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
[_] Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 333-50049
DTI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1828147
(State of Incorporation) (I.R.S. Employer Identification No.)
8112 Maryland Ave, 4th Floor
St. Louis, Missouri 63105
(Address of principal executive offices)
(314) 880-1000
(Registrant's telephone number)
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 [_]
No non-affiliates of the registrant own common stock of the registrant.
<PAGE>
DTI HOLDINGS, INC.
FORM 10-Q
March 31, 2000
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999 and
March 31, 2000 (Unaudited) 1
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended March 31, 1999 and 2000 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1999 and 2000 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures
Exhibit Index
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................... $132,175,829 $ 47,523,536
Trade accounts receivable, net.......................... 261,372 417,189
Other receivables....................................... -- 7,562,633
Prepaid and other current assets........................ 294,688 447,276
------------ ------------
Total current assets............................... 132,731,889 55,950,634
Property and equipment, net............................... 213,469,187 307,653,495
Deferred financing costs, net............................. 8,895,865 7,533,316
Prepaid fiber usage rights................................ 5,273,347 3,515,566
Deferred tax asset........................................ 3,234,331 3,234,331
Other assets.............................................. 156,271 266,160
------------ ------------
Total.............................................. $363,760,890 $378,153,502
============ ============
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................ $ 9,561,973 $ 15,014,544
Vendor financing........................................ 2,298,946 6,392,339
Taxes payable........................................... 3,140,681 2,395,448
Other accrued liabilities............................... 1,227,344 1,446,022
------------ ------------
Total current liabilities.......................... 16,228,944 25,248,353
Senior discount notes, net of unamortized underwriter's
discount of $7,924,244 and $6,643,709 314,677,178 345,594,383
Deferred revenues......................................... 22,270,006 35,579,248
Vendor financing.......................................... 2,298,946 3,696,145
Other long-term liabilities............................... 366,671 641,675
------------ ------------
Total liabilities.................................. 355,841,745 410,759,804
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 20,000 shares
authorized, no shares issued and outstanding......... -- --
Convertible series A preferred stock, $.01 par value,
(aggregate liquidation preference of $45,000,000)
30,000 shares authorized, issued and outstanding...... 300 300
Common stock, $.01 par value, 100,000,000 shares
authorized, 30,000,000 shares issued and
outstanding.......................................... 300,000 300,000
Additional paid-in capital.............................. 44,213,063 44,213,063
Common stock warrants................................... 10,421,336 10,421,336
Unearned compensation..................................... (72,730) (45,460)
Accumulated deficit..................................... (45,492,824) ( 85,982,729)
----------- ------------
Total stockholders' equity (deficit)........... 7,919,145 (32,606,302)
----------- ------------
Total..................................................... $363,760,890 $378,153,502
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
1999 2000 1999 2000
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Telecommunications services:
Carrier's carrier services............... $ 1,706,647 $ 2,309,464 $ 4,958,125 $ 6,346,020
End-user services........................ 104,111 61,029 322,714 166,506
----------- ------------ ------------ ------------
Total revenues........................ 1,810,758 2,370,493 5,280,839 6,512,526
----------- ------------ ------------ ------------
OPERATING EXPENSES:
Telecommunications services.............. 1,653,078 3,006,769 3,648,429 8,886,221
Selling, general and administrative...... 1,466,230 1,390,713 4,466,036 3,934,688
Depreciation and amortization............ 1,393,000 3,494,223 2,894,000 10,214,335
----------- ------------ ------------ ------------
Total operating expenses.............. 4,512,308 7,891,705 11,008,465 23,035,244
----------- ------------ ------------ ------------
LOSS FROM OPERATIONS....................... (2,701,550) (5,521,212) (5,727,626) (16,522,718)
OTHER INCOME (EXPENSE):
Interest income.......................... 2,494,902 884,199 8,799,242 3,343,910
Interest expense......................... (7,693,953) (9,127,811) (23,150,942) (27,311,097)
----------- ------------- ------------ ------------
NET LOSS................................... $(7,900,601) $(13,764,824) $(20,079,326) $(40,489,905)
=========== ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1999 2000
-------------- --------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss............................................. $ (20,079,326) $ (40,489,905)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization................... 2,894,000 10,214,335
Accretion of senior discount notes.............. 21,808,730 25,545,848
Amortization of deferred financing costs........ 1,226,563 1,362,549
Amortization of unearned compensation........... 118,180 27,270
Other noncash items............................. 113,654 379,488
Changes in assets and liabilities:
Trade accounts receivable.................... 282,886 (155,817)
Other assets................................. (248,919) (6,067,329)
Accounts payable............................. 5,600,262 5,452,571
