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 MARCH 31, 2003, OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-29375
SAVVIS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
| DELAWARE |
43-1809960 | |
| (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NO.) |
1 SAVVIS PARKWAY
ST. LOUIS, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(314-628-7000)
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
12851 WORLDGATE DRIVE
HERNDON, VA 20170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(703) 234-8000
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
COMMON STOCK, $.01 PAR VALUE – 94,028,680 SHARES AS OF May 1, 2002
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
The Index of Exhibits appears on page 22.
SAVVIS COMMUNICATIONS CORPORATION
| PAGE | ||
| PART I. FINANCIAL INFORMATION |
||
| Item 1. Financial Statements—UNAUDITED: |
||
| Condensed Consolidated Balance Sheets as of December 31, 2002 and March 31, 2003 |
3 | |
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2003 |
5 | |
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2003 |
7 | |
| 9 | ||
| 10 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
21 | |
| 21 | ||
| PART II. OTHER INFORMATION |
||
| 22 | ||
| 22 | ||
| 22 | ||
| 22 | ||
| 23 | ||
| 24 | ||
| 26 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
SAVVIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
| DECEMBER 31, 2002 |
March 31, 2003 | |||||
| (Unaudited) | ||||||
| ASSETS |
||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ |
32,159 |
$ |
21,517 | ||
| Trade accounts receivable, less allowance for doubtful accounts of $1,023 in 2002 and $1,053 in 2003 (includes accounts receivable from affiliates of $10,988 and 3,887, respectively, in 2002 and 2003) |
|
15,117 |
|
14,545 | ||
| Prepaid expenses |
|
1,691 |
|
1,971 | ||
| Other current assets |
|
2,119 |
|
2,683 | ||
| TOTAL CURRENT ASSETS |
|
51,086 |
|
40,716 | ||
| Property and equipment, net |
|
129,262 |
|
118,076 | ||
| Restricted cash |
|
6,384 |
|
6,384 | ||
| Other non-current assets |
|
9,742 |
|
9,316 | ||
| TOTAL ASSETS |
$ |
196,474 |
$ |
174,492 | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SAVVIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS—CONTINUED
(Dollars in thousands except, per share amounts)
| DECEMBER 31, 2002 |
March 31, 2003 |
|||||||
| (Unaudited) |
||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ |
28,528 |
|
$ |
27,493 |
| ||
| Current portion of capital lease obligations |
|
2,705 |
|
|
2,144 |
| ||
| Other accrued liabilities |
|
15,469 |
|
|
15,111 |
| ||
| TOTAL CURRENT LIABILITIES |
|
46,702 |
|
|
44,748 |
| ||
| NON-CURRENT LIABILITIES: |
||||||||
| Capital lease obligations, net of current |
|
62,444 |
|
|
64,171 |
| ||
| Other accrued liabilities |
|
10,411 |
|
|
10,436 |
| ||
| TOTAL LIABILITIES |
|
119,557 |
|
|
119,355 |
| ||
| COMMITMENTS AND CONTINGENCIES (NOTE 4) |
||||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Convertible preferred stock in accreted value; 50,000,000 shares authorized; 203,070 issued and outstanding in 2002 and 2003 |
|
217,006 |
|
|
223,329 |
| ||
| Common stock; $.01 par value, 900,000,000 shares authorized, 94,059,956 shares issued in 2002 and 2003, 94,028,381 and 94,028,634 shares outstanding in 2002 and 2003, respectively |
|
941 |
|
|
941 |
| ||
| Additional paid-in capital |
|
351,772 |
|
|
345,386 |
| ||
| Accumulated deficit |
|
(478,432 |
) |
|
(502,882 |
) | ||
| Deferred compensation |
|
(12,270 |
) |
|
(9,550 |
) | ||
| Treasury stock, at cost, 31,575 and 31,322 shares in 2002 and 2003, respectively |
