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 June 30, 2004

OR

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 0-29092

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

 

54-1708481

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

1700 Old Meadow Road, Suite 300,
McLean, VA

 

22102

(Address of principal executive offices)

 

(Zip Code)

 

(703) 902-2800

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes x     No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

 

Outstanding as of
Steptember  30, 2004

Common Stock $.01 par value

 

89,863,126

 

 




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

EXPLANATORY NOTE

Primus Telecommunications Group, Incorporated and subsidiaries (the “Company”) is filing this Amendment to Form 10-Q to:

1.     Amend the information contained in Note 10 to the consolidated condensed financial statements included in Part I, Item 1 of the Company’s Form 10-Q for the quarterly period ended June 30, 2004 as originally filed with the Securities and Exchange Commission on August 9, 2004 (the “Quarterly Report”). Note 10 is hereby restated to reflect the capital contribution of certain of the Company’s intercompany receivables and payables balances to the Company’s wholly owned subsidiary, Primus Telecommunications Holding, Inc. (“PTHI”), which occurred in connection with PTHI’s issuance of 8% senior notes, which are guaranteed by the Company, in January 2004. This amendment is solely due to intercompany arrangements required for disclosure in Note 10.

Concurrently, the Company is filing its amended quarterly report on Form 10-Q/A for the quarter ended March 31, 2004 to reflect the amended capital contribution.

2.     Amend basic weighted average common shares outstanding and basic and diluted income per common share accordingly, disclosed in the consolidated condensed financial statements included in Part I, Item 1 of the Quarterly Report. The three- and six-month periods ended June 30, 2003, as presented on the statement of operations and in the notes to the consolidated condensed financial statements, is hereby restated to reflect the removal of the Series C convertible preferred stock from the basic weighted average common shares outstanding as it does not meet the definition of  a participating security. Because the Series C Preferred was deemed to be non-participating, the shares are assumed to be converted into common shares and the accreted and deemed dividend on convertible preferred stock is removed from the calculation of diluted income per common share. Basic and diluted income per common share was restated accordingly. There is no impact on previously reported net income for the three- and six-month periods ended June 30, 2003 nor on the statement of operations for the three- and six-month periods ended June 30, 2004.

Concurrently, the Company is filing its amended quarterly report on Form 10-Q/A for the quarters ended September 30, 2003 and March 31, 2004 and its amended annual report Form 10-K/A for the year ended December 31, 2003 to reflect the amended basic weighted average common shares outstanding and the calculation of basic and diluted income per common share for the periods during which the Series C convertible preferred stock was outstanding.

This Amendment reflects only the changes discussed above. No other information included in the Quarterly Report has been modified or updated. This Amendment continues to speak as of the date of the original filing of the Quarterly Report, and the Company has not updated the disclosures to reflect any events that occurred at a later date.




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
INDEX TO FORM 10-Q/A

 

Page
No.

 

Part I.   FINANCIAL INFORMATION

 

 

 

 

 

Item 1.   FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

Consolidated Condensed Statements of Operations  (As Restated)

 

 

1

 

 

Consolidated Condensed Balance Sheets

 

 

2

 

 

Consolidated Condensed Statements of Cash Flows

 

 

3

 

 

Consolidated Condensed Statements of Comprehensive Income (Loss)

 

 

4

 

 

Notes to Consolidated Condensed Financial Statements

 

 

5

 

 

Item 4.   CONTROLS AND PROCEDURES

 

 

28

 

 

Part II. OTHER INFORMATION

 

 

 

 

 

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

 

 

28

 

 

SIGNATURES

 

 

29

 

 

 




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003*

 

2004

 

2003*

 

NET REVENUE

 

$

331,615

 

$

320,240

 

$

679,638

 

$

620,683

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation included below)

 

199,035

 

196,363

 

408,692

 

386,386

 

Selling, general and administrative

 

95,407

 

89,241

 

189,724

 

166,866

 

Depreciation and amortization

 

23,140

 

21,218

 

46,647

 

41,553

 

Loss on sale of fixed assets

 

1,873

 

804

 

1,873

 

804

 

Asset impairment write-down

 

 

 

 

537

 

Total operating expenses

 

319,455

 

307,626

 

646,936

 

596,146

 

INCOME FROM OPERATIONS

 

12,160

 

12,614

 

32,702

 

24,537

 

INTEREST EXPENSE

 

(11,579

)

(14,622

)

(26,658

)

(29,999

)

GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT

 

297

 

7,981

 

(13,896

)

14,634

 

INTEREST INCOME AND OTHER INCOME (EXPENSE)

 

552

 

(82

)

1,288

 

200

 

FOREIGN CURRENCY TRANSACTION GAIN (LOSS)

 

(14,665

)

14,765

 

(15,797

)

24,818

 

INCOME (LOSS) BEFORE INCOME TAXES

 

(13,235

)

20,656

 

(22,361

)

34,190

 

INCOME TAX EXPENSE

 

(1,651

)

(620

)

(2,580

)

(2,953

)

NET INCOME (LOSS)

 

(14,886

)

20,036

 

(24,941

)

31,237

 

ACCRETED AND DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK

 

 

(1,356

)

 

(1,678

)

INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$

(14,886

)

$

18,680

 

$

(24,941

)

$

29,559

 

INCOME (LOSS) PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.17

)

$

0.29

*

$

(0.28

)

$

0.45

*

Diluted

 

$

(0.17

)

$

0.22

*

$

(0.28

)

$

0.36

*

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

Basic

 

89,611

 

65,157

*

89,190

 

65,120

*

Diluted

 

89,611

 

90,744

 

89,190

 

87,572

 


*       As restated, see Note 9.

See notes to consolidated condensed financial statements.

1




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)

 

 

June 30,
2004

 

December 31,
2003

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,349

 

 

$

64,066

 

 

Accounts receivable (net of allowance for doubtful accounts receivable of $17,671 and $20,975)

 

176,897

 

 

200,817

 

 

Prepaid expenses and other current assets

 

44,450

 

 

36,930

 

 

Total current assets

 

287,696

 

 

301,813

 

 

RESTRICTED CASH

 

12,012

 

 

12,463

 

 

PROPERTY AND EQUIPMENT—Net

 

314,688

 

 

341,167

 

 

GOODWILL

 

77,160

 

 

59,895

 

 

OTHER INTANGIBLE ASSETS—Net

 

28,973

 

 

22,711

 

 

OTHER ASSETS

 

17,793

 

 

13,115

 

 

TOTAL ASSETS

 

$

738,322

 

 

$

751,164

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

96,303

 

 

$

108,615

 

 

Accrued interconnection costs

 

76,203

 

 

89,993

 

 

Accrued expenses and other current liabilities

 

70,198

 

 

69,456

 

 

Accrued income taxes

 

21,733

 

 

22,387

 

 

Accrued interest

 

14,376

 

 

12,852

 

 

Current portion of long-term obligations

 

21,347

 

 

24,385

 

 

Total current liabilities

 

300,160

 

 

327,688

 

 

LONG-TERM OBLIGATIONS

 

560,366

 

 

518,066

 

 

OTHER LIABILITIES

 

1,420

 

 

1,776

 

 

Total liabilities

 

861,946

 

 

847,530

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

STOCKHOLDERS’ DEFICIT:

 

 

 

 

 

 

 

Preferred stock, Series A and B, $0.01 par value—1,895,050 shares authorized; none issued and outstanding; Series C, $0.01 par value—559,950 shares authorized; none issued and outstanding

 

 

 

 

 

Common stock, $0.01 par value—150,000,000 shares authorized; 89,776,219 and 88,472,546 shares issued and outstanding

 

898

 

 

885

 

 

Additional paid-in capital

 

658,248

 

 

651,159

 

 

Accumulated deficit

 

(710,018

)

 

(685,077

)

 

Accumulated other comprehensive loss

 

(72,752

)

 

(63,333

)

 

Total stockholders’ deficit

 

(123,624

)

 

(96,366

)

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

738,322

 

 

$

751,164

 

 

 

See notes to consolidated condensed financial statements.

