsINet, Inc. are the subject of current litigation, as described in the
section of Part II, Item I of this Quarterly Report on Form 10-Q entitled "
Legal Proceedings."
Although we believe that our plans, intentions and expectations as reflected in
or suggested by these forward-looking statements are reasonable as of the date
of this of this quarterly report, we can give no assurance that our plans,
intentions and expectations will be achieved in a timely manner if at all.
Our outstanding indebtedness is described in further detail in the subsequent
paragraphs.
In April 2001, CoreComm Limited entered into a $156.1 million Amended and
Restated Credit Agreement with The Chase Manhattan Bank that amends and restates
the term loan facility and revolving credit facility that closed in September
2000. As of June 30, 2002, there is $106.1 million outstanding under the term
loan facility and $50.0 million outstanding under the revolving credit facility.
The term loan facility will amortize in quarterly installments of principal
commencing on December 31, 2003 with a final maturity on September 22, 2008. The
revolving credit facility shall be automatically and permanently reduced in
increasing quarterly installments of principal commencing on December 31, 2003
with a termination date on September 22, 2008. Total annual principal payments
are as follows: $1,950,000 (2003); $9,750,000 (2004); $25,350,000 (2005);
$50,700,000 (2006); $39,000,000 (2007) and $29,350,000 (2008). In the event that
any of the remaining approximately $4.358 million in principal amount of 6%
Convertible Subordinated Notes not owned by us have not been converted or
refinanced on or prior to April 1, 2006, then the facilities become payable in
full on April 1, 2006. The interest rate on both the term loan facility and the
revolving credit facility is, at our option, either 3.5% per annum plus the base
rate, which is the higher of the prime rate or the federal funds effective rate
plus 0.5% per annum, or the reserve-adjusted London Interbank Offered Rate plus
4.5% per annum. Beginning October 12, 2001 and ending April 12, 2002, the
interest rate was 6.86%. Beginning April 13, 2002 and ending October 12, 2002,
the interest rate is 6.75%. Interest is payable monthly on the facility. The
commitment fee on the unused portion of the commitments is 1.25% per annum
payable quarterly, subject to reduction to 1% per annum based upon the amount
borrowed under the facilities.
31
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
In April 2001, we and CoreComm Limited issued, as joint and several obligors, to
NTL Incorporated a convertible note in the aggregate principal amount of $15
million. This note will mature in April 2011. Interest on the note is at an
annual rate of 10.75% payable semiannually on October 15 and April 15 of each
year, commencing October 15, 2001. The interest is payable in kind by the
issuance of additional unsecured convertible notes in principal amount equal to
the interest payment that is then due. Additional unsecured convertible PIK
notes, dated October 15, 2001, and April 15, 2002 were issued in the principal
amount of approximately $0.8 million, and approximately $0.9 million,
respectively, as interest payments. The additional notes issued for interest
will have an initial conversion price equal to the greater of $1.00 and 120% of
the weighted average closing price of CoreComm Limited common stock for a
specified period. The April 2001 note, the October 2001 note and the April 2002
note are each convertible into CoreComm Limited common stock prior to maturity
at a conversion price of $1.00 per share, subject to adjustment. Pursuant to
letter agreements between us, NTL and CoreComm Limited, at the completion of the
exchange offers on July 1, 2002, the convertibility feature of these notes was
altered so that rather than the notes being convertible into shares of CoreComm
Limited common stock, they are convertible into shares of our common stock. At
that time, the conversion prices of these notes was equitably adjusted by
applying the exchange ratio in the exchange offer for CoreComm Limited common
stock, which results in a new conversion price of $38.90 per share of our common
stock for each of these notes. These notes are redeemable, in whole or in part,
at our option, at any time after April 12, 2003, at a redemption price of
103.429% that declines annually to 100% in April 2007, in each case together
with accrued and unpaid interest to the redemption date.
