<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-23253
ITC/\DELTACOM, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-230115
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
206 West Ninth Street, West Point, GA 31833
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 645-8990
---------------------------
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 ______________ No X
--------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at November 13, 1997
--------------------------------
Common Stock at $.01 par value 24,126,731 Shares
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,985,042 $ 1,301,415
Restricted cash 22,500,000 0
Accounts receivable:
Customer, net of allowance for uncollectible accounts of
$1,178,121 and $865,858 in 1997 and 1996, respectively 18,472,283 11,029,037
Affiliate 0 1,227,661
Inventory 806,913 543,447
Prepaid expenses 803,016 1,191,287
Federal income tax refunds receivable from Parent 3,777,758 2,546,534
Deferred income taxes 392,121 525,660
------------ ------------
Total current assets 73,737,133 18,365,041
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net 123,425,565 31,880,556
------------ ------------
OTHER LONG-TERM ASSETS:
Intangible assets, net of accumulated amortization of
$3,133,221 and $1,431,753 in 1997 and 1996, respectively 58,131,621 55,517,575
Restricted cash 40,208,146 0
Investments 5,000 7,424,797
Other long-term assets 9,735,773 20,010
------------ ------------
Total other long-term assets 108,080,540 62,962,382
------------ ------------
Total assets $305,243,238 $113,207,979
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 8,046,316 $ 4,192,927
Construction 2,305,114 972,215
Affiliate 511,599 658,990
Accrued interest (including
$5,830,716 payable to Parent in 1996) 7,444,522 5,887,398
Accrued interest
Accrued compensation 1,878,997 1,189,395
Unearned revenue 3,799,783 762,829
Other accrued liabilities 3,357,899 926,588
Current portion of long-term debt 2,299,680 290,140
Current portion of capital leases 586,452 69,471
-------------- ------------
Total current liabilities 30,230,362 14,949,953
-------------- ------------
LONG-TERM LIABILITIES:
Advances from Parent 0 74,227,827
Deferred income taxes 4,789,165 3,918,140
Long-term debt 207,308,114 640,112
Capital lease obligations 2,823,469 215,421
-------------- ------------
Total long-term liabilities 214,920,748 79,001,500
-------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDER'S EQUITY
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, 0 shares issued and outstanding 0 0
Class A Common Stock, $.01 par value; 60,000,000 shares
authorized, 0 shares issued and outstanding 0 0
Class B Common Stock, $.01 par value; 30,000,000 shares
authorized, 15,000,000 shares issued and outstanding 150,000 826
Additional paid-in-capital 71,815,059 23,492,162
Accumulated deficit (11,872,931) (4,236,462)
-------------- ------------
Total stockholder's equity 60,092,128 19,256,526
-------------- ------------
Total liabilities and stockholder's equity $305,243,238 $113,207,979
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Operating revenues $29,439,075 $18,580,972
Cost of services 13,989,647 10,759,373
----------- -----------
Gross margin 15,449,428 7,821,599
Operating expenses:
Selling, operations, and administrative 10,096,717 5,391,199
Depreciation and amortization 4,518,098 1,745,038
----------- -----------
Total operating expenses 14,614,815 7,136,237
----------- -----------
Operating income 834,613 685,362
----------- -----------
Other income (expense):
Equity in losses of unconsolidated subsidiary - (316,675)
Interest expense, net (7,356,316) (1,646,855)
Interest and other income 977,088 17,985
----------- -----------
Total other income (expense) (6,379,228) (1,945,545)
----------- -----------
Loss before income taxes (5,544,615) (1,260,183)
Income tax benefit 1,186,165 349,060
----------- -----------
Net loss $(4,358,450) $ (911,123)
=========== ===========
Net loss per common share $ (0.20) $ (0.04)
=========== ===========
Weighted average common shares and common
equivalent shares outstanding 21,434,215 21,431,585
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Operating revenues $ 82,804,136 $47,155,771
Cost of services 39,292,394 26,888,836
------------ -----------
Gross margin 43,511,742 20,266,935
Operating expenses:
Selling, operations, and administrative 27,058,041 13,597,820
Depreciation and amortization 12,791,330 4,577,055
------------ -----------
Total operating expenses 39,849,371 18,174,875
------------ -----------
Operating income 3,662,371 2,092,060
------------ -----------
Other income (expense):
Equity in losses of unconsolidated subsidiary -- (1,405,081)
Interest expense, net (14,917,907) (4,409,612)
Interest and other income 1,860,476 125,203
------------ -----------
Total other income (expense) (13,057,431) (5,689,490)
------------ -----------
Loss before income taxes, preacquisition loss and
extraordinary item (9,395,060) (3,597,430)
Income tax benefit 2,191,974 1,020,527
------------ -----------
Loss before preacquisition loss and extraordinary item (7,203,086) (2,576,903)
Preacquisition loss 74,132 --
------------ -----------
Loss before extraordinary item (7,128,954) (2,576,903)
Extraordinary item -- loss on extinguishment
of debt (less related income tax benefits of $ 311,057) (507,515) --
------------ -----------
Net loss $ (7,636,469) $(2,576,903)
============ ===========
Net loss per common share:
Before extraordinary item $ (0.34) $ (0.12)
Extraordinary item (0.02) (0.00)
------------ -----------
Net loss $ (0.36) $ (0.12)
============ ===========
Weighted average common shares and common
equivalent shares outstanding 21,434,215 21,431,585
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,636,469) $ (2,576,903)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 12,791,330 4,577,055
Deferred income taxes 152,108 -
Equity in losses of unconsolidated subsidiary - 1,405,081
Preacquisition losses (74,132) -
Extraordinary item--loss on extinguishment of
debt, net of related income tax benefit 507,515 -
Other 73,369 13,853
Changes in current operating assets and liabilities:
Accounts receivable, net (3,372,454) (2,843,082)
