FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
(Commission File Number 1-11965)
ICG COMMUNICATIONS, INC.
(Commission File Number 333-40495)
ICG FUNDING, LLC
(Commission File Number 1-11052)
ICG HOLDINGS (CANADA), INC.
(Commission File Number 33-96540)
ICG HOLDINGS, INC.
(Exact names of registrants as specified in their charters)
- ----------------------------------------- -------------------------------------
Delaware 84-1342022
Delaware 84-1434980
Canada Not applicable
Colorado 84-1158866
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
- ----------------------------------------- -------------------------------------
161 Inverness Drive West Not applicable
Englewood, Colorado 80112
161 Inverness Drive West Not applicable
Englewood, Colorado 80112
1710-1177 West Hastings Street c/o ICG Communications, Inc.
Vancouver, BC V6E 2L3 161 Inverness Drive West
P.O. Box 6742
Englewood, Colorado 80155-6742
161 Inverness Drive West Not applicable
Englewood, Colorado 80112
(Address of principal executive offices) (Address of U.S. agent for service)
- ----------------------------------------- -------------------------------------
Registrants' telephone numbers, including area codes: (888) 424-1144 or
(303) 414-5000
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. X Yes No
The number of registrants' outstanding common securities as of May 11, 1998
were 44,841,233, 1, 31,831,558 and 1,918, respectively. ICG Communications, Inc.
owns all of the issued and outstanding common securities of ICG Funding, LLC.
ICG Holdings (Canada), Inc. owns all of the issued and outstanding common shares
of ICG Holdings, Inc.
<PAGE>
2
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . 3
Consolidated Balance Sheets as of December 31,
1997 and March 31, 1998 (unaudited). . . . . . . . . . 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 1997 and 1998 . . 5
Consolidated Statement of Stockholders' Deficit (unaudited)
for the Three Months Ended March 31, 1998 . . . . . . . 6
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1997 and 1998 . . . . . . 7
Notes to Consolidated Financial Statements (unaudited) . . 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 20
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 30
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . 30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS . . 30
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . 30
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 30
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 31
<PAGE>
3
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
---------------- -----------------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 182,202 494,215
Short-term investments available for sale 112,281 29,000
Receivables:
Trade, net of allowance of $7,004 and $9,484 at
December 31, 1997 and March 31, 1998, respectively
(note 6) 61,439 67,935
Revenue earned, but unbilled 8,599 11,066
Due from affiliate 9,384 5,597
Other 1,696 1,623
---------------- -----------------
81,118 86,221
Inventory 4,242 4,501
Prepaid expenses and deposits 14,097 11,887
---------------- -----------------
Total current assets 393,940 625,824
---------------- -----------------
Property and equipment 861,411 904,524
Less accumulated depreciation (156,299) (175,407)
---------------- -----------------
Net property and equipment 705,112 729,117
---------------- -----------------
Long-term notes receivable from affiliate and others, net 10,375 15,318
Restricted cash 24,649 22,756
Other assets, net of accumulated amortization:
Goodwill 77,562 74,869
Deferred financing costs 23,196 32,045
Deferred subscriber acquisition costs 3,115 3,551
Transmission and other licenses 6,031 6,017
Other 10,531 22,951
---------------- -----------------
120,435 139,433
================ =================
$ 1,254,511 1,532,448
================ =================
(Continued)
</TABLE>
<PAGE>
4
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------------ -------------------
(in thousands)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 38,457 63,829
Accrued liabilities 71,678 72,239
Deferred revenue 10,219 12,583
Current portion of capital lease obligations 8,128 7,752
Current portion of long-term debt (note 3) 1,784 7,534
------------------ -------------------
Total current liabilities 130,266 163,937
------------------ -------------------
Capital lease obligations, less current portion 70,489 69,641
Long-term debt, net of discount, less current portion (note 3) 890,568 1,216,860
------------------ -------------------
Total liabilities 1,091,323 1,450,438
------------------ -------------------
Redeemable preferred stock of subsidiary ($301.2 million and
$311.9 million liquidation value at December 31, 1997 and
March 31, 1998, respectively) (note 3) 292,442 303,326
Company-obligated mandatorily redeemable preferred securities of
subsidiary limited liability company which holds solely
Company preferred stock ($133.4 million liquidation value at
December 31, 1997 and March 31, 1998) (note 3) 127,729 127,748
Stockholders' deficit:
Common stock (note 4) 749 755
Additional paid-in capital 533,541 543,104
Accumulated deficit (791,417) (893,172)
Accumulated other comprehensive income 144 249
------------------ -------------------
Total stockholders' deficit (256,983) (349,064)
------------------ -------------------
Commitments and contingencies (note 6)
$ 1,254,511 1,532,448
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
5
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1997 and 1998
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------
1997 1998
----------------- ------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue:
Telecom services $ 38,280 64,742
Internet services 39,005 40,534
Network services 17,987 11,431
Satellite services (note 5) 6,783 8,949
----------------- ------------------
Total revenue 102,055 125,656
Operating costs and expenses:
Operating costs 82,952 93,519
Selling, general and administrative expenses 50,576 57,848
Depreciation and amortization 19,766 22,556
Net (gain) loss on disposal of long-lived assets (641) 505
Provision for impairment of long-lived assets - 1,860
Merger costs - 9,367
----------------- ------------------
Total operating costs and expenses 152,653 185,655
Operating loss (50,598) (59,999)
Other income (expense):
Interest expense (25,182) (34,884)
Interest income 6,098 6,649
Other, net (550) (316)
----------------- ------------------
(19,634) (28,551)
----------------- ------------------
Loss before income taxes and minority interest (70,232) (88,550)
Income tax expense (7) (13)
----------------- ------------------
Loss before minority interest (70,239) (88,563)
Minority interest in share of losses, net of accretion and
preferred dividends on preferred securities of subsidiaries (5,753) (13,192)
================= ==================
Net loss $ (101,755)
(75,992)
================= ==================
Other comprehensive income (loss):
Foreign currency translation adjustment (378) 105
Unrealized loss on investment securities (221) -
----------------- ------------------
Other comprehensive (loss) income (599) 105
Comprehensive loss $ (75,393) (101,650)
================= ==================
Net loss per share - basic and diluted (note 4) $ (1.81) (2.30)
================= ==================
Weighted average number of shares outstanding - basic and
diluted (note 4) 42,003 44,311
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
6
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit (unaudited)
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Accumulated comprehensive stockholders'
Shares Amount capital deficit income deficit
----------- ---------- ------------- ---------------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 43,974 $ 749 533,541 (791,417) 144 (256,983)
Shares issued for cash by ICG
Funding,LLC, net of selling costs 127 1 3,384 - - 3,385
Shares issued for cash in connection
with the exercise of options and
warrants 523 5 4,831 - - 4,836
Shares issued for cash in connection
with employee stock purchase plan 21 - 884 - - 884
Shares issued as contribution to
401(k)plan 19 - 464 - - 464
Cumulative foreign currency
translation adjustment - - - - 105 105
Net loss - - - (101,755) - (101,755)
=========== ========== ============= ================ ================ ==============
Balances at March 31, 1998 44,664 $ 755 543,104 (893,172) 249 (349,064)
=========== ========== ============= ================ ================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
7
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1997 and 1998
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------
1997 1998
--------------- ---------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (75,992) (101,755)
Adjustments to reconcile net loss to net cash used by operating activities:
Minority interest in share of losses, net of accretion and non-cash
preferred dividends on preferred securities of subsidiaries 5,753 10,960
Depreciation and amortization 19,766 22,556
Interest expense deferred and included in long-term debt, net of amounts
capitalized on assets under construction 22,621 28,885
Amortization of deferred financing costs included in interest expense 643 701
Contribution to 401(k) plan through issuance of common shares 533 464
Net (gain) loss on disposal of long-lived assets (641) 505
Provision for impairment of long-lived assets - 1,860
Change in operating assets and liabilities:
Receivables 5,119 (5,103)
Inventory 226 (259)
Prepaid expenses and deposits 674 2,210
Deferred subscriber acquisition costs (1,263) (2,048)
Accounts payable and accrued liabilities 4,601 21,952
Deferred revenue 675 2,364
--------------- ---------------
Net cash used by operating activities (17,285) (16,708)
--------------- ---------------
Cash flows from investing activities:
Decrease (increase) in long-term notes receivable from affiliate and others 71 (4,943)
Acquisition of property, equipment and other assets (60,634) (71,268)
Payments for construction of new headquarters (3,584) (4,944)
Proceeds from disposition of property, equipment and other assets 1,373 353
Proceeds from sale of new headquarters, net of selling and other costs - 26,859
Sale of short-term investments 854 83,281
Decrease in restricted cash 401 1,893
--------------- ---------------
Net cash (used) provided by investing activities (61,519) 31,231
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock:
Sales by ICG Funding, LLC - 3,385
Exercise of options and warrants 250 4,836
Employee stock purchase plan 807 884
Proceeds from issuance of subsidiary preferred stock, net of issuance costs 96,000 -
Proceeds from issuance of long-term debt 101,486 300,571
Deferred long-term debt issuance costs (3,543) (9,575)
Principal payments on capital lease obligations (18,290) (2,215)
Principal payments on short-term debt - (1)
Principal payments on long-term debt (417) (412)
--------------- ---------------
Net cash provided by financing activities 176,293 297,473
--------------- ---------------
Net increase in cash and cash equivalents 97,489 311,996
Effect of exchange rates on cash 1 17
Cash and cash equivalents, beginning of period 433,342 182,202
=============== ===============
Cash and cash equivalents, end of period $ 530,832 494,215
=============== ===============
(Continued)
</TABLE>
<PAGE>
8
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------
1997 1998
---------------- --------------
(in thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,918 2,298
================ ==============
Cash paid for income taxes $ 7 13
================ ==============
Supplemental schedule of non-cash financing and investing activity - assets
acquired under capital leases $ 3,225 991
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
9
ICG COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and March 31, 1998 (unaudited)
(1) Organization and Basis of Presentation
ICG Communications, Inc., a Delaware corporation ("ICG"), was incorporated
on April 11, 1996, for the purpose of becoming the new publicly-traded U.S.
parent company of ICG Holdings (Canada), Inc., a Canadian federal
corporation ("Holdings-Canada"), ICG Holdings, Inc., a Colorado corporation
("Holdings"), and its subsidiaries. On September 17, 1997, ICG formed a new
special purpose entity, ICG Funding, LLC, a Delaware limited liability
company and wholly owned subsidiary of ICG ("ICG Funding").