In October 1999, CoreComm Limited issued $175 million principal amount of 6%
Convertible Subordinated Notes, and received net proceeds of $168.5 million. In
April 2001, $10,250,000 aggregate principal amount of these notes was converted
into approximately 374,000 shares of CoreComm Limited's common stock. As part of
the ATX Communications recapitalization, on December 17, 2001, $160 million
principal amount of the 6% Convertible Subordinated Notes were exchanged for
1,456,806 common shares of our common stock and the payment of the October 2001
interest payment of approximately $4.8 million. The exchange offer that was
launched February 2002 for the 6% Convertible Subordinated Notes was an offer to
exchange the remaining $4.75 million principal amount of the 6% Convertible
Subordinated Notes not owned by us for an aggregate amount of approximately
43,248 shares of our common stock and $142,500 in cash. On July 1, 2002,
$392,000 principal amount of the 6% Convertible Subordinated Notes were
exchanged for 3,569 shares of our common stock and a cash payment of
approximately $12,000 representing the past-due interest payment that was due on
the notes on April 1, 2002. The April 1, 2002 interest payment on the
outstanding 6% Convertible Subordinated Notes has not been paid and CoreComm
Limited is in default under the thesenotes.
On August 13, 2002, the Company issued a demand to Worldcom, Inc. for payment of
approximately $8.1 million, representing approximately $5.4 million in deposits
for services and approximately $2.7 million in carrier access billing charges
owed. On July 11, 2002, Worldcom filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. We do not believe Worldcom's
bankruptcy filing will materially impact our ability to conduct our business
operations.
32
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
ATX Communications Recapitalization
On December 28, 2001, we completed the exchange of shares of our common stock
for substantial amounts of the outstanding indebtedness of CoreComm Limited,
substantial amounts of our outstanding indebtedness as co-obligors with CoreComm
Limited and all of the outstanding preferred stock of CoreComm Limited. This
exchange was completed under an exchange agreement with CoreComm Limited and
(1)holders of 10.75% Unsecured Convertible PIK Notes due 2011 and
10.75% Senior Unsecured Convertible PIK Notes due 2010, which were a
joint obligation of CoreComm Holdco and CoreComm Limited, in the
initial principal amounts of $10,000,000 and $16,100,000,
respectively,
(2)the holders of Senior Unsecured Notes due September 29, 2003 of
CoreComm Limited in the principal amount of $105.7 million, and
(3)the holders of all of the preferred stock of CoreComm Limited, with
respect to the initial liquidation preference of $301 million.
On February 8, 2002, we launched registered public exchange offers whereby we
offered to exchange our shares of common stock to all holders of CoreComm
Limited common stock and all remaining holders of 6% Convertible Subordinated
Notes due 2006 of CoreComm Limited for their CoreComm Limited common stock and
their notes, respectively. An additional $392,000 principal amount of 6%
Convertible Subordinated Notes were exchanged. We completed the exchange offer
on July 1, 2002, and issued 3,610,624 shares of common stock to the former
holders of CoreComm Limited common stock and holders of 6% Convertible
Subordinated Notes due 2006 of CoreComm Limited. Following the exchange offer,
the Company transferred the shares of CoreComm Limited common stock that we
received in the exchange offer to a wholly-owned subsidiary. We then merged this
subsidiary into CoreComm Limited, with CoreComm Limited surviving the merger as
a wholly-owned subsidiary of us.
Contractual Obligations and Commercial Commitments
On January 22, 2002, the Securities and Exchange Commission issued FR-61,
Commission Statement about Management's Discussion and Analysis of Financial
Condition and Results of Operations. The release sets forth views of the
Securities and Exchange Commission regarding disclosure that should be
considered by registrants. Our contractual obligations and commercial
commitments are summarized below, and are fully disclosed in the Notes to
Consolidated Financial Statements.
33
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
The following table includes aggregate information about our contractual
obligations as of June 30, 2002 and the periods in which payments are due:
Payments Due by Period
------------------------------------------------------------------------
Contractual Less than 1 1-3 4-5 After 5
Obligations Total Year Years Years Years
----------- ------------------------------------------------------------------------
(in thousands)
Long-Term Debt (1) $177,501 $ 4,358 $ 19,500 $ 87,750 $ 65,893
Capital Lease Obligations 9,642 9,398 244 -- --
Operating Leases 29,013 7,343 10,232 8,017 3,421
Unconditional Purchase Obligations None -- -- -- --
Other Long-Term Obligations None -- -- -- --
------------------------------------------------------------------------
Total Contractual Cash Obligations $216,156 $ 21,099 $ 29,976 $ 95,767 $ 69,314
========================================================================
__________
(1) Long-term debt includes the senior secured credit facility of $156,100,000,
10.75% Unsecured Convertible PIK Notes due April 2011 of $17,043,000, which,
including accrued PIK interest and CoreComm Limited's 6% Convertible
Subordinated Notes due 2006 of $4,358,000.
