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 June 30, 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		(I.R.S. Employer
incorporation or organization)		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 June 30, 2004 was:

Time Warner Telecom Inc. Class A common stock — 49,734,718 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 June 30, 2004 (unaudited) and December 31, 2003	1

		Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003 (unaudited)	2

		Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited)	3

		Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 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	22

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

	Item 4.	Controls and Procedures	37

Part II. Other Information

	Item 1.	Legal Proceedings	38

	Item 4.	Submission of Matters to a Vote of Security Holders	38

	Item 6.	Exhibits and Reports on Form 8-K	38

TIME WARNER TELECOM INC.

CONSOLIDATED AND CONDENSED BALANCE SHEETS


	June 30, 2004			December 31, 2003
	(unaudited)
	(amounts in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	208,336		353,032
Short-term investments		254,830		125,561
Receivables, less allowances of $13,834 and $15,011, respectively (a)		41,119		42,969
Prepaid expenses		15,659		10,511
Deferred income taxes		15,795		22,414

Total current assets		535,739		554,487

Long-term investments		13,494		—
Property, plant, and equipment		2,288,000		2,215,523
Less accumulated depreciation		(961,586	)	(852,276	)

		1,326,414		1,363,247

Deferred income taxes		42,594		36,060
Goodwill		26,773		26,773
Other assets, net of accumulated amortization (note 1)		28,525		25,316

Total assets	$	1,973,539		2,005,883


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (b)	$	39,535		40,096
Deferred revenue		23,678		29,053
Accrued interest		43,919		35,078
Accrued payroll and benefits		24,112		28,402
Other current liabilities		152,680		165,585

Total current liabilities		283,924		298,214

Long-term debt and capital lease obligations (note 2)		1,249,689		1,203,383
Other long-term liabilities		6,768		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, 49,734,718 shares issued and outstanding as of June 30, 2004 and 49,355,252 shares issued and outstanding as of December 31, 2003		497		493
Class B common stock, $0.01 par value, 162,500,000 shares authorized, 65,936,658 shares issued and outstanding as of June 30, 2004 and December 31, 2003		659		659
Additional paid-in capital		1,171,394		1,169,633
Accumulated other comprehensive income, net of taxes		—		417
Accumulated deficit		(739,392	)	(673,403	)

Total stockholders’ equity		433,158		497,799

Total liabilities and stockholders’ equity	$	1,973,539		2,005,883

(a) Includes receivables resulting from transactions with affiliates (note 3)	$	2,514		4,332

(b) Includes payables resulting from transactions with affiliates (note 3)	$	6,391		6,092

See accompanying notes.

TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004			2003
	(amounts in thousands, except per share amounts)
Revenue (a):
Dedicated transport services	$	83,552		88,842		$	167,712		175,354
Switched services		39,321		36,433			77,434		76,324
Data and Internet services		29,908		24,131			58,332		48,435
Intercarrier compensation		10,045		13,366			20,997		27,672

Total revenue		162,826		162,772			324,475		327,785

Costs and expenses (a):
Operating (exclusive of depreciation, amortization, and accretion shown separately below)		64,221		65,463			128,538		131,830
Selling, general, and administrative		43,381		47,152			88,693		97,132
Depreciation, amortization, and accretion		54,590		54,358			111,403		108,468

Total costs and expenses		162,192		166,973			328,634		337,430

Operating income (loss)		634		(4,201	)		(4,159	)	(9,645	)
Interest expense		(28,811	)	(26,272	)		(64,633	)	(52,612	)
Interest income		1,224		1,697			2,543		3,322
Investment gain		20		—			710		—

Loss before income taxes and cumulative effect of change in accounting principle		(26,933	)	(28,776	)		(65,539	)	(58,935	)
Income tax expense		225		225			450		450

Net loss before cumulative effect of change in accounting principle		(27,158	)	(29,001	)		(65,989	)	(59,385	)
Cumulative effect of change in accounting principle		—		—			—		2,965

Net loss	$	(27,158	)	(29,001	)	$	(65,989	)	(62,350	)

Amounts per common share, basic and diluted:
Net loss before cumulative effect of change in accounting principle	$	(0.23	)	(0.25	)	$	(0.57	)	(0.52	)
Cumulative effect of change in accounting principle		—		—			—		(0.02	)

Net loss	$	(0.23	)	(0.25	)	$	(0.57	)	(0.54	)

Weighted average shares outstanding, basic and diluted		115,673		114,930			115,594		114,929

(a) Includes revenue and expenses resulting from transactions with affiliates (note 3):
Revenue	$	5,090		7,668		$	10,703		15,354

Operating expenses	$	1,224		950		$	2,274		1,780

Selling, general, and administrative	$	552		514		$	1,142		915

See accompanying notes.

TIME WARNER TELECOM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2004			2003
	(amounts in thousands)
Cash flows from operating activities:
Net loss	$	(65,989	)	(62,350	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization, and accretion		111,403		108,468
Cumulative effect of change in accounting principle		—		2,965
Stock-based compensation		588		784
Deferred debt issue costs		10,486		2,258
Gain on investments		(710	)	—
Changes in operating assets and liabilities:
Receivables and prepaid expenses		(3,298	)	15,381
Accrued reorganization		—		(135	)
Accounts payable, deferred revenue, and other current liabilities		(14,573	)	(5,086	)

Net cash provided by operating activities		37,907		62,285

Cash flows from investing activities:
Capital expenditures		(71,567	)	(50,258	)
Purchases of investments		(292,628	)	(113,461	)
Proceeds from maturities of investments		149,865		46,170
Other investing activities		1,488		—

Net cash used in investing activities		(212,842	)	(117,549	)

Cash flows from financing activities:

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