<PAGE>
================================================================================
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-29-092
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 54-1708481
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2070 Chain Bridge Road, Suite 425, Vienna, VA 22182
(Address of principal executive offices) (Zip Code)
(703) 902-2800
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class October 31, 1997
----- ----------------
<S> <C>
Common Stock, $.01 par value 19,630,451
</TABLE>
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<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
No. Page
- --- ----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statement of Operations.......................1
Consolidated Balance Sheet.................................2
Consolidated Statement of Cash Flows.......................3
Notes to Consolidated Financial Statements.................4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................10
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.........................................11
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................11
Item 3. DEFAULTS UPON SENIOR SECURITIES...........................11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS........11
Item 5. OTHER INFORMATION.........................................12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K..........................12
SIGNATURE..................................................................13
EXHIBIT INDEX..............................................................14
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET REVENUE $ 73,018 $ 51,819 $ 202,099 $ 117,234
COST OF REVENUE 65,266 47,210 184,478 107,372
------------- ------------- ------------- -------------
GROSS MARGIN 7,752 4,609 17,621 9,862
OPERATING EXPENSES
Selling, general and administrative 13,749 6,194 35,784 12,901
Depreciation and amortization 1,877 637 4,343 1,435
------------- ------------- ------------- -------------
Total operating expenses 15,626 6,831 40,127 14,336
LOSS FROM OPERATIONS (7,874) (2,222) (22,506) (4,474)
INTEREST EXPENSE (4,893) (258) (5,570) (593)
INTEREST INCOME 2,118 158 3,377 243
OTHER INCOME (EXPENSE) 58 (42) 407 (310)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (10,591) (2,364) (24,292) (5,134)
INCOME TAXES - 57 81 519
------------- ------------- ------------- -------------
NET LOSS $ (10,591) $ (2,421) $ (24,373) $ (5,653)
============= ============= ============= =============
NET LOSS PER COMMON AND
COMMON SHARE EQUIVALENTS $ (0.60) $ (0.18) $ (1.37) $ (0.44)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING 17,781 13,442 17,780 12,807
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited)
---------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 150,187 $ 35,474
Restricted cash and cash equivalents 72,521 -
Short term investments - 25,125
Accounts receivable (net of allowance of $4,645
and $2,585) 58,974 35,217
Prepaid expenses and other current assets 2,299 910
---------------- ---------------
Total current assets 283,981 96,726
PROPERTY AND EQUIPMENT - Net 48,375 16,596
INTANGIBLES - Net 24,259 21,246
DEFERRED INCOME TAXES 4,521 4,951
OTHER ASSETS 10,874 1,041
---------------- ---------------
TOTAL ASSETS $ 372,010 $ 140,560
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 75,035 $ 32,675
Accrued expenses and other current liabilities 8,447 7,976
Accrued interest 4,406 802
Deferred income taxes 4,949 5,419
Current portion of long-term obligations 1,114 10,572
---------------- ---------------
Total current liabilities 93,951 57,444
LONG TERM OBLIGATIONS 224,063 6,676
---------------- ---------------
Total liabilities 318,014 64,120
---------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - authorized 40,000,000
shares; issued and outstanding, 17,782,635 and
17,778,731 shares 178 178
Additional paid-in capital 90,641 88,106
Accumulated deficit (36,139) (11,766)
Cumulative translation adjustment (684) (78)
---------------- ---------------
Total stockholders' equity 53,996 76,440
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 372,010 $ 140,560
================ ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (24,373) $ (5,653)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,343 1,435
Sales allowance 4,211 1,162
Foreign currency transaction (gain) loss (407) 310
Deferred income taxes - 300
Changes in assets and liabilities:
(Increase) decrease in restricted cash and cash equivalents (72,521) -
(Increase) decrease in accounts receivable (30,454) (11,985)
(Increase) decrease in prepaid expenses and
other current assets (1,422) (168)
(Increase) decrease in other assets (10,266) (798)
Increase (decrease) in accounts payable 45,798 10,061
Increase (decrease) in accrued expense and
other liabilities 1,134 2,343
Increase (decrease) in accrued interest 3,664 786
-------------- --------------
Net cash provided by (used in) operating activities (80,293) (2,207)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (34,667) (3,330)
Sale of short term investments 25,125 -
Cash used in business acquisition, net of cash acquired (5,208) (1,700)
-------------- --------------
Net cash provided by (used in) investing activities (14,750) (5,030)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease (2,205) (73)
Sale of common stock, net of transaction costs - 23,177
Payment of notes payable and other obligations (12,612) -
Proceeds from notes payable 225,000 2,306
-------------- --------------
Net cash provided by (used in) financing activities 210,183 25,410
-------------- --------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (427) 168
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 114,713 18,341
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,474 2,296
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 150,187 $ 20,637
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission ("SEC")
regulations. Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements
reflect all adjustments (of normal and recurring nature) which are
necessary to present fairly the financial position, results of operations
and cash flows for the interim periods. The results for the three months
ended September 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
The financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in the Company's most
recently filed Form 10-K.