The following table includes aggregate information about our commercial
commitments as of June 30, 2002 and the periods in which payments are due.
Commercial commitments are items that we could be obligated to pay in the
future. They are not required to be included in the consolidated balance sheet.
Amount of Commitment
Expiration Per Period
----------------------------------------------------------------
Total
Other Commercial Amounts Less than 1 1 - 3 4 - 5 Over 5
Commitments Committed Year Years Years Years
----------------------------------------------------------------
(in thousands)
Guarantees $ None $ -- $ -- $ -- $ --
Lines of Credit None -- -- -- --
Standby Letters of Credit None -- -- -- --
Standby Repurchase Obligations None -- -- -- --
Other Commercial Commitments 6,844 6,844 -- -- --
------------------------------------------------------------------
Total Commercial Commitments $6,844 $6,844 $ -- $ -- $ --
==================================================================
Consolidated Statement of Cash Flows
For the six months ended June 30, 2002, cash provided by operating activities
was $1,126,000 in comparison to cash used in operating activities of $25,382,000
for the six months ended June 30, 2001. The change in cash flow is primarily due
to the implementation of our revised business plan.
For the six months ended June 30, 2002, cash used to purchase fixed assets
decreased to $5,448,000 from $6,192,000 in the six months ended June 30, 2001,
which reflects decreased purchases of operating equipment.
Proceeds from borrowings, net of financing costs, of $63,679,000 was from the
borrowings under the senior secured credit facility in January 2001 and April
2001.
34
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained herein, specifically excluding references to the
exchange offers, constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. When used herein,
the words, "believe," "anticipate," "plan," "will," "expects," "estimates,"
"projects," "positioned," "strategy," and similar expressions identify such
forward-looking statements. All references in this Safe Harbor legend to the
Company shall be deemed to include ATX Communications and its subsidiaries and
affiliates. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from those contemplated, projected, forecasted, estimated or budgeted, whether
expressed or implied, by such forward-looking statements. Such factors include
the following: the Company's ability to obtain trade credit shipments and terms
with vendors and service providers for current orders; the Company's ability to
maintain contracts that are critical to its operations; potential adverse
developments with respect to the Company's liquidity or results of operations;
adverse developments in commercial disputes or legal proceedings, including the
pending any future litigation with Verizon; the Company's ability to fund and
execute its business plan; the Company's ability to attract, retain and
compensate key executives and employees; the Company's ability to attract and
retain customers; the potential delisting of the Company's common stock from the
Nasdaq National Market; general economic and business conditions; industry
trends; technological developments; the Company's ability to continue to design
and build its network, install facilities, obtain and maintain any required
governmental licenses or approvals and finance construction and development, all
in a timely manner, at reasonable costs and on satisfactory terms and
conditions; assumptions about customer acceptance, churn rates, overall market
penetration and competition from providers of alternative services; the impact
of restructuring and integration actions; the impact of new business
opportunities requiring significant up-front investment; interest rate
fluctuations; and availability, terms and deployment of capital. The Company
assumes no obligation to update the forward-looking statements contained herein
to reflect actual results, changes in assumptions or changes in factors
affecting such statements.
35
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
The SEC's rule related to market risk disclosure requires that we describe and
quantify our potential losses from market risk sensitive instruments
attributable to reasonably possible market changes. Market risk sensitive
instruments include all financial or commodity instruments and other financial
instruments, such as investments and debt, that are sensitive to future changes
in interest rates, currency exchange rates, commodity prices or other market
factors. We are not exposed to market risks from changes in foreign currency
exchange rates or commodity prices. We do not hold derivative financial
instruments nor do we hold securities for trading or speculative purposes. Under
our current policies, we do not use interest rate derivative instruments to
manage our exposure to interest rate changes.