2




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

(24,941

)

$

31,237

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Provision for doubtful accounts receivable

 

7,483

 

12,210

 

Stock issuance—401(k) Plan and Restricted Stock Plan

 

 

258

 

Non-cash compensation expense

 

 

245

 

Depreciation, amortization and accretion

 

46,647

 

41,586

 

Loss on sale of fixed assets

 

1,873

 

804

 

Asset impairment write-down

 

 

537

 

Equity investment loss

 

34

 

649

 

(Gain) loss on early extinguishment of debt

 

13,896

 

(14,634

)

Minority interest share of loss

 

(234

)

(210

)

Unrealized foreign currency transaction (gain) loss on intercompany and foreign debt

 

14,470

 

(26,488

)

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

(Increase) decrease in accounts receivable

 

10,178

 

(18,280

)

(Increase) decrease in prepaid expenses and other current assets

 

(6,912

)

7,429

 

(Increase) decrease in restricted cash

 

(199

)

891

 

(Increase) decrease in other assets

 

(929

)

534

 

Increase (decrease) in accounts payable

 

(10,705

)

2,094

 

Increase (decrease) in accrued expenses, accrued income taxes, other current liabilities and other liabilities

 

(18,384

)

2,688

 

Increase (decrease) in accrued interest

 

1,549

 

(2,396

)

Net cash provided by operating activities

 

33,826

 

39,154

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of property and equipment

 

(17,455

)

(9,677

)

Cash used for business acquisitions, net of cash acquired

 

(26,450

)

(1,129

)

Net cash used in investing activities

 

(43,905

)

(10,806

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of long-term obligations, net

 

235,240

 

9,125

 

Purchase of the Company’s debt securities

 

(197,312

)

(42,549

)

Principal payments on capital leases, vendor financing and other long-term obligations

 

(19,611

)

(31,503

)

Proceeds from sale of convertible preferred stock, net

 

 

8,895

 

Proceeds from sale of common stock

 

1,029

 

231

 

Net cash provided by (used in) financing activities

 

19,346

 

(55,801

)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

(6,984

)

737

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

2,283

 

(26,716

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

64,066

 

92,492

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

66,349

 

$

65,776

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

Cash paid for interest

 

$

24,089

 

$

31,367

 

Cash paid for taxes

 

$

907

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

Leased fiber capacity additions

 

$

3,879

 

$

2,938

 

Common stock issued for business acquisitions

 

$

6,072

 

$

 

Acquisition of customer list, financed by long-term obligations

 

$

 

$

8,102

 

 

 

See notes to consolidated condensed financial statements.

3




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

NET INCOME (LOSS)

 

$

(14,886

)

$

20,036

 

$

(24,941

)

$

31,237

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(10,101

)

691

 

(9,419

)

(422

)

COMPREHENSIVE INCOME (LOSS)

 

$

(24,987

)

$

20,727

 

$

(34,360

)

$

30,815

 

 

 

See notes to consolidated condensed financial statements.

4




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1.   BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Primus Telecommunications Group, Incorporated and subsidiaries (“the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (all of which are of a normal and recurring nature), which are necessary to present fairly the financial position, results of operations, cash flows and comprehensive income (loss) for the interim periods. The results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

The financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s most recently filed Form 10-K/A.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of ConsolidationThe consolidated condensed financial statements include the Company’s accounts, its wholly-owned subsidiaries and all other subsidiaries over which the Company exerts control. The Company owns 51% of the common stock of Matrix Internet, S.A. (“Matrix”) and 51% of CS Communications Systems GmbH and CS Network GmbH (“Citrus”), in all of which the Company has a controlling interest. Additionally, the Company has a controlling interest in Direct Internet Limited (“DIL”), pursuant to a convertible loan which can be converted at any time into equity of DIL in an amount as agreed upon between the Company and DIL and permitted under local law. The Company uses the equity method of accounting for its investment in Bekkoame Internet, Inc. (“Bekko”). All intercompany profits, transactions and balances have been eliminated in consolidation. All other investments in affiliates are carried at cost, as the Company does not have significant influence.

5




Stock-Based CompensationAt June 30, 2004, the Company had three stock-based employee compensation plans. The Company uses the intrinsic value method to account for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. The following table illustrates the effect on income (loss) attributable to common stockholders and income (loss) per common share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands, except per share amounts, and unaudited):

 

 

For the
three months ended
June 30,

 

For the
six months ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Income (loss) attributable to common stockholders, as reported

 

$

(14,886

)

$

18,680

 

$

(24,941

)

$

29,559

 

Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of income taxes

 

(490

)

(753

)

(892

)

(1,471

)

Pro forma income (loss) attributable to common stockholders

 

$

(15,376

)

$

17,927

 

$

(25,833

)

$

28,088

 

Basic income (loss) per common share:

 

 

 

 

 

 

 

 

 

As reported

 

$

(0.17

)

$

0.29

 

$

(0.28

)

$

0.45

 

Pro forma

 

$

(0.17

)

$

0.28

 

$

(0.29

)

$

0.43

 

Diluted income (loss) per common share:

 

 

 

 

 

 

 

 

 

As reported

 

$

(0.17

)

$

0.22

 

$

(0.28

)

$

0.36

 

Pro forma

 

$

(0.17

)

$

0.21

 

$

(0.29

)

$

0.34

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

89,611

 

65,157

 

89,190

 

65,120

 

Diluted

 

89,611

 

90,744

 

89,190

 

87,572

 

 

ReclassificationCertain prior year amounts have been reclassified to conform to current year presentations.

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards Board (“FASB”) approved Emerging Issues Task Force (“EITF”) Issue 03-6, “Participating Securities and the Two-Class Method under SFAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” and requires the use of the two-class method of participating securities. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared or accumulated and participation rights in undistributed earnings. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004 and should be applied by restating previously reported earnings per share. As discussed in Note 9—“Basic and Diluted Income (Loss) Per Common Share,” the adoption of EITF Issue 03-6 did not have an effect on the Company’s consolidated financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities.” FIN No. 46(R) clarifies the application of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the

6




entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46(R) applies immediately to variable interest entities created after January 31, 2003, or in which the Company obtains an interest after that date. With respect to variable interest entities created prior to February 1, 2003, FIN No. 46(R) was effective March 31, 2004. The adoption of FIN No. 46(R) did not have a material effect on the Company’s consolidated financial position or results of operations.

3.   ACQUISITIONS

In June 2004, the Company’s wholly-owned subsidiary, 3082833 Nova Scotia Company (“Primus Canada”) acquired Onramp Network Services Inc. (“Onramp”), a provider of Internet services and solutions for businesses. Primus Canada acquired 100% of the issued stock of Onramp for a total consideration of $3.9 million (5.3 million Canadian dollars (CAD)), paid in cash.

In April 2004, Primus Canada acquired Magma Communications Ltd. (“Magma”), a provider of Internet solutions to corporate, government and residential customers in Toronto, Ottawa and Montreal. Primus Canada acquired 100% of the issued stock of Magma for a total consideration of $11.2 million (15.1 million CAD), half of which was paid in cash and the balance in 734,018 shares of the Company’s common stock valued at $6.1 million.

In February 2004, the Company’s wholly-owned subsidiary in Australia, Primus Telecommunications Pty Ltd (“Primus Telecom”) acquired the Internet service and interactive media businesses of AOL/7 Pty Ltd (“AOL/7”). AOL/7 was a joint venture between America Online Inc. (“AOL”), a wholly-owned subsidiary of Time Warner Inc., AAPT Limited, a unit of the Telecom New Zealand Group, and Seven Network Limited. Primus Telecom acquired 100% of the issued stock of AOL/7 which provides the Company with the customer base, content, content development and online advertising businesses, as well as a license for the AOL brand in Australia, for a total consideration of approximately $19 million (25.3 million Australian dollars (AUD)), paid in cash.

The Company has accounted for these acquisitions using the purchase method of accounting, and accordingly, the net assets and results of operations of the acquired companies have been included in the Company’s consolidated financial statements since the acquisition date. The initial purchase price, including direct costs, of the Company’s acquisition was allocated to the net assets acquired, including intangible assets, and liabilities assumed, based on their fair values at the acquisition date. As of June 30, 2004, the allocations have not been finalized in accordance with SFAS No. 141 “Business Combinations,” due to the timing of the acquisitions. Had these companies been acquired on January 1, 2004, the results of their operations would not have materially impacted the consolidated financial statements of the Company, and therefore, pro forma financial information has not been presented.

4.   GOODWILL AND OTHER INTANGIBLE ASSETS

Acquired intangible assets subject to amortization consisted of the following (in thousands and unaudited):

 

 

June 30, 2004

 

December 31, 2003

 

 

 

Gross
Carrying
Amount

 

Accumulated
 Amortization

 

Net
Book Value

 

Gross
Carrying
Amount

 

Accumulated
 Amortization

 

Net
Book Value

 

Customer lists

 

$

176,422

 

 

$

(151,271

)

 

 

$

25,151

 

 

$

166,446

 

 

$

(145,099

)

 

 

$

21,347

 

 

Other

 

5,715

 

 

(1,893

)

 

 

3,822

 

 

2,622

 

 

(1,258

)

 

 

1,364

 

 

Total

 

$

182,137

 

 

$

(153,164

)

 

 

$

28,973

 

 

$

169,068

 

 

$

(146,357

)

 

 

$

22,711

 

 

 

Amortization expense for customer lists and other intangible assets for the three months ended June 30, 2004 and 2003 was $5.3 million and $5.1 million, respectively. Amortization expense for customer

7




lists and other intangible assets for the six months ended June 30, 2004 and 2003 was $9.8 million and $10.2 million, respectively. The Company expects amortization expense for customer lists and other intangible assets for the fiscal years ending December 31, 2004, 2005, 2006, 2007 and 2008 to be approximately $19.7 million, $12.3 million, $4.5 million, $1.5 million and $0.8 million, respectively.

