<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 6, 1997
--------------------------------
IXC Communications, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20803 74-2644120
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5000 Plaza on the Lake, Suite 200, Austin, Texas 78746
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 328-1112
------------------------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 5. OTHER EVENTS.
The Registrant's audited consolidated financial statements for the year
ended December 31, 1996 with the Consent of Ernst & Young LLP dated March 6,
1997 are attached hereto as Exhibit 99.1 and Exhibit 23.1, respectively, and
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
11.1 Computation of earnings (loss) per share
23.1 Consent of Ernst & Young LLP
27.1 Financial data schedule
99.1 Registrant's audited consolidated financial statements for the
year ended December 31, 1996
2.
<PAGE> 3
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 hereunto duly authorized.
Date: March 6, 1997
IXC Communications, Inc.
By: /s/ JOHN J. WILLINGHAM
----------------------------
John J. Willingham
Senior Vice President,
Chief Financial Officer and
Assistant Secretary
3.
<PAGE> 4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11.1 Computation of earnings (loss) per share
23.1 Consent of Ernst & Young LLP
27.1 Financial data schedule
99.1 Registrant's audited consolidated financial statement for the
year ended December 31, 1996
4.
<PAGE> 1
EXHIBIT 11.1 -- COMPUTATION OF PER-SHARE EARNINGS
IXC COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
EARNINGS
Adjusted net income (loss) $(37,448) $(4,965) $ 7,315
Less: Dividends applicable to preferred stock (1,739) (1,843) (1,752)
--------------------------------
Net income (loss) applicable to common stockholders (39,187) (6,808) 5,563
Extraordinary (gain) loss -- 1,747 (2,298)
--------------------------------
Net income (loss) applicable to common
stockholders before extraordinary items $(39,187) $(5,061) $ 3,265
================================
PRIMARY
Weighted average number of shares outstanding 27,525 24,335 24,310
Add: Effect for periods prior to the initial
public offering (IPO), of common stock
options issued within one year of the IPO 827 833 833
Add: Dilutive effect of outstanding stock
options -- 120 9
Less: Assumed repurchase of shares under
the treasury stock method (143) (180) (159)
--------------------------------
Number of shares used to compute earnings (loss)
applicable to common stockholders 28,209 25,108 24,993
================================
FULLY DILUTED
Weighted average number of shares outstanding 27,525 24,335 24,310
Add: Effect for periods prior to the initial
public offering (IPO), of common stock
options issued within one year of the IPO 827 833 833
Add: Dilutive effect of outstanding stock
options -- 120 9
Less: Assumed repurchase of shares under
the treasury stock method (143) (180) (159)
--------------------------------
Number of shares used to compute earnings (loss)
applicable to common stockholders 28,209 25,108 24,993
================================
PRIMARY INCOME (LOSS) PER COMMON SHARE
Before extraordinary item $(1.39) $(0.20) $0.13
Extraordinary gain (loss) -- (0.07) 0.09
--------------------------------
Net income (loss) $(1.39) $(0.27) $0.22
================================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE
Before extraordinary item $(1.39) $(0.20) $0.13
Extraordinary gain (loss) -- (0.07) 0.09
--------------------------------
Net income (loss) $(1.39) $(0.27) $0.22
================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 pertaining to the IXC Communications, Inc. 1996 Stock
Plan and the IXC Communications, Inc. Amended and Restated 1994 Stock Plan and
to the incorporation by reference in the Registration Statement on Form S-8
pertaining to the IXC Communications, Inc. Special Stock Plan of our report
dated February 28, 1997, with respect to the consolidated financial statements
of IXC Communications, Inc. included in the Current Report on Form 8-K dated
March 6, 1997.
ERNST & YOUNG LLP
Austin, Texas
March 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 61,340
<SECURITIES> 0
<RECEIVABLES> 47,568
<ALLOWANCES> (4,030)
<INVENTORY> 0
<CURRENT-ASSETS> 111,105
<PP&E> 268,609
<DEPRECIATION> (69,133)
<TOTAL-ASSETS> 459,151
<CURRENT-LIABILITIES> 90,601
<BONDS> 295,531
0
13
<COMMON> 308
<OTHER-SE> 63,158
<TOTAL-LIABILITY-AND-EQUITY> 459,151
<SALES> 0
<TOTAL-REVENUES> 203,761
<CGS> 0
<TOTAL-COSTS> 143,469
<OTHER-EXPENSES> 74,308
<LOSS-PROVISION> 3,060
<INTEREST-EXPENSE> 37,076
<INCOME-PRETAX> (42,811)
<INCOME-TAX> 5,981
<INCOME-CONTINUING> (37,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,448)
<EPS-PRIMARY> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
IXC COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and
1994................................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
IXC Communications, Inc.
We have audited the accompanying consolidated balance sheets of IXC
Communications, Inc. and its subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IXC
Communications, Inc. and its subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Austin, Texas
February 28, 1997
F-2
<PAGE> 3
IXC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................. $ 61,340 $ 6,915
Accounts receivable:
Trade, net of allowance for doubtful accounts of $4,030,000 in
1996 and $1,769,000 in 1995...................................... 45,102 5,537
Other............................................................. 2,466 782
-------- --------
47,568 6,319
Income tax receivable.................................................. -- 1,296
Deferred tax assets (Note 12).......................................... 463 450
Prepaid expenses....................................................... 1,734 1,069
-------- --------
Total current assets.............................................. 111,105 16,049
Property and equipment, net (Note 4)................................... 268,609 106,399
Escrow under Senior Notes (Note 5)..................................... 51,412 198,266
Investment in unconsolidated subsidiaries.............................. 5,486 187
Deferred charges and other non-current assets.......................... 22,539 15,574
-------- --------
Total assets................................................. $459,151 $336,475
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable -- trade.............................................. $ 64,923 $ 6,792
Accrued liabilities (Note 6)........................................... 18,928 14,306
Current portion of long-term debt and capital lease obligations (Notes
7 and 8)............................................................. 6,750 4,534
-------- --------
Total current liabilities......................................... 90,601 25,632
Long-term debt and capital lease obligations (Notes 7 and 8)........... 295,531 294,260
Deferred tax liability (Note 12)....................................... 2,434 8,303
Other noncurrent liabilities........................................... 6,201 469
Commitments and contingencies (Notes 8 and 16)
Minority interest...................................................... 905 953
Stockholders' equity:
Preferred stock; 3,000,000 shares authorized:
10% Junior Series 3 cumulative preferred stock, $.01 par value;
12,550 shares issued and outstanding in 1996 and 1995 (aggregate
liquidation preference of $19,059,000 at December 31, 1996)...... 13 13
Common Stock, $.01 par value; 100,000,000 shares authorized; shares
issued and outstanding 30,795,014 in 1996 and 24,335,255 in
1995.............................................................. 308 243
Additional paid-in capital........................................... 123,434 29,430
Accumulated deficit.................................................. (60,276) (22,828)
-------- --------
Total stockholders' equity........................................... 63,479 6,858
-------- --------
Total liabilities and stockholders' equity................... $459,151 $336,475
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net operating revenues (Note 10):
Private line.............................................. $ 99,793 $ 89,563 $80,663
Switched long distance.................................... 103,968 1,438 --
-------- -------- -------
$203,761 $ 91,001 $80,663
Operating expenses:
Cost of services.......................................... 143,469 39,852 33,896
Operations and administration............................. 47,067 32,282 20,561
Depreciation and amortization............................. 27,241 17,438 12,121
-------- -------- -------
Operating income (loss)................................ (14,016) 1,429 14,085
Interest income............................................. 2,838 468 211
Interest income on escrow under Senior Notes................ 7,404 2,552 --
Interest expense............................................ (37,076) (14,597) (6,105)
Equity in net income (loss) of unconsolidated
subsidiaries.............................................. (1,961) 19 (94)
-------- -------- -------
