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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

                     o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                 For the transition period from __________ to ___________

                     Commission File Number 0-30218

TIME WARNER TELECOM INC.
(Exact name of Registrant as specified in its charter)

State of Delaware 84-1500624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
   
10475 Park Meadows Drive  
Littleton, Colorado 80124
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (303) 566-1000

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 o

The number of shares outstanding of Time Warner Telecom Inc.’s common stock as of July 31, 2002 was:

Time Warner Telecom Inc. Class A common stock – 48,890,771 shares
Time Warner Telecom Inc. Class B common stock – 65,936,658 shares


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TIME WARNER TELECOM INC.


INDEX TO FORM 10-Q

    Page
Part I.  Financial Information  
     
Item 1. Financial Statements:  
     
  Consolidated and Condensed Balance Sheets at June 30, 2002, and December 31, 2001 1
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 2
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 3
     
  Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2002 4
     
  Notes to Consolidated and Condensed Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
     
     
Part II.   Other Information  
     
Item 1. Legal Proceedings 31
     
Item 4. Submission of Matters to a Vote of Security Holders 31
     
Item 6. Exhibits and Reports on Form 8-K 32


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TIME WARNER TELECOM INC.

CONSOLIDATED AND CONDENSED BALANCE SHEETS

    June 30,     December 31,  
    2002     2001  
   
   
 
    (unaudited)        
    (amounts in thousands, except share amounts)
ASSETS              
Current assets:              
     Cash and cash equivalents   $ 317,077     365,600  
     Marketable debt securities     6,560     18,454  
     Receivables, less allowances of $31,126 and $29,778, respectively     70,650     78,431  
     Prepaid expenses     8,139     3,305  
     Deferred income taxes     27,195     35,570  
   
   
 
          Total current assets     429,621     501,360  
   
   
 
               
Property, plant, and equipment     2,353,202     2,286,278  
     Less accumulated depreciation     (589,333 )   (475,182 )
   
   
 
      1,763,869     1,811,096  
   
   
 
               
Deferred income taxes     31,895     23,630  
Goodwill, net of accumulated amortization     26,773     26,773  
Intangible and other assets, net of accumulated amortization (notes 1 and 2)     32,199     36,095  
   
   
 
          Total assets   $ 2,284,357     2,398,954  
   
   
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
               
Current liabilities:              
     Accounts payable   $ 53,391     79,429  
     Deferred revenue     39,427     47,528  
     Other current liabilities     257,246     259,916  
   
   
 
          Total current liabilities     350,064     386,873  
   
   
 
               
Long-term debt and capital lease obligations (note 3)     1,058,256     1,063,368  
               
Stockholders’ equity (note 1):              
     Preferred stock, $0.01 par value, 20,000,000 shares authorized, no              
          shares issued and outstanding     —     —  
     Class A common stock, $0.01 par value, 277,300,000 shares authorized,              
          48,890,771 and 48,789,111 shares issued and outstanding in 2002              
          and 2001, respectively     489     488  
     Class B common stock, $0.01 par value, 162,500,000 shares authorized,              
          65,936,658 shares issued and outstanding in 2002 and 2001     659     659  
     Additional paid-in capital     1,166,848     1,165,804  
     Accumulated other comprehensive loss, net of taxes     —     (206 )
     Accumulated deficit     (291,959 )   (218,032 )
   
   
 
               
          Total stockholders’ equity     876,037     948,713  
   
   
 
                        
          Total liabilities and stockholders’ equity   $ 2,284,357     2,398,954  
   
   
 

See accompanying notes.


1

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TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended   Six Months Ended  
  June 30,   June 30,  
 
 
 
    2002   2001   2002   2001  
 
 
 
 
 
  (amounts in thousands, except per share amounts)
                   
Revenue (a):                  
        Dedicated transport services $ 92,828   98,532   187,614   195,468  
        Switched services   37,184   38,799   73,929   75,697  
        Data and Internet services   21,924   15,259   42,348   30,530  
        Intercarrier compensation   32,640   65,307   49,404   89,329  
 
 
 
 
 
               Total revenue   184,576   217,897   353,295   391,024  
 
 
 
 
 
                   
Costs and expenses (a):                  
        Operating (exclusive of depreciation and                  
            amortization shown separately below)   72,812   81,662   146,167   160,367  
        Selling, general, and administrative   58,686   61,362   115,417   121,932  
        Depreciation and amortization   57,172   46,222   114,506   98,897  
 
 
 
 
 
               Total costs and expenses   188,670   189,246   376,090   381,196  
 
 
 
