UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-20913
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Teleport Communications Group Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 13-3173139
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(State of other jurisdiction of (I.R.S. Employer
or organization) Identification No.)
437 Ridge Road, Executive Building 3, Dayton, New Jersey 08810
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(Address of principal executive offices)
(732) 392-2000
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(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
----------------- ----------------
Number of outstanding shares of Registrant's Common Stock as of May 12, 1998:
62,031,104 shares of Class A Common Stock and 113,489,040 shares of Class B
Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 96,925 $ 173,331
---------- ----------
Marketable securities 244,750 306,828
---------- ----------
Accounts receivable:
Trade-net of allowance for doubtful accounts ($12,515 in 1998
and $11,684 in 1997) 104,104 85,081
Related parties 5,698 6,351
Miscellaneous-net of allowance for doubtful accounts ($545 in 1998
and $297 in 1997) 6,733 6,639
---------- ----------
Accounts receivable-net 116,535 98,071
---------- ----------
Prepaid expenses 16,271 13,988
---------- ----------
Other current assets 7,008 7,943
---------- ----------
Total current assets 481,489 600,161
---------- ----------
Fixed assets-at cost:
Communications network 1,923,836 1,722,093
Other 167,743 150,990
---------- ----------
2,091,579 1,873,083
Less accumulated depreciation and amortization (424,899) (379,987)
---------- ----------
Fixed assets-net 1,666,680 1,493,096
---------- ----------
Investments in and advances to unconsolidated affiliates 10,394 8,822
---------- ----------
Goodwill and other intangible assets - net of accumulated amortization 235,459 237,806
---------- ----------
Licenses-net of accumulated amortization 39,386 39,503
---------- ----------
Other assets 77,070 76,913
---------- ----------
Total assets $2,510,478 $2,456,301
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ($3,250 in 1998 and $4,019
in 1997 with related parties) $ 361,387 $ 282,231
Current portion of capital lease obligations ($24,740 in 1998 and
$28,172 in 1997 with related parties) 30,005 33,724
Short-term bank debt 52,575 52,575
Other current liabilities 8,428 6,742
---------- ----------
Total current liabilities 452,395 375,272
Capital lease obligations ($10,514 in 1998 and $13,388 in 1997 with
related parties) 15,560 19,095
Senior Notes 300,000 300,000
Senior Discount Notes 755,426 734,984
Unamortized notes costs (22,384) (23,059)
Other liabilities 25,842 18,393
---------- ----------
Total liabilities 1,526,839 1,424,685
---------- ----------
Stockholders' equity:
Common Stock, Class A $.01 par value: 450,000,000 shares authorized,
61,605,587 shares issued and outstanding at March 31, 1998; and
61,273,746 shares issued and outstanding at December 31, 1997 616 613
Common Stock, Class B $.01 par value: 300,000,000 shares authorized,
121,464,778 shares issued and outstanding at March 31, 1998 and
December 31, 1997 1,215 1,215
Additional paid-in capital 1,668,547 1,654,328
Unrealized gain on marketable securities 159 164
Accumulated deficit (565,873) (503,679)
---------- ----------
1,104,664 1,152,641
Less cost of Class B Common Stock held in treasury, 7,975,738 shares at
March 31, 1998 and December 31, 1997 (121,025) (121,025)
---------- ----------
Total stockholders' equity 983,639 1,031,616
---------- ----------
Total liabilities and stockholders' equity $2,510,478 2,456,301
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Revenues:
Telecommunications services ($2,522 and
$1,942 for the three months ended March 31, 1998
and 1997, respectively, with related parties) $ 160,077 $ 96,844
Expenses:
Operating 90,764 57,337
Selling, general and administrative 47,140 33,371
Merger related 9,330 -
Depreciation and amortization 49,102 29,756
------------- --------------
Total expenses 196,336 120,464
------------- --------------
Operating loss (36,259) (23,620)
------------- --------------
Interest:
Interest income 5,941 11,290
Interest expense ($750 and $1,474 for the
three months ended March 31, 1998 and
1997, respectively, with related parties) (31,524) (29,508)
------------- --------------
Total interest (25,583) (18,218)
------------- --------------
Loss before equity in losses of unconsolidated
affiliates and income tax provision (61,842) (41,838)
Equity in losses of unconsolidated affiliates - (2,590)
------------- --------------
Loss before income tax provision (61,842) (44,428)
Income tax provision (352) (600)
------------- --------------
Net loss $ (62,194) $ (45,028)
============= =============
Loss per share $ (.36) $ (.28)
============= =============
Weighted average number of shares outstanding 174,881,624 161,665,547
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Unrealized
Class A Class B Additional Gain(Loss) on
Common Common Paid-In Marketable
Stock Stock Capital Securities
----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 613 $ 1,215 $ 1,654,328 $ 164
Unrealized loss on marketable securities
- - - (5)
Issuance of 331,841 shares of Class A
Common Stock upon exercise of options
and employee stock grants 3 - 14,219 -
Net loss - - - -
---------- ----------- -------------- -----------
Balance at March 31, 1998 $ 616 $ 1,215 $ 1,668,547 $ 159
=========== ============ ============== ============
<CAPTION>
Total
Accumulated Treasury Stockholders'
Deficit Stock Equity
------------- ------------- ---------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ (503,679) $ (121,025) $ 1,031,616
Unrealized loss on marketable securities - - (5)
Issuance of 331,841 shares of Class A
Common Stock upon exercise of options
and employee stock grants - - 14,222
Net loss (62,194) - (62,194)
---------- ----------- ------------
Balance at March 31, 1998 $ (565,873) $ (121,025) $ 983,639
========== =========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (62,194) $ (45,028)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities, net of effects of
acquisitions:
Depreciation and amortization 49,102 29,756
Amortization of notes costs 675 676
Equity in losses of unconsolidated affiliates - 2,590
Amortization of deferred credits (4,873) (906)
Provision for losses on accounts receivable 2,722 969
Accretion of discount on Senior Discount Notes 20,442 18,344
Accretion of TCI note - 506
(Increase) in operating assets and increase (decrease) in operating
liabilities:
Accounts receivable (21,181) (14,947)
Other assets (1,798) (11,058)
Accounts payable and accrued liabilities 93,635 (55,710)
Deferred credits 10,564 7,923
--------- --------
Net cash provided by (used for) operating activities 87,094 (66,885)
--------- --------
Cash flows from investing activities:
Capital expenditures (214,395) (70,720)