Income (loss) before income taxes, minority interests and
extraordinary gain (loss)................................. (42,811) (10,129) 8,097
Benefit (provision) for income taxes (Note 12).............. 5,981 1,693 (3,157)
Minority interests.......................................... (618) 5,218 77
-------- -------- -------
Income (loss) before extraordinary gain (loss).............. (37,448) (3,218) 5,017
Extraordinary gain (loss) on early extinguishment of debt
(involving a related party in 1994), less applicable
(provision) benefit for income taxes of $1,164,000 in 1995
and ($1,472,000) in 1994.................................. -- (1,747) 2,298
-------- -------- -------
Net income (loss)........................................... (37,448) (4,965) 7,315
Dividends applicable to preferred stock..................... 1,739 1,843 1,752
-------- -------- -------
Net income (loss) applicable to common stockholders......... $(39,187) $ (6,808) $ 5,563
======== ======== =======
Income (loss) per common and common equivalent share:
Before extraordinary gain (loss).......................... $ (1.39) $ (.20) $ .13
Extraordinary gain (loss)................................. -- (.07) .09
-------- -------- -------
Net income (loss)......................................... $ (1.39) $ (.27) $ .22
======== ======== =======
Weighted average common and common equivalent shares used in
computation of income (loss) per share.................... 28,209 25,108 24,993
======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
10% SENIOR SERIES 10% JUNIOR SERIES
1 3
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ----------------- ----------------- ADDITIONAL TOTAL
NUMBER OF NUMBER OF NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------- --------- ------ --------- ------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 1 $ 1,460 13 $ 13 24,274 $242 $ 29,428 $ (24,272) $ 6,871
Issuance of common stock...... -- -- -- -- 61 1 2 -- 3
Net income.................... -- -- -- -- -- -- -- 7,315 7,315
--- ------- --- ---- ------ ---- -------- -------- --------
Balance at December 31, 1994.... 1 1,460 13 13 24,335 243 29,430 (16,957) 14,189
Redemption of preferred
stock....................... (1) (1,460) -- -- -- -- -- -- (1,460)
Net loss...................... -- -- -- -- -- -- -- (4,965) (4,965)
Dividends paid -- preferred
stock -- 10% Senior Series
1........................... -- -- -- -- -- -- -- (505) (505)
Dividends paid -- preferred
stock of consolidated
subsidiary.................. -- -- -- -- -- -- -- (401) (401)
--- ------- --- ---- ------ ---- -------- -------- --------
Balance at December 31, 1995.... -- -- 13 13 24,335 243 29,430 (22,828) 6,858
Issuance of common stock...... -- -- -- -- 6,460 65 94,004 -- 94,069
Net loss...................... -- -- -- -- -- -- -- (37,448) (37,448)
--- ------- --- ---- ------ ---- -------- -------- --------
Balance at December 31, 1996.... -- $ -- 13 $ 13 30,795 $308 $123,434 $ (60,276) $ 63,479
=== ======= === ==== ====== ==== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 6
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $(37,448) $(4,965) $ 7,315
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation............................................... 23,695 16,608 11,131
Amortization............................................... 3,546 830 990
Amortization of debt issue costs and Senior Note
discount................................................ 1,086 858 472
Provision for doubtful accounts............................ 3,060 1,505 1,565
Equity in net (income) loss of unconsolidated
subsidiaries............................................ 1,961 (19) 94
Minority interest in net income (loss) of subsidiaries..... 618 (5,218) (77)
Compensation expense on stock options...................... 182 -- --
Extraordinary (gain) loss on early extinguishment of
debt.................................................... -- 2,911 (3,770)
Gain on sale of property and equipment..................... -- -- (90)
Changes in assets and liabilities, net of effects of
acquisitions:
Increase in accounts receivable......................... (44,309) (4,108) (1,000)
Decrease (increase) in other current assets............. 490 (1,466) 141
Increase (decrease) in accounts payable - trade......... 17,950 5,196 (4,619)
Increase in accrued liabilities......................... 4,436 7,503 139
Increase (decrease) in deferred income taxes............ (5,882) (1,847) 2,847
Decrease in deferred charges and other non-current
assets................................................ (4,538) (4,092) (854)
Increase (decrease) in other noncurrent liabilities..... 6,466 (2,089) (752)
-------- ------- -------
Total adjustments..................................... 8,761 16,572 6,217
-------- ------- -------
Net cash provided by (used in) operating
activities....................................... (28,687) 11,607 13,532
-------- ------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE> 7
IXC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM INVESTING ACTIVITIES:
Release of funds from escrow under Senior Notes.......... $ 154,244 $ 4,300 $ --
Deposit into escrow under Senior Notes................... (7,404) (202,552) --
Purchase of property and equipment....................... (136,391) (23,670) (7,087)
Sale of property and equipment........................... -- -- 235
Payments for businesses acquired, net of cash received... -- -- (11,976)
--------- --------- --------
Net cash provided by (used in) investing
activities................................... 10,449 (221,922) (18,828)
--------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Senior Notes, net of
discount............................................... -- 277,148 --
Capital contribution in subsidiary by minority
shareholders........................................... -- 6,002 --
Capital contribution to unconsolidated subsidiary........ (7,319) -- --
Proceeds from long-term debt............................. -- 18,695 12,999
Payments on long-term debt and capital lease
obligations............................................ (12,786) (76,490) (7,837)
Payments from escrow..................................... -- -- 1,500
Payment of debt issue costs.............................. (1,301) (10,407) (1,551)
Redemption of preferred stock............................ -- (1,460) --
Redemption of preferred stock of consolidated subsidiary
held by minority interests............................. -- (1,400) --
Dividend payments........................................ -- (906) --
Issuance of common stock................................. 94,069 -- 3
--------- --------- --------
Net cash provided by financing activities...... 72,663 211,182 5,114
--------- --------- --------
Net increase (decrease) in cash and cash equivalents..... 54,425 867 (182)
Cash and cash equivalents at beginning of year........... 6,915 6,048 6,230
--------- --------- --------
Cash and cash equivalents at end of year................. $ 61,340 $ 6,915 $ 6,048
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for:
Income taxes........................................ $ (832) $ 1,240 $ 891
========= ========= ========
Interest............................................ $ 37,561 $ 4,955 $ 4,496
========= ========= ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 8
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND ACQUISITIONS
IXC Communications, Inc. and its subsidiaries (collectively referred to as
"IXC" or the "Company") is an Austin, Texas based supplier of telecommunications
services. IXC provides two principal services to long distance companies: (i)
private line voice and data circuits and (ii) switched long distance services.
Consistent with industry practice, the Company considers itself to be operating
in one business segment.
Long distance companies may be categorized as facilities-based carriers or
non-facilities-based carriers. Sellers of private line services are generally
facilities-based carriers, like IXC, that own private line transmission
facilities, such as fiber optic or digital microwave transmission facilities.
Customers using private line services include: (i) facilities-based carriers
that require private line capacity where they have geographic gaps in their
facilities, need additional capacity or require geographically different
routing; and (ii) non-facilities-based carriers requiring private line capacity
to carry their customers' long distance traffic. The Company provides private
line services to customers either on a "take-or-pay" long term basis, or after
contract expiration on a month-to-month basis.
In late 1995, the Company expanded into the business of selling switched
long distance services to long distance resellers. Long distance companies may
be characterized as switched or switchless carriers. Sellers of switched long
distance services are generally switched carriers, like IXC, that own one or
more switches that direct telecommunications traffic. Customers using the
Company's switched long distance service generally are switchless carriers that
depend on switched carriers to provide long distance services to their users.
