SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 19, 2001
KMC TELECOM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 333-50475 22-3545325
(State or Other (Commission File Number) (I.R.S. Employee
Jurisdiction of Incorporation) Identification Number)
KMC TELECOM HOLDINGS, INC.
1545 ROUTE 206, SUITE 300
BEDMINSTER, NEW JERSEY 07921
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 908-470-2100
ITEM 5. OTHER EVENTS.
KMC Telecom Holdings, Inc. ("KMC," "we," "us" or "our") is filing this
Current Report on Form 8-K to provide certain information with respect to
certain recent developments in connection with our business.
(a) Based upon preliminary, unaudited results, we believe that KMC will
meet or exceed our previously announced fourth quarter and full year 2001
financial guidance for revenue and adjusted EBITDA (which consists of earnings
before interest, taxes, depreciation and amortization, non-cash stock
compensation expense/(credit) and other expense). In addition, based upon our
preliminary, unaudited results, our cash and cash equivalent balance at December
31, 2001 was approximately $96 million. We expect that revenue for the fourth
quarter and year ended December 31, 2001 will be approximately $129 million and
$453 million, respectively. We also expect that adjusted EBITDA for the fourth
quarter and year ended December 31, 2001 will be approximately $32 million and
$46 million, respectively.
In addition, based upon currently available information, we expect
revenue and adjusted EBITDA for the three months ended March 31, 2002 to be in
the same range as the three months ended December 31, 2001. This guidance
reflects the sale of the two fiber-optic systems discussed in paragraph (b),
below.
(b) On February 28, 2002, we sold two of our 37 Tier III fiber-optic
networks and related assets. We are required to apply the net proceeds from the
sale toward the $100 million loan prepayments required to be made by May 1, 2002
under our Amended Senior Secured Credit Facility, as discussed in paragraph (c)
below.
(c) Based upon currently available information, including the sale
discussed in paragraph (b) above, we expect that at March 31, 2002 and for the
quarter then ended, we will not be in compliance with certain of the financial
covenants contained in our Amended Senior Secured Credit Facility. In addition,
we do not currently anticipate being able to make all of the aggregate $100
million in loan prepayments which we are required to make under the Amended
Senior Secured Credit Facility on or before May 1, 2002. We are currently
engaged in negotiations with our Lenders to amend the terms of our Amended
Senior Secured Credit Facility to reflect our current operations, including the
sale of the two systems discussed in paragraph (b), and to allow us to avoid our
expected non-compliance with the existing covenants; however, we can give no
assurance that we will obtain any such amendment on acceptable terms or at all.
(d) On December 31, 2001, we entered into a financing transaction in
order to monetize an existing data contract. We received net proceeds of
approximately $19 million from this transaction, after deducting the costs of
certain equipment acquired to perform our obligations under the data contract
and the financing fees and expenses incurred in connection with the transaction.
(e) During the three months ended December 31, 2001, one of our
existing Lenders and stockholders acquired at a discount a significant portion
of our Amended Senior Secured
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Credit Facility, together with additional shares of preferred stock and warrants
to purchase shares of our common stock, from another Lender.
(f) In an effort to preserve liquidity, we have begun to implement a
significant further restructuring of our Tier III Markets business operations.
Although we expect that this restructuring will result in a reduction in revenue
growth as the result of lower capital expenditures, we also believe that,
through significant cost savings, adjusted EBITDA from our Tier III markets will
increase. We anticipate that we will begin to see the effects of this plan in
the second quarter of 2002.