Other liabilities............................ 4,385,213 493,682
Taxes payable................................ 85,185 (745,233)
Deferred revenues............................ 2,909,342 13,309,242
------------- -------------
Net cash flows provided by operating activities........ 19,095,770 9,326,701
------------- -------------
Cash flows from investing activities:
Increase in network and equipment.................... (67,246,087) (91,861,969)
------------- -------------
Net cash used in investing activities.................. (67,246,087) (91,861,969)
------------- -------------
Cash flows from financing activities:
Repayment of vendor financing........................ -- (2,117,025)
Deferred financing costs............................. (525,177) --
------------- -------------
Cash flows used in financing activities................ (525,177) (2,117,025)
------------- -------------
Net decrease in cash and cash equivalents.............. (48,675,494) (84,652,293)
Cash and cash equivalents, beginning of period......... 251,057,274 132,175,829
------------- -------------
Cash and cash equivalents, end of period............... $ 202,381,780 $ 47,523,536
============= =============
Noncash investing and financing activities:
Interest capitalized to fixed assets................. $ 5,604,497 $ 5,371,357
============= =============
Fixed assets acquired through vendor financing....... $ 4,367,844 $ 7,165,317
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
DTI Holdings, inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the management of DTI Holdings, Inc. and subsidiaries (the
"Company" or "DTI") the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary to present fairly the Company's financial information for
the interim periods presented and have been prepared in accordance with
generally accepted accounting principles. The interim results of operations are
not necessarily indicative of results that may be expected for any other interim
period or for the full year.
The financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended June 30,
1999 included in the Company's Form 10-K for the same period filed with the
Securities and Exchange Commission. Accordingly, note disclosures which would
substantially duplicate the disclosures in the audited financial statements have
been omitted. Additionally, certain prior year balances have been reclassified
to conform with fiscal 2000 presentation.
2. OTHER RECEIVABLES
Included in other receivables in the accompanying condensed consolidated balance
sheets is $7.1 million representing amounts due from a counter party to an
existing IRU agreement. DTI anticipates that this amount and other amounts due
under the IRU agreement will be collected from the counter party upon delivery
by DTI of a route segment due the counter party.
3. NETWORK AND EQUIPMENT
Network and equipment consists of the following as of:
June 30, 1999 March 31, 2000
------------- --------------
Land................................... $ 46,190 $ 633,131
Fiber optic cable plant................ 95,615,071 143,816,441
Fiber usage rights..................... 82,062,685 128,058,718
Fiber optic terminal equipment......... 37,014,509 41,422,629
Network buildings...................... 4,755,042 8,646,697
Furniture, office equipment and other.. 1,309,402 2,609,654
Leasehold improvements................. 585,254 599,527
------------ ------------
221,388,153 325,786,797
Less-- accumulated depreciation........ 7,918,966 18,133,302
------------ ------------
Network and equipment, net $213,469,187 $307,653,495
============ ============
4
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
From time to time the Company is named as a defendant in routine lawsuits
incidental to its business. The Company believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
During fiscal 2000, the Company has made and will continue to make material
commitments related to the expansion of its network.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Total revenue for the quarter and nine months ended March 31, 2000 increased
$560,000 (31%) and $1.2 million (23%), respectively, from comparable fiscal 1999
periods. This growth is primarily attributable to increased revenue from
carrier's carrier services. Revenue from carrier's carrier services was up 35%
and 28%, respectively, principally from increased sales of transport business on
our in-service routes.
OPERATING EXPENSES
Total operating expenses were up $3.4 million and $12.0 million in the third
quarter and first nine months of fiscal 2000, respectively, over the same
periods in fiscal 1999. For the third quarter of fiscal 2000 compared to 1999,
telecommunication services expenses increased $1.4 million. For the first nine
months of fiscal 2000 compared to the same period in the prior year,
telecommunication services expenses increased $5.2 million. This increase
primarily reflects the growth of personnel costs related to the assimilation of
the management and operational infrastructure, cost of leased collocation space,
costs related to accepted dark fiber segments and property taxes.
Selling, general and administrative expenses for the three and nine months ended
March 31, 2000 decreased $75,000 and $531,000, respectively, compared to the
same periods in fiscal 1999. The decreases are due mainly to a reduction in
outside legal, professional and consulting costs as more of these functions are
now performed internally.
Depreciation and amortization grew $2.1 million and $7.3 million, respectively,
for the quarter and nine months ended March 31, 2000 in comparison to the same
periods in fiscal 1999 due to increasing amounts of our fiber optic network
being placed into service in fiscal 1999 and 2000. Depreciation and amortization
will continue to grow as additional network routes are placed into service and
as we move forward with our investment in capital assets in order to increase
network capacity.
