UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2004

OR

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

(Commission File Number 1-11965)

ICG COMMUNICATIONS, INC.

161 Inverness Drive West
Englewood, Colorado 80112
(Address of principal executive offices)

Registrant’s telephone numbers, including area codes: (888) 424-1144 or (303) 414-5000

Indicate by check mark whether the registrants: (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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [    ] No [ X ]

Indicate by check whether the registrant has filed all documents and reports required to be filed by Section 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 [    ]

As of July 12, 2004, 8,000,000 shares of ICG Communications, Inc. common stock, $0.01 par value, were deemed issued and outstanding for financial reporting purposes, of which 7,839,338 had actually been distributed to stockholders.

Table of Contents

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ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements.

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ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements.

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ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements.

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ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

See accompanying notes to consolidated financial statements.

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ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

(1)		Organization and Description of Business
		ICG Communications, Inc., a Delaware corporation, and its subsidiaries are collectively referred to as “ICG” or the “Company”. The Company provides voice, data and Internet communication services. Headquartered in Englewood, Colorado, the Company operates an integrated metropolitan and nationwide fiber optic infrastructure to offer:

•		Converged and Data Services, which include services that were classified under the “Corporate Services” category in the Company’s filings for periods prior to January 1, 2004. Such services include VoicePipeTM, iConvergeTM, Dedicated Internet Access and conferencing.
•		Voice Services, which include services that were primarily classified under the “Corporate Services” category in the Company’s filings for periods prior to January 1, 2004. Such services include long-distance, digital trunks and business lines. In addition, Signaling System 7 services, currently included in this category, were previously classified under the “Point-to-Point Broadband” category. Finally, primary rate interface — two way services, currently included in this category, were previously classified under the “Dial-Up” category.
•		Private Line Services, which were previously classified under the “Point-to-Point Broadband” category in the Company’s filings for periods prior to January 1, 2004, consist of local and intercity dedicated facilities.
•		Dial-Up Services, which include services that were classified under the “Dial-Up” category in the Company’s filings for periods prior to January 1, 2004. Such services include remote access service and primary rate interface — inbound service.
•		Inter-Carrier Compensation, which includes services that were classified under the “Reciprocal Compensation” category in the Company’s filings for periods prior to January 1, 2004. In addition, Inter-Carrier Compensation includes switched access service (previously classified under the “Point-to-Point Broadband” category) and carrier access billed service (previously classified under the “Corporate Services” category).

		Please see note 2 for the recorded amounts for each revenue category for the three and six months ended June 30, 2003 and 2004.
		Recent Business History
		Following the Company’s Chapter 11 reorganization in 2002, the Company began to encounter financial difficulties arising from a decline in revenues associated with the loss of certain key contracts. In September 2003 the Company terminated early four dial-up data services agreements with Qwest Communications, Inc. (“Qwest”), formerly the Company’s largest customer, in exchange for a cash payment from Qwest of approximately $106.8 million, which included payment of approximately $31.0 million for dial-up data services provided and to be provided by the Company under the agreements during the six months ended December 31, 2003, and approximately $75.8 million of early termination revenue. In October 2003 the Company used approximately $81.2 million of the proceeds from the Qwest transaction to prepay in full the balance of the Company’s outstanding secured notes and senior subordinated term loan, as required by the terms of such indebtedness. In connection with the prepayment, approximately $42.1 million of cash held in a cash collateral account for the benefit of the Company’s lenders was released to the Company.