The Company sells switched long distance services on a per-call basis, with
payment due monthly after services are rendered.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
IXC, a Delaware corporation, was incorporated in 1992 and, through a series
of transactions through 1994, acquired various wholly-owned and majority-owned
subsidiaries which are included in the consolidated financial statements. The
consolidated financial statements of IXC include the accounts of IXC
Communications, Inc. and its wholly-owned and majority-owned subsidiaries. The
Company has a 50% interest in Progress International L.L.C. ("Progress") which
is accounted for using the equity method. Progress has a 49% interest in
Marca-Tel S.A. de C.V. ("Marca-Tel"), a telecommunications company located in
Mexico. The Company also accounts for its 25% interest in U.S. Advantage Long
Distance, Inc., a reseller of long distance minutes, using the equity method.
Significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Revenues
Private line voice and data circuit revenues are generated primarily by
providing capacity on the Company's fiber optic and microwave transmission
network at rates established under long-term contractual arrangements or on a
month-to-month basis after contract expiration. Revenues are recognized as
services are provided.
Switched long-distance service revenues are generated primarily by
providing voice and data communications. Revenues are recognized as services are
provided.
The Company accounts for capacity exchange agreements with other carriers
by recognizing the fair value of the revenue earned and expense incurred under
the respective agreements.
F-8
<PAGE> 9
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost and classified as available for sale.
Short-term investments held in the Company's escrow related to the Senior Notes
(see Note 5) are not included as a cash equivalent. Escrow investments are
recorded at cost.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various assets,
ranging from three to twenty years. Maintenance and repairs are charged to
operations as incurred. Property and equipment recorded under capital leases are
included with the Company's owned assets. Amortization of assets recorded under
capital leases is included in depreciation expense.
Costs associated with uncompleted portions of the fiber optic network are
classified as construction in progress in the accompanying consolidated balance
sheets. Upon completion, the costs will be classified as transmission systems
and depreciated over their useful lives.
Upon indication of an impairment, the Company records a loss on its
long-lived assets when the undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amount of the assets.
Fiber Exchange Agreements
In connection with its fiber optic network expansion, the Company has
entered into various agreements to purchase, sell or exchange fiber usage
rights. Purchases of fiber usage rights from other carriers are recorded at cost
as a separate component of property and equipment. The recorded assets are
amortized over the lesser of the term of the related agreement or the estimated
life of the fiber optic cable. Sales of fiber usage rights are recorded as
deferred revenue and are included in other non-current liabilities in the
accompanying consolidated balance sheets. Revenues are recognized over the terms
of the related agreements. Non-monetary exchanges of fiber usage rights (swaps
of fiber usage rights with other long distance carriers) are recorded at the
cost of the asset transferred.
Capitalization of Interest
Interest costs are capitalized as part of the cost of constructing the
Company's fiber optic network. Interest costs capitalized during construction
periods are computed by determining the average accumulated expenditures for
each interim capitalization period and applying the interest rate related to the
specific borrowings associated with each construction project. Total interest
incurred during the years ended December 31, 1996, 1995 and 1994 was $40.0
million, $15.0 million and $6.1 million, respectively, of which, $2.9 million,
$0.4 million and $34,000 was capitalized.
Income Taxes
The Company accounts for income taxes using the liability method as
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes.
Deferred income taxes are provided for net operating losses and for
temporary differences between the basis of assets and liabilities for financial
reporting and income tax reporting. Investment tax credits are accounted for by
the flow-through method.
F-9
<PAGE> 10
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Charges and Other Non-current Assets
Costs incurred in connection with obtaining long-term financing have been
deferred and are being amortized as interest expense over the terms of the
related debt agreements. Deferred costs relating to long-term financing at
December 31, 1996 and 1995 were $11.4 million and $10.4 million, respectively.
Accumulated amortization of these costs at December 31, 1996 and 1995 was $1.4
million and $0.5 million, respectively.
Costs incurred to obtain certain regulatory licenses are amortized on a
straight-line basis over ten to forty years.
Certain costs incurred in connection with installation of the switched long
distance network have been deferred and are being amortized on a straight-line
basis over four years. Deferred network costs at December 31, 1996 and 1995 were
$5.0 million and $1.8 million, with accumulated amortization of $1.0 million and
$0.1 million, respectively.
The acquisition cost of customer accounts obtained through an outside sales
organization have been deferred and amortized over the estimated average term of
the related customer contracts.
Stock-Based Compensation
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations, because, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25 compensation expense is
recognized only when the exercise price of the Company's employee stock options
is less than the market price of the underlying stock on the date of grant.
Income (Loss) Per Common and Common Equivalent Share
Income (loss) per common share is based on net income (loss) less preferred
stock dividend requirements, divided by the weighted average common and common
equivalent shares outstanding during the period. Outstanding options are
included in the calculation to the extent they are dilutive or were issued
within one year of the Company's initial public offering. Income (loss) per
share on a fully diluted basis is not presented as the fully diluted effect is
either antidilutive or not materially different from primary income (loss) per
common share, as computed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, funds held
in escrow and trade receivables. The Company places its cash equivalents and
funds held in escrow in quality investments with reputable financial
institutions. Trade receivables include significant balances due from a small
number of customers. At December 31, 1996,
F-10
<PAGE> 11
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$9.1 million in trade receivables from the Company's private line services are
due from seven customers. Switched long distance services receivables are also
concentrated, with $21.1 million in trade receivables due from one customer. If
any of these individually significant customers experienced deteriorating
financial condition, results of operations of the Company could be adversely
affected. The Company performs ongoing credit evaluations of its customers'
financial condition. IXC has not experienced significant losses from sales to
any of its significant customers. (See Note 10)
Reclassifications
Certain amounts for prior years have been reclassified to conform to the
1996 presentation.
3. ACQUISITION OF MINORITY INTEREST
Effective January 1, 1996, IXC purchased the minority interest in a joint
venture for $6.2 million. The acquisition of the minority interest was accounted
for as a purchase and the financial statements of the former joint venture have
been consolidated with the Company from the date of acquisition. The purchase
price was allocated based on estimated fair values at the date of acquisition.
The excess of purchase price over net assets acquired was $5.6 million and is
being amortized on a straight-line basis over five years. Unaudited pro forma
operating results for the year ended December 31, 1995 as if the minority
interest had been acquired as of January 1, 1995, are as follows (in thousands,
except per share amounts):
<TABLE>
<S> <C>
Net operating revenues.................................................. $ 91,001
========
Loss before income taxes, minority interests and extraordinary loss..... $(11,246)
========
Net loss................................................................ $ (9,352)
========
Loss per common and common equivalent share:
Before extraordinary loss............................................. $ (.38)
Extraordinary loss.................................................... (.07)
--------
Net loss........................................................... $ (.45)
========
</TABLE>
4. PROPERTY AND EQUIPMENT
The following table summarizes the Company's property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and right of ways....................................... $ 2,345 $ 2,344
Buildings and improvements................................... 5,048 4,021
Transmission systems......................................... 181,170 137,398
Furniture and other.......................................... 4,629 2,407
Fiber usage rights........................................... 38,533 --
Construction in progress..................................... 106,017 5,658
-------- --------
337,742 151,828
Less: Accumulated depreciation and amortization.............. (69,133) (45,429)
-------- --------
Property and equipment, net.................................. $268,609 $106,399
======== ========
</TABLE>
F-11
<PAGE> 12
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ESCROW UNDER SENIOR NOTES
Under the terms of the Company's Senior Notes, issued in October 1995, the
Company was required to place $200 million of Senior Notes proceeds in an escrow
account, which proceeds and the earnings thereon are restricted in their use to
network expansion, capital expenditures, certain interest, principal and other
payments on the Senior Notes and other permitted uses (see Note 7). Such funds
have been invested in short-term, investment-grade, interest-bearing securities
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Overnight investments........................................... $14,201 $ 96,975
U.S. Government securities...................................... 37,211 101,291
------- --------
$51,412 $198,266
======= ========
</TABLE>
The escrow account is subject to a security interest under the Company's
Senior Notes. The investments in the escrow account at December 31, 1996 and
1995 were all due in three months or less and classified as available for sale.
