TIME WARNER TELECOM INC - 10-Q Quarterly Report

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

¨	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 incorporation or organization)		(I.R.S. Employer 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 ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of Time Warner Telecom Inc.’s common stock as of March 31, 2004 was:

Time Warner Telecom Inc. Class A common stock — 49,733,138 shares

Time Warner Telecom Inc. Class B common stock — 65,936,658 shares

TIME WARNER TELECOM INC.

INDEX TO FORM 10-Q


			Page

Part I.	Financial Information

	Item 1.	Financial Statements:

		Consolidated and Condensed Balance Sheets at March 31, 2004 (unaudited) and December 31, 2003	1

		Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 (unaudited)	2

		Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited)	3

		Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2004 (unaudited)	4

		Notes to Consolidated and Condensed Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

	Item 4.	Controls and Procedures	27

Part II.	Other Information

	Item 1.	Legal Proceedings	28

	Item 6.	Exhibits and Reports on Form 8-K	28

TIME WARNER TELECOM INC.

CONSOLIDATED AND CONDENSED BALANCE SHEETS


	March 31, 2004			December 31, 2003
	(unaudited)
	(amounts in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	330,589		353,032
Marketable debt securities		139,570		125,561
Receivables, less allowances of $14,850 and $15,011, respectively ^(a)		39,750		42,969
Prepaid expenses		12,101		10,511
Deferred income taxes		19,773		22,414

Total current assets		541,783		554,487

Marketable debt securities, long term		3,895		—
Property, plant, and equipment		2,245,131		2,215,523
Less accumulated depreciation		(907,506	)	(852,276	)

		1,337,625		1,363,247

Deferred income taxes		38,886		36,060
Goodwill		26,773		26,773
Other assets, net of accumulated amortization (note 1)		28,885		25,316

Total assets	$	1,977,847		2,005,883

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ^(b)	$	34,922		40,096
Deferred revenue		25,912		29,053
Accrued interest		18,995		35,078
Accrued payroll and benefits		19,008		28,402
Other current liabilities		163,547		165,585

Total current liabilities		262,384		298,214

Long-term debt and capital lease obligations (note 2)		1,248,713		1,203,383
Other long-term liabilities		6,627		6,487
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, 49,733,138 and 49,355,252 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively		497		493
Class B common stock, $0.01 par value, 162,500,000 shares authorized, 65,936,658 shares issued and outstanding as of March 31, 2004 and December 31, 2003		659		659
Additional paid-in capital		1,171,071		1,169,633
Accumulated other comprehensive income, net of taxes		130		417
Accumulated deficit		(712,234	)	(673,403	)

Total stockholders’ equity		460,123		497,799

Total liabilities and stockholders’ equity	$	1,977,847		2,005,883

(a) Includes receivables resulting from transactions with affiliates (note 3)	$	2,174		4,332

(b) Includes payables resulting from transactions with affiliates (note 3)	$	6,124		6,092

See accompanying notes.

TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2004			2003
	(amounts in thousands, except per share amounts)
Revenue ^(a):
Dedicated transport services	$	84,160		86,512
Switched services		38,113		39,891
Data and Internet services		28,424		24,304
Intercarrier compensation		10,952		14,306

Total revenue		161,649		165,013

Costs and expenses^(a):
Operating (exclusive of depreciation, amortization, and accretion shown separately below)		64,317		66,367
Selling, general, and administrative		45,312		49,980
Depreciation, amortization, and accretion		56,813		54,110

Total costs and expenses		166,442		170,457

Operating loss		(4,793	)	(5,444	)
Interest expense		(35,822	)	(26,340	)
Interest income		1,319		1,625
Investment gain		690		—

Loss before income taxes and cumulative effect of change in accounting principle		(38,606	)	(30,159	)
Income tax expense		225		225

Net loss before cumulative effect of change in accounting principle		(38,831	)	(30,384	)
Cumulative effect of change in accounting principle		—		2,965

Net loss	$	(38,831	)	(33,349	)

Amounts per common share, basic and diluted:
Net loss before cumulative effect of change in accounting principle	$	(0.34	)	(0.26	)
Cumulative effect of change in accounting principle		—		(0.03	)

Net loss	$	(0.34	)	(0.29	)

Weighted average shares outstanding, basic and diluted		115,515		114,928


^(a) Includes revenue and expenses resulting from transactions with affiliates (note 3):

Revenue	$	5,613		7,686

Operating expenses	$	1,050		830

Selling, general, and administrative	$	590		404

See accompanying notes.

TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2004			2003
	(amounts in thousands)
Cash flows from operating activities:
Net loss	$	(38,831	)	(33,349	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretion		56,813		54,110
Cumulative effect of change in accounting principle		—		2,965
Stock-based compensation		293		392
Deferred debt issue costs		9,437		1,129
Gain on investments		(690	)	—
Changes in operating assets and liabilities, net of the effect of acquisitions:
Receivables and prepaid expenses		1,545		9,921
Accounts payable, deferred revenue, and other current liabilities		(36,525	)	(24,985	)

Net cash provided by (used in) operating activities		(7,958	)	10,183

Cash flows from investing activities:
Capital expenditures		(29,050	)	(22,373	)
Purchases of marketable securities		(84,889	)	—
Proceeds from maturities of marketable securities		66,985		—
Other investing activities		1,385		—

Net cash used in investing activities		(45,569	)	(22,373	)

Cash flows from financing activities:
Net proceeds from issuance of common stock upon exercise of stock options		594		6
Net proceeds from issuance of common stock in connection with the employee stock purchase plan		555		—
Net proceeds from issuance of debt		426,443		—
Payment of capital lease obligations		(508	)	(448	)
Payment of debt obligations		(396,000	)	(6,000	)

Net cash provided by (used in) financing activities		31,084		(6,442	)

Decrease in cash and cash equivalents		(22,443	)	(18,632	)
Cash and cash equivalents at beginning of period		353,032		506,460

Cash and cash equivalents at end of period	$	330,589		487,828

Supplemental disclosures of cash flow information:
Cash paid for interest	$	42,506		46,023

Cash paid for income taxes	$	320		541

Cancellation of a capital lease obligation	$	—		3,213

Addition of capital lease obligation	$	2,498		—

See accompanying notes.

TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2004

(Unaudited)


	Common Stock						Additional paid-in capital	Accumulated other comprehensive income, net of taxes		Accumulated deficit		Total stockholders’ equity
	Class A			Class B
	Shares	Amount		Shares	Amount
	(amounts in thousands)
Balance at January 1, 2004	49,355	$	493	65,937	$	659	1,169,633	417		(673,403	)	497,799
Change in unrealized holding gain for available-for-sale security, net of taxes	—		—	—		—	—	(287	)

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