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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

 

OR

 

¨ 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 October 31, 2004 was:

 

Time Warner Telecom Inc. Class A common stock — 49,859,672 shares

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

 

Table of Contents

TIME WARNER TELECOM INC.

 

INDEX TO FORM 10-Q

 

               Page

Part I.

    Financial Information     
     Item 1.    Financial Statements:     
          Consolidated and Condensed Balance Sheets at September 30, 2004 (unaudited) and December 31, 2003    1
          Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003 (unaudited)    2
          Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)    3
          Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 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    38
     Item 4.    Controls and Procedures    38

Part II.

    Other Information     
     Item 1.    Legal Proceedings    39
     Item 6.    Exhibits and Reports on Form 8-K    39

Table of Contents

TIME WARNER TELECOM INC.

 

CONSOLIDATED AND CONDENSED BALANCE SHEETS

 

    

September 30,

2004

    

December 31,

2003

  
     (unaudited)        
     (amounts in thousands, except share amounts)  
ASSETS               

Current assets:

               

Cash and cash equivalents

    $ 172,501     353,032  

Short-term investments

      261,541     125,561  

Receivables, less allowances of $10,546 and $15,011, respectively (a)

      41,623     42,969  

Prepaid expenses

      16,453     10,511  

Deferred income taxes

      18,528     22,414  
    
 

Total current assets

      510,646     554,487  
    
 

Long-term investments

      1,615     —    

Property, plant, and equipment

      2,334,006     2,215,523  

Less accumulated depreciation

      (1,015,955 )   (852,276 )
    
 
       1,318,051     1,363,247  
    
 

Deferred income taxes

      40,213     36,060  

Goodwill

      26,773     26,773  

Other assets, net of accumulated amortization

      27,358     25,316  
    
 

Total assets

    $ 1,924,656     2,005,883  
    
 
LIABILITIES AND STOCKHOLDERS’ EQUITY               

Current liabilities:

               

Accounts payable (b)

    $ 41,994     40,096  

Deferred revenue

      22,042     29,053  

Accrued interest

      19,612     35,078  

Accrued payroll and benefits

      24,841     28,402  

Other current liabilities

      156,748     165,585  
    
 

Total current liabilities

      265,237     298,214  
    
 

Long-term debt and capital lease obligations (note 2)

      1,249,494     1,203,383  

Other long-term liabilities

      6,949     6,487  

Stockholders’ equity:

               

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, 49,847,912 shares issued and outstanding as of September 30, 2004 and 49,355,252 shares issued and outstanding as of December 31, 2003

      499     493  

Class B common stock, $0.01 par value, 162,500,000 shares authorized, 65,936,658 shares issued and outstanding as of September 30, 2004 and December 31, 2003

      659     659  

Additional paid-in capital

      1,172,113     1,169,633  

Accumulated other comprehensive income, net of taxes

      —       417  

Accumulated deficit

      (770,295 )   (673,403 )
    
 

Total stockholders’ equity

      402,976     497,799  
    
 

Total liabilities and stockholders’ equity

    $ 1,924,656     2,005,883  
    
 
              

(a)    Includes receivables resulting from transactions with affiliates (note 3)

    $ 2,609     4,332  
    
 

(b)    Includes payables resulting from transactions with affiliates (note 3)

    $ 7,042     6,092  
    
 

 

See accompanying notes.

 

1

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TIME WARNER TELECOM INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
  
     2004
     2003
     2004
     2003
  
     (amounts in thousands, except per share amounts)  

Revenue (a):

                             

Dedicated transport services

    $ 81,175     94,066     $ 248,887     269,420  

Switched services

      39,418     38,957       116,852     115,281  

Data and Internet services

      31,708     25,700       90,040     74,135  

Intercarrier compensation

      8,287     13,705       29,284     41,377  
    
 
 
 

Total revenue

      160,588     172,428       485,063     500,213  
    
 
 
 

Costs and expenses (a):

                             

Operating (exclusive of depreciation, amortization, and accretion shown separately below)

      65,550     66,631       194,088     198,461  

Selling, general, and administrative

      43,432     31,162       132,125     128,294  

Depreciation, amortization, and accretion

      54,754     56,408       166,157     164,876  
    
 
 
 

Total costs and expenses

      163,736     154,201       492,370     491,631  
    
 
 
 

Operating income (loss)

      (3,148 )   18,227       (7,307 )   8,582  

Interest expense

      (29,030 )   (25,908 )     (93,663 )   (78,520 )

Interest income

      1,350     1,326       3,893     4,648  

Investment gain

      —       922       710     922  
    
 
 
 

Loss before income taxes and cumulative effect of change in accounting principle

      (30,828 )   (5,433 )     (96,367 )   (64,368 )

Income tax expense

      75     225       525     675  
    
 
 
 

Net loss before cumulative effect of change in accounting principle

      (30,903 )   (5,658 )     (96,892 )   (65,043 )

Cumulative effect of change in accounting principle

      —       —         —       2,965  
    
 
 
 

Net loss

    $ (30,903 )   (5,658 )   $ (96,892 )   (68,008 )
    
 
 
 

Amounts per common share, basic and diluted:

                             

Net loss before cumulative effect of change in accounting principle

    $ (0.27 )   (0.05 )   $ (0.84 )   (0.57 )

Cumulative effect of change in accounting principle

      —       —         —       (0.02 )
    
 
 
 

Net loss

    $ (0.27 )   (0.05 )   $ (0.84 )   (0.59 )
    
 
 
 

Weighted average shares outstanding, basic and diluted

      115,679     114,936       115,621     114,931  
    
 
 
 
                            

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

                             

Revenue

    $ 4,580     9,404     $ 15,283     24,758  
    
 
 
 

Operating expenses

    $ 1,099     975     $ 3,373     2,755  
    
 
 
 

Selling, general, and administrative

    $ 490     482     $ 1,632     1,397  
    
 
 
 

 

See accompanying notes.

 

2

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TIME WARNER TELECOM INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

<
     Nine Months Ended
September 30,
  
     2004
     2003
  
     (amounts in thousands)  

Cash flows from operating activities:

               

Net loss

    $ (96,892 )   (68,008 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation, amortization, and accretion

      166,157     164,876  

Cumulative effect of change in accounting principle

      —       2,965  

Stock-based compensation

      876     1,178  

Deferred debt issue costs

      11,751     3,386  

Gain on investments

      (710 )   (922 )

Changes in operating assets and liabilities:

               

Receivables and prepaid expenses

      (4,596 )   10,219  

Accounts payable, deferred revenue, and other current liabilities

      (34,140 )   (52,503 )
    
 

Net cash provided by operating activities

      42,446     61,191  
    
 

Cash flows from investing activities:

               

Capital expenditures

      (118,447 )   (84,787 )

Purchases of investments

      (405,960 )   (168,988 )

Proceeds from maturities of investments

      268,365     108,957  

Proceeds from sale of investments

      752     1,262  

Other investing activities

      2,144     111