6. ACCRUED LIABILITIES
The following table summarizes the Company's accrued liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued taxes.................................................. $ 2,750 $ 2,924
Deferred revenue............................................... 3,044 1,693
Accrued interest............................................... 8,906 8,748
Other.......................................................... 4,228 941
------- -------
$18,928 $14,306
======= =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt and capital lease obligations of IXC consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes -- 12.5%, net of unamortized discount of
$7,344,000 and $7,762,000 at December 31, 1996 and 1995,
respectively................................................. $277,656 $277,238
Senior subordinated note -- 7%................................. 3,046 4,416
Promissory note -- 9%.......................................... 3,717 3,401
Capital lease obligations...................................... 17,862 13,697
Other debt..................................................... -- 42
-------- --------
Total long-term debt and capital lease obligations........ $302,281 $298,794
Less current portion........................................... (6,750) (4,534)
-------- --------
Long-term debt and capital lease obligations................... $295,531 $294,260
======== ========
</TABLE>
F-12
<PAGE> 13
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Senior Notes
On October 5, 1995, the Company issued $285 million of 12 1/2% Senior Notes
(effective rate 12.8%) due October 1, 2005, with interest payable semi-annually.
In July 1996, the Company exchanged certain of the Senior Notes for registered
Senior Notes. Until the exchange was consummated, the Company was required to
make additional interest payments at the rate of .5% per annum on the principal
amount.
The Senior Notes may be redeemed at the option of the Company, in whole or
in part, on or after October 1, 2000 at a premium declining to zero in 2004. At
any time prior to October 1, 1998, the Company may redeem Senior Notes with an
aggregate principal amount of up to $100 million at a redemption price of 112.5%
of the principal amount from the net proceeds of a sale of Capital Stock of the
Company, provided that at least $100 million in aggregate principal amount of
Senior Notes remains outstanding immediately after the occurrence of such
redemption and that the redemption occurs within 35 days of the date of the
closing of the offering of such equity securities. Also, the Senior Notes
contain provisions that, in the event of a Change in Control (which meets the
definition set forth in the Indenture) of the Company, provide their holders the
right to require the Company to repurchase all or any part of the Senior Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest.
Of the net proceeds of approximately $277 million, $200 million was
deposited into an escrow account primarily restricted for the construction of a
major network expansion program (see Note 5). Approximately $53.7 million of the
net proceeds was used to repay or repurchase certain previously-existing
indebtedness of the Company, including $22.7 million paid to certain
stockholders. This resulted in an extraordinary loss on early extinguishment of
debt of $1.7 million in 1995, net of applicable income tax benefit of $1.2
million. In addition, approximately $3.8 million was used to redeem certain
preferred stock.
The Senior Notes are senior unsecured obligations of the Company, except
for a security interest in the escrow account, and are guaranteed on a senior
unsecured basis by certain wholly owned direct and indirect subsidiaries of IXC.
The obligations of each guarantor are limited to the minimum extent necessary to
prevent the guarantee from violating or becoming voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See Note 20 for financial
information for guarantor and non-guarantor subsidiaries.
The Senior Notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness and issue certain
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its subsidiaries, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations.
Senior Subordinated Note
During 1994, the Company issued a $6.2 million, 7% senior subordinated
promissory note to a minority investor in one of IXC's subsidiaries. Under the
terms of the senior subordinated promissory note, principal and interest are due
in monthly installments of $136,000 through December 31, 1998.
Promissory Note
During 1994, to facilitate an acquisition, the Company issued a $3.0
million 9% promissory note to a minority investor in the acquired entity. Under
the terms of the promissory note, principal and interest payments of $560,000
are due quarterly beginning March 31, 1998 and ending December 31, 1999. Thus,
accrued interest is reflected in the balance of the note.
F-13
<PAGE> 14
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt at December 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997.............................................. $ 1,470
1998.............................................. 3,170
1999.............................................. 2,123
2005.............................................. 285,000
--------
291,763
Less discount on Senior Notes..................... (7,344)
--------
$284,419
========
</TABLE>
8. CAPITAL AND OPERATING LEASES
The Company leases certain facilities, equipment and transmission capacity
used in its operations under noncancellable capital and operating leases. Future
minimum annual lease payments under these lease agreements at December 31, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997.................................................... $ 6,599 $22,597
1998.................................................... 5,120 13,432
1999.................................................... 4,616 4,029
2000.................................................... 3,737 1,211
2001.................................................... 1,143 712
-------
21,215
Less amounts related to interest........................ (3,353)
-------
Present value of capital lease obligations.............. 17,862
Less current portion.................................... (5,280)
-------
Long-term capital lease obligations..................... $12,582
=======
</TABLE>
The gross amount of assets recorded under capital leases at December 31,
1996 and 1995 was $22.2 million and $17.9 million, respectively. The related
accumulated amortization was $5.9 million and $4.1 million at December 31, 1996
and 1995, respectively.
Lease expense relating to facilities, equipment and transmission capacity
leases, excluding amortization of fiber exchange agreements, was approximately
$49.9 million, $29.1 million and $28.7 million for the years ended December 31,
1996, 1995 and 1994, respectively.
In November 1994, IXC entered into an agreement whereby certain deferred
lease obligations payable through 1998 were restructured resulting in all the
deferred obligations, $4.4 million, being due during 1995. These obligations
were repaid in 1995 from the proceeds the Company received from the issuance of
the Senior Notes.
In 1996 and 1995, the Company entered into equipment leases for network
switching equipment, for which the lease obligations had a present value of $7.2
million and $9.8 million, respectively. In 1996, the Company entered into
equipment leases for broadband network switching equipment for which the lease
obligations had a present value of $1.3 million.
F-14
<PAGE> 15
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK
Preferred Stock
The 10% Junior Series 3 Cumulative Redeemable Preferred Stock ("Series 3
Preferred Stock") votes as a single class with IXC's common stock, is entitled
to elect one director and may be redeemed at the Company's option in whole or in
part at any time, subject to certain debt covenants, at a price of $1,000 per
share, plus accumulated and unpaid dividends and accrued interest. The
liquidation value of each Series 3 Preferred share is $1,000 plus any
accumulated and unpaid dividends including accrued interest. The Series 3
Preferred Stock is nonparticipatory and has no mandatory redemption
requirements. Dividends are payable at the determination of the Board of
Directors, subject to debt covenants. Interest accrues on unpaid dividends at an
annual rate of 10%. Cumulative preferred dividends in arrears, including
interest, at December 31, 1996 and 1995 were $6.5 million ($518.65 per share)
and $4.8 million ($380.59 per share), respectively.
IXC's 10% Senior Series 1 Cumulative Redeemable Preferred Stock was
non-voting and was redeemed on October 6, 1995 from the proceeds of the Senior
Notes for $2.0 million, including cumulative dividends in arrears and related
interest of $505,000.
During 1993, an indirect subsidiary of IXC issued 1,400 shares of 10%
Senior Series 1 Cumulative Redeemable Preferred Stock (the "ILHI Series 1
Preferred Stock") at $1,000 per share to stockholders of IXC. The ILHI Series 1
Preferred Stock was redeemed on October 6, 1995 from the proceeds of the Senior
Notes for $1.8 million, including cumulative dividends in arrears and related
interest of $401,000.
Common Stock
During 1996, the Company issued 6,440,000 shares of Common Stock in an
initial public offering and a private placement, resulting in net proceeds of
$94.0 million. At December 31, 1996, the Company has 3,382,435 shares reserved
for future issuance under stock option plans.