Acquired intangible assets not subject to amortization consisted of the following (in thousands and unaudited):

 

 

June 30, 2004
Carrying
Amount

 

December 31, 2003
Carrying
Amount

 

Goodwill

 

 

$

77,160

 

 

 

$

59,895

 

 

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2004 are as follows (in thousands and unaudited):

 

 

North
America

 

Europe

 

Asia-Pacific

 

Total

 

Balance as of January 1, 2004

 

$

50,025

 

$

1,927

 

 

$

7,943

 

 

$

59,895

 

Goodwill acquired during period

 

10,568

 

 

 

8,827

 

 

19,395

 

Effect of change in foreign currency exchange rates

 

(641

)

(72

)

 

(1,417

)

 

(2,130

)

Balance as of June 30, 2004

 

$

59,952

 

$

1,855

 

 

$

15,353

 

 

$

77,160

 

 

5.   LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following (in thousands and unaudited):

 

 

June 30,
2004

 

December 31,
2003

 

Obligations under capital leases

 

$

2,256

 

 

$

4,040

 

 

Leased fiber capacity

 

37,415

 

 

40,509

 

 

Financing facility and other

 

13,168

 

 

22,626

 

 

Senior notes

 

325,755

 

 

272,157

 

 

Convertible senior notes

 

132,000

 

 

132,000

 

 

Convertible subordinated debentures

 

71,119

 

 

71,119

 

 

Subtotal

 

581,713

 

 

542,451

 

 

Less: Current portion of long-term obligations

 

(21,347

)

 

(24,385

)

 

Total long-term obligations

 

$

560,366

 

 

$

518,066

 

 

 

The indentures governing the senior notes, convertible senior notes and convertible subordinated debentures, as well as other credit arrangements, contain certain financial and other covenants that, among other things, will restrict the Company’s ability to incur further indebtedness and make certain payments, including the payment of dividends and repurchase of subordinated debt held by the Company’s subsidiaries.

Senior Notes, Convertible Senior Notes and Convertible Subordinated Debentures

In January 2004, Primus Telecommunications Holding, Inc. (PTHI), a direct, wholly-owned subsidiary of the Company, completed the sale of $240 million in aggregate principal amount of 8% senior notes due 2014 (“2004 Senior Notes”) with semi-annual interest payments due on January 15th and July 15th, with the first payment due on July 15, 2004, with early redemption at a premium to par at PTHI’s option at any time after January 15, 2009. The Company recorded $7.0 million in costs associated with the issuance of the

8




2004 Senior Notes, which have been recorded as deferred financing costs in other assets. The effective interest rate at June 30, 2004 was 8.4%. During specified periods, PTHI may redeem up to 35% of the original aggregate principal amount with the net cash proceeds of certain equity offerings of the Company. During the three months ended June 30, 2004, the Company retired $5.0 million principal amount of the notes for $4.6 million in cash through open market purchases. See the table below for detail on debt repurchases since December 31, 2002.

In September 2003, the Company completed the sale of $132 million in aggregate principal amount of 33¤4% convertible senior notes due 2010 (“2003 Convertible Senior Notes”) with semi-annual interest payments due on March 15th and September 15th, with the first payment due on March 15, 2004. The Company recorded $5.2 million in costs associated with the issuance of the 2003 Convertible Senior Notes, which have been recorded as deferred costs in other assets. The effective interest rate at June 30, 2004 was 4.4%. Holders of these notes may convert their notes into the Company’s common stock at any time prior to maturity at an initial conversion price of $9.3234 per share, which is equivalent to an initial conversion rate of 107.257 shares per $1,000 principal amount of the notes, subject to adjustment in certain circumstances. The notes are convertible in the aggregate into 14,157,925 shares of the Company’s common stock.

In February 2000, the Company completed the sale of $250 million in aggregate principal amount of 53¤4% convertible subordinated debentures due 2007 (“2000 Convertible Subordinated Debentures”) with semi-annual interest payments due on February 15th and August 15th. On March 13, 2000, the Company announced that the initial purchasers of the 2000 Convertible Subordinated Debentures had exercised their $50 million over-allotment option granted pursuant to a purchase agreement dated February 17, 2000. The debentures were convertible into approximately 6,025,170 shares of the Company’s common stock based on a conversion price of $49.7913 per share. During the years ended December 31, 2001 and 2000, the Company reduced the principal balance of the debentures through $36.4 million of open market purchases and $192.5 million of conversions to its common stock. The principal that was converted to common stock was retired upon conversion and in February 2002, the Company retired all of the 2000 Convertible Subordinated Debentures that it had previously purchased in December 2000 and January 2001. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. See Note 11—“Subsequent Events.”

In October 1999, the Company completed the sale of $250 million in aggregate principal amount of 123¤4% senior notes due 2009 (“October 1999 Senior Notes”). The October 1999 Senior Notes are due October 15, 2009, with semi-annual interest payments due on October 15th and April 15th with early redemption at a premium to par at the Company’s option at any time after October 15, 2004. During the years ended December 31, 2002, 2001 and 2000, the Company reduced the principal balance of these senior notes through open market purchases. In June and September 2002, the Company retired all of the October 1999 Senior Notes that it had previously purchased in the principal amount of $134.3 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February and March 2004, the Company retired $24.4 million principal amount of its October 1999 Senior Notes for $27.3 million in cash. In May 2004, the Company retired $0.5 million principal amount of its October 1999 Senior Notes for $0.6 million in cash. See the table below for detail on debt repurchases since December 31, 2002. See Note 11—“Subsequent Events.”

In January 1999, the Company completed the sale of $200 million in aggregate principal amount of 111¤4% senior notes due 2009 (“January 1999 Senior Notes”) with semi-annual interest payments due on January 15th and July 15th. The January 1999 Senior Notes are due January 15, 2009 with early redemption at a premium to par at the Company’s option at any time after January 15, 2004. In June 1999, in connection with the Telegroup acquisition, the Company issued $45.5 million in aggregate principal amount of its 111¤4% senior notes due 2009 pursuant to the January 1999 Senior Notes indenture. During the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, the Company

9




reduced the principal balance of these senior notes through open market purchases. In June, November and December 2002 and April 2003, the Company retired all of the January 1999 Senior Notes that it had previously purchased in the principal amount of $135.6 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February 2004, the Company satisfied and discharged the entire remaining principal balance of $109.9 million of its January 1999 Senior Notes. The January 1999 Senior Notes were redeemed at 105.625% of par together with accrued interest to the date of redemption. See the table below for detail on debt repurchases since December 31, 2002.

On May 19, 1998, the Company completed the sale of $150 million in aggregate principal amount of 97¤8% senior notes due 2008 (“1998 Senior Notes”) with semi-annual interest payments due on May 15th and November 15th. The 1998 Senior Notes are due May 15, 2008 with early redemption at a premium to par at the Company’s option any time after May 15, 2003. During the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, the Company reduced the principal balance of these senior notes through open market purchases. In June, October and December 2002 and April 2003, the Company retired all of the 1998 Senior Notes that it had previously purchased in the principal amount of $103.4 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February 2004, the Company satisfied and discharged the entire remaining principal balance of $46.6 million of its 1998 Senior Notes. The 1998 Senior Notes were redeemed at 104.938% of par together with accrued interest to the date of redemption. See the table below for detail on debt repurchases since December 31, 2002.

10




The following table shows the changes in the balances of the Company’s senior notes, convertible senior notes and convertible subordinated debentures for the six months ended June 30, 2004 and the year ended December 31, 2003 (unaudited):

For the six months ended June 30, 2004

 

 

Balance at
December 31,
2003

 

Debt
Issuance

 

Principal
Purchases

 

Warrant
Amortization
and Write-off

 

Balance at
June 30,
2004

 

Cash Paid
for Purchase
of Principal

 

2004 8% Senior Notes due 2014

 

$

 

$

240,000,000

 

$

(5,000,000

)

 

$

 

 

$

235,000,000

 

$

4,500,000

 

2003 33¤4% Convertible Senior Notes due 2010

 

132,000,000

 

 

 

 

 

 

132,000,000

 

 

2000 53¤4% Convertible Debentures due 2007

 

71,119,000

 

 

 

 

 

 

71,119,000

 

 

October 1999 123¤4% Senior Notes due 2009

 

115,680,000

 

 

(24,925,000

)

 

 

 

90,755,000

 

27,852,850

 

January 1999 111¤4% Senior Notes due 2009

 

109,897,000

 

 

(109,897,000

)

 

 

 

 

116,078,706

 

1998 97¤8% Senior Notes due 2008

 

46,580,000

 

 

(46,580,000

)

 

 

 

 

48,880,120

 

Total

 

$

475,276,000

 

$

240,000,000

 

$

(186,402,000

)

 

$

 

 

$

528,874,000

 

$

197,311,676

 

 

For the year ended December 31, 2003

 

 

Balance at
December 31,
2002

 

Debt
Issuance

 

Principal
Purchases

 

Warrant
Amortization
and Write-off

 

Balance at
December 31,
2003

 

Cash Paid
for Purchase
of Principal

 

2003 33¤4% Convertible Senior Notes due 2010

 

$

 

$

132,000,000

 

$

 

 

$

 

 

$

132,000,000

 

$

 

2000 53¤4% Convertible Debentures due 2007

 