(2) Pro Forma Results
-----------------
On March 1, 1996, the Company completed the acquisition of the outstanding
capital stock of Axicorp Pty., Ltd. ("Axicorp"). For accounting purposes,
the Company has treated the acquisition as a purchase. Accordingly, the
results of Axicorp's operations are included in the consolidated results of
operations of the Company beginning March 1, 1996.
The following unaudited pro forma operating results give effect to the
March 1, 1996 acquisition of Axicorp as if it had occurred on January 1,
1996. (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996
-------------------
<S> <C>
Net Revenue $143,602
Cost of Revenue $131,128
Gross Margin $ 12,474
Net Loss $ (5,720)
Loss Per Share $ (0.45)
</TABLE>
4
<PAGE>
(3) Long Term Obligations
---------------------
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
--------------- --------------
<S> <C> <C>
Obligations under capital leases $ 2,168 $ 3,614
Senior Notes 222,525 -
Notes payable - 2,000
Notes payable relating to Axicorp
acquisition - 8,455
Settlement obligation 484 3,179
--------------- --------------
Subtotal 225,177 17,248
Less: Current portion of long term
obligations (1,114) (10,572)
--------------- --------------
$224,063 $ 6,676
=============== ==============
</TABLE>
On August 4, 1997 the Company completed the sale of $225 million 11 3/4%
Senior Notes and Warrants to purchase 392,654 shares of the Company's
common stock. The Senior Notes are due August 1, 2004 with early redemption
at the option of the Company at any time after August 1, 2001. Interest
payments are due semi-annually on February 1 and August 1. A portion of the
proceeds from the offering of Senior Notes have been pledged to secure the
first six semi-annual interest payments on such Senior Notes.
Proceeds from the Company's Senior Notes and Warrants Offering were
utilized to pay in full the note payable, notes payable relating to Axicorp
acquisition, and selected obligations under capital leases.
The settlement obligation is the result of a pre-acquisition contingency
associated with the acquisition of Axicorp. The remaining balance is due in
four equal monthly payments through January 1998.
(4) Acquisition
-----------
On April 8, 1997 the Company acquired selected assets, including the
customer base and accounts receivable, of Cam-Net Communications Network,
Inc. and its subsidiaries, a provider of domestic and international long
distance services in Canada for approximately $5 million in cash. The
Company has accounted for this transaction as a purchase business
combination.
(5) Subsequent Events
-----------------
On October 1, 1997 the Company issued 1,842,941 common shares as a result
of the exercise of outstanding common stock warrants issued on July 31,
1996.
On October 20, 1997 the Company acquired selected assets of USFI, Inc. and
the membership interests of Telepassport LLC, providers of international
long distance and reorigination services for $11.5 million in cash. The
Company will account for this transaction as a purchase business
combination.
(6) New Accounting Pronouncements
-----------------------------
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share," was issued in February 1997 by the Financial Accounting Standards
Board. SFAS No. 128 is effective for periods ending after December 15, 1997
and early adoption is not permitted.
5
<PAGE>
SFAS No. 128 requires the company to compute and present basic and diluted
earnings per share. Had the company computed earnings per share in
accordance with SFAS No. 128 the results would not have been different from
those presented.