During 1996, the Company effected stock splits resulting in a 2.4249 for 1
split of the Company's common stock (with fractional shares paid in cash). The
Company also increased the number of authorized shares of its common stock to
100,000,000 and the number of authorized shares of its preferred stock to
3,000,000. The accompanying financial statements have been retroactively
adjusted to reflect the stock splits and the increase in authorized shares.
Stock Option and Award Plans
In November 1994, the Board of Directors adopted the IXC Communications,
Inc. Stock Plan, as amended (the "1994 Stock Plan"), which provides for the
issuance of restricted stock or the granting of stock options for up to
1,212,450 shares of common stock to key employees and others. Awards under the
1994 Stock Plan are given at the discretion of the Board of Directors and
include common stock options with exercise prices at least equal to the fair
market value at the date of grant. Options granted may be either "incentive
stock options," within the meaning of Section 422(a) of the Internal Revenue
Code, or non-qualified options. The options expire after 10 years and generally
vest at rates of 25% and 33% per year commencing one year after the date of
grant, with the exception of two options covering 84,871 shares which were 100%
vested upon grant.
In 1996, IXC adopted the IXC Communications, Inc. 1996 Stock Plan, as
amended (the "1996 Stock Plan"), which provides for the issuance of restricted
stock or the granting of stock options for up to 2,121,787 shares of common
stock to key employees and others. Awards under the 1996 Stock Plan are given at
the discretion of the Board of Directors and include common stock options with
exercise prices at least equal to the fair market value at the date of grant.
Options granted may be either "incentive stock options," within the meaning of
Section 422(a) of the Internal Revenue Code, or non-qualified options. The
options expire after
F-15
<PAGE> 16
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK (CONTINUED)
10 years and generally vest at rates of 25% and 33% per year commencing one year
after the date of grant. During 1996, 476,600 options were granted under the
1996 Stock Plan.
The Company has not issued any restricted stock under the 1994 Stock Plan
or the 1996 Stock Plan. All options granted under the 1994 Stock Plan and the
1996 Stock Plan were granted at estimated market value at the date of grant. In
the event of a change of control of the Company, the options outstanding
immediately following the consummation of such change of control fully vest, and
the options may be exercised in full to purchase the total number of shares
covered by the option.
In October 1996, IXC adopted a stock incentive plan (the "Special Stock
Plan") covering 67,900 shares of common stock. Any employee, director or other
person providing services to the Company is eligible to receive awards under the
Special Stock Plan, at the Board's discretion. Awards available under the
Special Stock Plan include common stock purchase options and restricted common
stock. All available options to acquire stock under the Special Stock Plan were
granted in 1996 at exercise prices less than market value at the date of grant.
In 1996, the Company recognized $182,000 in compensation expense related to
grants under the Special Stock Plan.
On May 14, 1996 the Board of Directors adopted the IXC Communications, Inc.
Outside Directors' Phantom Stock Plan (the "Directors' Plan"), pursuant to which
$20,000 per year of outside director's fees for certain directors is deferred
and treated as if it were invested in shares of the Company's common stock. No
shares of common stock will be actually purchased and the participants will
receive cash benefits equal to the value of the shares that they are deemed to
have purchased under the Directors' Plan, with such value to be determined on
the date of distribution. Distribution of benefits generally will occur three
years after the deferral. Compensation expense is determined based on the market
price of the shares deemed to have been purchased and is charged to expense over
the related period. On June 6, 1996 the stockholders approved the Directors'
Plan. In 1996, the Company recognized $60,000 as directors' fees related to the
Directors' Plan.
Stock Based Compensation
The Company has elected to account for its employee stock options under APB
25. As a result, pro forma information regarding net income and income (loss)
per share is required by SFAS No. 123, which requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates ranging
from 5.25% to 6.73% and 5.74% to 5.95%; no dividend yield; volatility factor of
the expected market price of the Company's common stock of .523; and a
weighted-average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
F-16
<PAGE> 17
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON AND PREFERRED STOCK (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Pro forma loss applicable to common stockholders................ $(39,805) $(6,871)
Pro forma loss per common and common equivalent share........... $ (1.41) $ (0.27)
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year......... 645,880 $ 3.01 206,113 $3.01 -- $ --
Granted............................... 1,138,351 12.04 439,767 3.01 206,113 3.01
Exercised............................. (19,702) 3.01 -- -- -- --
Forfeited............................. (63,956) 3.01 -- -- -- --
--------- ------ ------- ----- ------- -----
Outstanding-end of year............... 1,700,573 $ 9.05 645,880 $3.01 206,113 $3.01
========= ====== ======= ===== ======= =====
Exercisable at end of year............ 257,527 121,243 --
Weighted-average fair value of options
granted during the year............. $ 7.34 $ 1.51 --
</TABLE>
The following table summarizes outstanding options at December 31, 1996 by
price range:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------------------------------- ---------------------
WEIGHTED- WEIGHTED-AVERAGE WEIGHTED-
NUMBER AVERAGE REMAINING NUMBER AVERAGE
OF RANGE OF EXERCISE CONTRACTUAL OF EXERCISE
OPTIONS EXERCISE PRICE PRICE LIFE OF OPTIONS OPTIONS PRICE
--------- ----------------- --------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C>
1,059,323 $3.01 $ 3.01 8.8 257,527 $3.01
302,250 15.38 to 16.00 15.43 9.6 -- --
339,000 22.25 22.25 9.8 -- --
--------------- ------
1,700,573 $3.01 to $22.25 $ 9.05 9.2 257,527 $3.01
=============== ======
</TABLE>
10. MAJOR CUSTOMERS
Prior to 1996, substantially all of the Company's revenues were earned from
private line services. Private line services generally are provided to carriers
under long-term contractual arrangements or on a month-to-month basis after
contract expiration. In late 1995, the Company expanded into the business of
selling switched long distance services to long distance resellers. Excel
Communications is the Company's largest switched long distance customer. Sales
to certain customers exceeded 10% of total revenues for each of the years ended
December 31, 1996, 1995 and 1994. The percentages of revenues represented by
these customers are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Excel Communications.................................... 35% -- --
Frontier Communications................................. 10% 21% 23%
WorldCom, Inc........................................... 8% 20% 25%
</TABLE>
F-17
<PAGE> 18
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement and 401(k) savings plan
which covers all full-time employees with one year of service. The Company
contributes 6% of eligible compensation, as defined in the plan, and matches 50%
of the employee's contributions up to a maximum of 6% of the employee's
compensation. Employees vest in the Company's contribution over five years.
Benefit expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $779,000, $522,000 and $468,000, respectively.
12. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards..................................... $ 2,068 $ 2,411
Net operating loss carryforwards............................. 22,240 2,489
Accrued expenses............................................. 3,156 908
Other........................................................ -- 1,286
-------- --------
Gross deferred tax assets............................... 27,464 7,094
Valuation allowance..................................... (17,264) --
-------- --------
Net deferred tax assets........................................ 10,200 7,094
Deferred tax liabilities:
Tax over book depreciation................................... (10,372) (8,384)
Other liability accruals..................................... (1,799) (5,090)
Other........................................................ -- (1,473)
-------- --------
(12,171) (14,947)
-------- --------
Net deferred tax liability..................................... $ (1,971) $ (7,853)
======== ========
As recorded in the consolidated balance sheets:
Deferred tax assets.......................................... $ 463 $ 450
Deferred tax liability....................................... (2,434) (8,303)
-------- --------
$ (1,971) $ (7,853)
======== ========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $55.6 million for income tax purposes that expire through 2011.
The Company has minimum tax and investment tax credit carryforwards at December
31, 1996 of approximately $0.7 million and $1.4 million, respectively. The
minimum tax credits can be carried forward indefinitely and the investment tax
credits expire in 2001.