71,119,000

 

 

 

 

 

 

71,119,000

 

 

October 1999 123¤4% Senior Notes due 2009

 

115,680,000

 

 

 

 

 

 

115,680,000

 

 

January 1999 111¤4% Senior Notes due 2009

 

116,420,000

 

 

(6,523,000

)

 

 

 

109,897,000

 

4,052,414

 

1998 97¤8% Senior Notes due 2008

 

50,220,000

 

 

(3,640,000

)

 

 

 

46,580,000

 

2,261,350

 

1997 113¤4% Senior Notes due 2004

 

86,997,727

 

 

(87,220,000

)

 

222,273

 

 

 

79,805,500

 

Total

 

$

440,436,727

 

$

132,000,000

 

$

(97,383,000

)

 

$

222,273

 

 

$

475,276,000

 

$

86,119,264

 

 

Capital Leases, Leased Fiber Capacity, Equipment Financing and Other Long-Term Obligations

During the three months ended September 30, 2001, the Company accepted delivery of fiber optic capacity on an indefeasible rights of use (“IRU”) basis from Southern Cross Cables Limited (“SCCL”). The Company and SCCL entered into an arrangement financing the capacity purchase. During the three months ended December 31, 2001, the Company renegotiated the payment terms with SCCL. Under the new terms, the payments for each capacity segment will be made over a five-year term ending in April 2008, which added two years to the original three-year term, and continues to bear interest at 6.0% above LIBOR (7.37% at June 30, 2004). The Company further agreed to purchase $12.2 million of additional fiber optic capacity from SCCL under the IRU agreement. The Company has fulfilled the total purchase obligation. At June 30, 2004 and December 31, 2003, the Company had a liability recorded under this agreement in the amount of $19.5 million and $18.6 million, respectively.

In December 2000, the Company entered into a financing arrangement to purchase fiber optic capacity on an IRU basis in Australia for $35.2 million (51.1 million AUD) from Optus Networks Pty. Limited. As of December 31, 2001, the Company had fulfilled the total purchase obligation. The Company signed a promissory note payable over a four-year term ending in April 2005 bearing interest at a rate of 14.31%. During the three months ended June 30, 2003, the Company renegotiated the payment terms extending the payment schedule through March 2007, and lowering the interest rate to 10.2%. At June 30, 2004 and December 31, 2003, the Company had a liability recorded in the amount of $17.9 million (26.0 million AUD) and $21.9 million (29.2 million AUD), respectively.

Other Long-Term Obligations

In May 2004, the Company’s Australian subsidiary terminated a financing agreement, the (“Textron Agreement”), dated March 28, 2002, with Textron Financial Inc. (“Textron”), under which Textron agreed to finance eligible receivables from such subsidiary through March 31, 2005. Under the Textron Agreement, the subsidiary agreed to pay program fees based upon the Bloomberg BBSWIB rate plus 5.75% per annum (10.6% at June 30, 2004), plus an annual commitment fee of $150,000. The finance commitment amount for the Textron Agreement was $20.0 million. The Company had no accounts receivable balances pledged with no liability recorded at June 30, 2004, and $11.3 million pledged as collateral with a liability of $0.3 million, as of December 31, 2003, which is included in current portion of long-term obligations as the financing was payable on demand.

In April 2004, Primus Canada entered into a loan agreement with The Manufacturers Life Insurance Company (“Manulife”). The agreement provides for a $31.2 million (42 million CAD) two-year non-revolving term loan credit facility, bearing an interest rate of 7.75%. The agreement allows the proceeds to be used for general corporate purposes and is secured by the assets of Primus Canada’s operations. As of June 30, 2004, the Company has no outstanding liability under this loan agreement.

In September 2002, the Company signed an agreement to acquire the United States-based retail switched voice services customer base of Cable & Wireless (“C&W”). The Company started acquiring the customer base during the three months ended December 31, 2002, which resulted in a customer list balance acquired of $15.4 million, of which a liability of $6.1 million and $7.6 million remained payable at June 30, 2004 and December 31, 2003, respectively. The purchase price has been financed through a deferred payment arrangement over a two-year period, ending in December 2004, and bears no interest.

6.   OPERATING SEGMENT AND RELATED INFORMATION

The Company has three reportable operating segments based on management’s organization of the enterprise into geographic areas—North America, Europe and Asia-Pacific. The Company evaluates the performance of its segments and allocates resources to them based upon net revenue and income (loss) from operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Net revenue by reportable segment is reported on the basis of where services are provided. The Company has no single customer representing greater than 10% of its revenues. Operations and assets of the North America segment include shared corporate functions and assets.

Summary information with respect to the Company’s segments is as follows (in thousands and unaudited):

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net Revenue

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

United States

 

$

58,709

 

$

68,210

 

$

130,801

 

$

140,812

 

Canada

 

57,981

 

50,946

 

119,711

 

95,164

 

Other

 

833

 

911

 

1,858

 

1,788

 

Total North America

 

117,523

 

120,067

 

252,370

 

237,764

 

Europe

 

 

 

 

 

 

 

 

 

United Kingdom

 

60,025

 

31,462

 

110,510

 

66,900

 

Germany

 

11,811

 

15,248

 

24,715

 

28,285

 

Netherlands

 

19,213

 

46,395

 

40,831

 

84,556

 

Other

 

21,829

 

20,551

 

42,870

 

39,444

 

Total Europe

 

112,878

 

113,656

 

218,926

 

219,185

 

Asia-Pacific

 

 

 

 

 

 

 

 

 

Australia

 

95,313

 

81,830

 

196,374

 

154,333

 

Other

 

5,901

 

4,687

 

11,968

 

9,401

 

Total Asia-Pacific

 

101,214

 

86,517

 

208,342

 

163,734

 

Total

 

$

331,615

 

$

320,240

 

$

679,638

 

$

620,683

 

Income (Loss) from Operations

 

 

 

 

 

 

 

 

 

North America

 

$

(2,456

)

$

1,244

 

$

(190

)

$

3,890

 

Europe

 

4,986

 

941

 

10,151

 

2,759

 

Asia-Pacific

 

9,630

 

10,429

 

22,741

 

17,888

 

Total

 

$

12,160

 

$

12,614

 

$

32,702

 

$

24,537

 

 

 

 

June 30,
2004

 

December 31,
2003

 

Assets

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

United States

 

$

177,229

 

 

$

190,527

 

 

Canada

 

128,245

 

 

124,789

 

 

Other

 

6,999

 

 

7,671

 

 

Total North America

 

312,473

 

 

322,987

 

 

Europe

 

 

 

 

 

 

 

United Kingdom

 

75,164

 

 

80,243

 

 

Germany

 

21,227

 

 

20,434

 

 

Netherlands

 

11,960

 

 

15,387

 

 

Other

 

58,024

 

 

57,138

 

 

Total Europe

 

166,375

 

 

173,202

 

 

Asia-Pacific

 

 

 

 

 

 

 

Australia

 

233,329

 

 

229,765

 

 

Other

 

26,145

 

 

25,210

 

 

Total Asia-Pacific

 

259,474

 

 

254,975

 

 

Total

 

$

738,322

 

 

$

751,164

 

 

 

The Company offers three main products—Voice, data/Internet, and voice-over-Internet protocol (VOIP) in all three segments. Summary net revenue information with respect to the Company’s products is as follows (in thousands and unaudited):

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Voice

 

$

270,254

 

$

269,407

 

$

558,682

 

$

525,096

 

Data/Internet

 

43,799

 

32,225

 

84,321

 

60,461

 

VOIP

 

17,562

 

18,608

 

36,635

 

35,126

 

Total

 

$

331,615

 

$

320,240

 

$

679,638

 

$

620,683

 

 

7.   COMMITMENTS AND CONTINGENCIES

Future minimum lease payments under capital leases and leased fiber capacity financing (“vendor financing”), purchase obligations and non-cancelable operating leases as of June 30, 2004 are as follows (in thousands):

Year Ending December 31,

 

 

 

Vendor
 Financing

 

Purchase
Obligations

 

Operating 
Leases

 

2004 (as of June 30, 2004)

 

$

8,616

 

 

$

7,925

 

 

 

$

6,952

 

 

2005

 

15,518

 

 

24,675

 

 

 

10,086

 

 

2006

 

13,999

 

 

8,100

 

 

 

7,123

 

 

2007

 

4,994

 

 

 

 

 

5,671

 

 

2008

 

1,755

 

 

 

 

 

3,468

 

 

Thereafter

 

237

 

 

 

 

 

2,286

 

 

Total Minimum Principal & Interest Payments

 

45,119

 

 

40,700

 

 

 

35,586

 

 

Less: Amount Representing Interest

 

(5,448

)

 

 

 

 

 

 

 

 

$

39,671

 

 

$

40,700

 

 

 

$

35,586

 

 

 

The Company has contractual obligations to utilize network facilities from certain carriers with terms greater than one year. The Company does not purchase or commit to purchase quantities in excess of normal usage or amounts that cannot be used within the contract term or at rates below or above market value.

