<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 JUNE 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.
OUTSTANDING AS OF
CLASS JULY 31, 1997
- ----------------------------- -----------------
COMMON STOCK , $.01 PAR VALUE 17,778,731
================================================================================
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<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........................................................ 11
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS......................................................... 12
Item 2. CHANGES IN SECURITIES..................................................... 12
Item 3. DEFAULTS UPON SENIOR SECURITIES........................................... 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS........................ 12
Item 5. OTHER INFORMATION......................................................... 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................... 12
SIGNATURE.................................................................................. 13
EXHIBIT INDEX.............................................................................. 14
</TABLE>
<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 Six Months Ended
June 30, June 30,
------------------------ -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUE $ 70,045 $ 48,278 $ 129,081 $ 65,415
COST OF REVENUE 64,178 44,634 119,212 60,162
---------- ---------- ---------- ----------
GROSS MARGIN 5,867 3,644 9,869 5,253
OPERATING EXPENSES
Selling, general and administrative 13,206 4,833 22,035 6,707
Depreciation and amortization 1,669 572 2,466 798
---------- ---------- ---------- ----------
Total operating expenses 14,875 5,405 24,501 7,505
LOSS FROM OPERATIONS (9,008) (1,761) (14,632) (2,252)
INTEREST EXPENSE (526) (238) (677) (335)
INTEREST INCOME 474 38 1,259 85
OTHER INCOME (EXPENSE) 230 (55) 349 (268)
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (8,830) (2,016) (13,701) (2,770)
INCOME TAXES 45 95 81 462
---------- ---------- ---------- ----------
NET LOSS $ (8,875) $ (2,111) $ (13,782) $ (3,232)
========== ========== ========== ==========
NET LOSS PER COMMON AND
COMMON SHARE EQUIVALENTS $ (0.50) $ (0.16) $ (0.78) $ (0.26)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING 17,779 12,924 17,779 12,486
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 28,303 $ 35,474
Short term investments - 25,125
Accounts receivable (net of allowance of $5,340
and $2,585) 55,231 35,217
Prepaid expenses and other current assets 2,356 910
---------- ----------
Total current assets 85,890 96,726
PROPERTY AND EQUIPMENT - Net 34,034 16,596
INTANGIBLES - Net 24,374 21,246
DEFERRED INCOME TAXES 4,696 4,951
OTHER ASSETS 1,522 1,041
---------- ----------
TOTAL ASSETS $ 150,516 $ 140,560
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 58,937 $ 32,675
Accrued expenses and other current liabilities 11,175 8,778
Deferred income taxes 5,140 5,419
Current portion of long-term obligations 11,275 10,572
---------- ----------
Total current liabilities 86,527 57,444
LONG TERM OBLIGATIONS 1,593 6,676
---------- ----------
Total liabilities 88,120 64,120
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - authorized 40,000,000
shares; issued and outstanding, 17,778,731 share 178 178
Additional paid-in capital 88,106 88,106
Accumulated deficit (25,548) (11,766)
Cumulative translation adjustment (340) (78)
---------- ----------
Total stockholders' equity 62,396 76,440
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,516 $ 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>
Six Months Ended
June 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,782) $ (3,232)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,466 798
Sales allowance 2,809 615
Foreign currency transaction (gain) loss (349) 268
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (23,629) (8,041)
(Increase) decrease in prepaid expenses and
other current assets (1,431) 238
(Increase) decrease in other assets (515) (214)
Increase (decrease) in accounts payable 28,006 4,718
Increase (decrease) in accrued expense and
other liabilities 3,092 615
--------- ---------
Net cash provided by (used in) operating activities (3,333) (4,235)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (18,248) (1,452)
Sale of short term investments 25,125 -
Cash used in business acquisition, net of cash acquired (5,208) (1,701)
--------- ---------
Net cash provided by (used in) investing activities 1,669 (3,153)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease (434) (36)
Sale of common stock, net of transaction costs - 7,377
Payment of notes payable and other obligations (4,737) -
Proceeds from notes payable - 2,000
--------- ---------
Net cash provided by (used in) financing activities (5,171) 9,341
--------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (336) 149
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,171) 2,102
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,474 2,296
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,303 $ 4,398
========= =========
</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 June 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>
SIX MONTHS ENDED
JUNE 30,
1996
----------------
<S> <C>
Net Revenue $ 91,783
Cost of Revenue $ 83,918
Gross Margin $ 7,865
Net Loss $ (3,301)
Loss Per Share $ (0.26)
</TABLE>
4
<PAGE>
(3) Subsequent Event
----------------
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 proceeds of the Senior Notes and Warrants Offering will
be used to fund the first six semi-annual interest payments on the Senior
Notes, to repay certain existing indebtedness, to fund capital
expenditures, operating losses, working capital requirements and general
corporate purposes, including potential acquisitions, joint ventures and
strategic alliances.