On January 21, 1998, the Company completed a merger with NETCOM On-Line
Communication Services, Inc. ("NETCOM"). At the effective time of the
merger, each outstanding share of NETCOM common stock, $.01 par value,
became automatically convertible into shares of ICG common stock, $.01 par
value ("ICG Common Stock"), at an exchange ratio of 0.8628 shares of ICG
Common Stock per NETCOM common share. The business combination has been
accounted for as a pooling of interests, and accordingly, the accompanying
consolidated financial statements have been restated to include the
operations of NETCOM for all historical periods presented. NETCOM was
incorporated in the state of California in August 1992 and reincorporated
in the state of Delaware in October 1994. On January 23, 1998, the Company
formed ICG Services, Inc., a Delaware corporation and wholly owned
subsidiary of ICG ("ICG Services"). ICG Services is the parent company of
NETCOM. ICG and its subsidiaries, including ICG Services and NETCOM, are
collectively referred to as the "Company."
The Company's principal business activity is telecommunications services,
including Telecom Services, Internet Services, Network Services and, for
the periods presented in the consolidated financial statements, Satellite
Services. Telecom Services consists primarily of the Company's competitive
local exchange carrier operations which provide services to business end
users and long distance carriers and resellers. Internet Services consists
of the operations of NETCOM which includes Internet access, World Wide Web
(the "Web") site hosting services and other value-added connectivity
services, which are primarily targeted to small and medium-sized business
customers in the United States, Canada and the United Kingdom. Network
Services supplies information technology services and selected networking
products, focusing on network design, installation, maintenance and support
for a variety of end users, including Fortune 1000 firms and other large
businesses and telecommunications companies. Satellite Services provides
satellite voice and data services to major cruise ship lines, the
commercial shipping industry, yachts, the U.S. Navy and offshore oil
platforms. To better focus its efforts on its core Telecom Services unit,
the Company entered into definitive agreements on April 1, 1998 to sell the
capital stock of the two main subsidiaries within its Satellite Services
operations.
(a) Reference to Annual Reports and Basis of Presentation
The accompanying consolidated financial statements give retroactive
effect to the merger of ICG and NETCOM on January 21, 1998, which has
been accounted for as a pooling of interests, and includes the
accounts of NETCOM and its subsidiaries as of the end of and for the
periods presented.
<PAGE>
10
ICG COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization and Basis of Presentation (continued)
These financial statements should be read in conjunction with ICG's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and NETCOM's Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 1996, as certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the United States
Securities and Exchange Commission. The interim financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of financial position, results of
operations and cash flows as of and for the interim periods presented.
Such adjustments are of a normal recurring nature. Operating results
for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year
ending December 31, 1998.
(b) Deferred Subscriber Acquisition Costs
The Company expenses the costs of advertising as incurred, except
direct response advertising expenses relating to Internet services
which are included in deferred subscriber acquisition costs.
Subscriber acquisition costs are deferred and amortized over a period
determined by calculating the ratio of current revenue related to the
direct response advertising versus the total expected revenue, or 12
months, whichever is shorter. These costs relate directly to
subscriber solicitations and principally include the printing,
production and shipping of starter packages and the costs of obtaining
qualified prospects by various targeted direct marketing programs. No
indirect costs are included in subscriber acquisition costs. To date,
all subscriber acquisition costs have been incurred for the
solicitation of specifically identified prospects. It is possible that
these estimates of anticipated gross revenue could be reduced in the
future based on management's current evaluation of the estimates used.
As a result, the carrying value and/or the amortization period of the
subscriber acquisition costs could be reduced in the future.
(c) Foreign Currency Translation Adjustments
The functional currency for all foreign operations is the local
currency. As such, all assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet
date. Revenue and costs and expenses are translated at weighted
average rates of exchange prevailing during the period. Translation
adjustments are included in other comprehensive income and recorded as
a separate component of stockholders' equity (deficit). Gains and
losses resulting from foreign currency transactions are included in
operations are not significant for the periods presented.
(d) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes standards for the presentation of comprehensive
income in the financial statements. Comprehensive income includes
income and loss components which are otherwise recorded directly to
stockholders' deficit under generally accepted accounting principles.
The Company adopted SFAS 130 effective January 1, 1998 and has
reported accumulated other comprehensive income in the accompanying
consolidated balance sheets and the components of other comprehensive
(loss) income in the accompanying statements of operations.
(e) Reclassifications
Certain 1997 amounts have been reclassified to conform with the 1998
presentation.
<PAGE>
11
ICG COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Business Combination
As discussed in note 1, on January 21, 1998, the Company completed a merger
with NETCOM. Located in San Jose, California, NETCOM is a provider of
Internet connectivity and Web site hosting services and other value-added
Internet services. At the effective time of the merger, each outstanding
share of NETCOM common stock became automatically convertible into shares
of ICG Common Stock at an exchange ratio of 0.8628 shares of Common Stock
per NETCOM common share. As a result of the transaction, the Company
expects to issue an estimated 10.2 million shares of ICG Common Stock for
the NETCOM common shares outstanding on January 21, 1998 and may be
expected to issue as many as 1.7 million shares of ICG Common Stock related
to common stock options of NETCOM outstanding on the merger closing date.
Cash is paid in lieu of fractional shares. The Company has accounted for
the business combination under the pooling-of-interests method of
accounting and accordingly, the Company's financial statements have been
restated to reflect the operations of NETCOM and the Company on a combined
basis for all historical periods.
The following unaudited pro forma information presents the combined results
of operations of ICG and NETCOM as if the combination had been consummated
on October 1, 1994. The Company does not anticipate any significant
adjustments to conform the accounting policies of NETCOM with those of the
Company.
<TABLE>
<CAPTION>
Fiscal years ended Fiscal year Three months ended
September 30, Three months ended ended March 31,
---------------------------- December 31, December 31, -----------------------------
1995 1996 1996 1997 1997 1998
------------- ----------- -------------------- ----------------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
ICG $ 111,610 169,094 56,956 273,354 63,050 85,122
NETCOM 52,422 120,540 36,379 160,660 39,005 40,534
============= =========== ==================== ================= ============= ============
Combined $ 164,032 289,634 93,335 434,014 102,055 125,656
============= =========== ==================== ================= ============= ============
Net loss:
ICG (76,648) (184,107) (49,823) (327,643) (66,781) (85,077)
NETCOM (14,064) (44,265) (11,490) (33,092) (9,211) (16,678)
============= =========== ==================== ================= ============= ============
Combined $ (90,712) (228,372) (61,313) (360,735) (75,992) (101,755)
============= =========== ==================== ================= ============= ============
Loss per share
basic and diluted:
ICG $ (3.25) (6.83) (1.56) (10.11) (2.09)
============= =========== ==================== ================= =============
NETCOM $ (1.95) (4.46) (1.15) (3.27) (0.92)
============= =========== ==================== ================= =============
Combined $ (2.94) (6.19) (1.46) (8.49) (1.81) (2.30)
============= =========== ==================== ================= ============= ============
</TABLE>
<PAGE>
12
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Long-term Debt and Redeemable Preferred Securities of Subsidiaries
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
-------------------- -----------------
(in thousands)
<S> <C> <C>
10% Senior discount notes, net of discount (a) $ - 304,442
11 5/8% Senior discount notes, net of discount 109,436 112,542
12 1/2% Senior discount notes, net of discount 367,494 378,742
13 1/2% Senior discount notes, net of discount 407,409 421,069
Note payable with interest at the 90-day commercial
paper rate plus 4 3/4% (10.2% at March 31, 1998),
due 2001, secured by certain telecommunications equipment 4,932 4,711
Note payable with interest at 11%, due monthly
through fiscal 1999, secured by equipment 1,860 1,703
Mortgage payable with interest at 8 1/2%, due
monthly through 2009, secured by building 1,131 1,119
Other 90 66
-------------------- -----------------
892,352 1,224,394
Less current portion (1,784) (7,534)
==================== =================
$ 890,568 1,216,860
==================== =================
Redeemable preferred stock of subsidiary is summarized as follows :
December 31, 1997 March 31, 1998
-------------------- -----------------
(in thousands)
14% Exchangeable preferred stock, mandatorily redeemable
in 2008 $ 108,022 112,021
14 1/4% Exchangeable preferred stock, mandatorily
redeemable in 2007 184,420 191,305
==================== =================
$ 292,442 303,326
==================== =================
</TABLE>
(a) 10% Notes
On February 12, 1998, ICG Services completed a private placement of
10% Senior Discount Notes due 2008 (the "10% Notes") for gross
proceeds of approximately $300.6 million. Net proceeds from the
offering, after underwriting and other offering costs of approximately
$9.6 million, were approximately $291.0 million.