(7) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and residential demand for
international telecommunications services generated by the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunications industry. The Company currently provides services in the
United States, Canada, Mexico, Japan, Australia and the United Kingdom.
Net revenue is earned based on the number of minutes billable by the Company
and is recorded upon completion of a call, adjusted for sales allowance. The
Company generally prices its services at a savings compared to other major
carriers. The Company's net revenue in North America is derived from
carrying a mix of business, residential and wholesale carrier long distance
traffic. In Australia, net revenue is derived from the provision of long
distance services as well as the provision of local and cellular services to
small- and medium- sized businesses and residential customers. In the United
Kingdom, net revenue is derived from the provision of long distance services
to residential customers and wholesale carrier customers.
Cost of revenue is primarily comprised of costs incurred from other domestic
and foreign telecommunications carriers to access, transport and terminate
calls. The majority of the Company's cost of revenue is variable, based upon
the number of minutes of use, with transmission and termination costs being
the Company's most significant expense. As the Company increases the portion
of traffic transmitted over its own facilities, cost of revenue increasingly
will reflect fixed lease costs.
Although the Company's functional currency is the U.S. dollar, a significant
portion of the Company's net revenue is derived from its sales and operations
outside the United States. In the future, the Company expects to continue to
derive a significant portion of its net revenue and incur a significant
portion of its operating costs outside the United States and changes in
exchange rates may have a significant effect on the Company's results of
operations. The Company historically has not engaged in hedging
transactions.
Other Operating Data
The following information for the three months ended September 30, 1997 is
provided for informational purposes and should be read in conjunction with
the unaudited Consolidated Financial Statements and Notes provided herein and
the Consolidated Financial Statements presented with the Company's most
recently filed Form 10-K.
7
<PAGE>
<TABLE>
<CAPTION>
Minutes of Long Distance Use
Net --------------------------------
Revenue International Domestic Total
--------- ------------- ---------- -------
<S> <C> <C> <C> <C>
North America $20,350 57,199 17,131 74,330
Europe 6,228 9,852 6,973 16,825
Asia-Pacific 46,440 11,844 61,544 73,388
--------- --------- --------- ---------
Total $73,018 78,895 85,648 164,543
========= ========= ========= =========
</TABLE>
Results of operations for the three months ended September 30, 1997 as
compared to the three months ended September 30, 1996
Net revenue increased $21.2 million or 41%, from $51.8 million for the three
months ended September 30, 1996 to $73 million for the three months ended
September 30, 1997. Of the increase, $15.5 million was associated with the
North American operations, which represents a growth rate in excess of 300%,
as a result of increased traffic volumes primarily in its wholesale carrier
operations and, to a lesser extent, in its business and residential customer
base. Additionally, the purchase in April 1997 of the Company's Canadian
operations added to the period over period net revenue growth. The Company's
Australian operations accounted for $1.1 million of the net revenue growth, a
growth rate of approximately 3%, resulting in part from residential customer
marketing campaigns commenced in early 1997. Additionally, the Australian
net revenue growth was impacted by weakness in the Australian dollar as
compared to the third quarter of 1996, and a change in traffic mix away from
low-margin local traffic in favor of high-margin long distance traffic. Net
revenue growth of $4.6 million, a growth rate in excess of 300%, was
generated from the Company's European operations through the addition of new
residential customers, as well as wholesale carrier traffic in the third
quarter of 1997.
Cost of revenue increased $18.1 million, from $47.2 million, or 91.1% of net
revenue, for the three months ended September 30, 1996 to $65.3 million, or
89.4% of net revenue, for the three months ended September 30, 1997. The
increase in the cost of revenue is attributable to the increase in traffic
volumes. The decrease in the cost of revenue as a percentage of net revenue
is reflective of the expansion of the Company's global network and the
beginning of the migration of existing customer traffic onto the Company's
network, especially in Australia with the advent of equal access.
Selling, general and administrative expenses increased $7.5 million, from
$6.2 million to $13.7 million for the three months ended September 30, 1996
and 1997. The increase is attributable to the hiring of additional sales and
marketing staff and engineering personnel, the addition of the Canadian
operations, and increased advertising and promotional expenses associated
with the Company's residential marketing campaigns in Australia.
