UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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 333-40495)
ICG FUNDING, LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of organization)
84-1434980
(I.R.S. Employer Identification No.)
161 Inverness Drive West
Englewood, Colorado 80112
(888) 424-1144 or (303) 414-5000
(Address of principal executive offices and registrant's
telephone numbers, including area codes)
ICG Funding, LLC has no securities registered pursuant to Sections 12(b) or
12(g) of the Act.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No |X|
All of the issued and outstanding common securities of ICG Funding, LLC are
owned by ICG Communications, Inc.
<PAGE>
2
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 3
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Operations (unaudited) for the Three Months
Ended March 31, 1998. . . . . . . . . . . . . . . . . . 4
Statement of Member's (Deficit) Equity (unaudited) for the
Three Months Ended March 31, 1998 . . . . . . . . . . . 5
Statement of Cash Flows (unaudited) for the Three Months
Ended March 31, 1998 . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements, December 31, 1997 and March
31, 1998 (unaudited) . . . . . . . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 9
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . 13
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 13
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K . . . . . . . . . . . . . 13
Exhibit . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 13
<PAGE>
3
ICG FUNDING, LLC
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:
Short-term investments available for sale $ 108,310 -
Dividends receivable - 837
Restricted cash 8,693 8,693
-------------------- -----------------
Total current assets 117,003 9,530
-------------------- -----------------
Investment in ICG Preferred Stock - 112,413
Restricted cash 15,956 14,062
-------------------- -----------------
Total assets $ 132,959 136,005
==================== =================
Liabilities and Member's (Deficit) Equity
Current liability - dividends payable $ 1,116 1,116
Due to ICG 4,699 4,699
------------------- -----------------
Total liabilities 5,815 5,815
------------------- -----------------
Redeemable preferred securities ($133.4 million liquidation
value at December 31, 1997 and March 31, 1998) 127,655 127,750
Member's (deficit) equity:
Additional paid-in capital (note 3) - 3,385
Accumulated deficit (511) (945)
------------------- -----------------
Total member's (deficit) equity (511) 2,440
------------------- -----------------
Commitments and contingencies
Total liabilities and member's (deficit) equity $ 132,959 136,005
=================== =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
4
ICG FUNDING, LLC
Statement of Operations (unaudited)
Three Months Ended March 31, 1998
Three Months
Ended
March 31, 1998
---------------------
(in thousands)
Interest income, net $ 1,056
Dividend income 837
---------------------
Net income $ 1,893
---------------------
Preferred dividends on redeemable preferred
securities, including accretion of offering costs (2,327)
---------------------
Net loss available to common member $ (434)
=====================
See accompanying notes to financial statements.
<PAGE>
5
ICG FUNDING, LLC
Statement of Member's (Deficit) Equity (unaudited)
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Total
member's
Additional Accumulated (deficit)
paid-in capital deficit equity
------------------ -------------------- ------------------
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1997 $ - (511) (511)
Contribution of ICG Common Stock (note 3) 3,385 - 3,385
Net income - 1,893 1,893
Preferred dividends on redeemable preferred securities,
including accretion of offering costs - (2,327) (2,327)
------------------ -------------------- ------------------
Balances at March 31, 1998 $ 3,385 (945) 2,440
================== ==================== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
6
ICG FUNDING, LLC
Statement of Cash Flows (unaudited)
Three Months Ended March 31, 1998
Three Months Ended
March 31,
1998
---------------------
(in thousands)
Cash flows from operating activities:
Net income $ 1,893
Adjustment to reconcile net income to net cash
provided by operating activities:
Non-cash preferred dividends earned on
ICG Preferred Stock (837)
---------------------
Net cash provided by operating activities 1,056
---------------------
Cash flows from investing activities:
Sale of short-term investments 108,310
Purchase of ICG Preferred Stock (112,413)
Decrease in restricted cash 1,894
---------------------
Net cash used by investing activities (2,209)
---------------------
Cash flows from financing activities:
Proceeds from sale of ICG Common Stock 3,385
Payment of preferred dividends on redeemable
preferred securities (2,232)
---------------------
Net cash provided by financing activities 1,153
---------------------
Cash and cash equivalents at December 31, 1997
and March 31, 1998 $ -
=====================
See accompanying notes to financial statements.
