[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
[
] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
Delaware
(State
of incorporation) |
23-2827736
(I.R.S.
Employer Identification No.) |
12020
Sunrise Valley Drive, Suite 250, Reston, Virginia
(Address
of principal executive offices) |
20191
(Zip
Code) |
(in
000s, except per share data)
(Unaudited) |
2003 |
2004 | |||||||||||||||||||||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 | |||||||||||||||||||
Revenue: |
|||||||||||||||||||||||||
Reported | $ | 87,843 | $ | 93,748 | $ | 99,929 | $ | 101,143 | $ | 109,321 | $ | 114,881 | |||||||||||||
Adjustments |
359 |
158 |
249 |
264 |
298
|
332
|
|||||||||||||||||||
As Restated |
$ |
88,202 |
$ |
93,906 |
$ |
100,178 |
$ |
101,407 |
$ | 109,619 |
$ | 115,213 |
|||||||||||||
Operating
Income: |
|||||||||||||||||||||||||
Reported |
$ |
15,179 |
$ |
19,027 |
$ |
17,620 |
$ |
13,432 |
$ |
14,103 |
$ |
13,973 |
|||||||||||||
Adjustments |
359 |
158 |
249 |
264 |
298
|
332
|
|||||||||||||||||||
As Restated |
$ |
15,538 |
$ |
19,185 |
$ |
17,869 |
$ |
13,696 |
$ | 14,401 |
$ | 14,305 |
|||||||||||||
Pre-Tax
Income: |
|||||||||||||||||||||||||
Reported |
$ |
14,961 |
$ |
17,500 |
$ |
16,106 |
$ |
12,197 |
$ |
13,387 |
$ |
13,573 |
|||||||||||||
Adjustments |
358 |
158 |
249 |
264 |
298
|
332
|
|||||||||||||||||||
As Restated |
$ |
15,319 |
$ |
17,658 |
$ |
16,355 |
$ |
12,461 |
$ | 13,685 |
$ | 13,905 |
|||||||||||||
Income
Tax Expense: |
|||||||||||||||||||||||||
Reported |
$ |
5,835 |
$ |
6,825 |
($35,460 |
) |
$ |
5,103 |
$ |
5,031 |
$ |
5,025 |
|||||||||||||
Adjustments |
141
|
62
|
(2,287 |
) |
(243 |
) |
366
|
458
|
|||||||||||||||||
As Restated |
$ |
5,976 |
$ |
6,887 |
($37,747 |
) |
$ |
4,860 |
$ | 5,397
|
$ | 5,483
|
|||||||||||||
Net
Income: |
|||||||||||||||||||||||||
Reported |
$ |
9,126 |
$ |
10,675 |
$ |
51,566 |
$ |
7,094 |
$ |
8,356 |
$ |
8,548 |
|||||||||||||
Adjustments |
217 |
96 |
2,536 |
507 |
(68 |
) |
(126 |
) | |||||||||||||||||
As Restated |
$ |
9,343 |
$ |
10,771 |
$ |
54,102 |
$ |
7,601 |
$ | 8,288 |
$ | 8,422 |
|||||||||||||
Basic
EPS: |
|||||||||||||||||||||||||
Reported |
$ |
0.35 |
$ |
0.41 |
$ |
1.96 |
$ |
0.27 |
$ |
0.31 |
$ |
0.32 |
|||||||||||||
Adjustments |
-- |
-- |
0.09 |
0.02 |
-- |
(0.1 |
) | ||||||||||||||||||
As Restated |
$ |
0.35 |
$ |
0.41 |
$ |
2.05 |
$ |
0.29 |
$ |
0.31 |
$ |
0.31 |
|||||||||||||
Fully
Diluted EPS: |
|||||||||||||||||||||||||
Reported |
$ |
0.32 |
$ |
0.37 |
$ |
1.74 |
$ |
0.25 |
$ |
0.29 |
$ |
0.30 |
|||||||||||||
Adjustments |
--
|
--
|
0.14 |
0.02 |
--
|
--
|
|||||||||||||||||||
As Restated |
$ |
0.32 |
$ |
0.37 |
$ |
1.88 |
$ |
0.27 |
$ | 0.29
|
$ | 0.30
|
|||||||||||||
Fully
Diluted Shares: |
|||||||||||||||||||||||||
Reported |
29,940 |
29,563 |
29,761 |
28,884 |
28,862 |
28,694 |
|||||||||||||||||||
Adjustments |
--
|
-- |
(884 |
) |
(777 |
) |
(732 |
) |
(655 |
) | |||||||||||||||
As Restated |
29,940 |
29,563 |
28,877 |
28,107 |
28,130 |
28,039 |
At
June 30, 2004 |
As
Originally
Reported |
As
Restated |
|||||
Deferred
income tax assets |
|||||||
Current |
$ |
26,338 |
$ |
26,338 |
|||
Long-term |
30,619 |
38,857 |
|||||
Goodwill |
19,503 |
13,013 |
|||||
Total
assets |
239,996 |
241,744 |
|||||
Sales,
use and excise taxes |
14,926 |
13,266 |
|||||
Deferred
income taxes |
19,840 |
20,088 |
|||||
Total
liabilities |
121,989 |
120,575 |
|||||
Accumulated
deficit |
(233,436 |
) |
(230,274 |
) | |||
Total
stockholders’ equity |
118,007 |
121,169 |
At