The fair-market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
carrying amount of the variable rate senior secured credit facility approximates
the fair value. The fair value of our other notes payable are estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements.
Interest Rate Sensitivity
As of June 30, 2002
Principal Amount by Expected Maturity
Average Interest Rate
July 1,
2002 to For the Years Ending December 31,
December 31, ------------------------------------ Fair Value
2002 2003 2004 2005 2006 Thereafter Total 6/30/02
---------------------------------------------------------------------------------------
(in thousands)
Long-term debt,
including current
portion:
Fixed rate $4,358 $-- $-- $-- $-- $47,525(a) $51,883 $21,401
Average interest rate 6.00% 10.75%
Variable rate $ -- $1,950 $9,750 $25,350 $50,700 $68,350 $156,100 $156,100
Average interest rate Libor + Libor + Libor + Libor + Libor +
4.5% or 4.5% or 4.5% or 4.5% or 4.5% or
base rate base rate base rate base rate base rate
+ 3.5% + 3.5% + 3.5% + 3.5% + 3.5%
(a) Represents the value at maturity of 10.75% Unsecured Convertible PIK Notes due April 2011.
36
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and/or its various subsidiaries is involved in various disputes,
arising in the ordinary course of its business, which may result in pending or
threatened litigation. The Company and/or its various subsidiaries are also
involved in the following litigation which, if resolved unfavorably to us, could
have a material adverse effect on the Company's business, financial condition
and/or results of operations:
o The Company has received correspondence dated July 23, 2002, from
Verizon's operating subsidiary in Pennsylvania alleging that Verizon is
owed a total of approximately $12.6 million for products and services
allegedly purchased in that state and threatening to implement account
embargo and service suspension procedures if payment of the alleged amount
is not received by August 23, 2002. The July 23 letter also alleges that
Verizon has the right to request a security deposit under applicable
contracts and tariffs and demands payment of such a deposit in the amount
of $5,650,000 by July 30, 2002. The Company has also received
correspondence dated July 23, 2002 from Verizon's operating subsidiary in
New Jersey alleging the right to demand a security deposit for products
and services purchased in that state and demanding payment of a deposit of
$2,700,000 by July 30, 2002. On August 1, 2002, the Company sent Verizon
formal written notice of its intent to pursue the collection of
approximately $5 million in credits associated with disputed charges that
the Company has withheld from payment as improperly billed. On or about
August 1, 2002, while the Company was investigating the claims set forth
in Verizon's letters of July 23, the Company received correspondence from
Verizon's operating subsidiaries in New Jersey and Pennsylvania alleging
that the Company had failed to pay undisputed amounts on a timely basis
and the security deposits as requested, and stating that Verizon intends
to terminate its agreements with the Company and discontinue the provision
of services and products in those states after August 31, 2002. The
Company is reviewing Verizon's claims concerning the amounts allegedly
owed in Pennsylvania and intends to pay all undisputed charges on or
before the August 23 embargo deadline. The Company is also reviewing
Verizon's demands for a security deposit and termination threats, but upon
preliminary investigation the Company believes that Verizon does not have
the right to make the deposit demands and termination threats set forth in
its letters. The Company intends to pursue all remedies available to it
and defend itself vigorously. However, it is not presently possible to
predict how these matters will be resolved.
On August 13, 2002, Verizon and several of its other subsidiaries filed a
complaint in the United States District Court for the District of Delaware
against the Company and several of its indirect wholly owned subsidiaries
seeking payment of approximately $37 million allegedly owed to Verizon
under various contracts between Verizon and the Company and its
subsidiaries and under state and federal law. While the Company has not
yet fully assessed Verizon's complaint, the Company believes that it has
meritorious defenses to the complaint, and further, that the amounts owed
are substantially less than the amount claimed by Verizon. For example, we
believe the figure specified in the complaint
37
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
includes significant amounts of disputes for which Verizon owes credits to
the Company, as well as payments that were made by the Company in the
ordinary course of business. The Company intends to pursue all remedies
available to it and defend itself vigorously. However, the Company cannot
be certain how or when the matter will be resolved or the outcome of the
litigation.