The 10% Notes are unsecured senior obligations of ICG Services that
mature on February 15, 2008, at a maturity value of $490.0 million.
Interest will accrue at 10% per annum, beginning February 15, 2003,
and is payable each February 15 and August 15, commencing August 15,
2003. The indenture for the 10% Notes contains certain covenants which
provide limitations on indebtedness, dividends, asset sales and
certain other transactions.
<PAGE>
13
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Long-term Debt and Redeemable Preferred Securities of Subsidiaries
(continued)
The 10% Notes were originally recorded at approximately $300.6
million. The discount on the 10% Notes and the debt issuance costs are
being accreted over ten years until maturity at February 15, 2008. The
accretion of the discount and debt issuance costs is included in
interest expense in the accompanying consolidated financial
statements.
(b) 9 7/8% Notes
On April 27, 1998, ICG Services completed a private placement of 9
7/8% Senior Discount Notes due 2008 (the "9 7/8% Notes") for gross
proceeds of approximately $250.0 million. Net proceeds from the
offering, after underwriting costs of approximately $7.5 million, were
approximately $242.5 million.
The 9 7/8% Notes are unsecured senior obligations of ICG Services that
mature on May 1, 2008, at a maturity value of $405.3 million. Interest
will accrue at 9 7/8% per annum, beginning May 1, 2003, and is payable
each May 1 and November 1, commencing November 1, 2003. The indenture
for the 9 7/8% Notes contains certain covenants which provide
limitations on indebtedness, dividends, asset sales and certain other
transactions.
The 9 7/8% Notes were originally recorded at approximately $250.0
million. The discount on the 9 7/8% Notes and the debt issuance costs
will be accreted over ten years until maturity at May 1, 2008.
(c) 6 3/4% Preferred Securities and ICG Preferred Stock
During fiscal 1997, ICG Funding completed a private placement of 6
3/4% Exchangeable Limited Liability Company Preferred Securities
Mandatorily Redeemable 2009 (the "6 3/4% Preferred Securities") for
gross proceeds of $132.25 million. Net proceeds from the private
placement, after offering costs, were approximately $127.6 million.
The 6 3/4% Preferred Securities consist of 2,645,000 exchangeable
preferred securities of ICG Funding that bear a cumulative dividend at
the rate of 6 3/4% per annum. The dividend is paid quarterly in
arrears each February 15, May 15, August 15 and November 15, and
commenced November 15, 1997. The dividend is payable in cash through
November 15, 2000 and, thereafter, in cash or shares of ICG Common
Stock, at the option of ICG Funding. The 6 3/4% Preferred Securities
are exchangeable, at the option of the holder, at any time prior to
November 15, 2009 into shares of ICG Common Stock at an exchange rate
of 2.0812 shares of ICG Common Stock per preferred security, or an
exchange price of $24.025 per share, subject to adjustment. ICG
Funding may, at its option, redeem the 6 3/4% Preferred Securities at
any time on or after November 18, 2000. Prior to that time, ICG
Funding may redeem the 6 3/4% Preferred Securities if the current
market value of ICG Common Stock equals or exceeds the exchange price,
for at least 20 days of any 30-day trading period, by 170% prior to
November 16, 1998; 160% from November 16, 1998 through November 15,
1999; and 150% from November 16, 1999 through November 15, 2000. The 6
3/4% Preferred Securities are subject to mandatory redemption on
November 15, 2009.
On February 15, 1998, ICG Funding used a portion of the proceeds from
the private placement of the 6 3/4% Preferred Securities to purchase
$112.4 million of ICG Communications, Inc. Preferred Stock ("ICG
Preferred Stock") which pays dividends each February 15, May 15,
August 15 and November 15 in additional shares of ICG Preferred Stock
through November 15, 2000. Subsequent to November 15, 2000, dividends
are payable in cash or shares of ICG Common Stock, at the option of
<PAGE>
14
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Long-term Debt and Redeemable Preferred Securities of Subsidiaries
(continued)
ICG. The ICG Preferred Stock is exchangeable, at the option of ICG
Funding, at any time prior to November 15, 2009 into shares of ICG
Common Stock at an exchange rate based on the exchange rate of the 6
3/4% Preferred Securities. The ICG Preferred Stock is subject to
mandatory redemption on November 15, 2009.
The accreted value of the 6 3/4% Preferred Securities is included in
Company-obligated mandatorily redeemable preferred securities of
subsidiary limited liability company which holds solely Company
preferred stock in the accompanying consolidated balance sheets.
(4) Stockholders' Deficit
(a) Common Stock
Common stock outstanding at March 31, 1998 represents the issued and
outstanding Common Stock of ICG and Class A common shares of
Holdings-Canada (not owned by ICG) which are exchangeable at any time,
on a one-for-one basis, for ICG Common Stock. The following table sets
forth the number of shares outstanding for ICG and Holdings-Canada on
a separate company basis as of March 31, 1998:
<TABLE>
<CAPTION>
Shares owned Shares owned
by ICG by third parties
------------------ -----------------
<S> <C> <C>
ICG Common Stock, $.01 par value, 100,000,000
shares authorized; 43,950,959 and 44,640,189 shares
issued and outstanding at December 31, 1997 and March 31,
1998, respectively - 44,640,189
Holdings-Canada Class A common shares, no par value,
100,000,000 shares authorized; 31,822,756 shares issued and
outstanding at December 31, 1997 and March 31, 1998:
Class A common shares, exchangeable on a one-for-one
basis for ICG Common Stock at any time - 23,680
Class A common shares owned by ICG 31,799,076 -
=================
Total shares outstanding 44,663,869
=================
</TABLE>
(b) Net Loss Per Share
Basic and diluted net loss per share is calculated by dividing the net
loss by the weighted average number of shares outstanding. Weighted
average number of shares outstanding represents combined ICG Common
Stock and Holdings-Canada Class A common shares outstanding. Common
stock equivalents, which include options, warrants and convertible
subordinated notes and preferred stock, are not included in the net
loss per share calculation as their effect is anti-dilutive.
<PAGE>
15
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Sale of Satellite Services Operating Subsidiaries
On April 1, 1998, the Company entered into definitive agreements to sell
the capital stock of Maritime Telecommunications Network, Inc. ("MTN") and
MarineSat Communications Network, Inc. (formerly Maritime Communications
Network, Inc.) ("MCN"), the two main subsidiaries within the Company's
Satellite Services operations, for aggregate consideration of approximately
$34.8 million. The sales are expected to close later this year and are
subject to certain conditions, including regulatory approvals.
At March 31, 1998, the Company owned a 64.5% interest in MTN. In April
1998, the Company purchased the minority interest in MTN for approximately
$3.1 million.
(6) Commitments and Contingencies
(a) Network Construction
In March 1996, the Company and Southern California Edison Company
("SCE") entered into a 25-year agreement under which the Company will
license 1,258 miles of fiber optic cable in Southern California, and
can install up to 500 additional miles of fiber optic cable. This
network, which will be maintained and operated primarily by the
Company, stretches from Los Angeles to southern Orange County. Under
the terms of this agreement, SCE will be entitled to receive an annual
fee for ten years, certain fixed quarterly payments, a quarterly
payment equal to a percentage of certain network revenue, and certain
other installation and fiber connection fees. The aggregate fixed
payments remaining under the agreement totaled approximately $144.1
million at March 31, 1998. The agreement has been accounted for as a
capital lease in the accompanying consolidated balance sheets.
In May 1997, the Company entered into a long-term agreement with The
Southern Company ("Southern") that will permit the Company to
construct a 100-mile fiber optic network in the Atlanta metropolitan
area. The Company paid $5.5 million upon execution of the agreement
and is responsible for reimbursement to Southern for costs of network
design, construction, installation, maintenance and repair.
Additionally, the Company is also required to pay Southern a quarterly
fee based on specified percentages of the Company's revenue derived
from services provided over this network. Network construction on the
initial 43-mile build is expected to be completed by August of 1998.
The Company estimates costs to complete the initial build are expected
to be approximately $3.5 million. The Company has incurred
approximately $6.5 million as of March 31, 1998, including the initial
$5.5 million payment.
In June 1997, the Company entered into an indefeasible right of use
("IRU") agreement with Qwest Communications Corporation ("Qwest") for
approximately 1,800 miles of fiber optic network and additional
broadband capacity in California, Colorado, Ohio and the Southeast.
Network construction is ongoing and is expected to be complete by
December 1998. The Company is responsible for payment on the
construction as segments of the network are completed and has incurred
approximately $9.6 million as of March 31, 1998, with remaining costs
anticipated to be approximately $25.0 million. Additionally, the
Company has committed to purchase $6.0 million in network capacity
from Qwest prior to the end of 1999.
<PAGE>
16
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
(b) Company Headquarters
During 1996, the Company acquired property for its new headquarters
and commenced construction of the office building that accommodates
most of the Company's Colorado operations. In January 1998, the
Company sold the substantially completed building to a third party for
net proceeds of $26.9 million and entered into an agreement to lease
back all of the office space under a 15-year operating lease which
includes two ten-year renewal terms. No gain or loss was recorded in
conjunction with the sale of the Company's headquarters.
(c) Other Commitments
The Company has entered into various equipment purchase agreements
with certain of its vendors. Under these agreements, if the Company
does not meet a minimum purchase level in any given year, the vendor
may discontinue for that year certain discounts, allowances and
incentives otherwise provided to the Company. In addition, the
agreements may be terminated by either the Company or the vendor upon
prior written notice.
