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, 2005
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 x No ¨
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 April 30, 2005 | ||
| Common Stock, $.01 par value |
56,038,205 shares |
ITC^DeltaCom, Inc.
| Page No. | ||||||
| Part I. |
Financial Information |
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| Item 1. |
3 | |||||
| 3 | ||||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||||
| Item 3. |
19 | |||||
| Item 4. |
19 | |||||
| Part II. |
Other Information |
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| Item 1. |
20 | |||||
| Item 2. |
20 | |||||
| Item 4. |
20 | |||||
| Item 5. |
21 | |||||
| Item 6. |
23 | |||||
| Signatures |
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PART I
FINANCIAL INFORMATION
| Item 1. | Financial Statements |
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, 2005 |
December 31, 2004 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ | 33,663 | $ | 16,599 | ||
| Restricted cash |
1,057 | 1,050 | ||||
| Accounts receivable: |
||||||
| Customer, net of allowance for uncollectible accounts of $9,681 and $9,331 in 2005 and 2004, respectively |
70,483 | 73,902 | ||||
| Affiliate |
95 | 98 | ||||
| Inventory |
3,670 | 3,551 | ||||
| Prepaid expenses and other |
6,071 | 5,897 | ||||
| Total current assets |
115,039 | 101,097 | ||||
| PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $55,288 and $42,971 in 2005 and 2004, respectively |
296,607 | 304,448 | ||||
| OTHER LONG-TERM ASSETS: |
||||||
| Goodwill and other indefinite life intangible assets |
41,273 | 41,273 | ||||
| Amortizable intangible assets, net of accumulated amortization of $6,142 and $5,507 in 2005 and 2004, respectively |
14,174 | 14,809 | ||||
| Other assets |
7,942 | 2,346 | ||||
| Total other long-term assets |
63,389 | 58,428 | ||||
| Total assets |
$ | 475,035 | $ | 463,973 | ||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable: |
||||||||
| Trade |
$ | 37,914 | $ | 38,022 | ||||
| Capital related |
2,519 | 5,489 | ||||||
| Accrued interest |
2,069 | 1,596 | ||||||
| Accrued compensation |
6,294 | 4,933 | ||||||
| Unearned revenue |
20,255 | 20,411 | ||||||
| Other accrued liabilities (Note 5) |
29,167 | 27,814 | ||||||
| Current portion of other long-term liabilities (Note 3) |
3,808 | 4,714 | ||||||
| Current portion of capital lease obligations (Note 3) |
270 | 3,273 | ||||||
| Total current liabilities |
102,296 | 106,252 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Other long-term liabilities (Note 5) |
5,471 | 7,075 | ||||||
| Long-term debt and capital lease obligations (Note 3) |
297,759 | 285,370 | ||||||
| Total long-term liabilities |
303,230 | 292,445 | ||||||
| CONVERTIBLE REDEEMABLE PREFERRED STOCK: |
||||||||
| Par value $0.01; 665,000 shares designated Series A; 179,311 and 175,795 shares issued and outstanding in 2005 and 2004, respectively; entitled to liquidation preference and redemption value of $100 per share, plus accrued and unpaid dividends |
15,807 | 15,385 | ||||||
| Par value $0.01; 1,200,000 shares designated Series B; 539,076 and 528,506 shares issued and outstanding in 2005 and 2004, respectively; entitled to liquidation preference and redemption value of $100 per share, plus accrued and unpaid dividends |
47,493 | 46,248 | ||||||
| Total convertible redeemable preferred stock |
63,300 | 61,633 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 6) |
||||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common stock, $0.01 par value; 350,000,000 shares authorized; 55,084,955 and 55,078,705 shares issued and outstanding in 2005 and 2004, respectively |