On March 7, 2002, CoreComm Massachusetts, Inc., an indirect wholly-owned
subsidiary of the Company initiated litigation against Verizon New England
d/b/a Verizon Massachusetts in the Suffolk Superior Court, Massachusetts,
alleging breach of contract and seeking a temporary restraining order to
prevent Verizon Massachusetts from suspending CoreComm Massachusetts'
ability to order new products and services for failure to pay various
amounts allegedly owed under the parties' interconnection agreement and
Verizon's tariffs in that state. On March 13, 2002, the court denied
CoreComm's request for a temporary restraining order and Verizon proceeded
to implement the threatened service embargo. On April 1, 2002, Verizon
filed its answer to CoreComm's complaint and filed counterclaims seeking
payment of approximately $1.2 million allegedly owed by CoreComm
Massachusetts under the agreement and tariffs. On April 10, 2002, CoreComm
Massachusetts filed an answer denying Verizon's claims. On or about May
20, 2002, Verizon served CoreComm Massachusetts with motion for summary
judgment in an effort to secure payment without further litigation. On or
about June 10, 2002, CoreComm Massachusetts submitted its opposition to
Verizon's motion for summary judgment asserting various defenses including
that the amount being sought by Verizon includes hundreds of thousands of
dollars of charges that are not attributable to the Company. The parties
are currently waiting for the court to rule on the pending summary
judgment motion. CoreComm Massachusetts believes that it will prevail on
its opposition to Verizon's motion for summary judgment, and the company
intends to pursue all available claims and defenses. However, it is not
presently possible to predict how these matters will be resolved. The
Company does not believe that the service embargo affecting its subsidiary
in Massachusetts will have a material adverse affect on the Company's
business, financial condition and/or results of operations.
o CoreComm Newco, Inc., an indirect, wholly-owned subsidiary of the Company,
is currently in litigation with Ameritech Ohio, a supplier from whom it
purchases telecommunications products and services, over the adequacy of
Ameritech's performance under a 1998 contract between CoreComm Newco and
Ameritech, and related issues. This litigation began in June 2001 when
Ameritech threatened to stop processing new orders following CoreComm
Newco exercise of its right under the contract to withhold payments for
Ameritech's performance failures. In response to this threat, CoreComm
Newco sought and received an order from an official of the Public
Utilities Commission of Ohio barring Ameritech from refusing to process
new CoreComm orders. Ameritech has appealed that order to the PUCO and the
appeal is still pending.
38
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
On July 5, 2001, Ameritech filed a claim with the PUCO seeking payment
from CoreComm Newco of approximately $8,600,000 allegedly owed under the
contract. On August 8, 2001, Ameritech filed a second claim against
CoreComm Newco in Ohio state court, seeking an additional approximately
$4,300,000 in allegedly improperly withheld amounts. On August 28, 2001,
CoreComm Newco exercised its right to remove the state court claim to the
United States District
Court for the Northern District of Ohio, and the parties then stipulated
to a consolidation of both of Ameritech's claims in the United States
District Court. To consolidate the two claims, on October 9, 2001,
Ameritech filed an amended complaint in the United States District Court,
seeking a total of approximately $14,400,000.
On December 26, 2001, CoreComm Newco filed its answer to Ameritech's
amended complaint and simultaneously filed three counterclaims against
Ameritech and some of its affiliates, alleging breach of contract,
antitrust violations, and fraudulent or negligent misrepresentation. In
lieu of filing an answer to CoreComm Newco's counterclaims, Ameritech
filed a series of motions on March 25, 2002, asking the Court to dismiss
several of CoreComm Newco's counterclaims. On April 17, 2002, CoreComm
Newco filed its opposition to Ameritech's requests for dismissal On July
25, 2002, the district court issued a decision denying Ameritech's motion
to dismiss and upholding CoreComm Newco's right to proceed with its
antitrust and misrepresentation claims against all counter-defendants.