Additionally, the Company has entered into certain commitments to
purchase capital assets with an aggregate purchase price of
approximately $66.2 million at March 31, 1998.
(d) Reciprocal Compensation
The Company has recorded revenue of approximately $4.9 million and
$8.5 million for fiscal 1997 and the three months ended March 31,
1998, respectively, for reciprocal compensation relating to the
transport and termination of local traffic to Internet service
providers from customers of incumbent local exchange carriers pursuant
to various interconnection agreements. These local exchange carriers
have not paid most of the bills they have received from the Company
and have disputed substantially all of these charges based on the
belief that such calls are not local traffic as defined by the various
agreements and under state and federal laws and public policies. The
resolution of these disputes will be based on rulings by state public
utility commissions and/or by the Federal Communications Commission
("FCC"). To date, there have been favorable final rulings from 16
states, favorable preliminary decisions from three additional states
and no unfavorable final rulings by any state public utility
commission or the FCC that would indicate that calls placed by end
users to Internet service providers would not qualify as local traffic
subject to the payment of reciprocal compensation. In addition, cases
are pending before six other states. Included in the Company's trade
receivables at December 31, 1997 and March 31, 1998 was $4.4 million
and $12.5 million, respectively, for receivables related to reciprocal
compensation. While the Company believes that all revenue recorded
through March 31, 1998 is collectible and that future reciprocal
compensation revenue will be realized, there can be no assurance that
such future regulatory rulings will be favorable to the Company.
(e) Litigation
On April 4, 1997, certain shareholders of the Company's majority owned
subsidiary, Zycom Corporation ("Zycom"), an Alberta, Canada
corporation, filed a shareholder derivative suit and class action
complaint for unspecified damages, purportedly on behalf of all of the
minority shareholders
<PAGE>
17
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
of Zycom, in the District Court of Harris County, Texas (Cause No.
97-17777) against the Company, Zycom and certain of their
subsidiaries. This complaint alleges that the Company and certain of
its subsidiaries breached certain duties owed to the plaintiffs. The
Company is vigorously defending the claims. While it is not possible
to predict the outcome of this litigation, management believes these
proceedings will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
The Company is a party to certain other litigation which has arisen in
the ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse
effect on the Company's financial condition, results of operations or
cash flows.
(7) Summarized Financial Information of ICG Holdings, Inc.
The 11 5/8% Senior Discount Notes due 2007 (the "11 5/8% Notes") issued by
Holdings during 1997 are guaranteed by ICG. The 12 1/2% Senior Discount
Notes due 2006 (the "12 1/2% Notes") and the 13 1/2% Senior Discount Notes
due 2005 (the "13 1/2% Notes") issued by Holdings during 1996 and 1995,
respectively, are guaranteed by ICG and Holdings-Canada.
The separate complete financial statements of Holdings have not been
included herein because such disclosure is not considered to be material to
the holders of the 11 5/8% Notes, the 12 1/2% Notes and the 13 1/2% Notes.
However, summarized combined financial information for Holdings and
subsidiaries and affiliates is as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheet Information
December 31, 1997 March 31, 1998
------------------------ ---------------------
(in thousands)
<S> <C> <C>
Current assets $ 215,817 276,035
Property and equipment, net 632,167 654,847
Other non-current assets, net 122,768 138,196
Current liabilities 98,351 125,316
Long-term debt, less current portion 890,503 914,300
Due to parent 30,970 148,123
Other long-term liabilities 66,939 66,041
Preferred stock 292,442 303,326
Stockholder's deficit (408,453) (488,028)
</TABLE>
<PAGE>
18
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Summarized Financial Information of ICG Holdings, Inc. (continued)
<TABLE>
<CAPTION>
Summarized Consolidated and Combined Statement of Operations Information
Three months ended March 31,
------------------------------------------------
1997 1998
----------------------- ----------------------
(in thousands)
<S> <C> <C>
Total revenue $ 63,050 85,476
Total operating costs and expenses 103,681 125,124
Operating loss (40,631) (39,648)
Net loss (66,629) (79,575)
</TABLE>
(8) Condensed Financial Information of ICG Holdings (Canada), Inc.
Condensed financial information for Holdings-Canada only is as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheet Information
December 31, 1997 March 31, 1998
------------------------ ---------------------
(in thousands)
<S> <C> <C>
Current assets $ 162 162
Advances to subsidiaries 30,790 148,123
Non-current assets, net 3,800 2,573
Current liabilities 107 107
Long-term debt, less current portion 65 65
Due to parent 22,162 138,301
Share of losses of subsidiary 408,453 (488,028)
Shareholders' deficit (396,035) (475,643)
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Operations Information
Three months ended March 31,
------------------------------------------------
1997 1998
----------------------- ----------------------
(in thousands)
<S> <C> <C>
Total revenue $ - -
Total operating costs and expenses 53 33
Operating loss (53) (33)
Losses from subsidiaries (66,629) (79,575)
Net loss attributable to common shareholders (66,682) (79,608)
</TABLE>
<PAGE>
19
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Summarized Financial Information of ICG Funding, LLC
The 6 3/4% Preferred Securities issued by ICG Funding during fiscal 1997
are guaranteed by ICG. The separate complete financial statements of ICG
Funding have not been included herein because such disclosure is not
considered to be material to the holders of the 6 3/4% Preferred
Securities. For the three months ended March 31, 1998, the statement of
operations of ICG Funding included only the preferred dividends paid and
accrued on the 6 3/4% Preferred Securities and interest income earned on
the proceeds from the offering of such securities. The summarized balance
sheet information for ICG Funding is as follows:
<TABLE>
<CAPTION>
Summarized Balance Sheet Information
December 31, 1997 March 31, 1998
----------------------- ----------------------
(in thousands)
<S> <C> <C>
Cash, cash equivalents and short-term
investments available for sale $ 108,282 2
Restricted cash 24,649 22,755
Investment in ICG Preferred Stock - 112,413
Dividends payable 1,218 1,218
Due to parent - 4
Preferred securities 132,250 132,250
Additional paid-in capital - 3,385
Member deficit (537) (1,687)
</TABLE>
(10) Condensed Financial Information of ICG Communications, Inc. (Parent
company)
The primary assets of ICG are its investments in ICG Services and
Holdings-Canada. Certain corporate expenses of the parent company are
included in ICG's statement of operations and were approximately $0.5
million for the three months ended March 31, 1998. Additionally, ICG
incurred merger costs for the three months ended March 31, 1998 associated
with its merger with NETCOM of approximately $1.1 million. ICG has no
operations other than those of ICG Services, ICG Funding and
Holdings-Canada and their subsidiaries.
<PAGE>
20
ITEM 2. MANAGEMENT=S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes certain forward-looking statements which
are affected by important factors including, but not limited to, dependence on
increased traffic on the Company's facilities, the successful implementation of
the Company's strategy of offering an integrated telecommunications package of
local, long distance, Internet, data and value-added services, continued
development of the Company's network infrastructure and actions of competitors
and regulatory authorities that could cause actual results to differ materially
from the forward-looking statements. The results for all periods presented
represent the combined results of ICG and NETCOM. The terms "fiscal" and "fiscal
year" refer to the Company's fiscal year ending December 31. All dollar amounts
are in U.S. dollars.
Company Overview
The Company is one of the nation's leading competitive integrated
communications providers ("ICPs") based on estimates of the industry's 1997
revenue. ICPs seek to provide an alternative to incumbent local exchange
carriers ("ILECs"), long distance carriers, Internet service providers ("ISPs")
and other communications service providers for a full range of communications
services in the increasingly deregulated telecommunications industry. Through
its competitive local exchange carrier ("CLEC") operations, the Company operates
networks in four regional clusters covering major metropolitan statistical areas
in California, Colorado, Ohio and the Southeast. The Company also provides a
wide range of network systems integration services, maritime and international
satellite transmission services and subsequent to January 21, 1998, a variety of
Internet connectivity and other value-added Internet services. Network Services
consist of information technology services and selected networking products,
focusing on network design, installation, maintenance and support. Satellite
Services consist of satellite voice and data services to major cruise lines,
commercial shipping vessels, yachts, the U.S. Navy and offshore oil platforms.
To better focus its efforts on its core Telecom Services unit, the Company
entered into definitive agreements on April 1, 1998 to sell the capital stock of
the two main subsidiaries within its Satellite Services operations. The Company
will include the results of operations of these subsidiaries within its
consolidated results of operations through the closing dates. As a leading
participant in the rapidly growing competitive local telecommunications
industry, the Company has experienced significant growth, with total revenue
increasing from approximately $164.0 million for fiscal 1995 to approximately
$457.6 million for the 12-month period ended March 31, 1998. The Company's rapid
growth is the result of the initial installation, acquisition and subsequent
expansion of its fiber optic networks and the expansion of its communication
service offerings.
The Federal Telecommunications Act of 1996 (the "Telecommunications Act")
and pro-competitive state regulatory initiatives have substantially changed the
telecommunications regulatory environment in the United States. Due to these
regulatory changes, the Company is now permitted to offer all interstate and
intrastate telephone services, including competitive local dial tone. The
Company is marketing and selling local dial tone services in major metropolitan
areas in the following regions: California, which began services in late January
1997, followed by Ohio in February 1997, Colorado in March 1997 and the
Southeast in May 1997. During fiscal 1997 and the three months ended March 31,
1998, the Company sold 178,470 and 36,248 local access lines, respectively, of
which 186,156 were in service at March 31, 1998. In addition, the Company's
operating networks have grown from 627 fiber route miles at the end of fiscal
1995 to 3,194 fiber route miles as of March 31, 1998. The Company has 20
operating high capacity digital voice switches and 15 data communications
switches, and plans to install additional switches as demand warrants. As a
complement to its local exchange services, the Company has begun marketing
bundled service offerings which include long distance, enhanced
telecommunications services and data services and plans to intensify the
offerings of such services in the near term.