Investments in and advances to unconsolidated affiliates (1,572) (7,466)
Proceeds from sales and maturities of marketable securities, net
of purchases 62,074 29,924
Cash paid for acquisitions, net of cash acquired (116) (2,331)
--------- --------
Net cash used for investing activities (154,009) (50,593)
--------- --------
Cash flows from financing activities:
Principal payments on capital leases (11,355) (4,894)
Proceeds from the exercise of employee stock options 1,864 422
--------- --------
Net cash used for financing activities (9,491) (4,472)
--------- --------
Net decrease in cash and cash equivalents (76,406) (121,950)
Cash and cash equivalents, January 1 173,331 277,540
--------- --------
Cash and cash equivalents, March 31 $ 96,925 $155,590
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------- ---------------
Supplemental Schedule of Cash Paid for Interest and Non-Cash Investing
and Financing Activities:
<S> <C> <C>
Cash paid during the period for interest $ 17,138 $ 17,017
============= =============
Compensation paid in stock $ 12,355 $ -
============= =============
Fixed assets acquired under capital leases $ 4,101 $ 84
============= =============
In February 1997, TCG purchased all of the assets and liabilities of
CERFnet Services, Inc. for TCG's Class A Common Stock:
Fair value of 2,100,000 Class A Common Stock $ - $ 47,407
Fair value of net assets acquired - (2,980)
------------- -------------
Goodwill recorded from non-cash transactions $ - $ 44,427
============= =============
In March 1997, TCG purchased all of the assets and liabilities of
Eastern TeleLogic Corporation for TCG's Class A Common Stock:
Fair value of 2,757,083 Class A Common Stock $ - $ 46,078
Fair value of net liabilities acquired $ - 121,232
------------- -------------
Goodwill recorded from non-cash transactions $ - $ 167,310
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
1. Organization and Operations
Teleport Communications Group Inc. ("TCG" or the "Company"), the first
and largest competitive local exchange carrier ("CLEC") in the United States,
offers comprehensive telecommunications services in major metropolitan markets
nationwide. TCG competes with incumbent local exchange carriers ("ILECs") by
providing high quality, integrated telecommunications services, primarily over
fiber optic digital networks, to meet the voice, data and video transmission
needs of its customers. TCG's customers are principally telecommunications
intensive businesses, healthcare and educational institutions, governmental
agencies, long distance carriers and resellers, Internet service providers,
disaster recovery service providers, wireless communications companies and
financial services companies. TCG offers these customers technologically
advanced telecommunications services, as well as superior customer service,
flexible pricing and vendor and route diversity.
TCG, incorporated in March 1983, and TCG Partners, formed in December
1992, were each owned by Cox Communications, Inc. ("Cox"), Tele-Communications,
Inc. ("TCI"), Comcast Corporation ("Comcast"), and Continental Cablevision, Inc.
("Continental") until June 26, 1996.
In connection with the public offerings of Class A Common Stock, Senior
Notes and Senior Discount Notes on July 2, 1996, TCG and Cox, TCI, Comcast and
Continental entered into a reorganization agreement dated as of April 18, 1996
(the "TCG Reorganization Agreement"), pursuant to which TCG Partners and certain
of the Company's unconsolidated affiliates became wholly-owned subsidiaries of
TCG and TCG acquired the minority interests of the owners of the remaining
unconsolidated affiliates.
As of March 31, 1998, TCI, Cox and Comcast (the "Cable Stockholders")
owned 42.98%, 34.44% and 22.58%, respectively, of the Company's Class B Common
Stock, representing 40.85%, 32.67% and 21.41%, respectively, of the combined
voting power of the Company's combined Class A and Class B Common Stock (the
"Common Stock"). As of March 31, 1998, TCG's Common Stock was owned 28.44%,
22.32%, 14.63% and 34.61% by TCI, Cox, Comcast and public shareholders,
respectively.
The accompanying financial statements have been prepared on the
accrual basis of accounting. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results expected for
the full year.
1997 Equity Offering
TCG filed a registration statement for a public offering (the "1997
Equity Offering") of 17,250,000 shares of Class A Common Stock on October 10,
1997, and the 1997 Equity Offering was consummated on November 13, 1997. Of the
17,250,000 shares, 7,304,408 were offered by the Company and 9,945,592 shares
were offered by Continental. The Company did not receive any proceeds from the
sale of shares by Continental. The net proceeds to the Company from its sale of
shares pursuant to the 1997 Equity Offering were approximately $317.4 million,
after deducting the underwriting discount and estimated expenses of
approximately $11.3 million.
The AT&T Merger
On January 8, 1998, TCG entered into an Agreement and Plan of Merger
(the "AT&T Agreement") with AT&T Corp., a New York corporation ("AT&T"), and TA
Merger Corp., a Delaware corporation and a wholly-owned subsidiary of AT&T
("AT&T Merger Sub"), pursuant to which, subject to satisfaction of the closing
conditions specified therein, AT&T Merger Sub would merge with and into TCG,
with TCG surviving as a wholly-owned subsidiary of AT&T (the "AT&T Merger").
Statements made herein regarding the AT&T Merger Agreement are not complete, and
reference is made to the copy of the AT&T Merger Agreement filed with the
Commission as an exhibit to the TCG's Report on Form 8-K on January 26, 1998.
The following disclosure is qualified in its entirety by such reference.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
In the AT&T Merger, each share of TCG Class A Common Stock (including
shares issued to former ACC stockholders in the ACC Merger (as defined in Note
3), and each share of Class B Common Stock of TCG, par value $0.01 per share
(the "TCG Class B Common Stock," and together with the TCG Class A Common Stock,
the "TCG Common Stock") will be converted into 0.943 of a share of AT&T Common
Stock. TCG and AT&T expect that the exchange will be tax-free to TCG
stockholders, except to the extent cash is received in lieu of fractional
shares. The AT&T Agreement contains customary representations and warranties of
the parties, which will not survive effectiveness of the AT&T Merger. In
addition, the AT&T Agreement contains certain restrictions on the conduct of
TCG's business prior to the consummation of the AT&T Merger. Pursuant to the
AT&T Agreement, TCG has agreed, for the period prior to the AT&T Merger, to
operate its business in the ordinary course, refrain from taking various
corporate actions without the consent of AT&T, and not solicit or enter into
negotiations or agreements relating to a competing business combination.
