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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q

(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

[   ]
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 000 - 26728
 
 
 
Talk America Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)
23-2827736
(I.R.S. Employer Identification No.)

12020 Sunrise Valley Drive, Suite 250, Reston, Virginia
(Address of principal executive offices)
20191
(Zip Code)

(703) 391-7500
(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 Act).

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.

26,686,205 shares of Common Stock, par value of $0.01 per share, were issued and outstanding as of May 6, 2004.

 
     

 
 
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

Index

 
Page

 
 
PART I - FINANCIAL INFORMATION
 
 
 
Item 1. Consolidated Financial Statements
 
 
 
Consolidated Statements of Operations - Three Months Ended March 31, 2004 and 2003 (unaudited)
2
 
 
Consolidated Balance Sheets – March 31, 2004 and December 31, 2003 (unaudited)
3
 
 
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2004 and 2003 (unaudited)
4
 
 
Notes to Consolidated Financial Statements (unaudited)
5
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
 
 
Item 3. Quantitative and Qualitative Disclosure About Market Risk
16
 
 
Item 4. Controls and Procedures
16
 
 
PART II - OTHER INFORMATION
 
 
 
Item 6. Exhibits and Reports on Form 8-K
 
 
 
(a) Exhibits
17
(b) Reports on Form 8-K
17


 
  1  

 
 
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)

 
 
Three Months Ended March 31,
   
 
 
2004
2003
   

 
 
 
 
Revenue
 
$
109,321
 
$
87,843
 
 
   
 
   
 
 
Costs and expenses:
   
 
   
 
 
Network and line costs
   
54,220
   
43,884
 
General and administrative expenses
   
15,162
   
12,879
 
Provision for doubtful accounts
   
3,421
   
2,223
 
Sales and marketing expenses
   
17,284
   
9,371
 
Depreciation and amortization
   
5,131
   
4,307
 
   
 
 
Total costs and expenses
   
95,218
   
72,664
 
   
 
 
 
   
 
   
 
 
Operating income
   
14,103
   
15,179
 
Other income (expense):
   
 
   
 
 
Interest income
   
101
   
110
 
Interest expense
   
(817
)
 
(2,479
)
Other income, net
   
--
   
2,151
 
   
 
 
Income before provision for income taxes
   
13,387
   
14,961
 
Provision for income taxes
   
5,031
   
5,835
 
   
 
 
Net income
 
$
8,356
 
$
9,126
 
   
 
 
Income per share – Basic:
   
 
   
 
 
   
 
 
Net income per share
 
$
0.31
 
$
0.35
 
   
 
 
 
   
 
   
 
 
Weighted average common shares outstanding
   
26,674
   
26,376
 
   
 
 
Income per share – Diluted:
   
 
   
 
 
   
 
 
Net income per share
 
$
0.29
 
$
0.32
 
   
 
 
 
   
 
   
 
 
Weighted average common and common equivalent shares outstanding
   
28,862
   
29,940
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
  2  

 
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)
 
 
 
March 31, 2004
December 31, 2003
   

Assets
   
 
   
 
 
Current assets:
   
 
   
 
 
Cash and cash equivalents
 
$
29,749
 
$
35,242
 
Accounts receivable, trade (net of allowance for uncollectible accounts of $10,032 and $9,414 at March 31, 2004 and December 31, 2003, respectively)
   
42,660
   
40,321
 
Deferred income taxes
   
24,568
   
24,605
 
Prepaid expenses and other current assets
   
5,941
   
5,427
 
   
 
 
Total current assets
   
102,918
   
105,595
 
 
   
 
   
 
 
Property and equipment, net
   
65,390
   
68,069
 
Goodwill
   
19,503
   
19,503
 
Intangibles, net
   
3,955
   
4,666
 
Deferred income taxes
   
36,528
   
40,543
 
Other assets
   
7,850
   
7,547
 
   
 
 
 
 
$
236,144
 
$
245,923
 
   
 
 
 
   
 
   
 
 
Liabilities and Stockholders’ Equity
   
 
   
 
 
Current liabilities:
   
 
   
 
 
Accounts payable
 
$
39,470
 
$
35,296
 
Sales, use and excise taxes
   
14,131
   
14,551
 
Deferred revenue Legal settlements
   
12,599
   
10,873
 
Current portion of long-term debt
   
16,797
   
16,806
 
Accrued compensation
   
2,905
   
9,888
 
Other current liabilities
   
5,769
   
7,027
 
   
 
 
Total current liabilities
   
91,671
   
94,441
 
   
 
 
 
   
 
   
 
 
Long-term debt
   
16,351
   
31,791
 
 
   
 
   
 
 
Deferred income taxes
   
19,920
   
19,904
 
 
   
 
   
 
 
Commitments and contingencies
   
 
   
 
 
 
   
 
   
 
 
Stockholders' equity:
   
 
   
 
 
Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares outstanding
   
--
   
--
 
Common stock - $.01 par value, 100,000,000 shares authorized; 26,683,094 and 26,662,952 issued and outstanding at March 31, 2004 and December 31, 2003, respectively
   
280
   
280
 
Additional paid-in capital
   
354,906
   
354,847
 
Accumulated deficit
   
(241,984
)
 
(250,340
)
Treasury stock - $.01 par value, 1,315,789 shares at March 31,2004 and December 31, 2003, respectively
   
(5,000
)
 
(5,000
)
   
 
 
Total stockholders' equity
   
108,202
   
99,787
 
   
 
 
 
 
$
236,144
 
$
245,923
 
   
 
 

See accompanying notes to consolidated financial statements.
 
  3  

 

TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31,
   
 
 
2004
2003
   

Cash flows from operating activities:
   
 
   
 
 
Net income
 
$
8,356
 
$
9,126
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
 
   
 
 
Provision for doubtful accounts
   
3,421
   
2,223
 
Depreciation and amortization
   
5,131
   
4,307
 
Non-cash compensation
   
9
   
--
 
Non-cash interest and amortization of accrued interest liabilities
   
(65
)
 
(65
)
Gain from extinguishment of debt
   
--
   
(2,154
)
Deferred income taxes
   
4,068
   
5,835
 
Changes in assets and liabilities:
   
 
   
 
 
Accounts receivable, trade
   
(5,760
)
 
(5,343
)
Prepaid expenses and other current assets
   
(514
)
 
(145
)
Other assets
   
(13
)
 
1,114
 
Accounts payable
   
4,174
   
3,325
 
Sales, use and excise taxes
   
(420
)
 
332
 
Deferred revenue
   
1,726
   
1,154
 
Accrued compensation
   
(6,983
)
 
(2,251
)
Other current liabilities
   
(1,258
)
 
(2,849
)
   
 
 
Net cash provided by operating activities
   
11,872
   
14,609
 
   
 
 
 
   
 
   
 
 
Cash flows from investing activities:
   
 
   
 
 
Capital expenditures
   
(1,220
)
 
(2,691
)
Capitalized software development costs
   
(811
)
 
(663
)
   
 
 
Net cash used in investing activities
   
(2,031
)
 
(3,354
)
   
 
 
 
   
 
   
 
 
Cash flows from financing activities:
   
 
   
 
 
Payments of borrowings
   
(15,000
)
 
(10,793
)
Payments of capital lease obligations
   
(384
)
 
(16
)
Proceeds from exercise of options and warrants
   
50
   
12
 
Purchase of treasury stock
   
--
   
(5,000
)
   
 
 
Net cash used in financing activities
   
(15,334
)
 
(15,797
)