June 30, 2003* |
As
Originally
Reported |
As
Restated |
|||||
Deferred
income tax assets |
|||||||
Current |
$ |
10,653 |
$ |
10,447 |
|||
Long-term |
-- |
-- |
|||||
Goodwill |
19,503 |
19,503 |
|||||
Total
assets |
169,318 |
171,572 |
|||||
Sales,
use and excise taxes |
12,794 |
12,276 |
|||||
Deferred
income taxes |
-- |
-- |
|||||
Total
liabilities |
130,554 |
132,495 |
|||||
Accumulated
deficit |
(309,000 |
) |
(308,687 |
) | |||
Total
stockholders’ equity |
38,764 |
39,077 |
Page | |
PART
I - FINANCIAL INFORMATION |
|
Item
1. Consolidated Financial Statements |
|
Consolidated
Statements of Operations - Three and Six Months Ended June 30, 2004
(restated) and 2003 (restated) (unaudited) |
2 |
Consolidated
Balance Sheets - June 30, 2004 (restated), December 31, 2003 (restated),
and June 30, 2003 (restated) (unaudited) |
3 |
Consolidated
Statements of Stockholders' Equity - Six Months Ended June 30, 2004
(restated) (unaudited) |
4 |
Consolidated
Statements of Cash Flows - Three and Six Months Ended June 30, 2004
(restated) and 2003 (restated) (unaudited) |
5 |
Notes
to Consolidated Financial Statements (unaudited) |
6 |
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations |
14 |
Item
4. Controls and Procedures |
25 |
PART
II - OTHER INFORMATION |
27 |
Item
6. Exhibits and Reports on Form 8-K |
27 |
(a) Exhibits |
|
(b)
Reports on Form 8-K |
Three
Months Ended
June
30, |
Six
Months Ended
June
30, |
||||||||||||
|
2004
(restated) |
2003
(restated) |
|
2004
(restated) |
|
2003
(restated) |
| ||||||
Revenue |
$ |
115,213 |
$ |
93,906 |
$ |
224,832 |
$ |
182,108 |
|||||
Costs
and expenses: |
|||||||||||||
Network and line costs, excluding depreciation and amortization (see
below) |
55,586 |
43,268 |
109,806 |
87,152 |
|||||||||
General
and administrative expenses |
15,891 |
12,549 |
31,053 |
25,428 |
|||||||||
Provision
for doubtful accounts |
4,905 |
2,895 |
8,326 |
5,117 |
|||||||||
Sales
and marketing expenses |
19,204 |
11,629 |
36,488 |
21,000 |
|||||||||
Depreciation
and amortization |
5,322 |
4,380 |
10,453 |
8,688 |
|||||||||
Total
costs and expenses |
100,908 |
74,721 |
196,126 |
147,385 |
|||||||||
Operating
income |
14,305 |
19,185 |
28,706 |
34,723 |
|||||||||
Other
income (expense): |
|||||||||||||
Interest
income |
42 |
186 |
143 |
295 |
|||||||||
Interest
expense |
(442 |
) |
(2,027 |
) |
(1,259 |
) |
(4,506 |
) | |||||
Other
income, net |
-- |
314 |
-- |
2,465 |
|||||||||
Income
before provision for income taxes |
13,905 |
17,658 |
27,590 |
32,977 |
|||||||||
Provision
for income taxes |
5,483 |
6,887 |
10,880 |
12,863 |
|||||||||
Net
income |
$ |
8,422 |
$ |
10,771 |
$ |
16,710 |
$ |
20,114 |
|||||
Income
per share - Basic: |
|||||||||||||
Net
income per share |
$ |
0.31 |
$ |
0.41 |
$ |
0.63 |
$ |
0.76 |
|||||
Weighted
average common shares outstanding |
26,746 |
26,226 |
26,710 |
26,300 |
|||||||||
Income
per share - Diluted: |
|||||||||||||
Net
income per share |
$ |
0.30 |
$ |
0.37 |
$ |
0.59 |
$ |
0.70 |
|||||
Weighted
average common and common equivalent shares outstanding |
28,039 |
29,563 |
28,090 |
29,349 |
June
30,
2004
(restated) |
December
31,
2003
(restated) |
June
30,
2003
(restated) |
||||||||
Assets |
||||||||||
Current
assets: |
||||||||||
Cash
and cash equivalents |
$ |
30,427 |
$ |
35,242 |
$ |
25,858 |
||||
Accounts receivable, trade (net of allowance for uncollectible accounts of
$12,227, $9,414 and $7,954 at June 30, 2004, December 31, 2003 and June 30
2003, respectively) |
48,109 |
