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, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from to
Commission file number 0-23253
ITC^DeltaCom, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 58-2301135 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 1791 O.G. Skinner Drive, West Point, GA | 31833 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (706) 385-8000
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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Outstanding at April 23, 2004 | ||
| Common Stock, $.01 par value |
51,834,252 shares |
ITC^DeltaCom, Inc.
| Page No. | ||||||
| Part I. |
Financial Information | |||||
| Item 1. | Financial Statements | 3 | ||||
| Condensed Consolidated Balance Sheets March 31, 2004 and December 31, 2003 |
3 | |||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 | ||||
| Item 4. | Controls and Procedures | 18 | ||||
| Part II. |
Other Information | |||||
| Item 6. | Exhibits and Reports on Form 8-K | 19 | ||||
| 20 | ||||||
2
PART I
FINANCIAL INFORMATION
| Item 1. | Financial Statements |
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, 2004 |
December 31, 2003 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ | 32,197 | $ | 50,099 | ||
| Restricted cash |
1,639 | 1,639 | ||||
| Accounts receivable: |
||||||
| Customer, net of allowance for uncollectible accounts of $7,480 and $7,070 in 2004 and 2003, respectively |
73,261 | 75,882 | ||||
| Affiliate |
199 | 188 | ||||
| Inventory |
3,998 | 3,261 | ||||
| Prepaid expenses, deposits and other current assets |
10,786 | 10,175 | ||||
| Total current assets |
122,080 | 141,244 | ||||
| PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $89,192 and $69,244 in 2004 and 2003, respectively |
528,026 | 539,676 | ||||
| OTHER LONG-TERM ASSETS: |
||||||
| Goodwill and other indefinite life intangible assets |
38,897 | 38,897 | ||||
| Amortizable intangible assets, net of accumulated amortization of $3,852 and $2,967 in 2004 and 2003, respectively |
21,464 | 22,349 | ||||
| Other assets |
3,273 | 2,887 | ||||
| Total other long-term assets |
63,634 | 64,133 | ||||
| Total assets |
$ | 713,740 | $ | 745,053 | ||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
3
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable: |
||||||||
| Trade |
$ | 53,845 | $ | 63,896 | ||||
| Capital related |
2,145 | 6,678 | ||||||
| Accrued interest |
901 | 1,518 | ||||||
| Accrued compensation |
5,735 | 5,981 | ||||||
| Unearned revenue |
21,029 | 21,683 | ||||||
| Other accrued liabilities (Note 4) |
29,996 | 30,379 | ||||||
| Current portion of unsecured equipment obligations (Note 3) |
3,588 | 4,355 | ||||||
| Current portion of long-term debt and capital lease obligations (Note 3) |
13,848 | 13,588 | ||||||
| Total current liabilities |
131,087 | 148,078 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Long-term restructuring liabilities (Note 4) |
7,790 | 9,264 | ||||||
| Long-term unsecured equipment obligation (Note 3) |
2,883 | 3,808 | ||||||
| Long-term debt and capital lease obligations (Note 3) |
284,622 | 288,183 | ||||||
| Total long-term liabilities |
295,295 | 301,255 | ||||||
| CONVERTIBLE REDEEMABLE PREFERRED STOCK: |
||||||||
| Par value $0.01; 665,000 shares designated Series A; 329,285 and 322,828 shares issued and outstanding in 2004 and 2003, respectively; entitled to liquidation preference and redemption value of $100 per share, plus accrued and unpaid dividends |
28,142 | 27,365 | ||||||
| Par value $0.01; 1,200,000 shares designated Series B; 356,674 and 350,000 shares issued and outstanding in 2004 and 2003, respectively; entitled to liquidation preference and redemption value of $100 per share, plus accrued and unpaid dividends |
28,498 | 27,642 | ||||||
