UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 2003
Commission file number 0-24061
US LEC Corp.
(Exact name of registrant as specified in its charter)
| Delaware |
56-2065535 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Morrocroft III, 6801 Morrison Boulevard
Charlotte, North Carolina 28211
(Address of principal executive offices) (Zip Code)
(704) 319-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 Exchange Rule 12b-2. Yes ¨ No x
As of May 13, 2003, there were 26,895,589 shares of Class A Common Stock outstanding.
US LEC Corp.
2
US LEC Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenue, Net |
$ |
73,108 |
|
$ |
53,938 |
| ||
| Network Expenses (excluding depreciation and amortization shown below) |
|
34,943 |
|
|
27,283 |
| ||
| Depreciation and Amortization |
|
11,439 |
|
|
10,553 |
| ||
| Selling, General and Administrative Expenses |
|
29,607 |
|
|
25,928 |
| ||
| Loss from Operations |
|
(2,881 |
) |
|
(9,826 |
) | ||
| Other (Income) Expense |
||||||||
| Interest Income |
|
(75 |
) |
|
(332 |
) | ||
| Interest Expense |
|
1,992 |
|
|
2,233 |
| ||
| Net Loss |
|
(4,798 |
) |
|
(11,727 |
) | ||
| Less: Preferred Stock Dividends |
|
3,527 |
|
|
3,324 |
| ||
| Less: Preferred Stock Accretion of Issuance Costs |
|
135 |
|
|
127 |
| ||
| Net Loss Attributable to Common Stockholders |
$ |
(8,460 |
) |
$ |
(15,178 |
) | ||
| Net Loss Attributable to Common Stockholders Per Common Share |
||||||||
| Basic and Diluted |
$ |
(0.31 |
) |
$ |
(0.58 |
) | ||
| Weighted Average Number of Shares Outstanding |
||||||||
| Basic and Diluted |
|
26,895 |
|
|
26,388 |
| ||
See notes to condensed consolidated financial statements
3
US LEC Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands)
| (Unaudited) March 31, 2003 |
December 31, 2002 |
|||||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ |
29,142 |
|
$ |
25,715 |
| ||
| Restricted cash |
|
1,580 |
|
|
1,080 |
| ||
| Accounts receivable (net of allowance of $23,663 and $23,180 at March 31, 2003 and December 31, 2002, respectively) |
|
49,073 |
|
|
57,989 |
| ||
| Deferred income taxes |
|
2,924 |
|
|
2,805 |
| ||
| Prepaid expenses and other assets |
|
9,128 |
|
|
8,441 |
| ||
| Total current assets |
|
91,847 |
|
|
96,030 |
| ||
| Property and Equipment, Net |
|
170,345 |
|
|
178,810 |
| ||
| Other Assets |
|
12,804 |
|
|
10,474 |
| ||
| Total Assets |
$ |
274,996 |
|
$ |
285,314 |
| ||
| Liabilities and Stockholders’ Deficiency |
||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ |
6,235 |
|
$ |
10,203 |
| ||
| Accrued network costs |
|
22,703 |
|
|
26,952 |
| ||
| Commissions payable |
|
9,072 |
|
|
7,886 |
| ||
| Accrued expenses—other |
|
15,108 |
|
|
16,015 |
| ||
| Deferred revenue |
|
8,599 |
|
|
8,048 |
| ||
| Long-term debt—current portion |
|
837 |
|
|
306 |
| ||
| Total current liabilities |
|
62,554 |
|
|
69,410 |
| ||
| Long-Term Debt |
|
130,728 |
|
|
130,311 |
| ||
| Deferred Income Taxes |
|
2,924 |
|
|
2,805 |
| ||
| Other Liabilities |
|
6,487 |
|
|
6,507 |
| ||
| Commitments and Contingencies (Note 6) |
||||||||
| Series A Mandatorily Redeemable Convertible Preferred Stock |
|
233,934 |
|
|
230,272 |
| ||
| Stockholders’ Deficiency |
||||||||
| Common stock—Class A, $.01 par value (122,925 authorized shares, 26,895 shares outstanding at March 31, 2003 and December 31, 2002) |
|
269 |
|
|
269 |
| ||
| Additional paid-in capital (Note 5) |
|
79,346 |
|
|
78,526 |
| ||
| Retained deficit |
|
(241,246 |
) |
|
(232,786 |
) | ||
| Total stockholders’ deficiency |
|
(161,631 |
) |
|
(153,991 |
) | ||
| Total Liabilities and Stockholders’ Deficiency |
$ |
274,996 |
|
$ |
285,314 |
| ||
See notes to condensed consolidated financial statements
4
US LEC Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating Activities |
||||||||
| Net Loss |
$ |
(4,798 |
) |
$ |
(11,727 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
|
11,439 |
|
|
10,553 |
| ||
| Accretion of subordinated debt |
|
71 |
|
|
— |
| ||
| Deferred compensation |
|
— |
|
|
131 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
|
6,139 |
|
|
(5,216 |
) | ||
| Prepaid expenses and other assets |
|
(434 |
) |
|
1,022 |
| ||
| Other assets |
|
(9 |
) |
|
(94 |
) | ||
| Accounts payable |
|
(775 |
) |
|
(91 |
) | ||
| Deferred revenue |
|
551 |
|
|
720 |
| ||
| Accrued network costs |
|
(4,249 |
) |
|
2,738 |
| ||
| Customer commissions payable |
|
4,308 |
|
|
993 |
| ||
| Other liabilities—non-current |
|
(21 |
) |
|
396 |
| ||
| Accrued expenses—other |
|
1,033 |
|
|
(3,216 |
) | ||
| Total adjustments |
|
18,053 |
|
|
7,936 |
| ||
| Net cash provided by (used in) operating activities |
|
13,255 |
|
|
(3,791 |
) | ||
| Investing Activities |
||||||||
| Purchase of property and equipment |
|
(9,187 |
) |
|
(9,930 |
) | ||
| Assets acquired |
|
(1,299 |
) |
|
— |
| ||
| Advance from insurance claim |
|
1,000 |
|
|
— |
| ||
| Increase in restricted cash |
|
(500 |
) |
|
— |
| ||
| Net cash used in investing activities |
|
(9,986 |
) |
|
(9,930 |
) | ||
| Financing Activities |
||||||||
| Proceeds from issuance of debentures and warrants |
|
350 |
|
|
— |
| ||
| Payments on long-term debt |
|
(54 |
) |
|
— |
| ||
| Payment of loan fees |
|
(138 |
) |
|
— |
| ||
| Issuance of common shares |
|
— |
|
|
||||