40,321 |
33,905 |
|||||||
Deferred
income taxes |
26,338 |
24,605 |
10,447 |
|||||||
Prepaid
expenses and other current assets |
7,476 |
5,427 |
4,417 |
|||||||
Total
current assets |
112,350 |
105,595 |
74,627 |
|||||||
Property
and equipment, net |
66,016 |
68,069 |
64,383 |
|||||||
Goodwill |
13,013 |
13,013 |
19,503 |
|||||||
Intangibles,
net |
3,244 |
4,666 |
5,956 |
|||||||
Deferred
income taxes |
38,857 |
48,288 |
-- |
|||||||
Other
assets |
8,264 |
7,547 |
7,103 |
|||||||
$ |
241,744 |
$ |
247,178 |
$ |
171,572 |
|||||
Liabilities
and Stockholders’ Equity |
||||||||||
Current
liabilities: |
||||||||||
Accounts
payable |
$ |
43,039 |
$ |
35,296 |
$ |
34,469 |
||||
Sales,
use and excise taxes |
13,266 |
13,521 |
12,276 |
|||||||
Deferred
revenue
Legal settlements |
14,516 |
10,873 |
8,707 |
|||||||
Current
portion of long-term debt |
17,554 |
16,806 |
58 |
|||||||
Accrued
compensation |
4,941 |
9,888 |
4,264 |
|||||||
Other
current liabilities |
4,186 |
6,851 |
7,171 |
|||||||
Total
current liabilities |
97,502 |
93,235 |
66,945 |
|||||||
Long-term
debt |
2,985 |
31,791 |
65,550 |
|||||||
Deferred
income taxes |
20,088 |
19,009 |
-- |
|||||||
Commitments
and contingencies |
||||||||||
Stockholders'
equity: |
||||||||||
Preferred
stock - $.01 par value, 5,000,000 shares authorized; no shares outstanding
|
-- |
-- |
-- |
|||||||
Common
stock - $.01 par value, 100,000,000 shares authorized; 26,966,743,
26,662,952 and 26,351,070, issued and outstanding at June 30, 2004,
December 31, 2003 and June 30, 2003, respectively |
283 |
280 |
277 |
|||||||
Additional
paid-in capital |
356,160 |
354,847 |
352,487 |
|||||||
Accumulated
deficit |
(230,274 |
) |
(246,984 |
) |
(308,687 |
) | ||||
Treasury
stock - $.01 par value, 1,315,789 shares at June 30, 2004 and December 31,
2003 and June 30, 2003 respectively |
(5,000 |
) |
(5,000 |
) |
(5,000 |
) | ||||
Total
stockholders' equity |
121,169 |
103,143 |
39,077 |
|||||||
$ |
241,744 |
$ |
247,178 |
$ |
171,572 |
|
||||||||||||||||||||||
|
Common
Stock |
Additional
Paid-In |
Accumulated |
Treasury
Stock |
||||||||||||||||||
|
Shares |
Amount |
Capital |
Deficit |
Shares |
Amount |
Total |
|||||||||||||||
Balance, December 31, 2003 (restated) |
27,979 |
$ |
280 |
$ |
354,847 |
$ |
(246,984 |
) |
1,316 |
$ |
(5,000 |
) |
$ |
103,143 |
||||||||
Net income (restated) |
-- |
-- |
-- |
16,710 |
-- |
-- |
16,710 |
|||||||||||||||
Income
tax benefit related to exercise of common stock options |
-- |
-- |
757 |
-- |
-- |
-- |
757 |
|||||||||||||||
Change
in terms of employee stock options |
-- |
-- |
9 |
-- |
-- |
-- |
9 |
|||||||||||||||
Exercise
of common stock options |
304 |
3 |
547 |
-- |
-- |
-- |
550 |
|||||||||||||||
Balance, June 30, 2004 (restated) |
28,283 |
$ |
283 |
$ |
356,160 |
$ |
(230,274 |
) |
1,316 |
$ |
(5,000 |
) |
$ |
121,169 |
|
Six
Months Ended June 30, | ||||||
|
2004
(restated) |
2003
(restated) |
| ||||
Cash
flows from operating activities: |
|||||||
Net
income |
$ |
16,710 |
$ |
20,114 |
|||
Adjustments to reconcile net income to net cash provided by operating
activities: |
|||||||
Provision
for doubtful accounts |
8,326 |
5,117 |
|||||
Depreciation
and amortization |
10,453 |
8,688 |
|||||
Loss
on sale and retirement of assets |
-- |
16 |
|||||
Non-cash
interest and amortization of accrued interest liabilities |
(130 |
) |
(131 |
) | |||
Gain
from extinguishment of debt |
-- |
(2,471 |
) | ||||
Deferred
income taxes |
9,534 |
11,851 |
|||||
Non-cash
compensation |