| Total convertible redeemable preferred stock |
56,640 | 55,007 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 5) |
||||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common stock, $0.01 par value; 350,000,000 shares authorized; 51,834,252 and 51,848,300 shares issued and outstanding in 2004 and 2003, respectively |
518 | 518 | ||||||
| Additional paid-in-capital |
265,173 | 264,763 | ||||||
| Warrants outstanding |
6,892 | 6,892 | ||||||
| Deficit |
(41,865 | ) | (31,460 | ) | ||||
| Total stockholders’ equity |
230,718 | 240,713 | ||||||
| Total liabilities and stockholders’ equity |
$ | 713,740 | $ | 745,053 | ||||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| OPERATING REVENUES: |
||||||||
| Integrated communications services revenues |
$ | 119,500 | $ | 65,501 | ||||
| Equipment sales and related services revenues |
4,367 | 8,801 | ||||||
| Wholesale services revenues |
25,207 | 24,772 | ||||||
| TOTAL OPERATING REVENUES |
149,074 | 99,074 | ||||||
| COST OF REVENUES (exclusive of items shown separately below) |
73,720 | 47,984 | ||||||
| GROSS MARGIN |
75,354 | 51,090 | ||||||
| OPERATING EXPENSES: |
||||||||
| Selling, operations and administration |
55,946 | 36,894 | ||||||
| Depreciation and amortization |
20,834 | 14,511 | ||||||
| Stock-based deferred compensation (Note 1) |
409 | 221 | ||||||
| Merger-related expenses |
105 | — | ||||||
| Total operating expenses |
77,294 | 51,626 | ||||||
| OPERATING LOSS |
(1,940 | ) | (536 | ) | ||||
| OTHER (EXPENSE) INCOME: |
||||||||
| Interest expense |
(5,365 | ) | (3,524 | ) | ||||
| Interest income |
78 | 81 | ||||||
| Other expense (Note 1) |
(1,478 | ) | — | |||||
| Total other expense, net |
(6,765 | ) | (3,443 | ) | ||||
| LOSS BEFORE INCOME TAXES |
(8,705 | ) | (3,979 | ) | ||||
| INCOME TAX EXPENSE |
— | — | ||||||
| NET LOSS |
(8,705 | ) | (3,979 | ) | ||||
| PREFERRED STOCK DIVIDENDS AND ACCRETION |
(1,700 | ) | (748 | ) | ||||
| NET LOSS APPLICABLE TO COMMON STOCKHOLDERS |
$ | (10,405 | ) | $ | (4,727 | ) | ||
| BASIC AND DILUTED NET LOSS PER COMMON SHARE |
$ | (0.20 | ) | $ | (0.11 | ) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
51,834,252 | 44,834,101 | ||||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (8,705 | ) | $ | (3,979 | ) | ||
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
20,834 | 14,511 | ||||||
| Stock-based compensation |
409 | 221 | ||||||
| Amortization of debt issuance costs |
143 | 149 | ||||||
| Changes in current operating assets and liabilities: |
||||||||
| Accounts receivable, net |
2,610 | (2,038 | ) | |||||
| Inventory |
(737 | ) | 250 | |||||
| Prepaid expenses |
(611 | ) | (3,125 | ) | ||||
| Accounts payable |
(7,310 | ) | 4,083 | |||||
| Accrued interest |
(617 | ) | 453 | |||||
| Unearned revenue |
(654 | ) | (202 | ) | ||||
| Accrued compensation and other accrued liabilities |
293 | (4,360 | ) | |||||
| Total adjustments |
14,360 | 9,942 | ||||||
| Net cash provided by operating activities |
5,655 | 5,963 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(8,299 | ) | (6,438 | ) | ||||
| Change in accrued capital related costs |
(4,533 | ) | (594 | ) | ||||
| Other |
(98 | ) | 13 | |||||
| Payment for accrued merger costs |
(5,634 | ) | — | |||||
| Cash used in investing activities |
(18,564 | ) | (7,019 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Repayments of long-term debt and capital lease obligations |
(4,993 | ) | (614 | ) | ||||
| Change in assets restricted for contingencies |
— | 16 | ||||||
| Cash used in financing activities |
(4,993 | ) | (598 | ) | ||||
| CHANGE IN CASH AND CASH EQUIVALENTS |
(17,902 | ) | (1,654 | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
50,099 | 30,554 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 32,197 | $ | 28,900 | ||||