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		Although retirement of the secured notes and senior subordinated term loan significantly reduced the Company’s indebtedness, the Qwest transaction resulted in a substantial decrease in revenues and resulting operating income and cash flows to the Company. In the fourth quarter of 2003, the Company embarked on substantial cost cutting efforts in an attempt to mitigate the impact of the loss of revenues from Qwest. These efforts, however, were insufficient to stem significant ongoing operating losses.
		Strategic Transaction and Preparations for Bankruptcy
		Beginning in early 2004, in response to the Company’s continuing operating losses, the Company undertook an assessment of its financial condition and prospects. Following this assessment, the Company’s board of directors (the “Board”) determined that the Company’s financial condition and prospects were subject to substantial uncertainties and concluded that it was in the best interest of the Company’s stockholders and creditors to seek a strategic transaction in which the highest currently available value for the Company’s business and assets might be realized.
		On February 13, 2004, the Board authorized the Company to retain an investment banker to advise the Company regarding the possibility of such a transaction. On February 16, 2004, the Company formally retained Lehman Brothers to assist it in connection with its search of a strategic transaction.
		In February 2004, the Company also retained insolvency counsel Pachulski Stang Ziehl Young Jones & Weintraub, P.C. to provide legal advice and assistance. Based on the advice of counsel, the Board determined that it was in the best interests of the Company’s creditors and stockholders to pursue a dual strategy under which the Company would (a) prepare for a voluntary Chapter 11 bankruptcy proceeding and (b) continue to seek a strategic transaction for the purpose of maximizing the Company’s value for the benefit of its stockholders and creditors.
		In light of the Company’s significant continuing negative cash flow, the Company determined that it was necessary to improve its cash position in order to facilitate an orderly sale of its assets. Accordingly, on April 1, 2004, the Company entered into an agreement with Level 3 Communications, Inc. (“Level 3”) whereby Level 3 agreed to pay $35 million in cash and other consideration for the right to provide remote access service to certain of the Company’s customers. The Level 3 transaction is discussed in detail in note 3.
		Merger Agreement
		On July 19, 2004, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MCCC ICG Holdings LLC (“MCCC”) and a wholly owned subsidiary of MCCC. Pursuant to the Merger Agreement, as of the effective time (the “Effective Time”) of the merger (the “Merger”), stockholders of the Company will receive $0.75 in cash for each share of common stock, for a total of approximately $6.35 million in cash.
		The completion of the Merger depends on the satisfaction or waiver of certain conditions, including approval of the Merger Agreement by the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote at the special meeting of the Company’s stockholders (the “Meeting”). The Meeting is currently expected to take place in late September or early October 2004. The Board has fixed the close of business on August 16, 2004, as the record date (“Record Date”) for the determination of stockholders of the Company entitled to receive notice of and to vote at the Meeting. The Company expects to complete the Merger shortly after all of the conditions to the Merger have been satisfied or waived, which is expected to occur in the fourth quarter of 2004. The Merger Agreement may be terminated, and the stockholders will not receive the merger consideration, under certain circumstances, as discussed in more detail in note 4.
		Contemporaneously with the signing of the Merger Agreement, the Company entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with MCCC under which the Company will be provided

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		working capital financing through the Effective Time. In addition, pursuant to the Merger Agreement, the Company agreed to enter into a Management Agreement (the “Management Agreement”) with MCCC. Under the Management Agreement, MCCC will, upon approval of the merger by ICG stockholders, manage the Company’s day-to-day operations subject to supervision by the Board. Finally, contemporaneously with the Merger Agreement, the Company entered into a Support Agreement (the “Support Agreement”) with MCCC, a wholly owned subsidiary of MCCC, W.R. Huff Asset Management Co., L.L.C. (“Huff”), Cerberus Capital Management, L.P. (“CCM”) and certain affiliates of CCM (CCM and such affiliates, the “Cerberus Parties”). Please see further discussion of the Merger Agreement, the Credit Agreement, the Management Agreement and the Support Agreement in note 4.
(2)		Summary of Significant Accounting Policies
		Basis of Presentation
		The accompanying interim unaudited financial statements should be read in conjunction with ICG’s Annual Report on Form 10-K for the year ended December 31, 2003, as certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission. In the opinion of management, the Company’s interim financial statements reflect all necessary adjustments, which are of a normal recurring nature, for a fair presentation. Operating results for the three and six months ended June 30, 2004 are not indicative of the results that may be expected for the fiscal year ending December 31, 2004. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain 2003 amounts have been reclassified to conform to the 2004 presentation.
		The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Such information forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ from these estimates under different assumptions or conditions.
		The Company’s independent auditors, KPMG LLP, issued a going concern opinion modification in their report dated April 1, 2004 on the Company’s consolidated financial statements for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K, stating that its recurring losses from operations raise substantial doubt about its ability to continue as a going concern. The Company’s consolidated financial statements have been prepared assuming it will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
		Revenue Recognition
		The Company’s revenue was generated from the following products and services:

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		Net Loss Per Share
		The Company’s weighted average outstanding common shares were used in calculating basic and diluted net loss per share for the three and six months ended June 30, 2003 and 2004. No potential common shares such as options or warrants were included in the calculation, as their effect would have been anti-dilutive. Common stock instruments outstanding at the end of the period and excluded from the computation, as their effect would have been anti-dilutive, were as follows:

		Stock-Based Compensation
		The Company accounts for its stock-based employee and non-employee director compensation plans using the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations (“APB 25”). Stock-based instruments issued to third parties are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).
		The Company has recorded no compensation expense for the stock options granted under its employee stock option plan for the periods presented pursuant to the intrinsic value based method of APB 25. The following table illustrates the effect on net loss and net loss per share for the three and six months ended June 30, 2003 and 2004, if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data):

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