The Company will continue to expand its network through construction,
leased facilities, strategic alliances and mergers and acquisitions. For
example, in January 1998, the Company completed its merger with NETCOM, a
provider of Internet connectivity and Web site hosting services and other
value-added services, located in San Jose, California. For calendar years 1995,
1996 and 1997, NETCOM reported revenue of $52.4 million, $120.5 million and
$160.7 million, respectively, and EBITDA losses of $(6.3) million, $(20.3)
million and $(1.7) million, respectively. The Company has accounted for the
business combination under the pooling-of-interests method of accounting and
accordingly, the Company's financial statements have been restated to reflect
the operations of
<PAGE>
21
NETCOM and the Company on a combined basis for all historical periods.
Telecom Services revenue has increased from $32.3 million for fiscal 1995
to $204.2 million for the 12-month period ended March 31, 1998. The Company has
experienced declining prices and increasing price competition for access
services which, to date, have been more than offset by increasing network usage.
The Company expects to continue to experience declining prices and increasing
price competition for the foreseeable future.
In conjunction with the increase in its service offerings, the Company has
and will continue to need to spend significant amounts on sales, marketing,
customer service, engineering and support personnel prior to the generation of
corresponding revenue. Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), operating and net losses have generally increased
immediately preceding and during periods of relatively rapid network expansion
and development of new services. Since the quarter ended June 30, 1996, EBITDA
losses have improved for each consecutive quarter. As the Company provides a
greater volume of higher margin services, principally local exchange services,
carries more traffic on its own facilities rather than ILEC facilities and
obtains the right to use unbundled ILEC facilities, while experiencing
decelerating increases in personnel and other SG&A expenses supporting its
Telecom Services networks, any or all of which may not occur, the Company
anticipates that EBITDA losses will continue to improve in the near term.
Currently, the Company has experienced and may continue to experience
negative operating margins from its wholesale switched services while its
networks are in the development and construction phases and while the Company
relies on ILEC networks to carry a significant portion of its customers'
switched traffic. The Company expects overall operating margins from switched
services to improve as local dial tone, local toll, long distance and data
communications services become a relatively larger portion of its business mix
and the Company de-emphasizes its wholesale switched services. In addition, the
Company believes that the unbundling of ILEC services and the implementation of
local telephone number portability, which are mandated by the Telecommunications
Act, will reduce the Company's costs of providing switched services and
facilitate the marketing of local and other services. The Company has recently
raised prices on its wholesale switched services product in order to improve
margins and free up switch port capacity for its higher margin dial tone
product.
The Company believes that the provisions of the Telecommunications Act,
including the opening of the local telephone services market to competition,
will facilitate the Company's plan to provide a full array of local, long
distance and data communications services. In order to fully implement its
strategy, the Company must make significant capital expenditures to provide
additional switching capacity, network infrastructure, operating support systems
and electronic components. The Company must also make significant investments
and expenditures to develop, train and manage its marketing and sales personnel.
<PAGE>
22
Results of Operations
The following table provides a breakdown of revenue and operating costs
for Telecom Services, Internet Services, Network Services and Satellite
Services, and certain other financial data for the Company for the periods
indicated. The table also shows certain revenue, operating expenses, operating
loss and EBITDA as a percentage of the Company's total revenue.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------------------------------
1997 1998
---------------------------------- -------------------------------------
$ % $ %
---------------- -------------- -------------------- -------------
<S> <C> <C> <C> <C>
(unaudited)
Statement of Operations Data: (in thousands)
Revenue:
Telecom services 38,280 37 64,742 52
Internet services 39,005 38 40,534 32
Network services 17,987 18 11,431 9
Satellite services 6,783 7 8,949 7
---------------- -------------- ----------------- ----------------
Total revenue 102,055 100 125,656 100
Operating costs:
Telecom services 41,450 52,008
Internet services 23,380 25,654
Network services 14,535 10,865
Satellite services 3,587 4,992
---------------- -------------- ----------------- ----------------
Total operating costs 82,952 81 93,519 74
Selling, general and administrative 50,576 50 57,848 46
Depreciation and amortization 19,766 19 22,556 18
Net (gain) loss on disposal of long-lived (641) - 505 -
assets
Provision for impairment of long-lived - - 1,860 2
assets
Merger costs - - 9,367 8
---------------- -------------- ----------------- ----------------
Operating loss (50,598) (50) (59,999) (48)
Other Data:
EBITDA (1) (31,473) (31) (25,711) (20)
Net cash used by operating activities (17,285) (16,708)
Net cash (used) provided by investing
activities (61,519) 31,231
Net cash provided by financing activities 176,293 297,473
Capital expenditures (2) 63,859 72,259
(Continued)
</TABLE>
<PAGE>
23
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, March 31,
1997 1997 1997 1997 1998
---------- ---------- -------------- ------------- ------------
(unaudited)
Statistical Data (3):
<S> <C> <C> <C> <C> <C>
Full time employees: 2,347 2,623 2,861 3,032 3,130
Telecom services:
Access lines in service (4) 5,371 20,108 50,551 141,035 186,156
Buildings connected (5):
On-net 545 560 590 596 637
Hybrid (6) 1,550 1,704 1,726 1,725 3,294
---------- ---------- -------------- ------------- ------------
Total buildings connected 2,095 2,264 2,316 2,321 3,931
Customer circuits in service (VGEs) (7) 816,238 917,656 1,006,916 1,111,697 1,171,801
Operational switches:
Voice 16 17 18 19 20
Data 10 15 15 15 15
---------- ---------- -------------- ------------- ------------
Total operational switches 26 32 33 34 35
Switched minutes of use (in millions) 682 742 788 660 639
Fiber route miles (8):
Operational 2,483 2,898 3,021 3,043 3,194
Under construction - - - - 972
Fiber strand miles (9):
Operational 83,334 101,788 109,510 111,435 118,074
Under construction - - - - 21,788
Wireless miles (10) 511 511 511 511 511
Internet services:
Average monthly revenue per subscriber $ 22.46 23.95 24.24 25.01 25.12
Satellite services:
VSATs 875 895 934 957 921
C-band installations (11) 57 57 54 57 59
L-band installations (12) 355 671 768 1,239 1,450
</TABLE>
(1) EBITDA consists of revenue less operating costs and selling, general and
administrative expenses. Excluded from operating costs is the amortization
of Internet subscriber acquisition costs of $3.0 million and $1.6 million
for the three months ended March 31, 1997 and 1998, respectively. EBITDA is
provided because it is a measure commonly used in the telecommunications
industry. EBITDA is presented to enhance an understanding of the Company's
operating results and is not intended to represent cash flows or results of
operations in accordance with generally accepted accounting principles
("GAAP") for the periods indicated. EBITDA is not a measurement under GAAP
and is not necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and financing
activities as determined using GAAP are also presented in Other Data.
(2) Capital expenditures includes assets acquired under capital leases and
excludes payments for construction of the Company's new headquarters which
the Company sold in January 1998 and leased back under a long-term
operating lease.
(3) Amounts presented are for three-month periods ended, or as of the end of,
the period presented.
(4) Access lines in service at March 31, 1998 includes 99,019 lines which are
provisioned through the Company's switch and 87,137 lines which are
provisioned through resale and other agreements with various local exchange
carriers. Resale lines typically generate lower margins and are used
primarily to obtain customers. Although the Company plans to migrate lines
from resale to higher margin on-switch lines, there is no assurance that it
will be successful in executing this strategy.
(5) Prior to the first quarter of 1998, the Company reported only special
access buildings connected. Beginning March 31, 1998, buildings connected
includes both dial tone and special access buildings connected. The
combined special access and dial tone buildings connected at December 31,
1997 was 3,153.
(6) Hybrid buildings connected represent buildings connected to the Company's
network via another carrier's facilities.
(7) Customer circuits in service are measured in voice grade equivalents
("VGEs").
(8) Fiber route miles refers to the number of miles of fiber optic cable,
including leased fiber. As of March 31, 1998, the Company had 3,194 fiber
route miles, of which 109 fiber route miles were leased under operating
<PAGE>
24
leases. Fiber route miles under construction represents fiber under
construction and fiber which is expected to be operational within six
months.
(9) Fiber strand miles refers to the number of fiber route miles, including
leased fiber, along a telecommunications path multiplied by the number of
fiber strands along that path. As of March 31, 1998, the Company had
118,074 fiber strand miles, of which 2,154 fiber strand miles were leased
under operating leases. Fiber strand miles under construction represents
fiber under construction and fiber which is expected to be operational
within six months.
(10) Wireless miles represents the total distance of the digital microwave paths
between Company transmitters which are used in the Company's networks.
(11) C-band installations service cruise ships, U.S. Navy vessels and offshore
oil platform installations.