<PAGE>
7
ICG FUNDING, LLC
Notes to Financial Statements
December 31, 1997 and March 31, 1998 (unaudited)
(1) Organization and Nature of Business
ICG Funding, LLC, a Delaware limited liability company (the "Company"), was
formed on September 17, 1997 as a special purpose limited liability company
existing for the exclusive purposes of: (i) issuing common and preferred
interests in the Company; (ii) using at least 85% of the net proceeds of
such issuances and related capital contributions (the "Net Proceeds") to
purchase shares of preferred stock of ICG Communications, Inc. ("ICG")
("ICG Preferred Stock") in a private placement; (iii) investing a portion
of the remaining Net Proceeds in U.S. Treasury securities, to be held in
escrow in an amount sufficient to fund the cash payments of the first
thirteen quarterly dividends on the Company's preferred interests (the
"Redeemable Preferred Securities"); and (iv) purchasing U.S. Treasury
securities pending the purchase of shares of ICG Preferred Stock. Unless
previously dissolved, the Company's term will continue until December 31,
2050.
ICG is the sole common member of the Company. The business and affairs of
the Company are conducted by ICG and ICG pays all of the Company's
administrative expenses, which are insignificant.
(2) Significant Accounting Policies
(a) Basis of Presentation
These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K/A for the period from September
17, 1997 (inception) to December 31, 1997 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 period 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) Net Loss Per Share
The Company's one issued and outstanding common limited liability
company security is owned directly by ICG. Accordingly, the Company
does not present net loss per share in its financial statements as
such disclosure is not considered to be meaningful.
<PAGE>
8
ICG FUNDING, LLC
Notes to Financial Statements, Continued
(3) Contribution and Sale of ICG Common Stock and Purchase of ICG Preferred
Stock
On February 13, 1998, ICG made a contribution of 126,750 shares of common
stock of ICG, $0.01 par value ("ICG Common Stock"), to the Company.
Immediately thereafter, the Company sold the contributed shares to
unrelated third parties for proceeds of approximately $3.4 million. The
Company recorded the contribution of the ICG Common Stock as additional
paid-in capital at the then fair market value and, consequently, no gain or
loss was recorded by the Company on the subsequent sale of those shares.
Also on February 13, 1998, the Company used the remaining proceeds from the
private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from
the sale of the contributed ICG Common Stock to purchase approximately
$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 on the ICG Preferred
Stock are payable in cash or shares of ICG Common Stock, at the option of
ICG. The ICG Preferred Stock is exchangeable, at the option of the Company,
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 Redeemable Preferred
Securities. The ICG Preferred Stock is subject to mandatory redemption on
November 15, 2009.
<PAGE>
9
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, market
conditions affecting the price of ICG Common Stock, redemption of the Redeemable
Preferred Securities by ICG, exchange into ICG Common Stock by the Redeemable
Preferred Securityholders, the declaration and payment of preferred stock
dividends to the Company by ICG and the ability of ICG to pay the administrative
expenses of the Company, that could cause actual results to differ materially
from the forward-looking statements. The results for the three months ended
March 31, 1998 have been derived from the Company's unaudited financial
statements included elsewhere herein.
Company Overview and Description of Significant Transactions
The Company was formed on September 17, 1997 as a special purpose limited
liability company existing for the exclusive purposes of: (i) issuing common and
preferred interests in the Company; (ii) using at least 85% of the Net Proceeds
of such issuances and related capital contributions to purchase shares of
preferred stock of ICG ("ICG Preferred Stock") in a private placement; (iii)
investing a portion of the remaining Net Proceeds in U.S. Treasury securities,
to be held in escrow in an amount sufficient to fund the cash payments of the
first thirteen quarterly dividends on the Company's Redeemable Preferred
Securities; and (iv) purchasing U.S. Treasury securities pending the purchase of
shares of ICG Preferred Stock.
On September 24 and October 3, 1997, the Company completed a private
placement of 6 3/4% Exchangeable Limited Liability Company Preferred Securities
Mandatorily Redeemable 2009 (the "Redeemable Preferred Securities") for gross
proceeds of $132.25 million. Net proceeds from the private placement, after
offering costs of approximately $4.7 million advanced by ICG, were approximately
$127.6 million. Restricted cash at March 31, 1998 of $22.8 million consists of
the remaining proceeds from the private placement which are designated for the
payment of cash dividends on the Redeemable Preferred Securities through
November 15, 2000.