Inventory (263,466) (469,412)
Prepaid expenses 32,584 494,744
Income tax refunds receivable from Parent (3,777,758) (604,273)
Accounts payable 701,545 2,783,073
Accrued interest 1,557,124 4,240,520
Unearned revenue 3,015,867 464,732
Accrued compensation and other accrued liabilities 2,868,613 (967,580)
Other, net 595,588 (26,964)
------------ ------------
Total adjustments 14,807,833 9,067,747
------------ ------------
Net cash provided by operating activities 7,171,364 6,490,844
------------ ------------
Cash flows from investing activities:
Capital expenditures (25,603,386) (3,920,729)
Change in accrued construction costs 352,357 (123,885)
Purchase of investments - (622,435)
Purchase of restricted assets, net of investments
released from restriction (62,708,146) -
Investment in Gulf States FiberNet - (501,595)
Purchase of DeltaCom, net of cash received - (63,534,092)
Purchase of Gulf States FiberNet, net of cash received 574,600 -
Purchase of assets of Viper Computer Systems, Inc. - (625,000)
------------ ------------
Net cash used in investing activities (87,384,575) (69,327,736)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Senior Notes, net of issuance costs 193,125,127 -
Proceeds from issuance of other long-term debt, 41,095,062 -
Payment of debt issuance cost (2,400,000) -
Repayment of other long-term debt (84,441,474) (10,601,974)
Proceeds from advance from Parent 8,243,990 74,741,047
Repayment of advance from Parent (48,934,549) (2,316,206)
Proceeds from issuance of common stock 150,000 -
Capital contributions from Parent, net (624,461) 1,690,801
Repayment of capital lease obligations (316,857) (6,000)
------------ ------------
Net cash provided by financing activities 105,896,838 63,507,668
------------ ------------
Increase in cash and cash equivalents 25,683,627 670,776
Cash and cash equivalents at beginning of period 1,301,415 656,096
------------ ------------
Cash and cash equivalents at end of period $ 26,985,042 $ 1,326,872
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------------- -------------
<S> <C> <C>
Cash paid for interest $ 11,747,807 $ 2,434,827
-------------- -------------
Cash (received) paid for income taxes,
net of refunds received $ (612,879) $ 446,321
-------------- -------------
NONCASH TRANSACTIONS:
Equity portion of acquisition of DeltaCom $ 0 $ 6,000,000
-------------- -------------
Equity portion of acquisition of 64% interest
in Gulf States FiberNet and Georgia Fiber Assets $ 17,896,665 $ 0
-------------- -------------
Assumption of long-term debt related to acquisition of
Georgia Fiber Assets $ 9,964,091 $ 0
-------------- -------------
Offset of advances to Parent as a reduction to related
advances from Parent $ 2,546,534 $ 0
-------------- -------------
Forgiveness of long-term advances by Parent $ 31,000,000 $ 0
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
ITC/\DELTACOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
ITC/\DeltaCom, Inc. ("ITC/\DeltaCom" or the "Company"), was incorporated on
March 24, 1997 under the laws of the State of Delaware, as a wholly-owned
subsidiary of ITC Holding Company, Inc. ("ITC Holding" or the "Parent"), to
acquire and operate the following wholly owned subsidiaries of ITC Holding:
Interstate FiberNet, Inc. (formerly ITC Transmission Systems, Inc. )
("FiberNet"), ITC Transmission Systems II, Inc. ("Transmission II"), Gulf States
Transmission Systems, Inc. ("GSTS"), Eastern Telecom, Inc. (d.b.a. InterQuest)
("InterQuest") and DeltaCom, Inc. ("DeltaCom"). On July 25, 1997, upon receipt
of certain regulatory approvals and certain other consents, ITC Holding
completed the reorganization of such subsidiaries (the "Reorganization"), as
follows:
. InterQuest and Transmission II were merged with and into FiberNet.
. ITC Holding contributed to the Company all of the issued and
outstanding capital stock of FiberNet, DeltaCom and GSTS.
. The Company contributed to FiberNet all of the outstanding capital
stock of DeltaCom and GSTS.
As a result of the Reorganization, the Company became the sole stockholder of
FiberNet and FiberNet became the sole stockholder of each of GSTS and DeltaCom.
In connection with the Reorganization, approximately $31.0 million of Company
indebtedness to ITC Holding associated with the acquisition of DeltaCom was
forgiven by ITC Holding and contributed to the Company as additional equity.
NATURE OF BUSINESS
The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of wholesale long-haul services to other telecommunications companies
using the Company's owned, operated and managed fiber optic network (the
"Carriers' Carrier Services"). The Company intends to become a leading regional
provider of integrated telecommunications services to mid-sized and major
regional businesses in the southern United States by offering such customers a
broad range of telecommunications services, including local exchange and long
distance data and voice, Internet and operator services and the sale and
servicing of customer premise equipment (collectively, the "Retail Services") in
a single package tailored to the business customer's specific needs.
BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been prepared
by management of the Company in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). In the opinion of management,
all adjustments considered necessary for the fair presentation of the financial
statements have been included, and the financial statements present fairly the
financial position and results of operations for the interim periods presented.
Certain 1996 amounts have been reclassified to conform to the current year
presentation. The financial statements should be read in conjunction with the
combined financial statements and related footnotes included in the Company's
Registration Statement on Form S-4, as filed with the SEC on September 24, 1997
(File No. 333-31361) (the "Registration Statement") with respect to the Exchange
Offer (as described in Note 3, below), and in conjunction with the Company's
Registration Statement on Form S-1, as filed with the SEC on October 22, 1997
(File No. 333-36683) with respect to its offering of 5,750,000 shares of common
stock (as described in Note 4, below).