9 |
-- |
|||||
Changes
in assets and liabilities: |
|||||||
Accounts
receivable, trade |
(16,114 |
) |
(11,180 |
) | |||
Prepaid
expenses and other current assets |
(1,488 |
) |
(551 |
) | |||
Other
assets |
(24 |
) |
1,435 |
||||
Accounts
payable |
7,743 |
2,321 |
|||||
Sales,
use and excise taxes |
(255 |
) |
837 |
||||
Deferred
revenue |
3,643 |
2,227 |
|||||
Accrued
compensation |
(4,947 |
) |
(1,345 |
) | |||
Other
current liabilities |
(2,665 |
) |
(1,843 |
) | |||
Net
cash provided by operating activities |
30,795 |
35,084 |
|||||
Cash
flows from investing activities: |
|||||||
Capital
expenditures |
(3,339 |
) |
(4,217 |
) | |||
Capitalized
software development costs |
(1,787 |
) |
(1,388 |
) | |||
Net
cash used in investing activities |
(5,126 |
) |
(5,605 |
) | |||
Cash
flows from financing activities: |
|||||||
Payments
of borrowings |
(30,362 |
) |
(32,676 |
) | |||
Payments
of capital lease obligations |
(672 |
) |
(31 |
) | |||
Proceeds
from exercise of options |
550 |
498 |
|||||
Purchase
of treasury stock |
-- |
(5,000 |
) | ||||
Net
cash used in financing activities |
(30,484 |
) |
(37,209 |
) | |||
Net
decrease in cash and cash equivalents |
(4,815 |
) |
(7,730 |
) | |||
Cash
and cash equivalents, beginning of period |
35,242 |
33,588 |
|||||
Cash
and cash equivalents, end of period |
$ |
30,427 |
$ |
25,858 |
|||
· |
Dependence
on the availability and functionality of the networks of the incumbent
local telephone carriers as they relate to the unbundled network element
platform |
· |
The
FCC is expected to pronounce interim and eventually final rules with
respect thereto, which are expected to adversely affect availability and
pricing of various network elements and bundles thereof. Such rules may
also affect or limit our ability to pursue our current “customer first”
strategy of acquiring a base of bundled phone service customers, building
our own network platform and the migrating those customers to our own
network platform. |
· |
Additional
changes in government policy, regulation and enforcement or adverse
judicial or administrative interpretations and rulings or legislative
action relating to regulations, enforcement and
pricing. |
· |
Increased
price competition in local and long distance services, including bundled
services, and overall competition within the telecommunications
industry. |
|
June
30, 2004 |
December
31, 2003 |
June
31, 2003 |
|||||||
8%
Secured Convertible Notes Due 2006 |
$ |
-- |
$ |
-- |
$ |
15,452 |
||||
12%
Senior Subordinated Notes Due 2007 |
10,730 |
40,730 |
45,520
|
|||||||
8%
Convertible Senior Subordinated Notes Due 2007 (1) |
3,648 |
3,778 |
3,908 |
|||||||
5%
Convertible Subordinated Notes Due 2004 |
670 |
670 |
670 |
|||||||
Other,
primarily vendor-financed computer software |
2,744 |
-- |
-- |
|||||||
Capital
lease obligations |
2,747 |
3,419 |
58 |
|||||||
Total
long-term debt and capital lease obligations |
20,539 |
48,597 |
65,608
|
|||||||
Less:
current maturities (2) |
17,554 |
16,806 |
58 |
|||||||
Total
long-term debt and capital lease obligations, excluding current
maturities |
$ |
2,985 |
$ |
31,791 |
$ |
65,550 |
|
|
Three
Months Ended June 30, |
Six
Months Ended June 30, |
||||||||||
|
2004
(restated) |
2003
(restated) |
|
2004
(restated) |
|
2003
(restated) |
| ||||||
Net
income as reported |
$ |
8,422 |
$ |
10,771 |
$ |
16,710 |
$ |
20,114 |
|||||
Add:
Stock-based employee compensation expense included in reported net income
|
-- |
-- |
5 |
-- |
|||||||||
Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all options |
1,439 |
340 |
2,875 |
562 |
|||||||||
Pro
forma net income |
$ |
6,983 |
$ |
10,431 |
$ |
13,840 |
$ |
19,552 |
Three
Months Ended June 30, |
Six
Months Ended June 30, | |||||||
2004
(restated)
|
2003
(restated) |
2004
(restated) |
2003
(restated) | |||||
Basic
earnings per share: |
||||||||
As
reported |
$
0.31 |
$
0.41 |
$
0.63 |
$
0.76 | ||||
Pro
forma |
$
0.25 |
$
0.37 |
$
0.50 |
$
0.71 | ||||
Diluted
earnings per share: |
||||||||
As
reported |
$
0.30 |
$
0.37 |
$
0.59 |
$
0.70 | ||||
Pro
forma |
$
0.25 |
$
0.36 |
$
0.50 |
$
0.69 |
· |
Volatility
based on the historical stock price over the expected term (5
years); |
· |
No
expected dividend yield based on future dividend payment
plans. |
Three
Months Ended
June
30, |
Six
Months Ended
June
30, |
||||||||||||
|
2004
(restated) |
2003
(restated) |
|
2004
(restated) |
|
2003
(restated) |
| ||||||
Net
income used to compute basic earnings per share |
$ |
8,422 |
$ |
10,771 |
$ |
16,710 |
$ |
20,114 |
|||||
Interest
expense on convertible bonds, net of tax affect (See Note 2
(a)) |
(5 |
) |
183 |
(11 |
) |
366 |
|||||||
Net
income used to compute diluted earnings per share |
$ |
8,417 |
$ |
10,954 |
$ |
16,699 |
$ |
20,480 |
|||||
Average
shares of common stock outstanding used to compute basic earnings per
share |
26,746 |
26,226 |
26,710 |
26,300 |
|||||||||
Additional
common shares to be issued assuming exercise of stock options and warrants
(net of shares assumed reacquired) and conversion of convertible bonds
* |
1,293 |
3,337 |
1,380 |
3,045 |
|||||||||
Average
shares of common and common equivalent stock outstanding used to compute
diluted earnings per share |
28,039 |
29,563 |
28,090 |
29,345 |
|||||||||
Income
per share - Basic: |
|||||||||||||
Net
income per share |
$ |
0.31 |
$ |
0.41 |
$ |
0.63 |
$ |
0.76 |
|||||
Weighted
average common shares outstanding |
26,746 |
26,226 |
26,710 |
26,300 |
|||||||||
Income
per share - Diluted: |
|||||||||||||
Net
income per share |
$ |
0.30 |
$ |
0.37 |
$ |
0.59 |
$ |
0.70 |
|||||
Weighted
average common and common equivalent shares outstanding |
28,039 |
29,563 |
28,090 |
29,345 |
(a) |
Due
to a classification error in our general ledger, we incorrectly recorded
certain customer fee revenues as sales, use and excise tax liability to
the consolidated balance sheets for the four quarters of 2003, for the
year ended December 31, 2003 and for the first and second quarters of
2004. These customer fee revenues were $0.3 million for the second quarter
of 2004, $0.1 million for the second quarter of 2003, $0.6 million for the
six months ended June 30, 2004, $0.5 million for the six months ended June
30, 2003, and an aggregate of $1.0 million for the full year 2003. These
customer fees have now been appropriately recorded to revenues in the
consolidated statement of operations for the year ended December 31, 2003
and in the unaudited quarterly periods for the first and second quarters
2004 and 2003. |
(b) |
We
determined that in our calculations since the third quarter of 2003 we had
not incorporated the tax benefits associated with the assumed exercise of
employee stock options. As a result, fully diluted shares outstanding were
over-reported and income per fully diluted share was understated in those
periods. |
(c) |
We
identified errors in the computation of the deferred tax assets recognized
in the third quarter of 2003 as follows: (i) failure to deduct state