At December 31, 1996, a valuation allowance of $17.3 million was
established to offset a portion of the Company's deferred tax assets. The
valuation allowance is related to deferred tax assets, primarily net operating
losses, that may not be realizable. No valuation allowance was provided for
deferred tax assets at December 31, 1995 or 1994.
F-18
<PAGE> 19
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES (CONTINUED)
Significant components of the benefit (provision) for income taxes
(excluding the effect attributable to extraordinary items) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $ 829 $ 381 $(1,188)
State............................................... (250) -- (404)
------- ------- -------
Total current......................................... 579 381 (1,592)
Deferred:
Federal............................................. 4,136 1,144 (1,131)
State............................................... 1,266 168 (434)
------- ------- -------
Total deferred........................................ 5,402 1,312 (1,565)
------- ------- -------
Benefit (provision) for income taxes.................. $ 5,981 $ 1,693 $(3,157)
======= ======= =======
</TABLE>
The reconciliation of income tax benefit (provision) attributable to
continuing operations computed at the U.S. federal statutory tax rates to income
tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit (provision) at federal statutory rates... $ 14,766 $ 1,670 $(2,780)
State income tax benefit (provision) net of federal
effect............................................. 3,106 302 (432)
Net operating losses not benefited................... (17,264) -- --
Resolution of tax examinations....................... 3,511 -- --
Permanent and other differences...................... 1,862 (279) 55
-------- ------- -------
Benefit (provision) for income taxes................. $ 5,981 $ 1,693 $(3,157)
======== ======= =======
</TABLE>
13. CAPACITY EXCHANGE AGREEMENTS
In the normal course of business, IXC enters into long-term agreements with
other carriers to exchange capacity on such carriers' networks for access to the
Company's fiber optic communication systems. Exchanges are accounted for at fair
value (see Note 2). Exchange agreements accounted for noncash revenue and
expense (in equal amounts) of $14.0 million in 1996, $13.8 million in 1995 and
$8.0 million in 1994.
14. RELATED PARTY TRANSACTIONS
A law firm, of which a director and stockholder of the Company was a
principal, provided certain legal services to the Company and received fees from
the Company in the amount of approximately $3.5 million in 1996, $2.6 million in
1995 and $1.4 million in 1994.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
F-19
<PAGE> 20
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Accounts receivable and accounts payable: The carrying amounts reported in
the balance sheets for accounts receivable and accounts payable approximate
fair value.
Escrow under Senior Notes: The carrying amount reported in the balance
sheets for restricted short-term investments held in escrow approximates
fair value.
Long-term debt: The fair value of the Senior Notes is estimated at $311
million based on the last trading price of the Senior Notes in 1996.
16. COMMITMENTS AND CONTINGENCIES
In connection with its fiber optic network expansion, the Company has
entered into various construction and installation agreements with contractors.
Total commitments under these agreements are approximately $87.2 million. At
December 31, 1996, capital expenditures totaling $47.6 million have been made
under these agreements.
In connection with its fiber expansion agreements, the Company has
committed to pay $40.3 million for fiber usage rights on other long distance
carriers' networks, $7.4 million of which was paid by December 31, 1996.
Pursuant to the same agreements, the Company has committed to pay a total of
$28.2 million, in periodic installments for twenty to twenty-five years for
maintenance and license fees. Several of these agreements require the Company to
share network construction costs with the other party. The exact amounts of
these construction costs are not specified in the related agreements and are
thus excluded from the figures above.
The Company is from time to time involved in various legal proceedings, all
of which have arisen in the ordinary course of business and some of which are
covered by insurance. In the opinion of the Company's management, none of the
claims relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
17. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance for doubtful accounts was as follows
(in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
FOR THE YEARS ENDED OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996........................ $1,769 $3,060 $ 799 $ 4,030
December 31, 1995........................ $ 762 $1,505 $ 498 $ 1,769
December 31, 1994........................ $ 429 $1,565 $1,232 $ 762
</TABLE>
F-20
<PAGE> 21
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. QUARTERLY RESULTS (UNAUDITED)
The Company's unaudited quarterly results are as follows:
<TABLE>
<CAPTION>
FOR THE 1996 QUARTER ENDED:
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30
-------- -------- -------------
DECEMBER 31
------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (A)
<S> <C> <C> <C> <C>
Net operating revenues.................... $ 26,250 $ 43,007 $61,016 $ 73,488
Operating loss............................ (5,777) (6,066) (2,121) (52)
Net loss.................................. (11,699) (12,067) (5,624) (8,058)
Net loss per common share................. $ (0.49) $ (0.50) $ (0.19) $ (0.27)
</TABLE>
- ---------------
(a) Includes a $1.9 million loss relating to the Company's share of losses of
its unconsolidated subsidiary, Progress.
<TABLE>
<CAPTION>
FOR THE 1995 QUARTER ENDED:
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net operating revenues.................... $ 21,766 $ 22,721 $22,772 $ 23,742
Operating income (loss)................... 3,716 3,529 (900) (4,916)
Income (loss) before extraordinary gain
(loss).................................. 1,267 1,502 (307) (5,680)
Net income (loss)......................... 1,267 496 (307) (6,421)
Net income (loss) per common share before
extraordinary gain (loss)............... $ 0.03 $ 0.04 $ (0.03) $ (0.24)
Net income (loss) per common share........ 0.03 -- (0.03) (0.27)
</TABLE>
19. SUBSEQUENT EVENTS
On January 22, 1997 the Company signed separate agreements to acquire L.D.
Services, Inc. and Telecom One, Inc., both long distance resellers. Subject to
certain adjustments, the Company will acquire L.D. Services, Inc. for
approximately $30 million and Telecom One, Inc. for approximately $5 million,
both to be paid in common stock of the Company. Consummation of these
transactions is pending regulatory approval.
Effective February 4, 1997 the Company entered into an agreement to sell
fiber to a common carrier without optronics along IXC's Chicago to Los Angeles
fiber optic route for approximately $97.9 million. The route from Chicago to Los
Angeles is scheduled for completion in mid-1997. The agreement provides for
certain penalties if IXC does not complete construction of the route within the
timeframe specified in the agreement. Management does not anticipate that the
Company will incur any penalties under these provisions.
On February 27, 1997 the Company agreed to issue $100 million (10,000
shares) of new 7% Series A Convertible Preferred Stock. The preferred stock will
be convertible into common stock at a conversion price of $38.40 per share. The
holders of the 7% Series A Convertible Preferred Stock will have the right to
elect one director to the Board of Directors. On March 31, 2009, the outstanding
7% Series A Convertible Preferred Stock must be redeemed by the Company at a
price equal to the liquidation preference of $10,000 per share plus accumulated
and unpaid dividends.
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
IXC conducts a significant portion of its business through subsidiaries.
The Senior Notes are unconditionally guaranteed, jointly and severally, by
certain wholly-owned direct and indirect subsidiaries (the "Subsidiary
Guarantors"). The obligations of each Guarantor are limited to the minimum
extent necessary to prevent the guarantee from violating or becoming voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. Certain IXC
subsidiaries do not guarantee the Senior Notes (the "Non-Guarantor
Subsidiaries"). The claims of creditors
F-21
<PAGE> 22
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
of Non-Guarantor Subsidiaries have priority over the rights of IXC to receive
dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for IXC,
the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31,
1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994.
The equity method has been used by IXC with respect to investments in
subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
The following table sets forth the Guarantor and Non-Guarantor
subsidiaries:
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
------------------------------------------ ------------------------------------------
<S> <C>
Broadband Services, Inc. Mutual Signal Holding Corp.