The comparability of the three-month and nine-month periods ended September
30, 1997 and September 30, 1996 has been affected by the acquisition of DeltaCom
on January 29, 1996 (the "DeltaCom Acquisition") and the Gulf States Acquisition
(as defined in Note 2, below). The financial statements for
8
<PAGE>
the three and nine months ended September 30, 1996 include the results of
operations for DeltaCom since its acquisition on January 29, 1996, and do not
reflect the results of operations for DeltaCom from January 1 up to the date of
acquisition. For the three and nine months ended September 30, 1996, the
Company's 36% interest in GSTS's results of operations is reflected using the
equity method. Due to the Gulf States Acquisition (as defined in Note 2, below)
on March 27, 1997, the financial statements for the three and nine months ended
September 30, 1997 reflect the total revenues and expenses from January 1, 1997,
attributable to Gulf States FiberNet and the Georgia Fiber Assets (as defined in
Note 2, below), with the preacquisition losses attributable to SCANA
Communications, Inc. ("SCANA") from January 1, 1997 deducted to determine
combined net loss.
2. ACQUISITION OF MAJORITY INTEREST OF GULF STATES FIBERNET AND GEORGIA FIBER
ASSETS
In August 1994, ITC Holding and SCANA formed a partnership, Gulf States
FiberNet, to construct and operate a fiber optic route primarily between
Atlanta, Georgia and Shreveport, Louisiana with several supplemental spur
routes. On March 27, 1997, ITC Holding purchased SCANA's 64% partnership
interest in Gulf States FiberNet and certain assets, including a significant
long-term customer contract (the "Georgia Fiber Assets"), for approximately $28
million payable at closing, plus certain contingent consideration. The purchase
price included 588,411 shares of the Parent's Series A Convertible Preferred
Stock valued at approximately $17.9 million and an unsecured purchase money note
for approximatley $10 million (the "SCANA" Note"). The Note, which bears
interest at 11%, is payable in ten semiannual principal payments of
approximately $1 million plus accrued interest, beginning September 30, 1997.
In October 1997, the Parent issued to SCANA an additional 56,742 shares of its
Series A Convertible Preferred Stock pursuant to an earn-out provision. In
connection with the Merger (as defined in Note 7, below), all shares of Series A
Convertible Preferred Stock of the Parent issued to SCANA were converted into
shares of ITC/\DeltaCom's Series A Convertible Preferred Stock. Any additional
payment under the earn-out provision will be made in shares of ITC/\DeltaCom's
Series A Convertible Preferred Stock. Upon the closing of these acquisitions,
the Parent contributed the remaining 64% partnership interest in Gulf States
FiberNet to GSTS and the Georgia Fiber Assets to FiberNet. The Gulf States
partnership has been dissolved. The SCANA Note was assumed by FiberNet and the
Parent was released from its obligations thereunder.
3. OFFERING OF 11% SENIOR NOTES
On June 3, 1997, the Company completed the sale of $200 million principal
amount of 11% Senior Notes due 2007 (the "Notes") in a private offering. Under
the Indenture pursuant to which the Notes were issued (the "Indenture"), the net
proceeds to the Company from the sale of the Notes (approximately $193.1
million) were held by the Notes trustee and invested in U.S. government
securities pending consummation of the Reorganization (Note 1). Upon
consummation of the Reorganization on July 25, 1997, approximately $62.7 million
of such net proceeds were reinvested in U.S. government securities and are being
held by the Notes trustee in a pledged account as security for and to fund the
first six scheduled interest payments on the Notes, including .5% per annum in
the event the Company's exchange offer of the Notes issued on June 3, 1997 for
identical Notes not subject to restrictions on transfer under applicable
securities laws (the "Exchange Offer") was not consummated or a shelf
registration statement with respect to the Notes was not effective prior to
December 3, 1997. The balance of such net proceeds, approximately $130.4
million, was released to the Company, a portion of which was applied on July 25,
1997 as follows: (i) repayment of approximately $57.8 million of indebtedness to
ITC Holding (including approximately $9.5 million of accrued interest)
associated with the DeltaCom Acquisition and advances used by the Company for
capital expenditures; and (ii) repayment of approximately $41.6 million of
indebtedness to NationsBank, N.A. incurred to refinance an existing project
facility (the "Bridge Facility"). The Company intends to use the remaining
approximately $31.0 million of such net proceeds (i) to fund market expansion
activities of the Company's telecommunications business, including development
and construction costs of the Company's fiber optic network and its regional
sales offices; and (ii) for additional working capital and other general
corporate purposes, including the funding of cash flow deficits (after capital
expenditures). Pending such uses, the Company has invested such amounts in U.S.
government securities.
9
<PAGE>
4. OFFERING OF 5,750,000 SHARES OF COMMON STOCK
On September 30, 1997, the Company filed a registration statement with the
SEC for a proposed initial public offering (the "Offering") of its common stock.