income tax expense from federal taxable income resulted in the deferred
tax benefit as originally reported for the year ended December 31, 2003
and the unaudited third quarter of 2003 being understated by $0.9 million
and (ii) failure to complete the appropriately detailed analysis of our
deferred tax assets relating to state net operating loss carryforwards
resulted in the deferred tax benefit as originally reported for the year
ended December 31, 2003 and the unaudited third quarter of 2003 being
understated by $1.7 million. In February 2005, we determined that we
improperly corrected for the errors in the deferred tax computations
through an adjustment to the effective tax rate for 2004 rather than
through the restatement of our prior period financial statements. As a
result, we have restated the first and second quarter of 2004 and the
third and fourth quarter of 2003 and year end December 31,
2003. |
(d) |
In
connection with the release of the valuation allowance in the third
quarter 2003, $6.5 million of deferred tax assets associated with acquired
net operating loss carryforwards were realizable and should have been
recorded as a deferred tax asset. Originally, we believed this deferred
tax asset was limited due to provisions of the Internal Revenue Code
Section 382. This error resulted in deferred tax assets being understated
and goodwill being overstated in each of the periods beginning in the
third quarter 2003. As
a result, we have restated the first and second quarter of 2004 and the
third and fourth quarter of 2003 and year end December 31,
2003. |
|
As
Originally
Reported |
|
|
Adjustments |
|
|
As
Restated |
|||
Three
Months Ended June 30, 2004 |
||||||||||
Revenue |
$ |
114,881 |
$ |
332 |
$ |
115,213 |
||||
Operating
income |
13,973 |
332 |
14,305 |
|||||||
Provision
for income taxes |
5,025 |
458 |
5,483 |
|||||||
Net
income |
8,548 |
(126 |
) |
8,422 |
||||||
Net
income per share - Basic |
0.32 |
(0.01 |
) |
0.31 |
||||||
Net
income per share - Diluted |
0.30 |
-- |
0.30 |
|||||||
Weighted
average common and common equivalent
shares outstanding -Diluted |
28,694 |
(655 |
) |
28,039 |
||||||
Three
Months Ended June 30, 2003 |
||||||||||
Revenue |
$ |
93,748 |
$ |
158 |
$ |
93,906 |
||||
Operating
income |
19,027 |
158 |
19,185 |
|||||||
Provision
for income taxes |
6,825 |
62 |
6,887 |
|||||||
Net
income |
10,675 |
96 |
10,771 |
|||||||
Net
income per share - Basic |
0.41 |
-- |
0.41 |
|||||||
Net
income per share - Diluted |
0.37 |
-- |
0.37 |
|||||||
Weighted
average common and common equivalent shares outstanding -Diluted
|
29,563 |
-- |
29,563 |
|||||||
Six
Months Ended June 30, 2004 |
||||||||||
Revenue |
$ |
224,202 |
$ |
630 |
$ |
224,832 |
||||
Operating
income |
28,076 |
630 |
28,706 |
|||||||
Provision
for income taxes |
10,056 |
824 |
10,880 |
|||||||
Net
income |
16,904 |
(194 |
) |
16,710 |
||||||
Net
income per share - Basic |
0.63 |
-- |
0.63 |
|||||||
Net
income per share - Diluted |
0.59 |
-- |
0.59 |
|||||||
Weighted
average common and common equivalent shares outstanding -Diluted
|
28,787 |
(697 |
) |
28,090 |
||||||
Six
Months Ended June 30, 2003 |
||||||||||
Revenue |
$ |
181,591 |
$ |
517 |
$ |
182,108 |
||||
Operating
income |
34,206 |
517 |
34,723 |
|||||||
Provision
(benefit) for income taxes |
12,659 |
204 |
12,863 |
|||||||
Net
income |
19,801 |
313 |
20,114 |
|||||||
Net
income per share - Basic |
0.75 |
0.01 |
0.76 |
|||||||
Net
income per share - Diluted |
0.69 |
0.01 |
0.70 |
