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 September 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 0-30989
Broadwing Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 52-2041343 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 7015 Albert Einstein Drive, Columbia, Maryland | 21046-9400 | |
| (Address of principal executive offices) | (Zip Code) |
(443) 259-4000
(Registrant’s telephone number, including area code)
(Corvis Corporation, 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 Rule 12b-2 of the Exchange Act). Yes x No ¨
Number of shares of Common Stock, $0.01 par value, outstanding at October 31, 2004: 60,705,821
Index to Form 10Q
Quarter Ended September 30, 2004
2
BROADWING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| December 31, 2003 |
September 30, 2004 |
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| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 256,490 | $ | 207,845 | ||||
| Short-term investments |
27,135 | 61,776 | ||||||
| Trade accounts receivable, net |
57,385 | 88,575 | ||||||
| Inventories, net |
772 | 1,706 | ||||||
| Other current assets |
17,817 | 35,448 | ||||||
| Total current assets |
359,599 | 395,350 | ||||||
| Restricted cash, non-current |
7,033 | 14,013 | ||||||
| Long-term investments |
13,197 | 52,054 | ||||||
| Property and equipment, net |
116,588 | 286,072 | ||||||
| Intangible assets, net |
24,883 | 31,545 | ||||||
| Goodwill |
— | 30,601 | ||||||
| Other non-current assets, net |
7,315 | 9,703 | ||||||
| Total assets |
$ | 528,615 | $ | 819,338 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Notes payable, net of discounts, and capital lease obligations, current portion |
$ | 610 | $ | 113,743 | ||||
| Accounts payable |
21,791 | 19,050 | ||||||
| Accrued communication service costs |
30,560 | 48,200 | ||||||
| Accrued expenses and other liabilities |
31,462 | 51,664 | ||||||
| Deferred revenue, current portion |
13,087 | 12,920 | ||||||
| Accrued restructuring and other charges |
8,488 | 5,158 | ||||||
| Total current liabilities |
105,998 | 250,735 | ||||||
| Notes payable, net of discounts, and capital lease obligations, net of current portion |
2,500 | 82,842 | ||||||
| Deferred revenue, net of current portion |
17,684 | 15,123 | ||||||
| Other long-term liabilities |
4,764 | 7,398 | ||||||
| Total liabilities |
130,946 | 356,098 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock—$0.01 par value; 190,000,000 shares authorized; 49,327,623 shares issued and 48,099,443 shares outstanding as of December 31, 2003; 61,929,542 shares issued and 60,701,362 shares outstanding as of September 30, 2004 |
4,927 | 6,188 | ||||||
| Additional paid-in capital |
2,923,403 | 3,096,820 | ||||||
| Treasury Stock (1,228,180 shares at December 31, 2003 and September 30, 2004, at cost) |
(9,512 | ) | (9,512 | ) | ||||
| Accumulated other comprehensive income (loss): |
||||||||
| Unrealized investment gains (losses) |
9 | (302 | ) | |||||
| Accumulated deficit |
(2,521,158 | ) | (2,629,954 | ) | ||||
| Total stockholders’ equity |
397,669 | 463,240 | ||||||
| Total liabilities and stockholders’ equity |
$ | 528,615 | $ | 819,338 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
BROADWING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In thousands, except per share data)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, 2003 |
September 30, 2004 |
September 30, 2003 |
September 30, 2004 |
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| Revenue: |
||||||||||||||||
| Communication services |
$ | 143,124 | $ | 163,065 | $ | 169,821 | $ | 446,149 | ||||||||
| Communications equipment |
114 | 381 | 1,952 | 6,214 | ||||||||||||
| Total revenue |
143,238 | 163,446 | 171,773 | 452,363 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Cost of revenue: |
||||||||||||||||
| Communication services (excluding depreciation and amortization) |
109,618 | 111,301 | 127,653 | 306,198 | ||||||||||||
| Communications equipment |
29,668 | 192 | 34,258 | 1,584 | ||||||||||||
| Total cost of revenue |
139,286 | 111,493 | 161,911 | 307,782 | ||||||||||||
| Research and development, excluding equity-based expense |
7,692 | 3,115 | 39,830 | 12,554 | ||||||||||||
| Sales, general and administrative expense, excluding equity-based expense |
60,520 | 64,330 | 92,773 | 182,564 | ||||||||||||
| Depreciation |
11,460 | 10,009 | 24,540 | 25,069 | ||||||||||||
| Amortization |
2,112 | 1,158 | 5,873 | 3,238 | ||||||||||||
| Equity-based expense: |
||||||||||||||||
| Research and development |
3,294 | 474 | 10,206 | 3,393 | ||||||||||||
| Sales, general and administrative |
1,888 | 142 | 5,708 | 4,281 | ||||||||||||
| Restructuring and other charges |
30,457 | 2,638 | 42,038 | 3,027 | ||||||||||||
| Total operating expenses |
256,709 | 193,359 | 382,879 | 541,908 | ||||||||||||
| Operating loss |
(113,471 | ) | (29,913 | ) | (211,106 | ) | (89,545 | ) | ||||||||
| Interest expense, net of capitalized amounts |
(58 | ) | (8,645 | ) | (292 | ) | (26,726 | ) | ||||||||
| Other income (expense), net |
990 | 1,756 | 6,016 | 7,475 | ||||||||||||
| Net loss before minority interest |
(112,539 | ) | (36,802 | ) | (205,382 | ) | (108,796 | ) | ||||||||
| Minority interest |
276 | — | 295 | — | ||||||||||||
| Net loss |
$ | (112,263 | ) | $ | (36,802 | ) | $ | (205,087 | ) | $ | (108,796 | ) | ||||
| Other comprehensive loss: |
||||||||||||||||
| Foreign currency translation adjustment |
— | — | 634 | — | ||||||||||||
| Unrealized investment gains (losses) |
(42 | ) | (27 | ) | 38 | (311 | ) | |||||||||
| Comprehensive loss |
$ | (112,305 | ) | $ | (36,829 | ) | $ | (204,415 | ) | $ | (109,107 | ) | ||||
| Basic and diluted net loss per common share |
$ | (2.55 | ) | $ | (0.69 | ) | $ | (4.94 | ) | $ | (2.17 | ) | ||||
| Weighted average number of common shares outstanding |
43,985 | 53,302 | 41,508 | 50,116 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
BROADWING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended |
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| September 30, 2003 |
September 30, 2004 |
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| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (205,087 | ) | $ | (108,796 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
30,413 | 28,307 | ||||||
| Equity-based expense |
15,914 | 7,674 | ||||||
| Provision for bad debt |
2,930 | 4,397 | ||||||
| Deferred financing and original issue discount amortization |
— | 17,748 | ||||||
| Non-cash restructuring and other charges |
45,690 | (949 | ) | |||||
| Exchange rate loss |
7,642 | — | ||||||
| Minority interest |
(295 | ) | — | |||||
| Changes in operating assets and liabilities: |
||||||||
| Decrease (increase) in accounts receivable, net |
(280 | ) | (4,337 | ) | ||||
| Increase in inventories, net |
(11,174 | ) | (2,895 | ) | ||||
| Decrease in other assets |
4,405 | < | ||||||