On October 29, 1997, the Company completed its offering of 5,750,000 shares
(including an over-allotment of 750,000 shares) of common stock at a price of
$16.50 per share. Net proceeds from the offering were approximately $87,483,750
after deducting underwriting discounts and commissions and expenses of the
offering. The Company intends to use the net proceeds from the Offering,
together with cash on hand and borrowings expected to be available under the
Credit Agreement (as defined in Note 5, below) as follows: (i) to fund market
expansion activities of the Company's telecommunications business, including
development and constructions costs of the Company's fiber optic network and its
regional sales offices; and (ii) for additional working capital and other
general corporate purposes.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt and capital lease obligations at September 30, 1997 and
December 31, 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
11% Senior Notes due 2007 $200,000 $ 0
Advances from ITC Holding, paid or 0 74,228
forgiven on July 25, 1997
$10.0 million term facility, interest payable at 11%
maturing on March 31, 2002 8,968 0
Capital lease obligations at varying interest rates,
maturing through June 2006 3,410 285
Other 640 930
-------- -------
Total long-term debt and capital leases 213,018 75,443
Less current maturities (2,886) (360)
-------- -------
Total $210,132 $75,083
======== =======
</TABLE>
On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A. as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up to
$100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes a
$50 million multi-draw term loan facility and a $50 million revolving credit
facility. The facility contains restrictions on the Company and FiberNet and
its subsidiaries and requires FiberNet to comply with certain financial tests
and to maintain certain financial ratios. Amounts may be drawn under the term
loan facility until September 15, 1999. All $50 million of the term loan
facility must be utilized before any amount over $10 million may be drawn under
the revolving credit facility. Amounts drawn under the Credit Agreement will
bear interest, at FiberNet's option, at either the Base Rate or the LIBOR Rate,
plus an applicable margin. The credit facility is guaranteed by the Company
and FiberNet's subsidiaries and is secured by a first priority lien on all
current and future assets of FiberNet and its subsidiaries and a first priority
pledge of the stock of FiberNet and its subsidiaries.
10
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
At September 30, 1997, the Company had entered into agreements with vendors
to purchase approximately $9.1 million of equipment related to the improvement
and installation of switches, other network expansion efforts and certain
services.
7. MERGER BETWEEN ITC DELTACOM AND ITC HOLDING
Effective on October 20, 1997, as part of a reorganization of ITC Holding,
the Parent transferred all of its assets, other than its stock in ITC DeltaCom,
and all of its liabilities to another entity and then merged with and into
ITC/\DeltaCom (the "Merger"). ITC/\DeltaCom is the surviving corporation in the
Merger. In connection with the Merger, holders of the Parent's common stock and
convertible preferred stock received shares of ITC/\DeltaCom's Common Stock and
Series A Convertible Preferred Stock.
In contemplation of the Merger, on October 16, 1997, ITC DeltaCom's board
of directors and its stockholder adopted resolutions approving amendment and
restatement of ITC/\DeltaCom's certificate of incorporation, effective upon
consummation of the Merger, to designate ITC/\DeltaCom's Series A Convertible
Preferred Stock, par value $.01 per share, with a liquidation preference of
$7.40 per share, to authorize a single class of common stock to be designated as
Common Stock and to eliminate authorization of Class A Common Stock and Class B
Common Stock.
Immediately prior to the Merger, ITC/\DeltaCom had 15,000,000 shares of
Class B Common Stock issued and outstanding. Immediately following the Merger
ITC/\DeltaCom had issued and outstanding (i) 19,126,731 shares of Common Stock,
(ii) 1,486,440 shares of Series A Convertible Preferred Stock, (iii) 1,549,093
options to purchase Common Stock outstanding under ITC/\DeltaCom stock option
plans and (iv) 3,461,833 options outstanding under ITC Holding stock option
plans which were assumed by ITC/\DeltaCom and converted into options to
purchase Common Stock.
8. EXCHANGE OFFER
The Exchange Offer (Note 3) was consummated on November 13, 1997.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this report. The Company
has included EBITDA data in the following analysis because it is a measure
commonly used in the industry. EBITDA represents earnings before extraordinary
item, net interest, preacquisition loss, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative to
net income as a measure of performance or to cash flows as a measure of
liquidity. EBITDA is not necessarily comparable with similarly titled measures
for other companies. Unless otherwise indicated, dollar amounts have been
rounded to the nearest hundred thousand.
See the notes to the financial statements appearing elsewhere in this
report for definitions of certain terms used in the following analysis.
12
<PAGE>
HISTORICAL RESULTS OF OPERATIONS
The following tables set forth certain historical data for the three and
nine month periods ended September 30, 1997 and the three and nine month periods
ended September 30, 1996 for the Carriers' Carrier Services business and the
Retail Services business.
<TABLE>
<CAPTION>
CARRIERS' CARRIER SERVICES
---------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 % 1996 % 1997 % 1996 %
------------- -------------- ----------- ---- ------------ ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 8,157,294 100% $ 1,947,553 100% $21,601,941 100% $ 4,672,427 100%
Cost of Services 1,034,865 13% 673,046 35% 2,809,601 13% 1,799,484 39%
------------ --- ----------- --- ----------- --- ----------- ---
Gross Margin 7,122,429 87% 1,274,507 65% 18,792,340 87% 2,872,943 61%
------------ --- ----------- --- ----------- --- ----------- ---
Operating Expenses:
Selling, operations
and administrative 2,200,346 27% 477,792 25% 5,991,210 28% 1,329,454 28%
Depreciation and
amortization 3,027,455 37% 416,685 21% 8,342,955 39% 1,176,051 25%
------------ --- ----------- --- ----------- --- ----------- ---
Total operating expenses 5,227,801 64% 894,477 46% 14,334,165 67% 2,505,505 53%
------------ --- ----------- --- ----------- --- ----------- ---
Operating income (loss) $ 1,894,628 23% $ 380,030 19% $ 4,458,175 20% $ 367,438 8%
============ === =========== === =========== === =========== ===
</TABLE>
<TABLE>
<CAPTION>
RETAIL SERVICES
--------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 % 1996 % 1997 % 1996 %
------------ ------------- ----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 21,281,781 100% $16,633,419 100% $61,202,195 100% $42,483,344 100%
Cost of Services 12,954,782 61% 10,086,327 60% 36,482,793 60% 25,089,352 59%
------------ --- ----------- --- ----------- --- ----------- ---
Gross Margin 8,326,999 39% 6,547,092 40% 24,719,402 40% 17,393,992 41%
------------ --- ----------- --- ----------- --- ----------- ---
Operating Expenses:
Selling, operations
and administrative 7,896,371 37% 4,913,407 30% 21,066,831 34% 12,268,366 29%
Depreciation and
amortization 1,490,643 7% 1,328,353 8% 4,448,375 7% 3,401,004 8%
------------ --- ----------- --- ----------- --- ----------- ---
Total operating expenses 9,387,014 44% 6,241,760 38% 25,515,206 41% 15,669,370 37%
------------ --- ----------- --- ----------- --- ----------- ---
Operating income (loss) ($1,060,015) (5)% $ 305,332 2% $ (795,804) (1)% $ 1,724,622 4%
============ === =========== === =========== === =========== ===
</TABLE>
The comparability of the three-month and nine-month periods ended September
30, 1997 and 1996 has been affected by the DeltaCom Acquisition and the Gulf
States Acquisition. The financial statements for the three month and the nine
month periods ended September 30, 1996 include the results of operations for
DeltaCom since its acquisition on January 29, 1996, and do not reflect the
results of operations for DeltaCom from January 1 up to the date of acquisition.