|||||||
Weighted
average common and common equivalent shares outstanding -Diluted
|
29,345 |
4 |
29,349 |
|
As
Originally
Reported |
Adjustments |
As
Restated |
|||||||
At
June 30, 2004 |
||||||||||
Deferred
income tax assets |
||||||||||
Current |
$ |
26,338 |
$ |
-- |
$ |
26,338 |
||||
Long-term |
30,619 |
8,238 |
38,857 |
|||||||
Goodwill |
19,503 |
(6,490 |
) |
13,013 |
||||||
Total
assets |
239,996 |
1,748 |
241,744 |
|||||||
Sales,
use and excise taxes |
14,926 |
(1,660 |
) |
13,266 |
||||||
Deferred
income taxes |
19,840 |
248 |
20,088 |
|||||||
Total
liabilities |
121,989 |
(1,414 |
) |
120,575 |
||||||
Accumulated
deficit |
(233,436 |
) |
3,162 |
(230,274 |
) | |||||
Total
stockholders’ equity |
118,007 |
3,162 |
121,169 |
|||||||
At
December 31, 2003 |
||||||||||
Deferred
income tax assets |
||||||||||
Current |
$ |
24,605 |
$ |
-- |
$ |
24,605 |
||||
Long-term |
40,543 |
7,745 |
48,288 |
|||||||
Goodwill |
19,503 |
(6,490 |
) |
13,013 |
||||||
Total
assets |
245,923 |
1,255 |
247,178 |
|||||||
Sales,
use and excise taxes |
14,551 |
(1,030 |
) |
13,521 |
||||||
Deferred
income taxes |
19,904 |
(895 |
) |
19,009 |
||||||
Total
liabilities |
146,136 |
(2,101 |
) |
144,035 |
||||||
Accumulated
deficit |
(250,340 |
) |
3,356 |
(246,984 |
) | |||||
Total
stockholders’ equity |
99,787 |
3,356 |
103,143 |
|||||||
At
June 30, 2003* |
||||||||||
Deferred
income tax assets |
||||||||||
Current |
$ |
10,653 |
$ |
(206 |
) |
$ |
10,447 |
|||
Long-term |
-- |
-- |
-- |
|||||||
Goodwill |
19,503 |
-- |
19,503 |
|||||||
Total
assets |
169,318 |
2,254 |
171,572 |
|||||||
Sales,
use and excise taxes |
12,794 |
(518 |
) |
12,276 |
||||||
Deferred
income taxes |
-- |
-- |
-- |
|||||||
Total
liabilities |
130,554 |
1,941 |
132,495 |
|||||||
Accumulated
deficit |
(309,000 |
) |
313 |
(308,687 |
) | |||||
Total
stockholders’ equity |
38,764 |
313 |
39,077 |
|
As
Originally
Reported |
|
|
Adjustments |
|
|
As
Restated |
|||
At
June 30, 2004 |
||||||||||
Cash
flows from operating activities: |
||||||||||
Net income |
$ |
16,904 |
$ |
(194 |
) |
$ |
16,710 |
|||
Deferred income taxes |
8,884 |
650 |
9,534 |
|||||||
Changes in assets and liabilities: |
||||||||||
Sales, use and excise taxes |
375 |
(630 |
) |
(255 |
) | |||||
Other current liabilities and accrued compensation |
(7,786 |
) |
174 |
(7,612 |
) | |||||
Net cash provided by operating activities |
30,795 |
-- |
30,795 |
|||||||
At
June 30, 2003 |
||||||||||
Cash
flows from operating activities: |
||||||||||
Net income |
$ |
19,801 |
$ |
313 |
$ |
20,114 |
||||
Deferred income taxes |
11,647 |
204 |
11,851 |
|||||||
Changes in assets and liabilities: |
||||||||||
Sales,
use and excise taxes |
1,354 |
(517 |
) |
837 |
||||||
Other
current liabilities and accrued compensation |
(3,188 |
) |
-- |
(3,188 |
) | |||||
Net
cash provided by operating activities |
35,084 |
-- |
35,084 |
Three
Months Ended June 30, |
Six
Months Ended June 30, |
||||||||||||
|
2004
(restated) |
2003
(restated) |
|
|
2004
(restated) |
|
|
2003
(restated) |
| ||||
Revenue
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% | |||||
Costs
and expenses: |
|||||||||||||
Network
and line costs |
48.2 |
46.1 |
48.8 |
47.9 |
|||||||||
General
and administrative expenses |
13.8 |
13.4 |
13.8 |
13.9 |
|||||||||
Provision
for doubtful accounts |
4.3 |
3.1 |
3.7 |
2.8 |
|||||||||
Sales
and marketing expenses |
16.7 |
12.4 |
16.2 |
11.5 |
|||||||||
Depreciation
and amortization |
4.6 |
4.6 |
4.6 |
4.8 |
|||||||||
Total
