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Table of Contents

 

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 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 October 31, 2004

Common Stock, $.01 par value   51,995,971 shares

 

Table of Contents

 

ITC^DeltaCom, Inc.

 

Index

 

               Page No.

Part I.

   

Financial Information

     
     Item 1.   

Financial Statements

    3
         

Condensed Consolidated Balance Sheets of ITC^DeltaCom, Inc. and Subsidiaries as of September 30, 2004 and December 31, 2003

    3
         

Condensed Consolidated Statements of Operations of ITC^DeltaCom, Inc. and Subsidiaries for the three and nine months ended September 30, 2004 and 2003

    5
         

Condensed Consolidated Statements of Cash Flows of ITC^DeltaCom, Inc. and Subsidiaries for the nine months ended September 30, 2004 and 2003

    6
         

Notes to Condensed Consolidated Financial Statements

    7
     Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    13
     Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

    22
     Item 4.   

Controls and Procedures

    22

Part II.

   

Other Information

     
     Item 1.   

Legal Proceedings

    23
     Item 6.   

Exhibits

    23

Signatures

    25

 

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Table of Contents

 

PART I

 

FINANCIAL INFORMATION

Item 1. Financial Statements

 

ITC^DELTACOM, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

    

September 30,

2004

   

December 31,

2003

     (Unaudited)     
ASSETS              

CURRENT ASSETS:

              

Cash and cash equivalents

    $ 16,606    $ 50,099

Restricted cash

      850      1,639

Accounts receivable:

              

Customer, net of allowance for uncollectible accounts of $6,207 and $7,070 in 2004 and 2003, respectively

      78,149      75,882

Affiliate

      204      188

Inventory

      4,096      3,261

Prepaid expenses, deposits and other current assets

      7,002      10,175
    
  

Total current assets

      106,907      141,244
    
  

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $130,455 and $69,244 in 2004 and 2003, respectively

      514,064      539,676
    
  

OTHER LONG-TERM ASSETS:

              

Goodwill and other indefinite life intangible assets

      41,273      38,897

Amortizable intangible assets, net of accumulated amortization of $5,622 and $2,967 in 2004 and 2003, respectively

      19,694      22,349

Other assets

      2,844      2,887
    
  

Total other long-term assets

      63,811      64,133
    
  

Total assets

    $ 684,782    $ 745,053
    
  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ITC^DELTACOM, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     September 30,
2004
     December 31,
2003
  
     (Unaudited)        
LIABILITIES AND STOCKHOLDERS’ EQUITY                 

CURRENT LIABILITIES:

                 

Accounts payable:

                 

Trade

    $ 40,507     $ 63,896  

Capital related

      7,074       6,678  

Accrued interest

      1,530       1,518  

Accrued compensation

      6,201       5,981  

Unearned revenue

      20,762       21,683  

Other accrued liabilities (Note 4)

      30,308       30,379  

Current portion of unsecured equipment obligations (Note 3)

      4,621       4,355  

Current portion of long-term debt and capital lease obligations (Note 3)

      20,407       13,588  
    
 

Total current liabilities

      131,410       148,078  
    
 

LONG-TERM LIABILITIES:

                 

Long-term restructuring liabilities (Note 4)

      7,419       9,264  

Long-term unsecured equipment obligation (Note 3)

      980       3,808  

Long-term debt and capital lease obligations (Note 3)

      271,271       288,183  
    
 

Total long-term liabilities

      279,670       301,255  
    
 

CONVERTIBLE REDEEMABLE PREFERRED STOCK:

                 

Par value $0.01; 665,000 shares designated Series A; 342,588 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

      29,758       27,365  

Par value $0.01; 1,200,000 shares designated Series B; 371,084 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

      30,317       27,642  
    
 

Total convertible redeemable preferred stock

      60,075       55,007  
    
 

COMMITMENTS AND CONTINGENCIES (Note 5)

                 

STOCKHOLDERS’ EQUITY

                 

Common stock, $0.01 par value; 350,000,000 shares authorized; 51,995,971 and 51,848,300 shares issued and outstanding in 2004 and 2003, respectively

      520       518  

Additional paid-in-capital

      266,106       264,763  

Warrants outstanding

      6,892       6,892  

Deficit

      (59,891 )     (31,460 )
    
 

Total stockholders’ equity

      213,627       240,713  
    
 

Total liabilities and stockholders’ equity

    $ 684,782     $ 745,053  
    
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ITC^DELTACOM, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except share and per share data)

 

     Three Months Ended
September 30,
    

Nine Months Ended

September 30,

  
     2004
     2003
     2004
     2003
  

OPERATING REVENUES:

                                 

Integrated communications services revenues

    $ 117,180     $ 69,179     $ 355,920     $ 202,431  

Equipment sales and related services revenues

      4,770       14,829       14,209       32,837  

Wholesale services revenues

      23,434       24,076       73,652       74,373  
    
 
 
 

TOTAL OPERATING REVENUES

      145,384       108,084       443,781       309,641  

COST OF REVENUES (exclusive of items shown separately below)

      72,122       54,606       218,705       153,151  
    
 
 
 

GROSS MARGIN

      73,262       53,478       225,076       156,490  
    
 
 
 

OPERATING EXPENSES:

                                 

Selling, operations and administration

      54,463       39,301       165,627       113,587  

Depreciation and amortization

      21,748       14,265       63,870       43,265  

Stock-based deferred compensation (Note 1)

      409       221       1,227       663  

Merger-related expenses

      431       —         889       —    
    
 
 
 

Total operating expenses

      77,051       53,787       231,613       157,515  
    
 
 
 

OPERATING LOSS

      (3,789 )     (309 )     (6,537 )     (1,025 )
    
 
 
 

OTHER (EXPENSE) INCOME:

                                 

Interest expense

      (5,283 )     (3,323 )     (15,846 )     (10,310 )

Interest income

      53       95       379       294  

Other income (expense) (Note 1)

      19       —         (1,236 )     —    
    
 
 
 

Total other expense, net

      (5,211 )     (3,228 )     (16,703 )     (10,016 )
    
 
 
 

LOSS BEFORE INCOME TAXES

      (9,000 )     (3,537 )     (23,240 )     (11,041 )
    
 
 
 

INCOME TAX EXPENSE

      —         —         —         —    
    
 
 
 

NET LOSS

      (9,000 )     (3,537 )     (23,240 )     (11,041 )
    
 
 
 

PREFERRED STOCK DIVIDENDS AND ACCRETION

      (1,755 )     (772 )     (5,191 )     (2,280 )
    
 
 
 

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

    $ (10,755 )   $ (4,309 )   $ (28,431 )   $ (13,321 )
    
 
 
 

BASIC AND DILUTED NET LOSS PER COMMON SHARE

    $ (0.21 )   $ (0.10 )   $ (0.55 )   $ (0.30 )
    
 
 
 

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

      51,974,260       44,848,300       51,891,570       44,843,567  
    
 
 
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ITC^DELTACOM, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended
September 30,
  
     2004
     2003
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net loss

    $ (23,240 )   $ (11,041 )