For the three month and nine month periods ended September 30, 1996, the
Company's 36% interest in Gulf States FiberNet's results of operations is
reflected using the equity method. Due to the Gulf States Acquisition on March
27, 1997, the three and nine month periods ended September 30, 1997 reflect the
total revenues and expenses from January 1, 1997 attributable to Gulf States
FiberNet and the Georgia Fiber Assets, with the preacquisition losses
attributable to SCANA from January 1, 1997 deducted to determine consolidated
net losses.
13
<PAGE>
REVENUES
Total revenue was $29.4 million for the three months ended September 30,
1997, compared to $18.6 million for the three months ended September 30, 1996.
Of the $10.8 million (58%) increase, $4.6 million was attributable to additional
revenues generated by Retail Services. Revenues attributable to long distance
services increased $4.3 million, sales of customer premises equipment increased
$.2 million and Internet sales and services (which were introduced during the
second half of 1996) contributed $.1 million for the three months ended
September 30, 1997. Revenues from Carriers' Carrier Services increased to $8.1
million for the three months ended September 30, 1997 from $1.9 million for the
three months ended September 30, 1996. Of the $6.2 million increase, $5.3
million was attributable to revenues generated during the three months ended
September 30, 1997 by Gulf States FiberNet and $.9 million was attributable to
revenue from the Georgia Fiber Assets acquired in connection with the Gulf
States Acquisition consummated on March 27, 1997.
Total revenue for the nine months ended September 30, 1997 was $82.8
million, which represented an increase of $35.6 million (75%) from $47.2 million
for the nine months ended September 30, 1996. Revenues from Retail Services
increased $18.7 million from $42.5 million for the nine months ended September
30, 1996 to $61.2 million for the nine months ended September 30, 1997. Results
for the nine months ended September 30, 1996 reflect only eight months of Retail
Services revenues from consummation of the DeltaCom Acquisition on January 29,
1996. Revenues from Carriers' Carrier Services increased from $4.7 million for
the nine months ended September 30, 1996 to $21.6 million for the nine months
ended September 30, 1997. Of the $16.9 million increase, $14.1 million was
attributable to revenues generated during the nine months ended September 30,
1997 by Gulf States FiberNet. Excluding revenues attributable to Gulf States
FiberNet, Carriers' Carrier Services increased $2.8 million, of which $1.8
million was attributable to revenue from the Georgia Fiber Assets acquired on
March 27, 1997.
Cost of Services
Total cost of services increased to $14.0 million for the three months
ended September 30, 1997 from $10.8 million for the three months ended September
30, 1996. Cost of services for Retail Services operations increased $2.9
million from $10.1 million for the three months ended September 30, 1996 to
$13.0 million for the three months ended September 30, 1997. Cost of services
for Retail Services operations as a percentage of revenue totaled 61% for the
three months ended September 30, 1997, compared to 60% for the three months
ended September 30, 1996. This increase was attributable to the cost of new
facilities installed to service expanded retail markets and the impact of
increased minutes of usage at lower prices per minute. Cost of services
attributable to Carriers' Carrier Services increased $.3 million from $.7
million for the three months ended September 30, 1996 to $1.0 million for the
three months ended September 30, 1997. Cost of services for Carriers' Carrier
Services as a percentage of revenue decreased to 13% for the three months ended
September 30, 1997 from 35% for the three months ended September 30, 1996.
Total cost of services increased $12.4 million to $39.3 for the nine months
ended September 30, 1997 from $26.9 million for the nine months ended September
30, 1996. Cost of services for Retail Services operations increased $11.4
million to $36.5 million for the nine months ended September 30, 1997 from $25.1
million for the nine months ended September 30, 1996. Results for the 1996
fiscal period reflect only eight months of cost of services attributable to
Retail Services operations, which commenced upon consummation of the DeltaCom
Acquisition on January 29, 1996. Cost of services for Retail Services
operations as a percentage of revenue increased slightly to 60% for the nine
months ended September 30, 1997 from 59% for the nine months ended September 30,
1996. Cost of services attributable to Carriers' Carrier Services increased $1.0
million from $1.8 million for the nine months ended September 30, 1996 to $2.8
million for the nine months ended September 30, 1997. Cost of services for
Carriers' Carrier Services as a percentage of revenue decreased to 13% for the
nine months ended September 30, 1997 from 39% for the nine months ended
September 30, 1996.
Selling, Operations and Administration Expense
Total selling, operations and administration expense increased from $5.4
million for the three months ended September 30, 1996 to $10.1 million for the
three months ended September 30, 1997.