(12) L-band installations service smaller maritime installations, and both
mobile and fixed land-based units.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenue. Revenue for the three months ended March 31, 1998 increased $23.6
million, or 23%, from the three months ended March 31, 1997. Telecom Services
revenue increased 69% to $64.7 million due to an increase in revenue from
switched local services, long distance and special access services, offset in
part by a decline in average unit pricing and in wholesale switched services
revenue. The Company launched its switched local services during the first
quarter of 1997 and did not report any revenue from these services for the three
months ended March 31, 1997, compared to $23.1 million for the three months
ended March 31, 1998. Revenue from long distance generated $5.1 million for the
three months ended March 31, 1998, compared to no reported revenue for the three
months ended March 31, 1997. Switched access (terminating long distance) revenue
represented approximately $14.2 million of the Company's switched services
revenue component for the three months ended March 31, 1998, compared to $18.6
million for the three months ended March 31, 1997. Special access revenue
increased from $12.1 million for the three months ended March 31, 1997 to $16.1
million for the three months ended March 31, 1998. Revenue from data services
did not generate a material portion of total revenue during either period. Also
included in Telecom Services revenue for the three months ended March 31, 1998
is $6.3 million generated by Zycom, compared to $7.6 million for the three
months ended March 31, 1997. The decrease in Zycom revenue for the three months
ended March 31, 1998 as compared to the same period in 1997 relates to the
change in mix of customers between comparative periods and the loss of certain
customers which were contracted at higher than average per minute rates.
Internet Services revenue increased 4% to $40.5 million for the three
months ended March 31, 1998, compared to $39.0 million for the three months
ended March 31, 1997 due to an increase of direct access and Web site hosting
customers relative to dial-up customers, which generate lower revenue per
customer, and additional sales of the Company's premium dial-up products.
Network Services revenue decreased 36% to $11.4 million for the three
months ended March 31, 1998, compared to $18.0 million for the three months
ended March 31, 1997. The decrease in Network Services revenue is primarily due
to non-recurring revenue generated from a single equipment sale during the three
months ended March 31, 1997.
Satellite Services revenue increased 32% to $8.9 million for the three
months ended March 31, 1998. This increase is primarily due to the operations of
MCN which comprised $2.3 million of total Satellite Services revenue for the
three months ended March 31, 1998, compared to $1.2 million during the same
period in 1997. The remaining increase can be attributed to the general growth
of MTN and its increased sales of C-Band equipment to offshore oil and gas
customers.
Operating costs. Total operating costs for the three months ended March 31,
1998 increased $10.6 million, or 13%, from the three months ended March 31,
<PAGE>
25
1997. Telecom Services operating costs increased from $41.5 million, or 108% of
Telecom Services revenue, for the three months ended March 31, 1997, to $52.0
million, or 80% of Telecom Services revenue, for the three months ended March
31, 1998. Telecom Services operating costs consist of payments to ILECs for the
use of network facilities to support special and switched access services,
network operating costs, right of way fees and other costs. The increase in
operating costs in absolute dollars is attributable to the increase in switched
access services and the addition of engineering and operations personnel
dedicated to the development of local exchange services. The decrease in
operating costs as a percentage of total revenue is due primarily to a greater
volume of higher margin services, principally local exchange services. The
Company expects that the Telecom Services ratio of operating costs to revenue
will further improve as the Company provides a greater volume of higher margin
services, principally local exchange services, carries more traffic on its own
facilities rather than ILEC facilities and obtains the right to use unbundled
ILEC facilities on satisfactory terms, any or all of which may not occur.
Internet Services operating costs increased 10% to $25.7 million and
increased as a percentage of Internet Services revenue from 60% for the three
months ended March 31, 1997 to 63% for the three months ended March 31, 1998.
The increase is due to increased transport costs due to initiatives related to
the conversion from an analog to a digital based network, which produced some
duplicative costs during the period of conversion.
Network Services operating costs decreased 25% to $10.9 million and
increased as a percentage of Network Services revenue from 81% for the three
months ended March 31, 1997 to 95% for the three months ended March 31, 1998.
The decrease in operating costs in absolute dollars is due to the decrease in
equipment sales and in general business volume between the comparative periods.
Operating costs increased as a percentage of revenue due to cost overruns on two
larger projects. Network Services operating costs include the cost of equipment
sold, direct hourly labor and other indirect project costs.
Satellite Services operating costs increased to $5.0 million for the three
months ended March 31, 1998 from $3.6 million for the three months ended March
31, 1997. Satellite Services operating costs as a percentage of Satellite
Services revenue also increased from 53% for the three months ended March 31,
1997 to 56% for the three months ended March 31, 1998. This increase is due to
an increase in MCN's sales as well as the increased volume of equipment sales,
both of which provide lower margins than other maritime services. Satellite
Services operating costs consist primarily of transponder lease costs and the
cost of equipment sold.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 1998
increased $7.3 million, or 14%, compared to the three months ended March 31,
1997. This increase was principally due to the continued rapid expansion of the
Company's Telecom Services networks and related significant additions to the
Company's management information systems, customer service, marketing and sales
staffs dedicated to the expansion of the Company's networks and implementation
of the Company's expanded services strategy, primarily the development of local
and long distance telephone and data communications services. SG&A expenses as a
percentage of total revenue decreased from 50% for the three months ended March
31, 1997 to 46% for the three months ended March 31, 1998, as the Company begins
to benefit from the revenue generated by newly developed services requiring
substantial administrative, selling and marketing expense prior to initial
service offerings. The Company expects SG&A expenses for Telecom Services to
increase slightly in absolute dollars over the near term as a result of hiring
new staff to facilitate the marketing and development of local dial tone, local
toll, long distance and data transmission services.
Depreciation and amortization. Depreciation and amortization increased $2.8
million, or 14%, for the three months ended March 31, 1998, compared to the
three months ended March 31, 1997, due to increased investment in depreciable
assets resulting from the continued expansion of the Company's networks and
services. The Company reports high levels of depreciation expense relative to
revenue during the early years of operation of a new network because the full
cost of a network is depreciated using the straight-line method despite the low
rate of capacity utilization in the early stages of network operation.
Net (gain) loss on disposal of long-lived assets. Net (gain) loss on
disposal of long-lived assets fluctuated from a net gain of $0.6 million for the
three months ended March 31, 1997 to a net loss of $0.5 million for the three
months ended March 31, 1998. Net gain on disposal of long-lived assets for the
three months ended March 31, 1997 consists primarily of a gain on the sale of
<PAGE>
26
Satellite Services' Mexico subsidiary. For the three months ended March 31,
1998, net loss on disposal of long-lived assets relates to the write-off of
certain installation costs of disconnected special access customers.
Provision for impairment of long-lived assets. For the three months ended
March 31, 1998, provision for impairment of long-lived assets includes a
provision for the remaining net book value of goodwill associated with Zycom's
purchase of certain operating assets.
Merger costs. The Company recorded merger costs of approximately $9.4
million for the three months ended March 31, 1998 related to the Company's
merger with NETCOM in January 1998, which consist primarily of investment
advisory, legal and accounting fees and other costs associated with the merger.
Interest expense. Interest expense increased $9.7 million, from $25.2
million for the three months ended March 31, 1997 to $34.9 million for the three
months ended March 31, 1998, which includes $29.6 million of non-cash interest.
The increase is primarily attributable to an increase in long-term debt,
primarily the 11 5/8% Notes issued in March 1997 and the 10% Notes issued in
February 1998. In addition, the Company's interest expense increased, and will
continue to increase, because the principal amount of its indebtedness increases
until the Company's senior indebtedness begins to pay interest in cash.
Interest income. Interest income increased $0.6 million, from $6.1 million
for the three months ended March 31, 1997 to $6.7 million for the three months
ended March 31, 1998. The increase is attributable to the increase in cash and
invested cash balances from the proceeds from the issuances of the 11 5/8% Notes
and 14% Preferred Stock in March 1997, the 6 3/4% Preferred Securities in
September and October 1997 and the 10% Notes in February 1998.
Other, net. Other, net decreased from $0.6 million net expense for the
three months ended March 31, 1997 to $0.3 million net expense for the three
months ended March 31, 1998. Other expense recorded in both periods primarily
represents litigation settlement costs and other miscellaneous gains and losses.
Income tax expense. Income tax expense for the three months ended March 31,
1997 and 1998 is attributable to state and foreign income taxes incurred and
paid by NETCOM.
Minority interest in share of losses, net of accretion and preferred
dividends on preferred securities of subsidiaries. Minority interest in share of
losses, net of accretion and preferred dividends on preferred securities of
subsidiaries increased $7.4 million, from $5.8 million for the three months
ended March 31, 1997 to $13.2 million for the three months ended March 31, 1998.
The increase is due primarily to the issuance of the 14% Exchangeable Preferred
Stock Mandatorily Redeemable 2008 (the "14% Preferred Stock") in March 1997 and
the 6 3/4% Preferred Securities in September and October 1997. Minority interest
in share of losses, net of accretion and preferred dividends on preferred
securities of subsidiaries recorded during the three months ended March 31, 1998
consists of the accretion of issuance costs ($2.4 million) and the accrual of
the preferred security dividends ($10.8 million) associated with the 6 3/4%
Preferred Securities, the 14% Preferred Stock and the 14 1/4% Exchangeable
Preferred Stock Mandatorily Redeemable 2007 (the "14 1/4 Preferred Stock").
Net loss. Net loss increased $25.8 million, or 34%, due to the increases in
operating costs, SG&A expense, depreciation and amortization, merger costs,
interest expense and minority interest in share of losses, net of accretion and
preferred dividends on preferred securities of subsidiaries as noted above.