The Redeemable Preferred Securities consist of 2,645,000 exchangeable
preferred securities of the Company 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 common stock of ICG, $0.01 par value ("ICG Common Stock"), at the option of
the Company. The Redeemable 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 a rate of 2.0812 shares of ICG Common Stock per preferred security, or
$24.025 per share, subject to adjustment. The Company may, at its option, redeem
the Redeemable Preferred Securities at any time on or after November 18, 2000.
Prior to that time, the Company may redeem the Redeemable Preferred Securities
if the current market value of ICG Common Stock equals or exceeds the exchange
price, for at least 20 days of any consecutive 30-day trading period, by 170%
prior to November 16, 1998; by 160% from November 16, 1998 through November 15,
1999; and by 150% from November 16, 1999 through November 15, 2000. The
Redeemable Preferred Securities are subject to mandatory redemption on November
15, 2009.
<PAGE>
10
On February 13, 1998, ICG made a contribution of 126,750 shares of ICG
Common Stock to the Company. Immediately thereafter, the Company sold the
contributed shares to unrelated third parties for proceeds of approximately $3.4
million. The Company recorded the contribution of the ICG Common Stock as
additional paid-in capital at the then fair market value and, consequently, no
gain or loss was recorded by the Company on the subsequent sale of those shares.
Also, on February 13, 1998, the Company used the remaining proceeds from
the private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from the
sale of the contributed ICG Common Stock to purchase approximately $112.4
million of ICG Preferred Stock. The ICG Preferred Stock 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 on the ICG Preferred Stock are payable in cash or shares of ICG Common
Stock, at the option of ICG. The ICG Preferred Stock is exchangeable, at the
option of the Company, 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 Redeemable
Preferred Securities. The ICG Preferred Stock is subject to mandatory redemption
on November 15, 2009.
Results of Operations
The following table presents the components of the Company's net income and
net loss available to common member for the three months ended March 31, 1998
(in thousands).
Statement of Operations Data:
Interest income, net $ 1,056
Dividend income 837
-------------
Net income $ 1,893
-------------
Prefered dividends on redeemable preferred
securities, including accretion of offering costs (2,327)
-------------
Net loss available to common member $ (434)
=============
Other Data:
Net cash provided by operating activities $ 1,056
Net cash used by investing activities (2,209)
Net cash provided by financing activities 1,153
Three Months Ended March 31, 1998
Interest income, net. Interest income, net of $1.1 million consists
primarily of income earned on invested cash proceeds from the issuance of
Redeemable Preferred Securities in September and October 1997. Interest income
will decrease in future periods since the balance of short-term investments was
used to purchase the ICG Preferred Stock on February 13, 1998. In future
periods, interest income will include only interest earned on restricted cash
invested in U.S. Treasury securities.
<PAGE>
11
Dividend income. Dividend income of $0.8 million for the three months ended
March 31, 1998 consists of preferred dividends earned on the ICG Preferred Stock
from February 13, 1998 through March 31, 1998.
Net income. The Company's net income for the three months ended March 31,
1998 consists of interest income, net and dividend income, as noted above.
Preferred dividends on redeemable preferred securities, including accretion
of offering costs. Preferred dividends on redeemable preferred securities,
including accretion of offering costs was $2.3 million for the three months
ended March 31, 1998 and includes approximately $2.2 million of preferred
security dividends paid and accrued through March 31, 1998 and the accretion of
offering costs from the private placement of the Redeemable Preferred Securities
of approximately $0.1 million.
Net loss available to common member. Net loss available to common member of
$0.4 million is a result of preferred dividends on redeemable preferred
securities, offset by net income, as noted above.
Liquidity and Capital Resources
The Company's operations consist entirely of effecting the transactions
required by the terms of the Redeemable Preferred Securities issued in September
and October 1997. To date, the Company's operations have been funded through the
proceeds from the issuance of the Redeemable Preferred Securities and the sale
of ICG Common Stock which was contributed to the Company by ICG. As of March 31,
1998, the Company has assets of approximately $136.0 million which consist of
the Company's investment in ICG Preferred Stock of approximately $112.4 million,
restricted cash invested in U.S. Treasury securities of approximately $22.8
million for the payment of cash dividends through November 15, 2000 on the
Redeemable Preferred Securities and a receivable for preferred dividends earned
on ICG Preferred Stock of approximately $0.8 million. The Company's liabilities
at March 31, 1998 include approximately $1.1 million in preferred dividends
accrued on the Redeemable Preferred Securities and approximately $4.7 million
due to ICG for advances for the offering costs associated with the issuance of
the Redeemable Preferred Securities.