 
 
                   
Operating income (loss)   (4,094 ) 28,651   (22,795 ) 9,828  
                   
Interest expense   (25,920 ) (26,334 ) (51,675 ) (61,070 )
Interest income   1,323   5,915   2,800   12,575  
Investment losses, net   (1,957 ) —   (1,957 ) —  
 
 
 
 
 
                   
Net income (loss) before income taxes   (30,648 ) 8,232   (73,627 ) (38,667 )
                   
Income tax expense (benefit)   150   3,847   300   (14,345 )
 
 
 
 
 
                   
Net income (loss) $ (30,798 ) 4,385   (73,927 ) (24,322 )
 
 
 
 
 
                   
Basic and diluted earnings (loss) per share $ (0.27 ) 0.04   (0.65 ) (0.22 )
 
 
 
 
 
                   
Weighted average shares outstanding:                  
     Basic   114,753   114,216   114,744   113,021  
 
 
 
 
 
     Diluted   114,753   115,926   114,744   113,021  
 
 
 
 
 
                   
(a) Includes revenue and expenses resulting from transactions with affiliates (note 4):
                   
               Revenue $ 7,294   5,691   15,861   10,731  
 
 
 
 
 
               Operating $ 744   680   1,484   1,359  
 
 
 
 
 
               Selling, general, and administrative $ 403   387   794   771  
 
 
 
 
 
               Depreciation and amortization $ 2,987   2,970   5,966   5,931  
 
 
 
 
 

See accompanying notes.


2

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TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Six Months Ended
  June 30,
 
 
  2002   2001  
 
 
 
  (amounts in thousands)
Cash flows from operating activities:          
     Net loss $ (73,927 ) (24,322 )
     Adjustments to reconcile net loss to net cash provided by operating activities:          
          Depreciation and amortization   114,506   98,897  
          Impairment of deferred debt issue costs   —   5,814  
          Investment losses, net   1,957   —  
          Stock-based compensation   810   262  
          Amortization of deferred debt issue costs   2,294   2,151  
          Deferred income tax benefit   —   (14,720 )
          Changes in operating assets and liabilities, net of the effect of an acquisition:          
               Receivables and prepaid expenses   2,871   8,187  
               Accounts payable, deferred revenue, and other current liabilities   (37,873 ) 40,926  
               Accrued reorganization   (2,102 ) —  
 
 
 
                    Net cash provided by operating activities   8,536   117,195  
 
 
 
Cash flows from investing activities:          
     Capital expenditures   (66,997 ) (242,735 )
     Cash paid for an acquisition   —   (651,689 )
     Purchases of marketable securities   (8,606 ) (57,981 )
     Proceeds from maturities of marketable securities   20,500   31,324  
     Other investing activities   —   (626 )
 
 
 
           
                    Net cash used in investing activities   (55,103 ) (921,707 )
 
 
 
           
Cash flows from financing activities:          
     Net proceeds from issuance of common stock   —   532,178  
     Net proceeds from issuance of debt   —   1,159,586  
     Repayments of debt   —   (700,000 )
     Net proceeds from issuance of common stock upon exercise of stock options   145   11,651  
     Net proceeds from issuance of common stock in connection with the employee          
          stock purchase plan   90   1,003  
     Payment of capital lease obligations   (2,191 ) (1,265 )
     Deferred debt issue costs, net   —   1,078  
 
 
 
           
                    Net cash provided by (used in) financing activities   (1,956 ) 1,004,231  
 
 
 
                              
                    Increase (decrease) in cash, cash equivalents, and cash held in escrow   (48,523 ) 199,719  
                    Cash, cash equivalents, and cash held in escrow at beginning of period   365,600   250,739  
 
 
 
                    Cash and cash equivalents at end of period $ 317,077   450,458  
 
 
 
           
Supplemental disclosures of cash flow information:          
                    Cash paid for interest $ 50,376   34,632  
 
 
 
                    Tax benefit related to exercise of non-qualified stock options $ —   18,708  
 
 
 
                    Cash paid for income taxes $ 391   656  
 
 
 

See accompanying notes.


3

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TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2002
(Unaudited)

  Common Stock
       Accumulated
other		          
  Class A
   Class B
   Additional
paid-in		   comprehensive
loss,		   Accumulated   Total
stockholders’		  
  Shares   Amount   Shares   Amount   capital   net of taxes   deficit   equity  
 
 
 
 
 
 
 
 
 
  (amounts in thousands)
                                     
Balance at December 31, 2001 48,789   $ 488