|
(16 |
) |
|
(16 |
) | ||
| Accumulated other comprehensive loss: |
||||||||
| Cumulative foreign currency translation adjustment |
|
(2,084 |
) |
|
(2,071 |
) | ||
| TOTAL STOCKHOLDERS’ EQUITY |
|
76,917 |
|
|
55,137 |
| ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
196,474 |
|
$ |
174,492 |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SAVVIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2002 |
2003 |
|||||||
| TOTAL REVENUES(1) |
|
62,180 |
|
|
55,201 |
| ||
| Data communications and operations expenses(2) |
|
45,095 |
|
|
36,732 |
| ||
| GROSS MARGIN |
|
17,085 |
|
|
18,469 |
| ||
| Sales, general and administrative expenses(3) |
|
15,922 |
|
|
22,537 |
| ||
| Depreciation and amortization |
|
16,449 |
|
|
15,747 |
| ||
| Asset impairment & other write-downs of assets |
|
1,000 |
|
|
— |
| ||
| Non-cash equity-based compensation |
|
2,674 |
|
|
2,657 |
| ||
| TOTAL OTHER OPERATING EXPENSES |
|
36,045 |
|
|
40,941 |
| ||
| LOSS FROM OPERATIONS |
|
(18,960 |
) |
|
(22,472 |
) | ||
| NON-OPERATING INCOME (EXPENSES): |
||||||||
| Interest income |
|
78 |
|
|
147 |
| ||
| Interest expense |
|
(4,805 |
) |
|
(2,125 |
) | ||
| Gains on extinguishment of debt |
|
58,625 |
|
|
— |
| ||
| TOTAL NON-OPERATING INCOME (EXPENSES) |
|
53,898 |
|
|
(1,978 |
) | ||
| INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
34,938 |
|
|
(24,450 |
) | ||
| Cumulative effect of change in accounting principle (Note 1) |
|
(2,772 |
) |
|
— |
| ||
| NET INCOME (LOSS) |
|
32,166 |
|
|
(24,450 |
) | ||
| Accreted and deemed dividend on preferred stock |
|
(53,633 |
) |
|
(7,980 |
) | ||
| LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
$ |
(21,467 |
) |
$ |
(32,430 |
) | ||
5
SAVVIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2002 |
2003 |
|||||||
| BASIC AND DILUTED LOSS PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
$ |
(0.20 |
) |
$ |
(0.35 |
) | ||
| Cumulative effect of change in accounting principle |
|
(0.03 |
) |
|
— |
| ||
| BASIC AND DILUTED LOSS PER COMMON SHARE |
$ |
(0.23 |
) |
$ |
(0.35 |
) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING |
|
93,386,548 |
|
|
93,766,068 |
| ||
(1) Including $28.2 million and $21.0 million from affiliates in the three months ended March 31, 2002 and 2003, respectively.
(2) Excluding $0.4 million and $0.5 million of non-cash equity-based compensation in the three months ended in March 31, 2002 and 2003, respectively and exclusive of depreciation shown separately below.
(3) Excluding $2.3 million and $2.2 million of non-cash equity-based compensation in the three months ended in March 31, 2002 and 2003, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SAVVIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2002 |
2003 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ |
32,166 |
|
$ |
(24,450 |
) | ||
| Reconciliation of net income (loss) to net cash used in operating activities: |
||||||||
| Extraordinary gain |
|
(58,625 |
) |
|
— |
| ||
| Asset impairment & other write-downs of assets |
|
1,000 |
|
|
— |
| ||
| Cumulative effect of change in accounting principle |
|
2,772 |
|
|
— |
| ||
| Accrued interest |
|
2,965 |
|
|
1,742 |
| ||
| Depreciation and amortization |
|
16,449 |
|
|
15,747 |
| ||
| Non-cash equity-based compensation |
|
2,674 |
|
|
2,657 |
| ||
| Net changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
|
(3,151 |
) |
|
572 |
| ||
| Prepaid expenses and other |
|
1,673 |
|
|
(844 |
) | ||
| Other non-current assets |
|
1,051 |
|
|
406 |
| ||
| Accounts payable | ||||||||