5
<PAGE>
OTHER INCOME (EXPENSE)
Net other income (expense) for the third quarter increased from net expense of
$5.2 million in fiscal 1999 to a net expense of $8.2 million in fiscal 2000. Net
other income (expense) for the first nine months increased from net expense of
$14.4 million in fiscal 1999 to a net expense of $24.0 million in fiscal 2000.
This change is due to the continued accretion of the Senior Discount Notes
issued in February 1998, which results in increasing noncash interest expense,
offset in part by interest income earned on the portion of the proceeds from the
Senior Discount Notes invested in short-term investment-grade securities. As the
average cash balances have decreased as we have implemented our business
strategy so has the related interest income generated from our short-term
investment-grade securities.
INCOME TAXES
No income tax benefit or provision was recorded for the three and nine-month
periods ended March 31, 2000 or 1999. A valuation allowance is being provided to
reserve for significant deferred tax assets generated from net operating loss
carryforwards and the nondeductible interest expense related to our Senior
Discount Notes, issued in February 1998, that may not be realizable due to
uncertainties surrounding income tax law changes and future operating income
levels.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had $47.5 million of cash and cash equivalents. The
decrease of $84.7 million for the nine months ended March 31, 2000 was primarily
due to expenditures on property and equipment as we continue to expand our fiber
optic network.
The net cash provided by operating activities was $9.3 million for the
nine-month period ended March 31, 2000, compared to $19.1 million in the
comparable period in fiscal 1999. The reduction in cash provided by operating
activities resulted primarily from increased telecommunications costs as the
network has expanded and less cash derived from interest income as the average
cash balances have decreased as we have implemented our business strategy.
Cash used in investing activities for the nine month period ended March 31, 2000
was $91.9 million compared to $67.2 million for the comparable period of fiscal
1999. The growth in investing activities reflects increased purchases and
construction of network and equipment to be used in our operations.
Cash used in financing activities was $525,000 in the first nine months of
fiscal 1999 versus $2.1 million in fiscal 2000 for repayments on the vendor
financing. We did not enter into any new cash financing transactions in the
first three quarters of fiscal 2000.
To achieve our business plan, we will need significant financing to fund our
capital expenditure, working capital, debt service requirements and our
anticipated future operating losses. Our estimated capital requirements
primarily include the estimated cost of (i) constructing the remaining portions
of the planned DTI network routes, (ii) purchasing, for cash, fiber optic
facilities pursuant to long-term indefeasible rights to use ("IRUs") for planned
routes that we will neither construct nor acquire through swaps with other
telecommunication carriers, and (iii) additional network expansion activities,
including the construction of additional local loops in secondary and tertiary
cities as network traffic volume increases. We estimate that total capital
expenditures necessary to complete our network will approximate $650 million, of
which we had expended $323 million as of March 31, 2000. During the balance of
6
<PAGE>
fiscal year 2000, we anticipate our capital expenditure priorities will be
focused principally on expanding from our existing Missouri/Arkansas/Oklahoma
base by building additional regional rings that adjoin existing rings and those
that initiate new rings in areas in which we believe there is strong carrier
interest. We anticipate that our existing financial resources will be adequate
to fund our existing capital commitments which consist principally of
construction commitments of $13 million for network segments under construction
and payments required under existing IRU and short-term lease agreements,
totaling $8 million, which are payable within the next twelve months as related
contract completion criteria are met. In addition, we have a commitment at March
31, 2000 for eight telecommunications switches totaling $15 million which is
cancelable upon the payment of a cancellation fee of $42,000 for each of the
remaining unpurchased switches. We also may require additional capital in the
future to fund operating deficits and net losses and for potential strategic
alliances, joint ventures and acquisitions. These activities could require
significant additional capital not included in the foregoing estimated capital
requirements.
As of March 31, 2000, DTI had $47.5 million of cash and cash equivalents. Such
amounts, when coupled with anticipated collections of additional amounts due us
under existing IRU agreements upon delivery of specific route segments, is
expected to provide sufficient liquidity to meet our operating and capital
requirements through the next twelve months. Subsequent to such date, DTI's
operating and capital requirements are expected to be funded, in large part, out
of additional debt or equity financing, advance payments under IRUs and
available cash flow from operations, if any. We are exploring the possibility of
equity sales, additional vendor financing or a commercial credit facility. We
are in various stages of discussions with potential customers for IRUs,
wholesale network capacity agreements and regional ring service agreements.
