UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 84-1434980
(State or other jurisdiction (I.R.S. Employer Identification No.)
of organization)
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 X No
All of the issued and outstanding common securities of ICG Funding, LLC
are owned by ICG Communications, Inc.
<PAGE>
TABLE OF CONTENTS
PART I .......................................................................3
ITEM 1. FINANCIAL STATEMENTS .........................................3
Balance Sheets as of December 31, 1999 and March 31, 2000
(unaudited) .................................................3
Statements of Operations for the Three Months Ended March
31, 1999 and 2000 (unaudited) ...............................4
Statement of Member's Equity for the Three Months Ended
March 31, 2000 (unaudited) ..................................5
Statements of Cash Flows for the Three Months Ended March
31, 1999 and 2000 (unaudited) ...............................6
Notes to Financial Statements (unaudited) .....................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .....................................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..12
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
2
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ICG FUNDING, LLC
Balance Sheets
December 31, 1999 and March 31, 2000 (unaudited)
December 31, March 31,
1999 2000
------------- ------------
(in thousands)
Assets
Current assets:
Dividends receivable from ICG $ 927 942
Restricted cash 8,697 6,568
------------- ------------
Total current assets 9,624 7,510
------------- ------------
Investment in ICG Preferred Stock 124,661 126,516
------------- ------------
Total assets $ 134,285 134,026
============= ============
Liabilities and Member's Equity (Deficit)
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, 1999 and March 31, 2000) 128,428 128,524
Member's equity (deficit):
Additional paid-in capital 3,385 3,385
Accumulated deficit (3,343) (3,698)
------------- ------------
Total member's equity (deficit) 42 (313)
------------- ------------
Commitments and contingencies
Total liabilities and member's
equity (deficit) $ 134,285 134,026
============= ============
See accompanying notes to financial statements.
3
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ICG FUNDING, LLC
Statements of Operations
Three Months Ended March 31, 1999 and 2000 (unaudited)
Three months ended
March 31,
----------------------------
1999 2000
------------- -------------
(in thousands)
Interest income $ 221 103
Dividend income 1,762 1,869
------------- -------------
Net income 1,983 1,972
------------- -------------
Preferred dividends on redeemable
preferred securities, including
accretion of offering costs (2,327) (2,327)
------------- -------------
Net loss available to common member $ (344) (355)
============= =============
See accompanying notes to financial statements.
4
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ICG FUNDING, LLC
Statement of Member's Equity (Deficit)
Three Months Ended March 31, 2000 (unaudited)
Total
Additional member's
paid-in Accumulated equity
capital deficit (deficit)
------------ -------------- ------------
(in thousands)
Balances at January 1, 2000 $ 3,385 (3,343) 42
Net income - 1,972 1,972
Preferred dividends on
redeemable preferred
securities, including
accretion of offering costs - (2,327) (2,327)
------------ -------------- ------------
Balances at March 31, 2000 $ 3,385 (3,698) (313)
============ ============== ============
See accompanying notes to financial statements.
5
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ICG FUNDING, LLC
Statements of Cash Flows
Three Months Ended March 31, 1999 and 2000 (unaudited)
Three months ended
March 31,
----------------------------
1999 2000
------------- -------------
(in thousands)
Cash flows from operating activities:
Net income $ 1,983 1,972
Adjustment to reconcile net income to
net cash provided by operating activities:
Non-cash preferred dividends earned on
ICG Preferred Stock (1,762) (1,869)
------------- -------------
Net cash provided by operating
activities 221 103
------------- -------------
Cash flows from investing activities:
Decrease in restricted cash 2,011 2,129
------------- -------------
Net cash provided by investing activities 2,011 2,129
------------- -------------
Cash flows from financing activities:
Payment of preferred dividends on redeemable
preferred securities (2,232) (2,232)
------------- -------------
Net cash used in financing activities (2,232) (2,232)
------------- -------------
Cash and cash equivalents at end of period $ - -
============= =============
See accompanying notes to financial statements.
6
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ICG FUNDING, LLC
Notes to Financial Statements
December 31, 1999 and March 31, 2000 (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; and (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"). 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 for the year ended December 31,
1999, 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, 2000 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
(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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes certain forward-looking statements and
information that is based on the beliefs of management as well as assumptions
made by and information currently available to the Company. When used in this
document, the words "anticipate", "believe", "estimate" and "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this document. These
forward-looking statements 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, 1999 and 2000 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, 2000 of $6.6 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
8
<PAGE>
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 by 150%, for at least 20 days of any consecutive 30-day trading period,
through November 15, 2000. The Redeemable Preferred Securities are subject to
mandatory redemption on November 15, 2009.
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 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.
Results of Operations
The following table provides the components of the Company's net income
and net loss available to common member for each of the periods presented.
9
<PAGE>
Three months ended
March 31,
----------------------------
1999 2000
------------- -------------
(in thousands)
Statement of Operations Data:
Interest income $ 221 103
Dividend income 1,762 1,869
------------- -------------
Net income 1,983 1,972
------------- -------------
Preferred dividends on redeemable
preferred securities, including
accretion of offering costs (2,327) (2,327)
------------- -------------
Net loss available to common member $ (344) (355)
============= =============
Other Data:
Net cash provided by operating activities $ 221 103
Net cash (used in) provided by ivesting
activities 2,011 2,129
Net cash provided by (used in) financing
activities (2,232) (2,232)
Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999
Interest income. Interest income of $0.2 million and $0.1 million for the
three months ended March 31, 1999 and 2000, respectively, consists of income
earned on invested cash proceeds from the issuance of the Redeemable Preferred
Securities in September and October 1997. Interest income has decreased and will
continue to decrease each period through November 15, 2000 due to the decrease
in average balances held in short-term investments as restricted cash balances
are used to pay cash dividends on the Redeemable Preferred Securities. On
November 15, 2000, the Company's restricted cash balances will be depleted.