Liquidity and Capital Resources
The Company's growth has been funded through a combination of equity, debt
and lease financing. As of March 31, 1998, the Company had current assets of
$625.8 million, including $523.2 million of cash, cash equivalents and
short-term investments, which exceeded current liabilities of $163.9 million,
providing working capital of $461.9 million. The Company invests excess funds in
short-term, interest-bearing investment-grade securities until such funds are
used to fund the capital investments and operating needs of the Company's
business. The Company's short term investment objectives are safety, liquidity
and yield, in that order.
<PAGE>
27
Cash Used By Operating Activities
The Company's operating activities used $17.3 million and $16.7 million for
the three months ended March 31, 1997 and 1998, respectively. Cash used by
operations is primarily due to net losses, which are partially offset by
non-cash expenses, such as depreciation and amortization expense, deferred
interest expense, preferred dividends on subsidiary preferred securities and
changes in working capital items.
The Company does not anticipate that cash provided by operations will be
sufficient to fund operating activities, future expansion of existing networks
or the construction and acquisition of new networks in the near term. As the
Company provides a greater volume of higher margin services, principally local
exchange services, carries more traffic on its own facilities rather than ILEC
facilities and obtains the right to use unbundled ILEC facilities, while
experiencing decelerating increases in personnel and other SG&A expenses
supporting its Telecom Services networks, any or all of which may not occur, the
Company anticipates that cash used by operating activities will continue to
improve in the near term.
Cash Used By Investing Activities
Investing activities used $61.5 million and provided $31.2 million for the
three months ended March 31, 1997 and 1998, respectively. Cash used by investing
activities includes cash expended for the acquisition of property, equipment and
other assets of $60.6 million and $71.3 million for the three months ended March
31, 1997 and 1998, respectively. Additionally, cash used by investing activities
includes payments for construction of the Company's new headquarters of $3.6
million and $4.9 million for the three months ended March 31, 1997 and 1998,
respectively. Offsetting the expenditures for investing activities for the three
months ended March 31, 1998 are the net proceeds from the sale of the Company's
new headquarters of $26.9 million and the sale of short-term investments of
$83.3 million. The Company will continue to use cash in 1998 and subsequent
periods for the construction of new networks, and the expansion of existing
networks and potentially for acquisitions. The Company acquired assets under
capitalized leases of $3.2 million and $1.0 million for the three months ended
March 31, 1997 and 1998, respectively.
Cash (Used) Provided By Financing Activities
Financing activities provided $176.3 million and $297.5 million in the
three months ended March 31, 1997 and 1998, respectively. Cash provided by
financing activities primarily includes cash received in connection with the
private placement of the 11 5/8% Notes and the 14% Preferred Stock in March 1997
and the 10% Senior Discount Notes due 2008 (the "10% Notes") in February 1998.
Historically, the funds to finance the Company's business acquisitions, capital
expenditures, working capital requirements and operating losses have been
obtained through public and private offerings of ICG and Holdings-Canada common
shares, convertible subordinated notes, convertible preferred shares of
Holdings-Canada, capital lease financings and various working capital sources,
including credit facilities, in addition to the private placement of the
securities previously mentioned and other securities offerings.
On February 12, 1998, ICG Services completed a private placement of 10%
Notes for net proceeds, after underwriting and other offering costs, of
approximately $291.0 million. Interest will accrue at 10% per annum, beginning
February 15, 2003, and is payable each February 15 and August 15, commencing
August 15, 2003. The 10% Notes will be redeemable at the option of ICG Services,
in whole or in part, on or after February 15, 2003.
As of March 31, 1998, the Company had an aggregate of approximately $77.4
million of capitalized lease obligations and an aggregate accreted value of
approximately $1.2 billion was outstanding under the 13 1/2% Notes, the 12 1/2%
Notes, 11 5/8% Notes and the 10% Notes. The 13 1/2% Notes require payments of
interest to be made in cash commencing on March 15, 2001 and mature on September
15, 2005. The 12 1/2% Notes require payments of interest to be made in cash
commencing on November 1, 2001 and mature on May 1, 2006. The 11 5/8% Notes
require payments of interest to be made in cash commencing September 15, 2002
and mature on March 15, 2007. The 10% Notes require payments of interest in cash
commencing on August 15, 2003 and mature on February 15, 2008. The 6 3/4%
Preferred Securities require payments of dividends to be made in cash through
November 15, 2000. In addition, the 14 % Preferred Stock and the 14 1/4%
<PAGE>
28
Preferred Stock require payment of dividends to be made in cash commencing June
15, 2002 and August 1, 2001, respectively. As of March 31, 1998, the Company had
$7.6 million of other indebtedness outstanding. The Company's cash on hand and
amounts expected to be available through vendor financing arrangements will
provide sufficient funds necessary for the Company to expand its Telecom
Services business as currently planned and to fund its operating deficits
through 1999. With respect to indebtedness outstanding on March 31, 1998, the
Company has cash interest payment obligations of approximately $113.3 million in
2001, $158.0 million in 2002 and $192.4 million in 2003. With respect to
preferred securities currently outstanding, the Company has cash dividend
obligations of approximately $6.7 million remaining in 1998, $8.9 million in
each of 1999 and 2000, $21.5 million in 2001, $57.0 million in 2002 and $70.9
million in 2003. Accordingly, the Company may have to refinance a substantial
amount of indebtedness and obtain substantial additional funds prior to March
2001. The Company's ability to do so will depend on, among other things, its
financial condition at the time, restrictions in the instruments governing its
indebtedness, and other factors, including market conditions, beyond the control
of the Company. There can be no assurance that the Company will be able to
refinance such indebtedness, including capitalized leases, or obtain additional
funds, and if the Company is unable to effect such refinancings or obtain
additional funds, the Company's ability to make principal and interest payments
on its indebtedness or make payments of cash dividends on, or the mandatory
redemption of, its preferred stock, would be adversely affected.
On April 27, 1998, ICG Services completed a private placement of 9 7/8%
Notes, for net proceeds, after underwriting costs, of approximately $242.5
million. Interest will accrue at 9 7/8% per annum, beginning May 1, 2003, and is
payable each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
will be redeemable at the option of ICG Services, in whole or in part, on or
after May 1, 2003.
Capital Expenditures
The Company's capital expenditures (including assets acquired under capital
leases and excluding payments for construction of the Company's new
headquarters) were $63.9 million and $72.3 million for the three months ended
March 31, 1997 and 1998, respectively. The Company anticipates that the
expansion of existing networks, construction of new networks and further
development of the Company's products and services will require capital
expenditures of approximately $370.0 million during the remainder of 1998,
including capital expenditure requirements of NETCOM. To facilitate the
expansion of its services and networks, the Company has entered into equipment
purchase agreements with various vendors under which the Company must purchase a
substantial amount of equipment and other assets, including a full range of
switching systems, fiber optic cable, network electronics, software and
services. Actual capital expenditures will depend on numerous factors including
certain factors beyond the Company's control. These factors include the nature
of future expansion and acquisition opportunities, economic conditions,
competition, regulatory developments and the availability of equity, debt and
lease financing.
Other Cash Commitments and Capital Requirements
The Company's operations have required and will continue to require
significant capital expenditures for the development, construction, expansion
and acquisitions of telecommunications assets. Significant amounts of capital
are required to be invested before revenue is generated, which results in
initial negative cash flow. In addition to the Company's planned capital
expenditures, it has other cash commitments as described in the Company's
unaudited Consolidated Financial Statements for the three months ended March 31,
1998 included elsewhere herein.
In view of the continuing development of the Company's products and
services, the expansion of existing networks and the construction, leasing and
licensing of new networks, the Company will require additional amounts of cash
in the future from outside sources. Management believes that the Company's cash
on hand and amounts expected to be available through vendor financing
arrangements will provide sufficient funds necessary for the Company to expand
its Telecom Services business as currently planned and to fund its operating
deficits through 1999. Additional sources of cash may include public and private
equity and debt financings, sales of non-strategic assets, capitalized leases
and other financing arrangements. In the past, the Company has been able to
secure sufficient amounts of financing to meet its capital expenditure needs.
There can be no assurance that additional financing will be available to the
Company or, if available, that it can be obtained on terms acceptable to the
<PAGE>
29
Company.
The failure to obtain sufficient amounts of financing could result in the
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 business. In
addition, the inability to fund operating deficits with the proceeds of
financings until the Company establishes a sufficient revenue-generating
customer base could have a material adverse effect on the Company's liquidity.
Year 2000 Compliance
While the Company believes that its software applications are year 2000
compliant, there can be no assurance until the year 2000 occurs that all systems
will then function adequately. Further, if the software applications of local
exchange carriers, long distance carriers or others on whose services the
Company depends are not year 2000 compliant, it could have a material adverse
effect on the Company's financial condition and results of operations.
<PAGE>
30
PART II
ITEM 1. LEGAL PROCEEDINGS
See Note 6 (e) to the Company's unaudited Consolidated Financial
Statements for the three months ended March 31, 1998 contained
elsewhere in this Quarterly Report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 21, 1998, ICG held a Special Meeting of the Stockholders
(the "Special Meeting") to approve the issuance of ICG Common Stock in
connection with the Agreement and Plan of Merger, dated October 12,
1997, as amended, by and among ICG, ICG Acquisition, Inc. and NETCOM
On-Line Communication Services, Inc. Indicated below are the results
of the stockholders' vote tabulated at the Special Meeting:
For: 24,377,705
Against: 62,318
Abstentions: 396,723
Broker non-votes: 4,059,346
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits.
(27) Financial Data Schedules.
27.1:Restated Financial Data Schedule of ICG Communications, Inc.
for the Fiscal Year Ended September 30, 1995.
27.2:Restated Financial Data Schedule of ICG Communications,
Inc. for the Fiscal Year Ended September 30, 1996.