(4) Long Term Obligations
---------------------
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
------------- -------------
<S> <C> <C>
Obligations under capital leases $ 3,908 $ 3,614
Notes payable 2,000 2,000
Notes payable relating to Axicorp 6,081 8,455
acquisition
Settlement obligation 879 3,179
------------- -------------
Subtotal 12,868 17,248
Less: Current portion of long term
obligations (11,275) (10,572)
------------- -------------
$ 1,593 $ 6,676
============= =============
</TABLE>
Obligations under capital leases include $1.6 million which was paid
concurrent with the Company's August 4, 1997 Senior Notes and Warrants
Offering.
In connection with an investment agreement, in February 1996, the Company
issued a $2,000,000 note payable to Teleglobe, Inc., due February 9, 1998
which bears interest at 6.9% per annum payable quarterly. The debt is
secured by all the assets of the Company. This obligation was paid in full
concurrent with the Company's August 4, 1997 Senior Notes and Warrants
Offering and all security interests were released.
In connection with the acquisition of Axicorp on March 1, 1996, the Company
issued notes to the sellers for a total of $8.5 million which have been
recorded on a discounted basis at a rate of 10.18%. In February 1997, the
Company made a scheduled payment of $2.1 million in principal plus accrued
interest related to these notes. The remaining balance was paid in full
concurrent with the Company's August 4, 1997 Senior Notes and Warrants
Offering.
The settlement obligation is the result of a pre-acquisition contingency
associated with the acquisition of Axicorp. The remaining balance is due in
seven equal monthly payments through January 1998.
5
<PAGE>
(5) 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.
(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.
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 materially
different from those presented.
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 has targeted North America, Asia-
Pacific and Europe as its Primary Service Regions. The Company currently
provides services in the United States, Canada, Mexico, Australia and the United
Kingdom, which are the most deregulated countries within the Primary Service
Regions and which serve as regional hubs for expansion into additional markets
within the Primary Service Regions. The Company was founded in February 1994 and
began generating revenue during March 1995. The Australian operations are the
result of the Company's March 1, 1996 acquisition of Axicorp.
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 the major carriers
operating in the Company's Primary Service Regions. 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 and from the provision of local and
cellular services to small- and medium- sized businesses and to residential
consumers. In the United Kingdom net revenue is derived from the provision of
long distance services, primarily to residential consumers.
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 June 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.
Net revenue is comprised of domestic and international long distance for all
geographic regions. Additionally, Asia-Pacific net revenue includes local,
cellular, access and other services.
7
<PAGE>
<TABLE>
<CAPTION>
Minutes of Long Distance Use
Net --------------------------------
Revenue International Domestic Total
------- ------------- -------- -------
<S> <C> <C> <C> <C>
North America $18,345 45,784 18,498 64,282
Europe 4,590 5,131 5,775 10,906
Asia-Pacific 47,110 6,222 61,304 67,526
------- ------------- -------- -------
Total $70,045 57,137 85,577 142,714
======= ============= ======== =======
</TABLE>
The Asia-Pacific minutes of use grew approximately 9% over the quarter ended
March 31, 1997 with the majority of the increase in international minutes.
However, net revenue remained constant, reflecting a combination of a relatively
flat level of business customers, a decrease in the value of the Australian
dollar, and the Company's strategy to grow long distance traffic and decrease
its emphasis on low margin local traffic.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1996
Net revenue increased $21.7 million or 45.1%, from $48.3 million for the three
months ended June 30, 1996 to $70.0 million for the three months ended June 30,
1997. Of the increase, $14.5 million was associated with the North American
operations which reported increased traffic volumes and net revenue 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 growth. The
Company's Australian operations accounted for $3.0 million of the net revenue
growth, primarily resulting from residential customer marketing campaigns
commenced in February 1997. The remaining net revenue growth of $4.2 million was
generated from the Company's European operations through the addition of new
residential customers.