Rent expense under operating leases was $5.3 million and $4.5 million for the three months ended June 30, 2004 and 2003, respectively. Rent expense under operating leases was $10.1 million and $8.4 million for the six months ended June 30, 2004 and June 30, 2003, respectively.

The purchase price for Telesonic Communications, Inc. (“TCI”), a Canadian prepaid card company, may increase based on additional consideration to be paid, as provided by the terms of the acquisition agreement, if the acquired company’s adjusted revenues exceed certain targeted levels by May 2005.

The Company and certain of its executive officers were named as defendants in two separate securities lawsuits brought by stockholders (“Plaintiffs”) of Tutornet.com, Inc. (“Tutornet”) in the United States District Courts in Virginia and New Jersey. Plaintiffs sued Tutornet and several of its officers (collectively, the “Non-Primus Defendants”) for an undisclosed amount alleging fraud in the sale of Tutornet securities. Plaintiffs also named the Company and several of the Company’s executive officers (the “Primus Defendants”) as co-defendants. No officer of Primus has ever served as an officer or director of Tutornet or acquired any securities of Tutornet. Neither the Company nor any of the Company’s subsidiaries or affiliates own, or have ever owned, any securities of Tutornet.

In the Virginia case, the Primus Defendants were dismissed before the case went to the jury. The case continued against the Non-Primus Defendants, and the jury rendered a verdict of $176 million in favor of Plaintiffs against the Non-Primus Defendants only. The Non-Primus Defendants filed post-trial motions seeking to reverse or reduce the jury’s award, and Plaintiffs sought a new trial involving the Primus Defendants. On April 2, 2003, the judge denied Plaintiffs’ motion for a new trial and/or to alter and amend the judgment, as well as their motion for directed verdicts involving the Primus Defendants. In May 2003, Plaintiffs filed an appeal in the 4th Circuit of the United States Court of Appeals (4th Circuit) regarding the Primus Defendants’ dismissal. Plaintiffs and the Primus Defendants briefed the 4th Circuit in 2003 and participated in oral arguments in May 2004. On July 16, 2004, the three-judge panel of the 4th Circuit affirmed the district court’s decision. Plaintiffs did not file a petition for rehearing before the three-judge panel or rehearing before all the judges on the 4th Circuit within the required 14-day period, which period expired on July 30, 2004.

The New Jersey case was filed on September 24, 2002 and included claims against the Primus Defendants. The Primus Defendants moved to dismiss, and the case was stayed pending further decision by the court in the Virginia case. After the April 2, 2003 decision in the Virginia case, the parties in the New Jersey case agreed to a dismissal without prejudice of the claims against the Primus Defendants, pending a decision in the appeal by the plaintiffs in the Virginia case. Plaintiffs have been notified of the 4th Circuit’s decision to affirm the district court decision in the Virginia case.

In December 2003, Primus Telecommunication Inc. (“PTI”), the Company’s principal United States operating subsidiary, was served with notice that the Federal Communications Commission (FCC) was conducting an inquiry regarding 96 alleged telephone calls made on behalf of PTI to residential telephone lines that were either (1) included on the Do-Not-Call Registry or (2) to consumers who directly requested not to receive telemarketing calls from PTI. PTI does not conduct outbound telemarketing to residential customers, but does use third-party telemarketers. PTI has reviewed the circumstances surrounding the subject matter of the inquiry and responded to the original inquiry. PTI also has supplemented its initial response with additional information requested by the FCC. The Do-Not-Call regulations are relatively new and little formal interpretive guidance exists regarding whether the matters identified in the inquiry represent violations of these regulations that are not covered by the “safe harbor” provisions. The FCC’s forfeiture guidelines do not establish a forfeiture amount for violating the Do-Not-Call Registry rules. However, based on the few publicly available cases that form the FCC’s enforcement history regarding Do-Not-Call violations, PTI believes that the maximum penalty would be in the range of $10,000 per violation. The Company has recorded an accrual for the amounts that the Company estimates to be the probable loss. The Company believes that this inquiry will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

On December 9, 1999, Empresa Hondurena de Telecomunicaciones, S.A. (“Plaintiff”), based in Honduras, filed suit in Florida State Court in Broward County against TresCom and one of TresCom’s wholly-owned subsidiaries, St. Thomas and San Juan Telephone Company, alleging that such entities failed to pay amounts due to Plaintiff pursuant to contracts for the exchange of telecommunications traffic during the period from December 1996 through September 1998. The Company acquired TresCom in June 1998, and TresCom is currently the Company’s subsidiary. Plaintiff is seeking approximately $14 million in damages, plus legal fees and costs. The Company filed an answer on January 25, 2000, and discovery has commenced. A trial date has not yet been set. The Company has recorded an accrual for the amounts that management estimates to be the probable loss. The Company’s legal and financial liability with respect to such legal proceeding would not be covered by insurance, and the Company’s ultimate liability, if any, cannot be estimated with certainty at this time. Accordingly, an adverse result for the full amount sought or some significant percentage thereof could have a material adverse effect on the Company’s financial results. The Company intends to defend the case vigorously. The Company believes that this suit will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

The Company is subject to certain other claims and legal proceedings that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be decided unfavorably to the Company. The Company believes that any aggregate liability that may ultimately result from the resolution of these other matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

8.   LOSS ON SALE OF FIXED ASSETS

The Company recorded a loss on sale of fixed assets of $1.9 million and $0.8 million for the three and six months ended June 30, 2004 and 2003, respectively. The loss in 2004 was the result of a sale of network equipment which was decommissioned when it was replaced by newer technology during the three months ended June 30, 2004. The loss in 2003 was also the result of a sale of network equipment.

9.   BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE (AS RESTATED)

Basic income (loss) per common share is calculated by dividing income attributable to common stockholders by the weighted average common shares outstanding during the period.

Prior to the conversion of the Series C convertible preferred stock (“Series C Preferred”) into common shares in November 2003, the Company included the number of common shares issuable upon conversion of the Series C Preferred in the basic weighted average common shares outstanding as the Series C Preferred was deemed to participate in the earnings of the Company with common shares. Subsequent to the issuance of the Company’s Form 10-Q for the quarter ended June 30, 2004, the Company determined that the Series C Preferred did not meet the definition of a participating security. As a result, the basic income per common share for the three-month and six-month periods ended June 30, 2003 has been restated to exclude the potentially dilutive common shares issuable upon conversion of the Series C Preferred for the period prior to its conversion. Also, because the Series C Preferred was deemed to be non-participating, the shares are assumed to be converted into common shares and the accreted and deemed dividend on convertible preferred stock is removed from the calculation of diluted income per common share.

A summary of the effects of the adjustments to the previously issued consolidated condensed financial information follows (in thousands, except per share amounts, and unaudited):

 

 

For the Three 
Months Ended

 

For the Six 
Months Ended

 

 

 

June 30, 2003

 

June 30, 2003

 

 

 

Previously 
Reported

 

As
Restated

 

Previously 
Reported

 

As
Restated

 

Income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$

0.21

 

 

$

0.29

 

 

$

0.35

 

 

$

0.45

 

Diluted

 

 

$

0.21

 

 

$

0.22

 

 

$

0.34

 

 

$

0.36

 

Basic weighted average common shares outstanding

 

 

87,774

 

 

65,157

 

 

85,332

 

 

65,120

 

 

Diluted income per common share adjusts basic income per common share for the effects of potentially dilutive common stock equivalents. Potentially dilutive common shares primarily include the dilutive effects of common shares issuable under the Company’s stock option compensation plans computed using the treasury stock method and the dilutive effects of shares issuable upon the conversion of its Series C Preferred, September 2003 Convertible Senior Notes, 2000 Convertible Subordinated Debentures and the warrants to purchase shares associated with the 1997 Senior Notes computed using the “if-converted” method. The warrants expire on August 1, 2004.

For the three-month and six-month periods ended June 30, 2004, the following could potentially dilute income per common share in the future but were excluded from the calculation of income per common share due to their antidilutive effects:

·  8.3 million shares issuable under the Company’s stock option compensation plans,

·  14.2 million shares issuable from the September 2003 Convertible Senior Notes,

·  1.4 million shares issuable from the 2000 Convertible Subordinated Debentures, and

·  0.3 million shares from the warrants associated with the 1997 Senior Notes.

For the three-month and six-month periods ended June 30, 2003, the following could potentially dilute income per common share in the future but were excluded from the calculation of income per common share due to their antidilutive effects:

·  0.3 million shares, issuable under the Company’s stock option compensation plans,

·  1.4 million shares issuable from the 2000 Convertible Subordinated Debentures, and

·  0.4 million shares from the warrants associated with the 1997 Senior Notes.