Pursuant to a Voting Agreement among the Cable Stockholders and AT&T,
each Cable Stockholder executed and delivered to TCG a written consent in favor
of and approving the AT&T Agreement and the AT&T Merger. As a result, unless the
AT&T Agreement is amended or a provision of it waived and such amendment or
waiver has a material adverse effect upon TCG stockholders, no further vote or
meeting of TCG Stockholders is necessary to approve or consummate the AT&T
Merger.
Pursuant to the Voting Agreement, each Cable Stockholder, on behalf of
itself and certain of its affiliates, also agreed that (i) certain
rights-of-way, colocation and similar agreements with TCG and its affiliates
would be amended as of January 8, 1998 to provide that each such agreement would
remain in effect for the longer of five years from such date and the current
term of such agreement; and (ii) certain existing facilities agreements,
facilities lease agreements or other arrangements (including arrangements
relating to future agreements) relating to the lease or other grant of right to
use fiber optic facilities between such Cable Stockholder or any of its
affiliates and TCG or any of its subsidiaries would be automatically amended as
of January 8, 1998 to conform with a form of Master Facilities Agreement agreed
to by AT&T, the Cable Stockholders and TCG at the time of the execution of the
AT&T Agreement.
Consummation of the AT&T Merger is subject to certain closing
conditions, including TCG and AT&T obtaining certain required regulatory
approvals and other related consents. Accordingly, there can be no assurance
that the AT&T Merger will be successfully consummated or, if successfully
completed, when it might be completed.
In March 1998, TCG and AT&T commenced a trial of a combined local and
long distance business line product sold under the AT&T brand name.
For further information about the AT&T Merger see AT&T Corp.'s
Registration Statement on Form S-4 (File No. 333-49419).
2. Significant Accounting Policies
Consolidation
The 1998 and 1997 consolidated financial statements include the
accounts of TCG and all wholly-owned subsidiaries.
All material intercompany transactions and balances have been
eliminated in consolidation. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These financial
statements and notes should be read in conjunction with the financial statements
of Teleport Communications Group Inc. and Subsidiaries included as part of TCG's
Form 10-K for the year ended December 31, 1997, and the pro forma financial
information included as part of TCG's Registration Statement on Form S-4 (File
No. 333-45833) (the "ACC S-4").
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Recently Issued Accounting Pronouncements
Comprehensive Income--In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997. Management has evaluated the effect on its financial
reporting from the adoption of this statement and has found the majority of
required disclosures not to be applicable. The amounts for the three months
ended March 31, 1997 and 1996, which consist solely of unrealized gain or loss
on marketable securities, were not material, therefore no further disclosure
is required.
Segments of an Enterprise and Related Information--In June 1997, the
FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." This statement is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss,
specific revenue and expense items, and assets for reportable segments. It also
requires the reconciliation of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments, in each
case to the corresponding amounts in the general purpose financial statements.
The Company has not yet determined what additional disclosures may be required
in connection with adopting SFAS No. 131.
3. Acquisitions
ACC Corp.
On November 26, 1997, TCG entered into an Agreement and Plan of Merger
(the "ACC Agreement") by and among TCG, TCG Merger Co., Inc., a Delaware
corporation and a wholly-owned subsidiary of TCG ("MergerCo"), and ACC Corp., a
Delaware corporation ("ACC"), providing for the merger of MergerCo with and into
ACC (the "ACC Merger"), with ACC becoming a wholly-owned subsidiary of TCG. ACC
is a switch-based provider of telecommunications services to businesses,
residential customers, and educational institutions in the United States, United
Kingdom and Canada. ACC has recently commenced operations in Germany. The ACC
Merger was consummated on April 22, 1998. Pursuant to the ACC Agreement,
the ACC stockholders received 0.90909 of a share of TCG Class A Common Stock for
each ACC share. The total aggregate amount received by the ACC stockholders was
approximately $1.1 billion.
It is TCG's intention to more fully evaluate the acquired assets and
liabilities, and as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired with ACC Corp. may change.
Kansas City Fiber Network, L.P.
TCG has agreed to purchase substantially all of the assets used in
connection with a fiber optic communications of Kansas City Fiber Network, L.P.
("KCFN"), a CLEC, a majority of the equity which is owned by TCI. Pending the
closing of such transaction, TCG is providing certain services in connection
with the operations of such communications system, which is located in the
Kansas City Missouri/Overland Park, Kansas metropolitan area. The purchase price
is approximately $55 million in cash and TCG will be required to assume certain
obligations of the seller. An asset and a related liability have been recorded
on TCG's balance sheet. Consummation of the purchase of the assets of KCFN is
subject to the receipt of required regulatory approvals and other related
consents. Accordingly, there can be no assurance that the purchase of the assets
of KCFN will be successfully consummated or, if successfully completed, when it
might be completed.
It is TCG's intention to more fully evaluate the acquired assets and
liabilities, and as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired with KCFN may change.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Pro Forma Financial Information
Unaudited pro forma financial information for the three months ended
March 31, 1998 and 1997 as if the acquisitions of Eastern TeleLogic Corp.
("ETC"), CERFnet Services Inc. ("CERFnet") and BizTel, Inc. ("BizTel") had
occurred on January 1, 1997, and the acquisitions of ACC and KCFN had occurred
at the beginning of each of the respective periods is as follows (in thousands,
except share amounts):
1998 1997
---- ----
Revenue........................................ $ 273,031 $ 187,566
Net loss....................................... $ (64,668) $ (46,234)
Loss per share................................. $ (0.33) $ (0.25)
Weighted average number of shares outstanding.. 193,873,985 185,493,588
Pro forma adjustments for the three months ended March 31, 1998,
include the amortization of the intangible assets relating to the aforementioned
acquisitions. Pro forma adjustments for the three months ended March 31, 1997
include the reversal of TCG's equity in the losses of ETC and BizTel as well as
amortization of the intangible assets relating to the aforementioned
acquisitions. It is TCG's intention to more fully evaluate the acquired assets
and liabilities, and as a result, the allocation of the acquisition costs among
the tangible and intangible assets acquired with ACC and KCFN may change.The pro
forma financial information presented above is not necessarily indicative
of the operating results which would have been achieved had the transactions
occurred at the beginning of the periods presented or of the results to be
achieved in the future.