The Company believes that CoreComm Newco has meritorious defenses to
Ameritech's amended complaint, and that the amount currently in dispute is
substantially less than the $14,400,000 claimed in Ameritech's amended
complaint. For example, the figure specified in Ameritech's complaint does
not account for (a) more than $5.2 million in refunds that Ameritech
contends it has already credited to CoreComm Newco's accounts since the
filing its complaint, and (b) payments that were made by CoreComm Newco in
the ordinary course after the time of Ameritech's submission. However, the
Company cannot be certain how or when the matter will be resolved. The
Company also believes that, to the extent Ameritech prevails with respect
to any of its claims, Ameritech's award may be offset in whole or in part
by amounts that CoreComm Newco is seeking to obtain from Ameritech under
its counterclaims. However, it is impossible at this time to predict the
outcome of the litigation.
o On December 3, 2001, General Electric Capital Corp. filed a lawsuit in the
Circuit Court of Cook County, Illinois against CoreComm Limited and
MegsINet, Inc., an indirect subsidiary of the Company, seeking
approximately $8 million in allegedly past due amounts and the return of
equipment under a capital equipment lease agreement between Ascend and
MegsINet. GECC is seeking all amounts allegedly owed under the lease as
well as repossession of the equipment. On February 19, 2002, the
defendants filed a motion to dismiss several of GECC's claims. In
response, GECC withdrew its original complaint and on May 1, 2002 filed an
amended complaint naming the Company as an additional defendant. On June
5, 2002, defendants filed a motion to dismiss and/or stay plaintiff's
complaint, plaintiffs filed a reply and the court has established a
schedule for
39
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
additional briefing on the matter to be followed by oral argument in late
September 2002. Concurrently, on April 12, 2002, GECC filed a second
complaint in the Circuit Court of Cook County, Illinois against MegsINet,
CoreComm Limited and the Company seeking a court order allowing it to take
repossession of its alleged equipment. After a hearing on the matter
following defendants' opposition, GECC withdrew its complaint and filed a
new action on May 3, 2002. Defendant's response to dismiss the May 3, 2002
complaint was filed on May 29, 2002 asking the court to dismiss
plaintiff's complaint and that matter remains pending. Concurrently, the
parties have been directed to submit proposed findings of fact and
conclusions of law on the claims against MegsINet by August 23, 2002 with
a decision to be rendered by the court by September 4, 2002. Defendants
intend to defend themselves vigorously against both complaints and to
pursue all available claims and defenses. However, it is impossible at
this time to predict the outcome of the litigation.
o On May 25, 2001, KMC Telecom, Inc. and some of its operating subsidiaries
filed an action in the Supreme Court of New York for New York County
against CoreComm Limited, Cellular Communications of Puerto Rico, Inc.,
CoreComm New York, Inc. and MegsINet, Inc. On that same date, KMC filed
the same cause of action in the Circuit Court of Cook County, IL. Upon
defendant's Motion to Stay the New York action, KMC voluntarily dismissed
the Illinois litigation and the matter is currently proceeding in New
York. KMC contends that it is owed approximately $2 million, primarily in
respect of alleged early termination liabilities, under a services
agreement and a co-location agreement with MegsINet. The defendants have
denied KMC's claims and have asserted that the contracts at issue were
signed without proper authorization, that KMC failed to perform under the
alleged contracts, and that the termination penalties are not enforceable.
The defendants have served discovery and intend to defend themselves in
coordination with one of their insurance carriers. On March 27, 2002,
certain of the defendants initiated litigation against several former
principals of MegsINet seeking indemnification and contribution against
KMC's claims.
o On March 1, 2002, Easton Telecom Services, LLC., referred to as Easton
LLC, initiated litigation in the Northern District of Ohio against
CoreComm Internet Group, Inc. asserting that Easton LLC is the assignee of
several rights of Easton Telecom Services, Inc., referred to as Easton
Inc., under an asset purchase agreement approved as part of the bankruptcy
disposition of Teligent, Inc., and demanding payment of approximately $5.1
million, primarily in respect of alleged early termination penalties, for
telecommunications services purportedly provided under alleged contracts
between Easton and MegsINet, Inc. Subsequently, on April 18, 2002, Easton
filed an amended complaint in the above-referenced matter naming Voyager
Information Networks, Inc. as an additional defendant and increasing the
amount in dispute to approximately $5.1 million. On May 7, 2002,
defendants' filed their answer denying Easton LLC's allegations and
asserting multiple defenses, including defenses challenging the validity
of the alleged contracts and plaintiffs claim to alleged damages, On July
8, 2002, plaintiff filed a motion for partial summary judgment on
defendants' claim that approximately $4 million of the amount at issue
constitutes an unenforceable penalty that must be dismissed by the court
as a matter of law, and Defendants filed an opposition to that motion on
July 29, 2002. Defendants intend to file a cross-motion for summary
judgment declaring that the
40
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
$4 million penalty is void as a matter of law, and will defend themselves
vigorously and pursue all available claims and defenses. However, it is
impossible at this time to predict the outcome of this litigation.