A reconciliation of basic income per common share to diluted income per common share is below (in thousands, except per share amounts, and unaudited):

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net income (loss)

 

$

(14,886

)

$

20,036

 

$

(24,941

)

$

31,237

 

Accreted and deemed dividend on convertible preferred stock

 

 

(1,356

)

 

(1,678

)

Income (loss) attributable to common stockholders

 

$

(14,886

)

$

18,680

 

$

(24,941

)

$

29,559

 

Weighted average common shares outstanding—basic

 

89,611

 

65,157

 

89,190

 

65,120

 

Series C Preferred

 

 

22,617

 

 

20,212

 

In-the-money options exercisable under stock option compensation plans

 

 

2,970

 

 

2,240

 

Weighted average common shares outstanding—diluted

 

89,611

 

90,744

 

89,190

 

87,572

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.17

)

$

0.29

 

$

(0.28

)

$

0.45

 

Diluted

 

$

(0.17

)

$

0.22

 

$

(0.28

)

$

0.36

 

 

10.   GUARANTOR/NON-GUARANTOR CONSOLIDATING CONDENSED FINANCIAL INFORMATION

Subsequent to the issuance of the Company’s Form 10-Q for the quarter ended June 30, 2004 the Company’s management determined that the previously issued guarantor/non-guarantor consolidating condensed financial information disclosure did not reflect the capital contribution of certain intercompany receivable and payable balances to the Company’s wholly owned subsidiary, PTHI, which occurred in connection with PTHI’s issuance of 8% senior notes, which are guaranteed by the Company, in January 2004. As a result, Note 10 is hereby restated to reflect such capital contribution.

A summary of the effects of the adjustments on the previously issued condensed consolidating financial information as of, and for the three-month and six-month periods ended June 30, 2004 follows (in thousands):

 

 

For the Three Months Ended June 30, 2004

 

 

 

Previously Reported

 

As Restated

 

 

 

PTGI

 

PTHI

 

Elimination

 

PTGI

 

PTHI

 

Elimination

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(5,382

)

$

(6,197

)

 

$

 

 

$

(5,379

)

$

(6,200

)

$

 

Foreign currency transaction gain (loss)

 

$

(7,089

)

$

(7,576

)

 

$

 

 

$

104

 

$

(14,769

)

$

 

Intercompany interest

 

$

1,983

 

$

(1,983

)

 

$

 

 

$

345

 

$

(345

)

$

 

Equity in net income of subsidiaries

 

$

2,966

 

$

 

 

$

2,966

 

 

$

(8,818

)

$

 

$

(8,818

)

Income tax expense

 

$

(294

)

$

(1,357

)

 

$

 

 

$

 

$

(1,651

)

$

 

Net income

 

$

(24,941

)

$

9,143

 

 

$

(9,143

)

 

$

(24,941

)

$

4,385

 

$

(4,385

)

 

 

 

For the Six Months Ended June 30, 2004

 

 

 

Previously Reported

 

As Restated

 

 

 

PTGI

 

PTHI

 

Elimination

 

PTGI

 

PTHI

 

Elimination

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(13,660

)

$

(12,998

)

 

$

 

 

$

(13,646

)

$

(13,012

)

$

 

Foreign currency transaction gain (loss)

 

$

(7,480

)

$

(8,317

)

 

$

 

 

$

97

 

$

(15,894

)

$

 

Intercompany interest

 

$

3,775

 

$

(3,775

)

 

$

 

 

$

334

 

$

(334

)

$

 

Equity in net income of subsidiaries

 

$

9,143

 

$

 

 

$

(9,143

)

 

$

4,385

 

$

 

$

(4,385

)

Income tax expense

 

$

(608

)

$

(1,972

)

 

$

 

 

$

 

$

(2,580

)

$

 

 

 

 

June 30, 2004

 

 

 

Previously Reported

 

As Restated

 

 

 

PTGI

 

PTHI

 

Elimination

 

PTGI

 

PTHI

 

Elimination

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivables

 

$

703,615

 

$

 

 

$

(703,615

)

 

$

 

$

148,641

 

$

(148,641

)

Investment in subsidiaries

 

$

(462,004

)

$

 

 

$

462,004

 

 

$

389,323

 

$

 

$

(389,323

)

Accrued income taxes

 

$

1,507

 

$

20,226

 

 

$

 

 

$

578

 

$

21,155

 

$

 

Intercompany payables

 

$

 

$

703,615

 

 

$

(703,615

)

 

$

148,641

 

$

 

$

(148,641

)

Additional paid-in capital

 

$

658,248

 

$

305,852

 

 

$

(305,852

)

 

$

658,248

 

$

1,161,937

 

$

(1,161,937

)

Accumulated deficit

 

$

(710,018

)

$

(767,856

)

 

$

767,856

 

 

$

(710,018

)

$

(772,614

)

$

772,614

 

 

 

 

For the Six Months Ended June 30, 2004

 

 

 

Previously Reported

 

As Restated

 

 

 

PTGI

 

PTHI

 

Elimination

 

PTGI

 

PTHI

 

Elimination

 

Statement of Cash Flows Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

(24,941

)

$

9,143

 

 

$

(9,143

)

 

$

(24,941

)

$

4,385

 

$

(4,385

)

Equity in net income of subsidiary

 

$

(9,143

)

$

 

 

$

9,143

 

 

$

(4,385

)

$

 

$

4,385

 

Unrealized foreign currency transaction loss on intercompany and foreign debt

 

$

7,256

 

$

7,214

 

 

$

 

 

$

 

$

14,470

 

$

 

(Increase) decrease in intercompany balance

 

$

211,400

 

$

(211,400

)

 

$

 

 

$

214,828

 

$

(214,828

)

$

 

Decrease in accrued expenses, other current liabilities,

 

$

 

$

 

 

$

 

 

$

 

$

 

$

 

accrued income taxes and other liabilities

 

$

(415

)

$

(17,969

)

 

$

 

 

$

(1,344

)

$

(17,040

)

$

 

 

PTHI’s 2004 Senior Notes are fully and unconditionally guaranteed by Primus Telecommunications Group, Incorporated (“PTGI”) on a senior basis as of June 30, 2004. Accordingly, the following condensed consolidating financial information as of June 30, 2004 and December 31, 2003 and for the three-month and six-month periods ended June 30, 2004 and June 30, 2003 are included for (a) PTGI on a stand-alone basis; (b) PTHI and its subsidiaries; and (c) PTGI on a consolidated basis. PTHI was established on October 29, 2003 and was inactive until 2004. For comparative purposes for the 2003 periods presented, the PTHI column represents the consolidated subsidiaries that were contributed to PTHI during the capital restructuring in 2004.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries eliminate investments in subsidiaries, intercompany balances and intercompany transactions.

11




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

 

 

For the Three Months Ended June 30, 2004

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

NET REVENUE

 

$

 

$

331,615

 

 

$

 

 

 

$

331,615

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation included below)

 

 

199,035

 

 

 

 

 

199,035

 

 

Selling, general and administrative

 

1,088

 

94,319

 

 

 

 

 

95,407

 

 

Depreciation and amortization

 

 

23,140

 

 

 

 

 

23,140

 

 

Loss on sale of fixed assets

 

 

1,873

 

 

 

 

 

1,873

 

 

Total operating expenses

 

1,088

 

318,367

 

 

 

 

 

319,455

 

 

INCOME (LOSS) FROM OPERATIONS

 

(1,088

)

13,248

 

 

 

 

 

12,160

 

 

INTEREST EXPENSE

 

(5,379

)

(6,200

)

 

 

 

 

(11,579

)

 

GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT

 

(60

)

357

 

 

 

 

 

297

 

 

INTEREST INCOME AND OTHER INCOME

 

10

 

542

 

 

 

 

 

552

 

 

FOREIGN CURRENCY TRANSACTION GAIN (LOSS)

 

104

 

(14,769

)

 

 

 

 

(14,665

)

 

INTERCOMPANY INTEREST

 

345

 

(345

)

 

 

 

 

 

 

EQUITY IN NET LOSS OF SUBSIDIARIES

 

(8,818

)

 

 

8,818

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(14,886

)

(7,167

)

 

8,818

 

 

 

(13,235

)

 

INCOME TAX EXPENSE

 

 

(1,651

)

 

 

 

 

(1,651

)

 

NET LOSS

 

$

(14,886

)

$

(8,818

)

 

$

8,818

 

 

 

$

(14,886

)

 

 

19




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

 

 

 

For the Three Months Ended June 30, 2003

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

NET REVENUE

 

$

 

$

320,240

 

 

$

 

 

 

$

320,240

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation included below)

 

 

196,363

 

 

 

 

 

196,363

 

 

Selling, general and administrative

 

1,068

 

88,173

 

 

 

 

 

89,241

 

 

Depreciation and amortization

 

 

21,218

 

 

 

 

 

21,218

 

 

Loss on sale of fixed assets

 

 

804

 

 

 

 

 

804

 

 

Asset impairment write-down

 

 

 

 

 

 

 

 

 

Total operating expenses

 

1,068

 

306,558

 

 

 

 

 

307,626

 

 

INCOME (LOSS) FROM OPERATIONS

 

(1,068

)

13,682

 

 

 

 

 

12,614

 

 

INTEREST EXPENSE

 

(10,686

)

(3,936

)

 

 

 

 

(14,622

)

 

GAIN ON EARLY EXTINGUISHMENT OF DEBT 

 

3,639

 

4,342

 

 

 

 

 

7,981

 

 

INTEREST INCOME AND OTHER INCOME

 

18

 

(100

)