551 | 551 | ||||||
| Additional paid-in-capital |
284,991 | 284,233 | ||||||
| Warrants outstanding (Note 4) |
14,492 | 6,892 | ||||||
| Accumulated Deficit |
(293,825 | ) | (288,033 | ) | ||||
| Total stockholders’ equity |
6,209 | 3,643 | ||||||
| Total liabilities and stockholders’ equity |
$ | 475,035 | $ | 463,973 | ||||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| OPERATING REVENUES: |
||||||||
| Integrated communications services revenues |
$ | 109,532 | $ | 119,334 | ||||
| Equipment sales and related services revenues |
5,614 | 4,367 | ||||||
| Wholesale services revenues |
22,151 | 25,373 | ||||||
| TOTAL OPERATING REVENUES |
137,297 | 149,074 | ||||||
| COST OF REVENUES (exclusive of items shown separately below) |
70,842 | 73,720 | ||||||
| GROSS MARGIN |
66,455 | 75,354 | ||||||
| OPERATING EXPENSES: |
||||||||
| Selling, operations and administration |
50,925 | 55,946 | ||||||
| Depreciation and amortization |
12,952 | 20,834 | ||||||
| Stock-based compensation-selling, operations and administration (Note 1) |
785 | 409 | ||||||
| Restructuring and merger-related expenses |
135 | 105 | ||||||
| Total operating expenses |
64,797 | 77,294 | ||||||
| OPERATING INCOME (LOSS) |
1,658 | (1,940 | ) | |||||
| OTHER (EXPENSE) INCOME: |
||||||||
| Interest expense |
(6,073 | ) | (5,365 | ) | ||||
| Interest income |
116 | 78 | ||||||
| Other income (expense) (Note 1) |
202 | (1,478 | ) | |||||
| Total other expense, net |
(5,755 | ) | (6,765 | ) | ||||
| LOSS BEFORE INCOME TAXES |
(4,097 | ) | (8,705 | ) | ||||
| INCOME TAX EXPENSE |
— | — | ||||||
| NET LOSS |
(4,097 | ) | (8,705 | ) | ||||
| PREFERRED STOCK DIVIDENDS AND ACCRETION |
(1,695 | ) | (1,700 | ) | ||||
| NET LOSS APPLICABLE TO COMMON STOCKHOLDERS |
$ | (5,792 | ) | $ | (10,405 | ) | ||
| BASIC AND DILUTED NET LOSS PER COMMON SHARE |
$ | (0.11 | ) | $ | (0.20 | ) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
55,084,608 | 51,834,252 | ||||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
ITC^DELTACOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (4,097 | ) | $ | (8,705 | ) | ||
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
12,952 | 20,834 | ||||||
| Provision for uncollectible accounts |
2,537 | 1,346 | ||||||
| Stock-based compensation |
785 | 409 | ||||||
| Amortization of debt issuance costs |
143 | 143 | ||||||
| Interest paid in kind |
20 | — | ||||||
| Gain on settlement of long-term lease |
(1,171 | ) | — | |||||
| Changes in current operating assets and liabilities: |
||||||||
| Accounts receivable, net |
886 | 1,264 | ||||||
| Inventory |
(119 | ) | (737 | ) | ||||
| Prepaid expenses |
(374 | ) | (611 | ) | ||||
| Accounts payable |
(3,485 | ) | (7,310 | ) | ||||
| Accrued interest |
473 | (617 | ) | |||||
| Unearned revenue |
(156 | ) | (654 | ) | ||||
| Accrued compensation and other accrued liabilities |
4,581 | 293 | ||||||
| Total adjustments |
17,072 | 14,360 | ||||||
| Net cash provided by operating activities |
12,975 | 5,655 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(4,476 | ) | (8,299 | ) | ||||
| Change in accrued capital related costs |
(2,970 | ) | (4,533 | ) | ||||
| Other |
(24 | ) | (98 | ) | ||||
| Change in restricted cash |
193 | — | ||||||
| Payment for accrued restructuring and merger costs |
(2,734 | ) | (5,634 | ) | ||||
| Cash used in investing activities |
(10,011 | ) | (18,564 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Repayments of long-term debt and capital lease obligations |
(3,939 | ) | (4,993 | ) | ||||
| Proceeds from issuance of long-term debt and common stock warrants, net of issuance costs |
18,039 | — | ||||||