Depreciation and amortization expense increased from $0.6 million for the
three months ended September 30, 1996 to $1.9 million for the three months
ended September 30, 1997. The increase is associated with capital
expenditures for switching and other network equipment being placed into
service.
Interest expense increased from $0.3 million for the three months ended
September 30, 1996 to $4.9 million for the three months ended September 30,
1997. The increase is attributable to the interest expense associated with
the Company's $225 million Senior Notes and Warrants Offering.
Interest income of $2.1 million for the three months ended September 30, 1997
is attributable to the investment of the Company's cash and cash equivalents
balances.
Results of operations for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996
8
<PAGE>
Net revenue increased $84.9 million, from $117.2 million for the nine months
ended September 30, 1996 to $202.1 million for the nine months ended
September 30, 1997. Of the net revenue increase, $36.4 million was
associated with North America resulting primarily from additional wholesale
carrier traffic volumes, and to a lesser extent, an increase in consumer and
business customers and traffic volumes. Also, the purchase in April 1997 of
the Company's Canadian operations added to the North American net revenue
growth. Additionally, $35.8 million of the net revenue increase was
associated with the Company's Australian operations, which were acquired as
of March 1, 1996. The net revenue growth in Australia reflects increased net
revenue from business customers and new residential customers, as well as a
full nine months of operations in 1997 as compared to seven months (since
acquisition) in 1996. The remaining net revenue increase of $12.7 million was
generated from the Company's European operations reflecting additional
commercial and residential customers and traffic volumes as well as the
addition of wholesale carrier traffic in the third quarter of 1997.
Cost of revenue increased $77.1 million, from $107.4 million, or 91.6% of net
revenue, for the nine months ended September 30, 1996 to $184.5 million, or
91.3% of net revenue, for the nine months ended September 30, 1997. The
increase in the cost of revenue is primarily attributable to increased
traffic volumes and associated net revenue growth, the addition of the
Company's Canadian operations, and a full nine months of the Australian
operations. The 1997 cost of revenue as a percentage of net revenue reduced
as the Company continues to expand its worldwide network through installation
of switches, cable ownership and fixed circuit leases. As this process
continues, coupled with the migration of traffic onto the Company's network,
especially in Australia, a portion of the variable costs will be converted to
fixed costs and, as traffic volumes grow, cost of revenue as a percentage of
net revenue is expected to decrease further.
Selling, general and administrative expenses increased $22.9 million from
$12.9 million to $35.8 million for the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1997. Approximately $2.1
million of the increase was attributable to the Company's Australian
operations which include a full nine months of operations in the 1997 results
versus only seven months (since acquisition) in the 1996 results, and $1.5
million was associated with the acquisition of the Company's Canadian
operations in April of 1997. The remaining increase of $19.3 million is
associated with additional personnel for sales and marketing campaigns and
operations and engineering personnel, and additional costs associated with
consumer advertising campaigns in Australia.
Depreciation and amortization increased from $1.4 million for the nine months
ended September 30, 1996 to $4.3 million for the nine months ended September
30, 1997. The increase is primarily related to increased depreciation expense
as a result of additional capital expenditures for switching and network
equipment being placed into service. Additionally, 1997 amortization expense
for goodwill and customer lists associated with the Company's acquisition of
Axicorp is included for the full nine months and the acquisition of the
Company's Canadian operations in April 1997 is included for approximately six
months.
Interest expense increased from $0.6 million for nine months ended September
30, 1996 to $5.6 million for the nine months ended September 30, 1997. The
increase is attributable to the interest expense associated with the
Company's $225 million Senior Notes and Warrants Offering.
Interest income for the nine months ended September 30, 1997 is attributed to
the investment of the Company's cash and cash equivalents balance.
Other income (expense) for the nine months ended September 30, 1997 and 1996
is related to foreign currency transaction gains (losses) on Australian
dollar-denominated debt incurred by the Company payable to the sellers for
its acquisition of Axicorp as a result of a fluctuating exchange rate of the
Australian dollar against the U.S. dollar during the periods. This debt was
paid in full concurrent with the Company's Senior Notes and Warrants
Offering.