The Company is dependent upon ICG to declare and pay preferred dividends on
the ICG Preferred Stock. ICG is a Delaware corporation that files annual,
quarterly and current reports with the Securities and Exchange Commission. Its
Commission File Number is 1-11965.
Net Cash Provided By Operating Activities
Net cash provided by operating activities was approximately $1.1 million
for the three months ended March 31, 1998 and consists of interest income earned
on restricted cash balances invested in U.S. Treasury securities.
Net Cash Used By Investing Activities
Net cash used by investing activities was approximately $2.2 million for
the three months ended March 31, 1998 and consists of the purchase of the ICG
Preferred Stock for approximately $112.4 million, offset by the proceeds from
the sale of U.S. Treasury securities of approximately $108.3 million and the
decrease in restricted cash of approximately $1.9 million.
<PAGE>
12
Net Cash Provided By Financing Activities
Financing activities provided approximately $1.2 for the three months ended
March 31, 1998. Net cash provided by financing activities includes the proceeds
from the sale of the contributed ICG Common Stock of $3.4 million, offset by
payments of cash dividends on the Redeemable Preferred Securities of
approximately $2.2 million. The Company expects cash provided from financing
activities to decrease as future periods are not anticipated to include proceeds
from the sale of contributed assets.
Cash Commitments
The Redeemable Preferred Securities require payments of dividends to be
made in cash and are being paid currently through November 15, 2000. At March
31, 1998, the Company has cash dividend obligations on the Redeemable Preferred
Securities of approximately $6.7 million remaining in 1998 and approximately
$8.9 million in each of 1999 and 2000. The Redeemable Preferred Securities have
a liquidation preference of $50 per security, plus accrued and unpaid dividends,
and are mandatorily redeemable in 2009. The Company's management believes it has
sufficient resources to meet these future cash requirements.
Year 2000 Compliance
As a wholly owned subsidiary of ICG, the Company's Year 2000 compliance
plan is embedded within ICG's Year 2000 compliance plan for its consolidated
operations. It is not practicable for ICG to address the state of Year 2000
readiness, compliance costs, risks or contingency plans of the Company, or for
any other legal entity on a stand-alone basis, as ICG's plan was designed to
resolve Year 2000 compliance issues for all entities combined, the most
cost-effective manner. Moreover, as a result of the Company's and ICG's shared
management and administrative personnel and the Company's dependence upon the
successful operations of ICG in order that ICG's Board of Directors will
continue to declare and pay dividends on the ICG Preferred Stock, evaluating the
Company's plan for Year 2000 compliance on a stand-alone basis is not
meaningful. ICG is a Delaware corporation that files annual, quarterly and
current reports with the Securities and Exchange Commission. Its Commission File
Number is 1-11965.
<PAGE>
13
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
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
Effective January 23, 1998, ICG, Sole Common Member and Manager of the
Company, caused the Company to declare a cash dividend in the amount of
$0.47 per Redeemable Preferred Security to holders of record at the close
of business on February 1, 1998, which was paid on February 13, 1998.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(A) Exhibit.
(27) Financial Data Schedule.
27.1:Financial Data Schedule of ICG Funding, LLC for the Three
Months Ended March 31, 1998.
(B) Reports on Form 8-K.
None.
<PAGE>
14
INDEX TO EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<PAGE>
EXHIBIT 27.1
Financial Data Schedule of ICG Funding, LLC for the
Three Months Ended March 31, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, on November 9, 1998.
ICG Funding, LLC
By: ICG Communications, Inc.
Common Member and Manager
By: /s/ Harry R. Herbst
-----------------------------------
Harry R. Herbst
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ICG FUNDING, LLC FOR THE THREE MONTHS ENDED MARCH 31,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,755
<SECURITIES> 0<F1>
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 9,530
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 136,005
<CURRENT-LIABILITIES> 1,116
<BONDS> 4,699
127,750
0<F1>
<COMMON> 0<F1>
<OTHER-SE> 2,440
<TOTAL-LIABILITY-AND-EQUITY> 136,005
<SALES> 0<F1>
<TOTAL-REVENUES> 0<F1>
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (1,893)
<INCOME-PRETAX> 1,893
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 1,893
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 1,893
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