There can be no assurance, however, that we will continue to obtain advance
payments from customers prior to commencing construction of, or obtaining IRUs
for, planned routes, that we will be able to obtain financing under any credit
facility or that other sources of capital will be available on a timely basis or
on terms that are acceptable to us and within the restrictions under our
existing financing arrangements, or at all. If we fail to obtain the capital
required to complete the DTI network, we could modify, defer or abandon plans to
build or acquire certain portions of the DTI network. Our failure, however, to
raise the substantial capital required to complete the DTI network could have a
material adverse effect on us. The actual amount and timing of our capital
requirements may differ materially from our current estimates depending on
demand for our services, and our ability to implement our current business
strategy as a result of regulatory, technological and competitive developments
(including market developments and new opportunities) in the telecommunications
industry.
Subject to the Indenture provisions that limit restrictions on the ability of
any of our Restricted Subsidiaries to pay dividends and make other payments to
us, future debt instruments of Digital Teleport, Inc. ("Digital Teleport"
subsidiary of DTI Holdings) may impose significant restrictions that may affect,
among other things, the ability of Digital Teleport to pay dividends or make
loans, advances or other distributions to us. The ability of Digital Teleport to
pay dividends and make other distributions also will be subject to, among other
things, applicable state laws and regulations. Although the Senior Discount
Notes do not require cash interest payments until September 1, 2003, at such
time the Senior Discount Notes will require annual cash interest payments of
$63.25 million. In addition, the Senior Discount Notes mature on March 1, 2008.
We currently expect that the earnings and cash flow, if any, of Digital Teleport
will be retained and used by such subsidiary in its operations, including
servicing its own debt obligations. We do not anticipate that we will receive
any material distributions from Digital Teleport prior to September 1, 2003.
Even if we determine to pay a dividend on or make a distribution in respect of
the capital stock of Digital Teleport, there can be no assurance that Digital
7
<PAGE>
Teleport will generate sufficient cash flow to pay such a dividend or distribute
such funds to us or that applicable state law and contractual restrictions,
including negative covenants contained in any future debt instruments of Digital
Teleport, will permit such dividends or distributions. The failure of Digital
Teleport to pay or to generate sufficient earnings or cash flow to distribute
any cash dividends or make any loans, advances or other payments of funds to us
would have a material adverse effect on our ability to meet our obligations on
the Senior Discount Notes. Further, there can be no assurance that we will have
available, or will be able to acquire from alternative sources of financing,
funds sufficient to repurchase the Senior Discount Notes in the event of a
Change of Control.
FORWARD LOOKING STATEMENTS
Certain statements throughout Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report are
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties
and other factors that may cause actual events or results to differ materially
from those expressed or implied by the forward looking statements. The most
important factors that could prevent us from achieving our stated goals include,
but are not limited to, (a) failure to obtain substantial amounts of additional
financing at reasonable costs and on acceptable terms, (b) failure to
effectively and efficiently manage the expansion and construction of our
network, (c) failure to enter into additional indefeasible rights to use and/or
wholesale network capacity agreements, (d) failure to obtain and maintain
sufficient rights-of-way, (e) intense competition and pricing decreases, (f)
potential for rapid and significant changes in telecommunications technology and
their effect on our business, and (g) adverse changes in the regulatory
environment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.1 Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-50049)).
3.2 Restated Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.2 to the S-4).
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
9
<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.
DTI HOLDINGS, INC.
Date: May 12, 2000 /S/ Gary W. Douglass
------------ ---------------------------------------
Gary W. Douglass, Senior Vice President
Finance and Administration and Chief
Financial Officer (Principal Financial
and Accounting Officer)
<PAGE>
Exhibits Index:
3.1 Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-50049)).
3.2 Restated Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.2 to the S-4).
27 Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and the condensed consolidated statement of
operations of DTI Holdings, Inc. filed as part of the quarterly report on Form
10-Q and is qualified in its entirety by reference to such quarterly report on
Form 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-START> Jul-1-1999
<PERIOD-END> Mar-31-2000
<CASH> 47,523,536
<SECURITIES> 0
<RECEIVABLES> 556,814
<ALLOWANCES> 139,625
<INVENTORY> 0
<CURRENT-ASSETS> 55,950,634
<PP&E> 325,786,797
<DEPRECIATION> 18,133,302
<TOTAL-ASSETS> 378,153,502
<CURRENT-LIABILITIES> 25,248,353
<BONDS> 345,594,383
300
0
<COMMON> 300,000
<OTHER-SE> (32,906,602)
<TOTAL-LIABILITY-AND-EQUITY> 378,153,502
<SALES> 0
<TOTAL-REVENUES> 6,512,526
<CGS> 0
<TOTAL-COSTS> 23,035,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,311,097)
[INTEREST-INCOME] 3,343,910
<INCOME-PRETAX> (40,489,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,489,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,489,905)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