 

 

 

 

(82

)

 

FOREIGN CURRENCY TRANSACTION GAIN

 

2,398

 

12,367

 

 

 

 

 

14,765

 

 

INTERCOMPANY INTEREST

 

511

 

(511

)

 

 

 

 

 

 

EQUITY IN NET INCOME OF SUBSIDIARIES

 

25,313

 

 

 

(25,313

)

 

 

 

 

INCOME BEFORE INCOME TAXES

 

20,125

 

25,844

 

 

(25,313

)

 

 

20,656

 

 

INCOME TAX EXPENSE

 

(89

)

(531

)

 

 

 

 

(620

)

 

NET INCOME

 

20,036

 

25,313

 

 

(25,313

)

 

 

20,036

 

 

ACCRETED AND DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK

 

(1,356

)

 

 

 

 

 

(1,356

)

 

INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$

18,680

 

$

25,313

 

 

$

(25,313

)

 

 

$

18,680

 

 

 

20




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

 

 

 

For the Six Months Ended June 30, 2004

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

NET REVENUE

 

$

 

$

679,638

 

 

$

 

 

 

$

679,638

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation included below)

 

 

408,692

 

 

 

 

 

408,692

 

 

Selling, general and administrative

 

2,510

 

187,214

 

 

 

 

 

189,724

 

 

Depreciation and amortization

 

 

46,647

 

 

 

 

 

46,647

 

 

Loss on sale of fixed assets

 

 

1,873

 

 

 

 

 

1,873

 

 

Total operating expenses

 

2,510

 

644,426

 

 

 

 

 

646,936

 

 

INCOME (LOSS) FROM OPERATIONS

 

(2,510

)

35,212

 

 

 

 

 

32,702

 

 

INTEREST EXPENSE

 

(13,646

)

(13,012

)

 

 

 

 

(26,658

)

 

LOSS ON EARLY EXTINGUISHMENT OF DEBT 

 

(13,758

)

(138

)

 

 

 

 

(13,896

)

 

INTEREST INCOME AND OTHER INCOME

 

157

 

1,131

 

 

 

 

 

1,288

 

 

FOREIGN CURRENCY TRANSACTION GAIN (LOSS)

 

97

 

(15,894

)

 

 

 

 

(15,797

)

 

INTERCOMPANY INTEREST

 

334

 

(334

)

 

 

 

 

 

 

EQUITY IN NET INCOME OF SUBSIDIARIES

 

4,385

 

 

 

(4,385

)

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

(24,941

)

6,965

 

 

(4,385

)

 

 

(22,361

)

 

INCOME TAX EXPENSE

 

 

(2,580

)

 

 

 

 

(2,580

)

 

NET INCOME (LOSS)

 

$

(24,941

)

$

4,385

 

 

$

(4,385

)

 

 

$

(24,941

)

 

 

21




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

 

 

 

For the Six Months Ended June 30, 2003

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

NET REVENUE

 

$

 

$

620,683

 

 

$

 

 

 

$

620,683

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation included below)

 

 

386,386

 

 

 

 

 

386,386

 

 

Selling, general and administrative

 

1,780

 

165,086

 

 

 

 

 

166,866

 

 

Depreciation and amortization

 

 

41,553

 

 

 

 

 

41,553

 

 

Loss on sale of fixed assets

 

 

804

 

 

 

 

 

804

 

 

Asset impairment write-down

 

 

537

 

 

 

 

 

537

 

 

Total operating expenses

 

1,780

 

594,366

 

 

 

 

 

596,146

 

 

INCOME (LOSS) FROM OPERATIONS

 

(1,780

)

26,317

 

 

 

 

 

24,537

 

 

INTEREST EXPENSE

 

(22,468

)

(7,531

)

 

 

 

 

(29,999

)

 

GAIN ON EARLY EXTINGUISHMENT OF DEBT 

 

10,292

 

4,342

 

 

 

 

 

14,634

 

 

INTEREST INCOME AND OTHER INCOME

 

40

 

160

 

 

 

 

 

200

 

 

FOREIGN CURRENCY TRANSACTION GAIN

 

4,111

 

20,707

 

 

 

 

 

24,818

 

 

INTERCOMPANY INTEREST

 

1,859

 

(1,859

)

 

 

 

 

 

 

EQUITY IN NET INCOME OF SUBSIDIARIES

 

39,364

 

 

 

(39,364

)

 

 

 

 

INCOME BEFORE INCOME TAXES

 

31,418

 

42,136

 

 

(39,364

)

 

 

34,190

 

 

INCOME TAX EXPENSE

 

(181

)

(2,772

)

 

 

 

 

(2,953

)

 

NET INCOME

 

31,237

 

39,364

 

 

(39,364

)

 

 

31,237

 

 

ACCRETED AND DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK

 

(1,678

)

 

 

 

 

 

(1,678

)

 

INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$

29,559

 

$

39,364

 

 

$

(39,364

)

 

 

$

29,559

 

 

 

22




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING BALANCE SHEET
(in thousands)
(unaudited)

 

 

June 30, 2004

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,101

 

$

65,248

 

$

 

$

66,349

 

Accounts receivable

 

 

176,897

 

 

176,897

 

Prepaid expenses and other current assets

 

830

 

43,620

 

 

44,450

 

Total current assets

 

1,931

 

285,765

 

 

287,696

 

INTERCOMPANY RECEIVABLES

 

 

148,641

 

(148,641

)

 

INVESTMENTS IN SUBSIDIARIES

 

389,323

 

 

(389,323

)

 

RESTRICTED CASH

 

 

12,012

 

 

12,012

 

PROPERTY AND EQUIPMENT—Net

 

 

314,688

 

 

314,688

 

GOODWILL

 

 

77,160

 

 

77,160

 

OTHER INTANGIBLE ASSETS—Net

 

 

28,973

 

 

28,973

 

OTHER ASSETS

 

6,988

 

10,805

 

 

17,793

 

TOTAL ASSETS

 

$

398,242

 

$

878,044

 

$

(537,964

)

$

738,322

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

71

 

$

96,232

 

$

 

$

96,303

 

Accrued interconnection costs

 

 

76,203

 

 

76,203

 

Accrued expenses and other current liabilities

 

506

 

69,692

 

 

70,198

 

Accrued income taxes

 

578

 

21,155

 

 

21,733

 

Accrued interest

 

5,445

 

8,931

 

 

14,376

 

Current portion of long-term obligations

 

 

21,347

 

 

21,347

 

Total current liabilities

 

6,600

 

293,560

 

 

300,160

 

INTERCOMPANY PAYABLES

 

148,641

 

 

(148,641

)

 

LONG-TERM OBLIGATIONS

 

293,873

 

266,493

 

 

560,366

 

OTHER LIABILITIES

 

 

1,420

 

 

1,420

 

Total liabilities

 

449,114

 

561,473

 

(148,641

)

861,946

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

STOCKHOLDERS’ DEFICIT:

 

 

 

 

 

 

 

 

 

Common stock

 

898

 

 

 

898

 

Additional paid-in capital

 

658,248

 

1,161,937

 

(1,161,937

)

658,248

 

Accumulated deficit

 

(710,018

)

(772,614

)

772,614

 

(710,018

)

Accumulated other comprehensive loss

 

 

(72,752

)

 

(72,752

)

Total stockholders’ deficit

 

(50,872

)

316,571

 

(389,323

)

(123,624

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

398,242

 

$

878,044

 

$

(537,964

)

$

738,322

 

 

23




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING BALANCE SHEET
(in thousands)
(unaudited)

 

 

 

December 31, 2003

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,786

 

$

62,280

 

$

 

$

64,066

 

Accounts receivable

 

 

200,817

 

 

200,817

 

Prepaid expenses and other current assets

 

1,411

 

35,519

 

 

36,930

 

Total current assets

 

3,197

 

298,616

 

 

301,813

 

INTERCOMPANY RECEIVABLES

 

916,214

 

 

 

(916,214

)

 

INVESTMENTS IN SUBSIDIARIES

 

(471,147

)

 

471,147

 

 

RESTRICTED CASH

 

 

12,463

 

 

12,463

 

PROPERTY AND EQUIPMENT—Net

 

 

341,167

 

 

341,167

 

GOODWILL

 

 

59,895

 

 

59,895

 

OTHER INTANGIBLE ASSETS—Net

 

 

22,711

 

 

22,711

 

OTHER ASSETS

 

10,033

 

3,082

 

 

13,115

 

TOTAL ASSETS

 

$

458,297

 

$

737,934

 

$

(445,067

)

$

751,164

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,247

 

$

107,368

 

$

 

$

108,615

 

Accrued interconnection costs

 

 

89,993

 

 

89,993

 

Accrued expenses and other current liabilities

 

463

 

68,993

 

 

69,456

 

Accrued income taxes

 

1,966

 

20,421

 

 

22,387

 

Accrued interest

 

12,363

 

489

 

 

12,852

 

Current portion of long-term obligations

 

 

24,385

 

 

24,385

 

Total current liabilities

 

16,039

 

311,649

 

 

327,688

 