27.3:Restated Financial Data Schedule of ICG Communications,
Inc. for the Three Months Ended December 31, 1996.
27.4:Restated Financial Data Schedule of ICG Communications,
Inc. for the Fiscal Year Ended December 31, 1997.
27.5:Restated Financial Data Schedule of ICG Communications,
Inc. for the Three Months Ended March 31, 1997.
<PAGE>
31
27.6:Financial Data Schedule of ICG Communications, Inc. for the
Three Months Ended March 31, 1998.
(B) Reports on Form 8-K. The following reports on Form 8-K were filed by
the registrants during the three months ended March 31, 1998:
(i) Current Report on Form 8-K dated February 5, 1998, regarding the
announcement of the completion of the merger with NETCOM On-Line
Communication Services, Inc. on January 21, 1998.
(ii) Current Report on Form 8-K dated February 10, 1998, regarding the
announcement of the private placement of $200 million of Senior
Discount Notes by ICG Services, Inc.
(iii)Current Report on Form 8-K dated February 19, 1998, regarding the
announcement of the completion of the private placement of
approximately $300 million of 10% Senior Discount Notes by ICG
Services, Inc.
(iv) Current Report on Form 8-K dated February 26, 1998, regarding the
announcement of earnings information and results of operations
for the fiscal year ended December 31, 1997.
<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.
ICG COMMUNICATIONS, INC.
Date: May 12, 1998 By: /s/ James D. Grenfell
-------------------------------------------------
James D. Grenfell, Executive Vice President and
Chief Financial Officer
Date: May 12, 1998 By: /s/ Richard Bambach
-------------------------------------------------
Richard Bambach, Vice President and Corporate
Controller
<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.
ICG FUNDING, LLC
By: ICG Communications, Inc.
Common Member and Manager
Date: May 12, 1998 By: /s/ James D. Grenfell
-------------------------------------------------
James D. Grenfell, Executive Vice President and
Chief Financial Officer
<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.
ICG HOLDINGS (CANADA), INC.
Date: May 12, 1998 By: /s/ James D. Grenfell
-------------------------------------------------
James D. Grenfell, Executive Vice President and
Chief Financial Officer
Date: May 12, 1998 By: /s/ Richard Bambach
-------------------------------------------------
Richard Bambach, Vice President and Corporate
Controller
<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.
ICG HOLDINGS, INC.
Date: May 12, 1998 By: /s/ James D. Grenfell
-------------------------------------------------
James D. Grenfell, Executive Vice President,
Chief Financial Officer and Director
Date: May 12, 1998 By: /s/ Richard Bambach
-------------------------------------------------
Richard Bambach, Vice President and Corporate
Controller
<PAGE>
INDEX TO EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLDIATED FINANCIAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 AS RESTATED TO REFLECT THE COMBINED
OPERATIONS OF ICG AND NETCOM AS THOUGH THE MERGER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 415,417
<SECURITIES> 0<F1>
<RECEIVABLES> 36,586
<ALLOWANCES> 2,442
<INVENTORY> 2,371
<CURRENT-ASSETS> 458,588
<PP&E> 282,727
<DEPRECIATION> 33,999
<TOTAL-ASSETS> 786,233
<CURRENT-LIABILITIES> 77,582
<BONDS> 412,274
24,336
0<F1>
<COMMON> 190,864
<OTHER-SE> 77,137
<TOTAL-LIABILITY-AND-EQUITY> 786,233
<SALES> 0<F1>
<TOTAL-REVENUES> 164,032
<CGS> 0<F1>
<TOTAL-COSTS> 108,396
<OTHER-EXPENSES> 125,937
<LOSS-PROVISION> 2,560
<INTEREST-EXPENSE> 24,368
<INCOME-PRETAX> (88,833)
<INCOME-TAX> 15
<INCOME-CONTINUING> (90,712)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (90,712)
<EPS-PRIMARY> (2.94)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANICAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AS RESTATED TO REFLECT THE COMBINED
OPERATIONS OF ICG AND NETCOM AS THOUGH THE MERGER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 433,342
<SECURITIES> 33,450
<RECEIVABLES> 53,319
<ALLOWANCES> 3,411
<INVENTORY> 3,309
<CURRENT-ASSETS> 527,712
<PP&E> 567,697
<DEPRECIATION> 79,648
<TOTAL-ASSETS> 1,113,767
<CURRENT-LIABILITIES> 112,465
<BONDS> 761,504
159,120
0<F1>
<COMMON> 8,189
<OTHER-SE> 70,522
<TOTAL-LIABILITY-AND-EQUITY> 1,113,767
<SALES> 0<F1>
<TOTAL-REVENUES> 289,634
<CGS> 0<F1>
<TOTAL-COSTS> 208,798
<OTHER-EXPENSES> 219,133
<LOSS-PROVISION> 3,436
<INTEREST-EXPENSE> 85,714
<INCOME-PRETAX> (202,907)
<INCOME-TAX> (5,108)
<INCOME-CONTINUING> (224,919)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> (3,453)
<NET-INCOME> (228,372)
<EPS-PRIMARY> (6.19)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANICAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AS RESTATED TO REFLECT THE COMBINED
OPERATIONS OF ICG AND NETCOM AS THOUGH THE MERGER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 433,342
<SECURITIES> 33,450
<RECEIVABLES> 53,319
<ALLOWANCES> 3,411
<INVENTORY> 3,309
<CURRENT-ASSETS> 527,712
<PP&E> 567,697
<DEPRECIATION> 79,648
<TOTAL-ASSETS> 1,113,767
<CURRENT-LIABILITIES> 112,465
<BONDS> 761,504
159,120
0<F1>
<COMMON> 8,189
<OTHER-SE> 70,522
<TOTAL-LIABILITY-AND-EQUITY> 1,113,767
<SALES> 0<F1>
<TOTAL-REVENUES> 93,335
<CGS> 0<F1>
<TOTAL-COSTS> 72,428
<OTHER-EXPENSES> 59,740
<LOSS-PROVISION> 1,190
<INTEREST-EXPENSE> 24,454
<INCOME-PRETAX> (56,313)
<INCOME-TAX> 12
<INCOME-CONTINUING> (61,313)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (61,313)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANICAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AS RESTATED TO REFLECT THE COMBINED
OPERATIONS OF ICG AND NETCOM AS THOUGH THE MERGER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 182,202
<SECURITIES> 112,281
<RECEIVABLES> 88,122
<ALLOWANCES> 7,004
<INVENTORY> 4,242
<CURRENT-ASSETS> 393,940
<PP&E> 861,411
<DEPRECIATION> 156,299
<TOTAL-ASSETS> 1,254,511
<CURRENT-LIABILITIES> 130,266
<BONDS> 961,057
420,171
0<F1>
<COMMON> 749
<OTHER-SE> (257,732)
<TOTAL-LIABILITY-AND-EQUITY> 1,254,511
<SALES> 0<F1>
<TOTAL-REVENUES> 434,014
<CGS> 0<F1>
<TOTAL-COSTS> 341,916
<OTHER-EXPENSES> 322,165
<LOSS-PROVISION> 5,520
<INTEREST-EXPENSE> 118,279
<INCOME-PRETAX> (322,885)
<INCOME-TAX> 38
<INCOME-CONTINUING> (360,735)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (360,735)
<EPS-PRIMARY> (8.49)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 1997 AS RESTATED TO REFLECT THE COMBINED
OPERATIONS OF ICG AND NETCOM AS THOUGH THE MERGER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 530,832
<SECURITIES> 32,248
<RECEIVABLES> 50,761
<ALLOWANCES> 5,972
<INVENTORY> 3,083
<CURRENT-ASSETS> 617,993
<PP&E> 635,734
<DEPRECIATION> 95,890
<TOTAL-ASSETS> 1,254,297
<CURRENT-LIABILITIES> 102,197
<BONDS> 885,551
261,909
0<F1>
<COMMON> 5,384
<OTHER-SE> (1,674)
<TOTAL-LIABILITY-AND-EQUITY> 1,254,297
<SALES> 0<F1>
<TOTAL-REVENUES> 102,055
<CGS> 0<F1>
<TOTAL-COSTS> 82,952
<OTHER-EXPENSES> 69,701
<LOSS-PROVISION> 1,733
<INTEREST-EXPENSE> 25,182
<INCOME-PRETAX> (70,232)
<INCOME-TAX> 7
<INCOME-CONTINUING> (75,992)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (75,992)
<EPS-PRIMARY> (1.81)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND
SUBSIDIARIES FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 494,215
<SECURITIES> 29,000
<RECEIVABLES> 95,705
<ALLOWANCES> 9,484
<INVENTORY> 4,501
<CURRENT-ASSETS> 625,824
<PP&E> 904,524
<DEPRECIATION> 175,407
<TOTAL-ASSETS> 1,532,448
<CURRENT-LIABILITIES> 163,937
<BONDS> 1,286,501
431,074
0<F1>
<COMMON> 755
<OTHER-SE> (349,819)
<TOTAL-LIABILITY-AND-EQUITY> 1,532,448
<SALES> 0<F1>
<TOTAL-REVENUES> 125,656
<CGS> 0<F1>
<TOTAL-COSTS> 93,519
<OTHER-EXPENSES> 92,136
<LOSS-PROVISION> 3,067
<INTEREST-EXPENSE> 34,884
<INCOME-PRETAX> (88,550)
<INCOME-TAX> 13
<INCOME-CONTINUING> (101,755)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (101,755)
<EPS-PRIMARY> (2.30)
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