costs and expenses |
87.6 |
79.6 |
87.2 |
80.9 |
|||||||||
Operating
income |
12.4 |
20.4 |
12.8 |
19.1 |
|||||||||
Other
income (expense): |
|||||||||||||
Interest
income |
-- |
0.2 |
0.1 |
0.2 |
|||||||||
Interest
expense |
(0.3 |
) |
(2.2 |
) |
(0.6 |
) |
(2.5 |
) | |||||
Other,
net |
-- |
0.4 |
-- |
1.3 |
|||||||||
Income
before income taxes |
12.1 |
18.8 |
12.3 |
18.1 |
|||||||||
Provision
for income taxes |
4.8 |
7.3 |
4.8 |
7.1 |
|||||||||
Net
income |
7.3 |
% |
11.5 |
% |
7.5 |
% |
11.0 |
% |
Three
Months Ended June 30, |
Six
Months Ended June 30, | |||||||
2004
(restated) |
2003
(restated) |
2004
(restated) |
2003
(restated) | |||||
Revenue
|
22.7% |
|
20.9% |
|
23.5% |
|
15.9% | |
Costs
and expenses: |
||||||||
Network
and line costs |
28.5 |
|
14.9 |
|
26.0 |
|
11.9 | |
General and administrative expenses |
|
26.6 |
|
(8.0) |
|
22.1 |
|
(9.9) |
Provision
for doubtful accounts |
69.4 |
|
3.4 |
|
62.7 |
|
(24.8) | |
Sales
and marketing expenses |
65.1 |
|
68.2 |
|
73.8 |
|
64.0 | |
Depreciation
and amortization |
21.5 |
|
(1.1) |
|
20.3 |
|
(2.1) | |
Total costs and expenses |
|
35.1 |
|
14.2 |
|
33.1 |
|
9.5 |
Operating
income |
(25.4) |
|
56.8 |
|
(17.3) |
|
54.0 | |
Other
income (expense): |
||||||||
Interest
income |
(77.4) |
|
97.9 |
|
(51.5) |
|
61.7 | |
Interest
expense |
(78.2) |
|
(30.1) |
|
(72.1) |
|
3.0 | |
Other,
net |
|
(100.0) |
|
3588.9 |
|
(100.0) |
|
(402.1) |
Income
before income taxes |
|
(21.3) |
|
87.5 |
|
(16.3) |
|
87.9 |
Provision
for income taxes |
(20.4) |
|
N/A |
|
(15.4) |
|
N/A | |
Net
income |
(21.8)% |
14.4% |
|
(16.9) |
|
14.6% |
Contractual
Obligations |
Total |
1
year or
less |
2 -
3
Years |
4 -
5
Years |
Thereafter |
|||||||||||
Talk
America Holdings, Inc.: |
||||||||||||||||
12%
Senior Subordinated Notes due 2007 (1) |
$ |
10,730 |
$ |
10,730 |
$ |
-- |
$ |
-- |
$ |
-- |
||||||
8%
Convertible Senior Subordinated Notes due 2007 (2) |
3,648 |
3,648 |
-- |
-- |
-- |
|||||||||||
5%
Convertible Subordinated Notes due 2004 |
670 |
670 |
-- |
-- |
-- |
|||||||||||
Talk
America Inc. and other subsidiaries: |
||||||||||||||||
Capital lease obligations |
2,747 |
1,121 |
1,626 |
-- |
-- |
|||||||||||
Other,
primarily vendor-financed computer software |
2,744 |
1,385 |
1,359 |
-- |
-- |
|||||||||||
20,539 |
17,554 |
2,985 |
-- |
-- |
||||||||||||
Operating
leases |
6,848 |
2,781 |
3,267 |
390 |
410 |
|||||||||||
Carrier
commitments (3) |
81,650 |
19,250 |
41,600 |
20,800 |
-- |
|||||||||||
Total
Contractual Obligations |
$ |
109,037 |
$ |
39,585 |
$ |
47,852 |
$ |
21,190 |
$ |
410 |
Non-cash items of $22.9 million, primarily consisting of utilization
of deferred tax assets of $11.8 million; |
1. |
Engaging
outside contractors with technical and accounting related expertise to
assist in the preparation of the income tax provision and related work
papers. We are also implementing controls to assure accurate data is
provided to, and that we review and agree with the conclusions of, outside
contractors. |
2. |
Outside
contractors with technical accounting capabilities have been and will be
retained to the extent an issue is sufficiently complex and outside the
technical accounting capabilities of our
personnel. |
3. |
We
have redesigned the account reconciliation process for sales, use and
excise tax liabilities. Our Controller will increase the depth of review
of the account reconciliation and our Chief Accounting Officer will
confirm that established review processes are being adhered
to. |