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue
Total revenues increased to $160.1 million for the three months ended
March 31, 1998 from $96.8 million for the comparable period in 1997,
representing an increase of $63.3 million, or 65%. The increase in revenue
occurred in every revenue category, most significantly switched services. These
increases in revenues are also a result of increased market penetration,
primarily in TCG's existing markets, as well as expansion into new markets.
Annualized monthly recurring revenue increased to approximately $632.4
million for the month of March 31, 1998, from $412.7 million for the comparable
period in 1997, an increase of $219.7 million, or 53%. Monthly recurring revenue
represents monthly service charges billable to telecommunications services
customers for the month indicated, but excludes non-recurring revenues for
certain one-time services, such as installation fees or equipment charges.
Switched services revenue increased 86% for the three months ended
March 31, 1998 from switched services revenue for the comparable period in 1997.
Increased monthly dedicated services revenue, as well as sales growth in
switched services products to new customers, also contributed to overall revenue
growth. Dedicated services revenue increased 44% for the three months ended
March 31, 1998 from dedicated services revenue for the comparable period in
1997.
Operating Expenses
Operating expenses increased to $90.8 million for the three months
ended March 31, 1998, from $57.3 million for the three months ended March 31,
1997, an increase of $33.5 million, or 58%. Operating expenses were
approximately 57% of revenue for the three months ended March 31, 1998, and 59%
of revenue for the three months ended March 31, 1997. The year-over-year
increase is directly related to the costs associated with the expansion of TCG's
networks. These expenses include costs specifically associated with network
operations, including compensation costs for technical personnel, access,
rights-of-way, node, rent and maintenance expenses. Offsetting these expense
increases are reductions in expenses due to renegotiation of interconnection
agreements with incumbent local exchange carriers ("ILECs").
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $47.1 million
for the three months ended March 31, 1998, from $33.4 million for the three
months ended March 31, 1997, an increase of $13.7 million, or 41%. Selling,
general and administrative expenses were approximately 29% of revenue for the
three months ended March 31, 1998 and 34% of revenue for the three months ended
March 31, 1997. During the month ended March 31, 1998, TCG recorded a one-time
benefit related to certain compensation reimbursements arising from a previously
acquired company, thereby reducing overall first quarter 1998 selling, general
and administrative expenses. The year-over-year increase is attributable to the
costs required to maintain an infrastructure which supports the continued
expansion of the Company's networks and the introduction of new services. These
costs include compensation, occupancy, insurance, professional fees, and sales
and marketing expenses.
Merger Related Expenses
The Company has recorded non-recurring merger costs of approximately
$9.3 million which includes professional fees and other expenses related to the
pending AT&T Merger.
EBITDA Before Merger Related Expenses
EBITDA (earnings before interest, income tax provision, depreciation,
amortization and equity in losses of unconsolidated affiliates) before merger
related expenses is defined as EBITDA excluding the one-time merger costs
related to by the AT&T Merger. EBITDA before merger related expenses increased
<PAGE>
to $22.2 million for the three months ended March 31, 1998, from EBITDA of $6.1
million for the three months ended March 31, 1997, or an increase of $16.1
million. Increases in EBITDA in both existing and expansion cities are prompted
by the leveraging of TCG's network, the growth of switch revenues, and the
controlling of operating and selling, general and administrative expenses.
EBITDA
EBITDA increased to $12.8 million for the three months ended March 31,
1998, from $6.1 million for the three months ended March 31, 1997, an increase
of $6.7 million, or 110%. Increases in EBITDA in both existing and expansion
cities are prompted by the leveraging of TCG's network, the growth of switch
revenues, and the controlling of operating and selling, general and
administrative expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $49.1 million for
the three months ended March 31, 1998, from $29.8 million for the three months
ended March 31, 1997, an increase of $19.3 million, or 65%. This increase is
primarily attributable to increased depreciation related to the expansion of the
Company's local telecommunications networks throughout the United States and
increased amortization of goodwill, FCC licenses and other intangibles related
to various 1997 acquisitions.
Interest Income
Interest income decreased to $5.9 million for the three months ended
March 31, 1998, from $11.3 million for the three months ended March 31, 1997, or
a decrease of $5.4 million. The decrease is attributable to a decrease in the
average outstanding balance of cash and cash equivalents and marketable
securities.
Interest Expense
Interest expense increased to $31.5 million for the three months ended
March 31, 1998, from $29.5 million for the three months ended March 31, 1997, or
an increase of $2.0 million. The increase primarily resulted from the interest
expense on the bank debt which TCG assumed in the acquisition of ETC.
Equity in Losses of Unconsolidated Affiliates
TCG no longer records equity in losses of unconsolidated affiliates due
to the consolidation of ETC and BizTel. Equity in losses of unconsolidated
affiliates for the three months ended March 31, 1997 was $2.6 million.
Net Loss
The Company's results for the three months ended March 31, 1998,
reflected a net loss of $62.2 million, compared to a net loss of $45.0 million
for the three months ended March 31, 1997, or an increase of $17.2 million. This
increase in net loss is attributable to the factors discussed above.
Liquidity and Capital Resources
TCG had total assets of approximately $2.5 billion as of March 31, 1998
and December 31, 1997. At March 31, 1998 the Company's current assets of
approximately $481.5 million exceeded current liabilities of $452.4 million,
providing working capital of approximately $29.1 million. Network and equipment,
net of depreciation, as of March 31, 1998, aggregated approximately $1.7
billion.
Net cash used for financing activities for the three months ended March
31, 1998 and March 31, 1997, was $9.5 million and $4.5 million, respectively,
comprised primarily of principal payments on capital leases partially offset by
proceeds from the exercise of employee stock options for both periods. Net cash
provided by (used for) operating activities was $87.1 million and ($66.9)
<PAGE>
million for the three months ended March 31, 1998 and 1997, respectively. Net
cash used for investing activities was $154.0 million and $50.6 million for the
three months ended March 31, 1998 and 1997, respectively. As of March 31, 1998,
cash and cash equivalents were $96.9 million and marketable securities were
$244.8 million.