14
<PAGE>
Selling, operations and administration expense attributable to Retail Services
increased $3.0 million from $4.9 million (30% as a percentage of revenue) for
the three months ended September 30, 1996 to $7.9 million (37% as a percentage
of revenue) for the three months ended September 30, 1997. This increase
resulted from employment of additional sales, information services and
provisioning personnel to support the Company's geographical market and product
expansion as the Company prepared to offer local service. Selling, operations
and administration expense attributable to Carriers' Carrier Services increased
from $.5 million (25% as a percentage of revenue) for the three months ended
September 30, 1996 to $2.2 million for the three months ended September 30, 1997
(27% as a percentage of revenue). Of the $1.7 million increase, $.9 million was
attributable to the acquisition of Gulf States FiberNet. The remaining $.8
million of this increase resulted from increased costs of administrative
personnel employed to support expansion of the business.
Total selling, operations and administration expense increased $13.5
million from $13.6 million (29% as a percentage of revenue) for the nine months
ended September 30, 1996 to $27.1 million (33% as a percentage of revenue) for
the nine months ended September 30, 1997. Selling, operations and administration
expense attributable to Retail Services increased $8.8 million from $12.3
million for the nine months ended September 30, 1996 to $21.1 million for the
nine months ended September 30, 1997, which represented an increase from 29% to
34% as a percentage of revenue. Results for the nine months ended September 30,
1996 reflect only eight months of selling, operations and administration expense
attributable to Retail Services, which commenced upon consummation of the
DeltaCom Acquisition on January 29, 1996. Selling, operations and administration
expense attributable to Carriers' Carrier Services increased $4.7 million from
$1.3 million for the nine months ended September 30, 1996 to $6.0 million for
the nine months ended September 30, 1997, representing 28% of revenue in both
fiscal periods.
Depreciation and Amortization
Depreciation and amortization expense increased $2.8 million from $1.7
million for the three months ended September 30, 1996 to $4.5 million for the
three months ended September 30, 1997. Retail Services accounted for $.2
million of the increase, which was primarily related to installation of new
central office equipment. For the three months ended September 30, 1997,
depreciation and amortization for Carriers' Carrier Services operations, which
was primarily related to the acquisition of Gulf States FiberNet, accounted for
$2.6 million of the increase.
For the nine months ended September 30, 1997, depreciation and amortization
expense increased $8.2 million to $12.8 million from $4.6 million for the nine
months ended September 30, 1996. Retail Services accounted for $1.0 million of
the increase, which was primarily related to installation of new central office
equipment. For the nine months ended September 30, 1997, depreciation and
amortization for Carriers' Carrier Services operations accounted for $7.2
million of the increase, with $6.1 million related to the acquisition of Gulf
States FiberNet.
Interest Expense
Interest expense increased from $1.6 million for the three months ended
September 30, 1996 to $7.4 million for the three months ended September 30,
1997. Of the $5.8 million increase, $5.7 million was attributable to interest
payments on the Notes and $1.2 million was attributable to the acquisition of
Gulf States FiberNet. Interest expense related to the Deltacom Indebtedness
decreased $1.1 million as a result of the repayment of such indebtedness on July
25, 1997. Interest expense increased from $4.4 million for the nine months
ended September 30, 1996 to $14.9 million for the nine months ended September
30, 1997. Of the $10.5 million increase, $7.3 million was attributable to
interest payments on the Notes and $3.8 million was attributable to the
acquisition of Gulf States FiberNet. Interest expense related to the Deltacom
Indebtedness decreased $.6 million during the 1997 fiscal period.
Income Taxes
During the periods covered by this report, the Company was included in the
consolidated federal income tax returns of its parent, ITC Holding Company, Inc.
("ITC Holding"), which resulted in the Company receiving benefit for certain of
its net operating losses. The benefit received as a percentage of loss before
income taxes was 21% and 28% for the three month periods ended September 30,
1997 and
15
<PAGE>
1996, respectively, and 23% and 28% for the nine month periods ended September
30, 1997 and 1996, respectively.
EBITDA
EBITDA increased from $2.4 million for the three months ended September 30,
1996 to $5.4 million for the three months ended September 30, 1997. Carriers'
Carrier Services accounted for $4.2 million of the increase. EBITDA attributable
to Retail Services for the three months ended September 30, 1996 was $1.6
million, compared to $.4 million for the three months ended September 30, 1997.
EBITDA attributable to Retail Services decreased from 10% of revenues for the
three months ended September 30, 1996 to 2% for the three months ended September
30, 1997, primarily due to increased costs associated with the expansion of new
sales offices and the employment of additional support personnel to position
this segment for growth and expansion.
EBITDA increased from $6.7 million for the nine months ended September 30,
1996 to $16.5 million for the nine months ended September 30, 1997. Carriers'
Carrier Services accounted for $11.3 million of the increase. EBITDA
attributable to Retail Services for the nine months ended September 30, 1997 was
$3.7 million, compared to $5.1 million for the nine months ended September 30,
1996. EBITDA attributable to Retail Services decreased from 12% of revenues for
the nine months ended September 30, 1996 to 6% for the nine months ended
September 30, 1997, primarily due to increased costs associated with the
expansion of new sales offices and the employment of additional support
personnel to position this segment for growth and expansion. The Company expects
that EBITDA for Retail Services will continue to decline through at least 1998
as the Company opens additional sales offices and prepares to offer local
service.