Dividend income. Dividend income of $1.8 million and $1.9 million for the
three months ended March 31, 1999 and 2000, respectively, consists of preferred
dividends earned on the ICG Preferred Stock, which dividends were paid with
additional shares of ICG Preferred Stock.
Net income. The Company's net income was $2.0 million for both the three
months ended March 31, 1999 and 2000 and consists of interest income 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 both the three months
ended March 31, 1999 and 2000, and includes approximately $2.2 million of
preferred security dividends paid and accrued during both periods, and the
accretion of offering costs from the private placement of the Redeemable
Preferred Securities of approximately $0.1 million for both periods.
Net loss available to common member. Net loss available to common member of
$0.3 million and $0.4 million for the three months ended March 31, 1999 and
2000, respectively, is a result of preferred dividends on redeemable preferred
10
<PAGE>
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,
2000, the Company has assets of approximately $134.0 million which consist of
the Company's investment in ICG Preferred Stock of approximately $126.5 million,
restricted cash invested in U.S. Treasury securities of approximately $6.6
million for the payment of cash dividends through November 15, 2000 on the
Redeemable Preferred Securities and a receivable for preferred dividends earned
on the ICG Preferred Stock of approximately $0.9 million. The Company's
liabilities at March 31, 2000 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 in order to pay dividends on, and the redemption price
of, the Redeemable Preferred Securities. 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 $0.2 million
and $0.1 million for the three months ended March 31, 1999 and 2000,
respectively, and consists of interest income earned on restricted cash invested
in U.S. Treasury securities.
Net Cash Provided By Investing Activities
The Company's investing activities provided approximately $2.0 million and
$2.1 million for the three months ended March 31, 1999 and 2000, respectively.
Cash provided by investing activities for the three months ended March 31, 1999
and 2000 consists of the decrease in restricted cash.
Net Cash Used In Financing Activities
Financing activities used approximately $2.2 million for both the three
months ended March 31, 1999 and 2000. Cash used in financing activities for both
periods consists of payments of cash dividends on the Redeemable Preferred
Securities of approximately $2.2 million. The Company expects cash used by
financing activities in future years to include only payments of cash dividends
on, and the redemption price of, the Redeemable Preferred Securities.
11
<PAGE>
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, 2000, the Company has cash dividend obligations on the Redeemable Preferred
Securities of approximately $6.7 million remaining in 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 provided that ICG's board of directors continues to declare
and pay dividends on the ICG Preferred Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's restricted cash balances are invested in fixed income U.S.
Treasury securities with staggered maturities matching the dividend payment
dates of the Redeemable Preferred Securities. Accordingly, changes in market
interest rates have no effect on the Company's liquidity, financial condition or
results of operations.
At March 31, 2000, the Company had $126.5 million of ICG Preferred Stock,
which is exchangeable into shares of ICG Common Stock, at an exchange rate based
on the exchange rate of the Redeemable Preferred Securities. There exists no
established public trading market for the ICG Preferred Stock. The risk of
changes in the fair market value of the underlying ICG Common Stock, which is
listed and trades on the Nasdaq National Market, is eliminated by the adjustable
rate of exchange of shares of ICG Preferred Stock. The ICG Preferred Stock pays
dividends in cash or additional shares of ICG Preferred Stock sufficient to meet
the dividend requirements on the Redeemable Preferred Securities. Although
changes in the fair market value of ICG Common Stock have no effect on the
Company's financial condition or results of operations, such changes may
influence the Company's decision to redeem the Redeemable Preferred Securities
or a Redeemable Preferred Securityholder's decision to exchange those securities
for ICG Common Stock.
12
<PAGE>
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 February 1, 2000, ICG, Sole Common Member and Manager of the
Company, caused the Company to declare a cash dividend in the amount of $0.84
per Redeemable Preferred Security to holders of record at the close of business
on February 1, 2000, which was paid on February 15, 2000.
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, 2000.
(B) Reports on Form 8-K.
(i) Current Report on Form 8-K dated March 7, 2000, regarding the
announcement of earnings information and results of operations
for the quarter and year ended December 31, 1999 of ICG
Communications, Inc.
(ii) Current Report on Form 8-K dated March 8, 2000, regarding the
announcement of ICG's definitive preferred stock and warrant
purchase agreement with HMTF Bridge ICG, LLC, Liberty Media
Corporation, and Gleacher/ICG Investors LLC.
13
<PAGE>
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, 2000.
<PAGE>
EXHIBIT 27.1
Financial Data Schedule of ICG Funding, LLC for the Three Months Ended
March 31, 2000.
<PAGE>
EXHIBIT-27.1
Summary Financial Information
<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 May 3, 2000.
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)
Date: May 3, 2000
<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,
2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,568
<SECURITIES> 0<F1>
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 7,511
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 134,027
<CURRENT-LIABILITIES> 1,116
<BONDS> 4,699
128,525
0<F1>
<COMMON> 0<F1>
<OTHER-SE> (313)
<TOTAL-LIABILITY-AND-EQUITY> 134,027
<SALES> 0<F1>
<TOTAL-REVENUES> 0<F1>
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 0<F1>
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<INTEREST-EXPENSE> (103)
<INCOME-PRETAX> 1,972
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 1,972
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 1,972
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
</TABLE>