Cost of revenue increased $19.6 million, from $44.6 million, or 92.5% of net
revenue, for the three months ended June 30, 1996 to $64.2 million, or 91.6% of
net revenue, for the three months ended June 30, 1997. The increase in the cost
of revenue is attributable to the increase in traffic volumes across all three
regions. The decrease in the cost of revenue as a percentage of net revenue is
reflective of additional traffic being carried on the Company's network
facilities, which is comprised primarily of fixed costs, versus utilizing other
carriers' networks at variable costs.
Selling, general and administrative expenses increased $8.4 million, from $4.8
million to $13.2 million for the three months ended June 30, 1996 to June 30,
1997. The increase is associated with the hiring of additional sales and
marketing staff in all three service regions, the addition of operations and
engineering personnel to operate the Company's network in all three regions, 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 June 30, 1996 to $1.7 million for the three months ended June 30,
1997. The increase is associated with capital expenditures for switching and
other network equipment being placed into service in all three regions.
Interest expense increased from $0.2 million for the three months ended June 30,
1996 to $0.5 million for the three months ended June 30, 1997. The increase is
due to a full three months of expense on the March 1996 Axicorp acquisition debt
being included in 1997 as compared to one month during 1996 as well as interest
expense associated with additional capital lease financing.
Interest income of $0.5 million for the three months ended June 30, 1997 is
attributable to the investment of the remaining net proceeds of the Company's
November 1996 initial public offering.
8
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1996
Net revenue increased $63.7 million, from $65.4 million for the six months ended
June 30, 1996 to $129.1 million for the six months ended June 30, 1997. Of the
net revenue increase, $34.7 million 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 net revenue
from new residential customers as well as a full six months of operations in
1997 as compared to four months (since acquisition) in 1996. The remaining net
revenue increase of $29.0 million is comprised of increases of $8.0 million in
Europe reflecting additional residential customers and traffic volumes, and
$21.0 million in North America resulting from additional wholesale traffic
volumes, and to a lesser extent, an increase in consumer and business customers
and traffic volumes. Additionally, the April 8, 1997 acquisition of the
Company's Canadian operations added to the North American growth.
Cost of revenue increased $59.1 million, from $60.1 million, or 92.0% of net
revenue, for the six months ended June 30, 1996 to $119.2 million, or 92.4% of
net revenue, for the six months ended June 30, 1997. The increase in the cost of
revenue is primarily attributable to the increased traffic volumes and
associated net revenue growth. The 1997 cost of revenue as a percentage of net
revenue was adversely affected by a one-time, non-payment of a single customer
account receivable in North America amounting to approximately $700,000. Most of
the Company's cost of revenue are variable. However, as the Company continues to
expand its worldwide network through installation of switches, cable ownership
and fixed circuit leases, a portion of the costs will be converted to fixed
costs and, as traffic volumes grow, cost of revenue as a percentage of net
revenue should decrease.
Selling, general and administrative expenses increased $15.3 million from $6.7
million to $22.0 million for the six months ended June 30, 1996 as compared to
the six months ended June 30, 1997. Approximately $7.2 million of the increase
was attributable to the Company's Australian operations which include a full six
months of operations in the 1997 results versus only four months in the 1996
results. The Australian selling, general and administrative expenses as a
percentage of Australian net revenue was 11.9% for the six months ended June 30,
1997 as compared to 6.8% for the six months ended June 30, 1996. This percentage
increase is attributable to additional operations and engineering personnel
necessary to maintain the Company's newly installed network in Australia, as
well as additional sales and marketing personnel, and costs associated with
residential marketing and promotional campaigns. The remaining increase of $8.1
million is associated with the Company's North American and European operations
and is reflective of additional sales and marketing staff, engineering and
operations staff, and customer support staff.
Depreciation and amortization increased from $0.8 million for the six months
ended June 30, 1996 to $2.5 million for the six months ended June 30, 1997. The
majority of the increase is related to increased depreciation expense as a
result of additional capital expenditures for switching and network equipment
being placed into service throughout all three of the Company's regions.
Additionally, amortization expense for goodwill and customer lists associated
with the Company's acquisition of Axicorp and the acquisition of the Company's
Canadian operations are included for six months and approximately three months,
respectively, in 1997.
Interest expense increased from $0.3 million for six months ended June 30, 1996
to $0.7 million for the six months ended June 30, 1997 as a result of the
Axicorp purchase debt which was incurred in March 1996 and interest expense on
additional capital lease financing.
Interest income for the six months ended June 30, 1997 is the result of the
investment of the net proceeds from the Company's November 1996 initial public
offering.
9
<PAGE>
Other income (expense) for the six months ended June 30, 1997 and 1996 is
related to foreign currency transaction gains (losses) on the 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.