Liquidity and Capital Resources
The Company generated net cash from operating activities of $7.2 million
and $6.5 million for the nine months ended September 30, 1997 and 1996,
respectively. Cash flows from operations (consisting of net loss adjusted for
depreciation, amortization, deferred income taxes, equity in losses of investee,
preacquisition losses, extraordinary item-loss on extinguishment of debt and
other) totaled $5.8 million for the nine months ended September 30, 1997,
compared to $3.4 million for the nine months ended September 30, 1996. Changes
in working capital provided $1.4 million for the nine months ended September 30,
1997, compared to $3.1 million for the nine months ended September 30, 1996,
primarily due to increases in unearned revenue, accrued liabilities and income
tax refunds receivable, offset by increases in accounts receivable for the nine
months ended September 30, 1997.
Cash used for investing activities was $87.4 million and $69.3 million for
the nine months ended September 30, 1997 and 1996, respectively. The cash used
in 1996 was primarily attributable to the investment of $63.5 million, net of
cash received, in connection with the DeltaCom Acquisition in January 1996. The
Company made capital expenditures of $25.3 million and $3.9 million for the nine
months ended September 30, 1997 and 1996, respectively. Of the $25.3 million of
capital expenditures for the nine months ended September 30, 1997, $16.2 million
related to Carriers' Carrier Services and $9.1 million related to Retail
Services.
Cash provided by financing activities was $105.9 million and $63.5 million
for the nine months ended September 30, 1997 and 1996, respectively. Cash
provided by financing activities for the nine months ended September 30, 1997
consisted primarily of net proceeds of $193.1 million from the sale of the
Notes, $8.2 million of advances received from ITC Holding, less $48.9 million
repayment of advances to ITC Holding, net repayments of other long-term debt of
$43.3 million, and $3.2 million of other cash used in financing activities.
Cash provided by financing activities for the nine months ended September 30,
1996 consisted primarily of $74.7 million of advances received from ITC Holding
(less $2.3 million repayment of advances to ITC Holding) and $1.7 million of
capital contributions from ITC Holding, less $10.6 million repayment of long-
term debt and capital lease obligations.
Upon consummation of the Reorganization on July 25, 1997, approximately
$62.7 million of the $193.1 million of net proceeds from the sale of the Notes
were reinvested in U.S. government securities and are being held by the Notes
trustee in a pledged account as security for and to fund the first six scheduled
interest payments on the Notes. The balance of such net proceeds, approximately
$130.4 million, was
16
<PAGE>
released to the Company, a portion of which was applied on July 25, 1997 as
follows: (i) repayment of approximately $57.8 million of indebtedness to ITC
Holding (including approximately $9.5 million of accrued interest) associated
with the DeltaCom Acquisition and advances used by the Company for capital
expenditures; and (ii) repayment of approximately $41.6 million incurred under
the Bridge Facility. The Company intends to use the remaining approximately
$31.0 million of such net proceeds (i) to fund market expansion activities of
the Company's telecommunications business, including development and
construction costs of the Company's fiber optic network and its regional sales
offices; and (ii) for additional working capital and other general corporate
purposes, including the funding of cash flow deficits (after capital
expenditures). Pending such uses, the Company has invested such amounts in U.S.
government securities. In connection with the Reorganization, $31.0 million of
the DeltaCom Indebtedness was forgiven by ITC Holding and contributed to the
Company as additional equity.
On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A. as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up to
$100 million (the "Credit Facility") to be used for working capital and other
purposes, including refinancing existing indebtedness, capital expenditures, and
permitted acquisitions. See Note 5 to the financial statements included
elsewhere in this report.
To achieve its business plan, the Company will need significant financing
for capital expenditure and working capital requirements, including repayment of
indebtedness and operating losses. Expansion of the Company's network,
operations and services will require significant capital expenditures. The
Company currently estimates that its aggregate capital requirements will total
approximately $145 million in 1997 and 1998, of which approximately $50 million
is expected to be incurred in 1997 and approximately $95 million is expected to
be incurred in 1998. The Company expects to make substantial capital
expenditures thereafter. Capital expenditures will be primarily for: (i)
addition of facilities-based local telephone service to its bundle of integrated
telecommunications services, including acquisition and installation of switches
and related equipment, (ii) market expansion, (iii) continued development and
construction of its fiber optic network (including transmission equipment) and
(iv) infrastructure enhancements, principally for information systems. At
September 30, 1997, the Company had entered into agreements with vendors to
purchase approximately $9.1 million of equipment and services, and, for the nine
months ended September 30, 1997, had made capital expenditures of $25.3 million.
The actual amount and timing of the Company's capital requirements may differ
materially from the foregoing estimate as a result of regulatory, technological
and competitive developments (including market developments and new
opportunities) in the Company's industry.
The Company believes that the net proceeds from the Senior Notes and the
net proceeds of approximately $87.5 million from the Company's initial public
offering of its common stock on October 29, 1997, together with cash flow from
operations and borrowings expected under the Credit Facility, will provide
sufficient funds to enable the Company to expand its business as currently
planned through the maturity of the Credit Facility in 2002, after which the
Company will need to seek additional financing to fund capital expenditures and
working capital. Because the Credit Facility will mature in 2002, the Company
may not have a ready source of liquidity after 2002. In the event that the
Company's plans or assumptions change or prove to be inaccurate, the foregoing
sources of funds may prove to be insufficient to fund the Company's currently
planned growth and operations. In addition, if the Company successfully
completes any acquisitions, the Company may be required to seek additional
capital sooner than currently anticipated. Additional sources may include equity
and debt financing and other financing arrangements, such as vendor financing.