TCG made capital expenditures (excluding acquisitions) of $218.5
million and $70.7 million for the three months ended March 31, 1998 and 1997,
respectively. The Company anticipates that capital expenditures (excluding
acquisitions) will be in excess of $1.1 billion in the aggregate in 1998,
primarily for the expansion, development and construction of its networks, the
acquisition and deployment of switches and the expansion of operating support
systems.
Earnings before fixed charges were insufficient to cover fixed charges
for the three months ended March 31, 1998 and 1997, by $61.8 million and $44.4
million, respectively.
The Company has incurred significant net operating losses resulting
from the development and operation of new networks which TCG expects will
continue as it expands its networks. Persistent demands from TCG's customers for
capital intensive local services drives the development, construction and
expansion of its networks. While cash provided by operations may be sufficient
to fund modest incremental growth it may not be sufficient to fund the extensive
expansion and development of networks as currently planned.
1997 Equity Offering
On November 13, 1997, TCG consummated a public offering of 17,250,000
shares of TCG Class A Common Stock (the "1997 Equity Offering"). Of the
17,250,000 shares, 7,304,408 shares were offered by TCG (realizing net proceeds
of approximately $317.4 million after deducting the underwriting discount and
expenses of approximately $11.3 million to the Company) and 9,945,592 shares
were offered by Continental Holding Company, a Massachusetts business trust, the
shares of which are owned by Continental, which is wholly-owned by U S WEST,
Inc. Continental acquired its interest in TCG in May 1993. As a result of the
consummation of the 1997 Equity Offering, Continental does not hold any shares
of TCG Common Stock.
TCG has invested the proceeds from the 1997 Equity Offering in
marketable securities such as Treasury bills, floating rate notes and commercial
paper.
Available Credit
Effective as of March 1, 1997, TCG completed its acquisition of ETC for
2,757,083 shares of its Class A Common Stock. The Company also assumed $53
million in ETC debt. In addition, as part of the acquisition, TCG assumed ETC's
credit facility. This facility, which ETC entered into in October 1995, is a $60
million credit facility (the "ETC Facility") with certain banks. The ETC
Facility provides for interest based upon either the base rate, or London
Interbank Offered Rate ("LIBOR"), adjusted as defined in the ETC Facility
(8.203% at March 31, 1998), which is payable quarterly. Borrowings under the ETC
Facility are collateralized by substantially all of the assets and outstanding
common stock of ETC. In addition, the ETC Facility contains certain restrictive
covenants which, among other things, require ETC to maintain certain debt
service coverage ratios and limit the payment of dividends and capital
expenditures. In addition, ETC is required to pay .375% per year on the
available portion of the ETC Facility. The total outstanding balance at
March 31, 1998, was $52.6 million and is due on September 30, 1998. ETC has
been renamed TCG Delaware Valley, Inc.
To finance TCG's capital expenditures, acquisitions, investments,
working capital and for other general corporate purposes, TCG's wholly-owned
subsidiary, TCG New York, Inc. ("TCGNY"), maintains a $400 million Revolving
Credit Agreement. The Revolving Credit Agreement is secured by (i) the stock of
the following TCGNY wholly-owned subsidiaries: TC New York Holdings I, Inc., TC
New York Holdings II, Inc., TC Systems, Inc., TCG Payphones, Inc. and the
<PAGE>
partnership interests in Teleport Communications, (ii) a negative pledge on the
assets and a pledge of the stock of each existing and future subsidiary of
TCGNY, (iii) a negative pledge on the contracts that relate to TCGNY operations,
(iv) upstream guarantees from any existing and future subsidiaries of TCGNY and
(v) a lien on all present and future intercompany indebtedness owed to TCGNY
from TCG and all its subsidiaries. As of March 31, 1998, there was no
outstanding balance and $318.0 million was available to the TCGNY.
The Revolving Credit Agreement contains various covenants and
conditions, including restrictions on additional indebtedness, maintenance of
certain financial ratios and limitations on capital expenditures. None of these
covenants negatively impact TCG's liquidity or capital resources at this time.
In addition, TCGNY is required to pay .375% per year on the available portion of
the Revolving Credit Agreement.
Future Commitments
TCG has agreed to purchase substantially all the assets used in
connection with the fiber optic communication system of Kansas City Fiber
Network, L.P., a CLEC, a majority of the equity of which is owned by TCI.
Pending the closing of such transaction, TCG is providing certain services in
connection with the operations of such communication systems. The purchase price
is approximately $55 million in cash and TCG will be required to assume certain
obligations of the seller.
TCG intends to use the remaining proceeds from the 1997 Equity Offering
to expand and develop existing and new networks and for general corporate and
working capital purposes. A significant portion of such proceeds will be
contributed or advanced to the Company's subsidiaries which own and operate the
networks in the local markets. Expected capital expenditures for the expansion,
development and acquisition of networks and other telecommunications assets
include (i) the purchase and installation of switches, electronics, fiber and
other additional technologies in existing networks and in networks to be
constructed in new markets and (ii) the acquisition and expansion of networks
and other telecommunications assets currently owned and operated by other
companies. Expected expenditures for general corporate and working capital
purposes include (i) expenditures with respect to the Company's management
information systems and corporate service support infrastructure, (ii) operating
and administrative expenses with respect to new networks and (iii) debt service.
The Company, to meet its capital requirements in 1998, intends to raise
additional capital, subject to certain restrictions imposed by the AT&T
Agreement. The AT&T Agreement provides that the Company must offer AT&T the
right to provide financing which the Company proposes to engage in with third
party lenders or other financing sources such as public or private debt markets
on the same terms and conditions as the Company could have obtained from such
sources.
The Company from time to time evaluates acquisitions and investments in
light of the Company's long range plans. Such acquisitions and investments, if
realized, could use a material portion of the Company's financial resources and
may accelerate the need for raising additional capital in the future.