9
<PAGE>
Liquidity and Capital Resources
The Company's liquidity requirements arise from cash used in operating
activities, purchases of network equipment including switches, related
equipment, and international fiber cable capacity, and interest and principal
payments on outstanding indebtedness, including capital leases. The Company
has financed its growth through private placements, the initial public
offering of its common stock, the Senior Notes and Warrants Offering and
capital lease financing.
Net cash used in operating activities was $80.4 million for the nine months
ended September 30, 1997 as compared to cash used in operating activities of
$2.2 million for the nine months ended September 30, 1996. The increase is
comprised of $72.5 million for the funding of a "restricted cash" account to
secure the first six interest payments on the Company's Senior Notes. The
remaining increase of $5.7 million was due to the Company's increased net
loss partially offset by an increased accounts payable balance.
Net cash used in investing activities was $14.8 million for the nine months
ended September 30, 1997 compared to net cash used in investing activities of
$5.0 million for the nine months ended September 30, 1996. Net cash used in
investing activities during the nine months ended September 30, 1997 includes
$34.7 million of capital expenditures primarily for the expansion of the
Company's global network, and $5.2 million for the acquisition of the
Company's Canadian operations, offset by $25.1 million of cash provided by
the sale of short term investments.
Net cash provided by financing activities was $210.2 million for the nine
months ended September 30, 1997 as compared to net cash provided by financing
activities of $25.4 million during the nine months ended September 30, 1996.
Cash provided by financing activities in the nine months ended September 30,
1997 resulted from the Company's Senior Notes and Warrants Offering,
partially offset by the repayment of notes payable and capital leases. Cash
provided by financing activities in the nine months ended September 30, 1996
resulted from private placements of the Company's common stock and receipt of
proceeds of a note payable.
The Company believes that its cash and cash equivalents, restricted cash and
cash equivalents, and capital lease and other financing (subject to
limitations in the Senior Notes indenture) will be sufficient to fund the
Company's operating losses, debt service requirements, capital expenditures
to expand its global network, and other cash needs for its operations for the
foreseeable future.
Special Note Regarding Forward Looking Statements
Statements in this Form 10-Q which are based on current expectations and are
not strictly historical statements may differ materially from actual results.
Not strictly historical statements include, without limitation, those
regarding management's plans, objectives and strategy for future operations,
product plans and performance, management's assessment of market factors, and
future financial performance. Among factors that could cause actual results
to differ materially are changes in business conditions, changes in the
telecommunications industry and the general economy; competition; changes in
service offering; and risks associated with Primus's limited operating
history, entry into developing markets, managing rapid growth, risks
associated with international operations, dependence on effective information
systems, and development of the network. These factors are discussed more
fully in the company's Form 10-K filed with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company filed a Registration Statement on Form S-1 (the
"Registration Statement") with respect to 5,000,000 shares (the "Firm
Shares") of its Common Stock, par value $0.01 per share ("Common
Stock") and an additional 750,000 shares (the "Option Shares") of
Common Stock to be sold by the Company solely to cover over-allotments,
if any. The Registration Statement (file no. 333-10875) was declared
effective by the Commission on November 7, 1996. The managing
underwriters for the offering were Lehman Brothers and Donaldson,
Lufkin & Jenrette.
The offering of the Firm Shares commenced and was completed, with all
of the firm shares having been sold on November 7, 1996 at a price of
$10.50 per share. The offering of the Option Shares commenced and was
completed, with all of the Option Shares having been sold on November
27, 1996 at a price of $10.50 per share. The aggregate price of the
shares registered and sold by the Company was $60,375,000.
Underwriting discounts and commissions amounted to $0.735 per share
offered. The Company incurred an aggregate $4,226,250 in underwriting
discounts and commissions and approximately $1,750,000 in other
expenses in connection with the offering. None of such expenses were
direct or indirect payments to directors or officers of the Company, to
persons owning 10 percent or more of any class of equity securities of
the Company or to any affiliate of the Company. The net offering
proceeds to the Company, after deducting the total expenses, were
approximately $54,398,750.