INTERCOMPANY PAYABLES

 

 

916,214

 

(916,214

)

 

 

LONG-TERM OBLIGATIONS

 

475,291

 

42,775

 

 

518,066

 

OTHER LIABILITIES

 

 

1,776

 

 

1,776

 

Total liabilities

 

491,330

 

1,272,414

 

(916,214

)

847,530

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

STOCKHOLDERS’ DEFICIT:

 

 

 

 

 

 

 

 

 

Common stock

 

885

 

 

 

885

 

Additional paid-in capital

 

651,159

 

305,852

 

(305,852

)

651,159

 

Accumulated deficit

 

(685,077

)

(776,999

)

776,999

 

(685,077

)

Accumulated other comprehensive loss

 

 

(63,333

)

 

(63,333

)

Total stockholders’ deficit

 

(33,033

)

(534,480

)

471,147

 

(96,366

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

458,297

 

$

737,934

 

$

(445,067

)

$

751,164

 

 

24




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)

 

 

For the Six Months Ended June 30, 2004

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(24,941

)

$

4,385

 

 

$

(4,385

)

 

 

$

(24,941

)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for doubtful accounts receivable

 

 

7,483

 

 

 

 

 

7,483

 

 

Depreciation and amortization

 

 

46,647

 

 

 

 

 

46,647

 

 

Loss on sale of fixed assets

 

 

1,873

 

 

 

 

 

1,873

 

 

Equity in net income of subsidiary

 

(4,385

)

 

 

4,385

 

 

 

 

 

Equity investment loss

 

 

34

 

 

 

 

 

34

 

 

Loss on early extinguishment of debt

 

13,758

 

138

 

 

 

 

 

13,896

 

 

Minority interest share of loss

 

 

(234

)

 

 

 

 

(234

)

 

Unrealized foreign currency transaction loss on intercompany and foreign debt

 

 

14,470

 

 

 

 

 

14,470

 

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

10,178

 

 

 

 

 

10,178

 

 

(Increase) decrease in prepaid expenses and other current assets

 

581

 

(7,493

)

 

 

 

 

(6,912

)

 

(Increase) decrease in restricted cash

 

 

(199

)

 

 

 

 

(199

)

 

(Increase) decrease in other assets

 

696

 

(1,625

)

 

 

 

 

(929

)

 

(Increase) decrease in intercompany balance

 

214,828

 

(214,828

)

 

 

 

 

 

 

Increase (decrease) in accounts payable

 

(1,177

)

(9,528

)

 

 

 

 

(10,705

)

 

Decrease in accrued expenses, other current liabilities, accrued income taxes and other liabilities

 

(1,344

)

(17,040

)

 

 

 

 

(18,384

)

 

Increase (decrease) in accrued interest

 

(6,918

)

8,467

 

 

 

 

 

1,549

 

 

Net cash provided by (used in) operating activities

 

191,098

 

(157,272

)

 

 

 

 

33,826

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(17,455

)

 

 

 

 

(17,455

)

 

Cash used for business acquisitions, net of cash acquired

 

 

(26,450

)

 

 

 

 

(26,450

)

 

Net cash used in investing activities

 

 

(43,905

)

 

 

 

 

(43,905

)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term obligations, net

 

 

235,240

 

 

 

 

 

235,240

 

 

Purchase of the Company’s debt securities

 

(192,812

)

(4,500

)

 

 

 

 

(197,312

)

 

Principal payments on capital leases, vendor financing and other long-term obligations

 

 

(19,611

)

 

 

 

 

(19,611

)

 

Proceeds from sale of common stock

 

1,029

 

 

 

 

 

 

1,029

 

 

Net cash (used in) provided by financing activities

 

(191,783

)

211,129

 

 

 

 

 

19,346

 

 

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

(6,984

)

 

 

 

 

(6,984

)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(685

)

2,968

 

 

 

 

 

2,283

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,786

 

62,280

 

 

 

 

 

64,066

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,101

 

$

65,248

 

 

$

 

 

 

$

66,349

 

 

 

25




PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)

 

 

For the Six Months Ended June 30, 2003

 

 

 

PTGI

 

PTHI

 

Eliminations

 

Consolidated

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

31,237

 

$

39,364

 

 

$

(39,364

)

 

 

$

31,237

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for doubtful accounts receivable

 

 

12,210

 

 

 

 

 

12,210

 

 

Stock issuance—401(k) Plan and Restricted Stock Plan

 

 

258

 

 

 

 

 

258

 

 

Non-cash compensation expense

 

 

245

 

 

 

 

 

245

 

 

Depreciation, amortization and accretion

 

 

41,586

 

 

 

 

 

41,586

 

 

Loss on sale of fixed assets

 

 

804

 

 

 

 

 

804

 

 

Asset impairment write-down

 

 

537

 

 

 

 

 

537

 

 

Equity in net income of subsidiary

 

(39,364

)

 

 

39,364

 

 

 

 

 

Equity investment loss

 

 

649

 

 

 

 

 

649

 

 

Gain on early extinguishment of debt

 

(10,292

)

(4,342

)

 

 

 

 

(14,634

)

 

Minority interest share of loss

 

 

(210

)

 

 

 

 

(210

)

 

Unrealized foreign currency transaction gain on intercompany and foreign debt

 

(10,867

)

(15,621

)

 

 

 

 

(26,488

)

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(18,280

)

 

 

 

 

(18,280

)

 

(Increase) decrease in prepaid expenses and other current assets

 

(358

)

7,787

 

 

 

 

 

7,429

 

 

Decrease in restricted cash

 

 

891

 

 

 

 

 

891

 

 

Decrease in other assets

 

811

 

(277

)

 

 

 

 

534

 

 

(Increase) decrease in intercompany balance

 

157,978

 

(157,978

)

 

 

 

 

 

 

Increase in accounts payable

 

(463

)

2,557

 

 

 

 

 

2,094

 

 

Increase in accrued expenses, other current liabilities, accrued income taxes and other liabilities

 

215

 

2,473

 

 

 

 

 

2,688

 

 

Increase (decrease) in accrued interest

 

(2,508

)

112

 

 

 

 

 

(2,396

)

 

Net cash provided by (used in) operating activities

 

126,389

 

(87,235

)

 

 

 

 

39,154

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,677

)

 

 

 

 

(9,677

)

 

Cash used for business acquisitions, net of cash acquired

 

 

(1,129

)

 

 

 

 

(1,129

)

 

Net cash used in investing activities

 

 

(10,806

)

 

 

 

 

(10,806

)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term obligations, net

 

 

9,125

 

 

 

 

 

9,125

 

 

Purchase of the Company’s debt securities

 

(42,549

)

 

 

 

 

 

(42,549

)

 

Principal payments on capital leases, vendor financing and other long-term obligations

 

(90,534

)

59,031

 

 

 

 

 

(31,503

)

 

Proceeds from sale of convertible preferred stock, net

 

8,895

 

 

 

 

 

 

8,895

 

 

Proceeds from sale of common stock

 

231

 

 

 

 

 

 

231

 

 

Net cash (used in) provided by financing activities

 

(123,957

)

68,156

 

 

 

 

 

(55,801

)

 

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

737

 

 

 

 

 

737

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

2,432

 

(29,148

)

 

 

 

 

(26,716

)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

590

 

91,902

 

 

 

 

 

92,492

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

3,022

 

$

62,754

 

 

$

 

 

 

$

65,776

 

 

26




 

11.   SUBSEQUENT EVENTS

In July 2004, the Company’s wholly owned subsidiary, Primus Canada, entered into a purchase agreement with 3588599 Canada Inc., dba Sun Telecom Group (the “Seller”), a Canadian telecom provider, to purchase certain of the Seller’s customer contracts, access to a portion of the Seller’s customer base and certain related assets. Under the asset purchase agreement, the purchase price is expected to be approximately $2.0 million (2.6 million CAD), subject to post-closing adjustments, and has been paid in cash.

In August 2004, the Company retired $8.1 million principal amount of its October 1999 Senior Notes for $7.1 million in cash and $4.0 million principal amount of its 2000 Convertible Subordinated Debentures for $3.0 million in cash. These transactions resulted in a gain on early extinguishment of debt of $2.0 million, excluding the write-off of related deferred financing costs.

27




 

ITEM 4.   CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting or in other factors that could significantly affect internal controls over financial reporting, that occurred during the period covered by this report, nor subsequent to the date we carried out our evaluation, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.   OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

Exhibit
Number

 

Description

31

 

Certifications.

32

 

Certifications*.


*       This certification is being “furnished” and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act (15 U.S.C. 78r) and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Ace of 1934, except to the extent that the registrant specifically incorporates it by reference.

28




 

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.

 

 

Primus Telecommunications Group, Incorporated

Date:

October 15, 2004

 

By:

/s/ Neil L. Hazard

 

 

 

 

Neil L. Hazard

 

 

 

 

Executive Vice President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)

Date:

October 15, 2004

 

By:

/s/ Tracy Book Lawson

 

 

 

 

Tracy Book Lawson

 

 

 

 

Vice President—Corporate Controller (Principal Accounting Officer)

 

29