Regulatory Matters
TCG is subject to federal and state regulation. In most states, TCG is
subject to certification and tariff filing requirements with respect to
intrastate services. TCG is permitted to file tariffs for interstate access
services with the Federal Communications Commission ("FCC"), although such
tariff requirements are generally less onerous than those imposed on ILECs which
offer similar services. On June 19, 1997, the FCC adopted an Order that permits
competitive local exchange carriers ("CLECs") like TCG to voluntarily withdraw
their FCC tariffs for most interstate services. TCG has not decided whether to
withdraw its FCC tariffs. On the same day, the FCC initiated a further inquiry
to determine whether to require that competitive local exchange carriers like
TCG withdraw their tariffs. While TCG cannot predict what decision the FCC will
reach in this further inquiry, were the FCC to require the withdrawal of TCG's
tariffs and replacement of those tariffs with contractual arrangements, TCG
could incur substantial legal and administrative expense.
Under the Telecommunications Act of 1996 (the "1996 Act"), all local
exchange carriers, including TCG, must interconnect with other carriers, make
their services available for resale by other carriers provide non-discriminatory
access to rights-of-way, offer reciprocal compensation for termination of
traffic and provide dialing parity and telephone number portability. TCG, ILECs,
<PAGE>
other CLECs and long distance carriers, will also be required to contribute some
portion of their gross revenues (subject to adjustments) to the support of
universal service programs under the FCC's rules implementing the universal
service provisions of the 1996 Act, which were adopted on May 7, 1997. This
order is the subject of appeals pending before the U.S. Court of Appeals for the
Fifth Circuit. For the first quarter of 1998, the federal universal service
surcharge was 0.72 percent of all revenues and 3.19 percent of interstate and
international revenues for all carriers with interstate revenues. Several
parties have sought judicial review of the FCC's universal service rules.
In addition, the 1996 Act allows states to adopt universal service
rules, so long as they are not inconsistent with the federal program. State
universal service proceedings are at various stages of implementation, but it is
likely that both federal and state contribution requirements will increase
substantially in 1999. TCG may also be eligible to receive funds from universal
service programs as TCG provides services to schools and libraries.
On August 8, 1996, the FCC released both a First Report and Order and a
Second Report and Order and a Memorandum Opinion and Order (collectively, the
"Interconnection Orders"). The Interconnection Orders established a framework of
minimum national standards and procedures to enable State Public Utility
Commissions and the FCC to begin implementing many of the local competition
provisions of the 1996 Act. On September 27, 1996, the FCC issued an Order on
Reconsideration of the First Report and Order, in which it added a
non-usage-sensitive charge to the rate for unbundled switching and clarified
that, as a practical matter, an interexchange carrier ("IXC") could not lease
unbundled switching for the provision of exchange access service only until July
1, 1997. The new rules were scheduled to become effective on September 30, 1996.
On October 15, 1996, however, the U.S. Court of Appeals for the Eighth Circuit
issued a stay of certain provisions of the rules pending its resolution of
numerous petitions for review filed by ILECs and others. Specifically, the Court
stayed the FCC's pricing rules and its "pick and choose" rule, which would have
allowed CLECs to receive the benefit of the most favorable provisions contained
in an ILEC's agreements with other carriers. On July 18, 1997, the Court of
Appeals held that the pricing rules and the "pick and choose" rule exceeded the
FCC's authority and were inconsistent with the terms of the 1996 Act. The Court
of Appeals also invalidated the FCC's rule requiring that interconnection
agreements negotiated prior to enactment of the 1996 Act be submitted to state
commissions for approval, and it held that the FCC had no authority to review or
enforce agreements approved by state regulators. On rehearing, the Court of
Appeals further held that the FCC has no authority to prohibit ILECs from
disconnecting unbundled network elements from each other when competitors ask
ILECs to refrain from doing so. The Supreme Court has rejected applications to
vacate a stay of the FCC's rules pending appeal, but it has agreed to hear
arguments on the merits of the case in the fall of 1998.
Various ILECs have urged the FCC to require Internet Service Providers'
("ISPs") to pay the same rates that IXCs pay for access to public switched
telephone exchanges. Although this position was rejected by the FCC in its May
7, 1997 access charge Order, certain ILECs have also taken the position that
they will not pay the reciprocal compensation normally associated with a local
call to CLECs with respect to telephone services from the ILEC's customer to an
ISP served by a CLEC on the grounds that such calls are exchange access calls
rather than local calls. TCG believes these positions are contrary to the 1996
Act and every state commission which has so far considered the issue has
declared that ILECs should pay CLECs reciprocal compensation for the Internet
traffic. However, no prediction can be made whether the ILECs ultimately will be
successful in asserting their positions. If state commissions, the FCC or courts
were to reach final decisions which found in favor of the ILECs, such decisions
could result in a material adverse effect on TCG, both as an ISP itself and as a
provider of TCG local exchange services to other ISPs.
Forward-Looking Statements
Certain of the matters discussed in this report may be forward-looking
within the meaning of Section 21E of the Securities Exchange Act of 1934. For
example, the integration of ACC and the proposed AT&T Merger are subject to
inherent uncertainties outside of TCG's control, and there can be no assurance
that ACC will perform in accordance with past results or expectations or that
the AT&T Merger will be consummated. Factors that could adversely effect TCG's
integration and operation of ACC include certain considerations discussed under
the caption "Risk Factors" in the ACC S-4, and factors that could adversely
effect TCG's operations generally include certain considerations discussed under
<PAGE>
the caption "Risk Factors" in TCG's Form 10K for the year ended December 31,
1997. Such factors could cause future results to vary materially from TCG's
historical results of operations filed in TCG's Form 10K for the year ended
December 31, 1997.
Effects of Recently Issued Accounting Standards
Comprehensive Income--In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income." This statement is effective for financial
statements issued for periods beginning after December 15, 1997. Management has
evaluated the effect on its financial reporting from the adoption of this
statement and has found the majority of the disclosures to be not applicable.
The amounts for the three months ended March 31, 1997 and 1996 were not
material, therefore no further disclosure is required.
Segments of an Enterprise and Related Information--In June 1997, the
FASB also issued SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information." This statement is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss,
specific revenue and expense items, and assets for reportable segments. It also
requires the reconciliation of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments to the
corresponding amounts in the general purpose financial statements. The Company
has not yet determined what additional disclosures may be required in connection
with adopting SFAS No. 131.
