SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from to
Commission file number 0-23253
ITC^DeltaCom, Inc.
(Exact name of registrant as specified in its charter)
| Delaware |
58-2301135 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 1791 O.G. Skinner Drive, West Point, GA |
31833 | |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (706) 385-8000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Outstanding at May 12, 2003 | ||
| Common Stock, $.01 par value |
44,848,300 shares |
ITC^DeltaCom, Inc.
| Page No. | ||||
| Part I. |
||||
| Item 1. Financial Statements |
||||
|
Condensed Consolidated Balance Sheets |
3 | |||
| 5 | ||||
| Predecessor ITC^DeltaCom for the three months ended March 31, 2002 |
5 | |||
| 6 | ||||
| Predecessor ITC^DeltaCom for the three months ended March 31, 2002 |
6 | |||
| 7 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | |||
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
23 | |||
| Item 4. Controls and Procedures |
23 | |||
| Part II. |
||||
| Item 1. Legal Proceedings |
24 | |||
| Item 6. Exhibits and Reports on Form 8-K |
24 | |||
| 25 | ||||
2
FINANCIAL INFORMATION
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| March 31, |
December 31, 2002 | |||||
| (Unaudited) |
||||||
| ASSETS |
||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ |
28,900 |
$ |
30,554 | ||
| Restricted cash |
|
9,269 |
|
9,285 | ||
| Accounts receivable: |
||||||
| Customer, net of allowance for uncollectible accounts of $7,896 and $7,344 in 2003 and 2002, respectively |
|
49,953 |
|
48,157 | ||
| Affiliate |
|
3,838 |
|
3,375 | ||
| Inventory |
|
4,322 |
|
4,572 | ||
| Prepaid expenses |
|
6,667 |
|
3,542 | ||
| Total current assets |
|
102,949 |
|
99,485 | ||
| PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $22,287 and $8,470 in 2003 and 2002, respectively |
|
409,747 |
|
417,144 | ||
| OTHER LONG-TERM ASSETS: |
||||||
| Intangible assets, net of accumulated amortization of $1,058 and $427 in 2003 and 2002, respectively |
|
24,763 |
|
25,453 | ||
| Restricted cash |
|
9,250 |
|
9,250 | ||
| Other assets |
|
2,040 |
|
2,188 | ||
| Total other long-term assets |
|
36,053 |
|
36,891 | ||
| Total assets |
$ |
548,749 |
$ |
553,520 | ||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
3
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable: |
||||||||
| Trade |
$ |
38,705 |
|
$ |
34,622 |
| ||
| Construction |
|
1,410 |
|
|
2,004 |
| ||
| Accrued interest |
|
1,051 |
|
|
598 |
| ||
| Accrued compensation |
|
3,553 |
|
|
6,671 |
| ||
| Unearned revenue |
|
15,534 |
|
|
15,736 |
| ||
| Other accrued liabilities |
|
18,088 |
|
|
19,173 |
| ||
| Current portion of other long-term liabilities |
|
4,103 |
|
|
3,250 |
| ||
| Current portion of long-term debt and capital lease obligations |
|
5,309 |
|
|
2,703 |
| ||
| Total current liabilities |
|
87,753 |
|
|
84,757 |
| ||
| LONG-TERM LIABILITIES: |
||||||||
| Other long-term liabilities |
|
6,472 |
|
|
7,325 |
| ||
| Long-term debt and capital lease obligations |
|
196,448 |
|
|
199,668 |
| ||
| Total long-term liabilities |
|
202,920 |
|
|
206,993 |
| ||
| CONVERTIBLE REDEEMABLE PREFERRED STOCK: |
||||||||
| Par value $.01; 665,000 shares designated Series A; 304,208 and 300,000 shares issued and outstanding in 2003 and 2002, respectively; entitled to liquidation preference and redemption value of $100 per share, plus accrued and unpaid dividends |
|
25,085 |
|
|
24,525 |
| ||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common stock, $.01 par value; 250,000,000 shares authorized; 44,848,300 and 44,750,000 shares issued and outstanding in 2003 and 2002, respectively |
|
448 |
|
|
447 |
| ||
| Additional paid-in-capital |
|
238,358 |
|
|
237,886 |
| ||
| Warrants outstanding |
|
2,122 |
|
|
2,122 |
| ||
| Deficit |
|
(7,937 |
) |
|
(3,210 |
) | ||
| Total stockholders’ equity |
|
232,991 |
|
|
237,245 |
| ||
| Total liabilities and stockholders’ equity |
$ |
548,749 |
|
$ |
553,520 |
| ||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share data)
| Successor (Note 1) |
Predecessor (Note 1) |
|||||||
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating revenues |
$ |
99,074 |
|
$ |
109,348 |
| ||
| Cost of services (exclusive of items shown separately below) |
|
47,984 |
|
|
50,989 |
| ||
| Gross margin |
|
51,090 |
|
|
58,359 |
| ||
| Operating expenses: |
||||||||
| Selling, operations and administration |
|
36,894 |
|
|
42,256 |
| ||
| Depreciation and amortization |
|
14,511 |
|
|
31,983 |
| ||
| Stock based deferred compensation |
|
221 |
|
|
— |
| ||
| Total operating expenses |
|
51,626 |
|
|
74,239 |
| ||
| Operating loss |
|
(536 |
) |
|
(15,880 |
) | ||
| Other income (expense): |
||||||||
| Interest expense |
|
(3,524 |
) |
|
(15,006 |
) | ||
| Interest income |
|
81 |
|
|
123 |
| ||
| Other income, net |
|
— |
|
|
17 |
| ||
| Total other expense, net |
|
(3,443 |
) |
|
(14,866 |
) | ||
| Loss before income taxes |
|
(3,979 |
) |
|
(30,746 |
) | ||
| Income tax expense |
|
— |
|
|
— |
| ||
| Net loss |
|
(3,979 |
) |
|
(30,746 |
) | ||
| Preferred stock dividends and accretion |
|
(748 |
) |
|
(2,150 |
) | ||
| Net loss applicable to common stockholders |
$ |
(4,727 |
) |
$ |
(32,896 |
) | ||
| Basic and diluted net loss per common share |
$ |
(0.11 |
) |
$ |
(0.53 |
) | ||
| Basic and diluted weighted average common shares outstanding |
|
44,834,101 |
|
|
62,364,768 |
| ||
The accompanying notes are an integral part of these condensed consolidated statements.
5
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Successor (Note 1) |
Predecessor (Note 1) |
|||||||
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(3,979 |
) |
$ |
(30,746 |
) | ||
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
|
14,511 |
|
|
31,983 |
| ||
| Amortization of debt issuance costs |
|
149 |
|
|
582 |
| ||
| Changes in current operating assets and liabilities: |
||||||||
| Accounts receivable, net |
|
(2,038 |
) |
|||||