There can be no assurance that the Company will be able to generate sufficient
cash flow from operations or that additional financing arrangements will be
available, or if available, that they can be concluded on terms acceptable to
the Company. Failure to generate or obtain sufficient funds would result in
delay or abandonment of some or all of the Company's development and expansion
plans, which could have a material adverse effect on the Company's ability to
service its debt.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) The Company completed its initial public offering (the "Offering") of its
common stock, $.01 per value (the "Common Stock"), on October 29, 1997. The
registration statement (the "Registration Statement") relating to the Offering
(File No. 333-31361) was declared effective by the SEC on October 22, 1997. The
managing underwriters of the Offering were Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.C. Bradford & Co. and
Wheat, First Securities, Inc. The number of shares of Common Stock registered
and sold in the Offering was 5,750,000 and the aggregate price of the offering
amount registered and sold was $94,875,000. All shares were sold by the
Company.
From the effective date of the Registration Statement through the date of
this report, the total amount of expenses incurred by the Company in connection
with the issuance and distribution of the shares in the Offering was
approximately $7,391,250. Of such expenses, $6,641,250 consisted of
underwriting discounts and commissions.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts except the SEC Registration
Fee and the NASD Filing Fee are estimated. All of such expenses were borne by
the Company.
<TABLE>
<S> <C>
SEC Registration Fee................................... $ 28,750.00
NASD Filing Fee........................................ 9,987.50
Nasdaq National Market Listing Fee..................... 50,000.00
Blue Sky Fees and Expenses............................. 10,000.00
Accounting Fees and Expenses........................... 150,000.00
Legal Fees and Expenses................................ 250,000.00
Printing and Engraving Expenses........................ 245,000.00
Transfer Agent Fees and Expenses....................... 5,500.00
Miscellaneous.......................................... 762.50
-----------
Total............................................... $750,000.00
===========
</TABLE>
The amounts set forth in the preceding table were paid to persons other
than directors or officers of the Company or their associates, persons owning
10% or more of any class of equity of the Company, or affiliates of the Company.
The net proceeds of the Offering to the Company after deducting the
foregoing expenses totaled $87,483,750.
From the effective date of the Registration Statement through the date of
this report, the Company applied the following amounts of net proceeds of the
Offering to the the uses set forth in the following table. All amounts shown in
the table which are estimates are indicated by an asterisk.
18
<PAGE>
<TABLE>
<S> <C>
Construction of plant, building and facilities............. $----0----
Purchase and installation of machinery and equipment....... ----0----
Purchases of real estate................................... ----0----
Acquisition of other business(es).......................... ----0----
Repayment of indebtedness.................................. ----0----
Working capital............................................ ----0----
Temporary investments (consisting of short-term,
interest-bearing, investment grade securities)........... 87,483,750*
-----------
Total $87,483,750*
===========
</TABLE>
The amounts set forth in the preceding table were paid to persons other
than directors or officers of the Company or their associates, persons owning
10% or more of any class of equity securities of the Company, and affiliates of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
19
<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 by the
undersigned thereunto duly authorized.
ITC/\DELTACOM, INC.
------------------
(Registrant)
Date: November 13, 1997 By: /s/ Foster O. McDonald
----------------------
Foster O. McDonald
President
Date: November 13, 1997 By: /s/ Douglas A. Shumate
----------------------
Douglas A. Shumate
Senior Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT 11
ITC/\DELTACOM, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------
1997 1996
-------- ----------
<S> <C> <C>
Net loss $ (4,358,450) $ (911,123)
============ ============
Weighted average number of common shares outstanding 19,123,362 19,126,732
Add-Shares of Common Stock assumed issued upon exercise of
stock options using the "treasury stock" method 2,304,853 2,304,853
------------- ------------
Number of common and common equivalent shares outstanding 21,434,215 21,431,585
------------- ------------
Net loss per common share $ (0.20) $ (0.04)
============= ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1997 1996
-------- ----------
<S> <C> <C>
Loss before extraordinary item (7,128,954) (2,576,903)
Extraordinary item -- loss on extinguishment
of debt (less related income tax benefits of $ 311,057) (507,515) --
------------- ------------
Net loss $ (7,636,469) $(2,576,903)
------------- ------------
Weighted average number of common shares outstanding 19,123,362 19,126,732
Add-Shares of Common Stock assumed issued upon exercise of
stock options using the "treasury stock" method 2,304,853 2,304,853
------------- ------------
Number of common and common equivalent shares outstanding 21,434,215 21,431,585
============= ============
Net loss per share:
Before extraordinary item $ (0.34) $ (0.12)
Extraordinary item (0.02) 0.00
------------- ------------
Net loss per common share $ (0.36) $ (0.12)
============= ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the consolidated balance sheets of ITC/\DeltaCom, Inc. and Subsidiaries as
of September 30, 1997 and the related consolidated statements of operations for
the nine month perioid ended September 30, 1997. This information is qualified
in its entirety by reference to such finacial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 49,485,042
<SECURITIES> 0
<RECEIVABLES> 18,472,283
<ALLOWANCES> 1,178,121
<INVENTORY> 806,913
<CURRENT-ASSETS> 73,737,133
<PP&E> 144,427,068
<DEPRECIATION> 21,001,503
<TOTAL-ASSETS> 305,243,238
<CURRENT-LIABILITIES> 30,230,362
<BONDS> 207,308,114
0
0
<COMMON> 150,000
<OTHER-SE> 59,942,128
<TOTAL-LIABILITY-AND-EQUITY> 305,243,238
<SALES> 82,804,136
<TOTAL-REVENUES> 82,804,136
<CGS> 39,292,394
<TOTAL-COSTS> 39,292,394
<OTHER-EXPENSES> 39,849,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,917,907
<INCOME-PRETAX> (9,395,060)
<INCOME-TAX> (2,191,974)
<INCOME-CONTINUING> (7,128,954)
<DISCONTINUED> 0
<EXTRAORDINARY> (507,515)
<CHANGES> 0
<NET-INCOME> (7,636,469)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