o On June 7, 2002, the Board of Revenue and Finance of the Commonwealth of
Pennsylvania issued an order granting in part and denying in part the
Company's petition for review of a decision by a lower administrative
authority relating to the Company's alleged liability for sales and use
tax for the period September 1, 1997 through July 31, 2000. Pursuant to
the June 7 order, the Company has been assessed sales and use tax for the
period at issue in the amount of $631,429. On July 8, 2002, the Company
filed a petition for review of the board's order in the Commonwealth Court
of Pennsylvania seeking a further reduction of the assessment. The Company
believes that it has meritorious defenses and that the assessment should
be reduced or eliminated, however it is not possible to predict how this
matter will be resolved.
o On August 13, 2002, the Company issued a demand to Worldcom, Inc. for
payment of approximately $8.1 million, representing approximately $5.4
million in deposits for services and approximately $2.7 million in carrier
access billing charges owed. On July 11, 2002, Worldcom filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
We do not believe Worldcom's bankruptcy filing will materially impact our
ability to conduct our business operations.
41
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special stockholder meeting held on July 11, 2002, the stockholders
of the Company unanimously approved a change of the name of the Registrant
from "CoreComm Holdco, Inc." to "ATX Communications, Inc." The name change
was made effective on July 15, 2002.
ITEM 5. OTHER INFORMATION
(a)In connection with the ATX Communications recapitalization, on July 2,
2002, Nasdaq transferred CoreComm Limited's listing on The Nasdaq National
Market to the Company. On May 16, 2002, Nasdaq provided CoreComm Limited
with notice of a Nasdaq Staff Determination indicating that CoreComm
Limited common stock was subject to delisting from the Nasdaq National
Market because CoreComm Limited did not comply with the minimum bid price
and the minimum market value of publicly held shares requirements for
continued listing. On June 28, 2002, a hearing was held before a Nasdaq
Listing Qualifications Panel to review the Nasdaq Staff Determination. The
Panel has not yet issued its opinion. Under Nasdaq rules, pending a
decision by the Panel, the Company's common stock will continue to trade
on the Nasdaq National Market. We cannot assure you that we will be able
to maintain the Nasdaq National Market listing for shares of our common
stock. If our common stock is delisted from the Nasdaq National Market, it
could, among other things, have a negative impact on the trading activity
and price of the common stock and could make it more difficult for us to
raise equity capital in the future. If our common stock is delisted from
the Nasdaq National Market, the shares will likely begin trading on the
Over-the-Counter Bulletin Board
(b)On July 31, 2002, we entered into definitive employment agreements with
Thomas J. Gravina, our President and Chief Executive Officer and Michael
A. Peterson, our Executive Vice-President, Chief Financial Officer and
Chief Operating Officer reflecting the terms previously disclosed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Restated Certificate of Incorporation of CoreComm Holdco, Inc.
(incorporated by reference to Exhibit 3.1 to CoreComm Holdco, Inc.'s
registration statement on Form S-1, file no, 333-82402)
3.2 Certificate of Amendment to the Certificate of Incorporation of
CoreComm Holdco, Inc.* (incorporated by reference to Exhibit 3.2
CoreComm Holdco, Inc.'s registration statement on Form S-1, file no,
333-82402)
3.3 Certificate of Correction to the Certificate of Amendment to the
Certificate of Incorporation of CoreComm Holdco, Inc. (incorporated
by reference to Exhibit 3.3 CoreComm Holdco, Inc.'s registration
statement on Form S-1, file no, 333-82402)
3.4 Certificate of Amendment to the Certificate of Incorporation of
CoreComm Holdco, Inc. as filed with the State of Delaware on July
17, 2002
3.5 Amended By-laws of ATX Communications, Inc. (incorporated by
reference to Exhibit 3.4 CoreComm Holdco, Inc.'s registration
statement on Form S-1, file no, 333-82402)
4.1 Prospectus on Form S-1 as filed on June 27, 2002 (incorporated
by reference to CoreComm Holdco, Inc.'s registration statement on
Form S-1, file no, 333-82402)
10.1 Employment Agreement between ATX Communications, Inc. and
Thomas J. Gravina dated July 31, 2002 and effective as of January 1,
2002.