Effects of Inflation
Inflation has not had a significant effect on the Company's operations.
However, there can be no assurance that inflation will not have a material
effect on the Company's operations in the future.
The Year 2000
The Year 2000 problem arises from the fact that due, to early
limitations on memory and disk storage, many computer programs indicate the year
by only two digits, rather than four. This limitation can cause programs (both
system and application) that perform arithmetic operations, comparisons, or
sorting of data fields to yield incorrect results when working outside the year
range of 1900-1999. TCG began its investigation into Year 2000 compliance in the
fourth quarter of 1996 and expects to complete its analysis during 1998. The
analysis covers all network equipment used to provide services to TCG customers,
network operations support systems used to support the operations of its
networks, and all administrative support systems. TCG is working closely with
its vendors to effectuate their Year 2000 correction plans on a timely basis.
There can be no assurance that such procedures will be successfully implemented
within the required time frames or that additional procedures will not be
necessary. A failure of TCG's or of its significant vendors' computer systems
could have a material adverse effect on TCG's business and financial position
and results of operations. The cost to TCG of the procedures to correct the Year
2000 problem is currently estimated at $5.0 million.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
None.
<PAGE>
Part II
- Other Information
Item 1: Legal Proceedings
In April 1997, a complaint was filed seeking damages in an unspecified
amount against the Company in the Circuit Court of Cook County, Illinois by two
former customers of the Company and an alleged class purporting to consist of
investors in one of the customers, alleging fraud and breach of contract. The
initial complaint was dismissed in September 1997 and an amended complaint was
refiled by the plaintiffs in October 1997. The Company believes that the
allegations are without merit and that it possesses meritorious counterclaims
for damages arising from breach of contract. The Company additionally believes
that any costs arising from this lawsuit will not have a material adverse effect
on its financial condition, results of operations or cash flows.
On December 16, 1997, prior to public announcement of the AT&T Merger,
an action was filed by a TCG public stockholder in the Delaware Court of
Chancery against TCG, TCG's directors and the Cable Stockholders. The
plaintiff's complaint alleges that, based on public reports, TCG's directors,
management and controlling stockholders were negotiating the sale of TCG to AT&T
on a preferential basis. This sale on a preferential basis, the complaint
alleges, would offer little or no premium over the current market price of TCG
Class A Common Stock and is therefore unfair and inadequate to TCG's public
stockholders. The plaintiff seeks to enjoin the merger of TCG and AT&T or,
alternatively, to rescind the transaction and/or recover damages in the event
that the transaction is consummated. The complaint seeks to have the action
certified for class action status and to appoint the plaintiff as the class
representative.
On January 12, 1998, an action was filed by two TCG public stockholders
in the Delaware Court of Chancery against TCG, certain TCG directors and
officers, the Cable Stockholders and AT&T. The complaint alleges that the
exchange ratio in the AT&T Merger represents an inadequate premium for
stockholders of TCG Class A Common Stock. The complaint further alleges that the
actions of the TCG directors, officers and Cable Stockholders in connection with
the AT&T Merger constitute a breach of various fiduciary duties owed to the
holders of TCG Class A Common Stock. The plaintiffs seek to enjoin the merger of
TCG and AT&T or, alternatively, to rescind the transaction and/or recover
damages in the event that the transaction is consummated. The complaint seeks to
have the action certified for class action status and to appoint the plaintiffs
as the class representatives.
On January 28, 1998, an action was filed by a TCG public stockholder in
the Delaware Court of Chancery against TCG, certain TCG directors and officers,
and the Cable Stockholders. The complaint alleges that the exchange ratio in the
AT&T Merger represents an inadequate premium for stockholders of TCG Class A
Common Stock. The complaint further alleges that the actions of the TCG
directors, officers and Cable Stockholders in connection with the AT&T Merger
constitute a breach of various duties owed to the stockholders of TCG Class A
Common Stock. The plaintiffs seek to enjoin the merger of TCG and AT&T or,
alternatively, to rescind the transaction and/or recover damages and fees in the
event that the transaction is consummated. The complaint seeks to have the
action certified for class action status and to appoint the plaintiff as the
class representative.
Plaintiffs' counsel in the above three putative stockholder class
action proceedings have agreed (i) to defer the obligation of the defendants to
answer the actions and (ii) to consolidate the actions by filing an amended
consolidated complaint. As of May 14, 1998, the amended consolidated complaint
had not been filed. The Company believes that these proceedings, individually
and in the aggregate, are without merit and that any associated costs will not
have a material adverse effect on TCG's financial condition, results of
operations or cash flows.
Item 2: Changes in Securities and Use of Proceeds
There were no reportable events during the quarter ended March 31,
1998.
<PAGE>
Item 3: Defaults Upon Senior Securities
There were no reportable events during the quarter ended March 31,
1998.
Item 4: Submission of Matters to a Vote of Security Holders
Pursuant to the provision of the Amended and Restated Stockholders'
Agreement, dated as of June 26, 1996, among the Company and the Cable
Stockholders, by unanimous vote of each of the holders of the Company's Class B
Common Stock on April 1, 1998, Gary S. Howard having been designated a nominee
by Comcast, was elected as a Director of the Company to fill the vacancy created
by resignation of Brendan R. Clouston.
Pursuant to a Voting Agreement among the Cable Stockholders and AT&T,
each Cable Stockholder executed and delivered to TCG a written consent, dated
January 8, 1998, in favor of and approving the AT&T Agreement and the AT&T
Merger. As a result, unless the AT&T Agreement is amended or a provision of it
is waived and such amendment or waiver has a material adverse effect upon TCG
stockholders, of it is waived, no further vote or meeting of TCG stockholders is
necessary to approve or consummate the AT&T Merger.
Item 5: Other Information
There were no reportable events during the quarter ended March 31,
1998.
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits:
Exhibit No.
*2.1 Reorganization Agreement, dated as of April 18, 1996
*****2.2 Agreement and Plan of Merger, dated as of November 26, 1997, by
and among Teleport Communications Group Inc., TCG Merger Co.,
Inc. and ACC Corp.