(g) During 2001, we repurchased an aggregate maturity value of
approximately $179.5 million of our senior discount notes. In addition, we
believe that certain of our stockholders may have purchased an aggregate of
approximately $107 million of our senior discount notes and senior notes, as
well. We are aware that our outstanding senior discount notes and senior notes
are continuing to trade at substantial discounts to their accreted value and
face amounts. In order to reduce future cash interest payments, as well as
future amounts due at maturity, we or our affiliates intend, from time to time,
consistent with our agreement with the Lenders under the Amended Senior Secured
Credit Facility, to purchase additional such securities for cash, exchange them
for common stock under the exemption provided by Section 3(a)(9) of the
Securities Act of 1933, or acquire such securities for a combination of cash and
common stock, in each case in open market purchases or negotiated private
transactions with institutional holders. We will evaluate any such transactions
in light of then existing market conditions, taking into account our current
liquidity and prospects for future access to capital. Subject to certain
conditions, the Lenders recently granted permission for us to use a limited
portion of our cash balances for additional repurchases of our senior discount
notes or senior notes. Any additional repurchased notes will be pledged to the
Lenders as collateral under the Amended Senior Secured Credit Facility. We
expect to begin to repurchase additional senior discount notes and/or senior
notes in the near future in accordance with the terms of the Lenders'
permission. The amounts involved in any such transactions, individually or in
the aggregate, may be material and may have a negative, short-term impact on our
liquidity. Nevertheless, we expect that these repurchases will have a positive
impact on our future long-term liquidity position due to the resulting material
reduction in funded indebtedness. As a result, we believe that the repurchase of
senior discount notes and/or senior notes at a substantial discount is an
appropriate use for a limited portion of our current liquidity.
(h) We believe that our existing cash balances, marketable securities,
borrowings reasonably anticipated to be available under our Amended Senior
Secured Credit Facility and anticipated funds from operations will be sufficient
to meet our liquidity needs to fund operations and capital expenditure
requirements under our current business plan into the second quarter of 2003.
Our ability to remain liquid into the second quarter of 2003 is predicated upon
(i) continued access to available borrowings, (ii) increased sales in our Tier
III Markets business, combined with the successful implementation of the cost
controls and gross margin improvements that are a part of the planned
substantial restructuring of our Tier III Markets business referred to in
paragraph (f) above, (iii) our ability to secure additional multi-year contracts
with a variety of wholesale, data and carrier customers for our Nationwide Data
Platform business, which we are currently pursuing with a number of potential
customers and (iv) our ability to finance new data services contracts or
extensions of existing data services
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contracts which we may be able to obtain. In addition, under the terms of our
Amended Senior Secured Credit Facility, by May 1, 2002, we are required to
effect loan prepayments and reductions in the revolving loan commitment
thereunder in the aggregate amount of $100.0 million. Our ability to fund these
prepayments (for which we currently do not have a source) or to obtain a waiver
or amendment of this requirement from our Lenders is also a predicate of our
ability to remain liquid into the second quarter of 2003. We can give no
assurance that we will be able to achieve any of the predicates listed above.
Certain matters discussed in this Report are forward-looking statements
that involve risks and uncertainties. These forward-looking statements are based
on all information currently available to us and are subject to a number of
risks, uncertainties and other factors that could cause our actual results,
performance, prospects or opportunities to differ materially from those
expressed in, or implied by, these forward-looking statements. These risks,
uncertainties and other factors include matters related to:
o our operations and prospects,
o our expected financial position,
o our funding needs and potential financing sources,
o our network development and expansion plans,
o expected costs savings from restructurings,
o the markets in which our services are currently offered or will be
offered in the future,
o the services which we expect to offer in the future,
o the continuing implementation of our operations support system,
o regulatory matters,
o expected competitors in our markets, and
o the factors set forth in Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2000 under the heading "-Certain
Factors Which May Affect Our Future Results."
Except as otherwise required to be disclosed in periodic reports
required to be filed by public companies with the SEC pursuant to its rules, we
have no duty to update these statements.
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SIGNATURE
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.
KMC TELECOM HOLDINGS, INC.
Date: March 6, 2002 By: /S/ WILLIAM F. LENAHAN
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William F. Lenahan
Chief Executive Officer
By: /S/ ROSCOE C. YOUNG II
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Roscoe C. Young II
President and Chief Operating Officer
By: /s/ WILLIAM H. STEWART
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William H. Stewart
Executive Vice President and Chief
Financial Officer
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