10.2 Employment Agreement between ATX Communications, Inc. and
Michael A. Peterson dated July 31, 2002 and effective as of January
1, 2002.
99.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to the Section 906 of the Sarbanes-Oxley
Act of 2002
__________
42
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
(b) Reports on Form 8-K.
During the quarter ended June 30, 2002, the CoreComm Limited filed
the following reports on Form 8-K:
(i) Report dated April 1, 2002, reporting under Item 5, Other
Events, that CoreComm Limited issued a press release
announcing its earnings for the quarter and year ended
December 31, 2001.
(ii) Report dated April 15, 2002, reporting under Item 9,
Regulation FD Disclosure, that CoreComm issued a press release
announcing that it has extended its relationship with Public
Financial Management ("PFM") for the third consecutive term as
the company's telecommunications provider of choice.
(iii) Report dated April 17, 2002, reporting under Item 9,
Regulation FD Disclosure, that CoreComm issued a press release
announcing that ATX Communications had filed an amendment to
its Form S-4 Registration Statement, which includes an amended
exchange offer prospectus, with the SEC.
(iv) Report dated April 18, 2002, reporting under Item 9,
Regulation FD Disclosure, that CoreComm issued a press release
announcing that it has recently established relationships with
several notable businesses throughout the Mid-Atlantic and
Midwest regions.
(v) Report dated May 1, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
that CoreComm has signed a five-year agreement to provide
dedicated Internet access to Vault9, a Managed Service
Provider in the Greater Toledo, Ohio market.
(vi) Report dated May 10, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until 12:00 Midnight New
York City time, on May 21, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
(vii) Report dated May 15, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
their operating results for the quarter ended March 31, 2002.
(viii)Report dated May 21, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until 5:00 P.M. New York
City time, on May 28, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
43
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
(ix) Report dated May 22, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
that it had received notice of a Nasdaq Staff Determination on
May 16, 2002, indicating that the common stock of the Company
is subject to delisting from the Nasdaq National Market
because the Company did not comply with the minimum market
value of publicly held shares requirements for continued
listing. The Company is filing a request for a hearing before
a Nasdaq Listing Qualifications Panel to review the Nasdaq
Staff Determination. Under Nasdaq rules pending a decision by
the Panel, the common stock of the Company will continue to
trade on the Nasdaq National Market.
(x) Report dated May 28, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until 5:00 P.M. New York
City time, on June 3, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
(xi) Report dated June 3, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until midnight, New York
City time, on June 12, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
(xii) Report dated June 12, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until 5 pm, New York
City time, on June 21, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
(xiii)Report dated June 24, 2002, reporting under Item 9,
Regulation FD Disclosure, that CoreComm issued a press release
announcing the extension of the expiration date of the
registered public exchange offers by ATX Communications until
5 pm, New York City time on June 26, 2002, unless ATX
Communications terminates the exchange offer or extends the
expiration date.
(xiv) Report dated June 26, 2002, reporting under Item 9, Regulation
FD Disclosure, that CoreComm issued a press release announcing
the extension of the expiration date of the registered public
exchange offers by ATX Communications until Noon, New York
City time, on July 1, 2002, unless ATX Communications
terminates the exchange offer or extends the expiration date.
No financial statements were filed with these reports.
44
ATX Communications, Inc. (formerly CoreComm Holdco, Inc. and Subsidiaries)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATX COMMUNICATIONS, INC.
Date: August 14, 2002 By: /s/ Michael A. Peterson
-------------------------
Michael A. Peterson
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: August 14, 2002 By: /s/ Gregg N. Gorelick
--------------------------
Gregg N. Gorelick
Senior Vice President-Controller
and Treasurer
(Principal Accounting Officer)
45