The Company has applied all of the net proceeds from the offering in
the following manner: approximately $42 million was used to expand the
Company's global network, including purchasing transmission equipment
facilities and related support systems and international fiber
capacity; the remaining approximately $12.4 million was utilized to
fund operating losses and for working capital and other general
corporate purposes. The above amounts are reasonable estimates of the
Company's uses of the net proceeds of the offering. Except as
specified, none of such uses were direct or indirect payments to
directors or officers of the Company, persons owning 10 percent or more
of any class of equity securities of the Company, or to affiliates of
the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on July 14, 1997,
the shareholders of the Company elected two directors of the Company,
ratified the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1997, approved
the adoption of the Company's Employee Stock Purchase Plan and approved
an amendment to the Company's Stock Option Plan to increase the number
of shares reserved
11
<PAGE>
for issuance. Messrs. Herman Fialkov and David E. Hershberg were
elected to serve as directors at the meeting. The voting results were
as follows: 12,197,845 shares were in favor of Mr. Fialkov, 100 shares
against and 6,620 shares withheld and 12,197,845 shares voted in favor
of Mr. Hershberg, 100 shares against and 6,620 shares withheld. The
vote ratifying the appointment of Deloitte & Touche LLP as independent
auditors was 12,088,093 shares for, 4,900 shares against and 111,372
shares withheld. The vote for adoption of the Employee Stock Purchase
Plan was 10,016,359 shares for, 247,501 shares against and 214,163
shares withheld. The vote to amend the Stock Option Plan was 9,495,719
shares for, 777,525 shares against, and 204,979 shares withheld.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see index on page 14)
(b) Reports on Form 8-K
Not applicable.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
Date November 13, 1997 By: /s/ Neil L. Hazard
------------------ -------------------------
Neil L. Hazard
(Executive Vice President and
Chief Financial Officer)
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule for the nine months ended September 30, 1997
</TABLE>
14
<PAGE>
Exhibit 11.1
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding:
Average shares outstanding during period 17,781 11,714 17,780 10,420
Cheap stock (1) - 66 - 728
Cheap options (1) - 1,662 - 1,659
--------------- --------------- --------------- ---------------
Total primary weighted average
common shares 17,781 13,442 17,780 12,807
=============== =============== =============== ===============
Non Cheap options - 86 - 86
--------------- --------------- --------------- ---------------
Total fully diluted weighted average
common shares 17,781 13,528 17,780 12,893
=============== =============== =============== ===============
Net loss applicable to common shares:
Net loss $ (10,591) $ (2,421) $ (24,373) $ (5,653)
=============== =============== =============== ===============
Loss per common share and
common share equivalent - Primary $ (0.60) $ (0.18) $ (1.37) $ (0.44)
=============== =============== =============== ===============
Loss per common share and
common share equivalent - Fully Diluted $ (0.60) $ (0.18) $ (1.37) $ (0.44)
=============== =============== =============== ===============
</TABLE>
(1) Pursuant to Staff Accounting Bulletin Number 83, for proper calculation
of the three and nine months ended September 30, 1996 weighted average
common shares outstanding, stock options granted and stock issued within
one year prior to Primus's November 7, 1996 initial public offering have
been treated as outstanding for all of 1996 using the treasury stock
method. In the three and nine months ended September 30, 1997, the
weighted average common shares outstanding has been calculated under
Accounting Principles Board (APB) Statement No. 15.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET OF
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AT SEPTEMBER 30, 1997 AND THE
INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 222,708
<SECURITIES> 0
<RECEIVABLES> 63,619
<ALLOWANCES> 4,645
<INVENTORY> 0
<CURRENT-ASSETS> 283,981
<PP&E> 52,493
<DEPRECIATION> 4,118
<TOTAL-ASSETS> 372,010
<CURRENT-LIABILITIES> 93,951
<BONDS> 224,063
0
0
<COMMON> 178
<OTHER-SE> 53,818
<TOTAL-LIABILITY-AND-EQUITY> 372,010
<SALES> 0
<TOTAL-REVENUES> 202,099
<CGS> 0
<TOTAL-COSTS> 184,478
<OTHER-EXPENSES> 41,913
<LOSS-PROVISION> 4,210
<INTEREST-EXPENSE> 5,570
<INCOME-PRETAX> (24,292)
<INCOME-TAX> 81
<INCOME-CONTINUING> (24,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,373)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