IXC Carrier, Inc. Mutual Signal Corporation
Atlantic States Microwave Mutual Signal Corporation of
Transmission Company Michigan
Central States Microwave MSM Associates, Limited Partnership
Transmission Company Progress International L.L.C.
Rio Grande Transmission, Inc. Marca-Tel S.A. de C.V.
Telecom Engineering, Inc. Switched Services Communications, L.L.C.
Tower Communications System Corp. Summer Street Communications, Inc.
West Texas Microwave Company US Advantage Long Distance, Inc.
Western States Microwave Company
IXC Long Distance, Inc.
Link Net International, Inc.
</TABLE>
F-22
<PAGE> 23
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 65,363 $ (9,455) $ 4,611 $ 821(a) $ 61,340
Accounts receivable and
other, net............... 111 28,657 32,363 (13,563)(d) 47,568
Other current assets........ 937 3,765 549 (3,054)(d) 2,197
-------- -------- -------- --------- --------
Total current assets.......... 66,411 22,967 37,523 (15,796) 111,105
Property and equipment, net... 8 231,514 37,347 (260) 268,609
Escrow under Senior Notes..... 51,412 -- -- -- 51,412
Due from affiliate............ 225,093 40,742 6,574 (272,409)(d) --
Other assets.................. 8,429 6,527 13,049 20(b) 28,025
-------- -------- -------- --------- --------
Total assets.................. $351,353 $301,750 $ 94,493 $ (288,445) $459,151
======== ======== ======== ========= ========
Current liabilities:
Accounts payable and other
current liabilities...... $ 10,077 $ 70,207 $ 16,909 $ (13,342)(a)(d) $ 83,851
Due to affiliate............ 141 523 40 (704)(d) --
Current portion of long-term
debt and lease
obligations.............. -- 2,469 6,024 (1,743) 6,750
-------- -------- -------- --------- --------
Total current liabilities..... 10,218 73,199 22,973 (15,789) 90,601
Long-term debt and capital
lease obligations........... 277,656 1,487 21,548 (5,160)(d) 295,531
Deferred tax liability........ -- 7,484 -- (5,050) 2,434
Due to affiliate/parent....... -- 231,666 40,743 (272,409)(d) --
Other noncurrent
liabilities................. -- 6,201 749 (749) 6,201
Minority interest............. -- -- -- 905(c) 905
Stockholders' equity:
Preferred stock............. 13 -- 2,585 (2,585) 13
Common stock................ 308 4 2 (6)(b) 308
Additional paid-in
capital.................. 123,434 30,053 36,249 (66,302)(b) 123,434
Accumulated deficit......... (60,276) (48,344) (30,356) 78,700(b)(c)(d) (60,276)
-------- -------- -------- --------- --------
Total stockholders' equity.... 63,479 (18,287) 8,480 9,807 63,479
-------- -------- -------- --------- --------
Total liabilities
and stockholders'
equity............ $351,353 $301,750 $ 94,493 $ (288,445) $459,151
======== ======== ======== ========= ========
</TABLE>
- ---------------
(a) Eliminations of intercompany settlements in transit.
(b) Eliminations of investments in consolidated subsidiaries
(c) Recording of minority interest in equity operations.
(d) Eliminations of intercompany receivables, payables and lease obligations.
F-23
<PAGE> 24
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues............ $ 66 $148,692 $104,156 $(49,153)(a) $203,761
Operating expenses:
Cost of services................ -- 86,929 103,912 (47,372)(a) 143,469
Operations and administration... 3,955 36,711 7,558 (1,157)(a) 47,067
Depreciation and amortization... 58 18,055 9,453 (325) 27,241
-------- -------- -------- -------- --------
(3,947) 6,997 (16,767) (299) (14,016)
Interest income................... 17,572 6,738 596 (22,068)(a) 2,838
Interest income on escrow under
Senior Notes.................... 7,404 -- -- -- 7,404
Interest expense.................. (38,181) (15,936) (5,027) 22,068 (a) (37,076)
Equity in net income (loss) of
unconsolidated subsidiaries..... (26,277) (23,688) -- 48,004 (b) (1,961)
-------- -------- -------- -------- --------
Loss before income taxes and
minority interest............... (43,429) (25,889) (21,198) 47,705 (42,811)
Benefit (provision) for income
taxes........................... 5,981 2,915 2,344 (5,259) 5,981
Minority interest................. -- -- -- (618)(c) (618)
-------- -------- -------- -------- --------
Net loss.......................... $(37,448) $(22,974) $(18,854) $ 41,828 $(37,448)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-24
<PAGE> 25
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR IXC
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $ (25,099) $ 49,161 $ (40,627) $(12,122)(a)(b) $ (28,687)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Release of funds from escrow
under Senior Notes............. 154,244 -- -- -- 154,244
Deposit into escrow under Senior
Notes.......................... (7,404) -- -- -- (7,404)
Purchase of property and
equipment...................... (9) (169,498) (7,259) 40,375(b) (136,391)
--------- -------- ------- ------- ---------
Net cash provided by (used in)
investing activities........... 146,831 (169,498) (7,259) 40,375 10,449
CASH FLOW FROM FINANCING
ACTIVITIES:
Capital contribution to
unconsolidated subsidiary...... 12,422 (44,714) -- 24,973 (7,319)
Payments on long-term debt and
capital lease obligations...... (9,018) (583) (3,185)(a) (12,786)
Payment of debt issue costs...... (1,301) -- -- -- (1,301)
Issuance of preferred stock...... -- -- 2,585 (2,585) --
Issuance of common stock......... 81,581 -- 15,500 (3,012) 94,069
Advances to affiliates........... (150,489) 161,282 33,253 (44,046) --
--------- -------- ------- ------- ---------
Net cash provided by (used in)
financing activities........... (57,787) 107,550 50,755 (27,855) 72,663
Net increase (decrease) in cash
and cash equivalents........... 63,945 (12,787) 2,869 398 54,425
Cash and cash equivalents at
beginning of period............ 1,418 3,332 1,742 423 6,915
--------- -------- ------- ------- ---------
Cash and cash equivalents at end
of period...................... $ 65,363 $ (9,455) $ 4,611 $ 821 $ 61,340
========= ======== ======= ======= =========
</TABLE>
- ---------------
(a) Eliminations of intercompany receivables, debt and lease obligations.
(b) Eliminations of intercompany capitalized labor.
F-25
<PAGE> 26
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 1,418 $ 3,332 $ 1,742 $ 423(a) $ 6,915
Accounts receivable and
other, net............... -- 6,717 1,148 (2,328)(d) 6,319
Other current assets........ 6,565 4,481 358 (7,807)(d) 2,815
-------- -------- ------- --------- --------
Total current assets.......... 7,983 14,530 3,248 (9,712) 16,049
Property and equipment, net... -- 76,804 29,910 (315) 106,399
Escrow under Senior Notes..... 198,266 -- -- -- 198,266
Due from affiliate............ 74,604 3,351 568 (78,523)(d) --
Other assets.................. 12,707 16,948 4,191 (18,085)(b) 15,761
-------- -------- ------- --------- --------
Total assets.................. $293,560 $111,633 $ 37,917 $ (106,635) $336,475
======== ======== ======= ========= ========
Current liabilities:
Accounts payable and other
current liabilities...... $ 8,984 $ 13,922 $ 2,720 $ (4,528)(a)(d) $ 21,098
Due to affiliate............ 258 6,458 1,832 (8,548)(d) --
Current portion of long-term
debt and lease
obligations.............. -- 1,511 3,023 -- 4,534
-------- -------- ------- --------- --------
Total current liabilities..... 9,242 21,891 7,575 (13,076) 25,632
Long-term debt and capital
lease obligations........... 277,238 3,207 17,215 (3,400)(d) 294,260
Deferred tax liability........ 222 10,997 -- (2,916) 8,303
Due to affiliate/parent....... -- 70,384 3,878 (74,262)(d) --
Other noncurrent
liabilities................. -- 469 -- -- 469
Minority interest............. -- 1 -- 952(c) 953
Stockholders' equity:
Preferred stock............. 13 -- -- -- 13
Common stock................ 243 3 1 (4)(b) 243
Additional paid-in
capital.................. 29,430 30,051 20,750 (50,801)(b) 29,430
Accumulated deficit......... (22,828) (25,370) (11,502) 36,872(b)(c)(d) (22,828)
-------- -------- ------- --------- --------
Total stockholders' equity.... 6,858 4,684 9,249 (13,933) 6,858
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity............ $293,560 $111,633 $ 37,917 $ (106,635) $336,475
======== ======== ======= ========= ========
</TABLE>
- ---------------
(a) Eliminations of intercompany settlements in transit.