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 and capital lease financing.
Net cash used in operating activities was $3.3 million for the six months ended
June 30, 1997 versus cash used in operating activities of $4.2 million for the
six months ended June 30, 1996. The decreased use of operating cash was the
result of increases in accounts payable partially offset by an increase in the
Company's net loss.
Net cash provided by investing activities was $1.7 million for the six months
ended June 30, 1997 compared to net cash used in investing activities of $3.2
million for the six months ended June 30, 1996. Net cash provided by investing
activities during the six months ended June 30, 1997 includes $25.1 million from
the sale of short term investments partially offset by capital expenditures of
$18.2 million primarily for the expansion of the Company's network, and $5.2
million for the acquisition of the Company's Canadian operations. The Company
anticipates aggregate capital expenditures of approximately $88 million in 1997
and 1998. Such capital expenditures will be primarily for international and
domestic switches and points of presence, international fiber capacity and
satellite earth station facilities for new and existing routes and other
transmission equipment and support systems.
Net cash used in financing activities was $5.2 million for the six months ended
June 30, 1997 as compared to net cash provided by financing activities of $9.3
million during the first six months of 1996. Cash used in financing activities
in the first six months of 1997 resulted from scheduled payments on the Axicorp
acquisition debt and payments related to the settlement obligation. Cash
provided by financing activities in the first six months of 1996 resulted from
private placements of the Company's common stock and receipt of proceeds of a
note payable.
The Company believes that its current cash and cash equivalents combined with
the net proceeds from its August 4, 1997 $225 million Senior Notes and Warrants
Offering and capital lease 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 until such time as the Company begins to
generate positive cash flow.
From time to time the Company evaluates acquisitions of businesses which
complement the business of the Company. Depending on the cash requirements of
potential transactions, the Company may finance such transactions through other
debt financing or the issuance of capital stock. The Company, however, presently
has no understanding, commitment or agreement with respect to any acquisition.
There can be no assurance that if the Company were to pursue such an
opportunity, any such acquisition would occur or that the funds to finance any
such acquisition would be available on reasonable terms, if at all.
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,
10
<PAGE>
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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 August 14, 1997 By: /s/ Neil L. Hazard
------------------ ---------------------------------
Neil L. Hazard
(Executive Vice President and
Chief Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
4.1 Form of Indenture (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement Form S-1, no. 333-30195)
4.2 Form of Warrant Agreement (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement Form S-1, no. 333-30195)
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule for the six months ended June 30, 1997
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding:
Average shares outstanding during period 17,779 11,063 17,779 9,766
Cheap stock (1) _ 204 _ 1,063
Cheap options (1) _ 1,657 _ 1,657
--------- --------- --------- ---------
Total primary weighted average
common shares 17,779 12,924 17,779 12,486
========= ========= ========= =========
Non Cheap options _ 89 - 86
--------- --------- --------- ---------
Total fully diluted weighted average
common shares 17,779 13,013 17,779 12,572
========= ========= ========= =========
Net loss applicable to common shares:
Net loss $ (8,875) $ (2,111) $ (13,782) $ (3,232)
========= ========= ========= =========
Loss per common share and
common share equivalent - Primary $ (0.50) $ (0.16) $ (0.78) $ (0.26)
========= ========= ========= =========
Loss per common share and
common share equivalent - Fully Diluted $ (0.50) $ (0.16) $ (0.78) $ (0.26)
========= ========= ========= =========
</TABLE>
(1) Pursuant to Staff Accounting Bulletin Number 83, for proper calculation of
the three and six months ended June 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 six months ended June 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 JUNE 30, 1997 AND THE INCOME
STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,303
<SECURITIES> 0
<RECEIVABLES> 60,571
<ALLOWANCES> 5,340
<INVENTORY> 0
<CURRENT-ASSETS> 85,890
<PP&E> 36,854
<DEPRECIATION> 2,820
<TOTAL-ASSETS> 150,516
<CURRENT-LIABILITIES> 86,527
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 62,218
<TOTAL-LIABILITY-AND-EQUITY> 150,516
<SALES> 0
<TOTAL-REVENUES> 129,081
<CGS> 0
<TOTAL-COSTS> 119,212
<OTHER-EXPENSES> 23,570
<LOSS-PROVISION> 2,809
<INTEREST-EXPENSE> 677
<INCOME-PRETAX> (13,701)
<INCOME-TAX> 81
<INCOME-CONTINUING> (13,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,872)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