******2.3 Agreement and Plan of Merger Among AT&T Corp., TA Merger Corp.
and Teleport Communications Group Inc., dated as of January 8,
1998
*3.1 Amended and Restated Certificate of Incorporation of TCG, as
revised
*3.2 Amended and Restated By-laws of TCG, as revised
*4.1 Amended and Restated Stockholders' Agreement dated June 26, 1996.
*4.2 Indenture between TCG and United States Trust Company of
New York, as Trustee, relating the 11 1/8% Senior Discount Notes
due 2007 of TCG
*4.3 Indenture between TCG and United States Trust Company of New
York, as Trustee, relating to 9 7/8% Senior Notes due 2006 of
TCG
*4.4 Form of Stock Certificate for Teleport Communications Group,
Inc. Class A Common Stock
*4.5 Form of Global Security for 11 1/8% Senior Discount Notes due
2007 of TCG
*4.6 Form of Global Security for 9 7/8% Senior Notes due 2006 of TCG
******9.00 Voting Agreement
*10.1 New York Franchise Agreement, dated May 2, 1994, as amended
*10.2 Participation Agreement, dated May 15, 1984
*10.3 Agreement of Lease, dated May 15, 1984, as amended
*10.4 Keepwell Agreement, dated June 7, 1984, as amended
*10.5 Agreement of Lease with Teleport Associates, dated
November 10, 1987
*10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC
Systems, Inc. dated January 30, 1990
****10.7 Amended and Restated Loan Agreement, dated July 28, 1997
*10.8 Teleport Communications Group Inc. 1993 Unit Appreciation Plan
*10.9 Teleport Communications Group Inc. 1993 Stock Option Plan, as
amended
*10.10 Form of Teleport Communications Group Inc. Employee Stock
Purchase Plan
*10.11 Deferred Compensation Plan of Teleport Communications Group Inc.
*10.12 Make-up Plan of Teleport Communications Group Inc. for the
Retirement Savings Plan
*10.13 Teleport Communications Group Inc. 1996 Equity Incentive Plan
*10.14 Robert Annunziata Employment Agreement, dated December 18, 1992,
as amended
<PAGE>
*10.15 John A. Scarpati Employment Agreement, dated July 12, 1994, as
amended
*10.16 Robert C. Atkinson Employment Agreement, dated July 12, 1994, as
amended
*10.17 Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
amended
*10.18 Alf T. Hansen Employment Agreement, dated July 12, 1994, as
amended
*10.19 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996
*10.20 First Amendment to the Teleport Communications Group Inc. 1993
Stock Option Plan
*10.21 Second Amendment to the Teleport Communications Group Inc. 1993
Stock Option Plan
*10.22 First Amendment to the Teleport Communications Group Inc. 1996
Equity Incentive Plan
**10.23 Teleport Communications Group Inc. 1997 Employee Stock Purchase
Plan
***10.24 Teleport Communications Group Inc. Restricted Stock and Bonus
Plan
11.00 Computation of Loss Per Common Share
27.00 Financial Data Schedule
*Incorporated by reference to the corresponding exhibit of TCG's Registration
Statements on Form S-1 (File Nos. 333-3850 and 333-3984).
**Incorporated by reference to the corresponding exhibit of TCG's Registration
Statement on Form S-8 (File No. 333-30571).
***Incorporated by reference to the corresponding exhibit of TCG's Registration
Statement on Form S-8 (File No. 333-30569).
****Incorporated by reference to the corresponding exhibit of TCG's Registration
Statement on Form S-3 (File No. 333-37597).
*****Incorporated by reference from TCG's Periodic Report on Form 8-K, dated
November 26, 1997.
******Incorporated by reference from TCG's Periodic Report on Form 8-K, dated
January 8, 1998.
B. Reports on Form 8-K:
The following reports on Form 8-K were filed during the quarter ended
March 31, 1998.
An Item 5 report on Form 8-K, dated January 8, 1998, was filed to
announce that the Company had entered into an Agreement and Plan of Merger with
AT&T Corp.
An Item 7 report on Form 8-K/A, dated February 9, 1998, was filed to
amend the previously filed Item 2 report on Form 8-K, dated November 26, 1997 to
include ACC Corp. audited financial statements and the unaudited pro forma
financial statements reflecting the acquisition of ACC Corp.
An Item 5 report on Form 8-K, dated February 24, 1998, was filed to
report the Company's financial results for the fiscal quarter ended December 31,
1997.
An Item 5 report on Form 8-K, dated April 28, 1998, was filed to report
the Company's financial results for the fiscal quarter ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
TELEPORT COMMUNICATIONS GROUP INC.
Dated: May 14, 1998
By: /s/ John A. Scarpati
------------------------
Name: John A. Scarpati
Title: Senior Vice President
and Chief Financial Officer
Dated: May 14, 1998 By: /s/ Maria Terranova-Evans
--------------------------
Name: Maria Terranova-Evans
Title: Vice President and Controller
(Principal Accounting Officer)
Exhibit 11
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
Three Months Ended
March 31,
1998 1997
---- ----
Net loss $(62,194,000) $(45,028,000)
============ ============
Primary loss per common share:
Weighted average number of shares
outstanding 174,881,624 161,665,547
=========== ===========
Loss per share $ (.36) $ (.28)
=========== ===========
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<ARTICLE> 5
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 96,925
<SECURITIES> 244,750
<RECEIVABLES> 104,104
<ALLOWANCES> 12,515
<INVENTORY> 0
<CURRENT-ASSETS> 481,489
<PP&E> 2,091,579
<DEPRECIATION> 424,899
<TOTAL-ASSETS> 2,510,478
<CURRENT-LIABILITIES> 452,395
<BONDS> 1,131,182
0
0
<COMMON> 1,831
<OTHER-SE> 1,102,674
<TOTAL-LIABILITY-AND-EQUITY> 2,510,478
<SALES> 0
<TOTAL-REVENUES> 160,077
<CGS> 0
<TOTAL-COSTS> 90,764
<OTHER-EXPENSES> 49,102
<LOSS-PROVISION> 2,722
<INTEREST-EXPENSE> 31,524
<INCOME-PRETAX> (61,842)
<INCOME-TAX> 352
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