(b) Eliminations of investments in consolidated subsidiaries
(c) Recording of minority interest in equity operations.
(d) Eliminations of intercompany receivables, payables and lease obligations.
F-26
<PAGE> 27
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues.......... $ 404 $89,339 $ 12,155 $(10,897)(a) $ 91,001
Operating expenses:
Cost of services.............. -- 38,950 10,075 (9,173)(a) 39,852
Operations and
administration............. 1,116 26,155 6,322 (1,311)(a) 32,282
Depreciation and
amortization............... 57 12,728 4,653 -- 17,438
-------- ------- -------- -------- --------
(769) 11,506 (8,895) (413) 1,429
Interest income................. 3,766 399 67 (3,764)(a) 468
Interest income on escrow under
Senior Notes.................. 2,552 -- -- -- 2,552
Interest expense................ (10,982) (5,838) (1,541) 3,764 (a) (14,597)
Equity in net income (loss) of
unconsolidated subsidiaries... (1,474) (7,678) -- 9,171 (b) 19
-------- ------- -------- -------- --------
Loss before income taxes,
minority interests and
extraordinary loss............ (6,907) (1,611) (10,369) 8,758 (10,129)
Benefit (provision) for income
taxes......................... 2,246 546 (1,099) -- 1,693
Minority interests.............. -- -- -- 5,218 (c) 5,218
-------- ------- -------- -------- --------
Loss before extraordinary
items......................... (4,661) (1,065) (11,468) 13,976 (3,218)
Extraordinary loss, net of
taxes......................... (304) (1,309) (134) -- (1,747)
-------- ------- -------- -------- --------
Net loss........................ $ (4,965) $(2,374) $(11,602) $ 13,976 $ (4,965)
======== ======= ======== ======== ========
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-27
<PAGE> 28
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR IXC
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............. $ (8,324) $ 24,272 $(8,333) $ 3,992(a) $ 11,607
CASH FLOWS FROM INVESTING
ACTIVITIES:
Release of funds from escrow under
Senior Notes..................... 4,300 -- -- -- 4,300
Purchase of restricted short-term
investments...................... (202,552) -- -- -- (202,552)
Purchase of property and
equipment........................ -- (14,282) (9,565) 177 (23,670)
--------- -------- ------- ------- ---------
Net cash used in investing
activities....................... (198,252) (14,282) (9,565) 177 (221,922)
CASH FLOW FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
Senior Notes, net of discount.... 277,148 -- -- -- 277,148
Capital contribution in subsidiary
by minority shareholders......... -- (14,248) 20,250 -- 6,002
Payments from (advances to)
affiliates, net.................. (50,827) 50,827 -- -- --
Proceeds from long-term debt....... -- 17,150 1,545 -- 18,695
Payments on long-term debt and
capital lease obligations........ (5,700) (63,606) (3,089) (4,095)(a) (76,490)
Payment of debt issue costs........ (10,407) -- -- -- (10,407)
Redemption of preferred stock...... (1,460) (1,400) -- -- (2,860)
Dividend payments.................. (906) -- -- -- (906)
--------- -------- ------- ------- ---------
Net cash provided by (used in)
financing activities............. 207,848 (11,277) 18,706 (4,095) 211,182
Net increase (decrease) in cash and
cash equivalents................. 1,272 (1,287) 808 74 867
Cash and cash equivalents at
beginning of year................ 146 4,619 934 349 6,048
--------- -------- ------- ------- ---------
Cash and cash equivalents at end
of year.......................... $ 1,418 $ 3,332 $ 1,742 $ 423 $ 6,915
========= ======== ======= ======= =========
</TABLE>
- ---------------
(a) Eliminations of intercompany receivables, debt and lease obligations.
F-28
<PAGE> 29
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenues............ $ -- $78,448 $3,410 $ (1,195)(a) $80,663
Operating expenses:
Cost of services................ -- 33,848 810 (762)(a) 33,896
Operations and administration... 570 19,336 898 (243)(a) 20,561
Depreciation and amortization... 32 11,166 923 -- 12,121
------ ------- ------ ------- -------
(602) 14,098 779 (190) 14,085
Interest income................... 139 194 8 (130)(a) 211
Interest expense.................. (653) (5,141) (441) 130 (a) (6,105)
Equity in net income (loss) of
unconsolidated subsidiaries..... 7,864 83 -- (8,041)(b) (94)
------ ------- ------ ------- -------
Income before income taxes,
minority interests and
extraordinary gain.............. 6,748 9,234 346 (8,231) 8,097
Benefit (provision) for income
taxes........................... 567 (3,477) (247) -- (3,157)
Minority interests................ -- -- -- 77 (c) 77
------ ------- ------ ------- -------
Income before extraordinary
gain............................ 7,315 5,757 99 (8,154) 5,017
Extraordinary gain, net of
taxes........................... -- 2,298 -- -- 2,298
------ ------- ------ ------- -------
Net income................... $7,315 $ 8,055 $ 99 $(8,154) $ 7,315
====== ======= ====== ======= =======
</TABLE>
- ---------------
(a) Eliminations of intercompany administration services, communication services
and interest charges.
(b) Eliminations of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of minority interest in equity or earnings loss of non-guarantor
subsidiaries.
F-29
<PAGE> 30
IXC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $(1,262) $ 9,935 $ 1,199 $ 3,660(a)(b) $ 13,532
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment...................... -- (3,545) (3,732) 190 (7,087)
Sale of property and equipment... -- 235 -- -- 235
Payments for businesses acquired,
net of cash received........... -- -- (11,976) -- (11,976)
------- ------- ------- ------- --------
Net cash provided by (used in)
investing activities........... -- (3,310) (15,708) 190 (18,828)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments from (advances to)
affiliates, net................ 1,411 (1,525) 114 -- --
Proceeds from long-term debt..... -- 229 15,770 (3,000)(a) 12,999
Payments on long-term debt and
capital lease obligations...... -- (7,331) (506) -- (7,837)
Payments from escrow............. -- 1,500 -- -- 1,500
Payment of debt issue costs...... (139) (976) (436) -- (1,551)
Capital contribution in
subsidiary by minority
shareholders................... -- -- 500 (500)(b) --
Issuance of common stock......... 3 -- 1 (1)(b) 3
------- ------- ------- ------- --------
Net cash provided by (used in)
financing activities........... 1,275 (8,103) 15,443 (3,501) 5,114
Net increase (decrease) in cash
and cash equivalents........... 13 (1,478) 934 349 (182)
Cash and cash equivalents at
beginning of year.............. 133 6,097 -- -- 6,230
------- ------- ------- ------- --------
Cash and cash equivalents at end
of year........................ $ 146 $ 4,619 $ 934 $ 349 $ 6,048
======= ======= ======= ======= ========
</TABLE>
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(a) Eliminations of intercompany receivables, debt and lease obligations.
(b) Eliminations of intercompany capital contribution.
F-30
